UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Quarterly Period Ended March 31, 2007
		or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Transition Period From ______________ to _______________

COMMISSION FILE NUMBER: 1-13107

AUTONATION, INC.

DELAWARE (STATE OF INCORPORATION)		73-1105145 (IRS EMPLOYER IDENTIFICATION NO.)
110 S.E. 6TH STREET FT. LAUDERDALE, FLORIDA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		33301 (ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 769-6000

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

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

Large accelerated filer		x		Accelerated filer		o		Non-accelerated filer		o

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

     On April 23, 2007 the registrant had 209,843,647 outstanding shares of common stock, par value $.01 per share.

 

 

AUTONATION, INC.

INDEX

				Page
		PART I. FINANCIAL INFORMATION
ITEM 1.		FINANCIAL STATEMENTS
		Unaudited Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006			3
		Unaudited Condensed Consolidated Income Statements for the Three Months Ended March 31, 2007 and 2006			4
		Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the Three Months Ended March 31, 2007			5
		Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006			6
		Notes to Unaudited Condensed Consolidated Financial Statements			7
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			18
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			35
ITEM 4.		CONTROLS AND PROCEDURES			36
		PART II. OTHER INFORMATION
ITEM 1A.		RISK FACTORS			37
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			37
ITEM 6.		EXHIBITS			38
EX-31.1 Certification of PEO
EX-31.2 Certification of PFO
EX-32.1 Certification of PEO
EX-32.2 Certification of PFO

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)

		March 31,				December 31,
		2007				2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	42.8			$	52.3
Receivables, net			658.4				807.9
Inventory			2,258.2				2,335.0
Other current assets			187.4				224.8
Total Current Assets			3,146.8				3,420.0
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $557.0 and $533.8, respectively			1,935.8				1,910.2
GOODWILL, NET			2,786.9				2,785.2
OTHER INTANGIBLE ASSETS, NET			316.7				317.2
OTHER ASSETS			179.7				174.4
Total Assets		$	8,365.9			$	8,607.0
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Vehicle floorplan payable — trade		$	1,735.2			$	2,010.7
Vehicle floorplan payable — non-trade			313.5				230.8
Accounts payable			243.3				210.3
Notes payable and current maturities of long-term obligations			20.1				13.6
Other current liabilities			506.1				565.1
Total Current Liabilities			2,818.2				3,030.5
LONG-TERM DEBT, NET OF CURRENT MATURITIES			1,354.4				1,557.9
DEFERRED INCOME TAXES			208.7				225.4
OTHER LIABILITIES			153.9				80.5
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS’ EQUITY:
Preferred stock, par value $.01 per share; 5,000,000 shares authorized; none issued			—				—
Common stock, par value $.01 per share; 1,500,000,000 shares authorized; 223,562,149 shares issued in each period including shares held in treasury			2.2				2.2
Additional paid-in capital			1,068.4				1,092.0
Retained earnings (Note 6)			3,065.0				2,989.4
Accumulated other comprehensive income (loss)			(.2	)			(.4	)
Treasury stock, at cost; 13,820,289 and 16,809,630 shares held, respectively			(304.7	)			(370.5	)
Total Shareholders’ Equity			3,830.7				3,712.7
Total Liabilities and Shareholders’ Equity		$	8,365.9			$	8,607.0

The accompanying notes are an integral part of these statements.

AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
(In millions, except per share data)

		Three Months Ended
		March 31,
		2007				2006
Revenue:
New vehicle		$	2,473.9			$	2,638.4
Used vehicle			1,095.1				1,119.0
Parts and service			660.0				645.3
Finance and insurance, net			149.1				149.6
Other			17.2				18.8
TOTAL REVENUE			4,395.3				4,571.1
Cost of Sales:
New vehicle			2,294.0				2,441.4
Used vehicle			989.8				1,006.3
Parts and service			371.8				361.3
Other			6.6				7.8
TOTAL COST OF SALES			3,662.2				3,816.8
Gross Profit:
New vehicle			179.9				197.0
Used vehicle			105.3				112.7
Parts and service			288.2				284.0
Finance and insurance			149.1				149.6
Other			10.6				11.0
TOTAL GROSS PROFIT			733.1				754.3
Selling, general & administrative expenses			524.4				532.7
Depreciation and amortization			21.3				19.4
OPERATING INCOME			187.4				202.2
Floorplan interest expense			(32.8	)			(31.2	)
Other interest expense			(26.5	)			(12.0	)
Interest income			.9				3.5
Other gains, net			.2				—
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			129.2				162.5
PROVISION FOR INCOME TAXES			46.3				64.5
NET INCOME FROM CONTINUING OPERATIONS			82.9				98.0
Loss from discontinued operations, net of income taxes			(5.3	)			(10.8	)
NET INCOME		$	77.6			$	87.2
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations		$	.40			$	.37
Discontinued operations		$	(.03	)		$	(.04	)
Net income		$	.37			$	.33
Weighted average common shares outstanding			208.1				262.8
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations		$	.39			$	.37
Discontinued operations		$	(.03	)		$	(.04	)
Net income		$	.37			$	.33
Weighted average common shares outstanding			210.7				267.4
COMMON SHARES OUTSTANDING, net of treasury stock			209.7				264.5

The accompanying notes are an integral part of these statements.

AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(In millions, except share data)

																		Accumulated
																		Other
										Additional								Compre-
		Common Stock								Paid-In				Retained				hensive				Treasury
		Shares				Amount				Capital				Earnings				(Loss)				Stock				Total
BALANCE AT DECEMBER 31, 2006			223,562,149			$	2.2			$	1,092.0			$	2,989.4			$	(.4	)		$	(370.5	)		$	3,712.7
Cumulative effect of change in accounting for uncertainties in income taxes (FIN 48 — Note 6)			—				—				—				(2.0	)			—				—				(2.0	)
Exercise of stock options, including income tax benefit of $13.4 million			—				—				(26.6	)			—				—				116.1				89.5
Stock option expense			—				—				3.0				—				—				—				3.0
Other comprehensive income			—				—				—				—				.2				—				.2
Purchases of treasury stock			—				—				—				—				—				(50.3	)			(50.3	)
Net income			—				—				—				77.6				—				—				77.6
BALANCE AT MARCH 31, 2007			223,562,149			$	2.2			$	1,068.4			$	3,065.0			$	(.2	)		$	(304.7	)		$	3,830.7

The accompanying notes are an integral part of these statements.

AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

		Three Months Ended
		March 31,
		2007				2006
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income		$	77.6			$	87.2
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations			5.3				10.8
Depreciation and amortization			21.3				19.4
Amortization of debt issue costs and discounts			.9				1.0
Stock option expense			3.0				4.5
Income taxes			35.1				57.4
Other			—				.1
Changes in assets and liabilities, net of effects from business combinations and divestitures:
Receivables			120.5				102.8
Inventory			76.8				(12.5	)
Other assets			(4.3	)			(10.3	)
Vehicle floorplan payable, trade — net			(272.0	)			(122.1	)
Accounts payable			33.0				35.1
Other liabilities			4.6				(91.9	)
Net cash provided by continuing operations			101.8				81.5
Net cash provided by discontinued operations			4.9				1.9
Net cash provided by operating activities			106.7				83.4
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment			(42.4	)			(19.8	)
Proceeds from the sale of property and equipment			—				.5
Cash used in business acquisitions, net of cash acquired			—				(67.4	)
Net change in restricted cash			3.6				(.4	)
Purchases of restricted investments			(5.3	)			(3.4	)
Proceeds from the sales of restricted investments			3.2				4.8
Cash received from business divestitures, net of cash relinquished			10.1				2.6
Other			(.2	)			(.2	)
Net cash used in continuing operations			(31.0	)			(83.3	)
Net cash used in discontinued operations			(.8	)			(.1	)
Net cash used in investing activities			(31.8	)			(83.4	)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Purchases of treasury stock			(50.3	)			—
Proceeds from revolving credit facility			80.0				—
Payment of revolving credit facility			(275.0	)			—
Net proceeds (payments) of vehicle floor plan — non-trade			79.2				(23.0	)
Payments of mortgage facilities			(1.1	)			(1.4	)
Payments of notes payable and long-term debt			(1.4	)			(.7	)
Proceeds from the exercise of stock options			76.1				32.3
Tax benefit from stock options			13.4				6.7
Other			(.1	)			(.2	)
Net cash provided by (used in) continuing operations			(79.2	)			13.7
Net cash used in discontinued operations			(5.2	)			(1.5	)
Net cash provided by (used in) financing activities			(84.4	)			12.2
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(9.5	)			12.2
CASH AND CASH EQUIVALENTS at beginning of period			52.3				245.9
CASH AND CASH EQUIVALENTS at end of period		$	42.8			$	258.1

The accompanying notes are an integral part of these statements.

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share and per share data.)

1. Interim Financial Statements

Business and Basis of Presentation

     AutoNation, Inc. (the “Company”), through its subsidiaries, is the largest automotive retailer in the United States. As of March 31, 2007, the Company owned and operated 327 new vehicle franchises from 254 stores located in major metropolitan markets, predominantly in the Sunbelt region of the United States. The Company offers 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. The Company also arranges financing for vehicle purchases through third-party finance sources.

     The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of AutoNation, Inc. and its subsidiaries; all significant intercompany accounts and transactions have been eliminated. The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information related to the Company’s organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States has been condensed or omitted. These Unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state, in all material respects, the financial position and the results of operations of the Company for the periods presented.

     The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates made by the Company in the accompanying Unaudited Condensed Consolidated Financial Statements include allowances for doubtful accounts, accruals for chargebacks against revenue recognized from the sale of finance and insurance products, certain assumptions related to goodwill and other intangible, long-lived assets and accruals related to self-insurance programs, certain legal proceedings, estimated tax liabilities, estimated losses from disposals of discontinued operations and certain assumptions related to stock option compensation.

     Operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K.

     Certain amounts have been reclassified from the previously reported financial statements to conform with the income statement presentation of the current period.

New Accounting Pronouncements

     As of January 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109, Accounting for Income Taxes” (“FIN 48”). See Note 6, Income Taxes, of Notes to Unaudited Condensed Consolidated Financial Statements for discussion.

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

     In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value and applies to other accounting pronouncements that require or permit fair value measurements and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting SFAS No. 157 on its Consolidated Financial Statements.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities — Including an Amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to choose to measure certain financial assets and liabilities at fair value. Unrealized gains and losses, arising subsequent to adoption, are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No. 159, if elected, on its Consolidated Financial Statements.

2. Receivables, Net

     The components of receivables, net of allowance for doubtful accounts, are as follows:

		March 31,				December 31,
		2007				2006
Trade receivables		$	91.4			$	89.1
Manufacturer receivables			131.2				160.2
Other			80.4				102.6
			303.0				351.9
Less: Allowances			(6.1	)			(6.4	)
			296.9				345.5
Contracts-in-transit and vehicle receivables			361.5				433.5
Income tax refundable (See Note 6)			—				28.9
Receivables, net		$	658.4			$	807.9

     Contracts-in-transit and vehicle receivables primarily represent receivables from financial institutions for the portion of the vehicle sales price financed by the Company’s customers.

