AutoCanada Inc. announces strong results for the quarter ended March 31, 2014: - AZTV7/Cable 13, Me-TV 7.2, HSN 7.3, Phoenix-Prescott, AZ

AutoCanada Inc. announces strong results for the quarter ended March 31, 2014:

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SOURCE AutoCanada Inc.

A conference call to discuss the results for the reporting period ended March 31, 2014 will be held on May 9, 2014 at 11:00 a.m. Eastern time (9:00 a.m. Mountain time). To participate in the conference call, please dial 1-888-231-8191 or (647) 427-7450 approximately 10 minutes prior to the call. A live and archived audio webcast of the conference call will also be available on the Company's website www.autocan.ca.

EDMONTON, May 8, 2014 /PRNewswire/ - AutoCanada Inc. (the "Company" or "AutoCanada") (TSX: ACQ) today announced financial results for the reporting period ended March 31, 2014.

 2014 First Quarter Highlights
-  Revenue increased 28.2% or $80.2 million to $364.3 million
-  Gross profit increased by 24.1% or $12.3 million to $63.5 million
-  Adjusted EBITDA increased by 40.2% or $4.3 million to $15.0 million
-  EBITDA increased 36.8% to $14.5 million from $10.6 million in Q1 of 2013
-  Pre-tax earnings increased by $2.1 million or 23.1% to $11.2 million
-  Adjusted net earnings increased by $1.8 million or 26.1% to $8.7 million
-  Net earnings increased by $1.5 million or 22.1% to $8.3 million
-  Adjusted net earnings per share increased by 14.3% to $0.40 from $0.35
-  Earnings per share increased by 11.0% to $0.383 from $0.345
-  Same store revenue increased by 13.0%
-  Same store gross profit increased by 8.1%
-  Same store new vehicle retail revenue increased by 8.5%
-  Same store used vehicles retail revenue increased by 21.6%
-  Same store parts, service and collision repair revenue increased by 12.8%

In commenting on the financial results for the three month period ended March 31, 2014, Pat Priestner, Chairman and Chief Executive Officer of AutoCanada Inc., stated that, "We are very pleased with our first quarter operating results.  The improved operating results in our used vehicle departments and our parts, service and collision repair departments on a same store basis more than offset what we would consider to be a slightly weaker than expected quarter for new vehicle sales and new vehicle margins. We give credit to our exceptional dealership teams for consistently exceeding the market and the strong performance in all four departments."

With respect to acquisitions completed during the quarter, Mr. Priestner further stated, "We are very excited about the recent investments in Saskatoon Motors Products and Mann-Northway Auto Source, both located in Saskatchewan, a province in which our Company would like to expand. We are also very pleased with the recently announced investment in McNaught Cadillac Buick GMC in Winnipeg, Manitoba, which provides us the opportunity to build upon our ever expanding Winnipeg platform."

"We are also very excited to have announced the signing of purchase agreements for a dealer group, as well as purchase agreements for additional unrelated dealerships outside of the dealer group.  In total, we have signed purchase agreements for eight additional dealerships, which we expect to close by August 1, 2014, subject to manufacturer approval." Mr. Priestner further stated with respect to future acquisition opportunities.

Mr. Priestner also commented on the increase in dividend, "In keeping with the current dividend strategy and remaining committed to providing shareholders with appropriate dividend growth, the Board has decided to raise the quarterly dividend for the thirteenth consecutive quarter to $0.23 per share or $0.92 per share on an annualized basis."

First Quarter 2014 Highlights

  • The Company generated net earnings of $8.3 million or earnings per share of $0.383 versus earnings per share of $0.345 in the first quarter of 2013.  Pre-tax earnings increased by $2.1 million to $11.2 million in the first quarter of 2014 as compared to $9.1 million in the same period in 2013.

  • Same store revenue increased by 13.0% in the first quarter of 2014, compared to the same quarter in 2013.  Same store gross profit increased by 8.1% in the first quarter of 2014, compared to the same quarter in 2013.

  • Revenue from existing and new dealerships increased 28.2% to $364.3 million in the first quarter of 2014 from $284.1 million in the same quarter in 2013.

  • Gross profit from existing and new dealerships increased 24.1% to $63.5 million in the first quarter of 2014 from $51.1 million in the same quarter in 2013.

