PENSKE AUTOMOTIVE GROUP, INC. [PAG] Filings

10-Q 1 pag-20220331.htm 10-Q pag-20220331

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the quarterly period ended March 31, 2022


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 1-12297

Penske Automotive Group, Inc.

(Exact name of registrant as specified in its charter)


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

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 x No o

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

Large Accelerated Filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

As of April 28, 2022, there were 75,891,120 shares of voting common stock outstanding.

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TABLE OF CONTENTS


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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of March 31, 2022, and December 31, 2021			3
Consolidated Condensed Statements of Income for the three months ended March 31, 2022 and 2021			4
Consolidated Condensed Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021			5
Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2022 and 2021			6
Consolidated Condensed Statement of Equity for the three months ended March 31, 2022 and 2021			7
Notes to Consolidated Condensed Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative & Qualitative Disclosures About Market Risk			42
Item 4. Controls and Procedures			43
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45
Item 6. Exhibits			46

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS


	March 31, 2022		December 31, 2021
	(Unaudited)
	(In millions, except share and per share amounts)
ASSETS
Cash and cash equivalents	$	170.3	$	100.7
Accounts receivable, net of allowance for doubtful accounts of $5.8 and $6.8	835.2		734.0
Inventories	3,120.0		3,129.0
Other current assets	140.4		111.7
Total current assets	4,265.9		4,075.4
Property and equipment, net	2,415.3		2,442.2
Operating lease right-of-use assets	2,481.4		2,451.4
Goodwill	2,156.5		2,124.1
Other indefinite-lived intangible assets	661.0		641.5
Equity method investments	1,645.1		1,688.1
Other long-term assets	40.7		41.9
Total assets	$	13,665.9	$	13,464.6
LIABILITIES AND EQUITY
Floor plan notes payable	$	1,131.9	$	1,144.8
Floor plan notes payable — non-trade	1,416.4		1,409.9
Accounts payable	889.0		767.1
Accrued expenses and other current liabilities	896.5		870.3
Current portion of long-term debt	79.4		82.0
Liabilities held for sale	—		0.5
Total current liabilities	4,413.2		4,274.6
Long-term debt	1,383.9		1,392.0
Long-term operating lease liabilities	2,408.5		2,373.6
Deferred tax liabilities	1,056.9		1,060.4
Other long-term liabilities	239.0		269.0
Total liabilities	9,501.5		9,369.6
Commitments and contingent liabilities (Note 11)			—
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; 76,658,405 shares issued and outstanding at March 31, 2022; 77,574,172 shares issued and outstanding at December 31, 2021	—		—
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	—		42.2
Retained earnings	4,336.9		4,196.6
Accumulated other comprehensive income (loss)	(198.1)		(168.8)
Total Penske Automotive Group stockholders’ equity	4,138.8		4,070.0
Non-controlling interest	25.6		25.0
Total equity	4,164.4		4,095.0
Total liabilities and equity	$	13,665.9	$	13,464.6

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,
	2022		2021
	(Unaudited)
	(In millions, except per share amounts)
Revenue:
Retail automotive dealership	$	6,029.2	$	5,206.9
Retail commercial truck dealership	792.3		434.7
Commercial vehicle distribution and other	153.9		132.2
Total revenues	6,975.4		5,773.8
Cost of sales:
Retail automotive dealership	4,978.5		4,407.0
Retail commercial truck dealership	651.1		354.7
Commercial vehicle distribution and other	114.1		98.9
Total cost of sales	5,743.7		4,860.6
Gross profit	1,231.7		913.2
Selling, general and administrative expenses	797.8		664.3
Depreciation	31.9		29.3
Operating income	402.0		219.6
Floor plan interest expense	(7.5)		(9.5)
Other interest expense	(16.5)		(17.9)

Equity in earnings of affiliates	119.6		55.4
Income from continuing operations before income taxes	497.6		247.6
Income taxes	(128.1)		(64.5)
Income from continuing operations	369.5		183.1
Income from discontinued operations, net of tax	—		—
Net income	369.5		183.1
Less: Income attributable to non-controlling interests	1.6		0.6
Net income attributable to Penske Automotive Group common stockholders	$	367.9	$	182.5
Basic earnings per share attributable to Penske Automotive Group common stockholders:
Continuing operations	$	4.76	$	2.26
Discontinued operations	—		—
Net income attributable to Penske Automotive Group common stockholders	$	4.76	$	2.26
Shares used in determining basic earnings per share	77.2		80.6
Diluted earnings per share attributable to Penske Automotive Group common stockholders:
Continuing operations	$	4.76	$	2.26
Discontinued operations	—		—
Net income attributable to Penske Automotive Group common stockholders	$	4.76	$	2.26
Shares used in determining diluted earnings per share	77.2		80.6
Amounts attributable to Penske Automotive Group common stockholders:
Income from continuing operations	$	369.5	$	183.1
Less: Income attributable to non-controlling interests	1.6		0.6
Income from continuing operations, net of tax	367.9		182.5
Income from discontinued operations, net of tax	—		—
Net income attributable to Penske Automotive Group common stockholders	$	367.9	$	182.5
Cash dividends per share	$	0.47	$	0.43

See Notes to Consolidated Condensed Financial Statements

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PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended March 31,
	2022		2021
	(Unaudited)
	(In millions)
Net income	$	369.5	$	183.1
Other comprehensive income (loss):
Foreign currency translation adjustment	(28.5)		0.1
Unrealized gain on interest rate swaps:
Unrealized gain arising during the period, net of tax provision of $0.0 and $1.3, respectively	—		3.7
Reclassification adjustment for loss included in floor plan interest expense, net of tax benefit of $0.0 and $0.1, respectively	—		0.2
Unrealized gain on interest rate swaps, net of tax	—		3.9
Other adjustments to comprehensive income, net	(1.2)		0.7
Other comprehensive income (loss), net of tax	(29.7)		4.7
Comprehensive income	339.8		187.8
Less: Comprehensive income attributable to non-controlling interests	1.2		0.1
Comprehensive income attributable to Penske Automotive Group common stockholders	$	338.6	$	187.7

