UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

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

Commission file number 1-12297

Penske Automotive Group, Inc.

Delaware		22-3086739
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
2555 Telegraph Road,		48302-0954
Bloomfield Hills, Michigan		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code:
(248) 648-2500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 26, 2010, there were 92,074,157 shares of voting common stock outstanding.

 

 

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of June 30, 2010 and December 31, 2009			3
Consolidated Condensed Statements of Income for the three and six months ended June 30, 2010 and 2009			4
Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2010 and 2009			5
Consolidated Condensed Statement of Equity for the six months ended June 30, 2010			6
Notes to Consolidated Condensed Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative & Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			42
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			43
Item 5. Other Information			43
Item 6. Exhibits			43
Exhibit 4.1
Exhibit 4.2
Exhibit 12
Exhibit 31.1
Exhibit 31.2
Exhibit 32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PENSKE AUTOMOTIVE GROUP, INC.

		June 30,				December 31,
		2010				2009
		(Unaudited)
		(In thousands, except
		per share amounts)
ASSETS
Cash and cash equivalents		$	17,664			$	13,999
Accounts receivable, net of allowance for doubtful accounts of $1,797 and $1,689			351,013				321,226
Inventories			1,364,718				1,302,495
Other current assets			106,479				95,426
Assets held for sale			572				10,625
Total current assets			1,840,446				1,743,771
Property and equipment, net			707,832				726,808
Goodwill			795,366				810,047
Franchise value			199,581				201,756
Equity method investments			280,847				295,473
Other long-term assets			14,591				18,152
Total assets		$	3,838,663			$	3,796,007
LIABILITIES AND EQUITY
Floor plan notes payable		$	818,339			$	769,657
Floor plan notes payable — non-trade			499,410				423,316
Accounts payable			209,535				189,989
Accrued expenses			218,716				227,294
Current portion of long-term debt			16,551				12,442
Liabilities held for sale			501				7,675
Total current liabilities			1,763,052				1,630,373
Long-term debt			844,292				933,966
Deferred tax liabilities			159,872				157,500
Other long-term liabilities			109,713				128,129
Total liabilities			2,876,929				2,849,968
Commitments and contingent liabilities
Equity
Penske Automotive Group stockholders’ equity:
Preferred Stock, $0.0001 par value; 100 shares authorized; none issued and outstanding			—				—
Common Stock, $0.0001 par value, 240,000 shares authorized; 92,142 shares issued and outstanding at June 30, 2010; 91,618 shares issued and outstanding at December 31, 2009			9				9
Non-voting Common Stock, $0.0001 par value, 7,125 shares authorized; none issued and outstanding			—				—
Class C Common Stock, $0.0001 par value, 20,000 shares authorized; none issued and outstanding			—				—
Additional paid-in-capital			738,611				737,198
Retained earnings			246,000				196,205
Accumulated other comprehensive income			(26,567	)			9,049
Total Penske Automotive Group stockholders’ equity			958,053				942,461
Non-controlling interest			3,681				3,578
Total equity			961,734				946,039
Total liabilities and equity		$	3,838,663			$	3,796,007

See Notes to Consolidated Condensed Financial Statements

PENSKE AUTOMOTIVE GROUP, INC.

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
		(Unaudited)
		(In thousands, except per share amounts)
Revenue:
New vehicle		$	1,355,813			$	1,090,127			$	2,588,136			$	2,061,323
Used vehicle			749,669				658,787				1,446,337				1,275,286
Finance and insurance, net			63,558				54,674				122,992				103,137
Service and parts			332,160				331,106				666,183				658,009
Distribution			19,933				53,152				27,869				133,265
Fleet and wholesale vehicle			182,555				130,849				337,850				245,975
Total revenues			2,703,688				2,318,695				5,189,367				4,476,995
Cost of sales:
New vehicle			1,244,630				1,004,151				2,375,452				1,903,990
Used vehicle			689,552				599,526				1,329,500				1,160,009
Service and parts			141,655				148,692				287,275				298,867
Distribution			17,227				45,702				24,949				114,016
Fleet and wholesale			180,280				126,869				331,819				238,319
Total cost of sales			2,273,344				1,924,940				4,348,995				3,715,201
Gross profit			430,344				393,755				840,372				761,794
Selling, general and administrative expenses			355,177				327,389				695,691				640,055
Depreciation			12,054				13,811				24,428				26,692
Operating income			63,113				52,555				120,253				95,047
Floor plan interest expense			(8,321	)			(8,969	)			(16,842	)			(18,431	)
Other interest expense			(12,542	)			(13,687	)			(25,262	)			(28,187	)
Debt discount amortization			(2,428	)			(3,135	)			(5,343	)			(6,773	)
Equity in earnings of affiliates			4,784				3,466				4,355				4,180
Gain on debt repurchase			422				—				1,027				10,429
Income from continuing operations before income taxes			45,028				30,230				78,188				56,265
Income taxes			(15,625	)			(10,329	)			(28,060	)			(20,074	)
Income from continuing operations			29,403				19,901				50,128				36,191
Gain (loss) from discontinued operations, net of tax			281				(5,734	)			(112	)			(5,822	)
Net income			29,684				14,167				50,016				30,369
Less: Income attributable to non-controlling interests			243				88				221				8
Net income attributable to Penske Automotive Group common stockholders		$	29,441			$	14,079			$	49,795			$	30,361
Basic earnings per share attributable to Penske Automotive Group common stockholders:
Continuing operations		$	0.32			$	0.22			$	0.54			$	0.40
Discontinued operations			(0.00	)			(0.06	)			(0.00	)			(0.06	)
Net income		$	0.32			$	0.15			$	0.54			$	0.33
Shares used in determining basic earnings per share			92,142				91,531				92,016				91,506
Diluted earnings per share attributable to Penske Automotive Group common stockholders:
Continuing operations		$	0.32			$	0.22			$	0.54			$	0.40
Discontinued operations			(0.00	)			(0.06	)			(0.00	)			(0.06	)
Net income		$	0.32			$	0.15			$	0.54			$	0.33
Shares used in determining diluted earnings per share			92,206				91,592				92,086				91,537
Amounts attributable to Penske Automotive Group common stockholders:
Income from continuing operations		$	29,403			$	19,901			$	50,128			$	36,191
Less: Income attributable to non-controlling interests			243				88				221				8
Income from continuing operations, net of tax			29,160				19,813				49,907				36,183
Gain (loss) from discontinued operations, net of tax			281				(5,734	)			(112	)			(5,822	)
Net income		$	29,441			$	14,079			$	49,795			$	30,361
Cash dividends per share		$	—			$	—			$	—			$	—

