Group 1 Automotive Inc (GPI) 2002 Q3 法說會逐字稿

Good morning. All sites are now on the conference line. Welcome to the Group 1 third quarter conference call. All participants will be in a listen-only mode until the question and answer session of today's call. I'd like to introduce Mr. Jeff O'Keefe of Thompson Financial. Sir, you may begin when ready.

Thank you, Michael.

Good morning, everyone. And welcome to Group 1 Automotive third quarter conference call. Before we get started, I'd like to make a brief comment about forward-looking statements. Except for historical information mentioned in the conference call, Statements made by the management of Group 1 Automotive are forward-looking statements that are made pursuant of the Safe Harbors Provisions of the Litigation Act in 1995. Forward looking statement involve known and unknown risks and uncertainties which may cause the companies actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to, risks associated with pricing, volume, and the conditions of market. Those and other risks are described in the companies filings with the SEC over the last 12 months. Copies of which are available from the SEC or may be obtained from the company.

Representing Group 1 this morning are Mr. B. B. Hollingsworth, Jr., Chairman, President and CEO and Mr. Scott Thompson, Executive Vice President, CFO and Treasurer. Without further delay, I'd like to turn the call over to Mr. Ben Hollingsworth.

Sir, you may begin.

Thanks, Jeff. And welcome, everyone, to our conference call this morning.

We will discuss operating results for the third quarter and first nine months of 2002. First, for the highlights. Net income rose 26.7% for the third quarter to $20.1 million. Third quarter diluted earnings per share increased 12% to 84 cents a share. Nine-month net income increased 39.4% to $54.8 million. And nine-month earnings per diluted share was up 18.9% to $2.26. 2002 earnings guidance is confirmed with a tightened range. And we are initiating 2003 guidance at $3.25 to $3.35 per share.

The successful integration of our new California operations and a 4.1% increase in same-store revenues drove our performance this quarter. This marks the company's 20th consecutive period of double-digit quarterly earnings per share growth on a year-over-year basis. We continue to demonstrate our strength of a specialty retailer and importance of having diverse revenue streams from a brand standpoint, Lexus and Chevrolet were among our strongest performers.

I will now ask Scott Thompson to go over the details of our financial results as well as our brand and geographic mix. Scott?

Thank you, Ben.

As been mentioned, we successfully completed integration of our $4 million west coast acquisition with Miller Group. The Miller Group closed August 1st and has exceeded our expectations both in August and September. This acquisition added $80 million of revenue for the quarter.

Now starting with the operating results for three months ended September 30th, 2002. The company had a solid quarter driven by very strong new vehicle revenues. Record, finance, insurance revenues and lower insurance costs. These more than offset a slight under-performance in used vehicle operations and lower new vehicle gross margin.

The company's revenues totaled $1.2 billion for the quarter, with same-store new vehicles up a robust 17.6%. We retailed over 46,000 new and used vehicles.

From a geographic standpoint, we had outstanding progress in Boston, New Mexico, West Texas, California, offset by weak performances in Atlanta and Dallas. Our geographic mix for the quarter was as follows: Houston Beaumont represented 17.5% of our business. Oklahoma, 13.7. Boston, 11.8. Florida, 9.2. Austin, 8.9. West Texas, 8.1. California, 7.6. Atlanta, 6.8. Dallas, 6.1. New Orleans, 5.9. New Mexico, 3.2. And Denver, 1.2%.

From a brand standpoint, we experience strong performances in Lexus and Chevrolet. For the third quarter, domestically badged vehicles represent 49% of our sales and import badge vehicles were 51%. Luxury brands approximated 10.1% of our business, up from 9.9% same period last year. During the quarter, we did add one new luxury brand, Infiniti, which was acquired in the Miller acquisition.

Our brand mix for the quarter was as follows: Ford, 27%. Toyota-Lexus, 25. DaimlerChrysler, 12.7. GM, 10.8. Nissan, 8.7. Honda-Acura, 8.5. And the balance is an array of various brands.

