Penske Automotive Group Earnings 2020-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒

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

For the quarterly period ended March 31, 2020

☐

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

For the transition period from to

Commission file number 1-12297

Penske Automotive Group, Inc.

(Exact name of registrant as specified in its charter)


Delaware		22-3086739
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2555 Telegraph Road
Bloomfield Hills, Michigan		48302-0954
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(248) 648-2500

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Voting Common Stock, par value $0.0001 per share	PAG	New York Stock Exchange

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

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

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


Large accelerated filer ⌧		Accelerated filer ☐		Non-accelerated filer ☐		Smaller reporting company ☐		Emerging growth company ☐

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

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

As of May 4, 2020, there were 80,461,102 shares of voting common stock outstanding.

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	Page

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Condensed Balance Sheets as of March 31, 2020 and December 31, 2019	3

Consolidated Condensed Statements of Income for the three months ended March 31, 2020 and 2019	4

Consolidated Condensed Statements of Comprehensive Income (Loss) for the three months ended March 31, 2020 and 2019	5

Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2020 and 2019	6

Consolidated Condensed Statements of Equity for the three months ended March 31, 2020 and 2019	7

Notes to Consolidated Condensed Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3. Quantitative & Qualitative Disclosures About Market Risk	50

Item 4. Controls and Procedures	50

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	51

Item 1A. Risk Factors	51

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 6. Exhibits	53

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS


	March 31,		December 31,
	2020		2019
	(Unaudited)
	(In millions, except share
	and per share amounts)
ASSETS
Cash and cash equivalents	$	431.9	$	28.1
Accounts receivable, net of allowance for doubtful accounts of $6.4 and $5.7		616.3		960.3
Inventories		4,262.7		4,260.7
Other current assets		85.2		85.0
Total current assets		5,396.1		5,334.1
Property and equipment, net		2,297.9		2,366.4
Operating lease right-of-use assets		2,292.1		2,360.5
Goodwill		1,868.8		1,911.0
Other indefinite-lived intangible assets		541.0		552.2
Equity method investments		1,400.7		1,399.0
Other long-term assets		20.2		19.5
Total assets	$	13,816.8	$	13,942.7
LIABILITIES AND EQUITY
Floor plan notes payable	$	2,283.4	$	2,412.5
Floor plan notes payable — non-trade		1,605.7		1,594.0
Accounts payable		589.8		638.8
Accrued expenses and other current liabilities		645.3		701.9
Current portion of long-term debt		104.6		103.3
Liabilities held for sale		0.5		0.5
Total current liabilities		5,229.3		5,451.0
Long-term debt		2,516.1		2,257.0
Long-term operating lease liabilities		2,234.1		2,301.2
Deferred tax liabilities		702.2		677.9
Other long-term liabilities		427.6		444.0
Total liabilities		11,109.3		11,131.1
Commitments and contingent liabilities (Note 12)
Equity
Penske Automotive Group stockholders’ equity:
Preferred Stock, $0.0001 par value; 100,000 shares authorized; none issued and outstanding		—		—
Common Stock, $0.0001 par value, 240,000,000 shares authorized; 80,463,278 shares issued and outstanding at March 31, 2020; 81,084,751 shares issued and outstanding at December 31, 2019		—		—
Non-voting Common Stock, $0.0001 par value; 7,125,000 shares authorized; none issued and outstanding		—		—
Class C Common Stock, $0.0001 par value; 20,000,000 shares authorized; none issued and outstanding		—		—
Additional paid-in capital		295.9		320.4
Retained earnings		2,693.3		2,675.8
Accumulated other comprehensive income (loss)		(299.5)		(202.8)
Total Penske Automotive Group stockholders’ equity		2,689.7		2,793.4
Non-controlling interest		17.8		18.2
Total equity		2,707.5		2,811.6
Total liabilities and equity	$	13,816.8	$	13,942.7

See Notes to Consolidated Condensed Financial Statements

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PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME


	Three Months Ended
	March 31,
	2020		2019
	(Unaudited)
	(In millions, except per share amounts)
Revenue:
Retail automotive dealership	$	4,416.6	$	5,091.2
Retail commercial truck dealership		491.4		332.3
Commercial vehicle distribution and other		101.1		140.9
Total revenues		5,009.1		5,564.4
Cost of sales:
Retail automotive dealership		3,738.5		4,329.7
Retail commercial truck dealership		422.6		277.9
Commercial vehicle distribution and other		71.3		105.3
Total cost of sales		4,232.4		4,712.9
Gross profit		776.7		851.5
Selling, general and administrative expenses		641.8		666.4
Depreciation		28.5		26.4
Operating income		106.4		158.7
Floor plan interest expense		(17.7)		(21.8)
Other interest expense		(31.7)		(29.9)
Equity in earnings of affiliates		14.5		26.8
Income from continuing operations before income taxes		71.5		133.8
Income taxes		(20.1)		(34.7)
Income from continuing operations		51.4		99.1
Income (loss) from discontinued operations, net of tax		0.1		0.1
Net income		51.5		99.2
Less: Loss attributable to non-controlling interests		(0.2)		(1.0)
Net income attributable to Penske Automotive Group common stockholders	$	51.7	$	100.2
Basic earnings per share attributable to Penske Automotive Group common stockholders:
Continuing operations	$	0.64	$	1.19
Discontinued operations		0.00		0.00
Net income attributable to Penske Automotive Group common stockholders	$	0.64	$	1.19
Shares used in determining basic earnings per share		81.1		84.4
Diluted earnings per share attributable to Penske Automotive Group common stockholders:
Continuing operations	$	0.64	$	1.19
Discontinued operations		0.00		0.00
Net income attributable to Penske Automotive Group common stockholders	$	0.64	$	1.19
Shares used in determining diluted earnings per share		81.1		84.4
Amounts attributable to Penske Automotive Group common stockholders:
Income from continuing operations	$	51.4	$	99.1
Less: Loss attributable to non-controlling interests		(0.2)		(1.0)
Income from continuing operations, net of tax		51.6		100.1
Income (loss) from discontinued operations, net of tax		0.1		0.1
Net income attributable to Penske Automotive Group common stockholders	$	51.7	$	100.2
Cash dividends per share	$	0.42	$	0.38

See Notes to Consolidated Condensed Financial Statements

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PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


	Three Months Ended
	March 31,
	2020		2019
	(Unaudited)
	(In millions)
Net income	$	51.5	$	99.2
Other comprehensive income:
Foreign currency translation adjustment		(92.9)		6.7
Other adjustments to comprehensive income, net		(4.0)		1.8
Other comprehensive (loss) income, net of tax		(96.9)		8.5
Comprehensive income		(45.4)		107.7
Less: Comprehensive (loss) income attributable to non-controlling interests		(0.4)		(1.3)
Comprehensive (loss) income attributable to Penske Automotive Group common stockholders	$	(45.0)	$	109.0

See Notes to Consolidated Condensed Financial Statements

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PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS


	Three Months Ended
	March 31,
	2020		2019
	(Unaudited)
	(In millions)
Operating Activities:
Net income	$	51.5	$	99.2
Adjustments to reconcile net income to net cash from continuing operating activities:
Depreciation		28.5		26.4
Earnings of equity method investments		(14.5)		(26.8)
(Income) loss from discontinued operations, net of tax		(0.1)		(0.1)
Deferred income taxes		28.4		11.8
Changes in operating assets and liabilities:
Accounts receivable		343.9		(104.9)
Inventories		(9.3)		(90.5)
Floor plan notes payable		(126.8)		83.9
Accounts payable and accrued expenses		(84.9)		134.5
Other		(4.8)		(42.1)
Net cash provided by continuing operating activities		211.9		91.4
Investing Activities:
Purchase of equipment and improvements		(25.7)		(63.1)
Proceeds from sale of dealerships		10.3		7.2
Proceeds from sale-leaseback transactions		—		7.3
Acquisitions net, including repayment of sellers’ floor plan notes payable of $0 and $0, respectively		—		(1.1)
Other		(0.7)		(0.2)
Net cash used in continuing investing activities		(16.1)		(49.9)
Financing Activities:
Proceeds from borrowings under U.S. credit agreement revolving credit line		515.0		406.0
Repayments under U.S. credit agreement revolving credit line		(210.0)		(381.0)
Net repayments of other long-term debt		(22.1)		(35.6)
Net borrowings of floor plan notes payable — non-trade		11.7		60.1
Payments for contingent consideration		(21.1)		—
Repurchases of common stock		(29.4)		(54.3)
Dividends		(34.2)		(32.2)
Other		—		(0.1)
Net cash provided by (used in) continuing financing activities		209.9		(37.1)
Discontinued operations:
Net cash provided by (used in) discontinued operating activities		0.1		(0.1)
Net cash provided by discontinued investing activities		—		—
Net cash provided by discontinued financing activities		—		—
Net cash provided by (used in) discontinued operations		0.1		(0.1)
Effect of exchange rate changes on cash and cash equivalents		(2.0)		(0.2)
Net change in cash and cash equivalents		403.8		4.1
Cash and cash equivalents, beginning of period		28.1		39.4
Cash and cash equivalents, end of period	$	431.9	$	43.5
Supplemental disclosures of cash flow information:
Cash paid (received) for:
Interest	$	36.3	$	35.8
Income taxes		(3.3)		8.8