3. Inventory and Vehicle Floorplan Payable

     The components of inventory are as follows:

		March 31,				December 31,
		2007				2006
New vehicles		$	1,765.2			$	1,880.6
Used vehicles			344.0				303.8
Parts, accessories and other			149.0				150.6
		$	2,258.2			$	2,335.0

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

     At March 31, 2007 and December 31, 2006, vehicle floorplan payable-trade totaled $1.7 billion and $2.0 billion, respectively. Vehicle floorplan payable-trade reflects amounts borrowed to finance the purchase of specific vehicle inventories with the corresponding manufacturers’ captive finance subsidiaries (“trade lenders”). Vehicle floorplan payable-non-trade totaled $313.5 million and $230.8 million at March 31, 2007 and December 31, 2006, respectively, and represents amounts borrowed to finance the purchase of specific vehicle inventories with non-trade lenders. On November 30, 2006, General Motors (“GM”) completed the sale of a majority stake in General Motors Acceptance Corporation (“GMAC”), which was GM’s wholly-owned captive finance subsidiary prior to this transaction. GMAC will remain the exclusive provider of GM-sponsored auto finance programs and is expected to continue to provide GM dealers and their customers with the same financial products and services which were in place with the Company before the sale. As a result of this sale, the Company has treated new vehicles financed after the change in GMAC control (totaling $219.2 million and $136.2 million at March 31, 2007 and December 31, 2006, respectively) as vehicle floorplan non-trade. Vehicles financed by GMAC prior to this transaction continue to be classified as vehicle floorplan-trade. Changes in vehicle floorplan payable-trade are reported as operating cash flows and changes in vehicle floorplan-non-trade are reported as financing cash flows in the accompanying Unaudited Condensed Consolidated Statements of Cash Flows.

     The Company’s floorplan facilities, which utilize LIBOR-based interest rates, averaged 6.3% and 5.8% for the three months ended March 31, 2007 and 2006, respectively. Floorplan facilities are used to finance new vehicle inventories and the amounts outstanding thereunder are due on demand, but are generally paid within several business days after the related vehicles are sold. Floorplan facilities are primarily collateralized by new vehicle inventories and related receivables. The Company’s manufacturer agreements generally require the manufacturer to have the ability to draft against the floorplan facilities so the floorplan lender directly funds the manufacturer for the purchase of inventory. The floorplan facilities contain certain operational covenants. At March 31, 2007, the Company was in compliance with such covenants in all material respects. At March 31, 2007, aggregate capacity under the floorplan credit facilities to finance new vehicles was approximately $3.6 billion, of which $2.0 billion total was outstanding.

4. Goodwill and Intangible Assets

     Intangible assets, net, consist of the following:

		March 31,				December 31,
		2007				2006
Goodwill		$	3,052.7			$	3,051.0
Less: accumulated amortization			(265.8	)			(265.8	)
Goodwill, net		$	2,786.9			$	2,785.2
Franchise rights — indefinite-lived		$	312.5			$	312.4
Other intangibles			7.9				7.9
			320.4				320.3
Less: accumulated amortization			(3.7	)			(3.1	)
Other intangibles, net		$	316.7			$	317.2

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

     The Company completed impairment tests as of June 30, 2006 for goodwill and intangibles with indefinite lives. The goodwill test includes determining the estimated fair value of the Company’s single reporting unit and comparing it to the carrying value of the net assets allocated to the reporting unit. The Company’s principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers. The test for intangibles with indefinite lives requires the comparison of estimated fair value to its carrying value by store. No impairment charges resulted from the required impairment tests. Goodwill and intangibles with indefinite lives are tested for impairment annually at June 30 or more frequently when events or circumstances indicate that an impairment may have occurred.

5. Notes Payable and Long-term Debt

     Notes payable and long-term debt consist of the following:

		March 31,				December 31,
		2007				2006
Floating rate senior unsecured notes		$	300.0			$	300.0
7% senior unsecured notes			300.0				300.0
Term loan facility			600.0				600.0
Revolving credit facility			—				195.0
9% senior unsecured notes			14.1				14.1
Mortgage facility			114.9				116.0
Other debt			45.5				46.4
			1,374.5				1,571.5
Less: current maturities			(20.1	)			(13.6	)
Long-term debt, net of current maturities		$	1,354.4			$	1,557.9

     The Company has $300.0 million of floating rate senior unsecured notes due April 15, 2013 and $300.0 million of 7% senior unsecured notes due April 15, 2014 (“Senior Notes”), in each case at par, which are guaranteed by substantially all of the Company’s subsidiaries. The floating rate senior unsecured notes bear interest at a rate equal to three-month LIBOR plus 2.0% per annum, adjusted quarterly, and may be redeemed by the Company on or after April 15, 2008 at 103% of principal, on or after April 15, 2009 at 102% of principal, on or after April 15, 2010 at 101% of principal and on or after April 15, 2011 at 100% of principal. The 7% senior unsecured notes may be redeemed by the Company on or after April 15, 2009 at 105.25% of principal, on or after April 15, 2010 at 103.5% of principal, on or after April 15, 2011 at 101.75% of principal and on or after April 15, 2012 at 100% of principal.

     The Company has a credit agreement that provides for: (1) a $700.0 million revolving credit facility with interest rates on borrowings generally at LIBOR plus .80%, and (2) a $600.0 million term loan facility that bears interest at a rate equal to LIBOR plus 1.25%. The credit agreement terminates on July 14, 2010, and is guaranteed by substantially all of the Company’s subsidiaries. The credit spread charged for the revolving credit facility is impacted by the Company’s senior unsecured credit ratings. The Company has negotiated a letter of credit sublimit as part of its revolving credit facility. The amount available to be borrowed under the revolving credit facility is reduced on a dollar-for-dollar basis by the cumulative amount of any outstanding letters of credit, which totaled $91.0 million at March 31, 2007.