The truck market continues to be strong. Trucks and crossover vehicles represent 56% of our unit sales and cars are 44%. Our gross margin for the quarter was down 50 basis to 15%. The decrease is a result of vehicle margins compressing. New vehicle margins declined 90 basis points as manufacturers reduced dealer incentives, received less floor plan assistance per retail unit sold. And we added the Miller Group which has lower new vehicle margins. Reduced floor plan assistance for accounted for 11 basis points of the 90 basis point decline. The Miller Group accounted for 12 basis points of the 90 basis point decline.

The company's retail used vehicle margin declined 20 basis points. Total used vehicle margin declined 40 basis points as we sold more used cars wholesale versus retail. Maintaining fresh inventory is consistent with our strategy of not holding vehicles that are not desirable from a retail perspective. We believe it significantly mitigates our valuation exposure on the company's used vehicles going forward. Finance and insurance grew over 25% this quarter as unit volume expanded. Retail units sold was $996 this quarter, up from $900 the same period last year. The $996 per retail unit sold is the best ever we've enjoyed in this area. We realize the benefits of renewed training, new products from expanded product offerings, better pricing on vehicle service contracts and we earned some performance bonuses.

Additionally, the Miller Group positively impacted this number by about approximately $30 per retail unit. We anticipate $9.75 to $9.90 per retail units sold in this area for the third quarter 2002. Individual profit margins for the quarter were as follows: New vehicles, 6.8%. Used vehicle retail, 9.4. Parts and service, 55.8. And again, gross margin, 15%.

For the fourth quarter of 2002, we would expect gross margins in the area of 15 to 15.5%. We expect new vehicle margins around 7% and used vehicles margins between 9.4 and 10%. Parts and services should be consistent at the 55 to 56% margin level.

Income from operations for the quarter level reached 40 million or 3.3% of revenues. The 3.3% operating margins down slightly from 3.4 during the third quarter of 2001.

We are comfortable with an operating margin around 3.2 for the fourth quarter of 2002. Our new vehicle inventory turn for the quarter was 51 days, considerable quicker than our 60-day target. Our used vehicle target was 28 days, slightly higher than our targeted 30-day turn.

We feel our new and used vehicles inventories are in good shape going into the fourth quarter. Based on current facts and circumstances, we do not expect the west coast port situation will significantly impact the fourth quarter. The interest expense decreased $946,000 or 16% as interest rates were down about 170 basis points.

For the quarter, floor plan assistance and new vehicle cost of sales. Realized its vehicles were sold total of $7.7 million. For the quarter, floor plan assistance cover a total of 50% of the company's total floor plan interest expense.

At September 30th, after considering long-term swaps, approximately 53% of the company's debt is subject to variable rate pricing. Factoring in interest rate assistance, interest rate swaps, we feel 100 basis point change in interest rates will impact the company approximately six cents a share.

The company's effective tax rate for the quarter is 38%. This is consistent with last year, third quarter, up 1% in the second quarter as we close the Miller acquisition and we pay California income tax now.

For the quarter, the company made $20.1 million or 84 cents a share on a diluted basis. This is the highest net income and EPS the company has ever achieved in any quarter. This represents a 12% increase in EPS over the same period last year with 13% increase in shares outstanding. EBITDA for the quarter was 43.3 million. For the quarter return on average equity was 18.4% and return on average equity over the last 12 months was 18.1%. Remember, this was achieved with a 17% long-term debt-to-cap.

Turning to same-store sales data now, same store revenues for new vehicles was up 7.6%. Used vehicles was down 1.8%. A better performance than we had in the second quarter when used vehicles were down 4.6. Parts and service down 2.6%. Finance and insurance revenues up 10.6%. And again, total same-store revenues up 4.1%. 1.8% down draft in same-store vehicle revenues was caused by a reduction in the value of used vehicles versus new vehicles. New vehicles have been priced net of incentives very aggressively while at the same time, use the vehicles have not fully adjusted. The result has been the differential of the cost between the customer, between a new car and has driven more customers to the new car market.

