AutoCanada Inc.
Annual Report 2021

Plain-text annual report

2021 Annual Financial Results 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, 2021 and 2020, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS). What we have audited The Company’s consolidated financial statements comprise:      the consolidated statements of comprehensive income (loss) for the years ended December 31, 2021 and 2020; the consolidated statements of financial position as at December 31, 2021 and 2020; 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, 2021. 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 recoveries of intangible assets in the Canadian Operations segment Our approach to addressing the matter included the following procedures, among others: Refer to note 3 – Significant accounting policies, note 5 – Critical accounting estimates and note 21 – Goodwill and intangible assets to the consolidated financial statements. The Company had intangible assets of $548,249 thousand as at December 31, 2021, of which a portion pertains to the Canadian Operations segment. Management performs an impairment test annually, or more frequently if events or changes in circumstances indicate that the carrying value 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). Impairment losses, other than those relating to goodwill, are evaluated for potential reversals of impairment when events or changes in circumstances warrant such consideration. 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, management considers projected operating margins, growth rates and EBITDA multiples 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 ● Tested how management determined the recoverable amount for certain CGUs in the Canadian Operations segment for which events or changes in circumstances have been identified, which included the following:  Tested the appropriateness of the approaches used and the mathematical accuracy of FVLCD and VIU calculations.  Tested the reasonableness of the projected operating margins and growth rates applied by management in the applicable calculations 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 calculations. ● 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 recognized impairment recoveries of $39,846 thousand in the Canadian Operations segment allocated to intangible assets. We considered this a key audit matter due to (i) the significance of the 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. Valuation of indefinite-life intangible assets relating to franchise rights acquired in the Autopoint Group business acquisition Refer to note 3 – Significant accounting policies, note 5 – Critical accounting estimates and note 13 – Business acquisitions to the consolidated financial statements. On December 1, 2021, the Company completed the acquisition of substantially all of the assets of the Autopoint Group for a total purchase consideration of $132,404 thousand. The fair values of the identifiable assets acquired included $88,215 thousand in intangible assets relating to indefinite- life franchise rights associated with the respective dealerships. Management applied significant judgment in estimating the fair values of the intangible assets. Management estimated the fair values of the intangible assets relating to indefinite- life franchise rights based on the multi-period excess earnings method, using discounted cash flow models. The determinations of the estimated fair values involved significant assumptions regarding projected operating margins, terminal growth rates and discount rates. We considered this a key audit matter due to the significant judgment applied by management in Our approach to addressing the matter included the following procedures, among others: ● Tested how management estimated the fair values of the indefinite-life intangible assets relating to franchise rights, which included the following:  Read the purchase agreements.  Tested the underlying data used by management in estimating the fair values of the indefinite-life intangible assets relating to franchise rights.  Evaluated the reasonableness of significant assumptions developed by management related to projected operating margins and terminal growth rates by comparing them to the acquisition plan approved by the Board, available third party economic and industry data and results historically achieved by the respective dealerships.  Professionals with specialized skill and knowledge in the field of valuation assisted in evaluating the appropriateness of the multi-period excess earnings method and the discounted cash flow models and in Key audit matter How our audit addressed the key audit matter testing the reasonableness of the discount rates. estimating the fair values of the intangible assets relating to indefinite-life franchise rights, including the development of significant assumptions. This, in turn, led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the significant assumptions developed by management. The audit effort involved the use of professionals with specialized skill and knowledge in the field of valuation. 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 Richard Probert. /s/PricewaterhouseCoopers LLP Chartered Professional Accountants Edmonton, Alberta March 2, 2022 Consolidated Financial Statements For the year ended December 31, 2021 AutoCanada Inc. Consolidated Statements of Comprehensive Income (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) (Loss) gain on disposal of assets, net (Note 10) Recoveries (impairment) of non-financial assets (Note 21) Operating profit Finance costs (Note 11) Finance income (Note 11) (Loss) gain on redemption liabilities (Note 15) Other losses Net income (loss) for the year before tax Income taxes (Note 12) Net income (loss) for the year Other comprehensive gains and (losses) Items that may be reclassified to profit or loss Foreign operations currency translation Change in fair value of cash flow hedge (Note 26) Income tax relating to these items Other comprehensive income (loss) for the year, net of tax Comprehensive income (loss) for the year Net income (loss) for the year attributable to: AutoCanada shareholders Non-controlling interests Comprehensive income (loss) for the year attributable to: AutoCanada shareholders Non-controlling interests Net income (loss) per share attributable to AutoCanada shareholders: Basic Diluted Weighted average shares Basic (Note 31) Diluted (Note 31) December 31, 2021 $ 4,653,415 (3,819,232) 834,183 (612,609) 221,574 9,035 (387) 39,846 270,068 (35,189) 810 (14,116) (353) 221,220 54,021 167,199 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) (2,069) 8,880 (2,392) 4,419 171,618 164,207 2,992 167,199 168,626 2,992 171,618 5.98 5.60 (2,089) (10,938) 2,836 (10,191) (16,814) (7,455) 832 (6,623) (17,646) 832 (16,814) (0.27) (0.27) 27,474,106 29,305,292 27,313,140 27,313,140 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) 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 (Note 28) Long-term indebtedness (Note 24) Long-term lease liabilities (Note 25) Long-term redemption liabilities (Note 15) Derivative financial instruments (Note 26) Other long-term liabilities (Note 28) Deferred income tax (Note 12) EQUITY Attributable to AutoCanada shareholders Attributable to non-controlling interests December 31, 2021 $ December 31, 2020 $ 102,480 132,913 737,299 9,572 — 982,264 248,109 370,998 17,211 40,881 548,249 50,961 2,258,673 189,731 708,561 3,119 3,584 — 21,673 25,602 1,167 953,437 285,908 427,215 659 8,299 9,932 53,814 1,739,264 493,411 25,998 519,409 2,258,673 107,704 118,650 699,200 8,931 1,039 935,524 203,525 308,897 14,337 29,713 399,633 25,734 1,917,363 137,510 761,943 5,030 4,526 65 7,557 24,079 2,176 942,886 197,166 363,850 435 22,146 8,428 19,632 1,554,543 341,874 20,946 362,820 1,917,363 Commitments and contingencies (Note 29) The accompanying notes are an integral part of these consolidated financial statements. Page 2 • AutoCanada AutoCanada Inc. Consolidated Statements of Changes in Equity For the Years Ended (in thousands of Canadian dollars) Balance, January 1, 2021 Net income Other comprehensive (loss) income Dividends declared by subsidiaries to non-controlling interests (Note 15) Reorganization of non- controlling interests (Note 15) Forward share purchase (Note 28) Settlement of share-based awards (Note 30) Issuance of executive and employee advances (Note 30) Deferred tax on share-based payments Shares settled from treasury (Note 31) Share-based compensation (Note 30) — — — — — — — — — — — (3,631) (2,570) 213 — (18,422) — — — (4,570) — 9,084 — 3,685 (3,685) — — 3,345 Share capital $ 510,606 Treasury shares $ (2,494) Attributable to AutoCanada shareholders Cumulative translation adjustment $ OCI hedge reserve $ Contributed surplus $ 9,995 (3,036) (12,637) Retained earnings $ Total capital $ (160,560) 341,874 Non- controlling interests $ 20,946 Total equity $ 362,820 — — — 164,207 164,207 2,992 167,199 — (2,069) 6,488 — 4,419 — 4,419 — — — — — — — — — — — — — — — — — — (79) (79) (538) (538) 2,139 1,601 — (6,201) — (6,201) — (18,209) — (18,209) — (4,570) — (4,570) — 9,084 — 9,084 — — — — — 3,345 — 3,345 Balance, December 31, 2021 510,819 (2,440) (6,823) (5,105) (6,149) 3,109 493,411 25,998 519,409 The accompanying notes are an integral part of these consolidated financial statements. Page 3 • AutoCanada AutoCanada Inc. Consolidated Statements of Changes in Equity For the Years Ended (in thousands of Canadian dollars) Share capital $ Treasury shares $ Attributable to AutoCanada shareholders Cumulative translation adjustment $ Contributed surplus $ OCI hedge reserve $ Accumulated deficit $ Total capital $ Non- controlling interests $ Total equity $ Balance, January 1, 2020 Net (loss) income Other comprehensive loss Dividends declared on common shares (Note 31) 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 31) Dividends reinvested (Note 31) Settlement of share-based awards (Note 30) Shares settled from treasury (Note 31) Share-based compensation (Note 30) 510,606 — — — — — — — — — — — — (716) — — — — — — — (2,081) (3) — 6,463 — (947) — (4,535) — (157,264) 353,607 14,492 (7,455) (7,455) 368,099 (6,623) 832 — (2,089) (8,102) — (10,191) — (10,191) — — — — — — — (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) — (1,071) — — — — (2,081) (3) (191) — — — — — (2,081) (3) (191) — — 4,029 — 4,029 (3,036) (12,637) (160,560) 341,874 20,946 362,820 306 (306) — 4,029 9,995 Balance, December 31, 2020 510,606 (2,494) 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 income (loss) for the year Adjustments for: Income taxes (Note 12) Amortization of deferred financing costs Amortization of note premium Depreciation of property and equipment (Note 20) Depreciation of right-of-use assets (Note 25) Amortization of terminated hedges (Note 26) Loss (gain) on disposal of assets, net (Note 10) Share-based compensation - equity-settled (Note 30) Share-based compensation - Used Digital Retail Division (Note 30) Loss on extinguishment of debt (Note 11) Loan forgiveness (Note 24) Unrealized fair value changes on interest rate swaps (Note 26) Unrealized fair value changes on foreign exchange forward contracts (Note 26) Unrealized fair value changes on embedded derivative (Note 11) Revaluation of redemption liabilities (Note 15) Loss on settlement of redemption liabilities (Note 15) Income taxes (paid) recovered (Recoveries) impairment of non-financial assets (Note 21) Settlement of share based awards (Note 30) Issuance of executive and employee advances (Note 30) Net change in non-cash working capital (Note 36) Investing activities Business acquisitions, net of cash acquired (Note 13) Purchases of property and equipment Proceeds on sale of property and equipment Proceeds on divestiture of dealerships Financing activities Proceeds from indebtedness Repayment of indebtedness Treasury shares settled, net (Note 31) Settlement of share based awards (Note 30) Forward share purchase (Note 28) Dividends paid on common shares Dividends paid to non-controlling interests 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 (decrease) 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, 2021 $ December 31, 2020 $ 167,199 (6,623) 54,021 1,896 (1,253) 17,272 26,420 3,268 387 3,345 224 1,128 (6,728) (8,412) 539 (29,306) 14,116 — (25,276) (39,846) (18,075) (4,570) (43,407) 112,942 (183,197) (34,576) 2,399 — (215,374) 353,957 (231,180) 3,685 173 (3,631) — (79) — — (25,922) 97,003 205 (5,224) 107,704 102,480 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) (26,344) 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 Page 5 • AutoCanada AutoCanada Inc. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2021 and 2020 (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, 2022. 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. The Company uses judgment in determining the entities that it controls and therefore consolidates. Judgment is applied in determining whether the Company controls the entities in which it does not have full ownership rights. Most often, judgment involves reviewing contractual rights to determine if rights are participating (giving power over one entity) or protective rights (protecting the Company’s interest without giving it power). 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 Income (Loss). Transaction costs are expensed as incurred. is recognized directly Contingent consideration is classified as either equity or a financial liability. Any subsequent change to the fair value of contingent consideration is recognized in the Consolidated Statements of Comprehensive Income (Loss). Non-controlling interests Non-controlling interests are measured initially at their proportionate share of the acquiree’s or entity's identifiable net assets at the date of acquisition or date the interest was granted. 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. Non-controlling interests are issued in subsidiaries of the Company at their proportionate share at the date of issuance. Subsequent measurement of the carrying value of the non-controlling interests is the value at acquisition plus the non-controlling interest portion of profit and loss, as governed by the individual agreements. 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 commissions and fees 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. Page 7 • AutoCanada The Company also receives commissions for facilitating the sale of third-party insurance products to customers, including credit and life insurance policies and extended service contracts. These commissions are recorded as revenue at the time the customer enters into the contract and the Company is entitled to the commission. The Company is not the obligor under any of these contracts. In the case of finance contracts, a customer may fail to pay their contract, thereby terminating the contract. Customers may also terminate extended service contracts, which are fully paid at purchase, and become eligible for refunds of unused premiums. In these circumstances, a portion of the commissions the Company receives may be charged back to the Company based on the terms of the contracts. These chargebacks are a form of variable consideration and the Company only recognizes commission revenue at the estimated amount of consideration to which it ultimately expects to be entitled. This estimate is based 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. Finance income Finance income comprises of finance lease income and interest income on short term deposits. Finance income is recognized in profit or loss as they accrue using the effective interest method. 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. Deferred tax assets and liabilities are not recognized in respect of temporary differences between the carrying amount and tax bases of investments in subsidiaries where the company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. (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. Page 8 • AutoCanada 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 Income (Loss). 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 these 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. Transaction costs associated with the establishment of indebtedness or amendment of loan facilities are recorded against proceeds and recognized in the Consolidated Statements of Comprehensive Income (Loss) over the term of the borrowings using the effective interest rate. 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 ("ECL"), 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 Income (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 Income (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. Page 9 • AutoCanada Assets held for sale Non-current assets and associated liabilities are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction, rather than continuing use, and a sale is highly probable. Assets designated as held for sale are held at the lower of carrying amount at designation and fair value less costs to sell. Depreciation is not charged against property and equipment classified as held for sale. Property and equipment Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year-end. Land is not depreciated. Other than as noted below, depreciation of property and equipment is provided for over the estimated useful life of the assets on 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. The fair value is determined based on the the multi-period excess earnings method, using the discounted cash flow model. 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. Page 10 • AutoCanada (a) Non-financial assets The carrying values of non-financial assets with finite lives, such as property and equipment and right-of-use assets, are assessed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purposes of assessing impairment, assets are grouped as cash generating units (CGUs), the lowest levels for which there are separately identifiable cash flows. (b) Intangible assets and goodwill The carrying values of all intangible assets with indefinite lives and goodwill are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Additionally, the carrying values of identifiable intangible assets with indefinite lives and goodwill are tested annually for impairment. Specifically: ● Our dealer agreements with indefinite lives are subject to an annual impairment assessment. For purposes of impairment testing, the fair value of the Company's dealer agreements is determined using a combination of a discounted cash flow approach and earnings multiple approach. ● 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. Page 11 • AutoCanada (i) Finance leases Leases in which substantially all the risks and rewards of ownership are transferred are classified as finance leases. When assets are leased out under a finance lease, the present value of the lease payments is 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 are to be settled in cash or a variable number of shares. 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 Income (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 30. The accounting for a share-based payment plan is based on whether the arrangement is classified as equity- settled or cash-settled. Equity-settled arrangements are those in which the Company receives services as consideration for its own equity instruments. Cash-settled arrangements arise where the Company pays the employee cash amounts based on the value of the Company’s shares. 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 26. 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 Revenue and Finance costs, as disclosed in Note 26. 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 37. 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). Page 13 • AutoCanada 4 New and amended accounting standards adopted in 2021 COVID-19 Related Rent Concession beyond 30 June 2021 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 Income (Loss) The amendment was intended to apply until June 30, 2021, but as the impact of the COVID-19 pandemic is continuing, on March 31, 2021, the IASB extended the period of application of the practical expedient to June 30, 2022. The amendment applies to annual reporting periods beginning on or after April 1, 2021. Leases that do not meet the criteria for the optional exemption are treated as a lease modification (Note 25). Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39, IFRS 7, and IFRS 16) For the year ended December 31, 2021, the Company adopted the 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 opening reserves in the comparative period upon 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 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, which has been announced but not approved, as of December 31, 2021). 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 26 provides the required disclosures of the uncertainty arising from the IBOR reform for hedging relationships for which the Company applied the reliefs. Page 14 • AutoCanada 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 the Ally Prime Rate. For the year ended December 31, 2021, 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. 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. Management applies significant judgement in estimating the fair value of the intangible assets. These determinations involve significant estimates and assumptions regarding projected operating margins, terminal growth rates and discount rates. 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). Fair value measurement of financial instruments When the fair values of financial assets and financial liabilities recorded in the consolidated statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash flow (DCF) model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial on instruments. See Note 26 for further disclosure. 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. Page 15 • AutoCanada 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 Income (Loss). Leases i. Critical judgments in determining the lease term Extension and termination options are included in a number of property leases held by the Company. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Potential future cash outflows have not been included in the lease liability if it is not reasonably certain that the leases will be extended. The assessment is reviewed if a significant event or a significant change in circumstances occurs that affects this assessment and that is within the control of the lessee. ii. Estimation uncertainty arising from variable lease payments Certain leases contain variable payment terms that are linked to the consumer price index. Restructuring charges The Company has assumed it will not be able to sublet or otherwise realize any economic benefit from specific vacated premises. Should these circumstances change, some or all of the provision pertaining to the committed premises costs could be reversed in a future period. 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 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. Although certain jurisdictions have been removing most restrictions, these measures continue to cause disruptions to businesses and capital markets globally, resulting in an uncertain economic environment. 