UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2019~~2020



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-13107

AutoNation, Inc.

(Exact name of registrant as specified in its charter)

Delaware

73-1105145

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

~~Delaware~~

~~73-1105145~~

~~(State or other jurisdiction of incorporation or organization)~~

~~(I.R.S. Employer Identification No.)~~

200 SW 1st Avenue

Fort Lauderdale

Florida

33301

(Address of principal executive offices)

(Zip Code)

(954)769-6000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of October ~~25, 2019,~~19, 2020, the registrant had ~~89,212,380~~87,865,022 shares of common stock outstanding.

AUTONATION, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Page

Item 1.

Financial Statements

Unaudited Condensed Consolidated Balance Sheets as of

September 30, ~~2019~~2020 and December 31, ~~2018~~2019

Unaudited Condensed Consolidated Statements of ~~Income~~Operations for the

Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the

Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

Unaudited Condensed Consolidated Statements of Cash Flows

for the Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2524

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

5052

Item 4.

Controls and Procedures

5052

PART II. OTHER INFORMATION

Item 1A.

Risk Factors

Item ~~1A.~~2.

~~Risk Factors~~

~~Item 2.~~

Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AUTONATION, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)


	September 30, 2020		December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	350.5	$	42.0
Receivables, net	682.5		916.7
Inventory	2,482.5		3,305.8
Other current assets	139.4		146.6
Total Current Assets	3,654.9		4,411.1
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1.6 billion and $1.5 billion, respectively	3,125.1		3,174.6
OPERATING LEASE ASSETS	329.0		333.1
GOODWILL	1,186.5		1,501.9
OTHER INTANGIBLE ASSETS, NET	521.8		581.6
OTHER ASSETS	752.0		541.0
Total Assets	$	9,569.3	$	10,543.3
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Vehicle floorplan payable - trade	$	1,467.6	$	2,120.6
Vehicle floorplan payable - non-trade	841.0		1,455.2
Accounts payable	344.5		290.3
Commercial paper	0		170.0
Current maturities of long-term debt	307.7		355.6
Accrued payroll and benefits	214.3		178.4
Other current liabilities	535.5		530.1
Total Current Liabilities	3,710.6		5,100.2
LONG-TERM DEBT, NET OF CURRENT MATURITIES	1,782.0		1,578.5
NONCURRENT OPERATING LEASE LIABILITIES	304.7		305.0
DEFERRED INCOME TAXES	110.1		135.1
OTHER LIABILITIES	304.0		262.4
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS’ EQUITY:
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized; NaN issued	0		0
Common stock, par value $0.01 per share; 1,500,000,000 shares authorized; 102,562,149 shares issued at September 30, 2020, and December 31, 2019, including shares held in treasury	1.0		1.0
Additional paid-in capital	41.3		35.9
Retained earnings	3,917.9		3,688.3
Treasury stock, at cost; 14,717,090 and 13,212,974 shares held, respectively	(602.3)		(563.1)
Total Shareholders’ Equity	3,357.9		3,162.1
Total Liabilities and Shareholders’ Equity	$	9,569.3	$	10,543.3

September 30,
2019 December 31,
2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 45.0
$ 48.6
Receivables, net 829.5
976.2
Inventory 3,280.7
3,650.5
Other current assets 243.6
208.7
Total Current Assets 4,398.8
4,884.0
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1.4 billion and $1.3 billion, respectively 3,130.8
3,155.3
OPERATING LEASE ASSETS 328.8
—
GOODWILL 1,498.6
1,513.2
OTHER INTANGIBLE ASSETS, NET 582.0
595.4
OTHER ASSETS 512.8
517.2
Total Assets $ 10,451.8
$ 10,665.1
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Vehicle floorplan payable - trade $ 2,073.5
$ 2,388.0
Vehicle floorplan payable - non-trade 1,407.6
1,609.7
Accounts payable 267.6
306.2
Commercial paper 300.0
630.0
Current maturities of long-term debt 394.1
44.3
Other current liabilities 752.2
679.9
Total Current Liabilities 5,195.0
5,658.1
LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,575.8
1,926.2
NONCURRENT OPERATING LEASE LIABILITIES 302.5
—
DEFERRED INCOME TAXES 126.6
89.8
OTHER LIABILITIES 255.2
275.0
COMMITMENTS AND CONTINGENCIES (Note 15)

SHAREHOLDERS’ EQUITY:
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized; none issued —
—
Common stock, par value $0.01 per share; 1,500,000,000 shares authorized; 102,562,149 shares issued at September 30, 2019, and December 31, 2018, including shares held in treasury 1.0
1.0
Additional paid-in capital 34.1
20.8
Retained earnings 3,530.6
3,238.3
Treasury stock, at cost; 13,349,769 and 12,540,065 shares held, respectively (569.0 ) (544.1 )
Total Shareholders’ Equity 2,996.7
2,716.0
Total Liabilities and Shareholders’ Equity $ 10,451.8
$ 10,665.1

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

AUTONATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

(In millions, except per share data)


	Three Months Ended						Nine Months Ended							Three Months Ended						Nine Months Ended
	September 30,						September 30,							September 30,						September 30,
	2019			2018			2019			2018				2020		2019		2020		2019
Revenue:													Revenue:
New vehicle	$	2,874.8		$	2,933.1		$	8,141.1		$	8,685.0		New vehicle	$	2,748.4	$	2,874.8	$	7,291.6	$	8,141.1
Used vehicle	1,402.9			1,281.7			4,121.9			3,910.9			Used vehicle	1,516.9		1,402.9		4,090.1		4,121.9
Parts and service	902.6			864.0			2,680.8			2,579.6			Parts and service	852.8		902.6		2,419.0		2,680.8
Finance and insurance, net	266.2			247.4			757.9			736.0			Finance and insurance, net	281.2		266.2		763.4		757.9
Other	14.7			23.0			85.1			89.6			Other	5.6		14.7		40.8		85.1
TOTAL REVENUE	5,461.2			5,349.2			15,786.8			16,001.1			TOTAL REVENUE	5,404.9		5,461.2		14,604.9		15,786.8
Cost of sales:													Cost of sales:
New vehicle	2,755.9			2,807.7			7,774.8			8,305.1			New vehicle	2,581.2		2,755.9		6,908.4		7,774.8
Used vehicle	1,310.6			1,190.7			3,842.3			3,642.9			Used vehicle	1,370.0		1,310.6		3,735.2		3,842.3
Parts and service	493.6			473.4			1,461.0			1,416.2			Parts and service	477.6		493.6		1,343.6		1,461.0
Other	13.7			22.1			81.3			87.5			Other	4.6		13.7		38.0		81.3
TOTAL COST OF SALES (excluding depreciation shown below)	4,573.8			4,493.9			13,159.4			13,451.7			TOTAL COST OF SALES (excluding depreciation shown below)	4,433.4		4,573.8		12,025.2		13,159.4
Gross profit:													Gross profit:
New vehicle	118.9			125.4			366.3			379.9			New vehicle	167.2		118.9		383.2		366.3
Used vehicle	92.3			91.0			279.6			268.0			Used vehicle	146.9		92.3		354.9		279.6
Parts and service	409.0			390.6			1,219.8			1,163.4			Parts and service	375.2		409.0		1,075.4		1,219.8
Finance and insurance	266.2			247.4			757.9			736.0			Finance and insurance	281.2		266.2		763.4		757.9
Other	1.0			0.9			3.8			2.1			Other	1.0		1.0		2.8		3.8
TOTAL GROSS PROFIT	887.4			855.3			2,627.4			2,549.4			TOTAL GROSS PROFIT	971.5		887.4		2,579.7		2,627.4
Selling, general, and administrative expenses	653.8			626.2			1,913.8			1,878.3			Selling, general, and administrative expenses	641.4		653.8		1,790.0		1,913.8
Depreciation and amortization	45.2			42.9			133.7			124.0			Depreciation and amortization	51.8		45.2		149.0		133.7
Goodwill impairment													Goodwill impairment	0		0		318.3		0
Franchise rights impairment	—			—			9.6			8.1			Franchise rights impairment	0		0		57.5		9.6
Other income, net	(5.1		)	(17.4		)	(17.5		)	(41.6		)
Other (income) expense, net													Other (income) expense, net	6.6		(5.1)		11.1		(17.5)
OPERATING INCOME	193.5			203.6			587.8			580.6			OPERATING INCOME	271.7		193.5		253.8		587.8
Non-operating income (expense) items:													Non-operating income (expense) items:
Floorplan interest expense	(33.0		)	(32.7		)	(109.4		)	(93.4		)	Floorplan interest expense	(11.1)		(33.0)		(52.9)		(109.4)
Other interest expense	(26.1		)	(28.4		)	(81.6		)	(90.4		)	Other interest expense	(23.6)		(26.1)		(70.3)		(81.6)

Interest income	0.1			0.3			0.4			0.8			Interest income	0.1		0.1		0.3		0.4
Other income, net	2.6			2.3			4.2			3.3			Other income, net	6.4		2.6		217.9		4.2
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	137.1			145.1			401.4			400.9			INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	243.5		137.1		348.8		401.4
Income tax provision	37.1			32.8			108.3			97.9			Income tax provision	60.9		37.1		118.5		108.3
NET INCOME FROM CONTINUING OPERATIONS	100.0			112.3			293.1			303.0			NET INCOME FROM CONTINUING OPERATIONS	182.6		100.0		230.3		293.1
Income (loss) from discontinued operations, net of income taxes	(0.5		)	(0.3		)	(0.8		)	0.3
Loss from discontinued operations, net of income taxes													Loss from discontinued operations, net of income taxes	0		(0.5)		(0.2)		(0.8)
NET INCOME	$	99.5		$	112.0		$	292.3		$	303.3		NET INCOME	$	182.6	$	99.5	$	230.1	$	292.3
BASIC EARNINGS (LOSS) PER SHARE:													BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations	$	1.11		$	1.24		$	3.25		$	3.33		Continuing operations	$	2.07	$	1.11	$	2.59	$	3.25
Discontinued operations	$	(0.01	)	$	—		$	(0.01	)	$	—		Discontinued operations	$	0	$	(0.01)	$	0	$	(0.01)
Net income	$	1.11		$	1.24		$	3.24		$	3.33		Net income	$	2.07	$	1.11	$	2.59	$	3.24
Weighted average common shares outstanding	89.9			90.4			90.1			91.1			Weighted average common shares outstanding	88.3		89.9		88.8		90.1
DILUTED EARNINGS (LOSS) PER SHARE:													DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations	$	1.11		$	1.24		$	3.24		$	3.31		Continuing operations	$	2.05	$	1.11	$	2.59	$	3.24
Discontinued operations	$	(0.01	)	$	—		$	(0.01	)	$	—		Discontinued operations	$	0	$	(0.01)	$	0	$	(0.01)
Net income	$	1.10		$	1.23		$	3.23		$	3.31		Net income	$	2.05	$	1.10	$	2.59	$	3.23
Weighted average common shares outstanding	90.4			90.8			90.4			91.6			Weighted average common shares outstanding	88.9		90.4		89.0		90.4
COMMON SHARES OUTSTANDING, net of treasury stock, at period end	89.2			89.9			89.2			89.9			COMMON SHARES OUTSTANDING, net of treasury stock, at period end	87.8		89.2		87.8		89.2

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

AUTONATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In millions, except share data)


	Nine Months Ended September 30, 2020
	Common Stock					Additional Paid-In Capital		Retained Earnings		Treasury Stock		Total
	Shares	Amount
BALANCE AT DECEMBER 31, 2019	102,562,149	$	1.0	$	35.9	$	3,688.3	$	(563.1)	$	3,162.1
Net loss	—	—		—		(232.3)		—		(232.3)
Repurchases of common stock	—	—		—		—		(80.0)		(80.0)
Stock-based compensation expense	—	—		4.5		—		—		4.5
Shares awarded under stock-based compensation plans, net of shares withheld for taxes	—	—		(21.7)		—		14.8		(6.9)
Cumulative effect of change in accounting principle - current expected credit losses	—	—		—		(0.5)		—		(0.5)
BALANCE AT MARCH 31, 2020	102,562,149	1.0		18.7		3,455.5		(628.3)		2,846.9
Net income	—	—		—		279.8		—		279.8
Stock-based compensation expense	—	—		11.2		—		—		11.2
Shares awarded under stock-based compensation plans, net of shares withheld for taxes	—	—		(0.4)		—		0.2		(0.2)
BALANCE AT JUNE 30, 2020	102,562,149	1.0		29.5		3,735.3		(628.1)		3,137.7
Net income	—	—		—		182.6		—		182.6

Stock-based compensation expense	—	—		7.2		—		—		7.2
Shares awarded under stock-based compensation plans, net of shares withheld for taxes	—	—		4.6		—		25.8		30.4

BALANCE AT SEPTEMBER 30, 2020	102,562,149	$	1.0	$	41.3	$	3,917.9	$	(602.3)	$	3,357.9


	Nine Months Ended September 30, 2019																			Nine Months Ended September 30, 2019
	Common Stock			Additional Paid-In Capital				Retained Earnings			Treasury Stock				Total					Common Stock											Additional Paid-In Capital				Retained Earnings				Treasury Stock				Total
	Shares	Amount								Shares								Amount
BALANCE AT DECEMBER 31, 2018	102,562,149	$	1.0				$		20.8				$	3,238.3					$	(544.1	)	$	2,716.0	BALANCE AT DECEMBER 31, 2018		102,562,149			$	1.0			$	20.8			$	3,238.3			$	(544.1)		$	2,716.0
Net income	—	—		—				92.0			—				92.0			Net income		—				—			—					92.0				—				92.0
Repurchases of common stock	—	—		—				—			(33.5		)		(33.5		)	Repurchases of common stock		—				—			—				—				(33.5)				(33.5)
Stock-based compensation expense	—	—		13.7				—			—				13.7			Stock-based compensation expense		—				—			13.7				—				—				13.7
Shares awarded under stock-based compensation plans, net of shares withheld for taxes	—	—		(9.8		)		—			7.4				(2.4		)	Shares awarded under stock-based compensation plans, net of shares withheld for taxes		—				—			(9.8)				—				7.4				(2.4)
BALANCE AT MARCH 31, 2019	102,562,149	1.0		24.7				3,330.3			(570.2		)		2,785.8			BALANCE AT MARCH 31, 2019		102,562,149				1.0			24.7				3,330.3				(570.2)				2,785.8
Net income	—	—		—				100.8			—				100.8			Net income		—				—			—				100.8				—				100.8
Repurchases of common stock	—	—		—				—			(11.2		)		(11.2		)	Repurchases of common stock		—				—			—				—				(11.2)				(11.2)
Stock-based compensation expense	—	—		4.9				—			—				4.9			Stock-based compensation expense		—				—			4.9				—				—				4.9
Shares awarded under stock-based compensation plans, net of shares withheld for taxes	—	—		(4.0		)		—			6.6				2.6			Shares awarded under stock-based compensation plans, net of shares withheld for taxes		—				—			(4.0)				—				6.6				2.6
BALANCE AT JUNE 30, 2019	102,562,149	1.0		25.6				3,431.1			(574.8		)		2,882.9			BALANCE AT JUNE 30, 2019		102,562,149				1.0			25.6				3,431.1				(574.8)				2,882.9
Net income	—	—		—				99.5			—				99.5			Net income		—				—			—				99.5				—				99.5

Stock-based compensation expense	—	—		9.5				—			—				9.5			Stock-based compensation expense		—				—			9.5				—				—				9.5
Shares awarded under stock-based compensation plans, net of shares withheld for taxes	—	—		(1.0		)		—			5.8				4.8			Shares awarded under stock-based compensation plans, net of shares withheld for taxes		—				—			(1.0)				—				5.8				4.8

BALANCE AT SEPTEMBER 30, 2019	102,562,149	$	1.0	$	34.1			$	3,530.6		$	(569.0	)		$	2,996.7		BALANCE AT SEPTEMBER 30, 2019		102,562,149				$	1.0		$	34.1			$	3,530.6			$	(569.0)			$	2,996.7

Nine Months Ended September 30, 2018
Common Stock Additional
Paid-In
Capital Retained
Earnings Treasury
Stock Total
Shares Amount
BALANCE AT DECEMBER 31, 2017 102,562,149
$ 1.0
$ 4.0
$ 2,832.2
$ (467.9 ) $ 2,369.3
Net income —
—
—
93.7
—
93.7
Repurchases of common stock —
—
—
—
(26.6 ) (26.6 )
Stock-based compensation expense —
—
14.3
—
—
14.3
Shares awarded under stock-based compensation plans, net of shares withheld for taxes —
—
(2.2 ) —
13.3
11.1
Cumulative effect of change in accounting principle - revenue recognition —
—
—
10.1
—
10.1
BALANCE AT MARCH 31, 2018 102,562,149
1.0
16.1
2,936.0
(481.2 ) 2,471.9
Net income —
—
—
97.6
—
97.6
Repurchases of common stock —
—
—
—
(73.4 ) (73.4 )
Stock-based compensation expense —
—
4.1
—
—
4.1
Shares awarded under stock-based compensation plans, net of shares withheld for taxes —
—
(1.3 ) —
1.7
0.4
BALANCE AT JUNE 30, 2018 102,562,149
1.0
18.9
3,033.6
(552.9 ) 2,500.6
Net income —
—
—
112.0
—
112.0
Stock-based compensation expense —
—
3.6
—
—
3.6
Shares awarded under stock-based compensation plans, net of shares withheld for taxes —
—
(2.8 ) —
4.6
1.8
BALANCE AT SEPTEMBER 30, 2018 102,562,149
$ 1.0
$ 19.7
$ 3,145.6
$ (548.3 ) $ 2,618.0

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

AUTONATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)


	Nine Months Ended
	September 30,
	2020		2019
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income	$	230.1	$	292.3
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations	0.2		0.8
Depreciation and amortization	149.0		133.7
Amortization of debt issuance costs and accretion of debt discounts	3.5		3.9
Stock-based compensation expense	22.9		28.1
Deferred income tax provision (benefit)	(25.0)		36.8
Net gain related to business/property dispositions	(2.4)		(19.1)
Goodwill impairment	318.3		0
Franchise rights impairment	57.5		9.6
Non-cash impairment charges	11.4		2.2
Unrealized gain on equity investment	(212.7)		0
Other	(4.0)		(4.1)
(Increase) decrease, net of effects from business acquisitions and divestitures:
Receivables	232.7		143.6
Inventory	827.4		319.1
Other assets	81.6		34.1
Increase (decrease), net of effects from business acquisitions and divestitures:
Vehicle floorplan payable - trade, net	(661.8)		(288.2)
Accounts payable	57.5		(37.0)
Other liabilities	78.1		9.7
Net cash provided by continuing operations	1,164.3		665.5
Net cash provided by discontinued operations	0		0
Net cash provided by operating activities	1,164.3		665.5
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment	(113.1)		(186.3)


Proceeds from assets held for sale	8.2		6.5
Insurance recoveries on property and equipment	1.9		3.3
Cash received from business divestitures, net of cash relinquished	2.2		67.2
Cash used in business acquisitions, net of cash acquired	(0.4)		(4.7)
Investment in equity security	(50.0)		0
Other	(0.4)		0.5
Net cash used in continuing operations	(151.6)		(113.5)
Net cash used in discontinued operations	0		0
Net cash used in investing activities	(151.6)		(113.5)

Nine Months Ended
September 30,
2019 2018
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 292.3
$ 303.3
Adjustments to reconcile net income to net cash provided by operating activities:
(Income) loss from discontinued operations 0.8
(0.3 )
Depreciation and amortization 133.7
124.0
Amortization of debt issuance costs and accretion of debt discounts 3.9
4.2
Stock-based compensation expense 28.1
22.0
Deferred income tax provision 36.8
12.4
Net gain related to business/property dispositions (19.1 ) (38.5 )
Franchise rights impairment 9.6
8.1
Non-cash impairment charges 2.2
2.2
Other (4.1 ) (2.5 )
(Increase) decrease, net of effects from business acquisitions and divestitures:
Receivables 143.6
309.4
Inventory 319.1
(44.9 )
Other assets 34.1
(101.3 )
Increase (decrease), net of effects from business acquisitions and divestitures:
Vehicle floorplan payable - trade, net (288.2 ) (42.5 )
Accounts payable (37.0 ) (28.1 )
Other liabilities 9.7
7.0
Net cash provided by continuing operations 665.5
534.5
Net cash provided by discontinued operations —
0.6
Net cash provided by operating activities 665.5
535.1
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment (186.3 ) (283.2 )
Proceeds from the sale of property and equipment 0.5
24.0
Proceeds from assets held for sale 6.5
10.2
Insurance recoveries on property and equipment 3.3
1.1
Cash received from business divestitures, net of cash relinquished 67.2
144.2
Cash used in business acquisitions, net of cash acquired (4.7 ) (67.9 )
Other —
(0.6 )
Net cash used in continuing operations (113.5 ) (172.2 )
Net cash used in discontinued operations —
—
Net cash used in investing activities (113.5 ) (172.2 )

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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AUTONATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Continued)


	Nine Months Ended
	September 30,
	2020		2019
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repurchases of common stock	(80.0)		(44.7)
Proceeds from 4.75% Senior Notes due 2030	497.4		0
Payment of 5.5% Senior Notes due 2020	(350.0)		0
Proceeds from revolving credit facility	1,110.0		0
Payments of revolving credit facility	(1,110.0)		0
Net payments of commercial paper	(170.0)		(330.0)
Payment of debt issuance costs	(11.0)		0
Net payments of vehicle floorplan payable - non-trade	(609.7)		(180.0)
Payments of other debt obligations	(4.6)		(6.2)
Proceeds from the exercise of stock options	31.5		8.0
Payments of tax withholdings for stock-based awards	(8.2)		(3.0)

Net cash used in continuing operations	(704.6)		(555.9)
Net cash used in discontinued operations	0		0
Net cash used in financing activities	(704.6)		(555.9)
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	308.1		(3.9)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH at beginning of period	42.5		49.4
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH at end of period	$	350.6	$	45.5

Nine Months Ended
September 30,
2019 2018
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repurchases of common stock (44.7 ) (100.0 )
Payment of 6.75% Senior Notes due 2018 —
(400.0 )
Net proceeds from (payments of) commercial paper (330.0 ) 270.0
Net payments of vehicle floorplan payable - non-trade (180.0 ) (147.6 )
Payments of other debt obligations (6.2 ) (13.9 )
Proceeds from the exercise of stock options 8.0
16.0
Payments of tax withholdings for stock-based awards (3.0 ) (2.7 )
Other —
(2.5 )
Net cash used in continuing operations (555.9 ) (380.7 )
Net cash used in discontinued operations —
—
Net cash used in financing activities (555.9 ) (380.7 )
DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH (3.9 ) (17.8 )
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH at beginning of period 49.4
71.1
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH at end of period $ 45.5
$ 53.3

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

((In millions, except per share data))

1.INTERIM FINANCIAL STATEMENTS


1.	~~INTERIM FINANCIAL STATEMENTS~~

Business and Basis of Presentation

AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of September 30, ~~2019~~,2020, we owned and operated ~~319~~315 new vehicle franchises from ~~233~~230 stores located in the United States, predominantly in major metropolitan markets in the Sunbelt region. Our stores, which we believe include some of the most recognizable and well-known in our key markets, sell 3132 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately ~~92%~~89% of the new vehicles that we sold during the nine months ended September 30, ~~2019~~,2020, are manufactured by Toyota (including Lexus), Honda, Ford, General Motors, FCA US, Mercedes-Benz, BMW, ~~Nissan,~~ and Volkswagen (including Audi and Porsche). As of September 30, ~~2019,~~2020, we also owned and operated 8278 AutoNation-branded collision centers, ~~and together with our vehicle dealerships, our~~5 AutoNation USA used vehicle stores, ~~our~~4 automotive ~~auctions,~~auction operations, and ~~our~~16 parts distribution ~~centers, we owned and operated over 325 locations coast to coast.~~centers.

We offer a diversified range of automotive products and services, including new vehicles, used vehicles, “parts and service,” which includes automotive repair and maintenance services as well as wholesale parts and collision businesses, and automotive “finance and insurance” products, which include vehicle service and other protection products, as well as the arranging of financing for vehicle purchases through third-party finance sources. For convenience, the terms “AutoNation,” “Company,” and “we” are used to refer collectively to AutoNation, Inc. and its subsidiaries, unless otherwise required by the context. Our dealership operations are conducted by our subsidiaries.

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of AutoNation, Inc. and its subsidiaries; intercompany accounts and transactions have been eliminated. The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. The Unaudited Condensed Consolidated Financial Statements herein should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included within our most recent Annual Report on Form 10-K. These Unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state, in all material respects, our financial position and results of operations for the periods presented.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. We periodically evaluate estimates and assumptions used in the preparation of the financial statements and make changes on a prospective basis when adjustments are necessary. ~~The critical accounting~~Such estimates ~~made in the accompanying Unaudited Condensed Consolidated Financial Statements include certain~~and assumptions ~~related to~~affect, among other things, our goodwill, long-lived asset, and ~~other~~indefinite-lived intangible ~~assets. Other significant accounting estimates include certain assumptions related to long-lived assets,~~asset valuation; inventory valuation; equity investment valuation; assets held for ~~sale,~~sale; accruals for chargebacks against revenue recognized from the sale of finance and insurance ~~products,~~products; accruals related to self-insurance ~~programs,~~programs; certain legal ~~proceedings,~~proceedings; assessment of the annual effective tax rate; valuation of deferred income taxes and ~~estimated~~income tax ~~liabilities.~~contingencies; the allowance for expected credit losses; and measurement of performance-based compensation costs.

~~Recent Accounting Pronouncements~~

~~Accounting for Leases~~

In February 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (ASC Topic 842) that amends the accounting guidance on leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The FASB also subsequently issued amendments to the standard, including providing an additional and optional

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

~~transition method to adopt the new standard, described below, as well as certain practical expedients related to land easements and lessor accounting.~~

The accounting standard update originally required the use of a modified retrospective approach reflecting the application of the standard to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with the option to elect certain practical expedients. A subsequent amendment to the standard provides an additional and optional transition method that allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with ASC Topic 840 if the optional transition method is elected. The new accounting standard is effective ~~for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. We adopted~~ this accounting standard effective January 1, 2019, using the optional transition method with no restatement of comparative periods. Therefore, the comparative information has not been adjusted and continues to be reported under ASC Topic 840. Our adoption of the new standard did not result in a cumulative effect adjustment to retained earnings.

We elected certain practical expedients available under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification of our existing leases.We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. Consequently, on adoption, we recognized additional operating liabilities of $358.1 million and ROU assets of $344.6 million. The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. As a result, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and we did not recognize ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components of leases for the majority of our classes of underlying assets. See Note 7 for additional information on our leases.

2. REVENUE RECOGNITION

Disaggregation of Revenue

The significant majority of our revenue is from contracts with customers. Taxes assessed by governmental authorities that are directly imposed on revenue transactions are excluded from revenue. In the following tables, revenue is disaggregated by major lines of goods and services and timing of transfer of goods and services. We have determined that these categories depict how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. The tables below also include a reconciliation of the disaggregated revenue to reportable segment revenue.