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

     The Company also has $14.1 million of 9% senior unsecured notes, due August 1, 2008 at par, which are guaranteed by substantially all of the Company’s subsidiaries. As of April 12, 2006, covenants related to the 9% senior unsecured notes were substantially eliminated as a result of a consent solicitation. The remaining aggregate principal amount of 9% senior unsecured notes was not tendered for purchase and, accordingly, remains outstanding.

     At March 31, 2007, the Company had $114.9 million outstanding under a mortgage facility with an automotive manufacturer’s captive finance subsidiary. The facility, which utilizes LIBOR-based interest rates, averaged 6.7% and 5.9% for the three months ended March 31, 2007 and 2006, respectively. The mortgage facility is secured by mortgages on certain of the Company’s store properties.

     The Company’s Senior Notes, credit agreement and mortgage facility contain numerous customary financial and operating covenants that place significant restrictions on the Company, including the Company’s ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell (or otherwise dispose of) assets and merge or consolidate with other entities. The indenture for the Company’s Senior Notes restricts the Company’s ability to make payments in connection with share repurchases, dividends, debt retirement, investments and similar matters to a cumulative aggregate amount that is limited to $500 million plus 50% of the Company’s cumulative consolidated net income (as defined in the indenture), subject to certain exceptions and conditions set forth in the indenture. The credit agreement requires the Company to meet certain financial ratios, including financial covenants, as defined, requiring the maintenance of a maximum consolidated cash flow leverage ratio, as defined, (2.75 times) and a maximum capitalization ratio (65%), as defined. In addition, the indenture for the Senior Notes contains a debt incurrence restriction based on a minimum fixed charge coverage ratio (2:1), and the mortgage facility contains covenants regarding maximum cash flow leverage and minimum interest coverage. In the event that the Company were to default in the observance or performance of any of the financial covenants in the credit agreement or mortgage facility and such default were to continue beyond any cure period or waiver, the lender under the respective facility could elect to terminate the facilities and declare all outstanding obligations under such facilities immediately payable. The Company’s credit agreement, the indenture for the Company’s Senior Notes, vehicle floorplan payable facilities and mortgage facility have cross-default provisions that trigger a default in the event of an uncured default under other material indebtedness of the Company. As of March 31, 2007, the Company was in compliance with the requirements of all applicable financial and operating covenants.

     The Company’s senior notes and borrowings under the credit agreement are guaranteed by substantially all of the Company’s subsidiaries. Within the meaning of Regulation S-X, Rule 3-10, AutoNation, Inc. (the parent company) has no independent assets or operations, the guarantees of its subsidiaries are full and unconditional and joint and several, and any subsidiaries other than the guarantor subsidiaries are minor.

     In the event of a downgrade in the Company’s credit ratings, none of the covenants described above would be impacted. In addition, availability under the credit agreement described above would not be impacted should a downgrade in the senior unsecured debt credit ratings occur. Certain covenants in the indenture for the Senior Notes would be eliminated with an upgrade of the Company’s Senior Notes to investment grade by either Standard & Poor’s or Moody’s Investors Service.

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

6. Income Taxes

     At March 31, 2007, income taxes payable included in Other Current Liabilities totaled $11.3 million. At December 31, 2006, income taxes refundable included in Accounts Receivable totaled $28.9 million.

     The Company files income tax returns in the U.S. federal jurisdiction and various states. As a matter of course, various taxing authorities, including the IRS, regularly audit the Company. Currently, the IRS is auditing the tax years from 2002 to 2004. These audits may result in proposed assessments where the ultimate resolution may result in the Company owing additional taxes. The Company believes that its tax positions comply with applicable tax law and that it has adequately provided for these matters. Generally, the Company is no longer subject to income tax examinations by tax authorities for tax years beginning before 2002 in most major taxing jurisdictions.

     The Company adopted the provisions of FIN 48 on January 1, 2007. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation of FIN 48, the Company recognized an increase of approximately $2.0 million (net of tax effect) in the liability for unrecognized tax benefits which was accounted for as a reduction to the January 1, 2007 balance of retained earnings.

     As of January 1, 2007, the Company had $84.8 million of unrecognized tax benefits, of which $58.2 million (net of tax effect) could ultimately reduce the Company’s effective tax rate.

     During the twelve months beginning April 1, 2007, the Company expects to reduce its unrecognized tax benefits by less than $1.0 million (net of tax effect) as a result of settlements reached with certain state tax authorities and/or the expiration of certain statutes of limitations. During the quarter ended March 31, 2007, the Company recognized a $5.1 million benefit (net of tax effect) related to the resolution of certain tax matters and other adjustments.

     It is the Company’s continuing policy to account for interest and penalties associated with income tax obligations as a component of income tax expense. The Company recognized $0.8 million (net of tax effect) of interest and no penalties as provision for income taxes in the Unaudited Condensed Consolidated Income Statements during the three months ended March 31, 2007.

7. Shareholders’ Equity

     The Company repurchased 2.3 million shares of its common stock for an aggregate purchase price of $50.3 million (average purchase price per share of $21.88) during the three months ended March 31, 2007, leaving approximately $42.1 million available for share repurchases authorized by the Company’s Board of Directors as of March 31, 2007. In April 2007, the Company’s Board of Directors authorized an additional $500.0 million share repurchase program. Future share repurchases are subject to limitations contained in the indenture relating to the Company’s Senior Notes. The Company made no repurchases of its common stock during the first quarter of 2006.

     During the three months ended March 31, 2007 and 2006, the Company issued 5.3 million and 2.3 million shares of common stock in connection with the exercise of stock options, the proceeds from which were $76.1 million (average per share $14.40) and $32.3 (average per share $14.25) million, respectively.

