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» The Daily Activist Stock for 11/28/2008 is AutoNation
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Article by
Filed with the SEC from Nov 13 to Nov 19:
AutoNation (AN)
Hedge-fund billionaire Edward Lampert reported in a Form 4 that he was raising his direct ownership to about 12 million shares (6.8%), after buying 228,700 on Nov. 13 and 14 at an average of $6.06 a share.
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of December 31, 2007, we owned and operated 322 new vehicle franchises from 244 dealerships located in major metropolitan markets, predominantly in the Sunbelt region of the United States. Our stores, which we believe are some of the most recognizable and well-known in our key markets, sell 38 different brands of new vehicles. The core brands of vehicles that we sell, representing approximately 96% of the new vehicles that we sold in 2007, are manufactured by Toyota, Ford, General Motors, Honda, Nissan, Chrysler, Daimler, and BMW.
We operate in a single operating and reporting segment, automotive retailing. We offer a diversified range of automotive products and services, including new vehicles, used vehicles, vehicle maintenance and repair services, vehicle parts, extended service contracts, vehicle protection products, and other aftermarket products. We also arrange 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 our market brands and advertising, improving asset management, implementing standardized processes, and increasing productivity across all of our stores.
We were incorporated in Delaware in 1991. Our common stock, par value $.01 per share, is listed on The New York Stock Exchange under the symbol "AN." For information concerning our financial condition, results of operations, and related financial data, you should review the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Financial Statements and Supplementary Data" sections of this document. You also should review and consider the risks relating to our business, operations, financial performance, and cash flows that we describe below under "Risk Factors."
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.
Availability of Reports and Other Information
Our corporate website is located at
We make available on this website, free of charge, access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A, and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after we electronically submit such material to the Securities and Exchange Commission (the "Commission"). We also make available on our website copies of materials regarding our corporate governance policies and practices, including the AutoNation, Inc. Corporate Governance Guidelines, our company-wide Code of Business Ethics, our Code of Ethics for Senior Officers, our Code of Business Ethics for the Board of Directors, and the charters relating to the committees of our Board of Directors. You also may obtain a printed copy of the foregoing materials by sending a written request to: Investor Relations Department, AutoNation, Inc., 110 S.E. 6th Street, Fort Lauderdale, Florida 33301. In addition, the Commission's website is located at
The Commission makes available on this website, free of charge, reports, proxy and information statements, and other information regarding issuers, such as us, that file electronically with the Commission. Information on our website or the Commission's website is not part of this document.
Business Strategy
As a specialty retailer, our business model is focused on developing and maintaining satisfied relationships with our customers. The foundation of our business model is operational excellence. We pursue the following strategies to achieve our targeted level of operational excellence:
• Deliver a positive customer experience at our stores
• Leverage our significant scale to improve our operating efficiency
• Increase our productivity
• Build a powerful brand in each of our local markets
Our strategies are supported by our use of information technology. We use the Internet to develop and acquire customer leads and referrals, and we leverage information technology to enhance our customer relationships.
A key component of our strategy is to maximize the return on investment generated by the use of cash flow that our business generates. We expect to use our cash flow to make capital investments in our current business, to complete dealership acquisitions, and to repurchase our common stock pursuant to our Board-authorized share repurchase programs. Our capital allocation decisions will be based on such factors as the expected rate of return on our investment, the market price of our common stock versus our view of its intrinsic value, the potential impact on our capital structure, our ability to complete dealership acquisitions that meet our return on investment target, and limitations set forth in our debt agreements. We also divest non-core stores in order to improve our portfolio of stores in furtherance of our brand portfolio strategy as described in the next paragraph and also to generate sales proceeds that can be reinvested at a higher expected rate of return.
As part of our business strategy, our acquisition and divestiture program has been and is designed to improve our store brand portfolio by diversifying our store mix more towards volume import and premium luxury brands. In 1999, approximately 60% of our new vehicle revenue was attributable to our domestic franchises (consisting of General Motors, Ford, and Chrysler franchises), while approximately 40% was attributable to import and premium luxury franchises. In 2007, approximately 65% of our new vehicle revenue was generated by import and premium luxury franchises and approximately 35% was generated by domestic franchises. For the foreseeable future, we intend to continue focusing on improving our brand portfolio by increasing our mix of higher volume import and premium luxury stores.
Deliver a Positive Customer Experience
Our goal is to deliver a positive customer experience at our stores. Our efforts to improve our customers' experience at our stores include the following practices and initiatives in key areas of our business:
• Improving Customer Service: The success of our stores depends in significant part on our ability to deliver positive experiences to our customers. We have developed and implemented standardized customer-friendly sales and service processes, including a customer-friendly sales menu designed to provide clear disclosure of purchase or lease transaction terms. We believe these processes improve the sales and service experiences of our customers. We emphasize the importance of customer satisfaction to our key store personnel by basing a portion of their compensation on the quality of customer service they provide in connection with vehicle sales and service.
• Increasing Parts and Service Sales: Our goal is that our customers will use us for all of their vehicle service needs. Our key initiatives for our parts and service business are focused on optimizing our processes, pricing, and promotion. We have implemented across all of our stores standardized service processes and marketing communications, which are designed to ensure that we offer our existing and potential customers the complete range of vehicle maintenance and repair services. Our service processes and marketing communications are focused on increasing our customer-pay service and parts business. As a result of our significant scale, we believe we can communicate frequently and effectively with our customers. We optimize our pricing to maintain a competitive offering for commonly performed vehicle services and repairs for like-brand vehicles within each of our markets.
• Increasing Finance, Insurance and Other Aftermarket Product Sales: We continue to improve our finance and insurance business by using our standardized processes across our store network. Our customers are presented with the "AutoNation Pledge," which provides clear disclosure relating to the finance and insurance sales process, and with a customer-friendly finance and insurance menu, which is designed to ensure that we offer our customers the complete range of finance, insurance, protection, and other aftermarket products in a transparent manner. We believe the combination of our pledge and our menu improves our customers' shopping experience for finance and insurance products at our stores. We offer our customers aftermarket products such as extended service contracts, maintenance programs, theft deterrent systems and various insurance products. We continue to focus on optimizing the mix of finance sources available for our customers' convenience.
Leverage Our Significant Scale
We leverage our scale as the largest automotive retailer in the United States to further improve our cost structure by obtaining significant cost savings in our business. The following practices and initiatives reflect our commitment to leveraging our scale and managing cost:
• Managing New Vehicle Inventories: We manage our new vehicle inventories to optimize our stores' supply and mix of vehicle inventory. Through the use of our planning and tracking systems in markets where our stores have critical mass in a particular brand, we view new vehicle inventories at those same brand stores in the aggregate and coordinate vehicle ordering and inventories across those stores. We manage our new vehicle inventory to achieve specific days supply targets. We also target our new vehicle inventory purchasing to our core, or most popular, model packages. We are focused on maintaining appropriate inventory levels in order to minimize carrying costs. We believe our inventory management enables us to (1) respond to customer requests better than independent retailers in the markets where we have a critical mass in a particular brand, (2) minimize carrying costs by maintaining lower days supply, and (3) better plan and forecast inventory levels.
• Increasing Used Vehicle Sales and Managing Used Vehicle Inventories: Each of our stores offers a variety of used vehicles. We believe that we have access to desirable used vehicle inventory and are in a position to realize the benefits of vehicle manufacturer-supported certified used vehicle programs, which we believe are improving consumers' attitudes toward used vehicles. Our used vehicle business strategy is focused on (1) utilizing our web-based vehicle inventory management system to leverage our local market inventory and optimize our supply, mix, and pricing, (2) managing our used vehicle inventory to enable us to offer our customers a wide selection of desirable lower-cost vehicles, which are often in high demand by consumers, and (3) leveraging our scale with comprehensive used vehicle marketing programs, such as market-wide promotional events and standardized approaches to advertising that we can implement more effectively than smaller retailers because of our size. We have deployed used vehicle specialists in each of our key markets to assist us in executing our strategy.
• Managing Costs: We actively manage our business and leverage our scale to reduce costs. We continue to focus on developing national vendor relationships to standardize our stores' approach to purchasing certain equipment, supplies, and services, and to improve our cost efficiencies. As an example, we realize cost efficiencies with respect to advertising and facilities maintenance that are generally not available to smaller retailers.
Increase Productivity
The following are examples of key initiatives we have implemented to increase productivity:
• Managing Employee Productivity and Compensation: We continue to enhance standardized compensation guidelines and common element pay plans at our stores. These guidelines and pay plans take into account our sales volume, customer satisfaction, gross margin objectives, vehicle brand, and the size of the store. Our goals are to improve employee productivity, to reward and retain high-performing employees, and to ensure appropriate variability of our compensation expense.
