AutoCanada Inc. reports highest quarterly earnings in Company history and announces an increase in its quarterly dividend

From the Wires

By: PR Newswire

Nov. 8, 2012 07:00 PM

A conference call to discuss the results for the reporting period ended September 30, 2012 will be held on November 9, 2012 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. A conference call to discuss the results for the reporting period ended September 30, 2012 will be held on November 9, 2012 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, Nov. 8, 2012 /PRNewswire/ - AutoCanada Inc. (the "Company" or "AutoCanada") (TSX: ACQ) today announced financial results for the reporting period ended September 30, 2012.

2012 Third Quarter Operating Results

Revenue increased 11.0% or $29.5 million to $298.7 million
Gross profit increased by 11.6% or $5.2 million to $50.1 million
Same store revenue increased by 8.0%
Same store gross profit increased by 7.9%
EBITDA was $10.6 million vs. $8.2 million in Q3 of 2011, a 29.3% increase
Pre-tax net earnings increased by $2.3 million or 33.6% to $9.2 million
Net earnings increased by $1.6 million or 30.2% to $6.8 million
The number of same store new vehicles retailed increased by 10.1%
The number of same store used vehicles retailed decreased by 3.2%
Same store repair orders completed for the quarter went up by 0.5%

In commenting on the financial results for the three month period ended September 30, 2012, Pat Priestner, Chief Executive Officer of AutoCanada Inc. stated that, "The third quarter of 2012 was the Company's most profitable quarter in its history, an achievement which reflects the continued general good health of the economy, the quality of the products we sell and the effective use of incentives by our Manufacturer partners, and the dedicated hard work of our employees. Our floorplan financing agreement with our new partner, the Bank of Nova Scotia, was implemented in October, and we look forward to working with the Bank of Nova Scotia in the coming years and to the meaningful interest rate savings our new floorplan shall provide. We are likewise very pleased with the performance of the two GM dealerships we recently purchased an interest in, and look forward to a long term relationship with GM Canada who has been a great partner to work with. With respect to new dealership opportunities, we are also pleased to have secured a suitable facility for the Kia open point dealership during the quarter, in which we plan to commence operations in late 2013 or early 2014, and we continue to aggressively seek accretive opportunities with brands that have accepted public ownership."

With respect to the announced increase in the dividend to a rate of $0.17 per share or an annual rate of $0.68 per share, Mr. Priestner further stated, "The Board of Directors continues to remain committed to a high dividend, which it shall periodically review within the context of earnings growth, opportunities to re-invest in the business, and sustainability. Management is confident that opportunities for acquisition growth will arise in the mid to long term and believe that when tangible growth opportunities are realized, the incremental earnings growth will naturally lower our payout ratio as we re-invest funds into growth opportunities. Until tangible and significant growth opportunities are realized, we will continue to reward investors by way of a high dividend."

Third Quarter 2012 Highlights

The Company generated net earnings of $6.8 million or earnings per share of $0.344 versus earnings per share of $0.263 in the third quarter of 2011. Pre-tax earnings increased by $2.3 million to $9.2 million in the third quarter of 2012 as compared to $6.9 million in the same period in 2011.
Same store revenue increased by 8.0% in the third quarter of 2012, compared to the same quarter in 2011. Same store gross profit increased by 7.9% in the third quarter of 2012, compared to the same quarter in 2011.
Revenue from existing and new dealerships increased 11.0% to $298.7 million in the third quarter of 2012 from $269.1 million in the same quarter in 2011.
Gross profit from existing and new dealerships increased 11.6% to $50.1 million in the third quarter of 2012 from $44.9 million in the same quarter in 2011.
EBITDA increased 29.3% to $10.6 million in the third quarter of 2012 from $8.2 million in the same quarter in 2011.
Free cash flow decreased significantly in the third quarter of 2012 to $0.004 per share as compared to $10.2 million and $0.511 per share in the third quarter of 2011, mainly due a land and building purchase in Q3 2012.
Adjusted free cash flow increased to $9.5 million in the third quarter of 2012 or $0.48 per share as compared to $7.8 million or $0.39 per share in 2011.
Return on capital employed on a trailing 12 month basis of 22.8% as compared to 19.1% at September 30, 2011.

Dividends
Management reviews the Company's financial results on a monthly basis. The Board of Directors reviews the financial results periodically to determine whether a dividend shall be paid based on a number of factors.