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,
	2022		2021
	(Unaudited)
	(In millions)
Operating Activities:
Net income	$	369.5	$	183.1
Adjustments to reconcile net income to net cash from continuing operating activities:
Depreciation	31.9		29.3
Earnings of equity method investments	(119.6)		(55.4)
Income from discontinued operations, net of tax	—		—
Deferred income taxes	41.4		41.8

Changes in operating assets and liabilities:
Accounts receivable	(101.1)		(54.5)
Inventories	30.8		147.2
Floor plan notes payable	(12.9)		(93.6)
Accounts payable and accrued expenses	134.6		39.1
Other	6.0		2.3
Net cash provided by continuing operating activities	380.6		239.3
Investing Activities:
Purchases of property, equipment, and improvements	(56.2)		(42.4)
Proceeds from sale of dealerships	—		4.3
Proceeds from sale of property and equipment	1.8		20.4
Acquisitions net, including repayment of sellers’ floor plan notes payable of $16.5 and $0.0, respectively	(93.6)		—
Other	(1.8)		(0.6)
Net cash used in continuing investing activities	(149.8)		(18.3)
Financing Activities:
Proceeds from borrowings under U.S. credit agreement revolving credit line	409.0		301.0
Repayments under U.S. credit agreement revolving credit line	(409.0)		(409.0)




Net repayments of other long-term debt	(9.9)		(2.3)
Net borrowings (repayments) of floor plan notes payable — non-trade	6.5		(29.1)

Repurchases of common stock	(119.2)		—
Dividends	(36.4)		(34.6)
Payment of debt issuance costs	(0.1)		(0.1)
Other	—		—
Net cash used in continuing financing activities	(159.1)		(174.1)
Discontinued operations:
Net cash provided by discontinued operating activities	—		—


Net cash provided by discontinued operations	—		—
Effect of exchange rate changes on cash and cash equivalents	(2.1)		(1.8)
Net change in cash and cash equivalents	69.6		45.1
Cash and cash equivalents, beginning of period	100.7		49.5
Cash and cash equivalents, end of period	$	170.3	$	94.6
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	24.7	$	27.2
Income taxes	19.3		11.5

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, 2022
	Voting and Non-voting Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Penske Automotive Group Stockholders’ Equity		Non-controlling Interest		Total Equity
	Issued Shares	Amount
	(Unaudited)
	(Dollars in millions)
Balance, December 31, 2021	77,574,172	$	—	$	42.2	$	4,196.6	$	(168.8)	$	4,070.0	$	25.0	$	4,095.0
Penske Transportation Solutions Adoption of ASC 842	—	—		—		(121.6)		—		(121.6)		—		(121.6)
Equity compensation	287,682	—		7.4		—		—		7.4		—		7.4
Repurchases of common stock	(1,203,449)	—		(49.6)		(69.6)		—		(119.2)		—		(119.2)
Dividends	—	—		—		(36.4)		—		(36.4)		—		(36.4)

Distributions to non-controlling interest	—	—		—		—		—		—		(0.6)		(0.6)
Foreign currency translation	—	—		—		—		(28.1)		(28.1)		(0.4)		(28.5)
Other	—	—		—		—		(1.2)		(1.2)		—		(1.2)
Net income	—	—		—		367.9		—		367.9		1.6		369.5
Balance, March 31, 2022	76,658,405	$	—	$	—	$	4,336.9	$	(198.1)	$	4,138.8	$	25.6	$	4,164.4


	Three Months Ended March 31, 2021
	Voting and Non-voting Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Penske Automotive Group Stockholders’ Equity		Non-controlling Interest		Total Equity
	Issued Shares	Amount
	(Unaudited)
	(Dollars in millions)
Balance, December 31, 2020	80,392,662	$	—	$	311.8	$	3,151.3	$	(160.6)	$	3,302.5	$	23.6	$	3,326.1
Equity compensation	434,995	—		6.6		—		—		6.6		—		6.6

Dividends	—	—		—		(34.6)		—		(34.6)		—		(34.6)
Interest rate swaps	—	—		—		—		3.9		3.9		—		3.9
Distributions to non-controlling interest	—	—		—		—		—		—		(1.2)		(1.2)
Foreign currency translation	—	—		—		—		0.6		0.6		(0.5)		0.1
Other	—	—		—		—		0.7		0.7		—		0.7
Net income	—	—		—		182.5		—		182.5		0.6		183.1
Balance, March 31, 2021	80,827,657	$	—	$	318.4	$	3,299.2	$	(155.4)	$	3,462.2	$	22.5	$	3,484.7

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

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.

Business Overview and Concentrations

We are a diversified international transportation services company and one of the world's premier automotive and commercial truck retailers. We operate dealerships principally in the United States, the United Kingdom, Canada, Germany, Italy, and Japan, and we are one of the largest retailers of commercial trucks in North America for Freightliner. We also distribute and retail commercial vehicles, diesel and gas engines, power systems, and related parts and services principally in Australia and New Zealand. Additionally, we own 28.9% of Penske Transportation Solutions, a business that manages a fleet of over 373,000 vehicles providing innovative transportation, supply chain, and technology solutions to North American fleets.

Retail Automotive. We are one of the largest global automotive retailers as measured by the $22.5 billion in total retail automotive dealership revenue we generated in 2021. As of March 31, 2022, we operated 321 retail automotive franchised dealerships, of which 147 are located in the U.S. and 174 are located outside of the U.S. The franchised dealerships outside the U.S. are located primarily in the U.K. As described below, we also operate 23 used vehicle dealerships in the U.S. and U.K. under the CarShop brand. Through these franchised and used vehicle dealerships, we retailed and wholesaled more than 137,000 vehicles in the three months ended March 31, 2022. We are diversified geographically with 55% of our total retail automotive dealership revenues in the three months ended March 31, 2022, generated in the U.S. and Puerto Rico and 45% generated outside the U.S. We offer over 35 vehicle brands with 70% of our retail automotive franchised dealership revenue in the three months ended March 31, 2022, 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, 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.

