AUTONATION, INC. 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. OverviewAutoNation, Inc. , through its subsidiaries, is the largest automotive retailer inthe United States . As ofSeptember 30, 2021 , we owned and operated 331 new vehicle franchises from 239 stores located inthe 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 33 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately 90% of the new vehicles that we sold during the nine months endedSeptember 30, 2021 , are manufactured byToyota (including Lexus), Honda, General Motors, Ford, Stellantis, Mercedes-Benz, BMW, andVolkswagen (including Audi and Porsche). As ofSeptember 30, 2021 , we also owned and operated 72 AutoNation-branded collision centers, 7AutoNation USA used vehicle stores, 4 AutoNation-branded automotive auction operations, and 3 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. AtSeptember 30, 2021 , 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 Stellantis. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily byToyota , Honda, Subaru, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Lexus, Audi, and Jaguar Land Rover. The franchises in each segment also sell used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products. For the nine months endedSeptember 30, 2021 , new vehicle sales accounted for 48% of our total revenue and 23% of our total gross profit. Used vehicle sales accounted for 33% of our total revenue and 14% of our total gross profit. Our parts and service operations, while comprising 14% of our total revenue, contributed 34% of our total gross profit. Our finance and insurance sales, while comprising 5% of our total revenue, contributed 28% of our total gross profit. Market Conditions In the third quarter of 2021,U.S. industry retail new vehicle unit sales decreased 14% as compared to the third quarter of 2020, primarily as a result of the limited supply of new vehicles to sell. During 2021, the demand for vehicles has been strong and exceeded supply. While market demand for new and used vehicles remains high primarily due to low interest rates and a consumer desire for personal transportation, there continues to be a shortage of available new vehicles for sale driven largely by certain component shortages in the manufacturers' supply chains. This demand and supply imbalance has resulted in higher levels of profitability for available new and used vehicles. The reduced levels of new vehicle availability is currently expected to continue well into 2022; however, there is still significant uncertainty as to when new vehicle availability will improve, as well as duration and/or degree of the higher levels of profitability being realized during this time. Results of Operations During the three months endedSeptember 30, 2021 , we had net income from continuing operations of$361.7 million and diluted earnings per share of$5.12 , as compared to net income from continuing operations of$182.6 million and diluted earnings per share of$2.05 during the same period in 2020. Our total gross profit increased 30.9% during the third quarter of 2021 compared to the third quarter of 2020, driven by increases in new vehicle gross profit of 91.1%, used vehicle gross profit of 20.5%, finance and insurance gross profit of 24.1%, and parts and service gross profit of 13.2%, each as compared to the third quarter of 2020. New and used vehicle gross profit benefited from an increase in gross profit per vehicle retailed ("PVR") resulting from strong demand and historically low new 22 -------------------------------------------------------------------------------- Table of Contents vehicle inventory levels due to certain component shortages in the manufacturers' supply chains. Used vehicle gross profit also benefited from an increase in used vehicle unit volume. Finance and insurance gross profit benefited from an increase in finance and insurance gross profit PVR and the increase in used vehicle unit volume. Parts and service gross profit benefited primarily from increases in gross profit from customer-pay service, wholesale parts sales, and collision business due to increases in repair order volume, which was adversely impacted by the COVID-19 pandemic in the prior year. SG&A expenses increased largely due to performance-driven increases in compensation expense. With improvements in gross profit and our continued focus on cost control, SG&A expenses as a percentage of gross profit decreased to 56.9% during the three months endedSeptember 30, 2021 , from 66.0% in the same period in 2020. Net income from continuing operations during the three months endedSeptember 30, 2020 , was adversely impacted by$27.7 million of after-tax charges in connection with the closure of our aftermarket collision parts ("ACP") business. Chief Executive Officer Transition OnSeptember 9, 2021 , our Board of Directors appointedMike Manley as Chief Executive Officer and as a member of the Board of Directors, effective as ofNovember 1, 2021 .Mr. Manley , age 57, has served sinceJanuary 2021 as Head ofAmericas and as a member of theGroup Executive Council for Stellantis N.V. , one of the largest automotive original equipment manufacturers in the world.Mr. Manley also previously served as Chief Executive Officer ofFiat Chrysler Automobiles N.V. ("FCA"), a predecessor to Stellantis N.V. Prior to becomingFCA's Chief Executive Officer, he served in a number of management-level roles with increasing responsibility overseeing various aspects ofFCA's operations.Michael J. Jackson , the current Chief Executive Officer of the Company and a member of the Board, will retire from both roles, effectiveNovember 1, 2021 , in accordance with the terms of his employment agreement with the Company. Strategic Initiatives We plan to expand ourAutoNation USA used vehicle stores and are targeting to have over 130 stores by the end of 2026. We opened oneAutoNation USA store in each of the second and third quarters of 2021 and one store inOctober 2021 . We expect to open two additional new stores before the end of 2021 and 12 additional new stores in 2022. We anticipate that the initial capital investment will be approximately$10 million to$11 million for each new store on average. The planned expansion may be impacted by a number of variables, including customer adoption, market conditions, availability of used vehicle inventory, and our ability to identify, acquire, and build out suitable locations in 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. Our new vehicle inventory units atSeptember 30, 2021 and 2020, were 8,041 and 40,615, respectively. By historical standards, our inventory unit levels were significantly lower atSeptember 30, 2021 , driven by strong demand and the component shortages in the manufacturers' supply chains. Inadequate levels of new vehicle availability could adversely affect our financial results. 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 had no new vehicle inventory write-downs atSeptember 30, 2021 , or atDecember 31, 2020 . We recondition the majority of used vehicles acquired for retail sale in our parts and service departments and capitalize the related costs to the used vehicle inventory. We monitor our used vehicle inventory values as compared to net realizable values. Typically, used vehicles that are not sold on a retail basis are sold at wholesale auctions. Our used vehicle inventory balance was net of cumulative write-downs of$2.8 million atSeptember 30, 2021 , and$3.4 million atDecember 31, 2020 . 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. Our parts, accessories, and other inventory balance was net of cumulative write-downs of$5.7 million atSeptember 30, 2021 , and$6.5 million atDecember 31, 2020 . 23 -------------------------------------------------------------------------------- Table of Contents Impact of the COVID-19 Pandemic Although economic conditions have improved subsequent to the first half of 2020, we cannot predict the duration or scope of the COVID-19 pandemic. Negative financial impacts on our financial results and performance could be material in future periods. Critical Accounting Estimates We prepare our Unaudited Condensed Consolidated Financial Statements in conformity withU.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 ofApril 30 or more frequently when events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value. Under accounting standards, we chose to make a qualitative evaluation about the likelihood of goodwill impairment for our annual impairment testing as ofApril 30, 2021 , 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 ofSeptember 30, 2021 , we have$228.7 million of goodwill related to the Domestic reporting unit,$517.9 million related to the Import reporting unit, and$477.4 million related to the Premium Luxury reporting unit. Other Intangible Assets Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as ofApril 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. We elected to perform quantitative tests for our annual franchise rights impairment testing as ofApril 30, 2021 , and no impairment charges resulted from these quantitative tests. The quantitative franchise rights impairment test is dependent on many variables used to determine the fair value of each store's franchise rights. See Note 12 of the Notes to Unaudited Condensed Consolidated Financial Statements for a description of the valuation method and related estimates and assumptions used in our quantitative impairment testing. If the fair value of each of our franchise rights had been determined to be a hypothetical 10% lower as of the valuation date ofApril 30, 2021 , no impairment would have resulted. The effect of a hypothetical 10% decrease in fair value estimates is not intended to provide a sensitivity analysis of every potential outcome. 24
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Reported Operating Data
Historical operating results include the results of acquired businesses from the
date of acquisition.