The following table summarizes the dividends declared by the Company in 2012:

(In thousands of dollars)

Total

Record date

Payment date

Declared

Paid

February 28, 2012
May 31, 2012
August 31, 2012
November 30, 2012

March 15, 2012
June 15, 2012
September 17, 2012
December 17, 2012

2,783
2,982
3,181
3,380

2,783
2,982
3,181
-

On November 8, 2012, the Board declared a quarterly eligible dividend of $0.17 per common share on AutoCanada's outstanding Class A common shares, payable on December 17, 2012 to shareholders of record at the close of business on November 30, 2012. The quarterly eligible dividend of $0.17 represents an annual dividend rate of $0.68 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 Inc. 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 %)
		Q4 2010	Q1 2011	Q2 2011	Q3 2011	Q4 2011	Q1 2012	Q2 2012	Q3 2012

Income Statement Data
	New vehicles	113,967	128,304	196,850	172,688	142,880	147,383	186,649	190,139
	Used vehicles	45,414	44,906	52,054	55,351	53,719	60,454	62,822	62,816
	Parts, service & collision repair	28,351	26,539	28,374	26,980	28,673	27,029	29,004	28,593
	Finance, insurance & other	10,151	11,125	13,588	14,115	13,046	13,659	16,512	17,133
Revenue		197,883	210,874	290,866	269,134	238,318	248,525	294,987	298,681


	New vehicles	9,023	9,725	13,974	12,740	11,267	12,046	14,646	15,461
	Used vehicles	3,659	3,486	4,301	5,020	4,573	4,412	4,238	3,994
	Parts, service & collision repair	13,994	13,277	15,159	14,492	14,551	14,004	15,227	15,078
	Finance, insurance & other	9,050	9,959	12,129	12,647	11,853	12,398	14,939	15,579
Gross profit		35,725	36,435	45,563	44,899	42,244	42,860	49,050	50,112

Gross profit %		18.1%	17.3%	15.7%	16.7%	17.7%	17.2%	16.6%	16.8%
Operating expenses		32,010	31,891	35,127	35,742	34,086	35,381	37,661	38,361
Operating exp. as % of gross profit		89.6%	87.5%	77.1%	79.6%	80.7%	82.6%	76.9%	76.6%
Finance costs - floorplan		1,594	1,685	2,310	2,190	1,871	1.935	2,511	2,645
Finance costs - long-term debt		332	283	323	296	234	230	256	267
Reversal of impairment of intangibles		(8,059)	-	-	-	(25,543)	-	-	-
Income taxes		2,418	690	2,029	1,646	8,144	1,441	2,216	2,379
Net earnings ⁴		7,575	1,994	5,950	5,230	23,608	4,113	6,711	6,807
EBITDA ^{1, 4}		3,469	4,047	9,319	8,216	7,547	6,808	10,210	10,592
Basic earnings (loss) per share		0.381	0.100	0.299	0.263	1.187	0.207	0.338	0.344
Diluted earnings (loss) per share		0.381	0.100	0.299	0.263	1.187	0.207	0.338	0.344

Operating Data
Vehicles (new and used) sold		5,219	5,826	8,210	7,649	6,313	6,836	8,154	8,087
New retail vehicles sold		3,008	3,050	4,158	3,886	3,405	3,434	4,400	4,410
New fleet vehicles sold		306	796	1,900	1,361	775	969	1,313	1,265
Used retail vehicles sold		1,905	1,980	2,152	2,402	2,133	2,433	2,441	2,412
Number of service & collision repair orders completed		77,037	72,360	80,851	76,176	75,911	74,439	78,104	78,944
Absorption rate ²		86%	80%	91%	90%	91%	81%	89%	89%
# of dealerships at period end		23	23	22	22	24	24	24	24
# of same store dealerships ³		21	22	21	21	21	21	21	22
# of service bays at period end		339	339	322	322	333	333	333	333
Same store revenue growth ³		2.4%	2.7%	19.3%	21.6%	24.8%	20.2%	2.4%	8.0%
Same store gross profit growth ³		2.9%	2.9%	8.2%	22.9%	20.6%	18.3%	7.1%	7.9%

Balance Sheet Data
Cash and cash equivalents		37,541	39,337	43,837	49,366	53,641	53,403	51,198	54,255
Accounts receivable		32,832	42,108	51,539	44,172	42,448	51,380	52,042	54,148
Inventories		118,088	134,710	149,481	159,732	136,869	155,778	201,302	193,990
Revolving floorplan facilities		124,609	152,075	172,600	175,291	150,816	178,145	221,174	212,840


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.

