AutoNation Inc (AN) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2003 earnings conference call. At this time, all participants are in a listen-only mode. Later, there will be a question and answer session. If you should ask a question, please press the one on your Touch-Tone phone.

You may remove yourself from queue at any time by pressing the pound key. If you are using a speaker phone, please pick up your hand set before pressing the numbers. If you enthusiasm require assistance during today's call, press zero followed by star. This conference is being recorded.

I would like to turn this call over to our host, Auto Nation. Please go ahead.

Good morning, ladies and gentlemen. Welcome to Auto Nation’s first quarter 2003 conference call. My name is John Zimmerman, Auto Nation’s Vice President of Investor Relations.

I'd like to remind that you this call will be recorded and will be available for replay at 800-475-6701 access code 681672. Leading today as call, will be Mike Jackson. Joining him will be Mike Maroone, President and Chief Operating Officer, and Craig Monaghan, our Chief Financial Officer. At the end of their remarks, we'll open the call to questions. I'll also be available by phone to address any follow-up issues.

Before we begin, please let me read our brief statements regarding forward-looking comments and the use of nonGAAP financial statements. Certain statements and information on this call will constitute forward-looking statements within the meaning of the federal private re formatives litigation reform act of 1995. Such forward-looking statements involve risks which may cause the actual results or performance to be materially different. Additional discussions of factors that could cause actual results to differ materially are contained in the company's sec filings. Certain nonGAAP financial measures as defined under sec rules will be discussed on this call. As required by applied sec rules, the company has provided reconciliations of the nonGAAP financial measures to the most directly comparable GAAP measures in our earnings release which can be accessed on the investor relations section of Auto Nation web site at www.AutoNation.com.

Now I'll turn the call over to Auto Nation’s Chairman and Chief Executive Officer, Mike Jackson.

Thanks, John. Good morning.

I am pleased to report that despite the first quarter being overshadowed by the threats and then the reality of war, Auto Nation reported net income for continuing operations of 72 cents per share. Which when adjusted to exclude the 43 cent benefit of our recent settlement with the IRS is the first quarter record of 29 cents per share. This marks the fifth consecutive quarter that Auto Nation has recorded record EPS and has exceeded the consensus estimate.

In the quarter, we announced an agreement was reached with ANC rental corporation and its unsecured creditor's committee. We also made an accounting change related primarily to floor plan assistance to comply with rules recently issued by the emerging issues task force. These two non operating events impacted our net income in the quarter by 9 cents. Including these items, Auto Nation’s first quarter net income was 63 cents per share. In the quarter, we continued to focus on optimizing our expense structure as evidenced by a 5% reduction in SG&A expense compared to a year ago.

In addition, our business generated strong cash flow, which when coupled with a strong balance sheet, aloud us to repurchase 17 million shares or over 5% of the company's outstanding shares and close acquisitions that represent collective annual revenue of approximately 270 million. This in the midst of a quarter that was characterized by low consumer confidence, a weak labor market and rising gas prices reinforces the resiliency of Auto Nation’s business model and our ability to deliver results even in trying times.

Now I'd like to turn it over to Craig Monaghan, our Chief Financial Officer.

Thank you, Mike.

As Mike said, during the first quarter, we delivered earnings per share for continuing operations of 29 cents excluding the benefits from the IRS settlement. In addition, we generated operating profit of 170 million and cash flow from operations of 187 million. Strong profits and cash flows allowed to us reinvest in our business and aggressively repurchase shares. We invested 33 million in capital expenditures and repurchased $205 million worth of stock or over 5% of our outstanding shares. We had a number of unusual p & l items in the quarter. I'll go through those in a moment, but first, let me review some of the details of our core business performance.

The main driver of our bottom line performance was our continued focus on controlling and cutting costs. Excluding the impact from the accounting change, which I will discuss in a moment, we took out 30 million of sg & a primarily from compensation and other operating expenses. This helped offset 80% of the impact of our gross profit decline. Substantially more than just the bearable cost portion. Sequentially this is a continuation of similar reductions in Q4. Despite the revenue decline, gross profit is a percent of revenue improved by 30 basis points in Q1 '02 with an increase in F&I gross profit PBR more than offsetting new vehicle margin decline.