	Three Months Ended September 30, 2020
	Domestic		Import		Premium Luxury		Corporate and other⁽¹⁾		Total
Major Goods/Service Lines
New vehicle	$	923.4	$	887.7	$	937.3	$	0	$	2,748.4
Used vehicle	478.0		415.0		576.7		47.2		1,516.9
Parts and service	233.2		220.4		278.4		120.8		852.8
Finance and insurance, net	97.8		95.2		77.5		10.7		281.2
Other	2.1		3.2		0.1		0.2		5.6
	$	1,734.5	$	1,621.5	$	1,870.0	$	178.9	$	5,404.9

Timing of Revenue Recognition
Goods and services transferred at a point in time	$	1,563.4	$	1,443.2	$	1,633.6	$	111.3	$	4,751.5
Goods and services transferred over time⁽²⁾	171.1		178.3		236.4		67.6		653.4
	$	1,734.5	$	1,621.5	$	1,870.0	$	178.9	$	5,404.9

Three Months Ended September 30, 2019
Domestic Import Premium Luxury
Corporate and other⁽¹⁾
Total
Major Goods/Service Lines
New vehicle $ 925.4
$ 1,003.8
$ 945.6
$ —
$ 2,874.8
Used vehicle 456.6
386.4
519.7
40.2
1,402.9
Parts and service 244.7
226.1
283.8
148.0
902.6
Finance and insurance, net 95.1
99.9
70.0
1.2
266.2
Other 6.8
6.3
1.4
0.2
14.7
$ 1,728.6
$ 1,722.5
$ 1,820.5
$ 189.6
$ 5,461.2

Timing of Revenue Recognition
Goods and services transferred at a point in time $ 1,547.1
$ 1,543.1
$ 1,579.0
$ 99.4
$ 4,768.6
Goods and services transferred over time⁽²⁾
181.5
179.4
241.5
90.2
692.6
$ 1,728.6
$ 1,722.5
$ 1,820.5
$ 189.6
$ 5,461.2


	Three Months Ended September 30, 2019
	Domestic		Import		Premium Luxury		Corporate and other⁽¹⁾		Total
Major Goods/Service Lines
New vehicle	$	925.4	$	1,003.8	$	945.6	$	0	$	2,874.8
Used vehicle	456.6		386.4		519.7		40.2		1,402.9
Parts and service	244.7		226.1		283.8		148.0		902.6
Finance and insurance, net	95.1		99.9		70.0		1.2		266.2
Other	6.8		6.3		1.4		0.2		14.7
	$	1,728.6	$	1,722.5	$	1,820.5	$	189.6	$	5,461.2

Timing of Revenue Recognition
Goods and services transferred at a point in time	$	1,547.1	$	1,543.1	$	1,579.0	$	99.4	$	4,768.6
Goods and services transferred over time⁽²⁾	181.5		179.4		241.5		90.2		692.6
	$	1,728.6	$	1,722.5	$	1,820.5	$	189.6	$	5,461.2

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)


	Nine Months Ended September 30, 2020
	Domestic		Import		Premium Luxury		Corporate and other⁽¹⁾		Total
Major Goods/Service Lines
New vehicle	$	2,424.0	$	2,334.2	$	2,533.4	$	0	$	7,291.6
Used vehicle	1,319.4		1,105.3		1,534.3		131.1		4,090.1
Parts and service	662.1		598.3		779.0		379.6		2,419.0
Finance and insurance, net	268.9		261.6		204.8		28.1		763.4
Other	29.6		9.5		0.1		1.6		40.8
	$	4,704.0	$	4,308.9	$	5,051.6	$	540.4	$	14,604.9

Timing of Revenue Recognition
Goods and services transferred at a point in time	$	4,218.0	$	3,830.7	$	4,387.4	$	318.0	$	12,754.1
Goods and services transferred over time⁽²⁾	486.0		478.2		664.2		222.4		1,850.8
	$	4,704.0	$	4,308.9	$	5,051.6	$	540.4	$	14,604.9

Three Months Ended September 30, 2018
Domestic Import Premium Luxury
Corporate and other⁽¹⁾
Total
Major Goods/Service Lines
New vehicle $ 988.5
$ 1,070.3
$ 874.3
$ —
$ 2,933.1
Used vehicle 424.4
365.3
463.6
28.4
1,281.7
Parts and service 271.6
235.8
269.4
87.2
864.0
Finance and insurance, net 88.6
94.4
60.0
4.4
247.4
Other 16.6
4.8
1.5
0.1
23.0
$ 1,789.7
$ 1,770.6
$ 1,668.8
$ 120.1
$ 5,349.2

Timing of Revenue Recognition
Goods and services transferred at a point in time $ 1,613.5
$ 1,591.6
$ 1,441.5
$ 35.0
$ 4,681.6
Goods and services transferred over time⁽²⁾
176.2
179.0
227.3
85.1
667.6
$ 1,789.7
$ 1,770.6
$ 1,668.8
$ 120.1
$ 5,349.2


	Nine Months Ended September 30, 2019
	Domestic		Import		Premium Luxury		Corporate and other⁽¹⁾		Total
Major Goods/Service Lines
New vehicle	$	2,600.9	$	2,740.1	$	2,800.1	$	0	$	8,141.1
Used vehicle	1,347.0		1,143.9		1,524.2		106.8		4,121.9
Parts and service	722.2		675.5		847.7		435.4		2,680.8
Finance and insurance, net	265.3		275.8		200.0		16.8		757.9
Other	69.3		10.6		3.5		1.7		85.1
	$	5,004.7	$	4,845.9	$	5,375.5	$	560.7	$	15,786.8

Timing of Revenue Recognition
Goods and services transferred at a point in time	$	4,473.6	$	4,313.3	$	4,654.0	$	290.8	$	13,731.7
Goods and services transferred over time⁽²⁾	531.1		532.6		721.5		269.9		2,055.1
	$	5,004.7	$	4,845.9	$	5,375.5	$	560.7	$	15,786.8
⁽¹⁾ “Corporate and other” is comprised of our other businesses, including collision centers, auction operations, AutoNation USA used vehicle stores, and parts distribution centers.
⁽²⁾ Represents revenue recognized during the period for automotive repair and maintenance services.

Nine Months Ended September 30, 2019
Domestic Import Premium Luxury
Corporate and other⁽¹⁾
Total
Major Goods/Service Lines
New vehicle $ 2,600.9
$ 2,740.1
$ 2,800.1
$ —
$ 8,141.1
Used vehicle 1,347.0
1,143.9
1,524.2
106.8
4,121.9
Parts and service 722.2
675.5
847.7
435.4
2,680.8
Finance and insurance, net 265.3
275.8
200.0
16.8
757.9
Other 69.3
10.6
3.5
1.7
85.1
$ 5,004.7
$ 4,845.9
$ 5,375.5
$ 560.7
$ 15,786.8

Timing of Revenue Recognition
Goods and services transferred at a point in time $ 4,473.6
$ 4,313.3
$ 4,654.0
$ 290.8
$ 13,731.7
Goods and services transferred over time⁽²⁾
531.1
532.6
721.5
269.9
2,055.1
$ 5,004.7
$ 4,845.9
$ 5,375.5
$ 560.7
$ 15,786.8

~~Table of Contents~~

~~AUTONATION, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

Nine Months Ended September 30, 2018
Domestic Import Premium Luxury
Corporate and other⁽¹⁾
Total
Major Goods/Service Lines
New vehicle $ 2,913.7
$ 3,045.0
$ 2,726.3
$ —
$ 8,685.0
Used vehicle 1,334.4
1,092.3
1,405.9
78.3
3,910.9
Parts and service 810.8
707.1
804.1
257.6
2,579.6
Finance and insurance, net 263.2
275.8
178.6
18.4
736.0
Other 67.4
20.0
1.9
0.3
89.6
$ 5,389.5
$ 5,140.2
$ 5,116.8
$ 354.6
$ 16,001.1

Timing of Revenue Recognition
Goods and services transferred at a point in time $ 4,870.0
$ 4,603.3
$ 4,440.5
$ 100.2
$ 14,014.0
Goods and services transferred over time⁽²⁾
519.5
536.9
676.3
254.4
1,987.1
$ 5,389.5
$ 5,140.2
$ 5,116.8
$ 354.6
$ 16,001.1

⁽¹⁾ “Corporate and other” is comprised of our other businesses, including collision centers, auction operations, AutoNation USA stand-alone used vehicle sales and service centers, and parts distribution centers.
⁽²⁾ Represents revenue recognized during the period for automotive repair and maintenance services.

Transaction Price Allocated to Remaining Performance Obligations

We sell a vehicle maintenance program (the AutoNation Vehicle Care Program or “VCP”) under which a customer purchases a specific number of maintenance services to be redeemed at an AutoNation location over a five-year term from the date of purchase. We satisfy our performance obligations related to this program and recognize revenue as the maintenance services are rendered, since the customer benefits when we have completed the maintenance service.

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The following table includes estimated revenue expected to be recognized in the future related to VCP performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:


	Revenue Expected to Be Recognized by Period
	Total		Next 12 Months		13 - 36 Months		37 - 60 Months
Revenue expected to be recognized on VCP contracts sold as of period end	$	87.2	$	31.8	$	42.0	$	13.4

Revenue Expected to Be Recognized by Period
Total Less Than 1 Year 1 - 3 Years 3 - 5 Years
Revenue expected to be recognized on VCP contracts sold as of period end $ 89.6
$ 29.1
$ 44.9
$ 15.6

As a practical expedient, since automotive repair and maintenance services are performed within one year or less, we do not disclose estimated revenue expected to be recognized in the future for automotive repair and maintenance performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period or when we expect to recognize such revenue.

Contract Assets and Liabilities

When the timing of our provision of goods or services is different from the timing of ~~the~~ payments made by our customers, we recognize either a contract asset (performance precedes contractual due date) or a contract liability (customer payment precedes performance). Contract assets primarily relate to our right to consideration for work in process not yet billed at the reporting date associated with automotive repair and maintenance services, as well as our estimate of variable consideration that has been included in the transaction price for certain finance and insurance products (retrospective commissions). These contract assets are reclassified to receivables when the right to consideration becomes unconditional. Contract liabilities primarily relate to upfront payments received from customers for the sale of VCP maintenance contracts. Performance obligations are satisfied, and revenue is recognized, for VCP maintenance contracts as each underlying service of the multi-year contract is completed during the contract term.

~~Table of Contents~~

~~AUTONATION, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

Our receivables from contracts with customers are included in Receivables, net, our current contract asset is included in Other Current Assets, our long-term contract asset is included in Other Assets, our current contract liability is included in Other Current Liabilities, and our long-term contract liability is included in Other ~~Long-Term~~ Liabilities in our ~~consolidated balance sheets.~~

Unaudited Condensed Consolidated Balance Sheets.

The ~~opening and closing~~following table provides the balances of our receivables from contracts with customers and our current and long-term contract assets and contract ~~liabilities are as follows:~~liabilities:

September 30, 2019 December 31, 2018
Receivables from contracts with customers, net $ 571.2
$ 706.7
Contract Asset (Current) $ 25.6
$ 28.2
Contract Asset (Long-Term) $ 10.1
$ 17.4
Contract Liability (Current) $ 32.3
$ 31.6
Contract Liability (Long-Term) $ 58.1
$ 61.9

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period $ 7.4
$ 28.9
Performance obligations satisfied in previous periods $ 2.0
$ 8.8

The ~~differences between~~change in the ~~opening and closing~~ balances of our contract assets and contract liabilities primarily result from the timing differences between our performance and the customer’s payment, as well as changes in the estimated transaction price related to variable consideration that was constrained for performance obligations satisfied in previous periods. The following table presents revenue recognized during the period from amounts included in the contract liability balance at the beginning of the period and performance obligations satisfied in previous periods:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		2020		2019
Amounts included in contract liability at the beginning of the period	$	5.9	$	7.4	$	24.7	$	28.9
Performance obligations satisfied in previous periods	$	9.9	$	2.0	$	13.8	$	8.8

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Other significant changes include contract assets reclassified to receivables of $24.4 million for the nine months ended September 30, 2020, and $27.5 million ~~reclassified to receivables.~~for the nine months ended September 30, 2019.

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of3.EARNINGS PER SHARE

Basic earnings per share (“EPS”) under the two-class method. Our restricted stock awards are considered participating securities because they contain non-forfeitable rights to dividends. As the number of shares granted under such awards that have not yet vested is immaterial, all earnings per share amounts reflect such shares as if they were fully vested shares and the disclosures associated with the two-class method are not presented. Restricted stock unit (“RSU”) awards are not considered participating securities as they do not contain non-forfeitable rights to dividends.

~~Basic EPS~~ is computed by dividing net income by the weighted average number of common shares outstanding for the period, including ~~outstanding unvested~~vested restricted stock ~~awards and vested RSU~~unit (“RSU”) awards. Diluted EPS is computed by dividing net income by the weighted average number of shares outstanding, noted above, adjusted for the dilutive effect of stock options and unvested RSU awards.

The following table presents the calculation of basic and diluted EPS:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Net income from continuing operations	$	182.6	$	100.0	$	230.3	$	293.1
Loss from discontinued operations, net of income taxes	0		(0.5)		(0.2)		(0.8)
Net income	$	182.6	$	99.5	$	230.1	$	292.3

Basic weighted average common shares outstanding	88.3		89.9		88.8		90.1
Dilutive effect of stock options and unvested RSUs	0.6		0.5		0.2		0.3
Diluted weighted average common shares outstanding	88.9		90.4		89.0		90.4

Basic EPS amounts⁽¹⁾:
Continuing operations	$	2.07	$	1.11	$	2.59	$	3.25
Discontinued operations	$	0	$	(0.01)	$	0	$	(0.01)
Net income	$	2.07	$	1.11	$	2.59	$	3.24

Diluted EPS amounts⁽¹⁾:
Continuing operations	$	2.05	$	1.11	$	2.59	$	3.24
Discontinued operations	$	0	$	(0.01)	$	0	$	(0.01)
Net income	$	2.05	$	1.10	$	2.59	$	3.23

⁽¹⁾ EPS amounts are calculated discretely and, therefore, may not add up to the total due to rounding.

A summary of anti-dilutive equity instruments excluded from the computation of diluted EPS is as follows:


	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2020	2019	2020	2019
Anti-dilutive equity instruments excluded from the computation of diluted EPS	1.4	2.2	2.3	2.5

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

~~The following table presents the calculation of basic and diluted EPS:~~4.

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Net income from continuing operations $ 100.0
$ 112.3
$ 293.1
$ 303.0
Income (loss) from discontinued operations, net of income taxes (0.5 ) (0.3 ) (0.8 ) 0.3
Net income $ 99.5
$ 112.0
$ 292.3
$ 303.3

Weighted average common shares outstanding used in calculating basic EPS 89.9
90.4
90.1
91.1
Effect of dilutive stock options and unvested RSUs 0.5
0.4
0.3
0.5
Weighted average common shares outstanding used in calculating diluted EPS 90.4
90.8
90.4
91.6

Basic EPS amounts⁽¹⁾:

Continuing operations $ 1.11
$ 1.24
$ 3.25
$ 3.33
Discontinued operations $ (0.01 ) $ —
$ (0.01 ) $ —
Net income $ 1.11
$ 1.24
$ 3.24
$ 3.33

Diluted EPS amounts⁽¹⁾:

Continuing operations $ 1.11
$ 1.24
$ 3.24
$ 3.31
Discontinued operations $ (0.01 ) $ —
$ (0.01 ) $ —
Net income $ 1.10
$ 1.23
$ 3.23
$ 3.31

⁽¹⁾ Earnings per share amounts are calculated discretely and therefore may not add up to the total due to rounding.

RECEIVABLES, NET

~~A summary of anti-dilutive equity instruments excluded from the computation of diluted earnings per share is as follows:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Anti-dilutive equity instruments excluded from the computation of diluted earnings per share 2.2
2.4
2.5
2.0

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~~AUTONATION, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

The components of receivables, net of ~~allowance~~allowances for ~~doubtful accounts,~~expected credit losses, are as follows:


	September 30, 2020		December 31, 2019
Contracts-in-transit and vehicle receivables	$	338.0	$	506.0
Trade receivables	128.5		136.4
Manufacturer receivables	181.6		234.5
Income taxes receivable (see Note 8)	0		1.5
Other	38.1		38.8
	686.2		917.2
Less: allowances for expected credit losses	(3.7)		(0.5)
Receivables, net	$	682.5	$	916.7

September 30,
2019 December 31,
2018
Trade receivables $ 131.3
$ 130.4
Manufacturer receivables 203.4
242.3
Other 39.2
31.4
373.9
404.1
Less: allowances for doubtful accounts (0.4 ) (4.6 )
373.5
399.5
Contracts-in-transit and vehicle receivables 415.2
568.6
Income taxes receivable (see Note 9) 40.8
8.1
Receivables, net $ 829.5
$ 976.2

Contracts-in-transit and vehicle receivables primarily represent receivables from financial institutions for the portion of the vehicle sales price financed by our customers. Trade receivables represent amounts due for parts and services that have been delivered or sold, excluding amounts due from manufacturers, as well as receivables from finance organizations for commissions on the sale of finance and insurance products. Manufacturer receivables represent amounts due from manufacturers for holdbacks, rebates, incentives, floorplan assistance, and warranty claims. ~~Contracts-in-transit and vehicle receivables primarily represent receivables from financial institutions for the portion of the vehicle sales price financed by our customers.~~ We evaluate our receivables for collectability based on past collection ~~experience.~~experience, current information, and reasonable and supportable forecasts.

5.INVENTORY AND VEHICLE FLOORPLAN PAYABLE

The components of inventory are as follows:


	September 30, 2020		December 31, 2019
New vehicles	$	1,634.9	$	2,490.8
Used vehicles	658.5		570.0
Parts, accessories, and other	189.1		245.0
Inventory	$	2,482.5	$	3,305.8

September 30,
2019 December 31,
2018
New vehicles $ 2,482.2
$ 2,874.8
Used vehicles 561.1
553.8
Parts, accessories, and other 237.4
221.9
Inventory $ 3,280.7
$ 3,650.5

The components of vehicle floorplan payable are as follows:

September 30,
2019 December 31,
2018
Vehicle floorplan payable - trade $ 2,073.5
$ 2,388.0
Vehicle floorplan payable - non-trade 1,407.6
1,609.7
Vehicle floorplan payable $ 3,481.1
$ 3,997.7


	September 30, 2020		December 31, 2019
Vehicle floorplan payable - trade	$	1,467.6	$	2,120.6
Vehicle floorplan payable - non-trade	841.0		1,455.2
Vehicle floorplan payable	$	2,308.6	$	3,575.8

Vehicle floorplan payable-trade reflects amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventories with the corresponding manufacturers’ captive finance subsidiaries (“trade lenders”). Vehicle floorplan payable-non-trade represents amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventories with non-trade lenders, as well as amounts borrowed under our secured used vehicle floorplan facilities. Changes in vehicle floorplan payable-trade are reported as operating cash flows and changes in vehicle floorplan payable-non-trade are reported as financing cash flows in the accompanying Unaudited Condensed Consolidated Statements of Cash Flows.

Our inventory costs are generally reduced by manufacturer holdbacks, incentives, floorplan assistance, and non-reimbursement-based manufacturer advertising rebates, while the related vehicle floorplan payables are reflective of the gross cost of the vehicle. The vehicle floorplan payables, as shown in the above table, will generally also be higher than the inventory cost due to the timing of the sale of a vehicle and payment of the related liability.

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Our new vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged ~~3.8%~~2.0% for the nine months ended September 30, ~~2019,~~2020, and ~~3.4%~~3.8% for the nine months ended September 30, ~~2018.~~2019. At September 30, ~~2019,~~2020, the aggregate capacity under our new vehicle floorplan facilities to finance our new vehicle inventory was approximately $4.8 billion, of which ~~$3.1~~$2.1 billion had been borrowed.

Our used vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged ~~3.8%~~2.4% for the nine months ended September 30, ~~2019~~,2020, and ~~3.4%~~3.8% for the nine months ended September 30, ~~2018~~.2019. At September 30, ~~2019~~,2020, the aggregate capacity under our used vehicle floorplan facilities with various lenders to finance a portion of our used vehicle inventory was~~$515.0~~ $482.0 million,, of which ~~$416.7~~$193.9 million had been borrowed. The remaining borrowing capacity of ~~$98.3~~$288.1 million was limited to ~~$0.6~~$251.1 million based on the eligible used vehicle inventory that could have been pledged as collateral.

6.GOODWILL AND INTANGIBLE ASSETS, NET


6.	~~GOODWILL AND INTANGIBLE ASSETS, NET~~

Goodwill and intangible assets, net, consist of the following:

September 30,
2019 December 31,
2018
Goodwill $ 1,498.6
$ 1,513.2

Franchise rights - indefinite-lived $ 566.5
$ 580.1
Other intangibles 23.9
22.2
590.4
602.3
Less: accumulated amortization (8.4 ) (6.9 )
Other intangible assets, net $ 582.0
$ 595.4


	September 30, 2020		December 31, 2019
Goodwill	$	1,186.5	$	1,501.9

Franchise rights - indefinite-lived	$	509.0	$	566.5
Other intangibles	21.2		23.4
	530.2		589.9
Less: accumulated amortization	(8.4)		(8.3)
Other intangible assets, net	$	521.8	$	581.6

Goodwill

Goodwill for our reporting units is tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred.

During the first quarter of 2020, our stock price, along with the U.S. stock market in general, was adversely impacted by the market reaction to the novel coronavirus disease 2019 (“COVID-19”) pandemic. In light of the uncertainty surrounding the COVID-19 pandemic and the decrease in our market capitalization as of March 31, 2020, we concluded that a triggering event had occurred potentially indicating that the fair values of our reporting units were less than their carrying values as of March 31, 2020. Therefore, we performed quantitative goodwill impairment tests for each of our reporting units as of March 31, 2020. As a result of these impairment tests, during the three months ended March 31, 2020, we recorded non-cash goodwill impairment charges totaling $318.3 million, of which $257.4 million related to our Premium Luxury reporting unit, $41.6 million related to our Collision Centers reporting unit, and $19.3 million related to our Parts Centers reporting unit. The non-cash impairment charges are reflected as Goodwill Impairment in the accompanying Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 2020. See Note 1411 of the Notes to Unaudited Condensed Consolidated Financial Statements for information about our quantitative goodwill impairment test.

For our April 30, 2020 annual impairment ~~tests~~test, we chose to make a qualitative evaluation about the likelihood of goodwill ~~and franchise rights.~~

~~7. LEASES~~

~~General description~~

~~The significant majority of leases that we enter into~~ ~~are for real estate.~~ We lease numerous facilities relating to our operations, including primarily for automobile showrooms, display lots, service facilities, collision repair centers, supply facilities, automobile storage lots, parking lots, offices, and our corporate headquarters. Leases for real property have terms ranging from one to twenty-five years. We also lease various types of equipment, including security cameras, diagnostic equipment, copiers, key-cutting machines, and postage machines, among others. Equipment leases generally have terms ranging from one to five years. In addition, we lease certain vehicles from vehicle manufacturers to provide our service customers with the use of a vehicle while their vehicles are being serviced at our dealerships. Service loaner vehicle leases generally have terms ranging from six to eighteen months,impairment, and we ~~typically purchase~~determined that it was not more likely than not that the ~~service loaner vehicles at the end~~fair values of ~~the lease.~~our reporting units were less than their carrying amounts.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We do not have any significant leases that have not yet commenced but that create significant rights and obligations for us. We have elected the practical expedient under ASC 842 to not separate lease and nonlease components for the following classes of underlying assets: real estate, office equipment, service loaner vehicles, and marketing-related assets (e.g., billboards).

Our real estate and equipment leases often require that we pay maintenance in addition to rent. Additionally, our real estate leases generally require payment of real estate taxes and insurance. Maintenance, real estate taxes, and insurance payments are generally variable and based on actual costs incurred by the lessor. Therefore, these amounts are not included in the consideration of the contract when determining the right-of-use (“ROU”) asset and lease liability, but are reflected as variable lease expenses for those classes of underlying assets for which we have elected the practical expedient to not separate lease and nonlease components.

1312

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. We rent or sublease certain real estateGoodwill allocated to ~~third parties, which are primarily operating leases.~~

~~Variable lease payments~~

~~A majority of~~ our ~~lease agreements include fixed rental payments. Certain of our lease agreements include fixed rental payments that are adjusted periodically for~~reporting units and changes in the ~~Consumer Price Index (“CPI”). P~~carrying amount of goodwill for the nine months ended September 30, 2020, were as follows:


	Domestic		Import		Premium Luxury		Collision Centers		Parts Centers		Consolidated
Goodwill at January 1, 2020 ⁽¹⁾	$	227.3	$	498.9	$	714.9	$	41.7	$	19.1	$	1,501.9
Acquisitions, dispositions, and other adjustments, net ⁽²⁾	(0.1)		3.2		(0.3)		(0.1)		0.2		2.9
Impairment	0		0		(257.4)		(41.6)		(19.3)		(318.3)
Goodwill at September 30, 2020 ⁽¹⁾⁽³⁾	$	227.2	$	502.1	$	457.2	$	0	$	0	$	1,186.5

⁽¹⁾~~ayments based on~~ Net of accumulated impairment losses of $1.47 billion associated with our single reporting unit (prior to September 30, 2008, our reporting unit structure was comprised of a ~~change~~single reporting unit) and $140.0 million associated with our Domestic reporting unit, both of which were recorded during the year ended December 31, 2008.

⁽²⁾ Includes amounts reclassified to and from held for sale and related adjustments, which are presented in ~~an index~~Other Current Assets in our Unaudited Condensed Consolidated Balance Sheets.

⁽³⁾ Net of accumulated impairment losses of $257.4 million associated with our Premium Luxury reporting unit, $41.6 million associated with our Collision Centers reporting unit, and $19.3 million associated with our Parts Centers reporting unit, each of which were recorded during the three months ended March 31, 2020.

Other Intangible Assets

During the ~~determination~~first quarter of ~~lease payments for purposes of measuring the related lease liability.~~ ~~While lease liabilities are not remeasured~~2020, we concluded that, as a result of ~~changes to~~ the ~~CPI, changes to~~impacts from the ~~CPI~~COVID-19 pandemic, a triggering event had occurred that indicated the fair values of our franchise rights may have been less than their carrying values as of March 31, 2020. We performed quantitative impairment tests as of March 31, 2020, and as a result, we identified 8 stores with franchise rights carrying values that exceeded their estimated fair values, and we recorded non-cash franchise rights impairment charges of $57.5 million. The non-cash impairment charges are ~~treated~~reflected as ~~variable lease payments and recognized~~Franchise Rights Impairment in the ~~period in which~~accompanying Unaudited Condensed Consolidated Statements of Operations for the ~~obligation for those payments are incurred.~~

~~Options to extend or terminate leases~~

Most of our real estate leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of lease renewal options is at our sole discretion. If it is reasonably certain that we will exercise such options, the periods covered by such options are included in the lease term and are recognized as part of our ROU assets and lease liabilities. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

~~Discount rate~~nine months ended September 30, 2020.

For our ~~incremental borrowing rate,~~April 30, 2020 annual impairment test, we ~~generally use a portfolio approach~~elected to ~~determine~~perform quantitative franchise rights impairment tests, and 0 additional impairment charges resulted from these quantitative tests. See Note 11 of the ~~discount rate~~Notes to Unaudited Condensed Consolidated Financial Statements for ~~leases with similar characteristics. We determine discount rates based on the rates of~~information about our ~~unsecured borrowings, which are then adjusted for the appropriate lease term and the effects of full collateralization.~~quantitative franchise rights impairment test.

Leases Classification September 30, 2019
Assets
Operating Operating Lease Assets $ 328.8
Finance Property and Equipment, Net and Other Assets 99.6
Total right-of-use assets $ 428.4

Liabilities
Current
Operating Other Current Liabilities $ 39.8
Finance Current Maturities of Long-Term Debt and Vehicle Floorplan Payable - Trade 67.1
Noncurrent
Operating Noncurrent Operating Lease Liabilities 302.5
Finance Long-Term Debt, Net of Current Maturities 85.1
Total lease liabilities $ 494.5



~~Lease Term and Discount Rate~~	~~September 30, 2019~~
~~Weighted average remaining lease term~~
~~Operating~~	~~11 years~~
~~Finance~~	~~9 years~~
~~Weighted-average discount rate~~
~~Operating~~	~~5.29~~	%
~~Finance~~	~~8.25~~	%

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Three Months Ended Nine Months Ended
Lease cost Classification September 30, 2019 September 30, 2019
Operating lease cost Selling, general, and administrative expenses $ 14.8
$ 45.6
Finance lease cost:
Amortization of ROU assets Depreciation and amortization 2.6
8.2
Interest on lease liabilities Other interest expense and floorplan interest expense 2.2
6.7
Short-term lease cost ⁽¹⁾
Selling, general, and administrative expenses 2.2
7.8
Variable lease cost Selling, general, and administrative expenses 1.7
4.4
Sublease income Selling, general, and administrative expenses (0.2 ) (1.0 )
Net lease cost $ 23.3
$ 71.7

⁽¹⁾Includes leases with a term of one month or less.

Nine Months Ended
Other Information September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 45.4
Operating cash flows from finance leases ⁽¹⁾
$ 37.9
Financing cash flows from finance leases $ 4.3
Right-of-use assets obtained in exchange for new:
Operating lease liabilities $ 17.2
Finance lease liabilities $ 34.0

⁽¹⁾Includes the interest component of payments made on finance leases as well as principal payments on vehicle floorplan payables with trade lenders for certain service loaner vehicle leases.

7.LONG-TERM DEBT AND COMMERCIAL PAPER

Maturity of Lease Liabilities Operating Leases Finance Leases
Twelve months ending September 30,
2020 $ 56.8
$ 74.1
2021 51.4
10.7
2022 46.6
10.7
2023 40.1
10.4
2024 34.5
10.7
Thereafter 233.9
99.9
Total lease payments 463.3
216.5
Less: interest (121.0 ) (64.3 )
Present value of lease liabilities $ 342.3
$ 152.2

~~Table of Contents~~

~~AUTONATION, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

The following table provides the future minimum lease obligations for leases with initial terms in excess of one year as presented in our Annual Report on Form 10-K for the year ended December 31, 2018 in accordance with ASC 840:

Maturity of Lease Liabilities
Operating Leases⁽¹⁾
Capital Leases
Twelve months ending December 31,
2019 $ 61.2
$ 35.7
2020 51.0
10.4
2021 46.1
10.1
2022 42.1
10.2
2023 36.6
10.1
Thereafter 258.4
108.7
Total minimum lease payments $ 495.4
$ 185.2
Less: amounts representing interest (69.5 )

$ 115.7

Long-term debt consists of the following:

Debt Refinancing Transaction

On March 26, 2020, we amended and restated our existing unsecured credit agreement to, among other things, (1) ~~Other debt includes finance leases~~provide for lower commitment fees and loan margins as ~~of September 30, 2019,~~set forth in the amended and ~~capital leases as of December 31, 2018.~~restated credit agreement, (2) extend the maturity date to March 26, 2025, and (3) provide for customary LIBOR replacement provisions.

Senior Unsecured Notes and Credit Agreement

~~Our~~On May 21, 2020, we issued $500.0 million aggregate principal amount of 4.75% Senior Notes due 2030, which were sold at 99.479% of the aggregate principal amount. In February 2020, we repaid the outstanding $350.0 million of 5.5% Senior Notes due ~~2020~~2020. Our 3.35% Senior Notes due 2021 will mature on ~~February 1, 2020,~~January 15, 2021, and were, therefore, reclassified to current maturities during the first quarter of ~~2019.~~2020.