The following table summarizes the results for the three and nine month periods ended September 30, 2012 on a same store basis by revenue source and compare these results to the same periods in 2011.

	Same Store Revenue and Vehicles Sold
	For the Three Months Ended			For the Nine Months Ended

(In thousands of dollars except % change and vehicle data)	September 30, 2012	September 30, 2011	% Change	September 30, 2012	September 30, 2011	% Change

Revenue Source
New vehicles	185,963	172,688	7.7%	511,856	485,476	5.4%
Used vehicles	60,402	55,351	9.1%	180,511	149,638	20.6%
Finance & insurance and other	16,499	14,114	16.9%	45,881	38,210	20.1%
Subtotal	262,864	242,153		738,248	673,324
Parts, service & collision repair	27,826	26,978	3.1%	82,413	79,560	3.6%
Total	290,690	269,131	8.0%	820,661	752,884	9.0%

New vehicles - retail sold	4,278	3,886	10.1%	11,866	10,812	9.7%
New vehicles - fleet sold	1265	1,361	(7.1)%	3,547	3,961	(10.5)%
Used vehicles sold	2,326	2,402	(3.2)%	7,063	6,445	9.6%
Total	7,869	7,649	2.9%	22,476	21,218	5.9%
Total vehicles retailed	6,604	6,288	5.0%	18,929	17,257	9.7%

The following table summarizes the results for the three and nine month periods ended September 30, 2012 on a same store basis by revenue source and compare these results to the same periods in 2011.

	Same Store Gross Profit and Gross Profit Percentage
	For the Three Months Ended						For the Nine months Ended
	Gross Profit			Gross Profit %			Gross Profit			Gross Profit %
(In thousands of dollars except % change and gross profit %)	September 30, 2012	September 30, 2011	% Change	September 30, 2012	September 30, 2011	% Change	September 30, 2012	September 30, 2011	% Change	September 30, 2012	September 30, 2011	% Change

Revenue Source

New vehicles	14,953	12,727	17.5%	8.0%	7.4%	0.7%	40,720	35,794	13.8%	8.0%	7.4%	0.6%

Used vehicles	3,806	5,019	(24.2)%	6.3%	9.1%	(2.8)%	12,121	12,767	(5.1)%	6.7%	8.5%	(1.8)%

Finance & insurance and other	15,024	12,646	18.8%	91.1%	89.6%	1.5%	41,673	34,204	21.8%	90.8%	89.5%	1.3%

Subtotal	33,783	30,392					94,614	82,765

Parts, service & collision repair	14,645	14,507	0.9%	52.6%	53.8%	(1.1)%	43,102	41,722	3.3%	52.3%	52.4%	(0.1)%

Total	48,428	44,899	7.9%	16.7%	16.7%	0.0%	137,616	124,487	10.5%	16.8%	16.5%	0.3%




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	Nine month period ended	Nine month period ended
		September 30, 2012 $	September 30, 2011 $	September 30, 2012 $	September 30, 2011 $
Revenue (Note 6)		298,681	269,134	842,193	770,874

Cost of sales (Note 7)		(248,569)	(224,235)	(700,172)	(643,965)

Gross profit		50,112	44,899	142,021	126,909

Operating expenses (Note 8)		(38,361)	(35,742)	(111,402)	(102,760)

Operating profit before other income		11,751	9,157	30,619	24,149
(Loss) Gain on disposal of assets		(1)	1	(61)	29
Income from investment in associate (Note 11)		130	-	213	-
Operating profit		11,880	9,158	30,771	24,178
Finance costs (Note 9)		(3,136)	(2,651)	(8,410)	(7,564)
Finance income (Note 9)		442	369	1,303	925

Net comprehensive income for the period
	before taxation	9,186	6,876	23,664	17,539
Income tax (Note 10)		2,379	1,646	6,036	4,365

Net comprehensive income for the period		6,807	5,230	17,628	13,174


Earnings per share
Basic		0.344	0.263	0.884	0.663
Diluted		0.344	0.263	0.884	0.663


