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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 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 October 25, 2021, there were 78,295,038 shares of voting common stock outstanding.

TABLE OF CONTENTS

Page

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Condensed Balance Sheets as of September 30, 2021, and December 31, 2020

3

Consolidated Condensed Statements of Income for the three and nine months ended September 30, 2021, and 2020

4

Consolidated Condensed Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021, and 2020

5

Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2021, and 2020

6

Consolidated Condensed Statement of Equity for the three and nine months ended September 30, 2021, and 2020

7

Notes to Consolidated Condensed Financial Statements

9

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

27

Item 3. Quantitative & Qualitative Disclosures About Market Risk

57

Item 4. Controls and Procedures

58

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

58

Item 1A. Risk Factors

58

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

59

Item 6. Exhibits

60

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

    

September 30,

    

December 31,

2021

2020

(Unaudited)

(In millions, except share

and per share amounts)

ASSETS

 

Cash and cash equivalents

$

119.2

$

49.5

Accounts receivable, net of allowance for doubtful accounts of $5.7 and $5.5

 

737.7

 

806.9

Inventories

 

2,598.4

 

3,425.6

Other current assets

 

121.4

 

126.8

Total current assets

 

3,576.7

 

4,408.8

Property and equipment, net

 

2,378.6

 

2,404.4

Operating lease right-of-use assets

 

2,410.9

 

2,416.5

Goodwill

 

2,050.9

 

1,928.4

Other indefinite-lived intangible assets

 

600.7

 

563.4

Equity method investments

 

1,668.2

 

1,500.3

Other long-term assets

 

33.3

 

25.4

Total assets

$

12,719.3

$

13,247.2

LIABILITIES AND EQUITY

Floor plan notes payable

$

962.2

$

1,780.5

Floor plan notes payable — non-trade

 

1,074.9

 

1,363.8

Accounts payable

 

808.8

 

675.4

Accrued expenses and other current liabilities

 

922.4

 

767.2

Current portion of long-term debt

 

67.9

 

87.5

Liabilities held for sale

 

0.5

 

0.5

Total current liabilities

 

3,836.7

 

4,674.9

Long-term debt

 

1,356.7

 

1,602.1

Long-term operating lease liabilities

 

2,341.1

 

2,350.3

Deferred tax liabilities

 

1,003.4

 

873.1

Other long-term liabilities

 

315.0

 

420.7

Total liabilities

 

8,852.9

 

9,921.1

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; 78,294,013 shares issued and outstanding at September 30, 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

 

110.8

 

311.8

Retained earnings

 

3,921.5

 

3,151.3

Accumulated other comprehensive income (loss)

 

(190.2)

 

(160.6)

Total Penske Automotive Group stockholders’ equity

 

3,842.1

 

3,302.5

Non-controlling interest

 

24.3

 

23.6

Total equity

 

3,866.4

 

3,326.1

Total liabilities and equity

$

12,719.3

$

13,247.2

See Notes to Consolidated Condensed Financial Statements

3

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

Three Months Ended

Nine Months Ended

September 30,

September 30,

 

    

2021

    

2020

2021

    

2020

(Unaudited)

(In millions, except per share amounts)

Revenue:

Retail automotive dealership

$

5,634.9

$

5,258.0

$

17,039.4

$

12,828.1

Retail commercial truck dealership

 

717.3

 

590.9

 

1,777.3

 

1,481.5

Commercial vehicle distribution

 

145.1

 

122.7

 

441.9

 

322.2

Total revenues

6,497.3

5,971.6

19,258.6

14,631.8

Cost of sales:

Retail automotive dealership

 

4,624.0

 

4,408.3

 

14,188.2

 

10,834.0

Retail commercial truck dealership

 

602.0

 

517.8

 

1,479.3

 

1,279.4

Commercial vehicle distribution

 

105.6

 

89.0

 

329.5

 

232.3

Total cost of sales

 

5,331.6

 

5,015.1

 

15,997.0

 

12,345.7

Gross profit

 

1,165.7

 

956.5

 

3,261.6

 

2,286.1

Selling, general and administrative expenses

 

757.7

 

643.3

 

2,171.8

 

1,738.7

Depreciation

 

30.2

 

29.0

 

89.7

 

85.4

Operating income

 

377.8

 

284.2

 

1,000.1

 

462.0

Floor plan interest expense

 

(6.0)

 

(8.0)

 

(23.4)

 

(37.4)

Other interest expense

 