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

8. Earnings (Loss) Per Share

     Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share are based on the combined weighted-average number of common shares and common share equivalents outstanding, which includes, where appropriate, the assumed exercise of dilutive options.

     The computation of weighted-average common and common equivalent shares used in the calculation of basic and diluted earnings per share is as follows:

		Three Months Ended March 31,
		2007				2006
Weighted average shares outstanding used in calculating basic earnings per share			208.1				262.8
Effect of dilutive options			2.6				4.6
Weighted average common and common equivalent shares used in calculating diluted earnings per share			210.7				267.4

     In April 2006, the Company purchased 50 million shares of its common stock pursuant to an equity tender offer.

     At March 31, 2007 and 2006, the Company had approximately 14.1 million and 25.8 million stock options outstanding, respectively.

9. Stock Options

     The Company has various stock option plans under which options to purchase shares of common stock may be granted to key employees and directors of the Company. Upon exercise, shares of common stock are issued from the Company’s treasury stock. Options granted under the plans are non-qualified and are granted at a price equal to or above the closing price of the common stock on the trading day immediately prior to the date of grant. Generally, employee stock options have a term of 10 years from the date of grant and vest in increments of 25% per year over a four-year period on the yearly anniversary of the grant date. Director stock options have a term of 10 years from the date of grant and vest immediately upon grant.

     The following table summarizes the impact to compensation expense (included in Selling, General and Administrative expenses in the 2006 Unaudited Condensed Consolidated Income Statement) attributable to stock options granted or vested subsequent to December 31, 2005:

		Three Months
		Ended March 31,
		2007				2006
Pre-tax expense		$	3.0			$	4.5
After-tax expense		$	1.9			$	2.7

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

     A summary of stock option activity is as follows for the three months ended March 31, 2007:

										Weighted-
										Average
						Weighted-				Remaining				Aggregate
						Average				Contractual				Intrinsic
		Shares				Exercise				Term				Value
		(in millions)				Price				(Years)				(in millions)
Options outstanding at beginning of period			22.5			$	17.01
Granted			.2			$	21.56
Exercised			(5.3	)		$	14.40
Forfeited			(.1	)		$	19.52
Expired			(3.2	)		$	25.81
Options outstanding at end of period			14.1			$	16.02				5.8			$	73.5
Options exercisable at end of period			9.0			$	13.94				4.3			$	65.7
Options available for future grants			14.0

     In February 2007, the Company’s Board of Directors approved a new director stock option plan for its non-employee directors. The new plan replaces the Company’s 1995 non-employee director stock option plan, which has terminated (except with respect to previously granted stock options). The new plan, under which options to purchase up to 2.0 million shares of common stock may be granted, is subject to stockholder approval at the Company’s annual meeting of stockholders to be held in May 2007. Under the plan, an aggregate 176,768 options will automatically be granted to non-employee directors on the date the plan is approved by stockholders. In future years, annual automatic grants of 20,000 options to each non-employee director will be made on the first business day of each calendar year that the plan is in effect.

     The total intrinsic value (which equals the spread between the market value of the stock and the exercise price) of stock options exercised was $41.1 million and $17.5 million during the three months ended March 31, 2007 and 2006, respectively. As of March 31, 2007, there was $28.6 million of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a period of four years.

10. Comprehensive Income

     Comprehensive income (loss) is as follows:

		Three Months
		Ended March 31,
		2007				2006
Net Income		$	77.6			$	87.2
Other comprehensive gain (loss)			.2				(1.7	)
Comprehensive income		$	77.8			$	85.5

11. Acquisitions

     The Company did not acquire any automotive retail franchises during the three months ended March 31, 2007. The Company acquired one automotive retail franchise and other related assets during the three months ended March 31, 2006. Additionally, the Company also signed a separate agreement in January 2006 to acquire certain rights to establish a new Mercedes-Benz dealership. Acquisitions are included in the Unaudited Condensed Consolidated Financial Statements from the date of acquisition.

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

12. Commitments and Contingencies

Legal Proceedings

     The Company is involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of its business, including litigation with customers, employment related lawsuits, class actions, purported class actions and actions brought by governmental authorities.

     The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on its financial condition, results of operations and cash flows.

Other Matters

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

     From time to time, primarily in connection with dispositions of automotive stores, the Company’s subsidiaries assign or sublet to the dealership purchaser the subsidiaries’ interests in any real property leases associated with such stores. In general, the Company’s subsidiaries retain responsibility for the performance of certain obligations under such leases to the extent that the assignee or sublessee does not perform, whether such performance is required prior to or following the assignment or subletting of the lease. Additionally, the Company and its subsidiaries generally remain subject to the terms of any guarantees made by the Company and its subsidiaries in connection with such leases. Although the Company generally has indemnification rights against the assignee or sublessee in the event of non-performance under these leases, as well as certain defenses, and the Company presently has no reason to believe that it or its subsidiaries will be called on to perform under any such assigned leases or subleases, the Company estimates that lessee rental payment obligations during the remaining terms of these leases are approximately $93 million at March 31, 2007. The Company and its subsidiaries also may be called on to perform other obligations under these leases, such as environmental remediation of the leased premises or repair of the leased premises upon termination of the lease, although the Company presently has no reason to believe that it or its subsidiaries will be called on to so perform and such obligations cannot be quantified at this time. The Company’s exposure under these leases is difficult to estimate and there can be no assurance that any performance of the Company or its subsidiaries required under these leases would not have a material adverse effect on the Company’s business, financial condition and cash flows.

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

     At March 31, 2007, surety bonds, letters of credit and cash deposits totaled $122.3 million, including $91.0 million of letters of credit. In the ordinary course of business, the Company is required to post performance and surety bonds, letters of credit, and/or cash deposits as financial guarantees of the Company’s performance. The Company does not currently provide cash collateral for outstanding letters of credit.