• Using Information Technology: We are leveraging information technology to enhance our customer relationships and increase productivity. We use a web-based customer relationship management tool across all of our stores. We believe this tool enables us to promote and sell our vehicles and other products more effectively by allowing us to better understand our customer traffic flows and better manage our showroom sales processes and customer relationships. We have developed a company-wide customer database that contains information on our stores' existing and potential customers. We believe our customer database enables us to implement more effectively our vehicle sales and service marketing programs. We expect our customer database and other tools to empower us to implement our customer relationship strategy more effectively and improve our productivity.
• Training Employees: One of our key initiatives to improve our productivity is our customized comprehensive training program for key store employees. We believe that having well-trained personnel is an essential requirement for implementing standardized operating practices and policies across all of our stores. Our training program educates our key store employees about their respective job roles and responsibilities and our standardized processes in all of our areas of operation, including sales, finance and insurance, and parts and service. Our training program also emphasizes the importance of conducting our operations, including our finance and insurance sales operations, in accordance with applicable laws and regulations and our policies and ethical standards. As part of our training program, we conduct specialized training for certain of our store employees in areas such as finance and insurance, fixed operations, and sales. We also require all of our employees, from our senior management to our technicians, to participate in our Business Ethics Program, which includes web-based interactive training programs, live training workshops, written manuals, and videos on specific topics. We also run the AutoNation General Manager University to prepare our future general manager prospects to become well-rounded successful leaders of our stores. We expect our comprehensive training program to improve our productivity by ensuring that all of our employees consistently execute our business strategy and manage our daily operations in accordance with our common processes and policies, applicable laws and regulations, and our high standards of business ethics.
Build Powerful Local-Market Brands
In many of our key markets where we have significant presence, we are marketing our non-premium luxury stores under a local retail brand. We continue to position these local retail brands to communicate to customers the key features that we believe differentiate our stores in our branded markets from our competitors, such as the large inventory available for customers, our sales, service, and finance and insurance standardized processes, and the competitive pricing we offer for widely available services. We believe that by having our stores within each local market speak with one voice to the automobile-buying public, we can achieve marketing and advertising cost savings and efficiencies that generally are not available to many of our local competitors. We also believe that we can create strong retail brand awareness in our markets.
We have fifteen local brands in our key markets, including "Maroone" in South Florida; "GO" in Denver, Colorado; "AutoWay" in Tampa, Florida; "Bankston" in Dallas, Texas; "Courtesy" in Orlando, Florida; "Desert" in Las Vegas, Nevada; "Team" in Atlanta, Georgia; "Mike Shad" in Jacksonville, Florida; "Dobbs" in Memphis, Tennessee; "Fox" in Baltimore, Maryland; "Mullinax" in Cleveland, Ohio; "Appleway" in Spokane, Washington; "Champion" in South Texas; "Power" in Southern California and Arizona; and "AutoWest" in Northern California. The stores we operate under local retail brands as of December 31, 2007, accounted for approximately 61% of our total revenue during fiscal 2007.
Each of our stores acquires new vehicles for retail sale either directly from the applicable automotive manufacturer or distributor or through dealer trades with other stores of the same franchise. Accordingly, we depend in large part on the automotive manufacturers and distributors to provide us with high-quality vehicles that customers desire and to supply us with such vehicles at suitable quantities and prices and at the right times. Our operations, particularly our sales of new vehicles, are impacted by the sales incentive programs conducted by the automotive manufacturers to spur consumer demand for their vehicles. These sales incentive programs are often not announced in advance and therefore can be difficult to plan for when ordering inventory. We generally acquire used vehicles from customer trade-ins, auctions, lease terminations, and other sources. We generally recondition used vehicles acquired for retail sale at our stores' service facilities and capitalize costs related thereto as used vehicle inventory. Used vehicles that we do not sell at our stores generally are sold at wholesale through auctions.
We offer a wide variety of financial products and services to our customers. We arrange for our customers to finance vehicles through installment loans or leases with third-party lenders, including the vehicle manufacturers' and distributors' captive finance subsidiaries, in exchange for a commission payable to us. Commissions that we receive may be subject to chargeback, in full or in part, if loans that we arrange default or are prepaid or upon other specified circumstances. However, our exposure to loss in connection with these financing arrangements generally is limited to the commissions that we receive. We do not directly finance our customers' vehicle leases or purchases.
We also offer our customers various vehicle protection products, including extended service contracts, maintenance programs, guaranteed auto protection (known as "GAP," this protection covers the shortfall between a customer's loan balance and insurance payoff in the event of a casualty), "tire and wheel" protection, and theft protection products. The vehicle protection products that our stores currently offer to customers are underwritten and administered by independent third parties, including the vehicle manufacturers' and distributors' captive finance subsidiaries. We primarily sell the products on a straight commission basis; however, we also participate in future underwriting profit for certain products pursuant to retrospective commission arrangements. Commissions that we receive from these third-party providers may be subject to chargebacks, in full or in part, if products that we sell, such as extended service contracts, are cancelled.
Our stores also provide a wide range of vehicle maintenance, repair, paint, and collision repair services, including warranty work that can be performed only at franchised dealerships and customer-pay service work.
Sales and Marketing
We retailed approximately 540,000 new and used vehicles through our stores in 2007. We sell a broad range of well-known vehicle brands within each of our markets.
Our marketing efforts focus on mass marketing and targeted marketing in our local markets and are designed to build our business with a broad base of repeat, referral, and new customers. We engage in marketing and advertising primarily through newspapers, radio, television, direct mail, and outdoor billboards in our local markets. As we have consolidated our operations in certain of our key markets under one local retail brand name, we have been able to focus our efforts on building consumer awareness of the selected local retail brand name rather than on the individual legacy names under which many of our stores operated prior to their acquisition by us. We also continue to develop newspaper, television, and radio advertising campaigns that we can modify for use in multiple local markets. We realize cost efficiencies with respect to advertising expenses that are not generally available to smaller retailers due to our ability to obtain efficiencies in developing advertising campaigns and our ability to gain volume discounts and other concessions as we increase our presence within our key markets and operate our non-premium luxury stores under a single retail brand name in our local markets.
We also have been able to use our significant scale to market our stores and vehicle inventory via the Internet. According to industry analysts, the majority of new car buyers nationwide consult the Internet for new car information, which is resulting in better-informed customers and a more efficient sales process. As part of our e-commerce marketing strategy, we are focused on (1) developing websites and an Internet sales process that appeal to on-line automobile shoppers, (2) obtaining high visibility on the Internet through alliances with Internet search engines, such as Google, through our own websites, and through strategic partnerships and alliances with e-commerce companies, and (3) developing and maintaining a cost structure that permits us to operate efficiently.
Agreements with Vehicle Manufacturers
We have entered into framework agreements with most major vehicle manufacturers and distributors. These agreements, which are in addition to the franchise agreements described in the following paragraph, contain provisions relating to our management, operation, advertising and marketing, and acquisition and ownership structure of automotive stores franchised by such manufacturers. These agreements contain certain requirements pertaining to our operating performance (with respect to matters such as sales volume, sales effectiveness, and customer satisfaction), which, if we do not satisfy, adversely impact our ability to make further acquisitions of such manufacturer's stores or could result in us being compelled to take certain actions, such as divesting a significantly underperforming store, subject to applicable state franchise laws. Additionally, these agreements set limits (nationally, regionally, and in local markets) on the number of stores that we may acquire of the particular manufacturer and contain certain restrictions on our ability to name and brand our stores. Some of these framework agreements give the manufacturer or distributor the right to acquire at fair market value, or the right to compel us to sell, the automotive stores franchised by that manufacturer or distributor under specified circumstances in the event of a change in control of our company (generally including certain material changes in the composition of our board of directors during a specified time period, the acquisition of 20% or more of the voting stock of our company by another vehicle manufacturer or distributor, or the acquisition of 50% or more of our voting stock by a person, entity, or group not affiliated with a vehicle manufacturer or distributor) or other extraordinary corporate transactions such as a merger or sale of all of our assets. In addition, we have granted certain manufacturers the right to acquire, at fair market value, our automotive dealerships franchised by that manufacturer in specified circumstances in the event of our default under the indenture for our $300 million aggregate principal amount of floating rate senior unsecured notes due 2013 and $300 million aggregate principal amount of 7% senior unsecured notes due 2014 (collectively referred to herein as the "senior unsecured notes") or the amended credit agreement for our revolving credit facility and term loan facility.