After realizing same-store increases, a 13.7% in parts and service in the third quarter of 2001, this quarter, parts and service same-store revenues were down 2.6%. We believe parts and service business the third quarter of 2001 was significantly enhanced by the Ford Firestone tire recall and the Allison Houston flood market. We expect to start seeing positive comps in this area going forward. In fact, in September, our same-store revenues for parts and service was up 4.7%.

After realizing a 21% same-store increase in revenue in vehicle revenue in the fourth quarter of 2001, as the market exploded with manufacture incentives and a flood of used cars were available at auction, we expect same negative same-store vehicles in the fourth quarter. Since acquisitions have been closed during the year, we expect totals revenues for the fourth quarter of 2002 to approximate the fourth quarter of 2001.

Turning to the nine-month numbers, the underlying trends to the nine-month numbers are similar to the three-month numbers. Revenues grew at 7.6% to $3.2 billion. Company experienced growth in all revenue categories. Earnings per share was up 18.9% to $2.26 a share. And EBITDA for the nine months was $117 million.

Turning to the company's capital structure, certainly a highlight of the quarter was Moody's upgrade of the company from BA 3 to BA 2. So far this year, downgrades have exceeded upgrades by 4-1. During the quarter, we acquired 440 million in revenue. We repurchased 665,000 shares of company stock at an average price of $24.96. And we've maintained our 17% long-term debt-to-cap. As we've previously discussed, with a long-term debt to cap of 40 to 42%. Strong operating cash flows combined with proper leverages in the company is expected to fund future acquisitions, and based on market conditions, possibly share repurchase.

As of the end of the quarter, the company had 105 million in working capital. We believe this to be approximately 40 million more than we need for our operating business. Total capital expenditures for the quarter were 11 million of which 9.7 million was for new or expanded operations. We expect Cap Ex in the fourth quarter to be approximately $6 to $7 million. We expect before acquisition or stock repurchase, weighted average diluted shares outstanding in the fourth quarter to approximate, 23.6 million.

And now Ben will update you on our guidance.

Thank you, Scott.

Scott mentioned so far this year, we have acquired 17 franchises with $780 million in annualized revenues while disposing of two small under performing dealerships with $48 million of annualized revenues. Acquisitions this year include the Miller Auto Group platform, which as Scott mentioned has performed very well for the two months they have been apart of the Group 1. We anticipate an additional $100 million in annual revenues acquired between now and the end of the year. And in 2000, we hope to add between 800 million and $1 billion in annualized revenues required.

We are confident about our future prospects. Favorable interest rates combined with manufacturers' incentives and rebates. And more innovative products with shorter cycles continue to attract more customers to our dealerships. Furthermore, record new vehicle sales levels the last few years have resulted in more automobiles and light trucks in operation. A trend that will be driving business to our higher margin, parts and service departments.

Although we expect a slightly less robust new vehicle market, we see these positive business trends continuing and are therefore confirming and narrowing the range in the diluted earnings per share guidance for fiscal 2002 to $2.85 to $2.90. Additionally, the company expects diluted earnings per share of $3.25 to $3.35 for 2003.

Earnings growth is expected to emanate from a combination of dealership performance and acquisitions as well as common stock repurchases as warranted. As is our tradition, Group 1's top five sellers of the third quarter of 2002 once again, the leader, the Ford F-Series pickup truck. Number two, the Toyota Camry. Number three, the Ford Explorer. Number four, the Dodge Ram pickup. And new to our top five, number five, the Honda Accord.

Group 1 today on 73 auto dealerships comprised of 10 franchises, 29 different brands and 24 collision service centers located in California, Colorado, Florida, Georgia, Louisiana, Massachusetts, New Mexico, Oklahoma, and Texas. Its dealerships and internet sites, the company sells new and used light cars and trucks, arranges for lated financing, vehicle service and insurance contracts, it provides maintenance repair services and sells replacement parts.

