Rocky Mountain Dealerships Inc. (TSX:RME, OTCQX:RCKXF) Announces 2013 Results

CALGARY, March 11, 2014 /CNW/ - Rocky Mountain Dealerships Inc. (hereinafter "Rocky") today reported its financial results for the three and twelve months ended December 31, 2013.

SUMMARY OF FINANCIAL RESULTS FOR THE QUARTER ENDED DECEMBER 31, 2013

• Total revenues declined by 3.4% to $290.6 million.
• Used equipment revenues increased by 6.5% to $84.9 million.
• Recorded one time impairment charge of $5.0 million ($0.19 per fully diluted share).
• Gross profit declined to $33.3 million (11.4% of sales).
• Diluted Earnings per Share of $0.11.
• EBITDA⁽¹⁾ of $4.9 million.

SUMMARY OF FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2013

• Total revenues increased by 4.3% to $1,007.8 million.
• Equipment inventory decreased by $14.8 million.
• Gross profit of $140.4 million (13.9% of sales).
• Diluted Earnings per Share of $0.80.
• EBITDA⁽¹⁾ of $29.7 million.
• Paid dividends of $0.3675 per share.

^{(1) See further discussion in "Non-IFRS Measures" and "Reconciliation of Non-IFRS Measures to IFRS" sections below.}

Rocky's results for the fourth quarter reflect continuing weakness in the Construction segment of the business. These results were compounded by a one time inventory impairment charge, which reflects its estimate of the reduced value of certain construction inventory related to an OEM's divestiture of a product line recently sold to one of its competitors. "While never an exact science, our experience suggests that in circumstances like this, it is prudent to revalue inventory where there is a risk, from the customer's vantage point, that future support for the product line remains uncertain," Matt Campbell, CEO of Rocky noted.  He further noted, "While no formal announcement has yet been made with respect to the future of this product line, what is clear is that the value proposition to our customers has diminished and our decision to revalue the product reflects that.

"This latest development caps off a very challenging year for Rocky's construction business as we look to reposition the business for future success. We have a number of strategic initiatives underway in this regard, including new leadership, which we believe will lead to a positive turnaround in our results over time.

"Also impacting our results during the year was the absence of $6 million in OEM incentives versus last year, due primarily to lower pre-sell activity on new equipment and our pre-announced focus to sell down our used inventory where possible.  Both of these initiatives, while necessary to ensure the appropriate balance in our inventory profile, have had a negative impact on year over year gross margins."

Mr. Campbell, commenting on the inventory initiatives of 2013, stated, "We are pleased with the progress we have made throughout the year on reducing our equipment inventory since the first quarter of 2013. Our overall inventories also declined in the year and we believe, as a result, our inventory is in a much better position to support improved margins in 2014.  One of the inherent challenges in the agriculture equipment industry is ensuring that a market exists for the used inventory taken in on trade.  In 2013, we successfully implemented several sales strategies aimed at moving used equipment inventory.  Shifts in overall sales mix ultimately dictate our inventory profile.  Going forward, we will continue to work towards striking the appropriate balance between profitability and balance sheet risk."

Mr. Campbell concluded his remarks by stating, "Despite reduced earnings in 2013, we feel that much was accomplished during the year. Our management team enters 2014 with considerable confidence that much of the "tough sledding" over the past year will pay dividends as we continue to focus on the day to day fundamentals that ultimately lead to success. Our agriculture business remains exceptionally strong, and the underlying fundamentals of the market support our optimism for the future. We have always prided ourselves in taking the necessary (albeit sometimes difficult) steps to ensure the long term future success of the business and in many respects 2013 reflects that commitment. We have built a strong distribution network that we believe delivers exceptional and consistent value to our customers and will ultimately for our shareholders."

Annual Meeting of Shareholders

Rocky also announced today that its Annual Meeting of Shareholders ("AGM") will take place at 2:00pm on Wednesday, May 7, 2014, in the showroom of Rocky Mountain Equipment, 260180 Writing Creek Crescent, Rocky View County, Alberta.  Materials related to the upcoming AGM will be sent in mid-April, 2014, to shareholders of record at the close of business on April 2, 2014.

Corporate Restructuring

Effective January 2, 2014, Rocky effected a restructuring whereby the business assets, liabilities, and all other operations of Rocky Mountain Dealer Group Partnership were rolled over to a newly-formed corporation, Rocky Mountain Equipment Canada Ltd. (hereinafter "RMEC") pursuant to an asset transfer agreement.  All of Rocky's operations in Alberta, Saskatchewan and Manitoba are now conducted through RMEC as of January 2, 2014.  On February 27, 2014, Rocky Mountain Dealer Group Partnership was dissolved.  All of Rocky's business operations will be conducted through RMEC going forward, continuing under the trade name "Rocky Mountain Equipment."

Quarterly Cash Dividend

On February 3, 2014, Rocky's Board of Directors declared a quarterly dividend of $0.10 per common share on Rocky's outstanding common shares.  The dividend is payable on March 31, 2014, to shareholders of record at the close of business on February 28, 2014.

