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 ~~March 31,~~September 30, 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 ~~May 8,~~October 19, 2020, the registrant had ~~87,215,132~~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 ~~March 31,~~September 30, 2020 and December 31, 2019

Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended ~~March 31,~~September 30, 2020 and 2019

Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended ~~March 31,~~September 30, 2020 and 2019

Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2020 and 2019

Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

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

2124

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

4752

Item 4.

Controls and Procedures

4752

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

March 31,
2020 December 31,
2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 411.0
$ 42.0
Receivables, net 512.9
916.7
Inventory 3,677.0
3,305.8
Other current assets 147.7
146.6
Total Current Assets 4,748.6
4,411.1
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1.5 billion and $1.5 billion, respectively 3,164.9
3,174.6
OPERATING LEASE ASSETS 333.5
333.1
GOODWILL 1,183.6
1,501.9
OTHER INTANGIBLE ASSETS, NET 522.3
581.6
OTHER ASSETS 599.5
541.0
Total Assets $ 10,552.4
$ 10,543.3
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Vehicle floorplan payable - trade $ 2,197.2
$ 2,120.6
Vehicle floorplan payable - non-trade 1,485.3
1,455.2
Accounts payable 225.5
290.3
Commercial paper 140.0
170.0
Current maturities of long-term debt 305.6
355.6
Other current liabilities 642.2
708.5
Total Current Liabilities 4,995.8
5,100.2
LONG-TERM DEBT, NET OF CURRENT MATURITIES 2,076.4
1,578.5
NONCURRENT OPERATING LEASE LIABILITIES 306.7
305.0
DEFERRED INCOME TAXES 66.5
135.1
OTHER LIABILITIES 260.1
262.4
COMMITMENTS AND CONTINGENCIES (Note 12)

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 March 31, 2020, and December 31, 2019, including shares held in treasury 1.0
1.0
Additional paid-in capital 18.7
35.9
Retained earnings 3,455.5
3,688.3
Treasury stock, at cost; 15,352,097 and 13,212,974 shares held, respectively (628.3 ) (563.1 )
Total Shareholders’ Equity 2,846.9
3,162.1
Total Liabilities and Shareholders’ Equity $ 10,552.4
$ 10,543.3

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

AUTONATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)


	Three Months Ended							Three Months Ended						Nine Months Ended
	March 31,							September 30,						September 30,
	2020			2019				2020		2019		2020		2019
Revenue:							Revenue:
New vehicle	$	2,281.9		$	2,496.7		New vehicle	$	2,748.4	$	2,874.8	$	7,291.6	$	8,141.1
Used vehicle	1,248.7			1,339.6			Used vehicle	1,516.9		1,402.9		4,090.1		4,121.9
Parts and service	876.3			876.7			Parts and service	852.8		902.6		2,419.0		2,680.8
Finance and insurance, net	235.8			236.5			Finance and insurance, net	281.2		266.2		763.4		757.9
Other	24.3			32.3			Other	5.6		14.7		40.8		85.1
TOTAL REVENUE	4,667.0			4,981.8			TOTAL REVENUE	5,404.9		5,461.2		14,604.9		15,786.8
Cost of sales:							Cost of sales:
New vehicle	2,185.5			2,374.8			New vehicle	2,581.2		2,755.9		6,908.4		7,774.8
Used vehicle	1,157.7			1,249.1			Used vehicle	1,370.0		1,310.6		3,735.2		3,842.3
Parts and service	487.5			477.8			Parts and service	477.6		493.6		1,343.6		1,461.0
Other	23.1			30.9			Other	4.6		13.7		38.0		81.3
TOTAL COST OF SALES (excluding depreciation shown below)	3,853.8			4,132.6			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	96.4			121.9			New vehicle	167.2		118.9		383.2		366.3
Used vehicle	91.0			90.5			Used vehicle	146.9		92.3		354.9		279.6
Parts and service	388.8			398.9			Parts and service	375.2		409.0		1,075.4		1,219.8
Finance and insurance	235.8			236.5			Finance and insurance	281.2		266.2		763.4		757.9
Other	1.2			1.4			Other	1.0		1.0		2.8		3.8
TOTAL GROSS PROFIT	813.2			849.2			TOTAL GROSS PROFIT	971.5		887.4		2,579.7		2,627.4
Selling, general, and administrative expenses	600.7			623.0			Selling, general, and administrative expenses	641.4		653.8		1,790.0		1,913.8
Depreciation and amortization	48.1			44.1			Depreciation and amortization	51.8		45.2		149.0		133.7
Goodwill impairment	318.3			—			Goodwill impairment	0		0		318.3		0
Franchise rights impairment	57.5			—			Franchise rights impairment	0		0		57.5		9.6
Other (income) expense, net	7.9			(8.7		)	Other (income) expense, net	6.6		(5.1)		11.1		(17.5)
OPERATING INCOME (LOSS)	(219.3		)	190.8
OPERATING INCOME							OPERATING INCOME	271.7		193.5		253.8		587.8
Non-operating income (expense) items:							Non-operating income (expense) items:
Floorplan interest expense	(25.5		)	(39.0		)	Floorplan interest expense	(11.1)		(33.0)		(52.9)		(109.4)
Other interest expense	(23.5		)	(27.8		)	Other interest expense	(23.6)		(26.1)		(70.3)		(81.6)

Interest income	0.1			0.2			Interest income	0.1		0.1		0.3		0.4
Other income (loss), net	(3.0		)	1.9
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	(271.2		)	126.1
Income tax provision (benefit)	(39.0		)	34.0
NET INCOME (LOSS) FROM CONTINUING OPERATIONS	(232.2		)	92.1
Other income, net							Other income, net	6.4		2.6		217.9		4.2
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES							INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	243.5		137.1		348.8		401.4
Income tax provision							Income tax provision	60.9		37.1		118.5		108.3
NET INCOME FROM CONTINUING OPERATIONS							NET INCOME FROM CONTINUING OPERATIONS	182.6		100.0		230.3		293.1
Loss from discontinued operations, net of income taxes	(0.1		)	(0.1		)	Loss from discontinued operations, net of income taxes	0		(0.5)		(0.2)		(0.8)
NET INCOME (LOSS)	$	(232.3	)	$	92.0
NET INCOME							NET INCOME	$	182.6	$	99.5	$	230.1	$	292.3
BASIC EARNINGS (LOSS) PER SHARE:							BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations	$	(2.58	)	$	1.02		Continuing operations	$	2.07	$	1.11	$	2.59	$	3.25
Discontinued operations	$	—		$	—		Discontinued operations	$	0	$	(0.01)	$	0	$	(0.01)
Net income (loss)	$	(2.58	)	$	1.02
Net income							Net income	$	2.07	$	1.11	$	2.59	$	3.24
Weighted average common shares outstanding	90.0			90.5			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	$	(2.58	)	$	1.02		Continuing operations	$	2.05	$	1.11	$	2.59	$	3.24
Discontinued operations	$	—		$	—		Discontinued operations	$	0	$	(0.01)	$	0	$	(0.01)
Net income (loss)	$	(2.58	)	$	1.01
Net income							Net income	$	2.05	$	1.10	$	2.59	$	3.23
Weighted average common shares outstanding	90.0			90.7			Weighted average common shares outstanding	88.9		90.4		89.0		90.4
COMMON SHARES OUTSTANDING, net of treasury stock, at period end	87.2			89.2			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

Three Months Ended March 31, 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


	Nine Months Ended September 30, 2019
	Common Stock					Additional Paid-In Capital		Retained Earnings		Treasury Stock		Total
	Shares	Amount
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
Repurchases of common stock	—	—		—		—		(33.5)		(33.5)
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)
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
Repurchases of common stock	—	—		—		—		(11.2)		(11.2)
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
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

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

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

Three Months Ended March 31, 2019
Common Stock Additional
Paid-In
Capital Retained
Earnings Treasury
Stock Total
Shares Amount
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
Repurchases of common stock —
—
—
—
(33.5 ) (33.5 )
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 )
BALANCE AT MARCH 31, 2019 102,562,149
$ 1.0
$ 24.7
$ 3,330.3
$ (570.2 ) $ 2,785.8

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)

Three Months Ended
March 31,
2020 2019
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (232.3 ) $ 92.0
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss from discontinued operations 0.1
0.1
Depreciation and amortization 48.1
44.1
Amortization of debt issuance costs and accretion of debt discounts 1.2
1.3
Stock-based compensation expense 4.5
13.7
Deferred income tax provision (benefit) (68.6 ) 0.8
Net gain related to business/property dispositions —
(8.3 )
Goodwill impairment 318.3
—
Franchise rights impairment 57.5
—
Non-cash impairment charges 8.5
0.2
Other 3.6
(2.0 )
(Increase) decrease, net of effects from business acquisitions and divestitures:
Receivables 403.4
193.3
Inventory (371.3 ) (141.4 )
Other assets (3.5 ) 33.2
Increase (decrease), net of effects from business acquisitions and divestitures:
Vehicle floorplan payable - trade, net 76.6
65.7
Accounts payable (64.1 ) (35.2 )
Other liabilities (68.3 ) 2.2
Net cash provided by continuing operations 113.7
259.7
Net cash provided by discontinued operations —
—
Net cash provided by operating activities 113.7
259.7
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment (42.2 ) (60.0 )
Insurance recoveries on property and equipment 1.2
0.3
Cash received from business divestitures, net of cash relinquished —
17.4
Cash used in business acquisitions, net of cash acquired (0.4 ) (4.3 )
Investment in equity security (50.0 ) —
Other (0.8 ) (2.0 )
Net cash used in continuing operations (92.2 ) (48.6 )
Net cash used in discontinued operations —
—
Net cash used in investing activities (92.2 ) (48.6 )

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

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

Three Months Ended
March 31,
2020 2019
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repurchases of common stock (78.9 ) (33.4 )
Payment of 5.5% Senior Notes due 2020 (350.0 ) —
Proceeds from revolving credit facility 790.0
—
Net payments of commercial paper (30.0 ) (160.0 )
Payment of debt issuance costs (6.1 ) —
Net proceeds from (payments of) vehicle floorplan payable - non-trade 30.1
(12.5 )
Payments of other debt obligations (1.1 ) (2.6 )
Proceeds from the exercise of stock options 1.0
0.3
Payments of tax withholdings for stock-based awards (7.9 ) (2.7 )
Net cash received from (used in) continuing operations 347.1
(210.9 )
Net cash used in discontinued operations —
—
Net cash received from (used in) financing activities 347.1
(210.9 )
INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 368.6
0.2
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH at beginning of period 42.5
49.4
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH at end of period $ 411.1
$ 49.6

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 ~~March 31,~~September 30, 2020,, we owned and operated ~~317~~315 new vehicle franchises from ~~231~~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 32 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately 89% of the new vehicles that we sold during the ~~three~~nine months ended ~~March 31,~~September 30, 2020,, are manufactured by Toyota (including Lexus), Honda, Ford, General Motors, ~~Ford,~~ FCA US, Mercedes-Benz, BMW, and Volkswagen (including Audi and Porsche). As of ~~March 31,~~September 30, 2020, we also owned and operated 8178 AutoNation-branded collision centers, 5 AutoNation USA used vehicle stores, 4 automotive auction operations, and 16 parts distribution 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. Such estimates and assumptions affect, among other things, our goodwill, long-lived asset, and indefinite-lived intangible asset valuation; inventory valuation; equity investment valuation; assets held for sale; accruals for chargebacks against revenue recognized from the sale of finance and insurance products; accruals related to self-insurance programs; certain legal proceedings; assessment of the annual effective tax rate; valuation of deferred income taxes and income tax contingencies; the allowance for expected credit losses; and measurement of performance-based compensation costs.