We operate each of our new vehicle stores under a franchise agreement with a vehicle manufacturer or distributor. The franchise agreements grant the franchised automotive store a non-exclusive right to sell the manufacturer or distributor's brand of vehicles and offer related parts and service within a specified market area. These franchise agreements grant our stores the right to use the manufacturer or distributor's trademarks in connection with their operations, and they also impose numerous operational requirements and restrictions relating to inventory levels, working capital levels, the sales process, marketing and branding, showroom and service facilities and signage, personnel, changes in management, and monthly financial reporting, among other things. The contractual terms of our stores' franchise agreements provide for various durations, ranging from one year to no expiration date, and in certain cases manufacturers have undertaken to renew such franchises upon expiration so long as the store is in compliance with the terms of the agreement. We generally expect our franchise agreements to survive for the foreseeable future and, when the agreements do not have indefinite terms, anticipate routine renewals of the agreements without substantial cost or modification. Our stores' franchise agreements provide for termination of the agreement by the manufacturer or non-renewal for a variety of causes (including performance deficiencies in such areas as sales volume, sales effectiveness, and customer satisfaction). However, in general, the states in which we operate have automotive dealership franchise laws that provide that, notwithstanding the terms of any franchise agreement, it is unlawful for a manufacturer to terminate or not renew a franchise unless "good cause" exists. It generally is difficult for a manufacturer to terminate, or not renew, a franchise under these laws, which were designed to protect dealers. In addition, in our experience and historically in the automotive retail industry, dealership franchise agreements are rarely involuntarily terminated or not renewed by the manufacturer. From time to time, certain manufacturers assert sales and customer satisfaction performance deficiencies under the terms of our framework and franchise agreements. We generally work with these manufacturers to address the asserted performance issues. For additional information, please refer to the risk factor captioned "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" in the "Risk Factors" section of this document.
Mike Jackson has served as our Chairman of the Board since January 2003, and as our Chief Executive Officer and Director since September 1999. From October 1998 until September 1999, Mr. Jackson served as Chief Executive Officer of Mercedes-Benz USA, LLC, a North American operating unit of DaimlerChrysler AG, a multinational automotive manufacturing company. From April 1997 until September 1999, Mr. Jackson also served as President of Mercedes-Benz USA. From July 1990 until March 1997, Mr. Jackson served in various capacities at Mercedes-Benz USA, including as Executive Vice President immediately prior to his appointment as President of Mercedes-Benz USA. Mr. Jackson was also the managing partner from March 1979 to July 1990 of Euro Motorcars of Bethesda, Maryland, a regional group that owned and operated eleven automotive dealership franchises, including Mercedes-Benz and other brands of automobiles.
Michael E. Maroone has served as a director since July 2005 and as our President and Chief Operating Officer since August 1999. Following our acquisition of the Maroone Automotive Group in January 1997, Mr. Maroone served as President of our New Vehicle Dealer Division. In January 1998, Mr. Maroone was named President of our Automotive Retail Group with responsibility for our new and used vehicle operations. Prior to joining AutoNation, Mr. Maroone was President and Chief Executive Officer of the Maroone Automotive Group, one of the country's largest privately-held automotive retail groups prior to its acquisition by us.
Michael J. Short has served as our Executive Vice President and Chief Financial Officer since January 2007. From 2000 to January 2007, Mr. Short served as Executive Vice President and Chief Financial Officer of Universal City Development Partners, Ltd. (dba Universal Orlando) ("Universal Orlando"). From 2005 until January 2007, he also served as Treasurer and Chief Financial Officer of Universal City Florida Holding Co. I, the limited partner of Universal Orlando, and Universal City Florida Holding Co. II, the general partner of Universal Orlando. From 1991 to 2000, Mr. Short held various finance positions at Universal Orlando, Joseph E. Seagram & Sons, Inc., and IBM Corporation. Prior to that, he was a helicopter pilot and tactics instructor for the United States Navy, based out of Norfolk, Virginia.
Jonathan P. Ferrando has served as our Executive Vice President, General Counsel and Secretary since March 2005. Prior thereto, he served as Senior Vice President, General Counsel and Secretary from January 2000 until March 2005. In September 2004, Mr. Ferrando assumed responsibility for our human resources and labor relations functions in addition to his role as General Counsel. Mr. Ferrando joined our Company in July 1996 and served in various capacities within our company, including as Senior Vice President and General Counsel of our Automotive Retail Group from March 1998 until January 2000. Prior to joining our company, Mr. Ferrando was a corporate attorney with Skadden, Arps, Slate, Meagher & Flom from 1991 until 1996.
Kevin P. Westfall has served as our Senior Vice President — Sales since October 2005. He served as our Senior Vice President — Finance and Insurance and Fixed Operations from May 2003 until September 2005. From 2001 until May 2003, Mr. Westfall served as our Senior Vice President — Finance and Insurance. Previously, he served as President of our former wholly-owned captive finance company, AutoNation Financial Services, from 1997 through 2001. He is also the former President of BMW Financial Services for North America.
You should read the following discussion in conjunction with Part I, including matters set forth in the "Risk Factors" section of this Form 10-K, and our Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-K.
Certain reclassifications of amounts previously reported have been made to the accompanying Consolidated Financial Statements in order to maintain consistency and comparability between periods presented.
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of December 31, 2007, we owned and operated 322 new vehicle franchises from 244 dealerships located in major metropolitan markets, predominantly in the Sunbelt region of the United States. Our stores, which we believe include some of the most recognizable and well known in our key markets, sell 38 different brands of new vehicles. The core brands of vehicles that we sell, representing approximately 96% of the new vehicles that we sold in 2007, are manufactured by Toyota, Ford, General Motors, Honda, Nissan, Chrysler, Daimler, and BMW.
We operate in a single operating and reporting segment, automotive retailing. We offer a diversified range of automotive products and services, including new vehicles, used vehicles, vehicle maintenance and repair services, vehicle parts, extended service contracts, vehicle protection products, and other aftermarket products. We also arrange 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 our market brands and advertising, improving asset management, implementing standardized processes, and increasing productivity across all of our stores.
For the year ended December 31, 2007, new vehicle sales account for approximately 58% of our total revenue, but approximately 25% of our total gross margin. Our parts and service and finance and insurance operations, while comprising approximately 18% of total revenue, contribute approximately 61% of our gross margin. We believe that many factors affect sales of new vehicles and retailers' gross profit margins in the United States and in our particular geographic markets, including the economy, inflation, recession or economic slowdown, consumer confidence, housing markets, fuel prices, credit availability, the level of manufacturers' production capacity, manufacturer incentives (and consumers' reaction to such offers), intense industry competition, interest rates, the prospects of war, other international conflicts or terrorist attacks, severe weather conditions, the level of personal discretionary spending, product quality, affordability and innovation, employment/unemployment rates, the number of consumers whose vehicle leases are expiring, and the length of consumer loans on existing vehicles. Changes in interest rates could significantly impact industry new vehicle sales and vehicle affordability, due to the direct relationship between interest rates and monthly loan payments, a critical factor for many vehicle buyers, and the impact interest rates can have on customers' borrowing capacity and disposable income. Sales of certain new vehicles, particularly larger trucks and sports utility vehicles that historically have provided us with higher gross margins, also are impacted by fuel prices.
The automotive retail environment was challenging in 2007, especially in California and Florida, where the housing markets experienced a significant decline. For 2008, we anticipate that the automotive retail market will remain challenging and that full-year industry new vehicle sales will decline from the low-16 million unit level in 2007 to the mid-15 million unit level. However, actual sales may materially differ.
We had net income from continuing operations of $288.0 million in 2007 and $330.8 million in 2006 and diluted earnings per share from continuing operations of $1.44 in 2007 and 2006. The 2007 results included favorable tax adjustments of $12.0 million, or $.06 per share. The 2006 results included pre-tax charges of $34.5 million, or $.09 per share, for the debt tender premium and other financing costs relating to our April 2006 recapitalization.