As of March 31, 2022, we operated 23 used vehicle dealerships in the U.S. and the U.K. which retail and wholesale used vehicles under a one price, “no-haggle” methodology under the CarShop brand. Our operations consist of eight retail dealerships in the U.S. and 15 retail dealerships and a vehicle preparation center in the U.K.

During the three months ended March 31, 2022, we were awarded one retail automotive franchise in the U.S. During April 2022, we acquired three BMW/MINI dealerships and a collision center in the U.K. and one BMW/MINI dealership and a collision center in the U.S. In March 2022, we agreed to transition our 14 U.K. Mercedes Benz dealerships to an agency model beginning in January 2023. See Part II, Item 1A. Risk Factors for a discussion of agency.

Retail Commercial Truck Dealership. We operate Premier Truck Group (“PTG”), a heavy- and medium-duty truck dealership group offering primarily Freightliner and Western Star trucks (both Daimler brands) with locations across nine U.S. states and Ontario, Canada. During February 2022, we acquired TEAM Truck Centres, a retailer of heavy- and medium-duty Freightliner and Western Star commercial trucks located in Ontario, Canada representing four full-service dealerships. As of March 31, 2022, PTG operated 41 locations which sell new and used trucks, parts and service, and collision repair services.

Penske Australia. Penske Australia is the exclusive importer and distributor of Western Star heavy-duty trucks (a Daimler Truck 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 (a Rolls-Royce solution), Detroit Diesel, Allison Transmission, and Bergen Engines. Penske Australia offers products across the on- and off-highway markets, including in the trucking, mining, power generation, defense, marine,

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rail, and construction sectors and supports full parts and aftersales service through a network of branches, field service 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.

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, 2022, and December 31, 2021, and for the three months ended March 31, 2022 and 2021 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, 2021, which are included as part of our Annual Report on Form 10-K.

Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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, leases, 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 which 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, forward exchange contracts, and interest rate swaps 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.

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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 our current market interest rates for similar types of financial instruments (Level 2). A summary of our debt is as follows:


	March 31, 2022		December 31, 2021
	Carrying Value	Fair Value	Carrying Value	Fair Value
3.50% senior subordinated notes due 2025	545.1	541.8	544.7	$	560.5
3.75% senior subordinated notes due 2029	494.5	442.9	494.3	490.7
Mortgage facilities	325.9	318.7	353.8	359.8

Disposals

The results of operations for disposals are included within continuing operations unless they meet the criteria to be classified as held for sale and treated as discontinued operations. We had no disposals during the three months ended March 31, 2022.

Income Taxes

Tax regulations may require items to be included in our tax return at different times than when those items are reflected in our financial statements. Some of the differences are permanent, such as expenses that are not deductible on our tax return, and some are temporary differences, such as the timing of depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that will be used as a tax deduction or credit in our tax return in future years which we have already recorded in our financial statements. Deferred tax liabilities generally represent deductions taken on our tax return that have not yet been recognized as an expense in our financial statements. We establish valuation allowances for our deferred tax assets if the amount of expected future taxable income is not more likely than not to allow for the use of the deduction or credit.

Penske Transportation Solutions Adoption of ASC 842

On January 1, 2022, Penske Transportation Solutions, our equity method investment of which we own 28.9%, adopted ASU No. 2016-02, “Leases (Topic 842).” The adoption resulted in a net, after-tax cumulative effect adjustment to our retained earnings of $121.6 million.

Recent Accounting Pronouncements

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. Additionally, entities can elect to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain conditions are met. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” This ASU refines the scope of ASC 848 and clarifies some of its guidance as part of the Board’s monitoring of global reference rate reform activities. The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities. These new standards were effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. While our credit facility in the U.S. and many of our floorplan arrangements utilize LIBOR as a benchmark for calculating the applicable interest rate, some of our floorplan arrangements have already transitioned to utilizing an alternative benchmark rate. We are continuing to evaluate the impact of the transition from LIBOR to alternative reference interest rates. We cannot predict the effect of the potential changes to or elimination of LIBOR, the establishment and use of alternative rates or benchmarks, and the corresponding effects on our cost of capital but do not expect a significant impact on our consolidated financial position, results of operations, and cash flows.

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2. Revenues

Automotive and commercial truck dealerships generate the majority of our revenues. New and used vehicle revenues typically include sales to retail customers, to fleet customers, and to leasing companies providing consumer leasing. We generate finance and insurance revenues from sales of third-party extended service contracts, sales of third-party insurance policies, commissions relating to the sale of finance and lease contracts to third parties, and the sales of certain other products. Service and parts revenues include fees paid by customers for repair, maintenance and collision services, and the sale of replacement parts and other aftermarket accessories as well as warranty repairs that are reimbursed directly by various vehicle manufacturers. Revenues are recognized upon satisfaction of our performance obligations under contracts with our customers and are measured at the amount of consideration we expect to be entitled to in exchange for transferring goods or providing services. A discussion of revenue recognition by reportable segment is included below.

Retail Automotive and Retail Commercial Truck Dealership Revenue Recognition

Dealership Vehicle Sales. We record revenue for vehicle sales at a point in time when vehicles are delivered, which is when the transfer of title, risks and rewards of ownership, and control are considered passed to the customer. The amount of consideration we receive for vehicle sales is stated within the executed contract with our customer and is reduced by any noncash consideration representing the fair value of trade-in vehicles, if applicable. Payment is typically due and collected within 30 days subsequent to transfer of control of the vehicle.