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

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 March 31, 2020
Domestic Import Premium Luxury
Corporate and other⁽¹⁾
Total
Major Goods/Service Lines
New vehicle $ 738.9
$ 733.9
$ 809.1
$ —
$ 2,281.9
Used vehicle 404.6
334.5
467.3
42.3
1,248.7
Parts and service 235.6
207.5
277.4
155.8
876.3
Finance and insurance, net 83.1
84.0
63.0
5.7
235.8
Other 21.3
2.2
—
0.8
24.3
$ 1,483.5
$ 1,362.1
$ 1,616.8
$ 204.6
$ 4,667.0

Timing of Revenue Recognition
Goods and services transferred at a point in time $ 1,311.4
$ 1,200.5
$ 1,380.2
$ 109.4
$ 4,001.5
Goods and services transferred over time⁽²⁾
172.1
161.6
236.6
95.2
665.5
$ 1,483.5
$ 1,362.1
$ 1,616.8
$ 204.6
$ 4,667.0

Three Months Ended March 31, 2019
Domestic Import Premium Luxury
Corporate and other⁽¹⁾
Total
Major Goods/Service Lines
New vehicle $ 781.0
$ 820.2
$ 895.5
$ —
$ 2,496.7
Used vehicle 443.4
369.5
496.7
30.0
1,339.6
Parts and service 236.3
220.2
278.2
142.0
876.7
Finance and insurance, net 80.4
84.5
61.6
10.0
236.5
Other 27.7
1.7
2.1
0.8
32.3
$ 1,568.8
$ 1,496.1
$ 1,734.1
$ 182.8
$ 4,981.8

Timing of Revenue Recognition
Goods and services transferred at a point in time $ 1,398.1
$ 1,324.8
$ 1,497.2
$ 92.7
$ 4,312.8
Goods and services transferred over time⁽²⁾
170.7
171.3
236.9
90.1
669.0
$ 1,568.8
$ 1,496.1
$ 1,734.1
$ 182.8
$ 4,981.8

⁽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.


	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


	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.

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

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~~AUTONATION, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

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 $ 89.4
$ 29.6
$ 44.5
$ 15.3

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 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.

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 Unaudited Condensed Consolidated Balance Sheets.

The following table provides the balances of our receivables from contracts with customers and our current and long-term contract assets and contract liabilities:


	March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Receivables from contracts with customers, net	$	324.5	$	662.0	Receivables from contracts with customers, net	$	477.2	$	662.0
Contract Asset (Current)	$	21.7	$	26.7	Contract Asset (Current)	$	26.1	$	26.7
Contract Asset (Long-Term)	$	7.2	$	7.0	Contract Asset (Long-Term)	$	6.8	$	7.0
Contract Liability (Current)	$	32.8	$	32.6	Contract Liability (Current)	$	32.1	$	32.6
Contract Liability (Long-Term)	$	57.3	$	57.7	Contract Liability (Long-Term)	$	55.4	$	57.7

The change in the 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

Three Months Ended March 31,
2020 2019
Amounts included in contract liability at the beginning of the period $ 8.5
$ 13.0
Performance obligations satisfied in previous periods $ —
$ 4.6

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AUTONATION, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Other significant changes include contract assets reclassified to receivables of ~~$14.5 million for the three months ended March 31, 2020, and~~ $24.4 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, and $27.5 million for the nine months ended September 30, 2019.


3.	~~EARNINGS (LOSS) PER SHARE~~

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 of earnings (loss) per share 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 (loss) 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.3.EARNINGS PER SHARE

Basic earnings ~~(loss)~~ per share (“EPS”) is computed by dividing net income ~~(loss)~~ 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 ~~earnings per share~~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. For the three months ended March 31, 2020, stock options and unvested RSU awards were not included in the computation of diluted loss per share because we reported a net loss from continuing operations for this period, and the effect of their inclusion would be anti-dilutive.

The following table presents the calculation of basic and diluted ~~earnings (loss) per share:~~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.

Three Months Ended
March 31,
2020 2019
Net income (loss) from continuing operations $ (232.2 ) $ 92.1
Loss from discontinued operations, net of income taxes (0.1 ) (0.1 )
Net income (loss) $ (232.3 ) $ 92.0

Basic weighted average common shares outstanding 90.0
90.5
Dilutive effect of stock options and unvested RSUs —
0.2
Diluted weighted average common shares outstanding 90.0
90.7

Basic earnings (loss) per share amounts⁽¹⁾:

Continuing operations $ (2.58 ) $ 1.02
Discontinued operations $ —
$ —
Net income (loss) $ (2.58 ) $ 1.02

Diluted earnings (loss) per share amounts⁽¹⁾:

Continuing operations $ (2.58 ) $ 1.02
Discontinued operations $ —
$ —
Net income (loss) $ (2.58 ) $ 1.01

⁽¹⁾ Earnings (loss) per share 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 ~~earnings (loss) per share~~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

Three Months Ended
March 31,
2020 2019
Anti-dilutive equity instruments excluded from the computation of diluted earnings (loss) per share 3.0
2.8

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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 ~~March 31,~~September 30, 2020,, we owned and operated ~~317~~315 new vehicle franchises from ~~231~~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 32 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately 89% of the new vehicles that we sold during the ~~three~~nine months ended ~~March 31,~~September 30, 2020,, are manufactured by Toyota (including Lexus), Honda, Ford, General Motors, ~~Ford,~~ FCA US, Mercedes-Benz, BMW, and Volkswagen (including Audi and Porsche). As of ~~March 31,~~September 30, 2020, we also owned and operated 8178 AutoNation-branded collision centers, 5 AutoNation USA used vehicle stores, 4 automotive auction operations, and 16 parts distribution 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 ~~March 31,~~September 30, 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 ~~three~~nine months ended ~~March 31,~~September 30, 2020, new vehicle sales accounted for approximately ~~49%~~50% of our total revenue and approximately ~~12%~~15% of our total gross profit. Used vehicle sales accounted for approximately ~~27%~~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 ~~24%~~22% of our total revenue for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, contributed approximately ~~77%~~71% of our total gross profit for the same period.

~~Impact of the COVID-19 Pandemic on Our Business~~Market Conditions

In the ~~first~~third quarter of 2020, U.S. industry retail new vehicle unit sales decreased ~~12%~~5% as compared to the ~~first~~third quarter of 2019. ~~On March 11,~~New vehicle unit volume 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 increased during the third quarter of 2020 compared to the World Health Organization declared the current novel coronavirus disease 2019 (“COVID-19”) outbreak to be a global pandemic. The COVID-19 pandemic has adversely impacted, and is expected to continue to adversely impact, our operationssame period in the ~~near-term. By early April 2020, states from which we derive nearly all~~prior year as market demand for used vehicles increased due in part to increased affordability compared to new vehicles and decreased availability of ~~our total revenue were under extensive “shelter in place” or “stay at home” orders from federal, state,~~new vehicles. The tight supply of new vehicle inventory and local governments, many of which are currently still in place. These orders significantly restrict our business operations, in particular our sales activities. As a result, we had significant declines inincreased demand for used vehicles benefited new and used vehicle margins in the third quarter of 2020. While vehicle unit ~~sales, including a year-over-year decline of approximately 50% during the last two weeks of March 2020,~~volume and ~~our~~ parts and service ~~business was operating below full capacity. In addition, our stock price, along with~~volume continued to improve during the ~~U.S. stock market in general, was adversely impacted by the COVID-19 pandemic.~~

We have taken various actions in an attempt to mitigate the financial impact of the COVID-19 pandemic. Effective in April 2020, we placed approximately 7,000 employees on unpaid leave, implemented temporary base pay reductions for our executive officers and associates, and froze corporate new hiring. We also took actions to reduce our advertising expenses by approximately 50% for the secondthird quarter of 2020, ~~significantly reduced~~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 discretionary spending, and postponed over $50 million of capital expenditures through the second quarter of 2020. The majority of our corporate staff are currently under remote work arrangements, which have not affected our ability to maintain support operations, including financial reporting systems, internal control over financial reporting, and disclosure controls and procedures.

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~~In light of the uncertainty surrounding~~business. Additionally, any adverse economic impacts resulting from the COVID-19 pandemic, ~~and the~~including any potential economic recessions or downturns, could materially adversely impact ~~that it had on~~ our ~~stock price and results~~business in future periods.

Table of operations, we performed quantitative goodwill and franchise rights impairment tests 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 and franchise rights impairment charges totaling $375.8 million. See “Critical Accounting Estimates” below for more information.Contents

In the current environment, we have a strong focus on preserving liquidity. Our primary liquidity sources are cash and cash equivalents, funds generated through operations, and amounts available under our revolving credit facility, commercial paper program, and secured used vehicle floorplan facilities. We have senior unsecured notes totaling $1.5 billion, with $300.0 million of such notes maturing in January 2021, and the remainder maturing between 2024 and 2027. Although we have experienced a decrease in our cash flow from operations as a result of the impact of the COVID-19 pandemic, as of March 31, 2020, our available liquidity totaled approximately $1.2 billion, primarily comprised of borrowing capacity under our revolving credit facility of $822.4 million (as limited under the applicable maximum consolidated leverage ratio contained in our credit agreement) and cash of $411.0 million. Depending on market conditions, we may from time to time issue debt, including in private or public offerings, to augment our liquidity, to reduce our cost of capital, or for general corporate purposes. See “Liquidity and Capital Resources - Available Liquidity Resources” below for more information.

We are unable to predict when and how quickly we will be able to resume normal levels of operations. While we are not able to estimate the ultimate impact of the COVID-19 pandemic on our financial condition and future results of operations, we expect that this situation will have a significant adverse effect on our reported results for the second quarter of 2020 and possibly beyond, and depending on the magnitude and duration of the COVID-19 pandemic, such impact may be material.