Our Board of Directors authorized a $500.0 million share repurchase program in April 2007 and an additional $250.0 million share repurchase program in October 2007. We repurchased 33.2 million shares of our common stock for an aggregate purchase price of $645.7 million (average purchase price per share of $19.43) during the year ended December 31, 2007. Future share repurchases are subject to limitations contained in the indenture relating to our senior unsecured notes. As of January 1, 2008, we had approximately $30 million available for share repurchases and other restricted payments that are subject to these limitations. This amount will increase in future periods by 50% of our cumulative consolidated net income (as defined in the indenture), the net proceeds of stock option exercises, and certain other items, and decrease by the amount of future share repurchases and other restricted payments subject to these limitations. For further information, see "Liquidity and Capital Resources" and Note 7, Notes Payable and Long-Term Debt, of the Notes to Consolidated Financial Statements. During 2007, 6.8 million shares of our common stock were issued upon exercise of stock options, resulting in proceeds of $96.6 million (average price per share of $14.12).
We had a loss from discontinued operations totaling $9.3 million in 2007 and $13.9 million in 2006, net of income taxes. Certain amounts reflected in the accompanying Consolidated Financial Statements for the years ended December 31, 2007, 2006, and 2005, have been adjusted to reclassify as discontinued operations the results of stores that were sold, that we have entered into an agreement to sell, or for which we otherwise deem a proposed sales transaction to be probable with no material changes expected.
Critical Accounting Policies and Estimates
We prepare our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. 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 Consolidated Financial Statements. Set forth below are the policies and estimates that we have identified as critical to our business operations and an understanding of our results of operations, based on the high degree of judgment or complexity in their application.
Goodwill, Other Intangible Assets, and Long-Lived Assets — Goodwill, other intangible assets, and long-lived assets are significant components of our Consolidated Balance Sheets. Our policies regarding the valuation of intangible assets affect the amount of future amortization and possible impairment charges we may incur.
Goodwill consists of the cost of acquired businesses in excess of the fair value of net assets acquired, using the purchase method of accounting. Acquired intangible assets are separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of our intent to do so. Our principal identifiable intangible assets are rights under franchise agreements with vehicle manufacturers. We generally expect our franchise agreements to survive for the foreseeable future, and, when the agreements do not have indefinite terms, anticipate routine renewals of the agreements without substantial cost. We believe that our franchise agreements will contribute to cash flows for the foreseeable future and have indefinite lives.
Goodwill and franchise rights assets are tested for impairment annually at June 30 or more frequently when events or circumstances indicate that impairment may have occurred. We are subject to financial statement risk to the extent that goodwill, franchise rights assets, or other intangible assets become impaired due to decreases in the fair value of the related underlying business.
The risk of goodwill and franchise rights impairment losses may increase to the extent that our market capitalization and earnings decline. A sustained decrease in our market capitalization, or a negative long-term performance outlook, could cause the carrying value of our reporting unit to exceed its fair value, which may result in an impairment loss. Impairment losses could have an adverse impact on our ability to satisfy the financial ratios or other covenants under our debt agreements and could have a material adverse impact on our results of operations and financial condition.
We estimate the depreciable lives of our property, plant, and equipment, including leasehold improvements, and review them for impairment when events or circumstances indicate that their carrying amounts may be impaired. We periodically evaluate the carrying value of assets held for sale to determine if, based on market conditions, the values of these assets should be adjusted. Although we believe our property, plant, and equipment and assets held for sale are appropriately valued, the assumptions and estimates used may change and we may be required to record impairment charges to reduce the value of these assets.
Revenue Recognition/Reserves for Finance and Insurance Chargebacks — Revenue consists of the sales of new and used vehicles, commissions from related finance and insurance products, sales of parts and services, and sales of other products. We recognize revenue in the period in which products are sold or services are provided. We recognize vehicle and finance and insurance revenue when a sales contract has been executed, the vehicle has been delivered, and payment has been received or financing has been arranged. Rebates, holdbacks, floorplan assistance, and certain other dealer credits received from manufacturers are recorded as a reduction of the cost of the vehicle and recognized into income upon the sale of the vehicle or when earned under a specific manufacturer program, whichever is later.
Revenue on finance and insurance products represents commissions earned by us for: (i) loans and leases placed with financial institutions in connection with customer vehicle purchases financed and (ii) vehicle protection products sold. We primarily sell these products on a straight commission basis; however we also participate in future underwriting profit on certain extended service contracts pursuant to retrospective commission arrangements, which are recognized as earned.
We may be charged back for unearned financing, insurance, or vehicle protection product commissions in the event of early termination of the contracts by customers ("chargebacks"). Revenues from these fees are recorded at the time of the sale of the vehicles net of an estimated liability for chargebacks. Our estimate of chargebacks is based primarily on our historical chargeback experience, and is influenced by increases or decreases in early termination rates resulting from cancellation of vehicle protection products, defaults, refinancings and payoffs before maturity, and other factors.
Income Taxes — Accounting for our income taxes requires significant judgment in the evaluation of our uncertain tax positions and in the calculation of our provision for income taxes. Effective January 1, 2007, we adopted Financial Accounting Standards Board ("FASB") Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate available evidence to determine if it appears more likely than not that an uncertain tax position will be sustained on an audit by a taxing authority, based solely on the technical merits of the tax position. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settling the uncertain tax position.
Although we believe we have adequately reserved for our uncertain tax positions, the ultimate outcome of these tax matters may differ from our expectations. We adjust our reserves in light of changing facts and circumstances, such as the completion of a tax audit, expiration of a statute of limitations, the refinement of an estimate, and interest accruals associated with uncertain tax positions until they are resolved. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made.
Our future effective tax rates could be affected by changes in our deferred tax assets or liabilities, the valuation of our uncertain tax positions, or by changes in tax laws, regulations, accounting principles, or interpretations thereof.
Other — Additionally, significant estimates have been made by us in the accompanying Consolidated Financial Statements including allowances for doubtful accounts, accruals related to self-insurance programs, certain legal proceedings, estimated losses from disposals of discontinued operations, and certain assumptions related to determining stock option compensation.
Same Store Operating Data
We have presented below our operating results on a same store basis to reflect our internal performance. The "Same Store" amounts presented below include the results of dealerships for the identical months in each period presented in the comparison, commencing with the first full month in which the dealership was owned by us. For example, the results for a dealership acquired in February 2006 would be included only in our same store comparison of 2007 to 2006, not in our same store comparison of 2006 to 2005. Results for a dealership that we classified as a discontinued operation in October 2007 would be removed entirely from our same store comparison of 2007 to 2006.
Same store new vehicle revenue decreased $877.3 million or 8.0% during 2007, as compared to 2006, primarily as a result of a challenging automotive retail environment, which resulted in decreased same store unit volume, particularly in California and Florida. We believe these results were driven in part by continued weakness in the housing market. These volume decreases were partially offset by an increase in same store average revenue per unit retailed, primarily as a result of the continued shift in our brand mix to premium luxury brands, as well as higher average prices for domestic vehicles. To the extent that we continue to see weakness in the housing market, we anticipate that the automotive retail market will remain challenging in 2008. We also expect the declines in our domestic brands to continue in 2008. Additionally, the potential tightening in the automotive retail credit market may adversely impact our vehicle sales, while the reduction in interest rates is expected to have a positive impact. As a result of these conditions, we believe that full year industry new vehicle sales will decline from the low-16 million unit level in 2007 to the mid-15 million unit level in 2008. However, actual sales may materially differ.
Same store new vehicle revenue decreased $173.5 million or 1.5% during 2006, as compared to 2005, primarily as a result of a decrease in same store unit volume, particularly in our California and Florida businesses, which was consistent with industry trends in a challenging automotive retail environment. In 2006, we saw a significant decline in non-luxury truck sales, offset in part by stronger car sales. We believe these results reflected consumers' reduced preference for trucks, due in large part to economic issues that included a significant decline in the California and Florida housing markets, higher interest rates, and higher gas prices during portions of 2006. In 2006, we saw a continued revenue shift in our brand mix from domestic brands to volume import and premium luxury brands. In June 2005, General Motors announced an "employee pricing for everyone" program, which was followed in July 2005 with similar programs introduced by Ford and Chrysler. These programs, which concluded in October 2005, helped drive increases in sales volume during 2005 that were partially offset by a challenging United States retail market and the effects of Hurricane Wilma on our Florida stores during the fourth quarter of 2005.
Same store gross profit per vehicle retailed decreased 1.9% during 2007, as compared to 2006, primarily as a result of a competitive retail environment resulting in pricing pressures across all brand product lines, partially offset by the shift in our sales mix to more premium luxury brands. Same store gross profit per vehicle retailed increased 2.4% during 2006, as compared to 2005, primarily as a result of the shift in our sales mix to more imports, including premium luxury brands.
Our new vehicle inventories were $1.9 billion or 53 days supply at December 31, 2007, as compared to new vehicle inventories of $1.9 billion or 51 days supply at December 31, 2006.