Three Months Ended September 30 ,
Nine Months Ended
Variance Variance
($ in millions, except per vehicle Favorable / % Favorable / %
data) 2021 2020 (Unfavorable) Variance 2021 2020 (Unfavorable) Variance
Revenue:
New vehicle $ 2,753.8 $ 2,748.4 $ 5.4 0.2 $ 9,164.4 $ 7,291.6 $ 1,872.8 25.7
Retail used vehicle 2,158.2 1,421.0 737.2 51.9 5,888.1 3,845.5 2,042.6 53.1
Wholesale 165.0 95.9 69.1 72.1 407.1 244.6 162.5 66.4
Used vehicle 2,323.2 1,516.9 806.3 53.2 6,295.2 4,090.1 2,205.1 53.9
Finance and insurance, net 348.9 281.2 67.7 24.1 1,030.9 763.4 267.5 35.0
Total variable operations(1) 5,425.9 4,546.5 879.4 19.3 16,490.5 12,145.1 4,345.4 35.8
Parts and service 943.7 852.8 90.9 10.7 2,745.5 2,419.0 326.5 13.5
Other 9.9 5.6 4.3 25.7 40.8 (15.1)
Total revenue $ 6,379.5 $ 5,404.9 $ 974.6 18.0 $ 19,261.7 $ 14,604.9 $ 4,656.8 31.9
Gross profit:
New vehicle $ 319.6 $ 167.2 $ 152.4 91.1 $ 830.1 $ 383.2 $ 446.9 116.6
Retail used vehicle 163.1 128.8 34.3 26.6 468.7 318.1 150.6 47.3
Wholesale 13.9 18.1 (4.2) 51.2 36.8 14.4
Used vehicle 177.0 146.9 30.1 20.5 519.9 354.9 165.0 46.5
Finance and insurance 348.9 281.2 67.7 24.1 1,030.9 763.4 267.5 35.0
Total variable operations(1) 845.5 595.3 250.2 42.0 2,380.9 1,501.5 879.4 58.6
Parts and service 424.8 375.2 49.6 13.2 1,246.3 1,075.4 170.9 15.9
Other 1.6 1.0 0.6 3.8 2.8 1.0
Total gross profit 1,271.9 971.5 300.4 30.9 3,631.0 2,579.7 1,051.3 40.8
Selling, general, and administrative
expenses 723.7 641.4 (82.3) (12.8) 2,120.5 1,790.0 (330.5) (18.5)
Depreciation and amortization 47.6 51.8 4.2 143.4 149.0 5.6
Goodwill impairment - - - - 318.3 318.3
Franchise rights impairment - - - - 57.5 57.5
Other (income) expense, net (2.7) 6.6 9.3 (3.3) 11.1 14.4
Operating income 503.3 271.7 231.6 85.2 1,370.4 253.8 1,116.6 440.0
Non-operating income (expense) items:
Floorplan interest expense (4.9) (11.1) 6.2 (20.9) (52.9) 32.0
Other interest expense (24.1) (23.6) (0.5) (66.2) (70.3) 4.1
Other income (loss), net (0.8) 6.5 (7.3) 19.1 218.2 (199.1)
Income from continuing operations
before income taxes $ 473.5 $ 243.5 $ 230.0 94.5 $ 1,302.4 $ 348.8 $ 953.6 273.4
Retail vehicle unit sales:
New vehicle 58,277 65,998 (7,721) (11.7) 204,802 177,250 27,552 15.5
Used vehicle 77,553 64,587 12,966 20.1 229,922 179,656 50,266 28.0
135,830 130,585 5,245 4.0 434,724 356,906 77,818 21.8
Revenue per vehicle retailed:
New vehicle $ 47,254 $ 41,644 $ 5,610 13.5 $ 44,748 $ 41,137 $ 3,611 8.8
Used vehicle $ 27,829 $ 22,001 $ 5,828 26.5 $ 25,609 $ 21,405 $ 4,204 19.6
Gross profit per vehicle retailed:
New vehicle $ 5,484 $ 2,533 $ 2,951 116.5 $ 4,053 $ 2,162 $ 1,891 87.5
Used vehicle $ 2,103 $ 1,994 $ 109 5.5 $ 2,039 $ 1,771 $ 268 15.1
Finance and insurance $ 2,569 $ 2,153 $ 416 19.3 $ 2,371 $ 2,139 $ 232 10.8
Total variable operations(2)
$ 1,702 38.5$ 5,359 $ 4,104 $ 1,255 30.6
(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.
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Three Months Ended Nine Months Ended
September 30, September 30,
2021 (%) 2020 (%) 2021 (%) 2020 (%)
Revenue mix percentages:
New vehicle 43.2 50.9 47.6 49.9
Used vehicle 36.4 28.1 32.7 28.0
Parts and service 14.8 15.8 14.3 16.6
Finance and insurance, net 5.5 5.2 5.4 5.2
Other 0.1 - - 0.3
Total 100.0 100.0 100.0 100.0
Gross profit mix percentages:
New vehicle 25.1 17.2 22.9 14.9
Used vehicle 13.9 15.1 14.3 13.8
Parts and service 33.4 38.6 34.3 41.7
Finance and insurance 27.4 28.9 28.4 29.6
Other 0.2 0.2 0.1 -
Total 100.0 100.0 100.0 100.0
Operating items as a percentage of revenue:
Gross profit:
New vehicle 11.6 6.1 9.1 5.3
Used vehicle - retail 7.6 9.1 8.0 8.3
Parts and service 45.0 44.0 45.4 44.5
Total 19.9 18.0 18.9 17.7
Selling, general, and administrative expenses 11.3 11.9 11.0 12.3
Operating income 7.9 5.0 7.1 1.7
Other operating items as a percentage of total
gross profit:
Selling, general, and administrative expenses 56.9 66.0 58.4 69.4
Operating income 39.6 28.0 37.7 9.8
September 30,
2021 2020
Inventory days supply:
New vehicle (industry standard of selling days) 10 days 43 days
Used vehicle (trailing calendar month days) 35 days 39 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 2020 columns
may differ from the same store amounts presented for 2020 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
Variance Variance
($ in millions, except per vehicle Favorable / % Favorable / %
data) 2021 2020 (Unfavorable) Variance 2021 2020 (Unfavorable) Variance
Revenue:
New vehicle $ 2,753.8 $ 2,743.2 $ 10.6 0.4 $ 9,156.7 $ 7,278.0 $ 1,878.7 25.8
Retail used vehicle 2,146.6 1,418.3 728.3 51.4 5,867.2 3,837.2 2,030.0 52.9
Wholesale 164.6 95.7 68.9 72.0 406.3 244.1 162.2 66.4
Used vehicle 2,311.2 1,514.0 797.2 52.7 6,273.5 4,081.3 2,192.2 53.7
Finance and insurance, net 348.3 280.8 67.5 24.0 1,029.3 762.0 267.3 35.1
Total variable operations(1) 5,413.3 4,538.0 875.3 19.3 16,459.5 12,121.3 4,338.2 35.8
Parts and service 942.4 836.9 105.5 12.6 2,740.8 2,364.6 376.2 15.9
Other 10.0 5.4 4.6 25.8 40.4 (14.6)
Total revenue $ 6,365.7 $ 5,380.3 $ 985.4 18.3 $ 19,226.1 $ 14,526.3 $ 4,699.8 32.4
Gross profit:
New vehicle $ 319.6 $ 166.9 $ 152.7 91.5 $ 829.5 $ 382.7 $ 446.8 116.7
Retail used vehicle 162.2 128.5 33.7 26.2 466.9 317.7 149.2 47.0
Wholesale 13.9 18.1 (4.2) 51.2 36.8 14.4
Used vehicle 176.1 146.6 29.5 20.1 518.1 354.5 163.6 46.1
Finance and insurance 348.3 280.8 67.5 24.0 1,029.3 762.0 267.3 35.1
Total variable operations(1) 844.0 594.3 249.7 42.0 2,376.9 1,499.2 877.7 58.5
Parts and service 424.3 391.5 32.8 8.4 1,244.4 1,084.2 160.2 14.8
Other 1.4 0.7 0.7 3.7 2.3 1.4
Total gross profit $ 1,269.7 $ 986.5 $ 283.2 28.7 $ 3,625.0 $ 2,585.7 $ 1,039.3 40.2
Retail vehicle unit sales:
New vehicle 58,276 65,838 (7,562) (11.5) 204,569 176,796 27,773 15.7
Used vehicle 77,073 64,393 12,680 19.7 228,944 179,051 49,893 27.9
135,349 130,231 5,118 3.9 433,513 355,847 77,666 21.8
Revenue per vehicle retailed:
New vehicle $ 47,254 $ 41,666 $ 5,588 13.4 $ 44,761 $ 41,166 $ 3,595 8.7
Used vehicle $ 27,852 $ 22,026 $ 5,826 26.5 $ 25,627 $ 21,431 $ 4,196 19.6
Gross profit per vehicle retailed:
New vehicle $ 5,484 $ 2,535 $ 2,949 116.3 $ 4,055 $ 2,165 $ 1,890 87.3
Used vehicle $ 2,104 $ 1,996 $ 108 5.4 $ 2,039 $ 1,774 $ 265 14.9
Finance and insurance $ 2,573 $ 2,156 $ 417 19.3 $ 2,374 $ 2,141 $ 233 10.9
Total variable operations(2)
$ 1,709 38.6$ 5,365 $ 4,110 $ 1,255 30.5
(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,
2021 (%) 2020 (%) 2021 (%) 2020 (%)
Revenue mix percentages:
New vehicle 43.3 51.0 47.6 50.1
Used vehicle 36.3 28.1 32.6 28.1
Parts and service 14.8 15.6 14.3 16.3
Finance and insurance, net 5.5 5.2 5.4 5.2
Other 0.1 0.1 0.1 0.3
Total 100.0 100.0 100.0 100.0
Gross profit mix percentages:
New vehicle 25.2 16.9 22.9 14.8
Used vehicle 13.9 14.9 14.3 13.7
Parts and service 33.4 39.7 34.3 41.9
Finance and insurance 27.4 28.5 28.4 29.5
Other 0.1 - 0.1 0.1
Total 100.0 100.0 100.0 100.0
Operating items as a percentage of revenue:
Gross profit:
New vehicle 11.6 6.1 9.1 5.3
Used vehicle - retail 7.6 9.1 8.0 8.3
Parts and service 45.0 46.8 45.4 45.9
Total 19.9 18.3 18.9 17.8
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Table of Contents
New Vehicle
Three Months Ended September 30, Nine Months Ended September 30,
Variance Variance
($ in millions, except per Favorable / % Favorable / %
vehicle data) 2021 2020 (Unfavorable) Variance 2021 2020 (Unfavorable) Variance
Reported:
Revenue $ 2,753.8 $ 2,748.4 $ 5.4 0.2 $ 9,164.4 $ 7,291.6 $ 1,872.8 25.7
Gross profit $ 319.6 $ 167.2 $ 152.4 91.1 $ 830.1 $ 383.2 $ 446.9 116.6
Retail vehicle unit sales 58,277 65,998 (7,721) (11.7) 204,802 177,250 27,552 15.5
Revenue per vehicle retailed
13.5 $ 44,748 $ 41,137 $ 3,611 8.8
Gross profit per vehicle
retailed $ 5,484 $ 2,533 $ 2,951 116.5 $ 4,053 $ 2,162 $ 1,891 87.5
Gross profit as a percentage of
revenue 11.6% 6.1% 9.1% 5.3%
Inventory days supply (industry
standard of selling days) 10 days 43 days
Three Months Ended September 30, Nine Months Ended September 30,
Variance Variance
Favorable / % Favorable / %
2021 2020 (Unfavorable) Variance 2021 2020 (Unfavorable) Variance
Same Store:
Revenue $ 2,753.8 $ 2,743.2 $ 10.6 0.4 $ 9,156.7 $ 7,278.0 $ 1,878.7 25.8
Gross profit $ 319.6 $ 166.9 $ 152.7 91.5 $ 829.5 $ 382.7 $ 446.8 116.7
Retail vehicle unit sales 58,276 65,838 (7,562) (11.5) 204,569 176,796 27,773 15.7
Revenue per vehicle retailed
13.4 $ 44,761 $ 41,166 $ 3,595 8.7
Gross profit per vehicle
retailed $ 5,484 $ 2,535 $ 2,949 116.3 $ 4,055 $ 2,165 $ 1,890 87.3
Gross profit as a percentage of
revenue 11.6% 6.1% 9.1% 5.3%
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 $5.2 million in new vehicle revenue and $0.3 million in new vehicle gross
profit for the three months ended September 30, 2020 , and $7.7 million and $13.6
million in new vehicle revenue and $0.6 million and $0.5 million in new vehicle
gross profit for the nine months ended September 30, 2021 and 2020,
respectively, is related to divestiture activity.