  • EBITDA increased 36.8% to $14.5 million in the first quarter of 2014 from $10.6 million in the same quarter in 2013.

  • Free cash flow increased to $7.8 million in the first quarter of 2014 or $0.36 per share as compared $5.5 million or $0.28 per share in the first quarter of 2013.

  • Adjusted free cash flow increased to $7.3 million in the first quarter of 2014 or $0.34 per share as compared to $5.0 million or $0.25 per share in 2013.

  • Adjusted return on capital employed decreased to 4.1% in the first quarter of 2014 as compared to 6.4% in 2013.

  • Adjusted return on capital employed on a trailing 12 month basis of 25.1% as compared to 27.6% at March 31, 2013.

Dividends

Management reviews the Company's financial results on a monthly basis.  The Board of Directors reviews the financial results on a quarterly basis, or as requested by Management, and determine whether a dividend shall be paid based on a number of factors.

The following table summarizes the dividends declared by the Company in 2014:

(In thousands of dollars)                  
            Total
    Record date   Payment date           Declared Paid
              $ $
February 28, 2014   March 17, 2014           4,760 4,760

On May 8, 2014, the Board declared a quarterly eligible dividend of $0.23 per common share on AutoCanada's outstanding Class A common shares, payable on June 16, 2014 to shareholders of record at the close of business on May 30, 2014.  The quarterly eligible dividend of $0.23 represents an annual dividend rate of $0.92 per share.

Eligible dividend designation
For purposes of the enhanced dividend tax credit rules contained in the Income Tax Act (Canada) (the "ITA") and any corresponding provincial and territorial tax legislation, all dividends paid by AutoCanada or any of its subsidiaries in 2010 and thereafter are designated as "eligible dividends" (as defined in 89(1) of the ITA), unless otherwise indicated.  Please consult with your own tax advisor for advice with respect to the income tax consequences to you of AutoCanada Inc. designating dividends as "eligible dividends".

SELECTED QUARTERLY FINANCIAL INFORMATION

The following table shows the unaudited results of the Company for each of the eight most recently completed quarters.  The results of operations for these periods are not necessarily indicative of the results of operations to be expected in any given comparable period.

(in thousands of dollars, except Operating
Data and gross profit %)
Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
Income Statement Data                
  New vehicles       186,560        190,065        159,026        174,279        254,261        257,222        197,097        216,524 
  Used vehicles       62,822        62,816        57,260        62,656        77,113        85,975        75,137        85,969 
  Parts, service and collision repair       28,915        28,488        29,920        29,515        34,456        37,104        41,267        40,724 
  Finance, insurance and other       16,139        16,775        14,928        17,601        22,555        22,530        20,272        21,047 
Revenue       294,436        298,144        261,134        284,051        388,385        402,831        333,773        364,264 
                 
  New vehicles       14,684        15,556        15,527        16,039        20,792        20,694        18,326        17,813 
  Used vehicles       4,238        4,004        3,637        3,789        5,794        6,240        4,450        5,551 
  Parts, service and collision       15,298        15,133        15,418        15,232        17,586        20,114        20,822        20,593 
  Finance and insurance       14,842        15,428        13,785        16,079        20,676        20,666        18,735        19,514 
Gross profit       49,062        50,121        48,367        51,139        64,848        67,714        62,333        63,471 
                 
