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,
2020 and 2019, 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, 2020 and
2019;
the consolidated statements of financial position as at December 31, 2020 and 2019;
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 significant accounting policies and
other explanatory information.
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.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2020. These matters were
PricewaterhouseCoopers LLP
Stantec Tower, 10220 103 Avenue NW, Suite 2200, Edmonton, Alberta, Canada T5J 0K4
T: +1 780 441 6700, F: +1 780 441 6776
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Impairment assessment of goodwill and
intangible assets
Our approach to addressing the matter included
the following procedures, among others:
Refer to note 3 – Significant Accounting Policies
and note 21 – Impairment of non-financial assets
to the consolidated financial statements.
The Company had goodwill of $25,734 thousand
and intangible assets of $399,633 thousand as at
December 31, 2020. Management performs an
impairment test annually, or more frequently if
events or changes in circumstances indicate that
the carrying amount may not be recoverable. An
impairment assessment is conducted at the level
of a cash generating unit (CGU), which is the
lowest level for which there are separately
identifiable cash flows. An impairment loss is
recognized if the carrying amount of a CGU
exceeds its recoverable amount. The recoverable
amount of each CGU is based on the greater of
fair value less costs to dispose (FVLCD) and
value in use (VIU).
Under the FVLCD approach, fair value is
calculated based on an applicable multiple
applied to projected earnings before interest,
taxes, depreciation and amortization (EBITDA). In
arriving at the FVLCD, the Company considers
projected operating margins, EBITDA multiples
and growth rates as significant assumptions.
Under the VIU approach, the discounted cash
flow (DCF) method is used, which involves
projecting cash flows and converting them into a
present value equivalent through discounting.
Significant assumptions used in the VIU approach
include projected operating margins, growth rates
and discount rates. Based on the impairment
assessment, management recognized an
impairment charge of $20,285 thousand, which
Tested how management determined the
recoverable amount for scoped in CGUs,
which included the following:
Tested the appropriateness of the
methods used and the mathematical
accuracy of FVLCD and VIU calculations.
Tested the projected operating margins
and growth rates applied by management
in the applicable model by comparing
them to the budget, management’s
strategic plans approved by the Board,
available third party published economic
data and the results historically achieved
by the respective CGUs.
Professionals with specialized skill and
knowledge in the field of valuation
assisted in testing the reasonableness of
the discount rates applied by
management based on available data of
comparable companies and in testing the
reasonableness of the EBITDA multiples
by comparing to market data, as well as
assessing the valuation methodologies
used.
Tested the accuracy and completeness
of underlying data used in the FVLCD
and VIU models.
Tested the disclosures made in the
consolidated financial statements, including
the sensitivity of the significant assumptions
used.
Key audit matter
How our audit addressed the key audit matter
consists of $5,230 thousand allocated to goodwill
and $15,055 thousand allocated to intangible
assets.
We considered this a key audit matter due to (i)
the significance of the goodwill and intangible
asset balances and (ii) the significant judgment
made by management in determining the
recoverable amounts of the CGUs, including the
use of significant assumptions. This has resulted
in a high degree of subjectivity and audit effort in
performing audit procedures to test the significant
assumptions. Professionals with specialized skill
and knowledge in the field of valuation assisted
us in performing our procedures.
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.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Steven Hollinger.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Edmonton, Alberta
March 2, 2021
Consolidated Financial Statements
For the year ended December 31, 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 21)
Restructuring charges (Note 35)
Operating profit (loss)
Finance costs (Note 11)
Finance income (Note 11)
Gain (loss) on redemption liabilities (Note 15)
Other losses
Net loss for the year before tax
Income taxes (Note 12)
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 (Note 35)
Income tax relating to cash flow hedges
Other comprehensive loss for the year, net of tax
Comprehensive loss for the year
Net loss for the year attributable to:
AutoCanada shareholders
Non-controlling interests
Comprehensive loss 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 30)
Diluted (Note 30)
December 31,
2020
$
3,329,494
(2,782,168)
547,326
(461,663)
85,663
7,386
1,370
(24,207)
—
70,212
(72,505)
808
762
(482)
(1,205)
5,418
(6,623)
December 31,
2019
$
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
(550)
(350)
(26,298)
775
(27,073)
(2,089)
(10,938)
2,836
(10,191)
(16,814)
(7,455)
832
(6,623)
(17,646)
832
(16,814)
(0.27)
(0.27)
(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)
27,313,140
27,313,140
27,420,483
27,420,483
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 16)
Trade and other receivables (Note 17)
Inventories (Note 18)
Current tax recoverable
Other current assets (Note 22)
Assets held for sale (Note 19)
Property and equipment (Note 20)
Right-of-use assets (Note 25)
Other long-term assets (Note 22)
Deferred income tax (Note 12)
Intangible assets (Note 21)
Goodwill (Note 21)
LIABILITIES
Current liabilities
Trade and other payables (Note 23)
Revolving floorplan facilities (Note 24)
Current tax payable
Vehicle repurchase obligations (Note 27)
Indebtedness (Note 24)
Redemption liabilities (Note 15)
Lease liabilities (Note 25)
Other liabilities
Long-term indebtedness (Note 24)
Long-term lease liabilities (Note 25)
Long-term redemption liabilities (Note 15)
Derivative financial instruments (Note 35)
Other long-term liabilities (Note 35)
Deferred income tax (Note 12)
EQUITY
Attributable to AutoCanada shareholders
Attributable to non-controlling interests
December 31,
2020
$
December 31,
2019
$
107,704
118,650
699,200
—
8,931
1,039
935,524
203,525
308,897
14,337
12,732
399,633
25,734
1,900,382
137,510
761,943
5,030
4,526
65
7,557
24,079
2,176
942,886
197,166
363,850
435
22,146
8,428
2,651
1,537,562
341,874
20,946
362,820
1,900,382
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
Commitments and contingencies (Note 28)
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
$
509,890
6,463
(947)
(4,535)
(157,264) 353,607
14,492
368,099
—
—
—
—
—
—
—
(2,081)
(3)
—
—
—
—
—
—
—
—
—
—
(191)
306
(306)
—
4,029
—
—
(7,455)
(7,455)
832
(6,623)
(2,089)
(8,102)
—
(10,191)
—
(10,191)
—
—
(2,743)
(2,743)
—
(2,743)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12,524
12,524
1,071
1,071
7,973
7,973
(7,973)
—
(1,071)
(1,071)
—
—
—
—
(2,081)
(3)
(191)
—
—
—
—
—
—
(1,071)
(2,081)
(3)
(191)
—
—
4,029
—
4,029
508,112
9,995
(3,036) (12,637)
(160,560) 341,874
20,946
362,820
Balance, January 1,
2020
Net (loss) income
Other
comprehensive loss
Dividends declared
on common shares
(Note 30)
Reorganization of
non-controlling
interests (Note 15)
Non-controlling
interests arising on
acquisition (Note 13)
Acquisition of non-
controlling interest
(Note 15)
Recognition of
redemption liability
granted to non-
controlling interests
(Note 15)
Treasury shares
acquired (Note 30)
Dividends reinvested
(Note 30)
Settlement of share-
based awards (Note
29)
Shares settled from
treasury (Note 30)
Share-based
compensation (Note
29)
Balance, December
31, 2020
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,
2018 as originally
presented
Measurement period
adjustments
Change in accounting policy
509,538
5,109
6,136
(2,746)
(89,469) 428,568
18,739
447,307
—
—
—
—
—
—
—
—
(8,014)
(8,014)
—
(8,014)
(20,460) (20,460)
—
(20,460)
Balance, January 1, 2019
509,538
5,109
6,136
(2,746)
(117,943) 400,094
18,739
418,833
Net (loss) income
Other comprehensive
income
Dividends declared on
common shares (Note 30)
Dividends declared by
subsidiaries to non-
controlling interests (Note 15)
Acquisition of non-
controlling interest
Forward share purchase
(Note 35)
Dividends reinvested (Note
30)
Shares settled from treasury
(Note 30)
Share-based compensation
(Note 29)
Balance, December 31,
2019
—
—
—
—
—
—
(17)
369
—
—
—
—
—
(3,466)
—
15
—
4,805
—
—
(28,353)
(28,353)
1,280
(27,073)
(7,083)
(1,789)
—
(8,872)
—
(8,872)
—
—
(10,968)
(10,968)
—
(10,968)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,350)
(1,350)
(4,177)
(4,177)
(3,466)
(17)
384
4,805
—
—
—
—
(3,466)
(17)
384
4,805
509,890
6,463
(947) (4,535)
(157,264) 353,607
14,492
368,099
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
Adjustments for:
Income taxes
Amortization of deferred financing costs
Depreciation of property and equipment
Depreciation of right-of-use assets
Amortization of terminated hedges (Note 35)
Gain on disposal of assets
Share-based compensation - equity-settled
Share-based compensation - Used Digital Retail Division (Note 29)
Loss on extinguishment of debt (Note 11)
Unrealized fair value changes on interest rate swaps
Unrealized fair value changes on foreign exchange forward contracts (Note 35)
Revaluation of redemption liabilities (Note 15)
Loss on settlement of redemption liabilities (Note 15)
Income taxes (paid) recovered
Impairment of non-financial assets
Restructuring charges
Net change in non-cash working capital (Note 33)
Investing activities
Business acquisition, net of cash acquired (Note 13)
Purchases of property and equipment
Net change in non-cash investing working capital
Proceeds on sale of property and equipment
Proceeds on divestiture of dealerships
Financing activities
Proceeds from indebtedness
Repayment of indebtedness
Common shares settled, net
Dividends paid on common shares
Distributions paid to non-controlling interests by subsidiaries
Acquisition of non-controlling interests without a change in control (Note 15)
Acquisition of non-controlling interests from business acquisition (Note 13)
Principal elements of lease payments
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year (Note 16)
Cash and cash equivalents at end of year (Note 16)
The accompanying notes are an integral part of these consolidated financial statements.
December
31, 2020
$
December
31, 2019
$
(6,623)
(27,073)
5,418
1,300
17,372
24,759
2,308
(1,370)
4,029
435
4,002
3,175
(366)
(2,108)
1,346
(10,984)
24,207
—
70,965
137,865
(18,445)
(20,966)
(5,378)
8,986
683
(35,120)
226,882
(245,505)
(1,778)
(2,743)
—
(8,250)
1,071
(20,692)
(51,015)
419
52,149
55,555
107,704
775
760
19,823
23,404
—
(11,014)
4,805
—
—
—
—
550
—
5,018
36,575
13,393
36,906
103,922
—
(30,634)
3,167
88,129
14,297
74,959
45,052
(161,032)
352
(10,968)
(1,350)
—
—
(20,288)
(148,234)
(416)
30,231
25,324
55,555
Page 5 • AutoCanada
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(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 and related businesses 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.
These consolidated financial statements were approved by the Board of Directors on March 2, 2021.
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 and
redemption liabilities.