See Notes to Consolidated Condensed Financial Statements

PENSKE AUTOMOTIVE GROUP, INC.

		Six Months Ended
		June 30,
		2010				2009
		(Unaudited)
		(In thousands)
Operating Activities:
Net income		$	50,016			$	30,369
Adjustments to reconcile net income to net cash from continuing operating activities:
Depreciation			24,428				26,692
Debt discount amortization			5,343				6,773
Undistributed earnings of equity method investments			(4,355	)			(4,180	)
Loss from discontinued operations, net of tax			112				5,822
Deferred income taxes			11,398				21,037
Gain on debt repurchase			(1,027	)			(10,733	)
Changes in operating assets and liabilities:
Accounts receivable			(25,714	)			(26,927	)
Inventories			(33,856	)			340,656
Floor plan notes payable			27,057				(188,134	)
Accounts payable and accrued expenses			12,036				32,906
Other			4,155				6,824
Net cash from continuing operating activities			69,593				241,105
Investing Activities:
Purchase of equipment and improvements			(37,622	)			(43,979	)
Dealership acquisitions net, including repayment of sellers’ floor plan notes payable of $7,231 and $2,940, respectively			(12,277	)			(8,610	)
Other			—				12,679
Net cash from continuing investing activities			(49,899	)			(39,910	)
Financing Activities:
Proceeds from borrowings under U.S. credit agreement revolving credit line			320,600				276,800
Repayments under U.S. credit agreement revolving credit line			(292,600	)			(276,800	)
Repayments under U.S. credit agreement term loan			—				(10,000	)
Repurchase of 3.5% senior subordinated convertible notes			(113,604	)			(51,425	)
Net repayments of other long-term debt			(9,497	)			(47,768	)
Net borrowings (repayments) of floor plan notes payable — non-trade			76,094				(78,608	)
Proceeds from exercises of options, including excess tax benefit			211				—
Net cash from continuing financing activities			(18,796	)			(187,801	)
Discontinued operations:
Net cash from discontinued operating activities			(6,489	)			(643	)
Net cash from discontinued investing activities			9,463				(2,605	)
Net cash from discontinued financing activities			(207	)			(7,085	)
Net cash from discontinued operations			2,767				(10,333	)
Net change in cash and cash equivalents			3,665				3,061
Cash and cash equivalents, beginning of period			13,999				17,108
Cash and cash equivalents, end of period		$	17,664			$	20,169
Supplemental disclosures of cash flow information:
Cash paid for:
Interest		$	43,876			$	49,368
Income taxes			14,121				4,655

See Notes to Consolidated Condensed Financial Statements

PENSKE AUTOMOTIVE GROUP, INC.

																		Accumulated				Total
		Common Stock								Additional								Other				Stockholders’ Equity
		Issued								Paid-in				Retained				Comprehensive				Attributable to Penske				Non-controlling				Total
		Shares				Amount				Capital				Earnings				Income (Loss)				Automotive Group				Interest				Equity
		(Unaudited)
		(Dollars in thousands)
Balance, January 1, 2010			91,617,746			$	9			$	737,198			$	196,205			$	9,049			$	942,461			$	3,578			$	946,039
Equity compensation			499,751				—				5,837				—				—				5,837				—				5,837
Exercise of options, including tax benefit of $108			25,000				—				211				—				—				211				—				211
Repurchase of 3.5% senior subordinated convertible notes			—				—				(4,635	)			—				—				(4,635	)			—				(4,635	)
Distributions to non-controlling interests			—				—				—				—				—				—				(118	)			(118	)
Foreign currency translation			—				—				—				—				(42,831	)			(42,831	)			—				(42,831	)
Other			—				—				—				—				7,215				7,215				—				7,215
Net income			—				—				—				49,795				—				49,795				221				50,016
Balance, June 30, 2010			92,142,497			$	9			$	738,611			$	246,000			$	(26,567	)		$	958,053			$	3,681			$	961,734

See Notes to Consolidated Condensed Financial Statements

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. Interim Financial Statements

Business Overview

Penske Automotive Group, Inc. (the “Company”) is the second largest automotive retailer headquartered in the U.S. as measured by total revenues. As of June 30, 2010, the Company owned and operated 171 franchises in the U.S. and 152 franchises outside of the U.S., primarily in the U.K. During the six months ended June 30, 2010, we acquired 6 franchises, including Volkswagen and Audi franchises in Santa Ana, California and a group of BMW franchises in Augsburg, Germany through the dissolution of a joint venture. We were awarded 9 franchises, including Audi and Mercedes franchises in Chantilly, Virginia, two Mini franchises in the western U.S. and four Mercedes Sprinter commercial van franchises in the U.S. We also disposed of 5 franchises, including our Toyota/Scion business in Warren, Michigan and our Ford business in Goodyear, Arizona.