Gross Profit %       16.7%        16.8%        18.5%        18.0%        16.7%        16.8%        18.7%        17.4% 
Operating expenses       37,659        38,361        37,739        40,353        48,639        51,080        48,447        50,401 
Operating exp. as a % of gross profit       76.8%        76.5%        78.0%        78.9%        75.0%        75.4%        77.7%        79.4% 
Finance costs - floorplan       2,622        2,745        1,859        1,675        1,888        1,903        1,887        1,965 
Finance costs - long term debt       239        250        257        237        218        163        388        764 
Reversal of impairment of intangibles       -        -        (222)        -        -        -        (746)        - 
Income from investments in associates       83        130        255        201        648        555        836        893 
Income tax       2,216        2,379        2,540        2,309        3,976        3,920        3,490        2,881 
Net earnings (4)       6,712        6,806        6,606        6,822        10,823        10,968        9,553        8,296 
EBITDA (1)(4)       10,195        10,575        10,299        10,557        16,532        16,626        14,754        14,453 
Basic earnings (loss) per share       0.338        0.344        0.334        0.345        0.532        0.507        0.441        0.383 
Diluted earnings per share       0.338        0.344        0.334        0.345        0.532        0.507        0.441        0.383 
Operating Data                
Vehicles (new and used) sold       8,154        8,087        6,703        7,341        10,062        10,325        8,046        8,766 
Vehicles (new and used) sold including GM (5)       8,557        8,783        7,378        8,123        11,399        11,405        9,209        9,945 
New vehicles sold including GM (5)       5,964        6,178        4,956        5,665        8,246        8,023        6,090        6,570 
New retail vehicles sold       4,400        4,410        3,982        4,118        5,487        5,986        4,932        4,773 
New fleet vehicles sold       1,313        1,265        549        1,036        1,923        1,365        552        1,132 
Used retail vehicles sold       2,441        2,412        2,172        2,187        2,652        2,974        2,562        2,861 
Number of service & collision repair orders completed       78,104        78,944        78,001        77,977        93,352        97,074        95,958        91,999 
Absorption rate (2)       81%        89%        89%        85%        82%        90%        90%        85% 
# of wholly-owned dealerships at period end       24        24        24        25        27        29        28        28 
# of wholly-owned same store dealerships (3)       21        21        22        22        22        22        21        23 
# of service bays at period end       333        333        333        341        341        388        381        381 
Same store revenue growth (3)       2.4%        8.0%        7.4%        12.9%        26.2%        19.9%        8.9%        13.0% 
Same store gross profit growth (3)       7.1%        7.9%        11.9%        16.9%        25.8%        18.5%        9.2%        8.1% 
Balance Sheet Data                
Cash and cash equivalents       51,198        54,255        34,471        41,991        35,058        38,034        35,113        41,541 
Restricted cash       -        -        10,000        10,000        10,000        -        -        - 
Trade and other receivables       52,126        54,148        47,993        64,719        69,714        62,098        57,662        69,747 
Inventories       201,662        194,438        199,085        217,663        232,837        237,421        278,062        261,764 
Revolving floorplan facilities       221,174        212,840        203,525        225,387        246,325        228,526        264,178        261,263 

1  EBITDA has been calculated as described under "NON-GAAP MEASURES".
2  Absorption has been calculated as described under "NON-GAAP MEASURES".
3  Same store revenue growth & same store gross profit growth is calculated using franchised automobile dealerships that we have owned for at least 2 full years.
4  The results from operations have been lower in the first and fourth quarters of each year, largely due to consumer purchasing patterns during the holiday season, inclement weather and the reduced number of business days during the holiday season. As a result, our financial performance is generally not as strong during the first and fourth quarters than during the other quarters of each fiscal year. The timing of acquisitions may have also caused substantial fluctuations in operating results from quarter to quarter.
5  The Company has investments in General Motors dealerships that are not consolidated. This number includes 100% of vehicles sold by these dealerships in which we have less than 100% investment.

The following table summarizes the results for the three-month period ended March 31, 2014 on a same store basis by revenue source and compares these results to the same period in 2013.

Same Store Revenue and Vehicles Sold
  For the Three Months Ended
(in thousands of dollars) March 31,
2014
March 31,
2013
% Change
Revenue Source      
  New vehicles - retail       152,764        140,819        8.5% 
  New vehicles - fleet       35,358        29,336        20.5% 
New vehicles       188,122        170,155        10.6% 
  Used vehicles - retail       56,319        46,318        21.6% 
  Used vehicles - wholesale       18,282        15,170        20.5% 
Used vehicles       74,601        61,488        21.3% 
Finance, insurance and other       18,275        17,041        7.2% 
Subtotal       280,998        248,684        13.0% 
Parts, service and collision repair       32,057        28,430        12.8% 
Total       313,055        277,114        13.0% 
       
New retail vehicles sold       4,115        4,018        2.4% 
New fleet vehicles sold       1,044        1,027        1.7% 
Used retail vehicles sold       2,447        2,145        14.1% 
Total       7,606        7,190        5.8% 
Total vehicles retailed       6,562        6,163        6.5% 

The following table summarizes the results for the three months ended March 31, 2014 on a same store basis by revenue source and compares these results to the same period in 2013.

