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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
or
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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)
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Delaware |
22-3086739 |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
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2555 Telegraph Road |
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Bloomfield Hills, Michigan
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48302-0954 |
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(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:
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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Voting Common Stock, par value $0.0001 per share
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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.
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Large Accelerated Filer |
x |
Accelerated filer |
o |
Non-accelerated filer |
o |
Smaller reporting company |
o |
Emerging growth company |
o |
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 October 25, 2022, there were 71,303,456 shares of voting
common stock outstanding.
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
Item 1.
Financial Statements
PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
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September 30,
2022 |
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December 31,
2021 |
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(Unaudited) |
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(In millions, except share
and per share amounts) |
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ASSETS |
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Cash
and cash equivalents |
$ |
92.3 |
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$ |
100.7 |
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Accounts receivable, net of allowance for doubtful accounts of $6.3
and $6.8
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831.3 |
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734.0 |
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Inventories |
3,146.9 |
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3,129.0 |
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Other current assets |
139.8 |
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111.7 |
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Total current assets |
4,210.3 |
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4,075.4 |
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Property and equipment, net |
2,415.5 |
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2,442.2 |
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Operating lease right-of-use assets |
2,386.9 |
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2,451.4 |
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Goodwill |
2,112.9 |
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2,124.1 |
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Other indefinite-lived intangible assets |
681.1 |
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641.5 |
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Equity method investments |
1,733.8 |
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1,688.1 |
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Other long-term assets |
47.6 |
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41.9 |
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Total assets |
$ |
13,588.1 |
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$ |
13,464.6 |
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LIABILITIES AND EQUITY |
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Floor plan notes payable |
$ |
1,383.3 |
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$ |
1,144.8 |
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Floor plan notes payable — non-trade |
1,212.9 |
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1,409.9 |
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Accounts payable |
828.0 |
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767.1 |
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Accrued expenses and other current liabilities |
813.2 |
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870.3 |
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Current portion of long-term debt |
76.0 |
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82.0 |
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Liabilities held for sale |
— |
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0.5 |
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Total current liabilities |
4,313.4 |
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4,274.6 |
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Long-term debt |
1,561.9 |
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1,392.0 |
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Long-term operating lease liabilities |
2,310.1 |
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2,373.6 |
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Deferred tax liabilities |
1,114.7 |
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1,060.4 |
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Other long-term liabilities |
200.0 |
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269.0 |
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Total liabilities |
9,500.1 |
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9,369.6 |
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Commitments and contingent liabilities (Note 10) |
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Equity |
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Penske Automotive Group stockholders’ equity: |
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Preferred Stock, $0.0001 par value; 100,000 shares authorized; none
issued and outstanding
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— |
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— |
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Common Stock, $0.0001 par value, 240,000,000 shares authorized;
72,202,858 shares issued and outstanding at September 30,
2022; 77,574,172 shares issued and outstanding at December 31,
2021
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— |
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— |
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Non-voting Common Stock, $0.0001 par value; 7,125,000 shares
authorized; none issued and outstanding
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— |
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— |
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Class C Common Stock, $0.0001 par value; 20,000,000 shares
authorized; none issued and outstanding
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— |
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— |
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Additional paid-in capital |
— |
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42.2 |
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Retained earnings |
4,504.5 |
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4,196.6 |
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Accumulated other comprehensive income (loss) |
(441.0) |
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(168.8) |
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Total Penske Automotive Group stockholders’ equity |
4,063.5 |
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4,070.0 |
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Non-controlling interest |
24.5 |
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25.0 |
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Total equity |
4,088.0 |
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4,095.0 |
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Total liabilities and equity |
$ |
13,588.1 |
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$ |
13,464.6 |
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See Notes to Consolidated Condensed Financial
Statements
PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
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Three Months Ended
September 30, |
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Nine Months Ended
September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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(Unaudited) |
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(In millions, except per share amounts) |
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Revenue: |
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Retail automotive dealership |
$ |
5,757.8 |
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$ |
5,634.9 |
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$ |
17,784.3 |
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$ |
17,039.4 |
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Retail commercial truck dealership |
1,019.5 |
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717.3 |
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2,580.5 |
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1,777.3 |
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Commercial vehicle distribution and other |
143.4 |
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145.1 |
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438.2 |
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441.9 |
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Total revenues |
6,920.7 |
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6,497.3 |
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20,803.0 |
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19,258.6 |
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Cost of sales: |
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Retail automotive dealership |
4,750.9 |
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4,624.0 |
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14,666.7 |
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14,188.2 |
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Retail commercial truck dealership |
879.8 |
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602.0 |
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2,163.6 |
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1,479.3 |
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Commercial vehicle distribution and other |
103.1 |
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105.6 |
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317.1 |
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329.5 |
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Total cost of sales |
5,733.8 |
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5,331.6 |
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17,147.4 |
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15,997.0 |
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Gross profit |
1,186.9 |
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1,165.7 |
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3,655.6 |
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3,261.6 |
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Selling, general and administrative expenses |
792.7 |
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757.7 |
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2,408.2 |
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2,171.8 |
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Depreciation |
31.5 |