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 when the acquired set of
activities and assets meet the definition of a business and control is transferred to the Company. This involves
recognizing identifiable assets (including intangible assets not previously recognized by the acquiree) and
liabilities (including contingent liabilities) of acquired businesses at fair value at the acquisition date. The
excess of acquisition cost over the fair value of the identifiable net assets acquired is recorded as goodwill. If
the acquisition cost is less than the fair value of the net assets acquired, the fair value of the net assets is re-
in the Consolidated Statements of
assessed and any remaining difference
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.
is recognized directly
Non-controlling interests
Non-controlling interests are measured initially at their proportionate share of the acquiree’s identifiable net
assets at the date of acquisition. Certain arrangements contain a vesting component where the non-controlling
interest vests over a specified period. Changes in the Company’s interest in a subsidiary that do not result in a
loss of control are accounted for as equity transactions.
Revenue recognition
(a) New and Used Vehicles
The Company sells new and used vehicles at its franchised dealerships and related businesses. 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
Page 7 • AutoCanada
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 on historical chargeback
experience arising from similar contracts, including the impact of refinance and default rates on retail
finance contracts and cancellation rates on extended service contracts and other insurance products.
For the majority of finance and insurance product sales, the Company’s performance obligation is to arrange
for the provision of goods or services by another party. This performance obligation is satisfied when the
finance and insurance product is delivered to the end-customer, generally at the time of the vehicle sale. As
an agent, revenue is recognized as the net amount retained after paying the third party provider for the
goods or services that party is responsible for fulfilling.
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 on 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.
Page 8 • AutoCanada
Financial instruments
Financial assets and financial liabilities are recognized on the Consolidated Statements of Financial Position
when the Company becomes a party to the contractual provisions of the financial instrument. All financial
instruments are required to be measured at fair value on initial recognition. The Company’s own credit risk and
the credit risk of the counter party are taken into consideration in determining the fair value of financial assets
and financial liabilities.
Financial assets are recognized on the settlement date, which is the date on which the asset is delivered to or
by the Company. Financial assets are derecognized when the rights to receive cash flows from the instruments
have expired or were transferred and the Company has transferred substantially all risks and rewards of
ownership.
The Company’s financial assets, including cash and cash equivalents 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, non-hedge interest swaps, 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.
Page 9 • AutoCanada
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 a declining balance basis at the following annual rates:
Machinery and equipment
Furniture, fixtures and other
Company and lease vehicles
Computer equipment
20 %
20 %
30 %
30 %
Buildings are depreciated on a straight-line basis over the estimated useful lives of the buildings ranging from
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 and certifications 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 and certifications 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 acquirees, and the acquisition date fair value of any previous equity interest in the acquirees 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 costs to dispose 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.
Page 10 • AutoCanada
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.
● 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, subsequently measured at
amortized cost, and 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
(a) 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.
(b) 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.
(i) Finance leases
Leases in which substantially all the risks and rewards of ownership are transferred are classified as
finance leases.
Page 11 • AutoCanada
When assets are leased out under a finance lease, the present value of the lease payments is recognized
as a receivable. The difference between the gross receivable and the present value of the receivable is
recognized as unearned finance income.
The method for allocating gross earnings to accounting periods is referred to as the “actuarial method”.
The actuarial method allocates rentals between finance income and repayment of capital in each
accounting period in such a way that finance income will emerge as a constant rate of return on the
lessor’s net investment in the lease.
(ii) 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 Statements
of Financial Position based on the nature of the asset. Lease income on operating leases is recognized
over the term of the lease on a straight-line basis.
Redemption liabilities
The potential cash payments related to put options issued by the Company over the equity of subsidiary
companies are accounted for as financial liabilities when such options may only be settled other than by
exchange of a fixed amount of cash, or another financial asset, or for a fixed number of shares in the subsidiary.
The amount that may become payable under the option on exercise is initially recognized at fair value within
redemption liabilities with a corresponding charge directly to equity attributable to AutoCanada shareholders
or share-based compensation. Subsequently, if the Company revises its estimates, the carrying amount of the
redemption liability is adjusted and the adjustment will be recognized as income or expenses in the
Consolidated Statements of Comprehensive Loss. Options that are not exercisable for at least one year from
the Consolidated Statements of Financial Position date are presented as non-current liabilities.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary
shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any group company
purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly
attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s
shareholders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued,
any consideration received, net of any directly attributable incremental transaction costs and the related
income tax effects, is included in equity attributable to the Company’s shareholders.
Dividends
Dividends on common shares are recognized in the Company’s consolidated financial statements in the period
the dividends are declared by the Company’s Board of Directors.
Earnings per share
Basic earnings per share is computed based on the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed using the treasury stock method, which assumes that
the cash that would be received on the exercise of options is applied to purchase shares at the average price
during the period and that the difference between the number of shares issued on the exercise of options and
the number of shares obtainable under this computation, on a weighted average basis, is added to the number
of shares outstanding. Antidilutive options are not considered in computing diluted earnings per share.
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 29.
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.
Page 12 • AutoCanada
The fair value of equity-settled awards is recognized as an expense over the vesting period with a
corresponding increase in equity or redemption liabilities. The total amount to be expensed is determined by
reference to the fair value of the options at the grant date.
Foreign currency translation
The financial results of the dealerships that operate in the United States (U.S.) are translated 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 Statements
of Financial Position 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 Consolidated Statements 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.
Upon the expiry, sale, or termination of a hedging instrument, any cumulative deferred gain or loss and
deferred costs of hedging remain in equity until the the original hedged transactions occur.
Further information on the Company’s risk management and hedge accounting is presented in Note 35.
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 35.
The full fair value of a derivative instrument is classified as a non-current asset or liability when the remaining
maturity of the hedged item is greater than one year.
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.
The Company’s Chief Operating Decision Maker (CODM) is identified as the Chief Executive Officer (CEO) and
will serve as the function of the CODM. The CEO is responsible for allocating resources and assessing the
performance of each dealership. In the absence of the CEO, the Executive Chairman 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 36.
Page 13 • AutoCanada
Government assistance
Government assistance received by the Company for the purpose of subsidizing specific expenses is
recognized in profit or loss on a systematic basis in the periods in which the expenses are recognized, as
further described in Note 8. Government assistance received by the Company in the form of a loan is
recognized as indebtedness until the criteria for forgiveness are met (Note 24).
4 New and amended accounting standards adopted in 2020
Amendments to IFRS 16 Leases
In May 2020, the IASB published an amendment to IFRS 16 that provides an optional practical expedient for
lessees from assessing whether a rent a concession related to COVID-19 is a lease modification. Lessees can
elect to account for such rent concession in the same way as they would if they were not lease modifications.
This practical expedient is applied to leases with similar characteristics and circumstances with changes in
lease payments recognized in the Consolidated Statements of Comprehensive Loss. Leases that do not meet
the criteria for the optional exemption are treated as a lease modification (Note 25).
Amendments to IFRS 3 Business Combinations
The Company adopted amendments to IFRS 3, Definition of a Business, to business combinations, which
clarifies the definition of a business and provides additional guidance in the assessment of an acquisition. This
amendment applies to transactions with acquisition dates are on or after January 1, 2020. There was no impact
from this amendment in the current period.
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39, IFRS 7, and IFRS 16)
The Company has elected to early adopt amendments to IFRS 9, IAS 39, IFRS 7, and IFRS 16 Interest Rate
Benchmark Reform - Phase 2, as issued in August 2020. In accordance with the transition provisions, the
amendments have been adopted retrospectively to hedging relationships and financial instruments.
Comparative amounts have not been restated, and there was no impact on the current period opening reserves
amounts on adoption.
Hedge relationships
The ‘Phase 2’ amendments address issues arising during interest rate benchmark reform, including specifying
when the ‘Phase 1’ amendments will cease to apply, when hedge designations and documentation should be
updated, and when hedges of the alternative benchmark rate as the hedged risk are permitted.
The ‘Phase 1’ amendments provided temporary relief from applying specific hedge accounting requirements to
hedging relationships directly affected by Interbank Offered Rate (IBOR) reform. The reliefs had the effect that
IBOR reform should not generally cause hedge accounting to terminate prior to contracts being amended.
However, any hedge
in the Consolidated Statements of
Comprehensive Loss. Furthermore, the amendments set out triggers for when the reliefs would end, which
included the uncertainty arising from interest rate benchmark reform no longer being present.
ineffectiveness continued to be recorded
In summary, the reliefs provided by the amendments that apply are:
● When considering the ‘highly probable’ requirement, the Company 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, the
Company 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.
● The Company will not discontinue hedge accounting during the period of IBOR-related uncertainty
solely because the retrospective effectiveness falls outside the required 80-125% range.
● When considering the ‘highly probable’ requirement, the Company has assumed that the CDOR)
interest rate on which its hedged debts are based does not change as a result of the IBOR reform.The
Company has not recycled the cash flow hedge reserve relating to the period after the reforms take
effect.
Page 14 • AutoCanada
For the year ended December 31, 2020, the Company has adopted the following hedge accounting reliefs
provided by ‘Phase 2’ of the amendments:
● Hedge designation: When the Phase 1 amendments cease to apply, the Company will amend its hedge
designation to reflect changes which are required by IBOR reform, but only to make one or more of
these changes:
•
•
•
designating an alternative benchmark rate (contractually or non-contractually specified) as a
hedged risk;
amending the description of the hedged item, including the description of the designated
portion of the cash flows or fair value being hedged; or
amending the description of the hedging instrument.
The Company will update its hedge documentation to reflect this change in designation by the end
of the reporting period in which the changes are made. These amendments to the hedge
documentation do not require the Company to discontinue its hedge relationships. The Company
has not made any amendments to its hedge documentation in the reporting period relating to IBOR
reform.
● Amounts accumulated in the cash flow hedge reserve: When the Company amends its hedge
designation as described above, the accumulated amount outstanding in the cash flow hedge
reserve is deemed to be based on the alternative benchmark rate (for example, when the Canadian
Overnight Repo Rate Average (CORRA) replaces CDOR). For discontinued hedging relationships,
when the interest rate benchmark on which the hedged future cash flows were based is changed as
required by IBOR reform, the amount accumulated in the cash flow hedge reserve is also deemed to
be based on the alternative benchmark rate for the purpose of assessing whether the hedged future
cash flows are still expected to occur.
● Risk components: The Company is permitted to designate an alternative benchmark rate as a non-
contractually specified risk component, even if it is not separately identifiable at the date when it is
designated, provided that the Company reasonably expects that it will meet the requirements within
24 months of the first designation and the risk component is reliably measurable. The 24-month
period applies separately to each alternative benchmark rate which the Company might designate.
During the period, the Company has not designated any risk components of alternative benchmark
rates in any hedge relationships during the period.
Note 35 provides the required disclosures of the uncertainty arising from the IBOR reform for hedging
relationships for which the Company applied the reliefs.
Revolving floorplan and term facilities
‘Phase 2’ of the amendments requires that, for financial instruments measured using amortized cost
measurement, changes to the basis for determining the contractual cash flows required by interest rate
benchmark reform are reflected by adjusting their effective interest rate. No immediate gain or loss is
recognized. The practical expedient is only applicable to changes that are required by interest rate benchmark
reform, which is the case if, and only if, the change is necessary as a direct consequence of interest rate
benchmark reform and the new basis for determining the contractual cash flows is economically equivalent to
the previous basis (that is, the basis immediately preceding the change).
