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| ABG > SEC Filings for ABG > Form 10-K on 21-Feb-2013 | All Recent SEC Filings |
21-Feb-2013
Annual Report
OVERVIEW
We are one of the largest automotive retailers in the United States, operating
98 franchises (77 dealership locations) in 18 metropolitan markets within 10
states as of December 31, 2012. We offer an extensive range of automotive
products and services, including new and used vehicles; vehicle maintenance,
replacement parts and collision repair services; and financing, insurance and
service contracts. As of December 31, 2012, we offered 29 domestic and foreign
brands of new vehicles. Our current brand mix is weighted 86% towards luxury and
mid-line import brands, with the remaining 14% consisting of domestic brands. We
also operate 25 collision repair centers that serve customers in our local
markets.
Our retail network is made up of dealerships operating primarily under the
following locally-branded dealership groups:
• Coggin dealerships, operating primarily in Jacksonville, Fort Pierce and Orlando, Florida;
• Courtesy dealerships operating in Tampa, Florida;
• Crown dealerships operating in New Jersey, North Carolina, South Carolina and Virginia;
• Nalley dealerships operating in Atlanta, Georgia;
• McDavid dealerships operating in Austin, Dallas and Houston, Texas;
• North Point dealerships operating in Little Rock, Arkansas;
• Plaza dealerships operating in St. Louis, Missouri; and
• Gray-Daniels dealerships operating in Jackson, Mississippi.
Our revenues are derived primarily from: (i) the sale of new vehicles to
individual retail customers ("new vehicle retail") and commercial customers
("fleet") (the terms "new vehicle retail" and "fleet" being together referred to
as "new"); (ii) the sale of used vehicles to individual retail customers ("used
retail") and to other dealers at auction ("wholesale") (the terms "used retail"
and "wholesale" being together referred to as "used"); (iii) maintenance and
collision repair services and the sale of automotive parts (together referred to
as "parts and service"); and (iv) the arrangement of vehicle financing and the
sale of a number of aftermarket products, such as insurance and service
contracts (collectively referred to as "F&I"). We evaluate the results of our
new and used vehicle sales based on unit volumes and gross profit per vehicle
sold, our parts and service operations based on aggregate gross profit, and F&I
based on dealership generated F&I gross profit per vehicle sold. We assess the
organic growth of our revenue and gross profit by comparing the year-to-year
results of stores that we have operated for at least twelve full months ("same
store").
Our organic growth is dependent upon the execution of our balanced automotive
retailing and service business strategy, the continued strength of our brand mix
and the production of desirable vehicles by automobile manufacturers whose
brands we sell. Our vehicle sales have historically fluctuated with product
availability as well as local and national economic conditions, including
consumer confidence, availability of consumer credit, fuel prices and employment
levels. We believe that the impact on our business of any future negative trends
in new vehicle sales would be partially mitigated by (i) the expected relative
stability of our parts and service operations over the long-term, (ii) the
variable nature of significant components of our cost structure and (iii) our
brand mix. Historically, our brand mix has been less affected by market
volatility than the U.S. automobile industry as a whole. We believe that our new
vehicle revenue brand mix, which included approximately 49% of revenue from
mid-line import brands and 37% of revenue from luxury brands for 2012, is well
positioned for growth over the long term.
Our operating results are generally subject to changes in the economic
environment as well as seasonal variations. We tend to generate more revenue and
operating income in the second and third quarters than in the first and fourth
quarters of the calendar year. Generally, the seasonal variations in our
operations are caused by factors related to weather conditions, changes in
manufacturer incentive programs, model changeovers and consumer buying patterns,
among other things.
Our gross profit margin varies with our revenue mix. The sale of new vehicles
generally results in lower gross profit margin than used vehicle sales and sales
of parts and service. As a result, when used vehicle and parts and service
revenue increase as a percentage of total revenue, we expect our overall gross
profit margin to increase.
