Asbury Automotive Group Inc (ABG) 2005 Q4 法說會逐字稿

Good day, and welcome everyone to the Asbury Automotive Group quarterly earnings results conference call. [OPERATOR INSTRUCTIONS] At this time for opening remarks and introductions, I'd like to turn the call over to Director of Investor Relations, Ms. Stacey Yonkus. Please go ahead, m'am.

Thanks. Good morning, everybody, and thank you for joining us today. As you know, this morning we reported fourth quarter and full year 2005 earnings results. The press release is posted to our website at asburyauto.com. If you don't have access to the web or if you'd like a copy of the release faxed or e-mailed to you, please contact Gail [Salotico] at our corporate office. Gail could be reached at 212-885-2520. She'll get you a copy right away.

Before we start I just want to remind everybody that the conference call today will include some forward-looking statements that are subject to certain risks and uncertainties, which are detailed in the Company's most recent 10-K report, as well as other filings we have with the SEC. In addition, certain non-GAAP financial measures, as defined by the SEC, may be discussed in this call. To comply with the SEC rules, reconciliations of non-GAAP financial measures have been attached to this morning's release, and will also be posted on our website under the Company's investor relations section. We will also from time-to-time update the website with additional financial information. Any interested investors should check the site periodically for such information.

The purpose of today's call is to discuss Asbury's fourth quarter and year-end results. Today's agenda will as follows. Ken Gilman, our President and CEO, will begin with a few overview comments, then Gordon Smith, our CFO, will provide everyone with some financial highlights. After that, Ken will have a few concluding comments, and then, of course as always, we'll be happy to entertain any questions you might have. Before I turn the call over to Ken, I just want to mention that any discussions on today's call will be limited to Asbury's operating and financial result. We will not be addressing any rumors that may have been circulating in the media lately. It has long been our policy not to comment on rumors, and we will continue to adhere to that policy.

Now without further delay, I'd like to turn the call over to Ken Gilman. Ken?

Thanks, Stacey. Good morning to everyone. Thanks for joining us today. It's a pleasure to be on the call. We've had great results for the last five quarters, and I'm pleased to report the final year-end results for 2005. Our results for the fourth quarter, even after excluding the positive impact from the regional reorganization, were significantly better than the consensus estimate. We achieved these results despite both the industry-wide slowdown in new car sales following the domestic OEM's employee pricing initiatives in the third quarter and, for Asbury, a particularly challenging year-over-year comparison. To this last point, our Florida operations, which account for about 40% of the Company's operating profit in a normal or typical year, were usually -- unusually strong in the fourth quarter of '04 following the hurricanes that hit the state in the prior quarter -- that is the third quarter of '04. Even so, we still managed to outperform the industry in the fourth quarter of '05 in terms of new vehicle unit sales, with a decline of less than 2% on a same-store basis, significantly better than the industry's decline of 7%. But most importantly -- and that is something that's worthwhile paying attention too -- excluding Florida, our same-store new unit sales were actually up 1% versus the industry, which was down, as I said, 7%, as we continue to benefit from our brand mix, which emphasizes mid-line, import and luxury brands.

Because of the quarterly fluctuations related to the hurricanes in '04, we believe our full-year results for '05 provide the most meaningful comparisons and perspectives on our recent performance. So addressing the '05 numbers, we achieved 8% same-store increases in both revenue and gross profit for '05. We believe these results are the strongest showing among any of the publicly-held automotive retailers. I'm very proud of that, and I'm very proud of each Asbury employee, because without their efforts we couldn't have achieved those industry-leading results.

Adjusted for one-time expense and benefit items related to our regional reorganization program, our earnings per share from continuing operations increased 14% for the year. Giving you some detail around that, new vehicle unit sales were up 4% for the year on a same-store basis, substantially stronger than the industry's growth of less than 1%. As you know, and as we continue to remind you because we're quite proud of it, Asbury's brand mix includes more mid-line, imports and luxury name plates than the industry's overall sales mix.

However, we are also outperforming the industry within these categories; that is, if you mix-adjusted to Asbury's mix. For example, our unit sales of mid-line imports were up 9% same-store for the year, while the category overall us up 6%. In luxury brands, Asbury was up 3% same-store versus 1% for the industry. Incidentally, these same trends of outperforming within our biggest brand categories were also evident in the fourth quarter.