Results of Operations

During the three months ended ~~March 31,~~September 30, 2020, we had a net ~~loss~~income from continuing operations of ~~$232.2~~$182.6 million and a diluted ~~loss~~earnings per share of ~~$2.58,~~$2.05, as compared to net income from continuing operations of ~~$92.1~~$100.0 million and diluted earnings per share of ~~$1.02~~$1.11 during the same period in ~~2019~~.2019.

Our total gross profit ~~decreased 4%~~increased 9.5% during the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019, driven primarily ~~due to a decrease~~by an increase in new vehicle ~~unit volume, which was down 9%~~gross profit of 40.6% and an increase in used vehicle gross profit of 59.2%, each as compared to the ~~first quarter of 2019. Vehicle unit volume was significantly adversely impacted the last two weeks of March 2020~~prior year, which were largely due to ~~the impact of the COVID-19 pandemic, discussed above.~~ ~~The decrease in vehicle unit volume was partially offset by~~ increases in ~~used vehicle and finance and insurance~~ 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%, ~~which were up 8%~~due in part to the tight supply of new vehicle inventory, and ~~10%~~a decrease in parts and service gross profit of 8.3%, ~~respectively. Additionally, SG&A~~primarily due an inventory valuation adjustment recorded in connection with the closing of our 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 ~~decreased in~~by approximately 17% through the ~~first~~third quarter of 2020, as compared to the ~~same period~~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 ~~2019,~~June 2020, we restructured our workforce, mostly in our field operations. As a result, SG&A expenses as a ~~result~~percentage of the COVID-19 pandemic impacts, including performance-driven decreases in compensation expense resulting from lower sales volumes, and changes in expectations of pay-out levels of performance-based compensation.

~~Net loss from continuing operations~~gross profit decreased to 66.0% during the three months ended ~~March 31,~~September 30, 2020,~~, was adversely impacted by non-cash after-tax goodwill~~ from 73.7% in the same period in 2019. Throughout the remainder of the year, we plan to stay focused on cost control and ~~franchise rights impairment charges totaling $308.4 million and non-cash after-tax other asset impairment charges of $6.2 million.~~ remain prudent with our capital expenditures.

Net income from continuing operations during the three months ended ~~March 31,~~September 30, 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 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 related to store/property divestitures, net of asset impairments, of ~~$6.3~~$3.9 million.

~~Chief Executive Officer and President Transition~~Exit or Disposal Cost Obligations

On ~~April 12,~~August 17, 2020, we made the decision to close our ~~Board~~ACP business, which we expect to be finalized by the end of ~~Directors granted~~2020. The ACP business represented less than 1% of our parts and service gross profit for the ~~request of Cheryl Miller, Chief Executive Officer and President~~nine months ended September 30, 2020. In connection with the closing of the ~~Company, for a leave~~ACP business, we expect to incur total pre-tax charges of ~~absence for health reasons,~~$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 ~~appointed Mike Jackson, Executive Chairman~~other associated closing costs, accelerated depreciation and amortization, asset impairment charges, and involuntary termination benefits. See Note 15 of the ~~Board,~~Notes to ~~serve in the~~Unaudited Condensed Consolidated Financial Statements for additional positions of Chief Executive Officer and President. On April 21, 2020, our Board of Directors promoted James R. Bender from his position as the Company’s Executive Vice President and Chief Operating Officer to the position of President and Chief Operating Officer of the Company, effective as of April 22, 2020.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 and service centers,~~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 our ~~parts distribution network. In March 2020, we invested $50 million~~ability to identify, acquire, and build out suitable locations in ~~Waymo, the self-driving technology company of Alphabet Inc., which currently represents an equivalent ownership stake of less than 1%.~~

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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 $0.2 million at September 30, 2020. We had no new vehicle inventory write-downs at ~~March 31, 2020, or at~~ December 31, 2019. We ~~are~~continue to actively ~~managing~~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 ~~$3.5~~$2.4 million at ~~March 31,~~September 30, 2020,, and ~~$3.2~~$3.2 million at December 31, ~~2019~~.2019.

Parts, accessories, and other inventory are carried at the lower of 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 ~~$15.0~~$35.7 million at ~~March 31,~~September 30, 2020,, and $11.1 million at December 31, ~~2019~~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

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.

InDuring 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 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 ~~Center~~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 ~~Center~~Centers and Parts ~~Center~~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, ~~would have~~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 ~~more than 40% to $28.06~~significantly as of March 31, ~~2020, compared to our closing stock price of $48.65 as~~

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~~recently as February 21,~~ 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, 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.

As of ~~March 31,~~September 30, 2020, we have ~~$227.3~~$227.2 million of goodwill related to the Domestic reporting unit, ~~$498.8~~$502.1 million related to the Import reporting unit, and ~~$457.5~~$457.2 million related to the Premium Luxury reporting unit. ~~Goodwill for our Collision Center and Parts Center reporting units was fully impaired as of March 31, 2020.~~

Other Intangible Assets

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. ~~We also~~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 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 eight 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.~~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 ~~eight 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 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 ~~March 31,~~September 30, 2020, ~~after the impairment charges,~~ 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 11 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. 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 ~~March 31,~~April 30, 2020, the resulting incremental charge would have been less than $3$1 million. The effect of a hypothetical 10% decrease in fair value estimates is not intended to provide a sensitivity analysis of every potential outcome.

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

~~While~~Although economic conditions have improved during the third quarter of 2020, we cannot predict the duration or scope of the COVID-19 ~~pandemic, the negative~~pandemic. Negative financial ~~impact~~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 goodwill and/or franchise rights impairment charges in the future. ~~We are scheduled to complete our annual goodwill and franchise rights impairment tests as of April 30, 2020, during the second quarter of 2020.~~

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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 March 31,
2020 2019
Variance
Favorable /
(Unfavorable)

%
Variance
Revenue:
New vehicle $ 2,281.9
$ 2,496.7
$ (214.8 ) (8.6 )
Retail used vehicle 1,162.0
1,261.8
(99.8 ) (7.9 )
Wholesale 86.7
77.8
8.9
11.4
Used vehicle 1,248.7
1,339.6
(90.9 ) (6.8 )
Finance and insurance, net 235.8
236.5
(0.7 ) (0.3 )
Total variable operations⁽¹⁾
3,766.4
4,072.8
(306.4 ) (7.5 )
Parts and service 876.3
876.7
(0.4 ) —
Other 24.3
32.3
(8.0 )
Total revenue $ 4,667.0
$ 4,981.8
$ (314.8 ) (6.3 )
Gross profit:
New vehicle $ 96.4
$ 121.9
$ (25.5 ) (20.9 )
Retail used vehicle 83.5
84.3
(0.8 ) (0.9 )
Wholesale 7.5
6.2
1.3

Used vehicle 91.0
90.5
0.5
0.6
Finance and insurance 235.8
236.5
(0.7 ) (0.3 )
Total variable operations⁽¹⁾
423.2
448.9
(25.7 ) (5.7 )
Parts and service 388.8
398.9
(10.1 ) (2.5 )
Other 1.2
1.4
(0.2 )
Total gross profit 813.2
849.2
(36.0 ) (4.2 )
Selling, general, and administrative expenses 600.7
623.0
22.3
3.6
Depreciation and amortization 48.1
44.1
(4.0 )
Goodwill impairment 318.3
—
(318.3 )
Franchise rights impairment 57.5
—
(57.5 )
Other (income) expense, net 7.9
(8.7 ) (16.6 )
Operating income (loss) (219.3 ) 190.8
(410.1 )

Non-operating income (expense) items:
Floorplan interest expense (25.5 ) (39.0 ) 13.5

Other interest expense (23.5 ) (27.8 ) 4.3

Interest income 0.1
0.2
(0.1 )
Other income (loss), net (3.0 ) 1.9
(4.9 )
Income (loss) from continuing operations before income taxes $ (271.2 ) $ 126.1
$ (397.3 )

Retail vehicle unit sales:
New vehicle 56,739
63,513
(6,774 ) (10.7 )
Used vehicle 56,149
61,171
(5,022 ) (8.2 )
112,888
124,684
(11,796 ) (9.5 )
Revenue per vehicle retailed:
New vehicle $ 40,217
$ 39,310
$ 907
2.3
Used vehicle $ 20,695
$ 20,627
$ 68
0.3
Gross profit per vehicle retailed:
New vehicle $ 1,699
$ 1,919
$ (220 ) (11.5 )
Used vehicle $ 1,487
$ 1,378
$ 109
7.9
Finance and insurance $ 2,089
$ 1,897
$ 192
10.1
Total variable operations⁽²⁾
$ 3,682
$ 3,551
$ 131
3.7

⁽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.

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	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
March 31,
2020 (%) 2019 (%)
Revenue mix percentages:
New vehicle 48.9 50.1
Used vehicle 26.8 26.9
Parts and service 18.8 17.6
Finance and insurance, net 5.1 4.7
Other 0.4 0.7
Total 100.0 100.0
Gross profit mix percentages:
New vehicle 11.9 14.4
Used vehicle 11.2 10.7
Parts and service 47.8 47.0
Finance and insurance 29.0 27.8
Other 0.1 0.1
Total 100.0 100.0
Operating items as a percentage of revenue:
Gross profit:
New vehicle 4.2 4.9
Used vehicle - retail 7.2 6.7
Parts and service 44.4 45.5
Total 17.4 17.0
Selling, general, and administrative expenses 12.9 12.5
Operating income (loss) NM 3.8
Other operating items as a percentage of total gross profit:
Selling, general, and administrative expenses 73.9 73.4
Operating income (loss) NM 22.5
NM - Not Meaningful
March 31,
2020 2019
Inventory days supply:
New vehicle (industry standard of selling days) 98 days 77 days
Used vehicle (trailing calendar month days) 48 days 30 days

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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 2019 columns may differ from the same store amounts presented for 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)	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.