Selling, general and administrative ("SG&A") expenses consist primarily of fixed
and incentive-based compensation, advertising, rent, insurance, utilities and
other customary operating expenses. A significant portion of our cost structure
is variable (such as sales commissions), or controllable (such as advertising),
generally allowing us to adapt to changes in the retail environment over the
long-term. We evaluate commissions paid to salespeople as a percentage of retail
vehicle gross
profit and all other SG&A expenses in the aggregate as a percentage of total gross profit, with the exception of advertising expense, which we evaluate on a per vehicle retailed ("PVR") basis.
The United States automotive retail market showed continued improvement in 2012,
with new vehicle SAAR increasing to 14.5 million as compared to 12.8 million in
2011. We benefited from improving economic conditions throughout 2012, which we
attribute to increasing consumer confidence and the availability of credit at
terms favorable to consumers. We also believe that pent up demand for new
vehicles favorably impacted us during 2012. We believe that the overall economic
recovery will continue to be fragile, and may be subject to further changes
based on consumer confidence, unemployment levels and other macro-economic
factors as the long-term prospects for, and the timing of, a return to a
stronger economy continue to be difficult to predict.
We had total available liquidity of $232.7 million as of December 31, 2012,
which consisted of cash and cash equivalents of $6.2 million, borrowing
availability of $213.9 million under our revolving credit facilities and $12.6
million of availability under our floor plan offset account. For further
discussion of our liquidity, please refer to "Liquidity and Capital Resources"
below. We have no long-term debt maturities until October 2015, at which time
two of our mortgage notes payable associated with certain of our properties in
St. Louis, Missouri, will mature. As of December 31, 2012, the aggregate
principal amount outstanding under these two mortgage notes payable was $19.7
million.
RESULTS OF OPERATIONS
The Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011
For the Year Ended December 31, Increase %
2012 2011 (Decrease) Change
(Dollars in millions, except per share data)
REVENUES:
New vehicle $ 2,607.4 $ 2,239.4 $ 368.0 16 %
Used vehicle 1,301.0 1,208.1 92.9 8 %
Parts and service 565.3 555.6 9.7 2 %
Finance and insurance, net 166.6 137.0 29.6 22 %
Total revenues 4,640.3 4,140.1 500.2 12 %
GROSS PROFIT:
New vehicle 165.6 151.1 14.5 10 %
Used vehicle 103.6 100.0 3.6 4 %
Parts and service 327.8 310.9 16.9 5 %
Finance and insurance, net 166.6 137.0 29.6 22 %
Total gross profit 763.6 699.0 64.6 9 %
OPERATING EXPENSES:
Selling, general and administrative 556.1 531.6 24.5 5 %
Depreciation and amortization 22.6 22.5 0.1 - %
Other operating (income) expense, net (1.0 ) 13.7 (14.7 ) (107 )%
Income from operations 185.9 131.2 54.7 42 %
OTHER EXPENSES:
Floor plan interest expense (11.6 ) (9.3 ) 2.3 25 %
Other interest expense, net (35.6 ) (39.6 ) (4.0 ) (10 )%
Swap interest expense (5.0 ) (5.5 ) (0.5 ) (9 )%
Convertible debt discount amortization (0.4 ) (0.8 ) (0.4 ) (50 )%
Loss on extinguishment of long-term debt - (0.8 ) (0.8 ) (100 )%
Total other expense, net (52.6 ) (56.0 ) (3.4 ) (6 )%
Income before income taxes 133.3 75.2 58.1 77 %