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30.2 |
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95.1 |
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89.7 |
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Operating income |
362.7 |
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377.8 |
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1,152.3 |
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1,000.1 |
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Floor plan interest expense |
(13.8) |
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(6.0) |
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(30.3) |
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(23.4) |
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Other interest expense |
(17.9) |
|
|
(16.2) |
|
|
(51.4) |
|
|
(53.8) |
|
|
Debt redemption costs |
— |
|
|
— |
|
|
— |
|
|
(17.0) |
|
|
Equity in earnings of affiliates |
136.2 |
|
|
120.5 |
|
|
393.8 |
|
|
281.5 |
|
|
Income from continuing operations before income taxes |
467.2 |
|
|
476.1 |
|
|
1,464.4 |
|
|
1,187.4 |
|
|
Income taxes |
(125.7) |
|
|
(120.1) |
|
|
(377.5) |
|
|
(308.0) |
|
|
Income from continuing operations |
341.5 |
|
|
356.0 |
|
|
1,086.9 |
|
|
879.4 |
|
|
Income from discontinued operations, net of tax |
— |
|
|
0.3 |
|
|
— |
|
|
0.4 |
|
|
Net income |
341.5 |
|
|
356.3 |
|
|
1,086.9 |
|
|
879.8 |
|
|
Less: Income attributable to non-controlling interests |
1.4 |
|
|
1.2 |
|
|
4.9 |
|
|
3.3 |
|
|
Net income attributable to Penske Automotive Group common
stockholders |
$ |
340.1 |
|
|
$ |
355.1 |
|
|
$ |
1,082.0 |
|
|
$ |
876.5 |
|
|
Basic earnings per share attributable to Penske Automotive Group
common stockholders: |
|
|
|
|
|
|
|
|
Continuing operations |
$ |
4.61 |
|
|
$ |
4.46 |
|
|
$ |
14.32 |
|
|
$ |
10.91 |
|
|
Discontinued operations |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net income attributable to Penske Automotive Group common
stockholders |
$ |
4.61 |
|
|
$ |
4.47 |
|
|
$ |
14.32 |
|
|
$ |
10.92 |
|
|
Shares used in determining basic earnings per share |
73.7 |
|
|
79.5 |
|
|
75.6 |
|
|
80.3 |
|
|
Diluted earnings per share attributable to Penske Automotive Group
common stockholders: |
|
|
|
|
|
|
|
|
Continuing operations |
$ |
4.61 |
|
|
$ |
4.46 |
|
|
$ |
14.31 |
|
|
$ |
10.91 |
|
|
Discontinued operations |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net income attributable to Penske Automotive Group common
stockholders |
$ |
4.61 |
|
|
$ |
4.47 |
|
|
$ |
14.31 |
|
|
$ |
10.92 |
|
|
Shares used in determining diluted earnings per share |
73.8 |
|
|
79.5 |
|
|
75.6 |
|
|
80.3 |
|
|
Amounts attributable to Penske Automotive Group common
stockholders: |
|
|
|
|
|
|
|
|
Income from continuing operations |
$ |
341.5 |
|
|
$ |
356.0 |
|
|
$ |
1,086.9 |
|
|
$ |
879.4 |
|
|
Less: Income attributable to non-controlling interests |
1.4 |
|
|
1.2 |
|
|
4.9 |
|
|
3.3 |
|
|
Income from continuing operations, net of tax |
340.1 |
|
|
354.8 |
|
|
1,082.0 |
|
|
876.1 |
|
|
Income from discontinued operations, net of tax |
— |
|
|
0.3 |
|
|
— |
|
|
0.4 |
|
|
Net income attributable to Penske Automotive Group common
stockholders |
$ |
340.1 |
|
|
$ |
355.1 |
|
|
$ |
1,082.0 |
|
|
$ |
876.5 |
|
|
Cash dividends per share |
$ |
0.53 |
|
|
$ |
0.45 |
|
|
$ |
1.50 |
|
|
$ |
1.32 |
|
See Notes to Consolidated Condensed Financial
Statements
PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
(Unaudited) |
|
(In millions) |
|
Net income |
$ |
341.5 |
|
|
$ |
356.3 |
|
|
$ |
1,086.9 |
|
|
$ |
879.8 |
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
(132.4) |
|
|
(42.6) |
|
|
(281.2) |
|
|
(40.7) |
|
|
Unrealized gain on interest rate swaps: |
|
|
|
|
|
|
|
|
Unrealized gain arising during the period, net of tax provision of
$0.0, $0.0, $0.0, and $1.1, respectively
|
— |
|
|
— |
|
|
— |
|
|
3.0 |
|
|
Reclassification adjustment for loss included in floor plan
interest expense, net of tax benefit of $0.0, $0.1, $0.0, and $0.3,
respectively
|
— |
|
|
0.3 |
|
|
— |
|
|
0.8 |
|
|
Unrealized gain on interest rate swaps, net of tax |
— |
|
|
0.3 |
|
|
— |
|
|
3.8 |
|
|
Other adjustments to comprehensive income, net |
2.4 |
|
|
(0.5) |
|
|
6.9 |
|
|
6.6 |
|
|
Other comprehensive income (loss), net of tax |
(130.0) |
|
|
(42.8) |
|
|
(274.3) |
|
|
(30.3) |
|
|
Comprehensive income |
211.5 |
|
|
313.5 |
|
|
812.6 |
|
|
849.5 |
|
|
Less: Comprehensive income attributable to non-controlling
interests |
0.5 |
|
|
0.8 |
|
|
2.8 |
|
|
2.6 |
|
|
Comprehensive income attributable to Penske Automotive Group common
stockholders |
$ |
211.0 |
|
|
$ |
312.7 |
|
|
$ |
809.8 |
|
|
$ |
846.9 |
|
See Notes to Consolidated Condensed Financial
Statements
PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
(Unaudited) |
|
(In millions) |
|
Operating Activities: |
|
|
|
|
Net income |
$ |
1,086.9 |
|
|
$ |
879.8 |
|
|
Adjustments to reconcile net income to net cash from continuing
operating activities: |
|
|
|
|
Depreciation |
95.1 |
|
|
89.7 |
|
|
Earnings of equity method investments |
(266.3) |
|
|
(203.4) |
|
|
Income from discontinued operations, net of tax |
— |
|
|
(0.4) |
|
|
Deferred income taxes |
113.7 |
|
|
126.3 |
|
|
Debt redemption costs |
— |
|
|
17.0 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable |
(137.7) |
|
|
69.4 |
|
|
Inventories |
(196.9) |
|
|
863.6 |
|
|
Floor plan notes payable |
337.9 |
|
|
(818.3) |
|
|
Accounts payable and accrued expenses |
145.8 |
|
|
290.5 |
|
|
Other |
29.7 |
|
|
16.2 |
|
|
Net cash provided by continuing operating activities |
1,208.2 |
|
|
1,330.4 |
|
|
Investing Activities: |
|
|
|
|
Purchases of property, equipment, and improvements |
(195.7) |
|
|
(157.5) |
|
|
Proceeds from sale of dealerships |
— |
|
|
4.3 |
|
|
Proceeds from sale of property and equipment |
12.3 |
|
|
54.9 |
|
|
Acquisitions net, including repayment of sellers’ floor plan notes
payable of $51.3 and $24.3, respectively
|
(393.4) |
|
|
(278.0) |
|
|
Other |
(7.5) |
|
|
0.2 |
|
|
Net cash used in continuing investing activities |
(584.3) |
|
|
(376.1) |
|
|
Financing Activities: |
|
|
|
|
Proceeds from borrowings under U.S. credit agreement revolving
credit line |
1,514.0 |
|
|
1,487.0 |
|
|
Repayments under U.S. credit agreement revolving credit
line |
(1,514.0) |
|
|
(1,595.0) |
|
|
|
|
|
|
Issuance of 3.75% senior subordinated notes
|
— |
|
|
500.0 |
|
|
|
|
|
|
Repayment of 5.50% senior subordinated notes
|
— |
|
|
(500.0) |
|
|
Net borrowings (repayments) of other long-term debt |
186.0 |
|
|
(152.5) |
|
|
Net repayments of floor plan notes payable — non-trade |
(85.5) |
|
|
(288.9) |
|
|
|
|
|
|
Repurchases of common stock |
(584.8) |
|
|
(206.9) |
|
|
Dividends |
(113.6) |
|
|
(106.3) |
|
|
Payment of debt issuance costs |
(0.3) |
|
|
(6.1) |
|
|
Other |
(17.1) |
|
|
(12.8) |
|
|
Net cash used in continuing financing activities |
(615.3) |
|
|
(881.5) |
|
|
Discontinued operations: |
|
|
|
|
Net cash provided by discontinued operating activities |
— |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by discontinued operations |
— |
|
|
0.4 |
|
|
Effect of exchange rate changes on cash and cash
equivalents |
(17.0) |
|
|
(3.5) |
|
|
Net change in cash and cash equivalents |
(8.4) |
|
|
69.7 |
|
|
Cash and cash equivalents, beginning of period |
100.7 |
|
|
49.5 |
|
|
Cash and cash equivalents, end of period |
$ |
92.3 |
|
|
$ |
119.2 |
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
Cash paid (received) for: |
|
|
|
|
Interest |
$ |
76.8 |
|
|
$ |
79.8 |
|
|
Income taxes |
253.8 |
|
|
44.5 |
|
See
Notes to Consolidated Condensed Financial Statements
PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 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, June 30, 2022
|
75,015,462 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,506.7 |
|
|
$ |
(311.9) |
|
|
$ |
4,194.8 |
|
|
$ |
24.6 |
|
|
$ |
4,219.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation |
(1,258) |
|
|
— |
|
|
6.3 |
|
|
— |
|
|
— |
|
|
6.3 |
|
|
— |
|
|
6.3 |
|
|
Repurchases of common stock |
(2,811,346) |
|
|
— |
|
|
(6.3) |
|
|
(303.1) |
|
|
— |
|
|
(309.4) |
|
|
— |
|
|
(309.4) |
|
|
Dividends |
— |
|
|
— |
|
|
— |
|
|
(39.2) |
|
|
— |
|
|
(39.2) |
|
|
— |
|
|
(39.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to non-controlling interest |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(0.6) |
|
|
(0.6) |
|
|
Foreign currency translation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(131.5) |
|
|
(131.5) |
|
|
(0.9) |
|
|
(132.4) |
|
|
Other |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2.4 |
|
|
2.4 |
|
|
— |
|
|
2.4 |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
340.1 |
|
|
— |
|
|
340.1 |
|
|
1.4 |
|
|
341.5 |
|
|
Balance, September 30, 2022
|
72,202,858 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,504.5 |
|
|
$ |
(441.0) |
|
|
$ |
4,063.5 |
|
|
$ |
24.5 |
|
|
$ |
4,088.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 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, 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 |
|
See Notes to Consolidated Condensed Financial
Statements
PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 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 |
306,588 |
|
|
— |
|
|
20.9 |
|
|
— |
|
|
— |
|
|
20.9 |
|
|
— |
|
|
20.9 |
|
|
Repurchases of common stock |
(5,677,902) |
|
|
— |
|
|
(63.1) |
|
|
(538.9) |
|
|
— |
|
|
(602.0) |
|
|
— |
|
|
(602.0) |
|
|
Dividends |
— |
|
|
— |
|
|
— |
|
|
(113.6) |
|
|
— |
|
|
(113.6) |
|
|
— |
|
|
(113.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to non-controlling interest |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3.3) |
|
|
(3.3) |
|
|
Foreign currency translation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(279.1) |
|
|
(279.1) |
|
|
(2.1) |
|
|
(281.2) |
|
|
Other |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6.9 |
|
|
6.9 |
|
|
— |
|
|
6.9 |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
1,082.0 |
|
|
— |
|
|
1,082.0 |
|
|
4.9 |
|
|
1,086.9 |
|
|
Balance, September 30, 2022
|
72,202,858 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,504.5 |
|
|
$ |
(441.0) |
|
|
$ |
4,063.5 |
|
|
$ |
24.5 |
|
|
$ |
4,088.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 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 |
426,289 |
|
|
— |
|
|
18.8 |
|
|
— |
|
|
— |
|
|
18.8 |
|
|
— |
|
|
18.8 |
|
|
Repurchases of common stock |
(2,524,938) |
|
|
— |
|
|
(219.8) |
|
|
— |
|
|
— |
|
|
(219.8) |
|
|
— |
|
|
(219.8) |
|
|
Dividends |
— |
|
|
— |
|
|
— |
|
|
(106.3) |
|
|
— |
|
|
(106.3) |
|
|
— |
|
|
(106.3) |
|
|
Interest rate swaps |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3.8 |
|
|
3.8 |
|
|
— |
|
|
3.8 |
|
|
Distributions to non-controlling interest |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1.9) |
|
|
(1.9) |
|
|
Foreign currency translation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(40.0) |
|
|
(40.0) |
|
|
(0.7) |
|
|
(40.7) |
|
|
Other |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6.6 |
|
|
6.6 |
|
|
— |
|
|
6.6 |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
876.5 |
|
|
— |
|
|
876.5 |
|
|
3.3 |
|
|
879.8 |
|
|
Balance, September 30, 2021
|
78,294,013 |
|
|
$ |
— |
|
|
$ |
110.8 |
|
|
$ |
3,921.5 |
|
|
$ |
(190.2) |
|
|
$ |
3,842.1 |
|
|
$ |
24.3 |
|
|
$ |
3,866.4 |
|
See Notes to Consolidated Condensed Financial
Statements
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 400,000 trucks, tractors, and
trailers 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 September 30, 2022, we operated
340 retail automotive franchised dealerships, of which 152 are
located in the U.S. and 188 are located outside of the U.S. The
franchised dealerships outside the U.S. are located primarily in
the U.K. We also operate 21 used vehicle dealerships in the U.S.
and the U.K. which retail used vehicles under a one price,
“no-haggle” methodology under the CarShop brand. Our CarShop
operations consist of eight retail dealerships in the U.S. and 13
retail dealerships and a vehicle preparation center in the U.K. We
retailed and wholesaled more than 410,000 vehicles in the nine
months ended September 30, 2022. We are diversified
geographically with 57% of our total retail automotive dealership
revenues in the nine months ended September 30, 2022,
generated in the U.S. and Puerto Rico and 43% generated outside the
U.S. We offer over 35 vehicle brands with 70% of our retail
automotive franchised dealership revenue generated from premium
brands, such as Audi, BMW, Land Rover, Mercedes-Benz, and Porsche,
in the nine months ended September 30, 2022.
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 automotive
manufacturers and distributors that are subject to certain rights
and restrictions typical of the industry. In March 2022, we agreed
to transition our U.K. Mercedes Benz dealerships to an agency model
beginning in 2023. Under an agency model, our U.K. Mercedes Benz
dealerships will receive a fee for facilitating the sale by the
manufacturer of a new vehicle but will not hold the vehicle in
inventory. We will continue to provide new vehicle customer service
at our U.K. Mercedes Benz dealerships, and the agency model is not
expected to structurally change our used vehicle sales operations
or service and parts operations. See Part II, Item 1A.
Risk Factors
in our Quarterly Report on Form 10-Q for the quarter ended March
31, 2022, for a discussion of agency.
During the nine months ended September 30, 2022, we acquired
19 retail automotive franchises, consisting of 15 franchises in the
U.K. and four franchises in the U.S., and we opened two retail
automotive franchises that we were awarded in the U.S. We also
closed one retail automotive franchise in the U.K.
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
September 30, 2022, PTG operated 39 locations, selling new and
used trucks, parts and service, and offering collision repair
services. We retailed and wholesaled 15,211 trucks in the nine
months ended September 30, 2022.
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, 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 September 30,
2022 and for the three and nine months ended September 30,
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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
|
Carrying Value |
|
Fair Value |
|
Carrying Value |
|
Fair Value |
|
3.50% senior subordinated notes due 2025
|
545.8 |
|
|
502.9 |
|
|
544.7 |
|
|
$ |
560.5 |
|
|
3.75% senior subordinated notes due 2029
|
494.9 |
|
|
397.7 |
|
|
494.3 |
|
|
490.7 |
|
|
Mortgage facilities
(1)
|
530.1 |
|
|
499.6 |
|
|
353.8 |
|
|
359.8 |
|
|
_____________________ |
|
|
|
|
|
|
|
|
(1)In
addition to fixed rate debt, our mortgage facilities also include a
revolving mortgage facility through Toyota Motor Credit Corporation
that bears interest at a variable rate based on LIBOR. The fair
value equals the carrying value.
|
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.
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 and
our U.K. credit agreement 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.
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 non-cash 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 voluntary 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 $37.2 million and $33.7 million as of
September 30, 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.
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 $62.7 million and $178.3
million for the three and nine months ended September 30,
2022, and $69.5 million and $210.7 million for the three and nine
months ended September 30, 2021, respectively, for Penske
Australia.
Retail Automotive Dealership
The following tables disaggregate our retail automotive segment
revenue by product type and geographic location for the three and
nine months ended September 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
Retail Automotive Dealership Revenue |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
New vehicle |
$ |
2,395.2 |
|
|
$ |
2,275.2 |
|
|
$ |
7,286.7 |
|
|
$ |
7,507.9 |
|
|
Used vehicle |
2,208.8 |
|
|
2,302.3 |
|
|
7,019.5 |
|
|
6,437.9 |
|
|
Finance and insurance, net |
208.1 |
|
|
202.7 |
|
|
646.8 |
|
|
583.8 |
|
|
Service and parts |
609.8 |
|
|
555.3 |
|
|
1,793.0 |
|
|
1,604.7 |
|
|
Fleet and wholesale |
335.9 |
|
|
299.4 |
|
|
1,038.3 |
|
|
905.1 |
|
|
Total retail automotive dealership revenue |
$ |
5,757.8 |
|
|
$ |
5,634.9 |
|
|
$ |
17,784.3 |
|
|
$ |
17,039.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
Retail Automotive Dealership Revenue |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
U.S. |
$ |
3,400.8 |
|
|
$ |
3,271.2 |
|
|
$ |
10,188.3 |
|
|
$ |
9,890.5 |
|
|
U.K. |
2,002.0 |
|
|
2,055.2 |
|
|
6,461.3 |
|
|
6,099.2 |
|
|
Germany, Italy, and Japan |
355.0 |
|
|
308.5 |
|
|
1,134.7 |
|
|
1,049.7 |
|
|
Total retail automotive dealership revenue |
$ |
5,757.8 |
|
|
$ |
5,634.9 |
|
|
$ |
17,784.3 |
|
|
$ |
17,039.4 |
|
Retail Commercial Truck Dealership
The following table disaggregates our retail commercial truck
segment revenue by product type for the three and nine months ended
September 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
Retail Commercial Truck Dealership Revenue |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
New truck |
$ |
704.8 |
|
|
$ |
464.1 |
|
|
$ |
1,623.8 |
|
|
$ |
1,110.8 |
|
|
Used truck |
74.2 |
|
|
81.2 |
|
|
253.2 |
|
|
191.2 |
|
|
Finance and insurance, net |
5.5 |
|
|
4.8 |
|
|
16.4 |
|
|
11.7 |
|
|
Service and parts |
223.9 |
|
|
160.9 |
|
|
640.5 |
|
|
442.8 |
|
|
Other |
11.1 |
|
|
6.3 |
|
|
46.6 |
|
|
20.8 |
|
|
Total retail commercial truck dealership revenue |
$ |
1,019.5 |
|
|
$ |
717.3 |
|
|
$ |
2,580.5 |
|
|
$ |
1,777.3 |
|
Commercial Vehicle Distribution and Other
Our other reportable segment relates to our Penske Australia
business. Commercial vehicle distribution and other revenue was
$143.4 million and $438.2 million during the three and nine months
ended September 30, 2022, and $145.1 million and $441.9
million during the three and nine months ended September 30,
2021, respectively.
Contract Balances
The following table summarizes our accounts receivable and unearned
revenues as of September 30, 2022, and December 31,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
|
Accounts receivable |
|
|
|
|
Contracts in transit |
$ |
255.0 |
|
|
$ |
198.7 |
|
|
Vehicle receivables |
211.9 |
|
|
197.7 |
|
|
Manufacturer receivables |
157.8 |
|
|
157.7 |
|
|
Trade receivables |
184.7 |
|
|
164.5 |
|
|
|
|
|
|
|
Accrued expenses |
|
|
|
|
Unearned revenues |
$ |
267.4 |
|
|
$ |
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, $178.1 million was recognized as revenue during the nine
months ended September 30, 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.
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 $5.2 billion as of September 30,
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 was $4.4 million and $14.1 million for the three and
nine months ended September 30, 2022, and $5.8 million and
$18.8 million for the three and nine months ended
September 30, 2021, 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
September 30, 2022.
The following table summarizes our net operating lease cost during
the three and nine months ended September 30, 2022 and
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Lease Cost |
|
|
|
|
|
|
|
|
Operating lease cost (1) |
$ |
63.1 |
|
|
$ |
62.8 |
|
|
$ |
190.3 |
|
|
$ |
187.1 |
|
|
Sublease income |
(4.4) |
|
|
(5.8) |
|
|
(14.1) |
|
|
(18.8) |
|
|
Total lease cost |
$ |
58.7 |
|
|
$ |
57.0 |
|
|
$ |
176.2 |
|
|
$ |
168.3 |
|
__________
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2022 |
|
Nine Months Ended
September 30, 2021 |
|
Other Information |
|
|
|
|
Cash paid for amounts included in the measurement of lease
liabilities |
|
|
|
|
Operating cash flows from operating leases |
$ |
185.5 |
|
|
$ |
186.9 |
|
|
Right-of-use assets obtained in exchange for operating lease
liabilities, net |
$ |
112.3 |
|
|
$ |
68.0 |
|
Supplemental balance sheet information related to the weighted
average remaining lease term and discount rate of our leases is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 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 September 30, 2022:
|
|
|
|
|
|
|
Maturity of Lease Liabilities |
September 30, 2022 |
|
2022 (1) |
$ |
60.9 |
|
|
2023 |
239.3 |
|
|
2024 |
233.3 |
|
|
2025 |
229.6 |
|
|
2026 |
223.6 |
|
|
2027 |
217.5 |
|
|
2028 and thereafter
|
4,036.7 |
|
|
Total future minimum lease payments |
$ |
5,240.9 |
|
|
Less: Imputed interest |
(2,836.9) |
|
|
Present value of future minimum lease payments |
$ |
2,404.0 |
|
|
|
|
|
Current operating lease liabilities (2) |
$ |
93.9 |
|
|
Long-term operating lease liabilities |
2,310.1 |
|
|
Total operating lease liabilities |
$ |
2,404.0 |
|
__________
(1)Excludes
the nine months ended September 30, 2022.