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

13. Discontinued Operations

     Discontinued operations are related to stores that were sold, that the Company has entered into an agreement to sell or for which the Company otherwise deems a proposed sales transaction to be probable, with no material changes expected. Generally, the sale of a store is completed within 60 to 90 days after the date of a sale agreement. The accompanying Unaudited Condensed Consolidated Financial Statements for all the periods presented have been adjusted to classify these stores as discontinued operations. Selected income statement data for the Company’s discontinued operations is as follows:

		Three Months Ended March 31,
		2007				2006
Total revenue		$	54.8			$	153.9
Pre-tax loss from discontinued operations		$	(1.6	)		$	(3.2	)
Pre-tax loss on disposal of discontinued operations			(1.5	)			(8.6	)
			(3.1	)			(11.8	)
Income tax (benefit) expense			2.2				(1.0	)
Loss from discontinued operations, net of income taxes		$	(5.3	)		$	(10.8	)

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

     A summary of the total assets and liabilities of discontinued operations included in Other Current Assets and Other Current Liabilities is as follows:

		March 31,				December 31,
		2007				2006
Inventory		$	26.7			$	47.7
Other current assets			8.4				13.5
Property and equipment, net			16.6				23.5
Goodwill			14.0				18.5
Other non-current assets			.2				.3
Total assets		$	65.9			$	103.5
Vehicle floorplan payable-trade		$	19.6			$	34.8
Vehicle floorplan payable-non-trade			2.6				7.8
Other current liabilities			7.3				10.7
Total liabilities		$	29.5			$	53.3

     Responsibility for the Company’s vehicle floorplan payable at the time of divestiture is assumed by the buyer. Cash received from business divestitures is net of vehicle floorplan payable assumed by the buyer.

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

     The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and notes thereto included under 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 with the income statement presentation of the current period.

OVERVIEW

     AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of March 31, 2007, we owned and operated 327 new vehicle franchises from 254 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 37 different brands of new vehicles. The core brands of vehicles that we sell are manufactured by Ford, General Motors, Daimler Chrysler, Toyota, Nissan, Honda 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, driving common processes and increasing productivity across all of our stores.

     For the three months ended March 31, 2007, new vehicle sales accounted for approximately 55% of our total revenue, but less than 25% of our total gross margin. Our parts and service and finance and insurance operations, while comprising less than 20% of total revenue for the three months ended March 31, 2007, contributed approximately 60% of our gross margin for the same period. 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, 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, fuel prices, credit availability, employment/unemployment rates, the number of consumers whose vehicle leases are expiring, and the length of consumer loans on existing vehicles. Increases in interest rates could significantly impact industry new vehicle sales and vehicle affordability, due to the direct relationship between higher rates and higher monthly loan payments, a critical factor for many vehicle buyers, and the impact higher 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 could be impacted adversely by significant increases in fuel prices.

     For the three months ended March 31, 2007 and 2006, we had net income from continuing operations of $82.9 million and $98.0 million, respectively, and diluted earnings per share of $.39 and $.37, respectively. First quarter 2007 results were positively affected by the accretive impact of share repurchases, including the $1.15 billion April 2006 share buyback, and certain tax adjustments, substantially offset by a decline in new vehicle sales especially in California and Florida, driven in part by weakness in the housing market and higher interest rates. The first quarter of 2007 was also impacted by increased new vehicle and finance and insurance revenue per vehicle sold and the impact of 2006 acquisitions. To the extent that we continue to see a soft housing market and higher interest rates, we anticipate that our sales trends will be adversely impacted. For 2007, we anticipate that the automotive retail market will remain challenging.

     We repurchased 2.3 million shares of our common stock for an aggregate purchase price of $50.3 million (average purchase price per share of $21.88) during the three months ended March 31, 2007. There was approximately $42.1 million available for share repurchases authorized by our Board of Directors as of March 31, 2007. In April 2007, our Board of Directors authorized an additional $500.0 million share repurchase program. Future share repurchases are subject to limitations contained in the indenture relating to our senior notes. See further discussion under the heading “Financial Condition.” During the three months ended March 31, 2007, 5.3 million shares of our common stock were issued upon the exercise of stock options, resulting in proceeds of $76.1 million (average per share of $14.40).

     For the three months ended March 31, 2007 and 2006, we had a loss from discontinued operations totaling $5.3 million and $10.8 million, respectively, net of income taxes. Certain amounts reflected in the accompanying Unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2007 and 2006, have been adjusted to classify the results of these stores as discontinued operations.

Reported Operating Data

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

($ in millions, except per vehicle data)
		Three Months Ended March 31,
										Variance
										Favorable/				%
		2007				2006				(Unfavorable)				Variance
Revenue:
New vehicle		$	2,473.9			$	2,638.4			$	(164.5	)			(6.2	)
Used vehicle			1,095.1				1,119.0				(23.9	)			(2.1	)
Parts and service			660.0				645.3				14.7				2.3
Finance and insurance, net			149.1				149.6				(.5	)			(.3	)
Other			17.2				18.8				(1.6	)
Total revenue		$	4,395.3			$	4,571.1			$	(175.8	)			(3.8	)
Gross profit:
New vehicle		$	179.9			$	197.0			$	(17.1	)			(8.7	)
Used vehicle			105.3				112.7				(7.4	)			(6.6	)
Parts and service			288.2				284.0				4.2				1.5
Finance and insurance			149.1				149.6				(.5	)			(.3	)
Other			10.6				11.0				(.4	)
Total gross profit			733.1				754.3				(21.2	)			(2.8	)
Selling, general & administrative expenses			524.4				532.7				8.3				1.6
Depreciation and amortization			21.3				19.4				(1.9	)
Operating income			187.4				202.2				(14.8	)			(7.3	)
Floorplan interest expense			(32.8	)			(31.2	)			(1.6	)
Other interest expense			(26.5	)			(12.0	)			(14.5	)
Interest income			.9				3.5				(2.6	)
Other gains, net			.2				—				.2
Income from continuing operations before income taxes		$	129.2			$	162.5			$	(33.3	)			(20.5	)
Retail vehicle unit sales:
New vehicle			79,894				87,464				(7,570	)			(8.7	)
Used vehicle			54,500				56,676				(2,176	)			(3.8	)
			134,394				144,140				(9,746	)			(6.8	)
Revenue per vehicle retailed:
New vehicle		$	30,965			$	30,166			$	799				2.6
Used vehicle		$	16,251			$	15,961			$	290				1.8
Gross profit per vehicle retailed:
New vehicle		$	2,252			$	2,252			$	—				—
Used vehicle		$	1,881			$	1,944			$	(63	)			(3.2	)
Finance and insurance		$	1,109			$	1,038			$	71				6.8