Same Store Gross Profit and Gross Profit Percentage
  For the Three Months Ended
  Gross Profit Gross Profit %
(in thousands of dollars) March 31,
2014
March 31,
2013
% Change March 31,
2014
March 31,
2013
Change
Revenue Source            
New vehicles - Retail       15,724        15,522        1.3%        10.3%        11.0%        (0.7)% 
New vehicles - Fleet       19        120        (84.2)%        0.1%        0.4%        (0.3)% 
New vehicles       15,743        15,642        0.6%        8.4%        9.2%        (0.8)% 
Used vehicles - Retail       4,303        3,375        27.5%        7.6%        7.3%        0.3% 
Used vehicles - Wholesale       695        351        98.0%        3.8%        2.3%        1.5% 
Used vehicles       4,998        3,726        34.1%        6.7%        6.1%        0.6% 
Finance and insurance       16,779        15,566        7.8%        91.8%        91.3%        0.5% 
Subtotal       37,520        34,934        7.4%        13.4%        14.0%        (0.6)% 
Parts, service and collision       16,346        14,730        11.0%        51.0%        51.8%        (0.8)% 
Total       53,866        49,664        8.5%        17.2%        17.9%        (0.7)% 

AutoCanada Inc.
Condensed Interim Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands of Canadian dollars except for share and per share amounts)

  Three month
period ended
Three month
period ended
  March 31,
2014
$
March 31,
2013
$
Revenue (Note 6)       364,264        284,051 
Cost of sales (Note 7)       (300,793)        (232,912) 
Gross profit       63,471        51,139 
Operating expenses (Note 8)       (50,400)        (40,353) 
Operating profit before other income       13,071        10,786 
Gain (loss) on disposal of assets, net       38        (6) 
Income from investments in associates (Note 11)       893        201 
Operating profit       14,002        10,981 
Finance costs (Note 9)       (3,058)        (2,163) 
Finance income (Note 9)       233        313 
Net income for the period before income tax       11,177        9,131 
Income tax (Note 10)       2,881        2,309 
Net and comprehensive income for the period       8,296        6,822 
     
     
Earnings per share (Note 18)     
Basic        0.383        0.345 
Diluted        0.383        0.345 
     
     
Weighted average shares (Note 18)     
Basic        21,685,876        19,802,048 
Diluted        21,685,876        19,802,048 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Approved on behalf of the Company:

(Signed) "Gordon R. Barefoot", Director                            (Signed) "Michael Ross", Director

AutoCanada Inc.
Condensed Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of Canadian dollars)

        March 31,
      2014 
(Unaudited)
$
    December 31,
      2013
 
$
ASSETS              
Current assets              
Cash and cash equivalents             41,541            35,113 
Trade and other receivables (Note 12)             69,747            57,662 
Inventories (Note 13)             261,764            278,062 
Other current assets             2,505            1,603 
              375,557            372,440 
Property and equipment (Note 14)             126,701            122,915 
Intangible assets             96,985            96,985 
Goodwill             6,672            6,672 
Other long-term assets             6,684            6,797 
Investments in associates (Note 11)             54,417            13,131 
              667,016            618,940 
LIABILITIES              
Current liabilities              
Trade and other payables (Note 15)             53,106            50,469 
Revolving floorplan facilities (Note 16)             261,263            264,178 
Current tax payable             17,007            4,785 
Current lease obligations             1,709            1,398 
Current indebtedness (Note 16)             2,875            2,866 
              335,960            323,696 
Long-term indebtedness (Note 16)             123,811            83,580 
Deferred income tax             4,271            21,422 
              464,042            428,698 
EQUITY             202,974            190,242 
              667,016            618,940 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

AutoCanada Inc.
Condensed Interim Consolidated Statements of Changes in Equity
For the Periods Ended
(Unaudited)
(in thousands of Canadian dollars)

    Share
capital
$
  Treasury
shares
$
  Contributed
surplus
$
  Total
capital
$
  Accumulated
deficit
$
  Equity
$
Balance,  January 1, 2014          234,246          (1,308)          4,758          237,696          (47,454)          190,242 
Net and comprehensive income         -          -          -          -          8,296          8,296 
Dividends declared on common shares (Note 18)         -          -          -          -          (4,760)          (4,760) 
Common shares issued (Note 18)         9,073          -          -          9,073          -          9,073 
Common shares repurchased (Note 18)         -          (18)          -          (18)          -          (18) 
Restricted share units settled         -          -          (16)          (16)          -          (16) 
Share based compensation         -          -          157          157          -          157 
Balance, March 31, 2014         243,319          (1,326)          4,899          246,892          (43,918)          202,974 
                         