Where some or all of a change in the basis for determining the contractual cash flows of a financial liability does
not meet the criteria above, the above practical expedient is first applied to the changes required by interest
rate benchmark reform, including updating the instrument’s effective interest rate. Any additional changes are
accounted for in the normal way (that is, assessed for modification or derecognition, with the resulting
modification gain/loss recognized immediately in profit or loss where the instrument is not derecognized).
Syndicate revolving floorplan and term facilities bear CDOR-based interest rates. Revolving floorplan facilities
with Ally Financial bear interest rates based on USD London Interbank Offered Rate (‘USD LIBOR’). For the year
ended December 31, 2020, the Company has not applied the practical expedients provided under ‘Phase 2’ to
amendments as the applicable interest rates are still in effect. Refer to Note 24 for further detail regarding the
applicable interest rates on revolving floorplan and term facilities.
Page 15 • AutoCanada
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
estimated based on the greater of fair value less costs to dispose and value in use calculations (Note 21).
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 15). 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 recognized
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.
Page 16 • AutoCanada
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.
Deferred taxes
The extent to which deferred tax assets are recognized is based on estimates of future profitability.
Management 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 each segment. The
estimates 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.
COVID-19 impacts
On March 11, 2020, the World Health Organization declared the novel coronavirus (COVID-19) as a
global pandemic. In response to the COVID-19 pandemic, global government authorities introduced
various recommendations and emergency measures to limit the spread of the pandemic, including non-
essential business closures, quarantines, self-isolation, social and physical distancing, and shelter-in-place.
These measures have caused disruptions to businesses and capital markets globally, resulting in an
economic slowdown.
Governments have reacted with significant monetary and fiscal intervention, including federal stimulus
packages such as the COVID-19 Economic Response Plan in Canada and the CARES Act in the United States.
The Company has received funds under the Canada Emergency Wage Subsidy (CEWS) in Canada (Note 8) and
the Small Business Association Paycheck Protection Program (SBA PPP) in the U.S. (Note 24).
Operations
Given the Company's customer-facing retail operations, the initial uncertainty associated with the COVID-19
pandemic had an impact on the financial results of the Company. Regular operations have been impacted by
mandatory closures in certain provincial jurisdictions, unpredictable changes in customer demand, employee
availability and safety for the provision of goods and services, supply chain disruptions, as well as altered credit
and liquidity risk profiles. Management has incorporated the impact of these factors in its assessment of trade
and other receivables (Note 17) and impairment of non-financial assets (Note 21).
The Company has addressed these risks through an extensive review of assets, which culminated in the
adjustments to the balances noted above, an amendment to the credit facility (Note 24), and successfully
negotiated rent concessions (Note 25).
Impairment
The impacts of COVID-19 were incorporated into the annual impairment assessment performed as at December
31, 2020. The recoverable amount of the Company's CGUs was compared against the carrying values, based on
updated cash flow projections reflecting management's best estimates in light of current and anticipated
market conditions. These projections are inherently uncertain due to the indeterminable future impacts
of COVID-19. Refer to Note 21 for the results of the impairment assessment.
Page 17 • AutoCanada
6 Revenue
New vehicles
Used vehicles
Parts, service and collision repair
Finance, insurance and other
7 Cost of sales
New vehicles
Used vehicles
Parts, service and collision repair
Finance, insurance and other
8 Operating expenses
2020
$
1,733,891
1,010,881
409,971
174,751
3,329,494
2019
$
1,939,614
891,237
479,727
165,533
3,476,111
2020
$
2019
$
1,809,117
841,782
241,061
13,656
2,782,168 2,905,616
1,625,561
946,878
197,001
12,728
Employee costs (Note 9)
Government assistance 1
Administrative costs 2
Facility lease and storage costs
Depreciation of right-of-use assets (Note 25)
Depreciation of property and equipment (Note 20)
2020
$
292,404
(35,464)
160,586
2,006
24,759
17,372
461,663
2019
$
291,315
—
160,718
4,508
23,404
19,823
499,768
1 Government assistance represents the Company's eligible claim of $35,264 for the Canada Emergency Wage Subsidy (CEWS)
and $200 claim for the Canada Emergency Rent Subsidy (CERS) for the year ended December 31, 2020, with $3,794 included
in trade and other receivables. There are no unfulfilled conditions or other contingencies attached to the subsidy recognized.
2 Administrative costs include professional fees, consulting services, technology-related expenses, marketing, and other general
and administrative costs.
9
Employee costs
Operating expenses incurred in respect of employees were as follows:
Wages, salaries and commissions
Withholding taxes and insurance
Employee benefits
Share-based compensation (Note 29)
Other benefits
Page 18 • AutoCanada
2020
$
251,665
14,908
16,689
4,464
4,678
292,404
2019
$
249,112
16,571
18,894
4,805
1,933
291,315
10 Lease and other income and gain on disposal of assets, net
Lease and other income, net
Lease and rental income
Other income
Gain (loss) on disposal of assets, net
Gain on dealership divestiture (Note 14)
Sale and leaseback transactions
Disposals of property and equipment, net
11 Finance costs and finance income
Finance costs:
Interest on long-term indebtedness
Interest on lease liabilities (Note 25)
Loss on extinguishment of debt (Note 24)
Unrealized fair value changes on interest rate swaps (Note 35)
Amortization of terminated hedges (Note 35)
Floorplan financing
Interest rate swap settlements (Note 35)
Other finance costs
Finance income:
Short-term bank deposits
2020
$
6,491
895
7,386
135
—
1,235
1,370
2019
$
6,418
4,283
10,701
8,442
2,935
(363)
11,014
2020
$
2019
$
16,200
22,189
4,002
3,175
2,308
47,874
17,586
3,208
3,837
17,163
21,673
—
—
—
38,836
23,977
1,153
4,818
72,505
68,784
808
912
Cash interest paid during the year ended December 31, 2020 is $56,153 (2019 - $68,442), which includes
$22,189 (2019 - $21,673) of cash interest paid related to interest on lease liabilities.
Page 19 • AutoCanada
12 Taxation
Reconciliation of effective income tax rate for the year ended December 31, 2020 is as follows:
2020
$
(1,205)
2019
$
(26,298)
(311)
(7,127)
2,225
(72)
2,314
706
568
(12)
5,418
(449.6) %
2020
$
20,783
(125)
20,658
(15,240)
—
(15,240)
5,418
12,928
(9,218)
5,325
(464)
389
(1,058)
775
(2.9) %
2019
$
1,747
—
1,747
(972)
—
(972)
775
2020
$
12,732
(2,651)
10,081
2019
$
13,029
(20,301)
(7,272)
Net loss for the year before tax
Net loss for the year before tax multiplied by the blended rate of Canadian corporate
tax of 25.8% (2019 - 27.1%)
Effects of:
Tax losses and deductible temporary differences not recognized
Adjustment in respect of prior years
Impact of non-deductible items
Impact of change in substantively enacted rates
Foreign and other statutory income tax rate differentials
Other, net
Income tax expense
Effective income tax rate
Segmented components of income tax:
Canada
U.S.
Current income tax expense
Canada
U.S.
Deferred income tax recovery
Total income tax expense
Components of deferred income tax:
Deferred tax asset
Deferred tax liability
Net deferred tax asset (liability)
Page 20 • AutoCanada
The movements of deferred tax assets and liabilities are shown below:
Deferred
income from
partnerships
$
Property
and
equipment
$
Goodwill
and
intangible
assets
$
Right-of-
use assets
net of
lease
liabilities
$
Derivative
financial
instruments
$
Non-
capital
losses
$
Other
$
Total
$
5,558
1,776
(24,201)
5,197
1,015
216 2,108
(8,331)
(9,350)
554
1,598
3,607
—
6,327 (1,764)
972
—
1
—
—
—
(620)
—
—
635
—
—
—
—
71
635
(548)
(3,791)
2,330
(23,223)
8,804
1,650
6,543
415
(7,272)
1,112
(464)
4,633
1,170
—
4,227 4,562
15,240
—
—
—
—
(87)
—
—
(357)
(291)
—
—
—
2,836
—
—
2,836
—
—
—
—
—
12
(444)
(279)
Deferred tax assets
(liabilities)
January 1, 2019
(Expense) benefit
charged to income
taxes
Amounts charged to
other comprehensive
income
Held for sale (Note 19)
December 31, 2019
(Expense) benefit
charged to income
taxes
Amounts charged to
other comprehensive
income
Acquisition of
subsidiary (Note 13)
Other
December 31, 2020
(2,679)
1,779
(19,238)
9,974
4,486
10,770 4,989
10,081
Changes in the deferred income tax components are adjusted through deferred tax expense. Of the above
components of the deferred income tax (liability) asset, $(2,679) (2019 - $(3,791)) is expected to be recovered
within 12 months.
The recognized and unrecognized deductible temporary differences relating to the U.S. Operations are as
follows:
Total U.S. deductible temporary differences
Less:
U.S. unrecognized deductible temporary differences, other than tax losses
U.S. unrecognized tax losses
Total unrecognized deductible temporary differences
Total recognized deductible temporary differences relating to the U.S
Operations
Recognized deferred tax asset
2020
$
155,426
2019
$
150,176
(53,350)
(54,085)
(107,435)
(58,341)
(42,879)
(101,220)
47,991
12,732
48,956
13,029
As at December 31, 2020, the Company has recognized the benefit of $47,991 (2019 - $48,956) of the
deductible temporary differences, relating to the U.S. Operations, as a deferred tax asset. The deductible
temporary differences arose primarily from impairment charges recorded against the goodwill and intangible
assets of the Grossinger dealerships acquired in 2018. The Company has concluded that the deferred tax assets
are more likely than not to be recovered using estimated future taxable income, based on approved business
plans and budgets for the segment. This estimate will be updated in future periods, which may result in
increases or decreases in the amount of deferred tax assets recognized based on the amount judged more
likely than not to be recoverable.
The Company's U.S. Operations have federal and state net operating losses of $54,085 and $52,886,
respectively (2019 - $42,879 and $42,879). The federal losses can be carried forward indefinitely, while the
state losses expire between 2030 and 2032.
The Company also has Canadian non-capital losses of $45,372 (2019 - $25,258) available to reduce future
taxable income, until their expiry between 2032 and 2040. The benefit of these losses has been recognized as
an offset to Canadian taxable temporary differences.
Page 21 • AutoCanada
13 Business acquisitions
During the year ended December 31, 2020, the Company completed three business acquisitions that have been
accounted for using the acquisition method.
Auto Bugatti Inc.
On October 6, 2020, the Company acquired 75% of the voting shares of Auto Bugatti Inc., a collision repair
facility specializing in luxury vehicles in Montreal, Quebec. The acquisition supports management's strategic
objectives of expanding the Company's collision center capacity, and also allows the Company to leverage
existing dealerships in Quebec.
Autohaus of Peoria
On October 29, 2020, the Company acquired substantially all of the net assets of Autohaus of Peoria, a luxury
dealership representing four franchises based in Illinois, USA. This was a strategic transaction which further
bolstered the Company’s presence in southern Illinois and is highly complementary to its existing operations in
Bloomington, IL as both dealers are in close proximity of each other and serve similar luxury-brand
communities.