The interest rates payable on ~~the 3.35% Senior Notes, 3.5% Senior Notes, 4.5% Senior Notes, and 3.8% Senior Notes~~our outstanding senior unsecured notes are subject to adjustment upon the occurrence of certain credit rating events as provided in the indentures for these senior unsecured notes.

Under our amended and restated credit agreement, we have a $1.8 billion revolving credit facility that matures on ~~October 19, 2022~~.March 26, 2025. The credit agreement also contains an accordion feature that allows us, subject to credit availability and certain other conditions, to increase the amount of the revolving credit facility, together with any added term loans, by up to $500.0 million in the aggregate. As of September 30, ~~2019,~~2020, we had 0 borrowings outstanding under our revolving credit facility. We have a $200.0 million letter of credit sublimit as part of our revolving credit facility. The amount available to be borrowed under the revolving credit facility is reduced on a dollar-for-dollar basis by the cumulative amount of any outstanding letters of credit, which was

~~Table of Contents~~

~~AUTONATION, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

~~$41.7~~ $39.7 million at September 30, ~~2019~~,2020, leaving a borrowing capacity under the revolving credit facility of $1.8 billion at September 30, ~~2019. As of September 30, 2019, this borrowing capacity was limited under the applicable maximum consolidated leverage ratio contained in our credit agreement to $948.4 million.~~2020.

Our revolving credit facility under the amended credit agreement provides for a commitment fee on undrawn amounts ranging from ~~0.150%~~0.125% to ~~0.25%~~0.20% and interest on borrowings at LIBOR or the base rate, in each case plus an applicable margin. The applicable margin ranges from ~~1.25%~~1.125% to ~~1.625%~~1.50% for LIBOR borrowings and ~~0.25%~~0.125% to ~~0.625%~~0.50% for base rate borrowings. The interest rate charged for our revolving credit facility is affected by our leverage ratio. For instance, an increase in our leverage ratio from greater than or equal to ~~2.0~~x2.0x but less than ~~3.25~~x3.25x to greater than or equal to ~~3.25~~x3.25x would result in a 12.5 basis point increase in the applicable margin.

~~Our senior unsecured notes and borrowings under our credit agreement are guaranteed by substantially all of our subsidiaries.~~ Within the meaning of Regulation S-X, Rule 3-10, AutoNation, Inc. (the parent company) has no independent assets or ~~operations,~~operations. If the guarantees of ~~its~~our subsidiaries ~~are~~were to be issued under our existing registration statement, we expect that such guarantees would be full and unconditional and joint and several, and any subsidiaries other than the guarantor subsidiaries ~~are~~would be minor.

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Other Long-Term Debt

At September 30, ~~2019~~,2020, we had finance ~~lease~~leases and other debt obligations of ~~$130.4~~$105.3 million,, which are due at various dates through ~~2038~~.2039.

We have a commercial paper program pursuant to which we may issue short-term, unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $1.0 billion. The interest rate for the commercial paper notes varies based on duration and market conditions. The maturities of the commercial paper notes may vary, but may not exceed 397 days from the date of issuance. ~~The commercial paper notes are guaranteed by substantially all of our subsidiaries.~~ Proceeds from the issuance of commercial paper notes are used to repay borrowings under the revolving credit facility, to finance acquisitions and for working capital, capital expenditures, share repurchases, and/or other general corporate purposes. We plan to use the revolving credit facility under our credit agreement as a liquidity backstop for borrowings under the commercial paper program. A downgrade in our credit ratings could negatively impact our ability to issue, or the interest rates for, commercial paper notes.

At September 30, 2020, we had 0 commercial paper notes outstanding. At December 31, 2019, we had ~~$300.0~~$170.0 million of commercial paper notes outstanding with a weighted-average annual interest rate of ~~2.41%~~2.13% and a weighted-average remaining term of ~~8 days. At December 31, 2018, we had $630.0 million of commercial paper notes outstanding with a weighted-average annual interest rate of 3.22% and a weighted-average remaining term of 21~~12 days.

Income taxes payable included in Other Current Liabilities totaled $25.2 million at September 30, 2020. Income taxes receivable included in Receivables, net totaled ~~$40.8~~$1.5 million at ~~September 30, 2019, and $8.1 million at~~ December 31, ~~2018~~.2019.

We file income tax returns in the U.S. federal jurisdiction and various states. As a matter of course, various taxing authorities, including the IRS, regularly audit us. Currently, no tax years are under examination by the IRS, and tax years from 2014 to 2017 are under examination by certain U.S. state jurisdictions. These audits may result in proposed assessments where the ultimate resolution may result in our owing additional taxes.

It is our policy to account for interest and penalties associated with income tax obligations as a component of Income Tax Provision in the accompanying Unaudited Condensed Consolidated ~~Financial Statements.~~Statements of Operations.

9.SHAREHOLDERS’ EQUITY

~~Table of Contents~~

~~AUTONATION, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Shares repurchased	0		0		2.5		1.3
Aggregate purchase price	$	0	$	0	$	80.0	$	44.7
Average purchase price per share	$	0	$	0	$	31.95	$	35.51

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Shares repurchased —
—
1.3
2.1
Aggregate purchase price $ —
$ —
$ 44.7
$ 100.0
Average purchase price per share $ —
$ —
$ 35.51
$ 47.58

AsIn October 2020, our Board of ~~September 30, 2019, $219.0 million remained available for~~Directors increased the share ~~repurchases under the program.~~repurchase authorization to $500 million.

A summary of shares of common stock issued in connection with the exercise of stock options follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Shares issued	0.6		0.1		0.7		0.2
Proceeds from the exercise of stock options	$	30.5	$	4.9	$	31.5	$	8.0
Average exercise price per share	$	48.86	$	35.61	$	46.37	$	33.70

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Shares issued 0.1
0.1
0.2
0.4
Proceeds from the exercise of stock options $ 4.9
$ 1.8
$ 8.0
$ 16.0
Average exercise price per share $ 35.61
$ 16.67
$ 33.70
$ 39.20

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The following table presents a summary of shares of common stock issued in connection with the settlement of RSUs, as well as shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock and settlement of RSUs:


	Three Months Ended			Nine Months Ended
	September 30,			September 30,
(In actual number of shares)	2020	2019	2020	2019
Shares issued	10,896	2,045	512,917	306,346
Shares surrendered to AutoNation to satisfy tax withholding obligations	4,288	899	190,888	85,331

Three Months Ended Nine Months Ended
September 30, September 30,
(In actual number of shares) 2019 2018 2019 2018
Shares issued 2,045
—
306,346
122,661
Shares surrendered to AutoNation to satisfy tax withholding obligations 899
—
85,331
55,420

10.CASH FLOW INFORMATION

During the third quarter of 2018, we divested 1 Import store and 1 Premium Luxury store, and recorded a net gain of $18.1 million. During the second quarter of 2018, we divested 1 Domestic store and 2 Import stores, and recognized a net gain of $1.6 million. During the first quarter of 2018, we divested 7 Domestic stores, 2 Import stores, 1 Premium Luxury store, and 1 collision center, and recognized a net gain of $6.5 million. Write-downs associated with certain business divestitures that closed during the first quarter of 2018 were previously recorded during the fourth quarter of 2017.

Gains (losses) on divestitures are included in Other Income, Net (within Operating Income) in our Unaudited Condensed Consolidated Statements of Income. The financial condition and results of operations of these businesses were not material to our consolidated financial statements.

During the nine months ended September 30, 2019, we purchased 1 parts distribution center located in Nevada and 1 parts distribution center located in Utah. Acquisitions are included in the Unaudited Condensed Consolidated Financial Statements from the date of acquisition. The purchase price allocations for these business combinations are preliminary and

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~~AUTONATION, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

subject to final adjustment. During the nine months ended September 30, 2018, we purchased 1 Premium Luxury store located in California, 1 collision center located in Maryland, and 1 collision center located in Texas.

The acquisitions that occurred during the nine months ended September 30, 2019 were not material to our financial condition or results of operations. Additionally, on a pro forma basis as if the results of these acquisitions had been included in our consolidated results for the entire nine month periods ended September 30, 2019 and 2018, revenue and net income would not have been materially different from our reported revenue and net income for these periods.

Cash, Cash Equivalents, and Restricted Cash

The total amounts presented on our statements of cash flows include cash, cash equivalents, and restricted cash. Restricted cash includes certain deferred purchase price commitments related to certain acquisitions. The following table provides a reconciliation of cash and cash equivalents reported on our Unaudited Condensed Consolidated Balance Sheets to the total amounts, which include cash, cash equivalents, and restricted cash, reported on our Unaudited Condensed Consolidated Statements of Cash Flows:

September 30,
2019 December 31,
2018
Cash and cash equivalents $ 45.0
$ 48.6
Restricted cash included in Current Assets 0.5
0.8
Total cash, cash equivalents, and restricted cash $ 45.5
$ 49.4


	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	350.5	$	42.0
Restricted cash included in Current Assets	0.1		0.5
Total cash, cash equivalents, and restricted cash	$	350.6	$	42.5

Non-Cash Investing and Financing Activities

We had accrued purchases of property and equipment of $8.1 million at September 30, 2020, and $25.1 million at September 30, ~~2019,~~2019. We had non-cash investing and ~~$36.9~~financing activities related to increases in property and equipment acquired under financing arrangements of $0.9 million atduring the nine months ended September 30, ~~2018. See Note 7 of~~2020, and $2.8 million during the ~~Notes to Unaudited Condensed Consolidated Financial Statements for supplemental information on lease liabilities arising from obtaining right-of-use assets.~~nine months ended September 30, 2019.


	Nine Months Ended September 30,
	2020		2019
Supplemental noncash information on adjustments to right-of-use assets, including right-of-use assets obtained in exchange for new:
Operating lease liabilities	$	26.4	$	16.0
Finance lease liabilities	$	34.0	$	34.0

Interest and Income Taxes Paid

We made interest payments, net of amounts capitalized and including interest on vehicle inventory financing, of $108.7 million during the nine months ended September 30, 2020, and $185.3 million during the nine months ended September 30, ~~2019, and $179.3 million during the nine months ended September 30, 2018.~~2019. We made income tax payments, net of income tax refunds, of $116.0 million during the nine months ended September 30, 2020, and $103.2 million during the nine months ended September 30, ~~2019, and $182.1 million during the nine months ended September 30, 2018.~~2019.

11.FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision.

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:

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~~AUTONATION, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

The following methods and assumptions were used by us in estimating fair value disclosures for financial instruments:

•Cash and cash equivalents, receivables, other current assets, vehicle floorplan payable, accounts payable, other current liabilities, commercial paper, and variable rate debt: The amounts reported in the accompanying Unaudited Condensed Consolidated Balance Sheets approximate fair value due to their short-term nature or the existence of variable interest rates that approximate prevailing market rates.

•Investment in Security with a Readily Determinable Fair Value: Our minority equity investment in Vroom Inc. has a readily determinable fair value following Vroom’s initial public offering in the second quarter of 2020. As of September 30, 2020, the carrying amount of our Vroom equity investment was $288.5 million. The fair value of this equity investment is based on the quoted price in active markets for the identical asset (Level 1). The equity interest is reported in Other Assets in the accompanying Unaudited Condensed Consolidated Balance Sheets. We recognized an unrealized loss related to this investment of $2.0 million during the three months ended September 30, 2020, and an unrealized gain related to this investment of $212.7 million during the nine months ended September 30, 2020, both of which are reported in Other Non-Operating Income, net in the respective periods in the Unaudited Condensed Consolidated Statements of Operations and in the “Corporate and other” category of our segment information.

•Investments in Security without a Readily Determinable Fair Value: We elected to measure our minority equity investment in Waymo, which does not have a readily determinable fair value, using a measurement alternative as permitted by accounting standards, and we recorded the equity interest at its cost of $50.0 million. The equity interest is reported in Other Assets in the accompanying Unaudited Condensed Consolidated Balance Sheets. We have considered all relevant transactions since the date of our investment through September 30, 2020, and we have not recorded any impairments or upward or downward adjustments to the carrying amount of our investment as of September 30, 2020, as there have not been any indications of impairment or observable price changes in orderly transactions for the identical or a similar investment of the same issuer as of such date.

•Fixed rate long-term debt: Our fixed rate long-term debt primarily consists of amounts outstanding under our senior unsecured notes. We estimate the fair value of our senior unsecured notes using quoted prices for the identical liability (Level 1). A summary of the aggregate carrying values and fair values of our fixed rate long-term debt is as follows:


	September 30, 2020		December 31, 2019
Carrying value	$	2,089.7	$	1,934.1
Fair value	$	2,306.0	$	2,001.8

~~Cash and cash equivalents, receivables, other current assets, vehicle floorplan payable, accounts payable, other current liabilities, commercial paper, and variable rate debt~~: The amounts reported in the accompanying Unaudited Condensed Consolidated Balance Sheets approximate fair value due to their short-term nature or the existence of variable interest rates that approximate prevailing market rates.

September 30,
2019 December 31,
2018
Carrying value $ 1,969.9
$ 1,970.5
Fair value $ 2,027.4
$ 1,908.9

Nonfinancial assets such as goodwill, other intangible assets, long-lived assets held and used, and right-of-use assets are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination. The fair values less costs to sell of long-lived assets held for sale are assessed each reporting period they remain classified as held for sale. Subsequent changes in the held for sale long-lived asset’s fair value less cost to sell (increase or decrease) is reported as an adjustment to its carrying amount, except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset at the time it was initially classified as held for sale.

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The following table presents nonfinancial assets measured and recorded at fair value on a nonrecurring basis during the nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

2019 2018
Description Fair Value
Measurements Using Significant
Unobservable Inputs
(Level 3) Gain/(Loss) Fair Value
Measurements Using Significant
Unobservable Inputs
(Level 3) Gain/(Loss)
Franchise rights and other $ 8.9
$ (9.9 ) $ 31.7
$ (8.1 )
Right-of-use assets $ 0.1
$ (0.2 ) $ —
$ —
Long-lived assets held and used $ —
$ (0.1 ) $ —
$ (1.6 )
Assets held for sale:
Continuing operations $ 26.1
$ (1.6 ) $ 7.4
$ (0.6 )
Discontinued operations 5.4
(0.5 ) —
—
Total assets held for sale $ 31.5
$ (2.1 ) $ 7.4
$ (0.6 )


	2020						2019
Description	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)		Gain/(Loss)		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)		Gain/(Loss)
Goodwill	$	457.5	$	(318.3)	$	0	$	0
Franchise rights and other	$	26.2	$	(59.9)	$	8.9	$	(9.9)

Right-of-use assets	$	5.0	$	(2.0)	$	0.1	$	(0.2)
Long-lived assets held and used	$	1.8	$	(6.9)	$	0	$	(0.1)
Long-lived assets held for sale:
Continuing operations	$	0	$	0	$	26.1	$	(1.6)
Discontinued operations	0		0		5.4		(0.5)
Total assets held for sale	$	0	$	0	$	31.5	$	(2.1)

Goodwill for our reporting units is tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value. ~~Under accounting standards, we chose to make a qualitative evaluation about~~During the ~~likelihood~~first quarter of ~~goodwill impairment~~2020, in light of the uncertainty surrounding the COVID-19 pandemic and the decrease in our market capitalization as of ~~April 30,~~

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~~AUTONATION, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

The quantitative goodwill impairment test requires a determination of whether the fair value of a reporting unit is less than its carrying value. We estimate the fair value of our reporting units using an “income” valuation approach, which discounts projected free cash flows of the reporting unit at a computed weighted average cost of capital as the discount rate. The income valuation approach requires the use of significant estimates and assumptions, which include revenue growth rates and future operating margins used to calculate projected future cash flows, weighted average costs of capital, and future economic and market conditions. In connection with this process, we also reconcile the estimated aggregate fair values of our reporting units to our market capitalization, including consideration of a control premium, based upon our stock price and/or average stock price over a reasonable period as of the measurement date. We base our cash flow forecasts on our knowledge of the automotive industry, our recent performance, our expectations of our future performance, and other assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We also make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting ~~units that are quantitatively tested.~~units.

~~We elected~~For our April 30, 2020 annual impairment test, we chose to ~~perform~~make a qualitative evaluation ~~for all of our reporting units~~ about the likelihood of goodwill impairment, ~~as of April 30, 2018,~~ and we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts.

Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. WeDuring the first quarter of 2020, we concluded that, as a result of the impacts from the COVID-19 pandemic, a triggering event had occurred that indicated the fair values of our franchise rights may have been less than their carrying values as of March 31, 2020. Therefore, we performed quantitative franchise rights impairment tests as of ~~April 30, 2019. As a result of these tests, we recorded non-cash impairment charges of $9.6 million to reduce the carrying values of certain franchise rights to their estimated fair values.~~

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

comparison of the franchise rights’ estimated fair value to carrying value by store. Fair values of rights under franchise agreements are estimated using Level 3 inputs by discounting expected future cash flows of the store. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions related to growth rates, margins, working capital requirements, capital expenditures, and cost of capital, for which we utilize certain market participant-based assumptions, using third-party industry projections, economic projections, and other marketplace data we believe to be reasonable. ~~The development~~

As a result of the ~~assumptions used in~~quantitative impairment tests, we identified 8 stores with franchise rights carrying values that exceeded their estimated fair values, and we recorded non-cash franchise rights impairment charges of $57.5 million during the three months ended March 31, 2020. For our April 30, 2020 annual impairment ~~tests are coordinated by our financial planning and analysis group, and the assumptions are reviewed by management.~~

For our April 30, ~~2018,~~2019 annual impairment test, we elected to perform quantitative franchise rights impairment tests, and we recorded non-cash impairment charges of ~~$8.1~~$9.6 million to reduce the carrying values of certain franchise rights to their estimated fair values.

The non-cash impairment charges recorded during the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, are reflected as Franchise Rights Impairment in the accompanying Unaudited Condensed Consolidated Statements of ~~Income~~Operations and ~~are reported~~ in the “Corporate and other” category of our segment information. ~~NaN franchise rights~~

We also recorded non-cash impairment charges ~~were recorded~~of $2.4 million to reduce the carrying value of certain finite-lived intangible assets to estimated fair value during the ~~three~~nine months ended September 30, ~~2019~~2020, which are included in Other (Income) Expense, Net in our Unaudited Condensed Consolidated Statements of Operations and ~~2018.~~in the “Corporate and other” category of our segment information.

Long-Lived Assets and Right-of-Use Assets

~~The fair~~Fair value ~~measurement valuation process~~measurements for our long-lived assets and right-of-use assets ~~is established by our corporate real estate services group. Fair value measurements, which~~ are based on Level 3 ~~inputs, and changes~~inputs. Changes in fair value measurements are reviewed and assessed each quarter for properties classified as held for sale, or when an indicator of impairment exists for properties classified as held and used or for right-of-use assets, by the corporate real estate services group. Our corporate real estate services group utilizes its knowledge of the automotive industry and historical experience in real estate markets and transactions in establishing theassets. The valuation process ~~which~~ is generally based on a combination of the market and replacement cost approaches.

In a market approach, ~~the corporate real estate services group uses~~we use transaction prices for comparable properties that have recently been sold. These transaction prices are adjusted for factors related to a specific property. ~~The corporate real estate services group also evaluates~~We evaluate changes in local real estate markets, and/or recent market interest or negotiations related to a specific property. In a replacement cost approach, the cost to replace a specific long-lived asset is considered, which is adjusted for depreciation from physical deterioration, as well as functional and economic obsolescence, if present and measurable.

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~~AUTONATION, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

To validate the fair values determined under the valuation process noted above, ~~our corporate real estate services group~~we also ~~obtains~~obtain independent third-party appraisals for our properties and/or third-party brokers’ opinions of value, which are generally developed using the same valuation approaches described above, and ~~evaluates~~we evaluate any recent negotiations or discussions with third-party real estate brokers related to a specific long-lived asset or market.

During the nine months ended September 30, 2020, we recorded non-cash impairment charges of $2.0 million related to our right-of-use assets, of which $1.7 million was recorded during the three months ended September 30, 2020. During the nine months ended September 30, 2019, we recorded non-cash impairment charges of $0.2 million related to our right-of-use assets. We recorded 0 impairment charges related to right-of-use assets during the three months ended September 30, 2019.

During the nine months ended September 30, 2020, we recorded non-cash impairment charges of $6.9 million related to our long-lived assets held and used, of which $1.1 million was recorded during the three months ended September 30, 2020. During the three and nine months ended September 30, 2019, we recorded non-cash impairment charges of $0.1 million related to our long-lived assets held and used.

We recorded 0 impairment charges related to our long-lived assets held for sale during the three and nine months ended September 30, 2020. During the nine months ended September 30, 2019, we recorded non-cash impairment charges of $1.6 million related to our long-lived assets held for sale in continuing operations, of which $0.5 million was recorded during the three months ended September 30, 2019. During the three and nine months ended September 30, 2019, we recorded impairment charges of $0.5 million related to our long-lived assets held for sale in discontinued operations.

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The non-cash impairment charges are included in Other (Income) Expense, Net in our Unaudited Condensed Consolidated Statements of Operations and in the “Corporate and other” category of our segment information.

We had assets held for sale in continuing operations of ~~$114.2~~$21.3 million as of September 30, ~~2019,~~2020, and ~~$67.8~~$40.6 million as of December 31, ~~2018,~~2019, primarily related to property held for sale, as well as inventory, goodwill, ~~franchise rights,~~ and property of disposal groups held for sale. We had assets held for sale in discontinued operations of ~~$13.3~~$8.0 million as of September 30, ~~2019,~~2020, and ~~$14.1~~$8.0 million as of December 31, ~~2018,~~2019, primarily related to property held for sale. Assets held for sale are included in Other Current Assets in our Unaudited Condensed Consolidated Balance Sheets. ~~See Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for information on our right-of-use assets.~~

The non-cash impairment charges recorded during the three and nine months ended September 30, 2019 and 2018, are included in Other Income, Net (within Operating Income) in our Unaudited Condensed Consolidated Statements of Income and are reported in the “Corporate and other” category of our segment information.Quantitative Information about Level 3 Fair Value Measurements


Description	Fair Value at March 31, 2020		Valuation Technique	Unobservable Input	Range (Average)
Franchise rights	$	24.6	Discounted cash flow	Weighted average cost of capital	8.5	%
				Discount rate	11.1% - 14.3% (12.1%)
				Long-term revenue growth rate	2.0	%
				Long-term pretax income margin	0.6% - 2.8% (1.4%)
				Contributory asset charges	4.2% - 12.1% (6.2%)

12.COMMITMENTS AND CONTINGENCIES

We are involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of our business, including litigation with customers, wage and hour and other employment-related lawsuits, and actions brought by governmental authorities. Some of these lawsuits purport or may be determined to be class or collective actions and seek substantial damages or injunctive relief, or both, and some may remain unresolved for several years. We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Our accruals for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. We disclose the amount accrued if material or if such disclosure is necessary for our financial statements to not be misleading. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, we disclose the estimate of the possible loss or range of loss if it is material or a statement that such an estimate cannot be made. Our evaluation of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter.

As of September 30, ~~2019~~2020 and ~~2018,~~2019, we have accrued for the potential impact of loss contingencies that are probable and reasonably estimable, and there was no indication of a reasonable possibility that a material loss, or additional material loss, may have been incurred. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our results of operations, financial condition, or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our results of operations, financial condition, or cash flows.

AutoNation, acting through its subsidiaries, is the lessee under many real estate leases that provide for the use by our subsidiaries of their respective store premises. Pursuant to these leases, our subsidiaries generally agree to indemnify the lessor and other related parties from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities, or a breach of the lease by the lessee. Additionally, from time to time, we enter into agreements with third parties in connection with the sale of assets or businesses in which we agree to indemnify the purchaser or related parties from certain liabilities or costs arising in connection with the assets or business. Also, in the ordinary course of business in connection with purchases or sales of goods and services, we enter into agreements that may contain indemnification provisions. In the event that an indemnification claim is asserted, our liability would be limited by the terms of the applicable agreement.

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

From time to time, primarily in connection with dispositions of automotive stores, our subsidiaries assign or sublet to the store purchaser the subsidiaries’ interests in any real property leases associated with such stores. In general, our subsidiaries retain responsibility for the performance of certain obligations under such leases to the extent that the assignee or sublessee does not perform, whether such performance is required prior to or following the assignment or subletting of the lease. Additionally, AutoNation and its subsidiaries generally remain subject to the terms of any guarantees made by us and our subsidiaries in connection with such leases. Although we generally have indemnification rights against the assignee or sublessee

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~~AUTONATION, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

in the event of non-performance under these leases, as well as certain defenses, we estimate that lessee rental payment obligations during the remaining terms of these leases with expirations ranging from 2022 to 2034 are approximately ~~$15~~$12 million at September 30, ~~2019~~.2020. We do not have any material known commitments that we or our subsidiaries will be called on to perform under any such assigned leases or subleases at September 30, ~~2019~~.2020. There can be no assurance that any performance by AutoNation or its subsidiaries required under these leases would not have a material adverse effect on our business, financial condition, and cash flows.

At September 30, ~~2019~~,2020, surety bonds, letters of credit, and cash deposits totaled ~~$108.4~~$101.9 million,, of which ~~$41.7~~$39.7 million were letters of credit. In the ordinary course of business, we are required to post performance and surety bonds, letters of credit, and/or cash deposits as financial guarantees of our performance. We do not currently provide cash collateral for outstanding letters of credit.

In the ordinary course of business, we are subject to numerous laws and regulations, including automotive, environmental, health and safety, and other laws and regulations. We do not anticipate that the costs of compliance with such laws will have a material adverse effect on our business, results of operations, cash flows, or financial condition, although such outcome is possible given the nature of our operations and the extensive legal and regulatory framework applicable to our business. We do not have any material known environmental commitments or contingencies.

13.BUSINESS AND CREDIT CONCENTRATIONS

We own and operate franchised automotive stores in the United States pursuant to franchise agreements with vehicle manufacturers. During the nine months ended September 30, ~~2019,~~2020, approximately ~~62%~~63% of our total retail new vehicle unit sales was generated by our stores in Florida, Texas, and California. We are subject to a concentration of risk in the event of financial distress of or other adverse event related to a major vehicle manufacturer or related lender or supplier. The core brands of vehicles that we sell, representing approximately ~~92%~~89% of the new vehicles sold during the nine months ended September 30, ~~2019~~,2020, are manufactured by Toyota (including Lexus), Honda, Ford, General Motors, FCA US, Mercedes-Benz, BMW, ~~Nissan,~~ and Volkswagen (including Audi and Porsche). Our business could be materially adversely impacted by a bankruptcy of or other adverse event related to a major vehicle manufacturer or related lender or supplier.

We had receivables from manufacturers or distributors of ~~$203.4~~$181.6 million at September 30, ~~2019~~,2020, and ~~$242.3~~$234.5 million at December 31, ~~2018~~.2019. Additionally, a large portion of our contracts-in-transit included in Receivables, net, in the accompanying Unaudited Condensed Consolidated Balance Sheets, are due from automotive manufacturers’ captive finance subsidiaries, which provide financing directly to our new and used vehicle customers. Concentrations of credit risk with respect to non-manufacturer trade receivables are limited due to the wide variety of customers and markets in which our products are sold as well as their dispersion across many different geographic areas in the United States. Consequently, at September 30, ~~2019~~,2020, we do not consider AutoNation to have any significant non-manufacturer concentrations of credit risk.

14.SEGMENT INFORMATION

At September 30, ~~2019~~2020 and ~~2018~~,2019, we had 3 reportable segments: (1) Domestic, (2) Import, and (3) Premium Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Ford, General Motors, and FCA US. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, Subaru, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Audi, Lexus, and Jaguar Land Rover. The franchises in each segment also sell used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

“Corporate and ~~other~~other” is comprised of our other businesses, including collision centers, auction operations, AutoNation USA ~~stand-alone~~ used vehicle ~~sales and service centers,~~stores, and parts distribution centers, all of which generate revenues but do not meet the quantitative thresholds for determining reportable segments, as well as unallocated corporate overhead expenses and ~~retrospective commissions for certain finance and insurance transactions that we arrange under agreements with third parties.~~other income items.

The reportable segments identified above are the business activities of the Company for which discrete financial information is available and for which operating results are regularly reviewed by our chief operating decision maker to allocate resources and assess performance. Our chief operating decision maker is our Chief Executive Officer.

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~~AUTONATION, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

The following table provides information on revenues from external customers and segment income of our reportable ~~segments.~~segments:

Three Months Ended Three Months Ended
September 30, 2019 September 30, 2018
Domestic Import Premium Luxury Domestic Import Premium Luxury
Revenues from external customers $ 1,728.6
$ 1,722.5
$ 1,820.5
$ 1,789.7
$ 1,770.6
$ 1,668.8
Segment income ⁽¹⁾
$ 70.3
$ 86.9
$ 89.0
$ 67.2
$ 85.3
$ 76.9

Nine Months Ended Nine Months Ended
September 30, 2019 September 30, 2018
Domestic Import Premium Luxury Domestic Import Premium Luxury
Revenues from external customers $ 5,004.7
$ 4,845.9
$ 5,375.5
$ 5,389.5
$ 5,140.2
$ 5,116.8
Segment income ⁽¹⁾
$ 192.4
$ 240.9
$ 268.6
$ 194.6
$ 236.2
$ 249.5

⁽¹⁾ Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.


