Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those discussed in Part 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 and one of the world's premier automotive and commercial truck retailers. We operate dealerships principally in the United States, the United Kingdom, Canada, Germany, Italy, and Japan, and we are one of the largest retailers of commercial trucks in North America for Freightliner. We also distribute and retail commercial vehicles, diesel and gas engines, power systems, and related parts and services principally in Australia and New Zealand. Additionally, we own 28.9% of Penske Transportation Solutions, a business that manages a fleet of over 373,000 vehicles providing innovative transportation, supply chain, and technology solutions to North American fleets. We employ over 25,000 people worldwide.
Business Overview
During the three months ended March 31, 2022, our business generated $7.0 billion in total revenue, which is comprised of approximately $6.0 billion from retail automotive dealerships, $792.3 million from retail commercial truck dealerships, and $153.9 million from commercial vehicle distribution and other operations. We generated $1.2 billion in gross profit, which is comprised of $1.1 billion from retail automotive dealerships, $141.2 million from retail commercial truck dealerships, and $39.8 million from commercial vehicle distribution and other operations.
Retail Automotive. We are one of the largest global automotive retailers as measured by the $22.5 billion in total retail automotive dealership revenue we generated in 2021. As of March 31, 2022, we operated 321 retail automotive franchised dealerships, of which 147 are located in the U.S. and 174 are located outside of the U.S. The franchised dealerships outside the U.S. are located primarily in the U.K. As described below, we also operate 23 used vehicle dealerships in the U.S. and U.K. under the CarShop brand. Through these franchised and used vehicle dealerships, we retailed and wholesaled more than 137,000 vehicles in the three months ended March 31, 2022. We are diversified geographically with 55% of our total retail automotive dealership revenues in the three months ended March 31, 2022, generated in the U.S. and Puerto Rico and 45% generated outside the U.S. We offer over 35 vehicle brands with 70% of our retail automotive franchised dealership revenue in the three months ended March 31, 2022, 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, the sale and placement of third-party finance and insurance products, third-party extended service and maintenance contracts, and replacement and aftermarket automotive products. We operate our franchised dealerships under franchise agreements with a number of automotive manufacturers and distributors that are subject to certain rights and restrictions typical of the industry.
As of March 31, 2022, we operated 23 used vehicle dealerships in the U.S. and the U.K. which retail and wholesale used vehicles under a one price, “no-haggle” methodology under the CarShop brand. Our operations consist of eight retail dealerships in the U.S. and 15 retail dealerships and a vehicle preparation center in the U.K. During the three months ended March 31, 2022, our used vehicle dealerships retailed 19,523 units and generated $515.8 million in revenue.
During the three months ended March 31, 2022, we were awarded one retail automotive franchise in the U.S. During April 2022, we acquired three BMW/MINI dealerships and a collision center in the U.K. and one BMW/MINI dealership and a collision center in the U.S. Retail automotive dealerships represented 86.4% of our total revenues and 85.3% of our total gross profit in the three months ended March 31, 2022. In March 2022, we agreed to transition our 14 U.K. Mercedes Benz dealerships to an agency model beginning in January 2023. See Part II, Item 1A. Risk Factors for a discussion of agency.
Retail Commercial Truck Dealership. We operate Premier Truck Group (“PTG”), a heavy- and medium-duty truck dealership group offering primarily Freightliner and Western Star trucks (both Daimler brands) with locations across nine U.S. states and Ontario, Canada. During February 2022, we acquired TEAM Truck Centres, a retailer of heavy- and medium-duty Freightliner and Western Star commercial trucks located in Ontario, Canada representing four full-service
dealerships. As of March 31, 2022, PTG operated 41 locations which sell new and used trucks, parts and service, and collision repair services. This business represented 11.4% of our total revenues and 11.5% of our total gross profit in the three months ended March 31, 2022.
Penske Australia. Penske Australia is the exclusive importer and distributor of Western Star heavy-duty trucks (a Daimler Truck brand), MAN heavy- and medium-duty trucks and buses (a VW Group brand), and Dennis Eagle refuse collection vehicles, together with associated parts, across Australia, New Zealand, and portions of the Pacific. In most of these same markets, we are also a leading distributor of diesel and gas engines and power systems, principally representing MTU (a Rolls-Royce solution), Detroit Diesel, Allison Transmission, and Bergen Engines. Penske Australia offers products across the on- and off-highway markets, including in the trucking, mining, power generation, defense, marine, rail, and construction sectors and supports full parts and aftersales service through a network of branches, field service locations, and dealers across the region. These businesses represented 2.2% of our total revenues and 3.2% of our total gross profit in the three months ended March 31, 2022.
Penske Transportation Solutions. We hold a 28.9% ownership interest in Penske Truck Leasing Co., L.P. (“PTL”). PTL is owned 41.1% by Penske Corporation, 28.9% by us, and 30.0% by Mitsui & Co., Ltd. (“Mitsui”). We account for our investment in PTL under the equity method, and we therefore record our share of PTL’s earnings on our statements of income under the caption “Equity in earnings of affiliates,” which also includes the results of our other equity method investments. Penske Transportation Solutions (“PTS”) is the universal brand name for PTL’s various business lines through which it is capable of meeting customers’ needs across the supply chain with a broad product offering that includes full-service truck leasing, truck rental, and contract maintenance along with logistic services, such as dedicated contract carriage, distribution center management, transportation management, lead logistics provider services, and dry van truckload carrier services. We recorded $118.5 million and $53.7 million in equity earnings from this investment for the three months ended March 31, 2022 and 2021, respectively. We believe the increase in our PTS equity earnings is due to strong demand and profitability for commercial rental trucks and full-service leasing, as well as used vehicle sales.
Outlook
Retail Automotive. During the three months ended March 31, 2022, U.S. industry new light vehicle sales decreased 15.7%, as compared to the same period last year, to 3.3 million units, and U.K. new vehicle registrations decreased 1.9%, as compared to the same period last year, to 417,560 registrations. We believe the year over year decrease in overall sales is primarily attributable to a lower supply of new vehicles available for sale due to disruptions in the supply chain caused by the COVID-19 pandemic, production disruptions caused by a shortage of microchips or other components, and the recent war in Ukraine. Our new vehicle days’ supply is 16 as of March 31, 2022, compared to 17 as of December 31, 2021. While we expect to continue to have adequate levels of used vehicles for sale (our used vehicle days’ supply is 41 as of March 31, 2022, compared to 60 as of December 31, 2021), prolonged shortages could result in lower new vehicle sales volumes which could impact the availability and affordability of used vehicles and adversely affect us. The lower supply of new vehicles contributed to higher vehicle gross profit on both new and used vehicles sold, which contributed to our higher overall profitability. We expect lower inventories of new vehicles and parts disruptions to continue until the supply of certain components used to manufacture vehicles improves. When the supply of vehicles improves, we may experience reduced new and used vehicle gross profit together with higher sales volumes.
Our premium/luxury unit sales, which account for over 92% of our U.K. new unit sales, decreased 12.1% during the three months ended March 31, 2022, compared to a 17.2% decrease for the premium/luxury market and a 1.9% decrease for the overall market as many of the premium brands we represent in the U.K. market were impacted by production disruptions from the supply chain challenges.
We believe U.K. new car sales were also impacted by potentially higher taxes on diesel-powered vehicles and consumer uncertainty about low emission zones as the U.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 the U.K. government have proposed a ban on the sale of gasoline engines in new cars and new vans that would take effect as early as 2030 and a ban on the sale of gasoline hybrid engines in new cars and new vans as early as 2035. Sales of diesel-powered vehicles decreased 51.2% and non-diesel vehicles increased 4.5% during the three months ended March 31, 2022, as compared to the same period last year.
