Company Quick10K Filing
Penske Automotive Group
Price46.27 EPS5
Shares83 P/E9
MCap3,841 P/FCF6
Net Debt2,302 EBIT552
TEV6,143 TEV/EBIT11
TTM 2019-09-30, in MM, except price, ratios
10-Q 2021-03-31 Filed 2021-04-29
10-K 2020-12-31 Filed 2021-02-19
10-Q 2020-09-30 Filed 2020-10-27
10-Q 2020-06-30 Filed 2020-07-31
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 2020-11-20
8-K 2020-11-02
8-K 2020-10-22
8-K 2020-10-19
8-K 2020-10-14
8-K 2020-10-01
8-K 2020-08-20
8-K 2020-08-04
8-K 2020-08-04
8-K 2020-08-04
8-K 2020-07-29
8-K 2020-07-16
8-K 2020-07-06
8-K 2020-06-09
8-K 2020-05-13
8-K 2020-05-06
8-K 2020-03-30
8-K 2020-02-12
8-K 2020-02-05
8-K 2019-12-18
8-K 2019-10-29
8-K 2019-10-16
8-K 2019-07-30
8-K 2019-07-12
8-K 2019-06-27
8-K 2019-05-09
8-K 2019-04-25
8-K 2019-04-24
8-K 2019-02-07
8-K 2019-01-30
8-K 2019-01-22
8-K 2018-12-17
8-K 2018-12-13
8-K 2018-10-25
8-K 2018-10-17
8-K 2018-07-26
8-K 2018-07-18
8-K 2018-05-10
8-K 2018-04-25
8-K 2018-02-08
8-K 2018-02-01

PAG 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits
EX-4.1 pag-20210331xex4d1.htm
EX-22 pag-20210331xex22.htm
EX-31.1 pag-20210331xex31d1.htm
EX-31.2 pag-20210331xex31d2.htm
EX-32 pag-20210331xex32.htm

Penske Automotive Group Earnings 2021-03-31

Balance SheetIncome StatementCash Flow
151296302012201420172020
Assets, Equity
10.08.06.04.02.00.02012201420172020
Rev, G Profit, Net Income
0.40.20.0-0.2-0.4-0.62012201420172020
Ops, Inv, Fin

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Table of Contents

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, 2021

or

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:

(248648-2500

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 April 26, 2021, there were 80,827,119 shares of voting common stock outstanding.

Table of Contents

TABLE OF CONTENTS

Page

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Condensed Balance Sheets as of March 31, 2021, and December 31, 2020

3

Consolidated Condensed Statements of Income for the three months ended March 31, 2021, and 2020

4

Consolidated Condensed Statements of Comprehensive Income (Loss) for the three months ended March 31, 2021, and 2020

5

Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2021, and 2020

6

Consolidated Condensed Statements of Equity for the three months ended March 31, 2021, and 2020

7

Notes to Consolidated Condensed Financial Statements

8

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

25

Item 3. Quantitative & Qualitative Disclosures About Market Risk

47

Item 4. Controls and Procedures

48

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

48

Item 5. Other Information

49

Item 6. Exhibits

50

2

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

    

March 31,

    

December 31,

2021

2020

(Unaudited)

(In millions, except share

and per share amounts)

ASSETS

 

Cash and cash equivalents

$

94.6

$

49.5

Accounts receivable, net of allowance for doubtful accounts of $5.5 and $5.5

 

861.5

 

806.9

Inventories

 

3,277.8

 

3,425.6

Other current assets

 

125.0

 

126.8

Total current assets

 

4,358.9

 

4,408.8

Property and equipment, net

 

2,372.7

 

2,404.4

Operating lease right-of-use assets

 

2,419.0

 

2,416.5

Goodwill

 

1,928.5

 

1,928.4

Other indefinite-lived intangible assets

 

561.6

 

563.4

Equity method investments

 

1,554.3

 

1,500.3

Other long-term assets

 

27.0

 

25.4

Total assets

$

13,222.0

$

13,247.2

LIABILITIES AND EQUITY

Floor plan notes payable

$

1,686.9

$

1,780.5

Floor plan notes payable — non-trade

 

1,334.7

 

1,363.8

Accounts payable

 

690.5

 

675.4

Accrued expenses and other current liabilities

 

788.1

 