Haldimand Motors Ltd.
On December 1, 2020, the Company completed the acquisition of all issued capital of Haldimand Motors Ltd.
("Haldimand"), a used car dealership in Cayuga, Ontario. The acquisition forms a part of management's
strategic objective of developing a Used Digital Retail Division in the Canadian pre-owned vehicle market.
Used Digital Retail Division
On December 1, 2020, as a part of the development of the used digital retail strategy, AutoCanada UD LP ("the
Partnership") was formed to hold the interest in Haldimand, as well as future dealerships that will be acquired as
a part of the strategy. A wholly owned subsidiary of the Company is the general partner ("GP") of the
Partnership while different classes of common units are issued to various stakeholders in the Partnership. The
subsidiary also holds a preferred interest in the Partnership that is repaid over a ten-year period from
contribution date, with a rate of return that reflects the Company's consolidated borrowing rate. Any
distributions to other shareholders are subordinate to the preferred interest repayment.
Dealership management and the Executive Chairman hold common interests in the Partnership, which are
subordinate to the GP and the preferred interest held by the Company. The Partnership agreement includes
various put and call options, which are based on prescribed valuation of the Partnership at the date of exercise
(Note 15).
A portion of the Partnership common interests is allocated to a pool for issuance to dealership management
("the Vendor Pool"), the aggregate of which cannot exceed 14% of total Partnership interests. Dealership
management is granted an interest under an equity issuance plan (the “Digital Plan”), which vests based on the
achievement of certain service conditions, which also form the vesting conditions of a share-based payment
arrangement (Note 29). The put and call options associated with the common interests granted can only be
exercised during certain periods in 2024 and 2026, respectively. For the year ended December 31, 2020, the
vested Vendor Pool interests were nominal.
The related party interest represent a 15% interest in the Partnership granted to an entity controlled by the
Executive Chairman (Note 32) and contains a share-based payment arrangement that vested immediately when
granted on December 1, 2020. The expense associated with this arrangement was recorded in the Consolidated
Statements of Comprehensive Loss (Note 29). The put option can only be exercised after the tenth anniversary
of the grant date and does not contain a limitation on exercise period thereafter (Note 15).
Page 22 • AutoCanada
Concurrent with the formation of the Partnership, a wholly owned special purchase entity ("SPE") was formed
for the purpose of issuing stock options to employees or service providers of the Partnership (the "Digital
Option Plan"). The portion of the common interests allocated to the pool for option issuances (the "Option
Pool") cannot exceed 10% of total Partnership interests. The options represent a right to purchase non-voting
shares in the SPE, which represent an accretive interest in the Partnership. For the year ended December 31,
2020, no options were issued under the Digital Option Plan.
Summary of acquisitions
The aggregate purchase consideration of the above noted acquisitions are as follows:
Cash 1
Contingent consideration
Total purchase consideration
$
21,765
500
22,265
1
Net cash paid during the year ended December 31, 2020 is $18,445.
In the event that certain post-close milestones related to supplier programs, software implementation, and
staffing levels are achieved, additional consideration of up to $500 may be payable in cash by December 31,
2021.
The business acquisitions completed during the year ended December 31, 2020 described above are
summarized as follows:
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Long-term assets
Property and equipment
Right-of-use assets
Intangible assets
Other long-term assets
Total assets
Current liabilities
Indebtedness
Trade and other payables
Revolving floorplan facilities
Other liabilities
Long-term liabilities
Long-term indebtedness
Lease liabilities
Deferred income tax
Total liabilities
Net identifiable assets acquired
Less: Non-controlling interests (Note 15) 1
Goodwill
Total net assets acquired
Total consideration
Total
$
370
518
21,310
82
22,280
3,262
19,316
4,626
8
49,492
28
1,489
11,052
246
12,815
42
19,316
444
32,617
16,875
(1,071)
6,461
22,265
22,265
1 Non-controlling interest represents the interest in net assets not acquired by the Company, measured at fair value at the
acquisition date.
Page 23 • AutoCanada
The goodwill is attributable to the workforce, synergies from combining operations of the acquirees and
profitability of the acquired businesses. Goodwill of $2,426 is deductible for tax purposes.
The results of operations of the acquired entities are included in the Company's Consolidated Statements of
Financial Position and Consolidated Statements of Changes in Equity from the date of acquisition. Such results
of operations and the related assets and liabilities at the statement of financial position date are included in the
Consolidated Statements of Financial Position. The results of operations of the acquired entities since
acquisition date are nominal to the Consolidated Statements of Comprehensive Loss for the year ended
December 31, 2020. Had the acquisitions occurred at January 1, 2020, the combined entity of the Company and
the acquired entities would have had a nominal impact on the consolidated results currently presented.
All transaction costs have been expensed and recorded in operating expenses.
Prior year business acquisitions
During the year ended December 31, 2019, no business acquisition transactions were completed.
14 Dealership divestitures
On July 31, 2020, the Company sold substantially all of the operating assets of 417 Infiniti, located in Ottawa,
Ontario, for cash consideration. Net proceeds of $683 resulted in a gain on divestiture of $135, included in Gain
on disposal of assets, net (Note 10) in the Consolidated Statements of Comprehensive Loss, as summarized
below.
Inventories
Revolving floorplan facilities
Net assets disposed
Net proceeds on divestiture
Net gain on divestiture
15 Interest in subsidiaries
$
2,752
(2,204)
548
683
135
Certain subsidiaries of the Company have non-controlling interests ("NCI") held by other parties. The interests
in these subsidiaries are summarized as follows:
Principal place
of business
Subsidiary
Green Isle G Auto Holdings Inc. British Columbia
NBFG Holdings Inc.
2282239 Alberta Ltd. 1
2282237 Alberta Ltd. 1
Prairie Auto Holdings Ltd. 1
AutoCanada B Holdings Inc. 2
AutoCanada C Holdings Inc. 2
Canbec Automobile Inc. 2
AutoCanada M Holdings Inc.
Auto Bugatti Inc. 3
Saskatchewan
Saskatchewan
Saskatchewan
Saskatchewan
Quebec
Quebec
Quebec
Quebec
Quebec
Proportion of
ownership
interests held
by non-
controlling
interests
10 %
5 %
10 %
10 %
— %
— %
15 %
15 %
10 %
25 %
Proportion
of voting
rights held
by non-
controlling
interests
10 %
5 %
10 %
10 %
— %
— %
15 %
15 %
10 %
25 %
Dividends
paid to non-
controlling
interests
2020
$
—
—
—
—
—
—
—
—
—
—
—
Dividends
paid to non-
controlling
interests
2019
$
—
—
—
—
900
450
—
—
—
—
1,350
1 During the year ended December 31, 2020, the Company acquired the 15% interest of Prairie Auto Holdings Ltd. and completed
a capital reorganization with new NCI parties.
2 The Company completed a capital reorganization of AutoCanada B Holdings Inc., which involved the exchange of shares for an
interest in AutoCanada C Holdings Inc. and a new NCI interest in Canbec Automobile Inc.
3 The Company recognized non-controlling interests in the acquired entity at fair value of the non-controlling interest's
proportionate share of the acquired entity's net identifiable assets. Refer to Note 13.
Page 24 • AutoCanada
The subsidiaries are companies that own automotive dealerships and related businesses. 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.
The Company provides long-term loans to specific NCI parties and these are presented as other assets. Refer to
Note 22.
Transactions with non-controlling interests
On July 6, 2020, the Company acquired a 100% ownership interest in the two operating dealerships of Prairie
Auto Holdings Ltd. Consideration paid for the shares of $8,250 resulted in an extinguishment of the associated
redemption liability and a loss on settlement of $1,346 that was recorded on the Consolidated Statements of
Comprehensive Loss. Upon the acquisition of the non-controlling interest above, the Company recognized a
decrease in non-controlling interests of $7,973, with a corresponding increase in equity attributable to owners
of the parent.
During the year ended December 31, 2020, the Company reorganized capital in certain subsidiaries to bring in
new non-controlling parties. The transactions resulted in new loans being issued to these parties to purchase a
non-controlling interest in the subsidiaries for $12,524. These loans are recorded in Other long-term assets on
the Consolidated Statements of Financial Position.
Used Digital Retail Division
A wholly owned subsidiary of the Company is the general partner of AutoCanada UD LP, a limited partnership
("the Partnership") that holds the interest in the dealership acquired as a part of the digital retail strategy (Note
13). The non-controlling unitholders hold put options where they can sell their shares back to the Partnership.
These put options are recognized as redemption liabilities, measured at fair value at each reporting date, with
subsequent changes recognized on the Consolidated Statements of Comprehensive Loss.
The fair value of the put options and associated redemption liabilities have been determined to carry a value of
$435 for the year ended December 31, 2020, as a result of the preferred interest rights in the Partnership and
the limited time of operation.
Redemption liabilities
AutoCanada C Holdings Inc., AutoCanada M Holdings Inc., and Auto Bugatti Inc. arrangements contain 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 Statements of
Financial Position.The fair value is determined based on the equity value of the related subsidiary (Note 34).
Those options eligible to be executed in the next fiscal year are presented as current liabilities.
The continuity of the redemption liabilities is summarized as follows:
January 1, 2019
Adjustment to fair value
December 31, 2019
Additions in the year (Note 29)
Derecognition on settlement
Recognition on acquisition (Note 13)
Loss on settlement 1
Adjustment to fair value 1
December 31, 2020
Current redemption liabilities
Long-term redemption liabilities
Redemption
liabilities
$
14,948
550
15,498
435
(8,250)
1,071
1,346
(2,108)
7,992
7,557
435
Page 25 • AutoCanada
1 Net amount of $762 presented on the Consolidated Statements of Comprehensive Loss
16 Cash and cash equivalents
Cash at bank and on hand
Short-term deposits
December 31,
2020
$
107,704
—
107,704
December 31,
2019
$
52,535
3,020
55,555
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 26 for further detail regarding cash balances held with the financial
institution.
17 Trade and other receivables
Trade receivables
Less: Expected loss allowance (Note 26)
Other receivables
December 31,
2020
$
109,405
(1,990)
107,415
11,235
118,650
December 31,
2019
$
129,733
(1,869)
127,864
4,761
132,625
The Company is exposed to normal credit risk with respect to its accounts receivable and maintains provisions
for expected 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.
18
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 inventory included in cost of sales
Demonstrator expenses included in administrative costs
Page 26 • AutoCanada
December 31,
2020
$
412,970
36,911
218,812
30,507
699,200
December 31,
2019
$
610,406
41,051
134,407
35,591
821,455
December 31,
2020
$
2,685,420
28,711
8,092
December 31,
2019
$
2,769,581
1,489
9,298
19 Assets and liabilities held for sale
Land and buildings
The Company has committed to a plan to sell land and buildings. 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, 2020, the Company had the following transactions:
● During the three-month period ended March 31, 2020, the Company disposed of one property that
was previously held for sale as at December 31, 2019, for the proceeds of $1,102, which resulted in a
gain of $33.
