Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
or
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-12297
Penske Automotive Group, Inc.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
22-3086739 |
(State or other jurisdiction of
|
|
(I.R.S. Employer |
incorporation or organization)
|
|
Identification No.) |
|
|
|
2555 Telegraph Road,
|
|
48302-0954 |
Bloomfield Hills, Michigan
|
|
(Zip Code) |
(Address of principal executive offices) |
|
|
Registrants telephone number, including area code:
(248) 648-2500
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit and post
such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See definition
of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act
(Check one):
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company 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 þ
As of July 26, 2010, there were 92,074,157 shares of voting common stock
outstanding.
PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Unaudited) |
|
|
|
(In thousands, except |
|
|
|
per share amounts) |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
17,664 |
|
|
$ |
13,999 |
|
Accounts receivable, net of allowance for doubtful accounts of $1,797 and $1,689 |
|
|
351,013 |
|
|
|
321,226 |
|
Inventories |
|
|
1,364,718 |
|
|
|
1,302,495 |
|
Other current assets |
|
|
106,479 |
|
|
|
95,426 |
|
Assets held for sale |
|
|
572 |
|
|
|
10,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,840,446 |
|
|
|
1,743,771 |
|
Property and equipment, net |
|
|
707,832 |
|
|
|
726,808 |
|
Goodwill |
|
|
795,366 |
|
|
|
810,047 |
|
Franchise value |
|
|
199,581 |
|
|
|
201,756 |
|
Equity method investments |
|
|
280,847 |
|
|
|
295,473 |
|
Other long-term assets |
|
|
14,591 |
|
|
|
18,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,838,663 |
|
|
$ |
3,796,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Floor plan notes payable |
|
$ |
818,339 |
|
|
$ |
769,657 |
|
Floor plan notes payable non-trade |
|
|
499,410 |
|
|
|
423,316 |
|
Accounts payable |
|
|
209,535 |
|
|
|
189,989 |
|
Accrued expenses |
|
|
218,716 |
|
|
|
227,294 |
|
Current portion of long-term debt |
|
|
16,551 |
|
|
|
12,442 |
|
Liabilities held for sale |
|
|
501 |
|
|
|
7,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,763,052 |
|
|
|
1,630,373 |
|
Long-term debt |
|
|
844,292 |
|
|
|
933,966 |
|
Deferred tax liabilities |
|
|
159,872 |
|
|
|
157,500 |
|
Other long-term liabilities |
|
|
109,713 |
|
|
|
128,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,876,929 |
|
|
|
2,849,968 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Penske Automotive Group stockholders equity: |
|
|
|
|
|
|
|
|
Preferred Stock, $0.0001 par value; 100 shares authorized; none issued and outstanding |
|
|
|
|
|
|
|
|
Common Stock, $0.0001 par value, 240,000 shares authorized; 92,142 shares issued and
outstanding
at June 30, 2010; 91,618 shares issued and outstanding at December 31, 2009 |
|
|
9 |
|
|
|
9 |
|
Non-voting Common Stock, $0.0001 par value, 7,125 shares authorized; none issued and
outstanding |
|
|
|
|
|
|
|
|
Class C Common Stock, $0.0001 par value, 20,000 shares authorized; none issued and outstanding |
|
|
|
|
|
|
|
|
Additional paid-in-capital |
|
|
738,611 |
|
|
|
737,198 |
|
Retained earnings |
|
|
246,000 |
|
|
|
196,205 |
|
Accumulated other comprehensive income |
|
|
(26,567 |
) |
|
|
9,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Penske Automotive Group stockholders equity |
|
|
958,053 |
|
|
|
942,461 |
|
|
|
|
|
|
|
|
|
|
Non-controlling interest |
|
|
3,681 |
|
|
|
3,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
961,734 |
|
|
|
946,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
3,838,663 |
|
|
$ |
3,796,007 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Condensed Financial Statements
3
PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(Unaudited) |
|
|
|
(In thousands, except per share amounts) |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
1,355,813 |
|
|
$ |
1,090,127 |
|
|
$ |
2,588,136 |
|
|
$ |
2,061,323 |
|
Used vehicle |
|
|
749,669 |
|
|
|
658,787 |
|
|
|
1,446,337 |
|
|
|
1,275,286 |
|
Finance and insurance, net |
|
|
63,558 |
|
|
|
54,674 |
|
|
|
122,992 |
|
|
|
103,137 |
|
Service and parts |
|
|
332,160 |
|
|
|
331,106 |
|
|
|
666,183 |
|
|
|
658,009 |
|
Distribution |
|
|
19,933 |
|
|
|
53,152 |
|
|
|
27,869 |
|
|
|
133,265 |
|
Fleet and wholesale vehicle |
|
|
182,555 |
|
|
|
130,849 |
|
|
|
337,850 |
|
|
|
245,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
2,703,688 |
|
|
|
2,318,695 |
|
|
|
5,189,367 |
|
|
|
4,476,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
1,244,630 |
|
|
|
1,004,151 |
|
|
|
2,375,452 |
|
|
|
1,903,990 |
|
Used vehicle |
|
|
689,552 |
|
|
|
599,526 |
|
|
|
1,329,500 |
|
|
|
1,160,009 |
|
Service and parts |
|
|
141,655 |
|
|
|
148,692 |
|
|
|
287,275 |
|
|
|
298,867 |
|
Distribution |
|
|
17,227 |
|
|
|
45,702 |
|
|
|
24,949 |
|
|
|
114,016 |
|
Fleet and wholesale |
|
|
180,280 |
|
|
|
126,869 |
|
|
|
331,819 |
|
|
|
238,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales |
|
|
2,273,344 |
|
|
|
1,924,940 |
|
|
|
4,348,995 |
|
|
|
3,715,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
430,344 |
|
|
|
393,755 |
|
|
|
840,372 |
|
|
|
761,794 |
|
Selling, general and administrative expenses |
|
|
355,177 |
|
|
|
327,389 |
|
|
|
695,691 |
|
|
|
640,055 |
|
Depreciation |
|
|
12,054 |
|
|
|
13,811 |
|
|
|
24,428 |
|
|
|
26,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
63,113 |
|
|
|
52,555 |
|
|
|
120,253 |
|
|
|
95,047 |
|
Floor plan interest expense |
|
|
(8,321 |
) |
|
|
(8,969 |
) |
|
|
(16,842 |
) |
|
|
(18,431 |
) |
Other interest expense |
|
|
(12,542 |
) |
|
|
(13,687 |
) |
|
|
(25,262 |
) |
|
|
(28,187 |
) |
Debt discount amortization |
|
|
(2,428 |
) |
|
|
(3,135 |
) |
|
|
(5,343 |
) |
|
|
(6,773 |
) |
Equity in earnings of affiliates |
|
|
4,784 |
|
|
|
3,466 |
|
|
|
4,355 |
|
|
|
4,180 |
|
Gain on debt repurchase |
|
|
422 |
|
|
|
|
|
|
|
1,027 |
|
|
|
10,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
45,028 |
|
|
|
30,230 |
|
|
|
78,188 |
|
|
|
56,265 |
|
Income taxes |
|
|
(15,625 |
) |
|
|
(10,329 |
) |
|
|
(28,060 |
) |
|
|
(20,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
29,403 |
|
|
|
19,901 |
|
|
|
50,128 |
|
|
|
36,191 |
|
Gain (loss) from discontinued operations, net of tax |
|
|
281 |
|
|
|
(5,734 |
) |
|
|
(112 |
) |
|
|
(5,822 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
29,684 |
|
|
|
14,167 |
|
|
|
50,016 |
|
|
|
30,369 |
|
Less: Income attributable to non-controlling interests |
|
|
243 |
|
|
|
88 |
|
|
|
221 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Penske Automotive Group common stockholders |
|
$ |
29,441 |
|
|
$ |
14,079 |
|
|
$ |
49,795 |
|
|
$ |
30,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to Penske Automotive Group common
stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.32 |
|
|
$ |
0.22 |
|
|
$ |
0.54 |
|
|
$ |
0.40 |
|
Discontinued operations |
|
|
(0.00 |
) |
|
|
(0.06 |
) |
|
|
(0.00 |
) |
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.32 |
|
|
$ |
0.15 |
|
|
$ |
0.54 |
|
|
$ |
0.33 |
|
Shares used in determining basic earnings per share |
|
|
92,142 |
|
|
|
91,531 |
|
|
|
92,016 |
|
|
|
91,506 |
|
Diluted earnings per share attributable to Penske Automotive Group
common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.32 |
|
|
$ |
0.22 |
|
|
$ |
0.54 |
|
|
$ |
0.40 |
|
Discontinued operations |
|
|
(0.00 |
) |
|
|
(0.06 |
) |
|
|
(0.00 |
) |
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.32 |
|
|
$ |
0.15 |
|
|
$ |
0.54 |
|
|
$ |
0.33 |
|
Shares used in determining diluted earnings per share |
|
|
92,206 |
|
|
|
91,592 |
|
|
|
92,086 |
|
|
|
91,537 |
|
Amounts attributable to Penske Automotive Group common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
29,403 |
|
|
$ |
19,901 |
|
|
$ |
50,128 |
|
|
$ |
36,191 |
|
Less: Income attributable to non-controlling interests |
|
|
243 |
|
|
|
88 |
|
|
|
221 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
|
29,160 |
|
|
|
19,813 |
|
|
|
49,907 |
|
|
|
36,183 |
|
Gain (loss) from discontinued operations, net of tax |
|
|
281 |
|
|
|
(5,734 |
) |
|
|
(112 |
) |
|
|
(5,822 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
29,441 |
|
|
$ |
14,079 |
|
|
$ |
49,795 |
|
|
$ |
30,361 |
|
Cash dividends per share |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See Notes to Consolidated Condensed Financial Statements
4
PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Unaudited) |
|
|
|
(In thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
50,016 |
|
|
$ |
30,369 |
|
Adjustments to reconcile net income to net cash from continuing operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
24,428 |
|
|
|
26,692 |
|
Debt discount amortization |
|
|
5,343 |
|
|
|
6,773 |
|
Undistributed earnings of equity method investments |
|
|
(4,355 |
) |
|
|
(4,180 |
) |
Loss from discontinued operations, net of tax |
|
|
112 |
|
|
|
5,822 |
|
Deferred income taxes |
|
|
11,398 |
|
|
|
21,037 |
|
Gain on debt repurchase |
|
|
(1,027 |
) |
|
|
(10,733 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(25,714 |
) |
|
|
(26,927 |
) |
Inventories |
|
|
(33,856 |
) |
|
|
340,656 |
|
Floor plan notes payable |
|
|
27,057 |
|
|
|
(188,134 |
) |
Accounts payable and accrued expenses |
|
|
12,036 |
|
|
|
32,906 |
|
Other |
|
|
4,155 |
|
|
|
6,824 |
|
|
|
|
|
|
|
|
Net cash from continuing operating activities |
|
|
69,593 |
|
|
|
241,105 |
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Purchase of equipment and improvements |
|
|
(37,622 |
) |
|
|
(43,979 |
) |
Dealership acquisitions net, including repayment of sellers floor plan notes
payable of $7,231 and $2,940, respectively |
|
|
(12,277 |
) |
|
|
(8,610 |
) |
Other |
|
|
|
|
|
|
12,679 |
|
|
|
|
|
|
|
|
Net cash from continuing investing activities |
|
|
(49,899 |
) |
|
|
(39,910 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from borrowings under U.S. credit agreement revolving credit line |
|
|
320,600 |
|
|
|
276,800 |
|
Repayments under U.S. credit agreement revolving credit line |
|
|
(292,600 |
) |
|
|
(276,800 |
) |
Repayments under U.S. credit agreement term loan |
|
|
|
|
|
|
(10,000 |
) |
Repurchase of 3.5% senior subordinated convertible notes |
|
|
(113,604 |
) |
|
|
(51,425 |
) |
Net repayments of other long-term debt |
|
|
(9,497 |
) |
|
|
(47,768 |
) |
Net borrowings (repayments) of floor plan notes payable non-trade |
|
|
76,094 |
|
|
|
(78,608 |
) |
Proceeds from exercises of options, including excess tax benefit |
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing financing activities |
|
|
(18,796 |
) |
|
|
(187,801 |
) |
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
Net cash from discontinued operating activities |
|
|
(6,489 |
) |
|
|
(643 |
) |
Net cash from discontinued investing activities |
|
|
9,463 |
|
|
|
(2,605 |
) |
Net cash from discontinued financing activities |
|
|
(207 |
) |
|
|
(7,085 |
) |
|
|
|
|
|
|
|
Net cash from discontinued operations |
|
|
2,767 |
|
|
|
(10,333 |
) |
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
3,665 |
|
|
|
3,061 |
|
Cash and cash equivalents, beginning of period |
|
|
13,999 |
|
|
|
17,108 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
17,664 |
|
|
$ |
20,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
43,876 |
|
|
$ |
49,368 |
|
Income taxes |
|
|
14,121 |
|
|
|
4,655 |
|
See Notes to Consolidated Condensed Financial Statements
5
PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Total |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
|
Issued |
|
|
|
|
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Attributable to Penske |
|
|
Non-controlling |
|
|
Total |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Automotive Group |
|
|
Interest |
|
|
Equity |
|
|
|
(Unaudited) |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2010 |
|
|
91,617,746 |
|
|
$ |
9 |
|
|
$ |
737,198 |
|
|
$ |
196,205 |
|
|
$ |
9,049 |
|
|
$ |
942,461 |
|
|
$ |
3,578 |
|
|
$ |
946,039 |
|
Equity compensation |
|
|
499,751 |
|
|
|
|
|
|
|
5,837 |
|
|
|
|
|
|
|
|
|
|
|
5,837 |
|
|
|
|
|
|
|
5,837 |
|
Exercise of options, including tax benefit of $108 |
|
|
25,000 |
|
|
|
|
|
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
211 |
|
|
|
|
|
|
|
211 |
|
Repurchase of 3.5% senior subordinated
convertible notes |
|
|
|
|
|
|
|
|
|
|
(4,635 |
) |
|
|
|
|
|
|
|
|
|
|
(4,635 |
) |
|
|
|
|
|
|
(4,635 |
) |
Distributions to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118 |
) |
|
|
(118 |
) |
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,831 |
) |
|
|
(42,831 |
) |
|
|
|
|
|
|
(42,831 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,215 |
|
|
|
7,215 |
|
|
|
|
|
|
|
7,215 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,795 |
|
|
|
|
|
|
|
49,795 |
|
|
|
221 |
|
|
|
50,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010 |
|
|
92,142,497 |
|
|
$ |
9 |
|
|
$ |
738,611 |
|
|
$ |
246,000 |
|
|
$ |
(26,567 |
) |
|
$ |
958,053 |
|
|
$ |
3,681 |
|
|
$ |
961,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Condensed Financial Statements
6
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
1. Interim Financial Statements
Business Overview
Penske Automotive Group, Inc. (the Company) is the second largest automotive
retailer headquartered in the U.S. as measured by total revenues. As of June 30, 2010,
the Company owned and operated 171 franchises in the U.S. and 152 franchises outside of
the U.S., primarily in the U.K. During the six months ended June 30, 2010, we acquired 6
franchises, including Volkswagen and Audi franchises in Santa Ana, California and a group
of BMW franchises in Augsburg, Germany through the dissolution of a joint venture. We
were awarded 9 franchises, including Audi and Mercedes franchises in Chantilly,
Virginia, two Mini franchises in the western U.S. and four Mercedes Sprinter
commercial van franchises in the U.S. We also disposed of 5 franchises, including our
Toyota/Scion business in Warren, Michigan and our Ford business in Goodyear, Arizona.
Each of the Companys dealerships offers a wide selection of new and used vehicles
for sale. In addition to selling new and used vehicles, the Company generates
higher-margin revenue at each of its dealerships through maintenance and repair services
and the sale and placement of higher-margin products, such as third party finance and
insurance products, third-party extended service contracts and replacement and
aftermarket automotive products. In 2007, the Company established a wholly-owned
subsidiary, smart USA Distributor, LLC (smart USA), which is the exclusive distributor
of the smart fortwo vehicle in the U.S. and Puerto Rico. The Company also holds a 9.0%
limited partnership interest in Penske Truck Leasing Co., L.P. (PTL), a leading global
transportation services provider.
Basis of Presentation
The following unaudited consolidated condensed financial statements of the Company
have been prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Certain information and disclosures normally included in the
Companys annual financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted pursuant to the
SEC rules and regulations. The information presented as of June 30, 2010 and December 31,
2009 and for the three and six month periods ended June 30, 2010 and 2009 is unaudited,
but includes all adjustments which the management of the Company believes to be necessary
for the fair presentation of results for the periods presented. The consolidated
condensed financial statements for prior periods have been revised for entities which
have been treated as discontinued operations through June 30, 2010, and the 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 the
Companys audited financial statements for the year ended December 31, 2009, which are
included as part of the Companys Annual Report on Form 10-K.
Results for three and six months ended June 30, 2010 include a $422 and $1,027
pre-tax gain relating to the repurchase of $41,548 and $112,658 aggregate principal
amount of the Companys 3.5% senior subordinated convertible notes (Convertible Notes),
respectively. Results for the six months ended June 30, 2009 include a $10,429 pre-tax
gain relating to the repurchase of $68,740 aggregate principal amount of the Convertible
Notes.
Discontinued Operations
The Company accounts for dispositions as discontinued operations when the operations
and cash flows of the business being disposed of will be eliminated from on-going
operations and that the Company will not have any significant continuing involvement in
its operations.
In evaluating whether the cash flows of a dealership in its Retail reportable
segment will be eliminated from ongoing operations, the Company considers whether it is
likely that customers will migrate to similar franchises that it owns in the same
geographic market. The Companys consideration includes an evaluation of the brands sold
at other dealerships it operates in the market and their proximity to the disposed
dealership. When the Company disposes of franchises, it typically does not have
continuing brand representation in that market. If the franchise being disposed of is
located in a complex of Company owned dealerships, the Company does not treat the
disposition as a discontinued operation if the Company believes that the cash flows
previously generated by the disposed franchise will be replaced by expanded operations of
the remaining franchises. The results of operations during the three and six months ended
June 30, 2010 and 2009 and the net assets as of June 30, 2010 and December 31, 2009 of
dealerships accounted for as discontinued operations were immaterial.