At this point in time, Scott and I will be happy to entertain your questions. Michael, are you with us?

Yes. And at this time, we're ready to begin the question-and-answer session of today's call. To ask a question, please press star one at this time. You will be announced prior to asking your question.

Once again, to ask a question, please press star 1.

And our first question comes from Rick Nelson of Stevens.

Thank you. And congratulations.

Thanks, Rick.

Can you talk about the tone of business during the quarter?

We have been hearing September was a tougher month. And also any comments in October would be helpful.

Rick, I lost that very last part of your question. Any comments on -- what was that?

On October.

October. Okay. Yeah, the trend as you're certainly aware, at least the new vehicle side of the about business was probably more robust in the first two months of the quarter, slowed somewhat in September as actually some of the incentives were reduced by some of the domestic manufacturers. The used car business really remained tough through most of the quarter, actually. Used car prices were high. Scott mentioned the compression that has occurred because of the aggressive incentives on the new car side, really driving many customers away from a later model used car into a new car.

We saw late in September and into October some of those incentives were turned back on in October. So that pace kind of picked up a bit. And we're also seeing a real improvement in the used car side, and I guess I would call it more of a return to normal. Used car prices on the wholesale side are falling dramatically. So as Scott mentioned, our inventories are, even by our standards, pretty lean, as of the end of the quarter. That's really the way we managed that.

So I think we'll see used car prices probably continue to fall in the fourth quarter. But it would be more of return to a normal spread, just for example, one of our reactions to that compression has been to focus more on a a little bit older, used car for our inventory, say, a three or four year-old car where that price spread is a little greater. And then especially as prices have fallen, there's been some pretty attractive opportunities there.

So that would be my kind of take on the quarter, I think. As Scott mentioned, we had really strong same-store revenue growth. Good performance gan in our F&I area. And really strong opening performance from the Miller Group in California. Scott, would you like to add anything to that?

No. I think that's consistent. If you're talking about the new car market, the new car SAR in July was 18.3 and then in August, it exploded to around 20 million. And then it was less robust. I agree with what Ben said, from the used car standpoint we're seeing signs of getting back to normal on the used car side.

Rick, you certainly know this, just as an overall statement for those of you who are less familiar. It is not unusual to see the manufacturers put on a very aggressive incentive, take them off as they try to manage their inventory and production lines. Those incentives, though, they're not going away. They're with us for the long term. They're part of the automotive retailing or wholesaling really where the manufacturers are dealing with the capacity issue. They are dealing with high fixed cost. And they're dealing with trying to hold in some cases or gain in others market share. So they use these incentives, both in the form of incentive rebate and in the form of cash rebates both to the dealerships and to the customers to really manage that inventory flow. As you've heard said many times, that's very good for automotive retailers and also good for customers because it makes for good buys in the new and used vehicle markets. Thank you, Rick.

Is it your perception that October new vehicle sales are slower than September? Or has it picked up?

I listened to the Ford call yesterday. And I think Ford came out and said they think October was a little bit slow compared to their projections, but it was early. I would say that October is probably more consistent with September than it is August. But it's also a little bit early.

Thank you.

Thank you. And our next question comes from Matthew Fessler of Goldman Sachs.

Thanks a lot. And good morning.

Good morning.

Two questions if I may. First of all, Scott, you gave us a couple of drivers, couple of the specific drivers of the new car gross margin erosion. You talked about the acquisition. And you talked about floor plan assistance. You know, what were some of the other factors that might have taken new car margins down more than in recent quarters?