		Three Months Ended
		March 31,
		2007				2006
Revenue mix percentages:
New vehicle			56.3				57.7
Used vehicle			24.9				24.5
Parts and service			15.0				14.1
Finance and insurance, net			3.4				3.3
Other			.4				.4
Total			100.0				100.0
Gross profit mix percentages:
New vehicle			24.5				26.1
Used vehicle			14.4				14.9
Parts and service			39.3				37.7
Finance and insurance			20.3				19.8
Other			1.5				1.5
Total			100.0				100.0
Operating items as a percentage of revenue:
Gross profit:
New vehicle			7.3				7.5
Used vehicle — retail			11.6				12.2
Parts and service			43.7				44.0
Total			16.7				16.5
Selling, general and administrative expenses			11.9				11.7
Operating income			4.3				4.4
Other operating items as a percentage of total gross profit:
Selling, general and administrative expenses			71.5				70.6
Operating income			25.6				26.8

		March 31,
		2007				2006
Days supply:
New vehicle (industry standard of selling days, including fleet)		52 days				54 days
Used vehicle (trailing 30 days)		38 days				41 days

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

		Three Months Ended March 31,
		2007				2006				Variance
($ in millions)
Floorplan assistance		$	24.9			$	26.2			$	(1.3	)
Floorplan interest expense			(32.8	)			(31.2	)			(1.6	)
Net inventory carrying cost		$	(7.9	)		$	(5.0	)		$	(2.9	)

Same Store Operating Data

     We have presented below our operating results on a same store basis to reflect our internal performance. Same store operating results include the results of stores for identical months in both years included in the comparison, starting with the first month of ownership or operation.

($ in millions, except per vehicle data)
		Three Months Ended March 31,
										Variance
										Favorable/				%
		2007				2006				(Unfavorable)				Variance
Revenue:
New vehicle		$	2,436.3			$	2,638.4			$	(202.1	)			(7.7	)
Used vehicle			1,078.0				1,118.4				(40.4	)			(3.6	)
Parts and service			649.5				645.3				4.2				.7
Finance and insurance, net			149.1				149.6				(.5	)			(.3	)
Other			7.0				7.2				(.2	)
Total revenue		$	4,319.9			$	4,558.9			$	(239.0	)			(5.2	)
Gross profit:
New vehicle		$	176.5			$	197.0			$	(20.5	)			(10.4	)
Used vehicle			103.8				112.2				(8.4	)			(7.5	)
Parts and service			282.7				283.3				(.6	)			(.2	)
Finance and insurance			149.1				149.6				(.5	)			(.3	)
Other			6.7				6.5				.2
Total gross profit			718.8				748.6				(29.8	)			(4.0	)
Retail vehicle unit sales:
New vehicle			79,156				87,464				(8,308	)			(9.5	)
Used vehicle			54,189				56,676				(2,487	)			(4.4	)
			133,345				144,140				(10,795	)			(7.5	)
Revenue per vehicle retailed:
New vehicle		$	30,778			$	30,166			$	612				2.0
Used vehicle		$	16,156			$	15,961			$	195				1.2
Gross profit per vehicle retailed:
New vehicle		$	2,230			$	2,252			$	(22	)			(1.0	)
Used vehicle		$	1,877			$	1,944			$	(67	)			(3.4	)
Finance and insurance		$	1,118			$	1,038			$	80				7.7

		Three Months Ended
		March 31,
		% 2007				% 2006
Revenue mix percentages:
New vehicle			56.4				57.9
Used vehicle			25.0				24.5
Parts and service			15.0				14.2
Finance and insurance, net			3.5				3.3
Other			.1				.1
Total			100.0				100.0
Gross profit mix percentages:
New vehicle			24.6				26.3
Used vehicle			14.4				15.0
Parts and service			39.3				37.8
Finance and insurance			20.7				20.0
Other			1.0				.9
Total			100.0				100.0
Operating items as a percentage of revenue:
Gross profit:
New vehicle			7.2				7.5
Used vehicle — retail			11.6				12.2
Parts and service			43.5				43.9
Total			16.6				16.4