See Notes to Consolidated Condensed Financial Statements

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PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY


	Three Months Ended March 31, 2020

								Accumulated		Total
	Common Stock			Additional				Other		Penske
	Issued			Paid-in		Retained		Comprehensive		Automotive Group		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Income (Loss)		Stockholders’ Equity		Interest		Equity
	(Unaudited)
	(Dollars in millions)
Balance, December 31, 2019	81,084,751	$	—	$	320.4	$	2,675.8	$	(202.8)	$	2,793.4	$	18.2	$	2,811.6
Equity compensation	268,722		—		4.9		—		—		4.9		—		4.9
Repurchases of common stock	(890,195)		—		(29.4)		—		—		(29.4)		—		(29.4)
Dividends	—		—		—		(34.2)		—		(34.2)		—		(34.2)
Purchase of subsidiary shares from non-controlling interest	—		—		—		—		—		—		—		—
Distributions to non-controlling interest	—		—		—		—		—		—		—		—
Foreign currency translation	—		—		—		—		(92.7)		(92.7)		(0.2)		(92.9)
Other	—		—		—		—		(4.0)		(4.0)		—		(4.0)
Net income	—		—		—		51.7		—		51.7		(0.2)		51.5
Balance, March 31, 2020	80,463,278	$	—	$	295.9	$	2,693.3	$	(299.5)	$	2,689.7	$	17.8	$	2,707.5


	Three Months Ended March 31, 2019

								Accumulated		Total
	Common Stock			Additional				Other		Penske
	Issued			Paid-in		Retained		Comprehensive		Automotive Group		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Income (Loss)		Stockholders’ Equity		Interest		Equity
	(Unaudited)
	(Dollars in millions)
Balance, December 31, 2018	84,546,970	$	—	$	477.8	$	2,365.8	$	(234.5)	$	2,609.1	$	25.6	$	2,634.7
Adoption of ASC 842	—		—		—		5.0		—		5.0		—		5.0
Equity compensation	362,887		—		4.6		—		—		4.6		—		4.6
Repurchases of common stock	(1,258,348)		—		(54.3)		—		—		(54.3)		—		(54.3)
Dividends	—		—		—		(32.2)		—		(32.2)		—		(32.2)
Purchase of subsidiary shares from non-controlling interest	—		—		—		—		—		—		(4.8)		(4.8)
Distributions to non-controlling interest	—		—		—		—		—		—		(0.1)		(0.1)
Foreign currency translation	—		—		—		—		7.0		7.0		(0.3)		6.7
Other	—		—		—		—		1.8		1.8		0.3		2.1
Net income	—		—		—		100.2		—		100.2		(1.0)		99.2
Balance, March 31, 2019	83,651,509	$	—	$	428.1	$	2,438.8	$	(225.7)	$	2,641.2	$	19.7	$	2,660.9

See Notes to Consolidated Condensed Financial Statements

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PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)
(In millions, except share and per share amounts)

1. Interim Financial Statements

Business Overview

Unless the context otherwise requires, the use of the terms “PAG,” “we,” “us,” and “our” in these Notes to the Consolidated Condensed Financial Statements refers to Penske Automotive Group, Inc. and its consolidated subsidiaries.