INCOME TAX EXPENSE 50.0 28.7 21.3 74 %
INCOME FROM CONTINUING OPERATIONS 83.3 46.5 36.8 79 %
DISCONTINUED OPERATIONS, net of tax (1.1 ) 21.4 (22.5 ) (105 )%
NET INCOME $ 82.2 $ 67.9 $ 14.3 21 %
Income from continuing operations per
common share-Diluted $ 2.64 $ 1.43 $ 1.21 85 %
Net income per common share-Diluted $ 2.61 $ 2.08 $ 0.53 25 %
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For the Year Ended December 31,
2012 2011
REVENUE MIX PERCENTAGES:
New vehicles 56.2 % 54.1 %
Used retail vehicles 23.7 % 24.7 %
Used vehicle wholesale 4.3 % 4.5 %
Parts and service 12.2 % 13.4 %
Finance and insurance, net 3.6 % 3.3 %
Total revenue 100.0 % 100.0 %
GROSS PROFIT MIX PERCENTAGES:
New vehicles 21.7 % 21.6 %
Used retail vehicles 13.7 % 14.5 %
Used vehicle wholesale (0.1 )% (0.2 )%
Parts and service 42.9 % 44.5 %
Finance and insurance, net 21.8 % 19.6 %
Total gross profit 100.0 % 100.0 %
SG&A EXPENSES AS A PERCENTAGE OF GROSS PROFIT 72.8 % 76.1 %
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Net income and income from continuing operations increased by $14.3 million and
$36.8 million, respectively, during 2012 as compared to 2011. The increase in
income from continuing operations was primarily composed of (i) a $64.6 million
(9%) increase in gross profit, (ii) a $14.7 million increase in other operating
income (net of other operating expense) and (iii) a $4.0 million (10%) decrease
in other interest expense, net, partially offset by a $24.5 million (5%)
increase in SG&A expenses and a $2.3 million (25%) increase in floor plan
interest expense. Net income for 2011 was positively impacted by the sale of our
heavy truck business, two additional franchises (two dealership locations) and
one ancillary business in 2011, which resulted in $22.3 million in net-of-tax
gains, which are included in discontinued operations, net.
Net income and income from continuing operations for 2012 were reduced by $1.1
million, net of tax, in real estate related charges. Net income and income from
continuing operations for 2011 were reduced by (i) $5.5 million, net of tax,
related to legal claims related to operations from 2000 to 2006, (ii) $4.2
million, net of tax, due to expenses related to executive separation benefits
and (iii) $1.1 million, net of tax, in real estate related charges.
Gross profit increased across all four of our business lines and was driven by
(i) a $29.6 million (22%) increase in F&I gross profit, (ii) a $16.9 million
(5%) increase in parts and service gross profit and (iii) a $14.5 million (10%)
increase in new vehicle gross profit. Our total gross profit margin decreased 40
basis points to 16.5%, primarily as a result of (i) a 50 basis point decrease in
our same store used vehicle retail gross margin and (ii) a 40 basis point
decrease in our same store new vehicle retail gross margin, which was partially
offset by a 200 basis point increase in our same store parts and service gross
margin. In reviewing the contributions of our business lines to our overall
gross profit, we also experienced a 160 basis point decrease in our
higher-margin parts and service business as a percentage of our overall gross
profit.
The $500.2 million (12%) increase in total revenue was primarily a result of (i)
a $368.0 million (16%) increase in new vehicle revenue, (ii) a $92.9 million
(8%) increase in used vehicle revenue and (iii) a $29.6 million (22% ) increase
in revenue from F&I.