This dividend is designated by Rocky to be an "eligible dividend" for the purposes of the Income Tax Act (Canada) and any similar provincial or territorial legislation.  An enhanced dividend tax credit applies to "eligible dividends" paid to Canadian residents.  Please consult with your own tax advisor for advice with respect to the income tax consequences to you from Rocky designating its dividends as "eligible dividends."

Conference Call

Rocky will host a conference call to discuss its year-end results on Wednesday, March 12, 2014, at 9:00 a.m. Mountain Time.  Investors interested in participating in the live call can dial 1-888-231-8191 (toll free) or 1-647-427-7450.  An archived recording of the call will be available approximately two hours after its completion on Rocky's website at www.rockymtn.com, or by calling 1-855-859-2056 (toll free) or 1-416-849-0833, passcode: 52921241.  The archive will remain available until Wednesday, March 26, 2014.

Caution regarding forward-looking statements

Certain information set forth in this news release, including, without limitation, information relating to the write-down of construction inventory, the suggestion that Rocky's initiatives in its construction business will lead to a positive turnaround in Rocky's results; any insinuation that OEM incentives will increase or return to prior levels in subsequent years; any discussion about the status of Rocky's inventory profile, including discussion that it will support improved margins in 2014; discussion that the initiatives of 2013 will have positive economic impacts in 2014; and discussion about the fundamentals of Rocky's business and any future economic impacts or profitability resulting from the same, is forward-looking information within the meaning of applicable Canadian securities laws.  By its nature, forward-looking information is subject to numerous risks and uncertainties, some of which are beyond Rocky's control.  While this forward-looking information is based on information and assumptions that Rocky's management believes to be reasonable, there is significant risk that the forward-looking statements will prove not to be accurate.  Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from that expressed in the forward-looking statements.  Accordingly, this news release is subject to the disclaimer and qualified by risks and other factors discussed by Rocky in its management's discussion and analysis ("MD&A") for the year ended December 31, 2013, and as discussed in Rocky's Annual Information Form dated March 11, 2014 under the heading "Risk Factors."  Except as required by law, Rocky disclaims any intention or obligation to update or revise forward-looking statements, and further reserves the right to change, at any time, at its sole discretion, its current practice of updating its guidance and outlooks.

About Rocky

Rocky is one of Canada's largest agriculture and construction equipment dealership networks with branches located throughout Alberta, Saskatchewan, and Manitoba.  Through its network of Rocky Mountain Equipment locations, Rocky sells, rents, and leases new and used agriculture and construction equipment and offers product support and finance to its customers.

Additional information on Rocky is available at www.rockymtn.com and on SEDAR at www.sedar.com.

^{(1) - See further discussion in "Non-IFRS Measures" and "Reconciliation of Non-IFRS Measures to IFRS" sections below}

NON-IFRS MEASURES

We use terms which do not have standardized meanings under IFRS.  As these non-IFRS financial measures do not have standardized meanings prescribed by IFRS, they are unlikely to be comparable to similar measures presented by other issuers.  Our definition for each term is as follows:

• "EBITDA" is a commonly used metric in the dealership industry.  EBITDA is calculated by adding interest on long-term debt, income taxes and depreciation to net earnings.  Adding back non-operating expenses allows management to consistently compare periods by removing changes in tax rates, long-term assets and financing costs related to Rocky's capital structure.
• "Normalized EBITDA" is calculated by adding back non-recurring charges to EBITDA.  Management deems non-recurring charges to be unusual and/or infrequent charges that Rocky incurs outside of its common day-to-day operations.  For the years ended December 31, 2013 and 2012, the loss on the repurchase of the Debentures, the ineffective portion of derivative financial instruments and acquisition transaction charges are considered by management to be non-recurring charges.  Adding back these non-recurring charges allows management to assess EBITDA from ongoing operations.
• "Floor Plan Neutral Operating Cash Flow" is calculated by eliminating the impact of the change in floor plan payable (excluding floor plan assumed pursuant to business combinations) from cash flow from operating activities.  Adjusting cash flow from operating activities for changes in the balance of floor plan payable allows management to isolate and analyze operating cash generated during a period, prior to any sources or uses of cash associated with equipment financing decisions.
• "Operating SG&A" is calculated by adding back depreciation of property and equipment and any non-recurring charges recognized in SG&A during the period to SG&A.  Management deems non-recurring charges to be unusual and/or infrequent charges that Rocky incurs outside of its common day-to-day operations.  For the years ended December 31, 2013 and 2012, the ineffective portion of derivative financial instruments and acquisition transaction charges are considered by management to be non-recurring charges.  Adding back these items allows management to assess discretionary expenses from ongoing operations.  We target a sub-10% Operating SG&A as a percentage of total sales on an annual basis.
• "Normalized Diluted Earnings per Share" is calculated by adding back the after-tax impact of non-recurring charges to net earnings when calculating diluted earnings per share.  Adding back these non-recurring charges to net earnings allows management to assess the fully diluted earnings per share from ongoing operations.

RECONCILIATION OF NON-IFRS MEASURES TO IFRS

^{(1) - After applying statutory rate of 25% (2012 - 25%)}

SOURCE Rocky Mountain Dealerships Inc.