Retail Commercial Truck Dealership. During the three months ended March 31, 2022, North American sales of Class 6-8 medium- and heavy-duty trucks, the principal vehicles for our PTG business, decreased 7.4% from the same period last year to 94,819 units. The Class 6-7 medium-duty truck market decreased 7.2% from the same period last year to 32,339 units, and Class 8 heavy-duty trucks, the largest North American market, decreased 7.4% from the same period last year to
62,480 units. The truck market is experiencing the same production issues noted above as the Class 6-8 medium- and heavy-duty truck backlog increased 18.9% from the same period last year to 369,814 units. We expect lower inventories of new commercial trucks and parts disruptions to continue until the supply of certain components used to manufacture commercial trucks improves. When the supply of commercial trucks improves, we may experience reduced new and used commercial truck gross profit per unit together with higher sales volumes.
Commercial Vehicle Distribution and Other. Penske Australia operates principally in the Australian and New Zealand heavy and medium-duty truck markets. During the three months ended March 31, 2022, the Australian heavy-duty truck market reported sales of 3,012 units, representing an increase of 23.6% from the same period last year, while the New Zealand market reported sales of 800 units, representing an increase of 19.0% from the same period last year.
Penske Transportation Solutions. A majority of PTS's revenue is generated by multi-year contracts for full-service leasing, contract maintenance, and logistics services. We expect continued resilient performance in 2022 as PTS has experienced strong demand and profitability for commercial rental trucks and full-service leasing, as well as used vehicle sales.
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 over 95% and 70% of our revenue and our earnings before taxes, respectively. Income from our PTS investment represents over 20% of our earnings before taxes. New and used vehicle revenues typically include sales to retail customers, fleet customers, and leasing companies providing consumer leasing. We generate finance and insurance revenues from sales of third-party extended service contracts, sales of third-party insurance policies, commissions relating to the sale of finance and lease contracts to third parties, and the sales of certain other products. Service and parts revenues include fees paid by customers for repair, maintenance and collision services, and the sale of replacement parts and other aftermarket accessories as well as warranty repairs that are reimbursed directly by various vehicle manufacturers.
Our gross profit tends to vary with the mix of revenues we derive from the sale of new vehicles, used vehicles, finance and insurance products, and service and parts transactions. Our gross profit varies across product lines with vehicle sales usually resulting in lower gross profit margins and our other revenues resulting in higher gross profit margins. Factors such as inventory and vehicle availability, customer demand, consumer confidence, unemployment, general economic conditions, seasonality, weather, credit availability, fuel prices, and manufacturers’ advertising and incentives also impact the mix of our revenues and therefore, influence our gross profit margin.
The results of our commercial vehicle distribution and other business in Australia and New Zealand are principally driven by the number and types of products and vehicles ordered by our customers.
Aggregate revenue and gross profit increased $1,201.6 million, or 20.8%, and increased $318.5 million, or 34.9%, respectively, during the three months ended March 31, 2022, compared to the same period in 2021.
As exchange rates fluctuate, our revenue and results of operations as reported in U.S. Dollars fluctuate. For example, if the British Pound were to weaken against the U.S. Dollar, our U.K. results of operations would translate into less U.S. Dollar reported results. Foreign currency average rate fluctuations decreased revenue and gross profit by $34.6 million and $3.4 million, respectively, for the three months ended March 31, 2022. Foreign currency average rate fluctuations decreased earnings per share from continuing operations by approximately $0.05 per share for the three months ended March 31, 2022. Excluding the impact of foreign currency average rate fluctuations, revenue and gross profit increased 21.4% and increased 35.2%, respectively, for the three months ended March 31, 2022.
Our selling expenses consist of advertising and compensation for sales personnel, including commissions and related bonuses. General and administrative expenses include compensation for administration, finance, legal and general management personnel, rent, insurance, utilities, and other expenses. As the majority of our selling expenses are variable and a significant portion of our general and administrative expenses are subject to our control, we believe our expenses can be adjusted over time to reflect economic trends.
Equity in earnings of affiliates principally represents our share of the earnings from PTS, along with our investments in joint ventures and other non-consolidated investments.
Floor plan interest expense relates to financing incurred in connection with the acquisition of new and used vehicle inventories that are secured by those vehicles. Other interest expense consists of interest charges on all of our interest-bearing debt, other than interest relating to floor plan financing, and includes interest relating to our retail commercial truck dealership and commercial vehicle distribution and other operations. The cost of our variable rate indebtedness is based on the prime rate, defined LIBOR, the Bank of England Base Rate, the Finance House Base Rate, the Euro Interbank Offered Rate, the Canadian Prime Rate, the Tokyo Interbank Offered Rate, the Australian Bank Bill Swap Rate, or the New Zealand Bank Bill Benchmark Rate.
Regulatory authorities in the U.S. have announced their intention to stop compelling banks to submit rates for the calculation of LIBOR, ending after June 30, 2023, for the LIBOR tenors that are relevant to our business. Our senior secured revolving credit facility in the U.S. and many of our floorplan arrangements utilize LIBOR as a benchmark for calculating the applicable interest rate, although some of our floorplan arrangements have already transitioned to utilizing an alternative benchmark rate. Our U.K. credit agreement transitioned from LIBOR to SONIA as of January 1, 2022. We cannot predict the effect of the potential changes to or elimination of LIBOR or the establishment and use of alternative rates or benchmarks and the corresponding effects on our cost of capital.
The future success of our business is dependent upon, among other things, general economic and industry conditions, including the effect of COVID-19 on the global economy; the distribution rate and acceptance of vaccines for COVID-19; our ability to react effectively to changing business conditions in light of the COVID-19 pandemic; the rate of inflation; our ability to consummate and integrate acquisitions; the level of vehicle sales in the markets where we operate; our ability to obtain vehicles and parts from our manufacturers, especially in light of the COVID-19 pandemic and the war in Ukraine, including global shortages in microchip availability or other vehicle components; changes in the retail model either from direct sales by manufacturers, transition to an agency model of sales, sales by online competitors, or from the expansion of electric vehicles; our ability to realize returns on our significant capital investment in new and upgraded dealership facilities; our ability to navigate a rapidly changing automotive and truck landscape; 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 in the United States of America requires the application of accounting policies that often involve making estimates and employing judgments. Such judgments influence the assets, liabilities, revenues, and expenses recognized in our financial statements. Management, on an ongoing basis, reviews these estimates and assumptions. Management may determine that modifications in assumptions and estimates are required, which may result in a material change in our results of operations or financial position.
The accounting policies and estimates that we believe to be most dependent upon the use of estimates and assumptions are revenue recognition, goodwill and other indefinite-lived intangible assets, investments, self-insurance reserves, lease recognition, and income taxes. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 annual report on Form 10-K for additional detail and discussion of these critical accounting policies and estimates. There have been no material changes in critical accounting policies and estimates as described in our most recent annual report.
Refer to Part I, Item 1, Note 1 and Note 3 of the Notes to our Consolidated Condensed Financial Statements for disclosures regarding estimates and judgments related to lease recognition. Refer to Part I, Item 1, Note 2 of the Notes to our Consolidated Condensed Financial Statements for disclosures regarding estimates and judgments related to revenue recognition. Refer to “Income Taxes” within Part I, Item 1, Note 1 of the Notes to our Consolidated Condensed Financial Statements for disclosures regarding estimates and judgments related to income taxes.