Third Quarter 2021 compared to Third Quarter 2020
Same store new vehicle revenue increased during the three months ended
September 30, 2021 , as compared to the same period in 2020, due to an increase
in same store revenue PVR, largely offset by a decrease in same store unit
volume. The decrease in same store unit volume was primarily due to historically
low inventory levels due to manufacturer supply shortages.
Same store revenue PVR and gross profit PVR both increased during the three
months ended September 30, 2021 , as compared to the same period in 2020,
primarily due to strong demand and reduced availability of new vehicle
inventory.
First Nine Months 2021 compared to First Nine Months 2020
Same store new vehicle revenue increased during the nine months ended
September 30, 2021 , as compared to the same period in 2020, due to increases in
same store unit volume and same store revenue PVR. Same store unit volume in the
prior year was significantly adversely impacted by the COVID-19 pandemic,
particularly during the last two weeks of March 2020 through April 2020 . Same
store unit volume in the current year benefited from an increase in customer
demand, partially offset by historically low inventory levels due to
manufacturer supply shortages.
Same store revenue PVR and gross profit PVR both increased during the nine
months ended September 30, 2021 , as compared to the same period in 2020,
primarily due to strong demand and reduced availability of new vehicle
inventory.
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New Vehicle Inventory Carrying Benefit
The following table details net new vehicle inventory carrying benefit,
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) 2021 2020 Variance 2021 2020 Variance
Floorplan assistance $ 27.1 $ 28.9 $
(1.8)
(3.8) (10.4) 6.6 (18.7) (47.6) 28.9
Net new vehicle inventory carrying
benefit $ 23.3 $ 18.5 $
4.8
Third Quarter 2021 compared to Third Quarter 2020 The net new vehicle inventory carrying benefit increased during the three months endedSeptember 30, 2021 , as compared to the same period in 2020, due to a decrease in floorplan interest expense, partially offset by a decrease in floorplan assistance. Floorplan interest expense decreased primarily due to lower average floorplan balances. Floorplan assistance decreased primarily due to a decrease in unit volume partially offset by an increase in the average floorplan assistance rate per unit. First Nine Months 2021 compared to First Nine Months 2020 The net new vehicle inventory carrying benefit increased during the nine months endedSeptember 30, 2021 , as compared to the same period in 2020, due to a decrease in floorplan interest expense and an increase in floorplan assistance. Floorplan interest expense decreased due to lower average floorplan balances and lower average interest rates. Floorplan interest rates are variable and, therefore, increase and decrease with changes in the underlying benchmark interest rates. Floorplan assistance increased due to increases in unit volume and the average floorplan assistance rate per unit. 30 --------------------------------------------------------------------------------
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Used Vehicle
Three Months Ended September 30, Nine Months Ended September 30,
Variance Variance
($ in millions, except per Favorable / % Favorable / %
vehicle data) 2021 2020 (Unfavorable) Variance 2021 2020 (Unfavorable) Variance
Reported:
Retail revenue $ 2,158.2 $ 1,421.0 $ 737.2 51.9 $ 5,888.1 $ 3,845.5 $ 2,042.6 53.1
Wholesale revenue 165.0 95.9 69.1 72.1 407.1 244.6 162.5 66.4
Total revenue $ 2,323.2 $ 1,516.9 $ 806.3 53.2 $ 6,295.2 $ 4,090.1 $ 2,205.1 53.9
Retail gross profit $ 163.1 $ 128.8 $ 34.3 26.6 $ 468.7 $ 318.1 $ 150.6 47.3
Wholesale gross profit 13.9 18.1 (4.2) 51.2 36.8 14.4
Total gross profit $ 177.0 $ 146.9 $ 30.1 20.5 $ 519.9 $ 354.9 $ 165.0 46.5
Retail vehicle unit sales 77,553 64,587 12,966 20.1 229,922 179,656 50,266 28.0
Revenue per vehicle retailed
26.5 $ 25,609 $ 21,405 $ 4,204 19.6
Gross profit per vehicle
retailed $ 2,103 $ 1,994 $ 109 5.5 $ 2,039 $ 1,771 $ 268 15.1
Retail gross profit as a
percentage of retail revenue 7.6% 9.1% 8.0% 8.3%
Inventory days supply (trailing
calendar month days) 35 days 39 days
Three Months Ended September 30, Nine Months Ended September 30,
Variance Variance
Favorable / % Favorable / %
2021 2020 (Unfavorable) Variance 2021 2020 (Unfavorable) Variance
Same Store:
Retail revenue $ 2,146.6 $ 1,418.3 $ 728.3 51.4 $ 5,867.2 $ 3,837.2 $ 2,030.0 52.9
Wholesale revenue 164.6 95.7 68.9 72.0 406.3 244.1 162.2 66.4
Total revenue $ 2,311.2 $ 1,514.0 $ 797.2 52.7 $ 6,273.5 $ 4,081.3 $ 2,192.2 53.7
Retail gross profit $ 162.2 $ 128.5 $ 33.7 26.2 $ 466.9 $ 317.7 $ 149.2 47.0
Wholesale gross profit 13.9 18.1 (4.2) 51.2 36.8 14.4
Total gross profit $ 176.1 $ 146.6 $ 29.5 20.1 $ 518.1 $ 354.5 $ 163.6 46.1
Retail vehicle unit sales 77,073 64,393 12,680 19.7 228,944 179,051 49,893 27.9
Revenue per vehicle retailed
26.5 $ 25,627 $ 21,431 $ 4,196 19.6
Gross profit per vehicle
retailed $ 2,104 $ 1,996 $ 108 5.4 $ 2,039 $ 1,774 $ 265 14.9
Retail gross profit as a
percentage of retail revenue 7.6% 9.1% 8.0% 8.3%
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 $12.0 million and $21.7 million in total used vehicle revenue and $0.9
million and $1.8 million in total used vehicle gross profit for the three and
nine months ended September 30, 2021 , respectively, is related to divestiture
activity and the opening of new AutoNation USA stores. The difference between
reported amounts and same store amounts in the above tables of $2.9 million and
$8.8 million in total used vehicle revenue and $0.3 million and $0.4 million in
total used vehicle gross profit for the three and nine months ended
September 30, 2020 , respectively, is related to divestiture activity.