767.2

Current portion of long-term debt

 

88.0

 

87.5

Liabilities held for sale

 

0.5

 

0.5

Total current liabilities

 

4,588.7

 

4,674.9

Long-term debt

 

1,492.5

 

1,602.1

Long-term operating lease liabilities

 

2,349.3

 

2,350.3

Deferred tax liabilities

 

918.2

 

873.1

Other long-term liabilities

 

388.6

 

420.7

Total liabilities

 

9,737.3

 

9,921.1

Commitments and contingent liabilities (Note 10)

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; 80,827,657 shares issued and outstanding at March 31, 2021; 80,392,662 shares issued and outstanding at December 31, 2020

 

 

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

 

318.4

 

311.8

Retained earnings

 

3,299.2

 

3,151.3

Accumulated other comprehensive income (loss)

 

(155.4)

 

(160.6)

Total Penske Automotive Group stockholders’ equity

 

3,462.2

 

3,302.5

Non-controlling interest

 

22.5

 

23.6

Total equity

 

3,484.7

 

3,326.1

Total liabilities and equity

$

13,222.0

$

13,247.2

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,

 

2021

    

2020

(Unaudited)

(In millions, except per share amounts)

Revenue:

Retail automotive dealership

$

5,206.9

$

4,416.6

Retail commercial truck dealership

 

434.7

 

491.4

Commercial vehicle distribution

 

132.2

 

101.1

Total revenues

5,773.8

5,009.1

Cost of sales:

Retail automotive dealership

 

4,407.0

 

3,738.5

Retail commercial truck dealership

 

354.7

 

422.6

Commercial vehicle distribution

 

98.9

 

71.3

Total cost of sales

 

4,860.6

 

4,232.4

Gross profit

 

913.2

 

776.7

Selling, general and administrative expenses

 

664.3

 

641.8

Depreciation

 

29.3

 

28.5

Operating income

 

219.6

 

106.4

Floor plan interest expense

 

(9.5)

 

(17.7)

Other interest expense

 

(17.9)

 

(31.7)

Equity in earnings of affiliates

 

55.4

 

14.5

Income from continuing operations before income taxes

 

247.6

 

71.5

Income taxes

 

(64.5)

 

(20.1)

Income from continuing operations

 

183.1

 

51.4

Income from discontinued operations, net of tax

 

 

0.1

Net income

 

183.1

 

51.5

Less: Income (loss) attributable to non-controlling interests

 

0.6

 

(0.2)

Net income attributable to Penske Automotive Group common stockholders

$

182.5

$

51.7

Basic earnings per share attributable to Penske Automotive Group common stockholders:

Continuing operations

$

2.26

$

0.64

Discontinued operations

0.00

0.00

Net income attributable to Penske Automotive Group common stockholders

$

2.26

$

0.64

Shares used in determining basic earnings per share

 

80.6

 

81.1

Diluted earnings per share attributable to Penske Automotive Group common stockholders:

Continuing operations

$

2.26

$

0.64

Discontinued operations

0.00

0.00

Net income attributable to Penske Automotive Group common stockholders

$

2.26

$

0.64

Shares used in determining diluted earnings per share

 

80.6

 

81.1

Amounts attributable to Penske Automotive Group common stockholders:

Income from continuing operations

$

183.1

$

51.4

Less: Income (loss) attributable to non-controlling interests

 

0.6

 

(0.2)

Income from continuing operations, net of tax

 

182.5

 

51.6

Income from discontinued operations, net of tax

 

 

0.1

Net income attributable to Penske Automotive Group common stockholders

$

182.5

$

51.7

Cash dividends per share

$

0.43

$

0.42

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,

2021

    

2020

Net income

$

183.1

$

51.5

 

Other comprehensive income (loss):

Foreign currency translation adjustment

 

0.1

 

(92.9)

Unrealized gain on interest rate swaps:

Unrealized gain arising during the period, net of tax provision of $1.3 and $0.0, respectively

 

3.7

 

Reclassification adjustment for loss included in floor plan interest expense, net of tax benefit of $0.1 and $0.0, respectively

 

0.2

 

Unrealized gain on interest rate swaps, net of tax

 

3.9

 

Other adjustments to comprehensive income (loss), net

 

0.7

 

(4.0)

Other comprehensive income (loss), net of tax

 