                         
    Share
capital
$
  Treasury
shares
$
  Contributed
surplus
$
  Total
capital
$
  Accumulated
deficit
$
  Equity
$
Balance, January 1, 2013          190,435          (935)          4,423          193,923          (69,423)          124,500 
Net and comprehensive income         -          -          -          -          6,822          6,822 
Dividends declared on common shares         -          -          -          -          (3,564)          (3,564) 
Common shares repurchased         -          (15)          -          (15)          -          (15) 
Share based compensation         -          -          133          133          -          133 
Balance, March 31, 2013         190,435          (950)          4,556          194,041          (66,165)          127,876 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

AutoCanada Inc.
Condensed Interim Consolidated Statements of Cash Flows
For the Periods Ended
(Unaudited)
(in thousands of Canadian dollars)

    Three month
period ended
March 31,
2014
  Three month
period ended
March 31,
2013
Cash provided by (used in):        
Operating activities        
Net and comprehensive income         8,296          6,822 
Income taxes (Note 10)         2,881          2,309 
Income taxes paid         (7,279)          (5,076) 
Amortization of prepaid rent (Note 8)         113          113 
Depreciation of property and equipment         2,512          1,189 
(Gain) Loss on disposal of assets         (38)          6 
Share-based compensation - equity-settled         157          137 
Share-based compensation - cash-settled (Note 11)         977          268 
Income from investments in associates (Note 20)         (893)          (201) 
Dividends received from investments in associates (Note 11)         1,258          - 
Net change in non-cash working capital (Note 20)         866          558 
          8,850          6,125 
Investing activities          
Business acquisitions           -          (3,781) 
Investment in associate (Note 11)           (32,578)         (7,057) 
Purchases of property and equipment (Note 14)           (5,335)          (590) 
Proceeds on sale of property and equipment           12          7 
            (37,901)         (11,421) 
Financing activities          
Proceeds from long-term indebtedness           135,463         45,785 
Repayment of long-term indebtedness           (95,224)         (29,392) 
Dividends paid           (4,760)         (3,578) 
            35,479         12,815 
Increase in cash           6,428          7,519 
Cash and cash equivalents at beginning of period           35,113         34,472 
Cash and cash equivalents at end of period           41,541         41,991 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

ABOUT AUTOCANADA

AutoCanada is one of Canada's largest multi-location automobile dealership groups, currently operating 34 franchised dealerships in seven provinces and has approximately 1,600 employees. AutoCanada currently sells Chrysler, Dodge, Jeep, Ram, FIAT, Chevrolet, GMC, Buick, Cadillac, Infiniti, Nissan, Hyundai, Subaru, Mitsubishi, Audi, and Volkswagen branded vehicles. In 2013, our dealerships sold approximately 36,000 vehicles and processed approximately 364,000 service and collision repair orders in our 381 service bays during that time.

Our dealerships derive their revenue from the following four inter-related business operations: new vehicle sales; used vehicle sales; parts, service and collision repair; and finance and insurance. While new vehicle sales are the most important source of revenue, they generally result in lower gross profits than parts, service and collision repair operations and finance and insurance sales. Overall gross profit margins increase as revenues from higher margin operations increase relative to revenues from lower margin operations. We earn fees for arranging financing on new and used vehicle purchases on behalf of third parties.  Under our agreements with our retail financing sources we are required to collect and provide accurate financial information, which if not accurate, may require us to be responsible for the underlying loan provided to the consumer.

FORWARD LOOKING STATEMENTS

Certain statements contained in this press release are forward-looking statements and information (collectively "forward-looking statements"), within the meaning of the applicable Canadian securities legislation.  We hereby provide cautionary statements identifying important factors that could cause our actual results to differ materially from those projected in these forward-looking statements.  Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "will likely result", "are expected to", "will continue", "is anticipated", "projection", "vision", "goals", "objective", "target", "schedules", "outlook", "anticipate", "expect", "estimate", "could", "should", "expect", "plan", "seek", "may", "intend", "likely", "will", "believe" and similar expressions are not historical facts and are forward-looking and may involve estimates and assumptions and are subject to risks, uncertainties and other factors some of which are beyond our control and difficult to predict.  Accordingly, these factors could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.  Therefore, any such forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this document.