Each of the Company’s dealerships offers a wide selection of new and used vehicles for sale. In addition to selling new and used vehicles, the Company generates higher-margin revenue at each of its dealerships through maintenance and repair services and the sale and placement of higher-margin products, such as third party finance and insurance products, third-party extended service contracts and replacement and aftermarket automotive products. In 2007, the Company established a wholly-owned subsidiary, smart USA Distributor, LLC (“smart USA”), which is the exclusive distributor of the smart fortwo vehicle in the U.S. and Puerto Rico. The Company also holds a 9.0% limited partnership interest in Penske Truck Leasing Co., L.P. (“PTL”), a leading global transportation services provider.

Basis of Presentation

The following unaudited consolidated condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the SEC rules and regulations. The information presented as of June 30, 2010 and December 31, 2009 and for the three and six month periods ended June 30, 2010 and 2009 is unaudited, but includes all adjustments which the management of the Company believes to be necessary for the fair presentation of results for the periods presented. The consolidated condensed financial statements for prior periods have been revised for entities which have been treated as discontinued operations through June 30, 2010, and the results for interim periods are not necessarily indicative of results to be expected for the year. These consolidated condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2009, which are included as part of the Company’s Annual Report on Form 10-K.

Results for three and six months ended June 30, 2010 include a $422 and $1,027 pre-tax gain relating to the repurchase of $41,548 and $112,658 aggregate principal amount of the Company’s 3.5% senior subordinated convertible notes (“Convertible Notes”), respectively. Results for the six months ended June 30, 2009 include a $10,429 pre-tax gain relating to the repurchase of $68,740 aggregate principal amount of the Convertible Notes.

Discontinued Operations

The Company accounts for dispositions as discontinued operations when the operations and cash flows of the business being disposed of will be eliminated from on-going operations and that the Company will not have any significant continuing involvement in its operations.

In evaluating whether the cash flows of a dealership in its Retail reportable segment will be eliminated from ongoing operations, the Company considers whether it is likely that customers will migrate to similar franchises that it owns in the same geographic market. The Company’s consideration includes an evaluation of the brands sold at other dealerships it operates in the market and their proximity to the disposed dealership. When the Company disposes of franchises, it typically does not have continuing brand representation in that market. If the franchise being disposed of is located in a complex of Company owned dealerships, the Company does not treat the disposition as a discontinued operation if the Company believes that the cash flows previously generated by the disposed franchise will be replaced by expanded operations of the remaining franchises. The results of operations during the three and six months ended June 30, 2010 and 2009 and the net assets as of June 30, 2010 and December 31, 2009 of dealerships accounted for as discontinued operations were immaterial.

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accounts requiring the use of significant estimates include accounts receivable, inventories, income taxes, intangible assets and certain reserves.

Estimated Useful Lives of Assets

The Company changed the useful lives of certain fixed assets during the first quarter of 2010 as part of a review of assumptions related to the expected utilization of those assets by the Company. The Company accounted for the change in useful lives as a change in estimate prospectively effective January 1, 2010, which resulted in a reduction of depreciation expense of $1,410 and $2,820 for the three and six month periods ended June 30, 2010, respectively.

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debt, floor plan notes payable, and interest rate swaps used to hedge future cash flows. Other than our subordinated notes, the carrying amount of all significant financial instruments approximates fair value due either to length of maturity, the existence of variable interest rates that approximate prevailing market rates, or as a result of mark to market accounting. A summary of the fair value of the subordinated notes as of June 30, 2010, based on level one market data follows:

		Carrying Value				Fair Value
7.75% senior subordinated notes due 2016		$	375,000			$	350,625
3.5% senior subordinated convertible notes due 2026			187,157				194,570

2. Inventories

Inventories consisted of the following:

		June 30,				December 31,
		2010				2009
New vehicles		$	956,879			$	898,110
Used vehicles			330,895				325,707
Parts, accessories and other			76,944				78,678
Total inventories		$	1,364,718			$	1,302,495

The Company receives non-refundable floor plan interest and advertising assistance credits from certain vehicle manufacturers that reduce cost of sales when the vehicles are sold. These floor plan interest and advertising assistance credits amounted to $13,176 and $8,975 during the six months ended June 30, 2010 and 2009, respectively.

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

3. Business Combinations

The Company’s retail operations acquired three and five franchises during the six months ended June 30, 2010 and 2009, respectively. The Company’s financial statements include the results of operations of the acquired dealerships from the date of acquisition. The fair value of the assets acquired and liabilities assumed have been recorded in the Company’s consolidated condensed financial statements, and may be subject to adjustment pending completion of final valuation. A summary of the aggregate consideration paid and the aggregate amounts of the assets acquired and liabilities assumed in the six months ended June 30, 2010 and 2009 follows:

		June 30,				June 30,
		2010				2009
Inventory		$	8,595			$	2,935
Other current assets			17				129
Property and equipment			187				3,250
Goodwill			3,510				1,746
Franchise value			—				749
Current liabilities			(32	)			(199	)
Cash used in dealership acquisitions		$	12,277			$	8,610

In the first quarter of 2010, the Company exited one of its German joint ventures by exchanging its 50% interest in the joint venture for 100% ownership in three BMW franchises previously held by the joint venture. The Company recorded $13,331 of intangible assets in connection with this transaction.

4. Intangible Assets

The following is a summary of the changes in the carrying amount of goodwill and franchise value during the six months ended June 30, 2010:

						Franchise
		Goodwill				Value
Balance — January 1, 2010		$	810,047			$	201,756
Additions			13,051				3,703
Foreign currency translation			(27,732	)			(5,878	)
Balance — June 30, 2010		$	795,366			$	199,581

5. Floor Plan Notes Payable — Trade and Non-trade

The Company finances substantially all of its new and a portion of its used vehicle inventories under revolving floor plan arrangements with various lenders, primarily through captive finance companies associated with automotive manufacturers. In the U.S., the floor plan arrangements are due on demand; however, the Company has not historically been required to repay floor plan advances prior to the sale of the vehicles that have been financed. The Company typically makes monthly interest payments on the amount financed. Outside the U.S., substantially all of the floor plan arrangements are payable on demand or have an original maturity of 90 days or less, and the Company is generally required to repay floor plan advances at the earlier of the sale of the vehicles that have been financed or the stated maturity.