(16.2)

 

(29.1)

 

(53.8)

 

(89.2)

Debt redemption costs

(1.7)

(17.0)

(1.7)

Equity in earnings of affiliates

 

120.5

 

66.2

 

281.5

 

110.6

Income from continuing operations before income taxes

 

476.1

 

311.6

 

1,187.4

 

444.3

Income taxes

 

(120.1)

 

(64.1)

 

(308.0)

 

(100.7)

Income from continuing operations

 

356.0

 

247.5

 

879.4

 

343.6

Income from discontinued operations, net of tax

 

0.3

 

0.1

 

0.4

 

0.3

Net income

 

356.3

 

247.6

 

879.8

 

343.9

Less: Income attributable to non-controlling interests

 

1.2

 

1.0

 

3.3

 

0.5

Net income attributable to Penske Automotive Group common stockholders

$

355.1

$

246.6

$

876.5

$

343.4

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

Continuing operations

$

4.46

$

3.07

$

10.91

$

4.27

Discontinued operations

Net income attributable to Penske Automotive Group common stockholders

$

4.47

$

3.07

$

10.92

$

4.27

Shares used in determining basic earnings per share

 

79.5

 

80.3

 

80.3

 

80.4

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

Continuing operations

$

4.46

$

3.07

$

10.91

$

4.27

Discontinued operations

Net income attributable to Penske Automotive Group common stockholders

$

4.47

$

3.07

$

10.92

$

4.27

Shares used in determining diluted earnings per share

 

79.5

 

80.4

 

80.3

 

80.4

Amounts attributable to Penske Automotive Group common stockholders:

Income from continuing operations

$

356.0

$

247.5

$

879.4

$

343.6

Less: Income attributable to non-controlling interests

 

1.2

 

1.0

 

3.3

 

0.5

Income from continuing operations, net of tax

 

354.8

 

246.5

 

876.1

 

343.1

Income from discontinued operations, net of tax

 

0.3

 

0.1

 

0.4

 

0.3

Net income attributable to Penske Automotive Group common stockholders

$

355.1

$

246.6

$

876.5

$

343.4

Cash dividends per share

$

0.45

$

$

1.32

$

0.42

See Notes to Consolidated Condensed Financial Statements

4

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended

Nine Months Ended

September 30,

September 30,

    

2021

    

2020

2021

    

2020

(Unaudited)

(In millions)

Net income

$

356.3

$

247.6

$

879.8

$

343.9

 

Other comprehensive income (loss):

Foreign currency translation adjustment

 

(42.6)

 

49.9

 

(40.7)

 

(15.4)

Unrealized gain (loss) on interest rate swaps:

Unrealized gain (loss) arising during the period, net of tax (provision) benefit of ($0.0), ($0.1), ($1.1), and $1.4, respectively

 

 

0.3

 

3.0

 

(3.8)

Reclassification adjustment for (gain) loss included in floor plan interest expense, net of tax provision (benefit) of ($0.1), $0.1, ($0.3), and $0.1, respectively

 

0.3

 

(0.2)

 

0.8

 

(0.2)

Unrealized gain (loss) on interest rate swaps, net of tax

 

0.3

 

0.1

 

3.8

 

(4.0)

Other adjustments to comprehensive income (loss), net

 

(0.5)

 

3.3

 

6.6

 

0.6

Other comprehensive income (loss), net of tax

 

(42.8)

 

53.3

 

(30.3)

 

(18.8)

Comprehensive income (loss)

 

313.5

 

300.9

 

849.5

 

325.1

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

 

0.8

 

1.4

 

2.6

 

0.8

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

$

312.7

$

299.5

$

846.9

$

324.3

See Notes to Consolidated Condensed Financial Statements

5

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

    

2021

    

2020

(Unaudited)

(In millions)

Operating Activities:

 

Net income

$

879.8

$

343.9

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

Depreciation

 

89.7

 

85.4

Earnings of equity method investments

 

(203.4)

 

(88.9)

Income from discontinued operations, net of tax

 

(0.4)

 

(0.3)

Deferred income taxes

 

126.3

 

177.6

Debt redemption costs

17.0

1.7

Changes in operating assets and liabilities:

Accounts receivable

 

69.4

 

112.2

Inventories

 

863.6

 

1,043.5

Floor plan notes payable

 

(818.3)

 

(925.9)

Accounts payable and accrued expenses

 

290.5

 

172.1

Other

 

16.2

 