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). Although the various recommendations and emergency measures introduced by government authorities have a potential to cause disruption in the Company's results, the extent to which COVID-19 will or may impact the Company is uncertain and these factors are beyond the Company’s control. The Company continues to monitor the developments regarding the COVID-19 pandemic and respond accordingly, however, there are many developing factors such as the availability of testing and vaccines, along with emerging variants that continue to make the potential ongoing impacts unable to be predicted with any certainty. Management expects COVID-19 related disruptions to continue, however, believes that long-term estimates and assumptions do not require significant revisions for the year ended December 31, 2021. Page 16 • AutoCanada 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). Impairment The impacts of COVID-19 were incorporated into the annual impairment assessment performed as at December  31, 2021. 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. 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 Employee costs (Note 9) Government assistance 1, 2 Administrative costs 3 Facility lease costs Depreciation of right-of-use assets (Note 25) Depreciation of property and equipment (Note 20) 2021 $ 2020 $ 1,733,891 1,010,881 409,971 174,751 4,653,415 3,329,494 1,963,881 1,937,541 484,639 267,354 2021 $ 1,787,466 1,796,279 217,985 17,502 3,819,232 2020 $ 1,625,561 946,878 197,001 12,728 2,782,168 2021 $ 389,145 (11,769) 190,730 811 26,420 17,272 612,609 2020 $ 292,404 (35,464) 160,586 2,006 24,759 17,372 461,663 1 Government assistance represents the Company's eligible claim of $4,388 (2020 - $35,264) for the Canada Emergency Wage Subsidy (CEWS) and $653 (2020 - $200) claim for the Canada Emergency Rent Subsidy (CERS) for the year ended December 31, 2021, with $299 (2020 - $3,794) included in trade and other receivables. There are no unfulfilled conditions or other contingencies attached to the subsidy recognized. 2 During the year ended December 31, 2021, $6,728 (2020 - nil) of the loans from the Small Business Association Paycheck Protection Program (Note 24) were forgiven and included above as an offset to Operating expenses. There are no unfulfilled conditions or other contingencies attached to the forgiven loans. 3 Administrative costs include professional fees, consulting services, technology-related expenses, marketing, expected credit losses, and other general and administrative costs. Page 17 • AutoCanada 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 30) Other benefits 10 Lease and other income and (loss) gain on disposal of assets, net Lease and other income, net Lease and rental income Other income (Loss) gain on disposal of assets, net Gain on dealership divestiture (Note 14) Loss on lease terminations, net (Note 25) 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 26) Amortization of terminated hedges (Note 26) Unrealized fair value changes on embedded derivative (Note 24) Floorplan financing Interest rate swap settlements (Note 26) Other finance costs Finance income: Interest on net investment in lease (Note 25) Short-term bank deposits 2021 $ 344,819 19,839 18,934 3,569 1,984 389,145 2020 $ 251,665 14,908 16,689 4,464 4,678 292,404 2021 $ 6,416 2,619 9,035 — (427) 40 (387) 2020 $ 6,491 895 7,386 135 — 1,235 1,370 2021 $ 2020 $ 21,900 23,062 1,128 (8,412) 3,268 (29,306) 11,640 11,910 7,023 4,616 16,200 22,189 4,002 3,175 2,308 — 47,874 17,586 3,208 3,837 35,189 72,505 16 794 810 — 808 808 Cash interest paid during the year ended December  31, 2021 is $63,625 (2020 - $56,153), which includes $23,062 (2020 - $22,189) of cash interest paid related to interest on lease liabilities. Page 18 • AutoCanada 12 Taxation Reconciliation of effective income tax rate for the year ended December 31, 2021 is as follows: Net income (loss) for the year before tax Net income (loss) for the year before tax multiplied by the blended rate of Canadian corporate tax of 25.4% (2020 - 25.8%) Effects of: Tax losses and deductible temporary differences not recognized Adjustment in respect of prior years Impact of non-deductible and other permanent items Impact of (recovery)/impairment of non-financial assets 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 expense (recovery) Total income tax expense Components of deferred income tax: Deferred tax asset Deferred tax liability Net deferred tax (liability) asset 2021 $ 221,220 2020 $ (1,205) 56,190 (311) (3,985) 2,335 1,782 (3,310) 143 722 144 2,225 (72) 1,384 930 706 568 (12) 54,021 24.4 % 5,418 (449.6) % 2021 $ 24,451 319 24,770 29,251 — 29,251 54,021 2020 $ 20,783 (125) 20,658 (15,240) — (15,240) 5,418 2021 $ 40,881 (53,814) (12,933) 2020 $ 29,713 (19,632) 10,081 In the comparative period the Canadian deferred tax balances were presented as a net deferred tax liability on the consolidated statement of financial position. As there is no right of offset at the balance sheet date, these balances have been presented on a gross basis in the current and prior year. Page 19 • 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 $ (3,791) 2,330 (23,223) 8,804 1,650 6,543 Share- based payments $ — 415 Other $ Total $ (7,272) Deferred tax assets (liabilities) January 1, 2020 (Expense) benefit charged to income taxes Amounts charged to other comprehensive income Acquisition of subsidiaries (Note 13) Other December 31, 2020 (Expense) benefit charged to income taxes Amounts charged to other comprehensive income Amounts charged to contributed surplus Acquisition of subsidiaries (Note 13) Other December 31, 2021 1,112 (464) 4,633 1,170 — 4,227 — 4,562 15,240 — — — — 2,836 — — — 2,836 — — (87) — (357) (291) — — — — — — — — (444) — 12 (279) (2,679) 1,779 (19,238) 9,974 4,486 10,770 — 4,989 10,081 (11,743) (1,073) (8,922) 913 (8,565) 6,040 (4,547) (1,354) (29,251) — — — — (2,392) — — — (2,392) — — — — — — 9,084 — 9,084 — — (38) — (369) (48) — — — — — — — — (407) — — (48) (14,422) 668 (28,577) 10,887 (6,471) 16,810 4,537 3,635 (12,933) Changes in the deferred income tax components are adjusted through deferred tax expense. Of the above components of the deferred income tax (liability) asset, ($14,422) (2020 - $(2,679)) 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 2021 $ 140,159 2020 $ 155,426 (46,764) (45,608) (92,372) 47,787 12,678 (53,350) (54,085) (107,435) 47,991 12,732 As at December 31, 2021, the Company has recognized the benefit of $47,787 (2020 - $47,991) of the deductible temporary differences, relating to the U.S. Operations, as a deferred tax asset. The Company has concluded that the recognized deferred tax assets are more likely than not to be recovered using estimated future taxable income, based on approved business plans and budgets for the segment. This estimate will be updated in future periods, which may result in increases or decreases in the amount of deferred tax assets recognized based on the amount judged more likely than not to be recoverable. Page 20 • AutoCanada The Company's U.S. Operations have federal and state net operating losses of $45,608 and $41,610, respectively (2020 - $54,085 and $52,886). 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 $72,295 (2020 - $45,372) available to reduce future taxable income, until their expiry between 2032 and 2041.  13 Business acquisitions During the year ended December 31, 2021, the Company completed the following business acquisitions that have been accounted for using the acquisition method. PG Klassic AutoBody On April 1, 2021, the Company acquired 100% of the shares in PG Klassic AutoBody ("PG Klassic"), a collision repair facility in Prince George, British Columbia. Autolux MB Collision On September 9, 2021, the Company acquired 100% of the shares in Autolux MB Collision ("Autolux"), a luxury- brand focused collision repair facility in Montreal, Quebec. The acquisitions of PG Klassic and Autolux support management's strategic objective of expanding the Company's collision centre capacity. Mark Wilson's Better Used Cars On August 9, 2021, the Company acquired 100% of the shares in Mark Wilson's Better Used Cars ("Mark Wilson's"), an independent used vehicle dealership in Guelph, Ontario. The acquisition forms part of management's strategic objective of developing a Used Digital Retail Division in the Canadian pre-owned vehicle market. The Company entered into a lease arrangement for the dealership facility with the former owner of Mark Wilson's. The lease arrangement contains a contingent consideration arrangement that requires the former owner of Mark Wilson's to pay the Company $2,000 if a certain performance target is not met for the three year's ending July 31, 2024. The estimated fair value of the contingent consideration arrangement is $nil as at the acquisition date and as at the year end December 31, 2021. Airdrie Autobody Ltd. On October 1, 2021, the Company acquired 100% of the shares in Airdrie Autobody Ltd. (“Airdrie Autobody”), a collision repair facility in Airdrie, Alberta. The acquisition supports management’s strategic objectives of expanding the Company’s collision centre capacity, and also allows the Company to leverage existing dealerships in Alberta. Crystal Lake Chrysler Dodge Jeep Ram (CDJR) Inc. On November 4, 2021, the Company acquired certain franchise rights, inventories and assets to be used in the operations of Crystal Lake Chrysler Dodge Jeep Ram (CDJR) Inc. ("Crystal Lake"), a new and used motor vehicle dealership in Crystal Lake, Illinois. The acquisition supports management's strategic objectives of further establishing the Company's presence in the Greater Chicago area. Autopoint Group On December 1, 2021, the Company completed the acquisition of substantially all of the assets of the Autopoint Group. The completed acquisition provides geographic diversification by more than doubling AutoCanada's Ontario footprint. Moreover, the acquisition provides brand diversification by adding three new brands to AutoCanada's Canadian platform. Page 21 • AutoCanada Summary of acquisitions The estimated provisional purchase price allocations, which are subject to the finalization of the valuation of the acquired assets and assumed liabilities, of business acquisitions completed during the year ended December 31, 2021 described above are summarized as follows: Autopoint Group $ Other Acquisitions 1 $ Total Acquisitions $ Current assets Cash and cash equivalents Trade and other receivables Current tax receivable Inventories Other current assets Property and equipment Right-of-use assets Intangible assets 2 Deferred income tax asset Total assets Current liabilities Trade and other payables Revolving floorplan facilities Lease liabilities Other liabilities Long-term indebtedness Lease liabilities Deferred income tax Total liabilities Net identifiable assets acquired Goodwill Total net assets acquired Total purchase consideration — 130 — 23,996 154 24,280 10,203 56,354 88,215 — 179,052 729 — 1,057 — 1,786 — 55,297 — 57,083 121,969 10,435 132,404 132,404 4,574 4,749 1,403 20,151 71 30,948 8,751 25,185 20,150 83 85,117 2,347 15,528 590 754 19,219 264 24,595 490 44,568 40,549 14,818 55,367 55,367 4,574 4,879 1,403 44,147 225 55,228 18,954 81,539 108,365 83 264,169 3,076 15,528 1,647 754 21,005 264 79,892 490 101,651 162,518 25,253 187,771 187,771 1 Other acquisitions includes franchised and used dealerships, and collision centres 2 Intangible assets relate to indefinite-life