Results of Operations
The following tables present comparative financial data relating to our operating performance in the aggregate and on a “same-store” basis. Dealership results are included in same-store comparisons when we have consolidated the acquired entity during the entirety of both periods being compared. As an example, if a dealership were acquired on January 15, 2020, the results of the acquired entity would be included in annual same-store comparisons beginning with the year ended December 31, 2022, and in quarterly same-store comparisons beginning with the quarter ended June 30, 2021.
Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021
Retail Automotive Dealership New Vehicle Data
(In millions, except unit and per unit amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2022 vs. 2021 |
| New Vehicle Data | | 2022 | | 2021 | | Change | | % Change |
| New retail unit sales | | 45,528 | | | 50,409 | | | (4,881) | | | (9.7) | % |
| Same-store new retail unit sales | | 43,804 | | | 50,322 | | | (6,518) | | | (13.0) | % |
| New retail sales revenue | | $ | 2,445.5 | | | $ | 2,421.4 | | | $ | 24.1 | | | 1.0 | % |
| Same-store new retail sales revenue | | $ | 2,342.5 | | | $ | 2,414.8 | | | $ | (72.3) | | | (3.0) | % |
| New retail sales revenue per unit | | $ | 53,714 | | | $ | 48,036 | | | $ | 5,678 | | | 11.8 | % |
| Same-store new retail sales revenue per unit | | $ | 53,476 | | | $ | 47,987 | | | $ | 5,489 | | | 11.4 | % |
| Gross profit — new | | $ | 311.4 | | | $ | 205.0 | | | $ | 106.4 | | | 51.9 | % |
| Same-store gross profit — new | | $ | 296.6 | | | $ | 204.5 | | | $ | 92.1 | | | 45.0 | % |
| Average gross profit per new vehicle retailed | | $ | 6,840 | | | $ | 4,067 | | | $ | 2,773 | | | 68.2 | % |
| Same-store average gross profit per new vehicle retailed | | $ | 6,770 | | | $ | 4,063 | | | $ | 2,707 | | | 66.6 | % |
| Gross margin % — new | | 12.7 | % | | 8.5 | % | | 4.2 | % | | 49.4 | % |
| Same-store gross margin % — new | | 12.7 | % | | 8.5 | % | | 4.2 | % | | 49.4 | % |
Units
Retail unit sales of new vehicles decreased from 2021 to 2022 due to a 6,518 unit, or 13.0%, decrease in same-store new retail unit sales, partially offset by a 1,637 unit increase from net dealership acquisitions. Same-store units decreased 13.2% in the U.S. and decreased 12.5% internationally. Overall, new units decreased 9.5% in the U.S. and decreased 10.0% internationally. We believe the decrease in same-store unit sales is due to a lower supply of new vehicles available for sale caused by supply chain issues discussed above.
Revenues
New vehicle retail sales revenue increased from 2021 to 2022 due to a $96.4 million increase from net dealership acquisitions, partially offset by a $72.3 million, or 3.0%, decrease in same-store revenues. Excluding $36.0 million of unfavorable foreign currency fluctuations, same-store new retail revenue decreased 1.5%. The same-store revenue decrease is due to the decrease in same-store new retail unit sales, which decreased revenue by $312.7 million, partially offset by a $5,489 per unit increase in same-store comparative average selling price (including an $823 per unit decrease attributable to unfavorable foreign currency fluctuations), which increased revenue by $240.4 million. We believe the increase in same-store comparative average selling price is due to increased customer demand and a lower supply of new vehicles available for sale, which has been caused by supply chain issues discussed above.
Gross Profit
Retail gross profit from new vehicle sales increased from 2021 to 2022 due to a $92.1 million, or 45.0%, increase in same-store gross profit, coupled with a $14.3 million increase from net dealership acquisitions. Excluding $4.1 million of unfavorable foreign currency fluctuations, same-store gross profit increased 47.0%. The increase in same-store gross profit is due to a $2,707 per unit increase in same-store comparative average gross profit (including a $95 per unit decrease attributable to unfavorable foreign currency fluctuations), which increased gross profit by $118.6 million, partially offset by the decrease in same-store new retail unit sales, which decreased gross profit by $26.5 million. We believe the increase in same-store comparative average gross profit per unit is attributed to increased customer demand and a lower supply of new vehicles available for sale, which has been caused by supply chain issues discussed above.
Retail Automotive Dealership Used Vehicle Data
(In millions, except unit and per unit amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2022 vs. 2021 |
| Used Vehicle Data | | 2022 | | 2021 | | Change | | % Change |
| Used retail unit sales | | 68,231 | | | 60,443 | | | 7,788 | | | 12.9 | % |
| Same-store used retail unit sales | | 65,414 | | | 60,347 | | | 5,067 | | | 8.4 | % |
| Used retail sales revenue | | $ | 2,422.9 | | | $ | 1,808.0 | | | $ | 614.9 | | | 34.0 | % |
| Same-store used retail sales revenue | | $ | 2,332.6 | | | $ | 1,803.5 | | | $ | 529.1 | | | 29.3 | % |
| Used retail sales revenue per unit | | $ | 35,510 | | | $ | 29,912 | | | $ | 5,598 | | | 18.7 | % |
| Same-store used retail sales revenue per unit | | $ | 35,659 | | | $ | 29,886 | | | $ | 5,773 | | | 19.3 | % |
| Gross profit — used | | $ | 155.8 | | | $ | 109.4 | | | $ | 46.4 | | | 42.4 | % |
| Same-store gross profit — used | | $ | 150.5 | | | $ | 109.2 | | | $ | 41.3 | | | 37.8 | % |
| Average gross profit per used vehicle retailed | | $ | 2,284 | | | $ | 1,810 | | | $ | 474 | | | 26.2 | % |
| Same-store average gross profit per used vehicle retailed | | $ | 2,300 | | | $ | 1,810 | | | $ | 490 | | | 27.1 | % |
| Gross margin % — used | | 6.4 | % | | 6.1 | % | | 0.3 | % | | 4.9 | % |
| Same-store gross margin % — used | | 6.5 | % | | 6.1 | % | | 0.4 | % | | 6.6 | % |
Units
Retail unit sales of used vehicles increased from 2021 to 2022 due to a 5,067 unit, or 8.4%, increase in same-store used retail unit sales, coupled with a 2,721 unit increase from net dealership acquisitions. Same-store units decreased 9.1% in the U.S. and increased 28.2% internationally. Same-store retail units for our U.S. and U.K. CarShop used vehicle dealerships decreased 21.9% and increased 92.5%, respectively. Overall, used units decreased 5.9% in the U.S. and increased 34.1% internationally. We believe the increase in same-store unit sales in the U.K. is primarily due to the lifting of lockdown restrictions due to COVID-19 compared to the same period last year. We believe the decrease in same-store unit sales in the U.S. is primarily due to higher used unit prices attributable to lower overall vehicle inventory availability for sale resulting from supply chain issues discussed above.
Revenues
Used vehicle retail sales revenue increased from 2021 to 2022 due to a $529.1 million, or 29.3%, increase in same-store revenues, coupled with an $85.8 million increase from net dealership acquisitions. Excluding $41.7 million of unfavorable foreign currency fluctuations, same-store used retail revenue increased 31.6%. The same-store revenue increase is due to a $5,773 per unit increase in same-store comparative average selling price (including a $638 per unit decrease attributable to unfavorable foreign currency fluctuations), which increased revenue by $348.4 million, coupled with the increase in same-store used retail unit sales, which increased revenue by $180.7 million. The average sales price per unit for our CarShop used vehicle dealerships increased 22.9% to $21,700. We believe the increase in same-store comparative average selling price is primarily due to increased demand by consumers looking to acquire used vehicles to compensate for the lower supply of new vehicles available for sale, which has been caused by supply chain issues discussed above.
