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

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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