Three Months Ended March 31,
($ in millions, except per vehicle data) 2020 2019
Variance
Favorable /
(Unfavorable)

%
Variance
Revenue:
New vehicle $ 2,277.9
$ 2,455.7
$ (177.8 ) (7.2 )
Retail used vehicle 1,160.1
1,239.7
(79.6 ) (6.4 )
Wholesale 86.6
76.7
9.9
12.9
Used vehicle 1,246.7
1,316.4
(69.7 ) (5.3 )
Finance and insurance, net 235.6
233.0
2.6
1.1
Total variable operations⁽¹⁾
3,760.2
4,005.1
(244.9 ) (6.1 )
Parts and service 875.3
860.6
14.7
1.7
Other 24.1
32.2
(8.1 )
Total revenue $ 4,659.6
$ 4,897.9
$ (238.3 ) (4.9 )
Gross profit:
New vehicle $ 96.0
$ 121.1
$ (25.1 ) (20.7 )
Retail used vehicle 83.4
83.4
—
—
Wholesale 7.6
6.4
1.2

Used vehicle 91.0
89.8
1.2
1.3
Finance and insurance 235.6
233.0
2.6
1.1
Total variable operations⁽¹⁾
422.6
443.9
(21.3 ) (4.8 )
Parts and service 388.9
391.8
(2.9 ) (0.7 )
Other 0.9
1.4
(0.5 )
Total gross profit $ 812.4
$ 837.1
$ (24.7 ) (3.0 )
Retail vehicle unit sales:
New vehicle 56,692
62,185
(5,493 ) (8.8 )
Used vehicle 56,093
59,787
(3,694 ) (6.2 )
112,785
121,972
(9,187 ) (7.5 )
Revenue per vehicle retailed:
New vehicle $ 40,180
$ 39,490
$ 690
1.7
Used vehicle $ 20,682
$ 20,735
$ (53 ) (0.3 )
Gross profit per vehicle retailed:
New vehicle $ 1,693
$ 1,947
$ (254 ) (13.0 )
Used vehicle $ 1,487
$ 1,395
$ 92
6.6
Finance and insurance $ 2,089
$ 1,910
$ 179
9.4
Total variable operations⁽²⁾
$ 3,680
$ 3,587
$ 93
2.6

⁽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.
30

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	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

Three Months Ended
March 31,
2020 (%) 2019 (%)
Revenue mix percentages:
New vehicle 48.9 50.1
Used vehicle 26.8 26.9
Parts and service 18.8 17.6
Finance and insurance, net 5.1 4.8
Other 0.4 0.6
Total 100.0 100.0
Gross profit mix percentages:
New vehicle 11.8 14.5
Used vehicle 11.2 10.7
Parts and service 47.9 46.8
Finance and insurance 29.0 27.8
Other 0.1 0.2
Total 100.0 100.0
Operating items as a percentage of revenue:
Gross profit:
New vehicle 4.2 4.9
Used vehicle - retail 7.2 6.7
Parts and service 44.4 45.5
Total 17.4 17.1

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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 March 31,
($ in millions, except per vehicle data) 2020 2019
Variance
Favorable /
(Unfavorable)

%
Variance
Reported:
Revenue $ 2,281.9
$ 2,496.7
$ (214.8 ) (8.6 )
Gross profit $ 96.4
$ 121.9
$ (25.5 ) (20.9 )
Retail vehicle unit sales 56,739
63,513
(6,774 ) (10.7 )
Revenue per vehicle retailed $ 40,217
$ 39,310
$ 907
2.3
Gross profit per vehicle retailed $ 1,699
$ 1,919
$ (220 ) (11.5 )
Gross profit as a percentage of revenue 4.2 % 4.9 %
Inventory days supply (industry standard of selling days) 98 days
77 days

Three Months Ended March 31,
2020 2019
Variance
Favorable /
(Unfavorable)

%
Variance
Same Store:
Revenue $ 2,277.9
$ 2,455.7
$ (177.8 ) (7.2 )
Gross profit $ 96.0
$ 121.1
$ (25.1 ) (20.7 )
Retail vehicle unit sales 56,692
62,185
(5,493 ) (8.8 )
Revenue per vehicle retailed $ 40,180
$ 39,490
$ 690
1.7
Gross profit per vehicle retailed $ 1,693
$ 1,947
$ (254 ) (13.0 )
Gross profit as a percentage of revenue 4.2 % 4.9 %

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 ~~$4.0 million and $41.0~~$4.3 million in new vehicle revenue and ~~$0.4~~$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 ~~$0.8~~same store amounts in the above tables of $0.1 million in new vehicle gross profit for the three months ended ~~March 31,~~September 30, 2020, and $28.1 million and $111.0 million in new vehicle revenue and $0.2 million and $1.7 million in new vehicle gross profit for the three and nine months ended September 30, 2019,, respectively, is related to divestiture ~~activity and the opening of a new add-point.~~activity.

~~First~~Third Quarter 2020 compared to ~~First~~Third Quarter 2019

Same store new vehicle revenue decreased during the three months ended ~~March 31,~~September 30, 2020,, as compared to the same period in 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 is primarily due to reduced availability of inventory due to inventory shortages from manufacturer plant closures resulting from the COVID-19 pandemic. Same store unit volume was also adversely impacted by a shift in mix to used 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. New vehicle unit volumes improved over the course of the third quarter of 2020, but overall continued to run below prior year levels through September 30, 2020.

Same store revenue PVR increased during the three months ended September 30, 2020, as compared to the same period in 2019, due in part to reduced availability of 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 sports utility vehicles is due to a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference. Same store revenue PVR also benefited from a shift in mix away from Import vehicles, which have relatively lower average selling prices.

Same store gross profit PVR increased during the three months ended September 30, 2020, as compared to the same period in 2019, primarily as a result of the tighter supply in new vehicle inventory.

First Nine Months 2020 compared to First Nine Months 2019

Same store new vehicle revenue decreased during the nine months ended September 30, 2020, as compared to the same period in 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 was also adversely impacted by reduced availability of inventory and a shift in mix to used 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, 2020, as compared to the same period in 2019, due in part to reduced availability of 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 sports utility vehicles is due to a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference. Same store revenue PVR also benefited from a shift in mix away from Import vehicles, which have relatively lower average selling prices, as well as an increase in the manufacturers’ suggested retail prices for Premium Luxury vehicles.

Same store gross profit PVR increased during the nine months ended September 30, 2020, as compared to the same period in 2019, primarily due to increases in gross profit PVR as a result of the tighter supply in new vehicle inventory. Same store gross profit also benefited from increased manufacturer support in the form of incentives as a result of the COVID-19 pandemic.

New Vehicle Inventory Carrying Benefit (Cost)

The following table details net new vehicle inventory carrying 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,
($ in millions)	2020		2019		Variance		2020		2019		Variance
Floorplan assistance	$	28.9	$	28.7	$	0.2	$	77.1	$	81.5	$	(4.4)
New vehicle floorplan interest expense	(10.4)		(30.1)		19.7		(47.6)		(101.4)		53.8
Net new vehicle inventory carrying benefit (cost)	$	18.5	$	(1.4)	$	19.9	$	29.5	$	(19.9)	$	49.4

Third Quarter 2020 compared to Third Quarter 2019

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 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, and in response to the COVID-19 pandemic, the Federal Reserve cut interest rates to near 0% in 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 2020 compared to First Nine Months 2019

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 for the nine months ended September 30, 2019. Floorplan interest expense decreased due to lower average interest rates and lower average 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%

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 $3.1 million in total used vehicle revenue and $0.3 million in total used 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 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 divestiture activity.

Third Quarter 2020 compared to Third Quarter 2019

Same store retail used vehicle revenue increased during the three months ended September 30, 2020, as compared to the same period in 2019 due to increases in same store revenue PVR and same store unit 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. 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, 2020, as compared to the same period in 2019, primarily due to an increase in market demand for used vehicles, a strong used vehicle pricing environment, and a shift in mix toward Premium Luxury vehicles, which have relatively higher average selling prices.

Same store gross profit PVR increased during the three months ended September 30, 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

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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 2020 compared to First Nine Months 2019

Same store retail used vehicle revenue increased during the nine months ended September 30, 2020, as compared to the same period in 2019, due to an increase in same store revenue PVR, partially offset by a decrease in same store unit volume. The decrease in same store unit volume was due to significant declines in ~~new~~used retail vehicle unit 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. 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 ~~three~~nine months ended ~~March 31,~~September 30, 2020, as compared to the same period in 2019,, due in part to an increase in market demand for used vehicles, a strong used vehicle pricing environment, and a shift in mix toward trucks and sport utility vehicles, 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 toward Premium Luxury vehicles, which have relatively higher average selling ~~prices also increased as a result of increases in the manufacturers’ suggested retail~~ prices.

Same store gross profit PVR ~~decreased~~increased during the ~~three~~nine months ended ~~March 31, 2020, as compared to the same period in~~ ~~2019, primarily due to decreases in gross profit PVR for Premium Luxury and Domestic vehicles as we focused on balancing gross profit PVRs and unit volume.~~

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

~~The following table details net~~ ~~new vehicle inventory carrying 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 March 31,
($ in millions) 2020 2019 Variance
Floorplan assistance $ 24.5
$ 25.2
$ (0.7 )
New vehicle floorplan interest expense (23.1 ) (36.4 ) 13.3
Net new vehicle inventory carrying benefit (cost) $ 1.4
$ (11.2 ) $ 12.6

~~First Quarter 2020 compared to First Quarter 2019~~

We had a net new vehicle inventory carrying benefit for the three months ended March 31, 2020, and a net new vehicle inventory carrying cost for the three months ended March 31, 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 rate three times over the third and fourth quarters of 2019, and in response to the COVID-19 pandemic, the Federal Reserve cut interest rates to near 0% in March 2020. Although lower average interest rates are beneficial to interest expense, this benefit may be partially or fully offset in stores where days supply averages increase due to lower sales volume.

September 30,

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~~Used Vehicle~~

Three Months Ended March 31,
($ in millions, except per vehicle data) 2020 2019
Variance
Favorable /
(Unfavorable)

%
Variance
Reported:
Retail revenue $ 1,162.0
$ 1,261.8
$ (99.8 ) (7.9 )
Wholesale revenue 86.7
77.8
8.9
11.4
Total revenue $ 1,248.7
$ 1,339.6
$ (90.9 ) (6.8 )
Retail gross profit $ 83.5
$ 84.3
$ (0.8 ) (0.9 )
Wholesale gross profit 7.5
6.2
1.3

Total gross profit $ 91.0
$ 90.5
$ 0.5
0.6
Retail vehicle unit sales 56,149
61,171
(5,022 ) (8.2 )
Revenue per vehicle retailed $ 20,695
$ 20,627
$ 68
0.3
Gross profit per vehicle retailed $ 1,487
$ 1,378
$ 109
7.9
Gross profit as a percentage of revenue 7.2 % 6.7 %
Inventory days supply (trailing calendar month days) 48 days
30 days

Three Months Ended March 31,
2020 2019
Variance
Favorable /
(Unfavorable)

%
Variance
Same Store:
Retail revenue $ 1,160.1
$ 1,239.7
$ (79.6 ) (6.4 )
Wholesale revenue 86.6
76.7
9.9
12.9
Total revenue $ 1,246.7
$ 1,316.4
$ (69.7 ) (5.3 )
Retail gross profit $ 83.4
$ 83.4
$ —
—
Wholesale gross profit 7.6
6.4
1.2

Total gross profit $ 91.0
$ 89.8
$ 1.2
1.3
Retail vehicle unit sales 56,093
59,787
(3,694 ) (6.2 )
Revenue per vehicle retailed $ 20,682
$ 20,735
$ (53 ) (0.3 )
Gross profit per vehicle retailed $ 1,487
$ 1,395
$ 92
6.6
Gross profit as a percentage of revenue 7.2 % 6.7 %

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 $2.0 million and $23.2 million in total used vehicle revenue for the three months ended March 31, 2020 and ~~2019~~ ~~and $0.7 million in total used vehicle gross profit for the three months ended March 31, 2019, respectively, is related to divestiture activity and the opening of a new add-point.~~

~~First Quarter 2020 compared to~~ ~~First Quarter 2019~~

~~Same store retail used vehicle revenue~~ ~~decreased~~ ~~during the three months ended~~ ~~March 31, 2020, as compared to the same period in~~ ~~2019~~, primarily due to a decrease in same store unit volume. The decrease in same store unit volume was due to significant declines in used retail vehicle unit sales during the last two weeks of March 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 and shifting dynamics in the used vehicle market. With the continued elevated levels in off-lease supply of late-model used vehicles, 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 98.9% for the three months ended March 31, 2020, as compared to 96.1% for the prior year period.