Although we did outperform the industry in new vehicle sales, it was actually our slowest growing business in '05. We reported a 3% increase in same-store new vehicle gross profit; not bad considering the competitive environment in new cars that we talked about. However, our strongest performances, both for the year and the fourth quarter, were in used vehicles and fixed operations. In used, we delivered a 17% same-store gross profit increase for the year and an 8% increase in the fourth quarter. In fixed operations, same-store growth was up 8% for the year and 4% in the fourth quarter.

These businesses are both benefiting from our intensified strategic focus on them over the last several years. In used cars, several years ago, as you -- those of you who've followed us, we created -- those of you who follow us and know and recognize, you'll understand what I'm talking about, we created a dedicated regional-level management teams focused on this business, and also invested in new software that helps our dealers do a better job valuing trade-ins and managing their used car inventories. These investments in people and technology are paying off. In the fourth quarter, for example, we achieved an 8% increase in same-store used vehicle gross on a 3% decline in units, so our margin, obviously, improved significantly by about 50-basis points, to be specific.

In parts and service fixed operations, we've been investing strategically in training, new equipment and where appropriate, additional capacity. During '05, we added about 70 service stalls and 100 technicians, with planned additions of an additional 25 to 30 stalls in '06 and 100 technicians in '06. With the steadily growing numbers of vehicles on the road, particularly for many of our brands, we think building more service capacity is one of the highest ROI investments we can make.

At our relocated Lexus dealership in Atlanta, for example, we built over 50 services stalls versus about 20 in the dealership's prior location. We are continue -- consuming the additional capacity. Today we're using about 35 of the stalls, and we are confident that the balance will be put to use over the next several years, as Lexus sales continue to grow and the OIO's begin to age. This is just one -- a one-store example, but it fits a pretty consistent pattern for the brands that we focus on.

Finance and insurance income is also positive, with a 9% same-store increase for the quarter. F&I was flat same-store, partly reflecting our slightly-lower vehicle unit sales, but up about 2% on a PVR basis. As we mentioned in our call in October, we believe our F&I growth is slowing naturally after several years of strong increases. Although future growth will be driven more by vehicle unit sales, we still believe we can generate some ongoing improvement in F&I PVR by focusing on bringing under-performing stores up closer to Company average.

Overall, I'm pleased to say that our results for the quarter and the year demonstrated once again the benefits of our balanced automotive retailing and services business model.

At this point, I'd like to turn the call over to Gordon Smith, our CFO, to review the numbers in greater detail. Gordon?

Thanks, Ken, and good morning everyone. Before I get into the details of our 2005 performance, I'd like to take a minute to discuss our bottom line results. As you all well know, Asbury went through a significant amount of change during 2005 related to our regional reorganization. In the fourth quarter we made further progress in our reorganization efforts implementing a national benefits plan, which resulted in a nonrecurring before-tax benefit of $3.4 million or $0.06 of EPS. This benefit was not contemplated in our most recent guidance, which was toward the lower end of our 2005 EPS range of $1.71 to $1.77. Adjusting our EPS from continuing ops of $1.80 for this benefit results in EPS for the year of $1.76, exceeding our previous expectations and bringing us in at the high end of our guidance range for the year.

So for the year, there were two nonrecurring items associated with the reorganization; restructuring expense of $4.2 million that we took principally in the first quarter, and the benefit of $3.4 million we took in the fourth quarter. In total, these items net to about $0.02 per share.

As Ken mentioned earlier, 2005 was an operational success. Over the last several years, we have developed specific programs to grow our used vehicles and parts and services businesses. In 2005, we began to reap the benefits of our efforts, with a greater portion of our gross profit being derived from these higher margin businesses. Our used vehicle operations comprise 14.2% of our overall gross profit, a 70-basis point increase on a comp-store basis. And our fixed operations comprise 40% of our overall gross profit, a 10-basis point improvement on a comp-store basis.

Our efforts in used vehicle resulted in a 50-basis point improvement in gross margin. Our parts and service customer retention initiative, which focuses on expanding our lower-margin routine service work resulted in an expected decline of 70-basis points in our overall fixed operations gross margin. In the long run, this initiative will increase our customer loyalty and eventually lead to higher margin repair work. We believe that our customer retention and other fixed operation initiatives have been instrumental in driving our industry-leading 8% comp-store growth in fixed operations gross profit.

Touching on expense management, our overall SG&A ratio improved 90-basis points to 78%. Taking out the nonrecurring items I addressed earlier and eliminating rent, our SG&A ratio improved 170-basis points to 72.2%. Specifically, our management initiatives resulted in a 20-point reduction in personal cost resulting from our reorganization, a 50-basis point decrease in advertising expense, due to strategic reductions in new vehicle advertising, a 50-basis point reduction in insurance cost, due to our strategic initiatives in the area of workman's compensation. All of these improvements resulted in a 19.6% operating margin, before floor plan, an impressive 100-basis point improvement from 2004.

Looking out at their horizon, we will continue to move forward in centralizing our accounting functions and streamlining our reporting processes. Internally, we have committed to centralizing our payroll systems and adopting a single DMS system by 2008. These two initiatives will result in substantial reductions to our fixed cost structure.

Rising interest rates continue to have an impact on our EPS growth. We estimate that the rate increase cost us approximately $0.30 of EPS in 2005. Despite this, our operations were able to deliver phenomenal growth in income from continues ops of 14%. I would like to point out we have taken steps during 2005, and prior, to combat rising interest rates. First, we signed a new credit facility, which reduced our base floor plan rate approximately 50-basis points. Second, we paid off $30 million of variable rate mortgage during the year, and this, in addition to the more than $65 million of mortgages we paid off during 2004, our debt to total capital, therefore, ended up the year at 47.6%. And if you include cash in the calculation, it would be down to 44.5% compared to 52.2% at the end of 2004 or, including cash, 50.9%.

And finally, we have continued to focus on inventory management, especially related to domestic brands and have successfully lowered our average day supply for 2005 by 5% to 64 days. As -- as of December, our day supply was 58 days versus 64 days at the end of 2004. By category, luxury brands were 45 days versus 40 days in December last year, luxury inventory totaled $139 million compared to $126 million last year. Mid-line import brands were 44 days versus 53 days last December. Mid-line import inventories were down 8% on a comp-store basis, and totaled $161 million in December. And mid-line domestic brands were 100 days versus 117 days last December. Our domestic inventories were down a remarkable 18% on a comp-store basis and totaled $175 million in December. Our operations continue to generate substantial levels of cash flow and total EBITDA of $158 million, a 14% increase from 2004, including $12 million of incremental floor plan expense resulting from higher interest rates.

Taking a look at our capital expenditures for the year, project and maintenance-related CapEx totaled $78 million, of which approximately $42 million was financed through sales -- lease-back transactions or mortgage financing. We expect that our CapEx spend for 2006 will mirror our 2005 levels, and we plan to finance about 60% of our expenditures.

Turning to dealership portfolio management, during the fourth quarter, as we previously announced, we sold all but two of our Portland stores for cash proceeds of approximately $27 million. We expect to receive an additional $33 million in cash proceeds from the sale of our remaining assets during the first half of 2006. For the year, income from discontinued operations after tax totaled $1.2 million, which includes a gain on the sale of our Portland dealerships.

Looking forward to 2006, we expect the interest rates will continue to impact our bottom line. Based on our models which assume the fed funds rate will be at 5% by May, we estimate that the increased rates will have a $0.15 impact on our 2006 EPS. In addition, the expiration of a fixed to floating rate swap in March will result in an additional interest expense during 2006 of approximately $0.08. That's the bad news. The good news is that we are entering 2006 with momentum in every aspect of the business.

In summary, during 2005, we grew comp-store gross profit 8%, reduced our expense ratio by 170-basis points, improved our operating margin 100-basis points to 19.6%, and achieved income from continuing operations of 14%. Driving off this momentum, we believe we'll be able to grow operating income 10 to 14% and deliver between $1.85 and $1.90 of EPS in 2006. This estimate does not consider the impact of stock-based compensation, which will cost approximately $0.10 on an EPS basis.

With that I'll turn the call back over to Ken. Ken?