The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and notes thereto included under Item 1. 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.
Certain amounts have been reclassified from the previously reported financial statements to conform to the financial statement presentation of the current period.
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of September 30, 2008, we owned and operated 311 new vehicle franchises from 238 stores located in major metropolitan markets, predominantly in the Sunbelt region of the United States. Our stores, which we believe include some of the most recognizable and well known in our key markets, sell 39 different brands of new vehicles. The core brands of vehicles that we sell, representing approximately 96% of the new vehicles that we sold during the nine months ended September 30, 2008, are manufactured by Toyota, Ford, Honda, Nissan, General Motors, Daimler, Chrysler, and BMW.
We offer a diversified range of automotive products and services, including new vehicles, used vehicles, vehicle maintenance and repair services, vehicle parts, extended service contracts, vehicle protection products, and other aftermarket products. We also arrange 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 our market brands and advertising, improving asset management, implementing standardized processes, and increasing productivity across all of our stores.
For the nine months ended September 30, 2008, new vehicle sales accounted for approximately 56% of our total revenue, but approximately 22% of our total gross margin. Our parts and service and finance and insurance operations, while comprising approximately 20% of total revenue for the nine months ended September 30, 2008, contributed approximately 64% of our gross margin for the same period.
We believe that many factors affect sales of new vehicles and automotive retailers' gross profit margins in the United States and in our particular geographic markets, including the economy, inflation, recession or economic slowdown, consumer confidence, housing markets, fuel prices, credit availability, the level of manufacturers' production capacity, manufacturer incentives (and consumers' reaction to such offers), intense industry competition, interest rates, the prospects of war, other international conflicts or terrorist attacks, severe weather conditions, the level of personal discretionary spending, product quality, affordability and innovation, employment/unemployment rates, the number of consumers whose vehicle leases are expiring, and the length of consumer loans on existing vehicles. Changes in interest rates could significantly impact industry new vehicle sales and vehicle affordability, due to the direct relationship between interest rates and monthly loan payments, a critical factor for many vehicle buyers, and the impact interest rates can have on customers' borrowing capacity and disposable income. In periods where there is a decline in the availability of credit, particularly in the sub-prime lending market, the ability of certain consumers to purchase vehicles will be limited, resulting in a decline in sales or profits. Sales of certain new vehicles, particularly larger trucks and sports utility vehicles that historically have provided us with higher gross margins, also are impacted by fuel prices and the level of construction activity.
During the three months ended September 30, 2008, we had a net loss from continuing operations of $1.40 billion and diluted loss per share of $7.95, as compared to net income from continuing operations of $76.6 million and diluted earnings per share of $0.39, during the same period in 2007. During the nine months ended September 30, 2008, we had a net loss from continuing operations of $1.30 billion and diluted loss per share of $7.27, as compared to net income from continuing operations of $237.9 million and diluted earnings per share of $1.16 during the same period in 2007.
Results for the three months ended September 30, 2008, were impacted by a non-cash goodwill impairment charge of $1.61 billion ($1.37 billion after-tax), non-cash franchise impairments of $141.4 million ($87.7 million after-tax), and a gain on senior note repurchases of $12.1 million ($7.4 million after-tax). Results for the three months ended September 30, 2007, included favorable tax adjustments of $3.4 million.
Results for the nine months ended September 30, 2008, were impacted by the non-cash goodwill impairment charge of $1.61 billion ($1.37 billion after-tax), non-cash franchise impairments of $146.5 million ($90.8 million after-tax), the gain on senior note repurchases of $12.1 million ($7.3 million after-tax), as well as a non-cash stock compensation expense adjustment of $5.3 million ($3.2 million after-tax). See further discussion of these adjustments in Note 4, Goodwill and Intangible Assets, Note 5, Notes Payable and Long-Term Debt, and Note 9, Stock-Based Compensation of the Notes to Unaudited Condensed Consolidated Financial Statements. Results for the nine months ended September 30, 2007, included favorable tax adjustments of $12.0 million.
Operating Segments
Prior to the third quarter of 2008, we had a single operating segment. During the third quarter of 2008, in response to changes in the automotive retail market, including the disproportionate decline in revenue and earnings from our domestic franchises compared to our import and premium luxury franchises, we made changes to our management approach that divided our business into three operating segments: (1) Domestic, (2) Import, and (3) Premium Luxury. This realignment had no effect on our previously reported consolidated results of operations, financial position or cash flows. In connection with this change, we have reclassified historical amounts to conform to our current segment presentation.
Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by General Motors, Ford, and Chrysler. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes, BMW, and Lexus. The franchises in each segment also sell used vehicles, parts and automotive services, and automotive finance and insurance products. For additional information regarding our operating segments, see "Segment Results" below and Note 14, Segment Information, of the Notes to Unaudited Condensed Consolidated Financial Statements.
Market Challenges
Our results of operations for the third quarter of 2008 were adversely impacted by the unfavorable economic conditions in the United States, including the continued turbulence in the credit and housing markets and the high cost of fuel. Tight credit conditions, particularly in the sub-prime market, limited the ability of some of our customers to purchase vehicles, as well as finance and insurance products. In the third quarter of 2008, Domestic revenue declined 30%, Import revenue declined 17%, and Premium Luxury revenue declined 15%, in each case compared to the third quarter of 2007. For the three months ended September 30, 2008, Domestic revenue represented 34% of our total revenue, compared to 38% in the third quarter of 2007. We expect that in the foreseeable future this percentage will continue to decline and that Import revenue and Premium Luxury revenue will represent a higher percentage of our total revenue.
In July 2008, as part of our continuing response to the ongoing market challenges, we announced a cost reduction plan with a targeted annualized run rate savings of approximately $100 million. We have made substantial progress in achieving our targeted annualized savings.
We now anticipate that full-year industry new vehicle sales will decline from the low-16 million unit level in 2007 to the low-13 million unit level for 2008. We expect that the automotive retail market will remain challenging and that adverse market conditions will continue into 2009.
Inventory Management
Our new and used vehicle inventories are stated at the lower of cost or market in our consolidated balance sheets.
We have generally not experienced 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 reduced our new vehicle inventory to 51,607 units at September 30, 2008, from 56,949 units at September 30, 2007. Although we focus on managing our inventory levels in accordance with consumer demand, we believe we must maintain a minimum level of inventory at our lower volume stores that is representative of the full line of vehicles offered by manufacturers. This may result in a higher days supply of inventory than would otherwise result if we were in a better economic environment. However, given our inventory management practices (such as managing our inventory purchases based on our sales forecasts and sharing inventory among our stores within a local market), we do not believe the current business climate is likely to result in material impairment charges related to new vehicle inventory. We continue to monitor our new vehicle inventory levels closely based on current economic conditions and will adjust them as appropriate.
In general, used vehicles that are not sold on a retail basis are liquidated at wholesale auctions. We record estimated losses on used vehicle inventory expected to be liquidated at wholesale auctions at a loss. Our used vehicle inventory balance was net of cumulative write-downs of $2.2 million at September 30, 2008, and $2.0 million at December 31, 2007.
Parts, accessories, and other inventory are carried at the lower of acquisition cost (first-in, first-out method) or market. We estimate the amount potential obsolete inventory based upon past experience and market trends. Our parts, accessories, and other inventory balance was net of cumulative write-downs of $6.5 million at September 30, 2008, and $5.8 million at December 31, 2007.
Critical Accounting Policies and Estimates
We prepare our Unaudited Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States, 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 a complete discussion of our critical and significant accounting policies and estimates, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008.
Goodwill and franchise rights assets are tested for impairment annually or more frequently when events or circumstances indicate that impairment may have occurred. As discussed in Note 4, Goodwill and Intangible Assets, of the Notes to Unaudited Condensed Consolidated Financial Statements, during the third quarter of 2008, we recorded $1.61 billion ($1.37 billion after-tax) of estimated non-cash goodwill impairment charges and $141.4 million ($87.7 million after-tax) of non-cash impairment charges related to franchise rights intangible assets. The aggregate non-cash goodwill impairment charge is an estimate because we have not finalized the valuation of certain assets and liabilities. We expect to finalize this non-cash goodwill impairment amount during the fourth quarter of 2008, and any adjustment will be reflected in our results for the fourth quarter of 2008. Despite these impairment charges, as of September 30, 2008, we were in compliance with the requirements of all applicable financial and operating covenants under our debt agreements, as further discussed below in "Restrictions and Covenants."