The floor plan agreements typically grant a security interest in substantially all of the assets of the Company’s dealership subsidiaries, and in the U.S. are guaranteed by the Company. Interest rates under the floor plan arrangements are variable and increase or decrease based on changes in the prime rate, defined London Interbank Offered Rate (“LIBOR”), Finance House Base Rate, or Euro Interbank Offered Rate. The Company classifies floor plan notes payable to a party other than the manufacturer of a particular new vehicle, and all floor plan notes payable relating to pre-owned vehicles, as floor plan notes payable — non-trade on its consolidated condensed balance sheets, and classifies related cash flows as a financing activity on its consolidated condensed statements of cash flows.

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

6. Earnings Per Share

Basic earnings per share is computed using net income attributable to Penske Automotive Group common stockholders and the number of weighted average shares of voting common stock outstanding, including outstanding unvested restricted stock awards which contain rights to non-forfeitable dividends. Diluted earnings per share is computed using net income attributable to Penske Automotive Group common stockholders and the number of weighted average shares of voting common stock outstanding, adjusted for the dilutive effect of non-participatory equity compensation. A reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2010 and 2009 follows:

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Weighted average number of common shares outstanding			92,142				91,531				92,016				91,506
Effect of non-participatory equity compensation			64				61				70				31
Weighted average number of common shares outstanding, including effect of dilutive securities			92,206				91,592				92,086				91,537

There were no anti-dilutive stock options outstanding during the three and six months ended June 30, 2010 which were excluded from the calculation of diluted earnings per share. During the three and six months ended June 30, 2009, 3 and 222 stock options, respectively, were excluded from the calculation of diluted earnings per share because the effect of such securities was anti-dilutive. In addition, the Company has senior subordinated convertible notes outstanding which, under certain circumstances discussed in Note 7, may be converted to voting common stock. As of June 30, 2010 and 2009, no shares related to the senior subordinated convertible notes were included in the calculation of diluted earnings per share because the effect of such securities was anti-dilutive.

7. Long-Term Debt

Long-term debt consisted of the following:

		June 30,				December 31,
		2010				2009
U.S. credit agreement — revolving credit line		$	28,000			$	—
U.S. credit agreement — term loan			149,000				149,000
U.K. credit agreement — revolving credit line			44,817				59,803
U.K. credit agreement — term loan			10,545				17,115
U.K. credit agreement — overdraft line of credit			12,259				12,048
7.75% senior subordinated notes due 2016			375,000				375,000
3.5% senior subordinated convertible notes due 2026, net of debt discount			187,157				289,344
Mortgage facilities			46,608				41,358
Other			7,457				2,740
Total long-term debt			860,843				946,408
Less: current portion			(16,551	)			(12,442	)
Net long-term debt		$	844,292			$	933,966

U.S. Credit Agreement

The Company is party to a credit agreement with DCFS USA LLC and Toyota Motor Credit Corporation, as amended (the “U.S. Credit Agreement”), which, as of June 30, 2010, provided for up to $250,000 in revolving loans for working capital, acquisitions, capital expenditures, investments and other general corporate purposes, a non-amortizing term loan with a remaining balance of $149,000, and for an additional $10,000 of availability for letters of credit, through September 30, 2012. As of June 30, 2010, the revolving loans bore interest at a defined LIBOR plus 2.50%, subject to an incremental 0.50% for uncollateralized borrowings in excess of a defined borrowing base. The term loan, which bears interest at defined LIBOR plus 2.50%, may be prepaid at any time, but then may not be re-borrowed.

The U.S. Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by the Company’s domestic subsidiaries and contains a number of significant covenants that, among other things, restrict the Company’s ability to dispose of assets, incur additional indebtedness, repay other indebtedness, pay dividends, create liens on assets, make investments or acquisitions and engage in mergers or consolidations. The Company is also required to comply with specified financial and other tests and ratios, each as defined in the U.S. Credit Agreement, including: a ratio of current assets to current liabilities, a fixed charge coverage ratio, a ratio of debt to stockholders’ equity and a ratio of debt to EBITDA. A breach of these requirements would give rise to certain remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of the amounts owed. As of June 30, 2010, the Company was in compliance with all covenants under the U.S. Credit Agreement.

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

The U.S. Credit Agreement also contains typical events of default, including change of control, non-payment of obligations and cross-defaults to the Company’s other material indebtedness. Substantially all of the Company’s domestic assets are subject to security interests granted to lenders under the U.S. Credit Agreement. As of June 30, 2010, $149,000 of term loans, $1,250 of letters of credit, and $28,000 of revolver borrowings were outstanding under the U.S. Credit Agreement.

In July 2010, the Company amended the U.S. Credit Agreement to (1) increase the borrowing capacity under the revolving credit line by $50.0 million, (2) increase the interest rate on secured revolving borrowings by 25 basis points, and (3) increase the rate on unsecured revolving borrowings by 50 basis points.

U.K. Credit Agreement

The Company’s subsidiaries in the U.K. (the “U.K. Subsidiaries”) are party to an agreement with the Royal Bank of Scotland plc, as agent for National Westminster Bank plc, which provides for a funded term loan, a revolving credit agreement and a seasonally adjusted overdraft line of credit (collectively, the “U.K. Credit Agreement”) to be used for working capital, acquisitions, capital expenditures, investments and general corporate purposes. The U.K. Credit Agreement provides for (1) up to £100,000 in revolving loans through August 31, 2013, which bears interest between a defined LIBOR plus 1.1% and defined LIBOR plus 3.0%, (2) a term loan which bears interest between 6.39% and 8.29% and is payable ratably in quarterly intervals until fully repaid on June 30, 2011, and (3) a demand seasonally adjusted overdraft line of credit for up to £20,000 that bears interest at the Bank of England Base Rate plus 1.75%.