~~Same store revenue PVR was relatively flat during the three months ended March 31,~~ 2020, as compared to the same period in 2019,.

~~Same store gross profit PVR increased during the three months ended March 31, 2020, as compared to the same period in~~ ~~2019~~, due to increases in gross profit PVR for ~~Premium Luxury~~vehicles in all three reportable segments as a result of increased demand for used vehicles and ~~Import vehicles.~~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.

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Parts and Service

Three Months Ended March 31,
($ in millions) 2020 2019
Variance
Favorable /
(Unfavorable)

%
Variance
Reported:
Revenue $ 876.3
$ 876.7
$ (0.4 ) —
Gross Profit $ 388.8
$ 398.9
$ (10.1 ) (2.5 )
Gross profit as a percentage of revenue 44.4 % 45.5 %
Same Store:
Revenue $ 875.3
$ 860.6
$ 14.7
1.7
Gross Profit $ 388.9
$ 391.8
$ (2.9 ) (0.7 )
Gross profit as a percentage of revenue 44.4 % 45.5 %


	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 ~~$1.0 million and $16.1~~$17.1 million in parts and service revenue ~~and $0.1~~for the three months ended September 30, 2019, $0.4 million and ~~$7.1~~$5.9 million in parts and service gross profit for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively, and $10.6 million and $60.9 million in parts and service revenue and $0.7 million and $22.9 million in parts and service gross profit for the nine months ended September 30, 2020 and 2019, respectively, is related to acquisition and divestiture activity, as well as the opening of a new add-point.

~~First~~Third Quarter 2020 compared to ~~First~~Third Quarter 2019

During the three months ended ~~March 31,~~September 30, 2020,, same store parts and service gross profit decreased ~~slightly~~ compared to the same period in 2019,, primarily due to 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 ~~$3.1 million, warranty of $2.5~~$9.7 million and ~~wholesale~~collision business of $8.0 million. These decreases in parts ~~of $2.0 million, which~~and service gross profit were partially offset by ~~increases~~an increase in gross profit associated with the preparation of vehicles for sale of ~~$3.3~~$4.7 million, as well as smaller increases in gross profit associated with wholesale parts sales and ~~collision business of $1.8 million.~~warranty service.

Customer-pay service gross profit ~~and warranty gross profit were~~was adversely impacted by a decrease in volume ~~during the last two weeks of March 2020~~ as a result of the COVID-19 ~~pandemic. The decrease in customer-pay volume was~~pandemic, partially offset by higher value repair orders and price increases. ~~The~~Collision business gross profit was adversely impacted by a decrease in ~~warranty~~ volume ~~was~~as a result of the COVID-19 pandemic, partially offset by ~~higher value repair orders and~~ improved ~~parts and labor rates negotiated with certain manufacturers. Gross profit associated with our wholesale parts business decreased due to inventory write-downs to net realizable value.~~margin performance. Gross profit associated with the preparation of vehicles for sale benefited from higher value ~~internal~~ repair orders due in part to a shift in unit volume mix from new vehicles to used vehicles, partially offset by ~~lower~~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 $14.8 million, and the preparation of vehicles for sale of $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, 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 repair 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 was adversely impacted by the decrease in new and used vehicle unit ~~volume. Collision business gross profit benefited from an increase in~~ volume, partially offset by higher value internal repair orders ~~and an increase~~due in ~~gross profit associated with service work outsourced~~part to ~~third-parties.~~a shift in unit volume mix from new vehicles to used vehicles.

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Finance and Insurance

Three Months Ended March 31,
($ in millions, except per vehicle data) 2020 2019
Variance
Favorable /
(Unfavorable)

%
Variance
Reported:
Revenue and gross profit $ 235.8
$ 236.5
$ (0.7 ) (0.3 )
Gross profit per vehicle retailed $ 2,089
$ 1,897
$ 192
10.1
Same Store:
Revenue and gross profit $ 235.6
$ 233.0
$ 2.6
1.1
Gross profit per vehicle retailed $ 2,089
$ 1,910
$ 179
9.4


	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 ~~$0.2 million and $3.5~~$0.1 million for the three months ended ~~March 31,~~September 30, 2020, is related to divestiture activity, and the difference of $0.2 million for the nine months ended September 30, 2020, is related to divestiture activity and 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 divestiture ~~activity, as well as the opening of a new add-point.~~activity.

~~First~~Third Quarter 2020 compared to ~~First~~Third Quarter 2019

Same store finance and insurance revenue and gross profit increased during the three months ended ~~March 31,~~September 30, 2020,, as compared to the same period in 2019,~~, primarily~~ 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~~

First Nine Months 2020 compared to First Nine Months 2019

Same store finance and insurance revenue and gross profit increased during the nine months ended September 30, 2020, as compared to the same period in 2019, due to an increase in finance and insurance gross profit PVR, partially offset by a decrease in vehicle unit volume. The increase in finance and insurance gross profit PVR was ~~also adversely impacted~~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. Increases in finance and insurance gross profit PVR were partially offset by a ~~decrease~~shift in ~~retrospective commissions due in part~~unit volume mix from new vehicles to ~~higher claim activity. We expect retrospective commissions to continue to decrease~~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 ~~recent years.~~sales of new vehicles.

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Segment Results

In the following table, revenue and segment income of our reportable segments are reconciled to consolidated revenue and consolidated operating income, ~~(loss),~~ 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 March 31,
($ in millions) 2020 2019
Variance
Favorable /
(Unfavorable)

%
Variance
Revenue:
Domestic $ 1,483.5
$ 1,568.8
$ (85.3 ) (5.4 )
Import 1,362.1
1,496.1
(134.0 ) (9.0 )
Premium Luxury 1,616.8
1,734.1
(117.3 ) (6.8 )
Total 4,462.4
4,799.0
(336.6 ) (7.0 )
Corporate and other 204.6
182.8
21.8
11.9
Total consolidated revenue $ 4,667.0
$ 4,981.8
$ (314.8 ) (6.3 )
Segment income⁽¹⁾:

Domestic $ 54.1
$ 56.2
$ (2.1 ) (3.7 )
Import 65.9
72.6
(6.7 ) (9.2 )
Premium Luxury 80.2
84.3
(4.1 ) (4.9 )
Total 200.2
213.1
(12.9 ) (6.1 )
Corporate and other (445.0 ) (61.3 ) (383.7 )
Floorplan interest expense 25.5
39.0
13.5

Operating income (loss) $ (219.3 ) $ 190.8
$ (410.1 )

⁽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 18,327
20,205
(1,878 ) (9.3 )
Import 25,287
28,756
(3,469 ) (12.1 )
Premium Luxury 13,125
14,552
(1,427 ) (9.8 )
56,739
63,513
(6,774 ) (10.7 )

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Domestic

The Domestic segment operating results included the following:


	Three Months Ended March 31,										Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions)	2020		2019		Variance Favorable / (Unfavorable)			% Variance		($ in millions)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Revenue	$	1,483.5	$	1,568.8	$	(85.3	)	(5.4	)	Revenue	$	1,734.5	$	1,728.6	$	5.9	0.3	$	4,704.0	$	5,004.7	$	(300.7)	(6.0)
Segment income	$	54.1	$	56.2	$	(2.1	)	(3.7	)	Segment income	$	111.9	$	70.3	$	41.6	59.2	$	248.1	$	192.4	$	55.7	29.0
Retail new vehicle unit sales	18,327		20,205		(1,878		)	(9.3	)	Retail new vehicle unit sales	21,620		23,227		(1,607)		(6.9)	57,995		66,117		(8,122)		(12.3)

~~First~~Third Quarter 2020 compared to ~~First~~Third Quarter 2019

Domestic revenue ~~decreased~~increased during the three months ended ~~March 31,~~September 30, 2020, as compared to the same period in 2019,, primarily due to an increase in used vehicle revenue PVR 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 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 and used vehicle unit volume and parts and service volume ~~during the last two weeks of March 2020~~ as a result of the COVID-19 pandemic and the divestitures we completed in 2019. These decreases were partially offset by ~~an increase~~increases in new and used vehicle revenue PVR. New vehicle revenue PVR benefited from a tighter supply in new vehicle ~~revenue PVR due in part to~~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 ~~decreased~~increased during the ~~three~~nine months ended ~~March 31,~~September 30, 2020, as compared to the same period in 2019,, primarily due to ~~decreases~~a decrease in ~~new~~SG&A expenses resulting from the cost-saving actions implemented to mitigate the financial impact of the COVID-19 pandemic and ~~used~~a decrease in floorplan interest expenses due to lower average interest rates and lower average vehicle ~~unit volume, parts and service volume, and~~floorplan balances. Domestic segment income also benefited from an increase in 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 ~~were adversely impacted by the COVID-19 pandemic. Decreases in~~have a relatively higher average gross profit PVR. Increases to Domestic segment income were partially offset by ~~an increase~~a decrease in ~~finance~~parts and ~~insurance revenue~~service volume and ~~gross profit PVR, which benefited from higher realized margins on~~ vehicle ~~service contracts and an increase in product penetration, and decreases in floorplan interest and SG&A expenses.~~ unit volume as a result of the COVID-19 pandemic.