	Three Months Ended										Three Months Ended
	September 30, 2020										September 30, 2019
	Domestic		Import		Premium Luxury		Domestic		Import		Premium Luxury
Revenues from external customers	$	1,734.5	$	1,621.5	$	1,870.0	$	1,728.6	$	1,722.5	$	1,820.5
Segment income ⁽¹⁾	$	111.9	$	123.5	$	143.9	$	70.3	$	86.9	$	89.0

	Nine Months Ended										Nine Months Ended
	September 30, 2020										September 30, 2019
	Domestic		Import		Premium Luxury		Domestic		Import		Premium Luxury
Revenues from external customers	$	4,704.0	$	4,308.9	$	5,051.6	$	5,004.7	$	4,845.9	$	5,375.5
Segment income ⁽¹⁾	$	248.1	$	277.7	$	313.3	$	192.4	$	240.9	$	268.6

⁽¹⁾ Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.

The following is a reconciliation of total segment income for reportable segments to our consolidated income from continuing operations before income ~~taxes.~~taxes:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Total segment income for reportable segments	$	379.3	$	246.2	$	839.1	$	701.9
Corporate and other	(118.7)		(85.7)		(638.2)		(223.5)
Other interest expense	(23.6)		(26.1)		(70.3)		(81.6)
Interest income	0.1		0.1		0.3		0.4
Other income, net	6.4		2.6		217.9		4.2
Income from continuing operations before income taxes	$	243.5	$	137.1	$	348.8	$	401.4

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Total segment income for reportable segments $ 246.2
$ 229.4
$ 701.9
$ 680.3
Corporate and other (85.7 ) (58.5 ) (223.5 ) (193.1 )
Other interest expense (26.1 ) (28.4 ) (81.6 ) (90.4 )
Interest income 0.1
0.3
0.4
0.8
Other income, net 2.6
2.3
4.2
3.3
Income from continuing operations before income taxes $ 137.1
$ 145.1
$ 401.4
$ 400.9

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

15.EXIT OR DISPOSAL COST OBLIGATIONS

On August 17, 2020, we determined to close our aftermarket collision parts (“ACP”) business by the end of 2020. In connection with the closing of the ACP business, we expect to incur total charges of $43.7 million, including $36.5 million incurred during the three months ended September 30, 2020, as follows:


Cost Associated with Exit Activity	Total Costs Expected to be Incurred		Costs Incurred Three Months Ended September 30, 2020		Statement of Operations Line Item
Inventory valuation adjustment	$	20.6	$	20.6	Parts and service cost of sales
Contract termination charges	7.3		7.3		Other (income) expense, net (operating)
Other associated closing costs	4.5		0		Selling, general, and administrative expenses
Accelerated depreciation	3.9		2.9		Depreciation and amortization
Accelerated amortization	3.2		2.1		Selling, general, and administrative expenses
Asset impairment charges	3.0		2.8		Other (income) expense, net (operating)
Involuntary termination benefits	1.2		0.8		Selling, general, and administrative expenses
	$	43.7	$	36.5

Charges incurred are reflected as part of the “Corporate and other” category of our segment information.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent Annual Report on Form 10-K.

Overview

AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of September 30, ~~2019~~,2020, we owned and operated ~~319~~315 new vehicle franchises from ~~233~~230 stores located in the United States, predominantly in major metropolitan markets in the Sunbelt region. Our stores, which we believe include some of the most recognizable and well known in our key markets, sell 3132 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately ~~92%~~89% of the new vehicles that we sold during the nine months ended September 30, ~~2019~~,2020, are manufactured by Toyota (including Lexus), Honda, Ford, General Motors, FCA US, Mercedes-Benz, BMW, ~~Nissan,~~ and Volkswagen (including Audi and Porsche). As of September 30, ~~2019,~~2020, we also owned and operated 8278 AutoNation-branded collision centers, ~~and together with our vehicle dealerships, our~~5 AutoNation USA used vehicle stores, ~~our~~4 automotive ~~auctions,~~auction operations, and ~~our~~16 parts distribution ~~centers, we owned and operated over 325 locations coast to coast.~~centers.

We offer a diversified range of automotive products and services, including new vehicles, used vehicles, “parts and service,” which includes automotive repair and maintenance services as well as wholesale parts and collision businesses, and automotive “finance and insurance” products, which include vehicle service and other protection products, as well as the arranging of financing for vehicle purchases through third-party finance sources. We believe that the significant scale of our operations and the quality of our managerial talent allow us to achieve efficiencies in our key markets by, among other things, leveraging the AutoNation retail brand and advertising, implementing standardized processes, and increasing productivity across all of our stores.

At September 30, ~~2019~~,2020, we had three reportable segments: (1) Domestic, (2) Import, and (3) Premium Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Ford, General Motors, and FCA US. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, Subaru, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Audi, Lexus, and Jaguar Land Rover. The franchises in each segment also sell used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.

For the nine months ended September 30, ~~2019,~~2020, new vehicle sales accounted for approximately ~~52%~~50% of our total revenue and approximately ~~14%~~15% of our total gross profit. Used vehicle sales accounted for approximately ~~26%~~28% of our total revenue and approximately ~~11%~~14% of our total gross profit. Our parts and service and finance and insurance operations, while comprising approximately 22% of our total revenue for the nine months ended September 30, ~~2019,~~2020, contributed approximately ~~75%~~71% of our total gross profit for the same period.

Market Conditions

In the third quarter of ~~2019,~~2020, U.S. industry retail new vehicle unit sales ~~increased 1%~~decreased 5% as compared to the third quarter of 2018. We currently expect that full-year U.S. industry new vehicle unit sales in 2019 will be approximately 17 million, driven by higher than expected fleet sales and lower than expected interest rates; however, actual sales may materially differ. The rise in consumer borrowing rates over the past two years, combined with rising vehicle prices, has put pressure on industry retail new vehicle unit sales. Based on industry data, vehicle leasing and manufacturer incentives remain at historically elevated levels. To the extent that vehicle manufacturers reduce their support for these programs, U.S. industry and our new vehicle unit retail sales could be adversely impacted. In addition, elevated levels in off-lease late-model used vehicles supply could continue to benefit retail used2019. New vehicle unit volume ~~but adversely impact retail~~has been impacted by reduced availability of inventory due to inventory shortages from manufacturer plant closures resulting from the COVID-19 pandemic. We expect that new vehicle inventory shortages will continue into the first half of 2021. Used vehicle unit volume ~~and pricing.~~

~~On October 25, 2019, the United Auto Workers ended its six-week long strike against General Motors (“GM”) after its membership ratified a new four-year contract with GM. We have 33 GM stores in our portfolio. There were no material impacts to our results~~increased during the third quarter of ~~2019.~~2020 compared to the same period in the prior year as market demand for used vehicles increased due in part to increased affordability compared to new vehicles and decreased availability of new vehicles. The tight supply of new vehicle inventory and increased demand for used vehicles benefited new and used vehicle margins in the third quarter of 2020. While vehicle unit volume and parts and service volume continued to improve during the third quarter of 2020, a potential resurgence of COVID-19 cases in the United States, and particularly in states where we have a significant presence, could lead to additional governmental orders and other market disrupting impacts that could materially adversely impact our business. Additionally, any adverse economic impacts resulting from the COVID-19 pandemic, including any potential economic recessions or downturns, could materially adversely impact our business in future periods.

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Results of Operations

During the three months ended September 30, ~~2019,~~2020, we had net income from continuing operations of ~~$100.0~~$182.6 million ~~or $1.11~~and diluted earnings per share ~~on a diluted basis,~~of $2.05, as compared to net income from continuing operations of ~~$112.3~~$100.0 million ~~or $1.24~~and diluted earnings per share ~~on a diluted basis,~~of $1.11 during the same period in ~~2018~~.

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2019.

~~New vehicle unit volume decreased 6%~~Our total gross profit increased 9.5% during the third quarter of ~~2019, as compared to the third quarter of 2018,~~ ~~as we focused on balancing new vehicle gross profit per vehicle retailed (~~“~~PVR~~”) ~~and unit volume. In addition,~~ ~~SG&A expenses increased as compared to the prior year period primarily due to performance-driven increases in compensation expense, as well as~~ ~~severance and other related expenses of $11.0 million we recognized in connection with the separation of an executive~~ ~~during the third quarter of 2019. The decrease in new vehicle unit volume and increase in SG&A expenses were partially offset by increases in~~ ~~finance and insurance gross profit of 8%~~ ~~and parts and service gross profit of~~ ~~5%, each as~~2020 compared to the third quarter of ~~2018,~~2019, driven primarily by an increase in new vehicle gross profit of 40.6% and an increase in used vehicle gross profit of 59.2%, each as compared to the prior year, which were largely due to increases in gross profit per vehicle retailed (“PVR”) resulting from the tight supply of new vehicle inventory and increased demand for used vehicles, respectively. Increases in gross profit were partially offset by a decrease in new vehicle unit volume of 11.0%, due in part to the tight supply of new vehicle inventory, and a decrease in parts and service gross profit of 8.3%, primarily due an inventory valuation adjustment recorded in connection with the closing of our ~~brand extension strategy.~~ACP business and a decrease in parts and service volume as a result of the COVID-19 pandemic.

We implemented various actions during the year to mitigate the financial impact of the COVID-19 pandemic, including reducing our advertising expenses by approximately 17% through the third quarter of 2020, as compared to the prior year, significantly reducing our discretionary spending, and postponing nearly $90 million of capital expenditures through the third quarter of 2020. We also adjusted our sales model to further focus on digital and store efficiencies, and in June 2020, we restructured our workforce, mostly in our field operations. As a result, SG&A expenses as a percentage of gross profit decreased to 66.0% during the three months ended September 30, 2020, from 73.7% in the same period in 2019. Throughout the remainder of the year, we plan to stay focused on cost control and remain prudent with our capital expenditures.

Net income from continuing operations during the three months ended September 30, ~~2019~~2020, was adversely impacted by $27.7 million of after-tax charges incurred in connection with the closure of our aftermarket collision parts (“ACP”) business and ~~2018,~~an unrealized after-tax loss related to our minority equity investment in Vroom Inc. of $1.5 million due to a change in the fair value of the underlying security. Net income from continuing operations during the three months ended September 30, 2019, was adversely impacted by after-tax severance and other related expenses of $10.2 million in connection with the separation of an executive, and benefited from net after-tax gains ~~of $4.6 million and $13.7 million, respectively,~~ related to store/property ~~divestitures.~~divestitures, net of asset impairments, of $3.9 million.

Exit or Disposal Cost Obligations

On August 17, 2020, we made the decision to close our ACP business, which we expect to be finalized by the end of 2020. The ACP business represented less than 1% of our parts and service gross profit for the nine months ended September 30, 2020. In connection with the closing of the ACP business, we expect to incur total pre-tax charges of $43.7 million, of which $36.5 million was incurred during the three months ended September 30, 2020, with the remainder expected to be incurred primarily in the fourth quarter of 2020. The charges are comprised of inventory valuation adjustments, estimated contract termination charges and other associated closing costs, accelerated depreciation and amortization, asset impairment charges, and involuntary termination benefits. See Note 15 of the Notes to Unaudited Condensed Consolidated Financial Statements for additional information.

Strategic Initiatives

We ~~continue~~plan to ~~build upon~~expand our ~~comprehensive, customer-focused brand extension strategy, which includes~~ AutoNation-branded parts and accessories, AutoNation-branded Customer Financial Services products (including extended service and maintenance contracts and other vehicle protection products), AutoNation-branded collision centers, AutoNation-branded automotive auctions, AutoNation USA ~~stand-alone~~ used vehicle ~~sales~~stores by building approximately 50 additional stores by the end of 2025. We anticipate that our capital investments for these stores will exceed $500 million in the aggregate. The planned roll-out may be impacted by a number of variables, including customer adoption, market conditions, availability of used vehicle inventory, and ~~service centers, and our parts distribution network.~~

~~We continue to evaluate potential strategic investment and partnership opportunities that will further enhance~~ our ability to ~~adapt to changing customer behavior~~identify, acquire, and ~~expectations, such as our existing strategic investment~~build out suitable locations in ~~Vroom and our partnership with Waymo.~~a timely manner.

Inventory Management

Our new and used vehicle inventories are stated at the lower of cost or net realizable value on our consolidated balance sheets. We monitor our vehicle inventory levels based on current economic conditions and seasonal sales trends.

We have typically not experienced significant losses on the sale of new vehicle inventory, in part due to incentives provided by manufacturers to promote sales of new vehicles and our inventory management practices. We monitor our new vehicle inventory values as compared to net realizable values, and as a result, our new vehicle inventory balance was net of cumulative write-downs of ~~$1.0~~$0.2 million at September 30, ~~2019, and $0.5 million~~2020. We had no new vehicle inventory write-downs at December 31, ~~2018.~~2019. We continue to actively manage inventory levels in response to impacts from the COVID-19 pandemic.

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We recondition the majority of used vehicles acquired for retail sale in our parts and service departments and capitalize the related costs to the used vehicle inventory. We monitor our used vehicle inventory values as compared to net realizable values. Typically, used vehicles that are not sold on a retail basis are sold at wholesale auctions. Our used vehicle inventory balance was net of cumulative write-downs of ~~$2.9~~$2.4 million at September 30, ~~2019~~,2020, and ~~$3.2~~$3.2 million at December 31, ~~2018~~.2019.

Parts, accessories, and other inventory are carried at the lower of ~~acquisition~~ cost or net realizable value. We estimate the amount of potentially damaged and/or excess and obsolete inventory based upon historical experience, manufacturer return policies, and industry trends. During the third quarter of 2020, we also recorded an inventory valuation adjustment in connection with the closing of our ACP business. Our parts, accessories, and other inventory balance was net of cumulative write-downs of ~~$10.4~~$35.7 million at September 30, ~~2019~~,2020, and ~~$6.4~~$11.1 million at December 31, ~~2018~~2019.

Critical Accounting Estimates

We prepare our Unaudited Condensed Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles (“GAAP”), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimates on an ongoing basis, and we base our estimates on historical experience and various other assumptions we believe to be reasonable. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our Unaudited Condensed Consolidated Financial Statements. For additional discussion of our critical accounting estimates, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K.

Goodwill

During the first quarter of 2020, in light of the uncertainty surrounding the COVID-19 pandemic and the decrease in our market capitalization as of March 31, 2020, we concluded that a triggering event had occurred potentially indicating that the fair values of our reporting units were less than their carrying values as of March 31, 2020. Therefore, we performed quantitative goodwill impairment tests for each of our reporting units as of March 31, 2020. As ~~permitted within~~a result of these impairment tests, during the ~~accounting standards,~~three months ended March 31, 2020, we recorded non-cash goodwill impairment charges totaling $318.3 million, of which $257.4 million related to our Premium Luxury reporting unit, $41.6 million related to our Collision Centers reporting unit, and $19.3 million related to our Parts Centers reporting unit. The non-cash impairment charges are reflected as Goodwill Impairment in the accompanying Unaudited Condensed Consolidated Statements of Operations. The quantitative goodwill impairment test is dependent on many variables used to determine the fair value of our reporting units. See Note 11 of the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on how the fair values and carrying values of our reporting units are derived for the quantitative goodwill impairment test. This process also requires that we reconcile the estimated aggregate fair values of our reporting units to our market capitalization, including consideration of a control premium, based upon our stock price and/or average stock price over a reasonable period as of the measurement date.

As a result of the quantitative goodwill impairment tests, the fair values of our Domestic and Import reporting units substantially exceeded their carrying values, goodwill associated with our Premium Luxury reporting unit was partially impaired, and goodwill associated with our Collision Centers and Parts Centers reporting units was fully impaired. Therefore, the most significant impact of a change in the assumptions used in determining our goodwill impairment as of March 31, 2020, was related to our Premium Luxury reporting unit. As noted above, the goodwill impairment testing process requires the estimated aggregate fair values of our reporting units to be reconciled with our market capitalization, including consideration of a control premium, based upon our stock price and/or average stock price over a reasonable period as of the measurement date. The COVID-19 pandemic had a significant adverse impact on the U.S. stock market during the first quarter of 2020, and our closing stock price declined significantly as of March 31, 2020. As a result, as of March 31, 2020, our market capitalization and, therefore, the estimated fair values of our reporting units, significantly decreased. As a measure of sensitivity, a 50 basis point increase in the discount rate would have resulted in an increase to the goodwill impairment charge of approximately $100 million. This result and discussion is not intended to address all potential outcomes that could have resulted if different assumptions had been used in determining our goodwill impairment given the number of assumptions used in determining the impairment and the degree of sensitivity to changes in such assumptions in the determination of the fair value of the Company and its assets and liabilities. We would have been in compliance with the financial covenants in our debt agreements even if we had impaired all of the goodwill associated with all of our reporting units as such charges do not factor into the calculations for those covenants.

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For our April 30, 2020 annual impairment test, we chose to make a qualitative evaluation about the likelihood of goodwill impairment, ~~as of April 30, 2019, for our Domestic, Import, and Premium Luxury reporting units,~~ and we determined that it was not more likely than not that the fair values of ~~these~~our reporting units were less than their carrying amounts. ~~We elected to~~

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~~perform a quantitative goodwill impairment test for our Collision Center and Parts Center reporting units as of April 30, 2019, and no impairment charges resulted from the impairment test.~~

As of September 30, ~~2019,~~2020, we have ~~$227.1~~$227.2 million of goodwill related to the Domestic reporting unit, ~~$495.7~~$502.1 million related to the Import reporting unit, ~~$715.0~~and $457.2 million related to the Premium Luxury ~~reporting unit, $41.7 million related to the Collision Center reporting unit, and $19.1 million related to the Parts Center~~ reporting unit.

Other Intangible Assets

~~Our~~ During the first quarter of 2020, we concluded that, as a result of the impacts from the COVID-19 pandemic, a triggering event had occurred that indicated the fair values of our franchise rights ~~which related to 66 stores and totaled $580.1 million at April 30, 2019, are evaluated for impairment on a franchise-by-franchise basis annually.~~may have been less than their carrying values as of March 31, 2020. We performed quantitative ~~franchise rights~~ impairment tests as of ~~April 30, 2019. As~~March 31, 2020, and as a result, ~~of the quantitative tests,~~ we identified ~~six~~eight stores with franchise rights carrying values that exceeded their estimated fair values, and we recorded non-cash franchise rights impairment charges of ~~$9.6 million.~~$57.5 million during the first quarter of 2020. The non-cash impairment charges are reflected as Franchise Rights Impairment in the accompanying Unaudited Condensed Consolidated Statements of Operations.

For our April 30, 2020 annual impairment test, we elected to perform quantitative franchise rights impairment tests, and no additional impairment charges resulted from these quantitative tests. We identified ~~10 additional~~seven stores that, while they each had franchise rights fair value in excess of or equal to carrying value, had lower relative performance compared to our total store population. We will continue to monitor these 10 stores, as well as all stores, for events or changes in circumstances that may indicate potential impairment. The remainder of our stores had franchise rights with calculated fair values that substantially exceeded their carrying values. As of September 30, 2020, we had 56 stores with franchise rights totaling $509.0 million.

The quantitative franchise rights impairment test is dependent on many variables used to determine the fair value of each store’s franchise rights. See Note 1411 of the Notes to Unaudited Condensed Consolidated Financial Statements for a description of the valuation method and related estimates and assumptions used in our quantitative impairment testing. ~~Based on~~If the fair value of each of our franchise rights had been determined to be a hypothetical 10% lower as of the valuation date of April 30, 2020, the resulting incremental charge would have been less than $1 million. The effect of a hypothetical 10% decrease in fair value estimates is not intended to provide a sensitivity analysis of ~~these estimates and assumptions, which is not intended to consider~~ every potential ~~outcome,~~outcome.

Impact of the ~~hypothetical~~COVID-19 Pandemic on Goodwill and Other Intangible Assets

Although economic conditions have improved during the third quarter of 2020, we cannot predict the duration or scope of the COVID-19 pandemic. Negative financial impacts on our financial results and performance could be material in future periods. A change in the conditions, circumstances, or strategy, which influence determinations of fair value, including negative or declining cash flows or a decline in actual or planned revenues for our stores for a prolonged period, and, as it relates to goodwill, a significant decrease in our market capitalization, may result in a need to recognize additional ~~aggregate pre-tax non-cash~~goodwill and/or franchise rights impairment ~~charge would have been between $1 million and $3 million.~~

charges in the future.

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Reported Operating Data

Historical operating results include the results of acquired businesses from the date of acquisition.

($ in millions, except per vehicle data) Three Months Ended September 30, Nine Months Ended September 30,
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
Revenue:
New vehicle $ 2,874.8
$ 2,933.1
$ (58.3 ) (2.0 ) $ 8,141.1
$ 8,685.0
$ (543.9 ) (6.3 )
Retail used vehicle 1,326.5
1,211.6
114.9
9.5
3,895.5
3,666.1
229.4
6.3
Wholesale 76.4
70.1
6.3
9.0
226.4
244.8
(18.4 ) (7.5 )
Used vehicle 1,402.9
1,281.7
121.2
9.5
4,121.9
3,910.9
211.0
5.4
Finance and insurance, net 266.2
247.4
18.8
7.6
757.9
736.0
21.9
3.0
Total variable operations⁽¹⁾
4,543.9
4,462.2
81.7
1.8
13,020.9
13,331.9
(311.0 ) (2.3 )
Parts and service 902.6
864.0
38.6
4.5
2,680.8
2,579.6
101.2
3.9
Other 14.7
23.0
(8.3 ) 85.1
89.6
(4.5 )
Total revenue $ 5,461.2
$ 5,349.2
$ 112.0
2.1
$ 15,786.8
$ 16,001.1
$ (214.3 ) (1.3 )
Gross profit:
New vehicle $ 118.9
$ 125.4
$ (6.5 ) (5.2 ) $ 366.3
$ 379.9
$ (13.6 ) (3.6 )
Retail used vehicle 87.6
87.4
0.2
0.2
262.4
256.4
6.0
2.3
Wholesale 4.7
3.6
1.1
17.2
11.6
5.6

Used vehicle 92.3
91.0
1.3
1.4
279.6
268.0
11.6
4.3
Finance and insurance 266.2
247.4
18.8
7.6
757.9
736.0
21.9
3.0
Total variable operations⁽¹⁾
477.4
463.8
13.6
2.9
1,403.8
1,383.9
19.9
1.4
Parts and service 409.0
390.6
18.4
4.7
1,219.8
1,163.4
56.4
4.8
Other 1.0
0.9
0.1
3.8
2.1
1.7

Total gross profit 887.4
855.3
32.1
3.8
2,627.4
2,549.4
78.0
3.1
Selling, general, and administrative expenses 653.8
626.2
(27.6 ) (4.4 ) 1,913.8
1,878.3
(35.5 ) (1.9 )
Depreciation and amortization 45.2
42.9
(2.3 ) 133.7
124.0
(9.7 )
Franchise rights impairment —
—
—
9.6
8.1
(1.5 )
Other income, net (5.1 ) (17.4 ) (12.3 ) (17.5 ) (41.6 ) (24.1 )
Operating income 193.5
203.6
(10.1 ) (5.0 ) 587.8
580.6
7.2
1.2
Non-operating income (expense) items:
Floorplan interest expense (33.0 ) (32.7 ) (0.3 ) (109.4 ) (93.4 ) (16.0 )
Other interest expense (26.1 ) (28.4 ) 2.3
(81.6 ) (90.4 ) 8.8

Interest income 0.1
0.3
(0.2 ) 0.4
0.8
(0.4 )
Other income, net 2.6
2.3
0.3
4.2
3.3
0.9

Income from continuing operations before income taxes $ 137.1
$ 145.1
$ (8.0 ) (5.5 ) $ 401.4
$ 400.9
$ 0.5
0.1
Retail vehicle unit sales:
New vehicle 74,190
79,237
(5,047 ) (6.4 ) 208,219
232,469
(24,250 ) (10.4 )
Used vehicle 63,581
60,446
3,135
5.2
187,091
182,737
4,354
2.4
137,771
139,683
(1,912 ) (1.4 ) 395,310
415,206
(19,896 ) (4.8 )
Revenue per vehicle retailed:
New vehicle $ 38,749
$ 37,017
$ 1,732
4.7
$ 39,099
$ 37,360
$ 1,739
4.7
Used vehicle $ 20,863
$ 20,044
$ 819
4.1
$ 20,821
$ 20,062
$ 759
3.8
Gross profit per vehicle retailed:
New vehicle $ 1,603
$ 1,583
$ 20
1.3
$ 1,759
$ 1,634
$ 125
7.6
Used vehicle $ 1,378
$ 1,446
$ (68 ) (4.7 ) $ 1,403
$ 1,403
$ —
—
Finance and insurance $ 1,932
$ 1,771
$ 161
9.1
$ 1,917
$ 1,773
$ 144
8.1
Total variable operations⁽²⁾
$ 3,431
$ 3,295
$ 136
4.1
$ 3,508
$ 3,305
$ 203
6.1

⁽¹⁾Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results.
⁽²⁾Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and finance and insurance gross profit by total retail vehicle unit sales.


($ in millions, except per vehicle data)	Three Months Ended September 30,																				Nine Months Ended September 30,
			2020			2019			Variance Favorable / (Unfavorable)		% Variance			2020			2019			Variance Favorable / (Unfavorable)		% Variance
Revenue:
New vehicle	$	2,748.4		$	2,874.8		$	(126.4)		(4.4)		$	7,291.6		$	8,141.1		$	(849.5)		(10.4)
Retail used vehicle	1,421.0			1,326.5			94.5			7.1		3,845.5			3,895.5			(50.0)			(1.3)
Wholesale	95.9			76.4			19.5			25.5		244.6			226.4			18.2			8.0
Used vehicle	1,516.9			1,402.9			114.0			8.1		4,090.1			4,121.9			(31.8)			(0.8)
Finance and insurance, net	281.2			266.2			15.0			5.6		763.4			757.9			5.5			0.7
Total variable operations⁽¹⁾	4,546.5			4,543.9			2.6			0.1		12,145.1			13,020.9			(875.8)			(6.7)
Parts and service	852.8			902.6			(49.8)			(5.5)		2,419.0			2,680.8			(261.8)			(9.8)
Other	5.6			14.7			(9.1)					40.8			85.1			(44.3)
Total revenue	$	5,404.9		$	5,461.2		$	(56.3)		(1.0)		$	14,604.9		$	15,786.8		$	(1,181.9)		(7.5)
Gross profit:
New vehicle	$	167.2		$	118.9		$	48.3		40.6		$	383.2		$	366.3		$	16.9		4.6
Retail used vehicle	128.8			87.6			41.2			47.0		318.1			262.4			55.7			21.2
Wholesale	18.1			4.7			13.4					36.8			17.2			19.6
Used vehicle	146.9			92.3			54.6			59.2		354.9			279.6			75.3			26.9
Finance and insurance	281.2			266.2			15.0			5.6		763.4			757.9			5.5			0.7
Total variable operations⁽¹⁾	595.3			477.4			117.9			24.7		1,501.5			1,403.8			97.7			7.0
Parts and service	375.2			409.0			(33.8)			(8.3)		1,075.4			1,219.8			(144.4)			(11.8)
Other	1.0			1.0			—					2.8			3.8			(1.0)
Total gross profit	971.5			887.4			84.1			9.5		2,579.7			2,627.4			(47.7)			(1.8)
Selling, general, and administrative expenses	641.4			653.8			12.4			1.9		1,790.0			1,913.8			123.8			6.5
Depreciation and amortization	51.8			45.2			(6.6)					149.0			133.7			(15.3)
Goodwill impairment	—			—			—					318.3			—			(318.3)
Franchise rights impairment	—			—			—					57.5			9.6			(47.9)
Other (income) expense, net	6.6			(5.1)			(11.7)					11.1			(17.5)			(28.6)
Operating income	271.7			193.5			78.2			40.4		253.8			587.8			(334.0)			(56.8)
Non-operating income (expense) items:
Floorplan interest expense	(11.1)			(33.0)			21.9					(52.9)			(109.4)			56.5
Other interest expense	(23.6)			(26.1)			2.5					(70.3)			(81.6)			11.3
Interest income	0.1			0.1			—					0.3			0.4			(0.1)
Other income, net	6.4			2.6			3.8					217.9			4.2			213.7
Income from continuing operations before income taxes	$	243.5		$	137.1		$	106.4		77.6		$	348.8		$	401.4		$	(52.6)		(13.1)
Retail vehicle unit sales:
New vehicle	65,998			74,190			(8,192)			(11.0)		177,250			208,219			(30,969)			(14.9)
Used vehicle	64,587			63,581			1,006			1.6		179,656			187,091			(7,435)			(4.0)
	130,585			137,771			(7,186)			(5.2)		356,906			395,310			(38,404)			(9.7)
Revenue per vehicle retailed:
New vehicle	$	41,644		$	38,749		$	2,895		7.5		$	41,137		$	39,099		$	2,038		5.2
Used vehicle	$	22,001		$	20,863		$	1,138		5.5		$	21,405		$	20,821		$	584		2.8
Gross profit per vehicle retailed:
New vehicle	$	2,533		$	1,603		$	930		58.0		$	2,162		$	1,759		$	403		22.9
Used vehicle	$	1,994		$	1,378		$	616		44.7		$	1,771		$	1,403		$	368		26.2
Finance and insurance	$	2,153		$	1,932		$	221		11.4		$	2,139		$	1,917		$	222		11.6
Total variable operations⁽²⁾	$	4,420		$	3,431		$	989		28.8		$	4,104		$	3,508		$	596		17.0

⁽¹⁾Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results.
⁽²⁾Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and finance and insurance gross profit by total retail vehicle unit sales.