franchise rights associated with the respective dealerships The net assets recognized in the December 31, 2021 financial statements were based on provisional balances as the final balances go through a review between the Company and the respective sellers which will impact the final purchase price. The Right-of-use assets acquired as part of the Autopoint Group acquisition were based on a provisional assessment that the leases are at fair market value while the Company sought an independent appraiser to assess the lease rates. The appraisal had not been completed by the date the financial statements were approved for issue by the Board of Directors. The goodwill is attributable to the workforce, synergies from combining operations of the acquirees and profitability of the acquired businesses. Goodwill of $11,026 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 the acquisition dates contributed $85,328 of revenue and $2,443 of net income to the Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2021. Had the acquisitions occurred at January 1, 2021, consolidated pro-forma revenue and net income for the year ended December 31, 2021 would have been $5,161,190 and $174,833, respectively. Page 22 • AutoCanada These amounts have been calculated using the subsidiary's results and adjusting them for: ● Income tax expense (recovery) ● Interest on long-term indebtedness ● leasing arrangements as if they had been entered into on January 1, 2021 Transaction costs of $1,443 have been expensed and recorded in operating expenses. Prior year business acquisitions For the year ended December 31, 2021, the provisional amounts previously disclosed were finalized as follows: ● Cash consideration decreased by $200 ● Trade and other receivables decreased by $9 ● Inventory decreased by $68 ● Property, plant, and equipment decreased by $64 ● Goodwill increased by $4 ● Trade and other payables increased by $43 ● Bank indebtedness increased by $78 ● Non-Controlling interest decreased by $60 Contingent consideration of $500 was earned and payable at December 31, 2021. Management deemed these adjustments as immaterial and have adjusted them prospectively in the 2021 financial statements. Acquisitions in 2020 prior to adjustments of provisional amounts 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 centre 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). Page 23 • AutoCanada 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 30). 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, 2021, 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 35) 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 Income (Loss) (Note 30). 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). Concurrent with the formation of the Partnership, a wholly owned special purpose 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, 2021, 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 Total $ 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. Page 24 • AutoCanada 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 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 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. 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 Income (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. Page 25 • AutoCanada 14 Dealership divestitures There were no dealership divestitures for the year ended December 31, 2021. 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 (Loss) gain on disposal of assets, net (Note 10) in the Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2020, 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: Subsidiary GI G Auto HoldCo Inc. WBG Auto HoldCo Ltd. NBFG Holdings Inc. 2282239 Alberta Ltd. 2282237 Alberta Ltd. LMB Automobile Inc. Canbec Automobile Inc. 156023 Canada Inc. Auto Bugatti Inc. Ericksen M-B Ltd. Principal place of business British Columbia Manitoba Saskatchewan Saskatchewan Saskatchewan Quebec Quebec Quebec Quebec Alberta Proportion of ownership interests held by non- controlling interests 10 % 10 % 5 % 10 % 10 % 15 % 15 % 5 % 25 % 10 % Proportion of voting rights held by non- controlling interests 10 % 10 % 5 % 10 % 10 % 15 % 15 % 5 % 25 % 10 % Dividends paid to non- controlling interests 2021 $ — — — 7 16 — 45 — — 11 Dividends paid to non- controlling interests 2020 $ — — — — — — — — — — 79 — 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 (Note 22). Transactions with non-controlling interests During the year ended December 31, 2021, the Company reorganized capital in certain subsidiaries to bring in new non-controlling parties. The change in ownership did not result in a change of control. Equity attributable to AutoCanada shareholders was reduced by $538 as a result of the reorganization of non-controlling interests. The transactions resulted in new loans of $1,674 being issued to some of these parties to purchase a non- controlling interest in the subsidiaries for $2,139 (2020 - $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 dealerships 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. Page 26 • AutoCanada 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 Income (Loss). The fair value of the put options and associated redemption liabilities has been determined as $659 (2020 - $435) as at December 31, 2021, as a result of the preferred interest rights in the Partnership and the limited time of operation. Redemption liabilities Canbec Automobile Inc., LMB Automobile Inc., 156023 Canada 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: Beginning of period Additions in the year (Note 30) Derecognition on settlement Recognition on acquisition (Note 13) Loss on settlement 1 Adjustment to fair value 1 End of period Current redemption liabilities Long-term redemption liabilities December 31, 2021 $ December 31, 2020 $ 7,992 224 — — — 14,116 22,332 21,673 659 15,498 435 (8,250) 1,071 1,346 (2,108) 7,992 7,557 435 1 Net amount of $14,116 (2020 - ($762)) presented on the Consolidated Statements of Comprehensive Income (Loss) 16 Cash and cash equivalents Cash at bank and on hand Short-term deposits December 31, 2021 $ 102,467 13 102,480 December 31, 2020 $ 107,704 — 107,704 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 33 for further detail regarding cash balances held with the financial institution. Page 27 • AutoCanada 17 Trade and other receivables Trade receivables Other receivables Less: Expected loss allowance (Note 33) December 31, 2021 $ 104,759 30,632 135,391 (2,478) 132,913 December 31, 2020 $ 109,405 11,235 120,640 (1,990) 118,650 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 December 31, 2021 $ 222,272 34,282 441,730 39,015 737,299 December 31, 2020 $ 412,970 36,911 218,812 30,507 699,200 Amounts recognized in the Consolidated Statements of Comprehensive Income (Loss): Inventory expensed as cost of sales Writedowns on vehicles included in cost of sales Demonstrator expenses included in administrative costs 19 Assets and liabilities held for sale Land and buildings December 31, 2021 $ 3,724,309 9,851 7,907 December 31, 2020 $ 2,685,420 28,711 8,092 During the year ended December 31, 2021, the Company disposed of one property that was previously held for sale for proceeds of $1,039, with no gain or loss on the transaction. No assets remain as held for sale. 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 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. Page 28 • AutoCanada 20 Property and equipment Cost: January 1, 2020 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 December 31, 2020 Capital expenditures Business combinations (Note 13) Acquisition of real estate Disposals Transfers from inventory, net Foreign currency translation December 31, 2021 Accumulated depreciation: January 1, 2020 Depreciation Disposals Asset class reclassifications Transfers in from inventory, net Foreign exchange December 31, 2020 Depreciation Disposals Transfers to inventory, net Foreign exchange December 31, 2021 Carrying amount: December 31, 2020 December 31, 2021 Company & lease vehicles $ Leasehold improvements $ Machinery & equipment $ Land & buildings1 $ Furniture, fixtures & other $ Computer equipment $ Total $ 33,820 — 53,637 6,648 35,735 2,465 130,589 — 18,985 1,242 14,845 287,611 12,452 2,097 1,258 — (371) — — (6,353) (95) 28,259 — 2,174 — — 6,576 (21) 554 — (2,220) — 286 — (41) 58,864 8,030 3,954 — (145) — (9) 1,417 — (8,784) — — — (79) 30,754 3,705 11 8,514 (33) 5,432 (286) — — 144,227 — 2,958 8,123 — 20,990 (11,988) — 111 (310) — (8) 2 — (5,198) — — — (40) 14,991 987 1,203 — (103) — (8) 36,988 70,694 37,099 161,463 17,070 (6,754) (3,483) 243 — 4,056 20 (5,918) (3,925) — 2,858 — (6,985) (16,768) (2,824) 1,760 (146) — 9 (17,969) (2,945) 888 — — (20,026) (21,287) (3,074) 7,441 — — (24,732) (4,417) — 146 — 53 (16,867) (3,163) 220 — — — (29,003) (3,934) 9,592 — — (19,810) (23,345) (10,905) (1,678) 4,365 — — 27 (8,191) (1,459) 94 — 1 (9,555) 20 3,262 8,514 — (6,711) (23,317) — 5,432 — — (6,353) — (276) (21) 10,230 287,325 14,181 1,459 542 18,954 — 20,990 (203) (12,749) — 6,576 61 (4) 335,338 12,024 (9,755) (90,201) (1,896) (17,372) 5,781 19,590 — — — 4,056 18 127 (5,852) (83,800) (1,846) (17,272) 189 10,983 2,858 2 (7,508) (87,229) — 1 22,341 30,003 40,895 50,668 13,887 17,289 115,224 138,118 6,800 7,515 4,378 4,516 203,525 248,109 1 As at December 31, 2021, the Company owns land of $66,266 (2020 - $45,487), which is not subject to depreciation. Construction-in-progress additions of $6,865 (2020 - $6,514) 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 Income (Loss). 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, 2021, management identified certain assets with no future value and recorded an impairment of $nil (2020 - $3,303) in disposals. Page 29 • AutoCanada 21 Goodwill and intangible 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 (recovery) charges were allocated to the assets of the respective CGU’s as follows: Land and buildings (Notes 19, 20) Intangible assets Goodwill 2021 $ — (39,846) — (39,846) 2020 $ 3,922 15,055 5,230 24,207 The changes in the book value of intangible assets and goodwill for the year ended December 31, 2021 were as follows: Cost: January 1, 2020 Acquisitions (Note 13) Additions 1 Effect of foreign currency translation December 31, 2020 Acquisitions (Note 13) Additions Prior year business acquisitions (Note 13) Effect of foreign currency translation December 31, 2021 Accumulated impairment: January 1, 2020 Impairment Effect of foreign currency translation December 31, 2020 Recoveries of impairment Effect of foreign currency translation December 31, 2021 Carrying amount: December 31, 2020 December 31, 2021 Intangible assets $ Goodwill $ Total $ 479,938 4,626 430 (1,050) 124,681 6,461 — (1,666) 483,944 129,476 108,365 403 — (14) 25,253 17 4 (387) 592,698 154,363 69,645 15,055 (389) 84,311 (39,846) (16) 100,566 5,230 (2,054) 103,742 — (340) 44,449 103,402 604,619 11,087 430 (2,716) 613,420 133,618 420 4 (401) 747,061 170,211 20,285 (2,443) 188,053 (39,846) (356) 147,851 399,633 548,249 25,734 50,961 425,367 599,210 1 Additions to intangible assets represent increases to franchise rights. The recoveries of impairment for the year ended December 31, 2021 relates to the Company's reportable segments as follows: Canadian Operations $ (39,846) (39,846) U.S. Operations $ — — Total $ (39,846) (39,846) Intangible assets Page 30 • AutoCanada 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: Cash Generating Unit AL AZ U AD AX S D AO T Q G X I AK P AE AP AI AH K AJ M A AR AS AG AA F AY AN AC V N W Y B AV AQ Other CGUs less than $5,000 Carrying amount December 31, 2021 $ Goodwill