Third Quarter 2021 compared to Third Quarter 2020
Same store retail used vehicle revenue increased during the three months ended
September 30, 2021 , as compared to the same period in 2020, due to increases in
same store revenue PVR and same store unit volume. The increase in same store
unit volume was primarily due to an increase in market demand due in part to
decreased availability of new vehicles.
Same store revenue PVR and gross profit PVR both increased during the three
months ended September 30, 2021 , as compared to the same period in 2020,
primarily due to increased demand for used vehicles and reduced availability of
new vehicle inventory. In addition, same store gross profit PVR benefited from a
shift in mix to trade-ins and used vehicles acquired through our "We'll Buy Your
Car" program, which both have relatively higher average gross profit PVR.
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First Nine Months 2021 compared to First Nine Months 2020
Same store retail used vehicle revenue increased during the nine months ended
September 30, 2021 , as compared to the same period in 2020 due to increases in
same store unit volume and same store revenue PVR. Same store unit volume in the
prior year was significantly adversely impacted by the COVID-19 pandemic,
particularly during the last two weeks of March 2020 through April 2020 . Market
demand for used vehicles in the current year continued to increase due in part
to decreased availability of new vehicles.
Same store revenue PVR and gross profit PVR both increased during the nine
months ended September 30, 2021 , as compared to the same period in 2020,
primarily due to increased demand for used vehicles and reduced availability of
new vehicle inventory. In addition, same store gross profit PVR benefited from a
shift in mix to trade-ins and used vehicles acquired through our "We'll Buy Your
Car" program, which both have relatively higher average gross profit PVR.
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Parts and Service
Three Months Ended September 30, Nine Months Ended September 30,
Variance Variance
Favorable / % Favorable / %
($ in millions) 2021 2020 (Unfavorable) Variance 2021 2020 (Unfavorable) Variance Reported: Revenue$ 943.7 $ 852.8 $ 90.9 10.7$ 2,745.5 $ 2,419.0 $ 326.5 13.5 Gross Profit$ 424.8 $ 375.2 $ 49.6 13.2$ 1,246.3 $ 1,075.4 $ 170.9 15.9 Gross profit as a percentage of revenue 45.0% 44.0% 45.4% 44.5% Same Store: Revenue$ 942.4 $ 836.9 $ 105.5 12.6$ 2,740.8 $ 2,364.6 $ 376.2 15.9 Gross Profit$ 424.3 $ 391.5 $ 32.8 8.4$ 1,244.4 $ 1,084.2 $ 160.2 14.8 Gross profit as a percentage of revenue 45.0% 46.8% 45.4% 45.9% 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 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$1.3 million and$4.7 million in parts and service revenue and$0.5 million and$1.9 million in parts and service gross profit for the three and nine months endedSeptember 30, 2021 , respectively, is related to divestiture activity and the opening of newAutoNation USA stores. The difference between reported amounts and same store amounts in the above tables of$15.9 million and$54.4 million in parts and service revenue and$16.3 million and$8.8 million in parts and service gross profit for the three and nine months endedSeptember 30, 2020 , respectively, is due to the closure of our ACP business and other divestiture activity. Third Quarter 2021 compared to Third Quarter 2020 During the three months endedSeptember 30, 2021 , same store parts and service gross profit increased compared to the same period in 2020, primarily due to increases in gross profit associated with customer-pay service of$20.6 million , wholesale parts sales of$8.2 million , collision business of$6.3 million , and the preparation of vehicles for sale of$4.3 million , partially offset by a decrease in gross profit associated with warranty service of$12.1 million . Gross profit associated with customer-pay service and collision business both benefited from an increase in repair order volume compared to the prior year, which was adversely impacted by the COVID-19 pandemic. Gross profit associated with customer-pay service and the preparation of vehicles for sale also benefited from higher value repair orders. Gross profit associated with wholesale parts sales benefited from an increase in volume. Gross profit associated with manufacturer warranty service was adversely impacted by a decrease in repair order volume, partially driven by a decline in units in our primary service base as a result of lower new vehicle unit sales in the current and prior year. To the extent that units in our primary service base continue to decline, we believe that gross profit associated with manufacturer warranty service will continue to be adversely impacted. First Nine Months 2021 compared to First Nine Months 2020 During the nine months endedSeptember 30, 2021 , same store parts and service gross profit increased compared to the same period in 2020, primarily due to increases in gross profit associated with customer-pay service of$71.6 million , the preparation of vehicles for sale of$43.9 million , and wholesale parts sales of$18.4 million , as well as smaller increases in gross profit associated with service work outsourced to third parties and collision business, partially offset by a decrease in gross profit associated with warranty service of$13.4 million . Gross profit associated with customer-pay service and the preparation of vehicles for sale both benefited from an increase in repair order volume compared to the prior year, which was adversely impacted by the COVID-19 pandemic, as well as improved margin performance and higher value repair orders. Gross profit associated with wholesale parts sales benefited from an increase in volume. Gross profit associated with manufacturer warranty service was adversely impacted by a decrease in repair order volume, partially driven by a decline in units in our primary service base as a result of lower new vehicle unit sales in the current and prior year. 33 -------------------------------------------------------------------------------- Table of Contents Finance and Insurance Three Months EndedSeptember 30 , Nine Months EndedSeptember 30 , Variance Variance Favorable / % Favorable / % ($ in millions, except per vehicle data) 2021 2020 (Unfavorable) Variance 2021 2020 (Unfavorable)
Variance
Reported:
Revenue and gross profit$ 348.9 $ 281.2 $ 67.7 24.1$ 1,030.9 $ 763.4 $ 267.5
35.0
Gross profit per vehicle retailed$ 2,569 $ 2,153 $ 416 19.3$ 2,371 $ 2,139 $ 232
10.8
Same Store: Revenue and gross profit$ 348.3 $ 280.8 $ 67.5 24.0$ 1,029.3 $ 762.0 $ 267.3
35.1
Gross profit per vehicle retailed$ 2,573 $ 2,156 $ 417 19.3$ 2,374 $ 2,141 $ 233 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$0.6 million and$1.6 million for the three and nine months endedSeptember 30, 2021 , respectively, is related to divestiture activity and the opening of newAutoNation USA stores. The difference between reported amounts and same store amounts in finance and insurance revenue and gross profit in the above tables of$0.4 million and$1.4 million for the three and nine months endedSeptember 30, 2020 , respectively, is related to divestiture activity. Third Quarter 2021 compared to Third Quarter 2020 Same store finance and insurance revenue and gross profit increased during the three months endedSeptember 30, 2021 , as compared to the same period in 2020, due to increases in finance and insurance gross profit PVR and used vehicle unit volume, partially offset by a decrease in new vehicle unit volume. The increase in finance and insurance gross profit PVR was primarily due to higher realized margins on vehicle service contracts, including our AutoNation Vehicle Protection Plan product, and an increase in product penetration. Finance and insurance gross profit PVR also benefited from increases in gross profit per transaction associated with arranging customer financing and amounts financed per transaction. First Nine Months 2021 compared to First Nine Months 2020 Same store finance and insurance revenue and gross profit increased during the nine months endedSeptember 30, 2021 , as compared to the same period in 2020, due to increases in vehicle unit volume and finance and insurance gross profit PVR. The increase in finance and insurance gross profit PVR was primarily due to higher realized margins on vehicle service contracts, including our AutoNation Vehicle Protection Plan product, and an increase in product penetration. Finance and insurance gross profit PVR also benefited from increases in gross profit per transaction associated with arranging customer financing and amounts financed per transaction. 34 -------------------------------------------------------------------------------- Table of Contents Segment Results In the following table, revenue and segment income of our reportable segments are reconciled to consolidated revenue and consolidated operating income (loss), respectively. The following discussions of segment results are on a reported basis. Three Months Ended September 30,
Nine Months Ended
Variance Variance
Favorable / % Favorable / %
($ in millions) 2021 2020 (Unfavorable) Variance 2021 2020 (Unfavorable) Variance
Revenue:
Domestic $ 1,955.2 $ 1,734.5 $ 220.7 12.7 $ 5,926.7 $ 4,704.0 $ 1,222.7 26.0
Import 1,983.3 1,621.5 361.8 22.3 5,927.9 4,308.9 1,619.0 37.6
Premium Luxury 2,218.0 1,870.0 348.0 18.6 6,790.0 5,051.6 1,738.4 34.4
Total 6,156.5 5,226.0 930.5 17.8 18,644.6 14,064.5 4,580.1 32.6
Corporate and other 223.0 178.9 44.1 24.7 617.1 540.4 76.7 14.2
Total consolidated revenue
$ 974.6 18.0$ 19,261.7 $ 14,604.9 $ 4,656.8 31.9 Segment income(1): Domestic$ 149.1 $ 111.9 $ 37.2 33.2$ 436.6 $ 248.1 $ 188.5 76.0 Import 200.7 123.5 77.2 62.5 530.3 277.7 252.6 91.0 Premium Luxury 206.1 143.9 62.2 43.2 590.3 313.3 277.0 88.4 Total 555.9 379.3 176.6 46.6 1,557.2 839.1 718.1 85.6 Corporate and other (57.5) (118.7) 61.2 (207.7) (638.2) 430.5 Floorplan interest expense 4.9 11.1 6.2 20.9 52.9 32.0 Operating income$ 503.3 $ 271.7 $ 231.6 85.2$ 1,370.4 $ 253.8 $ 1,116.6 440.0 Retail new vehicle unit sales: Domestic 15,878 21,620 (5,742) (26.6) 59,006 57,995 1,011 1.7 Import 27,968 29,356 (1,388) (4.7) 94,947 78,248 16,699 21.3 Premium Luxury 14,431 15,022 (591) (3.9) 50,849 41,007 9,842 24.0 58,277 65,998 (7,721) (11.7) 204,802 177,250 27,552 15.5 Retail used vehicle unit sales: Domestic 26,989 22,095 4,894 22.1 79,524 63,025 16,499 26.2 Import 26,450 22,281 4,169 18.7 78,679 61,414 17,265 28.1 Premium Luxury 21,031 18,075 2,956 16.4 62,935 49,013 13,922 28.4 74,470 62,451 12,019 19.2 221,138 173,452 47,686 27.5
(1) Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.
