Asbury Automotive Group Inc. 2009 10-K Summary
Business Context and Reporting Period
This Annual Report on Form 10-K covers the fiscal year ended December 31, 2009. Asbury Automotive Group, Inc. is one of the largest automotive retailers in the United States, operating 106 franchises at 81 dealership locations across 21 metropolitan markets in 11 states. The company's portfolio is heavily weighted toward luxury and mid-line import brands (85% of new light vehicle sales), including Honda, Nissan, Toyota, BMW, and Mercedes-Benz. The reporting period was characterized by a severe downturn in the U.S. automotive industry, with the Seasonally Adjusted Annual Rate (SAAR) of new vehicle sales dropping to 10.4 million in 2009.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Revenues | $3,650.6 million | $4,402.8 million |
| Gross Profit | $613.0 million | $720.6 million |
| Net Income (Loss) | $13.4 million | $(343.7) million |
| Operating Income (Loss) | $96.3 million | $(413.2) million |
| Operating Cash Flow | $110.9 million | $529.2 million |
| Total Debt (excl. floor plan) | $547.2 million | $610.7 million |
| Working Capital | $216.8 million | $165.2 million |
| Inventory | $506.7 million | $689.5 million |
Note: 2008 results included $528.7 million in impairment expenses from continuing operations, significantly distorting year-over-year comparisons.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 17% to $3.65 billion, driven by a 22% drop in new vehicle revenue and an 11% drop in used vehicle revenue. This reflects the broader industry contraction and tighter consumer credit.
- Profitability Recovery: The company returned to profitability with a net income of $13.4 million, compared to a net loss of $343.7 million in 2008. The 2008 loss was primarily due to a $528.7 million impairment charge (goodwill and intangibles) and a $21.4 million gain on debt repurchases in 2008 that did not recur.
- Expense Reduction: Selling, General, and Administrative (SG&A) expenses decreased 15% to $494.7 million. This was achieved through corporate restructuring, including the relocation of headquarters to Duluth, Georgia, and the elimination of the regional management structure.
- Debt Reduction: The company paid down $84.0 million of non-floor plan debt and reduced inventory levels significantly to improve working capital.
Guidance, Outlook, and Risks
Outlook: Management expects a "modest recovery" in the U.S. automotive retail market in 2010. They anticipate that mid-line import brands will continue to gain market share and luxury brands will maintain a strong presence. The company plans to adhere to a disciplined capital spending budget, with 2010 capital expenditures estimated at approximately $25.0 million.
Key Risks and Contingencies:
- Toyota/Lexus Recalls: Significant recalls affecting Toyota and Lexus vehicles (accelerator pedals and floor mats) occurred in late 2009 and early 2010. While the company owns 5 Toyota and 3 Lexus dealerships (representing ~16% of new light vehicle sales), they do not currently project a material impact, though uncertainty remains.
- Liquidity and Covenants: The company has significant debt obligations. In 2009, they amended credit facilities to eliminate total leverage ratio covenants in exchange for restrictions on new indebtedness. They remain in compliance with all financial covenants as of December 31, 2009.
- Manufacturer Bankruptcies: The reorganization of Chrysler and GM in 2009 resulted in the loss of some franchises, though the company closed the affected GM dealerships in Q3 2009.
- Consumer Credit: Continued difficulty for consumers in securing vehicle financing due to high unemployment and tight lending standards poses a risk to sales volumes.
Investor Verification Checklist
- Covenant Compliance: Verify the company's continued compliance with the amended financial covenants (Current Ratio, Fixed Charge Coverage) in its BofA Revolving Credit Facility and Wachovia Master Loan Agreement.
- Toyota Recall Impact: Monitor the actual financial impact of the Toyota/Lexus recalls on sales volume and service revenue, as the company's exposure is concentrated in these brands.
- Inventory Levels: Confirm that inventory days supply remains aligned with consumer demand to avoid further write-downs, particularly in the used vehicle segment.
- Debt Repurchase Authorization: Note the Board's February 2010 authorization to use up to $30.0 million to repurchase debt securities or make unscheduled mortgage payments.
- Dividend Restrictions: Acknowledge that the ability to pay dividends or repurchase stock is currently limited to $2.3 million under the most restrictive covenant.