● During the three-month period ended June 30, 2020, the carrying amount of the land and buildings
reclassified to held for sale exceeded the fair value less costs to sell. As a result, the Company
recorded an impairment charge of $619 related to two properties in the Canadian Operations
segment.
● During the three-month period ended September 30, 2020, the Company disposed of two properties
previously held for sale as at December 31, 2019, for net proceeds of $7,831, which resulted in a gain
of $1,940.
As at December 31, 2020, certain land assets have been reclassified out of held for sale in the Canadian
Operations segment as management is no longer actively marketing the asset. The remaining balance of assets
held for sale is for land and buildings of $1,039 (2019 - $14,193).
Page 27 • AutoCanada
20 Property and equipment
Company &
lease
vehicles
$
Leasehold
improvements
$
Machinery &
equipment
$
Land &
buildings1
$
Furniture,
fixtures &
other
$
Computer
equipment
$
Total
$
December 31, 2020
28,259
58,864
30,754
14,991
10,230
Cost:
January 1, 2019
Capital expenditures
Disposals
Transfers to assets held for sale
Transfer from assets held for
sale
Transfers from inventory, net
Foreign currency translation
December 31, 2019
Capital expenditures
Business combinations (Note 13)
Acquisition of real estate
Disposals
Transfer from assets held for
sale
Asset class reclassifications
Transfers to inventory, net
Foreign currency translation
Accumulated depreciation:
January 1, 2019
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
Depreciation
Disposals
Asset class reclassifications
Transfers in from inventory, net
Foreign exchange
December 31, 2020
Carrying amount:
December 31, 2019
December 31, 2020
22,861
—
(68)
—
88
10,975
(36)
33,820
—
1,258
—
194,428
19,458
12,252
323,902
40,779
13,987
34,124
3,850
8,975
(931)
(2,072)
(71,014)
—
71
—
—
9
—
(269)
(176)
(1,800)
—
—
—
526
(973)
3,296
30,634
(660)
(75,718)
—
82
—
—
—
—
(1,800)
250
10,975
(108)
(43)
(632)
53,637
6,648
554
—
35,735
130,589
18,985
14,845
287,611
2,465
1,417
—
—
11
8,514
1,242
2,097
12,452
2
—
20
—
3,262
8,514
(371)
(2,220)
(8,784)
(33)
(5,198)
(6,711)
(23,317)
—
—
(6,353)
(95)
—
286
—
—
—
—
(41)
(79)
5,432
(286)
—
—
144,227
—
—
—
(40)
—
—
—
5,432
—
(6,353)
(21)
(276)
287,325
(5,997)
(4,022)
(14,362)
(2,735)
(19,575)
(29,179)
(9,882)
(7,766)
(86,761)
(3,402)
(5,589)
(1,921)
(2,154)
(19,823)
—
30
—
(22)
3,244
13
(6,754)
(3,483)
243
—
4,056
20
367
—
—
(58)
—
20
(16,768)
(2,824)
1,760
(146)
—
9
1,546
9,304
107
—
(1)
—
38
—
732
—
—
—
931
12
—
(66)
—
21
134
20
—
—
—
11
12,282
169
732
(147)
3,244
103
(21,287)
(24,732)
(10,905)
(9,755)
(90,201)
(3,074)
(4,417)
(1,678)
(1,896)
(17,372)
7,441
—
—
53
—
146
—
—
4,365
5,781
19,590
—
—
27
—
—
—
4,056
18
127
(5,852) (83,800)
(5,918)
(17,969)
(16,867)
(29,003)
(8,191)
27,066
22,341
36,869
40,895
14,448
105,857
13,887
115,224
8,080
6,800
5,090
197,410
4,378
203,525
1 As at December 31, 2020, the Company owns land of $45,487 (2019 - $39,515).
Construction-in-progress additions of $6,514 (2019 - $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 are included in the Consolidated Statements of Comprehensive Loss.
Page 28 • AutoCanada
Land and building additions are used for Open Point opportunities as well as dealership relocations, dealership
re-imagings, and also include the purchase of a previously leased dealership property.
During the year-ended December 31, 2020, management identified certain assets with no future value and
recorded an impairment of $3,303 in disposals.
21
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 impairment charges were allocated to the assets of the respective CGU’s as follows:
Land and buildings (Notes 19, 20)
Intangible assets
Goodwill
2020
$
3,922
15,055
5,230
24,207
2019
$
6,016
(1,527)
32,086
36,575
The changes in the book value of intangible assets and goodwill for the year ended December 31, 2020 were as
follows:
Cost:
January 1, 2019
Divestitures
Effect of foreign currency translation
December 31, 2019
Acquisitions (Note 13)
Additions 1
Effect of foreign currency translation
December 31, 2020
Accumulated impairment:
January 1, 2019
Impairment (recovery)
Divestitures
Effect of foreign currency translation
December 31, 2019
Impairment (recovery)
Effect of foreign currency translation
December 31, 2020
Carrying amount:
December 31, 2019
December 31, 2020
1 Additions to intangible assets represent increases to franchise rights.
Intangible
assets
$
Goodwill
$
Total
$
493,469
(11,431)
(2,100)
129,353
(783)
(3,889)
479,938
124,681
4,626
430
(1,050)
6,461
—
(1,666)
483,944
129,476
81,116
(1,527)
(9,931)
(13)
70,921
32,086
(783)
(1,658)
69,645
100,566
15,055
(389)
84,311
5,230
(2,054)
103,742
622,822
(12,214)
(5,989)
604,619
11,087
430
(2,716)
613,420
152,037
30,559
(10,714)
(1,671)
170,211
20,285
(2,443)
188,053
410,293
399,633
24,115
25,734
434,408
425,367
Page 29 • AutoCanada
The impairment for the year ended December 31, 2020 relates to the Company's reportable segments as
follows:
Land and buildings
Intangible assets
Goodwill
Canadian
Operations
$
3,922
11,390
—
15,312
U.S.
Operations
$
—
3,665
5,230
8,895
Total
$
3,922
15,055
5,230
24,207
CGUs have been determined to be individual dealerships. The following table shows the carrying amount of
indefinite-lived identifiable intangible assets and goodwill by CGU:
December 31, 2020
$
Goodwill
Total
6,135
3,951
506
—
—
3,724
—
—
—
—
—
941
—
—
—
950
—
—
—
—
—
—
—
1,343
—
—
8,184
33,942
25,201
25,000
22,434
21,806
21,768
21,687
16,448
15,152
14,872
14,496
13,437
12,612
12,488
10,950
10,213
10,210
9,641
9,626
9,431
8,495
8,048
6,590
6,027
5,489
5,260
54,044
December 31, 2019
$
Goodwill
Total
6,135
3,951
506
3,923
—
3,724
—
—
—
—
—
941
644
—
—
950
—
—
—
—
—
—
—
1,343
—
—
1,998
33,942
25,201
25,000
26,990
21,806
21,768
21,687
18,198
17,641
14,872
11,656
13,437
16,684
13,908
12,930
10,213
10,690
12,041
9,626
9,431
8,495
8,048
5,790
6,027
5,799
5,590
46,938
Intangible
assets
27,807
21,250
24,494
23,067
21,806
18,044
21,687
18,198
17,641
14,872
11,656
12,496
16,040
13,908
12,930
9,263
10,690
12,041
9,626
9,431
8,495
8,048
5,790
4,684
5,799
5,590
44,940
Intangible
assets
27,807
21,250
24,494
22,434
21,806
18,044
21,687
16,448
15,152
14,872
14,496
12,496
12,612
12,488
10,950
9,263
10,210
9,641
9,626
9,431
8,495
8,048
6,590
4,684
5,489
5,260
45,860
399,633
25,734
425,367
410,293
24,115
434,408
Cash Generating Unit
W
N
S
Q
P
AI
J
D
K
Y
AB
T
AJ
F
O
X
AF
B
C
H
AA
AH
AL
Z
AK
AD
Other CGUs less than
$5,000
Carrying amount
Page 30 • AutoCanada
The following table shows the impairments (recoveries of impairment) of indefinite-lived identifiable intangible
assets and goodwill by CGU:
Canadian dealerships
For the year ended December 31, 2020, thirteen Canadian dealerships recorded impairment charges
(recoveries) on indefinite-lived identifiable intangible assets (2019 - eighteen). The recoverable amounts for
twelve dealerships were determined using the value in use ("VIU") method while the remaining dealership was
determined using the fair value less costs to dispose ("FVLCD") method.
December 31, 2020
$
December 31, 2019
$
Cash Generating Unit
B
Y
AH
O
AK
AE
AF
K
F
P
AG
I
D
AA
AD
R 1
E
AB
AL
Net impairment (recovery)
Intangible
assets
2,400
—
—
1,980
310
5,300
480
2,490
1,420
—
(1,720)
290
1,750
—
330
—
—
(2,840)
(800)
11,390
Goodwill
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
2,400
—
—
1,980
310
5,300
480
2,490
1,420
—
(1,720)
290
1,750
—
330
—
—
(2,840)
(800)
11,390
Intangible
assets
Goodwill
2,750
(5,280)
3,501
—
(810)
(6,060)
4,710
957
(760)
(7,970)
2,900
1,130
(6,700)
(700)
8,110
674
1,970
(1,140)
801
(1,917)
—
—
459
—
—
—
—
1,303
—
—
250
—
—
—
—
—
—
—
409
2,421
Total
2,750
(5,280)
3,960
—
(810)
(6,060)
4,710
2,260
(760)
(7,970)
3,150
1,130
(6,700)
(700)
8,110
674
1,970
(1,140)
1,210
504
1
The CGU was sold during the year ended December 31, 2019.
Page 31 • AutoCanada
U.S. dealerships
For the year ended December 31, 2020, three US dealerships recorded impairment charges on indefinite-lived
identifiable intangible assets and goodwill (2019 - seven). The recoverable amounts for two dealerships were
determined using the VIU method while the remaining dealership was determined using the FVLCD method.
Cash Generating Unit
Q
U
AJ
A
V
L
G
Net impairment
December 31, 2020
$
December 31, 2019
$
Intangible
assets
Goodwill
198
—
3,467
—
—
—
—
3,665
4,285
—
704
241
—
—
—
5,230
Total
4,483
—
4,171
241
—
—
—
8,895
Intangible
assets
Goodwill
—
325
—
—
—
65
—
390
6,520
3,596
6,754
1,724
3,679
3,860
3,532
29,665
Total
6,520
3,921
6,754
1,724
3,679
3,925
3,532
30,055
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, that have not been fully impaired:
Canadian dealerships
Cash Generating Unit
B
Y
AH
O
AK
AE
AF
K
F
P
AG
I
D
AA
AD
E
AB
AL
1
The CGU was valued using the VIU technique in the prior year.