(2)Included
within “Accrued expenses and other current liabilities” on
Consolidated Condensed Balance Sheet as of September 30,
2022.
4. Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
|
Retail automotive dealership new vehicles |
$ |
1,080.8 |
|
|
$ |
869.1 |
|
|
Retail automotive dealership used vehicles |
1,173.7 |
|
|
1,420.0 |
|
|
Retail automotive parts, accessories, and other |
138.6 |
|
|
126.4 |
|
|
Retail commercial truck dealership vehicles and parts |
495.9 |
|
|
436.7 |
|
|
Commercial vehicle distribution vehicles, parts, and
engines |
257.9 |
|
|
276.8 |
|
|
Total inventories |
$ |
3,146.9 |
|
|
$ |
3,129.0 |
|
We receive credits from certain vehicle manufacturers that reduce
cost of sales when the vehicles are sold. Such credits amounted to
$12.9 million and $14.4 million during the three months ended
September 30, 2022 and 2021, respectively, and $38.5 million
and $51.5 million during the nine months ended September 30,
2022 and 2021, respectively.
5. Business Combinations
During the nine months ended September 30, 2022, we acquired
19 retail automotive franchises, consisting of 15 franchises in the
U.K. and four franchises in the U.S. We also 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 nine months
ended September 30, 2021, we acquired one retail automotive
franchise in the U.S. We also acquired Kansas City Freightliner
(“KCFL”), adding four full-service dealerships, four parts and
service centers, and two collision centers to PTG’s existing
operations. 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 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 nine months ended September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
2022 |
|
2021 |
|
Accounts receivable |
$ |
8.3 |
|
|
$ |
— |
|
|
Inventories |
111.4 |
|
|
37.0 |
|
|
Other current assets |
3.2 |
|
|
0.1 |
|
|
Property and equipment |
134.1 |
|
|
62.8 |
|
|
Indefinite-lived intangibles |
160.3 |
|
|
181.3 |
|
|
Other noncurrent assets |
— |
|
|
— |
|
|
Current liabilities |
(14.2) |
|
|
(2.8) |
|
|
Noncurrent liabilities |
(9.7) |
|
|
(0.4) |
|
|
Total cash used in acquisitions |
$ |
393.4 |
|
|
$ |
278.0 |
|
Our following unaudited consolidated pro forma results of
operations for the three and nine months ended September 30,
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 September 30, |
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Revenues |
$ |
6,989.5 |
|
|
$ |
6,911.6 |
|
|
$ |
21,242.8 |
|
|
$ |
20,659.1 |
|
|
Income from continuing operations |
340.3 |
|
|
363.0 |
|
|
1,086.9 |
|
|
904.1 |
|
|
Net income |
340.3 |
|
|
363.2 |
|
|
1,086.9 |
|
|
904.5 |
|
|
Income from continuing operations per diluted common
share |
$ |
4.61 |
|
|
$ |
4.56 |
|
|
$ |
14.38 |
|
|
$ |
11.26 |
|
|
Net income per diluted common share |
$ |
4.61 |
|
|
$ |
4.57 |
|
|
$ |
14.38 |
|
|
$ |
11.26 |
|
6. Intangible Assets
Following is a summary of the changes in the carrying amount of
goodwill and other indefinite-lived intangible assets during the
nine months ended September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
Other Indefinite-
Lived Intangible
Assets |
|
Balance, January 1, 2022
|
$ |
2,124.1 |
|
|
$ |
641.5 |
|
|
Additions |
93.7 |
|
|
66.6 |
|
|
Disposals |
— |
|
|
— |
|
|
Foreign currency translation |
(104.9) |
|
|
(27.0) |
|
|
Balance, September 30, 2022
|
$ |
2,112.9 |
|
|
$ |
681.1 |
|
The additions during the nine months ended September 30, 2022,
were within our Retail Automotive and Retail Commercial Truck
reportable segments. As of September 30, 2022, the goodwill
balance within our Retail Automotive, Retail Commercial Truck, and
Other reportable segments was $1,581.2 million, $461.1 million, and
$70.6 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 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, SONIA, the Bank of England Base Rate, 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
1.6% and 1.2% for the nine months ended September 30, 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 and nine months ended September 30, 2022
and 2021 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Weighted average number of common shares outstanding |
73,739,316 |
|
|
79,497,482 |
|
|
75,575,189 |
|
|
80,272,613 |
|
|
Effect of non-participatory equity compensation |
25,399 |
|
|
25,845 |
|
|
25,399 |
|
|
25,845 |
|
|
Weighted average number of common shares outstanding, including
effect of dilutive securities |
73,764,715 |
|
|
79,523,327 |
|
|
75,600,588 |
|
|
80,298,458 |
|
9. Long-Term Debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
|
U.S. credit agreement — revolving credit line |
|
$ |
— |
|
|
$ |
— |
|
|
U.K. credit agreement — revolving credit line |
|
— |
|
|
— |
|
|
U.K. credit agreement — overdraft line of credit |
|
— |
|
|
— |
|
|
3.50% senior subordinated notes due 2025
|
|
545.8 |
|
|
544.7 |
|
|
3.75% senior subordinated notes due 2029
|
|
494.9 |
|
|
494.3 |
|
|
Australia capital loan agreement |
|
20.8 |
|
|
26.6 |
|
|
Australia working capital loan agreement |
|
5.8 |
|
|
— |
|
|
Mortgage facilities |
|
530.1 |
|
|
353.8 |
|
|
Other |
|
40.5 |
|
|
54.6 |
|
|
Total long-term debt |
|
1,637.9 |
|
|
1,474.0 |
|
|
Less: current portion |
|
(76.0) |
|
|
(82.0) |
|
|
Net long-term debt |
|
$ |
1,561.9 |
|
|
$ |
1,392.0 |
|
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, 2025. The
interest rate on revolving loans is 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
September 30, 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. The
revolving loans bear interest between defined Sterling Overnight
Index Average ("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
September 30, 2022, we had no outstanding 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.
Senior Subordinated Notes
We have issued the following senior subordinated
notes:
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|
|
|
|
|
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.
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 three-year
AU $35.4 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 September 30,
2022, we had AU $32.5 million ($20.8 million) outstanding under the
capital loan agreement and had AU $9.0 million ($5.8 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 borrowing capacity as of
September 30, 2022, of $205.2 million. The facility bears
interest at LIBOR plus 1.50% and expires in December 2025. As of
September 30, 2022, we had $138.4 million outstanding
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 September 30, 2022, we owed $530.1
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 September 30, 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.
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 $27.6 million of letters of credit outstanding as of
September 30, 2022, and have posted $21.5 million of surety
bonds in the ordinary course of business.
11. Equity
During the three months ended September 30, 2022, we
repurchased 2,811,346 shares of our common stock for $309.4
million, or an average of $110.02 per share, under our securities
repurchase program approved by our Board of Directors. During the
nine months ended September 30, 2022, we repurchased 5,529,462
shares of our outstanding common stock for $584.8 million, or an
average of $105.75 per share, under this program. In July 2022, our
Board of Directors increased the authority delegated to management
to repurchase our outstanding securities by $250 million, of which
$108.6 million remained outstanding and available for repurchases
as of September 30, 2022.
During the nine months ended September 30, 2022, we acquired
148,440 shares of our common stock for $17.2 million, or an average
of $115.97 per share, from employees in connection with a net share
settlement feature of employee equity awards. In October 2022,
our
Board of Directors increased the authority delegated to management
to repurchase our outstanding securities by $250 million. As a
result, $268.2 million remained outstanding and available for
repurchases as of October 25, 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 and nine months ended
September 30, 2022 and 2021, respectively, attributable to
Penske Automotive Group common stockholders follows:
Three Months Ended September 30, 2022
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation |
|
Interest Rate
Swaps |
|
Other |
|
Total |
|
Balance at June 30, 2022
|
$ |
(322.0) |
|
|
$ |
— |
|
|
$ |
10.1 |
|
|
$ |
(311.9) |
|
|
Other comprehensive income (loss) before
reclassifications |
(131.5) |
|
|
— |
|
|
2.4 |
|
|
(129.1) |
|
|
Amounts reclassified from accumulated other comprehensive income
(loss) — net of tax |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net current period other comprehensive income (loss) |
(131.5) |
|
|
— |
|
|
2.4 |
|
|
(129.1) |
|
|
Balance at September 30, 2022
|
$ |
(453.5) |
|
|
$ |
— |
|
|
$ |
12.5 |
|
|
$ |
(441.0) |
|
Three Months Ended September 30, 2021
|
|
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|
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|
|
|
|
|
|
|
|
Foreign
Currency
Translation |
|
Interest Rate
Swaps |
|
Other |
|
Total |
|
Balance at June 30, 2021
|
$ |
(133.3) |
|
|
$ |
0.3 |
|
|
$ |
(14.8) |
|
|
$ |
(147.8) |
|
|
Other comprehensive income (loss) before
reclassifications |
(42.2) |
|
|
— |
|
|
(0.5) |
|
|
(42.7) |
|
|
Amounts reclassified from accumulated other comprehensive income
(loss) — net of tax benefit of $0.1
|
— |
|
|
0.3 |
|
|
— |
|
|
0.3 |
|
|
Net current period other comprehensive income (loss) |
(42.2) |
|
|
0.3 |
|
|
(0.5) |
|
|
(42.4) |
|
|
Balance at September 30, 2021
|
$ |
(175.5) |
|
|
$ |
0.6 |
|
|
$ |
(15.3) |
|
|
$ |
(190.2) |
|
Nine Months Ended September 30, 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 |
(279.1) |
|
|
— |
|
|
6.9 |
|
|
(272.2) |
|
|
Amounts reclassified from accumulated other comprehensive income
(loss) — net of tax |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net current period other comprehensive income (loss) |
(279.1) |
|
|
— |
|
|
6.9 |
|
|
(272.2) |
|
|
Balance at September 30, 2022
|
$ |
(453.5) |
|
|
$ |
— |
|
|
$ |
12.5 |
|
|
$ |
(441.0) |
|
Nine Months Ended September 30, 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 |
(40.0) |
|
|
3.0 |
|
|
6.6 |
|
|
(30.4) |
|
|
Amounts reclassified from accumulated other comprehensive income
(loss) — net of tax benefit of $0.3
|
— |
|
|
0.8 |
|
|
— |
|
|
0.8 |
|
|
Net current period other comprehensive income (loss) |
(40.0) |
|
|
3.8 |
|
|
6.6 |
|
|
(29.6) |
|
|
Balance at September 30, 2021
|
$ |
(175.5) |
|
|
$ |
0.6 |
|
|
$ |
(15.3) |
|
|
$ |
(190.2) |
|
13. Segment Information
Our operations are organized by management into operating segments
by line of business and geography. We have determined that we have
four reportable segments as defined in generally accepted
accounting principles for segment reporting: (i) Retail Automotive,
consisting of our retail automotive dealership operations; (ii)
Retail Commercial Truck, consisting of our retail commercial truck
dealership operations in the U.S. and Canada; (iii) Other,
consisting of our commercial vehicle and power systems distribution
operations; and (iv) Non-Automotive Investments, consisting of our
equity method investments in non-automotive operations which
includes our investment in PTS and other various investments. The
Retail Automotive reportable segment includes all automotive
dealerships and all departments relevant to the operation of the
dealerships and our retail automotive joint ventures. The
individual dealership operations included in the Retail Automotive
reportable segment represent six operating segments: Eastern,
Central, and Western United States, Used Vehicle Dealerships United
States, International, and Used Vehicle Dealerships International.
These operating segments have been aggregated into one reportable
segment as their operations (A) have similar economic
characteristics (all are automotive dealerships having similar
margins), (B) offer similar products and services (all sell new
and/or used vehicles, service, parts, and third-party finance and
insurance products), (C) have similar target markets and customers
(generally individuals), and (D) have similar distribution and
marketing practices (all distribute products and services through
dealership facilities that market to customers in similar
fashions). Revenue and segment income for the three and nine months
ended September 30, 2022 and 2021 follows:
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Automotive |
|
Retail Commercial
Truck |
|
Other |
|
Non-Automotive
Investments |
|
Intersegment
Elimination |
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
$ |
5,757.8 |
|
|
$ |
1,019.5 |
|
|
$ |
143.4 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,920.7 |
|
|
2021 |
5,634.9 |
|
|
$ |
717.3 |
|
|
$ |
145.1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,497.3 |
|
|
Segment income |
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
$ |
269.2 |
|
|
$ |
52.8 |
|
|
$ |
9.6 |
|
|
$ |
135.6 |
|
|
$ |
— |
|
|
$ |
467.2 |
|
|
2021 |
299.6 |
|
|
$ |
48.3 |
|
|
$ |
9.8 |
|
|
$ |
118.4 |
|
|
$ |
— |
|
|
$ |
476.1 |
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Automotive |
|
Retail Commercial
Truck |
|
Other |
|
Non-Automotive
Investments |
|
Intersegment
Elimination |
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
$ |
17,784.3 |
|
|
$ |
2,580.5 |
|
|
$ |
438.2 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
20,803.0 |
|
|
2021 |
17,039.4 |
|
|
$ |
1,777.3 |
|
|
$ |
441.9 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
19,258.6 |
|
|
Segment income |
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
$ |
880.9 |
|
|
$ |
163.6 |
|
|
$ |
28.9 |
|
|
$ |
391.0 |
|
|
$ |
— |
|
|
$ |
1,464.4 |
|
|
2021 |
772.9 |
|
|
$ |
115.5 |
|
|
$ |
24.2 |
|
|
$ |
274.8 |
|
|
$ |
— |
|
|
$ |
1,187.4 |
|
Item 2.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
This Management’s Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ
materially from those discussed in the forward-looking statements
as a result of various factors, including those discussed in Part
I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for
the year ended December 31, 2021, Part II, Item 1A. “Risk Factors”
in our Quarterly Report on Form 10-Q for the quarter ended March
31, 2022, Part II, Item 1A. "Risk Factors" in this Quarterly Report
on Form 10-Q for the quarter ended September 30, 2022, our other
periodic reports filed with the Securities and Exchange Commission,
and "Forward-Looking Statements." We have acquired and initiated a
number of businesses during the periods presented and addressed in
this Management’s Discussion and Analysis of Financial Condition
and Results of Operations. Our financial statements include the
results of operations of those businesses from the date acquired or
when they commenced operations. Our period-to-period results of
operations may vary depending on the dates of acquisitions or
disposals.
Overview
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. We employ
over 26,500 people worldwide. Additionally, we own 28.9% of Penske
Transportation Solutions, a business that employs over 40,000
people worldwide and manages a fleet of over 400,000 trucks,
tractors, and trailers providing innovative transportation, supply
chain, and technology solutions to North American
fleets.
Business Overview
During the nine months ended September 30, 2022, our business
generated $20.8 billion in total revenue, which is comprised of
approximately $17.8 billion from retail automotive dealerships,
$2.6 billion from retail commercial truck dealerships, and $438.2
million from commercial vehicle distribution and other operations.
We generated $3.7 billion in gross profit, which is comprised of
$3.1 billion from retail automotive dealerships, $416.9 million
from retail commercial truck dealerships, and $121.1 million from
commercial vehicle distribution and other operations.
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 September 30, 2022, we operated
340 retail automotive franchised dealerships, of which 152 are
located in the U.S. and 188 are located outside of the U.S. The
franchised dealerships outside the U.S. are located primarily in
the U.K. We also operate 21 used vehicle dealerships in the U.S.
and the U.K. which retail used vehicles under a one price,
“no-haggle” methodology under the CarShop brand. Our CarShop
operations consist of eight retail dealerships in the U.S. and 13
retail dealerships and a vehicle preparation center in the U.K. We
retailed and wholesaled more than 410,000 vehicles in the nine
months ended September 30, 2022. We are diversified
geographically with 57% of our total retail automotive dealership
revenues in the nine months ended September 30, 2022,
generated in the U.S. and Puerto Rico and 43% generated outside the
U.S. We offer over 35 vehicle brands with 70% of our retail
automotive franchised dealership revenue generated from premium
brands, such as Audi, BMW, Land Rover, Mercedes-Benz, and Porsche,
in the nine months ended September 30, 2022.
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. In March
2022, we agreed to transition our U.K. Mercedes Benz dealerships to
an agency model beginning in 2023. Under an agency model, our U.K.
Mercedes Benz dealerships will receive a fee for facilitating the
sale by the manufacturer of a new vehicle but will not hold the
vehicle in inventory. We will continue to provide new vehicle
customer service at our U.K. Mercedes Benz dealerships, and the
agency model is not expected to structurally change our used
vehicle sales operations or service and parts operations. See Part
II, Item 1A.
Risk Factors
in our Quarterly Report on Form 10-Q for the quarter ended March
31, 2022, for a discussion of agency.
During the nine months ended September 30, 2022, we acquired
19 retail automotive franchises, consisting of 15 franchises in the
U.K. and four franchises in the U.S., and we opened two retail
automotive franchises that we were
awarded in the U.S. We also closed one retail automotive franchise
in the U.K. Retail automotive dealerships represented 85.5% of our
total revenues and 85.3% of our total gross profit in the nine
months ended September 30, 2022.
