Business Context and Reporting Period
Company: Asbury Automotive Group, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Operations: One of the largest U.S. automotive retailers, operating 115 franchises at 87 locations across 22 metropolitan markets in 11 states. The company sells new and used vehicles, parts, and services, and offers finance and insurance (F&I) products. The portfolio is heavily weighted toward luxury and mid-line import brands (85% of new light vehicle retail revenue).
Key Financial Metrics (Year Ended Dec 31, 2008)
| Metric | 2008 Value | 2007 Value |
|---|---|---|
| Total Revenues | $4,619.5 million | $5,473.8 million |
| Total Gross Profit | $757.2 million | $852.8 million |
| Net (Loss) Income | $(338.0) million | $51.0 million |
| Impairment Expenses | $535.9 million | $0 |
| Working Capital | $165.2 million | $320.7 million |
| Total Debt (excl. floor plan) | $607.1 million | $475.6 million |
| Cash and Cash Equivalents | $91.6 million | $53.4 million |
| Shares Outstanding (Mar 12, 2009) | 32,105,515 | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 16% ($854.3 million) driven by a 17% drop in new vehicle revenue and a 22% drop in used vehicle revenue due to weak economic conditions and tighter lending standards.
- Significant Impairment: The company recorded $535.9 million in impairment expenses, including a full write-off of goodwill ($491.7 million), franchise rights ($36.8 million), and property/equipment ($7.4 million).
- Operating Loss: Operating income turned to a loss of $(420.0) million compared to $175.0 million in 2007, primarily due to impairments and lower gross profit volumes.
- Debt Extinguishment Gain: A $32.5 million gain was recognized from repurchasing $59.8 million of senior subordinated notes at a discount, partially offsetting operating losses.
- Stock Performance: Market capitalization declined approximately 69% from 2007, with stock price dropping from $11.52 (Sept 2008) to $4.57 (Dec 2008).
Guidance, Outlook, and Risks
- Going Concern Warning: The independent auditor included an explanatory paragraph raising substantial doubt about the company's ability to continue as a going concern due to uncertainty regarding compliance with debt covenants in 2009. This triggered defaults under credit facilities, though waivers were obtained in March 2009.
- 2009 Outlook: Management expects lower net income in 2009 (excluding impairments) due to projected U.S. new vehicle sales of 10.0–11.0 million units (down from 13.2 million in 2008), declining retail margins, and continued financing difficulties for consumers.
- Liquidity Strategy: The company plans to maintain liquidity through asset sales, debt repurchases, and cost reduction initiatives (including a 14% workforce reduction in H2 2008 and corporate office relocation). Dividends were suspended in Q4 2008.
- Legal Contingency: A jury verdict in a hostile work environment case was reduced to $1.2 million post-trial; the company intends to appeal.
- Key Risks: Compliance with financial covenants, potential bankruptcy of domestic vehicle manufacturers, and the ability to sell assets in a depressed market.
Investor Verification Checklist
- Covenant Compliance: Verify the status of waivers obtained from lenders (Bank of America, JPMorgan) and the reduced credit availability ($175M and $50M respectively).
- Asset Sales: Monitor progress on strategic divestitures of dealerships to raise capital and reduce exposure to domestic manufacturers.
- Debt Repurchases: Track the company's ability to repurchase debt at a discount to satisfy financial covenants, as authorized by the Board ($50M additional cash authorized).
- Manufacturer Exposure: Assess the impact of potential bankruptcies or reorganizations of domestic manufacturers (GM, Chrysler, Ford) on inventory values and floor plan financing.
- Legal Outcome: Follow the appeal process regarding the $1.2 million jury verdict in the Portland, Oregon employment case.