Gross Profit
Retail gross profit from used vehicle sales increased from 2021 to 2022 due to a $41.3 million, or 37.8%, increase in same-store gross profit, coupled with a $5.1 million increase from net dealership acquisitions. Excluding $2.4 million of unfavorable foreign currency fluctuations, same-store gross profit increased 40.0%. The increase in same-store gross profit is due to a $490 per unit increase in same-store comparative average gross profit (including a $37 per unit decrease attributable to unfavorable foreign currency fluctuations), which increased gross profit by $29.6 million, coupled with the increase in same-store used retail unit sales, which increased gross profit by $11.7 million. The average gross profit per unit for our CarShop used vehicle dealerships decreased 13.2% to $760. We believe the increase in same-store comparative average gross profit per unit is primarily due to increased demand by consumers looking to acquire used vehicles to compensate for the lower supply of new vehicles available for sale, which has been caused by supply chain issues discussed above.
Retail Automotive Dealership Finance and Insurance Data
(In millions, except unit and per unit amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2022 vs. 2021 |
| Finance and Insurance Data | | 2022 | | 2021 | | Change | | % Change |
| Total retail unit sales | | 113,759 | | | 110,852 | | | 2,907 | | | 2.6 | % |
| Total same-store retail unit sales | | 109,218 | | | 110,669 | | | (1,451) | | | (1.3) | % |
| Finance and insurance revenue | | $ | 217.3 | | | $ | 168.8 | | | $ | 48.5 | | | 28.7 | % |
| Same-store finance and insurance revenue | | $ | 211.0 | | | $ | 168.3 | | | $ | 42.7 | | | 25.4 | % |
| Finance and insurance revenue per unit | | $ | 1,910 | | | $ | 1,523 | | | $ | 387 | | | 25.4 | % |
| Same-store finance and insurance revenue per unit | | $ | 1,932 | | | $ | 1,521 | | | $ | 411 | | | 27.0 | % |
Finance and insurance revenue increased from 2021 to 2022 due to a $42.7 million, or 25.4%, increase in same-store revenues, coupled with a $5.8 million increase from net dealership acquisitions. Excluding $2.8 million of unfavorable foreign currency fluctuations, same-store finance and insurance revenue increased 27.0%. The same-store revenue increase is due to a $411 per unit increase in same-store comparative average finance and insurance revenue (including a $26 per unit decrease attributable to unfavorable foreign currency fluctuations), which increased revenue by $44.9 million, partially offset by the decrease in same-store retail unit sales, which decreased revenue by $2.2 million. Finance and insurance revenue per unit increased 34.7% in the U.S. and increased 16.3% in the U.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 penetration, which include implementing interactive digital customer sales platforms, additional training, and targeting underperforming locations, coupled with the increase in average selling price per unit of new and used vehicles as well as lower leasing and higher amount of purchases which has driven higher product penetration rates.
Retail Automotive Dealership Service and Parts Data
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2022 vs. 2021 |
| Service and Parts Data | | 2022 | | 2021 | | Change | | % Change |
| Service and parts revenue | | $ | 586.2 | | | $ | 503.2 | | | $ | 83.0 | | | 16.5 | % |
| Same-store service and parts revenue | | $ | 567.3 | | | $ | 502.5 | | | $ | 64.8 | | | 12.9 | % |
| Gross profit — service and parts | | $ | 350.5 | | | $ | 305.4 | | | $ | 45.1 | | | 14.8 | % |
| Same-store service and parts gross profit | | $ | 340.0 | | | $ | 304.8 | | | $ | 35.2 | | | 11.5 | % |
| Gross margin % — service and parts | | 59.8 | % | | 60.7 | % | | (0.9) | % | | (1.5) | % |
| Same-store service and parts gross margin % | | 59.9 | % | | 60.7 | % | | (0.8) | % | | (1.3) | % |
Revenues
Service and parts revenue increased from 2021 to 2022, with an increase of 17.2% in the U.S. and an increase of 15.2% internationally. The increase in service and parts revenue is due to a $64.8 million, or 12.9%, increase in same-store revenues, coupled with an $18.2 million increase from net dealership acquisitions. Excluding $7.6 million of unfavorable foreign currency fluctuations, same-store revenue increased 14.4%. The increase in same-store revenue is due to a $64.8 million, or 18.3%, increase in customer pay revenue and a $4.3 million, or 14.1%, increase in vehicle preparation and body shop revenue, partially offset by a $4.3 million, or 3.7%, decrease in warranty revenue. We believe the increase in same-store service and parts revenue is related to increases in vehicle miles traveled compared to the same period last, coupled with the prolonged reliance on older vehicles resulting from the limited supply of new vehicles, which generates additional service and parts revenues.
Gross Profit
Service and parts gross profit increased from 2021 to 2022 due to a $35.2 million, or 11.5%, increase in same-store gross profit, coupled with a $9.9 million increase from net dealership acquisitions. Excluding $4.3 million of unfavorable foreign currency fluctuations, same-store gross profit increased 13.0%. The same-store gross profit increase is due to the increase in same-store revenues, which increased gross profit by $38.9 million, partially offset by a 0.8% decrease in same-store gross margin, which decreased gross profit by $3.7 million. The same-store gross profit increase is due to a $30.7
million, or 17.6%, increase in customer pay gross profit and a $6.7 million, or 10.0%, increase in vehicle preparation and body shop gross profit, partially offset by a $2.2 million, or 3.4%, decrease in warranty gross profit.
Retail Commercial Truck Dealership Data
(In millions, except unit and per unit amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2022 vs. 2021 |
| New Commercial Truck Data | | 2022 | | 2021 | | Change | | % Change |
| New retail unit sales | | 3,855 | | | 2,165 | | | 1,690 | | | 78.1 | % |
| Same-store new retail unit sales | | 3,134 | | | 2,165 | | | 969 | | | 44.8 | % |
| New retail sales revenue | | $ | 471.7 | | | $ | 247.5 | | | $ | 224.2 | | | 90.6 | % |
| Same-store new retail sales revenue | | $ | 383.0 | | | $ | 247.5 | | | $ | 135.5 | | | 54.7 | % |
| New retail sales revenue per unit | | $ | 122,357 | | | $ | 114,323 | | | $ | 8,034 | | | 7.0 | % |
| Same-store new retail sales revenue per unit | | $ | 122,198 | | | $ | 114,323 | | | $ | 7,875 | | | 6.9 | % |
| Gross profit — new | | $ | 29.0 | | | $ | 14.3 | | | $ | 14.7 | | | 102.8 | % |
| Same-store gross profit — new | | $ | 24.4 | | | $ | 14.3 | | | $ | 10.1 | | | 70.6 | % |
| Average gross profit per new truck retailed | | $ | 7,511 | | | $ | 6,585 | | | $ | 926 | | | 14.1 | % |
| Same-store average gross profit per new truck retailed | | $ | 7,784 | | | $ | 6,585 | | | $ | 1,199 | | | 18.2 | % |
| Gross margin % — new | | 6.1 | % | | 5.8 | % | | 0.3 | % | | 5.2 | % |
| Same-store gross margin % — new | | 6.4 | % | | 5.8 | % | | 0.6 | % | | 10.3 | % |
Units
Retail unit sales of new trucks increased from 2021 to 2022 due to a 969 unit, or 44.8%, increase in same-store new retail unit sales, coupled with a 721 unit increase from net dealership acquisitions. We believe the increase in same-store unit sales is primarily due to higher demand from a strong economy and the timing of deliveries from the vehicle manufacturers due to the backlog of orders delivered during the first quarter of 2022 caused by the supply chain issues discussed above.