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
September 30, 2022, PTG operated 39 locations selling new and
used trucks, parts and service, and offering collision repair
services. We retailed and wholesaled 15,211 trucks in the nine
months ended September 30, 2022. This business represented
12.4% of our total revenues and 11.4% of our total gross profit in
the nine months ended September 30, 2022.
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, rail, and construction sectors and
supports full parts and aftersales service through a network of
branches, field service locations, and dealers across the region.
These businesses represented 2.1% of our total revenues and 3.3% of
our total gross profit in the nine months ended September 30,
2022.
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. We recorded $390.6 million and
$274.5 million in equity earnings from this investment for the nine
months ended September 30, 2022 and 2021, respectively. We
believe the increase in our PTS equity earnings is due to strong
demand and profitability for commercial rental trucks and
full-service leasing, as well as remarketing of used
trucks.
Outlook
Retail Automotive.
During the nine months ended September 30, 2022, U.S. industry
new light vehicle sales decreased 13.0%, as compared to the same
period last year, to 10.2 million units, and U.K. new vehicle
registrations decreased 8.2%, as compared to the same period last
year, to 1.2 million registrations. We believe the year over year
decrease in new vehicle sales and registrations is primarily
attributable to a lower supply of new vehicles available for sale
due to disruptions in the supply chain caused by the COVID-19
pandemic, production disruptions caused by a shortage of microchips
or other components, and the war in Ukraine. Our new vehicle days’
supply is 23 as of September 30, 2022, compared to 17 as of
December 31, 2021. While we expect to continue to have
adequate levels of used vehicles for sale (our used vehicle days’
supply is 44 as of September 30, 2022, compared to 60 as of
December 31, 2021), prolonged production distributions and
supply shortages could result in lower new vehicle sales volumes
which could impact the availability and affordability of new and
used vehicles and adversely affect us. The lower supply of new
vehicles contributed to higher vehicle gross profit on both new and
used vehicles sold, which contributed to our higher overall
profitability of these vehicles. We expect lower inventories of new
vehicles and parts disruptions to continue until the supply of
certain components used to manufacture vehicles improves. When the
supply of vehicles improves, we may experience reduced new and used
vehicle gross profit together with higher sales
volumes.
During the nine months ended September 30, 2022, our
premium/luxury unit sales, which account for over 93% of our U.K.
new unit sales, decreased 3.9% as compared to the same period last
year, compared to a 16.6% decrease for the premium/luxury U.K.
market and an 8.2% decrease for the overall U.K. market over the
same prior year period. Many of the premium brands we represent in
the U.K. market were impacted by production disruptions from the
supply chain challenges.
Representatives of the U.K. government have proposed a ban on the
sale of gasoline engines in new cars and new vans that would take
effect as early as 2030 and a ban on the sale of gasoline hybrid
engines in new cars and new vans as early as 2035 while also
providing government incentives on certain electric vehicles to
entice consumers to transition from internal combustion vehicles to
electric vehicles. Sales of diesel-powered vehicles decreased
43.0%, and non-diesel vehicles decreased 4.8%, during the nine
months ended September 30, 2022, as compared to the same
period last year. In the U.K., new registrations of electric
vehicles, including Battery Electric Vehicle (BEV), Plug-in Hybrid
Electric Vehicle (PHEV), and Hybrid Electric Vehicle (HEV),
represented 32.4% of the overall market for the nine months ended
September 30, 2022, compared to 25.3% for the same period last
year, and represented 22.6% of our U.K. new unit sales, compared
with 16.3% over the same prior year period.
Retail Commercial Truck Dealership.
During the nine months ended September 30, 2022, North
American sales of Class 6-8 medium- and heavy-duty trucks, the
principal vehicles for our PTG business, increased 7.5% from the
same period last year to 321,144 units. The Class 6-7 medium-duty
truck market increased 4.0% from the same period last year to
101,225 units, and Class 8 heavy-duty trucks, the largest North
American market, increased 9.2% from the same period last year to
219,919 units. The truck market is experiencing the same production
issues noted above as the Class 6-8 medium- and heavy-duty truck
backlog of 332,365 units. The demand across North America for new
commercial trucks remains strong. We expect lower inventories of
new commercial trucks and parts disruptions to continue until the
supply of certain components used to manufacture commercial trucks
improves. When the supply of commercial trucks improves, we may
experience reduced new and used commercial truck gross profit per
unit together with higher sales volumes.
Commercial Vehicle Distribution and Other.
Penske Australia operates principally in the Australian and New
Zealand heavy and medium-duty truck markets. During the nine months
ended September 30, 2022, the Australian heavy-duty truck
market reported sales of 10,587 units, representing an increase of
16.3% from the same period last year, while the New Zealand market
reported sales of 2,685 units, representing an increase of 23.6%
from the same period last year.
Penske Transportation Solutions.
A majority of PTS's revenue is generated by multi-year contracts
for full-service leasing, contract maintenance,
and logistics services. During the third quarter, PTS continued to
expand its fleet and now manages over 400,000 trucks, tractors, and
trailers. We expect continued resilient performance for the
remainder of 2022 as PTS has experienced strong demand and
profitability for commercial rental trucks and full-service
leasing, as well as remarketing of used trucks.
As described in “Forward-Looking Statements,” there are a number of
factors that could cause actual results to differ materially from
our expectations. See also Part II, Item 1A.
Risk Factors
and the "Risk Factors" disclosed in our other periodic reports
filed with the Securities and Exchange Commission.
Operating Overview
Automotive and commercial truck dealerships represent over 95% and
70% of our revenue and our earnings before taxes, respectively.
Income from our PTS investment represents over 25% of our earnings
before taxes. New and used vehicle revenues typically include sales
to retail customers, fleet customers, and 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.
Our gross profit tends to vary with the mix of revenues we derive
from the sale of new vehicles, used vehicles, finance and insurance
products, and service and parts transactions. Our gross profit
varies across product lines with vehicle sales usually resulting in
lower gross profit margins and our other revenues resulting in
higher gross profit margins. Factors such as inventory and vehicle
availability, customer demand, consumer confidence, unemployment,
general economic conditions, seasonality, weather, credit
availability, fuel prices, and manufacturers’ advertising and
incentives also impact the mix of our revenues and therefore,
influence our gross profit margin.
The results of our commercial vehicle distribution and other
business in Australia and New Zealand are principally driven by the
number and types of products and vehicles ordered by our
customers.
Aggregate revenue and gross profit increased $423.4 million, or
6.5%, and increased $21.2 million, or 1.8%, respectively, during
the three months ended September 30, 2022, and increased
$1,544.4 million, or 8.0%, and increased $394.0 million, or 12.1%,
respectively, during the nine months ended September 30, 2022,
compared to the same periods in 2021.
As exchange rates fluctuate, our revenue and results of operations
as reported in U.S. Dollars fluctuate. For example, if the British
Pound were to weaken against the U.S. Dollar, our U.K. results of
operations would translate into less U.S. Dollar reported results.
Foreign currency average rate fluctuations decreased revenue and
gross profit by $349.4 million and $50.7 million, respectively, for
the three months ended September 30, 2022, and decreased
revenue and gross profit by $629.2 million and $87.4 million,
respectively, for the nine months ended September 30, 2022.
Foreign currency average rate fluctuations decreased earnings per
share from continuing operations by approximately $0.14 per share
for the three months ended September 30, 2022, and decreased
earnings per share from continuing operations by approximately
$0.30 per share for the nine months ended September 30, 2022.
Excluding the impact of foreign currency average rate fluctuations,
revenue and gross profit increased 11.9% and increased 6.2%,
respectively, for the three months ended September 30, 2022,
and increased 11.3% and increased 14.8%, respectively, for the nine
months ended September 30, 2022.
Our selling expenses consist of advertising and compensation for
sales personnel, including commissions and related bonuses. General
and administrative expenses include compensation for
administration, finance, legal and general management personnel,
rent, insurance, utilities, and other expenses. As the majority of
our selling expenses are variable and a significant portion of our
general and administrative expenses are subject to our control, we
believe our expenses can be adjusted over time to reflect economic
trends.
Equity in earnings of affiliates principally represents our share
of the earnings from PTS, along with our investments in joint
ventures and other non-consolidated investments.
Floor plan interest expense relates to financing incurred in
connection with the acquisition of new and used vehicle inventories
that are secured by those vehicles. Other interest expense consists
of interest charges on all of our interest-bearing debt, other than
interest relating to floor plan financing, and includes interest
relating to our retail commercial truck dealership and commercial
vehicle distribution and other operations. The cost of our variable
rate indebtedness is based on the prime rate, defined LIBOR, the
Bank of England Base Rate, 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.
Regulatory authorities in the U.S. have announced their intention
to stop compelling banks to submit rates for the calculation of
LIBOR, ending after June 30, 2023, for the LIBOR tenors that are
relevant to our business. Our senior secured revolving credit
facility in the U.S. and many of our floorplan arrangements utilize
LIBOR as a benchmark for calculating the applicable interest rate,
although some of our floorplan arrangements and our U.K. credit
agreement have already transitioned to utilizing an alternative
benchmark rate. Our U.K. credit agreement transitioned from LIBOR
to SONIA as of January 1, 2022. We cannot predict the effect of the
potential changes to or elimination of LIBOR or the establishment
and use of alternative rates or benchmarks and the corresponding
effects on our cost of capital.