Table of Contents


	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2020 (%)	2019 (%)	2020 (%)	2019 (%)
Revenue mix percentages:
New vehicle	50.9	52.6	49.9	51.6
Used vehicle	28.1	25.7	28.0	26.1
Parts and service	15.8	16.5	16.6	17.0
Finance and insurance, net	5.2	4.9	5.2	4.8
Other	—	0.3	0.3	0.5
Total	100.0	100.0	100.0	100.0
Gross profit mix percentages:
New vehicle	17.2	13.4	14.9	13.9
Used vehicle	15.1	10.4	13.8	10.6
Parts and service	38.6	46.1	41.7	46.4
Finance and insurance	28.9	30.0	29.6	28.8
Other	0.2	0.1	—	0.3
Total	100.0	100.0	100.0	100.0
Operating items as a percentage of revenue:
Gross profit:
New vehicle	6.1	4.1	5.3	4.5
Used vehicle - retail	9.1	6.6	8.3	6.7
Parts and service	44.0	45.3	44.5	45.5
Total	18.0	16.2	17.7	16.6
Selling, general, and administrative expenses	11.9	12.0	12.3	12.1
Operating income	5.0	3.5	1.7	3.7
Other operating items as a percentage of total gross profit:
Selling, general, and administrative expenses	66.0	73.7	69.4	72.8
Operating income	28.0	21.8	9.8	22.4

	September 30,
	2020	2019
Inventory days supply:
New vehicle (industry standard of selling days)	43 days	55 days
Used vehicle (trailing calendar month days)	39 days	37 days

Three Months Ended Nine Months Ended
September 30, September 30,
2019 (%) 2018 (%) 2019 (%) 2018 (%)
Revenue mix percentages:
New vehicle 52.6 54.8 51.6 54.3
Used vehicle 25.7 24.0 26.1 24.4
Parts and service 16.5 16.2 17.0 16.1
Finance and insurance, net 4.9 4.6 4.8 4.6
Other 0.3 0.4 0.5 0.6
Total 100.0 100.0 100.0 100.0
Gross profit mix percentages:
New vehicle 13.4 14.7 13.9 14.9
Used vehicle 10.4 10.6 10.6 10.5
Parts and service 46.1 45.7 46.4 45.6
Finance and insurance 30.0 28.9 28.8 28.9
Other 0.1 0.1 0.3 0.1
Total 100.0 100.0 100.0 100.0
Operating items as a percentage of revenue:
Gross profit:
New vehicle 4.1 4.3 4.5 4.4
Used vehicle - retail 6.6 7.2 6.7 7.0
Parts and service 45.3 45.2 45.5 45.1
Total 16.2 16.0 16.6 15.9
Selling, general, and administrative expenses 12.0 11.7 12.1 11.7
Operating income 3.5 3.8 3.7 3.6
Other operating items as a percentage of total gross profit:
Selling, general, and administrative expenses 73.7 73.2 72.8 73.7
Operating income 21.8 23.8 22.4 22.8

September 30,
2019 2018
Inventory days supply:
New vehicle (industry standard of selling days) 55 days 63 days
Used vehicle (trailing calendar month days) 37 days 37 days

Table of Contents

Same Store Operating Data

We have presented below our operating results on a same store basis, which reflect the results of our stores for the identical months in each period presented in the comparison, commencing with the first full month in which the store was owned by us. Results from divested stores are excluded from both current and prior periods. Therefore, the amounts presented in the ~~2018~~2019 columns may differ from the same store amounts presented for ~~2018~~2019 in the prior year.

We believe the presentation of this information provides a meaningful comparison of period-over-period results of our operations.

Three Months Ended September 30, Nine Months Ended September 30,
($ in millions, except per vehicle data) 2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
Revenue:
New vehicle $ 2,836.3
$ 2,855.3
$ (19.0 ) (0.7 ) $ 7,965.6
$ 8,431.6
$ (466.0 ) (5.5 )
Retail used vehicle 1,308.1
1,179.0
129.1
10.9
3,806.9
3,556.2
250.7
7.0
Wholesale 75.5
68.7
6.8
9.9
221.7
238.7
(17.0 ) (7.1 )
Used vehicle 1,383.6
1,247.7
135.9
10.9
4,028.6
3,794.9
233.7
6.2
Finance and insurance, net 263.6
242.0
21.6
8.9
746.4
718.3
28.1
3.9
Total variable operations⁽¹⁾
4,483.5
4,345.0
138.5
3.2
12,740.6
12,944.8
(204.2 ) (1.6 )
Parts and service 889.0
840.7
48.3
5.7
2,612.7
2,501.2
111.5
4.5
Other 14.6
22.8
(8.2 ) 83.0
89.5
(6.5 )
Total revenue $ 5,387.1
$ 5,208.5
$ 178.6
3.4
$ 15,436.3
$ 15,535.5
$ (99.2 ) (0.6 )
Gross profit:
New vehicle $ 117.7
$ 122.7
$ (5.0 ) (4.1 ) $ 359.8
$ 374.5
$ (14.7 ) (3.9 )
Retail used vehicle 87.2
85.8
1.4
1.6
258.7
251.4
7.3
2.9
Wholesale 4.8
3.6
1.2
16.7
11.9
4.8

Used vehicle 92.0
89.4
2.6
2.9
275.4
263.3
12.1
4.6
Finance and insurance 263.6
242.0
21.6
8.9
746.4
718.3
28.1
3.9
Total variable operations⁽¹⁾
473.3
454.1
19.2
4.2
1,381.6
1,356.1
25.5
1.9
Parts and service 402.8
380.3
22.5
5.9
1,189.3
1,128.1
61.2
5.4
Other 1.0
0.7
0.3
3.8
2.3
1.5

Total gross profit $ 877.1
$ 835.1
$ 42.0
5.0
$ 2,574.7
$ 2,486.5
$ 88.2
3.5
Retail vehicle unit sales:
New vehicle 73,271
76,818
(3,547 ) (4.6 ) 204,022
224,656
(20,634 ) (9.2 )
Used vehicle 62,708
58,440
4,268
7.3
182,616
176,054
6,562
3.7
135,979
135,258
721
0.5
386,638
400,710
(14,072 ) (3.5 )
Revenue per vehicle retailed:
New vehicle $ 38,710
$ 37,170
$ 1,540
4.1
$ 39,043
$ 37,531
$ 1,512
4.0
Used vehicle $ 20,860
$ 20,175
$ 685
3.4
$ 20,846
$ 20,199
$ 647
3.2
Gross profit per vehicle retailed:
New vehicle $ 1,606
$ 1,597
$ 9
0.6
$ 1,764
$ 1,667
$ 97
5.8
Used vehicle $ 1,391
$ 1,468
$ (77 ) (5.2 ) $ 1,417
$ 1,428
$ (11 ) (0.8 )
Finance and insurance $ 1,939
$ 1,789
$ 150
8.4
$ 1,930
$ 1,793
$ 137
7.6
Total variable operations⁽²⁾
$ 3,445
$ 3,331
$ 114
3.4
$ 3,530
$ 3,355
$ 175
5.2

⁽¹⁾Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results.
⁽²⁾Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and finance and insurance gross profit by total retail vehicle unit sales.


	Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions, except per vehicle data)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Revenue:
New vehicle	$	2,748.4	$	2,846.7	$	(98.3)	(3.5)	$	7,287.3	$	8,030.1	$	(742.8)	(9.3)
Retail used vehicle	1,421.0		1,312.7		108.3		8.3	3,842.6		3,836.1		6.5		0.2
Wholesale	95.9		75.3		20.6		27.4	244.4		223.1		21.3		9.5
Used vehicle	1,516.9		1,388.0		128.9		9.3	4,087.0		4,059.2		27.8		0.7
Finance and insurance, net	281.3		263.8		17.5		6.6	763.2		748.4		14.8		2.0
Total variable operations⁽¹⁾	4,546.6		4,498.5		48.1		1.1	12,137.5		12,837.7		(700.2)		(5.5)
Parts and service	852.8		885.5		(32.7)		(3.7)	2,408.4		2,619.9		(211.5)		(8.1)
Other	5.5		14.6		(9.1)			40.6		84.9		(44.3)
Total revenue	$	5,404.9	$	5,398.6	$	6.3	0.1	$	14,586.5	$	15,542.5	$	(956.0)	(6.2)
Gross profit:
New vehicle	$	167.3	$	118.7	$	48.6	40.9	$	382.9	$	364.6	$	18.3	5.0
Retail used vehicle	128.8		87.3		41.5		47.5	318.4		260.0		58.4		22.5
Wholesale	18.1		4.9		13.2			36.8		17.6		19.2
Used vehicle	146.9		92.2		54.7		59.3	355.2		277.6		77.6		28.0
Finance and insurance	281.3		263.8		17.5		6.6	763.2		748.4		14.8		2.0
Total variable operations⁽¹⁾	595.5		474.7		120.8		25.4	1,501.3		1,390.6		110.7		8.0
Parts and service	375.6		403.1		(27.5)		(6.8)	1,074.7		1,196.9		(122.2)		(10.2)
Other	0.8		1.1		(0.3)			2.4		3.9		(1.5)
Total gross profit	$	971.9	$	878.9	$	93.0	10.6	$	2,578.4	$	2,591.4	$	(13.0)	(0.5)
Retail vehicle unit sales:
New vehicle	65,998		73,225		(7,227)		(9.9)	177,191		204,590		(27,399)		(13.4)
Used vehicle	64,587		62,706		1,881		3.0	179,522		183,404		(3,882)		(2.1)
	130,585		135,931		(5,346)		(3.9)	356,713		387,994		(31,281)		(8.1)
Revenue per vehicle retailed:
New vehicle	$	41,644	$	38,876	$	2,768	7.1	$	41,127	$	39,250	$	1,877	4.8
Used vehicle	$	22,001	$	20,934	$	1,067	5.1	$	21,405	$	20,916	$	489	2.3
Gross profit per vehicle retailed:
New vehicle	$	2,535	$	1,621	$	914	56.4	$	2,161	$	1,782	$	379	21.3
Used vehicle	$	1,994	$	1,392	$	602	43.2	$	1,774	$	1,418	$	356	25.1
Finance and insurance	$	2,154	$	1,941	$	213	11.0	$	2,140	$	1,929	$	211	10.9
Total variable operations⁽²⁾	$	4,422	$	3,456	$	966	28.0	$	4,106	$	3,539	$	567	16.0

⁽¹⁾Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results.
⁽²⁾Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and finance and insurance gross profit by total retail vehicle unit sales.

Table of Contents


	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2020 (%)	2019 (%)	2020 (%)	2019 (%)
Revenue mix percentages:
New vehicle	50.9	52.7	50.0	51.7
Used vehicle	28.1	25.7	28.0	26.1
Parts and service	15.8	16.4	16.5	16.9
Finance and insurance, net	5.2	4.9	5.2	4.8
Other	—	0.3	0.3	0.5
Total	100.0	100.0	100.0	100.0
Gross profit mix percentages:
New vehicle	17.2	13.5	14.9	14.1
Used vehicle	15.1	10.5	13.8	10.7
Parts and service	38.6	45.9	41.7	46.2
Finance and insurance	28.9	30.0	29.6	28.9
Other	0.2	0.1	—	0.1
Total	100.0	100.0	100.0	100.0
Operating items as a percentage of revenue:
Gross profit:
New vehicle	6.1	4.2	5.3	4.5
Used vehicle - retail	9.1	6.7	8.3	6.8
Parts and service	44.0	45.5	44.6	45.7
Total	18.0	16.3	17.7	16.7

Table of Contents

New Vehicle


	Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions, except per vehicle data)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Reported:
Revenue	$	2,748.4	$	2,874.8	$	(126.4)	(4.4)	$	7,291.6	$	8,141.1	$	(849.5)	(10.4)
Gross profit	$	167.2	$	118.9	$	48.3	40.6	$	383.2	$	366.3	$	16.9	4.6
Retail vehicle unit sales	65,998		74,190		(8,192)		(11.0)	177,250		208,219		(30,969)		(14.9)
Revenue per vehicle retailed	$	41,644	$	38,749	$	2,895	7.5	$	41,137	$	39,099	$	2,038	5.2
Gross profit per vehicle retailed	$	2,533	$	1,603	$	930	58.0	$	2,162	$	1,759	$	403	22.9
Gross profit as a percentage of revenue	6.1%		4.1%					5.3%		4.5%
Inventory days supply (industry standard of selling days)	43 days		55 days

	Three Months Ended September 30,													Nine Months Ended September 30,
	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Same Store:
Revenue	$	2,748.4	$	2,846.7	$	(98.3)	(3.5)	$	7,287.3	$	8,030.1	$	(742.8)	(9.3)
Gross profit	$	167.3	$	118.7	$	48.6	40.9	$	382.9	$	364.6	$	18.3	5.0
Retail vehicle unit sales	65,998		73,225		(7,227)		(9.9)	177,191		204,590		(27,399)		(13.4)
Revenue per vehicle retailed	$	41,644	$	38,876	$	2,768	7.1	$	41,127	$	39,250	$	1,877	4.8
Gross profit per vehicle retailed	$	2,535	$	1,621	$	914	56.4	$	2,161	$	1,782	$	379	21.3
Gross profit as a percentage of revenue	6.1%		4.2%					5.3%		4.5%

Three Months Ended September 30, Nine Months Ended September 30,
($ in millions, except per vehicle data) 2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
Reported:
Revenue $ 2,874.8
$ 2,933.1
$ (58.3 ) (2.0 ) $ 8,141.1
$ 8,685.0
$ (543.9 ) (6.3 )
Gross profit $ 118.9
$ 125.4
$ (6.5 ) (5.2 ) $ 366.3
$ 379.9
$ (13.6 ) (3.6 )
Retail vehicle unit sales 74,190
79,237
(5,047 ) (6.4 ) 208,219
232,469
(24,250 ) (10.4 )
Revenue per vehicle retailed $ 38,749
$ 37,017
$ 1,732
4.7
$ 39,099
$ 37,360
$ 1,739
4.7
Gross profit per vehicle retailed $ 1,603
$ 1,583
$ 20
1.3
$ 1,759
$ 1,634
$ 125
7.6
Gross profit as a percentage of revenue 4.1 % 4.3 % 4.5 % 4.4 %
Inventory days supply (industry standard of selling days) 55 days
63 days

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
Same Store:
Revenue $ 2,836.3
$ 2,855.3
$ (19.0 ) (0.7 ) $ 7,965.6
$ 8,431.6
$ (466.0 ) (5.5 )
Gross profit $ 117.7
$ 122.7
$ (5.0 ) (4.1 ) $ 359.8
$ 374.5
$ (14.7 ) (3.9 )
Retail vehicle unit sales 73,271
76,818
(3,547 ) (4.6 ) 204,022
224,656
(20,634 ) (9.2 )
Revenue per vehicle retailed $ 38,710
$ 37,170
$ 1,540
4.1
$ 39,043
$ 37,531
$ 1,512
4.0
Gross profit per vehicle retailed $ 1,606
$ 1,597
$ 9
0.6
$ 1,764
$ 1,667
$ 97
5.8
Gross profit as a percentage of revenue 4.1 % 4.3 % 4.5 % 4.4 %

The following discussion of new vehicle results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of ~~$38.5 million and $77.8~~$4.3 million in new vehicle revenue and ~~$1.2~~$0.3 million in new vehicle gross profit for the nine months ended September 30, 2020, is related primarily to the opening of a new add-point in February 2019. The difference between reported amounts and ~~$2.7~~same store amounts in the above tables of $0.1 million in new vehicle gross profit for the three months ended September 30, ~~2019~~2020, and ~~2018, respectively, and $175.5~~$28.1 million and ~~$253.4~~$111.0 million in new vehicle revenue and ~~$6.5~~$0.2 million and ~~$5.4~~$1.7 million in new vehicle gross profit for the three and nine months ended September 30, 2019, ~~and 2018,~~ respectively, is related to ~~acquisition and~~ divestiture ~~activity, as well as new add-point openings.~~activity.

Third Quarter ~~2019~~2020 compared to Third Quarter ~~2018~~2019

Same store new vehicle revenue decreased during the three months ended September 30, ~~2019~~,2020, as compared to the same period in ~~2018~~,2019, due to a decrease in same store unit volume, partially offset by an increase in same store revenue PVR. The decrease in same store unit volume ~~was~~is primarily due ~~in part~~ to ~~declines in our Domestic and Import segments as we continued~~reduced availability of inventory due to ~~focus on balancing gross profit PVRs and unit volume. In addition, same~~inventory shortages from manufacturer plant closures resulting from the COVID-19 pandemic. Same store unit volume was also adversely impacted by ~~competitive market conditions including higher relative consumer borrowing rates, rising~~a shift in mix to used vehicles. Our used-to-new vehicle ~~prices, and historically elevated~~unit sales ratio increased to 97.9% for the three months ended September 30, 2020, as compared to 85.6% for the prior year period. New vehicle unit volumes improved over the course of the third quarter of 2020, but overall continued to run below prior year levels ~~in off-lease supply of late-model used vehicles.~~through September 30, 2020.

Same store revenue PVR increased during the three months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018~~,2019, due in part to reduced availability of inventory and a continued shift in mix toward ~~Premium Luxury vehicles,~~ trucks and sport utility vehicles, ~~all of~~ which have relatively higher average selling prices. The shift in mix toward trucks and sports utility vehicles is due to a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference. ~~Average~~Same store revenue PVR also benefited from a shift in mix away from Import vehicles, which have relatively lower average selling ~~prices also increased as a result of increases in the manufacturers’ suggested retail~~ prices.

Same store gross profit PVR increased ~~slightly~~ during the three months ended September 30, ~~2019~~,2020, as compared to the same period in ~~2018~~,2019, primarily as we focused on balancing gross profit PVRs and unit volume. Additionally, gross profit PVR benefited from several recent product refreshes and new product offerings by Premium Luxury manufacturers. The increases were partially offset by decreasesa result of the tighter supply in gross profit PVRs for Domestic and Import vehicles due to the competitive market conditions discussed above. Additionally, the prior year benefited from the recognition of certain performance-based manufacturer payments related to Import vehicles previously sold, which favorably impacted same store new vehicle ~~gross profit by $3.5 million. We recognized these manufacturer payments during the third quarter of 2018 due to our achievement of certain manufacturer program objectives.~~ inventory.

~~Table of Contents~~

First Nine Months ~~2019~~2020 compared to First Nine Months ~~2018~~2019

Same store new vehicle revenue decreased during the nine months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018~~,2019, due to a decrease in same store unit volume, partially offset by an increase in same store revenue PVR. The

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decrease in same store unit volume was primarily due to significant declines in new vehicle unit sales, particularly during the last two weeks of March 2020 through April 2020, as a result of the COVID-19 pandemic. Same store unit volume declined as we continued to focus on balancing gross profit PVRs and unit volume. In addition, same store unit volume decreased due to overall competitive market conditions in a weaker new vehicle sales environment, which has beenwas also adversely impacted by ~~higher relative consumer borrowing rates~~reduced availability of inventory and ~~rising~~a shift in mix to used vehicles. Our used-to-new vehicle ~~prices, and historically elevated levels in off-lease supply of late-model used vehicles.~~unit sales ratio increased to 101.3% for the nine months ended September 30, 2020, as compared to 89.6% for the prior year period.

Same store revenue PVR increased during the nine months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018~~,2019, due in part to reduced availability of inventory and a continued shift in mix toward ~~Premium Luxury vehicles and~~ trucks and sport utility vehicles, ~~all of~~ which have relatively higher average selling prices. The shift in mix toward trucks and sports utility vehicles is due to a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference. ~~Average~~Same store revenue PVR also benefited from a shift in mix away from Import vehicles, which have relatively lower average selling prices, ~~also increased~~ as ~~a result of increases~~well as an increase in the manufacturers’ suggested retail ~~prices.~~prices for Premium Luxury vehicles.

Same store gross profit PVR increased during the nine months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018, as we focused on balancing~~2019, primarily due to increases in gross profit ~~PVRs and unit volume.~~PVR as a result of the tighter supply in new vehicle inventory. Same store gross profit ~~PVR~~ also benefited from increased manufacturer support in the form of incentives as a ~~shift in mix toward Premium Luxury vehicles, which have relatively higher average gross profit PVRs.~~result of the COVID-19 pandemic.

New Vehicle Inventory Carrying ~~Cost~~Benefit (Cost)

The following table details net new vehicle inventory carrying ~~cost~~benefit (cost), consisting of new vehicle floorplan interest expense, net of floorplan assistance earned (amounts received from manufacturers specifically to support store financing of new vehicle inventory). Floorplan assistance is accounted for as a component of new vehicle gross profit in accordance with GAAP.


	Three Months Ended September 30,									Nine Months Ended September 30,										Three Months Ended September 30,										Nine Months Ended September 30,
($ in millions)	2019			2018			Variance			2019			2018			Variance			($ in millions)	2020		2019		Variance		2020		2019		Variance
Floorplan assistance	$	28.7		$	28.9		$	(0.2	)	$	81.5		$	87.1		$	(5.6	)	Floorplan assistance	$	28.9	$	28.7	$	0.2	$	77.1	$	81.5	$	(4.4)
New vehicle floorplan interest expense	(30.1		)	(30.5		)	0.4			(101.4		)	(87.2		)	(14.2		)	New vehicle floorplan interest expense	(10.4)		(30.1)		19.7		(47.6)		(101.4)		53.8
Net new vehicle inventory carrying cost	$	(1.4	)	$	(1.6	)	$	0.2		$	(19.9	)	$	(0.1	)	$	(19.8	)
Net new vehicle inventory carrying benefit (cost)																			Net new vehicle inventory carrying benefit (cost)	$	18.5	$	(1.4)	$	19.9	$	29.5	$	(19.9)	$	49.4

Third Quarter ~~2019~~2020 compared to Third Quarter ~~2018~~2019

~~The~~We had a net new vehicle inventory carrying benefit for the three months ended September 30, 2020, and a net new vehicle inventory carrying cost ~~was relatively flat during~~for the three months ended September 30, 2019. Floorplan interest expense decreased due to lower average interest rates and lower average floorplan balances. Floorplan interest rates are variable and, therefore, increase and decrease with changes in the underlying benchmark interest rates. The Federal Reserve cut interest rates three times over the third and fourth quarters of 2019, ~~as compared~~and in response to the ~~same period~~COVID-19 pandemic, the Federal Reserve cut interest rates to near 0% in ~~2018.~~March 2020. Floorplan assistance slightly increased due to an increase in the average floorplan assistance rate per unit, largely offset by lower new vehicle unit sales.

First Nine Months ~~2019~~2020 compared to First Nine Months ~~2018~~2019

~~The~~We had a net new vehicle inventory carrying benefit for the nine months ended September 30, 2020, and a net new vehicle inventory carrying cost ~~increased during~~for the nine months ended September 30, ~~2019, as compared to the same period in 2018, due to an increase in floorplan interest expense and a decrease in floorplan assistance.~~2019. Floorplan interest expense ~~increased~~decreased due to ~~higher~~lower average interest rates and ~~higher~~lower average ~~vehicle~~ floorplan balances. Floorplan assistance decreased due to lower new vehicle unit sales, partially offset by an increase in the average floorplan assistance rate per unit.

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Used Vehicle


	Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions, except per vehicle data)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Reported:
Retail revenue	$	1,421.0	$	1,326.5	$	94.5	7.1	$	3,845.5	$	3,895.5	$	(50.0)	(1.3)
Wholesale revenue	95.9		76.4		19.5		25.5	244.6		226.4		18.2		8.0
Total revenue	$	1,516.9	$	1,402.9	$	114.0	8.1	$	4,090.1	$	4,121.9	$	(31.8)	(0.8)
Retail gross profit	$	128.8	$	87.6	$	41.2	47.0	$	318.1	$	262.4	$	55.7	21.2
Wholesale gross profit	18.1		4.7		13.4			36.8		17.2		19.6
Total gross profit	$	146.9	$	92.3	$	54.6	59.2	$	354.9	$	279.6	$	75.3	26.9
Retail vehicle unit sales	64,587		63,581		1,006		1.6	179,656		187,091		(7,435)		(4.0)
Revenue per vehicle retailed	$	22,001	$	20,863	$	1,138	5.5	$	21,405	$	20,821	$	584	2.8
Gross profit per vehicle retailed	$	1,994	$	1,378	$	616	44.7	$	1,771	$	1,403	$	368	26.2
Gross profit as a percentage of revenue	9.1%		6.6%					8.3%		6.7%
Inventory days supply (trailing calendar month days)	39 days		37 days

	Three Months Ended September 30,													Nine Months Ended September 30,
	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Same Store:
Retail revenue	$	1,421.0	$	1,312.7	$	108.3	8.3	$	3,842.6	$	3,836.1	$	6.5	0.2
Wholesale revenue	95.9		75.3		20.6		27.4	244.4		223.1		21.3		9.5
Total revenue	$	1,516.9	$	1,388.0	$	128.9	9.3	$	4,087.0	$	4,059.2	$	27.8	0.7
Retail gross profit	$	128.8	$	87.3	$	41.5	47.5	$	318.4	$	260.0	$	58.4	22.5
Wholesale gross profit	18.1		4.9		13.2			36.8		17.6		19.2
Total gross profit	$	146.9	$	92.2	$	54.7	59.3	$	355.2	$	277.6	$	77.6	28.0
Retail vehicle unit sales	64,587		62,706		1,881		3.0	179,522		183,404		(3,882)		(2.1)
Revenue per vehicle retailed	$	22,001	$	20,934	$	1,067	5.1	$	21,405	$	20,916	$	489	2.3
Gross profit per vehicle retailed	$	1,994	$	1,392	$	602	43.2	$	1,774	$	1,418	$	356	25.1
Gross profit as a percentage of revenue	9.1%		6.7%					8.3%		6.8%

Three Months Ended September 30, Nine Months Ended September 30,
($ in millions, except per vehicle data) 2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
Reported:
Retail revenue $ 1,326.5
$ 1,211.6
$ 114.9
9.5
$ 3,895.5
$ 3,666.1
$ 229.4
6.3
Wholesale revenue 76.4
70.1
6.3
9.0
226.4
244.8
(18.4 ) (7.5 )
Total revenue $ 1,402.9
$ 1,281.7
$ 121.2
9.5
$ 4,121.9
$ 3,910.9
$ 211.0
5.4
Retail gross profit $ 87.6
$ 87.4
$ 0.2
0.2
$ 262.4
$ 256.4
$ 6.0
2.3
Wholesale gross profit 4.7
3.6
1.1
17.2
11.6
5.6

Total gross profit $ 92.3
$ 91.0
$ 1.3
1.4
$ 279.6
$ 268.0
$ 11.6
4.3
Retail vehicle unit sales 63,581
60,446
3,135
5.2
187,091
182,737
4,354
2.4
Revenue per vehicle retailed $ 20,863
$ 20,044
$ 819
4.1
$ 20,821
$ 20,062
$ 759
3.8
Gross profit per vehicle retailed $ 1,378
$ 1,446
$ (68 ) (4.7 ) $ 1,403
$ 1,403
$ —
—
Gross profit as a percentage of revenue 6.6 % 7.2 % 6.7 % 7.0 %
Inventory days supply (trailing calendar month days) 37 days
37 days

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
Same Store:
Retail revenue $ 1,308.1
$ 1,179.0
$ 129.1
10.9
$ 3,806.9
$ 3,556.2
$ 250.7
7.0
Wholesale revenue 75.5
68.7
6.8
9.9
221.7
238.7
(17.0 ) (7.1 )
Total revenue $ 1,383.6
$ 1,247.7
$ 135.9
10.9
$ 4,028.6
$ 3,794.9
$ 233.7
6.2
Retail gross profit $ 87.2
$ 85.8
$ 1.4
1.6
$ 258.7
$ 251.4
$ 7.3
2.9
Wholesale gross profit 4.8
3.6
1.2
16.7
11.9
4.8

Total gross profit $ 92.0
$ 89.4
$ 2.6
2.9
$ 275.4
$ 263.3
$ 12.1
4.6
Retail vehicle unit sales 62,708
58,440
4,268
7.3
182,616
176,054
6,562
3.7
Revenue per vehicle retailed $ 20,860
$ 20,175
$ 685
3.4
$ 20,846
$ 20,199
$ 647
3.2
Gross profit per vehicle retailed $ 1,391
$ 1,468
$ (77 ) (5.2 ) $ 1,417
$ 1,428
$ (11 ) (0.8 )
Gross profit as a percentage of revenue 6.7 % 7.3 % 6.8 % 7.1 %

The following discussion of used vehicle results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of ~~$19.3 million and $34.0~~$3.1 million in total used vehicle revenue and $0.3 ~~million and $1.6 million in total used vehicle gross profit for the three months ended September 30, 2019 and~~ ~~2018, respectively, and $93.3 million and $116.0 million in total used vehicle revenue and $4.2 million and $4.7~~ million in total used vehicle gross profit for the nine months ended September 30, ~~2019~~2020, is related primarily to the opening of a new add-point in February 2019. The difference between reported amounts and ~~2018,~~same store amounts in the above tables of $14.9 million and $62.7 million in total used vehicle revenue and $0.1 million and $2.0 million in total used vehicle gross profit for the three and nine months ended September 30, 2019, respectively, is related to ~~acquisition and~~ divestiture ~~activity, as well as the opening of new add-points, AutoNation USA stores, and an automotive auction.~~activity.