New Vehicle

($ in millions, except per vehicle data)
		Three Months Ended March 31,
										Variance
										Favorable/				%
		2007				2006				(Unfavorable)				Variance
Reported:
Revenue		$	2,473.9			$	2,638.4			$	(164.5	)			(6.2	)
Gross profit		$	179.9			$	197.0			$	(17.1	)			(8.7	)
Retail vehicle unit sales			79,894				87,464				(7,570	)			(8.7	)
Revenue per vehicle retailed		$	30,965			$	30,166			$	799				2.6
Gross profit per vehicle retailed		$	2,252			$	2,252			$	—				—
Gross profit as a percentage of revenue			7.3	%			7.5	%
Days supply (industry standard of selling days, including fleet)		52 days				54 days
Same Store:
Revenue		$	2,436.3			$	2,638.4			$	(202.1	)			(7.7	)
Gross profit		$	176.5			$	197.0			$	(20.5	)			(10.4	)
Retail vehicle unit sales			79,156				87,464				(8,308	)			(9.5	)
Revenue per vehicle retailed		$	30,778			$	30,166			$	612				2.0
Gross profit per vehicle retailed		$	2,230			$	2,252			$	(22	)			(1.0	)
Gross profit as a percentage of revenue			7.2	%			7.5	%

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

		Three Months Ended March 31,
		2007				2006				Variance
($ in millions)
Floorplan assistance		$	24.9			$	26.2			$	(1.3	)
Floorplan interest expense			(32.8	)			(31.2	)			(1.6	)
Net inventory carrying cost		$	(7.9	)		$	(5.0	)		$	(2.9	)

     Reported new vehicle performance for the three months ended March 31, 2007 benefited from the impact of 2006 acquisitions when compared to same store performance.

     Same store new vehicle revenue for the three months ended March 31, 2007 decreased compared to the same period in 2006 primarily as a result of a decrease in same store unit volume, particularly in California and Florida, driven in part by weakness in the housing market and higher interest rates. To the extent that we continue to see a soft housing market and higher interest rates, we anticipate that our sales trends will be adversely impacted. Additionally, we continued to see a decline in sales of domestic brands in our markets, which we expect to continue. 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 from domestic brands to volume import and premium luxury brands.

     Same store gross profit per vehicle retailed and gross profit as a percentage of revenue decreased as a result of a challenging retail environment, partially offset by the shift in our sales mix to more premium luxury brands.

     At March 31, 2007, our new vehicle inventories were at $1.8 billion or 52 days compared to new vehicle inventories of $1.9 billion or 51 days supply at December 31, 2006.

     The net inventory carrying cost (floorplan interest expense net of floorplan assistance from manufacturers) for the three months ended March 31, 2007 was $7.9 million, an increase of $2.9 million compared to the same period in 2006.

Used Vehicle

($ in millions, except per vehicle data)
		Three Months Ended March 31,
										Variance
										Favorable/				%
		2007				2006				(Unfavorable)				Variance
Reported:
Retail revenue		$	885.7			$	904.6			$	(18.9	)			(2.1	)
Wholesale revenue			209.4				214.4				(5.0	)			(2.3	)
Total revenue		$	1,095.1			$	1,119.0			$	(23.9	)			(2.1	)
Retail gross profit		$	102.5			$	110.2			$	(7.7	)			(7.0	)
Wholesale gross profit			2.8				2.5				0.3
Total gross profit		$	105.3			$	112.7			$	(7.4	)			(6.6	)
Retail vehicle unit sales			54,500				56,676				(2,176	)			(3.8	)
Revenue per vehicle retailed		$	16,251			$	15,961			$	290				1.8
Gross profit per vehicle retailed		$	1,881			$	1,944			$	(63	)			(3.2	)
Gross profit as a percentage of revenue			11.6	%			12.2	%
Days supply (trailing 30 days)		38 days				41 days
Same Store:
Retail revenue		$	875.5			$	904.6			$	(29.1	)			(3.2	)
Wholesale revenue			202.5				213.8				(11.3	)			(5.3	)
Total revenue		$	1,078.0			$	1,118.4			$	(40.4	)			(3.6	)
Retail gross profit		$	101.7			$	110.2			$	(8.5	)			(7.7	)
Wholesale gross profit			2.1				2.0				.1
Total gross profit		$	103.8			$	112.2			$	(8.4	)			(7.5	)
Retail vehicle unit sales			54,189				56,676				(2,487	)			(4.4	)
Revenue per vehicle retailed		$	16,156			$	15,961			$	195				1.2
Gross profit per vehicle retailed		$	1,877			$	1,944			$	(67	)			(3.4	)
Gross profit as a percentage of revenue			11.6	%			12.2	%

     Reported used vehicle performance for the three months ended March 31, 2007 benefited from the impact of 2006 acquisitions when compared to same store performance.

     Same store retail used vehicle revenue for the three months ended March 31, 2007 decreased compared to the same period in 2006 primarily as a result of a decrease in same store unit volume, partially offset by an increase in same store average revenue per unit retailed. Same store unit volume decreased as a result of a challenging retail environment, particularly in Florida. To the extent that we continue to see a soft housing market and higher interest rates, we anticipate that our sales trends will be adversely impacted. We also saw a decrease in used vehicle sales volumes in our domestic brand stores in our markets. Same store revenue per vehicle retailed for the three months ended March 31, 2007 increased due to a shift in our sales mix to import luxury vehicles. Same store retail gross profit per vehicle retailed for the three months ended March 31, 2007 decreased primarily as a result of an increase in the average cost of our used vehicle inventory.

     Used vehicle inventories were at $344.0 million or 38 days supply at March 31, 2007 compared to $303.8 million or 42 days supply at December 31, 2006.

Parts and Service

($ in millions, except per vehicle data)		Three Months Ended March 31,
										Variance
										Favorable/
		2007				2006				(Unfavorable)				% Variance
Reported:
Revenue		$	660.0			$	645.3			$	14.7				2.3
Gross profit		$	288.2			$	284.0			$	4.2				1.5
Gross profit as a percentage of revenue			43.7	%			44.0	%
Same Store:
Revenue		$	649.5			$	645.3			$	4.2				.7
Gross profit		$	282.7			$	283.3			$	(.6	)			(.2	)
Gross profit as a percentage of revenue			43.5	%			43.9	%