New Vehicle-
For the Year Ended December 31, Increase %
2012 2011 (Decrease) Change
(Dollars in millions, except for per vehicle data)
Revenue:
New vehicle revenue-same store(1)
Luxury $ 959.2 $ 828.1 $ 131.1 16 %
Mid-line import 1,268.3 1,060.6 207.7 20 %
Mid-line domestic 374.1 350.7 23.4 7 %
Total new vehicle revenue-same store(1) 2,601.6 2,239.4 362.2 16 %
New vehicle revenue-acquisitions 5.8 -
New vehicle revenue, as reported $ 2,607.4 $ 2,239.4 $ 368.0 16 %
Gross profit:
New vehicle gross profit-same store(1)
Luxury $ 72.6 $ 63.4 $ 9.2 15 %
Mid-line import 67.4 63.9 3.5 5 %
Mid-line domestic 25.1 23.8 1.3 5 %
Total new vehicle gross profit-same store(1) 165.1 151.1 14.0 9 %
New vehicle gross profit-acquisitions 0.5 -
New vehicle gross profit, as reported $ 165.6 $ 151.1 $ 14.5 10 %
For the Year Ended December 31, Increase %
2012 2011 (Decrease) Change
New vehicle units:
New vehicle retail units-same store(1)
Luxury 19,386 16,712 2,674 16 %
Mid-line import 48,067 40,560 7,507 19 %
Mid-line domestic 10,147 9,353 794 8 %
Total new vehicle retail units-same store(1) 77,600 66,625 10,975 16 %
Fleet vehicles 2,365 2,679 (314 ) (12 )%
Total new vehicle units-same store(1) 79,965 69,304 10,661 15 %
New vehicle units-acquisitions 112 -
New vehicle units-actual 80,077 69,304 10,773 16 %
New Vehicle Metrics-
For the Year Ended December 31, %
2012 2011 Increase (Decrease) Change
Revenue per new vehicle sold-same store(1) $ 32,534 $ 32,313 $ 221 1 %
Gross profit per new vehicle sold-same store(1) $ 2,065 $ 2,180 $ (115 ) (5 )%
New vehicle gross margin-same store(1) 6.3 % 6.7 % (0.4 )% (6 )%
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The $368.0 million (16%) increase in new vehicle revenue was primarily a result of a $207.7 million (20%) increase in revenue from our mid-line import brands and a $131.1 million (16%) increase in revenue from our luxury brands, which drove a $362.2 million (16%) increase in overall same store new vehicle revenue. Our total new vehicle revenue also benefited from $5.8 million derived from acquisitions. Same store unit volumes for our mid-line import and luxury brands increased 19% and 16%, respectively, reflecting (i) sales resulting from improved inventory availability compared to depressed levels in 2011
following the natural disaster and related events in Japan and (ii) a general
increase in consumer demand. Unit volumes from our domestic brands also
increased 8% on a same store basis. New vehicle SAAR increased to 14.5 million
for 2012 as compared to 12.8 million for 2011.
Total new vehicle gross profit increased by $14.5 million (10%), primarily
driven by a $9.2 million (15%) increase in gross profit from our luxury brands.
Our mid-line import brands, which experienced a 19% increase in unit volume,
also experienced
a 70 basis point decrease in gross profit margin when compared to the prior year
period. Our same store gross profit per new
vehicle sold decreased by $115 (5%), largely driven by a reduction in gross
profit associated with our mid-line import vehicle
sales, combined with a shift in our overall unit sales toward mid-line import
brands when compared to 2011, when inventories of these brands were in short
supply as a result of the natural disaster and related events in Japan. Our
margins in the near future are expected to be primarily dependent upon
market-based forces of supply and demand.