We are a diversified international transportation services company that operates automotive and commercial truck dealerships principally in the United States, Canada and Western Europe, and distributes commercial vehicles, diesel engines, gas engines, power systems and related parts and services principally in Australia and New Zealand.

COVID-19 Disclosure

Overview - The outbreak of COVID-19 across the globe has adversely impacted each of our markets and the global economy, leading to disruptions to our business. The pandemic continues in all of our markets. Governmental authorities are taking countermeasures to slow the outbreak, including shelter-in-place orders, stay at home orders, large-scale restrictions on travel and government-funded assistance programs to individuals and businesses. For the first two months of 2020 prior to the COVID-19 pandemic, our retail automotive business same-store new vehicle revenue increased 5.3%, used vehicle revenues increased 7.3%, F&I increased 10.7%, and service and parts increased 3.0%, similar to performance we experienced in 2019. These results continued into early March, then progressively declined as shelter-in-place policies were established impacting many of our locations. In March 2020, same-store new and used automotive retail sales declined 40.2%. While most of our repair services have been deemed essential under such restrictions, in March 2020, we experienced a 24.5% decline in our automotive service and parts business and a 6.6% same-store decline in our commercial vehicle service and parts operations. The pandemic is a highly fluid and rapidly evolving situation, and we cannot anticipate with any certainty the length, scope, or severity of such restrictions in each of the jurisdictions that we operate. See “Item 1A. Risk Factors.”

In response to shelter-in-place orders resulting from the COVID-19 pandemic, most of our automotive, and many of our commercial vehicle, showrooms were closed (though some have reopened). In permissible jurisdictions, however, we continued limited sales activity by appointment or through our e-commerce channels. Virtually all of our service, parts and collision center departments have remained open during the crisis and curb-side or home delivery offerings have supplemented our traditional service offerings. We have modified certain business practices to conform to government restrictions and best practices encouraged by government and regulatory authorities. In all of our locations, we have implemented enhanced cleaning procedures, enforced social distancing guidelines and taken other precautions to protect our employees and customers. We will continue to adjust our operations to conform to regulatory changes and consumer preferences in the evolving environment.

Across the company, we implemented a hiring freeze, expense reductions including in advertising, and postponed an estimated $150 million in capital expenditures. We also furloughed over 15,000 employees in February and March in various countries. Our remaining employees are working reduced hours or have taken pay cuts, including a temporary 100% reduction in salary for the CEO and President, a 25% reduction in salary for our other executive officers, and the Board of Directors has waived cash compensation through September 30, 2020.

Most of our manufacturer partners began periodic suspension of production beginning in late March with some announcing extensions into May. We believe our current inventory levels will allow us to continue to do business with the slowdown in sales driven by the pandemic. We are strategically managing inventory levels by monitoring incoming units and deferring or canceling purchases. Our manufacturer partners began providing us with additional incentive

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support in March. In addition, our manufacturer and lending partners are providing support to retail customers such as increased incentives, payment deferrals, as well as 0% financing on certain vehicles and term lengths.

United States – Beginning in March 2020, shelter-in-place rules in many states either required we close dealerships or limit our automotive dealership operations to essential services. Virtual/online sales of new and used vehicles remained available in most locations, while the service departments remained open to support critical transportation needs. Commercial truck dealership sales and service operations remained open in most locations around the U.S. and Canada providing essential services to our customers. In March 2020, our automotive dealership operations across the U.S. experienced a 40.1% decline in unit volume and a 21.2% decline in service and parts revenues compared to the prior year. Additionally beginning in the middle of March, all sixteen of our used vehicle supercenters were closed (though some have reopened). As a result, in March the used supercenters experienced a same-store used unit sales decline of 49%.

Commercial truck dealership sales and service operations remained open in most locations around the U.S. and Canada providing essential services to our customers. We continued to experience steady demand for new and used truck sales and service and parts during March and April. For the three months ended March 31, 2020, the North American Class 8 retail sales market declined 26% while our new same-store unit sales declined 2.2% during the same period while same-store revenue declined 1.7%. However, in total, which includes the acquisition of Warner Trucks we completed in the third quarter of 2019, total units retailed increased 52.4%, and revenue increased 47.9% to $491.4 million.