7
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The accounts requiring the use of significant
estimates include accounts receivable, inventories, income taxes, intangible assets and
certain reserves.
Estimated Useful Lives of Assets
The Company changed the useful lives of certain fixed assets during the first
quarter of 2010 as part of a review of assumptions related to the expected utilization of
those assets by the Company. The Company accounted for the change in useful lives as a
change in estimate prospectively effective January 1, 2010, which resulted in a reduction
of depreciation expense of $1,410 and $2,820 for the three and six month periods ended
June 30, 2010, respectively.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts receivable,
accounts payable, debt, floor plan notes payable, and interest rate swaps used to hedge
future cash flows. Other than our subordinated notes, 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. A summary of the fair value of the
subordinated notes as of June 30, 2010, based on level one market data follows:
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
Fair Value |
|
7.75% senior subordinated notes due 2016 |
|
$ |
375,000 |
|
|
$ |
350,625 |
|
3.5% senior subordinated convertible notes due 2026 |
|
|
187,157 |
|
|
|
194,570 |
|
2. Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
New vehicles |
|
$ |
956,879 |
|
|
$ |
898,110 |
|
Used vehicles |
|
|
330,895 |
|
|
|
325,707 |
|
Parts, accessories and other |
|
|
76,944 |
|
|
|
78,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
1,364,718 |
|
|
$ |
1,302,495 |
|
|
|
|
|
|
|
|
The Company receives non-refundable floor plan interest and advertising assistance
credits from certain vehicle manufacturers that reduce cost of sales when the vehicles
are sold. These floor plan interest and advertising assistance credits amounted to
$13,176 and $8,975 during the six months ended June 30, 2010 and 2009, respectively.
8
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3. Business Combinations
The Companys retail operations acquired three and five franchises during the six
months ended June 30, 2010 and 2009, respectively. The Companys financial statements
include the results of operations of the acquired dealerships from the date of
acquisition. The fair value of the assets acquired and liabilities assumed have been
recorded in the Companys consolidated condensed financial statements, and may be subject
to adjustment pending completion of final valuation. A summary of the aggregate
consideration paid and the aggregate amounts of the assets acquired and liabilities
assumed in the six months ended June 30, 2010 and 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
Inventory |
|
$ |
8,595 |
|
|
$ |
2,935 |
|
Other current assets |
|
|
17 |
|
|
|
129 |
|
Property and equipment |
|
|
187 |
|
|
|
3,250 |
|
Goodwill |
|
|
3,510 |
|
|
|
1,746 |
|
Franchise value |
|
|
|
|
|
|
749 |
|
Current liabilities |
|
|
(32 |
) |
|
|
(199 |
) |
|
|
|
|
|
|
|
Cash used in dealership acquisitions |
|
$ |
12,277 |
|
|
$ |
8,610 |
|
|
|
|
|
|
|
|
In the first quarter of 2010, the Company exited one of its German joint ventures by
exchanging its 50% interest in the joint venture for 100% ownership in three BMW
franchises previously held by the joint venture. The Company recorded $13,331 of
intangible assets in connection with this transaction.
4. Intangible Assets
The following is a summary of the changes in the carrying amount of goodwill and
franchise value during the six months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise |
|
|
|
Goodwill |
|
|
Value |
|
Balance January 1, 2010 |
|
$ |
810,047 |
|
|
$ |
201,756 |
|
Additions |
|
|
13,051 |
|
|
|
3,703 |
|
Foreign currency translation |
|
|
(27,732 |
) |
|
|
(5,878 |
) |
|
|
|
|
|
|
|
Balance June 30, 2010 |
|
$ |
795,366 |
|
|
$ |
199,581 |
|
|
|
|
|
|
|
|
5. Floor Plan Notes Payable Trade and Non-trade
The Company finances substantially all of its new and a portion of its used vehicle
inventories under revolving floor plan arrangements with various lenders, primarily
through captive finance companies associated with automotive manufacturers. In the U.S.,
the floor plan arrangements are due on demand; however, the Company has not historically
been required to repay floor plan advances prior to the sale of the vehicles that have
been financed. The Company typically makes monthly interest payments on the amount
financed. Outside 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 the Company is 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 floor plan agreements typically grant a security interest in substantially all
of the assets of the Companys dealership subsidiaries, and in the U.S. are guaranteed by
the Company. Interest rates under the floor plan arrangements are variable and increase
or decrease based on changes in the prime rate, defined London Interbank Offered Rate
(LIBOR), Finance House Base Rate, or Euro Interbank Offered Rate. The Company
classifies 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 its consolidated condensed balance sheets, and
classifies related cash flows as a financing activity on its consolidated condensed
statements of cash flows.
9
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
6. Earnings Per Share
Basic earnings per share is computed using net income attributable to Penske
Automotive Group common stockholders and the number of weighted average shares of voting
common stock outstanding, including outstanding unvested restricted stock awards which
contain rights to non-forfeitable dividends. Diluted earnings per share is computed using
net income attributable to Penske Automotive Group common stockholders and the number of
weighted average shares of voting common stock outstanding, adjusted for the dilutive
effect of non-participatory equity compensation. A reconciliation of the number of shares
used in the calculation of basic and diluted earnings per share for the three and six
months ended June 30, 2010 and 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Weighted average number of common shares
outstanding |
|
|
92,142 |
|
|
|
91,531 |
|
|
|
92,016 |
|
|
|
91,506 |
|
Effect of non-participatory equity compensation |
|
|
64 |
|
|
|
61 |
|
|
|
70 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding, including effect of dilutive
securities |
|
|
92,206 |
|
|
|
91,592 |
|
|
|
92,086 |
|
|
|
91,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no anti-dilutive stock options outstanding during the three and six
months ended June 30, 2010 which were excluded from the calculation of diluted earnings
per share. During the three and six months ended June 30, 2009, 3 and 222 stock options,
respectively, were excluded from the calculation of diluted earnings per share because
the effect of such securities was anti-dilutive. In addition, the Company has senior
subordinated convertible notes outstanding which, under certain circumstances discussed
in Note 7, may be converted to voting common stock. As of June 30, 2010 and 2009, no shares related to the senior subordinated convertible notes were included in the
calculation of diluted earnings per share because the effect of such securities was
anti-dilutive.
7. Long-Term Debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
U.S. credit agreement revolving credit line |
|
$ |
28,000 |
|
|
$ |
|
|
U.S. credit agreement term loan |
|
|
149,000 |
|
|
|
149,000 |
|
U.K. credit agreement revolving credit line |
|
|
44,817 |
|
|
|
59,803 |
|
U.K. credit agreement term loan |
|
|
10,545 |
|
|
|
17,115 |
|
U.K. credit agreement overdraft line of credit |
|
|
12,259 |
|
|
|
12,048 |
|
7.75% senior subordinated notes due 2016 |
|
|
375,000 |
|
|
|
375,000 |
|
3.5% senior subordinated convertible notes due
2026, net of debt discount |
|
|
187,157 |
|
|
|
289,344 |
|
Mortgage facilities |
|
|
46,608 |
|
|
|
41,358 |
|
Other |
|
|
7,457 |
|
|
|
2,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
860,843 |
|
|
|
946,408 |
|
Less: current portion |
|
|
(16,551 |
) |
|
|
(12,442 |
) |
|
|
|
|
|
|
|
Net long-term debt |
|
$ |
844,292 |
|
|
$ |
933,966 |
|
|
|
|
|
|
|
|
U.S. Credit Agreement
The Company is party to a credit agreement with DCFS USA LLC and Toyota Motor Credit
Corporation, as amended (the U.S. Credit Agreement), which, as of June 30, 2010,
provided for up to $250,000 in revolving loans for working capital, acquisitions, capital
expenditures, investments and other general corporate purposes, a non-amortizing term
loan with a remaining balance of $149,000, and for an additional $10,000 of availability
for letters of credit, through September 30, 2012. As of June 30, 2010, the revolving
loans bore interest at a defined LIBOR plus 2.50%, subject to an incremental 0.50% for
uncollateralized borrowings in excess of a defined borrowing base. The term loan, which
bears interest at defined LIBOR plus 2.50%, may be prepaid at any time, but then may not
be re-borrowed.
The U.S. Credit Agreement is fully and unconditionally guaranteed on a joint and
several basis by the Companys domestic subsidiaries and contains a number of significant
covenants that, among other things, restrict the Companys ability to dispose of assets,
incur additional indebtedness, repay other indebtedness, pay dividends, create liens on
assets, make investments or acquisitions and engage in mergers or consolidations. The
Company is 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 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. As of June 30, 2010, the Company was in
compliance with all covenants under the U.S. Credit Agreement.
10
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The U.S. Credit Agreement also contains typical events of default, including change
of control, non-payment of obligations and cross-defaults to the Companys other material
indebtedness. Substantially all of the Companys domestic assets are subject to security
interests granted to lenders under the U.S. Credit Agreement. As of June 30, 2010,
$149,000 of term loans, $1,250 of letters of credit, and $28,000 of revolver borrowings
were outstanding under the U.S. Credit Agreement.
In July 2010, the Company amended the U.S. Credit Agreement to (1) increase the
borrowing capacity under the revolving credit line by $50.0 million, (2) increase the
interest rate on secured revolving borrowings by 25 basis points, and (3) increase the
rate on unsecured revolving borrowings by 50 basis points.
U.K. Credit Agreement
The Companys subsidiaries in the U.K. (the U.K. Subsidiaries) are party to an
agreement with the Royal Bank of Scotland plc, as agent for National Westminster Bank
plc, which provides for a funded term loan, a revolving credit agreement and a seasonally
adjusted overdraft line of credit (collectively, the U.K. Credit Agreement) to be used
for working capital, acquisitions, capital expenditures, investments and general
corporate purposes. The U.K. Credit Agreement provides for (1) up to £100,000 in
revolving loans through August 31, 2013, which bears interest between a defined LIBOR
plus 1.1% and defined LIBOR plus 3.0%, (2) a term loan which bears interest between 6.39%
and 8.29% and is payable ratably in quarterly intervals until fully repaid on June 30,
2011, and (3) a demand seasonally adjusted overdraft line of credit for up to £20,000
that bears interest at the Bank of England Base Rate plus 1.75%.
The U.K. Credit Agreement is fully and unconditionally guaranteed on a joint and
several basis by the U.K. Subsidiaries, and contains a number of significant covenants
that, among other things, restrict the ability of the 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, the U.K. Subsidiaries are required to comply with
specified ratios and tests, each as defined in the U.K. Credit Agreement, including: a
ratio of EBITDAR to interest plus rental payments (as defined), a measurement of maximum
capital expenditures, and a debt to EBITDA ratio (as defined). 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. As of
June 30, 2010, the U.K. subsidiaries were in compliance with all covenants under the U.K.
Credit Agreement.
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 the U.K. Subsidiaries. Substantially all of the U.K. Subsidiaries assets
are subject to security interests granted to lenders under the U.K. Credit Agreement. As
of June 30, 2010, outstanding loans under the U.K. Credit Agreement amounted to £45,265
($67,621), including £7,059 ($10,545) under the term loan. In July 2010, the Company
amended the U.K. Credit Agreement in connection with a reorganization of our European
operations.
7.75% Senior Subordinated Notes
In December 2006, the Company issued $375,000 aggregate principal amount of 7.75%
senior subordinated notes due 2016 (the 7.75% Notes). The 7.75% Notes are unsecured
senior subordinated notes and are subordinate to all existing and future senior debt,
including debt under the Companys credit agreements, mortgages and floor plan
indebtedness. The 7.75% Notes are guaranteed by substantially all of the Companys
wholly-owned domestic subsidiaries on an unsecured senior subordinated basis. Those
guarantees are full and unconditional and joint and several. The Company can redeem all
or some of the 7.75% Notes at its option beginning in December 2011 at specified
redemption prices, or prior to December 2011 at 100% of the principal amount of the notes
plus an applicable make-whole premium, as defined. Upon certain sales of assets or
specific kinds of changes of control, the Company is required to make an offer to
purchase the 7.75% Notes. The 7.75% Notes also contain customary negative covenants and
events of default. As of June 30, 2010, the Company was in compliance with all negative
covenants and there were no events of default.
Senior Subordinated Convertible Notes
On January 31, 2006, the Company issued $375,000 aggregate principal amount of 3.50%
senior subordinated convertible notes due 2026 (the Convertible Notes), of which
$193,602 were outstanding at June 30, 2010. The Convertible Notes mature on April 1,
2026, unless earlier converted, redeemed or purchased by the Company, as discussed below.
The Convertible Notes are unsecured senior subordinated obligations and are subordinate
to all future and existing senior debt, including debt under the Companys credit
agreements, mortgages and floor plan indebtedness. The Convertible Notes are guaranteed
on an unsecured senior subordinated basis by substantially all of the Companys
wholly-owned domestic subsidiaries. Those guarantees are full and unconditional and joint
and several. The Convertible Notes also contain customary negative covenants and events
of default. As of June 30, 2010, the Company was in compliance with all negative
covenants and there were no events of default.
11
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Holders of the Convertible Notes may convert them based on a conversion rate of
42.7796 shares of common stock per $1,000 principal amount of the Convertible Notes
(which is equal to a conversion price of approximately $23.38 per share), subject to
adjustment, only under the following circumstances: (1) in any quarterly period, if the
closing price of the common stock for twenty of the last thirty trading days in the prior
quarter exceeds $28.05 (subject to adjustment), (2) for specified periods, if the trading
price of the Convertible Notes falls below specific thresholds, (3) if the Convertible
Notes are called for redemption, (4) if specified distributions to holders of common
stock are made or specified corporate transactions occur, (5) if a fundamental change (as
defined) occurs, or (6) during the ten trading days prior to, but excluding, the maturity
date.
Upon conversion of the Convertible Notes, for each $1,000 principal amount of the
Convertible Notes, a holder will receive an amount in cash, equal to the lesser of (i)
$1,000 or (ii) the conversion value, determined in the manner set forth in the related
indenture covering the Convertible Notes, of the number of shares of common stock equal
to the conversion rate. If the conversion value exceeds $1,000, the Company will also
deliver, at its election, cash, common stock or a combination of cash and common stock
with respect to the remaining value deliverable upon conversion.
In the event of a conversion due to a change of control on or before April 6, 2011,
the Company will, in certain circumstances, pay a make-whole premium by increasing the
conversion rate used in that conversion. In addition, the Company will pay additional
cash interest, commencing with six-month periods beginning on April 1, 2011, if the
average trading price of a Convertible Note for certain periods in the prior six-month
period equals 120% or more of the principal amount of the Convertible Notes. On or after
April 6, 2011, the Company may redeem the Convertible Notes, in whole at any time or in
part from time to time, for cash at a redemption price of 100% of the principal amount of
the Convertible Notes to be redeemed, plus any accrued and unpaid interest to the
applicable redemption date.
Holders of the Convertible Notes may require the Company to purchase all or a
portion of their Convertible Notes for cash on each of April 1, 2011, April 1, 2016 or
April 1, 2021 at a purchase price equal to 100% of the principal amount of the
Convertible Notes to be purchased, plus accrued and unpaid interest, if any, to the
applicable purchase date. Because the Company expects to be required to redeem the
Convertible Notes in April 2011, it is reviewing alternatives to refinance or repay the
Convertible Notes, which may include the issuance of additional securities. In the
absence of a refinancing of the Convertible Notes, the Company expects to utilize cash
flow from operations, working capital and availability under the U.S. Credit Agreement to
repay the Convertible Notes. Based on the ability and intent to refinance any redemption
or repayment of the Convertible Notes, the Company has classified them as long-term in
the Consolidated Condensed Balance Sheet as of June 30, 2010. In the event the
outstanding balance of the Convertible Notes exceeds or was expected to exceed the
revolving capacity under the U.S. Credit Agreement, any such excess would have been
classified as current.
In the second quarter of 2010, the Company repurchased $41,548 principal amount of
its outstanding Convertible Notes, which had a book value, net of debt discount, of
$40,013 for $41,859. The Company allocated $2,438 of the total consideration to the
reacquisition of the equity component of the Convertible Notes. In connection with the
transactions, the Company wrote off $170 of unamortized deferred financing costs. As a
result, the Company recorded a $422 pre-tax gain in connection with the repurchases. In
total during the first six months of 2010, the Company repurchased $112,658 principal
amount of its outstanding Convertible Notes, which had a book value, net of debt
discount, of $107,530 for $113,603. The Company allocated $7,667 of the total
consideration to the reacquisition of the equity component of the Convertible Notes. In
connection with the transactions, the Company wrote off $567 of unamortized deferred
financing costs. As a result, the Company has recorded an aggregate $1,027 pre-tax gain
in connection with the repurchases during 2010.
In the first quarter of 2009, the Company repurchased $68,740 principal amount of
its outstanding Convertible Notes, which had a book value, net of debt discount, of
$62,831 for $51,425. In connection with the transaction, the Company wrote off $672 of
unamortized deferred financing costs and incurred $305 of transaction costs. No element
of the consideration was allocated to the reacquisition of the equity component because
the consideration paid was less than the fair value of the liability component prior to
extinguishment. As a result, the Company recorded a $10,429 pre-tax gain in connection
with the repurchase.
The liability and equity components related to the Convertible Notes consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Carrying amount of the equity component |
|
$ |
38,458 |
|
|
$ |
43,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal amount of the liability component |
|
$ |
193,602 |
|
|
$ |
306,260 |
|
Unamortized debt discount |
|
|
6,445 |
|
|
|
16,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount of the liability component |
|
$ |
187,157 |
|
|
$ |
289,344 |
|
|
|
|
|
|
|
|
12
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The unamortized debt discount will be amortized as additional interest expense
through April 1, 2011, the date the Company expects to be required to redeem the
Convertible Notes. The annual effective interest rate on the liability component is
8.25%.
In July 2010, the Company repurchased an additional $43,000 principal amount of the
Convertible Notes for $43,215. As a result, there is an aggregate of $150,602 principal
amount of the Convertible Notes currently outstanding.
Mortgage Facilities
The Company is party to several mortgages, including a $42,400 mortgage facility
with respect to certain of its dealership properties that matures on October 1, 2015.