There's really only one other factor. I listed all three of them. I gave you Miller group has slightly lower new car margins, and then our floor plan assistance is down, which we run through cost of sales, and that's certainly impacted. And then the third item that impacts it is the dealer incentives. And I think what happens, in prior years, there was more money out there and more incentives for the dealers. And thing those have been trimmed slightly to finance the 0% financing incentives for the consumers. So there weren't as many dealer programs out there for us. And third quarter last year, we were very successful in hitting some targets on those programs and receiving additional money from our manufactured partners.

Was that most of the -- I don't remember if you quantified dealer insentives, I might have missed it. But you talked about floor plan at 11 basis points, Miller 12. Was most of that with dealer incentives?

Yes.

Okay.

And primarily Ford.

Second, and does that seem to you to be a structural change so long as the incentives are also a structural change?

No. I think the dealer incentives come in and out of the market much like the retail incentives come in and out of the market. Depending on whether or not Ford is satisfied with its sales rate will depend on whether or not how those incentives come back to the marketplace.

I guess it's Ben's comment that the incentives are more or less here to stay is accurate, would you think that comes kind of hand-in-hand with it, more austerity with incentives?

No. Because as I mentioned, I listened to the Ford sales call and they were disappointed in the sales rate. Which means, one of the deals they have was to up the dealer incentives. So that will continue to use various incentive programs in various months. Some months they're heavy in retail incentives and sometimes it's dealer incentives and sometimes it's both.

Second question, if you can more directly relate pricing trends in used cars to used car gross margins, and particularly as you see the average retail in used cars come down, which certainly sounds like good sales for that business. What would you expect to see happen to gross dollars per vehicle retail?

I would expect the gross dollars per unit sold to stay about the same. So the margin should generally expand.

And that's just a function of the way the guys on the lot are positioning the cars? Or are there other things -- --

Yeah. It's a function of how we price used vehicles, we price them based on dollar per retail unit more so than we do margin.

Thank you very much.

Thank you, Matt.

Thank you. And our next question comes from Scott Stember of Sadati.

Good morning, gentlemen.

Good morning.

You talked about how in the fourth quarter we will probably see some tougher comps since last year. Post-9/11, we saw some very aggressive discounting. Could you go back and say what were the same-store comps that we'll be going up against from last year?

Yes. It's 21% is the average for new and used. We're going against some very tough same-store comps from last year. Last year, the SAR in the fourth quarter was 18.4. Depends on who you talk to. But the estimates that I generally see are more like 15.5 for the fourth quarter this year. Though, overall, new car market, I think most people are projecting about a 15% decline from last year.

Okay. And about the acquisition pipeline. You were talking about how we're looking for $800 million to $1 billion for next year for the '03 numbers you guys gave out.

How does that play with the Miller acquisition? Does that include carryover revenues that haven't hit the books yet?

No, it does not. That would be new revenues acquired, but would not include -- the Miller will be included this year for five months, and so certainly their revenues will be in for a full year next year. But the acquisition revenues that I gave for '03, the $800 million to $1 billion would not include those carryover revenues from Miller.

And that would be the gross acquire revenue which may be acquired mid-year. So if you're looking at your model if we had a June acquisition of all of it, theoretically, half would end up in the income statement.

Okay. You're basically saying that's what you're expecting to announce in that part of the year.

Right, that's gross acquisition revenue, not what was given in the financial statements.

Okay. Good. And Scott, I think I missed the amount of stock that you brought back in the quarter.

Yeah. It was 600 and -- find my number, 635,000 shares at an average price of $24.96.

Okay. That's all I have. Good job, guys.

Thank you.

Thank you. Our next question comes from Jerry Marks of Raymond James.

Good morning.

Good morning.

Just to kind of follow up with Matt's question with regard to the incentives, it looks like Ford is planning on producing a lot of vehicles for fourth quarter and I mean, is that something that you think can cause more dealer incentives or focus on more customer incentives to move it off the lots?

If they produce them, we'll sell them, which means the customer is going to pay with the current price is or there will be incentives on the dealer side or retail side to move the number of products they're planning to build. It's bullish for us is the way I'd answer you, I guess Jerry.