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Domestic
The Domestic segment operating results included the following:
Three Months Ended September 30 ,
Nine Months Ended
Variance Variance
Favorable / % Favorable / %
($ in millions) 2021 2020
(Unfavorable) Variance 2021 2020 (Unfavorable) Variance
Revenue:
New vehicle $ 791.3 $ 923.4 $ (132.1) (14.3) $ 2,718.0 $ 2,424.0 $ 294.0 12.1
Used vehicle 789.0 478.0 311.0 65.1 2,101.8 1,319.4 782.4 59.3
Parts and service 257.2 233.2 24.0 10.3 749.2 662.1 87.1 13.2
Finance and insurance, net 116.7 97.8 18.9 19.3 351.8 268.9 82.9 30.8
Other 1.0 2.1 (1.1) 5.9 29.6 (23.7)
Total Revenue $ 1,955.2 $ 1,734.5 $ 220.7 12.7 $ 5,926.7 $ 4,704.0 $ 1,222.7 26.0
Segment income $ 149.1 $ 111.9 $ 37.2 33.2 $ 436.6 $ 248.1 $ 188.5 76.0
Retail new vehicle unit sales 15,878 21,620 (5,742) (26.6) 59,006 57,995 1,011 1.7
Retail used vehicle unit sales 26,989 22,095 4,894 22.1 79,524 63,025 16,499 26.2
Third Quarter 2021 compared to Third Quarter 2020
Domestic revenue increased during the three months ended September 30, 2021 , as
compared to the same period in 2020, primarily due to increases in used vehicle
unit volume and new and used vehicle revenue PVR, partially offset by a decrease
in new vehicle unit volume. Used vehicle unit volume and new and used vehicle
revenue PVR benefited from an increase in customer demand and historically low
new vehicle inventory levels due to manufacturer supply shortages, which also
negatively impacted new vehicle unit volume.
Domestic segment income increased during the three months ended September 30,
2021 , as compared to the same period in 2020, primarily due to increases in new
and used vehicle gross profit, which both benefited from increased demand and
reduced availability of new vehicle inventory, and an increase in finance and
insurance gross profit, which benefited from an increase in finance and
insurance gross profit PVR. Domestic segment income also benefited from an
increase in parts and service gross profit associated with customer-pay service
and wholesale parts sales driven by increased volume. Increases to Domestic
segment income were partially offset by an increase in performance-driven SG&A
expenses.
First Nine Months 2021 compared to First Nine Months 2020
Domestic revenue increased during the nine months ended September 30, 2021 , as
compared to the same period in 2020, primarily due to increases in new and used
vehicle revenue PVR and new and used vehicle unit volume. Unit volume in the
prior year was significantly adversely impacted by the COVID-19 pandemic,
particularly during the last two weeks of March 2020 through April 2020 . Unit
volume and vehicle revenue PVR in the current year benefited from an increase in
customer demand, partially offset by historically low new vehicle inventory
levels due to manufacturer supply shortages.
Domestic segment income increased during the nine months ended September 30,
2021 , as compared to the same period in 2020, primarily due to increases in new
and used vehicle gross profit, which both benefited from increased demand and
reduced availability of new vehicle inventory, and an increase in finance and
insurance gross profit, which benefited from an increase in finance and
insurance gross profit PVR and higher unit volume. Increases to Domestic segment
income were partially offset by an increase in performance-driven SG&A expenses.
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Import
The Import segment operating results included the following:
Three Months Ended September 30, Nine Months Ended September 30,
Variance Variance
Favorable / % Favorable / %
($ in millions) 2021 2020 (Unfavorable) Variance 2021 2020 (Unfavorable) Variance
Revenue:
New vehicle $ 967.9 $ 887.7 $ 80.2 9.0 $ 3,110.1 $ 2,334.2 $ 775.9 33.2
Used vehicle 638.0 415.0 223.0 53.7 1,727.2 1,105.3 621.9 56.3
Parts and service 243.5 220.4 23.1 10.5 706.1 598.3 107.8 18.0
Finance and insurance, net 127.1 95.2 31.9 33.5 369.4 261.6 107.8 41.2
Other 6.8 3.2 3.6 15.1 9.5 5.6
Total Revenue $ 1,983.3 $ 1,621.5 $ 361.8 22.3 $ 5,927.9 $ 4,308.9 $ 1,619.0 37.6
Segment income $ 200.7 $ 123.5 $ 77.2 62.5 $ 530.3 $ 277.7 $ 252.6 91.0
Retail new vehicle unit sales 27,968 29,356 (1,388) (4.7) 94,947 78,248 16,699 21.3
Retail used vehicle unit sales 26,450 22,281 4,169 18.7 78,679 61,414 17,265 28.1
Third Quarter 2021 compared to Third Quarter 2020
Import revenue increased during the three months ended September 30, 2021 , as
compared to the same period in 2020, primarily due to increases in new and used
vehicle revenue PVR and used vehicle unit volume, partially offset by a decrease
in new vehicle unit volume. Used vehicle unit volume and new and used vehicle
revenue PVR benefited from an increase in customer demand and historically low
new vehicle inventory levels due to manufacturer supply shortages, which also
negatively impacted new vehicle unit volume.
Import segment income increased during the three months ended September 30,
2021 , as compared to the same period in 2020, primarily due to increases in new
and used vehicle gross profit, which both benefited from increased demand and
reduced availability of new vehicle inventory, and an increase in finance and
insurance gross profit, which benefited from an increase in finance and
insurance gross profit PVR and higher used vehicle unit volume. Increases to
Import segment income were partially offset by an increase in performance-driven
SG&A expenses.
First Nine Months 2021 compared to First Nine Months 2020
Import revenue increased during the nine months ended September 30, 2021 , as
compared to the same period in 2020, primarily due to increases in new and used
vehicle unit volume and new and used vehicle revenue PVR. Unit volume in the
prior year was significantly adversely impacted by the COVID-19 pandemic,
particularly during the last two weeks of March 2020 through April 2020 . Unit
volume and vehicle revenue PVR in the current year benefited from an increase in
customer demand, partially offset by historically low new vehicle inventory
levels due to manufacturer supply shortages.
Import segment income increased during the nine months ended September 30, 2021 ,
as compared to the same period in 2020, primarily due to increases in new and
used vehicle gross profit, which both benefited from increased demand and
reduced availability of new vehicle inventory, and an increase in finance and
insurance gross profit, which benefited from higher unit volume and an increase
in finance and insurance gross profit PVR. Increases to Import segment income
were partially offset by an increase in performance-driven SG&A expenses.
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Premium Luxury
The Premium Luxury segment operating results included the following:
Three Months Ended September 30, Nine Months Ended September 30,
Variance Variance
Favorable / % Favorable / %
($ in millions) 2021 2020 (Unfavorable) Variance 2021 2020 (Unfavorable) Variance
Revenue:
New vehicle $ 994.6 $ 937.3 $ 57.3 6.1 $ 3,336.3 $ 2,533.4 $ 802.9 31.7
Used vehicle 810.9 576.7 234.2 40.6 2,242.0 1,534.3 707.7 46.1
Parts and service 312.4 278.4 34.0 12.2 915.2 779.0 136.2 17.5
Finance and insurance, net 98.7 77.5 21.2 27.4 293.5 204.8 88.7 43.3
Other 1.4 0.1 1.3 3.0 0.1 2.9
Total Revenue $ 2,218.0 $ 1,870.0 $ 348.0 18.6 $ 6,790.0 $ 5,051.6 $ 1,738.4 34.4
Segment income $ 206.1 $ 143.9 $ 62.2 43.2 $ 590.3 $ 313.3 $ 277.0 88.4
Retail new vehicle unit sales 14,431 15,022 (591) (3.9) 50,849 41,007 9,842 24.0
Retail used vehicle unit sales 21,031 18,075 2,956 16.4 62,935 49,013 13,922 28.4
Third Quarter 2021 compared to Third Quarter 2020
Premium Luxury revenue increased during the three months ended September 30,
2021 , as compared to the same period in 2020, primarily due to increases in new
and used vehicle revenue PVR and used vehicle unit volume, partially offset by a
decrease in new vehicle unit volume. Used vehicle unit volume and new and used
vehicle revenue PVR benefited from an increase in customer demand and
historically low new vehicle inventory levels due to manufacturer supply
shortages, which also negatively impacted new vehicle unit volume.