Dealership Parts and Service Sales. We record revenue for vehicle service and collision work over time as work is completed and when parts are delivered to our customers. For service and parts revenues recorded over time, we utilize a method that considers total costs incurred to date and the applicable margin in relation to total expected efforts to complete our performance obligation in order to determine the appropriate amount of revenue to recognize over time. Recognition of this revenue over time reflects the amount of consideration we expect to be entitled to for the transfer of goods and services performed to date, representative of the amount for which we have a right to payment. The amount of consideration we receive for parts and service sales, including collision repair work, is based upon labor hours expended and parts utilized to perform and complete the necessary services to our customers. Payment is typically due upon delivery or within a period of time shortly thereafter. We receive payment from our customers upon transfer of control or within a period typically less than 30 days subsequent to the completion of services for the customer. We allow for customer returns of parts sales up to 30 days after the sale; however, parts returns are not material.

Dealership Finance and Insurance Sales. Subsequent to the sale of a vehicle to a customer, we sell installment sale contracts to various financial institutions on a non-recourse basis (with specified exceptions) to mitigate the risk of default. We receive a commission from the lender equal to either the difference between the interest rate charged to the customer and the interest rate set by the financing institution or a flat fee. We also receive commissions for facilitating the sale of various products to customers, including guaranteed vehicle protection insurance, vehicle theft protection, and extended service contracts. These commissions are recorded as revenue at a point in time when the customer enters into the contract. Payment is typically due and collected within 30 days subsequent to the execution of the contract with the customer.

In the case of finance contracts, a customer may prepay or fail to pay their contract, thereby terminating the contract. Customers may also terminate extended service contracts and other insurance products, which are fully paid at purchase, and become eligible for refunds of unused premiums. In these circumstances, a portion of the commissions we received may be charged back based on the terms of the contracts. The revenue we record relating to these transactions is net of an estimate of the amount of chargebacks we will be required to pay. Our estimate is based upon our historical experience with similar contracts, including the impact of refinance and default rates on retail finance contracts and cancellation rates on extended service contracts and other insurance products. Aggregate reserves relating to chargeback activity were $34.8 million and $33.7 million as of March 31, 2022, and December 31, 2021, respectively.

Commercial Vehicle Distribution and Other Revenue Recognition

Penske Australia. We record revenue from the distribution of vehicles and other products at a point in time when delivered, which is when the transfer of title, risks and rewards of ownership, and control are considered passed to the customer. We record revenue for service or repair work over time as work is completed and when parts are delivered to our customers. For service and parts revenues recorded over time, we utilize a method that considers total costs incurred to date and the applicable margin in relation to total expected efforts to complete our performance obligation in order to determine the appropriate amount of revenue to recognize over time. Recognition of this revenue over time reflects the amount of consideration we expect to be entitled to for the transfer of goods and services performed to date, representative of the amount for which we have a right to payment.

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The amount of consideration we receive for vehicle and product sales is stated within the executed contract with our customer. The amount of consideration we receive for parts and service sales is based upon labor hours expended and parts utilized to perform and complete the necessary services to our customers. Payment is typically due upon delivery, upon invoice, or within a period of time shortly thereafter. We receive payment from our customers upon transfer of control or within a period typically less than 30 days subsequent to transfer of control or invoice.

We record revenue from the distribution of engines and other products at a point in time when delivered, which is when the transfer of title, risks and rewards of ownership, and control are considered passed to the customer. We record revenue for service or repair work over time as work is completed and when parts are delivered to our customers. For service and parts revenues recorded over time, we utilize a method that considers total costs incurred to date and the applicable margin in relation to total expected efforts to complete our performance obligation in order to determine the appropriate amount of revenue to recognize over time. Recognition of revenue over time reflects the amount of consideration we expect to be entitled to for the transfer of goods and services performed to date, representative of the amount for which we have a right to payment.

For our long-term power generation contracts, we record revenue over time as services are provided in accordance with contract milestones, which is considered an output method that requires judgment to determine our progress towards contract completion and the corresponding amount of revenue to recognize. Any revisions to estimates related to revenues or costs to complete contracts are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated.

The amount of consideration we receive for engine, product, and power generation sales is stated within the executed contract with our customer. The amount of consideration we receive for service sales is based upon labor hours expended and parts utilized to perform and complete the necessary services to our customers. Payment is typically due upon delivery, upon invoice, or within a period of time shortly thereafter. We receive payment from our customers upon transfer of control or within a period typically less than 30 days subsequent to transfer of control or invoice.

Service and parts revenue represented $55.1 million and $61.4 million for the three months ended March 31, 2022 and 2021, respectively, for Penske Australia.

Retail Automotive Dealership

The following tables disaggregate our retail automotive reportable segment revenue by product type and geographic location for the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
Retail Automotive Dealership Revenue	2022		2021
New vehicle	$	2,445.5	$	2,421.4
Used vehicle	2,422.9		1,808.0
Finance and insurance, net	217.3		168.8
Service and parts	586.2		503.2
Fleet and wholesale	357.3		305.5
Total retail automotive dealership revenue	$	6,029.2	$	5,206.9


	Three Months Ended March 31,
Retail Automotive Dealership Revenue	2022		2021
U.S.	$	3,343.6	$	3,004.8
U.K.	2,262.9		1,853.4
Germany, Italy, and Japan	422.7		348.7
Total retail automotive dealership revenue	$	6,029.2	$	5,206.9

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Retail Commercial Truck Dealership

The following table disaggregates our retail commercial truck reportable segment revenue by product type for the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
Retail Commercial Truck Dealership Revenue	2022		2021
New truck	$	471.7	$	247.5
Used truck	100.3		50.9
Finance and insurance, net	6.4		3.1
Service and parts	197.0		124.7
Other	16.9		8.5
Total retail commercial truck dealership revenue	$	792.3	$	434.7

Commercial Vehicle Distribution and Other

Our other reportable segment relates to our Penske Australia business. Commercial vehicle distribution and other revenue was $153.9 million and $132.2 million during the three months ended March 31, 2022 and 2021, respectively.