Total 6,135 3,951 506 2,587 — — 3,724 — — — 1,648 1,726 — — — — 941 1,927 — — — — — 950 602 — — — — 909 8,563 — 871 550 — 1,343 — 161 13,867 33,942 25,201 25,000 24,887 22,339 21,806 21,768 21,687 18,599 16,824 15,883 15,791 15,520 15,306 15,078 14,496 13,437 13,397 13,180 12,559 11,781 11,549 10,384 10,213 9,635 9,626 9,431 9,253 8,824 8,748 8,563 8,495 6,906 6,865 6,590 6,027 5,799 5,006 68,815 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 15,152 16,448 — — 12,488 10,950 14,872 14,496 13,437 — 10,210 12,612 9,641 8,048 5,260 10,213 — 9,626 9,431 3,398 3,247 — — 8,495 — — 6,590 6,027 5,489 — 47,399 Intangible assets 27,807 21,250 24,494 — 22,434 21,806 18,044 21,687 15,152 16,448 — — 12,488 10,950 14,872 14,496 12,496 — 10,210 12,612 9,641 8,048 5,260 9,263 — 9,626 9,431 3,398 3,247 — — 8,495 — — 6,590 4,684 5,489 — 39,215 Intangible assets 27,807 21,250 24,494 22,300 22,339 21,806 18,044 21,687 18,599 16,824 14,235 14,065 15,520 15,306 15,078 14,496 12,496 11,470 13,180 12,559 11,781 11,549 10,384 9,263 9,033 9,626 9,431 9,253 8,824 7,839 — 8,495 6,035 6,315 6,590 4,684 5,799 4,845 54,948 548,249 50,961 599,210 399,633 25,734 425,367 Page 31 • AutoCanada The following tables show the impairments (recoveries of impairment) of indefinite-lived identifiable intangible assets and goodwill by CGU: Canadian dealerships For the year ended December 31, 2021, fifteen Canadian dealerships recorded impairment charges (recoveries) on indefinite-lived identifiable intangible assets (2020 - thirteen). The recoverable amounts for nine dealerships were determined using the value in use ("VIU") method while the remaining six dealerships were determined using the fair value less costs to dispose ("FVLCD") method. December 31, 2021 $ December 31, 2020 $ Intangible assets Goodwill Cash Generating Unit A Intangible assets (5,124) AK Q AE T AH R Y AJ AT AV P F O M AY I Net (recovery) impairment U.S. dealerships (4,356) (376) — (3,447) (2,970) (1,420) — (2,140) (352) (310) (206) (5,855) (1,180) (3,501) (5,577) (3,032) (39,846) Goodwill — — — — — — — — — — — — — — — — — — Total (5,124) (4,356) (376) 330 1,980 1,750 — (2,840) (3,447) (2,970) (1,420) — (2,140) (352) (310) (206) (5,855) (1,180) (3,501) (5,577) (3,032) (39,846) 2,490 480 290 (800) 2,400 — 310 — 5,300 (1,720) — — 1,420 11,390 — — — — — — — — — — — — — — — — — — Total 330 1,980 1,750 (2,840) 2,490 480 290 (800) 2,400 — 310 — 5,300 (1,720) — — 1,420 11,390 For the year ended December 31, 2021, no U.S. dealerships recorded impairment charges on indefinite-lived identifiable intangible assets and goodwill (2020 - three). Cash Generating Unit AM AX K Net impairment December 31, 2021 $ December 31, 2020 $ Intangible assets Goodwill — — — — — — — — Total — — — — Intangible assets Goodwill — 198 3,467 3,665 241 4,285 704 5,230 Total 241 4,483 4,171 8,895 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. Page 32 • AutoCanada The following tables show 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 A AK Q AE T AH R Y AJ AT AV P F O M AY I 1 The CGU was valued using the VIU technique in the prior year. 2 The CGU was valued using the FVLCD technique in the prior year. U.S. dealerships Cash Generating Unit AX 1 K FVLCD or VIU VIU FVLCD 1 FVLCD 1 VIU VIU VIU VIU VIU FVLCD 1 FVLCD 1 VIU 2 FVLCD VIU VIU VIU 2 FVLCD 1 VIU December 31, 2021 $ 11,565 13,869 15,982 23,078 36,165 16,827 10,369 20,706 11,781 4,197 13,574 53,165 12,658 11,565 26,515 8,942 19,407 December 31, 2020 $ 6,799 13,288 18,442 17,493 17,118 12,430 4,935 16,861 10,285 — 5,250 11,932 5,236 5,600 7,260 5,365 12,413 FVLCD or VIU VIU VIU December 31, 2021 $ 23,903 23,825 December 31, 2020 $ 23,903 14,575 1 This CGU did not show indicators of impairment during the year ended December 31, 2021 and was 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 model requires assumptions about revenue growth rates, operating margins, and discount rates. Page 33 • AutoCanada 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 model, 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 7.88 times forecasted EBITDA (2020 - 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 in the cash flow forecast period 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 10.62% and 12.58% in its projections (2020 - 11.05% and 12.25%). 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 December 31, 2021 K December 31, 2020 AM Page 34 • AutoCanada Change in discount rate Change in growth rate Carrying amount $ Recoverable amount exceeds carrying amount $ 0.21 % 0.97 % 14,575 0.01 % 0.01 % 13,852 — — 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 December 31, 2021 Q December 31, 2020 AH 22 Other assets Prepaid expenses Derivative financial instruments (Note 26) Other assets 1 Net investment in lease (Note 25) Change in multiple Recoverable amount $ Carrying amount $ Recoverable amount exceeds carrying amount $ 0.1 15,982 15,982 0.1 7,454 7,454 — — December 31, 2021 $ December 31, 2020 $ Current Long-term Current 9,528 — — 44 9,572 309 — 15,868 1,034 17,211 8,536 366 29 — 8,931 Long-term 143 — 14,194 — 14,337 1 $15,868 (2020 - $14,194) 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, 2021 $ 94,001 40,012 14,360 41,358 189,731 December 31, 2020 $ 65,806 36,672 3,092 31,940 137,510 The following table provides a continuity schedule of all recorded provisions: January 1, 2020 Provisions made during the year Amounts expired or disbursed December 31, 2020 Provisions made during the year Amounts expired or disbursed December 31, 2021 Legal and other Finance and insurance $ 71 — — 71 — (71) — Legal and other $ 3,754 6,441 (3,122) 7,073 4,009 (2,526) 8,556 Total $ 3,825 6,441 (3,122) 7,144 4,009 (2,597) 8,556 The balance represents the non-recurring legal and loss provision associated with certain wholesale transactions for the period ended December 31, 2018, management's best estimate of the most likely outcome of the Company's liability under ongoing legal claims, and estimated contract termination fees related to the integration of newly acquired entities. 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 33. Revolving floorplan facilities Revolving floorplan facilities - Syndicate (ii) Revolving floorplan facilities - VW Credit Canada, Inc. (iii) Revolving floorplan facilities - BMW Financial (iv) Revolving floorplan facilities - RBC (v) 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) Embedded derivative 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, 2021 $ December 31, 2020 $ 465,204 44,069 43,024 36,023 18,893 18,617 82,731 708,561 256,011 (29,306) (4,740) 221,965 65,000 (1,158) 63,842 — 101 285,908 — 285,908 465,510 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 The following table shows the movement of indebtedness during the years ended December 31, 2021 and December 31, 2020: Balance, January 1 Amortization of deferred financing costs Amortization of note premium Recognition and revaluation of embedded derivative Draws and additions Repayments Other Balance, December 31 2021 $ 197,231 1,896 (1,253) (29,306) 353,957 (231,180) (5,437) 285,908 2020 $ 213,432 1,300 — — 226,882 (245,505) 1,122 197,231 Page 36 • AutoCanada Terms and conditions of outstanding loans are as follows: i. On April 15, 2021, the Company issued $125 million (2020 - $125 million) principal amount of its existing 8.75% (2020 - 8.75%) Senior Unsecured Notes due February 11, 2025 (the "New Notes", collectively the "Notes"). The New Notes were issued at a premium issue price of $1,066.25 (2020 - $990.11) per $1,000 principal amount of notes (106.625%) (2020 - 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 will be August 11, 2021. The Notes agreements contain certain redemption options whereby the Company can redeem all or part of the Notes at prices set forth in the agreement, following certain dates specified in the agreements. In addition, at any time prior to February 11, 2022, the Company may at its option redeem up to 35% of the aggregate principal amount of the Notes with net cash proceeds from equity offerings at a specified redemption price in the agreement. The Note holders also have the right to require the Company to redeem the Notes or a portion thereof, at the redemption prices set forth in the agreement in the event of a change in control. These redemption features constitute embedded derivatives that are required to be separated from the Notes and measured at fair value. The embedded derivative components of these compound financial instruments are measured at fair value at each reporting date with gains or losses in fair value recognized through profit or loss (Note 11). For the year ended December  31, 2021, the fair value of the embedded derivative was $29,306 with the offsetting gain recognized in Finance costs (Note 11). For the year ended December 31, 2020, the Company extinguished $150 million of Senior Unsecured Notes and an extinguishment charge of $3,211 was recorded as a loss on extinguishment in Finance Costs (Note 11). ii. On April 14, 2021, the Company amended and extended its existing credit facility for three years to 2024. The amended credit facility increases the revolving facility by $50 million to $225 million, and includes a $1,060 million wholesale floorplan financing facility and a $15 million wholesale leasing facility, for total aggregate bank facilities of $1.3 billion (the "New Credit Facilities"). New staged covenant thresholds were established as per the terms of the April 14, 2021 amended credit facility agreement. Previously deferred financing costs of $1,128 (2020 - $791) were included in the loss on extinguishment in Finance costs (Note 11). On December 1, 2021, the Company amended and restated the existing credit facility for three years to April 14, 2024. No changes were made to the facility limits or covenant thresholds. In the case of advances under the revolving facility, the margins above the prime rate, banker’s acceptance rate, US base rate or LIBOR rate are subject to a pricing grid based on the then applicable ratio of senior net funded debt to EBITDA. As at December 31, 2021, the Company would have been in the first of five tiers of the pricing grid which provides for advances at the prime rate or US base rate plus 1.25% (3.70% at December 31, 2021) or at the banker’s acceptance rate or LIBOR rate plus 2.25% (2.69% at December 31, 2021).The wholesale leasing facilities bear interest rates of Canadian Dollar Offered Rate (“CDOR”) plus 2.25% for a total of 2.69% as at December 31, 2021. The wholesale floorplan facilities bear interest rates of Canadian Dollar Offered Rate (“CDOR”) plus 1.05% for a total of 1.49% as at December 31, 2021 except for facility for floorplan of used export vehicles which bears interest rates of CDOR rate plus 1.30% for total of 1.74% as at December 31, 2021. 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. iii. VW Credit Canada, Inc. (“VCCI”) provides floorplan financing for new and used vehicles for all of the Company’s Volkswagen and Audi dealerships (the “VCCI facilities”). During the first quarter of 2021, amendments were made to the maximum amount of financing provided by the VCCI facilities to $98,545. As at December 31, 2021, the maximum amount of financing is $98,545 (2020 - $94,800). The VCCI facilities bear interest at Royal Bank of Canada (“RBC”) prime rate plus 0.00% – 0.25% (2020 - 0.00%-0.25%). The RBC prime rate was 2.45% at December 31, 2021 (2020 - 2.45%). The combined total interest rates were 2.45%-2.70% (2020 - 2.45%-2.70%). 