The U.K. Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by the U.K. Subsidiaries, and contains a number of significant covenants that, among other things, restrict the ability of the U.K. Subsidiaries to pay dividends, dispose of assets, incur additional indebtedness, repay other indebtedness, create liens on assets, make investments or acquisitions and engage in mergers or consolidations. In addition, the U.K. Subsidiaries are required to comply with specified ratios and tests, each as defined in the U.K. Credit Agreement, including: a ratio of EBITDAR to interest plus rental payments (as defined), a measurement of maximum capital expenditures, and a debt to EBITDA ratio (as defined). A breach of these requirements would give rise to certain remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of the amounts owed. As of June 30, 2010, the U.K. subsidiaries were in compliance with all covenants under the U.K. Credit Agreement.

The U.K. Credit Agreement also contains typical events of default, including change of control and non-payment of obligations and cross-defaults to other material indebtedness of the U.K. Subsidiaries. Substantially all of the U.K. Subsidiaries’ assets are subject to security interests granted to lenders under the U.K. Credit Agreement. As of June 30, 2010, outstanding loans under the U.K. Credit Agreement amounted to £45,265 ($67,621), including £7,059 ($10,545) under the term loan. In July 2010, the Company amended the U.K. Credit Agreement in connection with a reorganization of our European operations.

7.75% Senior Subordinated Notes

In December 2006, the Company issued $375,000 aggregate principal amount of 7.75% senior subordinated notes due 2016 (the “7.75% Notes”). The 7.75% Notes are unsecured senior subordinated notes and are subordinate to all existing and future senior debt, including debt under the Company’s credit agreements, mortgages and floor plan indebtedness. The 7.75% Notes are guaranteed by substantially all of the Company’s wholly-owned domestic subsidiaries on an unsecured senior subordinated basis. Those guarantees are full and unconditional and joint and several. The Company can redeem all or some of the 7.75% Notes at its option beginning in December 2011 at specified redemption prices, or prior to December 2011 at 100% of the principal amount of the notes plus an applicable “make-whole” premium, as defined. Upon certain sales of assets or specific kinds of changes of control, the Company is required to make an offer to purchase the 7.75% Notes. The 7.75% Notes also contain customary negative covenants and events of default. As of June 30, 2010, the Company was in compliance with all negative covenants and there were no events of default.

Senior Subordinated Convertible Notes

On January 31, 2006, the Company issued $375,000 aggregate principal amount of 3.50% senior subordinated convertible notes due 2026 (the “Convertible Notes”), of which $193,602 were outstanding at June 30, 2010. The Convertible Notes mature on April 1, 2026, unless earlier converted, redeemed or purchased by the Company, as discussed below. The Convertible Notes are unsecured senior subordinated obligations and are subordinate to all future and existing senior debt, including debt under the Company’s credit agreements, mortgages and floor plan indebtedness. The Convertible Notes are guaranteed on an unsecured senior subordinated basis by substantially all of the Company’s wholly-owned domestic subsidiaries. Those guarantees are full and unconditional and joint and several. The Convertible Notes also contain customary negative covenants and events of default. As of June 30, 2010, the Company was in compliance with all negative covenants and there were no events of default.

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Holders of the Convertible Notes may convert them based on a conversion rate of 42.7796 shares of common stock per $1,000 principal amount of the Convertible Notes (which is equal to a conversion price of approximately $23.38 per share), subject to adjustment, only under the following circumstances: (1) in any quarterly period, if the closing price of the common stock for twenty of the last thirty trading days in the prior quarter exceeds $28.05 (subject to adjustment), (2) for specified periods, if the trading price of the Convertible Notes falls below specific thresholds, (3) if the Convertible Notes are called for redemption, (4) if specified distributions to holders of common stock are made or specified corporate transactions occur, (5) if a fundamental change (as defined) occurs, or (6) during the ten trading days prior to, but excluding, the maturity date.

Upon conversion of the Convertible Notes, for each $1,000 principal amount of the Convertible Notes, a holder will receive an amount in cash, equal to the lesser of (i) $1,000 or (ii) the conversion value, determined in the manner set forth in the related indenture covering the Convertible Notes, of the number of shares of common stock equal to the conversion rate. If the conversion value exceeds $1,000, the Company will also deliver, at its election, cash, common stock or a combination of cash and common stock with respect to the remaining value deliverable upon conversion.

In the event of a conversion due to a change of control on or before April 6, 2011, the Company will, in certain circumstances, pay a make-whole premium by increasing the conversion rate used in that conversion. In addition, the Company will pay additional cash interest, commencing with six-month periods beginning on April 1, 2011, if the average trading price of a Convertible Note for certain periods in the prior six-month period equals 120% or more of the principal amount of the Convertible Notes. On or after April 6, 2011, the Company may redeem the Convertible Notes, in whole at any time or in part from time to time, for cash at a redemption price of 100% of the principal amount of the Convertible Notes to be redeemed, plus any accrued and unpaid interest to the applicable redemption date.

Holders of the Convertible Notes may require the Company to purchase all or a portion of their Convertible Notes for cash on each of April 1, 2011, April 1, 2016 or April 1, 2021 at a purchase price equal to 100% of the principal amount of the Convertible Notes to be purchased, plus accrued and unpaid interest, if any, to the applicable purchase date. Because the Company expects to be required to redeem the Convertible Notes in April 2011, it is reviewing alternatives to refinance or repay the Convertible Notes, which may include the issuance of additional securities. In the absence of a refinancing of the Convertible Notes, the Company expects to utilize cash flow from operations, working capital and availability under the U.S. Credit Agreement to repay the Convertible Notes. Based on the ability and intent to refinance any redemption or repayment of the Convertible Notes, the Company has classified them as long-term in the Consolidated Condensed Balance Sheet as of June 30, 2010. In the event the outstanding balance of the Convertible Notes exceeds or was expected to exceed the revolving capacity under the U.S. Credit Agreement, any such excess would have been classified as current.