Okay. Did you say 28-days or 38-day?

28.

28? Okay, would the acquisitions, so you indicate about half of the revenues coming in from the third quarter of about a hundred million, and then that of course would be in your EPS guidance for 2003. In terms of that 800 or 900 million, can you give us an idea of your timing for how much you think that contributes? If all of it hits in December of 2003, then I guess none of it would be adding to -- how much of that have you assumed for your guidance next year?

As far as when that hits, there's really no way to predict that. That's why we say what you should do is probably figure we take an average and we brought them in at mid-year. There's a lot of factors that come in to play when an acquisition going to close. So we don't try to -- including manufacturer approval by the way. So we don't really try to predict, you know -- we're going to close so much a quarter or so much a month.

Right.

We just say we believe we can bring in during next year a gross amount, as we mentioned, which is about what we will end up doing this year. And included in our guidance for '03, as I mentioned, we've included growth from existing operations, we've included some acquisitions, we've included some share buy back. All of that, you know, when you look at those opportunities and those cost returns, and we measure that. So a lot of that is going to depend on what the market gives us and what it's been giving us recently is the ability to buy our stock back in a very attractive return. And what we consider a no-risk investment. So we have been doing that in this past quarter. But there's really no way. You're right. It could all come in at the end of the year.

I guess that's kind of what I'm -- are you guys kind of like AutoNation where you'll do a mixture of acquisitions and share purchases so if the pricing doesn't look right in the acquisition market, you'll go buy back more shares?

Absolutely. That's what we're doing right now.

Okay. So but I mean from a general standpoint, if I were to do the math backwards, I should assume, if all acquisitions were close to that kind of $900 million, half of that would be assumed for 2003 in your guidance, then? And maybe the pricing for acquisition market doesn't come in great, you instead do share purchases? And is that kind of way to look at it?

Let me try to help you. What we've done is we have assumed that the cash flow that is generated by the company, we do something with it. We have been very conservative on assuming what we do with it, but we assume we're going to do something with it. As we do acquisitions and if we were to do the full billion dollars of acquisitions that we just talked about and they were all to close on June 30th, I think they would be net accretive to the earnings guidance we've given today is I guess the way I'd say that, Jerry.

Okay. That's helpful. And finally, I want to check on your [INAUDIBLE] vehicle, it seems like it's getting pretty high. Is this net of charge backs? Or do you kind of account differently than some of the other public dealership groups that are out there?

It is net of charge back. And I don't know if I account for anything different than the way other people do. I don't know how they account for things. There may be some difference in what some people call part of the vehicle cost and what we call F&I, how you treat alarm systems, how you treat some of the add-ons, there could be minor differences there. How you treat documentation fees whether you put that in other/other, whether you put it in F&I income, we put it in F&I income. I don't think there's there's anything particularly unusual in the area. We are doing a very good job from a penetration standpoint and we are doing very well on gap insurance product which is a new product that we're selling that pays off a customer's car loan to the extent that car gets stolen or is wrecked and they're underwater on the value of their car, compared to what they owe on the car. That's been a good product for us.

So part of it is you have expanded product offerings?

Part of it is expanded product offerings. Part of it is better pricing on our service contracts, where we've underpriced some service contracts in certain operations. And then better penetration.

Which all of that comes also from better training, I might add.

And bench marking.

Okay. Great. Thanks. Great quarter, guys.

Thanks you

Thank you, next call comes from Nate Hudson with Bank of America Securities.

Couple of questions for you. First, I was hoping to get a better idea of some of the regional divergence. You mentioned that Atlanta and Dallas were relatively weak. How weak are they in terms of percent down? And that [INAUDIBLE] in Houston, how is that market performing?

I'll take part of that and Scott can kind of jump in.

Houston market continues to be really strong for us. I think it's brand driven. We have a great grand brand line up here in Houston. So Houston continues to be a long market for us. In fact, our top performing dealership last month was one of our Houston dealerships.