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. Page 37 • AutoCanada iv. v. BMW Financial Services Canada (“BMW Financial”), a division of BMW Canada Inc., provides floorplan financing for new and used vehicles for all of the Company’s BMW dealerships (the “BMW Facilities”). During the second quarter of 2021, amendments were made to the maximum advance limit to $109,550. As at December 31, 2021, the maximum advance limit is $109,550 (2020 - $102,255). The BMW Facilities bear a variable interest rate of prime minus 0.40% (2020 - 0.40%) per 360 day annum for a total of 2.05% at December 31, 2021 (2020 - 2.05%). The BMW Facilities have certain reporting requirements and financial covenants and are collateralized by the dealerships’ movable and immovable property. RBC provides floorplan financing for new, used and demonstrator vehicles for three of the Company’s dealerships (the “RBC Facilities”). As at December 31, 2021, the maximum advance limit is $50,000 (2020 - $50,000). The RBC Facilities bear interest rates of RBC’s Cost of Funds Rate plus 0.25%-0.50% (2020 - 0.25%-0.50%). The RBC’s Cost of Funds Rate was 1.21% as at December 31, 2021 (2020 - 1.24%). The combined total interest rates were 1.46%-1.71% as at December 31, 2021 (2020 - 1.49%-1.74%). The RBC Facilities have certain reporting requirements and financial covenants and are collateralized by the new, used, and demonstrator inventory financed by RBC and a general security agreement from the General Motors dealerships financed by RBC. vi. General Motors Financial of Canada (the "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. During the first quarter of 2021, amendments were made to the maximum amount of financing to $51,300. As at December 31, 2021, the prime rate was 2.45% (2020 - 2.45%) and the maximum amount of financing was $51,300 (2020 - $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, 2021, the maximum amount of financing was $59,500 (2020 - $58,000). The facilities bear interest rates of CDOR plus 1.75% per annum and 2.05% per annum (2020 - 1.80%) for new wholesale lines of credit and used wholesale lines of credit, respectively for totals of 2.19% and 2.49% (2020 - 2.47%). 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 dealerships financed by Mercedes-Benz Financial. viii. Ally Financial provides U.S. floorplan financing for new, used, and demonstrator vehicles in the company's U.S dealerships (the "Ally facility"). During the fourth quarter of 2021, amendments were made to include an additional dealership to the floorplan financing and the interest rate was amended to the Ally prime rate. As at December 31, 2021, the facility limit was $127,500 USD (2020 – $108,500 USD). The Ally facility bears interest at the Ally Bank prime rate. As at December 31, 2021, the Ally prime rate was 3.25% while the rate for the period ended December 31, 2020 was 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 provided the Company with a mortgage (the “VCCI Mortgage”). The VCCI Mortgage bore interest at a floating rate of interest per annum equal to RBC’s prime rate plus 0.15% (2020 - 0.15%). The RBC prime rate was 2.45% as at December 31, 2021 (2020 - 2.45%). The total interest rate was 2.60% as at December 31, 2021 (2020 - 2.60%). The VCCI Mortgage was repayable with blended monthly payments of $4 amortized over a 20-year period with the term expiring on July 15, 2021. The VCCI Mortgage had certain reporting requirements and financial covenants and was collateralized by a general security agreement consisting of a first fixed charge over the property. The VCCI Mortgage was repaid during the third quarter of 2021. Government assistance For the year ended December 31, 2021, the Small Business Association Paycheck Protection Program (SBA PPP) loan of $6,728 ($5,395 USD) received in the year ended December 31, 2020 was forgiven and recognized as an offset to Operating expenses (Note 8). Page 38 • AutoCanada 25 Leases Right-of-use asset balance, beginning of period Additions Sublease adjustment Acquisitions (Note 13) Depreciation (Note 8) Disposals Effect of foreign currency translation Right-of-use asset balance, end of period Lease liability balance, beginning of period Additions Acquisitions (Note 13) Repayments Interest expense (Note 11) Disposals Effect of foreign currency translation Lease liability balance, end of period Current lease liabilities Long-term lease liabilities Rent concessions December 31, 2021 $ 308,897 17,217 (2,016) 81,539 (26,420) (7,937) (282) 370,998 December 31, 2021 $ 387,929 17,047 81,539 (48,827) 23,062 (8,429) 496 452,817 25,602 427,215 December 31, 2020 $ 303,536 12,135 — 19,316 (24,759) (90) (1,241) 308,897 December 31, 2020 $ 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, 2021, the Company did not receive any additional rent concessions and $109 (2020 - $2,389) remains of the overall negotiated cash deferral of $4,169, which is to be repaid over various terms ending in 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 Income (Loss). Certain leases did not meet the criteria for the optional exemption due to substantive lease term extensions. 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) 2021 $ 525 76 2020 $ 2,006 95 215 204 As at December 31, 2021, potential cash outflows of $596,394 (2020 - $508,933), (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 $98,225 (2020 - $54,873). Page 39 • AutoCanada As at December 31, 2021, estimated commitments associated with low-value and short-term leases are insignificant. For the year ended December 31, 2021, the Company recognized a loss of $919 on derecognition of the right- of-use asset and lease liabilities pertaining to the buildings and presented the loss as part of 'Gain (loss) on disposal of assets, net (Note 10). Leases as lessor Finance lease For the year ended December 31, 2021, the Company has sub-leased one property that has been presented as a net investment in lease in Other assets (Note 22) and recognized interest income on lease receivables of $16 (2020 - $nil) (Note 11). The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments to be received after December 31, 2021: 2022 2023 2024 2025 2026 Thereafter Total undiscounted lease receivable Unearned finance income Net investment in the lease Lease termination Total $ 108 114 117 123 127 945 1,534 456 1,078 During the year ended December 31, 2021, the Company repurchased the assets previously sold in a sale and leaseback transaction to Capital Automotive Real Estate Services Inc. for cash consideration of $13,900. The lease agreement was subsequently terminated and a gain of $492 was recognized on the derecognition of the right-of-use asset and lease liability (Note 10). Page 40 • AutoCanada 26 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. 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. These instruments have settlement periods 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. During the year ended December 31, 2021, there were no changes to the designation of cash flow hedges. 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, 2021 Other liabilities - current Derivative financial instruments - liabilities Notional values Maturity December 31, 2020 Other current assets Other liabilities - current Derivative financial instruments - liabilities Foreign exchange contracts Interest rate swaps Non-hedges Cash flow hedges Non-hedges Total 173 — 284 1,625 — 457 6,674 8,299 48,200 USD 197,200 CAD 177,800 CAD 2022 2022 - 2024 2025 366 — — — 461 — — 366 461 7,060 15,086 22,146 Notional values Maturity 17,300 USD 2021 222,200 CAD 2021 - 2024 177,800 CAD 2025 The weighted average hedge rate of cash flow hedges was 2.44% (2020 - 2.58%). Page 41 • AutoCanada 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, 2021 Change in fair value of hedging instruments Change in the 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) Change in fair value of foreign exchange forward contracts Realized gain on foreign exchange forward contracts For the year ended December 31, 2020 Change in fair value of hedging instruments Change in the fair value of terminated hedges Change in fair value of non-hedging instruments (Note 11) Amortization of terminated hedges (Note 11) Interest rate swap settlements (Note 11) Change in fair value of foreign exchange forward contracts Realized loss on foreign exchange forward contracts Other comprehensive income $ Net income $ — — 8,412 (3,268) (7,023) (539) 216 (2,202) — — (3,175) (2,308) (3,208) 366 (1,754) 5,612 — — 3,268 — — — 8,880 (1,335) (11,911) — 2,308 — — — (10,079) (10,938) Total $ 5,612 — 8,412 — (7,023) (539) 216 6,678 (1,335) (11,911) (3,175) — (3,208) 366 (1,754) (21,017) 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, while CORRA has been officially announced, it has not been approved and 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. All of the Company's hedging instruments are currently based on CDOR. Page 42 • AutoCanada 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 $8,299 as at December 31, 2021 (2020 - $22,146). There was no ineffectiveness for the year ended December 31, 2021 and 2020. 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, 2021. As the CDOR rate associated with the derivative financial instrument was still in effect, there was no impact from the IBOR reform. 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 Other liabilities Equity forward Restructuring charges Contingent liability Derivative financial instruments (Note 26) Equity forward liability December 31, 2021 $ December 31, 2020 $ Current Long-term Current — 710 — 457 1,167 6,201 3,731 — — 9,932 — 1,215 500 461 2,176 Long-term 3,466 4,962 — — 8,428 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 Restricted Share Units ("RSUs"), Deferred Share Units ("DSUs"), and Share Appreciation Rights ("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. During the year ended December 31, 2021, the Company settled all of the 329,000 (2020 - 329,000) common shares pursuant to the previous equity forward agreement (Note 31) and entered into a new equity forward for 150,000 common shares. Transaction fees of $165 were incurred on the settlement of the equity forward liability resulting in a total amount of $3,631 recognized in equity for the purchase of treasury shares. The following table shows the change in the equity forward liability for the years ended: Outstanding, beginning of the period Acquired Exercised Forfeited Outstanding, end of the period December 31, 2021 December 31, 2020 Number of shares 329,000 150,000 (329,000) — 150,000 $ 3,466 6,201 (3,466) — 6,201 Number of shares 329,000 — — — 329,000 $ 3,466 — — — 3,466 Page 43 • AutoCanada Restructuring charges Restructuring charges are related to the voluntary termination of two franchises in year ended December 31, 2019 and the operating costs of the related leased facility, with $1,736 being utilized and recognized in Operating expenses (Note 8) during the year ended December 31, 2021. 29 Commitments and contingencies Lawsuits and legal claims The Company is engaged in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole. Note 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 $4,402 as at December 31, 2021 (2020 - $3,528) 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, 2021, the Company is committed to capital expenditure obligations in the amount of $2,971 (2020 - $17,700) related to dealership relocations, dealership re-imagings, and dealership Open Points with expected completion of these commitments in 2022. 