4.7

 

(96.9)

Comprehensive income (loss)

 

187.8

 

(45.4)

Less: Comprehensive income (loss) attributable to non-controlling interests

 

0.1

 

(0.4)

Comprehensive income (loss) attributable to Penske Automotive Group common stockholders

$

187.7

$

(45.0)

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,

    

2021

    

2020

(Unaudited)

(In millions)

Operating Activities:

 

Net income

$

183.1

$

51.5

Adjustments to reconcile net income to net cash from continuing operating activities:

Depreciation

 

29.3

 

28.5

Earnings of equity method investments

 

(55.4)

 

(14.5)

Income from discontinued operations, net of tax

 

 

(0.1)

Deferred income taxes

 

41.8

 

28.4

Changes in operating assets and liabilities:

Accounts receivable

 

(54.5)

 

343.9

Inventories

 

147.2

 

(9.3)

Floor plan notes payable

 

(93.6)

 

(126.8)

Accounts payable and accrued expenses

 

39.1

 

(84.9)

Other

 

2.3

 

(4.8)

Net cash provided by continuing operating activities

 

239.3

 

211.9

Investing Activities:

Purchase of equipment and improvements

 

(42.4)

 

(25.7)

Proceeds from sale of dealerships

4.3

10.3

Proceeds from sale of equipment and improvements

20.4

Other

(0.6)

(0.7)

Net cash used in continuing investing activities

 

(18.3)

 

(16.1)

Financing Activities:

Proceeds from borrowings under U.S. credit agreement revolving credit line

 

301.0

 

515.0

Repayments under U.S. credit agreement revolving credit line

 

(409.0)

 

(210.0)

Net repayments of other long-term debt

 

(2.3)

 

(22.1)

Net (repayments) borrowings of floor plan notes payable — non-trade

 

(29.1)

 

11.7

Payments for contingent consideration

(21.1)

Repurchases of common stock

 

 

(29.4)

Dividends

 

(34.6)

 

(34.2)

Payment of debt issuance costs

(0.1)

Net (used in) cash provided by continuing financing activities

 

(174.1)

 

209.9

Discontinued operations:

Net cash provided by discontinued operating activities

 

 

0.1

Net cash provided by discontinued investing activities

 

 

Net cash provided by discontinued financing activities

 

 

Net cash provided by discontinued operations

 

 

0.1

Effect of exchange rate changes on cash and cash equivalents

(1.8)

(2.0)

Net change in cash and cash equivalents

 

45.1

 

403.8

Cash and cash equivalents, beginning of period

 

49.5

 

28.1

Cash and cash equivalents, end of period

$

94.6

$

431.9

Supplemental disclosures of cash flow information:

Cash paid (received) for:

Interest

$

27.2

$

36.3

Income taxes

 

11.5

 

(3.3)

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, 2021

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, 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

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)

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

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.

Impact of the COVID-19 Pandemic on our Business

Overview – In March 2020, COVID-19 was declared a global pandemic by the World Health Organization. The outbreak of the COVID-19 pandemic across the globe adversely impacted each of our markets and the global economy, leading to disruptions in our business. While the COVID-19 pandemic continues in all of our markets, we have experienced improved business conditions and improved financial results primarily driven by our cost cutting measures and increased gross profit on vehicles sold due in part to increased demand, coupled with lower inventory due to production shortages experienced by our vehicle manufacturers.

In response to the COVID-19 pandemic, the U.K. reinstated shelter-in-place orders which required our dealership showrooms to remain closed during the three months ended March 31, 2021. These shelter-in-place orders largely expired April 12, 2021, though certain restrictions remain. We continued to conduct sales through our online tools, which allowed vehicle sales without showroom access. If shelter-in-place orders are re-enacted or other restrictions are placed on our business, we may be adversely impacted.

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

Refer to the “COVID-19 Disclosure” in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information.

Business Overview and Concentrations

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.

Retail Automotive Dealership. We believe we are the second largest automotive retailer headquartered in the U.S. as measured by the $17.9 billion in total retail automotive dealership revenue we generated in 2020. As of March 31, 2021, we operated 304 retail automotive franchises, of which 143 franchises are located in the U.S. and 161 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, 2021, we retailed and wholesaled more than 135,000 vehicles. We are diversified geographically, with 58% of our total retail automotive dealership revenues in the three months ended March 31, 2021, generated in the U.S. and Puerto Rico and 42% generated outside the U.S. We offer over 35 vehicle brands, with 73% of our retail automotive dealership revenue in the three months ended March 31, 2021, 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.