Penske Transportation Solutions – We have a 28.9% ownership interest in Penske Transportation Solutions ("PTS"). As an integral part of the North American supply chain, PTS has been generally classified as essential by governmental authorities. This has allowed PTS to remain operating in much of its business, providing crucial supply chain and transportation services to its customers. While its full-service leasing and contract maintenance businesses remained consistent, commercial rental utilization has slowed. PTS experienced mixed results in the logistics services business as increased volume in the grocery sector was offset by plant closings in automotive and manufacturing. In response, PTS implemented, among other items, approximately 7,000 layoffs, a 30% reduction in executive salaries, and reduced associate work schedules.

United Kingdom – All dealerships closed on March 24, 2020 in accordance with government orders; though we provided service and parts operations on an emergency basis. As a result, we were unable to deliver a significant number of sold vehicles. In March 2020, our automotive dealership operations across the U.K. experienced a 38.0% decline in unit volume and a 29.5% decline in service and parts revenues on a same store basis compared to the prior year. Over 90% of the employees in the U.K. were placed on furlough beginning March 24, 2020. We expect to open substantially all service and parts operations on May 11, 2020, but we are unable to predict when governmental guidance will allow sales showrooms to re-open.

Australia – In most jurisdictions, non-essential business operations were closed by government order in March 2020; however, Penske Australia was deemed essential, and therefore, sales, parts, service, and defense functions remained operational.

Liquidity – As of March 31, 2020, we had $430 million of cash, access to an additional $450 million of availability through our revolving credit facilities, and access to $450 million in potentially financeable real estate. As of April 30, 2020, we had $221 million of cash and access to an additional $700 million of availability through our revolving credit facilities. On August 15, 2020, our $300 million of 3.75% senior subordinated notes are due. We currently expect to pay those notes with the availability from our U.S. Credit Agreement.

Risks and Uncertainties – The full impact that COVID-19 will have on our business cannot be predicted at this time due to numerous uncertainties, including the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and business closures, the effectiveness of actions taken to contain the disease, the effect of government assistance programs, and other unintended consequences. This impact could include changes in customer demand; our relationship with, and the financial and operational capacities of, vehicle manufacturers, captive finance companies and other suppliers; workforce availability; risks associated with our indebtedness (including available borrowing capacity, compliance with financial covenants and ability to refinance or repay indebtedness on favorable terms); the adequacy of our cash flow and earnings and other conditions which may affect our liquidity; our ability to

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pay our quarterly dividend at prior levels; and disruptions to our technology network and other critical systems, including our dealer management systems and software or other facilities or equipment.

We believe that business disruption relating to the COVID-19 pandemic will continue to negatively impact the global economy and may materially affect our businesses as outlined above, or in other manners, all of which would adversely impact our business and results of operations.

Retail Automotive Dealership. We believe we are the second largest automotive retailer headquartered in the U.S. as measured by the $20.6 billion in total retail automotive dealership revenue we generated in 2019. As of March 31, 2020, we operated 317 retail automotive franchises, of which 145 franchises are located in the U.S. and 172 franchises are located outside of the U.S. The franchises outside the U.S. are located primarily in the U.K. In the three months ended March 31, 2020, we retailed and wholesaled more than 133,000 vehicles. We are diversified geographically, with 56% of our total retail automotive dealership revenues in the three months ended March 31, 2020 generated in the U.S. and Puerto Rico and 44% generated outside the U.S. We offer over 35 vehicle brands, with 70% of our retail automotive dealership revenue in the three months ended March 31, 2020 generated from premium brands, such as Audi, BMW, Land Rover, Mercedes-Benz and Porsche. Each of our franchised dealerships offers a wide selection of new and used vehicles for sale. In addition to selling new and used vehicles, we generate higher-margin revenue at each of our dealerships through maintenance and repair services and the sale and placement of third-party finance and insurance products, third-party extended service and maintenance contracts and replacement and aftermarket automotive products. We operate our franchised dealerships under franchise agreements with a number of automotive manufacturers and distributors that are subject to certain rights and restrictions typical of the industry.

We also operate sixteen used vehicle supercenters in the U.S. and the U.K. which retail and wholesale used vehicles under a one price, “no-haggle” methodology. Our CarSense operations in the U.S. consist of six retail locations operating in the Philadelphia and Pittsburgh, Pennsylvania market areas. Our CarShop operations in the U.K. consist of ten retail locations and a vehicle preparation center.