Revenues
New commercial truck retail sales revenue increased from 2021 to 2022 due to a $135.5 million, or 54.7%, increase in same-store revenues, coupled with an $88.7 million increase from net dealership acquisitions. The same-store revenue increase is due to the increase in same-store new retail unit sales, which increased revenue by $118.5 million, coupled with a $7,875 per unit increase in same-store comparative average selling price, which increased revenue by $17.0 million. We believe the increase in same-store comparative average selling price is due to increased customer demand and a limited supply of new trucks available for sale, which has been caused by supply chain issues discussed above.
Gross Profit
New commercial truck retail gross profit increased from 2021 to 2022 due to a $10.1 million, or 70.6%, increase in same-store gross profit, coupled with a $4.6 million increase from net dealership acquisitions. The increase in same-store gross profit is due to the increase in same-store new retail unit sales, which increased gross profit by $7.5 million, coupled with a $1,199 per unit increase in same-store comparative average gross profit, which increased gross profit by $2.6 million. We believe the increase in same-store comparative average gross profit per unit is attributed to increased customer demand and a limited supply of new trucks available for sale, which has been caused by supply chain issues discussed above.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2022 vs. 2021 |
| Used Commercial Truck Data | | 2022 | | 2021 | | Change | | % Change |
| Used retail unit sales | | 837 | | | 841 | | | (4) | | | (0.5) | % |
| Same-store used retail unit sales | | 651 | | | 841 | | | (190) | | | (22.6) | % |
| Used retail sales revenue | | $ | 100.3 | | | $ | 50.9 | | | $ | 49.4 | | | 97.1 | % |
| Same-store used retail sales revenue | | $ | 78.5 | | | $ | 50.9 | | | $ | 27.6 | | | 54.2 | % |
| Used retail sales revenue per unit | | $ | 119,847 | | | $ | 60,582 | | | $ | 59,265 | | | 97.8 | % |
| Same-store used retail sales revenue per unit | | $ | 120,539 | | | $ | 60,582 | | | $ | 59,957 | | | 99.0 | % |
| Gross profit — used | | $ | 15.9 | | | $ | 6.5 | | | $ | 9.4 | | | 144.6 | % |
| Same-store gross profit — used | | $ | 12.5 | | | $ | 6.5 | | | $ | 6.0 | | | 92.3 | % |
| Average gross profit per used truck retailed | | $ | 18,961 | | | $ | 7,674 | | | $ | 11,287 | | | 147.1 | % |
| Same-store average gross profit per used truck retailed | | $ | 19,263 | | | $ | 7,674 | | | $ | 11,589 | | | 151.0 | % |
| Gross margin % — used | | 15.9 | % | | 12.8 | % | | 3.1 | % | | 24.2 | % |
| Same-store gross margin % — used | | 15.9 | % | | 12.8 | % | | 3.1 | % | | 24.2 | % |
Units
Retail unit sales of used trucks decreased from 2021 to 2022 due to a 190 unit, or 22.6%, decrease in same-store retail unit sales, partially offset by a 186 unit increase from net dealership acquisitions. We believe the decrease in same-store unit sales is primarily due to the decreased availability of used trucks as consumers were faced with a lower supply of new trucks available for sale.
Revenues
Used commercial truck retail sales revenue increased from 2021 to 2022 due to a $27.6 million, or 54.2%, increase in same-store revenues, coupled with a $21.8 million increase from net dealership acquisitions. The same-store revenue increase is due to a $59,957 per unit increase in same-store comparative average selling price, which increased revenue by $39.0 million, partially offset by the decrease in same-store used retail unit sales, which decreased revenue by $11.4 million. We believe the increase in same-store comparative average selling price is primarily due to continued strong customer demand and a limited supply of used trucks available for sale, which has been caused by supply chain issues discussed above.
Gross Profit
Used commercial truck retail gross profit increased from 2021 to 2022 due to a $6.0 million, or 92.3%, increase in same-store gross profit, coupled with a $3.4 million increase from net dealership acquisitions. The increase in same-store gross profit is due to an $11,589 per unit increase in same-store comparative average gross profit, which increased gross profit by $7.5 million, partially offset by the decrease in same-store used retail unit sales, which decreased gross profit by $1.5 million. We believe the increase in same-store comparative average gross profit per unit is primarily due to continued strong customer demand and a limited supply of used trucks available for sale, which has been caused by supply chain issues discussed above.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2022 vs. 2021 |
| Service and Parts Data | | 2022 | | 2021 | | Change | | % Change |
| Service and parts revenue | | $ | 197.0 | | | $ | 124.7 | | | $ | 72.3 | | | 58.0 | % |
| Same-store service and parts revenue | | $ | 156.8 | | | $ | 124.7 | | | $ | 32.1 | | | 25.7 | % |
| Gross profit — service and parts | | $ | 83.8 | | | $ | 52.7 | | | $ | 31.1 | | | 59.0 | % |
| Same-store service and parts gross profit | | $ | 67.2 | | | $ | 52.7 | | | $ | 14.5 | | | 27.5 | % |
| Gross margin % — service and parts | | 42.5 | % | | 42.3 | % | | 0.2 | % | | 0.5 | % |
| Same-store service and parts gross margin % | | 42.9 | % | | 42.3 | % | | 0.6 | % | | 1.4 | % |
Revenues
Service and parts revenue increased from 2021 to 2022 due to a $40.2 million increase from net dealership acquisitions, coupled with a $32.1 million, or 25.7%, increase in same-store revenues. Customer pay work represents approximately 81.0% of PTG’s service and parts revenue, largely due to the significant amount of retail sales of parts and
accessories. The increase in same-store revenue is due to a $28.0 million, or 28.5%, increase in customer pay revenue, a $3.2 million, or 15.2%, increase in warranty revenue, and a $0.9 million, or 18.0%, increase in body shop revenue. We believe the increase in same-store service and parts revenue is primarily due to higher freight rates which increase utilization and coupled with the prolonged reliance on older trucks resulting from the limited supply of new trucks, which generates additional service and parts revenues.
Gross Profit
Service and parts gross profit increased from 2021 to 2022 due to a $16.6 million increase from net dealership acquisitions, coupled with a $14.5 million, or 27.5%, increase in same-store gross profit. The same-store gross profit increase is due to the increase in same-store revenues, which increased gross profit by $13.7 million, coupled with a 0.6% increase in same-store gross margin, which increased gross profit by $0.8 million. The same-store gross profit increase is due to an $11.4 million, or 31.8%, increase in customer pay gross profit, a $2.0 million, or 16.7%, increase in warranty gross profit, and a $1.1 million, or 22.4%, increase in body shop gross profit.
Commercial Vehicle Distribution and Other Data
(In millions, except unit amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2022 vs. 2021 |
| Penske Australia Data | | 2022 | | 2021 | | Change | | % Change |
| Commercial vehicle units (wholesale and retail) | | 338 | | | 259 | | | 79 | | | 30.5 | % |
| Power system units | | 335 | | | 257 | | | 78 | | | 30.4 | % |
| Sales revenue | | $ | 153.9 | | | $ | 132.2 | | | $ | 21.7 | | | 16.4 | % |
| Gross profit | | $ | 39.8 | | | $ | 33.3 | | | $ | 6.5 | | | 19.5 | % |
Penske Australia primarily distributes and services commercial vehicles, engines, and power systems. This business generated $153.9 million of revenue during the three months ended March 31, 2022, compared to $132.2 million of revenue in the prior year, an increase of 16.4%. This business also generated $39.8 million of gross profit during the three months ended March 31, 2022, compared to $33.3 million of gross profit in the prior year, an increase of 19.5%.