Thanks, Gordon. Well, those are great numbers. I'd like to drill down a bit more, taking a closer look at regional performance, so that you can see the impact, specifically by region, of some of the programs we've implemented, such as our focus on used and fixed operations. Let's look at Texas, where we've seen excellent results in used. In the fourth quarter, Texas, on a same-store basis, we realized strong double-digit increases in used vehicle unit sales revenue and gross profit. We also posted double-digit same-store increases in fixed sales and gross profit.

In Jacksonville, despite very difficult year-over-year comparisons in the front end of the business due to, of course, the hurricanes the prior year and the rebound in the fourth quarter, our fixed business posted solid increases in both revenue and gross profit dollars.

In addition to our operational achievements at the dealership level during 2005, we completed two significant corporate initiatives during the year. First, as Gordon pointed out, we reorganized the Company from the platform structure we had, consolidating several of our former platforms into four regions. While there are, of course, on-going savings, we also believe these changes enhance our operating and management effectiveness, in part by shortening the lines of communication.

Gordon reviewed our earnings guidance for 2006 with you. As he pointed out, we would normally expect to achieve faster net income growth. But the increases in short-term interest rates have created quite a headwind for us, in terms of floor plan interest expense. We are optimistic -- and this is important to follow -- that at some not too distant point in though future, interest rates will level off, allowing the growth in our operating income, which was significant in this past year and which is what we focus on day in and day out, to flow through to the bottom line. So that you can see, if you will, the trend in operating income translates into a trend in net income in a much more highly correlated fashion.

Turning to acquisitions, we indicated on each of our last two conference calls that we expected 2005 to come in below the low end of our target range, which is, as you know, $300 million in annually acquired revenue. We completed three deals during the year, which will add, incrementally, revenue of about $115 million on an annualized basis. As you know, we are being very selective in terms of the brands and locations we will consider, and don't believe in paying uneconomical prices just to get deals done. We don't have to shift our brand mix. We have a great brand mix and we're not going pay unreasonable amounts, just to increase the score in terms of acquisitions. We expect 2006 to be much closer to 2005 in terms of acquisition activity.

Longer term -- I'll wax a little philosophically right now -- we remain very confident in Asbury's bright future. As most of you have heard us say before, we think we have got the right brands in the right markets. Mid-line, import and luxury brands, which account for about two-thirds of our new vehicle sales, have been gaining market share for years now, and we don't see anything on the horizon that's likely to change this trend.

Our dealerships are also well positioned geographically, in many of the most attractive regional markets in the country from the standpoint of population and economic growth. We have focused operational plans in place to continue delivering organic growth in our service businesses and in used vehicles, both largely independent of what happens in the potentially more-volatile new car business. We are also leveraging our performance with rigorous expense controls, and we are in good position to grow through strategic tuck-in acquisitions and our existing regional markets.

To me, this says that all of the ingredients are in place, and it's up to us to execute from year-to-year, quarter-to-quarter. Us means our people, starting with our store GM's, the people they hire and train, on up to our regional leadership teams in the home office organization. We all have to execute. Together I think we've done a pretty good job over the last couple of years, and for that I want to thank each and ever Asbury employee. But we can't let up now. We have a great opportunity to seize the leadership position in the industry to become a company that investors begin to expect will lead the way in delivering consistent earnings growth. And that, over time, should drive our share valuation and generate long-term rewards for our shareholders.

With that, we'd like to turn the call back to the operator, and Gordon and I will be happy to take your questions. Operator?

Thank you, Mr. Gilman. [OPERATOR INSTRUCTIONS] And we'll take our first question from Rick Nelson of Stephens Investment Bank.

Thank you and good morning.

Morning, Rick.

Can I -- I think at the time you announced the reorganization, you were -- had talked about a $0.10 benefit in '06. Now -- now that you are into the reorg a little bit deeper, how do you feel about that number?

This is Gordon. Yes, we -- we thought we would get about $0.06 of benefits in 2005 and then the incremental $0.04 to total a of $0.10 for 2006, and we're on track on those numbers. Every -- the reorganization is tracking exactly what we thought would happen.

Okay.

In fact, as you see, we're periodically coming up with incremental benefits, some of -- the fourth quarter being a one time, but others are forthcoming, potentially above the $0.10.