Contract Balances

The following table summarizes our accounts receivable and unearned revenues as of March 31, 2022, and December 31, 2021:


	March 31, 2022		December 31, 2021
Accounts receivable
Contracts in transit	$	243.9	$	198.7
Vehicle receivables	208.2		197.7
Manufacturer receivables	165.0		157.7
Trade receivables	198.9		164.5

Accrued expenses
Unearned revenues	$	296.3	$	297.0

Contracts in transit represent receivables from unaffiliated finance companies relating to the sale of customers’ installment sales and lease contracts arising in connection with the sale of a vehicle by us. Vehicle receivables represent receivables for any portion of the vehicle sales price not paid by the finance company. Manufacturer receivables represent amounts due from manufacturers, including incentives, holdbacks, rebates, warranty claims, and other receivables due from the factory. Trade receivables represent receivables due from customers, including amounts due for parts and service sales as well as receivables due from finance companies and others for the commissions earned on financing and commissions earned on insurance and extended service products provided by third parties. We evaluate collectability of receivables and estimate an allowance for doubtful accounts based on the age of the receivable, contractual life, historical collection experience, current conditions, and forecasts of future economic conditions, which is recorded within “Accounts receivable” on our consolidated balance sheets with our receivables presented net of the allowance.

Unearned revenues primarily relate to payments received from customers prior to satisfaction of our performance obligations, such as customer deposits and deferred revenues from operating leases. These amounts are presented within “Accrued expenses and other current liabilities” on our consolidated balance sheets. Of the amounts recorded as unearned revenues as of December 31, 2021, $128.9 million was recognized as revenue during the three months ended March 31, 2022.

Additional Revenue Recognition Related Policies

We do not have any material significant payment terms associated with contracts with our customers. Payment is due and collected as previously detailed for each reportable segment. We do not offer material rights of return or service-type warranties.

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Taxes collected from customers and remitted to governmental authorities are recorded on a net basis (excluded from revenue). Shipping costs incurred subsequent to transfer of control to our customers are recognized as cost of sales. Sales promotions that we offer to customers are accounted for as a reduction of revenues at the time of sale.

3. Leases

We lease land and facilities, including certain dealerships and office space. Our property leases are generally for an initial period between 5 and 20 years and are typically structured to include renewal options at our election. We include renewal options that we are reasonably certain to exercise in the measurement of our lease liabilities and right-of-use assets. We also have equipment leases that primarily relate to office and computer equipment, service and shop equipment, company vehicles, and other miscellaneous items. These leases are generally for a period of less than 5 years. We do not have any material leases, individually or in the aggregate, classified as a finance leasing arrangement.

We estimate the total undiscounted rent obligations under these leases, including any extension periods that we are reasonably certain to exercise, to be $5.4 billion as of March 31, 2022. Some of our lease arrangements include rental payments that are adjusted based on an index or rate, such as the Consumer Price Index (CPI). As the rate implicit in the lease is generally not readily determinable for our operating leases, the discount rates used to determine the present value of our lease liability are based on our incremental borrowing rate at the lease commencement date and commensurate with the remaining lease term. Our incremental borrowing rate for a lease is the rate of interest we would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Pursuant to the leases for some of our larger facilities, we are required to comply with specified financial ratios, including a “rent coverage” ratio and a debt to EBITDA ratio, each as defined. For these leases, non-compliance with the ratios may require us to post collateral in the form of a letter of credit. A breach of the other lease covenants gives rise to certain remedies by the landlord, the most severe of which include the termination of the applicable lease and acceleration of the total rent payments due under the lease.

In connection with the sale, relocation, and closure of certain of our franchises, we have entered into a number of third-party sublease agreements. The rent paid by our sub-tenants on such properties for the three months ended March 31, 2022 and 2021 was $5.1 million and $6.3 million, respectively. We have in the past and may in the future enter into sale-leaseback transactions to finance certain property acquisitions and capital expenditures, pursuant to which we sell property to third parties and agree to lease those assets back for a certain period of time. Such sales generate proceeds that vary from period to period. We do not have any material leases that have not yet commenced as of March 31, 2022.

The following table summarizes our net operating lease cost during the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
	2022		2021
Lease Cost
Operating lease cost (1)	$	63.4	$	61.5
Sublease income	(5.1)		(6.3)
Total lease cost	$	58.3	$	55.2

__________

(1)Includes short-term leases and variable lease costs, which are immaterial.

The following table summarizes supplemental cash flow information related to our operating leases:


	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Other Information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	62.0	$	62.0
Right-of-use assets obtained in exchange for operating lease liabilities	$	12.9	$	47.5

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Supplemental balance sheet information related to the weighted average remaining lease term and discount rate of our leases is as follows:


	March 31, 2022		December 31, 2021
Lease Term and Discount Rate
Weighted-average remaining lease term - operating leases	25 years		25 years
Weighted-average discount rate - operating leases	6.6	%	6.7	%

The following table summarizes the maturity of our lease liabilities on an undiscounted cash flow basis and a reconciliation to the operating lease liabilities recognized on our consolidated condensed balance sheet as of March 31, 2022:


Maturity of Lease Liabilities	March 31, 2022
2022 (1)	$	190.7
2023	247.9
2024	241.1
2025	237.3
2026	230.0
2027	223.3
2028 and thereafter	4,075.0
Total future minimum lease payments	$	5,445.3
Less: Imputed interest	(2,940.2)
Present value of future minimum lease payments	$	2,505.1

Current operating lease liabilities (2)	$	96.6
Long-term operating lease liabilities	2,408.5
Total operating lease liabilities	$	2,505.1

__________

(1)Excludes the three months ended March 31, 2022.

(2)Included within “Accrued expenses and other current liabilities” on Consolidated Condensed Balance Sheet as of March 31, 2022.