These improved results from 2021 to 2022 are primarily due to an increase in commercial demand for trucks in Australia, an increase in service and parts gross profit, and increased sales to our defense and power generation product lines. Excluding $10.2 million of revenue attributable to unfavorable foreign currency fluctuations, revenue increased 24.1%. Excluding $2.6 million of gross profit attributable to unfavorable foreign currency fluctuations, gross profit increased 27.3%.
Selling, General, and Administrative Data
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2022 vs. 2021 |
| Selling, General, and Administrative Data | | 2022 | | 2021 | | Change | | % Change |
| Personnel expense | | $ | 501.1 | | | $ | 396.9 | | | $ | 104.2 | | | 26.3 | % |
| Advertising expense | | $ | 31.6 | | | $ | 26.2 | | | $ | 5.4 | | | 20.6 | % |
| Rent & related expense | | $ | 90.8 | | | $ | 80.2 | | | $ | 10.6 | | | 13.2 | % |
| Other expense | | $ | 174.3 | | | $ | 161.0 | | | $ | 13.3 | | | 8.3 | % |
| Total SG&A expenses | | $ | 797.8 | | | $ | 664.3 | | | $ | 133.5 | | | 20.1 | % |
| Same-store SG&A expenses | | $ | 757.2 | | | $ | 662.0 | | | $ | 95.2 | | | 14.4 | % |
| | | | | | | | |
| Personnel expense as % of gross profit | | 40.7 | % | | 43.5 | % | | (2.8) | % | | (6.4) | % |
| Advertising expense as % of gross profit | | 2.6 | % | | 2.9 | % | | (0.3) | % | | (10.3) | % |
| Rent & related expense as % of gross profit | | 7.4 | % | | 8.8 | % | | (1.4) | % | | (15.9) | % |
| Other expense as % of gross profit | | 14.1 | % | | 17.5 | % | | (3.4) | % | | (19.4) | % |
| Total SG&A expenses as % of gross profit | | 64.8 | % | | 72.7 | % | | (7.9) | % | | (10.9) | % |
| Same-store SG&A expenses as % of same-store gross profit | | 64.8 | % | | 72.6 | % | | (7.8) | % | | (10.7) | % |
Selling, general, and administrative expenses (“SG&A”) increased from 2021 to 2022 due to a $95.2 million, or 14.4%, increase in same-store SG&A, coupled with a $38.3 million increase from net acquisitions. Excluding $11.2 million of unfavorable foreign currency fluctuations, same-store SG&A increased 16.1%. SG&A as a percentage of gross profit was 64.8%, a decrease of 790 basis points compared to 72.7% in the prior year. SG&A expenses as a percentage of total revenue was 11.4% and 11.5% in the three months ended March 31, 2022 and 2021, respectively. We believe the decrease in SG&A as a percentage of gross profit is comprised of increased gross profit across our various business lines, coupled with expense reductions.
Depreciation
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2022 vs. 2021 |
| 2022 | | 2021 | | Change | | % Change |
| Depreciation | $ | 31.9 | | | $ | 29.3 | | | 2.6 | | | 8.9 | % |
Depreciation increased from 2021 to 2022 due to a $2.2 million increase from net acquisitions, coupled with a $0.4 million, or 1.5% increase, in same-store depreciation. We believe the overall increase is primarily related to our ongoing facility improvements and expansion programs.
Floor Plan Interest Expense
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2022 vs. 2021 |
| 2022 | | 2021 | | Change | | % Change |
| Floor plan interest expense | $ | 7.5 | | | $ | 9.5 | | | (2.0) | | | (21.1) | % |
Floor plan interest expense decreased from 2021 to 2022 due to a $2.2 million, or 23.9%, decrease in same-store floor plan interest expense, partially offset by a $0.2 million increase from net acquisitions. We believe the overall decrease is primarily due to decreases in amounts outstanding under floor plan arrangements as new vehicle inventory declined. This inventory decline was due to a lower supply of new vehicles available for sale, which has been caused by supply chain issues discussed above.
Other Interest Expense
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2022 vs. 2021 |
| 2022 | | 2021 | | Change | | % Change |
| Other interest expense | $ | 16.5 | | | $ | 17.9 | | | (1.4) | | | (7.8) | % |
Other interest expense decreased from 2021 to 2022 primarily due to the decrease in outstanding revolver borrowings under the U.S. and U.K. credit agreements.
Equity in Earnings of Affiliates
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2022 vs. 2021 |
| 2022 | | 2021 | | Change | | % Change |
| Equity in earnings of affiliates | $ | 119.6 | | | $ | 55.4 | | | 64.2 | | | 115.9 | % |
Equity in earnings of affiliates increased from 2021 to 2022 primarily due to a $64.8 million, or 120.7%, increase in earnings from our investment in PTS, coupled with the increase in earnings from our retail automotive joint ventures. We believe the increase in our PTS equity earnings is due to strong demand and profitability for commercial rental trucks and full-service leasing, as well as used vehicle sales.
Income Taxes
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2022 vs. 2021 |
| 2022 | | 2021 | | Change | | % Change |
| Income taxes | $ | 128.1 | | | $ | 64.5 | | | 63.6 | | | 98.6 | % |
Income taxes increased from 2021 to 2022 primarily due to a $250.0 million increase in our pre-tax income compared to the prior year. Our effective tax rate was 25.7% during the three months ended March 31, 2022, compared to 26.0% during the three months ended March 31, 2021, primarily due to 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, the purchase or construction of new facilities, including CarShop used vehicle dealerships, 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, real estate financings, 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 PTS and 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 are more severely impacted than we expect due to the COVID-19 pandemic or vehicle shortages resulting from supply chain difficulties, 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. Future events, including acquisitions, divestitures, new or revised operating lease agreements, borrowings or repayments under our credit agreements and our floor plan arrangements, raising capital, and purchases or refinancing of our securities, may also impact our liquidity.
We expect that scheduled payments of our debt instruments will be funded through cash flows from operations or borrowings under our credit agreements. In the case of payments upon the maturity or termination dates of our debt instruments, we currently expect to be able to refinance such instruments in the normal course of business or otherwise fund them from cash flows from operations or borrowings under our credit agreements. Refer to the disclosures provided in Part I, Item 1, Note 9 of the Notes to our Consolidated Financial Statements set forth below for a detailed description of our long-term debt obligations and scheduled interest payments.
Floor plan notes payable are revolving inventory-secured financing arrangements. Refer to the disclosures provided in Part I, Item 1, Note 7 of the Notes to our Consolidated Financial Statements for a detailed description of financing for the vehicles we purchase, including discussion of our floor plan and other revolving arrangements.
Refer to the disclosures provided in Part I, Item 1, Note 11 of the Notes to our Consolidated Financial Statements for a description of our off-balance sheet arrangements which includes a repurchase commitment related to our floor plan credit agreement with Mercedes Benz Financial Services Australia.
As of March 31, 2022, we had $170.3 million of cash available to fund our operations and capital commitments. In addition, we had $800.0 million, £145.0 million ($190.6 million), AU $46.0 million ($34.4 million), and $149.1 million available for borrowing under our U.S. credit agreement, U.K. credit agreement, Australian working capital loan agreement, and revolving portion of the Toyota Motor Credit Corporation mortgage facility, respectively.