And the margin pressures in new, which are not exactly new phenomenon but for the quarter they looked a little bit more severe than the year-to-date, I'm wondering what you see the outlook there for gross margin?

I think next year, Rick, is -- or '06, the year we're in, is going to be a year similar to '05 in several respects. I think there's going to be continued pressure on brands to try to go for share. But I do think that the brands that Asbury's focused on have a lot of new product coming in, which gives us an opportunity to improve margin.

For example, you know that Honda is our biggest brand and they've got some terrific new product, the Civic in particular, and the re -- significantly refreshed Accord. Mercedes, which is a very important brand to us, has two really strong new products; the S, which is selling very well right now and I read Mercedes thinks they want to sell about 30,000 of those this year in the U.S., and the GL, which will launch in April. I believe April 1.

So I think that the environment is going to be more of the same. I think that, if you have the right brands, and those brands are going to take share and those brands that are taking share have new product, you're going to be able to have the opportunity, if you handle it right, to offset some of those other, call it macro forces driving -- exerting pressure on new car grosses.

On more of the same, you mean more pressure or more similar margin to what we're seeing in '05?

Well, I think you can -- overall, I think you're going wind up seeing similar, to maybe a tad down -- and a tad is just a tad -- but I think that you have to look at the overall factors and then -- that are at work in the industry, which I think will be consistent, and then translate it into each automotive retailer's brand mix to see, really, what the impact is likely to be.

I also think that there are some initiatives that we are exploring to improve new car grosses. I'm not prepared to talk about them now. As you have heard me say -- I like to paraphrase Lincoln who said that the chicken was the smartest animal in the barnyard. She only cackled after the egg was laid. And so, we'll have more to say on that in the future, if we have positive results to talk about.

Okay. Fair enough. Hurricane Wilma, I'm wondering if you're seeing any rebound there in Florida?

It mostly hit further south, Wilma, than our stores. The closest would've been the Fort Pierce stores, and we're doing very well in Fort Pierce, so I really can't say. I think it --

Yes, the stores were only closed for a couple of days. There was relatively no impact.

It had more of an impact in the Boca Raton to Ft. Lauderdale area, which is more of an AutoNation market.

Got it. Thank you very much.

Pleasure.

Okay, we'll go next to Matthew Nemer of Thomas Weisel Partners.

Good morning, everyone.

Hi, Matt.

First question is on inventory, you've done a great job of keeping that pretty lean, I'm wondering, with higher rates is there anything -- what are your plans for 2006 in terms of inventory, particularly on the domestic side?

I think there'll be a relentless pursuit of having the lowest amount of inventory, but still have enough to -- to make the sales. So, we'll continue to push our region heads and the GMs to -- to really be particular about their ordering process. So, our expectation is that we will continue -- especially on the domestics, as you say -- to drive that down even further than it is.

I would add something to that, Matt, that the -- the three big domestic OEMs are going to be relentless in trying to get dealers, in general, to buy. And they're very good at that. They -- I mean, that's an expertise they need to have. That's their job. We don't exert the same kind of central control on inventories that some of the others do, so I would still expect to be a little higher. It's going to be a battle out there at the district level, in terms of what we call wholesaling or when we buy from the OEMs. So I endorse what Gordon's saying. We work with our regional heads and GM's, but it's going to be a -- a fight out there on inventory.

It sounds like they're coming up with ever more creative ways to get the dealers to take more inventory than they need. There's some pretty attractive offers out there right now, if you have extra space on your lot. Is your opinion is you would sort of steer clear on those, or do you look at those on a case-by-case basis?

It's really case-by-case. In fact, more specifically on the Chrysler on the trunk money that they were giving, we did participate in that program, and several of our dealerships.

Got it.

But not all.

Not all.

Got it. Next question is, Ken, you called out your performance in Texas and Florida, and I'm wondering if you could comment a little bit more about what -- what you're seeing in those markets in terms of insurance replacement activity, and just kind of general economic conditions?

Well, it's -- Houston has picked up, and we're -- I would assume it's from replacement activities here. We don't track the source of the check that we get when we take the down payment money, but I think there's some of that. I think that there's just heightened economic activity in Florida, not from replacements, but when you have a surge in '04 of 20 to -- Lord knows how many billion dollars coming into the state, you have a significant increase in economic activity. So you're not really having -- in our markets, as related to Rick's question, Wilma didn't come up into the -- thank goodness -- the Orlando north market, where we're most heavily focused. So we don't think there's a whole lot of replacement activity there. Have seen some in Mississippi, where in Jackson -- where they just got a lot of rain, didn't get a whole lot of wind -- but it's really is focused Baton Rouge, south.

Okay. And then last question is, with all of the public dealers -- or most of the public dealers, essentially, going after metro luxury stores or import stores -- and a few of them have to change their strategy to move in that direction more quickly -- and the press sort of actively reporting the demise of some of the Detroit brands, does it -- have you thought about maybe being more of a value investor and looking at some domestic brands, and picking them up perhaps on the cheap, as dealer principals decide that they want to get out this year or next year?

We have always said that we would buy domestic brands in the right markets, truck country, and if we see the right store come up with the right financial characteristics, we're going to be talking to the dealer about buying the store. But they are fewer and further between. We have to be really selective on those, and I wouldn't go out and -- and try to sweep the market.

And to that point, we picked up a really nice Chevy dealership last year that's just in the Mississippi market, and it's just performing dynamite. So, yes, we'll selectively do that.

Just to follow-up on that, have you thought about what might happen in terms of -- if one of the domestic manufacturers has to do a financial restructuring, how it might impact the dealer base from the standpoint of warranty receivables and some of those items?

Yes, we have, and we -- we actually just had that conversation yesterday. It's warranty receivables. It's a dealer hold-back, which gets paid in arrears. It's the supply chain for parts, so that you can keep your service operation going. It's the value of your new car inventory and the impact on residuals for used. There's a host of issues, and we are thinking through what the -- the response should be at the dealership level. So the answer is yes. I can't tell you we're going to have as a retailer at the end of the supply chain, a great answer, because we can't force some changes on the OEMs. That would make sense from a creditor's standpoint, which we are. But we're focusing on the issue, and everyone should be thinking about it.

The good news for us, if -- if you looked at it, our portfolio, once again, is 72% on a unit basis in the mid-line and luxury brands, and only 18% in the -- in the domestic. So, on a relative basis, we have less exposure than just about all of our -- all of our competition in this arena, so in that respect we're well-positioned. But to Ken's point, it is something that we are thinking about on a daily basis.

Great. Okay. Good. Great quarter. Thanks very much.

Thanks, Matt.

And we'll take our next question from Marc Irizarry of Goldman Sachs.

Oh, hey, guys. Thanks. Nice quarter. My question actually is on kind of distribution of your -- of your store base. If you look at Oregon in terms of the performance there, Ken, where does the portfolio stand now, in terms of, you know, how much more low-hanging fruit, if you will, on the disposition side or the divestiture side of things is there?

There is not much. We have a -- a few stores that, absent real estate considerations-- and I'll explain that in a second -- I would be favorably disposed to sell. The real estate considerations are they occupy adjacent, wonderful real estate to existing operations, and I don't want to put a competitor into those locations. These are domestic stores. I don't want to put a used -- another -- a used car operation next to ours, where we're doing really well, for example. And so, right now, the loss stores -- the stores that we have that are losing money -- it's very little. Less than -- just around $2 million last year -- if you could wave a magic wand -- including these, and less than just about a million dollars in total for this group, for the ones that are not involving real estate considerations.

So overall, we have spent the last two years really working the portfolio, so that we have good stores, well performing stores, can hire the best people, can retain our general managers -- which we have done a wonderful job with this year, we didn't really go into turn over -- and I think it's working, so there's not much left for us to dispose of. And the main driver for retention, for what would otherwise be disposed, is real estate, and I think that's something you have to be very careful of. You don't want to take a short-term decision to your long-term detriment.

Right, and if you look at the platform that you just sold, you booked a gain, so I assume you did blue sky above, kind of, the book value of that platform. I'm just curious, if that was a platform that was losing that had negative -- or was losing money, essentially, how do -- was there something specific to that platform that made it attractive, that you were able to kind of get some blue sky for those properties?