4. Inventories

Inventories consisted of the following:


	March 31, 2022		December 31, 2021
Retail automotive dealership new vehicles	$	894.8	$	869.1
Retail automotive dealership used vehicles	1,335.4		1,420.0
Retail automotive parts, accessories, and other	130.7		126.4
Retail commercial truck dealership vehicles and parts	465.7		436.7
Commercial vehicle distribution vehicles, parts, and engines	293.4		276.8
Total inventories	$	3,120.0	$	3,129.0

We receive credits from certain vehicle manufacturers that reduce cost of sales when the vehicles are sold. Such credits amounted to $15.2 million and $15.8 million during the three months ended March 31, 2022 and 2021, respectively.

5. Business Combinations

During the three months ended March 31, 2022, we acquired TEAM Truck Centres, a retailer of heavy- and medium-duty Freightliner and Western Star commercial trucks located in Ontario, Canada representing four full-service dealerships. During the three months ended March 31, 2021, we made no acquisitions. Our financial statements include the results of operations of the acquired entity from the date of acquisition. The fair value of the assets acquired and liabilities assumed have been recorded in our consolidated condensed financial statements and may be subject to adjustment pending

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completion of final valuation. The following table summarizes the aggregate consideration paid and the aggregate amounts of the assets acquired and liabilities assumed for the three months ended March 31, 2022:


	March 31, 2022
Accounts receivable	$	—
Inventories	21.9
Other current assets	0.1
Property and equipment	10.0
Indefinite-lived intangibles	64.6
Other noncurrent assets	—
Current liabilities	(2.9)
Noncurrent liabilities	(0.1)
Total cash used in acquisitions	$	93.6

Our following unaudited consolidated pro forma results of operations for the three months ended March 31, 2022 and 2021 give effect to acquisitions consummated during 2022 and 2021 as if they had occurred effective at the beginning of the periods:


	Three Months Ended March 31,
	2022		2021
Revenues	$	7,001.1	$	6,087.0
Income from continuing operations	369.1		191.6
Net income	369.1		191.6
Income from continuing operations per diluted common share	$	4.78	$	2.38
Net income per diluted common share	$	4.78	$	2.38

6. Intangible Assets

Following is a summary of the changes in the carrying amount of goodwill and other indefinite-lived intangible assets during the three months ended March 31, 2022:


	Goodwill		Other Indefinite- Lived Intangible Assets
Balance, January 1, 2022	$	2,124.1	$	641.5
Additions	43.9		20.7
Disposals	—		—
Foreign currency translation	(11.5)		(1.2)
Balance, March 31, 2022	$	2,156.5	$	661.0

The additions during the three months ended March 31, 2022, were within our Retail Truck reportable segment. We had no disposals during the three months ended March 31, 2022. As of March 31, 2022, the goodwill balance within our Retail Automotive, Retail Commercial Truck, and Other reportable segments was $1,607.6 million, $466.9 million, and $82.0 million, respectively. There is no goodwill recorded in our Non-Automotive Investments reportable segment.

7. Vehicle Financing

We finance substantially all of the commercial vehicles we purchase for distribution, new vehicles for retail sale, and a portion of our used vehicle inventories for retail sale under floor plan and other revolving arrangements with various lenders, including the captive finance companies associated with automotive manufacturers. In the U.S., the floor plan arrangements are due on demand; however, we have not historically been required to repay floor plan advances prior to the sale of the vehicles that have been financed. We typically make monthly interest payments on the amount financed. Outside of the U.S., substantially all of the floor plan arrangements are payable on demand or have an original maturity of 90 days

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or less, and we are generally required to repay floor plan advances at the earlier of the sale of the vehicles that have been financed or the stated maturity.

The agreements typically grant a security interest in substantially all of the assets of our dealership and distribution subsidiaries and in the U.S., Australia, and New Zealand are guaranteed or partially guaranteed by us. Interest rates under the arrangements are variable and increase or decrease based on changes in the prime rate, defined LIBOR, the Finance House Base Rate, the Euro Interbank Offered Rate, the Canadian Prime Rate, the Tokyo Interbank Offered Rate, the Australian Bank Bill Swap Rate, or the New Zealand Bank Bill Benchmark Rate. To date, we have not experienced any material limitation with respect to the amount or availability of financing from any institution providing us vehicle financing. We also receive non-refundable credits from certain of our vehicle manufacturers, which are treated as a reduction of cost of sales as vehicles are sold.

The weighted average interest rate on floor plan borrowings was 1.2% for the three months ended March 31, 2022 and 2021, respectively. We classify floor plan notes payable to a party other than the manufacturer of a particular new vehicle and all floor plan notes payable relating to pre-owned vehicles as “Floor plan notes payable — non-trade” on our consolidated balance sheets and classify related cash flows as a financing activity on our consolidated statements of cash flows.

8. Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the number of weighted average shares of voting common stock outstanding, including unvested restricted stock awards which contain rights to non-forfeitable dividends. Diluted earnings per share is computed by dividing net income attributable to common stockholders by the number of weighted average shares of voting common stock outstanding, adjusted for the dilutive impact of unissued shares paid to directors as compensation. A reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the three months ended March 31, 2022 and 2021 follows:


	Three Months Ended March 31,
	2022	2021
Weighted average number of common shares outstanding	77,224,165	80,608,996
Effect of non-participatory equity compensation	25,000	40,000
Weighted average number of common shares outstanding, including effect of dilutive securities	77,249,165	80,648,996

9. Long-Term Debt

Long-term debt consisted of the following:


	March 31, 2022		December 31, 2021
U.S. credit agreement — revolving credit line	$	—	$	—
U.K. credit agreement — revolving credit line	22.3		—
U.K. credit agreement — overdraft line of credit	—		—
3.50% senior subordinated notes due 2025	545.1		544.7
3.75% senior subordinated notes due 2029	494.5		494.3
Australia capital loan agreement	26.5		26.6
Australia working capital loan agreement	3.0		—
Mortgage facilities	325.9		353.8
Other	46.0		54.6
Total long-term debt	1,463.3		1,474.0
Less: current portion	(79.4)		(82.0)
Net long-term debt	$	1,383.9	$	1,392.0

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U.S. Credit Agreement

Our U.S. credit agreement (the “U.S. credit agreement”) with Mercedes-Benz Financial Services USA LLC and Toyota Motor Credit Corporation provides for up to $800.0 million in revolving loans for working capital, acquisitions, capital expenditures, investments, and other general corporate purposes and up to an additional $50 million of letters of credit. The U.S. credit agreement provides for a maximum of $150.0 million of borrowings for foreign acquisitions and expires on September 30, 2024. The interest rate on revolving loans previously was LIBOR plus 1.75%, subject to an incremental 1.25% for uncollateralized borrowings in excess of a defined borrowing base. On February 15, 2022, we amended the U.S. credit agreement to reduce the interest rate to LIBOR plus 1.50%, subject to an incremental 1.50% for uncollateralized borrowings in excess of a defined borrowing base.