The Company's Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference.

Further, any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by applicable law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.  New factors emerge from time to time, and it is not possible for management to predict all of such factors and to assess in advance the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

NON-GAAP MEASURES

This press release contains certain financial measures that do not have any standardized meaning prescribed by Canadian GAAP.  Therefore, these financial measures may not be comparable to similar measures presented by other issuers.  Investors are cautioned these measures should not be construed as an alternative to net earnings (loss) or to cash provided by (used in) operating, investing, and financing activities determined in accordance with Canadian GAAP, as indicators of our performance.  We provide these measures to assist investors in determining our ability to generate earnings and cash provided by (used in) operating activities and to provide additional information on how these cash resources are used.  We list and define these "NON-GAAP MEASURES" below:

EBITDA

EBITDA is a measure commonly reported and widely used by investors as an indicator of a company's operating performance and ability to incur and service debt, and as a valuation metric.  The Company believes EBITDA assists investors in comparing a company's performance on a consistent basis without regard to depreciation and amortization and asset impairment charges which are non-cash in nature and can vary significantly depending upon accounting methods or non-operating factors such as historical cost.  References to "EBITDA" are to earnings before interest expense (other than interest expense on floorplan financing and other interest), income taxes, depreciation, amortization and asset impairment charges.

Adjusted EBITDA

Adjusted EBITDA is an indicator of a company's operating performance and ability to incur and service debt prior to recognizing the portion of share-based compensation related to changes in the share price and its impact on the Company's cash-settled portions of its share-based compensation programs. The Company considers this expense to be non-cash in nature as we maintain a share purchase trust in which we purchase shares on the open market as these units are granted to reduce the cash flow risk associated with fluctuations in the share price. Share-based compensation, a component of employee remuneration, can vary significantly with changes in the price of the Company's common shares. The Company believes adjusted EBITDA provides improved continuity with respect to the comparison of our operating results over a period of time.

Adjusted net earnings and Adjusted net earnings per share

Adjusted net earnings and adjusted net earnings per share are measures of our profitability. Adjusted net earnings is calculated by adding back the after-tax effect of impairment or reversals of impairment of intangible assets, impairments of goodwill, and the portion of share-based compensation related to changes in the share price and its impact on the Company's cash-settled portions of its share-based compensation programs. The Company considers this expense to be non-cash in nature as we maintain a share purchase trust in which we purchase shares on the open market as these units are granted to reduce the cash flow risk associated with fluctuations in the share price. Share-based compensation, a component of employee remuneration, can vary significantly with changes in the price of the Company's common shares. Adding back these amounts to net earnings allows management to assess the net earnings of the Company from ongoing operations. Adjusted net earnings per share is calculated by dividing adjusted net earnings by the weighted-average number of shares outstanding.

EBIT

EBIT is a measure used by management in the calculation of Return on capital employed (defined below).  Management's calculation of EBIT is EBITDA (calculated above) less depreciation and amortization.

Free Cash Flow

Free cash flow is a measure used by management to evaluate its performance.  While the closest Canadian GAAP measure is cash provided by operating activities, free cash flow is considered relevant because it provides an indication of how much cash generated by operations is available after capital expenditures.  It shall be noted that although we consider this measure to be free cash flow, financial and non-financial covenants in our credit facilities and dealer agreements may restrict cash from being available for distributions, re-investment in the Company, potential acquisitions, or other purposes.  Investors should be cautioned that free cash flow may not actually be available for growth or distribution of the Company.  References to "Free cash flow" are to cash provided by (used in) operating activities (including the net change in non-cash working capital balances) less capital expenditures (not including acquisitions of dealerships and dealership facilities).

Adjusted Free Cash Flow

Adjusted free cash flow is a measure used by management to evaluate its performance.  Adjusted free cash flow is considered relevant because it provides an indication of how much cash generated by operations before changes in non-cash working capital is available after deducting expenditures for non-growth capital assets.  It shall be noted that although we consider this measure to be adjusted free cash flow, financial and non-financial covenants in our credit facilities and dealer agreements may restrict cash from being available for distributions, re-investment in the Company, potential acquisitions, or other purposes.  Investors should be cautioned that adjusted free cash flow may not actually be available for growth or distribution of the Company.  References to "Adjusted free cash flow" are to cash provided by (used in) operating activities (before changes in non-cash working capital balances) less non-growth capital expenditures.