This facility bears interest at a defined rate, requires monthly principal and interest
payments, and includes the option to extend the term for successive periods of five years
up to a maximum term of twenty-five years. In the event the Company exercises its options
to extend the term, the interest rate will be renegotiated at each renewal period. This
mortgage facility also contains typical events of default, including non-payment of
obligations, cross-defaults to the Companys other material indebtedness, certain change
of control events, and the loss or sale of certain franchises operated at the property.
Substantially all of the buildings, improvements, fixtures and personal property of the
properties under the mortgage facility are subject to security interests granted to the
lender. As of June 30, 2010, $46,608 was outstanding under these facilities.
8. Interest Rate Swaps
The Company uses interest rate swaps to manage interest rate risk associated with
the Companys variable rate floor plan debt. The Company is party to interest rate swap
agreements through January 2011, pursuant to which the LIBOR portion of $300,000 of the
Companys floating rate floor plan debt was fixed at 3.67%. We may terminate these
arrangements at any time, subject to the settlement of the then current fair value of the
swap arrangements.
The Company designated $290,000 of the swap agreements as cash flow hedges of future
interest payments of LIBOR based U.S. floor plan borrowings and the effective portion of
the gain or loss on that $290,000 of the swap agreements is reported as a component of
other comprehensive income and reclassified into earnings when the hedged transaction
affects earnings. Settlements and changes in the fair value related to the undesignated
$10,000 of the swap agreements will be recorded as realized and unrealized gains/losses
within interest expense.
The Company used Level 2 inputs to estimate the fair value of the interest rate swap
agreements. As of June 30, 2010, the fair value of the swaps designated as hedging
instruments was estimated to be a liability of $5,729, which is recorded in accrued
expenses. As of December 31, 2009, the fair value of the swaps designated as hedging
instruments was estimated to be a liability of $9,963, of which $9,250 and $713 were
recorded in accrued expenses and other long-term liabilities, respectively. As of June
30, 2010, the fair value of the swaps not designated as hedging instruments was estimated
to be a liability of $198, which is recorded in accrued expenses. As of December 31,
2009, the fair value of the swaps not designated as hedging instruments was estimated to
be a liability of $344, of which $319 and $25 were recorded in accrued expenses and other
long-term liabilities, respectively.
During the six months ended June 30, 2010, the Company recognized a net gain of
$1,328 related to the effective portion of the interest rate swap agreements designated
as hedging instruments in accumulated other comprehensive income, and reclassified $2,207
of the existing derivative losses from accumulated other comprehensive income into floor
plan interest expense. During the six months ended June 30, 2009, the Company recognized
a net gain of $1,464 related to the effective portion of the interest rate swap
agreements designated as hedging instruments in accumulated other comprehensive income,
and reclassified $4,894 of existing derivative losses from accumulated other
comprehensive income into floor plan interest expense. The Company expects approximately
$4,248 associated with the swaps to be recognized as an increase of interest expense as
the hedged interest payments become due through the swap agreements maturity in January
2011. During the six months ended June 30, 2010 and 2009, the swaps increased the
weighted average interest rate on the Companys floor plan borrowings by approximately
0.8% and 0.6%, respectively.
9. Commitments and Contingent Liabilities
The Company is 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 June 30, 2010, the Company
is 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 the
Companys 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 the Companys results of
operations, financial condition or cash flows.
13
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Company has historically structured its operations so as to minimize ownership
of real property. As a result, the Company leases or subleases substantially all of its
facilities. These leases are generally for a period between five and 20 years, and are
typically structured to include renewal options at the Companys election. Pursuant to
the leases for some of the Companys larger facilities, the Company is 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 the
Company to post collateral in the form of a letter of credit. A breach of the other
lease covenants give 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. As of June 30, 2010, the Company was in compliance with
all covenants under these leases.
The Company has sold a number of dealerships to third parties and, as a condition to
certain of those sales, remains liable for the lease payments relating to the properties
on which those businesses operate in the event of non-payment by the buyer. The Company
is also party to lease agreements on properties that it no longer uses in its retail
operations that it has sublet to third parties. The Company relies on subtenants to pay
the associated rent and maintain the property at these locations. In the event the
subtenant does not perform as expected, the Company may not be able to recover amounts
owed to it and the Company could be required to fulfill these obligations.
The Company is potentially subject to additional purchase commitments pursuant to
its smart distribution agreement, smart franchise agreement and state franchise laws in
the event of franchise terminations, none of which have historically had a material
adverse effect on its results of operations, financial condition or cash flows. The
Company does not anticipate that the purchase commitments will have a material adverse
effect on its future results of operations, financial condition or cash flows, although
such an outcome is possible.
The Company has $20,891 of letters of credit outstanding as of June 30, 2010, which
are required by certain of our lenders and insurance providers. In addition, the Company
has $14,382 of surety bonds posted by dealerships in the ordinary course of business.
10. Equity
Comprehensive income (loss)
Other comprehensive income (loss) includes foreign currency translation gains and
losses, as well as changes relating to other immaterial items, including certain defined
benefit plans in the U.K. and changes in the fair value of interest rate swap agreements,
each of which has been excluded from net income and reflected in equity. Total
comprehensive income (loss) is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to Penske Automotive Group: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
29,441 |
|
|
$ |
14,079 |
|
|
$ |
49,795 |
|
|
$ |
30,361 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
(15,123 |
) |
|
|
52,357 |
|
|
|
(42,831 |
) |
|
|
54,565 |
|
Other |
|
|
4,029 |
|
|
|
1,472 |
|
|
|
7,215 |
|
|
|
1,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total attributable to Penske
Automotive Group |
|
|
18,347 |
|
|
|
67,908 |
|
|
|
14,179 |
|
|
|
86,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to the non-controlling interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
243 |
|
|
|
88 |
|
|
|
221 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
18,590 |
|
|
$ |
67,996 |
|
|
$ |
14,400 |
|
|
$ |
86,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In July 2010, the Company repurchased 68 shares at an average price of $10.97 for a
total of $751.
11. Segment Information
The Companys operations are organized by management into operating segments by line
of business and geography. The Company has determined it has three reportable segments as
defined in general accounting principles for segment reporting, including: (i) Retail,
consisting of our automotive retail operations, (ii) Distribution, consisting of our
distribution of the smart fortwo vehicle, parts and accessories in the U.S. and Puerto
Rico and (iii) PAG Investments, consisting of our investments in non-automotive retail
operations. The Retail reportable segment includes all automotive dealerships and all
departments relevant to the operation of the dealerships. The individual dealership
operations included in the Retail reportable segment have been grouped into five
geographic operating segments, which 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 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).
14
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following table summarizes revenues and income from continuing operations before
certain non-recurring items and income taxes, which is the measure by which management
allocates resources to its segments, and which we refer to as adjusted segment income,
for each of our reportable segments. Adjusted segment income excludes the item in the
table below in order to enhance the comparability of segment income from period to
period.
Three Months Ended June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAG |
|
|
Intersegment |
|
|
|
|
|
|
Retail |
|
|
Distribution |
|
|
Investments |
|
|
Elimination |
|
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
$ |
2,684,068 |
|
|
$ |
32,063 |
|
|
$ |
|
|
|
$ |
(12,443 |
) |
|
$ |
2,703,688 |
|
2009 |
|
|
2,265,625 |
|
|
|
58,878 |
|
|
|
|
|
|
|
(5,808 |
) |
|
|
2,318,695 |
|
Adjusted segment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
44,294 |
|
|
|
(3,610 |
) |
|
|
4,103 |
|
|
|
(181 |
) |
|
|
44,606 |
|
2009 |
|
|
26,802 |
|
|
|
967 |
|
|
|
2,520 |
|
|
|
(59 |
) |
|
|
30,230 |
|
Six Months Ended June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAG |
|
|
Intersegment |
|
|
|
|
|
|
Retail |
|
|
Distribution |
|
|
Investments |
|
|
Elimination |
|
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
$ |
5,162,123 |
|
|
$ |
47,187 |
|
|
$ |
|
|
|
$ |
(19,943 |
) |
|
$ |
5,189,367 |
|
2009 |
|
|
4,343,812 |
|
|
|
147,509 |
|
|
|
|
|
|
|
(14,326 |
) |
|
|
4,476,995 |
|
Adjusted segment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
83,030 |
|
|
|
(9,202 |
) |
|
|
3,597 |
|
|
|
(264 |
) |
|
|
77,161 |
|
2009 |
|
|
35,660 |
|
|
|
7,272 |
|
|
|
3,126 |
|
|
|
(222 |
) |
|
|
45,836 |
|
The following table reconciles total adjusted segment income to consolidated income
from continuing operations before income taxes for the three and six month periods ended
June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Adjusted segment income |
|
$ |
44,606 |
|
|
$ |
30,230 |
|
|
$ |
77,161 |
|
|
$ |
45,836 |
|
Gain on debt repurchase |
|
|
422 |
|
|
|
|
|
|
|
1,027 |
|
|
|
10,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before
income taxes |
|
$ |
45,028 |
|
|
$ |
30,230 |
|
|
$ |
78,188 |
|
|
$ |
56,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
12. Consolidating Condensed Financial Information
The following tables include consolidating condensed financial information as of
June 30, 2010 and December 31, 2009 and for the three and six month periods ended June
30, 2010 and 2009 for Penske Automotive Group, Inc. (as the issuer of the Convertible
Notes and the 7.75% Notes), guarantor subsidiaries and non-guarantor subsidiaries
(primarily representing foreign entities). The condensed consolidating financial
information includes certain allocations of balance sheet, income statement and cash flow
items which are not necessarily indicative of the financial position, results of
operations or cash flows of these entities on a stand-alone basis.
CONSOLIDATING CONDENSED BALANCE SHEET
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penske |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Automotive |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
Company |
|
|
Eliminations |
|
|
Group, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
17,664 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
13,540 |
|
|
$ |
4,124 |
|
Accounts receivable, net |
|
|
351,013 |
|
|
|
(250,655 |
) |
|
|
250,655 |
|
|
|
206,509 |
|
|
|
144,504 |
|
Inventories |
|
|
1,364,718 |
|
|
|
|
|
|
|
|
|
|
|
850,026 |
|
|
|
514,692 |
|
Other current assets |
|
|
106,479 |
|
|
|
|
|
|
|
863 |
|
|
|
66,670 |
|
|
|
38,946 |
|
Assets held for sale |
|
|
572 |
|
|
|
|
|
|
|
|
|
|
|
572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,840,446 |
|
|
|
(250,655 |
) |
|
|
251,518 |
|
|
|
1,137,317 |
|
|
|
702,266 |
|
Property and equipment, net |
|
|
707,832 |
|
|
|
|
|
|
|
5,024 |
|
|
|
449,485 |
|
|
|
253,323 |
|
Intangible assets |
|
|
994,947 |
|
|
|
|
|
|
|
|
|
|
|
572,940 |
|
|
|
422,007 |
|
Equity method investments |
|
|
280,847 |
|
|
|
|
|
|
|
232,015 |
|
|
|
|
|
|
|
48,832 |
|
Other long-term assets |
|
|
14,591 |
|
|
|
(1,241,648 |
) |
|
|
1,245,377 |
|
|
|
9,252 |
|
|
|
1,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,838,663 |
|
|
$ |
(1,492,303 |
) |
|
$ |
1,733,934 |
|
|
$ |
2,168,994 |
|
|
$ |
1,428,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan notes payable |
|
$ |
818,339 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
501,158 |
|
|
$ |
317,181 |
|
Floor plan notes payable
non-trade |
|
|
499,410 |
|
|
|
|
|
|
|
29,900 |
|
|
|
300,139 |
|
|
|
169,371 |
|
Accounts payable |
|
|
209,535 |
|
|
|
|
|
|
|
1,994 |
|
|
|
82,788 |
|
|
|
124,753 |
|
Accrued expenses |
|
|
218,716 |
|
|
|
(250,655 |
) |
|
|
1,149 |
|
|
|
125,777 |
|
|
|
342,445 |
|
Current portion of long-term debt |
|
|
16,551 |
|
|
|
|
|
|
|
|
|
|
|
1,239 |
|
|
|
15,312 |
|
Liabilities held for sale |
|
|
501 |
|
|
|
|
|
|
|
|
|
|
|
501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,763,052 |
|
|
|
(250,655 |
) |
|
|
33,043 |
|
|
|
1,011,602 |
|
|
|
969,062 |
|
Long-term debt |
|
|
844,292 |
|
|
|
(59,194 |
) |
|
|
739,157 |
|
|
|
50,087 |
|
|
|
114,242 |
|
Deferred tax liabilities |
|
|
159,872 |
|
|
|
|
|
|
|
|
|
|
|
148,563 |
|
|
|
11,309 |
|
Other long-term liabilities |
|
|
109,713 |
|
|
|
|
|
|
|
|
|
|
|
92,416 |
|
|
|
17,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,876,929 |
|
|
|
(309,849 |
) |
|
|
772,200 |
|
|
|
1,302,668 |
|
|
|
1,111,910 |
|
Total equity |
|
|
961,734 |
|
|
|
(1,182,454 |
) |
|
|
961,734 |
|
|
|
866,326 |
|
|
|
316,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
3,838,663 |
|
|
$ |
(1,492,303 |
) |
|
$ |
1,733,934 |
|
|
$ |
2,168,994 |
|
|
$ |
1,428,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED BALANCE SHEET
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penske |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Automotive |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
Company |
|
|
Eliminations |
|
|
Group, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
13,999 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,344 |
|
|
$ |
1,655 |
|
Accounts receivable, net |
|
|
321,226 |
|
|
|
(230,299 |
) |
|
|
230,299 |
|
|
|
195,748 |
|
|
|
125,478 |
|
Inventories |
|
|
1,302,495 |
|
|
|
|
|
|
|
|
|
|
|
776,887 |
|
|
|
525,608 |
|
Other current assets |
|
|
95,426 |
|
|
|
|
|
|
|
1,725 |
|
|
|
61,640 |
|
|
|
32,061 |
|
Assets held for sale |
|
|
10,625 |
|
|
|
|
|
|
|
|
|
|
|
10,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,743,771 |
|
|
|
(230,299 |
) |
|
|
232,024 |
|
|
|
1,057,244 |
|
|
|
684,802 |
|
Property and equipment, net |
|
|
726,808 |
|
|
|
|
|
|
|
6,007 |
|
|
|
450,116 |
|
|
|
270,685 |
|
Intangible assets |
|
|
1,011,803 |
|
|
|
|
|
|
|
|
|
|
|
570,282 |
|
|
|
441,521 |
|
Equity method investments |
|
|
295,473 |
|
|
|
|
|
|
|
231,897 |
|
|
|
|
|
|
|
63,576 |
|
Other long-term assets |
|
|
18,152 |
|
|
|
(1,287,938 |
) |
|
|
1,293,067 |
|
|
|
10,848 |
|
|
|
2,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,796,007 |
|
|
$ |
(1,518,237 |
) |
|
$ |
1,762,995 |
|
|
$ |
2,088,490 |
|
|
$ |
1,462,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan notes payable |
|
$ |
769,657 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
448,069 |
|
|
$ |
321,588 |
|
Floor plan notes payable
non-trade |
|
|
423,316 |
|
|
|
|
|
|
|
|
|
|
|
254,807 |
|
|
|
168,509 |
|
Accounts payable |
|
|
189,989 |
|
|
|
|
|
|
|
3,268 |
|
|
|
74,610 |
|
|
|
112,111 |
|
Accrued expenses |
|
|
227,294 |
|
|
|
(230,299 |
) |
|
|
344 |
|
|
|
111,800 |
|
|
|
345,449 |
|
Current portion of long-term debt |
|
|
12,442 |
|
|
|
|
|
|
|
|
|
|
|
1,033 |
|
|
|
11,409 |
|
Liabilities held for sale |
|
|
7,675 |
|
|
|
|
|
|
|
|
|
|
|
7,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,630,373 |
|
|
|
(230,299 |
) |
|
|
3,612 |
|
|
|
897,994 |
|
|
|
959,066 |
|
Long-term debt |
|
|
933,966 |
|
|
|
(59,706 |
) |
|
|
813,344 |
|
|
|
43,066 |
|
|
|
137,262 |
|
Deferred tax liabilities |
|
|
157,500 |
|
|
|
|
|
|
|
|
|
|
|
145,551 |
|
|
|
11,949 |
|
Other long-term liabilities |
|
|
128,129 |
|
|
|
|
|
|
|
|
|
|
|
123,154 |
|
|
|
4,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,849,968 |
|
|
|
(290,005 |
) |
|
|
816,956 |
|
|
|
1,209,765 |
|
|
|
1,113,252 |
|
Total equity |
|
|
946,039 |
|
|
|
(1,228,232 |
) |
|
|
946,039 |
|
|
|
878,725 |
|
|
|
349,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
3,796,007 |
|
|
$ |
(1,518,237 |
) |
|
$ |
1,762,995 |
|
|
$ |
2,088,490 |
|
|
$ |
1,462,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF INCOME
Three Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penske |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Automotive |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
Company |
|
|
Eliminations |
|
|
Group, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
2,703,688 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,618,487 |
|
|
$ |
1,085,201 |
|
Cost of sales |
|
|
2,273,344 |
|
|
|
|
|
|
|
|
|
|
|
1,347,980 |
|
|
|
925,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
430,344 |
|
|
|
|
|
|
|
|
|
|
|
270,507 |
|
|
|
159,837 |
|
Selling, general, and administrative expenses |
|
|
355,177 |
|
|
|
|
|
|
|
3,494 |
|
|
|
225,414 |
|
|
|
126,269 |
|
Depreciation |
|
|
12,054 |
|
|
|
|
|
|
|
300 |
|
|
|
6,984 |
|
|
|
4,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
63,113 |
|
|
|
|
|
|
|
(3,794 |
) |
|
|
38,109 |
|
|
|
28,798 |
|
Floor plan interest expense |
|
|
(8,321 |
) |
|
|
|
|
|
|
|
|
|
|
(6,167 |
) |
|
|
(2,154 |
) |
Other interest expense |
|
|
(12,542 |
) |
|
|
|
|
|
|
(8,343 |
) |
|
|
(33 |
) |
|
|
(4,166 |
) |
Debt discount amortization |
|
|
(2,428 |
) |
|
|
|
|
|
|
(2,428 |
) |
|
|
|
|
|
|
|
|
Equity in earnings of affiliates |
|
|
4,784 |
|
|
|
|
|
|
|
3,937 |
|
|
|
|
|
|
|
847 |
|
Gain on debt repurchase |
|
|
422 |
|
|
|
|
|
|
|
422 |
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
|
|
|
|
|
(54,991 |
) |
|
|
54,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
45,028 |
|
|
|
(54,991 |
) |
|
|
44,785 |
|
|
|
31,909 |
|
|
|
23,325 |
|
Income taxes |
|
|
(15,625 |
) |
|
|
19,186 |
|
|
|
(15,625 |
) |
|
|
(12,548 |
) |
|
|
(6,638 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
29,403 |
|
|
|
(35,805 |
) |
|
|
29,160 |
|
|
|
19,361 |
|
|
|
16,687 |
|
Loss from discontinued operations, net of tax |
|
|
281 |
|
|
|
(281 |
) |
|
|
281 |
|
|
|
281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
29,684 |
|
|
|
(36,086 |
) |
|
|
29,441 |
|
|
|
19,642 |
|
|
|
16,687 |
|
Less: Income attributable to the non-controlling interests |
|
|
243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Penske Automotive Group common
stockholders |
|
$ |
29,441 |
|
|
$ |
(36,086 |
) |
|
$ |
29,441 |
|
|
$ |
19,642 |
|
|
$ |
16,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF INCOME
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penske |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Automotive |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
Company |
|
|
Eliminations |
|
|
Group, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
2,318,695 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,374,689 |
|
|
$ |
944,006 |
|
Cost of sales |
|
|
1,924,940 |
|
|
|
|
|
|
|
|
|
|
|
1,133,537 |
|
|
|
791,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
393,755 |
|
|
|
|
|
|
|
|
|
|
|
241,152 |
|
|
|
152,603 |
|
Selling, general, and administrative expenses |
|
|
327,389 |
|
|
|
|
|
|
|
6,229 |
|
|
|
201,348 |
|
|
|
119,812 |
|
Depreciation |
|
|
13,811 |
|
|
|
|
|
|
|
290 |
|
|
|
8,636 |
|
|
|
4,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
52,555 |
|
|
|
|
|
|
|
(6,519 |
) |
|
|
31,168 |
|
|
|
27,906 |
|
Floor plan interest expense |
|
|
(8,969 |
) |
|
|
|
|
|
|
|
|
|
|
(6,233 |
) |
|
|
(2,736 |
) |
Other interest expense |
|
|
(13,687 |
) |
|
|
|
|
|
|
(10,754 |
) |
|
|
(35 |
) |
|
|
(2,898 |
) |
Debt discount amortization |
|
|
(3,135 |
) |
|
|
|
|
|
|
(3,135 |
) |
|
|
|
|
|
|
|
|
Equity in income of affiliates |
|
|
3,466 |
|
|
|
|
|
|
|
2,381 |
|
|
|
|
|
|
|
1,085 |
|
Equity in earnings of subsidiaries |
|
|
|
|
|
|
(48,169 |
) |
|
|
48,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
30,230 |
|
|
|
(48,169 |
) |
|
|
30,142 |
|
|
|
24,900 |
|
|
|
23,357 |
|
Income taxes |
|
|
(10,329 |
) |
|
|
16,512 |
|
|
|
(10,329 |
) |
|
|
(9,894 |
) |
|
|
(6,618 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
19,901 |
|
|
|
(31,657 |
) |
|
|
19,813 |
|
|
|
15,006 |
|
|
|
16,739 |
|
Loss from discontinued operations, net of tax |
|
|
(5,734 |
) |
|
|
5,734 |
|
|
|
(5,734 |
) |
|
|
(3,369 |
) |
|
|
(2,365 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
14,167 |
|
|
|
(25,923 |
) |
|
|
14,079 |
|
|
|
11,637 |
|
|
|
14,374 |
|
Less: Income attributable to the non-controlling interests |
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Penske Automotive Group common
stockholders |
|
$ |
14,079 |
|
|
$ |
(25,923 |
) |
|
$ |
14,079 |
|
|
$ |
11,637 |
|
|
$ |
14,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF INCOME
Six Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penske |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Automotive |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
Company |
|
|
Eliminations |
|
|
Group, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
5,189,367 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,006,952 |
|
|
$ |
2,182,415 |
|
Cost of sales |
|
|
4,348,995 |
|
|
|
|
|
|
|
|
|
|
|
2,494,595 |
|
|
|
1,854,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
840,372 |
|
|
|
|
|
|
|
|
|
|
|
512,357 |
|
|
|
328,015 |
|
Selling, general, and administrative expenses |
|
|
695,691 |
|
|
|
|
|
|
|
8,087 |
|
|
|
433,106 |
|
|
|
254,498 |
|
Depreciation |
|
|
24,428 |
|
|
|
|
|
|
|
590 |
|
|
|
13,944 |
|
|
|
9,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
120,253 |
|
|
|
|
|
|
|
(8,677 |
) |
|
|
65,307 |
|
|
|
63,623 |
|
Floor plan interest expense |
|
|
(16,842 |
) |
|
|
|
|
|
|
|
|
|
|
(12,228 |
) |
|
|
(4,614 |
) |
Other interest expense |
|
|
(25,262 |
) |
|
|
|
|
|
|
(16,390 |
) |
|
|
(589 |
) |
|
|
(8,283 |
) |
Debt discount amortization |
|
|
(5,343 |
) |
|
|
|
|
|
|
(5,343 |
) |
|
|
|
|
|
|
|
|
Equity in earnings of affiliates |
|
|
4,355 |
|
|
|
|
|
|
|
4,283 |
|
|
|
|
|
|
|
72 |
|
Gain on debt repurchase |
|
|
1,027 |
|
|
|
|
|
|
|
1,027 |
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
|
|
|
|
|
(103,067 |
) |
|
|
103,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
78,188 |
|
|
|
(103,067 |
) |
|
|
77,967 |
|
|
|
52,490 |
|
|
|
50,798 |
|
Income taxes |
|
|
(28,060 |
) |
|
|
37,093 |
|
|
|
(28,060 |
) |
|
|
(22,948 |
) |
|
|
(14,145 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
50,128 |
|
|
|
(65,974 |
) |
|
|
49,907 |
|
|
|
29,542 |
|
|
|
36,653 |
|
Loss from discontinued operations, net of tax |
|
|
(112 |
) |
|
|
112 |
|
|
|
(112 |
) |
|
|
(112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
50,016 |
|
|
|
(65,862 |
) |
|
|
49,795 |
|
|
|
29,430 |
|
|
|
36,653 |
|
Less: Income attributable to the non-controlling interests |
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Penske Automotive Group common
stockholders |
|
$ |
49,795 |
|
|
$ |
(65,862 |
) |
|
$ |
49,795 |
|
|
$ |
29,430 |
|
|
$ |
36,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF INCOME
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penske |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Automotive |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
Company |
|
|
Eliminations |
|
|
Group, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
4,476,995 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,645,760 |
|
|
$ |
1,831,235 |
|
Cost of sales |
|
|
3,715,201 |
|
|
|
|
|
|
|
|
|
|
|
2,179,823 |
|
|
|
1,535,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
761,794 |
|
|
|
|
|
|
|
|
|
|
|
465,937 |
|
|
|
295,857 |
|
Selling, general, and administrative expenses |
|
|
640,055 |
|
|
|
|
|
|
|
9,547 |
|
|
|
398,390 |
|
|
|
232,118 |
|
Depreciation |
|
|
26,692 |
|
|
|
|
|
|
|
580 |
|
|
|
16,924 |
|
|
|
9,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
95,047 |
|
|
|
|
|
|
|
(10,127 |
) |
|
|
50,623 |
|
|
|
54,551 |
|
Floor plan interest expense |
|
|
(18,431 |
) |
|
|
|
|
|
|
|
|
|
|
(12,471 |
) |
|
|
(5,960 |
) |
Other interest expense |
|
|
(28,187 |
) |
|
|
|
|
|
|
(22,226 |
) |
|
|
(64 |
) |
|
|
(5,897 |
) |
Debt discount amortization |
|
|
(6,773 |
) |
|
|
|
|
|
|
(6,773 |
) |
|
|
|
|
|
|
|
|
Equity in earnings of affiliates |
|
|
4,180 |
|
|
|
|
|
|
|
2,964 |
|
|
|
|
|
|
|
1,216 |
|
Gain on debt repurchase |
|
|
10,429 |
|
|
|
|
|
|
|
10,429 |
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
|
|
|
|
|
(81,990 |
) |
|
|
81,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
56,265 |
|
|
|
(81,990 |
) |
|
|
56,257 |
|
|
|
38,088 |
|
|
|
43,910 |
|
Income taxes |
|
|
(20,074 |
) |
|
|
29,269 |
|
|
|
(20,074 |
) |
|
|
(16,978 |
) |
|
|
(12,291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
36,191 |
|
|
|
(52,721 |
) |
|
|
36,183 |
|
|
|
21,110 |
|
|
|
31,619 |
|
Loss from discontinued operations, net of tax |
|
|
(5,822 |
) |
|
|
5,822 |
|
|
|
(5,822 |
) |
|
|
(3,465 |
) |
|
|
(2,357 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
30,369 |
|
|
|
(46,899 |
) |
|
|
30,361 |
|
|
|
17,645 |
|
|
|
29,262 |
|
Less: Income attributable to the non-controlling interests |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Penske Automotive Group common
stockholders |
|
$ |
30,361 |
|
|
$ |
(46,899 |
) |
|
$ |
30,361 |
|
|
$ |
17,645 |
|
|
$ |
29,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penske |
|
|
|
|
|
|
|
|
|
Total |
|
|
Automotive |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
Company |
|
|
Group, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing operating activities |
|
$ |
69,593 |
|
|
$ |
55,493 |
|
|
$ |
(23,636 |
) |
|
$ |
37,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(37,622 |
) |
|
|
|
|
|
|
(27,809 |
) |
|
|
(9,813 |
) |
Dealership acquisitions, net |
|
|
(12,277 |
) |
|
|
|
|
|
|
(12,277 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
83 |
|
|
|
(83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing investing activities |
|
|
(49,899 |
) |
|
|
|
|
|
|
(40,003 |
) |
|
|
(9,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under U.S. credit
agreement revolving credit line |
|
|
320,600 |
|
|
|
320,600 |
|
|
|
|
|
|
|
|
|
Repayment under U.S. credit agreement
revolving credit line |
|
|
(292,600 |
) |
|
|
(292,600 |
) |
|
|
|
|
|
|
|
|
Net borrowings (repayments) of long-term debt |
|
|
(9,497 |
) |
|
|
|
|
|
|
7,739 |
|
|
|
(17,236 |
) |
Repurchase 3.5% senior subordinated
convertible notes |
|
|
(113,604 |
) |
|
|
(113,604 |
) |
|
|
|
|
|
|
|
|
Proceeds from exercises of options, including
excess tax benefit |
|
|
211 |
|
|
|
211 |
|
|
|
|
|
|
|
|
|
Net (repayments) borrowings of floor plan
notes payable non-trade |
|
|
76,094 |
|
|
|
29,900 |
|
|
|
53,856 |
|
|
|
(7,662 |
) |
Distributions from (to) parent |
|
|
|
|
|
|
|
|
|
|
473 |
|
|
|
(473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing financing activities |
|
|
(18,796 |
) |
|
|
(55,493 |
) |
|
|
62,068 |
|
|
|
(25,371 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from discontinued operations |
|
|
2,767 |
|
|
|
|
|
|
|
2,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
3,665 |
|
|
|
|
|
|
|
1,196 |
|
|
|
2,469 |
|
Cash and cash equivalents, beginning of period |
|
|
13,999 |
|
|
|
|
|
|
|
12,344 |
|
|
|
1,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
17,664 |
|
|
$ |
|
|
|
$ |
13,540 |
|
|
$ |
4,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penske |
|
|
|
|
|
|
|
|
|
Total |
|
|
Automotive |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
Company |
|
|
Group, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing operating activities |
|
$ |
241,105 |
|
|
$ |
49,940 |
|
|
$ |
50,923 |
|
|
$ |
140,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(43,979 |
) |
|
|
|
|
|
|
(26,223 |
) |
|
|
(17,756 |
) |
Dealership acquisitions, net |
|
|
(8,610 |
) |
|
|
|
|
|
|
(690 |
) |
|
|
(7,920 |
) |
Other |
|
|
12,679 |
|
|
|
11,485 |
|
|
|
|
|
|
|
1,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing investing activities |
|
|
(39,910 |
) |
|
|
11,485 |
|
|
|
(26,913 |
) |
|
|
(24,482 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments under U.S. credit agreement term
loan |
|
|
(10,000 |
) |
|
|
(10,000 |
) |
|
|
|
|
|
|
|
|
Repurchase 3.5% senior subordinated
convertible notes |
|
|
(51,425 |
) |
|
|
(51,425 |
) |
|
|
|
|
|
|
|
|
Net borrowings (repayments) of long-term debt |
|
|
(47,768 |
) |
|
|
|
|
|
|
(8,080 |
) |
|
|
(39,688 |
) |
Net (repayments) borrowings of floor plan
notes payable non-trade |
|
|
(78,608 |
) |
|
|
|
|
|
|
(6,863 |
) |
|
|
(71,745 |
) |
Distributions from (to) parent |
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing financing activities |
|
|
(187,801 |
) |
|
|
(61,425 |
) |
|
|
(14,923 |
) |
|
|
(111,453 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from discontinued operations |
|
|
(10,333 |
) |
|
|
|
|
|
|
(6,689 |
) |
|
|
(3,644 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
3,061 |
|
|
|
|
|
|
|
2,398 |
|
|
|
663 |
|
Cash and cash equivalents, beginning of period |
|
|
17,108 |
|
|
|
|
|
|
|
14,126 |
|
|
|
2,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
20,169 |
|
|
$ |
|
|
|
$ |
16,524 |
|
|
$ |
3,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
This Managements 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 Forward Looking
Statements. We have acquired and initiated a number of businesses since inception. Our
financial statements include the results of operations of those businesses from the date
acquired or when they commenced operations. This Managements Discussion and Analysis of
Financial Condition and Results of Operations has been updated to reflect the revision of
our financial statements for entities which have been treated as discontinued operations
through June 30, 2010.
Overview
We are the second largest automotive retailer headquartered in the U.S. as measured
by total revenues. As of June 30, 2010, we owned and operated 171 franchises in the U.S.
and 152 franchises outside of the U.S., primarily in the U.K. We offer a full range of
vehicle brands with 95% of our total retail revenue in 2010 generated from brands of
non-U.S. based manufacturers, and 64% generated from premium brands, such as Audi, BMW,
Cadillac, Mercedes-Benz and Porsche. Each of our dealerships offer a wide selection of
new and used vehicles for sale. In addition to selling new and used vehicles, we generate
higher-margin revenue at each of our dealerships through maintenance and repair services
and the sale and placement of higher-margin products, such as third party finance and
insurance products, third-party extended service contracts and replacement and
aftermarket automotive products. We are also diversified geographically, with 65% of our
total revenues in 2010 generated by operations in the U.S. and Puerto Rico and 35%
generated from our operations outside the U.S. (predominately in the U.K.).
We are also, through smart USA Distributor, LLC (smart USA), a wholly-owned
subsidiary, the exclusive distributor of the smart fortwo vehicle in the U.S. and Puerto
Rico. The smart fortwo is manufactured by Mercedes-Benz Cars and is a Daimler brand. This
technologically advanced vehicle achieves more than 40 miles per gallon on the highway
and is an ultra-low emissions vehicle as certified by the State of California Air
Resources Board. As of June 30, 2010, smart USA has certified a network of more than 75
smart dealerships, ten of which are owned and operated by us. The smart fortwo offers
five different versions, the pure, passion coupe, passion cabriolet, BRABUS coupe and
BRABUS cabriolet, with base retail prices currently ranging from $11,990 to $20,990.
smart USA wholesaled 2,996 and 9,373 smart fortwo vehicles during the six months ended
June 30, 2010 and 2009, respectively.
We also hold a 9.0% limited partnership interest in Penske Truck Leasing Co., L.P.
(PTL), a leading global transportation services provider. PTL operates and maintains
more than 200,000 vehicles and serves customers in North America, South America, Europe
and Asia. Product lines include full-service leasing, contract maintenance, commercial
and consumer truck rental and logistics services, including, transportation and
distribution center management and supply chain management. The general partner of PTL is
Penske Truck Leasing Corporation, a wholly-owned subsidiary of Penske Corporation, which
together with other wholly-owned subsidiaries of Penske Corporation, owns 41.1% of PTL.
The remaining 49.9% of PTL is owned by GE Capital.
Outlook
Since September 2008, general economic conditions have impacted consumer traffic,
vehicle sales and vehicle service work at our dealerships. While we have experienced
increased sales in the six months ended June 30 when compared with the prior year,
volumes are still below historical levels. We believe general economic conditions,
while improving, will continue to impact traffic and sales in the markets in which we
operate throughout 2010.
Operating Overview
New and used vehicle revenues include sales to retail customers and to leasing
companies providing consumer automobile 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 for repair, maintenance and collision services, and the sale of replacement
parts and other aftermarket accessories. During the three and six months ended June 30,
2010, we experienced year over year increases in same store new and used retail unit
sales, resulting in retail revenue growth, including finance and insurance revenues. Our
same store service and parts business also experienced a benefit during these periods due
to Toyota recall activity.
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, service and parts
transactions, and the distribution of the smart fortwo. 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 may impact the mix of our revenues, and
therefore influence our gross profit margin. Aggregate gross profit increased $36.6
million, or 9.3%, and $78.6 million, or 10.3%, during the three and six month periods,
respectively, as compared to the same periods of the prior year. The increase in gross profit is largely attributable to increases in
new and used unit sales and related finance and insurance sales. Our retail gross margin
percentage declined from 17.9% during the three months ended June 30, 2009 to 17.0%
during the three months ended June 30, 2010 and declined from 17.9% during the six months
ended June 30, 2009 to 17.2% during the six months ended June 30, 2010, due primarily to
an increase in the percentage of our revenues generated by lower margin vehicle sales.
24
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 outside services. A significant portion of our selling
expenses are variable, and we believe a significant portion of our general and
administrative expenses are subject to our control, allowing us to adjust them over time
to reflect economic trends. Our selling, general, and administrative expenses increased
on a same store basis, due in large part to increases in variable compensation as a
result of the increase in same store retail gross profit versus the prior year and cost
of living increases relating to our lease agreements. However, selling, general and
administrative expenses as a percentage of gross profit decreased by 61 basis points to
82.5% in the second quarter of 2010 as compared to the prior year.
Floor plan interest expense relates to financing incurred in connection with the
acquisition of new and used vehicle inventories that is 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. The cost of our variable rate
indebtedness is based on the prime rate, defined London Interbank Offered Rate (LIBOR),
the Bank of England Base Rate, the Finance House Base Rate, or the Euro Interbank Offered
Rate. Our floor plan and other interest expenses have decreased during the three and six
months ended June 30, 2010 as a result of decreases in average floor plan balances
outstanding, term loan repayments and repurchases of our 3.5% senior subordinated
convertible notes.
Equity in earnings of affiliates represents our share of the earnings from our
investments in joint ventures and other non-consolidated investments, including PTL. It
is our expectation that operating conditions as outlined above in the Outlook section
will similarly impact these businesses throughout 2010.
The future success of our business will likely be dependent on, among other things,
general economic and industry conditions, our ability to consummate and integrate
acquisitions, the level of vehicle sales in our markets, our ability to increase sales of
higher margin products, especially service and parts services, our ability to realize
returns on our significant capital investment in new and upgraded dealership facilities,
the success of our distribution business, and the return realized from our investments in
various joint ventures and other non-consolidated investments. See Forward-Looking
Statements.
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 following are the accounting policies applied in the preparation of our
financial statements that management believes are most dependent upon the use of
estimates and assumptions.
Revenue Recognition
Vehicle, Parts and Service Sales
We record revenue when vehicles are delivered and title has passed to the customer,
when vehicle service or repair work is completed and when parts are delivered to our
customers. Sales promotions that we offer to customers are accounted for as a reduction
of revenues at the time of sale. Rebates and other incentives offered directly to us by
manufacturers are recognized as a reduction of cost of sales. Reimbursements of qualified
advertising expenses are treated as a reduction of selling, general and administrative
expenses. The amounts received under certain manufacturer rebate and incentive programs
are based on the attainment of program objectives, and such earnings are recognized
either upon the sale of the vehicle for which the award was received, or upon attainment
of the particular program goals if not associated with individual vehicles. During the
six months ended June 30, 2010 and 2009, we earned $170.7 million and $145.6 million,
respectively, of rebates, incentives and reimbursements from manufacturers, of which
$166.6 million and $143.3 million was recorded as a reduction of cost of sales.
Finance and Insurance Sales
Subsequent to the sale of a vehicle to a customer, we sell our 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 third-party insurance products to customers,
including credit and life insurance policies and extended service contracts. These commissions are
recorded as revenue at the time the customer enters into the contract.
25
Impairment Testing
Franchise value impairment is assessed as of October 1 every year and upon the
occurrence of an indicator of impairment through a comparison of its carrying amount and
estimated fair value. An indicator of impairment exists if the carrying value of a
franchise exceeds its estimated fair value and an impairment loss may be recognized up
to that excess. The fair value of franchise value is determined using a discounted cash
flow approach, which includes assumptions that include revenue and profitability growth,
franchise profit margins, and our cost of capital. We also evaluate our franchise
agreements in connection with the annual impairment testing to determine whether events
and circumstances continue to support our assessment that the franchise agreements have
an indefinite life.
Goodwill impairment is assessed at the reporting unit level as of October 1 every
year and upon the occurrence of an indicator of impairment. We have determined that the
dealerships in each of our operating segments within the Retail reportable segment are
components that are aggregated into five geographical reporting units for the purpose of
goodwill impairment testing, as they (A) have similar economic characteristics (all are
automotive dealerships having similar margins), (B) offer similar products and services
(all sell new and 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).
There is no goodwill recorded in our Distribution or PAG Investments reportable
segments. An indicator of goodwill impairment exists if the carrying amount of the
reporting unit, including goodwill, is determined to exceed its estimated fair value.
The fair value of goodwill is determined using a discounted cash flow approach, which
includes assumptions that include revenue and profitability growth, franchise profit
margins, residual values and our cost of capital. If an indication of goodwill
impairment exists, an analysis reflecting the allocation of the fair value of the
reporting unit to all assets and liabilities, including previously unrecognized
intangible assets, is performed. The impairment is measured by comparing the implied
fair value of the reporting unit goodwill with its carrying amount and an impairment
loss may be recognized up to any excess of the carrying value over the implied fair
value.
Investments
We account for each of our investments under the equity method, pursuant to which we
record our proportionate share of the investees income each period. The net book value
of our investments was $280.8 million and $295.5 million as of June 30, 2010 and
December 31, 2009, respectively. Investments for which there is not a liquid, actively
traded market are reviewed periodically by management for indicators of impairment. If an
indicator of impairment were to be identified, management estimates the fair value of the
investment using a discounted cash flow approach, which includes assumptions relating to
revenue and profitability growth, profit margins, residual values and our cost of
capital. Declines in investment values that are deemed to be other than temporary may
result in an impairment charge reducing the investments carrying value to fair value.
Self-Insurance
We retain risk relating to certain of our general liability insurance, workers
compensation insurance, auto physical damage insurance, property insurance, employment
practices liability insurance, directors and officers insurance and employee medical
benefits in the U.S. As a result, we are likely to be responsible for a significant
portion of the claims and losses incurred under these programs. The amount of risk we
retain varies by program, and, for certain exposures, we have pre-determined maximum loss
limits for certain individual claims and/or insurance periods. Losses, if any, above the
pre-determined loss limits are paid by third-party insurance carriers. Our estimate of
future losses is prepared by management using our historical loss experience and
industry-based development factors. Aggregate reserves relating to retained risk were
$23.8 million and $21.5 million as of June 30, 2010 and December 31, 2009, respectively.
Changes in the reserve estimate during 2010 relate primarily to current year activity in
our general liability and workers compensation programs.
Income Taxes
Tax regulations may require items to be included in our tax returns at different
times than the items are reflected in our financial statements. Some of these 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 returns in future years which
we have already recorded in our financial statements. Deferred tax liabilities generally
represent deductions taken on our tax returns that have not yet been recognized as
expense in our financial statements. We establish valuation allowances for our deferred
tax assets if the amount of expected future taxable income is not likely to allow for the
use of the deduction or credit. A valuation allowance of $7.7 million has been recorded
relating to net operating losses and credit carryforwards in the U.S. based on our
determination that it is more likely than not that they will not be utilized.
26
Classification of Franchises in Continuing and Discontinued Operations
We classify the results of our operations in our consolidated financial statements
based on general accounting principles for discontinued operations, which requires
judgment in determining whether a franchise will be reported within continuing or
discontinued operations. Such judgments include whether a franchise will be divested, the
period required to complete the divestiture, and the likelihood of changes to the
divestiture plans. If we determine that a franchise should be either reclassified from
continuing operations to discontinued operations or from discontinued operations to
continuing operations, our consolidated financial statements for prior periods are
revised to reflect such reclassification.
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 only
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 was acquired
on January 15, 2008, the results of the acquired entity would be included in annual same
store comparisons beginning with the year ended December 31, 2010 and in quarterly same
store comparisons beginning with the quarter ended June 30, 2009.
Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
(dollars in millions, except per unit amounts)
New Vehicle Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 vs. 2009 |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
% Change |
|
New retail unit sales |
|
|
39,676 |
|
|
|
33,176 |
|
|
|
6,500 |
|
|
|
19.6 |
% |
Same store new retail unit sales |
|
|
38,091 |
|
|
|
33,140 |
|
|
|
4,951 |
|
|
|
14.9 |
% |
New retail sales revenue |
|
$ |
1,355.8 |
|
|
$ |
1,090.1 |
|
|
$ |
265.7 |
|
|
|
24.4 |
% |
Same store new retail sales revenue |
|
$ |
1,301.7 |
|
|
$ |
1,088.4 |
|
|
$ |
213.3 |
|
|
|
19.6 |
% |
New retail sales revenue per unit |
|
$ |
34,172 |
|
|
$ |
32,859 |
|
|
$ |
1,313 |
|
|
|
4.0 |
% |
Same store new retail sales revenue per unit |
|
$ |
34,175 |
|
|
$ |
32,841 |
|
|
$ |
1,334 |
|
|
|
4.1 |
% |
Gross profit new |
|
$ |
111.2 |
|
|
$ |
86.0 |
|
|
$ |
25.2 |
|
|
|
29.3 |
% |
Same store gross profit new |
|
$ |
106.3 |
|
|
$ |
85.8 |
|
|
$ |
20.5 |
|
|
|
23.9 |
% |
Average gross profit per new vehicle retailed |
|
$ |
2,802 |
|
|
$ |
2,591 |
|
|
$ |
211 |
|
|
|
8.1 |
% |
Same store average gross profit per new vehicle retailed |
|
$ |
2,791 |
|
|
$ |
2,588 |
|
|
$ |
203 |
|
|
|
7.8 |
% |
Gross margin % new |
|
|
8.2 |
% |
|
|
7.9 |
% |
|
|
0.3 |
% |
|
|
3.8 |
% |
Same store gross margin % new |
|
|
8.2 |
% |
|
|
7.9 |
% |
|
|
0.3 |
% |
|
|
3.8 |
% |
Units
Retail unit sales of new vehicles increased 6,500 units, or 19.6%, from 2009 to
2010. The increase is due a 4,951 unit, or 14.9%, increase in same store retail unit
sales during the period, coupled with a 1,549 unit increase from net dealership
acquisitions. The same store increase was due primarily to unit sales increases in our
volume foreign brand stores in the U.S. and premium brand stores in the U.S. and U.K.,
and reflect the improved consumer confidence levels and credit availability in 2010
compared to the prior year.
Revenues
New vehicle retail sales revenue increased $265.7 million, or 24.4%, from 2009 to
2010. The increase is due to a $213.3 million, or 19.6%, increase in same store revenues,
coupled with a $52.4 million increase from net dealership acquisitions. The same store
revenue increase is due primarily to the 14.9% increase in retail unit sales, which
increased revenue by $169.2 million, coupled with a $1,334, or 4.1%, increase in average
selling prices per unit which increased revenue by $44.1 million.
Gross Profit
Retail gross profit from new vehicle sales increased $25.2 million, or 29.3%, from
2009 to 2010. The increase is due to a $20.5 million, or 23.9%, increase in same store
gross profit, coupled with a $4.7 million increase from net dealership acquisitions. The
same store increase is due primarily to the 14.9% increase in retail unit sales, which
increased gross profit by $13.8 million, coupled with a $203, or 7.8%, increase in the
average gross profit per new vehicle retailed, which increased gross profit by
$6.7 million.
27
Used Vehicle Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 vs. 2009 |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
% Change |
|
Used retail unit sales |
|
|
29,232 |
|
|
|
26,100 |
|
|
|
3,132 |
|
|
|
12.0 |
% |
Same store used retail unit sales |
|
|
28,239 |
|
|
|
26,070 |
|
|
|
2,169 |
|
|
|
8.3 |
% |
Used retail sales revenue |
|
$ |
749.7 |
|
|
$ |
658.8 |
|
|
$ |
90.9 |
|
|
|
13.8 |
% |
Same store used retail sales revenue |
|
$ |
727.4 |
|
|
$ |
657.9 |
|
|
$ |
69.5 |
|
|
|
10.6 |
% |
Used retail sales revenue per unit |
|
$ |
25,645 |
|
|
$ |
25,241 |
|
|
$ |
404 |
|
|
|
1.6 |
% |
Same store used retail sales revenue per unit |
|
$ |
25,760 |
|
|
$ |
25,237 |
|
|
$ |
523 |
|
|
|
2.1 |
% |
Gross profit used |
|
$ |
60.1 |
|
|
$ |
59.3 |
|
|
$ |
0.8 |
|
|
|
1.3 |
% |
Same store gross profit used |
|
$ |
59.1 |
|
|
$ |
59.2 |
|
|
$ |
(0.1 |
) |
|
|
(0.2 |
%) |
Average gross profit per used vehicle retailed |
|
$ |
2,056 |
|
|
$ |
2,271 |
|
|
$ |
(215 |
) |
|
|
(9.5 |
%) |
Same store average gross profit per used
vehicle retailed |
|
$ |
2,095 |
|
|
$ |
2,272 |
|
|
$ |
(177 |
) |
|
|
(7.8 |
%) |
Gross margin % used |
|
|
8.0 |
% |
|
|
9.0 |
% |
|
|
(1.0 |
%) |
|
|
(11.1 |
%) |
Same store gross margin % used |
|
|
8.1 |
% |
|
|
9.0 |
% |
|
|
(0.9 |
%) |
|
|
(10.0 |
%) |
Units
Retail unit sales of used vehicles increased 3,132 units, or 12.0%, from 2009 to
2010. The increase is due to a 2,169 unit, or 8.3%, increase in same store retail unit
sales, coupled with a 963 unit increase from net dealership acquisitions. The same store
increase was due primarily to unit sales increases in premium and volume foreign brand
stores in the U.S., and reflect the improved consumer confidence levels and credit
availability in 2010 compared to the prior year.
Revenues
Used vehicle retail sales revenue increased $90.9 million, or 13.8%, from 2009 to
2010. The increase is due to a $69.5 million, or 10.6%, increase in same store revenues,
coupled with a $21.4 million increase from net dealership acquisitions. The same store
revenue increase is due to a $523, or 2.1%, increase in comparative average selling
prices per unit, which increased revenue by $13.6 million, coupled with the 8.3% increase
in same store retail unit sales which increased revenue by $55.9 million.
Gross Profit
Retail gross profit from used vehicle sales increased $0.8 million, or 1.3%, from
2009 to 2010. The increase is due to a $0.9 million increase from net dealership
acquisitions, offset by a $0.1 million, or 0.2%, decrease in same store gross profit. The
decrease in same store gross profit is due to a $177, or 7.8%, decrease in average gross
profit per used vehicle retailed, which decreased retail gross profit by $4.6 million,
offset by a 8.3% increase in used retail unit sales, which increased gross profit by
$4.5 million.
Finance and Insurance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 vs. 2009 |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
% Change |
|
Finance and insurance revenue |
|
$ |
63.6 |
|
|
$ |
54.7 |
|
|
$ |
8.9 |
|
|
|
16.3 |
% |
Same store finance and insurance revenue |
|
$ |
62.1 |
|
|
$ |
54.6 |
|
|
$ |
7.5 |
|
|
|
13.7 |
% |
Finance and insurance revenue per unit |
|
$ |
922 |
|
|
$ |
922 |
|
|
$ |
|
|
|
|
|
|
Same store finance and insurance revenue per unit |
|
$ |
937 |
|
|
$ |
922 |
|
|
$ |
15 |
|
|
|
1.6 |
% |
Finance and insurance revenue increased $8.9 million, or 16.3%, from 2009 to 2010.
The increase is due to a $7.5 million, or 13.7%, increase in same store revenues during
the period, coupled with a $1.4 million increase from net dealership acquisitions. The
same store revenue increase is due to a 12.0% increase in total retail unit sales, which
increased revenue by $6.7 million, coupled with a $15, or 1.6%, increase in comparative
average finance and insurance revenue per unit which increased revenue by $0.8 million.
28
Service and Parts Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 vs. 2009 |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
% Change |
|
Service and parts revenue |
|
$ |
332.2 |
|
|
$ |
331.1 |
|
|
$ |
1.1 |
|
|
|
0.3 |
% |
Same store service and parts revenue |
|
$ |
321.9 |
|
|
$ |
329.5 |
|
|
$ |
(7.6 |
) |
|
|
(2.3 |
%) |
Gross profit |
|
$ |
190.5 |
|
|
$ |
182.4 |
|
|
$ |
8.1 |
|
|
|
4.4 |
% |
Same store gross profit |
|
$ |
184.8 |
|
|
$ |
181.6 |
|
|
$ |
3.2 |
|
|
|
1.8 |
% |
Gross margin |
|
|
57.4 |
% |
|
|
55.1 |
% |
|
|
2.3 |
% |
|
|
4.2 |
% |
Same store gross margin |
|
|
57.4 |
% |
|
|
55.1 |
% |
|
|
2.3 |
% |
|
|
4.2 |
% |
Revenues
Service and parts revenue increased $1.1 million, or 0.3%, from 2009 to 2010. The
increase is due to a $8.7 million increase from net dealership acquisitions, offset by a
$7.6 million, or 2.3%, decrease in same store revenues during the period. We believe the
same store decline is due in large part to a decline in vehicle sales over the last
several years compared to historical levels in addition to a decrease in warranty due to
the improvement in the quality of vehicles being produced today, offset somewhat by the
significant Toyota recall actions in 2010.
Gross Profit
Service and parts gross profit increased $8.1 million, or 4.4%, from 2009 to 2010.
The increase is due to a $3.2 million, or 1.8%, increase in same store gross profit
during the period, coupled with a $4.9 million increase from net dealership acquisitions.
The same store gross profit increase is due to a 2.3% increase in gross margin, which
increased gross profit by $7.5 million, offset by the $7.6 million, or 2.3%, decrease in
same store revenues, which decreased gross profit by $4.3 million. Service and parts
margin in 2010 has been positively impacted by the significant Toyota recall actions.
Distribution
Distribution units wholesaled during the quarter decreased 1,619 units, or 44.2%,
from 3,659 in 2009 to 2,040 in 2010. During the three months ended June 30, 2010, smart
USA recorded $0.4 million of incentives relating to 2009 model year inventory which
decreased gross profit. Due largely to the reduction in wholesale unit sales and the
incentives on 2009 model year inventory, distribution segment revenue decreased $26.8
million, or 45.5%, to $32.1 million in 2010, and segment gross profit decreased $4.6
million, or 61.3%, to $2.9 million in 2010. In total, the distribution segment generated
a loss of $3.6 million in 2010 compared with income of $1.0 million in 2009.
Selling, General and Administrative
Selling, general and administrative expenses (SG&A) increased $27.8 million, or
8.5%, from $327.4 million to $355.2 million. The aggregate increase is due primarily to a
$17.3 million, or 5.3%, increase in same store SG&A, coupled with a $10.5 million
increase from net dealership acquisitions. The increase in same store SG&A is due to (1)
a net increase in variable selling expenses, including increases in variable
compensation, as a result of the 8.2% increase in same store retail gross profit versus
the prior year and (2) increased rent and other costs relating to our ongoing facility
improvement and expansion programs. SG&A expenses decreased as a percentage of gross
profit from 83.2% to 82.5%.
Depreciation
Depreciation decreased $1.7 million, or 12.7%, from $13.8 million to $12.1 million.
The decrease is due to a $2.0 million, or 14.7%, decrease in same store depreciation,
offset by a $0.3 million increase from net dealership acquisitions. The same store
decrease was primarily due to a $1.4 million impact from a change in the estimated useful
lives of certain fixed assets effective January 1, 2010.
29
Floor Plan Interest Expense
Floor plan interest expense, including the impact of swap transactions, decreased
$0.7 million, or 7.2%, from $9.0 million to $8.3 million. The decrease is due to a
$0.8 million, or 9.3%, decrease in same store floor plan interest expense, offset by a
$0.1 million increase from net dealership acquisitions. The same store decrease is due to
primarily to decreases in average outstanding floor plan balances.
Other Interest Expense
Other interest expense decreased $1.2 million, or 8.4%, from $13.7 million to
$12.5 million. The decrease is due primarily to the repurchase of $112.7 million
aggregate principal amount of our 3.5% senior subordinated convertible notes during the
six months ended June 30, 2010.
Debt Discount Amortization
Debt discount amortization decreased $0.7 million, from $3.1 million to $2.4
million, due primarily to the write off of a portion of our aggregate debt discount in
connection with the repurchase of a portion of our outstanding 3.5% senior subordinated
convertible notes.
Equity in Earnings of Affiliates
Equity in earnings of affiliates increased $1.3 million, from $3.5 million to $4.8
million. The increase from 2009 to 2010 is primarily related to the overall improvement
in the performance of those businesses, which is consistent with our overall operating
results.
Gain on Debt Repurchase
During the three months ended June 30, 2010, we repurchased $41.5 million principal
amount of our Convertible Notes, which had a book value, net of debt discount, of $40.0
million for $41.9 million. We allocated $2.4 million of the total consideration to the
reacquisition of the equity component of the Convertible Notes. In connection with the
transactions, we wrote off $0.2 million of unamortized deferred financing costs. As a
result, we recorded a $0.4 million pre-tax gain in connection with the repurchases.
Income Taxes
Income taxes increased $5.3 million, or 51.3%, from $10.3 million to $15.6 million.
The increase from 2009 to 2010 is due to the increase in our pre-tax income versus the
prior year, coupled with an increase in our overall effective income tax rate resulting
from the relative strength of our operations in domestic markets with higher tax rates.
Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009 (dollars
in millions, except per unit amounts)
Our results for the six months ended June 30, 2009 include a gain of $10.4 million
($6.5 million after-tax), or $0.07 per share, relating to the repurchase of $68.7 million
aggregate principal amount of our 3.5% senior subordinated convertible notes.
New Vehicle Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 vs. 2009 |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
% Change |
|
New retail unit sales |
|
|
75,815 |
|
|
|
63,911 |
|
|
|
11,904 |
|
|
|
18.6 |
% |
Same store new retail unit sales |
|
|
73,482 |
|
|
|
63,750 |
|
|
|
9,732 |
|
|
|
15.3 |
% |
New retail sales revenue |
|
$ |
2,588.1 |
|
|
$ |
2,061.3 |
|
|
$ |
526.8 |
|
|
|
25.6 |
% |
Same store new retail sales revenue |
|
$ |
2,498.4 |
|
|
$ |
2,049.2 |
|
|
$ |
449.2 |
|
|
|
21.9 |
% |
New retail sales revenue per unit |
|
$ |
34,137 |
|
|
$ |
32,253 |
|
|
$ |
1,884 |
|
|
|
5.8 |
% |
Same store new retail sales revenue per unit |
|
$ |
34,000 |
|
|
$ |
32,145 |
|
|
$ |
1,855 |
|
|
|
5.8 |
% |
Gross profit new |
|
$ |
212.7 |
|
|
$ |
157.3 |
|
|
$ |
55.4 |
|
|
|
35.2 |
% |
Same store gross profit new |
|
$ |
204.2 |
|
|
$ |
156.0 |
|
|
$ |
48.2 |
|
|
|
30.9 |
% |
Average gross profit per new vehicle retailed |
|
$ |
2,805 |
|
|
$ |
2,462 |
|
|
$ |
343 |
|
|
|
13.9 |
% |
Same store average gross profit per new vehicle retailed |
|
$ |
2,779 |
|
|
$ |
2,447 |
|
|
$ |
332 |
|
|
|
13.6 |
% |
Gross margin % new |
|
|
8.2 |
% |
|
|
7.6 |
% |
|
|
0.6 |
% |
|
|
7.9 |
% |
Same store gross margin % new |
|
|
8.2 |
% |
|
|
7.6 |
% |
|
|
0.6 |
% |
|
|
7.9 |
% |
Units
Retail unit sales of new vehicles increased 11,904 units, or 18.6%, from 2009 to
2010. The increase is due a 9,732 unit, or 15.3%, increase in same store retail unit
sales during the period, coupled with a 2,172 unit increase from net dealership acquisitions. The same store increase was due primarily to unit sales increases in
our volume foreign brand stores in the U.S. and premium brand stores in the U.S. and
U.K., and reflect the improved consumer confidence levels and credit availability in 2010
compared to the prior year.
30
Revenues
New vehicle retail sales revenue increased $526.8 million, or 25.6%, from 2009 to
2010. The increase is due to a $449.2 million, or 21.9%, increase in same store revenues,
coupled with a $77.6 million increase from net dealership acquisitions. The same store
revenue increase is due primarily to the 15.3% increase in retail unit sales, which
increased revenue by $330.9 million, coupled with a $1,855, or 5.8%, increase in average
selling prices per unit which increased revenue by $118.3 million.
Gross Profit
Retail gross profit from new vehicle sales increased $55.4 million, or 35.2%, from
2009 to 2010. The increase is due to a $48.2 million, or 30.9%, increase in same store
gross profit, coupled with a $7.2 million increase from net dealership acquisitions. The
same store increase is due primarily to the 15.3% increase in retail unit sales, which
increased gross profit by $27.0 million, coupled with a $332, or 13.6%, increase in the
average gross profit per new vehicle retailed which increased gross profit by
$21.2 million.
Used Vehicle Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 vs. 2009 |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
% Change |
|
Used retail unit sales |
|
|
55,996 |
|
|
|
53,090 |
|
|
|
2,906 |
|
|
|
5.5 |
% |
Same store used retail unit sales |
|
|
54,512 |
|
|
|
52,854 |
|
|
|
1,658 |
|
|
|
3.1 |
% |
Used retail sales revenue |
|
$ |
1,446.3 |
|
|
$ |
1,275.3 |
|
|
$ |
171.0 |
|
|
|
13.4 |
% |
Same store used retail sales revenue |
|
$ |
1,396.2 |
|
|
$ |
1,261.9 |
|
|
$ |
134.3 |
|
|
|
10.6 |
% |
Used retail sales revenue per unit |
|
$ |
25,829 |
|
|
$ |
24,021 |
|
|
$ |
1,808 |
|
|
|
7.5 |
% |
Same store used retail sales revenue per unit |
|
$ |
25,612 |
|
|
$ |
23,875 |
|
|
$ |
1,737 |
|
|
|
7.3 |
% |
Gross profit used |
|
$ |
116.8 |
|
|
$ |
115.3 |
|
|
$ |
1.5 |
|
|
|
1.3 |
% |
Same store gross profit used |
|
$ |
114.1 |
|
|
$ |
114.2 |
|
|
$ |
(0.1 |
) |
|
|
(0.1 |
%) |
Average gross profit per used vehicle retailed |
|
$ |
2,086 |
|
|
$ |
2,171 |
|
|
$ |
(85 |
) |
|
|
(3.9 |
%) |
Same store average gross profit per used
vehicle retailed |
|
$ |
2,093 |
|
|
$ |
2,160 |
|
|
$ |
(67 |
) |
|
|
(3.1 |
%) |
Gross margin % used |
|
|
8.1 |
% |
|
|
9.0 |
% |
|
|
(0.9 |
%) |
|
|
(10.0 |
%) |
Same store gross margin % used |
|
|
8.2 |
% |
|
|
9.0 |
% |
|
|
(0.8 |
%) |
|
|
(8.9 |
%) |
Units
Retail unit sales of used vehicles increased 2,906 units, or 5.5%, from 2009 to
2010. The increase is due to a 1,658 unit, or 3.1%, increase in same store retail unit
sales, coupled with a 1,248 unit increase from net dealership acquisitions. The same
store increase was due primarily to unit sales increases in premium and volume foreign
brand stores in the U.S., and reflect the improved consumer confidence levels and credit
availability in 2010 compared to the prior year.
Revenues
Used vehicle retail sales revenue increased $171.0 million, or 13.4%, from 2009 to
2010. The increase is due to a $134.3 million, or 10.6%, increase in same store revenues,
coupled with a $36.7 million increase from net dealership acquisitions. The same store
revenue increase is due to a $1,737, or 7.3%, increase in comparative average selling
prices per unit, which increased revenue by $91.8 million, coupled with the 3.1% increase
in same store retail unit sales which increased revenue by $42.5 million.
Gross Profit
Retail gross profit from used vehicle sales increased $1.5 million, or 1.3%, from
2009 to 2010. The increase is due to a $1.6 million increase from net dealership
acquisitions, offset by a $0.1 million, or 0.1%, decrease in same store gross profit.
The decrease in same store gross profit is due to a $67, or 3.1%, decrease in average
gross profit per used vehicle retailed, which decreased retail gross profit by
$3.5 million, offset by the 3.1% increase in used retail unit sales which increased gross
profit by $3.4 million.
31
Finance and Insurance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 vs. 2009 |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
% Change |
|
Finance and insurance revenue |
|
$ |
123.0 |
|
|
$ |
103.1 |
|
|
$ |
19.9 |
|
|
|
19.3 |
% |
Same store finance and insurance revenue |
|
$ |
119.7 |
|
|
$ |
102.7 |
|
|
$ |
17.0 |
|
|
|
16.6 |
% |
Finance and insurance revenue per unit |
|
$ |
933 |
|
|
$ |
882 |
|
|
$ |
51 |
|
|
|
5.8 |
% |
Same store finance and insurance revenue per unit |
|
$ |
936 |
|
|
$ |
880 |
|
|
$ |
56 |
|
|
|
6.4 |
% |
Finance and insurance revenue increased $19.9 million, or 19.3%, from 2009 to 2010.
The increase is due to a $17.0 million, or 16.6%, increase in same store revenues during
the period, coupled with a $2.9 million increase from net dealership acquisitions. The
same store revenue increase is due to a 9.8% increase in retail unit sales, which
increased revenue by $10.6 million, coupled with a $56, or 6.4%, increase in comparative
average finance and insurance revenue per unit which increased revenue by $6.4 million.
Service and Parts Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 vs. 2009 |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
% Change |
|
Service and parts revenue |
|
$ |
666.2 |
|
|
$ |
658.0 |
|
|
$ |
8.2 |
|
|
|
1.2 |
% |
Same store service and parts revenue |
|
$ |
649.7 |
|
|
$ |
652.5 |
|
|
$ |
(2.8 |
) |
|
|
(0.4 |
%) |
Gross profit |
|
$ |
378.9 |
|
|
$ |
359.1 |
|
|
$ |
19.8 |
|
|
|
5.5 |
% |
Same store gross profit |
|
$ |
369.6 |
|
|
$ |
356.4 |
|
|
$ |
13.2 |
|
|
|
3.7 |
% |
Gross margin |
|
|
56.9 |
% |
|
|
54.6 |
% |
|
|
2.3 |
% |
|
|
4.2 |
% |
Same store gross margin |
|
|
56.9 |
% |
|
|
54.6 |
% |
|
|
2.3 |
% |
|
|
4.2 |
% |
Revenues
Service and parts revenue increased $8.2 million, or 1.2%, from 2009 to 2010. The
increase is due to an $11.0 million increase from net dealership acquisitions, offset by
a $2.8 million, or 0.4%, decrease in same store revenues during the period. We believe
the same store decline is due in large part to a decline in vehicle sales over the last
several years compared to historical levels in addition to a decrease in warranty due to
the improvement in the quality of vehicles being produced today, offset somewhat by the
significant Toyota recall actions in 2010.
Gross Profit
Service and parts gross profit increased $19.8 million, or 5.5%, from 2009 to 2010.
The increase is due to a $13.2 million, or 3.7%, increase in same store gross profit
during the period, coupled with a $6.6 million increase from net dealership acquisitions.
The same store gross profit increase is due to a 2.3% increase in gross margin, which
increased gross profit by $14.8 million, offset by the $2.8 million, or 0.4%, decrease in
same store revenues, which decreased gross profit by $1.6 million. Service and parts
margin in 2010 has been positively impacted by the significant Toyota recall actions.
Distribution
Distribution units wholesaled decreased 6,377 units, or 68.0%, from 9,373 in 2009 to
2,996 in 2010. During the six months ended June 30, 2010, smart USA recorded $1.5
million of incentives relating to 2009 model year inventory which decreased gross profit.
Due largely to the reduction in wholesale unit sales and the incentives on 2009 model
year inventory, distribution segment revenue decreased $100.3 million, or 68.0%, to $47.2
million in June 30, 2010, and segment gross profit decreased $16.4 million, or 84.1%, to
$3.1 million in 2010. In total, the distribution segment generated a loss of $9.2 million
in 2010 compared with income of $7.3 million in 2009.
Selling, General and Administrative
Selling, general and administrative expenses (SG&A) increased $55.6 million, or
8.7%, from $640.1 million to $695.7 million. The aggregate increase is due primarily to a
$40.1 million, or 6.3%, increase in same store SG&A, coupled with a $15.5 million
increase from net dealership acquisitions. The increase in same store SG&A is due to (1)
a net increase in variable selling expenses, including increases in variable compensation, as a result
of a 10.8% increase in same store retail gross profit versus the prior year and (2)
increased rent and other costs relating to our ongoing facility improvement and expansion
programs. SG&A expenses decreased as a percentage of gross profit from 84.0% to 82.8%.
Depreciation
Depreciation decreased $2.3 million, or 8.5%, from $26.7 million to $24.4 million.
The decrease is due to a $2.6 million, or 10.0%, decrease in same store depreciation,
offset by a $0.3 million increase from net dealership acquisitions. The same store
decrease was due to a $2.8 million decrease due to a change in the estimated useful lives
of certain fixed assets effective January 1, 2010.
32
Floor Plan Interest Expense
Floor plan interest expense, including the impact of swap transactions, decreased
$1.6 million, or 8.6%, from $18.4 million to $16.8 million. The decrease is due to a
$1.8 million, or 10.1%, decrease in same store floor plan interest expense, offset by a
$0.2 million increase from net dealership acquisitions. The same store decrease is due in
large part to decreases in average outstanding floor plan balances.
Other Interest Expense
Other interest expense decreased $2.9 million, or 10.4%, from $28.2 million to
$25.3 million. The decrease is due primarily to the repurchases of $112.7 million
aggregate principal amount of Convertible Notes during the six months ended June 30,
2010.
Debt Discount Amortization
Debt
discount amortization decreased $1.5 million, from $6.8 million to $5.3
million, due primarily to the write off of a portion of our aggregate debt discount in
connection with the repurchase of a portion of Convertible Notes.
Gain on Debt Repurchase
In total during 2010, we repurchased $112.7 million principal amount of Convertible
Notes, which had a book value, net of debt discount, of $107.5 million for $113.6
million. We allocated $7.7 million of the total consideration to the reacquisition of
the equity component of the Convertible Notes. In connection with the transactions, we
wrote off $0.6 million of unamortized deferred financing costs. As a result, we recorded
a $1.0 million pre-tax gain in connection with the repurchases.
In the first quarter of 2009, we repurchased $68.7 million principal amount of
Convertible Notes, which had a book value, net of debt discount, of $62.8 million for
$51.4 million. In connection with the transaction, we wrote off $0.7 million of
unamortized deferred financing costs and incurred $0.3 million of transaction costs. No
element of the consideration was allocated to the reacquisition of the equity component
of the Convertible Notes because the consideration paid was less than the fair value of
the liability component prior to extinguishment. As a result, we recorded a $10.4 million
pre-tax gain in connection with the repurchase.
Income Taxes
Income taxes increased $8.0 million, or 39.8%, from $20.1 million to $28.1 million.
The increase from 2009 to 2010 is due to the increase in our pre-tax income versus the
prior year. Our effective tax rate was 35.9% for the six months ended June 30, 2010 and
35.7% for the six months ended June 30, 2009.
Liquidity and Capital Resources
Our cash requirements are primarily for working capital, inventory financing, the
acquisition of new businesses, the improvement and expansion of existing facilities, the
construction of new facilities, debt service and repayments, and potentially for
dividends and repurchases of our outstanding securities under the program discussed
below. Historically, these cash requirements have been met through cash flow from
operations, borrowings under our credit agreements and floor plan arrangements, the
issuance of debt securities, sale-leaseback transactions, mortgages, dividends from joint
venture investments or the issuance of equity securities.
As discussed in more detail below, we had $193.6 million of Convertible Notes
outstanding as of June 30, 2010, and presently have $150.6 million outstanding. Because
we currently expect to be required to redeem these notes in April 2011, we are reviewing
alternatives to refinance or repay these notes, which may include the issuance of
additional securities. In the absence of a refinancing of these notes, we expect to
utilize cash flow from operations, working capital and available capacity under the U.S.
credit agreement to repay the Convertible Notes. See Forward Looking Statements. As of
June 30, 2010, we had working capital of $77.4 million, including $17.7 million of cash,
available to fund our operations and capital commitments. In addition, we had $222.0 million and £43.4 million ($64.8 million) available for
borrowing under our U.S. credit agreement and our U.K. credit agreement, respectively,
each of which is discussed below.
We have historically expanded our retail automotive operations through organic
growth and the acquisition of retail automotive dealerships. In addition, one of our
subsidiaries is the exclusive distributor of smart fortwo vehicles in the U.S. and Puerto
Rico. We believe that cash flow from operations, dividends from our joint venture
investments and our existing capital resources, including the liquidity provided by our
credit agreements and floor plan financing arrangements, will be sufficient to fund our
operations and commitments for at least the next twelve months. In the event we pursue
additional significant acquisitions, other expansion opportunities, significant
repurchases of our outstanding securities; reinstate our quarterly cash dividends; or
refinance or repay existing debt (including the Convertible Notes), we may need to raise
additional capital either through the public or private issuance of equity or debt
securities or through additional borrowings, which sources of funds may not necessarily
be available on terms acceptable to us, if at all. In addition, our liquidity could be
negatively impacted in the event we fail to comply with the covenants under our various
financing and operating agreements or in the event our floor plan financing is withdrawn.
For a discussion of these possible events, see the discussion below with respect to our
financing agreements.
33
Securities Repurchases
From time to time, our Board of Directors has authorized securities repurchase
programs pursuant to which we may, from time to time and as market conditions warrant,
purchase our outstanding common stock, debt or convertible debt on the open market, in
privately negotiated transactions, via a tender offer, or a pre-arranged trading plan. We
have historically funded any such repurchases through cash flow from operations and
borrowings under our U.S. credit facility. The decision to make repurchases will be based
on factors such as the market price of the relevant security versus our view of its
intrinsic value, the potential impact of such repurchases on our capital structure, and
alternative uses of capital, such as for strategic investments in our current businesses,
as well as any then-existing limits imposed by our finance agreements and securities
trading policy. During the six months ended June 30, 2010, we repurchased a total of
$112.7 aggregate principal amount of Convertible Notes for $113.6 million.
In July 2010, the Company repurchased an additional $43.0 million principal amount
of its outstanding convertible notes for $43.2 million as well as 68 thousand shares of
our common stock at an average price of $10.97 per share. Subsequent to these purchases,
our Board of Directors increased our authorized repurchase authority to $150.0 million.
Dividends
In February 2009, we announced the suspension of our quarterly cash dividend. Future
quarterly or other cash dividends will depend upon a variety of factors considered
relevant by our Board of Directors which may include our earnings, capital requirements,
restrictions on any then existing indebtedness, financial condition, our ability to repay or earlier refinance the expected April 2011 redemption of our $150.6 million of
Convertible Notes and other factors.
Inventory Financing
We finance substantially all of our new and a portion of our used vehicle
inventories under revolving floor plan arrangements with various lenders, primarily
through 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 our 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 floor plan agreements typically grant a security interest in substantially all
of the assets of our dealership subsidiaries, and in the U.S. are guaranteed by us.
Interest rates under the floor plan arrangements are variable and increase or decrease
based on changes in the prime rate, defined LIBOR, Finance House Base Rate, or Euro
Interbank Offered Rate. We receive non-refundable credits from certain of our vehicle
manufacturers, which are treated as a reduction of cost of sales as vehicles are sold. 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.
U.S. Credit Agreement
We are party to a credit agreement with DCFS USA LLC and Toyota Motor Credit
Corporation, as amended (the U.S. credit agreement), which, as of June 30, 2010,
provided for up to $250.0 million in revolving loans for working capital, acquisitions,
capital expenditures, investments and other general corporate purposes, a non-amortizing
term loan with a remaining balance of $149.0 million, and for an additional
$10.0 million of availability for letters of credit, through September 30, 2012. As of
June 30, 2010, the revolving loans bore interest at a defined LIBOR plus 2.50%, subject
to an incremental 0.50% for uncollateralized borrowings in excess of a defined borrowing
base. The term loan, which bears interest at defined LIBOR plus 2.50%, may be prepaid at
any time, but then may not be re-borrowed.
The U.S. credit agreement is fully and unconditionally guaranteed on a joint and
several basis by our domestic subsidiaries and contains a number of significant covenants
that, among other things, restrict our ability to dispose of assets, incur additional
indebtedness, repay 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 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. As of June 30, 2010, we were in compliance with all covenants under
the U.S. credit agreement, and we believe we will remain in compliance with such
covenants for the next twelve months. In making such determination, we have considered
the current margin of compliance with the covenants and our expected future results of
operations, working capital requirements, acquisitions, capital expenditures and
investments. See Forward Looking Statements.
34
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 domestic assets are subject to security interests
granted to lenders under the U.S. credit agreement. As of June 30, 2010, $149.0 of term
loans, $28.0 million of borrowings under our revolving credit agreement and $1.3 million
of letters of credit were outstanding under the U.S. credit agreement.
In July 2010, we amended the U.S. Credit Agreement to (1) increase the borrowing
capacity under the revolving agreement by $50.0 million, (2) increase the interest rate
on secured revolving borrowings by 25 basis points, and (3) increase the rate on
unsecured revolving borrowings by 50 basis points.
U.K. Credit Agreement
Our subsidiaries in the U.K. (the U.K. subsidiaries) are party to an agreement, as
amended, with the Royal Bank of Scotland plc, as agent for National Westminster Bank plc,
which provides for a funded term loan, a revolving credit agreement and a seasonally
adjusted overdraft line of credit (collectively, the U.K. credit agreement) to be used
for working capital, acquisitions, capital expenditures, investments and other general
corporate purposes. The U.K. credit agreement provides for (1) up to £100.0 million in
revolving loans through August 31, 2013, which bears interest between a defined LIBOR
plus 1.1% and defined LIBOR plus 3.0%, (2) a term loan which bears interest between 6.39%
and 8.29% and is payable ratably in quarterly intervals until fully repaid on June 30,
2011, and (3) a demand seasonally adjusted overdraft line of credit for up to £20.0
million that bears interest at the Bank of England Base Rate plus 1.75%.
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, restrict 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 specified ratios and tests,
each as defined in the U.K. credit agreement, including: a ratio of EBITDAR to interest
plus rental payments (as defined), a measurement of maximum capital expenditures, and a
debt to EBITDA ratio (as defined). 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. As of June 30, 2010, our U.K.
subsidiaries were in compliance with all covenants under the U.K. credit agreement and we
believe they will remain in compliance with such covenants for the next twelve months. In
making such determination, we have considered the current margin of compliance with the
covenants and our expected future results of operations, working capital requirements,
acquisitions, capital expenditures and investments in the U.K. See Forward Looking
Statements.
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 lenders under the U.K. credit agreement. As
of June 30, 2010, outstanding loans under the U.K. credit agreement amounted to £45.3
million ($67.6 million), including £7.1 million ($10.5 million) under the term loan. In
July 2010, we amended the U.K. Credit Agreement in connection with a reorganization of
our European operations.
7.75% Senior Subordinated Notes
On December 7, 2006 we issued $375.0 million aggregate principal amount of 7.75%
senior subordinated notes due 2016 (the 7.75% Notes). The 7.75% Notes are unsecured
senior subordinated notes and are subordinate to all existing and future senior debt,
including debt under our credit agreements, mortgages and floor plan indebtedness. The
7.75% Notes are guaranteed by substantially all of our wholly-owned domestic subsidiaries
on an unsecured senior subordinated basis. Those guarantees are full and unconditional
and joint and several. We can redeem all or some of the 7.75% Notes at our option
beginning in December 2011 at specified redemption prices, or prior to December 2011 at
100% of the principal amount of the notes plus an applicable make-whole premium, as
defined. Upon certain sales of assets or specific kinds of changes of control, we are
required to make an offer to purchase the 7.75% Notes. The 7.75% Notes also contain
customary negative covenants and events of default. As of June 30, 2010, we were in
compliance with all negative covenants and there were no events of default.
Senior Subordinated Convertible Notes
In January 2006, we issued $375.0 million aggregate principal amount of 3.50% senior
subordinated convertible notes due 2026 (the Convertible Notes), of which $193.6
million were outstanding at June 30, 2010 and $150.6 million are presently outstanding.
The Convertible Notes mature on April 1, 2026, unless earlier converted, redeemed or
purchased by us, as discussed below. The Convertible Notes are unsecured senior
subordinated obligations and are subordinate to all future and existing debt under our
credit agreements, mortgages and floor plan indebtedness. The Convertible Notes are
guaranteed on an unsecured senior subordinated basis by substantially all of our
wholly-owned domestic subsidiaries. The guarantees are full and
unconditional and joint and several. The Convertible Notes also contain customary
negative covenants and events of default. As of June 30, 2010, we were in compliance with
all negative covenants and there were no events of default.
35
Holders of the Convertible Notes may convert them based on a conversion rate of
42.7796 shares of our common stock per $1,000 principal amount of the Convertible Notes
(which is equal to a conversion price of approximately $23.38 per share), subject to
adjustment, only under the following circumstances: (1) in any quarterly period, if the
closing price of our common stock for twenty of the last thirty trading days in the prior
quarter exceeds $28.05 (subject to adjustment), (2) for specified periods, if the trading
price of the Convertible Notes falls below specific thresholds, (3) if the Convertible
Notes are called for redemption, (4) if specified distributions to holders of our common
stock are made or specified corporate transactions occur, (5) if a fundamental change (as
defined) occurs, or (6) during the ten trading days prior to, but excluding, the maturity
date.
Upon conversion of the Convertible Notes, for each $1,000 principal amount of the
Convertible Notes, a holder will receive an amount in cash, equal to the lesser of (i)
$1,000 or (ii) the conversion value, determined in the manner set forth in the indenture
covering the Convertible Notes, of the number of shares of common stock equal to the
conversion rate. If the conversion value exceeds $1,000, we will also deliver, at our
election, cash, common stock or a combination of cash and common stock with respect to
the remaining value deliverable upon conversion.
In the event of a conversion due to a change of control on or before April 6, 2011,
we will, in certain circumstances, pay a make-whole premium by increasing the conversion
rate used in that conversion. In addition, we will pay additional cash interest
commencing with six-month periods beginning on April 1, 2011, if the average trading
price of a Convertible Note for certain periods in the prior six-month period equals 120%
or more of the principal amount of the Convertible Notes. On or after April 6, 2011, we
may redeem the Convertible Notes, in whole at any time or in part from time to time, for
cash at a redemption price of 100% of the principal amount of the Convertible Notes to be
redeemed, plus any accrued and unpaid interest to the applicable redemption date.
Holders of the Convertible Notes may require us to purchase all or a portion of
their Convertible Notes for cash on April 1, 2011, April 1, 2016 or April 1, 2021 at a
purchase price equal to 100% of the principal amount of the Convertible Notes to be
purchased, plus accrued and unpaid interest, if any, to the applicable purchase date.
Because we expect to be required to redeem the Convertible Notes in April 2011, we are
reviewing alternatives to refinance or repay these notes, which may include the issuance
of additional securities. In the absence of a refinancing of the Convertible Notes, we
expect to utilize cash flow from operations, working capital and availability under the
U.S. credit agreement to repay the Convertible Notes. See Forward Looking Statements.
In the second quarter of 2010, we repurchased $41.5 million principal amount of its
outstanding Convertible Notes for $41.9 million. In total during the first six months of
2010, we repurchased $112.7 million principal amount of our outstanding Convertible Notes
for $113.6 million.
In July 2010, we repurchased an additional $43.0 million principal amount of
Convertible Notes for $43.2 million resulting in $150.6 million presently outstanding.
Mortgage Facilities
We are party to several mortgages, including a $42.4 million mortgage facility with
respect to certain of our dealership properties that matures in October 2015. This
facility bears interest at a defined rate, requires monthly principal and interest
payments, and includes the option to extend the term for successive periods of five years
up to a maximum term of twenty-five years. In the event we exercise our options to extend
the term, the interest rate will be renegotiated at each renewal period. This mortgage
facility also contains typical events of default, including non-payment of obligations,
cross-defaults to our other material indebtedness, certain change of control events, and
loss or sale of certain franchises operated at the property. Substantially all of the
buildings, improvements, fixtures and personal property of the properties under the
mortgage facility are subject to security interests granted to the lender. As of June 30,
2010, $46.6 million was outstanding under these facilities.
Interest Rate Swaps
We use interest rate swaps to manage interest rate risk associated with our variable
rate floor plan debt. We are party to interest rate swap agreements through January 2011
pursuant to which the LIBOR portion of $300.0 million of our floating rate floor plan
debt was fixed at 3.67%. We may terminate these arrangements at any time, subject to the
settlement of the then current fair value of the swap arrangements. During the six months
ended June 30, 2010 and 2009, the swaps increased the weighted average interest rate on
floor plan borrowings by approximately 0.8% and 0.6%, respectively.
PTL Dividends
We own a 9.0% limited partnership interest in Penske Truck Leasing. During the six
months ended June 30, 2010 and 2009, respectively, we received $8.8 million and $20.0
million of pro rata cash dividends from this investment. We currently expect to continue
to receive future dividends from PTL subject in amount and timing on its performance.
36
Operating Leases
We have historically structured our operations so as to minimize our ownership of
real property. As a result, we lease or sublease substantially all of our facilities.
These leases are generally for a period between five and 20 years, and are typically
structured to include renewal options at our election. 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 our other lease covenants give 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. As of June 30, 2010, we
were in compliance with all covenants under these leases.
Sale/Leaseback Arrangements
We have in the past and expect in the future to enter into sale-leaseback
transactions to finance certain property acquisitions and capital expenditures, pursuant
to which we sell property and/or leasehold improvements to third parties and agree to
lease those assets back for a certain period of time. Such sales generate proceeds which
vary from period to period. In light of current market conditions, this financing option
has become more expensive and thus we may utilize these arrangements less in the near
term.
Off-Balance Sheet Arrangements
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 a 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.
smart USA
We are subject to purchase commitments pursuant to the smart distribution agreement,
which requires us to purchase a number of vehicles to be negotiated on an ongoing basis.
In addition, we are potentially subject to a purchase commitment with respect to unsold
inventories and other items pursuant to the smart franchise agreement and state franchise
laws in the event of franchise terminations.
Cash Flows
Cash and cash equivalents increased by $3.7 million and $3.1 million during the six
months ended June 30, 2010 and 2009, respectively. The major components of these changes
are discussed below.
Cash Flows from Continuing Operating Activities
Cash provided by operating activities was $69.6 million and $241.1 million during
the six months ended June 30, 2010 and 2009, respectively. Cash flows from continuing
operating activities include net income, as adjusted for non-cash items, and the effects
of changes in working capital.
We finance substantially all of our new and a portion of our used vehicle
inventories under revolving floor plan notes payable with various lenders. We retain the
right to select which, if any, financing source to utilize in connection with the
procurement of vehicles. Many vehicle manufacturers provide vehicle financing for the
dealers representing their brands, however, it is not a requirement that dealers utilize
this financing. Historically, our floor plan finance source has been based on aggregate
pricing considerations.
In accordance with general accounting principles relating to the statement of cash
flows, we report all cash flows arising in connection with floor plan notes payable with
the manufacturer of a particular new vehicle as an operating activity in our statement of
cash flows, and all cash flows arising in connection with 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 a financing activity in our statement of cash
flows.
37
We believe that changes in aggregate floor plan liabilities are typically linked to
changes in vehicle inventory and, therefore, are an integral part of understanding
changes in our working capital and operating cash flow. As a result, we have presented
the following reconciliation of cash flow from operating activities as reported in our
condensed consolidated statement of cash flows as if all changes in vehicle floor plan
were classified as an operating activity for informational purposes:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
Net cash from continuing operating activities as reported |
|
$ |
69,593 |
|
|
$ |
241,105 |
|
Floor plan notes payable non-trade as reported |
|
|
76,094 |
|
|
|
(78,608 |
) |
|
|
|
|
|
|
|
Net cash from continuing operating activities, adjusted to include all floor plan notes payable |
|
$ |
145,687 |
|
|
$ |
162,497 |
|
|
|
|
|
|
|
|
Cash Flows from Continuing Investing Activities
Cash used in continuing investing activities was $49.9 million and $39.9 million
during the six months ended June 30, 2010 and 2009, respectively. Cash flows from
continuing investing activities consist primarily of cash used for capital expenditures
and net expenditures for acquisitions and other investments. Capital expenditures were
$37.6 million and $44.0 million during the six months ended June 30, 2010 and 2009,
respectively. Capital expenditures relate primarily to improvements to our existing
dealership facilities and the construction of new facilities. As of June 30, 2010, we do
not have material commitments related to our planned or ongoing capital projects. We
currently expect to finance our capital expenditures with operating cash flows or
borrowings under our U.S. or U.K. credit facilities. Cash used in acquisitions and other
investments, net of cash acquired, was $12.3 million and $8.6 million during the six
months ended June 30, 2010 and 2009, respectively, and included cash used to repay
sellers floor plan liabilities in such business acquisitions of $7.2 million and $2.9
million, respectively. The six months ended June 30, 2009 include $12.7 million of
proceeds from other investing activities.
Cash Flows from Continuing Financing Activities
Cash used in continuing financing activities was $18.8 million and $187.8 million
during the six months ended June 30, 2010 and 2009, respectively. Cash flows from
continuing financing activities include net borrowings or repayments of long-term debt,
repurchases of securities, net borrowings or repayments of floor plan notes payable
non-trade and the exercise of stock options. During the six months ended June 30, 2009,
we repaid $10.0 of our U.S. credit agreement term loan. We had net repayments of other
long-term debt of $9.5 million and $47.8 million during the six months ended June 30,
2010 and 2009, respectively. We used $113.6 million to repurchase $112.7 million
aggregate principal amount of Convertible Notes during the six months ended June 30, 2010
and used $51.4 million to repurchase $68.7 million aggregate principal amount of
Convertible Notes during the six months ended June 30, 2009. We had net borrowings of
floor plan notes payable non-trade of $76.1 million during the six months ended June 30,
2010 and repayments of floor plan notes payable non-trade of $78.6 million during the six
months ended June 30, 2009. During the six months ended June 30, 2010, we received
proceeds of $0.2 million from the exercise of stock options.
Cash Flows from Discontinued Operations
Cash flows relating to discontinued operations are not currently considered, nor are
they expected to be, material to our liquidity or our capital resources.
Related Party Transactions
Stockholders Agreement
Several of our directors and officers are affiliated with Penske Corporation or
related entities. Roger S. Penske, our Chairman of the Board and Chief Executive Officer,
is also Chairman of the Board and Chief Executive Officer of Penske Corporation, and
through entities affiliated with Penske Corporation, our largest stockholder owning
approximately 35% of our outstanding common stock. Mitsui & Co., Ltd. and Mitsui & Co.
(USA), Inc. (collectively, Mitsui) own approximately 17% of our outstanding common
stock. Mitsui, Penske Corporation and certain other affiliates of Penske Corporation are
parties to a stockholders agreement pursuant to which the Penske affiliated companies
agreed to vote their shares for one director who is a representative of Mitsui. In turn,
Mitsui agreed to vote their shares for up to fourteen directors voted for by the Penske
affiliated companies. This agreement terminates in March 2014, upon the mutual consent of
the parties, or when either party no longer owns any of our common stock.
Other Related Party Interests and Transactions
Roger S. Penske is also a managing member of Transportation Resource Partners, an
organization that invests in transportation-related industries. Richard J. Peters, one
of our directors, is a managing director of Transportation Resource Partners and is a
director of Penske Corporation. One of our directors, Hiroshi Ishikawa, serves as our
Executive Vice President International Business Development and serves in a similar
capacity for Penske Corporation. Robert H. Kurnick, Jr., our President and a director, is
also the President and a director of Penske Corporation.
38
We sometimes pay to and/or receive fees from Penske Corporation, its subsidiaries,
and its affiliates for services rendered in the normal course of business, or to
reimburse payments made to third parties on each others behalf. These transactions are
reviewed periodically by our Audit Committee and reflect the providers cost or an amount
mutually agreed upon by both parties.
We are a 9.0% limited partner of PTL, a leading global transportation services
provider. PTL operates and maintains more than 200,000 vehicles and serves customers in
North America, South America, Europe and Asia. Product lines include full-service
leasing, contract maintenance, commercial and consumer truck rental and logistics
services, including, transportation and distribution center management and supply chain
management. The general partner of PTL is Penske Truck Leasing Corporation, a
wholly-owned subsidiary of Penske Corporation, which together with other wholly-owned
subsidiaries of Penske Corporation, owns 41.1% of PTL. The remaining 49.9% of PTL is
owned by GE Capital. Among other things, the partnership agreement provides us with
specified partner distribution and governance rights and restricts our ability to
transfer our interests. We have also entered into other joint ventures with certain
related parties as more fully discussed below.
Joint Venture Relationships
We are party to a number of joint ventures pursuant to which we own and operate
automotive dealerships together with other investors. We may provide these dealerships
with working capital and other debt financing at costs that are based on our incremental
borrowing rate. As of June 30, 2010, our automotive retail joint venture relationships
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership |
|
Location |
|
Dealerships |
|
|
Interest |
|
Fairfield, Connecticut |
|
Audi, Mercedes-Benz, Porsche, smart |
|
|
87.95 |
%(A)(B) |
Edison, New Jersey |
|
Ferrari, Maserati |
|
|
70.00 |
%(B) |
Las Vegas, Nevada |
|
Ferrari, Maserati |
|
|
50.00 |
%(C) |
Frankfurt, Germany |
|
Lexus, Toyota |
|
|
50.00 |
%(C) |
Aachen, Germany |
|
Audi, Lexus, Skoda, Toyota, Volkswagen |
|
|
50.00 |
%(C) |
|
|
|
(A) |
|
An entity controlled by one of our directors, Lucio A. Noto (the Investor), owns a 12.05%
interest in this joint venture which entitles the Investor to 20% of the joint ventures
operating profits. In addition, the Investor has an option to purchase up to a 20% interest in
the joint venture for specified amounts. |
|
(B) |
|
Entity is consolidated in our financial statements. |
|
(C) |
|
Entity is accounted for using the equity method of accounting. |
In the first quarter of 2010, the Company exited one of its German joint ventures by
exchanging its 50% interest in the joint venture for 100% ownership in three BMW
franchises previously held by the joint venture.
Cyclicality
Unit sales of motor vehicles, particularly new vehicles, historically have been
cyclical, fluctuating with general economic cycles. During economic downturns, the
automotive retailing industry tends to experience periods of decline and recession
similar to those experienced by the general economy. We believe that the industry is
influenced by general economic conditions and particularly by consumer confidence, the
level of personal discretionary spending, fuel prices, interest rates and credit
availability.
Seasonality
Our business is modestly seasonal overall. Our U.S. operations generally experience
higher volumes of vehicle sales in the second and third quarters of each year due in part
to consumer buying trends and the introduction of new vehicle models. Also, vehicle
demand, and to a lesser extent demand for service and parts, is generally lower during
the winter months than in other seasons, particularly in regions of the U.S. where
dealerships may be subject to severe winters. Our U.K. operations generally experience
higher volumes of vehicle sales in the first and third quarters of each year, due
primarily to vehicle registration practices in the U.K.
Effects of Inflation
We believe that inflation rates over the last few years have not had a significant
impact on revenues or profitability. We do not expect inflation to have any near-term
material effects on the sale of our products and services; however, we cannot be sure
there will be no such effect in the future. We finance substantially all of our inventory
through various revolving floor plan arrangements with interest rates that vary based on
various benchmarks. Such rates have historically increased during periods of increasing
inflation.
39
Forward Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements which
generally can be identified by the use of terms such as may, will, should,
expect, anticipate, believe, intend, plan, estimate, predict, potential,
forecast, continue or variations of such terms, or the use of these terms in the
negative. Forward-looking statements include statements regarding our current plans,
forecasts, estimates, beliefs or expectations, including, without limitation, statements
with respect to:
|
|
|
our future financial and operating performance, including sales of the smart fortwo; |
|
|
|
future potential capital expenditures and securities repurchases; |
|
|
|
our ability to realize cost savings and synergies; |
|
|
|
our ability to respond to economic cycles; |
|
|
|
trends in the automotive retail industry and in the general economy in the various
countries in which we operate; |
|
|
|
our ability to access the remaining availability under our credit agreements; |
|
|
|
our liquidity, including our ability to refinance our outstanding senior subordinated
convertible notes; |
|
|
|
future foreign exchange rates; |
|
|
|
trends affecting our future financial condition or results of operations; and |
Forward-looking statements involve known and unknown risks and uncertainties and are
not assurances of future performance. Actual results may differ materially from
anticipated results due to a variety of factors, including the factors identified in our
2009 annual report on Form 10-K filed February 24, 2010. Important factors that could
cause actual results to differ materially from our expectations include the following:
|
|
|
our business and the automotive retail industry in general are susceptible to adverse
economic conditions, including changes in interest rates, foreign exchange rates, consumer
demand, consumer confidence, fuel prices, unemployment rates and credit availability; |
|
|
|
the number of new and used vehicles sold in our markets; |
|
|
|
automobile manufacturers exercise significant control over our operations, and we depend
on them in order to operate our business; |
|
|
|
we depend on the success and popularity of the brands we sell, and adverse conditions
affecting one or more automobile manufacturers, such as the recent Toyota recalls, may
negatively impact our revenues and profitability; |
|
|
|
a restructuring of any significant automotive manufacturers, as well as the automotive
sector as a whole; |
|
|
|
we may not be able to satisfy our capital requirements for acquisitions, dealership
renovation projects, financing the purchase of our inventory, or refinancing of our debt when
it becomes due (including our $150.6 million of outstanding senior subordinated convertible
notes expected to be repaid in April 2011); |
|
|
|
our failure to meet a manufacturers consumer satisfaction requirements may adversely
affect our ability to acquire new dealerships, our ability to obtain incentive payments from
manufacturers; |
|
|
|
although we typically purchase vehicles and parts in the local functional currency,
changes in foreign exchange rates may impact manufacturers, as many of the component parts of
vehicles are manufactured in foreign markets, which could lead to an increase in our costs
which we may not be able to pass on to the consumer; |
|
|
|
changes in tax, financial or regulatory rules or requirements; |
40
|
|
|
with respect to PTL, changes in the financial health of its customers, labor strikes or
work stoppages by its employees, a reduction in PTLs asset utilization rates and industry
competition; |
|
|
|
if we lose key personnel, especially our Chief Executive Officer, or are unable to
attract additional qualified personnel; |
|
|
|
import product restrictions and foreign trade risks that may impair our ability to sell
foreign vehicles profitably; |
|
|
|
new or enhanced regulations relating to automobile dealerships; |
|
|
|
if state dealer laws in the U.S. are repealed or weakened, our automotive dealerships
may be subject to increased competition and may be more susceptible to termination, non-renewal
or renegotiation of their franchise agreements; |
|
|
|
non-compliance with the financial ratios and other covenants under our credit agreements
and operating leases; |
|
|
|
our distribution of the smart fortwo vehicle is dependent upon continued availability of
and customer demand for the smart fortwo; |
|
|
|
our dealership operations may be affected by severe weather or other periodic business
interruptions; |
|
|
|
some of our directors and officers may have conflicts of interest with respect to
certain related party transactions and other business interests; |
|
|
|
our level of indebtedness may limit our ability to obtain financing generally and may
require that a significant portion of our cash flow be used for debt service; |
|
|
|
we may be involved in legal proceedings that could have a material adverse effect on our
business; and |
|
|
|
our operations outside of the U.S. subject our profitability to fluctuations relating to
changes in foreign currency valuations. |
In addition:
|
|
|
the price of our common stock is subject to substantial fluctuation, which may be
unrelated to our performance; and |
|
|
|
shares eligible for future sale, or issuable under the terms of our convertible notes,
may cause the market price of our common stock to drop significantly, even if our business is
doing well. |
We urge you to carefully consider these risk factors in evaluating all
forward-looking statements regarding our business. Readers of this report are cautioned
not to place undue reliance on the forward-looking statements contained in this report.
All forward-looking statements attributable to us are qualified in their entirety by this
cautionary statement. Except to the extent required by the federal securities laws and
Securities and Exchange Commission rules and regulations, we have no intention or
obligation to update publicly any forward-looking statements whether as a result of new
information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rates. We are exposed to market risk from changes in the interest rates on
a significant portion of our outstanding debt. Outstanding revolving balances under our
credit agreements bear interest at variable rates based on a margin over defined LIBOR or
the Bank of England Base Rate. Based on the amount outstanding under these facilities as
of June 30, 2010, a 100 basis point change in interest rates would result in an
approximate $2.3 million change to our annual other interest expense. Similarly, amounts
outstanding under floor plan financing arrangements bear interest at a variable rate
based on a margin over the prime rate, defined LIBOR, the Finance House Base Rate, or the
Euro Interbank Offered Rate. We are currently party to swap agreements pursuant to which
a notional $300.0 million of our floating rate floor plan debt was exchanged for fixed
rate debt through January 2011. Based on an average of the aggregate amounts outstanding
under our floor plan financing arrangements subject to variable interest payments during
the trailing twelve months ended June 30, 2010, adjusted to exclude the notional value of
the hedged swap agreements, a 100 basis point change in interest rates would result in an
approximate $9.2 million change to our annual floor plan interest expense.
41
We evaluate our exposure to interest rate fluctuations and follow established
policies and procedures to implement strategies designed to manage the amount of variable
rate indebtedness outstanding at any point in time in an effort to mitigate the effect of
interest rate fluctuations on our earnings and cash flows. These policies include:
|
|
|
the maintenance of our overall debt portfolio with targeted fixed and
variable rate components; |
|
|
|
the use of authorized derivative instruments; |
|
|
|
the prohibition of using derivatives for trading or other speculative
purposes; and |
|
|
|
the prohibition of highly leveraged derivatives or derivatives which we
are unable to reliably value, or for which we are unable to obtain a market
quotation. |
Interest rate fluctuations affect the fair market value of our fixed rate debt,
including our swaps, mortgages, the 7.75% Notes, the Convertible Notes, and certain
seller financed promissory notes, but, with respect to such fixed rate debt instruments,
do not impact our earnings or cash flows.
Foreign Currency Exchange Rates. As of June 30, 2010, we had dealership operations
in the U.K. and Germany. In each of these markets, the local currency is the functional
currency. Due to our intent to remain permanently invested in these foreign markets, we
do not hedge against foreign currency fluctuations. In the event we change our intent
with respect to the investment in any of our international operations, we would expect to
implement strategies designed to manage those risks in an effort to mitigate the effect
of foreign currency fluctuations on our earnings and cash flows. A ten percent change in
average exchange rates versus the U.S. Dollar would have resulted in an approximate
$192.8 million change to our revenues for the six months ended June 30, 2010.
In common with other automotive retailers, we purchase certain of our new vehicle
and parts inventories from foreign manufacturers. Although we purchase the majority of
our inventories in the local functional currency, our business is subject to certain
risks, including, but not limited to, differing economic conditions, changes in political
climate, differing tax structures, other regulations and restrictions and foreign
exchange rate volatility which may influence such manufacturers ability to provide their
products at competitive prices in the local jurisdictions. Our future results could be
materially and adversely impacted by changes in these or other factors.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including the
principal executive and financial officers, we conducted an evaluation of the
effectiveness of our disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)), as of the end of the period covered by this report. Our disclosure
controls and procedures are designed to ensure that information required to be disclosed
by us in the reports we file under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SECs rules and forms, and that
such information is accumulated and communicated to management, including our principal
executive and financial officers, to allow timely discussions regarding required
disclosure.
Based upon this evaluation, the Companys principal executive and financial officers
concluded that our disclosure controls and procedures were effective as of the end of the
period covered by this report. In addition, we maintain internal controls designed to
provide us with the information required for accounting and financial reporting purposes.
There were no changes in our internal control over financial reporting that occurred
during the most recent quarter that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
42
PART II OTHER INFORMATION
Item 1. Legal Proceedings
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 June 30, 2010, we are 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.
Item 5. Other Information
On July 27, 2010, we, DCFS USA LLC and Toyota Motor Credit Corporation amended our
U.S. credit agreement to (1) increase the borrowing capacity under the revolving
agreement by $50.0 million to a total of $300.00 million, (2) increase the interest rate
on secured revolving borrowings by 25 basis points, and (3) increase the rate on
unsecured revolving borrowings by 50 basis points. We purchase motor vehicles from
Daimler AG and Toyota Motor Corporation, affiliates of the respective lenders under the
Credit Agreement, for sale at certain of our dealerships. The lenders also provide us
with floor-plan financing and consumer financing. On July 27, 2010, we also amended our
U.K. credit agreement to facilitate a reorganization of our European operations. Our UK
operations also sell motor vehicles to an affiliate of RBS which provides other banking
services to Sytner Group.
Item 6. Exhibits
|
|
|
|
|
|
4.1 |
|
|
Second Amendment dated July 27, 2010 to Amended and Restated
Credit Agreement, dated as of October 30, 2008 among Penske
Automotive Group, Inc., Toyota Motor Credit Corporation and
DCFS USA LLC, as agent. |
|
4.2 |
|
|
Amendment dated July 27, 2010 to multi-option credit
agreement, fixed rate credit agreement and overdraft
facility agreement each dated August 31, 2006 between Sytner
Group Limited and The Royal Bank of Scotland, plc, as agent
for National Westminster Bank Plc. |
|
12 |
|
|
Computation of Ratio of Earnings to Fixed Charges |
|
31.1 |
|
|
Rule 13(a)-14(a)/15(d)-14(a) Certification. |
|
31.2 |
|
|
Rule 13(a)-14(a)/15(d)-14(a) Certification. |
|
32 |
|
|
Section 1350 Certification. |
|
101 |
|
|
The following materials from Penske Automotive Groups
Quarterly Report on Form 10-Q for the quarter ended June 30,
2010, formatted in XBRL (eXtensible Business Reporting
Language): (i) the Consolidated Condensed Balance Sheets as
of June 30, 2010 and December 31, 2009, (ii) the
Consolidated Condensed Statements of Income for the three
and six months ended June 30, 2010 and 2009, (iii) the
Consolidated Condensed Statements of Cash Flows for the six
months ended June 30, 2010 and 2009, (iv) the Consolidated
Condensed Statement of Equity for the six months ended June
30, 2010, and (v) the Notes to Consolidated Condensed
Financial Statements, tagged as blocks of text.* |
|
|
|
* |
|
Pursuant to Rule 406T of Regulation S-T, the Interactive
Data Files on Exhibit 101 hereto are deemed not filed or
part of a registration statement or prospectus for purposes
of Sections 11 or 12 of the Securities Act of 1933, as
amended, are deemed not filed for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended, and
otherwise are not subject to liability under those sections. |
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
PENSKE AUTOMOTIVE GROUP, INC.
|
|
|
By: |
/s/ Roger S. Penske
|
|
|
|
Roger S. Penske |
|
Date: July 30, 2010 |
|
Chief Executive Officer |
|
|
|
|
|
By: |
/s/ Robert T. OShaughnessy
|
|
|
|
Robert T. OShaughnessy |
|
Date: July 30, 2010 |
|
Chief Financial Officer |
|
44
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
|
4.1 |
|
|
Second Amendment dated July 27, 2010 to Amended
and Restated Credit Agreement, dated as of October
30, 2008 among Penske Automotive Group, Inc.,
Toyota Motor Credit Corporation and DCFS USA LLC,
as agent. |
|
4.2 |
|
|
Amendment dated July 27, 2010 to multi-option
credit agreement, fixed rate credit agreement and
overdraft facility agreement each dated August 31,
2006 between Sytner Group Limited and The Royal
Bank of Scotland, plc, as agent for National
Westminster Bank Plc. |
|
12 |
|
|
Computation of Ratio of Earnings to Fixed Charges |
|
31.1 |
|
|
Rule 13(a)-14(a)/15(d)-14(a) Certification. |
|
31.2 |
|
|
Rule 13(a)-14(a)/15(d)-14(a) Certification. |
|
32 |
|
|
Section 1350 Certification. |
|
101 |
|
|
The following materials from Penske Automotive
Groups Quarterly Report on Form 10-Q for the
quarter ended June 30, 2010, formatted in XBRL
(eXtensible Business Reporting Language): (i) the
Condensed Balance Sheets as of June 30, 2010 and
December 31, 2009, (ii) the Condensed Statements
of Income for the three and six months ended June
30, 2010 and 2009, (iii) the Condensed Statements
of Cash Flows for the six months ended June 30,
2010 and 2009, (iv) the Consolidated Condensed
Statement of Equity for the six months ended June
30, 2010, and (v) the Notes to Consolidated
Condensed Financial Statements, tagged as blocks
of text*. |
|
|
|
* |
|
Pursuant to Rule 406T of Regulation S-T, the
Interactive Data Files on Exhibit 101 hereto are
deemed not filed or part of a registration
statement or prospectus for purposes of Sections
11 or 12 of the Securities Act of 1933, as
amended, are deemed not filed for purposes of
Section 18 of the Securities Exchange Act of 1934,
as amended, and otherwise are not subject to
liability under those sections. |