New vehicle gross profit is a percent of revenue in Q1 was 7.5%, down 40 basis points versus the prior year. This was driven mainly by weaker demand for a new vehicle and highly competitive marketplace. However, as I said, our sg & a improvement and their ability helped offset the soft top line. All in all, we were able to improve our operating profit margin as a percent of revenue by 10 basis points to 3.8%. The second consecutive quarter of operating margin expansion despite revenue decline.

Now let me cover the unusual items that incurred during Q1. As we had previously disclosed, in March 2003, we reached a settlement with the IRS with respect to the tax treatment of certain prior year transactions. Under the agreement, we owe the IRS net aggregate payments of approximately $470 million with initial net payment of approximately $350 million due in March, 2004. As a result of the settlement in Q1, we recognized a reduction in deferred tax liability, a car funding income tax benefit of $128 million or 43 cents per share. In addition, for the full year 2003, we expect to incur pretax interest expense related to the settlement of approximately $20 million or 4 cents per share. We recorded 2 million of interest expense in Q1 related to the tax settlement. Also during Q1, we recorded a discontinued operations loss in connection with ANC rental.

On April 15, 2003, we reached an agreement with ANC rental and its unsecured creditors committee. The agreement is subject to bankruptcy court approval in May 2003. As a result of the agreement, we incurred a pretax charge of $20 million. 12 million after tax or 4 cents per share for the estimated exposure. We estimate that there could be remaining exposure related to ANC rental of up to an additional $20 million pretax.

Lastly, we recorded a charge as a result of adopting some new accounting rules. Emerging issues task force issue number 0216, which in our industry, deals with allowances paid to us by vehicle manufacturers requires that certain allowances be treated as reduction of inventory costs effective January 1, 2003. This accounting change resulted in a one-time charge totaling 14.6 million after tax or 5 cents per share. The impact related primarily to floor plan assistance. However, it also impacted certain advertising allowances, resulting in a reclassification that increased sg & a and reduced costs of operations by 4 million for Q1, 2003 to now reflect these allowances as a reduction of costs of operation.

The reclassification impact in Q1, 2002 would be similar, therefore excluding the impact of the accounting change, sg & a would have decreased by $30 million year-over-year. As for other matters of interest, our liquidating consumer loan portfolio contributed just under 1 cent per share of profit during Q1. We have approximately $81 million of financing receivables and related assets remaining as of march 31st, 2003. Our no vehicle debt, net of cash, decrease $22 million versus a year ago to 526 million. Today we have approximately 730 million of available liquidity given our cash balances and available credit capacity. This funding capacity combined with our ongoing cash flow generation makes us well positioned to fund the tax settlement while also continuing to pursue stock repurchases and other opportunities.

As mentioned earlier, we repurchased 17 million shares for $205 million in Q1 as of March 31st, this left 166 million of the $500 million Ford authorization for future repurchases. Through April 25th, 2003, we have repurchased an additional 1.5 million shares for $20 million. In conclusion, our financial flexibility puts us in great shape not only to withstand but capitalize on the difficult market we face today.

Now let me turn you over to our President and Chief Operating Officer, Mike Maroone.

Thanks, Craig and Good Morning.

My comments this morning will be focused on the operational side of the business and will be on a same-store sales basis. As reported, the overall new vehicle market shrunk by 4% in the quarter compared to the same period a year ago. Due in large part to consumers delaying large purchases as the threat of war loomed. Offset by increased fleet sales. With adjusted for fleet and government purchases the retail component of the overall light new vehicle market was down more than the overall industry in the quarter at approximately 6%. In our markets, relative to the brands we carry, the decline was approximately 8%. This environment resulted in stiff competition for market share and pressure on gross margins. Even so, our operating margins improved due in large part to our expense reduction efforts.

For the first three months of the year, we realized a savings in overall store level sg & a expense of $32 million or 6% compared to the same quarter a year ago. Three-quarters of SG&A savings came in our area of compensation as our work over the past year in assuring variability and pay plans continued to pay off. Other operating expense reductions contributed 11 million of the sg & a improvement as our expense control initiatives continued to gain traction as evidenced by this being the second quarter in a row where we have made significant gains in expense reduction. As a percent of gross profit, store level sg & a improved to 68.7%, an improvement of 40 basis points compared to the quarter a year ago.

Turning to vehicle sales in the first quarter we generated 3.4 billion in revenue from the sale of new and used vehicles on a same-store basis, a reduction of 8% compared to the first quarter of 2002. Our first quarter, new vehicle revenue was 2.5 billion off 9% compared to the quarter a year ago. This decline is attributable in part to several of the markets we do business in, being off more than the industry. Examples would include Houston, Atlanta, Denver, then the San Francisco Bay Area. Market-wide, volume in these markets for the brands we represent, was off in a range of 13% to 21% in the quarter as compared to the nation's retail segment being off 6%. On a sequential basis, our market share improved in the first quarter when compared to the fourth quarter of 2002. Our new vehicle day supply as of march 31st was a 79 days on a trailing 30 day basis. Despite the result of first quarter sales volume being less than expected due to the war. We are satisfied that we have the right inventories for the spring market. I'll also add that at the close of the quarter, less than 2% of our new vehicle inventory is comprised of 2002 models.

Turning to used vehicles, Auto Nation generated used vehicle same-store sales rev news of 885 million, 6% less compared to the quarter a year ago. The used market continues to be challenging due to the oversupply and resulting from ongoing aggressive manufacturer indenters on new vehicles. The Anaheim used vehicle index which dates back to January 1995 registered 102.5 in March 2003 its lowest reading since August 1995. Even with this market softness, we outperformed the industry on a volume basis, according to cnw market research who recorded an industry decline of 12% compared to Auto Nation’s used volume being off significantly less at 6%. In addition, we were pleased to maintain a strong used vehicle gross profit per vehicle retailed of $1735. We attribute this performance to aggressive inventory management, having the right mix of lower priced vehicles and the successful offsite used vehicle sales events. These events worked especially well in south Florida, north Florida and Denver markets. As of march 31st, we had a lean used vehicle day supply of 33 days. Only 1% of our inventory was over 60 days and the average cost to a vehicle in inventory was $12,000, the lowest this year.

Looking ahead, we're confident that our used vehicle system will allow to us manage sufficiently in any environment. In the area of parts and service, our same-store revenue was $583 million down 3% compared to a year ago. However, gross profit is as a percent of revenue improved by 10 basis points in the quarter. This is the first time we've experienced a decline in revenue this segment of our business. Contributing factors were, first, dramatic quality improvements at Ford that drove a significant reduction quarter over quarter in warranty service and parts. Second, a reduction in insurance claims relative to collision as a percent of vehicles being totaled versus being repaired is growing. Lastly, lower new vehicle prep gross margin as a result of a drop in retail new vehicle sales. In spite of this, we've realized improvements in a very profitable segment, customer pay service labor.

As a result of best practices in the service drive where our common service drive process utilizing menu selling has driven increased customer pay sales for repair order during a period of reduced service traffic. The use of grid pricing is also driven gross margin improvement. We'll continue our implementation and adherence to best practices directed at customer pay revenues and grosses. Also of note, we've added dedicated associates in key markets to solicit the highly profitable fleet service business. This business drives both revenue and gross margin and is generally non cyclical. Turning to finance and insurance, our best practices in this area of the business continued to deliver results.

Our F&I associates turned in a record gross profit per vehicle retailed of $794 in the quarter. This compares to $726 for the period a year ago, an increase of $68 or nearly 10%. Factors that contributed to this performance include the introduction of the f & i specialist program that provides a more intense intervention in underperforming stores. In an ongoing commitment to the f & i menu selling process, along with increased focus on the sale of protection products. In the quarter, we experienced a 24% increase in the penetration of protection products compared to the quarter a year ago. In the quarter, we also continued to make long-term investments in our business. Examples would be continued consolidation on activities on the cost side. And areas such as consolidation of local market purchasing, the establishment of shared resource centers for select accounting functions and payroll consolidation by district. Relative to the customer experience, our implementation of common customer-friendly sales and service processes continues across the enterprise.

On the branding front, yesterday, we launched the champion brand in our south Texas district, which includes markets Houston, Austin and Corpus Christi. And this Thursday, May 1st, we'll officially launch the power brand in our Southern California district where hockey legend Wayne Gretzky will serve as our spokesperson. In closing, the efforts of our associates in implementing best practices and making our business increasingly cost efficient are instrumental in producing the best net margins in the business.

With that, I'll hand it back to Mike Jackson.

Thanks, Mike. In closing, despite a tough quarter for the whole country, Auto Nation again demonstrated its ability to deliver results in trying times. Further, we were pleased to reach a beneficial settlement with the IRS and reduce the uncertainty associated with the ANC rental bankruptcy. Looking to the remainder of 2003, we believe the auto retail environment will continue to be challenging. In light of this, we'll continue our focus on cost reductions, operational improvement, and the efficient allocation of our capital. And as such, we maintain our outlook for full year earnings per share for continued operations excluding the tax settlement of $1.25 to $1.30.

However in order to reflect the expected interest expense associated with the tax settlement of 4 cents per share for 2003, the company is updating its full-year earnings guidance to $1.21 to $1.62 per share and offering 2nd quarter esp. guidance in a range of 29 cents to 31 cents. Our updated full year guidance of $1.21 to $1.26 translates to $1.64 to $1.69 on a GAAP continuing operation basis which included the impact of the companies tax settlement. With that, we thank you for joining us today and ask the operator to open the call for questions.

Once again, ladies and gentlemen, if you have a question or comment, press the one. The first question comes from the line of Dominic Martilotti with Bear Stearns. Please go ahead.

Good morning, guys.

Good morning.

A few questions if I may.

First kind of looking at the new and used margins. You went into that a little bit. I think it's counterintuitive given what we are seeing in the market place and that incentives are heavy coming from the manufacturers on the new side while used car pricing continues to decline. You guys saw margin erosion on new but you maintained on used. Can you give me a little more color on what's going on there?

Dominic it's Mike Maroone.

Our focus was keeping the inventories lean. We dropped our day supply down to 33. We felt pressure on the valuation side. The only way to respond, really, was to lean our inventories up. So we leaned them up and delivered a per vehicle retail gross margin of $1734 and we were real pleased with that.

On the new car side a little more, I know the manufacturers have been using more dealer incentives. Are you being a little more aggressive and passing those down to the consumer? Is that part of the explanation for the lower margin?

This is Mike Jackson.

Yeah, it was a challenging market in the first quarter. No question that the prospect of war and the reality of war affected the purchase decisions for big ticket items like an automobile. I'm sure you'll see the same thing in housing retail. The big ticket items get affected by something like that. So its with a competitive environment with higher inventories than everyone would have liked. And that certainly puts pressures on pricing. And I think considering those pressures, we managed it as best we could. Overall, we saw more risks than opportunities in the quarter. We thought it would be extremely expensive to just pursue volume so we put a tremendous focus on the cost side.

So far in the month of April with the heavy incentives out there, is the consumer responding? Are you seeing a mixed response?

We see thus far, an improving situation relative to the first quarter, but it's very gradual how it will actually play out, can't say for sure in the quarter. Overall, though, by the end of the year, the combination of the new products of the manufacturers and strong incentives that we see remaining open ended, I think at the end of the day, it will still be a 16 million plus market but probably a 5% decline from last year.

Okay. And lastly, touching on f & i. You guys have done a very good job drawing that business. You are approaching $800 per unit. Where do you see the ceiling in terms of where the consumer will cap out?

It's Mike Maroone. I'm not sure there is a cereal we can see at this time. We did improve 10% year-over-year, but the focus is clearly on the product side not the rate site side. We did a nice job improving our penetration of products and I think you will see our emphasis there in the future. We really got a multifaceted approach with a strong emphasis on the menu then we introduced this concept of f & i specialists that go into the bottom performing stores and are driving quite quick improvements. I think with the specialist concept, I think you can continue to expect to us see progress in that area.

Thanks, guys.

Next, we have a question from the line of Rick Nelson with Stevens Incorporated. Please go ahead.

Thank you. Good morning.

Good morning, Rick.

Question about inventories. Wondering why there was no improvement in new vehicle day supply. We're hearing a lot about channel stuffing in the industry, and if that's the reason, how do you stop that?

Rick this is Mike Jackson. We sold fewer cars in the first quarter than we expected. The market was more difficult than we expected. And we had bought that inventory on the assumption that we would sell it. We did not want to run the company on the basis of trying to time exactly when the war would occur, so we knew that whenever it did, there would be an impact on our business. The reason why we thought that risk was acceptable is because rates are at historic low points. So our carrying costs for the inventory is very low. So we thought it was appropriate to manage it this way. If we had been in a 5, 6, 7, 8% interest rate environment, we may have done it a bit different.