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We also operate seventeen Used Vehicle SuperCenters in the U.S. and the U.K. which retail and wholesale used vehicles under a one price, “no-haggle” methodology. During the first quarter, we renamed our U.S.-based Used Vehicle SuperCenters from CarSense to CarShop to align with the existing eleven U.K.-based CarShop Used Vehicle SuperCenters, forming one global CarShop brand. Our operations in the U.S. consist of six retail locations operating in the Philadelphia and Pittsburgh, Pennsylvania market areas. Our operations in the U.K. consist of eleven retail locations and a vehicle preparation center.

During the three months ended March 31, 2021, we were awarded one retail automotive franchise in the U.S. and disposed of one retail automotive franchise in the U.K.

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 trucks (both Daimler brands), with locations in Texas, Oklahoma, Tennessee, Georgia, Utah, Idaho, and Canada. As of March 31, 2021, 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.

In April 2021, we acquired Kansas City Freightliner (“KCFL”), a retailer of medium and heavy-duty commercial trucks in Kansas and Missouri. KCFL adds four full-service dealerships, four parts and service centers, and two collision centers to PTG’s existing operations.

Penske Australia. We are the exclusive importer and distributor of Western Star heavy-duty trucks, 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, Rolls Royce Power Systems, and Bergen Engines. This business, known as Penske Australia, offers products across the on- and off-highway markets, including in the construction, mining, marine, defense, and power generation 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.

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, 2021, and December 31, 2020, and for the three-month periods ended March 31, 2021, and 2020 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, 2020, which are included as part of our Annual Report on Form 10-K.

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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, 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.

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 fixed rate debt is as follows:

March 31, 2021

December 31, 2020

 

  

Carrying Value

  

Fair Value

  

Carrying Value

  

Fair Value

 

3.50% senior subordinated notes due 2025

$

543.6

$

558.1

$

543.2

$

554.6

5.50% senior subordinated notes due 2026

496.6

512.3

496.4

515.0

Mortgage facilities

 

453.7

 

456.7

 

458.1

 

474.7

Discontinued Operations

We had no entities newly classified as held for sale during the three months ended March 31, 2021, or 2020 that met the criteria to be classified as discontinued operations. As such, results from discontinued operations represent only those businesses that were classified as discontinued operations prior to the adoption of ASU No. 2014-08 on January 1, 2015.

Disposals

During the three months ended March 31, 2021, we disposed of one retail automotive franchise. The results of operations for this business are included within continuing operations for the three months ended March 31, 2021, and 2020 as this franchise did not meet the criteria to be classified as held for sale and treated as discontinued operations.

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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.

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 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. Our senior secured revolving credit facilities in the U.S. and U.K. and many of our floorplan arrangements utilize LIBOR as a benchmark for calculating the applicable interest rate. We are currently evaluating 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.

Disclosures for Business Acquisitions, Dispositions, and Significant Subsidiaries

On May 20, 2020, the SEC issued a final rule that amends the financial statement requirements for acquisitions and dispositions of businesses, including the determinations of whether a subsidiary or an acquired or disposed business is significant. The significance test rule changes to SEC Regulation S-X, Rule 3-09 impact our disclosure requirements for equity method investments, including our investment in Penske Transportation Solutions (“PTS”) as it relates to providing audited financial statements and summarized financial statement information in our footnotes disclosures. The rule is effective January 1, 2021, but earlier compliance is permitted. The Company early adopted this rule in the fourth quarter of 2020.

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,

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and the sale of replacement parts and other aftermarket accessories, as well as warranty repairs that are reimbursed directly by various OEMs. 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 $29.4 million and $28.7 million as of March 31, 2021, and December 31, 2020.

Commercial Vehicle Distribution 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.

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

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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 $61.4 million and $58.4 million for the three months ended March 31, 2021, and March 31, 2020, 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, 2021, and 2020:

Three Months Ended March 31,

Retail Automotive Dealership Revenue

    

2021

    

2020

  

New vehicle

$

2,421.4

$

1,864.5