In the second quarter of 2010, the Company repurchased $41,548 principal amount of its outstanding Convertible Notes, which had a book value, net of debt discount, of $40,013 for $41,859. The Company allocated $2,438 of the total consideration to the reacquisition of the equity component of the Convertible Notes. In connection with the transactions, the Company wrote off $170 of unamortized deferred financing costs. As a result, the Company recorded a $422 pre-tax gain in connection with the repurchases. In total during the first six months of 2010, the Company repurchased $112,658 principal amount of its outstanding Convertible Notes, which had a book value, net of debt discount, of $107,530 for $113,603. The Company allocated $7,667 of the total consideration to the reacquisition of the equity component of the Convertible Notes. In connection with the transactions, the Company wrote off $567 of unamortized deferred financing costs. As a result, the Company has recorded an aggregate $1,027 pre-tax gain in connection with the repurchases during 2010.

In the first quarter of 2009, the Company repurchased $68,740 principal amount of its outstanding Convertible Notes, which had a book value, net of debt discount, of $62,831 for $51,425. In connection with the transaction, the Company wrote off $672 of unamortized deferred financing costs and incurred $305 of transaction costs. No element of the consideration was allocated to the reacquisition of the equity component because the consideration paid was less than the fair value of the liability component prior to extinguishment. As a result, the Company recorded a $10,429 pre-tax gain in connection with the repurchase.

The liability and equity components related to the Convertible Notes consist of the following:

		June 30,				December 31,
		2010				2009
Carrying amount of the equity component		$	38,458			$	43,093
Principal amount of the liability component		$	193,602			$	306,260
Unamortized debt discount			6,445				16,916
Net carrying amount of the liability component		$	187,157			$	289,344

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

The unamortized debt discount will be amortized as additional interest expense through April 1, 2011, the date the Company expects to be required to redeem the Convertible Notes. The annual effective interest rate on the liability component is 8.25%.

In July 2010, the Company repurchased an additional $43,000 principal amount of the Convertible Notes for $43,215. As a result, there is an aggregate of $150,602 principal amount of the Convertible Notes currently outstanding.

Mortgage Facilities

The Company is party to several mortgages, including a $42,400 mortgage facility with respect to certain of its dealership properties that matures on October 1, 2015. This facility bears interest at a defined rate, requires monthly principal and interest payments, and includes the option to extend the term for successive periods of five years up to a maximum term of twenty-five years. In the event the Company exercises its options to extend the term, the interest rate will be renegotiated at each renewal period. This mortgage facility also contains typical events of default, including non-payment of obligations, cross-defaults to the Company’s other material indebtedness, certain change of control events, and the loss or sale of certain franchises operated at the property. Substantially all of the buildings, improvements, fixtures and personal property of the properties under the mortgage facility are subject to security interests granted to the lender. As of June 30, 2010, $46,608 was outstanding under these facilities.

8. Interest Rate Swaps

The Company uses interest rate swaps to manage interest rate risk associated with the Company’s variable rate floor plan debt. The Company is party to interest rate swap agreements through January 2011, pursuant to which the LIBOR portion of $300,000 of the Company’s floating rate floor plan debt was fixed at 3.67%. We may terminate these arrangements at any time, subject to the settlement of the then current fair value of the swap arrangements.

The Company designated $290,000 of the swap agreements as cash flow hedges of future interest payments of LIBOR based U.S. floor plan borrowings and the effective portion of the gain or loss on that $290,000 of the swap agreements is reported as a component of other comprehensive income and reclassified into earnings when the hedged transaction affects earnings. Settlements and changes in the fair value related to the undesignated $10,000 of the swap agreements will be recorded as realized and unrealized gains/losses within interest expense.

The Company used Level 2 inputs to estimate the fair value of the interest rate swap agreements. As of June 30, 2010, the fair value of the swaps designated as hedging instruments was estimated to be a liability of $5,729, which is recorded in accrued expenses. As of December 31, 2009, the fair value of the swaps designated as hedging instruments was estimated to be a liability of $9,963, of which $9,250 and $713 were recorded in accrued expenses and other long-term liabilities, respectively. As of June 30, 2010, the fair value of the swaps not designated as hedging instruments was estimated to be a liability of $198, which is recorded in accrued expenses. As of December 31, 2009, the fair value of the swaps not designated as hedging instruments was estimated to be a liability of $344, of which $319 and $25 were recorded in accrued expenses and other long-term liabilities, respectively.

During the six months ended June 30, 2010, the Company recognized a net gain of $1,328 related to the effective portion of the interest rate swap agreements designated as hedging instruments in accumulated other comprehensive income, and reclassified $2,207 of the existing derivative losses from accumulated other comprehensive income into floor plan interest expense. During the six months ended June 30, 2009, the Company recognized a net gain of $1,464 related to the effective portion of the interest rate swap agreements designated as hedging instruments in accumulated other comprehensive income, and reclassified $4,894 of existing derivative losses from accumulated other comprehensive income into floor plan interest expense. The Company expects approximately $4,248 associated with the swaps to be recognized as an increase of interest expense as the hedged interest payments become due through the swap agreement’s maturity in January 2011. During the six months ended June 30, 2010 and 2009, the swaps increased the weighted average interest rate on the Company’s floor plan borrowings by approximately 0.8% and 0.6%, respectively.