Unit sales in the first quarter annualized were just north of 16 million. What -- were your expectations more aggressive?

If you look under the cover of those numbers, though, you'll see in the first quarter that fleet as a percent of the industry number is higher than what it traditionally is, meaning that retail which is the world we live in, was under more stress than the top line industry figure and as Mike has already mentioned, we have four markets that are significantly challenged with structural issues, which we will manage through.

Mm-hmm. Thank you. You've done a lot on the sg & a side. I'm wondering where those expenses are coming from, and is there more opportunity to further reduce sg & a?

We've done two things there, Rick. We've had a tremendous focus on introducing variability into comp. Usually there's been a lag time in this industry between the change and velocity of business and when costs come back into the line. We've been able to eliminate that lag, and second, tremendous focus on the fixed cost structure. Both those efforts continue. I don't think these are one-time events. I think this is a core competency that we have put in place, and that when the risk opportunity ratio changes, we think we'll have a leverage opportunity to a certain extent.

And on the service and parts side, I'm wondering what your same-store expectations might be over the remainder of the year?

Rick it's Mike Maroone. I think it's going to be a challenging environment. You know what we really saw was really a dramatic change in Ford's quality. That was the number one driver and our warranty performance on our Ford business was off significantly. The other manufacturers were in pretty good shape but Ford was the big change for us. There's also going to be continued pressure on the collision side. We're working hard focused on the customer pay side but I don't anticipate that the industry will change by the way.

By the way, this is Mike Jackson. We're happy with the dramatic improvement in Ford quality and the customers are happy with it but it does take a certain bubble out of the numbers.

If you locate your import dealers, would that be a difference in service and parts and in-store?

Yes.

Thank you.

We have a question on the line from Jerry Marks with Raymond James. Please go ahead.

Good morning. Craig with, the tax settlement. The 350 million sounds lower than you guys' earlier range. Is that correct?

Yeah, it's 470, Jerry. We're going to make a $350 million payment in march then a $40 million payment in each of the three subsequent years. So you have to add those three payments together plus the 350 and you get to the 470.

So, I mean, your debt didn't really increase, so you are not counting that as debt. And the interest expense then is just assuming you are going to pay that to the IRS then and then we'll start seeing that as debt beginning in march of '04?

Yeah that's correct. We have a $470 million payment we have to make to the IRS over the course of the next four years. We'll be paying interest on that money until we make those payments. To the IRS.

Okay, I got you. Mike, with production or either mike, I guess, with production coming down next quarter, seems inventories might be becoming a little more imbalanced. Lithion on their call on Friday talked about ordering based on a forward SARS impact. Do you that?

This is Mike Jackson. We always buy on a forward-looking basis. We report on a trailing basis. We buy on a forward-looking basis. As far as where the inventories will be at the end of the second quarter there is a bit of a unique situation in that you have a surge of productivity at the production at the end of the second quarter as the manufacturers gear up for model year changeover. And then you have the summer add on production for the changeover. So it's very important to buy on a forward-looking basis.

Okay. And on the balance sheet side, the revenue lines seem to go up a lot higher, even though day supply was relatively unchanged. Is that because there are a few more used units than in the fourth quarter of last year?

It's Craig. I'm not sure I understand the question. Jerry, we calculate debt supply on a unit basis, not on a revenue basis. a revenue basis.

Right. But your revenue of inventories were higher, even though day supply and units were about the same from the fourth quarter.

I think, Jerry, what may be happening here is inventory in dollar terms is up. The selling rate in March is higher than the selling rate we saw in January and February. And it may be -- and we look at DSO on a trailing 30-day basis. Maybe the function of sales rate and the larger inventory number causing some of the differences when you look at this thing quarter over quarter.

Maybe I have to follow up. Because you said 95,000 units fort fourth quarter, 93 this quarter. So I wouldn't totally expect a seasonal. I guess I can follow up on that. And then the final question, I just had, you mentioned or Rick said parts and services for the '03 numbers you are expecting, are you looking for used comps to be up a couple percents and parts to be up a few percents? Is that incorporated in the guidance?