During the three months ended March 31, 2020, we disposed of four retail automotive franchises in the U.K. and made no acquisitions.

Retail Commercial Truck Dealership. We operate a heavy and medium-duty truck dealership group known as Premier Truck Group (“PTG”) offering primarily Freightliner and Western Star branded trucks, with locations in Texas, Oklahoma, Tennessee, Georgia, Utah, Idaho, and Canada. As of March 31, 2020, PTG operated twenty-five locations. PTG also offers a full range of used trucks available for sale as well as service and parts departments, providing a full range of maintenance and repair services.

Penske Australia. We are the exclusive importer and distributor of Western Star heavy-duty trucks (a Daimler brand), MAN heavy and medium duty trucks and buses (a VW Group brand), and Dennis Eagle refuse collection vehicles, together with associated parts, across Australia, New Zealand and portions of the Pacific. In most of these same markets, we are also a leading distributor of diesel and gas engines and power systems, principally representing MTU, Detroit Diesel, Allison Transmission, MTU Onsite Energy, and Rolls Royce Power Systems. This business, known as Penske Australia offers products across the on- and off-highway markets, including in the construction, mining, marine, and defense sectors, and supports full parts and aftersales service through a network of branches, field locations and dealers across the region.

Penske Transportation Solutions. We hold a 28.9% ownership interest in Penske Truck Leasing Co., L.P (“PTL”). PTL is owned 41.1% by Penske Corporation, 28.9% by us, and 30.0% by Mitsui & Co., Ltd. (“Mitsui”). We account for our investment in PTL under the equity method, and we therefore record our share of PTL’s earnings on our statements of income under the caption “Equity in earnings of affiliates,” which also includes the results of our other equity method investments. Penske Transportation Solutions (“PTS”) is the universal brand name for PTL’s various business lines through which it is capable of meeting customers’ needs across the supply chain with a broad product offering that includes full-service truck leasing, truck rental and contract maintenance, along with logistic services such as dedicated contract carriage, distribution center management, transportation management, lead logistics provider services and dry van truckload carrier services.

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Basis of Presentation

The accompanying unaudited consolidated condensed financial statements of PAG have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC rules and regulations. The information presented as of March 31, 2020 and December 31, 2019 and for the three month periods ended March 31, 2020 and 2019 is unaudited, but includes all adjustments which our management believes to be necessary for the fair presentation of results for the periods presented. Results for interim periods are not necessarily indicative of results to be expected for the year. These consolidated condensed financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2019, which are included as part of our Annual Report on Form 10-K.

Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. The accounts requiring the use of significant estimates include accounts receivable, inventories, income taxes, intangible assets and certain reserves.

Fair Value of Financial Instruments

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


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

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

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

Our financial instruments consist of cash and cash equivalents, debt, floor plan notes payable, and forward exchange contracts used to hedge future cash flows. Other than our fixed rate debt, the carrying amount of all significant financial instruments approximates fair value due either to length of maturity, the existence of variable interest rates that approximate prevailing market rates, or as a result of mark to market accounting.

Our fixed rate debt consists of amounts outstanding under our senior subordinated notes and mortgage facilities. We estimate the fair value of our senior unsecured notes using quoted prices for the identical liability (Level 2), and we estimate the fair value of our mortgage facilities using a present value technique based on current market interest rates

Table of Contents

for similar types of financial instruments (Level 2). A summary of the carrying values and fair values of our senior subordinated notes and our fixed rate mortgage facilities are as follows:


	March 31, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
3.75% senior subordinated notes due 2020	$	299.5	$	291.3	$	299.2	$	302.6
5.75% senior subordinated notes due 2022		547.9		514.4		547.6