In addressing Atlanta, I think I addressed it somewhat last time. Atlanta continues to underperform. I was just over there. Several weeks ago. We have built and moved into -- help me, Scott. Four new facilities there this year. And a fifth one that we had just moved into a couple of years ago. But four brand-new facilities that we moved into all this year that's repositioned us in that market with great brands, great locations, and now great facilities. So we've had what we call around here, a lot of moving around going on in Atlanta. That's all in place now and so I would not anticipate talking about a weak performance from therein in the future. Because that platform is very well positioned. And we think that, you know, we did -- we did anticipate some weakness over there because of all of the construction and moving that had going on.

And these are great brands. This is Toyota, Ford, Lincoln, Mercury in a great market in Atlanta that north side of Atlanta. So we expect really big things of that. We expect a healthy investment in that market. So now we're ready to reap the benefits of that.

I think Scott also mentioned Dallas. Probably a lot of others are having weakness in Dallas, especially on that north side where telecommunications has been a lot of job losses in that area. And so that market has continued to be weak for us. And I think it's more driven by just what's going on in the Dallas economy.

So Scott, you want to --

I would -- no. I would echo those comments. Maybe look at the national unemployment statistics. We're 5.6 currently. Texas as a whole is at 6.1. And Houston is at 5.9. So I think that Ben's comments are right on.

You mean in terms of order of magnitude, what constitutes weakness, down 10, down 20%?

Weak would be more than down 20.

Okay. And the second question on the new vehicle margins, is the weakness there spread fairly evenly across the brands? Or is that concentrated within the domestic brands?

We saw it in most of the brands, but it was a large concentration of it in the Ford brands.

Okay. And similarly, with the used car business, has that weakness or to kind of generalize there, is that the whole market or also concentrated on the domestic side?

No. It varies by market quite a bit on the used car side.

Alright. Thanks.

Thank you.

Thank you. And once again, if there are any further questions, please press star one at this time. Thank you.

Our next question comes from Nick Penpassis of [INAUDIBLE].

Good morning, guys. Question on the parts and service side. Is there any follow-through into the fourth quarter with regards to the Firestone or the Houston flood last year? And know that the new and used car sales skew toward the second and third quarter. Is there is less seasonality in that business generally speaking?

Yes. There's more seasonality in the new and used business in the fourth quarter.

Right.

And as I mentioned in my prepared remarks, we saw positive same store in parts and services in September, 4.7%, I believe, was the number. And so I think we've gotten the Firestone Ford issue and the flood issue from comp standpoint behind us at this point. And I don't expect it to be impacting the comp numbers in the fourth quarter.

Okay. Great. Thank you.

Thank you.

Thank you. And our next question comes from Ian Ellis with Micro Capital.

Congratulations, guys.

Looks like you're outperforming the industry. Just a couple of questions. First of all -- could you hold on one second? The floor plan assistance, you seen the take down in the level of the provision, can you just explain to us a little bit about what's in your forecast for next year?

And then the second thing is, with regard to use of cash and use of the balance sheet in general, at least one analyst out there on the streets got your enterprise value to EBITDA at approximately half the other public companies, which is quite startling, given your performance. Why would you be considering anything other than kind of highly accretive tuck-in acquisitions, which presumably wouldn't accumulate to a billion dollars in the next year? Why aren't you just being more aggressive on share repurchase?

Yeah, I'll be happy to answer that. I think I mentioned that part of what we're going to do is what the market gives us. And certainly in at least the ladder part of third quarter, we have been much more aggressive in share buy back than in acquisitions. We have, as I mentioned, the acquisitions that we're probably looking at that we would hope to probably close before the end of the year in the range of around $100 million revenues acquired. Will be tuck-ins. That's absolutely correct.

And then next year going forward, when we give our forecast of $800 million to $1 billion and we say what's going to drive our guidance includes performance of existing stores, acquisitions, and share buy backs, if the market continues to give us opportunities to buy our shares back at a lesser price than what we can acquire private dealerships, we're certainly going to do that, just like we have been.