I think that we -- we had a couple of import stores there. We had a Toyota and a Honda store. In addition to some domestics, we had two Hyundai's, so, yes, we got blue sky on all the deals. But obviously the Toyota and Honda store, which would have been orphans in that market for us, fetched a far higher premium.

Got you. And Ken, now that your portfolio is where you want it to be, kind of going forward --

I'd correct that. It's never where you want it to be. You're always going to be looking at the bottom 10%, and so, you know, it's an ongoing process, to be fair. I mean, you know we -- we look at our portfolio and if you take the 89 stores we have today, we have, you know, nine stores that are in the $5 million category and above in operating income. We have 51 stores that are in the one to five category, and we still have -- you know, we have stores -- the rest of the stores are making less than $1 million. So we're always going to be looking at those stores.

I will take that correction from Gordon. He's right.

Okay.

That's how we think about it and that's what my CFO is supposed to keep me on track to think through.

Great. Well, thanks, guys.

It's our pleasure, Marc.

And we'll take our next question from Kelly [Doherty] of Calyon Securities.

Hi, congratulations.

Thanks, Kelly.

You're welcome. Regarding your debt to capital ratio, do you guys have any particular target in mind, or delevering more dependent on your acquisition activity during the year?

Well we -- right now, the only debt we have outstanding other than a few more -- we have like $25 million in mortgages, right? $26 million. And we also put loaner vehicles into that calculation. We have got about $21 million. Other than that, all we have outstanding right now is our sub-debt facilities, 250 of eight, and the 200 of the nine. So, there's little opportunity on the debt side, so it will be in relationship to acquisitions. That being said, we ended the year at about -- with about $57 million in cash, and when we sell the remaining Portland assets -- very shortly into this year -- we're going to have, oh, $90 to $100 million of cash at our disposal to make acquisitions. So I'm not looking for the -- for the debt to cap ratio to go up. And it might -- depending on the markets in terms of acquisitions, you would expect it to go down a little bit, maybe 100-basis points or so, somewhere in that range this year.

Okay. Thanks. And then kind of segueing into my next question, is there anything in particular that you plan to do with maybe some of this excess cash that you had earmarked for acquisition spending in 2006?

Well, our corporate bonuses get paid --

Good idea.

-- on the tenth, but they're not that big. You're talk about shareholder enhancing activities?

Yes, any kind of return of capital or something like that?

The board considers that on a regular basis, and we will -- we talk about it and officially address it twice a year with presentations, and we talk about it more frequently than that. And the board will continue to consider those activities.

Okay. Thanks very much, guys.

And we'll go next to Jerry Marks of AutoRetailStocks.com.

Good morning.

Hi, Jerry.

Ken, you kind of alluded to the turnover rate improving. Could you give us some numbers on how it did this year versus last year?

Well, it significantly improved. We measure it a couple of different ways. Absolute numbers of GMs that leave the business. We also measure it in terms of continuity; that is, how many GM's have been in their stores for more than a year. And we measure overall management turnover; that is from the desk managers on up. I'll give you statistics. Overall we dropped -- over the last two years, over 10% in turnover, and our best performing regions had the lowest turnover. So Atlanta, a significant drop in that -- in that piece of the south region. Jacksonville, significant drop. Texas, significant drop. I don't want to go into the specifics, but I'm talking about either single or very low double-digits.

Can I just clarify? That 10% drop, that's sales end service?

No I'm talking GM at this point.

Oh, that's GM. Okay.

General managers. So that's just the kind of preparation we do for this. I don't have the full turnover report, but it starts with the GM. If there's a single matrix out there that correlates best with performance, it's general manager turnover. And we think that the leadership we have in place in Texas, in Atlanta, and in Florida, the quality of the stores we have, the fact that we've gotten rid of many, many, many of the poor-performing stores, the ability of our GM's to work with really good regional leadership and make a very good living all contributes to that stability. We think the factories like it, we think it produces a better overall unit sales result, and we think it improves profitability.

Now, a couple of years ago you were going around to college campuses starting up a management training program. Is that still going on or has that kind of fizzled?

No it's going on, and I think it's working quite well. We did not hit my objective of having 50 to 100 college recruits in our program at the end of the year. But I'm very pleased with the program, and we think, ultimately, it will change the face of automotive retailing.

Okay. Last two questions. Just to clarify, Gordon, the gains that you guys are getting on these sales that was -- you wrote down pretty significantly a year or so ago these Oregon platforms, right? So, maybe, did you go too far on the write-down?

Well, I guess the answer is yes and no. The write-down we -- was kind of a technical write-down that we look at for -- on an appraised value. Recognizing that, quite frankly, most stores, irrespective of performance, usually can sell for something above their PP&A value, if you will.

Yes.

So, I guess the answer is, overall, it -- with the -- playing a little bit of Monday morning quarterback, the answer would be a little bit, yes.

Okay. And last question --

Yes, and -- I'll give you another technical piece to this. When you sell something, the way the accounting works for how much goodwill you -- you apply to the gain, it's not related to how much you have on your books for that particular platform. In other words, we wrote down the-- the goodwill in that platform to about $12 million. It's -- as part of this sales process, we wrote off $17 million of goodwill. So, the gain is net of actually incremental goodwill over what we had left in that platform.

It almost seems that investment impairment rules are forcing you guys to over write-down some of the assets when you have to go through these reassessments.

That is not an unfair statement.

Okay. Last question, Ken, you had talked about changing the face of auto retailing, and I noticed some changes, when Gordon was talking about going a common DMS system, common payroll system. And you mentioned that some of your competitors have a little bit more centralized inventory management approach. Have you guys considered moving towards that a little bit?

Well, I don't believe in -- in ordering inventory, for example, from headquarters. I think that, if I'm running the Honda store in Orlando, I want that general manager who does a great job to order his inventory. He makes a lot of money for the business. He runs a very good business, and he ought to run that inventory appropriately. And if he feels he needs a little bit more, within reason, he ought to get it, and he ought to have the freedom to do that. And he's accountable to a regional CEO, and if we have problems with it, we'll talk about it later. But we're not going second-guess. I believe that the customer-facing activities must be run locally, and everything else is personal preference and should be considered for centralization.

So when you look at the DMS's, it's personal preference that people like and get wedded to. And if we can't achieve significant efficiencies and advantages by going to one, which we will do, then we should -- we should do that, because it has nothing to do with the customer experience. What we cannot do is compromise that customer experience, and that's what the GM is best suited to maintain and enhance, and we're not going to go down the road of putting handcuffs on our GM's. If they can't control the inventory to their market and produce a result, well then they shouldn't be the GM. And if it means a little more inventory, but the financial result is good, we're not going to drive them crazy on a single metric. So I think we -- I think we have the right approach.

Okay. Fair enough. Thanks.

And we'll go next to Peter Siris of Guerilla Capital.

Hi, Ken. Hi, Peter. How are you?

Morning.

Peter, we're fine.

There -- you guys gave us a lot of numbers. I didn't see a -- maybe I missed it-- the cash flow number for the year?

You missed it.

You missed it -- The EBITDA number was $156 million.

It -- okay. And what would be the -- what would be your maintenance CapEx? In other words, if you didn't make any acquisitions, what is the maintenance CapEx say for this year?

We spend -- you know, between 15 and 20. Last year it was about $16 million of maintenance CapEx in a year.

And -- and depreciation is what? Oh there is EBITDA, so I don't want to worry about --

Right, right --

So what that says -- what that says is that roughly last year you generated, without acquisitions, $140 million in cash?

I missed it. You got --

I take the 156 EBITDA and I take away the $16 million maintenance CapEx.

Right.

I say if you don't make any acquisitions --

Right, exactly.

-- then you are generating $140 million in cash.

That's a good number.

Okay. Thanks, guys.

You're welcome Peter.

And it appears there are no further questions at this time. Mr. Gilman, I'd like to turn the conference back over to you for any additional or closing remarks.

I really don't have any. We -- we were pleased with the results, and it's a pleasure to work with all the people at Asbury, my business associates the employees out there. They're the ones that generated it. I'm looking forward to having another good year, and I'm looking forward to interest rates leveling off, so that we can record -- as the bottom line increases, the operating income growth that we have been recognizing. So thank you very much.

And ladies and gentlemen, that does conclude today's call. Thank you for your participation, and you may disconnect at this time.