The U.S. credit agreement is fully and unconditionally guaranteed on a joint and several basis by substantially all of our U.S. subsidiaries and contains a number of significant operating covenants that, among other things, restrict our ability to dispose of assets, incur additional indebtedness, repay certain other indebtedness, pay dividends, create liens on assets, make investments or acquisitions, and engage in mergers or consolidations. We are also required to comply with specified financial and other tests and ratios each as defined in the U.S. credit agreement, including a ratio of current assets to current liabilities, a fixed charge coverage ratio, a ratio of debt to stockholders’ equity, and a ratio of debt to earnings before interest, taxes, depreciation, and amortization (“EBITDA”). A breach of these requirements would give rise to certain remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of the amounts owed.

The U.S. credit agreement also contains typical events of default, including change of control, non-payment of obligations, and cross-defaults to our other material indebtedness. Substantially all of our U.S. assets are subject to security interests granted to the lenders under the U.S. credit agreement. As of March 31, 2022, we had no outstanding revolver borrowings under the U.S. credit agreement.

U.K. Credit Agreement

Our subsidiaries in the U.K. (the “U.K. subsidiaries”) are party to a £150.0 million revolving credit agreement with the National Westminster Bank plc and BMW Financial Services (GB) Limited plus an additional £52.0 million of demand overdraft lines of credit, £40.0 million of which is only available on demand from March 20th to April 30th and September 20th to October 31st each year (relating to the peak sales periods in the U.K.), (collectively, the “U.K. credit agreement”) to be used for working capital, acquisitions, capital expenditures, investments, and general corporate purposes. The loans mature on December 12, 2023. Beginning January 1, 2022, the revolving loans transitioned from LIBOR to the Sterling Overnight Index Average ("SONIA") and now bear interest between defined SONIA plus 1.10% and defined SONIA plus 2.10%. The U.K. credit agreement also includes a £100.0 million “accordion” feature which allows the U.K. subsidiaries to request up to an additional £100.0 million of facility capacity. The lenders may agree to provide additional capacity, and if not, the U.K. subsidiaries may add an additional lender, if available, to the facility to provide such additional capacity. As of March 31, 2022, we had £17.0 million ($22.3 million) outstanding revolver borrowings under the U.K. credit agreement.

The U.K. credit agreement is fully and unconditionally guaranteed on a joint and several basis by our U.K. subsidiaries and contains a number of significant covenants that, among other things, limit the ability of our U.K. subsidiaries to pay dividends, dispose of assets, incur additional indebtedness, repay other indebtedness, create liens on assets, make investments or acquisitions, and engage in mergers or consolidations. In addition, our U.K. subsidiaries are required to comply with defined ratios and tests, including a ratio of earnings before interest, taxes, amortization, and rental payments (“EBITAR”) to interest plus rental payments, a measurement of maximum capital expenditures, and a debt to EBITDA ratio. A breach of these requirements would give rise to certain remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of any amounts owed.

The U.K. credit agreement also contains typical events of default, including change of control and non-payment of obligations and cross-defaults to other material indebtedness of our U.K. subsidiaries. Substantially all of our U.K. subsidiaries’ assets are subject to security interests granted to the lenders under the U.K. credit agreement.

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Senior Subordinated Notes

We have issued the following senior subordinated notes:

Description

Maturity Date

Interest Payment Dates

Principal Amount

3.50% Notes

September 1, 2025

February 15, August 15

$550 million

3.75% Notes

June 15, 2029

June 15, December 15

$500 million

Each of these notes are our unsecured, senior subordinated obligations and are guaranteed on an unsecured senior subordinated basis by our 100% owned U.S. subsidiaries. Each also contain customary negative covenants and events of default. If we experience certain “change of control” events specified in the indentures, holders of these notes will have the option to require us to purchase for cash all or a portion of their notes at a price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest. In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the notes at a price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest.

Optional redemption. Prior to September 1, 2022, we may redeem the 3.50% Notes at a redemption price equal to 100% of the principal thereof, plus an applicable make-whole premium and any accrued and unpaid interest. In addition, we may redeem up to 40% of the 3.50% Notes before September 1, 2022, with net cash proceeds from certain equity offerings at a redemption price equal to 103.50% of the principal thereof, plus accrued and unpaid interest. On or after September 1, 2022, we may redeem the 3.50% Notes at the redemption prices noted in the indenture. Prior to June 15, 2024, we may redeem the 3.75% Notes at a redemption price equal to 100% of the principal thereof, plus an applicable make-whole premium, and any accrued and unpaid interest. In addition, we may redeem up to 40% of the Notes before June 15, 2024, with net cash proceeds from certain equity offerings at a redemption price equal to 103.750% of the principal thereof, plus accrued and unpaid interest. We may redeem the 3.75% Notes on or after June 15, 2024, at the redemption prices specified in the indenture.

Australia Loan Agreements

Penske Australia is party to two facilities with Volkswagen Financial Services Australia Pty Limited representing a five-year AU $50.0 million capital loan and a one-year AU $50.0 million working capital loan. Both facilities are subject to annual extensions. These agreements each provide the lender with a secured interest in all assets of these businesses. The loans bear interest at the Australian Bank Bill Swap Rate 30-day Bill Rate plus 3.0%. Irrespective of the term of the agreements, both agreements provide the lender with the ability to call the loans on 90 days’ notice. These facilities are also guaranteed by our U.S. parent company up to AU $50.0 million. As of March 31, 2022, we had AU $35.4 million ($26.5 million) outstanding under the capital loan agreement and had AU $4.0 million ($3.0 million) outstanding borrowings under the working capital loan agreement.