Page 32 • AutoCanada
FVLCD or VIU
VIU
FVLCD
FVLCD
VIU
FVLCD 1
VIU
VIU
VIU
VIU
VIU
VIU
VIU
VIU
VIU
VIU
VIU
VIU
VIU
December 31,
2020
$
10,285
11,932
7,260
13,288
5,250
5,236
12,430
17,118
12,413
26,910
5,600
4,935
18,442
16,810
6,799
5,365
17,493
16,861
December 31,
2019
$
13,309
11,343
6,945
14,910
15,600
11,045
12,903
19,612
15,176
28,763
705
4,085
21,725
19,001
6,782
4,421
15,395
9,526
U.S. dealerships
Cash Generating Unit
Q
AJ
A
V 1
G 1
FVLCD or VIU
VIU
VIU
FVLCD
VIU
VIU
December 31,
2020
$
23,903
14,575
—
5,177
4,008
December 31,
2019
$
29,111
23,891
231
5,177
4,008
1
These CGUs did not show indicators of impairment during the year ended December 31, 2020 and were not tested for
impairment during the period.
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 is 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 is 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 an applicable multiple applied to projected earnings before
interest, taxes, depreciation and amortization (EBITDA). 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 (2019 - 2.5 to 7.9 times).
Significant assumptions for VIU
Projected operating margins and growth rates
The assumptions used are based on the Company’s internal budget, which is approved by the Board of
Directors. The Company projects operating margins and cash flows for a period of one year, and applies
growth rates for years thereafter commensurate with industry forecasts. In arriving at its forecasts, the
Company considers past experience, economic trends and inflation as well as industry and market trends.
Discount rates
The Company applies a discount rate in order to calculate the present value of its projected cash flows. The
discount rate represents the Company’s internally computed weighted average cost of capital (“WACC”) for
each CGU with appropriate adjustments for the risks associated with the CGUs in which intangible assets are
allocated. The WACC is an estimate of the overall required rate of return on an investment for both debt and
equity owners and serves as the basis for developing an appropriate discount rate. Determination of the
discount rate requires separate analysis of the cost of equity and debt, and considers a risk premium based
on an assessment of risks related to the projected cash flows of each CGU. Management applied a discount
rate between 11.05% and 12.25% in its projections (2019 - 10.14% and 11.72%).
Page 33 • AutoCanada
Significant assumptions for FVLCD
Projected EBITDA
The Company’s assumptions for projected EBITDA are based on the Company’s internal budget, which is
approved by the Board of Directors. In arriving at the projected EBITDA, the Company considers projected
operating margins and growth rates as significant assumptions, past experience, economic trends and
inflation as well as industry and market trends.
EBITDA multiples
EBITDA multiples are based on recent comparable transactions, market comparatives, and management
estimates.
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
AM
Change in
discount rate
0.01 %
Change in
growth rate
Carrying
amount
$
0.01 %
13,852
Recoverable
amount exceeds
carrying amount
$
—
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
AH
Change in
multiple
Recoverable
amount
$
Carrying
amount
$
0.1
7,454
7,454
Recoverable
amount exceeds
carrying amount
$
—
Page 34 • AutoCanada
22 Other assets
Prepaid expenses
Derivative financial instruments
Other assets 1
December 31, 2020
$
December 31, 2019
$
Current
Long-term
Current
8,536
366
29
8,931
143
—
14,194
14,337
8,468
—
34
8,502
Long-term
—
—
5,042
5,042
1 $14,194 (2019 - $1,670) relates to long-term loans receivable from the respective non-controlling interests (Note 15).
23 Trade and other payables
Trade payables
Accruals and provisions
Sales tax payable
Wages and withholding taxes payable
December 31,
2020
$
65,806
36,672
3,092
31,940
137,510
December 31,
2019
$
84,774
22,165
5,743
22,289
134,971
The following table provides a continuity schedule of all recorded provisions:
January 1, 2019
Provisions made during the year
Amounts expired or disbursed
December 31, 2019
Provisions made during the year
Amounts expired or disbursed
December 31, 2020
Finance and
insurance 1
$
Legal and
other
$
1,271
—
(1,200)
71
—
—
71
3,571
1,125
(942)
3,754
6,441
(3,122)
7,073
Total
$
4,842
1,125
(2,142)
3,825
6,441
(3,122)
7,144
1 Represents an estimated chargeback reserve provided by the Company's third party underwriter of finance and insurance
products.
Page 35 • AutoCanada
24
Indebtedness
This note provides information about the contractual terms of the Company’s interest bearing debt, which is
measured at amortized cost. For more information about the Company’s exposure to interest rate, foreign
currency and liquidity risk, refer to Note 26.
Revolving floorplan facilities
Revolving floorplan facilities - Syndicate (ii)
Revolving floorplan facilities - Bank of America
Revolving floorplan facilities - VW Credit Canada, Inc. (iii)
Revolving floorplan facilities - BMW Financial (iv)
Revolving floorplan facilities - RBC (v)
Revolving floorplan facilities - Scotiabank
Revolving floorplan facilities - Toronto-Dominion Bank
Revolving floorplan facilities - Mercedes-Benz Financial (vii)
Revolving floorplan facilities - GM Financial (vi)
Revolving floorplan facilities - Ally Financial (viii)
Carrying value
Indebtedness
Senior unsecured notes
Senior unsecured notes (i)
Unamortized deferred financing costs
Revolving term facilities (ii)
Revolving term facility
Unamortized deferred financing costs
Other debt
Mortgage (ix)
Other long-term debt
Total indebtedness
Current indebtedness
Long-term indebtedness
December 31,
2020
$
December 31,
2019
$
465,510
—
56,539
64,327
35,323
—
—
24,402
25,752
90,090
761,943
123,982
(3,266)
120,716
70,123
(1,296)
68,827
831
6,857
197,231
65
197,166
480,662
91,903
65,864
75,783
28,355
26,474
18,396
44,721
—
—
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 years ended December 31, 2020 and
December 31, 2019:
Balance, January 1
Amortization of deferred financing costs
Draws and additions
Repayments
Other
Balance, December 31
Page 36 • AutoCanada
2020
$
213,432
1,300
226,882
(245,505)
1,122
197,231
2019
$
328,652
760
45,052
(161,032)
—
213,432
Terms and conditions of outstanding loans are as follows:
i.
ii.
iii.
iv.
On February 11, 2020, the Company issued $125 million 8.75% Senior Unsecured Notes (the "New Notes")
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, which were then extinguished using proceeds from the New Credit Facility.
An extinguishment charge of $3,211 was recorded as a loss on extinguishment in Finance Costs (Note 11).
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 New Notes
are outstanding. The initial interest payment date for the New Notes was August 11, 2020.
On February 11, 2020, the Company entered into an amended and restated $950 million syndicated credit
agreement ("New Credit Facility"). 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. Previously deferred net financing costs of $791 were included in the loss on extinguishment in
Finance Costs (Note 11).
Effective April 20, 2020, the Company amended the senior credit facility agreement to provide additional
covenant headroom through to June 30, 2021, unless management chooses to amend. Covenant relief
was received for the Total and Senior Net Funded Debt to Bank EBITDA and Fixed Charge Coverage Ratios,
with staged covenant thresholds through to June 30, 2021. Effective June 30, 2021, all covenant
thresholds revert to their prior levels. The amendment also provides for a suspension of curtailment
payments under the floorplan facility through the end of June 2021 and an extension of repayments with
respect to export wholesale vehicles.
On October 28, 2020 and on December 15, 2020, the Company respectively executed the Second and
Third Amendment. The Company is now provided with a $525,000 facility for floorplan and lease
financing of new vehicles, an unallocated new vehicle limit of $25,000 for the financing of future
acquisitions, $175,000 facility for floorplan and lease financing of used vehicles, and no unallocated used
vehicle facility limit for the financing of future acquisitions, a $25,000 facility for floorplan of used export
vehicles, a $175,000 facility for general corporate purposes, and a $25,000 accordion feature. The
floorplan facilities bear interest rates of Canadian Dollar Offered Rate (“CDOR”) plus 1.05% per annum for a
total of 1.510%.
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
revolving credit facility is 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.
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 first and third
quarter of 2020, amendments were made to the maximum amount of financing provided by the VCCI
facilities to $79,105 and $84,500, respectively. As at December 31, 2020, the maximum amount of
financing is $94,800 (2019 - $81,835). The VCCI facilities bear interest at Royal Bank of Canada (“RBC”)
prime rate plus 0.00% – 0.25% (2019 - 0.00%-0.75%). The RBC prime rate was 2.45% at December 31,
2020 (2019 - 3.95%). The combined total interest rates were 2.45%-2.70% (2019 - 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.
BMW Financial Services Canada (“BMW Financial”), a division of BMW Canada Inc., provides floorplan
financing for new, used and demonstrator vehicles for all of the Company’s BMW dealerships (the “BMW
Facilities”). During the second quarter of 2020, amendments were made to the maximum advance limit to
$97,785. As at December 31, 2020, the maximum advance limit is $102,255 (2019 - 101,705). The BMW
Facilities bear a variable interest rate of prime minus 0.40% (2019 - 0.40%) per 360 day annum for a total
of 2.05% at December 31, 2020 (2019 - 3.55%). The BMW Facilities have certain reporting requirements
and financial covenants and are collateralized by the dealerships’ movable and immovable property.
Page 37 • AutoCanada
v.
vi.
RBC provides floorplan financing for new, used and demonstrator vehicles for three of the Company’s
dealerships (the “RBC Facilities”). During the second quarter of 2020, amendments were made to the
maximum amount of financing to $50,000. As at December 31, 2020, the maximum advance limit is
$50,000 (2019 - $47,800). The RBC Facilities bear interest rates of RBC’s Cost of Funds Rate plus
0.25%-0.50% (2019 - 0.25%-0.50%). The RBC’s Cost of Funds Rate was 1.24% as at December 31, 2020
(2019 - 2.84%). The combined total interest rates were 1.49%-1.74% as at December 31, 2020 (2019 -
3.09%-3.34%). 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.
The Company executed a new agreement on October 29, 2020 with General Motors Financial of Canada
(the "GM Financial Facilities"). GM Financial Facilities provides floorplan financing for new, used, service
loaner, and demonstrator vehicles for two of the Company's dealerships. GM Financial Facilities bear
interest at a floating rate of interest per annum, which equals the prime rate. As at December 31, 2020, the
prime rate was 2.45% and the maximum amount of financing was $50,300. The GM Financial Facilities
have certain reporting requirements and are collateralized by the new, used, and demonstrator inventory
financed by GM Financial and a general security agreement from the Company’s two dealerships financed
by GM Financial.
vii. Mercedes-Benz Financial provides floorplan financing for new, used and demonstrator vehicles for two of
the Company’s dealerships (the “Mercedes-Benz Facilities”). As at December 31, 2020, the maximum
amount of financing was $58,000 (2019 - $58,000). The facilities bear interest rates of CDOR plus 1.80%
(2019 - 1.80%) for a total of 2.47% (2019 - 3.88%). 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.
viii. On August 20, 2020, the Company finalized an arrangement with Ally Financial to replace previous U.S.
floorplan financing for new, used, and demonstrator vehicles in the U.S. The facility limit is $108,500 USD,
bearing an interest rate of the one-month London Interbank Offered Rate (LIBOR) plus 3.45%. 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.
ix.
VCCI provides the Company with a mortgage (the “VCCI Mortgage”). Effective in the second quarter of
2020, mortgage principal payment deferral was provided for three months. The VCCI Mortgage bears
interest at a floating rate of interest per annum equal to RBC’s prime rate plus 0.15% (2019 - 0.15%). The
RBC prime rate was 2.45% as at December 31, 2020 (2019 - 3.95%). The total interest rate was 2.60% as at
December 31, 2020 (2019 - 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. As at December 31, 2020, the carrying amount of the property was
$818 (2019 - $1,278).