30 Share-based payments The Company operates an equity-settled compensation plan under which it receives services from employees as consideration for share-based payments. The plans are as follows: Restricted Share Units (RSUs) The Company grants RSUs to designated management employees. Effective in 2018, the RSU Plan was modified such that awards are intended to be settled in shares. The RSU Plan settles by way of common shares, based on the Company's average share price for the seven days prior to the 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. Page 44 • AutoCanada 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, 2021 December 31, 2020 Number of RSUs 316,456 (37,626) 33,549 (3,692) — 308,687 Amount $ 2,382 (1,278) 1,036 (39) — 2,101 Number of RSUs 127,657 (4,823) 191,773 — 1,849 316,456 Amount $ 1,406 (34) 997 — 13 2,382 During the year ended December 31, 2021, 168,703 RSUs were vested but not settled. In addition, during the year ended December 31, 2021, the total number of RSUs exercised and settled was 37,626 (2020 - 4,823), with a charge of $459 (2020 - $nil) to Contributed surplus for exercised and settled RSUs, of which $603 was paid in cash for the settlement of related tax withholdings. 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 Stock Option Plan December 31, 2021 December 31, 2020 Number of DSUs 142,641 — 15,629 — 158,270 Amount $ 1,515 — 638 — 2,153 Number of DSUs 107,203 — 33,764 1,674 142,641 Amount $ 1,020 — 483 12 1,515 The Stock Option Plan (the “Plan”) is designed to provide long-term incentives to designated management to deliver long-term shareholder returns. Under the Plan, participants are granted options which only vest if certain service and market conditions are met. The terms of the Plan specify that following retirement an employee may exercise vested options with the rights to exercise continuing for 120 days following the retirement date. Options are granted under the Plan for no consideration and carry no dividend or voting rights. When exercisable, each option is exercisable to acquire one common share. The exercise price of options is determined by the Board and shall not be lower than the closing price of the AutoCanada shares on the Toronto Stock Exchange immediately preceding the date of grant. Page 45 • AutoCanada The following table shows the change in the number of stock options for the years ended December 31: 2021 2020 Average exercise price per share option $ 10.06 35.72 5.20 — 5.20 13.47 10.04 Share options # 2,500,000 345,968 (33,333) — (66,667) 2,745,968 2,366,666 Average exercise price per share option $ 10.26 5.20 — — — 10.06 10.04 Share options # 2,400,000 100,000 — — — 2,500,000 1,858,333 Outstanding, beginning of the year Granted Exercised Expired Forfeited Outstanding, end of the year Vested and exercisable, end of the year During the year ended December 31, 2021, 33,333 (2020 - nil) options under the Stock Option Plan (the "Plan") were exercised and settled, with a charge of $40 (2020 - nil) to Contributed surplus. The following table shows the expiry date and exercise price for the share options outstanding as at December 31, 2021: Grant date August 14, 2018 March 19, 2019 August 14, 2019 December 7, 2021 Total Weighted average remaining contractual life of options outstanding, end of the period Expiry date August 14, 2028 August 14, 2028 August 14, 2024 December 7, 2026 Exercise price $ 10.05 11.49 9.72 35.72 Share options # 1,930,000 370,000 100,000 345,968 2,745,968 6.27 years The weighted average remaining contractual life for the share options outstanding as at December 31, 2020 was 7.33 years. For the year ended December 31, 2021, the assessed weighted average fair value at grant date of options granted was $15.49 per option. The fair value at grant date is determined using the Black-Scholes Model that takes into account the exercise price, the expected life of the option, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield of the underlying share and the risk-free interest rate for the term of the option. The model inputs for options granted during the year ended December 31, 2021 include: December 7, 2021 grant ● Options are granted for no consideration and all options granted vest on December 7, 2024. Vested options are exercisable until December 7, 2026. ● Exercise price: $35.72 ● Grant date: December 7, 2021 ● Life of option: 3 years ● Share price at grant date: $36.96 ● Expected price volatility of the Company's shares: 64.18% ● Expected dividend yield: 1.08% ● Risk-free interest rate: 1.23% Expected price volatility was determined at the time of grant using the AutoCanada share price on a historical basis. It reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. During the year ended December 31, 2021, there were expenses of $479 (2020 - $1,822) and nil recoveries (2020 - nil). Page 46 • AutoCanada Executive Advance During the year ended December 31, 2021, the Company advanced $2,000 to the President, collateralized by the President's outstanding stock options under the existing Plan (the "Executive Advance") (Note 35). The Executive Advance was considered to represent an advance against share-based compensation secured against the Company's own shares and is treated as an equity instrument rather than an asset of the Company. The Executive Advance was granted for no consideration, carries no dividend or voting rights, and was immediately exercisable upon grant. The share price of the Executive Advance is based on the unrealized value of the President's outstanding options on the grant date, less the outstanding stock option exercise price, while the exercise price represents the amount advanced to the President. The fair value of the awards granted on August 31, 2021 and the share- based compensation expense for the period is insignificant. 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, 2021: 2021 Weighted average exercise price per share appreciation right $ 10.27 31.45 10.62 6.21 18.11 12.17 Share appreciation rights # 1,126,950 143,000 (839,675) (41,275) 389,000 66,000 2020 Weighted average exercise price per share appreciation right $ 10.86 10.05 10.25 11.07 10.27 12.17 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, 2021, the total number of SARs exercised and settled was 839,675 (2020 - 63,000), with a charge of $17,923 (2020 - $191) to Contributed surplus for exercised and settled SARs, of which $18,772 was paid in cash for the settlement of related tax withholdings. No share appreciation rights expired. The weighted average contractual life remaining for these share appreciation rights as at December 31, 2021 is 2.81 years. The assessed weighted average fair value at grant date of the share appreciation rights granted during the year ended December 31, 2021 was $9.06 per option. The fair value at grant date has been determined using the Black-Scholes Model. The weighted average model inputs for the share appreciation rights granted during the year ended December 31, 2021 include: ● Exercise price: $31.45 ● Expected life of option: 2.59 years ● Share price at grant date: $29.56 ● Expected price volatility of the Company's shares: 54.72% ● Expected dividend yield: 1.43% ● Risk-free interest rate: 0.49% Page 47 • AutoCanada 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. Employee Advances During the year ended December 31, 2021, the Company advanced $2,570 to certain employees (the "Employee Advances"), collateralized by the employees' outstanding SARs. The Employee Advances are accounted for as equity-settled awards and are expected to vest 90 days from the grant date. The SARs held by these certain employees were modified concurrent with the grant of the Employee Advances (the "SARs Modifications"). The share price of the Employee Advances is based on the amount advanced to each employee, while the exercise price represents the amount advanced, including interest over the term of the advance. The fair value of the awards granted on August 20, 2021 and the share-based compensation expense was recognized in Operating expenses. The SARs Modifications are accounted for as a new grant of SARs under the Company's existing SARs Plan and were granted for no consideration and carry no dividend or voting rights. The fair value of the awards granted on August 20, 2021 and the share-based compensation expense was recognized in Operations expenses. The fair values of the SARs Modifications, Employee Advances, and Executive Advance granted during the year ended December  31, 2021 were determined using the Black Scholes Model. Expected price volatility was determined at the time of grant for the awards 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. For the year ended December 31, 2021, the employee's outstanding SARs vested and the Employee Advances were partially settled by employee shares the settled out of the money with $1,271 recognized as a charge to Employee costs. Used Digital Retail Division Common interests of the Partnership are granted to dealership management and the Executive Chairman (Note 35) 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. The Executive Chair holds a 15% interest, that contains a share-based payment arrangement that vested immediately upon grant, in the Partnership. Share-based compensation expense of $224 (2020 - $435) was recognized in the Consolidated Statements of Comprehensive Income (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) Page 48 • AutoCanada 2021 $ 479 1,048 638 1,180 3,345 224 3,569 2020 $ 1,822 917 494 796 4,029 435 4,464 31 Share capital Common shares Common shares of the Company are voting shares and have no par value. The authorized share capital is an unlimited number of shares. The following table shows the change in common shares held during the years ended: Issued, beginning of the period Exercised stock options (Note 30) Issued, end of the period Normal Course Issuer Bid December 31, 2021 December 31, 2020 Number of common shares Number of common shares $ 27,459,683 33,333 27,493,016 510,606 213 510,819 27,459,683 — 27,459,683 $ 510,606 — 510,606 On December 20, 2021, the Company received approval from the TSX to commence a Normal Course Issuer Bid (“NCIB”). The NCIB commenced on December 23, 2021, and will terminate on the earlier of December 22, 2022 and the date on which the maximum number of common shares that can be acquired pursuant to the NCIB have been purchased. Under the NCIB, the Company is authorised to purchase, for cancellation, up to 1,730,321 common shares, representing approximately 6.3%, of the 27,493,016 issued and outstanding common shares of the Company as at December 20, 2021. The Company is limited under the NCIB to purchasing no more than 36,686 common shares on any given day, subject to the block purchase exemption under the TSX rules. In connection with the NCIB, the Company has established an automatic repurchase plan with its designated broker to facilitate the purchase of shares under the NCIB at times when the Company would ordinarily not be permitted to purchase its shares due to regulatory restrictions or blackout periods. No common shares have been repurchased and cancelled under the NCIB for the year ended December 31, 2021 (Note 38). Treasury shares Shares are held in trust to mitigate the risk of future share price increases from the time the equity-settled awards (Note 30) are granted to when they are fully vested and can be exercised. 