Our overall guidance is on an EPS basis. We give you a frame where we think it's going to end up. Different components below that are very difficult to predict. We sort of feel, though with, our portfolio of businesses that we'll manage it within the overall guidance. And, you know, you can run your model which ever way you think it should be run.

Okay, so there's no real break out. It's all encompassing. But mike, you said you expect a 5% decline in new. Is that something that's still consistent or --

yeah, I think the overall industry will be down 5%.

Okay.

I don't see us overcoming the industry. We may have individual markets that make us a little bit different than that.

So kind a 16 million unit --

yeah. Okay, Thanks.

We have a question from the line of David Siino with Gabelli and Company. Please go ahead.

Good morning.

Good morning, David.

What was the mix of domestic versus foreign in new vehicles in the quarter?

55% domestic. 35% what we call major import, which is Honda, Nissan and Toyota. 10% luxury and 5% other.

Okay. And just a couple small questions. The wholesale and other line on the p & l looks like its with up in the quarter despite about a $35 million drop in revenue. Are you experiencing -- are you having a better wholesale experience or is there more profit on the insurance side? What's in that number?

It's primarily driven by more profs on the insurance side.

Okay. Lastly, the buyback for the year, looks like you are tracking well ahead of the 300 million or so. You had used it as a plug on your last conference call. Well, will it be closer to something like 400 or 500 million for the full year?

David, we can never tell exactly what we'll be doing with the buyback. If I could, I will give you the three broad categories we've given you in the past. That is as a place holder I put in cap-ex somewhere around 150 million. You could put in share repurchase of 350 and acquisitions of 200. But again, I'd re-emphasize that it's very difficult for to us give you a precise number. We will make those decisions based on the opportunities that we see in the marketplace.

Sure. Okay, thank you very much.

We have a question from the line of Nate Hudson with Bank of America Security’s. Please go ahead.

Good morning. Just one quick follow-up on the parts and service decline. How much was the Ford parts and service revenue down and if you excluded that, how much would the rest of the company been -- what would the change have been?

We had -- this is Mike Jackson. We had a 20 million decline in revenue of which half of that was related toward warranty.

Okay, thank you.

Our next question is from the line of Michael Millman of Smith Barney. Please go ahead.

Thank you. While you said you don't give details, just looking at your second quarter guidance basically flat earnings, yet you've told us this you continue to control costs, reduce costs. You'd also expect some seasonality to put these numbers together would suggest that you are seeing revenues drop from the first quarter level. Maybe you can tell us a little bit about it. Is it something unusual in which category do you see that? And then secondly, just a little sort of unrelated is that floor plan interest expense was up in the quarter, which sort of makes sense, but floor plan revenue or credit was down. Maybe you can tell us why.

As far as our forward-looking guidance, we give guidance on an EPS basis. That's how we see the situation at the moment. Floor plan, Craig?

Yeah. The floor plan, I mean, if you look at the floor plan interest expense, and assistance which we break out for you on table 2a, attached to the press release, you can see that the assistance is virtually unchanged at 28 million in one quarter, 29 in the other. The expense is up by about a million and a half dollars, and that's --

those are the numbers. I don't really see them as that much changed.

Thank you.

Next we have a question from the line of Gary Lapidas with Goldman Sachs. Please go ahead.

Good morning.

Good morning, Gary.

Hey, on this Ford warranty, is this the first quarter? Is this the first quarter you've sort of detected this or is this something you'd seen before getting better and this quarter you are choosing to sort of call it out?

No. This has been an ongoing issue with Ford, I would say, for three or four quarters. And we have talked about it before.

Okay. And is the pace accelerating about the same or in terms of how that's affecting you?

I think it's about the same. I think we're -- Gary it's Mike Maroone. I think we're comparing against a quarter that still had some recalls in it. I think it was right at the end of the tire recall, but I think there was also some other outstanding campaigns, but it certainly reflects positively on the Ford motor company and the improving quality of their products.

Sure. You mentioned that your forward-buying, you know, your purchasing is obviously based on some expectation of sales and presumably, that has to have some expectation of the amount of incentives that are going to be out there. I mean, as you think about your business for the remainder of the year, how do you think about the level of commitment from the car companies on pricing?

I think there's no question that the manufacturers are under tremendous competitive pricing pressure, and that all in between msrp and incentives, you are into an inflationary period for the next couple of years. You probably know exactly how long, but I think this will be another year down of 1% to 2% on the pricing side. And I see no change in the level of incentives. They will be very aggressive.