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Import

The Import segment operating results included the following:


	Three Months Ended March 31,										Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions)	2020		2019		Variance Favorable / (Unfavorable)			% Variance		($ in millions)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Revenue	$	1,362.1	$	1,496.1	$	(134.0	)	(9.0	)	Revenue	$	1,621.5	$	1,722.5	$	(101.0)	(5.9)	$	4,308.9	$	4,845.9	$	(537.0)	(11.1)
Segment income	$	65.9	$	72.6	$	(6.7	)	(9.2	)	Segment income	$	123.5	$	86.9	$	36.6	42.1	$	277.7	$	240.9	$	36.8	15.3
Retail new vehicle unit sales	25,287		28,756		(3,469		)	(12.1	)	Retail new vehicle unit sales	29,356		34,765		(5,409)		(15.6)	78,248		95,478		(17,230)		(18.0)

~~First~~Third Quarter 2020 compared to ~~First~~Third Quarter 2019

Import revenue decreased during the three months ended ~~March 31,~~September 30, 2020, as compared to the same period in 2019,, primarily due to a decrease in new vehicle unit volume as a result of tighter supply in new vehicle inventory, as well as the divestitures we completed in 2019. These decreases were partially offset by an increase in new vehicle revenue PVR due 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, as a result of a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference. Import revenue also benefited from an increase in used vehicle revenue PVR primarily due to an increase in market demand for used vehicles.

Import 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 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. Import segment income also benefited from a decrease in SG&A expenses due in part to the cost-saving actions implemented to mitigate the financial impact of the COVID-19 pandemic, 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 First Nine Months 2019

Import revenue decreased during the nine months ended September 30, 2020, as compared to the same period in 2019, primarily due to decreases in new and used vehicle unit volume and parts and service volume ~~during the last two weeks of March 2020~~ as a result of the COVID-19 pandemic and the divestitures we completed in 2019. These decreases were partially offset by increases in new and used vehicle revenue PVR. New vehicle revenue PVR benefited from a 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, as a result of a combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference. Used vehicle revenue PVR benefited from an increased demand for used vehicles.

Import segment income ~~decreased~~increased during the ~~three~~nine months ended ~~March 31,~~September 30, 2020, as compared to the same period in ~~2019, primarily~~2019. SG&A expenses decreased due to the cost-saving actions implemented to mitigate the financial impact of the COVID-19 pandemic, and floorplan interest expenses decreased due to lower average interest rates and lower average vehicle floorplan balances. Import segment income also benefited from an increase in new vehicle gross profit PVR due in part to tighter supply in new vehicle inventory, as well as 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 average gross profit PVR. Increases in Import segment income were partially offset by decreases in parts and service gross profit and finance and insurance gross profit due to decreases in parts and service volume and ~~new and used~~ vehicle unit volume, ~~which were adversely impacted by~~respectively, as a result of the COVID-19 pandemic. De

creases in Import segment income were partially offset by an increase in finance and insurance revenue and gross profit PVR, which benefited from higher realized margins on vehicle service contracts and an increase in product penetration, and decreases in SG&A and floorplan interest expenses.

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Premium Luxury

The Premium Luxury segment operating results included the following:


	Three Months Ended March 31,										Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions)	2020		2019		Variance Favorable / (Unfavorable)			% Variance		($ in millions)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Revenue	$	1,616.8	$	1,734.1	$	(117.3	)	(6.8	)	Revenue	$	1,870.0	$	1,820.5	$	49.5	2.7	$	5,051.6	$	5,375.5	$	(323.9)	(6.0)
Segment income	$	80.2	$	84.3	$	(4.1	)	(4.9	)	Segment income	$	143.9	$	89.0	$	54.9	61.7	$	313.3	$	268.6	$	44.7	16.6
Retail new vehicle unit sales	13,125		14,552		(1,427		)	(9.8	)	Retail new vehicle unit sales	15,022		16,198		(1,176)		(7.3)	41,007		46,624		(5,617)		(12.0)

~~First~~Third Quarter 2020 compared to ~~First~~Third Quarter 2019

Premium Luxury revenue ~~decreased~~increased during the three months ended ~~March 31,~~September 30, 2020, as compared to the same period in 2019,, primarily due to ~~decreases~~an increase in ~~new and~~retail used vehicle unit volume ~~and parts and service volume during the last two weeks of March 2020~~ as a result of the ~~COVID-19 pandemic.~~increase in market demand for used vehicles, as well as an increase in new vehicle revenue PVR due in part to increases in the manufacturers’ suggested retail prices and tighter supply in new vehicle inventory. Increases in Premium Luxury revenue were partially offset by a decrease in new vehicle unit volume due to the tighter supply in new vehicle inventory resulting from inventory shortages from manufacturer plant closures.

Premium Luxury segment income ~~decreased~~increased during the three months ended ~~March 31,~~September 30, 2020, as compared to the same period in 2019,, primarily due to ~~decreases~~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, 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 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 First Nine Months 2019

Premium Luxury revenue decreased during the nine months ended September 30, 2020, as compared to the same period in 2019, primarily due to decreases in new vehicle unit volume and parts and service volume ~~which were adversely impacted by~~as a result of the COVID-19 pandemic. ~~Decreases~~These decreases were partially offset by an increase in new vehicle revenue PVR due in part to increases in the manufacturers’ suggested retail prices and tighter supply in new vehicle inventory.

Premium Luxury segment income increased during the nine months ended September 30, 2020, as compared to the same period in 2019. SG&A expenses decreased due to the cost-saving actions implemented to mitigate the financial impact of the COVID-19 pandemic, and floorplan interest expenses decreased due to lower average interest rates and lower average vehicle 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 due to tighter supply in new vehicle inventory. Increases in Premium Luxury segment income were partially offset by ~~an increase~~decreases in ~~used~~parts and service volume and new vehicle ~~gross profit PVR and finance and insurance revenue and gross profit PVR, which benefited from higher realized margins on vehicle service contracts and an increase in product penetration, and~~unit volume as a ~~decrease in floorplan interest expense.~~ result of the COVID-19 pandemic.

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Corporate and other

Corporate and other results included the following:


	Three months ending March 31,											Three Months Ended September 30,													Nine Months Ended September 30,
($ in millions)	2020			2019			Variance Favorable / (Unfavorable)			% Variance	($ in millions)	2020		2019		Variance Favorable / (Unfavorable)		% Variance	2020		2019		Variance Favorable / (Unfavorable)		% Variance
Revenue	$	204.6		$	182.8		$	21.8		11.9	Revenue	$	178.9	$	189.6	$	(10.7)	(5.6)	$	540.4	$	560.7	$	(20.3)	(3.6)
Income (loss)	$	(445.0	)	$	(61.3	)	$	(383.7	)		Income (loss)	$	(118.7)	$	(85.7)	$	(33.0)	38.5	$	(638.2)	$	(223.5)	$	(414.7)	NM

NM = Not Meaningful											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 ~~March 31,~~September 30, 2020, we had 8178 AutoNation-branded collision centers, 4 AutoNation-branded auction operations, and 5 AutoNation USA ~~stand-alone~~ used vehicle ~~sales and service centers.~~stores. We also had 64 parts distribution centers that service our wholesale parts sales markets for the sale of original equipment manufacturer ~~parts. Additionally, we directly source~~parts and ~~distribute retail and wholesale parts for sale to our customers and other dealerships and collision centers through our 10 operational AutoNation~~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.

~~Our aftermarket collision~~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, ~~was established in 2018 and is still in its development and expansion phase. As~~we expect to incur total pre-tax charges of ~~March 31, 2020, our aftermarket collision parts distribution centers as a group were not yet profitable and had approximately $31~~$43.7 million, of ~~parts inventory. We have invested approximately $16~~which $36.5 million in our aftermarket parts distribution centers for equipment, information systems, and other intangible assets. Several of our aftermarket parts distribution centers are operated under a multi-year logistics agreement with a third party. This agreement is subject to a declining early termination penalty, which is estimated to be approximately $14 million as of March 31, 2020. We also lease facilities for certain of the aftermarket collision parts distribution centers with right-of-use assets of approximately $6 million and remaining lease payments through the various lease terms of approximately $8 million as of March 31, 2020. Although we believe our aftermarket collision parts business will be profitable over time, we can make no such assurance. We expect to continue to focus on our parts distribution network to support our national wholesale footprint and create more opportunities to offer both original manufacturer and AutoNation aftermarket collision parts to our customers.

~~During~~was incurred during the three months ended ~~March 31,~~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 ~~Center~~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.~~Operations and are reported in the “Corporate and other” category of our segment information. During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, we recorded non-cash long-lived asset impairment charges associated with our ~~aftermarket collision parts~~ACP business of ~~$5.8~~$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 ~~aftermarket collision parts~~ACP business of $2.4 million, ~~both~~all of which are reported in the “Corporate and other” category of our segment information. ~~Our parts inventory balance for our aftermarket collision parts business was net of cumulative write-downs of $8.2 million at March 31, 2020, and $5.2 million at December 31, 2019.~~

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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 March 31,
($ in millions) 2020 2019
Variance
Favorable /
(Unfavorable)

%
Variance
Reported:
Compensation $ 374.1
$ 399.0
$ 24.9
6.2
Advertising 46.3
44.2
(2.1 ) (4.8 )
Store and corporate overhead 180.3
179.8
(0.5 ) (0.3 )
Total $ 600.7
$ 623.0
$ 22.3
3.6

SG&A as a % of total gross profit:
Compensation 46.0
47.0
100
bps
Advertising 5.7
5.2
(50 ) bps
Store and corporate overhead 22.2
21.2
(100 ) bps
Total 73.9
73.4
(50 ) bps

~~First~~Third Quarter 2020 compared to ~~First~~Third Quarter 2019

SG&A expenses decreased during the three months ended ~~March 31,~~September 30, 2020, as compared to the same period in 2019, primarily due to ~~a decrease in compensation expense, which was driven in part by~~ the cost-saving actions implemented to mitigate the financial impact of the COVID-19 ~~pandemic. As~~pandemic, including restructuring our workforce, reducing our advertising expenses by approximately 13%, and significantly reducing our discretionary spending. Gross advertising expenses decreased $9.7 million, partially offset by a ~~result~~decrease in advertising reimbursements from manufacturers of “shelter in place” or “stay at home” orders from federal, state, and local governments and other restrictive orders that were put into place in March 2020, we had significant declines in new and used vehicle unit sales, including a year-over-year decline of approximately 50% during the last two weeks of March 2020, which negatively impacted compensation for our sales associates. Additionally, performance-based compensation expense decreased $14.2 million, as compared to the first quarter of 2019, primarily due to changes in expectations of pay-out levels as a result of the COVID-19 pandemic impact.$3.5 million. As a percentage of total gross profit, SG&A expenses ~~increased~~decreased to ~~73.9%~~66.0% during the three months ended ~~March 31,~~September 30, 2020, from ~~73.4%~~73.7% in the same period in 2019, primarily due to ~~gross profit pressure~~effective cost management including the cost-saving actions taken due to the pandemic.