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, through a pre-arranged trading plan, pursuant to the terms of an accelerated share repurchase program, or by other means. We have historically funded any such repurchases using cash flow from operations, borrowings under our U.S. credit agreement, and borrowings under our U.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. In December 2021, our Board of Directors authorized the repurchase of $250.0 million worth of our securities, of which $111.2 million and $46.3 million remained outstanding as of March 31, 2022, and April 26, 2022, respectively. Refer to the disclosures provided in Part I, Item 1, Note 12 of the Notes to our Consolidated Condensed Financial Statements for a summary of shares repurchased during the three months ended March 31, 2022.
Dividends
We paid the following cash dividends on our common stock in 2021 and 2022:
Per Share Dividends
| | | | | |
2021 | |
| |
| First Quarter | $ | 0.43 | |
| Second Quarter | $ | 0.44 | |
| Third Quarter | $ | 0.45 | |
| Fourth Quarter | $ | 0.46 | |
While 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, vehicle production issues, the rate of inflation, earnings, cash flow, capital requirements, restrictions relating to any then-existing indebtedness, financial condition, alternative uses of capital, and other factors, we currently expect to continue to pay comparable dividends in the future.
Long-Term Debt Obligations
As of March 31, 2022, we had the following long-term debt obligations outstanding:
| | | | | |
| (In millions) | March 31,
2022 |
| U.S. credit agreement — revolving credit line | $ | — | |
| U.K. credit agreement — revolving credit line | 22.3 | |
| U.K. credit agreement — overdraft line of credit | — | |
| 3.50% senior subordinated notes due 2025 | 545.1 | |
| 3.75% senior subordinated notes due 2029 | 494.5 | |
| Australia capital loan agreement | 26.5 | |
| Australia working capital loan agreement | 3.0 | |
| Mortgage facilities | 325.9 | |
| Other | 46.0 | |
| Total long-term debt | $ | 1,463.3 | |
As of March 31, 2022, 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 9 of the Notes to our Consolidated Condensed Financial Statements for a detailed description of our long-term debt obligations.
Short-Term Borrowings
We have five principal sources of short-term borrowings: the revolving portion of the U.S. credit agreement, the revolving portion of the U.K. credit agreement, our Australian working capital loan agreement, the revolving portion of the Toyota Motor Credit Corporation mortgage facility, 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 three months ended March 31, 2022, outstanding revolving commitments varied between $0.0 million and $159.0 million under the U.S. credit agreement, between £0.0 million and £17.0 million ($0.0 million and $22.3 million) under the U.K. credit agreement’s revolving credit line (excluding the overdraft facility), between AU $0.0 million and AU $10.0 million ($0.0 million and $7.5 million) under the Australia working capital loan agreement, and between $0.0 million and $149.1 million under the revolving portion of the Toyota Motor Credit Corporation mortgage facility. 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. In April 2020, we entered into a five-year interest rate swap agreement pursuant to which the LIBOR portion of $300.0 million of our U.S. floating rate floor plan debt was fixed at 0.5875% This arrangement was in effect through April 2025. However, we terminated this arrangement in November 2021.
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 by April 15 of the following year. PTS’ partnership agreement and certain of its debt agreements allow partner distributions only as long as it is not in default under those agreements and the amount it pays does not exceed 50% of its consolidated net income, unless its debt-to-equity ratio is less than 3.0 to 1, in which case its distributions may not exceed 80% 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. In 2021, we received $165.5 million of pro rata cash distributions relating to this investment, and 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
We estimate the total rent obligations under our operating leases, including any extension periods that we are reasonably certain to exercise at our discretion and assuming constant consumer price indices, to be $5.4 billion. As of March 31, 2022, we were in compliance with all financial covenants under these 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 11 of the Notes to our Consolidated Condensed Financial Statements for a description of our operating leases.
Supplemental Guarantor Financial Information
The following is a description of the terms and conditions of the guarantees with respect to senior subordinated notes of Penske Automotive Group, Inc. (“PAG”) as the issuer of the 3.50% Notes and the 3.75% Notes (collectively the “Senior Subordinated Notes”).
Each of the Senior Subordinated Notes are unsecured, senior subordinated obligations and are guaranteed on an unsecured senior subordinated basis by our 100% owned U.S. subsidiaries. Each of the Senior Subordinated Notes also
contain customary negative covenants and events of default. If we experience certain “change of control” events specified in their respective indentures, holders of these Senior Subordinated Notes will have the option to require us to purchase for cash all or a portion of their Senior Subordinated Notes at a price equal to 101% of the principal amount of the Senior Subordinated 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 Senior Subordinated Notes at a price equal to 100% of the principal amount of the Senior Subordinated 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 PAG and Guarantor Subsidiaries is presented on a combined basis; intercompany balances and transactions between PAG and Guarantor Subsidiaries have been eliminated; PAG’s or Guarantor Subsidiaries’ 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 |
| Three Months Ended
March 31, 2022 | | Twelve Months Ended December 31, 2021 |
| Revenues | $ | 3,876.1 | | | $ | 14,605.6 | |
| Gross profit | 751.1 | | | 2,731.0 | |
| Equity in earnings of affiliates | 118.5 | | | 366.2 | |
| Income from continuing operations | 271.0 | | | 908.2 | |
| Net income | 271.0 | | | 909.5 | |
| Net income attributable to Penske Automotive Group | 271.0 | | | 909.5 | |
Condensed balance sheet information:
| | | | | | | | | | | |
| PAG and Guarantor Subsidiaries |
| March 31, 2022 | | December 31, 2021 |
| Current assets (1) | $ | 2,279.0 | | | $ | 2,245.6 | |
| Property and equipment, net | 1,276.5 | | | 1,264.9 | |
| Equity method investments | 1,602.6 | | | 1,645.6 | |
| Other noncurrent assets | 3,579.6 | | | 3,524.0 | |
| Current liabilities | 1,926.7 | | | 1,843.9 | |
| Noncurrent liabilities | 3,800.3 | | | 3,858.9 | |
__________(1)Includes $537.8 million and $529.9 million as of March 31, 2022, and December 31, 2021, respectively, due from Non-Guarantors.
During the three months ended March 31, 2022, PAG received $8.0 million from non-guarantor subsidiaries. During the twelve months ended December 31, 2021, PAG received $93.5 million 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.
| | | | | | | | | | | |
| Three Months Ended March 31, |
| (In millions) | 2022 | | 2021 |
| Net cash provided by continuing operating activities | $ | 380.6 | | | $ | 239.3 | |
| Net cash used in continuing investing activities | (149.8) | | | (18.3) | |
| Net cash used in continuing financing activities | (159.1) | | | (174.1) | |
| Net cash provided by discontinued operations | — | | | — | |
| Effect of exchange rate changes on cash and cash equivalents | (2.1) | | | (1.8) | |
| Net change in cash and cash equivalents | $ | 69.6 | | | $ | 45.1 | |
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.
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 we report 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 in Australia 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:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| (In millions) | 2022 | | 2021 |
| Net cash from continuing operating activities as reported | $ | 380.6 | | | $ | 239.3 | |
| Floor plan notes payable — non-trade as reported | 6.5 | | | (29.1) | |
| Net cash from continuing operating activities including all floor plan notes payable | $ | 387.1 | | | $ | 210.2 | |
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 the sale of property and equipment, and net expenditures for acquisitions and other investments. Capital expenditures were $56.2 million and $42.4 million during the three months ended March 31, 2022 and 2021, 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 capital expenditures with operating cash flows or borrowings under our credit agreements. We had no proceeds from the sale of dealerships during the three months ended March 31, 2022, compared to $4.3 million during the three months ended March 31, 2021. Proceeds from the sale of
property and equipment were $1.8 million and $20.4 million during the three months ended March 31, 2022 and 2021, respectively. Cash used in acquisitions and other investments, net of cash acquired, was $93.6 million during the three months ended March 31, 2022, and included cash used to repay sellers’ floor plan liabilities in such business acquisitions of $16.5 million compared to no cash used in acquisitions and other investments, net of cash acquired, during the three months ended March 31, 2021.