9. Commitments and Contingent Liabilities

The Company is involved in litigation which may relate to claims brought by governmental authorities, issues with customers and employment related matters, including class action claims and purported class action claims. As of June 30, 2010, the Company is not party to any legal proceedings, including class action lawsuits, that individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

The Company has historically structured its operations so as to minimize ownership of real property. As a result, the Company leases or subleases substantially all of its facilities. These leases are generally for a period between five and 20 years, and are typically structured to include renewal options at the Company’s election. Pursuant to the leases for some of the Company’s larger facilities, the Company is required to comply with specified financial ratios, including a “rent coverage” ratio and a debt to EBITDA ratio, each as defined. For these leases, non-compliance with the ratios may require the Company to post collateral in the form of a letter of credit. A breach of the other lease covenants give rise to certain remedies by the landlord, the most severe of which include the termination of the applicable lease and acceleration of the total rent payments due under the lease. As of June 30, 2010, the Company was in compliance with all covenants under these leases.

The Company has sold a number of dealerships to third parties and, as a condition to certain of those sales, remains liable for the lease payments relating to the properties on which those businesses operate in the event of non-payment by the buyer. The Company is also party to lease agreements on properties that it no longer uses in its retail operations that it has sublet to third parties. The Company relies on subtenants to pay the associated rent and maintain the property at these locations. In the event the subtenant does not perform as expected, the Company may not be able to recover amounts owed to it and the Company could be required to fulfill these obligations.

The Company is potentially subject to additional purchase commitments pursuant to its smart distribution agreement, smart franchise agreement and state franchise laws in the event of franchise terminations, none of which have historically had a material adverse effect on its results of operations, financial condition or cash flows. The Company does not anticipate that the purchase commitments will have a material adverse effect on its future results of operations, financial condition or cash flows, although such an outcome is possible.

The Company has $20,891 of letters of credit outstanding as of June 30, 2010, which are required by certain of our lenders and insurance providers. In addition, the Company has $14,382 of surety bonds posted by dealerships in the ordinary course of business.

10. Equity

Comprehensive income (loss)

Other comprehensive income (loss) includes foreign currency translation gains and losses, as well as changes relating to other immaterial items, including certain defined benefit plans in the U.K. and changes in the fair value of interest rate swap agreements, each of which has been excluded from net income and reflected in equity. Total comprehensive income (loss) is summarized as follows:

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Attributable to Penske Automotive Group:
Net income		$	29,441			$	14,079			$	49,795			$	30,361
Other comprehensive income (loss):
Foreign currency translation			(15,123	)			52,357				(42,831	)			54,565
Other			4,029				1,472				7,215				1,635
Total attributable to Penske Automotive Group			18,347				67,908				14,179				86,561
Attributable to the non-controlling interest:
Net income			243				88				221				8
Total comprehensive income (loss)		$	18,590			$	67,996			$	14,400			$	86,569

In July 2010, the Company repurchased 68 shares at an average price of $10.97 for a total of $751.

11. Segment Information

The Company’s operations are organized by management into operating segments by line of business and geography. The Company has determined it has three reportable segments as defined in general accounting principles for segment reporting, including: (i) Retail, consisting of our automotive retail operations, (ii) Distribution, consisting of our distribution of the smart fortwo vehicle, parts and accessories in the U.S. and Puerto Rico and (iii) PAG Investments, consisting of our investments in non-automotive retail operations. The Retail reportable segment includes all automotive dealerships and all departments relevant to the operation of the dealerships. The individual dealership operations included in the Retail reportable segment have been grouped into five geographic operating segments, which have been aggregated into one reportable segment as their operations (A) have similar economic characteristics (all are automotive dealerships having similar margins), (B) offer similar products and services (all sell new and used vehicles, service, parts and third-party finance and insurance products), (C) have similar target markets and customers (generally individuals) and (D) have similar distribution and marketing practices (all distribute products and services through dealership facilities that market to customers in similar fashions).

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

The following table summarizes revenues and income from continuing operations before certain non-recurring items and income taxes, which is the measure by which management allocates resources to its segments, and which we refer to as adjusted segment income, for each of our reportable segments. Adjusted segment income excludes the item in the table below in order to enhance the comparability of segment income from period to period.

Three Months Ended June 30

										PAG				Intersegment
		Retail				Distribution				Investments				Elimination				Total
Revenues
2010		$	2,684,068			$	32,063			$	—			$	(12,443	)		$	2,703,688
2009			2,265,625				58,878				—				(5,808	)			2,318,695
Adjusted segment income
2010			44,294				(3,610	)			4,103				(181	)			44,606
2009			26,802				967				2,520				(59	)			30,230

Six Months Ended June 30

										PAG				Intersegment
		Retail				Distribution				Investments				Elimination				Total
Revenues
2010		$	5,162,123			$	47,187			$	—			$	(19,943	)		$	5,189,367
2009			4,343,812				147,509				—				(14,326	)			4,476,995
Adjusted segment income
2010			83,030				(9,202	)			3,597				(264	)			77,161
2009			35,660				7,272				3,126				(222	)			45,836

The following table reconciles total adjusted segment income to consolidated income from continuing operations before income taxes for the three and six month periods ended June 30, 2010 and 2009.

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Adjusted segment income		$	44,606			$	30,230			$	77,161			$	45,836
Gain on debt repurchase			422				—				1,027				10,429
Income from continuing operations before income taxes		$	45,028			$	30,230			$	78,188			$	56,265

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

12. Consolidating Condensed Financial Information

The following tables include consolidating condensed financial information as of June 30, 2010 and December 31, 2009 and for the three and six month periods ended June 30, 2010 and 2009 for Penske Automotive Group, Inc. (as the issuer of the Convertible Notes and the 7.75% Notes), guarantor subsidiaries and non-guarantor subsidiaries (primarily representing foreign entities). The condensed consolidating financial information includes certain allocations of balance sheet, income statement and cash flow items which are not necessarily indicative of the financial position, results of operations or cash flows of these entities on a stand-alone basis.