We're buying platforms in the range of seven to nine times after-tax earnings. Tuck-ins are a little better return of four to seven times after-tax. And certainly we'll always be, I should say most of the time we'll number the tuck-in market because we have these great platforms and they single-point franchises that come up from time to time that augment the brands of the products offered in that particular platform. And those are -- we look at those as an opportunistic way to round out our market. A new platform will certainly be governed to a great extent by -- as Scott mentioned, just use of cash as we bench mark that acquisition against the return of buying back our own shares and historically, you'll see from us that when the market gives us our stock at, you know, seven to eight times earnings, we're going to be fairly aggressive in buying it in. So that will be just dictated by what the market gives us.

Well, a follow-up on that. One is obviously use of cash flow and those two alternative decisions. But what about actually increasing your leverage here more in line with your target?

Obviously you might consider increasing your leverage for acquisition. But I don't believe you've considered increasing your leverage for the purchase of share repurchase.

Would you consider that?

Well -- it's Scott. First, let me knock out your question on live board interest rates.

Sure. Thanks.

The labor was 1.3% for the third quarter. We are labor plus kind of borrower. We're thinking about 2.5% and we worked through those numbers with our friends at the JP Morgan.

Right.

So our numbers would include a slight increase in interest rates next year. On capital management and capital allocation question. You have lots of tradeoffs. You're managing the floats and stock and liquidity in stock. You also don't know what the market might bring in the future and you don't want to deteriorate your capital base. We've generally been left leverage than the majority of our sector, we maybe a little more conservative from the standpoint than some. And I think over time, I think over time through acquisitions and managing the capital structure, I wouldn't be surprise federal our leverage doesn't increase but over time slowly in a prudent manner -- and that's consistent with the way we've discuss said our capital structure.

So you're not going to take advantage of pretty subdued valuations here to be more assertive.

We're going to manage it over a period of time in a prudent and conservative fashion.

Great. Thanks very much. Appreciate your comments.

Thank you.

Thank you. Our next question comes from Matthew Fessler of Goldman Sachs.

Just by way of follow-up, I want to make sure that I get to the $780 million of acquisitions and that risk of looking foolish here, I'll just run through what I have.

In the first quarter, the Rockwell Dodge and New Orleans Ford dealership under the Bone umbrella of $80 million. Followed by the acquisitions that you announced along with Miller and Miller are representing about $530 million, taking you to about $610. And then in the second quarter release you announced another $120, which I believe you said would take to you $730, I think you said $780 in the press release. So please tell me if I'm miss counting or if there is something that I've missed here.

Let me tell you what makes up the 780. It's Bone Ford in New Orleans in 50. Rockwell Dodge at 30. McCall Nissan here in Houston at 50. Crown in Oklahoma at 80. Breck Nissan in Boston 35. New Hummer franchise in Tulsa 5. Miller organization 400. Then we were granted some ad points. Woodland Hills ad points in California 50. New Nissan franchise in Boston of 40 and a Ford franchise in Pensacola of 40.

So the acquisition number also includes organic growth, if you will?

No, it includes some new franchises granted to us.

Right. Fair enough. And all of those ad points are up and running at this point?

No. Those will be up and running next year.

So we should basically total all the ad points to get a piece of that acquisition pie that we should not be factoring in until 2003.

Correct.

Thank you, Matt.

Thank you. And at this time there are no further questions. I'll turn the meeting back to you, sir.

Okay. Thank you, everyone.

In closing, to accomplish our vision, we need continued commitment of our dedicated 7,400 coworkers and the support of our 29 manufacturing partners. We thank them for their contributions and look forward to the successes their efforts will continue to produce this year and in the future. We are, indeed, creating the future of automotive retailing. Thank you very much.

This will conclude today's conference call. You may disconnect at this time. Have a good afternoon.