Cash Flows from Continuing Financing Activities
Cash flows from continuing financing activities include net borrowings or repayments of long-term debt, net borrowings or repayments of floor plan notes payable non-trade, repurchases of common stock, dividends, and payments for debt issuance costs.
We had net repayments of long-term debt of $9.9 million and $110.3 million during the three months ended March 31, 2022 and 2021, respectively. We had net borrowings of floor plan notes payable non-trade of $6.5 million and net repayments of floor plan notes payable non-trade of $29.1 million during the three months ended March 31, 2022 and 2021, respectively. We repurchased 1.2 million shares of common stock under our securities repurchase program for $119.2 million during three months ended March 31, 2022, compared to no repurchases of common stock during the three months ended March 31, 2021. We also paid cash dividends to our stockholders of $36.4 million and $34.6 million during the three months ended March 31, 2022 and 2021, respectively. We made payments of $0.1 million and $0.1 million for debt issuance costs during the three months ended March 31, 2022 and 2021, respectively.
Related Party Transactions
Stockholders Agreement
Several of our directors and officers are affiliated with Penske Corporation or related entities. Roger Penske, our Chair of the Board and Chief Executive Officer, is also Chair of the Board and Chief Executive Officer of Penske Corporation and through entities affiliated with Penske Corporation is our largest stockholder owning approximately 46% of our outstanding common stock. Mitsui & Co., Ltd. and Mitsui & Co. (USA), Inc. (collectively, “Mitsui”) own approximately 18% of our outstanding common stock. Mitsui, Penske Corporation, and certain other affiliates of Penske Corporation are parties to a stockholders agreement pursuant to which the Penske affiliated companies agreed to vote their shares for 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 in March 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 of Penske Corporation. Bud Denker, our Executive Vice President, Human Resources, is also the President of Penske Corporation. Greg Penske, one of our directors, is the son of our chair and is also a director of Penske Corporation. Michael Eisenson, one of our directors, is also a director of Penske Corporation. Kota Odagiri, one of our directors, is also an employee of Mitsui & Co.
We sometimes pay to and/or receive fees from Penske 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% by Penske Corporation, 28.9% by us, and 30.0% by Mitsui. We are also party to a joint venture in Penske Commercial Leasing Australia (28%) with PTS. Both of these investments are accounted for under the equity method.
Automotive Joint Ventures
From time to time, we enter into joint venture relationships in the ordinary course of business, pursuant to which we own and operate automotive dealerships together with other investors. We may also provide these dealerships with working capital and other debt financing at costs that are based on our prevailing borrowing rate. As of March 31, 2022, our
automotive joint venture relationships were as follows:
| | | | | | | | | | | | | | |
| Location | | Dealerships | | Ownership Interest |
| Fairfield, Connecticut | | Audi, Mercedes-Benz, Sprinter, Porsche | | 80.00% (A) |
| Greenwich, Connecticut | | Mercedes-Benz | | 80.00% (A) |
| Northern Italy | | BMW, MINI, Maserati, Porsche, Audi, Jaguar, Land Rover, Volvo, Mercedes-Benz, smart, Lamborghini | | 84.10% (A) |
| Frankfurt, Germany | | Lexus, Toyota, Volkswagen | | 50.00% (B) |
| Barcelona, Spain | | BMW, MINI | | 50.00% (B) |
__________
(A)Entity is consolidated in our financial statements.
(B)Entity is accounted for using the equity method of accounting.
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, the rate of inflation, fuel prices, interest rates, and credit availability.
Our business is dependent on a number of factors, including general economic conditions, the availability of vehicle inventory, fuel prices, the rate of inflation, interest rate fluctuations, credit availability, labor availability, environmental and other government regulations, and customer business cycles. U.S. light vehicle sales have ranged from a low of 10.4 million units in 2009 to a high of 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 by ACT Research, in recent years, total U.S. retail sales of new Class 8 commercial vehicles have ranged from a low of approximately 97,000 in 2009, to high of approximately 334,000 in 2019. Through geographic diversification, concentration on higher margin regular service and parts revenues, and diversification of our customer base, 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.
Seasonality
Dealership. Our business is modestly seasonal overall. Our U.S. operations generally experience higher volumes of vehicle sales in the second and third quarters of each year due in part to consumer buying trends and the introduction of new vehicle models. Also, vehicle demand, and to a lesser extent demand for service and parts, is generally lower during the winter months than in other seasons, particularly in regions of the U.S. where dealerships may be subject to severe winters. Our U.K. operations generally experience higher volumes of new vehicle sales in the first and third quarters of each year, due primarily to new vehicle registration practices in the U.K.
Inflation
Many of our market countries are experiencing a high rate of inflation. Inflation affects the price of vehicles, the price of parts, the rate of pay of our employees, and consumer demand. Used vehicle prices in particular have experienced a higher rate of inflation recently, and continued higher rates of inflation may adversely affect consumer demand and increase our costs, which may materially and adversely affect us.
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 and the resolution of vehicle production issues;
•our future financial and operating performance;
•future dealership openings, 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 and sales levels in the automotive retail industry, 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;
•performance of joint ventures, including PTS;
•future foreign exchange rates and geopolitical events;
•the outcome of various legal proceedings;
•results of self-insurance plans;
•trends affecting the automotive or trucking industries 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 2021 annual report on Form 10-K filed February 18, 2022. Important factors that could cause actual results to differ materially from our expectations include those mentioned in Part II, Item 1A. Risk Factors and the following:
•we depend on the success, popularity and availability of the brands we sell, and adverse conditions affecting one or more of these vehicle manufacturers, including the adverse impact on the vehicle and parts supply chain due to natural disasters, the shortage of microchips or other components, the COVID-19 pandemic, the war in Ukraine, or other disruptions that interrupt the supply of vehicles and parts to us may negatively impact our revenues and profitability;
•our business and the automotive retail and commercial vehicles industries in general are susceptible to adverse economic and geo-political conditions, including changes in interest rates, foreign exchange rates, customer demand, customer confidence, the rate of inflation, fuel prices, unemployment rates and credit availability;
•increased tariffs, import product restrictions, and foreign trade risks that may impair our ability to sell foreign vehicles profitably;
•the number of new and used vehicles sold in our markets, which impacts our ability to generate new and used vehicle gross profit;
•the effect on our businesses of the changing retail environment due to certain manufacturers selling direct to consumers outside the franchise system, changes to an agency model of distribution in the U.K and Europe which will negatively impact revenues, reduce SG&A costs, and reduce floor plan interest expense (although other impacts to our results of operations remain uncertain), and the growing number of electric vehicles;
•the effect on our businesses of the 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 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 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 or other periodic business interruptions;
•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 U.S. subject our profitability to fluctuations relating to changes in foreign currency values;
•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 regard 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, which systems are increasingly threatened by ransomware and other cyberattacks, 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 enacted in certain European countries, Washington, California, Massachusetts, and New York banning the sale of new vehicles with gasoline engines (with regulations in Europe and Washington starting as early as 2030);
•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 U.S. are repealed or weakened or new manufacturers such as those selling electric vehicles are able to conduct significant vehicle sales outside of the franchised automotive system, our automotive dealerships may be subject to increased competition and may be more susceptible to termination, non-renewal, or renegotiation of their franchise agreements;
•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 Part II, 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 the Securities 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.