Third Quarter 2020 compared to Third Quarter 2019 ~~compared to~~ ~~Third Quarter 2018~~

Same store retail used vehicle revenue increased during the three months ended September 30, ~~2019~~,2020, as compared to the same period in ~~2018~~,2019 due to increases in same store ~~unit volume~~revenue PVR and ~~revenue PVR. The increase in~~ same store unit ~~volume is due to an increase in~~volume. Relative market demand for used vehicles increased as compared to new vehicles, due in part to increased affordability compared to new vehicles, decreased availability of new vehicles due to lower inventory levels, and shifting dynamics in the used vehicle market. ~~With the continued elevated levels in off-lease supply of late-model used vehicles, the~~The average age and mileage of used vehicles in the market has decreased, which has provided wider availability of in-demand technology features on used vehicles, resulting in reduced disparity between used vehicles and new vehicles. Our used-to-new vehicle unit sales ratio increased to 97.9% for the three months ended September 30, 2020, as compared to 85.6% for the prior year period.

Same store revenue PVR increased during the three months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018~~,2019, primarily due to an increase in ~~part to historically elevated levels in off-lease supply of late-model~~market demand for used vehicles, a strong used vehicle pricing environment, and a shift in mix toward ~~trucks and sports utility~~Premium Luxury vehicles, ~~both of~~ which have relatively higher average selling prices. ~~The shift in mix toward trucks and sport utility vehicles is due to a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference.~~

~~Table of Contents~~

Same store gross profit PVR ~~decreased~~increased during the three months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018~~,2019, due to increases in ~~part to compressed margins on certified pre-owned~~gross profit PVR for vehicles in ~~the Premium Luxury segment.~~all three reportable segments as a result of increased demand

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for used vehicles and a strong used vehicle pricing environment. In addition, gross profit PVR benefited from a shift in mix to used vehicles acquired through our “We’ll Buy Your Car” program, which have a relatively higher average gross profit PVR.

First Nine Months ~~2019~~2020 compared to First Nine Months ~~2018~~2019

Same store retail used vehicle revenue increased during the nine months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018~~,2019, due to ~~increases~~an increase in same store revenue PVR, partially offset by a decrease in same store unit volume. The decrease in same store unit volume ~~and revenue PVR. The increase~~was due to significant declines in ~~same store~~used retail vehicle unit ~~volume is due to~~sales during the last two weeks of March 2020 through April 2020 as a result of the COVID-19 pandemic. These declines were partially offset by an increase in relative market demand for used vehicles as compared to new vehicles, due in part to increased affordability compared to new vehicles, decreased availability of new vehicles due to lower inventory levels, and shifting dynamics in the used vehicle market. ~~With the continued elevated levels in off-lease supply of late-model used vehicles, the~~The average age and mileage of used vehicles in the market has decreased, which has provided wider availability of in-demand technology features on used vehicles, resulting in reduced disparity between used vehicles and new vehicles. Our used-to-new vehicle unit sales ratio increased to 101.3% for the nine months ended September 30, 2020, as compared to 89.6% for the prior year period.

Same store revenue PVR increased during the nine months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018~~,2019, due in part to ~~historically elevated levels~~an increase in ~~off-lease supply of late-model~~market demand for used vehicles, a strong used vehicle pricing environment, and a shift in mix toward trucks and ~~sports~~sport utility vehicles, ~~both of~~ which have relatively higher average selling prices. The shift in mix toward trucks and ~~sport~~sports utility vehicles is due to a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference. ~~The increase in same~~Same store revenue PVR ~~was partially offset by~~also benefited from a shift in mix toward ~~Import~~Premium Luxury vehicles, which have relatively ~~lower~~higher average selling prices.

Same store gross profit PVR ~~was relatively flat~~increased during the nine months ended September 30, ~~2019,~~2020, as compared to the same period in 2019, due to increases in gross profit PVR for vehicles in all three reportable segments as a result of increased demand for used vehicles and a strong used vehicle pricing environment. In addition, gross profit PVR benefited from a shift in mix to used vehicles acquired through our “We’ll Buy Your Car” program, which have a relatively higher average gross profit PVR.

~~2018~~.

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Parts and Service

Three Months Ended September 30, Nine Months Ended September 30,
($ in millions) 2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
Reported:
Revenue $ 902.6
$ 864.0
$ 38.6
4.5 $ 2,680.8
$ 2,579.6
$ 101.2
3.9
Gross Profit $ 409.0
$ 390.6
$ 18.4
4.7 $ 1,219.8
$ 1,163.4
$ 56.4
4.8
Gross profit as a percentage of revenue 45.3 % 45.2 % 45.5 % 45.1 %
Same Store:
Revenue $ 889.0
$ 840.7
$ 48.3
5.7 $ 2,612.7
$ 2,501.2
$ 111.5
4.5
Gross Profit $ 402.8
$ 380.3
$ 22.5
5.9 $ 1,189.3
$ 1,128.1
$ 61.2
5.4
Gross profit as a percentage of revenue 45.3 % 45.2 % 45.5 % 45.1 %


	Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Reported:
Revenue	$	852.8	$	902.6	$	(49.8)	(5.5)	$	2,419.0	$	2,680.8	$	(261.8)	(9.8)
Gross Profit	$	375.2	$	409.0	$	(33.8)	(8.3)	$	1,075.4	$	1,219.8	$	(144.4)	(11.8)
Gross profit as a percentage of revenue	44.0%		45.3%					44.5%		45.5%
Same Store:
Revenue	$	852.8	$	885.5	$	(32.7)	(3.7)	$	2,408.4	$	2,619.9	$	(211.5)	(8.1)
Gross Profit	$	375.6	$	403.1	$	(27.5)	(6.8)	$	1,074.7	$	1,196.9	$	(122.2)	(10.2)
Gross profit as a percentage of revenue	44.0%		45.5%					44.6%		45.7%

Parts and service revenue is primarily derived from vehicle repairs paid directly by customers or via reimbursement from manufacturers and others under warranty programs, as well as from wholesale parts sales, collision services, and ~~collision services.~~the preparation of vehicles for sale.

The following discussion of parts and service results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of ~~$13.6 million and $23.3~~$17.1 million in parts and service revenue ~~and $6.2~~for the three months ended September 30, 2019, $0.4 million and ~~$10.3~~$5.9 million in parts and service gross profit for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$68.1~~$10.6 million and ~~$78.4~~$60.9 million in parts and service revenue and ~~$30.5~~$0.7 million and ~~$35.3~~$22.9 million in parts and service gross profit for the nine months ended ~~ended~~ September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, is related to acquisition and divestiture activity, as well as the opening of a new ~~add-points, AutoNation USA stores, collision centers, and parts distribution centers.~~add-point.

Third Quarter 2020 compared to Third Quarter 2019 ~~compared to~~ ~~Third Quarter 2018~~

During the three months ended September 30, ~~2019~~,2020, same store parts and service gross profit ~~increased~~ asdecreased compared to the same period in ~~2018~~,2019, primarily due to ~~increases~~an inventory valuation adjustment of $20.6 million recorded in connection with the closing of our ACP business, as well as decreases in gross profit associated with customer-pay service of ~~$11.6~~$9.7 million and collision business of $8.0 million. These decreases in parts and service gross profit were partially offset by an increase in gross profit associated with the preparation of vehicles for sale of $4.7 million, as well as smaller increases in gross profit associated with wholesale parts sales and warranty service.

Customer-pay service gross profit was adversely impacted by a decrease in volume as a result of the COVID-19 pandemic, partially offset by higher value repair orders and price increases. Collision business gross profit was adversely impacted by a decrease in volume as a result of the COVID-19 pandemic, partially offset by improved margin performance. Gross profit associated with the preparation of vehicles for sale benefited from higher value repair orders due in part to a shift in unit volume mix from new vehicles to used vehicles, partially offset by a decrease in new vehicle unit volume.

First Nine Months 2020 compared to First Nine Months 2019

During the nine months ended September 30, 2020, same store parts and service gross profit decreased as compared to the

same period in 2019, primarily due to decreases in gross profit associated with customer-pay service of $52.1 million, collision business of $17.3 million, warranty service of ~~$4.7~~$14.8 million, and the preparation of vehicles for sale of ~~$4.4~~$8.2 million. Parts and service gross profit was also adversely impacted by an inventory valuation adjustment of $20.6 million recorded during the third quarter of 2020 in connection with the closing of our ACP business.

Customer-pay service gross profit, ~~benefited from an increase~~collision business gross profit, and warranty service gross profit were adversely impacted by a decrease in volume as a result of the COVID-19 pandemic, partially offset by higher value ~~customer-pay~~ repair ~~orders, our parts initiatives, and price increases.~~orders. Warranty service gross profit also benefited from improved margin performance largely due to improved parts and labor rates negotiated with certain manufacturers. Gross profit associated with the preparation of vehicles for sale ~~benefited from higher~~was adversely impacted by the decrease in new and used vehicle unit ~~volume.~~

~~First Nine Months 2019 compared to First Nine Months 2018~~

~~During the nine months ended September 30, 2019, same store parts and service gross profit increased as compared to the same period in~~ ~~2018~~, primarily due to increases in gross profit associated with customer-pay service of $31.0 million, warranty service of $18.6 million, wholesale parts sales of $6.0 million, and the preparation of vehicles for sale of $4.5 million.

~~Customer-pay service gross profit benefited from an increase in~~ volume, partially offset by higher value ~~customer-pay~~internal repair orders ~~our parts initiatives, and price increases. Warranty service gross profit benefited~~due in part to a shift in unit volume mix from ~~an increase in volume and improved parts and labor rates negotiated with certain manufacturers. Gross profit from wholesale parts sales increased due~~new vehicles to ~~our brand extension strategy. Gross profit associated with the preparation of vehicles for sale benefited from higher~~ used ~~vehicle unit volume.~~vehicles.

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Finance and Insurance

Three Months Ended September 30, Nine Months Ended September 30,
($ in millions, except per vehicle data) 2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
Reported:
Revenue and gross profit $ 266.2
$ 247.4
$ 18.8
7.6 $ 757.9
$ 736.0
$ 21.9
3.0
Gross profit per vehicle retailed $ 1,932
$ 1,771
$ 161
9.1 $ 1,917
$ 1,773
$ 144
8.1
Same Store:
Revenue and gross profit $ 263.6
$ 242.0
$ 21.6
8.9 $ 746.4
$ 718.3
$ 28.1
3.9
Gross profit per vehicle retailed $ 1,939
$ 1,789
$ 150
8.4 $ 1,930
$ 1,793
$ 137
7.6


	Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions, except per vehicle data)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Reported:
Revenue and gross profit	$	281.2	$	266.2	$	15.0	5.6	$	763.4	$	757.9	$	5.5	0.7
Gross profit per vehicle retailed	$	2,153	$	1,932	$	221	11.4	$	2,139	$	1,917	$	222	11.6
Same Store:
Revenue and gross profit	$	281.3	$	263.8	$	17.5	6.6	$	763.2	$	748.4	$	14.8	2.0
Gross profit per vehicle retailed	$	2,154	$	1,941	$	213	11.0	$	2,140	$	1,929	$	211	10.9

Revenue on finance and insurance products represents commissions earned by us for the placement of: (i) loans and leases with financial institutions in connection with customer vehicle purchases financed, (ii) vehicle service contracts with third-party providers, and (iii) other vehicle protection products with third-party providers. We sell these products on a commission basis, and we also participate in the future underwriting profit on certain products pursuant to retrospective commission arrangements with the issuers of those products.

The following discussion of finance and insurance results is on a same store basis. The difference between reported amounts and same store amounts in finance and insurance revenue and gross profit in the above tables of ~~$2.6 million and $5.4~~$0.1 million for the three months ended September 30, ~~2019~~2020, is related to divestiture activity, and ~~2018, respectively, and $11.5 million and $17.7~~the difference of $0.2 million for the nine months ended September 30, ~~2019~~2020, is related to divestiture activity and ~~2018~~,the opening of a new add-point in February 2019. The difference between reported amounts and same store amounts in finance and insurance revenue and gross profit in the above tables of $2.4 million and $9.5 million for the three and nine months ended September 30, 2019, respectively, is related to ~~acquisition and~~ divestiture ~~activity, as well as the opening of new add-points and AutoNation USA stores.~~

activity.

Third Quarter ~~2019~~2020 compared to Third Quarter ~~2018~~2019

Same store finance and insurance revenue and gross profit increased during the three months ended September 30, ~~2019~~,2020, as compared to the same period in ~~2018, primarily~~2019, due to an increase in finance and insurance gross profit PVR, partially offset by a decrease in new vehicle unit volume. The increase in finance and insurance gross profit PVR was primarily due to an increase in product and finance penetration and higher realized margins on vehicle service contracts, including our AutoNation Vehicle Protection Plan product. Finance and insurance gross profit PVR also benefited from ~~higher realized margins on arranged customer financing and amounts financed per transaction.~~an increase in retrospective commissions due in part to lower claim activity. Increases in finance and insurance gross profit PVR were partially offset by a shift in unit volume mix from new vehicles to used vehicles, which have lower average selling prices than new vehicles and therefore typically generate lower gross profit per transaction associated with arranging customer financing. Sales of used vehicles also have lower finance and product penetration as compared to sales of new vehicles. Finance and insurance gross profit PVR was also adversely impacted by a decrease in retrospective commissions due in part to higher claim activity. We expect retrospective commissions to continue to decrease as compared to recent years.

First Nine Months ~~2019~~2020 compared to First Nine Months ~~2018~~2019

Same store finance and insurance revenue and gross profit increased during the nine months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018, primarily~~2019, due to an increase in finance and insurance gross profit PVR, partially offset by a decrease in ~~new~~ vehicle unit volume. The increase in finance and insurance gross profit PVR was primarily due to an increase in product and finance penetration and higher realized margins on vehicle service contracts, including our AutoNation Vehicle Protection Plan product. ~~Finance and insurance gross profit PVR also benefited from an increase in amounts financed per transaction and higher realized margins on arranged customer financing.~~ Increases in finance and insurance gross profit PVR were partially offset by a shift in unit volume mix from new vehicles to used vehicles, which have lower average selling prices than new vehicles and therefore typically generate lower gross profit per transaction associated with arranging customer financing. Sales of used vehicles also have lower finance and product penetration as compared to sales of new vehicles. Finance and insurance gross profit PVR was also adversely impacted by a decrease in retrospective commissions due in part to higher claim activity. We expect retrospective commissions to continue to decrease as compared to recent years.

Table of Contents

Segment Results

In the following table, revenue and segment income of our reportable segments are reconciled to consolidated revenue and consolidated operating income, respectively. The following discussions of segment results are on a reported basis.


	Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Revenue:
Domestic	$	1,734.5	$	1,728.6	$	5.9	0.3	$	4,704.0	$	5,004.7	$	(300.7)	(6.0)
Import	1,621.5		1,722.5		(101.0)		(5.9)	4,308.9		4,845.9		(537.0)		(11.1)
Premium Luxury	1,870.0		1,820.5		49.5		2.7	5,051.6		5,375.5		(323.9)		(6.0)
Total	5,226.0		5,271.6		(45.6)		(0.9)	14,064.5		15,226.1		(1,161.6)		(7.6)
Corporate and other	178.9		189.6		(10.7)		(5.6)	540.4		560.7		(20.3)		(3.6)
Total consolidated revenue	$	5,404.9	$	5,461.2	$	(56.3)	(1.0)	$	14,604.9	$	15,786.8	$	(1,181.9)	(7.5)
Segment income⁽¹⁾:
Domestic	$	111.9	$	70.3	$	41.6	59.2	$	248.1	$	192.4	$	55.7	29.0
Import	123.5		86.9		36.6		42.1	277.7		240.9		36.8		15.3
Premium Luxury	143.9		89.0		54.9		61.7	313.3		268.6		44.7		16.6
Total	379.3		246.2		133.1		54.1	839.1		701.9		137.2		19.5
Corporate and other	(118.7)		(85.7)		(33.0)			(638.2)		(223.5)		(414.7)
Floorplan interest expense	11.1		33.0		21.9			52.9		109.4		56.5
Operating income	$	271.7	$	193.5	$	78.2		$	253.8	$	587.8	$	(334.0)	(56.8)

⁽¹⁾ Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.

Retail new vehicle unit sales:
Domestic	21,620		23,227		(1,607)		(6.9)	57,995		66,117		(8,122)		(12.3)
Import	29,356		34,765		(5,409)		(15.6)	78,248		95,478		(17,230)		(18.0)
Premium Luxury	15,022		16,198		(1,176)		(7.3)	41,007		46,624		(5,617)		(12.0)
	65,998		74,190		(8,192)		(11.0)	177,250		208,219		(30,969)		(14.9)

Three Months Ended September 30, Nine Months Ended September 30,
($ in millions) 2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
Revenue:
Domestic $ 1,728.6
$ 1,789.7
$ (61.1 ) (3.4 ) $ 5,004.7
$ 5,389.5
$ (384.8 ) (7.1 )
Import 1,722.5
1,770.6
(48.1 ) (2.7 ) 4,845.9
5,140.2
(294.3 ) (5.7 )
Premium Luxury 1,820.5
1,668.8
151.7
9.1
5,375.5
5,116.8
258.7
5.1
Total 5,271.6
5,229.1
42.5
0.8
15,226.1
15,646.5
(420.4 ) (2.7 )
Corporate and other 189.6
120.1
69.5
57.9
560.7
354.6
206.1
58.1
Total consolidated revenue $ 5,461.2
$ 5,349.2
$ 112.0
2.1
$ 15,786.8
$ 16,001.1
$ (214.3 ) (1.3 )
Segment income⁽¹⁾:

Domestic $ 70.3
$ 67.2
$ 3.1
4.6
$ 192.4
$ 194.6
$ (2.2 ) (1.1 )
Import 86.9
85.3
1.6
1.9
240.9
236.2
4.7
2.0
Premium Luxury 89.0
76.9
12.1
15.7
268.6
249.5
19.1
7.7
Total 246.2
229.4
16.8
7.3
701.9
680.3
21.6
3.2
Corporate and other (85.7 ) (58.5 ) (27.2 ) (223.5 ) (193.1 ) (30.4 )
Floorplan interest expense 33.0
32.7
(0.3 ) 109.4
93.4
(16.0 )
Operating income $ 193.5
$ 203.6
$ (10.1 ) (5.0 ) $ 587.8
$ 580.6
$ 7.2
1.2

⁽¹⁾ Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.

Retail new vehicle unit sales:
Domestic 23,227
25,966
(2,739 ) (10.5 ) 66,117
76,871
(10,754 ) (14.0 )
Import 34,765
37,540
(2,775 ) (7.4 ) 95,478
107,776
(12,298 ) (11.4 )
Premium Luxury 16,198
15,731
467
3.0
46,624
47,822
(1,198 ) (2.5 )
74,190
79,237
(5,047 ) (6.4 ) 208,219
232,469
(24,250 ) (10.4 )

Table of Contents

Domestic

The Domestic segment operating results included the following:


	Three Months Ended September 30,									Nine Months Ended September 30,										Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions)	2019		2018		Variance Favorable / (Unfavorable)			% Variance		2019		2018		Variance Favorable / (Unfavorable)			% Variance		($ in millions)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Revenue	$	1,728.6	$	1,789.7	$	(61.1	)	(3.4	)	$	5,004.7	$	5,389.5	$	(384.8	)	(7.1	)	Revenue	$	1,734.5	$	1,728.6	$	5.9	0.3	$	4,704.0	$	5,004.7	$	(300.7)	(6.0)
Segment income	$	70.3	$	67.2	$	3.1		4.6		$	192.4	$	194.6	$	(2.2	)	(1.1	)	Segment income	$	111.9	$	70.3	$	41.6	59.2	$	248.1	$	192.4	$	55.7	29.0
Retail new vehicle unit sales	23,227		25,966		(2,739		)	(10.5	)	66,117		76,871		(10,754		)	(14.0	)	Retail new vehicle unit sales	21,620		23,227		(1,607)		(6.9)	57,995		66,117		(8,122)		(12.3)

Third Quarter 2020 compared to Third Quarter 2019 ~~compared to~~ ~~Third Quarter 2018~~

Domestic revenue ~~decreased~~increased during the three months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018~~,2019, primarily due to ~~a decrease in new vehicle unit volume and a realignment of certain parts distribution centers, partially offset by increases~~an increase in used vehicle ~~unit volume and new and used vehicle~~ revenue PVR. The decrease in new vehicle unit volume was primarily due to overall competitive market conditions including higher relative consumer borrowing rates, rising vehicle prices, and historically elevated levels in off-lease supply of late-model used vehicles. Used vehicle unit volume increasedPVR as a result of an increase in market demand for used vehicles and an increase in new vehicle revenue PVR due to tighter supply in new vehicle inventory and a continued shift in mix toward trucks and sport utility vehicles, which have relatively higher average selling prices. The shift in mix toward trucks and sport utility vehicles is due to a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference. These increases were partially offset by the divestitures we completed in 2019 and a decrease in parts and service revenue.

Domestic segment income increased during the three months ended September 30, 2020, as compared to the same period in 2019, primarily due to an increase in new vehicle gross profit PVR due to tighter supply in new vehicle inventory, as well as an increase in used vehicle gross profit PVR resulting from an increase in market demand for used vehicles and a shift in mix to used vehicles acquired through our “We’ll Buy Your Car” program, which have a relatively higher average gross profit PVR. Domestic segment income also benefited from a decrease in floorplan interest expense as a result of lower average interest rates and lower average vehicle floorplan balances and a decrease in SG&A expenses due in part to ~~increased affordability~~the cost-saving actions implemented to mitigate the financial impact of the COVID-19 pandemic.

First Nine Months 2020 compared to First Nine Months 2019

Domestic revenue decreased during the nine months ended September 30, 2020, as compared to the same period in 2019, primarily due to decreases in new ~~vehicles~~ and ~~shifting dynamics in the~~ used vehicle ~~market that have reduced~~unit volume and parts and service volume as a result of the ~~disparity between used~~COVID-19 pandemic and ~~new vehicles. The~~the divestitures we completed in 2019. These decreases were partially offset by increases in new and used vehicle revenue PVR. New vehicle revenue PVR ~~were due~~benefited from a tighter supply in ~~part to~~new vehicle inventory and a continued shift in mix toward trucks and sport utility vehicles, which have relatively higher average selling prices, as a result of a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference. ~~New~~Used vehicle ~~average selling prices also~~revenue PVR benefited from an increased ~~as a result of increases in the manufacturers’ suggested retail prices.~~demand for used vehicles.

Domestic segment income increased during the ~~three~~nine months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018~~,2019, primarily due to ~~an increase~~a decrease in ~~finance~~SG&A expenses resulting from the cost-saving actions implemented to mitigate the financial impact of the COVID-19 pandemic and ~~insurance revenue~~a decrease in floorplan interest expenses due to lower average interest rates and ~~gross profit, which~~lower average vehicle floorplan balances. Domestic segment income also benefited from an increase in ~~product penetration~~new vehicle gross profit PVR due in part to tighter supply in new vehicle inventory and an increase in used vehicle gross profit PVR due to increased demand for used vehicles and a shift in mix to used vehicles acquired through our “We’ll Buy Your Car” program, which have a relatively higher ~~realized margins on vehicle service contracts.~~average gross profit PVR. Increases into Domestic segment income were partially offset by a decrease in ~~new vehicle gross profit due to decreases in new~~parts and service volume and vehicle unit volume ~~and new vehicle gross profit PVRs~~ as a result of the ~~competitive market conditions discussed above.~~COVID-19 pandemic.

~~First Nine Months 2019~~

Table of Contents

Import

The Import segment operating results included the following:


	Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Revenue	$	1,621.5	$	1,722.5	$	(101.0)	(5.9)	$	4,308.9	$	4,845.9	$	(537.0)	(11.1)
Segment income	$	123.5	$	86.9	$	36.6	42.1	$	277.7	$	240.9	$	36.8	15.3
Retail new vehicle unit sales	29,356		34,765		(5,409)		(15.6)	78,248		95,478		(17,230)		(18.0)

Third Quarter 2020 compared to ~~First Nine Months 2018~~Third Quarter 2019

~~Domestic~~Import revenue decreased during the ~~nine~~three months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018~~,2019, primarily due to a decrease in new vehicle unit volume as a ~~realignment~~result of ~~certain parts distribution centers, and~~tighter supply in new vehicle inventory, as well as the divestitures we completed in ~~2018,~~2019. These decreases were partially offset by an increase in new vehicle revenue ~~PVR. The decrease~~PVR due tighter supply in new vehicle ~~unit volume was primarily due to overall competitive market conditions in~~inventory and a weaker new vehicle sales environment, driven by higher relative consumer borrowing rates and rising vehicle prices, and historically elevated levels in off-lease supply of late-model used vehicles. The increase in new vehicle revenue PVR was due in part to acontinued shift in mix toward trucks and sport utility vehicles, which have relatively higher average selling prices, as a result of a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference. ~~New~~Import revenue also benefited from an increase in used vehicle ~~average selling prices also increased as a result of increases in the manufacturers’ suggested retail prices.~~

~~Domestic segment income decreased during the nine months ended September 30, 2019, as compared to the same period in~~ ~~2018~~,revenue PVR primarily due to a decrease in new vehicle gross profit resulting from decreases in new vehicle unit volume and new vehicle gross profit PVR impacted by the competitive market conditions discussed above. Domestic segment income was also adversely impacted by an increase in floorplan interest expense. Decreases in segment income were partially offset by a decrease in SG&A expenses, an increase in parts and service gross profit associated with customer-pay service and warranty, and an increase in finance and insurance revenue and gross profit, which benefited from higher realized margins on vehicle service contracts and an increase in product penetration.

~~Table of Contents~~

~~Import~~

~~The Import segment operating results included the following:~~

Three Months Ended September 30, Nine Months Ended September 30,
($ in millions) 2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
Revenue $ 1,722.5
$ 1,770.6
$ (48.1 ) (2.7 ) $ 4,845.9
$ 5,140.2
$ (294.3 ) (5.7 )
Segment income $ 86.9
$ 85.3
$ 1.6
1.9
$ 240.9
$ 236.2
$ 4.7
2.0
Retail new vehicle unit sales 34,765
37,540
(2,775 ) (7.4 ) 95,478
107,776
(12,298 ) (11.4 )

~~Third Quarter 2019~~ ~~compared to~~ ~~Third Quarter 2018~~

~~Import revenue decreased during the three months ended September 30, 2019, as compared to the same period in~~ ~~2018~~, primarily due to a decrease in new vehicle unit volume and the divestitures we completed in 2018 and 2019, partially offset by increases in used vehicle unit volume and used vehicle revenue PVR. The decrease in new vehicle unit volume was primarily due to overall competitive market conditions including higher relative consumer borrowing rates and historically elevated levels in off-lease supply of late-model used vehicles. Used vehicle unit volume increased as a result of an increase in market demand for used ~~vehicles, due in part to increased affordability compared to new vehicles and shifting dynamics in the used vehicle market that have reduced the disparity between used and new~~ vehicles. Used vehicle revenue PVR increased due in part to historically elevated levels in off-lease supply of late-model used vehicles and a shift in mix toward trucks and sport utility vehicles, both of which have relatively higher average selling prices. The shift in mix toward trucks and sport utility vehicles is due to a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference.

Import segment income increased during the three months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018~~,2019, primarily due to ~~increases~~an increase in ~~finance and insurance revenue and~~new vehicle gross profit ~~which benefited~~PVR due to tighter supply in new vehicle inventory, as well as an increase in used vehicle PVR resulting from an increase in ~~product penetration~~market demand for used vehicles and a shift in mix to used vehicles acquired through our “We’ll Buy Your Car” program, which have a relatively higher ~~realized margins on vehicle service contracts, and~~ ~~parts and service~~average gross profit ~~associated with customer-pay service and warranty.~~PVR. Import segment income also benefited from ~~decreases~~a decrease in SG&A ~~and floorplan interest~~ expenses ~~primarily~~ due in part to the ~~divestitures we completed in 2018 and 2019. Increases in Import segment income were partially offset by a~~ ~~decrease in new vehicle gross profit due~~cost-saving actions implemented to mitigate the ~~decrease in new vehicle unit volume,~~financial impact of the COVID-19 pandemic, as well as a decrease in ~~new vehicle gross profit PVRs. T~~he prior year benefited from the recognition of certain performance-based manufacturer payments related to Import vehicles previously sold, which favorably impacted new vehicle gross profit by $4.8 million. We recognized these manufacturer payments during the third quarter of 2018floorplan interest expenses due to ~~our achievement of certain manufacturer program objectives.~~ lower average interest rates and lower average vehicle floorplan balances.

First Nine Months ~~2019~~2020 compared to First Nine Months ~~2018~~2019

Import revenue decreased during the nine months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018~~,2019, primarily due to ~~a decrease~~decreases in new and used vehicle unit volume and parts and service volume as a result of the COVID-19 pandemic and the divestitures we completed in 2018 and 2019, partially offset by increases in used vehicle unit volume and used vehicle revenue PVR. The decrease in new vehicle unit volume was primarily due to overall competitive market conditions in a weaker new vehicle sales environment, driven by higher relative consumer borrowing rates and rising vehicle prices, and historically elevated levels in off-lease supply of late-model used vehicles. Used vehicle unit volume increased as a result of an increase in market demand for used vehicles, due in part to increased affordability compared to new vehicles and shifting dynamics in the used vehicle market that have reduced the disparity between used and new vehicles. Used vehicle revenue PVR increased due in part to historically elevated levels in off-lease supply of late-model used vehicles and a shift in mix toward trucks and sport utility vehicles, both of which have relatively higher average selling prices. The shift in mix toward trucks and sport utility vehicles is due to a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference.