The future success of our business is dependent upon, among other
things, general economic and industry conditions, including the
effect of COVID-19 on the global economy; the distribution rate,
effectiveness, and acceptance of vaccines for COVID-19; our ability
to react effectively to changing business conditions in light of
the COVID-19 pandemic; the rate of inflation, including its impact
on vehicle affordability; our ability to consummate and integrate
acquisitions; the level of vehicle sales in the markets where we
operate; our ability to obtain vehicles and parts from our
manufacturers, especially in light of the COVID-19 pandemic and the
war in Ukraine, including global shortages in microchip
availability or other vehicle components; changes in the retail
model either from direct sales by manufacturers, transition to an
agency model of sales, sales by online competitors, or from the
expansion of electric vehicles; our ability to realize returns on
our significant capital investment in new and upgraded dealership
facilities; our ability to navigate a rapidly changing automotive
and truck landscape; our ability to respond to new or enhanced
regulations relating to automotive dealerships; the success of our
distribution of commercial vehicles, engines, and power systems;
natural disasters; recall initiatives or other disruptions that
interrupt the supply of vehicles or parts to us; changes in
consumer credit availability; the outcome of legal and
administrative matters; and the return realized from our
investments in various joint ventures and other non-consolidated
investments. See Part II, Item 1A.
Risk Factors,
the "Risk Factors" disclosed in our other periodic reports filed
with the Securities and Exchange Commission, and “Forward-Looking
Statements” below.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America requires the application of accounting policies that often
involve making estimates and employing judgments. Such judgments
influence the assets, liabilities, revenues, and expenses
recognized in our financial statements. Management, on an ongoing
basis, reviews these estimates and assumptions. Management may
determine that
modifications in assumptions and estimates are required, which may
result in a material change in our results of operations or
financial position.
The accounting policies and estimates that we believe to be most
dependent upon the use of estimates and assumptions are revenue
recognition, goodwill and other indefinite-lived intangible assets,
investments, self-insurance reserves, lease recognition, and income
taxes. Refer to “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our 2021 Annual Report on
Form 10-K for additional detail and discussion of these critical
accounting policies and estimates. There have been no material
changes in critical accounting policies and estimates as described
in our most recent Annual Report.
Refer to Part I, Item 1, Note 1 and Note 3 of the Notes to our
Consolidated Condensed Financial Statements for disclosures
regarding estimates and judgments related to lease recognition.
Refer to Part I, Item 1, Note 2 of the Notes to our Consolidated
Condensed Financial Statements for disclosures regarding estimates
and judgments related to revenue recognition. Refer to “Income
Taxes” within Part I, Item 1, Note 1 of the Notes to our
Consolidated Condensed Financial Statements for disclosures
regarding estimates and judgments related to income
taxes.
Results of Operations
The following tables present comparative financial data relating to
our operating performance in the aggregate and on a “same-store”
basis. Dealership results are included in same-store comparisons
when we have consolidated the acquired entity during the entirety
of both periods being compared. As an example, if a dealership were
acquired on January 15, 2020, the results of the acquired entity
would be included in annual same-store comparisons beginning with
the year ended December 31, 2022, and in quarterly same-store
comparisons beginning with the quarter ended June 30,
2021.
Three Months Ended September 30, 2022, Compared to Three
Months Ended September 30, 2021
Retail Automotive Dealership New Vehicle Data
(In millions, except unit and per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 vs. 2021 |
|
New Vehicle Data |
|
2022 |
|
2021 |
|
Change |
|
% Change |
|
New retail unit sales |
|
44,446 |
|
|
44,373 |
|
|
73 |
|
|
0.2 |
% |
|
Same-store new retail unit sales |
|
41,542 |
|
|
44,372 |
|
|
(2,830) |
|
|
(6.4) |
% |
|
New retail sales revenue |
|
$ |
2,395.2 |
|
|
$ |
2,275.2 |
|
|
$ |
120.0 |
|
|
5.3 |
% |
|
Same-store new retail sales revenue |
|
$ |
2,245.8 |
|
|
$ |
2,274.8 |
|
|
$ |
(29.0) |
|
|
(1.3) |
% |
|
New retail sales revenue per unit |
|
$ |
53,890 |
|
|
$ |
51,273 |
|
|
$ |
2,617 |
|
|
5.1 |
% |
|
Same-store new retail sales revenue per unit |
|
$ |
54,061 |
|
|
$ |
51,267 |
|
|
$ |
2,794 |
|
|
5.4 |
% |
|
Gross profit — new |
|
$ |
296.8 |
|
|
$ |
264.0 |
|
|
$ |
32.8 |
|
|
12.4 |
% |
|
Same-store gross profit — new |
|
$ |
279.6 |
|
|
$ |
263.9 |
|
|
$ |
15.7 |
|
|
5.9 |
% |
|
Average gross profit per new vehicle retailed |
|
$ |
6,678 |
|
|
$ |
5,948 |
|
|
$ |
730 |
|
|
12.3 |
% |
|
Same-store average gross profit per new vehicle
retailed |
|
$ |
6,730 |
|
|
$ |
5,948 |
|
|
$ |
782 |
|
|
13.1 |
% |
|
Gross margin % — new |
|
12.4 |
% |
|
11.6 |
% |
|
0.8 |
% |
|
6.9 |
% |
|
Same-store gross margin % — new |
|
12.4 |
% |
|
11.6 |
% |
|
0.8 |
% |
|
6.9 |
% |
Units
Retail unit sales of new vehicles increased from 2021 to 2022 due
to a 2,903 unit increase from net dealership acquisitions,
partially offset by a 2,830 unit, or 6.4%, decrease in same-store
new retail unit sales. Same-store units decreased 10.8% in the U.S.
and increased 3.7% internationally. Overall, new unit sales
decreased 6.6% in the U.S. and increased 15.4% internationally. We
believe the decrease in same-store unit sales is due to the
prolonged low supply of new vehicles available for sale, which has
been caused by supply chain issues discussed above.
Revenues
New vehicle retail sales revenue increased from 2021 to 2022 due to
a $149.0 million increase from net dealership acquisitions,
partially offset by a $29.0 million, or 1.3%, decrease in
same-store revenues. The decrease in same-store revenue is due to
the decrease in same-store new retail unit sales, which decreased
revenue by $145.1 million, partially
offset by a $2,794 per unit increase in same-store comparative
average selling price (notwithstanding a $3,094 per unit decrease
attributable to unfavorable foreign currency fluctuations), which
increased revenue by $116.1 million. Excluding $128.5 million of
unfavorable foreign currency fluctuations, same-store new retail
revenue increased 4.4%. We believe the increase in same-store
comparative average selling price is due to the prolonged low
supply of new vehicles available for sale, which has been caused by
supply chain issues discussed above.
Gross Profit
Retail gross profit from new vehicle sales increased from 2021 to
2022 due to a $17.1 million increase from net dealership
acquisitions, coupled with a $15.7 million, or 5.9%, increase in
same-store gross profit. Excluding $15.1 million of unfavorable
foreign currency fluctuations, same-store gross profit increased
11.7%. The increase in same-store gross profit is due to a $782 per
unit increase in same-store comparative average gross profit
(notwithstanding $364 per unit decrease attributable to unfavorable
foreign currency fluctuations), which increased gross profit by
$32.5 million, partially offset by the decrease in same-store new
retail unit sales, which decreased gross profit by $16.8 million.
We believe the increase in same-store comparative average gross
profit per unit is due to the prolonged low supply of new vehicles
available for sale, which has been caused by supply chain issues
discussed above.