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, 2021 on the shares held in trust of $nil (2020 - $3) are reinvested to purchase additional shares. The shares held in trust are accounted for as treasury shares and are recognized on a first-in-first-out basis upon issuance and presented separately in the Consolidated Statements of Changes in Equity. The following table shows the change in treasury shares held for the years ended: Outstanding, beginning of the period Treasury shares acquired Dividends reinvested Forward share purchase (Note 28) Treasury shares settled Outstanding, end of the period Dividends December 31, 2021 December 31, 2020 Number of treasury shares Number of treasury shares $ (232,980) — — (329,000) 318,674 (243,306) (2,494) — — (3,631) 3,685 (2,440) (28,774) (217,350) (438) — 13,582 (232,980) $ (716) (2,081) (3) — 306 (2,494) 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, 2021, no eligible dividends (2020 - $0.10 per share) on common shares were declared or paid, resulting in total payments of $nil (2020 - $2,743). On April 20, 2020, the Company suspended the eligible quarterly dividend per common share. Page 49 • AutoCanada Earnings per share Basic earnings per share was calculated by dividing earnings attributable to AutoCanada shareholders by the sum of the weighted-average number of common shares outstanding during the period. Basic earnings per share are adjusted by the dilutive impact of all share based payment plans to calculate the diluted earnings per share. Net income (loss) for the year attributable to AutoCanada shareholders 2021 $ 164,207 2020 $ (7,455) 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 2021 $ 27,474,106 184,738 1,541,696 104,752 29,305,292 2020 $ 27,313,140 — — — 27,313,140 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. 32 Capital disclosures The Company’s objective when managing its capital is to safeguard the Company’s assets and its ability to continue as a going concern while at the same time maximizing the growth of the business, returns to shareholders, and benefits for other stakeholders. 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, 2021 $ 285,908 519,409 805,317 December 31, 2020 $ 197,166 362,820 559,986 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, 2021. Net indebtedness Net indebtedness is a measure used by management to evaluate the liquidity of the Company. Net indebtedness is calculated as total indebtedness (as shown in the Consolidated Statements of Financial Position), adjusted to remove any associated embedded derivative impacts, less cash and cash equivalents, as follows: Total indebtedness Embedded derivative asset Total indebtedness Cash and cash equivalents Net Indebtedness Page 50 • AutoCanada December 31, 2021 $ December 31, 2020 $ 197,231 — 197,231 107,704 89,527 285,908 29,306 315,214 102,480 212,734 33 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 significant 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 $266,563 (2020 - $123,764). 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. 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 derivative financial instruments note (Note 26). 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 2021 $ 7,971 16 2020 $ 8,916 16 2021 $ 3,986 8 2020 $ 4,458 8 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, 2021 and December 31, 2020 and the corresponding historical credit losses experienced within these periods. Page 51 • AutoCanada The loss allowance for trade receivables as at December 31, 2021 and December 31, 2020 was determined as follows: December 31, 2021 December 31, 2020 Expected loss rate % 0.05 2.13 4.82 9.91 10.25 Gross carrying amount - Trade receivables $ 97,407 12,471 8,215 2,062 15,236 135,391 Expected loss allowance (Note 17) $ 52 266 395 204 1,561 2,478 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 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 2021 $ 1,990 2,984 (2,475) (21) 2,478 2020 $ 1,869 3,474 (2,640) (713) 1,990 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 Income (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 1.488% at December 31, 2021 (2020 - 1.519%). 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, 2021, the Company has $160,000 (2020 - $104,877) 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. Page 52 • AutoCanada 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. 2022 $ 2023 $ 2024 $ 2025 $ Thereafter $ Total $ December 31, 2021 Trade and other payables Revolving floorplan facilities Vehicle repurchase obligations Indebtedness Contractual interest payable Lease liabilities Derivative financial instruments December 31, 2020 Trade and other payables Revolving floorplan facilities Vehicle repurchase obligations Indebtedness Contractual interest payable Lease liabilities Derivative financial instruments 189,731 708,561 3,584 — 23,622 54,561 3,357 983,416 — — — 101 23,622 53,420 2,860 80,003 — — — — — — 65,000 250,000 2,539 22,380 48,740 51,656 428 2,111 141,147 301,707 — — — — — 189,731 708,561 3,584 315,101 72,163 534,428 742,805 8,756 534,428 2,040,701 — 2021 $ 2022 $ 2023 $ 2024 $ Thereafter $ Total $ 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 34 Fair value of financial instruments The Company’s financial instruments as at December 31, 2021 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, an embedded derivative, 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. Long-term indebtedness has a fixed-rate portion but the carrying value is not materially different from its fair value. The embedded derivative (Level 2) included within indebtedness (Note 24) is carried at fair value using the Hull White pricing model. The increase in the fair value of the embedded derivative is largely due to an improvement in the Company's credit spread. Derivative financial instruments are made up of interest rate swaps and foreign exchange forward contracts (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 53 • 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 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 vehicle wholesale and export business, controlled by the Executive Chairman, that supplies used vehicle inventory to the Company; ● 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, 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 and are based on normal commercial terms and conditions. A summary of these transactions is as follows: Consulting services, administrative and other support and sourcing fees Used vehicle inventory purchases 2021 $ 2,175 5,997 8,172 2020 $ 1,151 — 1,151 Executive Advance During the year ended December 31, 2021, the Company issued a $2,000 Executive Advance to the President, collateralized by the President's outstanding stock options under the Company's existing Stock Option Plan (the "Plan"). The Executive Advance is repayable in full on the earlier of i) March 31, 2022, or ii) the exercise and settlement of the President's outstanding stock options under the Plan. Interest is payable annually at a rate of 1%. The Executive Advance was considered to represent an advance against share-based compensation secured against the Company's own shares and is treated as an equity instrument rather than an asset of the Company (Note 30). Used Digital Retail Division During the year ended December 31, 2020, 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 30). Changes in the value of the 15% interest are recorded in Operating expenses. Page 54 • AutoCanada 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 Share-based compensation 2021 $ 5,290 67 224 806 6,387 2020 $ 4,029 108 435 1,327 5,899 36 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 Revolving floorplan facilities December 31, 2021 $ (7,810) (5,055) — (1,078) (1,589) 40,594 (68,469) (43,407) December 31, 2020 $ 14,711 137,036 (152) (229) 172 (8,130) (72,443) 70,965 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. 37 Segmented reporting During the year ended December 31, 2021, 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, 2021 Year ended December 31, 2020 Canada 1 $ U.S. $ Total $ Canada 1 $ U.S. $ Total $ Revenues External revenues 3,970,517 682,898 4,653,415 2,977,149 356,009 3,333,158 Inter-segment revenue Total revenues — 3,970,517 — 682,898 — 4,653,415 (3,664) 2,973,485 — 356,009 (3,664) 3,329,494 1 AutoCanada's corporate office has been included with the Canadian Operations segment, as it is located in Canada. Page 55 • AutoCanada Year ended December 31, 2021 Year ended December 31, 2020 Canada 1 $ U.S. $ Total $ Canada 1 $ U.S. $ Total $ Operating profit before other income (expense) 192,838 28,736 221,574 87,692 (2,029) 85,663 Lease and other income, net (Note 10) 8,078 957 9,035 (Loss) gain on disposal of assets, net (Note 10) (387) — (387) 6,744 1,563 642 (193) 7,386 1,370 Recoveries (impairment) of non-financial assets (Note 21) Operating profit — 39,846 39,846 240,375 29,693 270,068 (15,312) 80,687 (8,895) (10,475) (24,207) 70,212 Finance costs (Note 11) Finance income (Note 11) (Loss) gain on redemption liabilities (Note 15) Other losses Net income (loss) for the year before tax (35,189) 810 (14,116) (353) 221,220 (72,505) 808 762 (482) (1,205) 1 AutoCanada's corporate office has been included with the Canadian Operations segment, as it is located in Canada. Assets held for sale (Note 19) Segment assets Capital expenditures and acquisition of real estate (Note 20) Segment liabilities As at December 31, 2021 As at December 31, 2020 Canada 1 $ — U.S. $ — Total $ — Canada 1 $ 1,039 U.S. $ — Total $ 1,039 1,969,692 28,763 288,981 6,408 2,258,673 35,171 1,684,941 232,422 1,917,363 20,667 299 20,966 1,276,430 462,834 1,739,264 1,252,100 302,443 1,554,543 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 As at December 31, 2021 As at December 31, 2020 Canada 1 $ U.S. $ 1,639,894 323,987 Total $ 1,963,881 Canada 1 $ U.S. $ 1,528,915 204,976 Total $ 1,733,891 1,675,342 262,199 1,937,541 923,192 87,689 1,010,881 Parts, service and collision repair 426,927 57,712 484,639 361,472 48,499 409,971 Finance, insurance and other 228,354 39,000 267,354 159,906 14,845 174,751 Total revenue 3,970,517 682,898 4,653,415 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 56 • AutoCanada 38 Subsequent events Amended and Extended Credit Facilities On February 7, 2022, the Company amended the $1,300 million syndicated credit agreement with Scotiabank, CIBC, RBC, HSBC, ATB, BMO, and The Toronto-Dominion Bank ("TD"), while maintaining its existing specified-use tranches and facility limits. The amendment included changes to the interest rate structure, covenants, and other administrative and structural changes to add flexibility to meet the Company's operational needs on an ongoing basis. Concurrently, the amendment was also executed to support both the Issuance of the $350 million senior unsecured notes issued on February 7, 2022 and the repayment of the previous $250 million senior unsecured notes. The Credit Facility term was also extended to April 14, 2025. Senior Unsecured Notes On February 7, 2022, the Company issued Senior Unsecured Notes ("the New Issuance Notes") of $350 million aggregate principal amount at 5.75%. to fund a redemption of the then outstanding $250 million Notes (Note 24). The Company redeemed the full $250 million outstanding balance on February 10, 2022. The New Issuance Notes have a term of seven years and mature on February 7, 2029. Interest is payable semi-annually on February 7 and August 7 of each year the New Issuance Notes are outstanding. Concurrent with the redemption of the Notes, the associated embedded derivative was extinguished. Normal Course Issuer Bid As at March 2, 2022, the Company repurchased and cancelled 542,401 shares under the Normal Course Issuer Bid (“NCIB”) (Note 31) for $20 million. Page 57 • AutoCanada AutoCanada Inc. 200 - 15511 123 Avenue NW Edmonton, AB • T5V 0C3 www.autocan.ca 

Continue reading text version or see original annual report in PDF format above