Government assistance
In the U.S., the Company received a loan of $6,857 ($5,395 USD) under the Small Business Association
Paycheck Protection Program (SBA PPP). The loan is meant to subsidize payroll and other operating costs and is
forgiven if the funds are used to maintain employee and salary levels. Funds have been utilized for eligible costs
but have not been recognized as an offset to operating expenses as management had not completed the
application for forgiveness by December 31, 2020. The loan balance is reflected in other long-term debt.
Page 38 • AutoCanada
25 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
Additions
Acquisitions (Note 13)
Depreciation (Note 8)
Disposals
Effect of foreign currency translation
Right-of-use asset balance, December 31, 2020
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
Additions
Acquisitions (Note 13)
Repayments
Interest expense (Note 11)
Disposals
Effect of foreign currency translation
Lease liability balance, December 31, 2020
Current lease liabilities
Long-term lease liabilities
Rent Concessions
Total
$
275,814
56,068
545
(23,404)
(3,832)
(1,655)
303,536
12,135
19,316
(24,759)
(90)
(1,241)
308,897
Total
$
340,896
66,096
599
(41,961)
21,673
(3,170)
(3,670)
380,463
13,111
19,316
(45,270)
22,189
(95)
(1,785)
387,929
24,079
363,850
The Company negotiated certain rent concessions on property leases primarily related to the deferral of rent
payments for a three-month period, predominantly during the second quarter of 2020 in exchange for future
repayment of the concessions or extensions to the respective lease terms. For the year ended December 31,
2020, $2,389 remains of the overall negotiated cash deferral of $4,169, which is to be repaid over various terms
ending between 2021 and 2022.
The optional exemption for all eligible rent concessions has been applied for leases with similar characteristics
and the financial impact was nominal to the Consolidated Statements of Comprehensive Loss. Certain leases
did not meet the criteria for the optional exemption due to substantive lease term extensions.
Page 39 • AutoCanada
Other disclosures
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)
2020
$
2,006
95
2019
$
235
119
204
394
As at December 31, 2020, potential cash outflows of $508,933 (2019 - $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 $54,873
(2019 - $56,124).
As at December 31, 2020, estimated commitments associated with low-value and short-term leases are
insignificant.
26 Financial instruments
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the
basis of measurement and the basis on which income and expenses are recognized, in respect of each class of
financial asset and financial liability, are disclosed in the accounting policies (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 and non-hedged interest swaps, 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 $123,764 (2019 - $149,580).
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
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.
Page 40 • AutoCanada
Interest rate risk
The Company’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity
risk management section herein, the indebtedness note (Note 24), and the hedge accounting note (Note 35).
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
2020
$
8,916
16
2019
$
17,957
19
2020
$
4,458
8
2019
$
8,978
9
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, 2020 and December 31, 2019 and the
corresponding historical credit losses experienced within these periods.
The loss allowance for trade receivables as at December 31, 2020 and December 31, 2019 was determined as
follows:
December 31, 2020
December 31, 2019
Expected
loss rate
%
0.05
2.05
4.56
7.23
7.31
Gross carrying
amount - Trade
receivables
$
84,470
9,840
6,388
1,495
18,447
120,640
Expected
loss
allowance
(Note 17)
$
40
202
292
108
1,348
1,990
Current
31 - 60 days
61 - 90 days
91 - 120 days
> 120 days
Total
Expected
loss rate
%
0.01
1.15
3.71
5.37
7.01
Gross carrying
amount - Trade
receivables
$
86,921
18,777
9,365
4,414
15,062
134,539
Expected
loss
allowance
(Note 17)
$
12
216
348
237
1,056
1,869
The closing loss allowance for trade receivables reconciles to the opening loss allowance as follows:
Balance, January 1
Loan loss allowance recognized in profit or loss during the year
Receivables written off during the year
Additional amount recorded
Balance, December 31
2020
$
1,869
3,474
(2,640)
(713)
1,990
2019
$
3,208
(611)
(1,134)
406
1,869
Page 41 • AutoCanada
The amounts disclosed on the Consolidated Statements of Financial Position for accounts receivable are net of
the expected loss allowance, details of which are disclosed in Note 17. 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 16 for further discussion of the Company’s concentration of cash held on
deposit with the financial institution). The syndicated revolving floorplan facility (Note 24) allows the Company's
dealerships to hold excess cash (used to satisfy working capital requirements of the Company's various Original
Equipment Manufacturer ("OEM") partners) in an account with the financial institution which bears interest at
1.519% at December 31, 2020 (2019 - 3.128%). 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.
The Company has renegotiated certain financial liabilities and put in place new facilities to manage liquidity risk
in response to the COVID-19 pandemic. The steps taken by the Company to respond to possible future liquidity
constraints arising from the COVID-19 pandemic and the impact of those steps on the consolidated financial
statements are summarized in Note 24.
As at December 31, 2020, the Company has $104,877 (2019 - $185,125) 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.
2021
$
2022
$
2023
$
2024
$
Thereafter
$
Total
$
December 31, 2020
Trade and other payables
Revolving floorplan facilities
Vehicle repurchase obligations
Indebtedness
Contractual interest payable
Lease liabilities
Derivative financial instruments
December 31, 2019
Trade and other payables
Revolving floorplan facilities
Vehicle repurchase obligations
Indebtedness
Contractual interest payable
Lease liabilities
Derivative financial instruments
Page 42 • AutoCanada
137,510
761,943
4,526
53
13,560
47,819
7,514
972,925
—
—
—
6,921
13,560
46,551
5,480
72,512
—
—
—
70,176
13,560
44,930
5,182
133,848
—
—
—
53
10,959
43,037
3,641
57,690
—
—
—
137,510
761,943
4,526
125,661 202,864
53,489
403,008 585,345
22,607
531,309 1,768,284
1,850
790
2020
$
2021
$
2022
$
2023
$
Thereafter
$
Total
$
134,971
832,158
7,802
127
11,433
45,529
1,709
—
—
—
215,435
4,512
45,587
1,702
1,033,729
267,236
—
—
—
—
—
44,720
1,443
46,163
—
—
—
—
—
43,241
1,325
44,566
—
—
—
—
—
134,971
832,158
7,802
215,562
15,945
425,674 604,751
6,186
1,817,375
425,681
7
27 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 12 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.
28 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 23 includes provisions to account for information known to
the Company and based on estimates of probable resolutions.
information for environmental matters, the Company’s ongoing efforts to
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
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 Consolidated
Statement of Financial Position 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 $3,528 as at December 31, 2020 (2019 - $2,314) 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
As at December 31, 2020, the Company is committed to capital expenditure obligations in the amount of
$17,700 (2019 - $17,959) related to dealership relocations, dealership re-imagings, and dealership Open Points
with expected completion of these commitments in 2022.
Page 43 • AutoCanada
29 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
Granted
Forfeited units
Dividends reinvested
Outstanding, end of the year
December 31, 2020
December 31, 2019
Number of
RSUs
127,657
(4,823)
191,773
–
1,849
316,456
Amount
$
1,406
(34)
997
–
13
2,382
Number of
RSUs
54,789
(6,071)
89,904
(14,631)
3,666
127,657
Amount
$
622
(65)
962
(153)
40
1,406
During the year ended December 31, 2020, 61,286 RSUs 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
Outstanding, end of the year
December 31, 2020
December 31, 2019
Number of
DSUs
107,203
—
33,764
1,674
142,641
Amount
$
1,020
—
483
12
1,515
Number of
DSUs
79,618
(24,063)
47,414
4,234
107,203
Amount
$
904
(429)
498
47
1,020
Page 44 • AutoCanada
Stock Option Plan
The Stock Option Plan (the “Plan”) is designed to provide long-term incentives to designated management to
deliver long-term shareholder returns. Under the Plan, participants are granted options which only vest if
certain service 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:
2020
2019
Average
exercise price
per share
option
$
10.26
5.20
—
—
10.06
10.04
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
Share options
#
2,400,000
100,000
—
—
2,500,000
1,858,333
Outstanding, beginning of the year
Granted
Expired
Forfeited
Outstanding, end of the year
Vested and exercisable, end of the year
During the year ended December 31, 2020, no options were exercised.
The following table shows the expiry date and exercise price for the share options outstanding as at December
31, 2020:
Grant date
August 14, 2018
March 19, 2019
August 14, 2019
March 30, 2020
Total
Weighted average remaining contractual life of options
outstanding, end of the period
Expiry date
August 14, 2028
August 14, 2028
August 14, 2024
March 30, 2023
Exercise
price
$
10.05
11.49
9.72
5.20
Share options
#
1,930,000
370,000
100,000
100,000
2,500,000
7.33 years
The weighted average remaining contractual life for the share options outstanding as at December 31, 2019 was
8.46 years.
For the year ended December 31, 2020, 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.
Page 45 • AutoCanada
The model inputs for options granted during the year ended December 31, 2020 include:
March 30, 2020 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 March 30, 2025.
● Exercise price: $5.20
● Grant date: March 30, 2020
● Life of option: 5 years
● Share price at grant date: $5.16
● Expected price volatility of the Company's shares: 53.93%
● Expected dividend yield: 7.75%
● Risk-free interest rate: 0.65%
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, 2020, there were expenses of $1,822 (2019 - $3,413) and recoveries of $nil
(2019 - $537).
Share Appreciation Rights (SARs)
The share appreciation rights are designed to enable 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.
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, 2020:
2020
2019
Weighted
average
exercise price
per share
appreciation
right
$
10.86
10.05
10.25
11.07
10.27
12.17
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
Share
appreciation
rights
#
1,159,450
158,000
(63,000)
(127,500)
1,126,950
66,000
Outstanding, beginning of the year
Granted
Exercised
Forfeited
Outstanding, end of the year
Vested and exercisable, end of the year
During the year ended December 31, 2020, no share appreciation rights expired.
The weighted average contractual life remaining for these share appreciation rights as at December 31, 2020 is
2.31 years.
The assessed weighted average fair value at grant date of the share appreciation rights granted during the year
ended December 31, 2020 was $0.28 per option. The fair value at grant date has been determined using the
Black-Scholes Model.
Page 46 • AutoCanada
The weighted average model inputs for the share appreciation rights granted during the year ended December
31, 2020 include:
● Exercise price: $7.13
● Expected life of option: 2.31 years
● Share price at grant date: $8.76
● Expected price volatility of the Company's shares: 22.72%
● Expected dividend yield: 2.71%
● Risk-free interest rate: 0.71%
Expected price volatility was determined at the time of grant using the AutoCanada share price on a historical
basis, adjusted for any expected changes to future volatility due to publicly available information. It reflects the
assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual
outcome.
During the year ended December 31, 2020, there was a charge of $191 (2019 - $nil) to contributed surplus for
exercised and settled SARs.
Used Digital Retail Division
Common interests of the Partnership are granted to dealership management and the Executive Chairman (Note
32) under an equity issuance plan (the “Digital Plan”). This is designed to provide long-term incentives to
dealership and related party management to develop and deliver long-term returns on the digital retail initiative
(Note 13).