~~Import segment income increased during the nine months ended September 30, 2019, as compared to the same period in~~ ~~2018, primarily due to a decrease in SG&A expenses, due to the divestitures we completed in 2018 and 2019, as well as an increase in used vehicle unit volume. Increases in Import segment income~~2019. These decreases were partially offset by ~~a decrease in~~ ~~new vehicle gross profit due to the decrease in new vehicle unit volume discussed above.~~

~~Table of Contents~~

~~Premium Luxury~~

~~The Premium Luxury segment operating results included the following:~~

Three Months Ended September 30, Nine Months Ended September 30,
($ in millions) 2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
Revenue $ 1,820.5
$ 1,668.8
$ 151.7
9.1 $ 5,375.5
$ 5,116.8
$ 258.7
5.1
Segment income $ 89.0
$ 76.9
$ 12.1
15.7 $ 268.6
$ 249.5
$ 19.1
7.7
Retail new vehicle unit sales 16,198
15,731
467
3.0 46,624
47,822
(1,198 ) (2.5 )

~~Third Quarter 2019~~ ~~compared to~~ ~~Third Quarter 2018~~

~~Premium Luxury revenue increased during the three months ended September 30, 2019, as compared to the same period in~~ ~~2018, primarily due to~~ increases in new and used vehicle revenue ~~PVR and used vehicle unit volume. The increase in new and used~~PVR. New vehicle revenue PVR ~~was due~~benefited from a tighter supply in ~~part to~~new vehicle inventory and a continued shift in mix toward trucks and sport utility vehicles, which have relatively higher average selling prices, as a result of a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference. ~~New~~Used vehicle revenue PVR ~~also increased due to increases in the manufacturers’ suggested retail prices. The increase in used vehicle unit volume resulted~~benefited from an ~~increase in market~~increased demand for used ~~vehicles, due in part to increased affordability compared to new vehicles and shifting dynamics in the used vehicle market that have reduced the disparity between used and new~~ vehicles. ~~Premium Luxury revenue also benefited from an acquisition and a new add-point opening completed in 2018 and 2019, respectively.~~

~~Premium Luxury~~Import segment income increased during the ~~three~~nine months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018, primarily~~2019. SG&A expenses decreased due to ~~increases in finance~~the cost-saving actions implemented to mitigate the financial impact of the COVID-19 pandemic, and ~~insurance revenue~~floorplan interest expenses decreased due to lower average interest rates and ~~gross profit, which benefited from an increase in product penetration and higher realized margins on~~lower average vehicle ~~service contracts, and parts and service gross profit primarily associated with customer-pay, internal, and warranty. Premium Luxury~~floorplan balances. Import segment income also benefited from an increase in new vehicle gross profit PVR ~~as we focused on balancing gross profit PVRs and unit volume,~~due in part to tighter supply in new vehicle inventory, as well as an increase in used vehicle gross profit PVR due to ~~several recent product refreshes~~increased demand for used vehicles and ~~new product offerings by Premium Luxury manufacturers.~~a shift in mix to used vehicles acquired through our “We’ll Buy Your Car” program, which have a relatively higher average gross profit PVR. Increases in ~~Premium Luxury~~Import segment income were partially offset by ~~an increase~~decreases in ~~SG&A expenses~~parts and service gross profit and finance and insurance gross profit due to decreases in ~~part to~~parts and service volume and vehicle unit volume, respectively, as a result of the ~~acquisition and new add-point opening discussed above.~~COVID-19 pandemic.

~~First Nine Months 2019~~

Table of Contents

Premium Luxury

The Premium Luxury segment operating results included the following:


	Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Revenue	$	1,870.0	$	1,820.5	$	49.5	2.7	$	5,051.6	$	5,375.5	$	(323.9)	(6.0)
Segment income	$	143.9	$	89.0	$	54.9	61.7	$	313.3	$	268.6	$	44.7	16.6
Retail new vehicle unit sales	15,022		16,198		(1,176)		(7.3)	41,007		46,624		(5,617)		(12.0)

Third Quarter 2020 compared to ~~First Nine Months 2018~~Third Quarter 2019

Premium Luxury revenue increased during the ~~nine~~three months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018~~,2019, primarily due to an increase in retail used vehicle unit volume as a result of the ~~acquisition and new add-point openings completed~~increase in ~~2018 and 2019 and increases~~market demand for used vehicles, as well as an increase in new ~~and used~~ vehicle revenue PVR due in part to increases in the manufacturers’ suggested retail prices and ~~used~~tighter supply in new vehicle ~~unit volume,~~inventory. Increases in Premium Luxury revenue were partially offset by a decrease in new vehicle unit ~~volume. The increases~~volume due to the tighter supply in new ~~and used~~ vehicle ~~revenue PVR was due~~inventory resulting from inventory shortages from manufacturer plant closures.

Premium Luxury segment income increased during the three months ended September 30, 2020, as compared to the same period in part to a shift in mix toward sport utility vehicles, which have relatively higher average selling prices, as a result of a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference. New vehicle revenue PVR also increased2019, primarily due to ~~increases in the manufacturers’ suggested retail prices. The~~an increase in used vehicle ~~unit volume resulted~~gross profit PVR resulting from an increase in market demand for used vehicles and a shift in mix to used vehicles acquired through our “We’ll Buy Your Car” program, which have a relatively higher average gross profit PVR, as well as an increase in new vehicle gross profit PVR due to tighter supply in new vehicle inventory. Premium Luxury segment income also benefited from an increase in finance and insurance gross profit due in part to ~~increased affordability~~an increase in finance and product penetration and higher realized margins on vehicle service contracts, as well as a decrease in floorplan interest expenses due to lower average interest rates and lower average vehicle floorplan balances.

First Nine Months 2020 compared to ~~new vehicles and shifting dynamics~~First Nine Months 2019

Premium Luxury revenue decreased during the nine months ended September 30, 2020, as compared to the same period in ~~the used vehicle market that have reduced the disparity between used and new vehicles. The decrease~~2019, primarily due to decreases in new vehicle unit volume ~~was primarily due to overall competitive market conditions~~and parts and service volume as a result of the COVID-19 pandemic. These decreases were partially offset by an increase in ~~a weaker~~ new vehicle ~~sales environment, driven by higher relative consumer borrowing rates and rising vehicle~~revenue PVR due in part to increases in the manufacturers’ suggested retail prices and ~~historically elevated levels~~tighter supply in ~~off-lease supply of late-model used vehicles.~~new vehicle inventory.

Premium Luxury segment income increased during the nine months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018, primarily~~2019. SG&A expenses decreased due to ~~increases in parts~~the cost-saving actions implemented to mitigate the financial impact of the COVID-19 pandemic, and ~~service gross profit associated with customer-pay service~~floorplan interest expenses decreased due to lower average interest rates and ~~warranty and finance and insurance revenue and gross profit, which benefited from an increase in product penetration and higher realized margins on~~lower average vehicle ~~service contracts.~~floorplan balances. Premium Luxury segment income also benefited from an increase in used vehicle gross profit PVR resulting from an increase in market demand for used vehicles, as well as an increase in new vehicle gross profit PVR ~~as we focused on balancing gross profit PVRs and unit volume, as well as~~ due to ~~several recent product refreshes and~~tighter supply in new ~~product offerings by Premium Luxury manufacturers.~~vehicle inventory. Increases in Premium Luxury segment income were partially offset by ~~increases~~decreases in ~~SG&A~~parts and ~~floorplan interest expenses, due in part to the acquisition~~service volume and new ~~add-point openings discussed above.~~vehicle unit volume as a result of the COVID-19 pandemic.

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Corporate and other

Corporate and other results included the following:


	Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Revenue	$	178.9	$	189.6	$	(10.7)	(5.6)	$	540.4	$	560.7	$	(20.3)	(3.6)
Income (loss)	$	(118.7)	$	(85.7)	$	(33.0)	38.5	$	(638.2)	$	(223.5)	$	(414.7)	NM

NM = Not Meaningful

“Corporate and other” is comprised of our other businesses, including collision centers, auction operations, AutoNation USA stand-alone used vehicle sales and service centers, and parts distribution centers, all of which generate revenues but do not meet the quantitative thresholds for determining reportable segments, as well as unallocated corporate overhead expenses and other income items.

As of September 30, 2020, we had 78 AutoNation-branded collision centers, 4 AutoNation-branded auction operations, and 5 AutoNation USA used vehicle stores. We also had 4 parts distribution centers that service our wholesale parts sales markets for the sale of original equipment manufacturer parts and 12 aftermarket collision parts (“ACP”) distribution centers. We recently announced that we plan to expand our AutoNation USA used vehicle stores by building approximately 50 additional stores by the end of 2025. The roll-out may be impacted by a number of variables, including customer adoption, market conditions, and our ability to identify, acquire, and build out suitable locations in a timely manner.

As part of our continued efforts to reduce costs and increase efficiencies, we determined, on August 17, 2020, to close our ACP business by the end of 2020. The ACP business represented less than 1% of our parts and service gross profit for the nine months ended September 30, 2020. In connection with the closing of the ACP business, we expect to incur total pre-tax charges of $43.7 million, of which $36.5 million was incurred during the three months ended September 30, 2020. The charges are comprised of inventory valuation adjustments, estimated contract termination charges, other associated closing costs, accelerated depreciation and amortization, asset impairment charges, and involuntary termination benefits. See Note 15 of the Notes to Unaudited Condensed Consolidated Financial Statements for additional information.

During the nine months ended September 30, 2020, we recorded non-cash goodwill impairment charges totaling $318.3 million, of which $257.4 million related to our Premium Luxury reporting unit, $41.6 million related to our Collision Centers reporting unit, and $19.3 million related to our Parts Centers reporting unit. We also recorded non-cash franchise rights impairment charges of $57.5 million. The non-cash goodwill impairments and franchise rights impairments are reflected as Goodwill Impairment and Franchise Rights Impairment, respectively, in the accompanying Unaudited Condensed Consolidated Statements of Operations and are reported in the “Corporate and other” category of our segment information. During the nine months ended September 30, 2020, we recorded non-cash long-lived asset impairment charges associated with our ACP business of $8.7 million, of which $2.8 million was recorded during the third quarter of 2020 and is included in the ACP closing charges described above, and non-cash intangible asset impairment charges associated with our collision centers and ACP business of $2.4 million, all of which are reported in the “Corporate and other” category of our segment information.

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Selling, General, and Administrative Expenses

Our Selling, General, and Administrative (“SG&A”) expenses consist primarily of compensation, including store and corporate salaries, commissions, and incentive-based compensation, as well as advertising (net of reimbursement-based manufacturer advertising rebates), and store and corporate overhead expenses, which include occupancy costs, legal, accounting, and professional services, and general corporate expenses. The following table presents the major components of our SG&A expenses.


	Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Reported:
Compensation	$	427.6	$	422.0	$	(5.6)	(1.3)	$	1,158.0	$	1,222.4	$	64.4	5.3
Advertising	42.1		48.3		6.2		12.8	116.5		139.8		23.3		16.7
Store and corporate overhead	171.7		183.5		11.8		6.4	515.5		551.6		36.1		6.5
Total	$	641.4	$	653.8	$	12.4	1.9	$	1,790.0	$	1,913.8	$	123.8	6.5

SG&A as a % of total gross profit:
Compensation	44.0		47.6		360		bps	44.9		46.5		160		bps
Advertising	4.3		5.4		110		bps	4.5		5.3		80		bps
Store and corporate overhead	17.7		20.7		300		bps	20.0		21.0		100		bps
Total	66.0		73.7		770		bps	69.4		72.8		340		bps

Three Months Ended September 30, Nine Months Ended September 30,
($ in millions) 2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
2019 2018
Variance
Favorable /
(Unfavorable)

%
Variance
Reported:
Compensation $ 422.0
$ 389.8
$ (32.2 ) (8.3 ) $ 1,222.4
$ 1,171.5
$ (50.9 ) (4.3 )
Advertising 48.3
51.7
3.4
6.6
139.8
148.0
8.2
5.5
Store and corporate overhead 183.5
184.7
1.2
0.6
551.6
558.8
7.2
1.3
Total $ 653.8
$ 626.2
$ (27.6 ) (4.4 ) $ 1,913.8
$ 1,878.3
$ (35.5 ) (1.9 )

SG&A as a % of total gross profit:
Compensation 47.6
45.6
(200 ) bps 46.5
46.0
(50 ) bps
Advertising 5.4
6.0
60
bps 5.3
5.8
50
bps
Store and corporate overhead 20.7
21.6
90
bps 21.0
21.9
90
bps
Total 73.7
73.2
(50 ) bps 72.8
73.7
90
bps

Third Quarter ~~2019~~2020 compared to Third Quarter ~~2018~~2019

SG&A expenses ~~increased~~decreased during the three months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018,~~2019, primarily due to ~~a performance-driven increase in compensation expense, as well as severance~~the cost-saving actions implemented to mitigate the financial impact of the COVID-19 pandemic, including restructuring our workforce, reducing our advertising expenses by approximately 13%, and ~~other related expenses of $11.0 million we recognized in connection with the separation of an executive during the third quarter of 2019.~~significantly reducing our discretionary spending. Gross advertising expenses decreased ~~$4.9~~$9.7 million, partially offset by a decrease in advertising reimbursements from manufacturers of ~~$1.5~~$3.5 million. As a percentage of total gross profit, SG&A expenses ~~increased~~decreased to ~~73.7%~~66.0% during the three months ended September 30, ~~2019,~~2020, from ~~73.2%~~73.7% in the same period in ~~2018,~~2019, primarily due to effective cost management including the ~~severance and other related expenses incurred in~~cost-saving actions taken due to the ~~third quarter of 2019 in connection with the separation of an executive.~~pandemic.

First Nine Months ~~2019~~2020 compared to First Nine Months ~~2018~~2019

SG&A expenses ~~increased~~decreased during the nine months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018,~~ 2019,

primarily due to ~~a performance-driven increase in compensation expense, restructuring~~the cost-saving actions implemented to mitigate the financial impact of the COVID-19 pandemic, including temporarily placing associates on unpaid leave, implementing temporary base pay reductions for our executive officers and associates, temporarily freezing corporate new hiring, reducing our advertising expenses ~~we recognized during the first quarter of 2019,~~by approximately 17%, and ~~severance and other related expenses of $11.0 million we recognized in connection with the separation of an executive during the third quarter of 2019.~~significantly reducing our discretionary spending. Gross advertising expenses decreased ~~$12.3~~$33.2 million, partially offset by a decrease in advertising reimbursements from manufacturers of ~~$4.1~~$9.9 million. Store and corporate overhead expenses decreased primarily due to decreases in costs associated with our self-insurance programs, including lower hail-related losses and more favorable claims experience, our cost savings efforts made in connection with our restructuring and cost savings plan announced in January 2019, and a decrease in one-time expenses incurred in the prior year related to our brand extension strategy. As a percentage of total gross profit, SG&A expenses decreased to ~~72.8%~~69.4% during the nine months ended September 30, ~~2019,~~2020, from ~~73.7%~~72.8% in the same period in ~~2018,~~2019, primarily due to ~~improvements in gross profit PVRs and~~ effective cost ~~management.~~management including the cost-saving actions taken due to the pandemic.

Goodwill Impairment

During the first quarter of 2020, we recorded $318.3 million of non-cash goodwill impairment charges primarily due to the impacts to our business as well as the decrease in our stock price and market capitalization as a result of the COVID-19 pandemic. See Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

Franchise Rights Impairment

We recorded non-cash impairment charges of $57.5 million during the first quarter of 2020 and $9.6 million during the second quarter of 2019 to reduce the carrying values of certain franchise rights to their estimated fair values. See Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

Other ~~Income,~~(Income) Expense, Net ~~(included~~(Operating)

During the third quarter of 2020, we recognized $7.3 million related to estimated contract termination charges and $2.8 million related to long-lived asset impairment charges in ~~Operating Income)~~connection with the closure of our ACP business, which were partially

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offset by a gain of $2.9 million related to a legal settlement. During the second quarter of 2020, we recognized a gain of $3.2 million related to a legal settlement. During the first quarter of 2020, we recognized asset impairment charges of $8.5 million.

During the third quarter of 2019, we recognized ~~net gains of~~ $6.1 million related to store/property divestitures, which were partially offset by asset impairments of $0.9 million. During the second quarter of 2019, we recognized net gains of $4.2 million related to store/property divestitures, which were partially offset by an asset impairment of $0.4 million. During the first quarter of 2019, we recognized net gains of $8.5 million related to store divestitures.

During the third quarter of 2018, we recognized net gains of $18.1 million related to store divestitures. During the second quarter of 2018, we recognized net gains of $8.6 million related to store/property divestitures and $6.0 million related to certain legal settlements. During the first quarter of 2018, we recognized net gains of $12.3 million related to store/property divestitures, which were partially offset by asset impairments and other charges of $2.0 million.

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~~Franchise Rights Impairment~~

We recorded non-cash impairment charges of $9.6 million during the second quarter of 2019 and $8.1 million during the second quarter of 2018 to reduce the carrying values of certain franchise rights to their estimated fair values. See Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

Non-Operating Income (Expense)

Floorplan Interest Expense

Third Quarter ~~2019~~2020 compared to Third Quarter ~~2018~~2019

Floorplan interest expense ~~of $33.0~~was $11.1 million for the three months ended September 30, ~~2019, was relatively flat~~2020, compared to ~~$32.7~~$33.0 million for the same period in ~~2018.~~2019. The decrease in floorplan interest expense of $21.9 million was the result of lower average interest rates and lower average vehicle floorplan balances. Floorplan interest rates are variable and therefore increase and decrease with changes in the underlying benchmark interest rates.

First Nine Months ~~2019~~2020 compared to First Nine Months ~~2018~~2019

Floorplan interest expense was ~~$109.4~~$52.9 million for the nine months ended September 30, ~~2019,~~2020, compared to ~~$93.4~~$109.4 million for the same period in ~~2018.~~2019. The ~~increase~~decrease in floorplan interest expense of ~~$16.0~~$56.5 million iswas the result of ~~higher~~lower average interest rates and ~~higher~~lower average vehicle floorplan balances. Floorplan interest rates are variable and therefore increase and decrease with changes in the underlying benchmark interest rates.

Other Interest Expense

Third Quarter ~~2019~~2020 compared to Third Quarter ~~2018~~2019

Other interest expense ~~of $26.1~~was $23.6 million for the three months ended September 30, ~~2019, decreased $2.3 million as~~2020, compared to ~~$28.4~~$26.1 million for the same period in ~~2018, primarily due to~~2019. The decrease of $2.5 million was driven by lower average debt balances.

First Nine Months ~~2019~~2020 compared to First Nine Months ~~2018~~2019

Other interest expense ~~of $81.6~~was $70.3 million for the nine months ended September 30, ~~2019, decreased $8.8 million as~~2020, compared to ~~$90.4~~$81.6 million for the same period in ~~2018,~~2019. The decrease of $11.3 million was driven by lower average interest rates primarily due to the repayment of the ~~6.75%~~5.5% Senior Notes due ~~2018~~2020 and lower average debt balances.

Other Income, Net (included in Non-Operating Income)

We recorded an unrealized loss of $2.0 million during the third quarter of 2020 and an unrealized gain of $214.7 million during the second quarter of ~~2018.~~2020 related to our minority equity investment in Vroom Inc. due to changes in the fair value of the underlying security. During the period that we hold this minority equity investment, unrealized gains and losses will be recorded as the fair market value of this security changes over time. See Note 11 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

~~Provision for~~ Income ~~Taxes~~Tax Provision

Income taxes are provided based upon our anticipated underlying annual blended federal and state income tax rates adjusted, as necessary, for any discrete tax matters occurring during the period. As we operate in various states, our effective tax rate is also dependent upon our geographic revenue mix.

Our effective income tax rate was 25.0% for the three months ended September 30, 2020, and 27.1% for the three months ended September 30, ~~2019, and 22.6% for the three months ended September 30, 2018.~~2019. Our effective income tax rate was 34.0% for the nine months ended September 30, 2020, and 27.0% for the nine months ended September 30, ~~2019, and 24.4%~~2019.

The tax rate for the nine months ended September 30, ~~2018.~~

~~During~~2020, reflects the ~~third~~fact that a significant portion of the goodwill impairment charges taken in the first quarter of ~~2018, and in connection with the finalization of our December 31, 2017 federal tax return, we adjusted our deferred tax assets and liabilities~~2020 was not deductible for ~~the~~ income tax rate change associated with tax reform, resulting in a 340 basis point and a 120 basis point impact on the effective income tax rate for the three and nine months ended September 30, 2018, respectively.purposes.

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Discontinued Operations

Discontinued operations are related to stores that were sold or terminated prior to January 1, 2014. Results from discontinued operations, net of income taxes, were primarily related to carrying costs for real estate we have not yet sold associated with stores that were closed prior to January 1, 2014, and other adjustments related to disposed operations.

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Liquidity and Capital Resources

We manage our liquidity to ensure access to sufficient funding at acceptable costs to fund our ongoing operating requirements and future capital expenditures while continuing to meet our financial obligations. We believe that our cash and cash equivalents, funds generated through ~~future~~ operations, and amounts available under our revolving credit facility, commercial paper program, and secured used vehicle floorplan facilities will be sufficient to fund our working capital requirements, service our debt, pay our tax obligations and commitments and contingencies, and meet any seasonal operating requirements for the foreseeable future.

Available Liquidity Resources

We had the following sources of liquidity available:


(In millions)	September 30, 2020			December 31, 2019
Cash and cash equivalents	$	350.5		$	42.0
Revolving credit facility	$	1,760.3	⁽¹⁾	$	1,421.1	⁽²⁾
Secured used vehicle floorplan facilities ⁽³⁾	$	251.1		$	0.6

(In millions) September 30,
2019 December 31,
2018
Cash and cash equivalents $ 45.0
$ 48.6
Revolving credit facility ⁽¹⁾
$ 948.4
⁽²⁾
$ 588.0
Secured used vehicle floorplan facilities ⁽³⁾
$ 0.6
$ 0.5
⁽¹⁾At September 30, 2020, we had $39.7 million of letters of credit outstanding. In addition, we use the revolving credit facility under our credit agreement as a liquidity backstop for borrowings under our commercial paper program. We had no commercial paper notes outstanding at September 30, 2020. See Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.


⁽²⁾ As limited by the maximum consolidated leverage ratio contained in our credit agreement. ⁽³⁾ Based on the eligible used vehicle inventory that could have been pledged as collateral. See Note 5 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information. ⁽¹⁾	~~As limited by the maximum consolidated leverage ratio contained in our credit agreement.~~

⁽²⁾

At September 30, 2019, we had $41.7 million of letters of credit outstanding. In addition, we use the revolving credit facility under our credit agreement as a liquidity backstop for borrowings under our commercial paper program. We had $300.0 million of commercial paper notes outstanding at September 30, 2019. See Note 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.


⁽³⁾	~~Based on the eligible used vehicle inventory that could have been pledged as collateral. See Note 5 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.~~

In the ordinary course of business, we are required to post performance and surety bonds, letters of credit, and/or cash deposits as financial guarantees of our performance relating to insurance matters. At September 30, ~~2019~~,2020, surety bonds, letters of credit, and cash deposits totaled ~~$108.4~~$101.9 million,, of which ~~$41.7~~$39.7 million were letters of credit. We do not currently provide cash collateral for outstanding letters of credit.

In February 2019, we filed an automatic shelf registration statement with the SEC that enables us to offer for sale, from time to time and as the capital markets permit, an unspecified amount of common stock, preferred stock, debt securities, warrants, subscription rights, depositary shares, stock purchase contracts, units, and guarantees of debt securities.

Capital Allocation

Our capital allocation strategy is focused on ~~maximizing stockholder returns.~~growing long-term value per share. We invest capital in our business to maintain and upgrade our existing facilities and to build new facilities for existing franchises, as well as for other strategic and technology ~~initiatives, including our brand extension strategy discussed above under “Strategic Initiatives.”~~initiatives. We also deploy capital opportunistically to repurchase our common stock and/or debt, to complete ~~dealership, collision center, or other automotive business-related~~ acquisitions or investments, and/or build facilities for newly awarded ~~franchises or newly opened collision centers.~~franchises. Our capital allocation decisions will be based on factors such as the expected rate of return on our investment, the market price of our common stock versus our view of its intrinsic value, the market price of our debt, the potential impact on our capital structure, our ability to complete acquisitions that meet our market and vehicle brand criteria and return on investment threshold, and limitations set forth in our debt agreements.

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Share Repurchases

Our Board of Directors from time to time authorizes the repurchase of shares of our common stock up to a certain monetary limit. A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions, except per share data)	2020		2019		2020		2019
Shares repurchased	—		—		2.5		1.3
Aggregate purchase price	$	—	$	—	$	80.0	$	44.7
Average purchase price per share	$	—	$	—	$	31.95	$	35.51

Three Months Ended Nine Months Ended
September 30, September 30,
(In millions, except per share data) 2019 2018 2019 2018
Shares repurchased —
—
1.3
2.1
Aggregate purchase price $ —
$ —
$ 44.7
$ 100.0
Average purchase price per share $ —
$ —
$ 35.51
$ 47.58

In October 2020, our Board of Directors increased the share repurchase authorization to $500 million.The decision to repurchase shares at any given point in time is based on factors such as the market price of our common stock versus our view of its intrinsic value, the potential impact on our capital structure (including compliance with our maximum leverage ratio and other financial covenants in our debt agreements as well as our available liquidity), and the expected return on competing uses of capital such as ~~dealership, collision center, and other automotive business-related~~ acquisitions or investments, capital investments in our current businesses, or repurchases of our debt.

~~As of September 30, 2019, $219.0 million remained available under our stock repurchase limit most recently authorized by our Board of Directors.~~

Capital Expenditures

The following table sets forth information regarding our capital expenditures:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions)	2020		2019		2020		2019
Purchases of property and equipment, including operating lease buy-outs ⁽¹⁾	$	37.3	$	62.6	$	91.9	$	170.1

Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2019 2018 2019 2018
Purchases of property and equipment, including operating lease buy-outs ⁽¹⁾
$ 62.6
$ 88.9
$ 170.1
$ 271.6
⁽¹⁾Includes accrued construction in progress and excludes property associated with leases entered into during the year.

⁽¹⁾

At September 30, 2020, we owned approximately 80% of our new vehicle franchise store locations with a net book value of $2.1 billion, as well as other properties associated with our collision centers, auction operations, AutoNation USA used vehicle stores, parts distribution centers, and other excess properties with a net book value of $455.3 million. None of these properties are mortgaged or encumbered. We took various actions to mitigate the financial impact of the COVID-19 pandemic, including the postponement of nearly $90 million of capital expenditures through the third quarter of 2020. We also plan to defer capital expenditures of over $30 million for the remainder of 2020.

~~Includes accrued construction in progress and excludes property associated with leases entered into during the year.~~

Acquisitions and Divestitures

The following table sets forth information regarding cash used in business acquisitions, net of cash acquired, and cash received from business divestitures, net of cash relinquished:


	Three Months Ended						Nine Months Ended							Three Months Ended						Nine Months Ended
	September 30,						September 30,							September 30,						September 30,
(In millions)	2019			2018			2019			2018			(In millions)	2020		2019		2020		2019
Cash received from (used in) business acquisitions, net	$	(0.4	)	$	(65.2	)	$	(4.7	)	$	(67.9	)	Cash received from (used in) business acquisitions, net	$	—	$	(0.4)	$	(0.4)	$	(4.7)
Cash received from (used in) business divestitures, net	$	44.9		$	47.4		$	67.2		$	144.2		Cash received from (used in) business divestitures, net	$	2.2	$	44.9	$	2.2	$	67.2

We ~~purchased two parts distribution centers~~divested one store and terminated one franchise during the nine months ended September 30, ~~2019.~~2020. We purchased ~~one Premium Luxury store~~two parts distribution centers and ~~two collision centers during the nine months ended September 30, 2018.~~

~~During the nine months ended September 30, 2019, we~~ divested two Domestic stores, four Import stores, and one collision ~~center. During~~center during the nine months ended September 30, ~~2018, we divested eight Domestic stores, five Import stores, two Premium Luxury stores, and one collision center.~~

We regularly review our store portfolio and may divest stores opportunistically. We have utilized proceeds related to asset sales, including business and real estate divestitures, and expect to utilize proceeds from future asset sales, to fund our capital investments and strategic initiatives or for other general corporate purposes.

2019.

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Long-Term Debt and Commercial Paper

The following table sets forth our non-vehicle long-term debt, net of debt issuance costs, as of September 30, ~~2019~~,2020, and December 31, ~~2018~~.2019.