Adjusted Average Capital Employed

Adjusted average capital employed is a measure used by management to determine the amount of capital invested in AutoCanada and is used in the measure of Adjusted Return on Capital Employed (described below).  Adjusted average capital employed is calculated as the average balance of interest bearing debt for the period (including current portion of long term debt, excluding revolving floorplan facilities) and the average balance of shareholders equity for the period, adjusted for impairments of intangible assets, net of deferred tax.  Management does not include future income tax, non-interest bearing debt, or revolving floorplan facilities in the calculation of adjusted average capital employed as it does not consider these items to be capital, but rather debt incurred to finance the operating activities of the Company.

Absorption Rate

Absorption rate is an operating measure commonly used in the retail automotive industry as an indicator of the performance of the parts, service and collision repair operations of a franchised automobile dealership. Absorption rate is not a measure recognized by GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, absorption rate may not be comparable to similar measures presented by other issuers that operate in the retail automotive industry.  References to ''absorption rate'' are to the extent to which the gross profits of a franchised automobile dealership from parts, service and collision repair cover the costs of these departments plus the fixed costs of operating the dealership, but does not include expenses pertaining to our head office. For this purpose, fixed operating costs include fixed salaries and benefits, administration costs, occupancy costs, insurance expense, utilities expense and interest expense (other than interest expense relating to floor plan financing) of the dealerships only.

Average Capital Employed

Average capital employed is a measure used by management to determine the amount of capital invested in AutoCanada and is used in the measure of Return on Capital Employed (described below).  Average capital employed is calculated as the average balance of interest bearing debt for the period (including current portion of long term debt, excluding revolving floorplan facilities) and the average balance of shareholders equity for the period.  Management does not include future income tax, non-interest bearing debt, or revolving floorplan facilities in the calculation of average capital employed as it does not consider these items to be capital, but rather debt incurred to finance the operating activities of the Company.

Return on Capital Employed

Return on capital employed is a measure used by management to evaluate the profitability of our invested capital.  As a corporation, management of AutoCanada may use this measure to compare potential acquisitions and other capital investments against our internally computed cost of capital to determine whether the investment shall create value for our shareholders.  Management may also use this measure to look at past acquisitions, capital investments and the Company as a whole in order to ensure shareholder value is being achieved by these capital investments.  Return on capital employed is calculated as EBIT (defined above) divided by Average Capital Employed (defined above).

Adjusted Return on Capital Employed

Adjusted return on capital employed is a measure used by management to evaluate the profitability of our invested capital.  As a corporation, management of AutoCanada may use this measure to compare potential acquisitions and other capital investments against our internally computed cost of capital to determine whether the investment shall create value for our shareholders.  Management may also use this measure to look at past acquisitions, capital investments and the Company as a whole in order to ensure shareholder value is being achieved by these capital investments.  Adjusted return on capital employed is calculated as EBIT (defined above) divided by Adjusted Average Capital Employed (defined above).

Cautionary Note Regarding Non-GAAP Measures

EBITDA, EBIT, Free Cash Flow, Adjusted Free Cash Flow, Absorption Rate, Average Capital Employed and Return on Capital Employed are not earnings measures recognized by GAAP and do not have standardized meanings prescribed by GAAP.  Investors are cautioned that these non-GAAP measures should not replace net earnings or loss (as determined in accordance with GAAP) as an indicator of the Company's performance, of its cash flows from operating, investing and financing activities or as a measure of its liquidity and cash flows. The Company's methods of calculating EBITDA, EBIT, Free Cash Flow, Adjusted Free Cash Flow, Absorption Rate, Average Capital Employed and Return on Capital Employed may differ from the methods used by other issuers. Therefore, the Company's EBITDA, EBIT, Free Cash Flow, Adjusted Free Cash Flow, Absorption Rate, Average Capital Employed and Return on Capital Employed may not be comparable to similar measures presented by other issuers.

Additional information about AutoCanada Inc. is available at the Company's website at www.autocan.ca and www.sedar.com.

  

 

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