As a result of the change in our operating segment structure noted above, we were required to reassess the reporting units to which goodwill is assigned for goodwill impairment testing purposes. This reassessment resulted in a conclusion that the Company's reporting units were comprised of its three operating segments: Domestic, Import, and Premium Luxury.
We are required to complete interim tests for impairment of goodwill and other intangible assets when events occur or circumstances change between annual tests that indicate that the assets might be impaired. We continue to face a challenging automotive retail environment and an uncertain economic environment in general. As a result of these conditions, there can be no assurance that an additional material impairment charge will not occur in a future period. We will continue to monitor events in future periods to determine if additional asset impairment testing should be performed. If we are required to apply the second step of the goodwill impairment test to the goodwill in any of our three reporting units in future periods, we believe that we could incur another significant non-cash impairment charge related to goodwill, which could have a material adverse impact on our consolidated financial statements and on our ability to satisfy the financial ratios or other covenants under our debt and other agreements.
John M. Zimmerman
Welcome to AutoNation's third quarter 2008 conference call. My name is John Zimmerman, AutoNation's Vice President of Investor Relations. I'd like to remind you that this call is being recorded and will be available for replay at 1-888-567-0381 after 2:00 pm Eastern Time today through November 13, 2008.
Leading our call today will be Mike Jackson, Chairman and Chief Executive Officer of AutoNation. Joining him will be Mike Maroone, President and Chief Operating Officer, and Mike Short, Chief Financial Officer. At the end of their remarks we'll open the call to questions. I'll also be available by phone to address any follow-up issues.
Before we begin let me read our statement regarding forward-looking comments and the use of non-GAAP financial measures. Certain statements and information on this call will constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks which may cause the actual results or performance to differ materially from expectations. Additional discussions of factors that could cause actual results to differ materially are contained in the company's SEC filings.
Certain non-GAAP financial measures as defined under the SEC rules may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on the Investor Relations section of AutoNation's website at
Now I'll turn the call over to AutoNation's Chairman and Chief Executive Officer, Mike Jackson.
Mike J. Jackson
Today we reported a third quarter net loss from continuing operations of $1.4 billion or $7.95 per share. In the quarter the company recorded noncash charges for goodwill and franchise impairment of $1.46 billion after tax. Despite these charges we remain in compliance with our debt covenants. After adjusting for the impairment charges and certain other items, net income from continuing operations for the 2008 third quarter was $44 million or $0.25 per share compared to $73 million or $0.37 per share in the prior year.
In the third quarter total US industry new vehicle retail sales declined 31% based on CNW research data. In comparison, in the third quarter AutoNation's new vehicle unit sales declined 24%. This performance relative to the US retail total is attributable to a combination of increased market share as well as the benefit of our geographic and brand mix relative to the total market.
In the third quarter we want to address four major items.
First. In the third quarter the US economy moved deeper into recession as the credit crisis escalated to a credit panic in September as credit freeze ensued which broke consumer confidence which has been under pressure throughout the year. The industry saw a decline in floor traffic at automotive showrooms and for those customers who were in the showrooms credit availability was very tight.
We do believe the actions taken by the Federal Reserve and Treasury Department will bring credit back into the market place in the near future. The recent total cuts of 100 basis points by the Federal Reserve is another sign that all tools are being used to get the US economy back on track. LIBOR spreads continue to narrow which has been the case for the last 18 days and we expect this to continue going forward.
The recent decline in gasoline prices is another sign of positive news for the consumer. Once the housing market stabilizes and credit becomes available, we expect to see increased signs of stabilization in the US economy.
Second. In continuing response to the ongoing macroeconomic and industry challenges we announced in the second quarter earnings release a cost reduction plan with a targeted annualized run rate of $100 million and we are on track with the previously-announced cost reduction efforts. We continue to look at future cost cutting opportunities beyond the $100 million.
Next. We have shifted our capital allocation strategy from share repurchase to debt reduction. So far this year we have repaid $589 million of combined non-vehicle debt and floor plan debt. This was made possible by strong operating cash flow including a significant contribution from working capital improvements. Going forward we have targeted an additional $500 million of total debt reduction.
Finally, prior to the third quarter of 2008 we operated as a single operating segment. During the third quarter of 2008 in response to changes in the automotive retail market including the disproportionate decline in revenue and earnings from our domestic franchises relative to our import and premium luxury franchises, we made changes to our management approach and divided our business into three operating and reportable segments: Domestic, import and premium luxury.
Beginning in the third quarter resources are allocated and performances assessed based on financial information from each of these segments. We believe that our segment-related disclosures will improve the transparency of our financial reporting.
AutoNation continues to generate strong cash flow in this very challenging market despite the current and possibly ongoing levels of depressed vehicle sales. I would like to turn it over to Mike Short to provide more details on the financial results.
Michael J. Short
As Mike noted, we recorded charges for goodwill and franchise impairments of $1.75 billion before taxes or $1.46 billion on an after-tax basis. These charges resulted from accounting requirements to assess goodwill and franchise rights for impairments as a result of adverse market conditions and the decline in our stock price. I'd note that the goodwill charge is an estimate which we'll finalize in the fourth quarter with any adjustments reflected in fourth quarter results.
Let me make a few comments on the impairment charges. First, we tested goodwill at both the single reporting unit level and on our new segment structure. As a result of the testing the $2.75 billion in goodwill we started with was reduced to $1.15 billion with approximately 15% of that amount allocated to the domestic unit. Future testing of goodwill will be conducted on a segment-by-segment basis. I'd also like to note that had we completely written off the domestic goodwill, we would still have been in compliance with all of our covenants.
As we've discussed with you in previous calls, in light of the challenging business environment we have been aggressively managing our costs and cash flow. Regarding our cost structure, we're on track to achieve the $100 million in annualized cost savings under our previously-announced cost reduction plan, and we will continue driving efficiencies beyond that point.
We've put in place $86 million in annualized savings since the starting of the initiative. In the third quarter SG&A decreased $54 million versus Q3 2007. SG&A as a percentage of gross profit increased to 76.5% from 71% a year ago reflecting the deleveraging of our cost structure partially offset by our cost savings initiatives.
Regarding cash flow, through a disciplined management of cap ex and working capital we've generated sufficient funds to reduce non-vehicle debt by $362 million and floor plan by $227 million for a total of $589 million on a year-to-date basis. We drove $104 million of non-vehicle debt reduction and $332 million of floor plan reduction in the third quarter. Additionally, we committed to repurchase an additional $26 million of debt which settled in early October.
During the third quarter we did not repurchase any shares of our common stock. At September 30 our non-vehicle debt was $1.4 billion. Of our $700 million revolver we had covenant limited availability of $197 million. Additionally, we had cash on hand of about $61 million for a total liquidity of approximately $258 million.
Despite the impairment charges, we remain in compliance with all the covenants under our debt agreements. Our consolidated leverage ratio at September 30 which measures non-vehicle debt to EBITDA was 2.65 versus the covenant limit of 3.0. Our capitalization ratio which measures floor plan plus non-vehicle debt divided by total book capitalization was 61.5% at September 30 versus the 65% cap. We believe that our aggressive costs and cash-flow management will enable us to continue to reduce debt and remain in compliance with our covenants.
At September 30 we had reduced new vehicle inventory levels by approximately 6,600 units from June 30. As compared to prior year, the net inventory carrying cost for new vehicles was $5 million lower in Q3 primarily due to lower floor plan interest rates partially offset by a decrease in floor plan assistance. As we continue to reduce inventory we expect net inventory carrying costs to decrease.
Other interest expense was $8.7 million lower in Q3 versus last year. The favorable variance is the result of interest rates on our term loan facility, mortgage debt and floating rate senior notes, and a decrease in our debt level associated with our revolving credit facility partially offset by an increase in our mortgage debt. Our ongoing deleveraging actions will contribute to lower other interest expense going forward.
It should be noted that a one-notch reduction in our debt rating would increase credit facility costs by about $2 million annually.
During the quarter we also recorded a gain of $12 million before tax or $7 million after tax on the repurchase of $88 million of principal of our senior notes. Excluding the impairment charges, the gain on the debt repurchase and certain favorable tax adjustments in prior year we reported third quarter earnings from continuing operations of $0.25 per share versus $0.37 per share a year ago.
For Q3 2008 we had an effective income tax rate of 15.8% versus a prior year effective rate of 37.6%. The rate for the third quarter of 2008 reflects the fact that a significant portion of the impairment charges was not deductible for tax purposes. The Q3 2007 rate benefited from adjustments for the resolution of various tax matters which resulted in an EPS benefit of $0.02. We expect our ongoing rate to be about 40% excluding the impact of any potential tax adjustments in the future.