Used Vehicle-
For the Year Ended December 31, %
2012 2011 Increase Change
(Dollars in millions, except for per vehicle data)
Revenue:
Used vehicle retail revenues-same store(1) $ 1,099.2 $ 1,021.5 $ 77.7 8 %
Used vehicle retail revenues-acquisitions 2.2 -
Total used vehicle retail revenues 1,101.4 1,021.5 79.9 8 %
Used vehicle wholesale revenues-same
store(1) 199.2 186.6 12.6 7 %
Used vehicle wholesale
revenues-acquisitions 0.4 -
Total used vehicle wholesale revenues 199.6 186.6 13.0 7 %
Used vehicle revenue, as reported $ 1,301.0 $ 1,208.1 $ 92.9 8 %
Gross profit:
Used vehicle retail gross profit-same
store(1) $ 103.8 $ 101.1 $ 2.7 3 %
Used vehicle retail gross
profit-acquisitions 0.2 -
Total used vehicle retail gross profit 104.0 101.1 2.9 3 %
Used vehicle wholesale gross profit-same
store(1) (0.5 ) (1.1 ) 0.6 55 %
Used vehicle wholesale gross
profit-acquisitions 0.1 -
Total used vehicle wholesale gross profit (0.4 ) (1.1 ) 0.7 64 %
Used vehicle gross profit, as reported $ 103.6 $ 100.0 $ 3.6 4 %
Used vehicle retail units:
Used vehicle retail units-same store(1) 57,345 54,009 3,336 6 %
Used vehicle retail units-acquisitions 89 -
Used vehicle retail units-actual 57,434 54,009 3,425 6 %
Used Vehicle Metrics-
For the Year Ended December 31, %
2012 2011 Increase (Decrease) Change
Revenue per used vehicle retailed-same
store(1) $ 19,168 $ 18,914 $ 254 1 %
Gross profit per used vehicle retailed-same
store(1) $ 1,810 $ 1,872 $ (62 ) (3 )%
Used vehicle retail gross margin-same
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The $92.9 million (8%) increase in used vehicle revenue was the result of a
$79.9 million (8%) increase in used vehicle retail revenue and a $13.0 million
(7%) increase in used vehicle wholesale revenue, which include $2.2 million and
$0.4 million, respectively, derived from acquisitions. The 6% increase in same
store used vehicle retail unit sales reflects the ongoing impact of our "Asbury
1-2-1" program, a volume-driven initiative with a goal of retailing one used
vehicle for every new vehicle retailed. This program is designed to drive not
only used retail volume, but to increase revenues from associated parts and
service reconditioning and F&I as well.
The $3.6 million (4%) increase in used vehicle gross profit was primarily the
result of a $2.9 million (3%) increase in used vehicle retail gross profit. The
increase in used vehicle retail gross profit was driven primarily by higher unit
volumes, partially offset by a 50 basis point decrease in our same store used
vehicle retail gross margin. The decrease in our same store used vehicle gross
margin can partially be attributed to the increased availability of
competitively priced new models that, until mid-2012, were in short supply as a
result of the 2011 natural disaster and related events in Japan.
We believe that our used vehicle inventory continues to be well-aligned with
current consumer demand, with approximately 34 days of supply in our inventory
as of December 31, 2012.
Parts and Service-
For the Year Ended December 31, Increase %
2012 2011 (Decrease) Change
(Dollars in millions)
Revenue:
Parts and service revenue-same store(1) $ 564.2 $ 555.6 $ 8.6 2 %
Parts and service revenues-acquisitions 1.1 -
Parts and service revenue, as reported $ 565.3 $ 555.6 $ 9.7 2 %
Gross profit:
Parts and service gross profit-same
store(1)
Customer pay $ 202.4 $ 193.1 $ 9.3 5 %
Reconditioning and preparation 66.9 56.2 10.7 19 %
Warranty 38.8 42.8 (4.0 ) (9 )%
Wholesale parts 19.1 18.8 0.3 2 %
Total parts and service gross profit-same
store(1) 327.2 310.9 16.3 5 %
Parts and service gross profit-acquisitions 0.6 -
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The $9.7 million (2%) increase in parts and service revenue was primarily due to a $14.0 million (4%) increase in same store customer pay revenue, partially offset by a $6.4 million (7%) decrease in same store warranty revenue. The 200 basis point increase in our same store parts and service gross margin was primarily the result of increases in our higher margin parts and service businesses, including a 19% increase in gross profit from reconditioning and preparation of vehicles and a 5% increase in our customer pay parts and service gross profit. The $10.7 million increase in reconditioning and preparation gross profit was primarily driven by a 16% increase in our same store new vehicle retail unit sales and a 6% increase in our same store used vehicle retail unit sales. Gross profit associated with warranty work decreased by $4.0 million (9%), partially due to certain manufacturer recalls that occurred during 2011 that drove increased warranty work. . . .
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