Mortgage Facilities

We are party to several mortgages that bear interest at defined rates and require monthly principal and interest payments. We also have a revolving mortgage facility through Toyota Motor Credit Corporation with a maximum borrowing capacity of $225 million contingent on property values and a current borrowing capacity of $149.1 million. The facility bears interest at LIBOR plus 1.50% and expires in December 2025. As of March 31, 2022, we had no borrowings under this mortgage facility. Our mortgage facilities also contain typical events of default, including non-payment of obligations, cross-defaults to our other material indebtedness, certain change of control events, and the loss or sale of certain franchises operated at the properties. Substantially all of the buildings and improvements on the properties financed pursuant to the mortgage facilities are subject to security interests granted to the lender. As of March 31, 2022, we owed $325.9 million of principal under our mortgage facilities.

10. Commitments and Contingent Liabilities

We are involved in litigation which may relate to claims brought by governmental authorities, issues with customers, and employment related matters, including class action claims and purported class action claims. As of March 31, 2022, we were not party to any legal proceedings, including class action lawsuits that, individually or in the aggregate, are reasonably expected to have a material adverse effect on our 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 our results of operations, financial condition, or cash flows.

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We lease land and facilities, including certain dealerships and office space. Pursuant to the leases for some of our larger facilities, we are required to comply with specified financial ratios, including a “rent coverage” ratio and a debt to EBITDA ratio, each as defined. For these leases, non-compliance with the ratios may require us to post collateral in the form of a letter of credit. A breach of the other lease covenants gives rise to certain remedies by the landlord, the most severe of which include the termination of the applicable lease and acceleration of the total rent payments due under the lease. Refer to the disclosures provided in Note 3 for further description of our leases.

We have sold a number of dealerships to third parties and, as a condition to certain of those sales, remain liable for the lease payments relating to the properties on which those businesses operate in the event of non-payment by the buyer. We are also party to lease agreements on properties that we no longer use in our retail operations that we have sublet to third parties. We rely on subtenants to pay the rent and maintain the property at these locations. In the event the subtenant does not perform as expected, we may not be able to recover amounts owed to us, and we could be required to fulfill these obligations.

Our floor plan credit agreements with Mercedes Benz Financial Services Australia and Mercedes Benz Financial Services New Zealand (“MBA”) provide us revolving loans for the acquisition of commercial vehicles for distribution to our retail network. These facilities include a commitment to repurchase dealer vehicles in the event the dealer’s floor plan agreement with MBA is terminated.

We have $29.2 million of letters of credit outstanding as of March 31, 2022, and have posted $21.6 million of surety bonds in the ordinary course of business.

11. Equity

During the three months ended March 31, 2022, we repurchased 1,203,449 shares of our common stock for $119.2 million, or an average of $99.06 per share, under our securities repurchase program approved by our Board of Directors. In December 2021, our Board of Directors authorized the repurchase of $250.0 million worth of our securities, of which $111.2 million remains outstanding as of March 31, 2022.

12. Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) by component and the reclassifications out of accumulated other comprehensive income (loss) during the three months ended March 31, 2022 and 2021, respectively, attributable to Penske Automotive Group common stockholders follows:

Three Months Ended March 31, 2022


	Foreign Currency Translation		Interest Rate Swaps		Other		Total
Balance at December 31, 2021	$	(174.4)	$	—	$	5.6	$	(168.8)
Other comprehensive income (loss) before reclassifications	(28.1)		—		(1.2)		(29.3)
Amounts reclassified from accumulated other comprehensive income (loss) — net of tax	—		—		—		—
Net current period other comprehensive income (loss)	(28.1)		—		(1.2)		(29.3)
Balance at March 31, 2022	$	(202.5)	$	—	$	4.4	$	(198.1)

Table of Contents

Three Months Ended March 31, 2021


	Foreign Currency Translation		Interest Rate Swaps		Other		Total
Balance at December 31, 2020	$	(135.5)	$	(3.2)	$	(21.9)	$	(160.6)
Other comprehensive income (loss) before reclassifications	0.6		3.7		0.7		5.0
Amounts reclassified from accumulated other comprehensive income (loss) — net of tax benefit of $0.1

PENSKE AUTOMOTIVE GROUP, INC. [PAG] Filings
10-Q	[2022-04-28]
10-K	[2022-02-18]
10-Q	[2021-10-28]
10-Q	[2021-07-29]
10-Q	[2021-04-29]
10-K	[2021-02-19]
10-Q	[2020-10-27]
10-Q	[2020-07-30]
10-Q	[2020-05-06]
10-K	[2020-02-21]
10-Q	[2019-10-30]
10-Q	[2019-07-31]
10-Q	[2019-04-26]
10-K	[2019-02-22]
10-Q	[2018-10-26]
10-Q	[2018-07-27]
10-Q	[2018-04-27]
10-K	[2018-02-22]
10-Q	[2017-10-26]
10-Q	[2017-07-28]
10-Q	[2017-04-27]
10-K	[2017-02-24]
10-Q	[2016-10-27]
10-Q	[2016-07-29]
10-Q	[2016-04-27]
10-K	[2016-02-25]
10-Q	[2015-10-30]
10-Q	[2015-07-30]
10-Q	[2015-05-01]
10-K	[2015-02-26]
10-Q	[2014-10-29]
10-Q	[2014-07-31]
10-Q	[2014-05-05]
10-K	[2014-03-03]
10-Q	[2013-10-30]
10-Q	[2013-08-01]
10-Q	[2013-04-30]
10-K	[2013-02-28]
10-Q	[2012-11-02]