First Nine Months 2020 compared to First Nine Months 2019

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

primarily due to the cost-saving actions implemented to mitigate the financial impact of the COVID-19 pandemic, ~~impact.~~

~~Effective in April 2020, we placed approximately 7,000 employees~~including temporarily placing associates on unpaid leave, ~~implemented~~implementing temporary base pay reductions for our executive officers and associates, ~~and froze~~temporarily freezing corporate new ~~hiring. We also took actions to reduce~~hiring, reducing our advertising expenses by approximately ~~50% for the second quarter of 2020~~17%, and significantly ~~reduced~~reducing our discretionary spending. Gross advertising expenses decreased $33.2 million, partially offset by a decrease in advertising reimbursements from manufacturers of $9.9 million. As a percentage of total gross profit, SG&A expenses decreased to 69.4% during the nine months ended September 30, 2020, from 72.8% in the same period in 2019, primarily due to effective cost management including the cost-saving actions taken due to the pandemic.

Goodwill Impairment

During the ~~three months ended March 31,~~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 athe 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

~~During the three months ended March 31, 2020, we~~We recorded non-cash impairment charges of $57.5 million during the first quarter of ~~non-cash franchise right impairment charges~~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 (Expense),~~(Income) Expense, Net (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 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 $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.

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Non-Operating Income (Expense)

Floorplan Interest Expense

~~First~~Third Quarter 2020 compared to ~~First~~Third Quarter 2019

Floorplan interest expense was ~~$25.5~~$11.1 million for the three months ended ~~March 31,~~September 30, 2020, compared to ~~$39.0~~$33.0 million for the same period in 2019. The decrease in floorplan interest expense of ~~$13.5~~$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 2020 compared to First Nine Months 2019

Floorplan interest expense was $52.9 million for the nine months ended September 30, 2020, compared to $109.4 million for the same period in 2019. The decrease in floorplan interest expense of $56.5 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.

Other Interest Expense

~~First~~Third Quarter 2020 compared to ~~First~~Third Quarter 2019

Other interest expense ~~of $23.5~~was $23.6 million for the three months ended ~~March 31,~~September 30, 2020, ~~decreased $4.3 million as~~ compared to ~~$27.8~~$26.1 million for the same period in ~~2019,~~2019. The decrease of $2.5 million was driven by lower average debt ~~balances and~~balances.

First Nine Months 2020 compared to First Nine Months 2019

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

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

We ~~also~~ recorded aan unrealized loss ~~on debt extinguishment~~ of ~~$1.1~~$2.0 million during the ~~three months ended March 31,~~third quarter of 2020 ~~resulting from~~and an unrealized gain of $214.7 million during the second quarter of 2020 related to our ~~credit facility debt refinancing~~minority equity investment in ~~March 2020.~~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.

Income Tax Provision ~~(Benefit)~~

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 ~~14.4%~~25.0% for the three months ended ~~March 31,~~September 30, 2020, and 27.1% for the three months ended September 30, 2019. Our effective income tax rate was 34.0% for the nine months ended September 30, 2020, and 27.0% for the ~~three~~nine months ended ~~March 31,~~September 30, 2019.

The tax rate for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, reflects the fact that a significant portion of the goodwill impairment charges taken in the first quarter of 2020 was not deductible for income tax 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.

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 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.

We also believe that our liquidity resources will allow us to manage the impact of the COVID-19 pandemic on our business operations for the foreseeable future. The challenges posed by the COVID-19 pandemic on our business are evolving rapidly. Consequently, we will continue to evaluate our financial and liquidity position in light of future developments relating to the COVID-19 pandemic. Depending on market conditions, we may from time to time issue debt, including in private or public offerings, to augment our liquidity, to reduce our cost of capital, or for general corporate purposes.

~~Debt Refinancing Transaction~~

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.

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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) March 31,
2020 December 31,
2019
Cash and cash equivalents $ 411.0
$ 42.0
Revolving credit facility ⁽¹⁾
$ 822.4
⁽²⁾
$ 1,421.1
Secured used vehicle floorplan facilities ⁽³⁾
$ 0.6
$ 0.6
⁽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.


⁽¹⁾ ⁽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.	As limited by the maximum consolidated leverage ratio contained in our credit agreement. 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.

⁽²⁾

At March 31, 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 $140.0 million of commercial paper notes outstanding at March 31, 2020. See Note 7 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 ~~March 31,~~September 30, 2020, surety bonds, letters of credit, and cash deposits totaled ~~$107.8~~$101.9 million, of which $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 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 acquisitions or investments, and/or build facilities for newly awarded 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
March 31,
(In millions, except per share data) 2020 2019
Shares repurchased 2.5
1.0
Aggregate purchase price $ 80.0
$ 33.5
Average purchase price per share $ 31.95
$ 34.34

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 acquisitions or investments, capital investments in our current businesses, or repurchases of our debt.

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As of March 31, 2020, $139.0 million remained available under our stock repurchase program most recently authorized by our Board of Directors. We temporarily suspended our share repurchase program at the end of the first quarter of 2020 in light of the COVID-19 pandemic. This suspension does not impact our remaining Board authorization, and we may in the future resume the program when appropriate.

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
March 31,
(In millions) 2020 2019
Purchases of property and equipment, including operating lease buy-outs ⁽¹⁾
$ 30.0
$ 40.4


⁽¹⁾Includes accrued construction in progress and excludes property associated with leases entered into during the year.	~~Includes accrued construction in progress and excludes property associated with leases entered into during the year.~~

At ~~March 31,~~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 ~~stand-alone~~ used vehicle ~~sales and service centers,~~stores, parts distribution centers, and other excess properties with a net book value of ~~$468.4~~$455.3 million. None of these properties are mortgaged or encumbered. We ~~have taken~~took various actions ~~in an attempt~~ to mitigate the financial impact of the COVID-19 pandemic, including the postponement of ~~approximately $50~~nearly $90 million of capital expenditures through the ~~second~~third quarter of 2020. ~~Planned~~We also plan to defer capital expenditures ~~beyond~~of over $30 million for the ~~second quarter~~remainder of ~~2020 will be evaluated over the next several months.~~2020.

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							Three Months Ended						Nine Months Ended
	March 31,							September 30,						September 30,
(In millions)	2020			2019			(In millions)	2020		2019		2020		2019
Cash received from (used in) business acquisitions, net	$	(0.4	)	$	(4.3	)	Cash received from (used in) business acquisitions, net	$	—	$	(0.4)	$	(0.4)	$	(4.7)
Cash received from (used in) business divestitures, net	$	—		$	17.4		Cash received from (used in) business divestitures, net	$	2.2	$	44.9	$	2.2	$	67.2

We ~~did not purchase or divest stores~~divested one store and terminated one franchise during the ~~three~~nine months ended ~~March 31,~~September 30, 2020. We purchased two parts distribution centers and divested two Domestic stores, four Import stores, and one collision center during the ~~three~~nine months ended ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2020,, and December 31, ~~2019~~.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 March 31,
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
Revolving credit facility March 26, 2025 Monthly 790.0
—
Finance leases and other debt Various dates through 2039 Monthly 101.2
93.9
2,391.2
1,943.9
Less: unamortized debt discounts and debt issuance costs (9.2 ) (9.8 )
Less: current maturities (305.6 ) (355.6 )
Long-term debt, net of current maturities $ 2,076.4
$ 1,578.5

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.

~~Table~~On May 21, 2020, we issued $500.0 million aggregate principal amount of ~~Contents~~

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 January 15, 2021, and were, therefore, reclassified to current maturities during the first quarter of 2020.

~~At March 31, 2020, we~~We had ~~$140.0 million of~~no commercial paper notes outstanding ~~with a weighted-average annual interest rate of 3.30% and a weighted-average remaining term of 1 day.~~at September 30, 2020. At December 31, 2019, we had $170.0 million of commercial paper notes outstanding with a weighted-average annual interest rate of 2.13% and a weighted-average remaining term of 12 days.

See Note 7 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 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 ~~three~~nine months ended ~~March 31,~~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 ~~March 31,~~September 30, 2020, we were in compliance with the requirements of the financial covenants under our debt agreements as such non-cash impairment charges do not factor into the calculations for those covenants. Under the terms of our credit agreement, at ~~March 31,~~September 30, 2020, our leverage ratio and capitalization ratio were as follows:

~~March 31,~~September 30, 2020

Requirement

Actual

Leverage ratio

≤ 3.75x

~~2.83x~~1.99x

Capitalization ratio

≤ 70.0%

~~56.7%~~46.3%

~~After considering~~Although economic conditions have improved during the ~~impacts~~third quarter of ~~the COVID-19 pandemic, the actions we have taken, and the other options available~~2020, to ~~us, we expect to remain in compliance with the requirements of the financial covenants under our debt agreements. 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) March 31,
2020 December 31,
2019
Vehicle floorplan payable - trade $ 2,197.2
$ 2,120.6
Vehicle floorplan payable - non-trade 1,485.3
1,455.2
Vehicle floorplan payable $ 3,682.5
$ 3,575.8

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(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

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:


	Three Months Ended							Nine Months Ended
	March 31,							September 30,
(In millions)	2020			2019			(In millions)	2020		2019
Net cash provided by operating activities	$	113.7		$	259.7		Net cash provided by operating activities	$	1,164.3	$	665.5
Net cash used in investing activities	$	(92.2	)	$	(48.6	)	Net cash used in investing activities	$	(151.6)	$	(113.5)
Net cash received from (used in) financing activities	$	347.1		$	(210.9	)
Net cash used in financing activities							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 ~~decreased~~increased during the ~~three~~nine months ended ~~March 31,~~September 30, 2020, as compared to the same period in 2019, primarily due to a decrease in working capital requirements and an increase in ~~working capital requirements.~~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 increased during the ~~three~~nine months ended ~~March 31,~~September 30, 2020,, as compared to the same period in 2019,, primarily due to ~~an investment in an equity security and~~ a decrease in cash received from business divestitures, net of cash relinquished, and 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 ~~three~~nine months ended ~~March 31,~~September 30, 2020, we borrowed ~~$790.0 million~~$1.1 billion and repaid $1.1 billion under our revolving credit ~~facility and had no repayments.~~facility. During the ~~three~~nine months ended ~~March 31,~~September 30, 2019, we had no borrowings or repayments under our revolving credit facility.