Equity interests are issued under the Digital Plan for the fair value of the interests at grant date and carry no
dividend or voting rights. The interests vest in accordance with the terms stated in the initial grant agreements.
When exercisable, the consideration paid to the equity interest holders is based on the value of the Partnership
on the date of exercise and will be settled in common shares.
For the year ended December 31, 2020, a 15% interest in the Partnership was granted to an entity controlled by
the Executive Chair. This interest contained a share-based payment arrangement that vested immediately when
granted on December 1, 2020, which resulted in share-based compensation expense of $435 recognized in the
Consolidated Statements of Comprehensive Loss.
Share-Based Compensation Expense
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
Share-based compensation
Used digital retail equity issuance (Note 15)
2020
$
1,822
917
494
796
4,029
435
4,464
2019
$
2,876
663
543
723
4,805
—
4,805
Page 47 • AutoCanada
30 Share capital
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
(Note 29) 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 shares to the beneficiaries upon
vesting, as directed by the Company. Dividends earned during the year ended December 31, 2020 on the
shares held in trust of $3 (2019 - $17) 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, 2020.
The following table shows the change in shareholders’ capital for the years ended:
Outstanding, beginning of the year
Treasury shares acquired
Dividends reinvested
Treasury shares settled
December 31, 2020
December 31, 2019
Number of
shares
27,430,909
$
509,890
Number of
shares
27,417,062
(217,350)
(2,081)
(438)
13,582
(3)
306
—
(1,368)
15,215
$
509,538
—
(17)
369
Outstanding, end of the year
27,226,703
508,112
27,430,909
509,890
Shares held in trust for equity based awards
232,980
—
28,774
—
Issued, end of year
27,459,683
508,112
27,459,683
509,890
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, 2020, eligible dividends totaling $0.10
(2019 - $0.40) per common share were declared and paid, resulting in total payments of $2,743 (2019 -
$10,968).
On April 20, 2020, the Company suspended the eligible quarterly dividend per common share.
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
2020
$
(7,455)
2019
$
(28,353)
Page 48 • 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 SARs
Diluted
2020
$
27,313,140
—
—
—
27,313,140
2019
$
27,420,483
—
—
—
27,420,483
For the year ended December 31, 2020, potential common shares related to RSUs of (87,051), stock options of
(729,253), and SARs of (376,670) were excluded from the computation of diluted earnings per share because
they were anti-dilutive.
31
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 24)
Equity
December 31,
2020
$
197,166
362,820
559,986
December 31,
2019
$
213,305
368,099
581,404
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 as at December 31, 2020.
32 Related party transactions
Transactions with companies controlled by Directors
During the year, there were transactions with companies 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 Chairman who provide consulting services;
● A firm, whose controlling partner is the Executive Chairman, 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 is as follows:
Consulting services
Administrative and other support fees
2020
$
360
791
1,151
2019
$
670
722
1,392
Page 49 • AutoCanada
Used Digital Retail Division
The firm controlled by the Executive Chairman was issued a 15% common interest in the Partnership created as
a part of the digital retail strategy (Note 13), which vested at the time of grant (Note 29).
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
Partnership interest paid
Share-based compensation
2020
$
4,029
108
435
—
4,572
2019
$
6,183
61
—
47
6,291
33 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
Current tax recoverable/payable
Other current assets
Other liabilities
Trade and other payables
Vehicle repurchase obligations
Revolving floorplan facilities
December 31,
2020
$
14,711
137,036
(152)
(229)
172
(8,130)
—
(72,443)
70,965
December 31,
2019
$
(2,495)
(83,411)
(1,686)
(5,343)
(3,942)
30,023
148
103,612
36,906
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.
34 Fair value of financial instruments
The Company’s financial instruments as at December 31, 2020 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,
hedging derivatives, and non-hedge interest swaps.
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.
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 (Note 15).
The fair value was determined based on the prevailing and comparable market interest rates.
Page 50 • AutoCanada
The fair value hierarchy categorizes fair value measurements into three levels based on 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.
35 Derivative financial instruments and other liabilities
Derivative financial instruments
Derivative financial instruments are held for the purpose of managing exposures to fluctuations in foreign
exchange rates and interest rates.
Foreign exchange risk
The Company uses foreign exchange forward contracts to economically hedge foreign currency risk. These
contracts are not designated as hedges for accounting purposes and changes in fair value are immediately
recognized in net income.
Certain forward contracts were settled for a pre-tax loss of $2,282, presented in revenue, as the loss was offset
against the original source of foreign currency exposure. The Company has recommenced the economic
hedging program of foreign currency risk.
Interest rate risk
The Company enters into interest rate swaps to hedge the variable rates of the syndicated floorplan facility,
transforming the variable rate exposure to fixed rate obligations. Certain interest rate swaps are designated as
cash flow hedges and periodically assessed for effectiveness. Where the hedging relationship is assessed as
being effective, changes in fair value are recognized in other comprehensive income. Changes in fair value on
derivative instruments not designated as hedging instruments are immediately recognized in net income.
During the year ended December 31, 2020, certain cash flow hedges with a notional amount of $177,800 were
de-designated as a result of the termination of the interest rate swaps. This resulted in a pre-tax loss of $11,911
that was fully deferred in accumulated other comprehensive income, which will be reclassified to net income in
future periods with the original associated finance costs.
Concurrently, the Company entered into new interest rate swaps with the notional amount of $177,800 to
economically hedge variable rate debt. These instruments have a settlement period from April 2021 through to
June 2025. Changes in the fair value of these instruments will be recorded in finance costs as the Company has
not elected to apply hedge accounting to these contracts.
The fair values and notional amounts of derivative financial instruments are as follows:
December 31, 2020
Other current assets
Other liabilities - current
Derivative financial instruments - liabilities
Notional values
Maturity
December 31, 2019
Derivative financial instruments - liabilities
Notional values
Maturity
Foreign exchange
contracts
Interest rate swaps
Non-hedges Cash flow hedges
Non-hedges
Total
366
—
—
—
461
—
—
366
461
7,060
15,086
22,146
17,300 USD
222,200 CAD
177,800 CAD
2021
2021 - 2023
2025
—
—
—
6,186
—
6,186
400,000 CAD
2021 - 2023
—
—
Page 51 • AutoCanada
The weighted average hedge rate of cash flow hedges was 2.58% (2019 - 2.62%).
Unrealized and realized pre-tax gains and (losses) on derivative instruments recognized in net income and other
comprehensive income on the Consolidated Statements of Comprehensive Loss are:
For the year ended December 31, 2020
Change in fair value of hedging instruments
Fair value of terminated hedges
Unrealized change in fair value of non-hedging instruments
(Note 11)
Amortization of terminated hedges (Note 11)
Interest rate swap settlements (Note 11)
Unrealized change in fair value of foreign exchange forward
contracts
Realized loss on foreign exchange forward contracts
Other
comprehensive
income
$
Net income
$
—
—
(3,175)
(2,308)
(3,208)
366
(1,754)
(10,079)
(1,335)
(11,911)
—
2,308
—
—
—
(10,938)
Total
$
(1,335)
(11,911)
(3,175)
—
(3,208)
366
(1,754)
(21,017)
For the year ended December 31, 2019
Unrealized change in fair value of hedging instruments
—
(2,424)
(2,424)
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.
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 (referred to as "IBOR reform"). 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 $22,146 as at December 31, 2020 (2019 - $6,186).
There was no ineffectiveness during 2020 and in 2019.
The Company has evaluated the extent to which its cash flow hedging relationships are subject to uncertainty
driven by IBOR reform as at December 31, 2020. As the CDOR rate associated with the derivative financial
instrument was still in effect, there was no impact from the IBOR reform.
Page 52 • AutoCanada
Other liabilities
Equity forward liability
The Company has entered into an 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, 2020, the equity forward agreement covered 329,000 (2019 - 329,000) common shares of
the Company and the associated long-term liability was valued at $3,466 (2019 - $3,466).
Prior year restructuring charges
The Company recognized a non-cash restructuring charge of $13,393 in 2019 related to the voluntary
termination of two franchises. The remaining provision of $6,177 as at December 31, 2020 pertains to
committed operating costs of the related facility, of which $1,215 is included in other current liabilities and
$4,962 is included in other long-term liabilities.
36 Segmented reporting
During the year ended December 31, 2020, the Executive Chairman served as the function of the Chief
Operating Decision Maker (CODM). The Executive Chairman 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 and related businesses.
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, 2020
Year ended December 31, 2019
Canada 1
$
U.S.
$
Total
$
Canada 1
$
U.S.
$
Total
$
Revenues
External revenues
2,977,149
356,009
3,333,158
3,094,062
441,483
3,535,545
Inter-segment revenue
Total revenues
(3,664)
2,973,485
—
356,009
(3,664)
3,329,494
(59,434)
3,034,628
—
441,483
(59,434)
3,476,111
1
AutoCanada's corporate office has been included with the Canadian Operations segment, as it is located in Canada.
Page 53 • AutoCanada
Year ended December 31,
2020
Year ended December 31,
2019
Canada 1
$
U.S.
$
Total
$
Canada 1
$
U.S.
$
Total
$
Operating profit before other income
(expense)
Lease and other income, net (Note 10)
Gain on disposal of assets, net (Note 10)
87,692
(2,029) 85,663
79,877
(9,150)
70,727
6,744
1,563
642
(193)
7,386
1,370
8,866
1,835
10,701
11,014
—
11,014
Impairment of non-financial assets (Note 21)
(15,312)
(8,895)
(24,207)
(6,520) (30,055)
(36,575)
Restructuring charges (Note 35)
Operating profit (loss)
Finance costs (Note 11)
Finance income (Note 11)
Gain (loss) on redemption liabilities (Note 15)
Other losses
Net loss for the year before tax
—
80,687
—
(10,475)
—
70,212
—
93,237
(13,393)
(50,763)
(13,393)
42,474
(72,505)
808
762
(482)
(1,205)
(68,784)
912
(550)
(350)
(26,298)
1
AutoCanada's corporate office has been included with the Canadian Operations segment, as it is located in Canada.
As at December 31, 2020
As at December 31, 2019
Assets held for sale (Note 19)
1,039
Canada 1
$
U.S.
$
—
Total
$
1,039
Canada 1
$
14,193
U.S.
$
—
Total
$
14,193
Segment assets
1,667,960
Capital expenditures (Note 20)
20,667
232,422
299
1,900,382
20,966
1,752,151
237,766
1,989,917
29,882
752
30,634
Segment liabilities
1,235,119
302,443
1,537,562
1,371,460
250,358
1,621,818
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
Canada 1
$
U.S.
$
1,528,915
204,976
Total
$
1,733,891
923,192
361,472
87,689
1,010,881
48,499
409,971
159,906
14,845
174,751
2,973,485
356,009
3,329,494
1
AutoCanada's corporate office has been included with the Canadian Operations segment, as it is located in Canada.
Page 54 • AutoCanada
AutoCanada Inc.
200 - 15511 123 Avenue NW
Edmonton, AB • T5V 0C3 www.autocan.ca