Premium Luxury segment income increased during the three months ended
September 30, 2021 , as compared to the same period in 2020, primarily due to
increases in new and used vehicle gross profit, which both benefited from
increased demand and reduced availability of new vehicle inventory, and an
increase in finance and insurance gross profit due to an increase in finance and
insurance gross profit PVR and higher used vehicle unit volume. Premium Luxury
segment income also benefited from an increase in parts and service gross profit
associated with customer-pay service. Increases to Premium Luxury segment income
were partially offset by an increase in performance-driven SG&A expenses.
First Nine Months 2021 compared to First Nine Months 2020
Premium Luxury revenue increased during the nine months ended September 30,
2021 , as compared to the same period in 2020, primarily due to increases in new
and used vehicle unit volume and new and used vehicle revenue PVR. Unit volume
in the prior year was significantly adversely impacted by the COVID-19 pandemic,
particularly during the last two weeks of March 2020 through April 2020 . Unit
volume and vehicle revenue PVR in the current year benefited from an increase in
customer demand, partially offset by historically low new vehicle inventory
levels due to manufacturer supply shortages.
Premium Luxury segment income increased during the nine months ended
September 30, 2021 , as compared to the same period in 2020, primarily due to
increases in new and used vehicle gross profit, which both benefited from
increased demand and reduced availability of new vehicle inventory, and an
increase in finance and insurance gross profit, which benefited from higher unit
volume and an increase in finance and insurance gross profit PVR. Premium Luxury
segment income also benefited from an increase in parts and service gross profit
associated with customer-pay service and the preparation of vehicles for sale.
Increases to Premium Luxury segment income were partially offset by an increase
in performance-driven SG&A expenses.
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Corporate and other
Corporate and other results included the following:
Three Months Ended September 30, Nine Months Ended September 30,
Variance Variance
Favorable / % Favorable / %
($ in millions) 2021 2020 (Unfavorable) Variance 2021 2020 (Unfavorable) Variance
Revenue:
Used vehicle $ 85.3 $ 47.2 $ 38.1 80.7 $ 224.2 $ 131.1 $ 93.1 71.0
Parts and service 130.6 120.8 9.8 8.1 $ 375.0 $ 379.6 $ (4.6) (1.2)
Finance and insurance, net 6.4 10.7 (4.3) (40.2) 16.2 28.1 (11.9) (42.3)
Other 0.7 0.2 0.5 1.7 1.6 0.1
Revenue $ 223.0 $ 178.9 $ 44.1 24.7 $ 617.1 $ 540.4 $ 76.7 14.2
Income (loss) $ (57.5) $ (118.7) $ 61.2 $ (207.7) $ (638.2) $ 430.5
"Corporate and other" is comprised of our other businesses, including collision
centers, AutoNation USA used vehicle stores, auction operations, and parts
distribution centers, all of which generate revenues but do not meet the
quantitative thresholds for reportable segments, as well as unallocated
corporate overhead expenses and other income items.
As of September 30, 2021 , we had 72 AutoNation-branded collision centers, 7
AutoNation USA used vehicle stores, 4 AutoNation-branded automotive auction
operations, and 3 parts distribution centers that service our wholesale parts
sales markets for the sale of original equipment manufacturer parts. We plan to
expand our AutoNation USA used vehicle stores and are targeting to have over 130
stores by the end of 2026. We opened one AutoNation USA store in each of the
second and third quarters of 2021 and one store in October 2021 . We expect to
open two additional new stores before the end of 2021 and 12 additional new
stores in 2022. The planned expansion may be impacted by a number of variables,
including customer adoption, market conditions, availability of used vehicle
inventory, and our ability to identify, acquire, and build out suitable
locations in a timely manner.
In the third quarter of 2020, as part of continued efforts to reduce costs and
increase efficiencies, we determined to close our ACP business by the end of
2020. In connection with the closing of the ACP business, we incurred $36.5
million in pre-tax charges during the third quarter of 2020. The charges were
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 16 of the Notes to Unaudited Condensed Consolidated Financial
Statements for additional information.
During the nine months ended September 30, 2020 , we recorded non-cash goodwill
impairment charges totaling $318.3 million , of which $257.4 million related to
our Premium Luxury reporting unit, $41.6 million related to our Collision
Centers reporting unit, and $19.3 million related to our Parts Centers reporting
unit. We also recorded non-cash franchise rights impairment charges of $57.5
million . The non-cash goodwill impairments and franchise rights impairments are
reflected as Goodwill Impairment and Franchise Rights Impairment, respectively,
in the accompanying Unaudited Condensed Consolidated Statements of Operations,
and are reported in the "Corporate and other" category of our segment
information. During the nine months ended September 30, 2020 , we recorded
non-cash long-lived asset impairment charges associated with our aftermarket
collision parts business of $8.7 million , of which $2.8 million was recorded
during the third quarter of 2020 and is included in the ACP closing charges
described above, and non-cash intangible asset impairment charges associated
with our collision centers and aftermarket collision parts business of $2.4
million , both of which are reported in the "Corporate and other" category of our
segment information.
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Selling, General, and Administrative Expenses
Our Selling, General, and Administrative ("SG&A") expenses consist primarily of
compensation, including store and corporate salaries, commissions, and
incentive-based compensation, as well as advertising (net of reimbursement-based
manufacturer advertising rebates), and store and corporate overhead expenses,
which include occupancy costs, legal, accounting, and professional services, and
general corporate expenses. The following table presents the major components of
our SG&A expenses.
Three Months Ended September 30, Nine Months Ended September 30,
Variance Variance
Favorable / % Favorable / %
($ in millions) 2021 2020 (Unfavorable) Variance 2021 2020 (Unfavorable) Variance
Reported:
Compensation $ 509.4 $ 427.6 $ (81.8) (19.1) $ 1,485.0 $ 1,158.0 $ (327.0) (28.2)
Advertising 44.3 42.1 (2.2) (5.2) 123.8 116.5 (7.3) (6.3)
Store and corporate
overhead 170.0 171.7 1.7 1.0 511.7 515.5 3.8 0.7
Total $ 723.7 $ 641.4 $ (82.3) (12.8) $ 2,120.5 $ 1,790.0 $ (330.5) (18.5)
SG&A as a % of total gross
profit:
Compensation 40.1 44.0 390 bps 40.9 44.9 400 bps
Advertising 3.5 4.3 80 bps 3.4 4.5 110 bps
Store and corporate
overhead 13.3 17.7 440 bps 14.1 20.0 590 bps
Total 56.9 66.0 910 bps 58.4 69.4 1,100 bps
Third Quarter 2021 compared to Third Quarter 2020
SG&A expenses increased during the three months ended September 30, 2021 , as
compared to the same period in 2020, primarily due to a performance-driven
increase in compensation expense. Additionally, gross advertising expenses
increased $3.0 million , partially offset by an increase in advertising
reimbursements from manufacturers of $0.8 million . As a percentage of total
gross profit, SG&A expenses decreased to 56.9% during the three months ended
September 30, 2021 , from 66.0% in the same period in 2020, primarily due to
improvements in gross profit PVR and effective cost management.
First Nine Months 2021 compared to First Nine Months 2020
SG&A expenses increased during the nine months ended September 30, 2021 , as
compared to the same period in 2020, primarily due to a performance-driven
increase in compensation expense. Additionally, gross advertising expenses
increased $11.7 million , partially offset by an increase in advertising
reimbursements from manufacturers of $4.4 million . As a percentage of total
gross profit, SG&A expenses decreased to 58.4% during the nine months ended
September 30, 2021 , from 69.4% in the same period in 2020, primarily due to
improvements in gross profit PVR and effective cost management.
Goodwill Impairment
During the first quarter of 2020, due to the impact of the COVID-19 pandemic on
our results and the decrease in our stock price and market capitalization as of
March 31, 2020 , we recorded non-cash goodwill impairment charges of $318.3
million .
Franchise Rights Impairment
During the first quarter of 2020, we recorded non-cash franchise rights
impairment charges of $57.5 million to reduce the carrying values of certain
franchise rights to their estimated fair values.
Other (Income) Expense, Net (Operating)
During the third quarter of 2021, we recognized a net gain of $3.8 million
related to business/property divestitures, partially offset by asset impairments
of $1.5 million .
During the third quarter of 2020, we recognized $7.3 million related to 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
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 .
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Non-Operating Income (Expense)
Floorplan Interest Expense
Third Quarter 2021 compared to Third Quarter 2020
Floorplan interest expense was $4.9 million for the three months ended
September 30, 2021 , compared to $11.1 million for the same period in 2020. The
decrease in floorplan interest expense of $6.2 million was the result of lower
average vehicle floorplan balances.