~~Cash flows from financing activities include changes in commercial paper notes outstanding totaling net payments of $30.0 million during~~During the ~~three~~nine months ended ~~March 31, 2020, and net payments of $160.0 million during the three months ended~~ ~~March 31, 2019, as well as changes in vehicle floorplan payable-non-trade totaling net proceeds of $30.1 million for the~~ ~~three~~ ~~months ended March 31, 2020, and net payments of $12.5 million for the~~ ~~three~~ ~~months ended March 31, 2019.~~

~~During the~~ ~~three~~ ~~months ended March 31,~~September 30, 2020, we repaid the outstanding $350.0 million of 5.5% Senior Notes due 2020, ~~through the utilization~~issued $500.0 million aggregate principal amount of ~~our commercial paper program.~~

~~During the~~ ~~three~~ ~~months ended March 31, 2020, we~~4.75% Senior Notes due 2030, and amended and restated our existing unsecured credit agreement. Cash flows from financing activities during the ~~three~~nine months ended ~~March 31,~~September 30, 2020, reflect cash payments of ~~$6.1~~$11.0 million for debt issuance costs ~~for this transaction~~associated with the senior note issuance and debt refinancing that are being amortized to interest expense over the ~~term~~terms of the related debt ~~arrangement.~~arrangements.

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.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, we repurchased 2.5 million shares of common stock for an aggregate purchase price of $80.0 million (average purchase price per share of $31.95)~~, including repurchases for which settlement occurred subsequent to March 31, 2020.~~. During the ~~three~~nine months ended ~~March 31,~~September 30, 2019,, we repurchased ~~1.0~~1.3 million shares of

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common stock for an aggregate purchase price of ~~$33.5~~$44.7 million (average purchase price per share of ~~$34.34), including repurchases for which settlement occurred subsequent~~$35.51).

During the nine months ended September 30, 2020, cash flows from financing activities were also impacted by an increase in proceeds from the exercise of stock options as compared to ~~March 31,~~the 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, and other statements regarding our expectations for the future performance of our business and the automotive retail industry, as well as other written or oral statements made from time to time by us or by our 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 COVID-19 pandemic has had a significant adverse impact, and could continue to have a significant adverse impact, on our business, results of operations, and financial condition going forward. Future epidemics, pandemics, and other outbreaks could also have a significant adverse impact on our business, results of operations, and financial condition.

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.

•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.

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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 ~~investments do not have~~investment in Vroom Inc., which has a readily determinable fair ~~values and their~~value, is required to be measured at fair ~~values are subject to fluctuations based on observable price changes. These fluctuations~~value. Fluctuations in its fair value could result in ~~downward adjustments~~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 ~~require us to record~~ 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) •~~www.twitter.com/autonation~~)


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

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 ~~$3.7~~$2.3 billion of variable rate vehicle floorplan payable at ~~March 31,~~September 30, 2020,, and ~~$3.6~~$3.6 billion at December 31, ~~2019~~.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 ~~$36.8~~$23.1 million at ~~March 31,~~September 30, 2020,, and ~~$35.8~~$35.8 million at December 31, ~~2019~~.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 ~~$140.0 million of~~no commercial paper notes outstanding at ~~March 31,~~September 30, 2020, and $170.0 million at December 31, 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 ~~$1.4 million at March 31, 2020 and~~ $1.7 million at December 31, 2019.

Our fixed rate long-term debt, consisting of amounts outstanding under our senior unsecured notes and finance lease and other debt obligations, totaled ~~$1.6~~$2.1 billion and had a fair value of ~~$1.5~~$2.3 billion as of ~~March 31,~~September 30, 2020,, and totaled $1.9 billion and had a fair value of $2.0 billion as of December 31, ~~2019~~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 losses will be recorded as the fair market value of this security changes over time. The fair value of 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.

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.

The COVID-19 pandemic has had a significant adverse impact, and could continue to have a significant adverse impact, on our business, results of operations, and financial condition going forward. Future epidemics, pandemics, and other outbreaks could also have a significant adverse impact on our business, results of operations, and financial condition.

The COVID-19 pandemic has led to severe disruptions in general economic activities as businesses and federal, state, and local governments take increasingly broad actions to mitigate the impact of the COVID-19 pandemic on public health, including a number of “shelter in place” or “stay at home” orders in the states and regions in which we operate. Although we remain open and have modified our business practices to conform to government restrictions and best practices, we have seen significant declines in new and used vehicle unit sales and sales of our finance and insurance products. In addition, our parts and service business is currently operating below full capacity in all of our locations. Our operations also depend on the continued health and productivity of our associates, including store, regional, and corporate headquarter teams, throughout this pandemic. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including the severity and duration of the COVID-19 pandemic, and further actions that may be taken by federal, state, and local governments and third parties in response to the pandemic. In addition, the success of our stores is dependent on vehicle manufacturers in several key respects, and those manufacturers have also been, and could continue to be, adversely impacted by the COVID-19 pandemic. Vehicle manufacturers may be adversely impacted by a number of factors as as a result of the COVID-19 pandemic, including supply chain disruptions, rising raw material costs, delays in shipping, economic downturns, and liquidity concerns.

Further, the measures we have taken in response to the COVID-19 pandemic may not be sufficient, and our liquidity could be negatively impacted if these conditions continue for a significant period of time. As a result, we may be required to pursue additional sources of financing to obtain working capital and meet our financial obligations. Currently, the capital markets and credit markets have been disrupted by the COVID-19 pandemic and our ability to obtain any additional financing on favorable terms, or at all, is not guaranteed and largely dependent upon evolving market conditions and other factors.

Depending on the magnitude and duration of the COVID-19 pandemic, the adverse impact of the COVID-19 pandemic on our business, results of operations, financial condition, and liquidity could be material. The COVID-19 pandemic also may heighten or exacerbate many of the other risks discussed in our most recent Annual Report on Form 10-K and subsequent reports. Even after the COVID-19 pandemic has subsided, we may continue to experience significant adverse effects to our business as a result of its economic impact, including any economic recession or downturn and the impact of such a recession or downturn on unemployment levels, consumer confidence, levels of personal discretionary spending, and credit availability. Future epidemics, pandemics, and other outbreaks could have a similar adverse impact on our business, results of operations, and financial condition.

Our minority equity investments do not have readily determinable fair values and their fair values are subject to fluctuations based on observable price changes. These fluctuations could result in downward adjustments or require us to record impairments, both of which could adversely impact our results of operations and financial condition.

We have minor investments in equity securities that do not have readily determinable fair values. As a result, we have elected to measure these equity investments using a measurement alternative permitted by accounting standards and recorded the equity investments at cost to be subsequently adjusted for observable price changes or impairment, if any. There may be future issuances of identical or similar equity securities of the same issuers of the equity securities in which we have invested that would result in observable price changes that could result in upward or downward adjustments to our equity investments. A downward adjustment to or impairment of our equity investments could adversely impact our results of operations and financial condition.

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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 ~~March 31, 2020~~.September 30, 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⁾
January 1, 2020 - January 31, 2020 —
$ —
—
$ 219.0
February 1, 2020 - February 29, 2020 52
$ 50.68
—
$ 219.0
March 1, 2020 - March 31, 2020 2,507,722
$ 31.97
2,504,559
$ 139.0
Total 2,507,774
2,504,559


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~~ ~~March~~July 1, 2020 - July 31, 2020	~~, $139.0 million remained available under our stock repurchase authorization limit. The Board’s authorization has no expiration date. During the first quarter of~~—	$	—	—	$	139.0
August 1, 2020 all of the shares reflected in the table above were repurchased under the stock repurchase program, except for 3,215 shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock. We temporarily suspended our share repurchase program at the end of the first quarter of- August 31, 2020 ~~in light of the COVID-19 pandemic. This suspension does not impact our remaining Board authorization, and we may in the future resume the program when appropriate.~~	—	$	—	—	$	139.0
September 1, 2020 - September 30, 2020	—	$	—	—	$	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	~~Amended and Restated Credit~~Employment Agreement, dated ~~March 26,~~July 14, 2020, by and ~~among the Company, JPMorgan Chase Bank, N.A. as Administrative Agent,~~between AutoNation, Inc. and ~~the other parties thereto~~Michael J. Jackson (incorporated by reference to Exhibit 10.1 to the ~~Company’s~~ Current Report on Form 8-K filed ~~with the SEC~~ on ~~March 26,~~July 14, 2020).
10.2		~~Form~~Separation Agreement and General Release of ~~Amended and Restated Commercial Paper Dealer Agreement,~~All Claims, dated March 26, 2020, between AutoNation, Inc., as Issuer, and the Dealer party thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 26, 2020).
~~10.3~~	~~Restricted Stock Unit Award Agreement, dated as of January 13,~~July 14, 2020, by and between AutoNation, Inc. and ~~Joseph T. Lower~~Cheryl Miller (incorporated by reference to Exhibit ~~10.37~~10.2 to the ~~Company’s Annual~~Current Report on Form ~~10-K~~8-K filed ~~with the SEC~~ on ~~February 18,~~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.

4953

Table of Contents

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:~~

~~May 11, 2020~~

~~By:~~

/s/ Christopher Cade

Christopher Cade

Senior Vice President and Chief Accounting Officer

(Duly Authorized Officer and

Principal Accounting Officer)

5054


	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



	March 31, 2020			December 31, 2019
Contracts-in-transit and vehicle receivables	$	189.0		$	506.0
Trade receivables	117.0			136.4
Manufacturer receivables	172.3			234.5
Income taxes receivable (see Note 8)	—			1.5
Other	35.3			38.8
	513.6			917.2
Less: allowances for credit losses	(0.7		)	(0.5		)
Receivables, net	$	512.9		$	916.7


	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



	March 31, 2020		December 31, 2019
New vehicles	$	2,840.9	$	2,490.8
Used vehicles	600.2		570.0
Parts, accessories, and other	235.9		245.0
Inventory	$	3,677.0	$	3,305.8


	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 March 31, 2020
	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, 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



	Three Months Ended March 31, 2019
	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, 2018	102,562,149	$	1.0	$	20.8		$	3,238.3	$	(544.1	)	$	2,716.0
Net income	—	—		—			92.0		—			92.0
Repurchases of common stock	—	—		—			—		(33.5		)	(33.5		)
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		)
BALANCE AT MARCH 31, 2019	102,562,149	$	1.0	$	24.7		$	3,330.3	$	(570.2	)	$	2,785.8



	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	$	89.4	$	29.6	$	44.5	$	15.3


	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⁾	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 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 held for sale and related adjustments, which are presented in Other Current Assets in our Consolidated Balance Sheet as of period end.~~


~~11.~~	~~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:



	March 31, 2020		December 31, 2019
Carrying value	$	1,592.0	$	1,934.1
Fair value	$	1,527.4	$	2,001.8


4.	~~RECEIVABLES, NET~~


5.	~~INVENTORY AND VEHICLE FLOORPLAN PAYABLE~~


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%)



	Fair Value at March 31, 2020		Valuation Technique	Unobservable Input	Range (Average)
Franchise rights	$	24.6	Discounted cash flow	Weighted average cost of capital	7.7% - 8.6% (8.4%)
				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%)