(71.8)

Net cash provided by continuing operating activities

 

1,330.4

 

849.5

Investing Activities:

Purchase of equipment and improvements

 

(157.5)

 

(114.3)

Proceeds from sale of dealerships

4.3

10.3

Proceeds from sale of equipment and improvements

54.9

19.8

Acquisitions net, including repayment of sellers’ floor plan notes payable of $24.3 and $0, respectively

 

(278.0)

 

Other

0.2

(4.4)

Net cash used in continuing investing activities

 

(376.1)

 

(88.6)

Financing Activities:

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

 

1,487.0

 

956.0

Repayments under U.S. credit agreement revolving credit line

 

(1,595.0)

 

(1,001.0)

Issuance of 3.50% senior subordinated notes

550.0

Issuance of 3.75% senior subordinated notes

500.0

Repayment of 3.75% senior subordinated notes

(300.0)

Repayment of 5.50% senior subordinated notes

(500.0)

Net repayments of other long-term debt

 

(152.5)

 

(253.7)

Net repayments of floor plan notes payable — non-trade

 

(288.9)

 

(547.6)

Payments for contingent consideration

(31.6)

Repurchases of common stock

 

(206.9)

 

(29.4)

Dividends

 

(106.3)

 

(34.2)

Payment of debt issuance costs

(6.1)

(7.8)

Other

(12.8)

(5.0)

Net cash used in continuing financing activities

 

(881.5)

 

(704.3)

Discontinued operations:

Net cash provided by discontinued operating activities

 

0.4

 

0.2

Net cash provided by discontinued investing activities

 

 

Net cash provided by discontinued financing activities

 

 

Net cash provided by discontinued operations

 

0.4

 

0.2

Effect of exchange rate changes on cash and cash equivalents

(3.5)

7.8

Net change in cash and cash equivalents

 

69.7

 

64.6

Cash and cash equivalents, beginning of period

 

49.5

 

28.1

Cash and cash equivalents, end of period

$

119.2

$

92.7

Supplemental disclosures of cash flow information:

Cash paid for:

Interest

$

79.8

$

106.7

Income taxes

 

44.5

 

32.1

See Notes to Consolidated Condensed Financial Statements

6

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

Three Months Ended September 30, 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, June 30, 2021

    

80,330,836

$

$

284.0

$

3,602.5

$

(147.8)

$

3,738.7

$

24.0

$

3,762.7

Equity compensation

 

(7,192)

 

 

5.7

 

 

 

5.7

 

 

5.7

Repurchases of common stock

(2,029,631)

 

 

(178.9)

 

 

 

(178.9)

 

 

(178.9)

Dividends

 

 

 

 

(36.1)

 

 

(36.1)

 

 

(36.1)

Interest rate swaps

0.3

0.3

0.3

Distributions to non-controlling interest

 

 

 

 

 

 

 

(0.5)

 

(0.5)

Foreign currency translation

 

 

 

 

 

(42.2)

 

(42.2)

 

(0.4)

 

(42.6)

Other

 

 

 

 

 

(0.5)

 

(0.5)

 

 

(0.5)

Net income

 

 

 

 

355.1

 

 

355.1

 

1.2

 

356.3

Balance, September 30, 2021

 

78,294,013

$

$

110.8

$

3,921.5

$

(190.2)

$

3,842.1

$

24.3

$

3,866.4

Three Months Ended September 30, 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, June 30, 2020

    

80,339,909

$

$

296.3

$

2,738.4

$

(274.8)

$

2,759.9

$

17.7

$

2,777.6

Equity compensation

 

750

 

 

5.1

 

 

 

5.1

 

 

5.1

Repurchases of common stock

(4,448)

 

 

(0.2)

 

 

 

(0.2)

 

 

(0.2)

Interest rate swaps

0.1

0.1

0.1

Foreign currency translation

 

 

 

 

 

49.5

 

49.5

 

0.4

 

49.9

Other

 

 

 

 

 

3.3

 

3.3

 

0.1

 

3.4

Net income

 

 

 

 

246.6

 

 

246.6

 

1.0

 

247.6

Balance, September 30, 2020

 

80,336,211

$

$

301.2

$

2,985.0

$

(221.9)

$

3,064.3

$

19.2

$

3,083.5

See Notes to Consolidated Condensed Financial Statements

7

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

Nine Months Ended September 30, 2021

Accumulated

Total

 

Common Stock

Additional

Other

Penske