First Nine Months 2021 compared to First Nine Months 2020
Floorplan interest expense was $20.9 million for the nine months ended
September 30, 2021 , compared to $52.9 million for the same period in 2020. The
decrease in floorplan interest expense of $32.0 million was the result of lower
average vehicle floorplan balances and lower average interest rates. Floorplan
interest rates are variable and therefore increase and decrease with changes in
the underlying benchmark interest rates.
Other Interest Expense
Third Quarter 2021 compared to Third Quarter 2020
Other interest expense of $24.1 million for the three months ended September 30,
2021 , was relatively flat compared to $23.6 million for the same period in 2020.
First Nine Months 2021 compared to First Nine Months 2020
Other interest expense was $66.2 million for the nine months ended September 30,
2021 , compared to $70.3 million for the same period in 2020. The decrease of
$4.1 million was driven by lower average debt balances.
Other Income (Loss), Net (included in Non-Operating Income)
During the three and nine months ended September 30, 2021 , we recognized a loss
of $0.8 million and a net gain of $8.0 million , respectively, related to changes
in the cash surrender value of corporate-owned life insurance ("COLI") held in a
Rabbi Trust for deferred compensation plan participants as a result of changes
in market performance of the underlying investments. Gains and losses related to
the COLI are substantially offset by corresponding increases and decreases,
respectively, in the deferred compensation obligations, which are reflected in
SG&A expenses.
Additionally, in the first quarter of 2021, we sold the remaining shares of our
Vroom equity investment and recorded a realized gain of $7.5 million . As a
result of changes in the fair values of the underlying securities of our
minority equity investments, we recorded unrealized gains of $3.4 million and
$214.7 million during the second quarters of 2021 and 2020, respectively, and an
unrealized loss of $2.0 million during the third quarter of 2020. See Note 12 of
the Notes to Unaudited Condensed Consolidated Financial Statements for more
information.
Income Tax Provision
Income taxes are provided based upon our anticipated underlying annual blended
federal and state income tax rates adjusted, as necessary, for any discrete tax
matters occurring during the period. As we operate in various states, our
effective tax rate is also dependent upon our geographic revenue mix.
Our effective income tax rate was 23.6% for the three months ended September 30,
2021 , and 25.0% for the three months ended September 30, 2020 . Our effective
income tax rate was 24.3% for the nine months ended September 30, 2021 , and
34.0% for the nine months ended September 30, 2020 . The tax rate for the nine
months ended 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.
Discontinued Operations
Discontinued operations are related to stores that were sold or terminated prior
to January 1, 2014 . Results from discontinued operations, net of income taxes,
were primarily related to carrying costs for real estate we have not yet sold
associated with stores that were closed prior to January 1, 2014 , and other
adjustments related to disposed operations.
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Liquidity and Capital Resources
We manage our liquidity to ensure access to sufficient funding at acceptable
costs to fund our ongoing operating requirements and future capital expenditures
while continuing to meet our financial obligations. We believe that our cash and
cash equivalents, funds generated through 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. 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.
Available Liquidity Resources
We had the following sources of liquidity available:
September 30, December 31,
(In millions) 2021 2020
Cash and cash equivalents $ 72.0 $ 569.6
Revolving credit facility $ 1,760.3 (1) $ 1,760.3 Secured used vehicle floorplan facilities (2) $ 0.2 $
0.3
(1) AtSeptember 30, 2021 , 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 atSeptember 30, 2021 . See Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information. (2) 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. InJanuary 2021 , we repaid the outstanding$300.0 million of 3.35% Senior Notes due 2021 through utilization of available funds. 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. AtSeptember 30, 2021 , surety bonds, letters of credit, and cash deposits totaled$101.8 million , of which$39.7 million were letters of credit. We do not currently provide cash collateral for outstanding letters of credit. InFebruary 2019 , we filed an automatic shelf registration statement with theSEC that enables us to offer for sale, from time to time and as the capital markets permit, an unspecified amount of common stock, preferred stock, debt securities, warrants, subscription rights, depositary shares, stock purchase contracts, units, and guarantees of debt securities. Capital Allocation Our capital allocation strategy is focused on growing long-term value per share. We invest capital in our business to maintain and upgrade our existing facilities and to build new facilities for existing franchises, as well as for other strategic and technology initiatives. We also deploy capital opportunistically to repurchase our common stock and/or debt, to complete acquisitions or investments, and/or build facilities for newly awarded franchises and newAutoNation USA used vehicle stores. Our capital allocation decisions will be based on factors such as the expected rate of return on our investment, the market price of our common stock versus our view of its intrinsic value, the market price of our debt, the potential impact on our capital structure, our ability to complete acquisitions that meet our market and vehicle brand criteria and return on investment threshold, and limitations set forth in our debt agreements. 42 -------------------------------------------------------------------------------- Table of Contents Share Repurchases Our Board of Directors from time to time authorizes the repurchase of shares of our common stock up to a certain monetary limit. A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows: Three Months Ended Nine Months Ended September 30, September 30, (In millions, except per share data) 2021 2020 2021 2020 Shares repurchased 7.9 - 19.2 2.5 Aggregate purchase price$ 879.2 $ -$ 1,921.4 $ 80.0 Average purchase price per share$ 111.96 $ -
InOctober 2021 , our Board of Directors increased the share repurchase authorization by$1.0 billion . As ofOctober 20, 2021 ,$1.3 billion remained available for share repurchases under the program. The decision to repurchase shares at any given point in time is based on factors such as the market price of our common stock versus our view of its intrinsic value, the potential impact on our capital structure (including compliance with our maximum leverage ratio and other financial covenants in our debt agreements as well as our available liquidity), and the expected return on competing uses of capital such as acquisitions or investments, capital investments in our current businesses, or repurchases of our debt. Capital Expenditures The following table sets forth information regarding our capital expenditures: Three Months Ended Nine Months Ended September 30, September 30, (In millions) 2021 2020 2021 2020 Purchases of property and equipment, including operating lease buy-outs (1)$ 47.5 $ 37.3 $ 166.2 $ 91.9 (1)Includes accrued construction in progress and excludes property associated with leases entered into during the year. AtSeptember 30, 2021 , we owned approximately 84% 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,AutoNation USA used vehicle stores, auction operations, parts distribution centers, and other excess properties with a net book value of$500.0 million . None of these properties are mortgaged or encumbered. We plan to expand ourAutoNation USA used vehicle stores and are targeting to have over 130 stores by the end of 2026. We opened oneAutoNation USA store in each of the second and third quarters of 2021 and one store inOctober 2021 . We expect to open two additional new stores before the end of 2021 and 12 additional new stores in 2022. We anticipate that the initial capital investment will be approximately$10 million to$11 million for each new store on average. The planned expansion may be impacted by a number of variables, including customer adoption, market conditions, availability of used vehicle inventory, and our ability to identify, acquire, and build out suitable locations in a timely manner. 43 -------------------------------------------------------------------------------- Table of Contents Acquisitions and Divestitures The following table sets forth information regarding cash used in business acquisitions, net of cash acquired, and cash received from business divestitures, net of cash relinquished: Three Months Ended Nine Months Ended September 30, September 30, (In millions) 2021 2020 2021 2020 Cash received from (used in) business acquisitions, net$ (209.1)
$ -
$ 0.5
We purchased 11 stores and 1 collision center operating inHilton Head andColumbia, South Carolina , andSavannah, Georgia during the nine months endedSeptember 30, 2021 . We did not purchase any stores during the nine months endedSeptember 30, 2020 . We divested two stores and three collision centers during the nine months endedSeptember 30, 2021 . We divested one store and terminated one franchise during the nine months endedSeptember 30, 2020 . InOctober 2021 , we announced that we have entered into an agreement to acquirePriority 1 Automotive Group inMaryland . As previously disclosed, we have also entered into an agreement to sell up to 17 collision centers. These transactions remain subject to customary closing conditions and are expected to close in the fourth quarter of 2021. Long-Term Debt and Commercial Paper The following table sets forth our non-vehicle long-term debt, net of debt issuance costs, as ofSeptember 30, 2021 , andDecember 31, 2020 . (in millions) September 30, December 31, Debt Description Maturity Date Interest Payable 2021 2020 3.35% Senior Notes January 15, 2021 January 15 and July 15 $ -$ 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 1.95% Senior Notes August 1, 2028 February 1 and August 1 400.0 - 4.75% Senior Notes June 1, 2030 June 1 and December 1 500.0 500.0 2.4% Senior Notes August 1, 2031 February 1 and August 1 450.0 - Revolving credit facility March 26, 2025 Monthly - - Finance leases and other debt Various dates through 2040 153.3 116.6 2,703.3 2,116.6 Less: unamortized debt discounts and debt issuance costs (23.0) (14.8) Less: current maturities (7.2) (309.2) Long-term debt, net of current maturities$ 2,673.1 $ 1,792.6 OnJuly 29, 2021 , we issued$400.0 million aggregate principal amount of 1.95% Senior Notes due 2028 and$450.0 million aggregate principal amount of 2.4% Senior Notes due 2031, which were sold at 99.805% and 99.735% of the aggregate principal amount, respectively. InJanuary 2021 , we repaid the outstanding$300.0 million of 3.35% Senior Notes due 2021. We had no commercial paper notes outstanding atSeptember 30, 2021 , and no commercial paper notes outstanding atDecember 31, 2020 . See Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information on our long-term debt and commercial paper. 44 -------------------------------------------------------------------------------- Table of Contents 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 onMarch 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. As ofSeptember 30, 2021 , we were in compliance with the requirements of the financial covenants under our debt agreements. Under the terms of our credit agreement, atSeptember 30, 2021 , our leverage ratio and capitalization ratio were as follows: September 30, 2021 Requirement Actual Leverage ratio ? 3.75x 1.40x Capitalization ratio ? 70.0% 48.6% Vehicle Floorplan Payable The components of vehicle floorplan payable are as follows: September 30,