Weighted average shares
Basic		19,804,014	19,880,930	19,853,694	19,880,930
Diluted		19,804,014	19,880,930	19,853,694	19,880,930

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) "Robin Salmon", Director

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

	September 30, 2012 (Unaudited) $	December 31, 2011 (Audited) $
ASSETS
Current assets
Cash and cash equivalents	54,255	53,641
Trade and other receivables (Note 12)	54,148	42,448
Inventories (Note 13)	193,990	137,016
Other current assets	1,794	1,120
	304,187	234,225
Property and equipment	37,125	25,975
Investment in associate (Note 11)	4,367	-
Intangible assets	66,181	66,181
Goodwill	380	380
Other long-term assets	7,810	7,609
	420,050	334,370
LIABILITIES
Current liabilities
Trade and other payables (Note 15)	35,665	32,279
Revolving floorplan facilities (Note 11)	212,840	150,816
Current tax payable	4,600	2,046
Current lease obligations (Note 17)	1,783	1,204
Current indebtedness (Note 16)	5,973	2,859
	260,861	189,204
Long-term indebtedness (Note 16)	26,039	20,115
Deferred tax	11,897	12,056
	298,797	221,375
EQUITY	121,253	112,995
	420,050	334,370

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, 2012	190,435	-	3,918	194,353	(81,358)	112,995
Net comprehensive income	-	-	-	-	17,628	17,628
Dividends declared on common shares	-	-	-	-	(8,935)	(8,935)
Common shares repurchased (Note 20)	-	(910)	-	(910)	-	(910)
Share-based compensation	-	-	475	475	-	475
Balance, September 30, 2012	190,435	(910)	4,393	193,918	(72,665)	121,253


	Share capital $	Treasury shares $	Contributed surplus $	Total capital $	Accumulated deficit $	Equity $
Balance, January 1, 2011	190,435	-	3,918	194,353	(111,979)	82,374
Net comprehensive income	-	-	-	-	13,174	13,174
Dividends declared on common shares	-	-	-	-	(3,777)	(3,777)
Balance, September 30, 2011	190,435	-	3,918	194,353	(102,582)	91,771

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 September 30, 2012	Three month period ended September 30, 2011	Nine month period ended September 30, 2012	Nine month period ended September 30, 2011
Cash flows from operating activities:
Net comprehensive income	6,807	5,230	17,628	13,174
Income taxes (Note 10)	2,379	1,646	6,036	4,365
Amortization of prepaid rent	113	113	339	339
Amortization of property and equipment (Note 8)	1,139	1,044	3,189	3,141
Gain (Loss) on disposal of assets	1	(1)	61	(29)
Share-based compensation	205	-	565	-
Income from investment in associate (Note 11)	(130)	-	(213)	-
Income taxes paid	(485)	-	(3,584)	-
Net change in non-cash working capital	(794)	2,818	(4,704)	(681)
	9,235	10,850	19,317	20,309
Cash flows from investing activities:
Business acquisitions (Note 11)	-	-	(4,154)	-
Purchases of property and equipment (Note 14)	(9,161)	(694)	(13,150)	(2,236)
Disposal of other assets	-	2	-	7
Prepayments of rent (Note 21)	-	(540)	(540)	(1,620)
Proceeds on sale of property and equipment	-	-	28	-
Proceeds on divestiture of subsidiary	-	-	-	1,464
	(9,161)	(1,232)	(17,816)	(2,385)
Cash flows from financing activities:
Proceeds from long-term debt (Note 16)	6,250	-	9,250	-
Repayment of long-term indebtedness	(98)	(2,102)	(292)	(2,322)
Common shares repurchased (Note 20)	-	-	(910)	-
Dividends paid	(3,169)	(1,987)	(8,935)	(3,777)
	2,983	(4,089)	(887)	(6,099)
Increase in cash	3,057	5,529	614	11,825
Cash and cash equivalents at beginning of period	51,198	43,837	53,641	37,541

Cash and cash equivalents at end of period	54,255	49,366	54,255	49,366

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 24 wholly owned franchised dealerships and 2 dealership investments in British Columbia, Alberta, Manitoba, Ontario, New Brunswick and Nova Scotia. In 2011, our dealerships sold approximately 28,000 vehicles and processed approximately 300,000 service and collision repair orders in our 333 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 used vehicle sales, 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.

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.

SOURCE AutoCanada Inc.

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