			(in millions)
Debt Description	Maturity Date	Interest Payable	September 30, 2020		December 31, 2019
5.5% Senior Notes	February 1, 2020	February 1 and August 1	$	—	$	350.0
3.35% Senior Notes	January 15, 2021	January 15 and July 15	300.0		300.0
3.5% Senior Notes	November 15, 2024	May 15 and November 15	450.0		450.0
4.5% Senior Notes	October 1, 2025	April 1 and October 1	450.0		450.0
3.8% Senior Notes	November 15, 2027	May 15 and November 15	300.0		300.0
4.75% Senior Notes	June 1, 2030	June 1 and December 1	500.0		—
Revolving credit facility	March 26, 2025	Monthly	—		—
Finance leases and other debt	Various dates through 2039	Monthly	105.3		93.9
			2,105.3		1,943.9
Less: unamortized debt discounts and debt issuance costs							(15.6)		(9.8)
Less: current maturities							(307.7)		(355.6)
Long-term debt, net of current maturities							$	1,782.0	$	1,578.5

(in millions)
Debt Description Maturity Date Interest Payable September 30,
2019 December 31,
2018
5.5% Senior Notes February 1, 2020 February 1 and August 1 $ 350.0
$ 350.0
3.35% Senior Notes January 15, 2021 January 15 and July 15 300.0
300.0
3.5% Senior Notes November 15, 2024 May 15 and November 15 450.0
450.0
4.5% Senior Notes October 1, 2025 April 1 and October 1 450.0
450.0
3.8% Senior Notes November 15, 2027 May 15 and November 15 300.0
300.0
Revolving credit facility October 19, 2022 Monthly —
—
Other debt ⁽¹⁾
Various dates through 2038 Monthly 130.4
133.1
1,980.4
1,983.1
Less: unamortized debt discounts and debt issuance costs (10.5 ) (12.6 )
Less: current maturities (394.1 ) (44.3 )
Long-term debt, net of current maturities $ 1,575.8
$ 1,926.2

On March 26, 2020, we amended and restated our existing unsecured credit agreement to, among other things, (1) provide for lower commitment fees and loan margins as set forth in the amended and restated credit agreement, (2) extend the maturity date to March 26, 2025, and (3) provide for customary LIBOR replacement provisions.

⁽¹⁾~~Other debt includes finance leases as~~On May 21, 2020, we issued $500.0 million aggregate principal amount of ~~September 30, 2019 and capital leases as of December 31, 2018.~~

~~Our 5.5%~~4.75% Senior Notes due 2030, which were sold at 99.479% of the aggregate principal amount. In February 2020, we repaid the outstanding $350.0 million of 5.5% Senior Notes. Our 3.35% Senior Notes due 2021 will mature on ~~February 1, 2020,~~January 15, 2021, and were, therefore, reclassified to current maturities during the first quarter of ~~2019.~~2020.

AtWe had no commercial paper notes outstanding at September 30, 2020. At December 31, 2019, we had ~~$300.0~~$170.0 million of commercial paper notes outstanding with a weighted-average annual interest rate of ~~2.41%~~2.13% and a weighted-average remaining term of ~~8 days. At December 31, 2018, we had $630.0 million of commercial paper notes outstanding with a weighted-average annual interest rate of 3.22% and a weighted-average remaining term of 21~~12 days.

See Note 87 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information on our long-term debt and commercial paper.

Restrictions and Covenants

Our credit agreement, the indentures for our senior unsecured notes, and our vehicle floorplan facilities contain numerous customary financial and operating covenants that place significant restrictions on us, including our ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell (or otherwise dispose of) assets, and to merge or consolidate with other entities.

Under our credit agreement, we are required to remain in compliance with a maximum leverage ratio and maximum capitalization ratio. The leverage ratio is a contractually defined amount principally reflecting non-vehicle debt divided by a contractually defined measure of earnings with certain adjustments. The capitalization ratio is a contractually defined amount principally reflecting vehicle floorplan payable and non-vehicle debt divided by our total capitalization including vehicle floorplan payable. The specific terms of these covenants can be found in our credit agreement, which we filed with our Current Report on Form 8-K on ~~October 24, 2017.~~March 26, 2020.

The indentures for our senior unsecured notes contain certain limited covenants, including limitations on liens and sale and leaseback transactions.

Our failure to comply with the covenants contained in our debt agreements could result in the acceleration of all of our indebtedness. Our debt agreements have cross-default provisions that trigger a default in the event of an uncured default under other material indebtedness of AutoNation.

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During the nine months ended September 30, 2020, we recorded non-cash goodwill and franchise rights impairment charges of $375.8 million. See Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements. As of September 30, ~~2019~~,2020, we were in compliance with the requirements of the financial covenants under our debt ~~agreements.~~agreements as such non-cash impairment charges do not factor into the calculations for those covenants. Under the terms of our credit agreement, at September 30, ~~2019~~,2020, our leverage ratio and capitalization ratio were as follows:

September 30, ~~2019~~2020

Requirement

Actual

Leverage ratio

≤ 3.75x

~~2.65x~~1.99x

Capitalization ratio

≤ 70.0%

~~55.7%~~46.3%

Although economic conditions have improved during the third quarter of 2020, to the extent that in the future we believe that we would be unable to comply with the covenants contained in our credit agreement, we would seek an amendment or waiver of our credit agreement, which could increase the cost of our debt.

Vehicle Floorplan Payable

The components of vehicle floorplan payable are as follows:


(In millions)	September 30, 2020		December 31, 2019
Vehicle floorplan payable - trade	$	1,467.6	$	2,120.6
Vehicle floorplan payable - non-trade	841.0		1,455.2
Vehicle floorplan payable	$	2,308.6	$	3,575.8

(In millions) September 30,
2019 December 31,
2018
Vehicle floorplan payable - trade $ 2,073.5
$ 2,388.0
Vehicle floorplan payable - non-trade 1,407.6
1,609.7
Vehicle floorplan payable $ 3,481.1
$ 3,997.7

Vehicle floorplan facilities are due on demand, but in the case of new vehicle inventories, are generally paid within several business days after the related vehicles are sold. Vehicle floorplan facilities are primarily collateralized by vehicle inventories and related receivables. See Note 5 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information on our vehicle floorplan payable.

Cash Flows

The following table summarizes the changes in our cash provided by (used in) operating, investing, and financing activities:


	Nine Months Ended							Nine Months Ended
	September 30,							September 30,
(In millions)	2019			2018			(In millions)	2020		2019
Net cash provided by operating activities	$	665.5		$	535.1		Net cash provided by operating activities	$	1,164.3	$	665.5
Net cash used in investing activities	$	(113.5	)	$	(172.2	)	Net cash used in investing activities	$	(151.6)	$	(113.5)
Net cash used in financing activities	$	(555.9	)	$	(380.7	)	Net cash used in financing activities	$	(704.6)	$	(555.9)

Cash Flows from Operating Activities

Our primary sources of operating cash flows result from the sale of vehicles and finance and insurance products, collections from customers for the sale of parts and services, and proceeds from vehicle floorplan payable-trade. Our primary uses of cash from operating activities are repayments of vehicle floorplan payable-trade, purchases of inventory, personnel-related expenditures, and payments related to taxes and leased properties.

Net cash provided by operating activities increased during the nine months ended September 30, ~~2019,~~2020, as compared to the same period in ~~2018,~~2019, primarily due to a decrease in working capital requirements and an increase in earnings.

Cash Flows from Investing Activities

Net cash flows from investing activities consist primarily of cash used in capital additions and activity from business acquisitions, business divestitures, property dispositions, and other transactions.

Net cash used in investing activities ~~decreased~~increased during the nine months ended September 30, ~~2019~~,2020, as compared to the same period in ~~2018~~,2019, primarily due to ~~decreases in purchases of property and equipment and cash used in business acquisitions, net of cash acquired, partially offset by decreases~~a decrease in cash received from business divestitures, net of cash relinquished, and ~~proceeds from the sale~~an investment in an equity security, partially offset by a decrease in purchases of property and equipment.

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Cash Flows from Financing Activities

Net cash flows from financing activities primarily include repurchases of common stock, debt activity, and changes in vehicle floorplan payable-non-trade.

During the nine months ended September 30, 2020, we borrowed $1.1 billion and repaid $1.1 billion under our revolving credit facility. During the nine months ended September 30, 2019, we had no borrowings or repayments under our revolving credit facility.

During the nine months ended September 30, 2020, we repaid the outstanding $350.0 million of 5.5% Senior Notes due 2020, issued $500.0 million aggregate principal amount of 4.75% Senior Notes due 2030, and amended and restated our existing unsecured credit agreement. Cash flows from financing activities during the nine months ended September 30, 2020, reflect cash payments of $11.0 million for debt issuance costs associated with the senior note issuance and debt refinancing that are being amortized to interest expense over the terms of the related debt arrangements.

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Cash flows from financing activities include changes in vehicle floorplan payable-non-trade totaling net payments of $609.7 million for the nine months ended September 30, 2020, and net payments of $180.0 million for the nine months ended September 30, 2019, as well as changes in commercial paper notes outstanding totaling net payments of $170.0 million during the nine months ended September 30, 2020, and net payments of $330.0 million during the nine months ended September 30, ~~2019, and net proceeds of $270.0 million during~~2019.

During the nine months ended September 30, ~~2018, as well as changes in vehicle floorplan payable-non-trade totaling net payments~~2020, we repurchased 2.5 million shares of ~~$180.0~~common stock for an aggregate purchase price of $80.0 million ~~for the~~ ~~nine~~ ~~months ended September 30, 2019, and net payments~~(average purchase price per share of ~~$147.6 million for the~~ ~~nine~~ ~~months ended September 30, 2018.~~

$31.95). During the nine ~~months ended September 30, 2018, we repaid the outstanding $400.0 million of 6.75% Senior Notes.~~

~~During the~~ ~~nine~~ months ended September 30, 2019, we repurchased 1.3 million shares of common stock for an aggregate purchase price of $44.7 million (average purchase price per share of $35.51).

During the nine months ended September 30, ~~2018, we repurchased 2.1 million shares~~2020, cash flows from financing activities were also impacted by an increase in proceeds from the exercise of ~~common~~ stock ~~for an aggregate purchase price of $100.0 million (average purchase price per share of $47.58).~~

~~Recent Accounting Pronouncements~~

~~See Note 1 of~~options as compared to the ~~Notes to Unaudited Condensed Consolidated Financial Statements.~~same period in 2019.

Forward-Looking Statements

Our business, financial condition, results of operations, cash flows, and prospects, and the prevailing market price and performance of our common stock may be adversely affected by a number of factors, including the matters discussed below. Certain statements and information set forth in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding the impact of the COVID-19 pandemic on our business, results of operations, and financial condition, the actions we are taking in response to the COVID-19 pandemic, our strategic initiatives, partnerships, or investments, including the planned expansion of our AutoNation USA used vehicle stores, our investments in digital and online capabilities, and other brand extension strategies, ~~as well as~~and other statements regarding our expectations for the future performance of our business and the automotive retail industry, ~~and~~as well as other written or oral statements ~~that describe~~made from time to time by us or by our ~~objectives, goals, or plans,~~authorized executive officers on our behalf, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact, including statements that describe our objectives, plans or goals are, or may be deemed to be, forward-looking statements. Words such as “anticipate,” “expect,” “intend,” “goal,” “plan,” “believe,” “continue,” “may,” “will,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Our forward-looking statements reflect our current expectations concerning future results and events, and they involve known and unknown risks, uncertainties and other factors that are difficult to predict and may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these statements. These forward-looking statements speak only as of the date of this report, and we undertake no obligation to revise or update these statements to reflect subsequent events or circumstances. The risks, uncertainties, and other factors that our stockholders and prospective investors should consider include, but are not limited to, the following:

•The automotive retail industry is sensitive to changing economic conditions and various other factors, including, but not limited to, unemployment levels, consumer confidence, fuel prices, interest rates, and tariffs. Our business and results of operations are substantially dependent on new and used vehicle sales levels in the United States and in our particular geographic markets, as well as the gross profit margins that we can achieve on our sales of vehicles, all of which are very difficult to predict. Any adverse economic impacts resulting from the COVID-19 pandemic, including any potential economic recessions or downturns, could materially adversely impact our business in future periods.

•Our new vehicle sales are impacted by the incentive, marketing, and other programs of vehicle manufacturers.

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•We are dependent upon the success and continued financial viability of the vehicle manufacturers and distributors with which we hold franchises.

•We are investing significantly in our brand extension strategy, and if our strategic initiatives are not successful, we will have incurred significant expenses without the benefit of improved financial results.

•If we are not able to maintain and enhance our retail brands and reputation or to attract consumers to our own digital channels, or if events occur that damage our retail brands, reputation, or sales channels, our business and financial results may be harmed.

•New laws, regulations, or governmental policies regarding fuel economy and greenhouse gas emission standards, or changes to existing standards, may affect vehicle manufacturers’ ability to produce cost-effective vehicles or vehicles that consumers demand, which could adversely impact our business, results of operations, financial condition, cash flow, and prospects.

•Natural disasters and adverse weather events can disrupt our business.

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We are subject to restrictions imposed by, and significant influence from, vehicle manufacturers that may adversely impact our business, financial condition, results of operations, cash flows, and prospects, including our ability to acquire additional stores.

•We are subject to numerous legal and administrative proceedings, which, if the outcomes are adverse to us, could materially adversely affect our business, results of operations, financial condition, cash flows, and prospects.

•Our operations are subject to extensive governmental laws and regulations. If we are found to be in purported violation of or subject to liabilities under any of these laws or regulations, or if new laws or regulations are enacted that adversely affect our operations, our business, operating results, and prospects could suffer.

•A failure of our information systems or any security breach or unauthorized disclosure of confidential information could have a material adverse effect on our business.

•Our debt agreements contain certain financial ratios and other restrictions on our ability to conduct our business, and our substantial indebtedness could adversely affect our financial condition and operations and prevent us from fulfilling our debt service obligations.

•We are subject to interest rate risk in connection with our vehicle floorplan payables, revolving credit facility, and commercial paper program that could have a material adverse effect on our profitability.

•Goodwill and other intangible assets comprise a significant portion of our total assets. We must test our goodwill and other intangible assets for impairment at least annually, which could result in a material, non-cash write-down of goodwill or franchise rights and could have a material adverse impact on our results of operations and shareholders’ equity.

•Our minority equity investment in Vroom Inc., which has a readily determinable fair value, is required to be measured at fair value. Fluctuations in its fair value could result in a loss, which could adversely impact our results of operations and financial condition. The carrying value of our minority equity investment in Waymo, which does not have a readily determinable fair value, is required to be adjusted for observable price changes or impairments, both of which could adversely impact our results of operations and financial condition.

•Our largest stockholders, as a result of their ownership stakes in us, may have the ability to exert substantial influence over actions to be taken or approved by our stockholders. In addition, future share repurchases and fluctuations in the levels of ownership of our largest stockholders could impact the volume of trading, liquidity, and market price of our common stock.

Please refer to our most recent Annual Report on Form 10-K, as supplemented by our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, and June 30, 2020, for additional discussion of the foregoing risks. These forward-looking statements speak only as of the date of this report, and we undertake no obligation to update any forward-looking statements to reflect subsequent events or circumstances.

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Additional Information

Investors and others should note that we announce material financial information using our company website (www.autonation.com), our investor relations website (investors.autonation.com), SEC filings, press releases, public conference calls, and webcasts. Information about AutoNation, its business, and its results of operations may also be announced by posts on the following social media channels:


•	•AutoNation’s Twitter feed (www.twitter.com/autonation) •Mike Jackson’s Twitter feed (www.twitter.com/CEOMikeJackson)


•	~~Cheryl Miller’s Twitter feed (www.twitter.com/CEOCherylMiller~~)

The information that we post on these social media channels could be deemed to be material information. As a result, we encourage investors, the media, and others interested in AutoNation to review the information that we post on these social media channels. These channels may be updated from time to time on AutoNation’s investor relations website. The information on or accessible through our websites and social media channels is not incorporated by reference in this Quarterly Report on Form 10-Q.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

~~Our primary~~We have market risk exposure isto changing LIBOR-based interest rates. Interest rate derivatives may be used to hedge a portion of our variable rate debt, when appropriate, based on market conditions.

We had ~~$3.5~~$2.3 billion of variable rate vehicle floorplan payable at September 30, ~~2019~~,2020, and ~~$4.0~~$3.6 billion at December 31, ~~2018~~.2019. Based on these amounts, a 100 basis point change in interest rates would result in an approximate change to our annual floorplan interest expense of ~~$34.8~~$23.1 million at September 30, ~~2019~~,2020, and ~~$40.0~~$35.8 million at December 31, ~~2018~~.2019. Our exposure to changes in interest rates with respect to total vehicle floorplan payable is partially mitigated by manufacturers’ floorplan assistance, which in some cases is based on variable interest rates.

We had ~~$300.0 million of~~no commercial paper notes outstanding at September 30, ~~2019,~~2020, and ~~$630.0~~$170.0 million at December 31, ~~2018.~~2019. Based on the amounts outstanding, a 100 basis point change in interest rates would result in an approximate change to annual interest expense of ~~$3.0 million at September 30, 2019 and $6.3~~$1.7 million at December 31, ~~2018.~~2019.

Our fixed rate long-term debt, consisting of amounts outstanding under our senior unsecured notes and finance lease and other debt obligations, totaled ~~$2.0~~$2.1 billion and had a fair value of $2.3 billion as of September 30, 2020, and totaled $1.9 billion and had a fair value of $2.0 billion as of ~~September 30, 2019~~December 31, 2019.

Equity Price Risk

We are subject to equity price risk with respect to our minority equity investment in Vroom Inc., which has a readily determinable fair value following Vroom’s initial public offering in the second quarter of 2020. During the period that we hold this equity investment, unrealized gains and ~~totaled $2.0 billion and had a~~losses will be recorded as the fair market value of this security changes over time. The fair value of ~~$1.9 billion~~this equity security was $288.5 million at September 30, 2020. A hypothetical 10% change in the equity price of this security would result in an approximate change to unrealized gain or loss of $28.8 million. The selected 10% hypothetical change in the equity price is not intended to reflect a best or worst case scenario, as equity price changes could be smaller or larger due to the nature of equity markets.

~~December 31, 2018~~.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A of our ~~most recent~~ Annual Report on Form 10-K for the year ended December 31, 2019, and Part II, Item 1A in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, and June 30, 2020, which could materially affect our business, financial condition, or future results.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below sets forth information with respect to shares of common stock repurchased by AutoNation, Inc. during the three months ended September 30, ~~2019~~.2020.

Period
Total Number of
Shares Purchased⁽¹⁾

Avg. Price
Paid Per
Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

Approximate Dollar Value of
Shares That May Yet Be
Purchased Under The
Programs (in millions)⁽¹⁾
July 1, 2019 - July 31, 2019 —
$ —
—
$ 219.0
August 1, 2019 - August 31, 2019 401
$ 47.54
—
$ 219.0
September 1, 2019 - September 30, 2019 —
$ —
—
$ 219.0
Total 401
—


Period	Total Number of Shares Purchased⁽¹⁾	Avg. Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under The Programs (in millions)⁽¹⁾
~~Our Board of Directors from time to time authorizes the repurchase of shares of our common stock up to a certain monetary limit. As of~~ July 1, 2020 - July 31, 2020	—	$	—	—	$	139.0
August 1, 2020 - August 31, 2020	—	$	—	—	$	139.0
September 1, 2020 - September 30, ~~2019~~2020	, $219.0 million remained available under our stock repurchase authorization limit. The Board’s authorization has no expiration date. During the third quarter of 2019, all of the shares reflected in the table above were shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock.—	$	—	—	$	139.0
Total	—			—

⁽¹⁾Our Board of Directors from time to time authorizes the repurchase of shares of our common stock up to a certain monetary limit. In October 2020, our Board of Directors increased the share repurchase authorization to $500 million.

ITEM 6. EXHIBITS


Exhibit No.		Description


~~Exhibit No.~~		~~Description~~

10.1	Employment Agreement, dated asJuly 14, 2020, by and between AutoNation, Inc. and Michael J. Jackson (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on July 14, 2020).
10.2		Separation Agreement and General Release of ~~August 1, 2019,~~All Claims, dated July 14, 2020, by and between AutoNation, Inc. and Cheryl Miller (incorporated by reference to Exhibit ~~10.1~~10.2 to the ~~Company’s Current Report on Form 8-K/A filed with the SEC on August 1, 2019).~~
~~10.2~~	~~Separation Agreement and General Release of All Claims, dated August 21, 2019, by and between AutoNation, Inc. and Carl C. Liebert III (incorporated by reference to Exhibit 10.1 to the Company’s~~ Current Report on Form 8-K filed ~~with the SEC~~ on ~~August 23, 2019)~~July 14, 2020).
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act.
31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act.
32.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350.
32.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350.
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AUTONATION, INC.

Date:

October 21, 2020

~~AUTONATION, INC.~~

By:

~~Date:~~

~~October 29, 2019~~

~~By:~~

/s/ Christopher Cade

Christopher Cade

~~Interim~~
Senior Vice President and Chief ~~Financial~~Accounting Officer

(Duly Authorized Officer and
Principal Accounting Officer)

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	September 30, 2019			December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	45.0		$	48.6
Receivables, net	829.5			976.2
Inventory	3,280.7			3,650.5
Other current assets	243.6			208.7
Total Current Assets	4,398.8			4,884.0
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1.4 billion and $1.3 billion, respectively	3,130.8			3,155.3
OPERATING LEASE ASSETS	328.8			—
GOODWILL	1,498.6			1,513.2
OTHER INTANGIBLE ASSETS, NET	582.0			595.4
OTHER ASSETS	512.8			517.2
Total Assets	$	10,451.8		$	10,665.1
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Vehicle floorplan payable - trade	$	2,073.5		$	2,388.0
Vehicle floorplan payable - non-trade	1,407.6			1,609.7
Accounts payable	267.6			306.2
Commercial paper	300.0			630.0
Current maturities of long-term debt	394.1			44.3
Other current liabilities	752.2			679.9
Total Current Liabilities	5,195.0			5,658.1
LONG-TERM DEBT, NET OF CURRENT MATURITIES	1,575.8			1,926.2
NONCURRENT OPERATING LEASE LIABILITIES	302.5			—
DEFERRED INCOME TAXES	126.6			89.8
OTHER LIABILITIES	255.2			275.0
COMMITMENTS AND CONTINGENCIES (Note 15)
SHAREHOLDERS’ EQUITY:
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized; none issued	—			—
Common stock, par value $0.01 per share; 1,500,000,000 shares authorized; 102,562,149 shares issued at September 30, 2019, and December 31, 2018, including shares held in treasury	1.0			1.0
Additional paid-in capital	34.1			20.8
Retained earnings	3,530.6			3,238.3
Treasury stock, at cost; 13,349,769 and 12,540,065 shares held, respectively	(569.0		)	(544.1		)
Total Shareholders’ Equity	2,996.7			2,716.0
Total Liabilities and Shareholders’ Equity	$	10,451.8		$	10,665.1



	Nine Months Ended September 30, 2018
	Common Stock			Additional Paid-In Capital			Retained Earnings		Treasury Stock			Total
	Shares	Amount		Additional Paid-In Capital			Retained Earnings		Treasury Stock			Total
BALANCE AT DECEMBER 31, 2017	102,562,149	$	1.0	$	4.0		$	2,832.2	$	(467.9	)	$	2,369.3
Net income	—	—		—			93.7		—			93.7
Repurchases of common stock	—	—		—			—		(26.6		)	(26.6		)
Stock-based compensation expense	—	—		14.3			—		—			14.3
Shares awarded under stock-based compensation plans, net of shares withheld for taxes	—	—		(2.2		)	—		13.3			11.1
Cumulative effect of change in accounting principle - revenue recognition	—	—		—			10.1		—			10.1
BALANCE AT MARCH 31, 2018	102,562,149	1.0		16.1			2,936.0		(481.2		)	2,471.9
Net income	—	—		—			97.6		—			97.6
Repurchases of common stock	—	—		—			—		(73.4		)	(73.4		)
Stock-based compensation expense	—	—		4.1			—		—			4.1
Shares awarded under stock-based compensation plans, net of shares withheld for taxes	—	—		(1.3		)	—		1.7			0.4
BALANCE AT JUNE 30, 2018	102,562,149	1.0		18.9			3,033.6		(552.9		)	2,500.6
Net income	—	—		—			112.0		—			112.0
Stock-based compensation expense	—	—		3.6			—		—			3.6
Shares awarded under stock-based compensation plans, net of shares withheld for taxes	—	—		(2.8		)	—		4.6			1.8
BALANCE AT SEPTEMBER 30, 2018	102,562,149	$	1.0	$	19.7		$	3,145.6	$	(548.3	)	$	2,618.0



	Three Months Ended September 30, 2018
	Domestic		Import		Premium Luxury		Corporate and other⁽¹⁾		Total
Major Goods/Service Lines
New vehicle	$	988.5	$	1,070.3	$	874.3	$	—	$	2,933.1
Used vehicle	424.4		365.3		463.6		28.4		1,281.7
Parts and service	271.6		235.8		269.4		87.2		864.0
Finance and insurance, net	88.6		94.4		60.0		4.4		247.4
Other	16.6		4.8		1.5		0.1		23.0
	$	1,789.7	$	1,770.6	$	1,668.8	$	120.1	$	5,349.2

Timing of Revenue Recognition
Goods and services transferred at a point in time	$	1,613.5	$	1,591.6	$	1,441.5	$	35.0	$	4,681.6
Goods and services transferred over time⁽²⁾	176.2		179.0		227.3		85.1		667.6
	$	1,789.7	$	1,770.6	$	1,668.8	$	120.1	$	5,349.2



	Revenue Expected to Be Recognized by Period
	Total		Less Than 1 Year		1 - 3 Years		3 - 5 Years
Revenue expected to be recognized on VCP contracts sold as of period end	$	89.6	$	29.1	$	44.9	$	15.6



	September 30, 2019		December 31, 2018
Receivables from contracts with customers, net	$	571.2	$	706.7
Contract Asset (Current)	$	25.6	$	28.2
Contract Asset (Long-Term)	$	10.1	$	17.4
Contract Liability (Current)	$	32.3	$	31.6
Contract Liability (Long-Term)	$	58.1	$	61.9



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period	$	7.4	$	28.9
Performance obligations satisfied in previous periods	$	2.0	$	8.8


	September 30, 2020		December 31, 2019
Receivables from contracts with customers, net	$	477.2	$	662.0
Contract Asset (Current)	$	26.1	$	26.7
Contract Asset (Long-Term)	$	6.8	$	7.0
Contract Liability (Current)	$	32.1	$	32.6
Contract Liability (Long-Term)	$	55.4	$	57.7



Leases	Classification	September 30, 2019
Assets
Operating	Operating Lease Assets	$	328.8
Finance	Property and Equipment, Net and Other Assets	99.6
Total right-of-use assets		$	428.4

Liabilities
Current
Operating	Other Current Liabilities	$	39.8
Finance	Current Maturities of Long-Term Debt and Vehicle Floorplan Payable - Trade	67.1
Noncurrent
Operating	Noncurrent Operating Lease Liabilities	302.5
Finance	Long-Term Debt, Net of Current Maturities	85.1
Total lease liabilities		$	494.5



		Three Months Ended			Nine Months Ended
Lease cost	Classification	September 30, 2019			September 30, 2019
Operating lease cost	Selling, general, and administrative expenses	$	14.8		$	45.6
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization	2.6			8.2
Interest on lease liabilities	Other interest expense and floorplan interest expense	2.2			6.7
Short-term lease cost ⁽¹⁾	Selling, general, and administrative expenses	2.2			7.8
Variable lease cost	Selling, general, and administrative expenses	1.7			4.4
Sublease income	Selling, general, and administrative expenses	(0.2		)	(1.0		)
Net lease cost		$	23.3		$	71.7

⁽¹⁾Includes leases with a term of one month or less.



	Nine Months Ended
Other Information	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	45.4
Operating cash flows from finance leases ⁽¹⁾	$	37.9
Financing cash flows from finance leases	$	4.3
Right-of-use assets obtained in exchange for new:
Operating lease liabilities	$	17.2
Finance lease liabilities	$	34.0

⁽¹⁾Includes the interest component of payments made on finance leases as well as principal payments on vehicle floorplan payables with trade lenders for certain service loaner vehicle leases.


3.	~~EARNINGS PER SHARE~~


4.	~~RECEIVABLES, NET~~



Maturity of Lease Liabilities	Operating Leases			Finance Leases
Twelve months ending September 30,
2020	$	56.8		$	74.1
2021	51.4			10.7
2022	46.6			10.7
2023	40.1			10.4
2024	34.5			10.7
Thereafter	233.9			99.9
Total lease payments	463.3			216.5
Less: interest	(121.0		)	(64.3		)
Present value of lease liabilities	$	342.3		$	152.2



Maturity of Lease Liabilities	Operating Leases⁽¹⁾		Capital Leases
Twelve months ending December 31,
2019	$	61.2	$	35.7
2020	51.0		10.4
2021	46.1		10.1
2022	42.1		10.2
2023	36.6		10.1
Thereafter	258.4		108.7
Total minimum lease payments	$	495.4	$	185.2
Less: amounts representing interest			(69.5		)
			$	115.7


⁽¹⁾	~~Future minimum operating lease payments do not reflect future minimum sublease income of $2.2 million. Additionally, operating leases that are on a month-to-month basis are not included.~~


~~14.~~	~~FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS~~



Level 1			Quoted prices in active markets for identical assets or liabilities

Level 2			Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3			Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities


•	~~Fixed rate long-term debt~~: Our fixed rate long-term debt primarily consists of amounts outstanding under our senior unsecured notes. We estimate the fair value of our senior unsecured notes using quoted prices for the identical liability (Level 1). A summary of the aggregate carrying values and fair values of our fixed rate long-term debt is as follows: