PENSKE AUTOMOTIVE GROUP, INC. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those discussed in Part II, Item 1A "Risk Factors" and "Forward-Looking Statements." We have acquired and initiated a number of businesses during the periods presented and addressed in this Management's Discussion and Analysis of Financial Condition and Results of Operations. Our financial statements include the results of operations of those businesses from the date acquired or when they commenced operations. Our period to period results of operations may vary depending on the dates of acquisitions or disposals. Overview We are a diversified international transportation services company that operates automotive and commercial truck dealerships principally inthe United States ,Canada , andWestern Europe and distributes commercial vehicles, diesel engines, gas engines, power systems, and related parts and services principally inAustralia and New Zealand . We employ over 23,000 people. COVID-19 Disclosure Overview - The outbreak of COVID-19 across the globe adversely impacted each of our markets and the global economy beginning in the first quarter of 2020, leading to disruptions to our business. Governmental authorities have taken countermeasures to slow the outbreak including shelter-in-place orders, restrictions on travel, and government-funded assistance programs to individuals and businesses. The shelter-in-place orders and resulting business closures severely and negatively impacted our results, in particular in the second quarter. While the pandemic continues in all of our markets, as these orders lapsed and businesses reopened, we experienced improved business conditions and improved financial results in the third quarter. For example, for the three months endedSeptember 30, 2020 , we experienced increased gross profit per unit, principally resulting from limited vehicle availability due to plant shutdowns related to COVID-19, as new and used retail automotive gross profit per unit increased 27.8% and 67.3%. In addition, selling, general, and administrative expenses as a percentage of gross profit decreased 10.1 percentage points in the third quarter in part due to employee reductions, temporary compensation reductions, government assistance, and other expense reductions noted below. While our third quarter retail automotive same-store new and used unit sales decreased 5.8% and 3.6% compared to the same period last year and service and parts revenue decreased 2.4%, we experienced sequential improvement of same-store new and used unit sales of 71% and 65% when compared to the second quarter of 2020 and a 51% increase in same-store service and parts revenue. The pandemic is a highly fluid and rapidly evolving situation, and while we continue to adjust our operations to conform to regulatory changes and consumer preferences in the evolving environment, we cannot anticipate with any certainty the length, scope, or severity of the business impact from the pandemic in each of the jurisdictions that we operate. See "Part II, Item 1A. Risk Factors." In response to shelter-in-place orders resulting from the COVID-19 pandemic, many of our automotive and commercial vehicle showrooms experienced temporary closures during the second quarter of 2020 though all have since reopened. Virtually all of our service, parts, and collision center departments remained open during the crisis, and curbside or home delivery offerings supplemented our traditional service offerings. We modified certain business practices to conform to government restrictions and best practices encouraged by government and regulatory authorities. Even though most of our showrooms are open, we continue to offer sales activity by appointment and through our e-commerce channels. In all of our locations, we implemented enhanced cleaning procedures, enforced social distancing guidelines, and took other precautions to maintain the health and safety of our employees and customers. We continue to experience interim business closures at some of our facilities in response to a customer or employee reporting a positive test result for COVID-19. When we become aware of such result, we notify appropriate personnel and deep clean our facility, which may include closure of that facility. We also are experiencing increased costs for providing the appropriate level of safety equipment for our facilities and employees, as well as increased costs for daily and enhanced deep cleaning
when
appropriate.
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Beginning in the first quarter of 2020, we implemented a hiring freeze and expense reductions across the company, including the postponement and elimination of an estimated$150 million in capital expenditures. We furloughed over 15,000 employees in February and March in various countries. As business conditions improved, we returned employees to work; however, approximately 650 employees remain furloughed as ofOctober 1, 2020 . We also reduced our workforce by approximately 3,700 employees or 14% compared toJanuary 1, 2020 . During 2020, many of our employees who were not furloughed worked reduced hours and experienced pay cuts, including a six-month 100% reduction in salary for our CEO and President and 25% reductions in salary for our other named executive officers. In addition, our Board of Directors waived six months of its cash compensation in 2020. The compensation levels for our officers and Board of Directors have since returned to their pre-COVID-19 levels. Most of our manufacturer partners began suspending production beginning in late March, and production disruptions continued into the second quarter. These disruptions resulted in lower inventory levels, in particular for new vehicles and limited inventory of certain models. Our manufacturer partners began providing us with additional incentive support in March, and our manufacturer and lending partners have provided support to retail customers such as increased incentives, payment deferrals, as well as 0% financing on certain vehicles
and term lengths.United States - Beginning inMarch 2020 , shelter-in-place rules in many states either required we close dealerships or limit our automotive dealership operations to essential services. Virtual/online sales of new and used vehicles remained available in all locations, while the service departments remained open to support critical transportation needs. In May, many shelter-in-place rules began to expire, and restrictions were slowly lifted in many states allowing us to reopen dealerships all of which remain open, subject in certain locations to personnel capacity limits. For the three months endedSeptember 30, 2020 , new and used retail automotive gross profit per unit increased 32.3% and 46.1%, primarily due to inventory shortages and additional manufacturer incentives, while our automotive dealerships experienced a 10.4% decrease in unit volume and a 6.1% decrease in service and parts revenues compared to the prior year on a same store basis. OurU.S. Used Vehicle SuperCenters experienced a same-store used unit sales decline of 8.9% in the third quarter, largely attributable
to lower inventory. Commercial truck dealership sales and service operations remained open throughout 2020 in most locations around theU.S. andCanada providing essential services to our customers. For the three months endedSeptember 30, 2020 , the North American Class 6-8 retail sales market declined 31.0%, and our new same-store unit sales and revenue declined 15.5% and 10.8%, respectively, during the same period. Penske Transportation Solutions - We have a 28.9% ownership interest in Penske Transportation Solutions ("PTS"). As an integral part of the North American supply chain, PTS has been generally classified as essential by governmental authorities which allowed PTS to remain operating in much of its business, providing crucial supply chain and transportation services to its customers. While its full-service leasing and contract maintenance businesses remained consistent, commercial rental utilization slowed during the second quarter but increased with the expirations of the shelter-in-place orders. In the third quarter of 2020, PTS experienced increased levels of utilization and profitability as business conditions improved. In its logistics services business, throughout 2020, PTS experienced heavy volumes in the grocery sector which were offset by plant closings in automotive and manufacturing. In the third quarter, most of PTS' logistics customers returned to normal operations, generating strong results. PTS has also experienced improved remarketing results as truck prices improved in response to limited inventory. In response to the pandemic, PTS initially furloughed over 5,000 employees, most of which have returned to work. PTS also reduced executive salaries by up to 30%, which reductions have been eliminated.United Kingdom - All dealerships closed onMarch 24, 2020 , in accordance with government orders, though we provided service and parts operations on an emergency basis. Over 90% of the employees in theU.K. were placed on furlough beginningMarch 24, 2020 . However, we opened substantially all service and parts operations in mid-May and showrooms in early June. InOctober 2020 , in response to increased incidence of the COVID-19 pandemic, certain parts of theU.K. have reinstated shelter-in-place orders which require our dealerships to close. For the three months endedSeptember 30, 2020 , new and used retail automotive gross profit per unit increased 25.9% and 108.6%, primarily due to inventory shortages and additional manufacturer incentives, while our automotive dealerships experienced a 2.4% increase in unit volume and a 7.3% increase in service and parts revenues compared to the prior year on a same store 31
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basis. OurU.K. Used Vehicle SuperCenters also experienced a gross profit per unit increase of 121.1%, primarily due to improved inventory management, and a same-store used unit sales decrease of 12.7% in the third quarter.Australia - In most jurisdictions, non-essential business operations were closed by government order inMarch 2020 though many governmental restrictions have since been lifted. Penske Australia has been deemed essential throughout the COVID-19 pandemic, and therefore, sales, parts, service, and defense functions continue to remain operational. Throughout 2020, Penske Australia results of operations have remained consistent in spite of the pandemic. Government Assistance - We received government assistance in most of our jurisdictions through COVID-19 related government programs which provided tax credits or direct wage or health care assistance payments to us. These programs generally require us to claim tax credits or apply to the government for reimbursement of wages or employee health benefits based on the applicable laws and programs within each jurisdiction. In the three and nine months endedSeptember 30, 2020 , we received$6.0 million and$55.5 million of wage assistance for furloughed employees in theU.K. as well as an additional$1.9 million and$8.3 million of assistance and tax credits in ourU.S. and other jurisdictions. As a result, we recorded a reduction to selling, general, and administrative expenses of approximately$8.0 million and$63.9 million for the amounts of government assistance received during those periods. Liquidity - As ofSeptember 30, 2020 , we had$93 million of cash and access to an additional$1.0 billion of availability through our revolving credit facilities. This amount includes$100 million of additional borrowing capacity under ourU.S. credit agreement which we amended effectiveAugust 1, 2020 . During the third quarter of 2020, we repaid in full at scheduled maturity our$300 million senior subordinated notes dueAugust 15, 2020 , using availability under ourU.S. revolving credit facility. We also issued$550 million in aggregate principal amount of 3.50% senior subordinated notes due 2025 inAugust 2020 , the proceeds of which were used to redeem our$550 million in aggregate principal amount of 5.75% senior subordinated notes due 2022 onOctober 1 . In the meantime, we utilized the proceeds from the 3.50% senior subordinated notes to temporarily pay down floorplan,U.S. revolver and mortgage revolver balances. Refer to Note 10 "Long-Term Debt" for further discussion. Risks and Uncertainties - The full impact that COVID-19 will have on our business cannot be predicted at this time due to numerous uncertainties, including the duration of the outbreak, travel restrictions, business closures, the effectiveness of actions taken to contain the disease, the development of a reliable vaccine, the effect of government assistance programs, production levels from our manufacturing partners, and other unintended consequences. This impact could include changes in customer demand; our relationship with, and the financial and operational capacities of, vehicle manufacturers, captive finance companies and other suppliers; workforce availability; risks associated with our indebtedness (including available borrowing capacity, compliance with financial covenants and ability to refinance or repay indebtedness on favorable terms); the adequacy of our cash flow and earnings and other conditions which may affect our liquidity; our ability to pay our quarterly dividend at prior levels; and disruptions to our technology network and other critical systems, including our dealer management systems and software or other facilities or equipment. We believe that business disruption relating to the COVID-19 pandemic will continue to negatively impact the global economy and may materially affect our businesses as outlined above, or in other manners, all of which would adversely impact our business and results of operations. Business Overview During the nine months endedSeptember 30, 2020 , our business generated$14.6 billion in total revenue, which is comprised of$12.8 billion from retail automotive dealerships,$1.5 billion from retail commercial truck dealerships and$322.2 million from commercial vehicle distribution. We generated$2.3 billion in gross profit, which is comprised of$2.0 billion from retail automotive dealerships,$202.1 million from retail commercial truck dealerships and$89.9 million from commercial vehicle distribution and other operations. Retail Automotive Dealership. We believe we are the second largest automotive retailer headquartered in theU.S. as measured by the$20.6 billion in total retail automotive dealership revenue we generated in 2019. As ofSeptember 30, 2020 , we operated 311 retail automotive franchises, of which 145 franchises are located in theU.S. and 166 franchises 32
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are located outside of theU.S. The franchises outside theU.S. are located primarily in theU.K. In the nine months endedSeptember 30, 2020 , we retailed and wholesaled more than 371,000 vehicles. We are diversified geographically, with 57% of our total retail automotive dealership revenues in the nine months endedSeptember 30, 2020 , generated in theU.S. andPuerto Rico and 43% generated outside theU.S. We offer over 35 vehicle brands, with 70% of our retail automotive dealership revenue in the nine months endedSeptember 30, 2020 , generated from premium brands, such as Audi, BMW, Land Rover, Mercedes-Benz and Porsche. Each of our franchised dealerships offers a wide selection of new and used vehicles for sale. In addition to selling new and used vehicles, we generate higher-margin revenue at each of our dealerships through maintenance and repair services and the sale and placement of third-party finance and insurance products, third-party extended service and maintenance contracts and replacement and aftermarket automotive products. We also operate sixteen Used Vehicle SuperCenters in theU.S. and theU.K. which retail and wholesale used vehicles under a one price, "no-haggle" methodology. Our CarSense operations in theU.S. consist of six locations operating in thePhiladelphia andPittsburgh, Pennsylvania market areas. Our CarShop operations in theU.K. consist of ten retail locations and a vehicle preparation center. We expect to open two additional Used Vehicle SuperCenters in the next 90 days and have four additional sites under development. For the three and nine months endedSeptember 30, 2020 , these Used Vehicle SuperCenters retailed 18,372 and 41,284 units and generated$352.5 million and$790.5 million in revenue, respectively.
Retail automotive dealerships represented 87.7% of our total revenues and 87.2%
of our total gross profit in the nine months ended
Retail Commercial Truck Dealership. We operate a heavy and medium-duty truck dealership group known asPremier Truck Group ("PTG") offering primarilyFreightliner and Western Star trucks (bothDaimler brands), with locations inTexas ,Oklahoma ,Tennessee ,Georgia ,Utah ,Idaho , andCanada . As ofSeptember 30, 2020 , PTG operated twenty-five locations. PTG also offers a full range of used trucks available for sale as well as service and parts departments, providing a full range of maintenance and repair services.
This business represented 10.1% of our total revenues and 8.8% of our total
gross profit in the nine months ended
Penske Australia. We are the exclusive importer and distributor ofWestern Star heavy-duty trucks, MAN heavy and medium-duty trucks and buses (aVW Group brand), andDennis Eagle refuse collection vehicles, together with associated parts, acrossAustralia ,New Zealand and portions of the Pacific. In most of these same markets, we are also a leading distributor of diesel and gas engines and power systems, principally representing MTU,Detroit Diesel , Allison Transmission, MTU Onsite Energy, andRolls Royce Power Systems . This business, known as Penske Australia, offers products across the on- and off-highway markets, including in the construction, mining, marine, and defense sectors, and supports full parts and aftersales service through a network of branches, field locations and dealers across the region.
These businesses represented 2.2% of our total revenues and 4.0% of our total
gross profit in the nine months ended
Penske Transportation Solutions. We hold a 28.9% ownership interest inPenske Truck Leasing Co., L.P ("PTL"). PTL is owned 41.1% byPenske Corporation , 28.9% by us, and 30.0% by Mitsui & Co., Ltd. ("Mitsui"). We account for our investment in PTL under the equity method, and we therefore record our share of PTL's earnings on our statements of income under the caption "Equity in earnings of affiliates," which also includes the results of our other equity method investments. Penske Transportation Solutions ("PTS") is the universal brand name for PTL's various business lines through which it is capable of meeting customers' needs across the supply chain with a broad product offering that includes full-service truck leasing, truck rental and contract maintenance, along with logistic services such as dedicated contract carriage, distribution center management, transportation management, lead logistics provider services and dry van truckload carrier services. We recorded$108.0 million and$106.0 million in equity earnings from this investment for the nine months endedSeptember 30, 2020 , and 2019, respectively. 33 Table of Contents Outlook Retail Automotive Dealership. For the three months endedSeptember 30, 2020 ,U.S. new light vehicle sales decreased 8.4%, as compared to the same period last year, to 4.0 million units, with a decrease of 4.5% in sales of trucks, crossovers and sport utility vehicles and a decrease of 19.2% in sales of passenger cars. For the nine months endedSeptember 30, 2020 ,U.S. new light vehicle sales decreased 18.4%, as compared to the same period last year, to 10.5 million units, with a decrease of 13.5% in sales of trucks, crossovers and sport utility vehicles and a decrease of 30.5% in sales of passenger cars. We believe the year over year declines are attributable to lower inventory of new vehicles available for sale as vehicle production by the manufacturers was impacted due to plant shutdowns related to the COVID-19 pandemic and other effects of the COVID-19 pandemic. Despite these declines, we have experienced improved profitability and earnings. TheU.S. light vehicle market declined from a seasonally adjusted annual sales rate (SAAR) of 17.1 million inFebruary 2020 to a low of 8.6 million inApril 2020 . Since April, the monthly SAAR has continued to improve, including a SAAR of 16.4 million in the month ofSeptember 2020 . We believe a similar level of SAAR may occur during the fourth quarter. We expect more normalizedU.S. vehicle sales in the fourth quarter assuming the pandemic rates remain moderate, shelter-in-place orders are not reinstated, and vehicle inventory availability improves. See "COVID-19 Disclosure" above. During the three months endedSeptember 30, 2020 ,U.K. new vehicle registrations decreased 0.5%, as compared to the same period last year, to 590,154 registrations. During the nine months endedSeptember 30, 2020 ,U.K. new vehicle registrations decreased 33.2%, as compared to the same period last year, to 1,243,656 registrations. We believe the year over year declines are significantly attributable to the COVID-19 pandemic and lower inventory of new vehicles available for sale as vehicle production by the manufacturers was impacted due to plant shutdowns related to the COVID-19 pandemic. Despite these declines, we have experienced improved profitability and earnings in the third quarter of 2020. We expect a normalized market to occur in the fourth quarter assuming the pandemic rates remain moderate, shelter-in-place orders are not reinstated at a large number of our stores, vehicle inventory availability improves, and there is no significant adverse effect from Brexit (see below Part II, Items 1A "Risk Factors" and "COVID-19 Disclosure" above).U.K. sales may also be negatively affected by the economic and political uncertainty caused by theU.K.'s exit from theEuropean Union ("Brexit") which occurred onJanuary 31, 2020 , at which point theU.K. is legally outside of theEuropean Union . A Brexit implementation period runs untilDecember 31, 2020 , in which theU.K. ,European Union , and other countries will work to establish future trading terms. We believe Brexit may continue to impact new and used sales as well as consumer confidence and the economic environment generally and may lead to further declines in new and used vehicle sales in future periods. Since no country has previously left theEuropean Union , the outcome of any future negotiations between theU.K. and theEuropean Union is uncertain and may affect the timing, terms of trade, and the level of new vehicle registrations in those markets. If theU.K. and theEuropean Union are unable to reach a trade agreement, we may experience difficulty acquiring or sourcing new vehicles or parts due to delays at the border, and higher prices for vehicles or parts due to additional tax, among other consequences. See "Part II, Item 1A. Risk Factors."U.K. sales were also being negatively affected by the uncertainty of residual values, potentially higher taxes on diesel-powered vehicles, and consumer confusion about low emission zones as theU.K. and Western European countries consider the ramifications of diesel engines on the environment, while also providing government incentives on certain electric vehicles. Representatives of theU.K government suggested a ban on the sale of gasoline and gasoline hybrid engines in cars and vans potentially starting as early as 2032. Sales of diesel-powered vehicles experienced a 56.3% decline, while non-diesel vehicles experienced a 25.3% decrease in sales during the nine months endedSeptember 30, 2020 . Premium/luxury unit sales, which account for over 93% of ourU.K. new unit sales, decreased 32.9% in the first nine months of 2020, as compared to a 33.2% decline for the overall market. Retail Commercial Truck Dealership. For the three months endedSeptember 30, 2020 , North American sales of Class 6-8 medium and heavy-duty trucks, the principal vehicles for our PTG business, decreased 31.0% from the same period last year to 94,798 units. For the nine months endedSeptember 30, 2020 , North American sales of Class 6-8 medium and heavy-duty trucks, the principal vehicles for our PTG business, decreased 35.6% from the same period last year to 252,484 units. Currently the North American Class 8 market is experiencing an increase in monthly net orders which we believe is attributed to increased freight demand, and overall retail sales for 2020 are expected to be 34
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approximately 220,000, which is approximately 70,000 units higher than originally anticipated earlier in the year. Any significant decline in North American retail sales may materially and adversely affect our retail commercial truck dealerships. We expect continued similar performance in the fourth quarter for truck sales and service assuming the pandemic rates remain moderate and shelter-in-place orders are not reinstated. See "COVID-19 Disclosure" above. Commercial Vehicle Distribution. Our Penske Australia distribution business operates principally in the Australian andNew Zealand heavy and medium-duty truck markets. During the three months endedSeptember 30, 2020 , the Australian heavy-duty truck market reported sales of 2,507 units, representing a decrease of 18.7% from the same period last year, while theNew Zealand market reported sales of 765 units, representing a decrease of 18.2% from the same period last year. During the nine months endedSeptember 30, 2020 , the Australian heavy-duty truck market reported sales of 7,426 units, representing a decrease of 21.9% from the same period last year, while theNew Zealand market reported sales of 2,019 units, representing a decrease of 26.1% from the same period last year. The brands we represent inAustralia hold a 4.3% market share in the Australian heavy-duty truck market, and a 2.4% market share inNew Zealand . See "COVID-19 Disclosure" above. Penske Transportation Solutions. PTS services have been largely deemed essential by government authorities during the COVID-19 pandemic and a majority of the PTS business is generated by multi-year contracts for full-service leasing, contract maintenance and logistics services. We expect continued resilient performance in the fourth quarter for PTS assuming the pandemic rates remain moderate and shelter-in-place orders are not reinstated. See "COVID-19 Disclosure" above. As described in "Forward-Looking Statements," there are a number of factors that could cause actual results to differ materially from our expectations. See Part II, Item 1A, "Risk Factors." Operating Overview Automotive and commercial truck dealerships represent the majority of our results of operations. New and used vehicle revenues typically include sales to retail customers, to fleet customers, and to leasing companies providing consumer leasing. We generate finance and insurance revenues from sales of third-party extended service contracts, sales of third-party insurance policies, commissions relating to the sale of finance and lease contracts to third parties, and the sales of certain other products. Service and parts revenues include fees paid by customers for repair, maintenance and collision services, and the sale of replacement parts and other aftermarket accessories, as well as warranty repairs that are reimbursed directly by various OEMs. Our gross profit tends to vary with the mix of revenues we derive from the sale of new vehicles, used vehicles, finance and insurance products, and service and parts transactions. Our gross profit varies across product lines, with vehicle sales usually resulting in lower gross profit margins and our other revenues resulting in higher gross profit margins. Factors such as inventory and vehicle availability, customer demand, consumer confidence, unemployment, general economic conditions, seasonality, weather, credit availability, fuel prices, and manufacturers' advertising and incentives also impact the mix of our revenues, and therefore influence our gross profit margin. The results of our commercial vehicle distribution business inAustralia and New Zealand are principally driven by the number and types of products and vehicles ordered by our customers. Aggregate revenue and gross profit increased$4.0 million and$86.8 million , or 0.1% and 10.0%, respectively, during the three months endedSeptember 30, 2020 , and decreased$2,656.0 million and$302.9 million , or 15.4% and 11.7%, respectively, during the nine months endedSeptember 30, 2020 , compared to the same periods in 2019. See "COVID-19 Disclosure" above. As exchange rates fluctuate, our revenue and results of operations as reported inU.S. Dollars fluctuate. For example, if the British Pound were to weaken against theU.S. Dollar, ourU.K. results of operations would translate into lessU.S. Dollar reported results. Foreign currency average rate fluctuations increased revenue and gross profit by$115.2 million and$16.9 million , respectively, for the three months endedSeptember 30, 2020 , and increased revenue and gross profit by$38.3 million and$4.8 million , respectively, for the nine months endedSeptember 30, 2020 . Foreign currency 35
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average rate fluctuations increased earnings per share from continuing operations by approximately$0.05 per share for the three months endedSeptember 30, 2020 , and increased earnings per share from continuing operations by approximately$0.01 per share for the nine months endedSeptember 30, 2020 . Excluding the impact of foreign currency average rate fluctuations, revenue and gross profit decreased 1.9% and increased 8.0%, respectively, for the three months endedSeptember 30, 2020 , and decreased 15.6% and 11.9%, respectively, for the nine months endedSeptember 30, 2020 . Our selling expenses consist of advertising and compensation for sales personnel, including commissions and related bonuses. General and administrative expenses include compensation for administration, finance, legal and general management personnel, rent, insurance, utilities and other expenses. As the majority of our selling expenses are variable, and we believe a significant portion of our general and administrative expenses are subject to our control, we believe our expenses can be adjusted over time to reflect economic trends. 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, and includes interest relating to our retail commercial truck dealership and commercial vehicle distribution operations. The cost of our variable rate indebtedness is based on the prime rate, defined London Interbank Offered Rate ("LIBOR"), theBank of England Base Rate , the Finance House Base Rate, the Euro Interbank Offered Rate, the Canadian Prime Rate, the AustralianBank Bill Swap Rate , or the New Zealand Bank Bill Benchmark Rate. InJuly 2017 , theFinancial Conduct Authority , the authority that regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (ARRC) has proposed that the Secured Overnight Financing Rate (SOFR) is the rate that represents the best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. Our senior secured revolving credit facilities in theU.S. andU.K. , and many of our floorplan arrangements, utilize LIBOR as a benchmark for calculating the applicable interest rate. We cannot predict the effect of the potential changes to or elimination of LIBOR or the establishment and use of alternative rates or benchmarks and the corresponding effects on our cost of capital.
Equity in earnings of affiliates principally represents our share of the earnings from PTS, along with our investments in joint ventures and other non-consolidated investments.
The future success of our business is dependent upon, among other things, general economic and industry conditions, including the recovery time frame for the global economy in light of COVID-19; our ability to react effectively to changing business conditions in light of COVID-19; our ability to consummate and integrate acquisitions; the level of vehicle sales in the markets where we operate; our ability to increase sales of higher margin products, especially service and parts sales; our ability to realize returns on our significant capital investment in new and upgraded dealership facilities; our ability to navigate a rapidly changing automotive and truck landscape; the success of our distribution of commercial vehicles, engines, and power systems; and the return realized from our investments in various joint ventures and other non-consolidated investments. See Part II, Item 1A, "Risk Factors" and "Forward-Looking Statements" below.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted inthe United States of America requires the application of accounting policies that often involve making estimates and employing judgments. Such judgments influence the assets, liabilities, revenues and expenses recognized in our financial statements. Management, on an ongoing basis, reviews these estimates and assumptions. Management may determine that modifications in assumptions and estimates are required, which may result in a material change in our results of operations or financial position. The accounting policies and estimates that we believe to be most dependent upon the use of estimates and assumptions are revenue recognition, goodwill and other indefinite-lived intangible assets, investments, self-insurance reserves, lease recognition, and income taxes. Refer to "Management's Discussion and Analysis of Financial Condition 36 Table of Contents and Results of Operations" in our 2019 annual report on Form 10-K for additional detail and discussion of these critical accounting policies and estimates. There have been no material changes in critical accounting policies and estimates as described in our most recent annual report. Refer to Part I, Item 1, Note 3 of the Notes to our Consolidated Condensed Financial Statements for disclosures regarding estimates and judgments related to lease recognition. Refer to Part I, Item 1, Note 2 of the Notes to our Consolidated Condensed Financial Statements for disclosures regarding estimates and judgments related to revenue recognition. Refer to "Income Taxes" within Part I, Item 1, Note 1 of the Notes to our Consolidated Condensed Financial Statements for disclosures regarding estimates and judgments related to income taxes. Results of Operations The following tables present comparative financial data relating to our operating performance in the aggregate and on a "same-store" basis. Dealership results are included in same-store comparisons when we have consolidated the acquired entity during the entirety of both periods being compared. As an example, if a dealership were acquired onJanuary 15, 2018 , the results of the acquired entity would be included in annual same-store comparisons beginning with the year endedDecember 31, 2020 , and in quarterly same-store comparisons beginning with the quarter endedJune 30, 2019 . The results for the three and nine months endedSeptember 30, 2020 , have been impacted by the outbreak of COVID-19 and each of the items mentioned below should be reviewed in light of our discussion under "COVID-19 Disclosure" and "Item 1A. Risk Factors" which are incorporated herein. The results for the three and nine months endedSeptember 30, 2020 , include a net income tax benefit of$15.4 million , or$0.19 per share, from changes related to the CARES Act and various otherU.S. and foreign tax legislation changes.
Three Months Ended
Retail Automotive Dealership New Vehicle Data
(In millions, except unit and per unit amounts)
2020 vs. 2019
New Vehicle Data 2020 2019 Change % Change
New retail unit sales 52,522 57,214 (4,692) (8.2) %Same-store new retail unit sales 52,502 55,752 (3,250) (5.8) % New retail sales revenue$ 2,350.6 $ 2,332.3 $ 18.3 0.8 % Same-store new retail sales revenue$ 2,349.8 $ 2,288.1 $ 61.7 2.7 % New retail sales revenue per unit$ 44,754 $ 40,764 $ 3,990 9.8 % Same-store new retail sales revenue per unit$ 44,757 $ 41,040
$ 3,717 9.1 % Gross profit - new$ 192.8 $ 164.3 $ 28.5 17.3 % Same-store gross profit - new$ 192.7 $ 160.6 $ 32.1 20.0 %
Average gross profit per new vehicle retailed$ 3,670 $ 2,871 $ 799 27.8 % Same-store average gross profit per new vehicle retailed$ 3,670 $ 2,881 $ 789 27.4 % Gross margin % - new 8.2 % 7.0 % 1.2 % 17.1 % Same-store gross margin % - new 8.2 % 7.0 %
1.2 % 17.1 %
Units
Retail unit sales of new vehicles decreased from 2019 to 2020 due to a 3,250 unit, or 5.8%, decrease in same-store new retail unit sales, coupled with a 1,442 unit decrease from net dealership dispositions. Same-store units decreased
10.4% in the
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Revenues
New vehicle retail sales revenue increased from 2019 to 2020 due to a$61.7 million , or 2.7%, increase in same-store revenues, partially offset by a$43.4 million decrease from net dealership dispositions. Excluding$39.5 million of favorable foreign currency fluctuations, same-store new retail revenue increased 1.0%. The same-store revenue increase is due to a$3,717 per unit increase in comparative average selling prices (including a$752 per unit increase attributable to favorable foreign currency fluctuations), which increased revenue by$195.1 million , partially offset by the decrease in same-store unit sales, which decreased revenue by$133.4 million . Gross Profit
Retail gross profit from new vehicle sales increased from 2019 to 2020 due to a$32.1 million , or 20.0%, increase in same-store gross profit, partially offset by a$3.6 million decrease from net dealership dispositions. Excluding$3.3 million of favorable foreign currency fluctuations, same-store gross profit increased 17.9%. The increase in same-store gross profit is due to a$789 per unit increase in the average gross profit per new vehicle retailed (including a$62 per unit increase attributable to favorable foreign currency fluctuations), which increased gross profit by$41.5 million , partially offset by the decrease in same-store new retail unit sales which decreased gross profit by$9.4 million . The increase in same-store gross profit per new vehicle retailed is partially attributed to limited availability of inventory from our manufacturers as discussed above.
Retail Automotive Dealership Used Vehicle Data
(In millions, except unit and per unit amounts)
2020 vs. 2019
Used Vehicle Data 2020 2019 Change % Change
Used retail unit sales 70,800 74,096 (3,296) (4.4) %Same-store used retail unit sales 69,766 72,336 (2,570) (3.6) % Used retail sales revenue$ 1,954.1 $ 1,824.5 $ 129.6 7.1 % Same-store used retail sales revenue$ 1,938.2 $ 1,788.0 $ 150.2 8.4 % Used retail sales revenue per unit$ 27,601 $ 24,623 $ 2,978 12.1 % Same-store used retail sales revenue per unit$ 27,782 $ 24,717 $ 3,065 12.4 % Gross profit - used$ 143.3 $ 89.7 $ 53.6 59.8 % Same-store gross profit - used$ 142.3 $ 88.5 $ 53.8 60.8 % Average gross profit per used vehicle retailed$ 2,024 $ 1,210 $ 814 67.3 % Same-store average gross profit per used vehicle retailed$ 2,040 $ 1,224 $ 816 66.7 % Gross margin % - used 7.3 % 4.9 % 2.4 % 49.0 % Same-store gross margin % - used 7.3 % 4.9 %
2.4 % 49.0 %
Units
Retail unit sales of used vehicles decreased from 2019 to 2020 due to a 2,570
unit, or 3.6%, decrease in same-store used retail unit sales, coupled with a 726
unit decrease from net dealership dispositions. Same-store units decreased
10.3% in the U.S. and increased 2.1% internationally. Same-store retail units
for our U.S. and U.K. Used Vehicle SuperCenters decreased 8.9% and 12.7%,
respectively. Overall, used units decreased 10.3% in the U.S. and increased 0.3%
internationally. The decrease in units is primarily due to the decline in our
retail automotive business resulting from the COVID-19 pandemic as well as the
limited availability of inventory from our manufacturers as discussed above.
Revenues
Used vehicle retail sales revenue increased from 2019 to 2020 due to a $150.2
million , or 8.4%, increase in same-store revenues, partially offset by a $20.6
million decrease from net dealership dispositions. Excluding $51.8 million of
favorable foreign currency fluctuations, same-store used retail revenue
increased 5.5%. The same-store revenue increase is primarily due to a $3,065 per
unit increase in comparative average selling prices (including a $743 per unit
increase attributable to favorable foreign currency fluctuations), which
increased revenue by $213.7 million , partially offset by
38
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the decrease in same-store used retail unit sales, which decreased revenue by
Gross Profit
Retail gross profit from used vehicle sales increased from 2019 to 2020 due to a$53.8 million , or 60.8%, increase in same-store gross profit, partially offset by a$0.2 million decrease from net dealership dispositions. Excluding$3.4 million of favorable foreign currency fluctuations, same-store gross profit increased 56.9%. The increase in same-store gross profit is due to an$816 per unit increase in average gross profit per used vehicle retailed (including a$49 per unit increase attributable to favorable foreign currency fluctuations), which increased gross profit by$56.9 million , partially offset by the decrease in same-store used retail unit sales, which decreased gross profit by$3.1 million . The average gross profit per unit for our Used Vehicle SuperCenters increased 56.9% to$1,053 . The increase in average gross profit per used vehicle retailed is primarily due to lower inventory availability of new vehicles, which increased demand for used vehicles, and improved vehicle sourcing in our Used Vehicle SuperCenters.
Retail Automotive Dealership Finance and Insurance Data
(In millions, except unit and per unit amounts)
2020 vs. 2019
Finance and Insurance Data 2020 2019 Change % Change
Total retail unit sales 123,322 131,310 (7,988) (6.1) %Total same-store retail unit sales 122,268 128,088 (5,820) (4.5) % Finance and insurance revenue$ 174.4 $ 166.0 $ 8.4 5.1 % Same-store finance and insurance revenue$ 173.1 $ 163.5 $ 9.6 5.9 % Finance and insurance revenue per unit$ 1,414 $ 1,264 $ 150 11.9 % Same-store finance and insurance revenue per unit$ 1,416 $ 1,277
$ 139 10.9 % Finance and insurance revenue increased from 2019 to 2020 due to a$9.6 million , or 5.9%, increase in same-store revenues, partially offset by a$1.2 million decrease from net dealership dispositions. Excluding$3.4 million of favorable foreign currency fluctuations, same-store finance and insurance revenue increased 3.8%. The same-store revenue increase is due to a$139 per unit increase in comparative average finance and insurance revenue per unit (including a$28 per unit increase attributable to favorable foreign currency fluctuations), which increased revenue by$17.0 million , partially offset by the decrease in same-store retail unit sales, which decreased revenue by$7.4 million . Finance and insurance revenue per unit increased 12.0% in theU.S. and increased 12.8% in theU.K. We believe the increase in same-store finance and insurance revenue per unit is primarily due to our efforts to increase finance and insurance revenue, which include implementing interactive digital customer sales platforms, additional training, and targeting underperforming locations.
Retail Automotive Dealership Service and Parts Data
(In millions)
2020 vs. 2019
Service and Parts Data 2020 2019 Change % Change
Service and parts revenue $ 521.8 $ 543.5 $ (21.7) (4.0) %Same-store service and parts revenue$ 521.5 $ 534.1 $ (12.6) (2.4) % Gross profit - service and parts$ 322.0 $ 321.7 $ 0.3 0.1 % Same-store service and parts gross profit$ 321.8 $ 316.0 $ 5.8 1.8 % Gross margin % - service and parts 61.7 % 59.2 % 2.5
% 4.2 % Same-store service and parts gross margin % 61.7 % 59.2 % 2.5 % 4.2 %
Revenues Service and parts revenue decreased from 2019 to 2020, with a decrease of 6.6% in theU.S. and an increase of 1.3% internationally. The decrease in service and parts revenue is due to a$12.6 million , or 2.4%, decrease in same-store revenues, coupled with a$9.1 million decrease from net dealership dispositions. Excluding$8.3 million of favorable foreign currency fluctuations, same-store service and parts revenue decreased 3.9%. The decrease in same-store revenue 39 Table of Contents is due to a$6.8 million , or 18.1%, decrease in vehicle preparation and body shop revenue, a$5.5 million , or 1.5%, decrease in customer pay revenue, and a$0.3 million , or 0.2%, decrease in warranty revenue. The decrease in service and parts revenue is primarily due to the decline in our retail automotive business resulting from the COVID-19 pandemic as discussed above. Gross Profit Service and parts gross profit increased from 2019 to 2020 due to a$5.8 million , or 1.8%, increase in same-store gross profit, partially offset by a$5.5 million decrease from net dealership dispositions. Excluding$5.0 million of favorable foreign currency fluctuations, same-store gross profit increased 0.3%. The same-store gross profit increase is due to a 2.5% increase in gross margin, which increased gross profit by$13.6 million , partially offset by the decrease in same-store revenues, which decreased gross profit by$7.8 million . The same-store gross profit increase is due to a$7.5 million , or 4.4%, increase in customer pay gross profit and a$2.6 million , or 3.7%, increase in warranty gross profit, partially offset by a$4.3 million , or 6.0%, decrease in vehicle preparation and body shop gross profit.
Retail Commercial Truck Dealership Data
(In millions, except unit and per unit amounts)
2020 vs. 2019
New Commercial Truck Data 2020 2019 Change % Change
New retail unit sales 3,196 4,154 (958) (23.1) %Same-store new retail unit sales 2,032 2,406 (374) (15.5) % New retail sales revenue$ 376.6 $ 476.2 $ (99.6) (20.9) % Same-store new retail sales revenue$ 240.1 $ 269.3 $ (29.2) (10.8) % New retail sales revenue per unit$ 117,825 $ 114,636 $ 3,189 2.8 % Same-store new retail sales revenue per unit$ 118,167 $ 111,913 $ 6,254 5.6 % Gross profit - new$ 12.3 $ 21.8 $ (9.5) (43.6) % Same-store gross profit - new$ 8.3 $ 10.9 $ (2.6) (23.9) % Average gross profit per new truck retailed$ 3,856 $ 5,244 $ (1,388) (26.5) % Same-store average gross profit per new truck retailed$ 4,090 $ 4,514 $ (424) (9.4) % Gross margin % - new 3.3 % 4.6 % (1.3) % (28.3) % Same-store gross margin % - new 3.5 % 4.0 %
(0.5) % (12.5) % Units
Retail unit sales of new trucks decreased 958 units, or 23.1%, from 2019 to 2020, including a 374, or 15.5%, unit decrease in same-store retail unit sales. The decrease in units is largely due to a 31.0% decrease in the North American Class 6-8 heavy-duty truck market retail sales during the three months endedSeptember 30, 2020 . Revenues New commercial truck retail sales revenue decreased$99.6 million , or 20.9%, from 2019 to 2020, including a$29.2 million , or 10.8%, decrease in same-store revenues. The decrease in same-store revenue is due to the decrease in same-store new retail unit sales, which decreased revenue by$41.9 million , partially offset by a$6,254 per unit increase in comparative average selling prices, which increased revenue by$12.7 million . Gross Profit
New commercial truck retail gross profit decreased$9.5 million , or 43.6%, from 2019 to 2020, including a$2.6 million , or 23.9%, decrease in same-store gross profit. The decrease in same-store gross profit is due to the decrease in new retail unit sales, which decreased gross profit by$1.7 million , coupled with a$424 per unit decrease in average gross profit per new truck retailed, which decreased gross profit by$0.9 million . 40 Table of Contents 2020 vs. 2019 Used Commercial Truck Data 2020 2019 Change % Change Used retail unit sales 1,284 578 706 122.1 %
Same-store used retail unit sales 834 398 436 109.5 % Used retail sales revenue$ 63.9 $ 36.1 $ 27.8 77.0 % Same-store used retail sales revenue$ 41.9 $ 24.9 $ 17.0 68.3 % Used retail sales revenue per unit$ 49,735 $ 62,460 $ (12,725) (20.4) % Same-store used retail sales revenue per unit$ 50,229 $ 62,674 $ (12,445) (19.9) % Gross profit - used$ 0.8 $ 3.3 $ (2.5) (75.8) % Same-store gross profit - used$ 1.9 $ 1.9 $ - - % Average gross profit per used truck retailed$ 626 $ 5,684 $ (5,058) (89.0) % Same-store average gross profit per used truck retailed$ 2,252 $ 4,680 $ (2,428) (51.9) % Gross margin % - used 1.3 % 9.1 % (7.8) % (85.7) % Same-store gross margin % - used 4.5 % 7.6 % (3.1) % (40.8) % Units
Retail unit sales of used trucks increased from 2019 to 2020 due to a 436, or 109.5%, unit increase in same-store retail unit sales, coupled with a 270 unit increase from net dealership acquisitions. We believe the increase in used truck unit sales is due lower trucks prices from an oversupply of used trucks in the market, coupled with our digital marketing efforts. Revenues
Used commercial truck retail sales revenue increased from 2019 to 2020 due to a$17.0 million , or 68.3%, increase in same-store revenues, coupled with a$10.8 million increase from net dealership acquisitions. The same-store revenue increase is due to the increase in same-store used retail unit sales, which increased revenue by$22.0 million , partially offset by a$12,445 per unit decrease in comparative average selling prices, which decreased revenue by
$5.0 million . Gross Profit
Used commercial truck retail gross profit decreased$2.5 million , or 75.8%, from 2019 to 2020. Same-store gross profit remained flat due to the increase in same-store used retail unit sales, which increased gross profit by$1.0 million , offset by a$2,428 per unit decrease in average gross profit per used truck retailed, which decreased gross profit by$1.0 million . The decline in average gross profit per used truck retailed is attributable to an oversupply of used trucks in the market when compared to the same period in 2019. 2020 vs. 2019 Service and Parts Data 2020 2019 Change % Change Service and parts revenue$ 122.1 $ 154.6 $ (32.5) (21.0) %
Same-store service and parts revenue$ 86.9 $ 98.6 $ (11.7) (11.9) % Gross profit - service and parts$ 52.9 $ 55.2 $ (2.3) (4.2) % Same-store service and parts gross profit$ 35.3 $ 39.1 $ (3.8) (9.7) % Gross margin % - service and parts 43.3 % 35.7 % 7.6
% 21.3 % Same-store service and parts gross margin % 40.6 % 39.7 % 0.9 % 2.3 %
Revenues Service and parts revenue decreased$32.5 million , or 21.0%, from 2019 to 2020, including an$11.7 million , or 11.9%, decrease in same-store revenues. Customer pay work represents approximately 78.1% of PTG's service and parts revenue, largely due to the significant amount of retail sales of parts and accessories. The decrease in same-store revenue is due to a$10.2 million , or 12.5%, decrease in customer pay revenue, a$0.9 million , or 22.0%, decrease in body shop revenue, and a$0.6 million , or 4.8%, decrease in warranty revenue. The same-store decrease in service and parts is primarily due to the decline in new retail truck sales which correlates to service for certain customers, a change in fleet services revenue, as well as the COVID-19 pandemic as discussed above. 41 Table of Contents Gross Profit Service and parts gross profit decreased from 2019 to 2020 due to a$3.8 million , or 9.7%, decrease in same-store gross profit, partially offset by a$1.5 million increase from net dealership acquisitions. The same-store gross profit decrease is due to the decrease in same-store revenues, which decreased gross profit by$4.8 million , partially offset by a 0.9% increase in gross margin, which increased gross profit by$1.0 million . The same-store gross profit decrease is due to a$3.7 million , or 13.3%, decrease in customer pay gross profit, a$0.2 million , or 4.7%, decrease in body shop gross profit, and partially offset by a$0.1 million , or 1.6%, increase in warranty gross profit.
Commercial Vehicle Distribution Data
(In millions, except unit amounts)
2020 vs. 2019
Penske Australia Data 2020 2019 Change % Change
Vehicle unit sales 221 363 (142) (39.1) %
Sales revenue $ 122.7 $ 119.9 $ 2.8 2.3 %
Gross profit $ 33.7 $ 35.6 $ (1.9) (5.3) %
Our Penske Australia operations are primarily comprised of commercial vehicle,
engine, and power systems distribution. This business generated $122.7 million
of revenue during the three months ended September 30, 2020 , compared to $119.9
million of revenue in the prior year, an increase of 2.3%. These businesses
generated $33.7 million of gross profit during the three months ended September
30, 2020 , compared to $35.6 million of gross profit in the prior year, a
decrease of 5.3%.
The decrease in units is primarily due to the decline in the Australia and New
Zealand heavy-duty truck market. The increase in revenue from 2019 to 2020 is
largely attributable to the timing of completion of projects, delivery of
products, and favorable foreign exchange. Excluding $5.2 million of favorable
foreign currency fluctuations, revenues decreased 2.0%. Excluding $1.3 million
of favorable foreign currency fluctuations, gross profit decreased 9.0%.
Selling, General, and Administrative Data
(In millions)
2020 vs. 2019
Selling, General, and Administrative Data 2020 2019 Change % Change
Personnel expense $ 380.8 $ 391.7 $ (10.9) (2.8) %
Advertising expense $ 19.7 $ 32.3 $ (12.6) (39.0) %
Rent & related expense $ 78.9 $ 85.1 $ (6.2) (7.3) %
Other expense $ 163.9 $ 163.7 $ 0.2 0.1 %
Total SG&A expenses $ 643.3 $ 672.8 $ (29.5) (4.4) %
Same-store SG&A expenses $ 623.8 $ 644.9 $ (21.1) (3.3) %
Personnel expense as % of gross profit 39.8 % 45.0 % (5.2) % (11.6) % Advertising expense as % of gross profit 2.1 % 3.7 % (1.6) % (43.2) % Rent & related expense as % of gross profit 8.2 % 9.9 % (1.7) % (17.2) % Other expense as % of gross profit 17.2 % 18.8 % (1.6) % (8.5) % Total SG&A expenses as % of gross profit 67.3 % 77.4 % (10.1) % (13.0) % Same-store SG&A expenses as % of same-store gross profit 66.9 % 77.9 % (11.0) % (14.1) %
Selling, general, and administrative expenses ("SG&A") decreased from 2019 to
2020 due to a $21.1 million , or 3.3%, decrease in same-store SG&A, coupled with
an $8.4 million decrease from net dealership acquisitions/dispositions.
Excluding $11.8 million of favorable foreign currency fluctuations, same-store
SG&A decreased 5.1%. SG&A as a percentage of gross profit was 67.3%, a decrease
of 1,010 basis points compared to 77.4% in the prior year. SG&A expenses as a
percentage of total revenue was 10.8% and 11.3% in the three months ended
September 30, 2020 , and 2019, respectively. The decrease in SG&A is primarily
due to the employee reductions, temporary compensation reductions, government
assistance, and other expense reductions as discussed above under "COVID-19
Disclosure."
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Depreciation
(In millions)
2020 vs. 2019
2020 2019 Change % Change
Depreciation $ 29.0 $ 27.5 $ 1.5 5.5 %
The increase in depreciation from 2019 to 2020 is primarily due to a $1.8
million , or 6.6% increase in same-store depreciation, partially offset by a $0.3
million decrease from net dealership acquisitions/dispositions. The overall
increase is primarily related to our ongoing facility improvements and expansion
programs.
Floor Plan Interest Expense
(In millions)
2020 vs. 2019
2020 2019 Change % Change
Floor plan interest expense
Floor plan interest expense, including the impact of swap transactions, decreased$13.4 million from 2019 to 2020 primarily due to a$12.0 million , or 60.7%, decrease in same-store floor plan interest expense, coupled with a$1.4 million decrease from net dealership acquisitions/dispositions. The overall decrease is primarily due to decreases in amounts outstanding under floor plan arrangements and decreases in applicable rates. Other Interest Expense (In millions) 2020 vs. 2019 2020 2019 Change % Change Other interest expense$ 30.8 $ 32.9 $ (2.1) (6.4) %
The decrease in other interest expense from 2019 to 2020 is primarily due to the
decrease in outstanding revolver borrowings under the
Equity in Earnings of Affiliates
(In millions)
2020 vs. 2019
2020 2019 Change % Change
Equity in earnings of affiliates
The increase in equity in earnings of affiliates from 2019 to 2020 is primarily due to a$22.3 million , or 52.9%, increase in earnings from our investment in PTS, coupled with an increase in earnings from our retail automotive joint ventures. The increase in our PTS equity earnings is primarily due to improved operating results in full-service leasing and logistics and a reduction in
operating expenses.
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Income Taxes
(In millions)
2020 vs. 2019
2020 2019 Change % Change
Income taxes $ 64.1 $ 42.4 $ 21.7 51.2 %
Income taxes increased from 2019 to 2020 primarily due to a$153.2 million increase in our pre-tax income compared to the prior year, partially offset by a net income tax benefit of$15.4 million from variousU.S. and foreign tax legislation changes. Our effective tax rate was 20.6% during the three months endedSeptember 30, 2020 , compared to 26.8% during the three months endedSeptember 30, 2019 , primarily due to the income tax benefit discussed above as well as the fluctuations in our geographic pre-tax income mix.
Nine Months Ended
Retail Automotive Dealership New Vehicle Data
(In millions, except unit and per unit amounts)
2020 vs. 2019
New Vehicle Data 2020 2019 Change % Change
New retail unit sales 126,396 166,730 (40,334) (24.2) %Same-store new retail unit sales 126,298 161,575 (35,277) (21.8) % New retail sales revenue$ 5,599.8 $ 6,873.9 $ (1,274.1) (18.5) % Same-store new retail sales revenue$ 5,596.3 $ 6,720.4 $ (1,124.1) (16.7) % New retail sales revenue per unit$ 44,303 $ 41,227 $ 3,076 7.5 % Same-store new retail sales revenue per unit$ 44,310 $ 41,593 $
2,717 6.5 %
Gross profit - new $ 437.6 $ 511.8 $ (74.2) (14.5) %
Same-store gross profit - new $ 437.4 $ 498.7 $ (61.3) (12.3) %
Average gross profit per new vehicle
retailed $ 3,462 $ 3,069 $ 393 12.8 %
Same-store average gross profit per new
vehicle retailed $ 3,463 $ 3,086 $ 377 12.2 %
Gross margin % - new 7.8 % 7.4 % 0.4 % 5.4 %
Same-store gross margin % - new 7.8 % 7.4 %
0.4 % 5.4 %
Units
Retail unit sales of new vehicles decreased from 2019 to 2020 due to a 35,277
unit, or 21.8%, decrease in same-store new retail unit sales, coupled with a
5,057 unit decrease from net dealership dispositions. Same-store units decreased
18.4% in the
Revenues New vehicle retail sales revenue decreased from 2019 to 2020 due to a$1,124.1 million , or 16.7%, decrease in same-store revenues, coupled with a$150.0 million decrease from net dealership dispositions. Excluding$11.2 million of favorable foreign currency fluctuations, same-store new retail revenue decreased 16.9%. The same-store revenue decrease is due to the decrease in same-store new retail unit sales, which decreased revenue by$1,467.3 million , partially offset by a$2,717 per unit increase in comparative average selling prices (including an$89 per unit increase attributable to favorable foreign currency fluctuations), which increased revenue by$343.2 million . Gross Profit
Retail gross profit from new vehicle sales decreased from 2019 to 2020 due to a$61.3 million , or 12.3%, decrease in same-store gross profit, coupled with a$12.9 million decrease from net dealership dispositions. Excluding$1.0 million of favorable foreign currency fluctuations, same-store gross profit decreased 12.5%. The decrease in same-store gross 44
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profit is due to the decrease in same-store new retail unit sales, which decreased gross profit by$108.9 million , partially offset by a$377 per unit increase in the average gross profit per new vehicle retailed (including a$7 per unit increase attributable to favorable foreign currency fluctuations), which increased gross profit by$47.6 million . The increase in same-store gross profit per new vehicle retailed is partially attributed to limited availability of inventory from our manufacturers as discussed above.
Retail Automotive Dealership Used Vehicle Data
(In millions, except unit and per unit amounts)
2020 vs. 2019
Used Vehicle Data 2020 2019 Change % Change
Used retail unit sales 176,456 218,906 (42,450) (19.4) %Same-store used retail unit sales 173,104 212,535 (39,431) (18.6) % Used retail sales revenue$ 4,739.8 $ 5,529.2 $ (789.4) (14.3) % Same-store used retail sales revenue$ 4,681.8 $ 5,391.9 $ (710.1) (13.2) % Used retail sales revenue per unit$ 26,861 $ 25,258 $ 1,603 6.3 % Same-store used retail sales revenue per unit$ 27,046 $ 25,369 $ 1,677 6.6 % Gross profit - used$ 284.9 $ 284.2 $ 0.7 0.2 % Same-store gross profit - used$ 281.9 $ 281.6 $ 0.3 0.1 % Average gross profit per used vehicle retailed$ 1,615 $ 1,298 $ 317 24.4 % Same-store average gross profit per used vehicle retailed$ 1,628 $ 1,325 $ 303 22.9 % Gross margin % - used 6.0 % 5.1 % 0.9 % 17.6 % Same-store gross margin % - used 6.0 % 5.2 %
0.8 % 15.4 %
Units
Retail unit sales of used vehicles decreased from 2019 to 2020 due to a 39,431
unit, or 18.6%, decrease in same-store used retail unit sales, coupled with a
3,019 unit decrease from net dealership dispositions. Same-store units decreased
15.4% in the U.S. and decreased 21.2% internationally. Same-store retail units
for our U.S. and U.K. Used Vehicle SuperCenters decreased 28.9% and 31.6%.
Overall, used units decreased 14.8% in the U.S. and decreased 23.1%
internationally. The decrease in units is primarily due to the decline in our
retail automotive business resulting from the COVID-19 pandemic as well as the
limited availability of inventory from our manufacturers as discussed above.
Revenues
Used vehicle retail sales revenue decreased from 2019 to 2020 due to a $710.1
million , or 13.2%, decrease in same-store revenues, coupled with a $79.3 million
decrease from net dealership dispositions. Excluding $31.1 million of favorable
foreign currency fluctuations, same-store used retail revenue decreased 13.7%.
The same-store revenue decrease is primarily due to a decrease in same-store
used retail unit sales, which decreased revenue by $1,000.4 million , partially
offset by a $1,677 per unit increase in comparative average selling prices
(including a $180 per unit increase attributable to favorable foreign currency
fluctuations), which increased revenue by $290.3 million . The average sales
price per unit for our Used Vehicle SuperCenters increased 8.1% to $15,655 .Gross Profit
Retail gross profit from used vehicle sales increased from 2019 to 2020 due to a$0.4 million increase from net dealership dispositions, coupled with a$0.3 million , or 0.1%, increase in same-store gross profit. Excluding$2.5 million of favorable foreign currency fluctuations, same-store gross profit decreased 0.8%. The increase in same-store gross profit is due to a$303 per unit increase in average gross profit per used vehicle retailed (including a$14 per unit increase attributable to favorable foreign currency fluctuations), which increased gross profit by$52.5 million , partially offset by the decrease in same-store used retail unit sales, which decreased gross profit by$52.2 million . The average gross profit per unit for our Used Vehicle SuperCenters increased 11.9% to$912 . The increase in average gross profit per used vehicle retailed is primarily due to lower inventory availability of new vehicles, which increased demand for used vehicles, and improved vehicle sourcing in our Used Vehicle SuperCenters. 45 Table of Contents
Retail Automotive Dealership Finance and Insurance Data
(In millions, except unit and per unit amounts)
2020 vs. 2019Finance and Insurance Data 2020 2019 Change % Change Total retail unit sales 302,852 385,636 (82,784) (21.5) % Total same-store retail unit sales 299,402 374,110 (74,708) (20.0) % Finance and insurance revenue$ 415.8 $ 491.5 $ (75.7) (15.4) % Same-store finance and insurance revenue$ 411.9 $ 482.6 $ (70.7) (14.6) % Finance and insurance revenue per unit$ 1,373 $ 1,275 $ 98 7.7 % Same-store finance and insurance revenue per unit$ 1,376 $ 1,290
$ 86 6.7 % Finance and insurance revenue decreased from 2019 to 2020 due to a$70.7 million , or 14.6%, decrease in same-store revenues, coupled with a$5.0 million decrease from net dealership dispositions. Excluding$1.8 million of favorable foreign currency fluctuations, same-store finance and insurance revenue decreased 15.0%. The same-store revenue decrease is due to the decrease in same-store retail unit sales, which decreased revenue by$96.4 million , partially offset by an$86 per unit increase in comparative average finance and insurance revenue per unit (including a$6 per unit increase attributable to favorable foreign currency fluctuations), which increased revenue by$25.7 million . Finance and insurance revenue per unit increased 6.9% in theU.S. and 7.6% in theU.K. We believe the increase in same-store finance and insurance revenue per unit is primarily due to our efforts to increase finance and insurance revenue, which include implementing interactive digital customer sales platforms, additional training, and targeting underperforming locations.
Retail Automotive Dealership Service and Parts Data
(In millions)
2020 vs. 2019
Service and Parts Data 2020 2019 Change % Change
Service and parts revenue $ 1,380.3 $ 1,654.0 $ (273.7) (16.5) %Same-store service and parts revenue$ 1,378.4 $ 1,619.1 $ (240.7) (14.9) % Gross profit - service and parts$ 827.0 $ 981.4 $ (154.4) (15.7) % Same-store service and parts gross profit$ 825.1 $ 960.5 $ (135.4) (14.1) % Gross margin % - service and parts 59.9 % 59.3 % 0.6 % 1.0 % Same-store service and parts gross margin % 59.9 % 59.3 %
0.6 % 1.0 %
Revenues
Service and parts revenue decreased from 2019 to 2020, with a decrease of 14.6%
in the U.S. and 20.3% internationally. The decrease in service and parts revenue
is due to a $240.7 million , or 14.9%, decrease in same-store revenues, coupled
with a $33.0 million decrease from net dealership dispositions. Excluding $3.5
million of favorable foreign currency fluctuations, same-store service and parts
revenue decreased 15.1%. The decrease in same-store revenue is due to a $147.8
million , or 13.6%, decrease in customer pay revenue, a $71.1 million , or 17.0%,
decrease in warranty revenue, and a $21.8 million , or 19.8%, decrease in vehicle
preparation and body shop revenue. The decrease in service and parts revenue is
primarily due to the significant decline in our retail automotive business
resulting from the COVID-19 pandemic as discussed above.
Gross Profit
Service and parts gross profit decreased from 2019 to 2020 due to a$135.4 million , or 14.1%, decrease in same-store gross profit, coupled with a$19.0 million decrease from net dealership dispositions. Excluding$2.3 million of favorable foreign currency fluctuations, same-store gross profit decreased 14.3%. The same-store gross profit decrease is due to the decrease in same-store revenues, which decreased gross profit by$144.2 million , partially offset by a 0.6% increase in gross margin, which increased gross profit by$8.8 million . The same-store gross profit decrease is due to a$66.8 million , or 12.8%, decrease in customer pay gross profit, a$35.5 million , or 16.5%, decrease in vehicle preparation and body shop gross profit, and a$33.1 million , or 14.9%, decrease in warranty gross profit. 46 Table of Contents
Retail Commercial Truck Dealership Data
(In millions, except unit and per unit amounts)
2020 vs. 2019
New Commercial Truck Data 2020 2019 Change % Change
New retail unit sales 8,070 8,688 (618) (7.1) %
Same-store new retail unit sales 5,142 6,940 (1,798) (25.9) %
New retail sales revenue $ 930.4 $ 979.6 $ (49.2) (5.0) %
Same-store new retail sales revenue $ 595.3 $ 772.6 $ (177.3) (22.9) %
New retail sales revenue per unit $ 115,286 $ 112,746 $ 2,540 2.3 %
Same-store new retail sales revenue per
unit $ 115,765 $ 111,326 $ 4,439 4.0 %
Gross profit - new $ 34.4 $ 43.8 $ (9.4) (21.5) %
Same-store gross profit - new $ 21.8 $ 32.8 $ (11.0) (33.5) %
Average gross profit per new truck
retailed $ 4,265 $ 5,038 $ (773) (15.3) %
Same-store average gross profit per new
truck retailed $ 4,242 $ 4,732 $ (490) (10.4) %
Gross margin % - new 3.7 % 4.5 % (0.8) % (17.8) %
Same-store gross margin % - new 3.7 % 4.2 % (0.5) % (11.9) %
Units
Retail unit sales of new trucks decreased from 2019 to 2020 due to a 1,798, or 25.9%, decrease in same-store retail unit sales, partially offset by a 1,180 unit increase from net dealership acquisitions. Same-store new truck units decreased largely due to a 35.6% decrease in the North American Class 6-8 heavy-duty truck market retail sales during the nine months ended September
30, 2020. Revenues New commercial truck retail sales revenue decreased from 2019 to 2020 due to a$177.3 million , or 22.9%, decrease in same-store revenues, partially offset by a$128.1 million increase from net dealership acquisitions. The decrease in same-store revenue is due to the decrease in same-store new retail unit sales, which decreased revenue by$200.1 million , partially offset by a$4,439 per unit increase in comparative average selling prices, which increased revenue by
$22.8 million . Gross Profit
New commercial truck retail gross profit decreased from 2019 to 2020 due to an$11.0 million , or 33.5%, decrease in same-store gross profit, partially offset by a 1.6 million increase from net dealership acquisitions. The decrease in same-store gross profit is due to the decrease in same-store new retail unit sales, which decreased gross profit by$8.5 million , coupled with a$490 per unit decrease in average gross profit per new truck retailed, which decreased gross profit by$2.5 million . 47 Table of Contents 2020 vs. 2019 Used Commercial Truck Data 2020 2019 Change % Change Used retail unit sales 2,755 1,435 1,320 92.0 % Same-store used retail unit sales 1,849 1,255 594 47.3 % Used retail sales revenue$ 135.4 $ 87.8 $ 47.6 54.2 % Same-store used retail sales revenue$ 91.1 $ 76.7 $ 14.4 18.8 % Used retail sales revenue per unit$ 49,141 $ 61,248 $ (12,107) (19.8) % Same-store used retail sales revenue per unit$ 49,270 $ 61,142 $ (11,872) (19.4) % Gross profit - used$ (4.5) $ 8.9 $ (13.4) (150.6) % Same-store gross profit - used$ 1.2 $ 7.5 $ (6.3) (84.0) % Average gross profit per used truck retailed$ (1,645) $ 6,211 $ (7,856) (126.5) % Same-store average gross profit per used truck retailed$ 623 5,968$ (5,345) (89.6) % Gross margin % - used (3.3) % 10.1 % (13.4) % (132.7) % Same-store gross margin % - used 1.3 % 9.8 % (8.5) % (86.7) % Units Retail unit sales of used trucks increased from 2019 to 2020 due to a 726 unit increase from net dealership acquisitions, coupled with a 594, or 47.3%, unit increase in same-store retail unit sales. We believe the increase in used truck unit sales is due lower trucks prices from an oversupply of used trucks in the market, coupled with our digital marketing efforts. Revenues
Used commercial truck retail sales revenue increased from 2019 to 2020 due to a$33.2 million increase from net dealership acquisitions, coupled with a$14.4 million , or 18.8%, increase in same-store revenues. The same-store revenue increase is due to the increase in same-store used retail unit sales, which increased revenue by$29.3 million , partially offset by an$11,872 per unit decrease in comparative average selling prices, which decreased revenue by
$14.9 million . Gross Profit Used commercial truck retail gross profit decreased$13.4 million , or 150.6%, from 2019 to 2020, including a$6.3 million , or 84.0%, decrease in same-store gross profit. The decrease in same-store gross profit is due to a$5,345 per unit decrease in average gross profit per used truck retailed, which decreased gross profit by$6.7 million , partially offset by the increase in same-store used retail unit sales, which increased gross profit by$0.4 million . The decline in average gross profit per used truck retailed is attributable to an oversupply of used trucks in the market when compared to the same period in
2019.
2020 vs. 2019
Service and Parts Data 2020 2019 Change % Change
Service and parts revenue $ 358.1 $ 340.7 $ 17.4 5.1 %Same-store service and parts revenue$ 248.8 $ 284.4 $ (35.6) (12.5) % Gross profit - service and parts$ 155.4 $ 128.6 $ 26.8 20.8 % Same-store service and parts gross profit$ 100.7 $ 112.4 $ (11.7) (10.4) % Gross margin % - service and parts 43.4 % 37.7 % 5.7
% 15.1 % Same-store service and parts gross margin % 40.5 % 39.5 % 1.0 % 2.5 %
Revenues Service and parts revenue increased from 2019 to 2020 due to a$53.0 million increase from net dealership acquisitions, partially offset by a$35.6 million , or 12.5%, decrease in same-store revenues. Customer pay work represents approximately 77.2% of PTG's service and parts revenue, largely due to the significant amount of retail sales of parts and accessories. The decrease in same-store revenue is due to a$32.7 million , or 13.7%, decrease in customer pay revenue, a$2.0 million , or 5.6%, decrease in warranty revenue, and a$0.9 million , or 8.3%, decrease in body shop revenue. The same-store decrease in service and parts is primarily due to the decline in new retail truck sales
which
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correlates to service for certain customers, a change in fleet services revenue, as well as the COVID-19 pandemic as discussed above.
Gross Profit Service and parts gross profit increased from 2019 to 2020 due to a$38.5 million increase from net dealership acquisitions, partially offset by an$11.7 million , or 10.4%, decrease in same-store gross profit. The same-store gross profit decrease is due to the decrease in same-store revenues, which decreased gross profit by$14.4 million , partially offset by a 1.0% increase in gross margin, which increased gross profit by$2.7 million . The same-store gross profit decrease is due to an$11.3 million , or 13.9%, decrease in customer pay gross profit and a$0.4 million , or 2.2%, decrease in warranty gross profit.
Commercial Vehicle Distribution Data
(In millions, except unit amounts)
2020 vs. 2019
Penske Australia Data 2020 2019 Change % Change
Vehicle unit sales 693 1,292 (599) (46.4) %
Sales revenue $ 322.2 $ 393.5 $ (71.3) (18.1) %
Gross profit $ 89.9 $ 105.6 $ (15.7) (14.9) %
Our Penske Australia operations are primarily comprised of commercial vehicle,
engine, and power systems distribution. This business generated $322.2 million
of revenue during the nine months ended September 30, 2020 , compared to $393.5
million of revenue in the prior year, a decrease of 18.1%. These businesses
generated $89.9 million of gross profit during the nine months ended September
30, 2020 , compared to $105.6 million of gross profit in the prior year, a
decrease of 14.9%.
The decrease in units is primarily due to the decline in the Australian
heavy-duty truck market. The decline in revenue from 2019 to 2020 is largely
attributable to the decline in the Australian and New Zealand heavy-duty truck
market, including significant declines due to the COVID-19 pandemic as discussed
above. Excluding $10.0 million of unfavorable foreign currency fluctuations,
revenues decreased 15.6%. Excluding $2.9 million of unfavorable foreign currency
fluctuations, gross profit decreased 12.1%.
Selling, General, and Administrative Data
(In millions)
2020 vs. 2019Selling, General, and Administrative Data 2020 2019
Change % Change Personnel expense$ 1,008.4 $ 1,174.4 $ (166.0) (14.1) % Advertising expense$ 58.3 $ 84.2 $ (25.9) (30.8) % Rent & related expense$ 236.4 $ 253.5 $ (17.1) (6.7) % Other expense$ 435.6 $ 496.0 $ (60.4) (12.2) % Total SG&A expenses$ 1,738.7 $ 2,008.1 $ (269.4) (13.4) % Same store SG&A expenses$ 1,677.9 $ 1,946.6 $ (268.7) (13.8) %
Personnel expense as % of gross profit 44.1 % 45.4 % (1.3) % (2.9) % Advertising expense as % of gross profit 2.6 % 3.3 % (0.7) % (21.2) % Rent & related expense as % of gross profit 10.3 % 9.8 % 0.5 % 5.1 % Other expense as % of gross profit 19.1 % 19.1 % - % - % Total SG&A expenses as % of gross profit 76.1 % 77.6 % (1.5) % (1.9) % Same store SG&A expenses as % of same store gross profit 75.6 % 77.4
% (1.8) % (2.3) %
Selling, general, and administrative expenses ("SG&A") decreased from 2019 to
2020 due to a $268.7 million , or 13.8%, decrease in same-store SG&A, coupled
with a $0.7 million decrease from net dealership acquisitions/dispositions.
Excluding $0.9 million of favorable foreign currency fluctuations, same-store
SG&A decreased 13.8%. SG&A as a percentage of gross profit was 76.1%, a decrease
of 150 basis points compared to 77.6% in
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the prior year. SG&A expenses as a percentage of total revenue was 11.9% and 11.6% in the nine months endedSeptember 30, 2020 , and 2019, respectively. The decrease in SG&A is primarily due to the employee reductions, temporary compensation reductions, government assistance, and other expense reductions as discussed above under "COVID-19 Disclosure.". Depreciation (In millions) 2020 vs. 2019 2020 2019 Change % Change Depreciation$ 85.4 $ 81.0 $ 4.4 5.4 % The increase in depreciation from 2019 to 2020 is primarily due to a$4.7 million , or 6.0%, increase in same-store depreciation, partially offset by a$0.3 million decrease from net acquisitions/dispositions. The overall increase is primarily related to our ongoing facility improvements and expansion programs. Floor Plan Interest Expense (In millions) 2020 vs. 2019 2020 2019 Change % Change Floor plan interest expense$ 37.4 $ 64.2 $ (26.8) (41.7) % Floor plan interest expense, including the impact of swap transactions, decreased$26.8 million from 2019 to 2020 primarily due to a$26.3 million , or 42.6%, decrease in same-store floor plan interest expense, coupled with a$0.5 million decrease from net dealership acquisitions/dispositions. The overall decrease is primarily due to decreases in amounts outstanding under floor plan arrangements and decreases in applicable rates. Other Interest Expense (In millions) 2020 vs. 2019 2020 2019 Change % Change Other interest expense$ 90.9 $ 93.2 $ (2.3) (2.5) %
The decrease in other interest expense from 2019 to 2020 is primarily due the
decrease in outstanding revolver borrowings under the
Equity in Earnings of Affiliates
(In millions)
2020 vs. 2019
2020 2019 Change % Change
Equity in earnings of affiliates
The increase in equity in earnings of affiliates from 2019 to 2020 is primarily due to a$2.0 million , or 1.9%, increase in earnings from our investment in PTS, partially offset by the decrease in earnings from our retail automotive joint ventures. For the nine months endedSeptember 30, 2019 , PTS' results include the favorable affirmation of PTS' position in a litigation matter, which increased our equity earnings by$3.3 million . 50 Table of Contents Income Taxes (In millions) 2020 vs. 2019 2020 2019 Change % Change Income taxes$ 100.7 $ 118.6 $ (17.9) (15.1) % Income taxes decreased from 2019 to 2020 primarily due to a$7.8 million decrease in our pre-tax income compared to the prior year, coupled with a net income tax benefit of$15.4 million from variousU.S. and foreign tax legislation changes. Our effective tax rate was 22.7% during the nine months endedSeptember 30, 2020 , compared to 26.2% during the nine months endedSeptember 30, 2019 , primarily due to the income tax benefit discussed above as well as the fluctuations in our geographic pre-tax income mix.
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, including two additional Used Vehicle SuperCenters we expect to open in the next 90 days and four additional sites under development, the purchase or construction of new facilities, debt service and repayments, dividends and potential 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, and dividends and distributions from joint venture investments. We have historically expanded our operations through organic growth and the acquisition of dealerships and other businesses. We believe that cash flow from operations, dividends and distributions 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 existing operations and current commitments for at least the next twelve months. In the event that economic conditions remain impacted for longer than we expect due to the COVID-19 pandemic, we pursue significant acquisitions or other expansion opportunities, pursue significant repurchases of our outstanding securities, or refinance or repay existing debt, 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. As ofSeptember 30, 2020 , we had$92.7 million of cash available to fund our operations and capital commitments. In addition, we had$800.0 million , £162.0 million ($209.4 million ), and AU$50.0 million ($35.8 million ) available for borrowing under ourU.S. credit agreement,U.K. credit agreement, and Australian working capital loan agreement, respectively. We amended ourU.S. credit agreement to provide for an additional$100 million of borrowing capacity effectiveAugust 1, 2020 . Securities Repurchases From time to time, our Board of Directors has authorized securities repurchase programs pursuant to which we may, as market conditions warrant, purchase our outstanding common stock or debt on the open market, in privately negotiated transactions, via a tender offer, or through a pre-arranged trading plan. We have historically funded any such repurchases using cash flow from operations, borrowings under ourU.S. credit agreement, and borrowings under ourU.S. floor plan arrangements. 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 our consideration of any alternative uses of our capital, such as for acquisitions and strategic investments in our current businesses, in addition to any then-existing limits imposed by our finance agreements and securities trading policy. As ofSeptember 30, 2020 , we have$170.6 million in repurchase authorization under the existing securities repurchase program. Refer to the disclosures provided in Part I, Item 1, Note 13 of the Notes to our Consolidated Condensed Financial Statements for a summary of shares repurchased under our securities repurchase program during the nine months endedSeptember 30, 2020 . 51 Table of Contents Dividends
We paid the following cash dividends on our common stock in 2019 and 2020:
Per Share Dividends
2019
First Quarter $ 0.38
Second Quarter 0.39
Third Quarter 0.40
Fourth Quarter 0.41
2020
First Quarter $ 0.42
Second Quarter $ -
Third Quarter $ -
In May 2020 , our Board of Directors suspended our cash dividend. We previously
paid a quarterly dividend of $0.42 per share to shareholders on March 3, 2020 .
On October 14, 2020 , we announced the reinstatement of our cash dividend in the
amount of $0.42 per share payable December 1, 2020 to shareholders of record as
of November 10, 2020 . Future quarterly or other cash dividends will depend upon
a variety of factors considered relevant by our Board of Directors, which may
include our expectations regarding the severity and duration of the COVID-19
pandemic, our earnings, cash flow, capital requirements, restrictions relating
to any then-existing indebtedness, financial condition, and other factors.Vehicle Financing
Refer to the disclosures provided in Part I, Item 1, Note 8 of the Notes to our Consolidated Condensed Financial Statements for a detailed description of financing for the vehicles we purchase, including discussion of our floor plan and other revolving arrangements. Long-Term Debt Obligations As ofSeptember 30, 2020 , we had the following long-term debt obligations outstanding which includes$550 million in aggregate principal amount of 3.50% senior subordinated notes due 2025 issued inAugust 2020 , the proceeds of which were used to redeem our$550 million in aggregate principal amount of 5.75% senior subordinated notes due 2022 onOctober 1 (which redemption is not reflected in this table): September 30, (In millions) 2020 U.S. credit agreement - revolving credit line $ - U.K. credit agreement - revolving credit line - U.K. credit agreement - overdraft line of credit - 5.75% senior subordinated notes due 2022 550.0 5.375% senior subordinated notes due 2024 298.4 3.50% senior subordinated notes due 2025 542.9 5.50% senior subordinated notes due 2026 496.2 Australia capital loan agreement 30.7 Australia working capital loan agreement - Mortgage facilities 333.8 Other 49.7 Total long-term debt$ 2,301.7 52 Table of Contents As ofSeptember 30, 2020 , we were in compliance with all covenants under our credit agreements and we believe we will remain in compliance with such covenants for the next twelve months. Refer to the disclosures provided in Part I, Item 1, Note 10 of the Notes to our Consolidated Condensed Financial Statements for a detailed description of our long-term debt obligations. Short-Term Borrowings We have four principal sources of short-term borrowings: the revolving portion of theU.S. credit agreement, the revolving portion of theU.K. credit agreement, our Australian working capital loan agreement, and the floor plan agreements that we utilize to finance our vehicle inventories. We are also able to access availability under the floor plan agreements to fund our cash needs, including payments made relating to our higher interest rate revolving credit agreements. During the nine months endedSeptember 30, 2020 , outstanding revolving commitments varied between$0.0 million and$350.0 million under theU.S. credit agreement, between £0.0 million and £140.0 million ($0.0 million and$180.9 million ) under theU.K. credit agreement's revolving credit line (excluding the overdraft facility), and between AU$0.0 million and AU$20.0 million ($0.0 million and$14.3 million ) under theAustralia working capital loan agreement. The amounts outstanding under our floor plan agreements varied based on the timing of the receipt and expenditure of cash in our operations, driven principally by the levels of our vehicle inventories. Interest Rate Swaps The Company periodically uses interest rate swaps to manage interest rate risk associated with the Company's variable rate floor plan debt. InApril 2020 , we entered into a new five-year interest rate swap agreement pursuant to which the LIBOR portion of$300.0 million of ourU.S. floating rate floor plan debt is fixed at 0.5875%. This arrangement is in effect throughApril 2025 . We may terminate this arrangement at any time, subject to the settlement at that time of the fair value of the swap arrangement. As ofSeptember 30, 2020 , the fair value of the swap designated as hedging instruments was estimated to be a net liability of$5.4 million . PTS Dividends
We hold a 28.9% ownership interest in PTS as noted above. Their partnership agreement requires PTS, subject to applicable law and the terms of its credit agreements, to make quarterly distributions to the partners with respect to each fiscal year by no later than 45 days after the end of each of the first three quarters of the year and byApril 15 of the following year. PTS' principal debt agreements allow partner distributions only as long as they are not in default under that agreement and the amount they pay does not exceed 50% of its consolidated net income. We receive pro rata cash distributions relating to this investment, typically in April, May, August and November of each year. During the nine months endedSeptember 30, 2020 , and 2019, we received$40.0 million and$50.8 million , respectively, of pro rata cash distributions relating to this investment. We currently expect to continue to receive future distributions from PTS quarterly, subject to its financial performance.
Sale/Leaseback Arrangements
We have in the past and may in the future enter into sale-leaseback transactions to finance certain property acquisitions and capital expenditures, pursuant to which we sell property and/or leasehold improvements to third parties and agree to lease those assets back for a certain period of time. Such sales generate proceeds that vary from period to period. Operating Leases As ofSeptember 30, 2020 , we were in compliance with all financial covenants under our operating leases consisting principally of leases for dealership and other properties, and we believe we will remain in compliance with such covenants for the next twelve months. Refer to the disclosures provided in Part I, Item 1, Note 3 and Note 12 of the Notes to our Consolidated Condensed Financial Statements for a description of our operating leases. 53 Table of Contents
Off-Balance Sheet Arrangements
Refer to the disclosures provided in Part I, Item 1, Note 12 of the Notes to our Consolidated Condensed Financial Statements for a description of our off-balance sheet arrangements, which include lease obligations and a repurchase commitment related to our floor plan credit agreement withMercedes Benz Financial Services Australia .
Supplemental Guarantor Financial Information
The following is a description of the terms and conditions of the guarantees with respect to senior subordinated notes ofPenske Automotive Group, Inc. ("PAG") as the issuer of the 5.75% Notes, the 5.375% Notes, the 3.50% Notes, and the 5.50% Notes (collectively the "Senior Subordinated Notes"). Each of the Senior Subordinated Notes are our unsecured, senior subordinated obligations and are guaranteed on an unsecured senior subordinated basis by our 100% ownedU.S. subsidiaries. Each also contain customary negative covenants and events of default. If we experience certain "change of control" events specified in the indentures, holders of these notes will have the option to require us to purchase for cash all or a portion of their notes at a price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest. In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the notes at a price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest. Guarantor subsidiaries are directly or indirectly 100% owned by PAG, and the guarantees are full and unconditional, and joint and several. The guarantees may be released under certain circumstances upon resale, or transfer by us of the stock of the related guarantor or all or substantially all of the assets of the guarantor to a non-affiliate. Non-wholly owned and foreign subsidiaries of PAG do not guarantee the Senior Subordinated Notes ("Non-Guarantor Subsidiaries"). The following tables present summarized financial information for PAG and the Guarantor Subsidiaries on a combined basis. The financial information of issuers and guarantors is presented on a combined basis; intercompany balances and transactions between issuers and guarantors have been eliminated; the issuer's or guarantor's amounts due from, amounts due to, and transactions with non-issuer and non-guarantor subsidiaries and related parties are disclosed separately.
Condensed income statement information:
PAG and Guarantor Subsidiaries
Nine Months Ended Twelve Months Ended
September 30, 2020 December 31, 2019
Revenues $ 8,251.1 $ 12,928.8
Gross profit 1,376.0 2,019.2Equity in earnings of affiliates 108.0 142.4 Income from continuing operations 244.2 318.8 Net income 244.4 319.2 Net income attributable to Penske Automotive Group 244.4
319.2
Condensed balance sheet information:
PAG and Guarantor Subsidiaries
September 30, 2020 December 31, 2019
Current assets (1) $ 2,619.7 $ 3,157.5
Property and equipment, net 1,116.0 1,104.9
Equity method investments 1,393.6 1,328.8
Other noncurrent assets 3,204.2 3,230.9
Current liabilities 1,662.6 2,684.2
Noncurrent liabilities 4,478.3 4,175.3
(1) Includes
December 31, 2019 , respectively, due from Non-Guarantors. 54 Table of Contents
During the nine months endedSeptember 30, 2020 , PAG received$57.6 million from non-guarantor subsidiaries. During the twelve months endedDecember 31, 2019 , PAG received$77.3 million in distributions from non-guarantor subsidiaries. Cash Flows The following table summarizes the changes in our cash provided by (used in) operating, investing, and financing activities. The major components of these changes are discussed below. Nine Months Ended September 30, (In millions) 2020 2019
Net cash provided by continuing operating activities $ 849.5 $ 660.8 Net cash used in continuing investing activities (88.6) (503.4) Net cash used in continuing financing activities (704.3) (119.0) Net cash provided by discontinued operations 0.2 0.2 Effect of exchange rate changes on cash and cash equivalents 7.8 (0.5) Net change in cash and cash equivalents $
64.6 $ 38.1
Cash Flows from Continuing Operating Activities
Cash flows from continuing operating activities includes net income, as adjusted for non-cash items and the effects of changes in working capital. Our cash flows from continuing operating activities were positively impacted during the nine months endedSeptember 30, 2020 , due to deferrals of floorplan interest, sales and use tax, and mortgage interest resulting from the COVID-19 related relief provided by our lenders and government jurisdictions. We finance substantially all of the commercial vehicles we purchase for distribution, new vehicles for retail sale, and a portion of our used vehicle inventories for retail sale, under floor plan and other revolving arrangements with various lenders, including the captive finance companies associated with automotive manufacturers. We retain the right to select which, if any, financing source to utilize in connection with the procurement of vehicle inventories. Many vehicle manufacturers provide vehicle financing for the dealers representing their brands; however, it is not a requirement that we utilize this financing. Historically, our floor plan finance source has been based on aggregate pricing considerations. In accordance with generally accepted 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, all floor plan notes payable relating to pre-owned vehicles, and all floor plan notes payable related to our commercial vehicles inAustralia and New Zealand , as a financing activity in our statement of cash flows. Currently, the majority of our non-trade vehicle financing is with other manufacturer captive lenders. To date, we have not experienced any material limitation with respect to the amount or availability of financing from any institution providing us vehicle financing. We 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 prepare the following reconciliation to highlight our operating cash flows with all changes in vehicle floor plan being classified as an operating activity for informational purposes: Nine Months Ended September 30, (In millions) 2020 2019
Net cash from continuing operating activities as reported $ 849.5
(547.6) (18.0)
Net cash from continuing operating activities including all
floor plan notes payable $ 301.9 $ 642.8
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Cash Flows from Continuing Investing Activities
Cash flows from continuing investing activities consist primarily of cash used for capital expenditures, proceeds from the sale of dealerships, proceeds from sale of equipment and improvements, and net expenditures for acquisitions and other investments. Capital expenditures were$114.3 million and$188.8 million during the nine months endedSeptember 30, 2020 , and 2019, respectively. Capital expenditures relate primarily to improvements to our existing dealership facilities, the construction of new facilities, the acquisition of the property or buildings associated with existing leased facilities, and the acquisition of land for future development. We currently expect to finance our retail automotive segment and retail commercial truck segment capital expenditures with operating cash flows or borrowings under ourU.S. orU.K. credit agreements. Proceeds from the sale of dealerships were$10.3 million and$7.3 million during the nine months endedSeptember 30, 2020 , and 2019, respectively. Proceeds from the sale of equipment and improvements were$19.8 million and$5.1 million during the nine months endedSeptember 30, 2020 , and 2019, respectively. We had no cash used in acquisitions and other investments, net of cash acquired, for the nine months endedSeptember 30, 2020 , compared to$326.9 million during the nine months endedSeptember 30, 2019 .
Cash Flows from Continuing Financing Activities
Cash flows from continuing financing activities include issuance and net borrowings or repayments of long-term debt, net borrowings or repayments of floor plan notes payable non-trade, repurchases of common stock, and dividends.
We issued$550.0 million of senior subordinated notes due 2025 inAugust 2020 and repaid$300.0 million of senior subordinated notes dueAugust 15, 2020 . We had net repayments of other long-term debt of$298.7 million and net borrowings of$170.3 million during the nine months endedSeptember 30, 2020 , and 2019, respectively. We had net repayments of floor plan notes payable non-trade of$547.6 million and$18.0 million during the nine months endedSeptember 30, 2020 , and 2019, respectively. We repurchased common stock for a total of$29.4 million and$174.1 million during the nine months endedSeptember 30, 2020 , and 2019, respectively. We also paid cash dividends to our stockholders of$34.2 million and$97.3 million during the nine months endedSeptember 30, 2020 , and 2019, respectively. During the nine months endedSeptember 30, 2020 , we made payments of$31.6 million to settle contingent consideration to sellers related to previous acquisitions and$7.8 million for deferred financing fees.
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. Management does not believe that there is any material past, present, or upcoming cash transactions relating to discontinued operations. Related Party Transactions Stockholders Agreement Several of our directors and officers are affiliated withPenske Corporation or related entities.Roger S. Penske , our Chair of the Board and Chief Executive Officer, is also Chair of the Board and Chief Executive Officer ofPenske Corporation , and through entities affiliated withPenske Corporation , our largest stockholder owning approximately 44% 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 ofPenske Corporation are parties to a stockholders agreement pursuant to which the Penske affiliated companies agreed to vote their shares for up to two directors who are representatives 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 inMarch 2030 , 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
Robert Kurnick , Jr., our President and a director, is also the Vice Chair and a director ofPenske Corporation .Bud Denker , our Executive Vice President, Human Resources, is also the President ofPenske Corporation .Greg Penske , one of our directors, is the son of our chair and is also a director ofPenske Corporation .Michael Eisenson , one of our 56
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directors, is also a director of
We sometimes pay to and/or receive fees fromPenske Corporation , its subsidiaries, and its affiliates, for services rendered in the ordinary course of business or to reimburse payments made to third parties on each other's behalf. These transactions are reviewed periodically by our Audit Committee and reflect the provider's cost or an amount mutually agreed upon by both parties. We own a 28.9% interest in PTS. PTS, discussed previously, is owned 41.1% byPenske Corporation , 28.9% by us, and 30.0% by Mitsui. 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 ofSeptember 30, 2020 , our retail automotive joint venture relationships included: Location Dealerships Ownership Interest Fairfield, Connecticut Audi, Mercedes-Benz, Sprinter, Porsche 80.00 % (A) Greenwich, Connecticut Mercedes-Benz 80.00 % (A) Edison, New Jersey Bentley, Ferrari, Maserati 20.00 % (B) BMW, MINI, Maserati, Porsche, Audi, Land Rover, Volvo, Mercedes-Benz, Northern Italy smart, Lamborghini 84.10 % (A) Aachen, Germany Audi, Maserati, SEAT, Skoda, Volkswagen 91.80 % (A) (C) Frankfurt, Germany Lexus, Toyota, Volkswagen 50.00 % (B) Barcelona, Spain BMW, MINI 50.00 % (B) Tokyo, Japan BMW, MINI, Rolls-Royce, Ferrari, ALPINA 49.00 % (B)
(A) Entity is consolidated in our financial statements.
(B) Entity is accounted for using the equity method of accounting.
(C) We have entered into an agreement to purchase the remaining interest in this
entity during the fourth quarter of 2020 for approximately
Additionally, we are party to non-automotive joint ventures representing our investments in PTS (28.9%) and Penske Commercial Leasing Australia (28%) that are accounted for under the equity method. Cyclicality
Unit sales of motor vehicles, particularly new vehicles, have been cyclical historically, fluctuating with general economic cycles. During economic downturns, the automotive and truck retailing industries tend to experience periods of decline and recession similar to those experienced by the general economy. We believe that these industries are influenced by general economic conditions and particularly by consumer confidence, the level of personal discretionary spending, fuel prices, interest rates, and credit availability. Our business is dependent on a number of cyclical factors, including general economic conditions and customer business cycles.U.S. light vehicle sales have ranged from a low of 10.4 million units in 2009 to a high 17.5 million units in 2016. Unit sales of new commercial vehicles have historically been subject to substantial cyclical variation based on these general economic conditions. According to data published byA.C.T. Research , in recent years totalU.S. retail sales of new Class 8 commercial vehicles have ranged from a low of approximately 97,000 in 2009, to high of approximately 333,779 in 2019. Through geographic expansion, concentration on higher margin regular service and parts revenues, and the purchase of additional businesses such asPenske Australia and Premier Truck Group , we have attempted to reduce the negative impact of adverse general economic conditions or cyclical trends affecting any one industry or geographic area on our earnings. 57 Table of Contents Seasonality
Dealership. Our business is modestly seasonal overall. OurU.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 theU.S. where dealerships may be subject to severe winters. OurU.K. operations generally experience higher volumes of new vehicle sales in the first and third quarters of each year, due primarily to new vehicle registration practices in theU.K. Commercial Vehicle Distribution. Our commercial vehicle distribution business generally experiences higher sales volumes during the second quarter of the year, which is primarily attributable to commercial vehicle customers completing annual capital expenditures before their fiscal year-end, which is typicallyJune 30 inAustralia . 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. Forward-Looking Statements Certain statements and information set forth herein, as well as other written or oral statements made from time to time by us or by our authorized officers on our behalf, constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "estimate," "expect," "intend," "may," "goal," "plan," "seek," "project," "continue," "will," "would," and variations of such words and similar expressions are intended to identify such forward-looking statements. We intend for our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we set forth this statement in order to comply with such safe harbor provisions. You should note that our forward-looking statements speak only as of the date of this report or when made and we undertake no duty or obligation to update or revise our forward-looking statements, whether as a result of new information, future events, or otherwise. Forward-looking statements include, without limitation, statements with respect to:
? our expectations regarding the COVID-19 pandemic;
? our future financial and operating performance;
? future acquisitions and dispositions;
? 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 commercial vehicles industries 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;
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? performance of joint ventures, including PTS;
? future foreign exchange rates and geopolitical events, such as Brexit;
? the outcome of various legal proceedings;
? results of self-insurance plans;
? trends affecting the automotive industry generally and our future financial
condition or results of operations; and
? our business strategy. 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 2019 annual report on Form 10-K filedFebruary 21, 2020 , our first quarter Form 10-Q filed onMay 6, 2020 , and our second quarter Form 10-Q filed onJuly 30, 2020 . Important factors that could cause actual results to differ materially from our expectations include those mentioned in "Item 1A. Risk Factors" and the following:
our business and the automotive retail and commercial vehicles industries in
general are susceptible to adverse economic conditions, including changes in
interest rates, foreign exchange rates, customer demand, customer confidence,
? fuel prices, unemployment rates and credit availability (including any adverse
impact from the COVID-19 pandemic discussed in Part I, Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Part II, Item 1A. Risk Factors);
? the political and economic outcome of Brexit in the
increased tariffs, import product restrictions, and foreign trade risks that
? may impair our ability to sell foreign vehicles profitably, including any
eventual tariffs resulting from the threats from the
add 25% tariffs on foreign vehicles or parts;
? the number of new and used vehicles sold in our markets;
the effect on our businesses of the trend of electrification of vehicle
? engines, new mobility technologies such as shared vehicle services, such as
Uber and Lyft, and the eventual availability of driverless vehicles;
vehicle manufacturers exercise significant control over our operations, and we
? depend on them and the continuation of our franchise and distribution
agreements in order to operate our business;
we depend on the success, popularity and availability of the brands we sell,
and adverse conditions affecting one or more vehicle manufacturers, including
the adverse impact on the vehicle and parts supply chain due to natural
disasters or other disruptions that interrupt the supply of vehicles and parts
? to us (including any disruptions resulting from the new fuel economy testing
and Co2 emissions legislation in the
pandemic discussed in Part I, Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations and Part II, Item 1A. Risk
Factors), may negatively impact our revenues and profitability;
? we are subject to the risk that a substantial number of our new or used
inventory may be unavailable due to recall or other reasons;
the success of our commercial vehicle distribution operations and engine and
? power systems distribution operations depends upon continued availability of
the vehicles, engines, power systems, and other parts we
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distribute, demand for those vehicles, engines, power systems, and parts and
general economic conditions in those markets;
? a restructuring of any significant vehicle manufacturer or supplier;
? our operations may be affected by severe weather, such as the recent hurricanes
in
? we have substantial risk of loss not covered by insurance;
we may not be able to satisfy our capital requirements for acquisitions,
? facility renovation projects, financing the purchase of our inventory, or
refinancing of our debt when it becomes due;
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;
? non-compliance with the financial ratios and other covenants under our credit
agreements and operating leases;
higher interest rates may significantly increase our variable rate interest
? costs and, because many customers finance their vehicle purchases, decrease
vehicle sales;
our operations outside of the
? relating to changes in foreign currency values, which have most recently
occurred as a result of the
with respect to PTS, changes in the financial health of its customers, labor
strikes or work stoppages by its employees, a reduction in PTS' asset
utilization rates, continued availability from truck manufacturers and
suppliers of vehicles and parts for its fleet, changes in values of used trucks
which affects PTS' profitability on truck sales, compliance costs in regards to
? its trucking fleet and truck drivers, its ability to retain qualified drivers
and technicians, risks associated with its participation in multi-employer
pension plans, conditions in the capital markets to assure PTS' continued
availability of capital to purchase trucks, the effect of changes in lease
accounting rules on PTS customers' purchase/lease decisions, and industry
competition, each of which could impact distributions to us;
we are dependent on continued security and availability of our information
? technology systems and we may be subject to fines, penalties, and other costs
under applicable privacy laws if we do not maintain our confidential customer
and employee information properly;
? if we lose key personnel, especially our Chief Executive Officer, or are unable
to attract additional qualified personnel;
new or enhanced regulations relating to automobile dealerships including those
recently enacted by the
? certain compensation we receive relating to automotive financing in the
and those enacted in certain European countries and
of gasoline engines starting in
? changes in tax, financial or regulatory rules or requirements;
we could be subject to legal and administrative proceedings which, if the
? outcomes are adverse to us, could have a material adverse effect on our
business;
if state dealer laws in the
? dealerships may be subject to increased competition and may be more susceptible
to termination, non-renewal or renegotiation of their franchise agreements;
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? some of our directors and officers may have conflicts of interest with respect
to certain related party transactions and other business interests; and
? shares of our common stock eligible for future sale 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 and further information under "Item 1A. 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 theSecurities and Exchange Commission's 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.
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