CONSOLIDATING CONDENSED BALANCE SHEET
June 30, 2010

										Penske
		Total								Automotive				Guarantor				Non-Guarantor
		Company				Eliminations				Group, Inc.				Subsidiaries				Subsidiaries
		(In thousands)
Cash and cash equivalents		$	17,664			$	—			$	—			$	13,540			$	4,124
Accounts receivable, net			351,013				(250,655	)			250,655				206,509				144,504
Inventories			1,364,718				—				—				850,026				514,692
Other current assets			106,479				—				863				66,670				38,946
Assets held for sale			572				—				—				572				—
Total current assets			1,840,446				(250,655	)			251,518				1,137,317				702,266
Property and equipment, net			707,832				—				5,024				449,485				253,323
Intangible assets			994,947				—				—				572,940				422,007
Equity method investments			280,847				—				232,015				—				48,832
Other long-term assets			14,591				(1,241,648	)			1,245,377				9,252				1,610
Total assets		$	3,838,663			$	(1,492,303	)		$	1,733,934			$	2,168,994			$	1,428,038
Floor plan notes payable		$	818,339			$	—			$	—			$	501,158			$	317,181
Floor plan notes payable — non-trade			499,410				—				29,900				300,139				169,371
Accounts payable			209,535				—				1,994				82,788				124,753
Accrued expenses			218,716				(250,655	)			1,149				125,777				342,445
Current portion of long-term debt			16,551				—				—				1,239				15,312
Liabilities held for sale			501				—				—				501				—
Total current liabilities			1,763,052				(250,655	)			33,043				1,011,602				969,062
Long-term debt			844,292				(59,194	)			739,157				50,087				114,242
Deferred tax liabilities			159,872				—				—				148,563				11,309
Other long-term liabilities			109,713				—				—				92,416				17,297
Total liabilities			2,876,929				(309,849	)			772,200				1,302,668				1,111,910
Total equity			961,734				(1,182,454	)			961,734				866,326				316,128
Total liabilities and equity		$	3,838,663			$	(1,492,303	)		$	1,733,934			$	2,168,994			$	1,428,038

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

CONSOLIDATING CONDENSED BALANCE SHEET
December 31, 2009

										Penske
		Total								Automotive				Guarantor				Non-Guarantor
		Company				Eliminations				Group, Inc.				Subsidiaries				Subsidiaries
		(In thousands)
Cash and cash equivalents		$	13,999			$	—			$	—			$	12,344			$	1,655
Accounts receivable, net			321,226				(230,299	)			230,299				195,748				125,478
Inventories			1,302,495				—				—				776,887				525,608
Other current assets			95,426				—				1,725				61,640				32,061
Assets held for sale			10,625				—				—				10,625				—
Total current assets			1,743,771				(230,299	)			232,024				1,057,244				684,802
Property and equipment, net			726,808				—				6,007				450,116				270,685
Intangible assets			1,011,803				—				—				570,282				441,521
Equity method investments			295,473				—				231,897				—				63,576
Other long-term assets			18,152				(1,287,938	)			1,293,067				10,848				2,175
Total assets		$	3,796,007			$	(1,518,237	)		$	1,762,995			$	2,088,490			$	1,462,759
Floor plan notes payable		$	769,657			$	—			$	—			$	448,069			$	321,588
Floor plan notes payable — non-trade			423,316				—				—				254,807				168,509
Accounts payable			189,989				—				3,268				74,610				112,111
Accrued expenses			227,294				(230,299	)			344				111,800				345,449
Current portion of long-term debt			12,442				—				—				1,033				11,409
Liabilities held for sale			7,675				—				—				7,675				—
Total current liabilities			1,630,373				(230,299	)			3,612				897,994				959,066
Long-term debt			933,966				(59,706	)			813,344				43,066				137,262
Deferred tax liabilities			157,500				—				—				145,551				11,949
Other long-term liabilities			128,129				—				—				123,154				4,975
Total liabilities			2,849,968				(290,005	)			816,956				1,209,765				1,113,252
Total equity			946,039				(1,228,232	)			946,039				878,725				349,507
Total liabilities and equity		$	3,796,007			$	(1,518,237	)		$	1,762,995			$	2,088,490			$	1,462,759

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

CONSOLIDATING CONDENSED STATEMENT OF INCOME
Three Months Ended June 30, 2010

										Penske
		Total								Automotive				Guarantor				Non-Guarantor
		Company				Eliminations				Group, Inc.				Subsidiaries				Subsidiaries
		(In thousands)
Revenues		$	2,703,688			$	—			$	—			$	1,618,487			$	1,085,201
Cost of sales			2,273,344				—				—				1,347,980				925,364
Gross profit			430,344				—				—				270,507				159,837
Selling, general, and administrative expenses			355,177				—				3,494				225,414				126,269
Depreciation			12,054				—				300				6,984				4,770
Operating income (loss)			63,113				—				(3,794	)			38,109				28,798
Floor plan interest expense			(8,321	)			—				—				(6,167	)			(2,154	)
Other interest expense			(12,542	)			—				(8,343	)			(33	)			(4,166	)
Debt discount amortization			(2,428	)			—				(2,428	)			—				—
Equity in earnings of affiliates			4,784				—				3,937				—				847
Gain on debt repurchase			422								422
Equity in earnings of subsidiaries			—				(54,991	)			54,991				—				—
Income from continuing operations before income taxes			45,028				(54,991	)			44,785				31,909				23,325
Income taxes			(15,625	)			19,186				(15,625	)			(12,548	)			(6,638	)
Income from continuing operations			29,403				(35,805	)			29,160				19,361				16,687
Loss from discontinued operations, net of tax			281				(281	)			281				281				—
Net income			29,684				(36,086	)			29,441				19,642				16,687
Less: Income attributable to the non-controlling interests			243				—				—				—				243
Net income attributable to Penske Automotive Group common stockholders		$	29,441			$	(36,086	)		$	29,441			$	19,642			$	16,444