We reinvested $55.7 million in the business through capital expenditures during the quarter. We expect full-year 2008 capital expenditures to be approximately $125 million. Excluding acquisition related spending, land purchased for future sites and lease buyouts, cap ex will be approximately $70 million.
Now let me turn you over to our President and Chief Operating Officer, Mike Maroone.
Michael E. Maroone
The third quarter was marked by extreme economic volatility. In addition to the ongoing drastic changes in gas prices, new developments affecting auto retail were the pullback on leasing and the tightening of credit by traditional auto lenders from raising credit standards to providing lower loan-to-value advances, both of which put increasing pressure on consumers particularly those with negative equity issues.
As consumers were bombarded with these developments, confidence waned dramatically affecting store traffic and in turn our business. In spite of this we delivered a 3.2% operating margin as a percent of revenue excluding goodwill and franchise rights impairment charges which illustrates that our operational foundation is sound.
I will begin by providing some additional commentary on the domestic, import and premium luxury segments. Please note that segment numbers as presented in our press release are on a total store basis.
In the quarter the import and premium luxury segments accounted for the vast majority of segment income at 81% of the income for the three segments. Combined the two represented 70% of our unit mix up from 65% in the quarter a year ago. While the domestic segment accounted for 30% of our new vehicle unit sales in the quarter, it disproportionately accounted for only 19% of the segment income and domestics contributed 54% of the segment income dollar decline.
As the industry moves forward the auto retail landscape will include fewer domestic stores which should positively impact throughput in both sales and service. As we continue to optimize our portfolio, we will retain well located high throughput domestic stores. Of note, when compared to the industry our domestic stores currently have over three times the throughput of the average domestic dealer.
Now I'll provide further details on our third quarter operational results. My comments here will be on a same-store basis unless noted otherwise.
First, new vehicles. According to CNW industry new vehicle unit volume was off 31%. AutoNation compared favorably retailing 65,000 units, a decline of 24% in the quarter compared to the period a year ago. While we noted pressure across the board in all of our markets, we gained market share in the quarter. Compared to the industry we benefited from favorable geography and brand mix along with outstanding execution at the store level.
We've also gained share on a year-to-date basis. In these difficult times our commitment to providing a superior buying and ownership experience for our customers remains a clear benefit. This was further evidenced in the quarter when our company reached a best ever customer satisfaction milestone for both sales and service CSI.
Compared to the quarter a year ago, revenue per new vehicle retail of $30,000 was off $530 or 2% primarily driven by a decline in truck pricing that was highly incentivized in a shift in car/truck mix. Same-store gross profit per new vehicle retail of $1,975 was off $184 or 9% impacted by compressed truck margins which were pressured by the liquidat5ion of low demand inventory.
We also had margin compression in premium luxury. In premium luxury we noted a continued trend toward entry-level or lower priced models. The premium luxury product cycle was a factor as well. Consumers will soon be seeing the new E-Class from Mercedes Benz, BMW's new 7 Series, and the new RX350 from Lexus. These new models should help to improve volume and luxury gross margins.
At September 30 we had a 62-day supply of new vehicle inventory favorable to the industry at 72 days. At 62 days our day supply increased 14 days compared to the quarter a year ago resulting from a slowing of sales in September. Since June 30 we've managed our inventory down by 6,600 units ahead of our target for the second half of the year. We achieved this by adjusting our stocking levels and reallocating our own inventory among our stores to more accurate match consumer demand.
Turning to used vehicles, we retailed just over 45,000 used units in the quarter up 13% compared to a year ago. Contributing factors to the decline were significantly fewer vehicle appraisals and trade-ins due to lower new unit volume and the conservative credit environment. Same-store revenue per used vehicle retail was down 7% as consumer demand for value or lower-priced vehicles continued to trend upward. Truck pricing remained under pressure but began showing signs of improvement as gas prices started to drop.
Gross profit per used vehicle retailed was down 8% or $136 with used cars and trucks having approximately the same margin and each accounting for about half of the margin decline.
In the quarter we moved 6,600 used vehicles from originating stores to more optimal locations with good success at retail. We also grew our certified pre-owned business by 17% compared to the same period last year. It's clear that customers recognize the tremendous value of certified pre-owned vehicles and manufacturers are generally supporting them with strong incentive programs.
Our used day supply of 41 days at September 30 is two days lower than a year ago. Given the soft selling environment in September, we're pleased to keep our days supply in check.
At $609 million same-store revenue for service and parts was off 5% with gross profit off 6% at $264 million. The effect of the economic issues facing consumers impacted all facets of our service and parts business in the quarter as customers sat on their wallets. We continue to work at increasing customer pay business through our defined and measured service sales process, our online appointment program and aggressive service marketing.
Another example I'd like to share is that in May we began to sell our Value Care Program, a prepaid maintenance program in the service drive. The program has been well received. In fact in the third quarter we sold just over 4,000 plans. Initiatives such as these coupled with robust ongoing training will drive both customer retention and financial results.
Turning to finance and insurance, same-store revenue declined 21% on lower volume. Same-store F&I gross profit per vehicle retailed was $1,071 off $20 or 2% year-over-year. In this environment we're focused on the performance of our third and fourth quartile stores, improving cash opportunities from contracts and transit, and maximizing our existing preferred lender relationships. In the quarter we added two new lenders, one national and one regional; and we expanded the footprint of five existing lenders. Today we have 23 preferred lenders offering prime and subprime financing as well as leasing.
As I mentioned, our work to maximize our portfolio stores overall as well as within each segment is ongoing. During the quarter the bulk of our activity was within the domestic segment where we sold one store and terminated four stores. This activity represented an annual revenue run rate of $94 million. In September we proudly opened Mercedes Benz of Delray and Delray Beach, Florida. This is an add point and it's our 14th Mercedes Benz dealership. Of note, we sell over 8% of Mercedes Benz in the United States.
As the horizon remains challenging for the entire economy, operationally we're focused on heightened efficiency throughout the company from the execution of our best practices to tight management of costs, cash flow and inventories. In addition our commitment to the training and development of our associates remains steadfast. We will continue to take the necessary steps to align the size of our operations with consumer demand. And when the economy recovers, our intent is to emerge as an even stronger company.
In closing, I'd like to especially thank our associates in Texas and our emergency response team that had our stores operational in just 24 hours after Hurricane Ike struck in September. Finally, I'll thank all of our associates for their unwavering dedication to the company during what for many are unprecedented difficult times.
With that I'll turn the call back to Mike Jackson.
Mike J. Jackson
The collapse in auto sales compares with the peak to trough declines of 1973, 1981 and 1991 recessions. Mike Maroone and I have experienced these downturns before and we know how to manage the business through these tough times. We are operationally stronger today than ever before. We will continue to cut costs, redeploy our cash flow to debt reduction, remain committed to strategic investments that include training and technology, be smart on inventories, keep a strong balance sheet to position us opportunistically for when the industry reaches recovery.
As we look at the rest of 2008 we believe the market will remain extremely challenging. We also believe that in 2008 new vehicle sales for the industry will decline to the low 13 million unit level. While at this time it is hard to predict new vehicle sales for 2009, the most conservative industry forecasts are in the range of 12 million new vehicle units. Even at a 12 million unit sales rate, AutoNation will remain profitable and we are confident that we will remain in compliance with our debt covenants.
As previously stated, we are targeting a further $500 million of debt reduction including floor plan and new vehicle debt. AutoNation will continue to focus on our cost structure by continuing to invest in our business. We are confident in our long-term business strategy and our markets.
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About The Food Writing that Is Good Awards
It's called the Food Writing that Is Good Awards because that is a hilarious name. But it's not limited only to writing. Video, social media accounts, food blogs, humor, editing, restaurant criticism, anonymous food-related Twitter accounts and photos. Podcasts. What else? You tell me.
Most food awards are pay to play...pay an enormous entry fee, and then you just might be nominated. The Food Writing that Is Good Awards is pay to play, too, but with a twist. We're going to help hungry kids with your submission fees.
- Entry fees are minimum $1 donation to No Kid Hungry.
- If you have multiple entries, please make a minimum donation of $1 per entry to No Kid Hungry.
- Be cool. There's a little more detail below in the entry fee section.
- There are a fuck ton of prizes. They're very exciting. More on that later.
- Submit your entry by March 31 at midnight Eastern.
Entry Form
- A basket of beans from @RanchoGordo
- A signed copy of @kittenwithawhip's Hi, Anxiety book. I BET SHE WILL WRITE SOMETHING NICE TO YOU IN THE BOOK, TOO.