(In millions) 2021 2020
Vehicle floorplan payable - trade
Vehicle floorplan payable - non-trade 782.0 1,218.2
Vehicle floorplan payable $ 1,248.4 $ 2,759.9
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. Our vehicle floorplan facilities currently utilize LIBOR-based interest rates. In connection with global reference rate reform initiatives, particularly related to LIBOR, inOctober 2021 , we began modifying our floorplan agreements to replace the reference rate from LIBOR to an alternative reference rate. The floorplan agreement modifications will be accounted for by prospectively adjusting the effective interest rate in accordance with accounting standards. We do not expect the change from LIBOR to an alternative reference rate to have a material impact on our annual floorplan interest expense. See Note 5 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information on our vehicle floorplan payable. 45 -------------------------------------------------------------------------------- Table of Contents Cash Flows The following table summarizes the changes in our cash provided by (used in) operating, investing, and financing activities: Nine Months Ended September 30, (In millions) 2021 2020 Net cash provided by operating activities$ 1,559.2 $ 1,164.3 Net cash used in investing activities$ (225.5) $ (151.6) Net cash used in financing activities$ (1,831.3) $ (704.6) Cash Flows from Operating Activities Our primary sources of operating cash flows result from the sale of vehicles and finance and insurance products, collections from customers for the sale of parts and services, and proceeds from vehicle floorplan payable-trade. Our primary uses of cash from operating activities are repayments of vehicle floorplan payable-trade, purchases of inventory, personnel-related expenditures, and payments related to taxes and leased properties. Net cash provided by operating activities increased during the nine months endedSeptember 30, 2021 , as compared to the same period in 2020, primarily due to an increase in earnings, partially offset by an increase in working capital requirements. 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 nine months endedSeptember 30, 2021 , as compared to the same period in 2020, primarily due to an increase in cash used in business acquisitions and an increase in purchases of property and equipment, partially offset by proceeds received from the sale of an equity security in 2021, a decrease in investments made in equity securities, and an increase in proceeds from assets held for sale. Cash Flows from Financing Activities Net cash flows from financing activities primarily include repurchases of common stock, debt activity, and changes in vehicle floorplan payable-non-trade. During the nine months endedSeptember 30, 2021 , we repurchased 19.2 million shares of common stock for an aggregate purchase price of$1.9 billion (average purchase price per share of$100.13 ). During the nine months endedSeptember 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 ). During the nine months endedSeptember 30, 2021 , we had no borrowings or repayments under our revolving credit facility. During the nine months endedSeptember 30, 2020 , we borrowed$1.1 billion and repaid$1.1 billion under our revolving credit facility. During the nine months endedSeptember 30, 2021 , we repaid the outstanding$300.0 million of 3.35% Senior Notes due 2021 and issued$400.0 million aggregate principal amount of 1.95% Senior Notes due 2028 and$450.0 million aggregate principal amount of 2.4% Senior Notes due 2031. Cash flows from financing activities during the nine months endedSeptember 30, 2021 , reflect cash payments of$8.0 million for debt issuance costs associated with the senior note issuances that are being amortized to interest expense over the terms of the related senior notes. During the nine months endedSeptember 30, 2020 , we repaid the outstanding$350.0 million of 5.5% Senior Notes due 2020, issued$500.0 million aggregate principal amount of 4.75% Senior Notes due 2030, and amended and restated our existing unsecured credit agreement. Cash flows from financing activities during the nine months endedSeptember 30, 2020 , reflect cash payments of$11.0 million for debt issuance costs associated with the senior note issuance and debt refinancing that are being amortized to interest expense over the terms of the related debt arrangements. Cash flows from financing activities include changes in vehicle floorplan payable-non-trade totaling net payments of$452.0 million during the nine months endedSeptember 30, 2021 and net payments of$609.7 million during the nine months 46 -------------------------------------------------------------------------------- Table of Contents endedSeptember 30, 2020 , as well as changes in commercial paper notes outstanding totaling net repayments of$170.0 million during the nine months endedSeptember 30, 2020 . 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 our strategic initiatives, partnerships, or investments, including the planned expansion of ourAutoNation USA used vehicle stores and our anticipated investments in connection therewith; pending acquisitions; our investments in digital and online capabilities and other brand extension strategies; the impact of the COVID-19 pandemic on our business, results of operations, and financial condition; 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 that describe our objectives, goals, or plans constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact, including statements that describe our objectives, plans or goals are, or may be deemed to be, forward-looking statements. Words such as "anticipate," "expect," "intend," "goal," "plan," "believe," "continue," "may," "will," "could," and variations of such words and similar expressions are intended to identify such forward-looking statements. Our forward-looking statements reflect our current expectations concerning future results and events, and they involve known and unknown risks, uncertainties and other factors that are difficult to predict and may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these statements. These forward-looking statements speak only as of the date of this report, and we undertake no obligation to revise or update these statements to reflect subsequent events or circumstances. The risks, uncertainties, and other factors that our stockholders and prospective investors should consider include, but are not limited to, the following: •The automotive retail industry is sensitive to changing economic conditions and various other factors, including, but not limited to, unemployment levels, consumer confidence, fuel prices, interest rates, and tariffs. New vehicle unit volume has recently been, and could continue to be, impacted by reduced availability of inventory partially driven by certain component shortages in the manufacturers' supply chains. Our business and results of operations are substantially dependent on new and used vehicle sales levels inthe 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. •The COVID-19 pandemic has disrupted, and may continue to disrupt, our business, results of operations, and financial condition going forward. Future epidemics, pandemics, and other outbreaks could also disrupt our business, results of operations, and financial condition. •Our new vehicle sales are impacted by the incentive, marketing, and other programs of vehicle manufacturers. •We are dependent upon the success and continued financial viability of the vehicle manufacturers and distributors with which we hold franchises. •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 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. The planned expansion of ourAutoNation USA stores may be impacted by a number of variables, including customer adoption, market conditions, availability of used vehicle inventory, and our ability to identify, acquire, and build out suitable locations in a timely manner. •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. •The carrying value of our minority equity investment in Waymo does not have a readily determinable fair value and is required to be adjusted for observable price changes or impairments, both of which could adversely impact our results of operations and financial condition. •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 47 -------------------------------------------------------------------------------- Table of Contents that consumers demand, which could adversely impact our business, results of operations, financial condition, cash flow, and prospects. •We are subject to numerous legal and administrative proceedings, which, if the outcomes are adverse to us, could materially adversely affect our business, results of operations, financial condition, cash flows, and prospects. •Our operations are subject to extensive governmental laws and regulations. If we are found to be in purported violation of or subject to liabilities under any of these laws or regulations, or if new laws or regulations are enacted that adversely affect our operations, our business, operating results, and prospects could suffer. •A failure of our information systems or any security breach or unauthorized disclosure of confidential information could have a material adverse effect on our business. •Our debt agreements contain certain financial ratios and other restrictions on our ability to conduct our business, and our substantial indebtedness could adversely affect our financial condition and operations and prevent us from fulfilling our debt service obligations. •We are subject to interest rate risk in connection with our vehicle floorplan payables, revolving credit facility, and commercial paper program that could have a material adverse effect on our profitability. •Goodwill and other intangible assets comprise a significant portion of our total assets. We must test our goodwill and other intangible assets for impairment at least annually, which could result in a material, non-cash write-down of goodwill or franchise rights and could have a material adverse impact on our results of operations and shareholders' equity. •Our 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. •Natural disasters and adverse weather events can disrupt our business. Please refer to our most recent Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarter endedJune 30, 2021 , 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. Additional Information Investors and others should note that we announce material financial information using our company website (www.autonation.com), our investor relations website (investors.autonation.com),SEC filings, press releases, public conference calls, and webcasts. Information about AutoNation, its business, and its results of operations may also be announced by posts on the following social media channels: •AutoNation's Twitter feed (www.twitter.com/autonation) •Mike Jackson's Twitter feed (www.twitter.com/CEOMikeJackson) 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. 48
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