Price	46.27	EPS	5
Shares	83	P/E	9
MCap	3,841	P/FCF	6
Net Debt	2,302	EBIT	552
TEV	6,143	TEV/EBIT	11
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-05-06
10-K	2019-12-31	Filed 2020-02-21
10-Q	2019-09-30	Filed 2019-10-30
10-Q	2019-06-30	Filed 2019-07-31
10-Q	2019-03-31	Filed 2019-04-26
10-K	2018-12-31	Filed 2019-02-22
10-Q	2018-09-30	Filed 2018-10-26
10-Q	2018-06-30	Filed 2018-07-27
10-Q	2018-03-31	Filed 2018-04-27
10-K	2017-12-31	Filed 2018-02-22
10-Q	2017-09-30	Filed 2017-10-26
10-Q	2017-06-30	Filed 2017-07-28
10-Q	2017-03-31	Filed 2017-04-27
10-K	2016-12-31	Filed 2017-02-24
10-Q	2016-09-30	Filed 2016-10-27
10-Q	2016-06-30	Filed 2016-07-29
10-Q	2016-03-31	Filed 2016-04-27
10-K	2015-12-31	Filed 2016-02-25
10-Q	2015-09-30	Filed 2015-10-30
10-Q	2015-06-30	Filed 2015-07-30
10-Q	2015-03-31	Filed 2015-05-01
10-K	2014-12-31	Filed 2015-02-26
10-Q	2014-09-30	Filed 2014-10-29
10-Q	2014-06-30	Filed 2014-07-31
10-Q	2014-03-31	Filed 2014-05-05
10-K	2013-12-31	Filed 2014-03-03
10-Q	2013-09-30	Filed 2013-10-30
10-Q	2013-06-30	Filed 2013-08-01
10-Q	2013-03-31	Filed 2013-04-30
10-K	2012-12-31	Filed 2013-02-28
10-Q	2012-09-30	Filed 2012-11-02
10-Q	2012-06-30	Filed 2012-08-03
10-Q	2012-03-31	Filed 2012-05-04
10-K	2011-12-31	Filed 2012-02-24
10-Q	2011-09-30	Filed 2011-11-07
10-Q	2011-06-30	Filed 2011-08-02
10-Q	2011-03-31	Filed 2011-05-03
10-K	2010-12-31	Filed 2011-02-28
10-Q	2010-09-30	Filed 2010-11-04
10-Q	2010-06-30	Filed 2010-07-30
10-Q	2010-03-31	Filed 2010-05-03
10-K	2009-12-31	Filed 2010-02-24

8-K	2020-05-13	Officers, Shareholder Vote, Other Events, Exhibits
8-K	2020-05-06	Earnings, Regulation FD, Other Events, Exhibits
8-K	2020-03-30	Other Events, Exhibits
8-K	2020-02-12	Other Events, Exhibits
8-K	2020-02-05	Earnings, Regulation FD, Other Events, Exhibits
8-K	2019-12-18	Enter Agreement, Exhibits
8-K	2019-10-29	Earnings, Regulation FD, Other Events, Exhibits
8-K	2019-10-16
8-K	2019-07-30	Earnings, Regulation FD, Other Events, Exhibits
8-K	2019-07-12	Enter Agreement, Other Events, Exhibits
8-K	2019-06-27	Enter Agreement, Exhibits
8-K	2019-05-09	Shareholder Vote, Other Events, Exhibits
8-K	2019-04-25	Earnings, Regulation FD, Other Events, Exhibits
8-K	2019-04-24	Regulation FD
8-K	2019-02-07	Earnings, Regulation FD, Other Events, Exhibits
8-K	2019-01-30	Other Events, Exhibits
8-K	2019-01-22	Regulation FD
8-K	2018-12-17	Enter Agreement
8-K	2018-12-13	Enter Agreement, Officers, Exhibits
8-K	2018-10-25	Earnings, Regulation FD, Other Events, Exhibits
8-K	2018-10-17	Other Events, Exhibits
8-K	2018-07-26	Earnings, Regulation FD, Other Events, Exhibits
8-K	2018-07-18	Other Events, Exhibits
8-K	2018-05-10	Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K	2018-04-25	Earnings, Regulation FD, Other Events, Exhibits
8-K	2018-02-08	Earnings, Regulation FD, Other Events, Exhibits
8-K	2018-02-01	Regulation FD, Other Events, Exhibits

EX-22	pag-20200331xex22.htm
EX-31.1	pag-20200331xex31d1.htm
EX-31.2	pag-20200331xex31d2.htm
EX-32	pag-20200331xex32.htm

PAG 10Q Quarterly Report

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