Retail Automotive Dealership Used Vehicle Data
(In millions, except unit and per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 vs. 2021 |
|
Used Vehicle Data |
|
2022 |
|
2021 |
|
Change |
|
% Change |
|
Used retail unit sales |
|
65,523 |
|
|
70,450 |
|
|
(4,927) |
|
|
(7.0) |
% |
|
Same-store used retail unit sales |
|
62,395 |
|
|
70,047 |
|
|
(7,652) |
|
|
(10.9) |
% |
|
Used retail sales revenue |
|
$ |
2,208.8 |
|
|
$ |
2,302.3 |
|
|
$ |
(93.5) |
|
|
(4.1) |
% |
|
Same-store used retail sales revenue |
|
$ |
2,112.9 |
|
|
$ |
2,293.7 |
|
|
$ |
(180.8) |
|
|
(7.9) |
% |
|
Used retail sales revenue per unit |
|
$ |
33,711 |
|
|
$ |
32,680 |
|
|
$ |
1,031 |
|
|
3.2 |
% |
|
Same-store used retail sales revenue per unit |
|
$ |
33,864 |
|
|
$ |
32,745 |
|
|
$ |
1,119 |
|
|
3.4 |
% |
|
Gross profit — used |
|
$ |
131.3 |
|
|
$ |
193.2 |
|
|
$ |
(61.9) |
|
|
(32.0) |
% |
|
Same-store gross profit — used |
|
$ |
126.5 |
|
|
$ |
192.8 |
|
|
$ |
(66.3) |
|
|
(34.4) |
% |
|
Average gross profit per used vehicle retailed |
|
$ |
2,004 |
|
|
$ |
2,743 |
|
|
$ |
(739) |
|
|
(26.9) |
% |
|
Same-store average gross profit per used vehicle
retailed |
|
$ |
2,028 |
|
|
$ |
2,752 |
|
|
$ |
(724) |
|
|
(26.3) |
% |
|
Gross margin % — used |
|
5.9 |
% |
|
8.4 |
% |
|
(2.5) |
% |
|
(29.8) |
% |
|
Same-store gross margin % — used |
|
6.0 |
% |
|
8.4 |
% |
|
(2.4) |
% |
|
(28.6) |
% |
Units
Retail unit sales of used vehicles decreased from 2021 to 2022 due
to a 7,652 unit, or 10.9%, decrease in same-store used retail unit
sales, partially offset by a 2,725 unit increase from net
dealership acquisitions. Our same-store units decreased 12.7% in
the U.S. and decreased 9.3% internationally. Same-store retail
units for our U.S. and U.K. CarShop used vehicle dealerships
decreased 24.3% and 4.7%, respectively. Overall, our used units
decreased 9.6% in the U.S. and decreased 4.6% internationally. We
believe the decrease in same-store unit sales is primarily due to
higher used unit prices attributable to the prolonged low overall
vehicle inventory availability for sale, impacting the
affordability of used vehicles for customers, which has been caused
by supply chain issues discussed above.
Revenues
Used vehicle retail sales revenue decreased from 2021 to 2022 due
to a $180.8 million, or 7.9%, decrease in same-store revenues,
partially offset by an $87.3 million increase from net dealership
acquisitions. The decrease in same-store revenue is due to the
decrease in same-store used retail unit sales, which decreased
revenue by $250.6 million, partially offset by a $1,119 per unit
increase in same-store comparative average selling price
(notwithstanding a $2,937 per unit decrease attributable to
unfavorable foreign currency fluctuations), which increased revenue
by $69.8 million. The average sales price per unit for our CarShop
used vehicle dealerships decreased 3.0% to $19,230. Excluding
$183.3 million of unfavorable foreign currency fluctuations,
same-store used retail revenue increased 0.1%. We believe the
increase
in same-store comparative average selling price
is primarily due to higher used unit prices attributable to the
prolonged low overall vehicle inventory availability for sale,
which has been caused by supply chain issues discussed above,
impacting the affordability of used vehicles for
customers.
Gross Profit
Retail gross profit from used vehicle sales decreased from 2021 to
2022 due to a $66.3 million, or 34.4%, decrease in same-store gross
profit, partially offset by a $4.4 million increase from net
dealership acquisitions. Excluding $10.0 million of unfavorable
foreign currency fluctuations, same-store gross profit from used
vehicle sales decreased 29.2%. The decrease in same-store gross
profit is due to a $724 per unit decrease in same-store comparative
average gross profit (including a $159 per unit decrease
attributable to unfavorable foreign currency fluctuations), which
decreased gross profit by $45.2 million, coupled with the decrease
in same-store used retail unit sales, which decreased gross profit
by $21.1 million. The average gross profit per unit for our CarShop
used vehicle dealerships decreased 37.9% to $819. We believe the
decrease in same-store comparative average gross profit per unit is
primarily due to the more challenging used vehicle environment as
consumers face increased costs of acquiring used vehicles resulting
from the prolonged low supply of new vehicles available for sale,
which decreased our gross margin.
Retail Automotive Dealership Finance and Insurance
Data
(In millions, except unit and per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 vs. 2021 |
|
Finance and Insurance Data |
|
2022 |
|
2021 |
|
Change |
|
% Change |
|
Total retail unit sales |
|
109,969 |
|
|
114,823 |
|
|
(4,854) |
|
|
(4.2) |
% |
|
Total same-store retail unit sales |
|
103,937 |
|
|
114,419 |
|
|
(10,482) |
|
|
(9.2) |
% |
|
Finance and insurance revenue |
|
$ |
208.1 |
|
|
$ |
202.7 |
|
|
$ |
5.4 |
|
|
2.7 |
% |
|
Same-store finance and insurance revenue |
|
$ |
199.8 |
|
|
$ |
202.3 |
|
|
$ |
(2.5) |
|
|
(1.2) |
% |
|
Finance and insurance revenue per unit |
|
$ |
1,892 |
|
|
$ |
1,765 |
|
|
$ |
127 |
|
|
7.2 |
% |
|
Same-store finance and insurance revenue per unit |
|
$ |
1,922 |
|
|
$ |
1,768 |
|
|
$ |
154 |
|
|
8.7 |
% |
Finance and insurance revenue increased from 2021 to 2022 due to a
$7.9 million increase from net dealership acquisitions, partially
offset by a $2.5 million, or 1.2%, decrease in same-store revenues.
The decrease in same-store revenue is due to the decrease in
same-store retail unit sales, which decreased revenue by $18.5
million, partially offset by a $154 per unit increase in same-store
comparative average finance and insurance revenue (notwithstanding
a $117 per unit decrease attributable to unfavorable foreign
currency fluctuations), which increased revenue by $16.0 million.
Excluding $12.1 million of unfavorable foreign currency
fluctuations, same-store finance and insurance revenue increased
4.7%. Finance and insurance revenue per unit increased 15.7% in the
U.S. and decreased 2.7% in the U.K. We believe the increase in
same-store finance and insurance revenue per unit is primarily due
to changes
in the sales mix from lower leasing and a higher amount of
purchases have also driven higher product penetration rates,
coupled with
our efforts to increase finance and insurance penetration, which
include implementing interactive digital customer sales platforms,
additional training, and targeting underperforming locations, in
addition to the increase in
average selling price per unit of new and used
vehicles.
Retail Automotive Dealership Service and Parts Data
(In millions)
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 vs. 2021 |
|
Service and Parts Data |
|
2022 |
|
2021 |
|
Change |
|
% Change |
|
Service and parts revenue |
|
$ |
609.8 |
|
|
$ |
555.3 |
|
|
$ |
54.5 |
|
|
9.8 |
% |
|
Same-store service and parts revenue |
|
$ |
577.2 |
|
|
$ |
554.4 |
|
|
$ |
22.8 |
|
|
4.1 |
% |
|
Gross profit — service and parts |
|
$ |
359.4 |
|
|
$ |
333.7 |
|
|
$ |
25.7 |
|
|
7.7 |
% |
|
Same-store service and parts gross profit |
|
$ |
342.4 |
|
|
$ |
333.2 |
|
|
$ |
9.2 |
|
|
2.8 |
% |
|
Gross margin % — service and parts |
|
58.9 |
% |
|
60.1 |
% |
|
(1.2) |
% |
|
(2.0) |
% |
|
Same-store service and parts gross margin % |
|
59.3 |
% |
|
60.1 |
% |
|
(0.8) |
% |
|
(1.3) |
% |
Revenues
Service and parts revenue increased from 2021 to 2022, with an
increase of 11.5% in the U.S. and an increase of 6.6%
internationally. The increase in service and parts revenue is due
to a $31.7 million increase from net dealership acquisitions,
coupled with a $22.8 million, or 4.1%, increase in same-store
revenues. Excluding $30.5 million of unfavorable foreign currency
fluctuations, same-store revenue increased 9.6%. The increase in
same-store revenue is due to
a $15.0 million, or 3.7%, increase in customer pay revenue, a $4.7
million, or 4.1%, increase in warranty revenue, and a $3.1 million,
or 9.3%, increase in vehicle preparation and body shop revenue. We
believe the increase in same-store service and parts revenue is
related to increases in vehicle miles traveled compared to the same
period last year, coupled with the prolonged reliance on older
vehicles resulting from the continued low supply of new vehicles,
which generates additional service and parts revenues, and an
increase in warranty revenue due to vehicle recalls in the U.K. and
higher warranty labor rates in the U.S.
Gross Profit
Service and parts gross profit increased from 2021 to 2022 due to a
$16.5 million increase from net dealership acquisitions, coupled
with a $9.2 million, or 2.8%, increase in same-store gross profit.
Excluding $17.5 million of unfavorable foreign currency
fluctuations, same-store gross profit increased 8.0%. The increase
in same-store gross profit is due to the increase in same-store
revenues, which increased gross profit by $13.5 million, partially
offset by a 0.8% decrease in same-store gross margin, which
decreased gross profit by $4.3 million. The increase in same-store
gross profit is due to a $4.2 million, or 5.9%, increase in vehicle
preparation and body shop gross profit, a $2.8 million, or 4.4%,
increase in warranty gross profit, and a $2.2 million, or 1.1%,
increase in customer pay gross profit.
Retail Commercial Truck Dealership Data
(In millions, except unit and per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 vs. 2021 |
|
New Commercial Truck Data |
|
2022 |
|
2021 |
|
Change |
|
% Change |
|
New retail unit sales |
|
5,365 |
|
|
3,892 |