Yeah. I would disagree. I would say the incentives would go up, but I understand what you mean by no change. It will only get worse or better for you, I guess. With that in mind, I guess, do you -- I assume that you sort of view this environment as being quite favorable. Is that the case or am I misinterpreting the economics of your business?

I think we would love to see a better economy.

Sure.

I think the point is the resiliency and adaptability of the retail of the automotive retail business model, which you are clearly seeing demonstrated over the last couple of quarters by Auto Nation, meaning that if you have variability on the cost side, you combine that fact that for most retail companies, a new vehicle inventory or that level of inventory would be a huge risk. The fact that the manufacturers is paying the liquidation costs and stressed inventory, and not the retailer combined with our high fixed coverage of the service and parts division gives us a resilient business model. Overall, though, we would love a better economic environment, no question about it.

Sure. Just on the inventory, we get an overall number, but are there any sort of pockets of franchises where you have some concerns about the amount of inventory that's out there? I sort of look at the -- the extent of the gap between assistance and the expense is narrowing.

I'm not going to do it by brand but I can say in general the domestics are at the highest end of the range. The Japanese are clear level below that and the luxury's in good shape.

So are you at a point on domestics where you would tend to push back when they come knocking?

We've been pushing back on inventory for the last couple of years here now. So that's a daily event on Auto Nation now. Clearly there's been more supply then demand hits the level of incentive. And we've managed our inventories to a prudent level in that environment.

Last question. This assistance, how many days do they calculate that off of? Is it a day supply?

Basically all in, Gary or us with Auto Nation with our mix of companies, it's about 60 days. We manage the inventory at 60 days. We are neutral on the accounting costs.

Okay, thank you.

And we have a question from the line of Adrian Vail with CIBC World Markets. Please go ahead.

Hi, thank you. A few things. First of all, on your 12 acquisitions for the quarter, could you give me some color on the price, the multiple purchase price or what you paid for this?

This is Mike Jackson. The way we look at capital expenditures is the return that we can generate for the capital out the door. So for any acquisition throughout the green light on a forward-looking basis within two to three years, we have to be hitting a return target of 15% after tax for us to improve the acquisitions. And these acquisitions would fall within that drain. What the trailing multiple, I mean, we calculate it but it's not what we decide upon. It's more -- how the business fits into our structure, and what our scale and operating capabilities will bring to the acquisition. You then compare that to how much capital we have to put out the door to make it happen and do we hit our return target?

Okay. So maybe I can run my calculation by you. In just taking the revenue you paid for it and using a standard EBITDA percentage for your company, standard margin and assuming 4 1/2 times EBITDA multiple, I'm getting a number of 42 and a half million that you might have paid for those. Does that sound right to you?

It's Craig. Our cash out the door in the first quarter on stations was 45 million dollars.

Great.

If you'd like to us help you explain how we analyze those acquisitions we're happy to do that with you separately.

Okay.

The trailing multiple is very difficult. We look at not only what we paid for it but what capital will have to be put in place. If there are any leases or things like that we might want to buy off. In many instances, there are contracts to buy out. All of that gets rolled into our mtb calculation.

Okay, great. And for the additional interest from the IRS settlement you paid a relatively small portion of that in the first quarter. How would that be broken out for the remainder of the year?

On the second line item on the face of the p & l. We'll continue to do that until those obligations are settled.

But you think it will be broken up evenly for the second, third and fourth quarters?

Yeah. It was about 2 million in the first quarter. Yeah. We've roughly got 18 million to go. You can divide that by three and you under good shape.

Great. And lastly, what was your resolver availability at the end of the quarter?

$500 million and it's untapped.

Any letters private?

About 50 million dollars of laces.

Thank you, we have time for one more question.

All right. Our final question today comes from the line of Jordan Grayson with Allison Capital. Please go ahead.

Could you guys tell me what corporate overhead was in the quarter?

Craig?

Now, we've -- we're rolling our overhead numbers together. We give you some sense for what it looks lake on a same-store sales basis on schedule three and the attachments to the press release.

I saw that. I was just wondering why you guys made a change from the way you've reported it in the past?

We try to simplify.

Thank you.

Thank you, everyone, for joining us today. Appreciate all of your questions and your interest.

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