- A congratulatory selfie from @dcpatterson. This is a real prize.
- A hand-drawn picture from James Beard-nominated and good human @robicellis. Subject is winner's choice. She is good at drawing dongs.
- Ten submissions will receive editorial notes from @laylaschlack WHO IS A REAL EDITOR AND CAN HELP MAKE YOUR PIECE STRONGER. And then you can go sell your piece to a publication if that's what you feel like doing and that is a very good prize.
- Noted food writer/ editor/ sous vide-r @clairelizzie of @SkilletLH fame will personally donate a bottle of horseradish vodka.
- Someone will win @kenjilopezalt's The Food Lab cookbook with a specially signed bookplate...just for you.
- One winner will receive a specially packaged box of candy and a special note from @hels AND IT IS VERY FUN CANDY. I am told it will include Haribo.
- A copy of Appetites, a cookbook written by @LaurieWoolever and her co-author @Bourdain.
- @kasekaiserina is donating a signed copy of her book, The Art of the Cheese Plate. And a signed pair of panties. No joke.
- A signed copy of @domenicacooks' NON BEARD-NOMINATED but nevertheless wonderful latest book, Preserving Italy.
- One book, winner's choice, from @chroniclebooks (special thanks to @amybcleary)
- A bottle of wine courtesy @winejerk
- Ten soups from the fantastic @GoodStockSoups (special thanks to soupmaker, @thepaulhoa)
- A signed copy of @ciaosamin's new cookbook, Salt, Fat, Acid, Heat: Mastering the Elements of Good Cooking (which is fantastic).

subset: commoncrawl


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So now that the wedding is over, I've finally had some time to get back to basics. It feels really, really good to spend time working on the house and getting out to enjoy the fall. First order of business after the wedding? New haircut.
I honestly could not love the new bangs more. Even when I pull my hair up, it looks like I've at least put some thought into it. And luckily I didn't have any trouble training the new bangs to behave like I did last time I tried bangs. Here's another cute shot of Mom and I at Bethany Blues down the beach.
Just as an aside, this was right after a grammy-nominated blind man sniffed me and told me that I was a good hippy dippy girl....but that's another story for another time. In addition to new hair, I've felt the need to update my look, which has meant pinup eyeliner, bright lipstick, and bold prints.
Case in point:
Don't worry, not everything I own is feline print. Just happened to be in a mood this week. Also, notice the gay pride flag behind me in my cubicle from the parade? I'm pretty sure our company's president thinks that Alex is a girl. Funny, no?
Oh, and I also thrifted a great pair of gold Etienne Aignier shoes for $4! How fun is that?
In addition to getting myself ready for fall, I've also been working hard to get the house looking great. First and foremost, we've been trying to find time to mulch the yard for ages. It only took a few hours and two trips to Willey's, but it makes all the difference.
Now if only our sad grass would fill in. I think we have Harper to thank for that mess. Also, take a look at our cool, new solar lights courtesy of Carin and Daniel! They make a huge difference when we're coming home at night and for late night trips outside with the dog.
On the front steps, I had planted jedi salvia in my barrel planter, which promptly died in the heat wave over the summer. My mother-in-law gave me some mums to replace the dead stuff, and I added some festive scarecrows and a pumpkin. Very cute!
On Friday, I tried my hand at pumpkin carving. Although it didn't come out quite like it was supposed to, I used ModCloth's pug template and made this.
Unfortunately, her little face doesn't glow through like it is supposed to because the rind of the pumpkin is almost 2 inches thick, but I was very proud of my first attempt at pumpkin carving since the days I did it with my parents. I'm also starting to think I must have not helped too much with the actual cleaning out of the pumpkin, because that was SO much more of a pain in the ass than I remember...
Last, but not least, fall and nice weather has meant more trips to the bark park for Harper! Here's me with Harper's new friend Payton. She may be tiny, but at 3 pounds and 4 months old, she held her own at the park! Too cute.


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Nursing Institute in Delhi
Akansha Institute of nursing is affiliated to the DELHI Nursing Council (DNC), New Delhi and is one of the best institute for nursing Institute in Delhi.Delhi Nursing Council is Examining and Registration body for the nursing students at Akansha Institute. All nursing programmers are affiliated to Delhi Nursing Council.
The AKANSHA INSTITUTE of Nursing is licensed and accredited by the Indian Nursing Council (INC) and Ministry of Health & Family Welfare, govt of NCT of Delhi.
Nursing Institute in delhi – Nursing Course in delhi


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June 6, 2017, Troy, MI - Dart Appraisal today
announced that it has been named an approved Appraisal Management
Company (AMC) by Ditech Financial LLC ("Ditech"). Dart Appraisal
will immediately begin providing residential valuation services to
all of Ditech's mortgage origination channels.
In today's strict regulatory environment, lenders must conduct
meticulous due diligence before onboarding a new third-party
vendor. The selection of Dart Appraisal was made following a
rigorous vetting process of Dart Appraisal's infrastructure,
processes, capabilities and overall stability.
"We are incredibly proud to have been selected as an AMC by
Ditech," said Michael Dresden, President of Dart Appraisal. "Dart
Appraisal has the proven ability to excel in the marketplace,
supported by a strong commitment to customer service and the
technology to handle the business flow. We are excited about
working with Ditech, and look forward to building a long-term
© Copyright 2019 Dart Appraisal. All rights reserved. Created by Media Genesis.


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Hoax - 'Marijuana Overdoses Kill 37 in Colorado'
OutlineCirculating report claims that 37 people in Colorado died of marijuana overdoses on the first day that recreational marijuana use became legal in that state.
© Depositphotos.com/labrador
Brief AnalysisThe claims in the report are untrue. While the sale of marijuana was indeed made legal in Colorado on January 1, 2014, 37 people did not die from overdoses as claimed. The report comes from the satirical site the Daily Currant. All stories on the Daily Currant are fictional.
Marijuana Overdoses Kill 37 in Colorado On First Day of Legalization
Colorado is reconsidering its decision to legalize recreational pot following the deaths of dozens due to marijuana overdoses.
According to a report in the Rocky Mountain News, 37 people were killed across the state on January 1st, the first day the drug became legal for all adults to use. Several more are clinging onto life in local emergency rooms and are not expected to survive.
Detailed Analysis
According to a report that is currently gaining momentum via social media, 37 people have died of marijuana overdoses in Colorado. The report, which is designed to look like a news article, claims that the deaths occurred on the first day that recreational marijuana use became legal in Colorado. Supposedly, authorities are reconsidering the legalization in light of the deaths.
However, the claims in the message are untrue. No such deaths occurred. The report was first published on the satirical website, The Daily Currant. The Daily Currant is satirical in nature and none of the stories published on the site are true. The About page on the website notes:
The Daily Currant is an English language online satirical newspaper that covers global politics, business, technology, entertainment, science, health and mediaAnd an FAQ on the About page further explains:
Q. Are your news stories real?For the record, recreational use of marijuana has actually been legal in Colorado for people over 21 years of age since December 2012, when Amendment 64 went into effect. However, January 1st 2014 was the first day that marijuana could be legally sold via specially licensed stores in Colorado. A January 2 BBC article noted:
Our stories are purely fictional. However they are meant to address real-world issues through satire and often refer and link to real events happening in the world
Long queues have been seen as the world's first state-licensed marijuana industry opened for business in the US state of Colorado.
Hordes of customers braved bitter cold and snow at about two dozen outlets across the mountainous state.
Residents aged 21 and over can buy 1oz (28g), while those from out of the state can purchase up to 0.25oz.
Last updated: January 3, 2014
First published: January 3, 2014
By Brett M. Christensen
About Hoax-Slayer
Marijuana Overdoses Kill 37 in Colorado On First Day of Legalization
Daily Currant About
A Colorado marijuana guide: 64 answers to commonly asked questions
Colorado cannabis customers swarm as drug's sale goes legal


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2004 Elgo Estate Shiraz
Strathbogie Ranges, Victoria, AUSTRALIA
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- Cellar 3 - 4 years (2009-2010)
- Closure: Screw Cap
Opaque black crimson colour with black crimson hue. Lifted nose of vanilla, chocolate, spice and blackcurrant showing good varietal character. The palate flavour profile is 'joosy' with spice, plum and black pepper characteristics. Impressive length. Fine grained tannins. Spice, plum, liquorice aftertaste.
Cellar 3-4 years (2009-2010)
Alc/Vol: 14.5%