PAG 10-Q Quarterly Report Sept. 30, 2012

PENSKE AUTOMOTIVE GROUP, INC.

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10-Q 1 a12-21361_110q.htm 10-Q

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2012

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

For the transition period from to

Commission file number 1-12297

Penske Automotive Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware		22-3086739
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2555 Telegraph Road,		48302-0954
Bloomfield Hills, Michigan		(Zip Code)
(Address of principal executive offices)

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 x 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 x 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 x		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 x

As of October 24, 2012, there were 90,264,514 shares of voting common stock outstanding.

Table of Contents

TABLE OF CONTENTS

	Page

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Condensed Balance Sheets as of September 30, 2012 and December 31, 2011	3

Consolidated Condensed Statements of Income for the three and nine months ended September 30, 2012 and 2011	4

Consolidated Condensed Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and 2011	5

Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2012 and 2011	6

Consolidated Condensed Statement of Equity for the nine months ended September 30, 2012	7

Notes to Consolidated Condensed Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3. Quantitative & Qualitative Disclosures About Market Risk	43

Item 4. Controls and Procedures	44

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	45

Item 6. Exhibits	45

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PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

	September 30,			December 31,
	2012			2011
	(Unaudited)
	(In thousands, except per share amounts)
ASSETS
Cash and cash equivalents	$	25,935		$	28,676
Accounts receivable, net of allowance for doubtful accounts of $2,672 and $2,159	505,770			438,769
Inventories	1,864,773			1,572,568
Other current assets	91,204			80,179
Assets held for sale	38,005			81,122

Total current assets	2,525,687			2,201,314
Property and equipment, net	961,488			856,674
Goodwill	952,848			903,721
Franchise value	258,111			228,460
Equity method investments	304,101			298,640
Other long-term assets	21,945			13,490

Total assets	$	5,024,180		$	4,502,299

LIABILITIES AND EQUITY
Floor plan notes payable	$	1,254,895		$	977,548
Floor plan notes payable — non-trade	704,280			691,888
Accounts payable	275,032			220,538
Accrued expenses	259,146			201,179
Current portion of long-term debt	14,929			3,414
Liabilities held for sale	34,124			55,820

Total current liabilities	2,542,406			2,150,387
Long-term debt	815,918			846,777
Deferred tax liabilities	231,999			217,902
Other long-term liabilities	165,466			146,820

Total liabilities	3,755,789			3,361,886
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; 90,265 shares issued and outstanding at September 30, 2012; 90,277 shares issued and outstanding at December 31, 2011	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	698,489			702,335
Retained earnings	566,556			459,375
Accumulated other comprehensive loss	(8,200		)	(25,734		)

Total Penske Automotive Group stockholders’ equity	1,256,854			1,135,985

Non-controlling interest	11,537			4,428

Total equity	1,268,391			1,140,413

Total liabilities and equity	$	5,024,180		$	4,502,299

See Notes to Consolidated Condensed Financial Statements

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PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(Unaudited)
	(In thousands, except per share amounts)
Revenue:
New vehicle	$	1,763,050		$	1,451,177		$	5,066,417		$	4,229,192
Used vehicle	995,376			867,969			2,926,523			2,511,573
Finance and insurance, net	85,420			73,191			247,906			208,540
Service and parts	372,032			347,432			1,109,122			1,027,120
Fleet and wholesale	185,531			158,672			656,663			490,135
Total revenues	3,401,409			2,898,441			10,006,631			8,466,560
Cost of sales:
New vehicle	1,626,759			1,327,968			4,659,490			3,877,615
Used vehicle	922,703			802,542			2,701,645			2,310,147
Service and parts	156,942			149,429			465,620			440,392
Fleet and wholesale	184,009			157,739			650,302			484,222
Total cost of sales	2,890,413			2,437,678			8,477,057			7,112,376
Gross profit	510,996			460,763			1,529,574			1,354,184
Selling, general and administrative expenses	409,432			369,783			1,216,231			1,098,132
Depreciation	14,037			12,427			41,013			36,132
Operating income	87,527			78,553			272,330			219,920
Floor plan interest expense	(10,055		)	(6,837		)	(29,675		)	(20,617		)
Other interest expense	(11,689		)	(11,153		)	(35,474		)	(32,889		)
Debt discount amortization	—			—			—			(1,718		)
Equity in earnings of affiliates	8,814			9,623			21,392			17,527
Debt redemption costs	(17,753		)	—			(17,753		)	—
Income from continuing operations before income taxes	56,844			70,186			210,820			182,223
Income taxes	(15,308		)	(13,246		)	(69,052		)	(49,289		)
Income from continuing operations	41,536			56,940			141,768			132,934
Loss from discontinued operations, net of tax	(223		)	(895		)	(3,837		)	(2,833		)
Net income	41,313			56,045			137,931			130,101
Less: Income attributable to non-controlling interests	282			338			990			907
Net income attributable to Penske Automotive Group common stockholders	$	41,031		$	55,707		$	136,941		$	129,194
Basic earnings per share attributable to Penske Automotive Group common stockholders:
Continuing operations	$	0.46		$	0.62		$	1.56		$	1.43
Discontinued operations	—			(0.01		)	(0.04		)	(0.03		)
Net income attributable to Penske Automotive Group common stockholders	$	0.45		$	0.61		$	1.52		$	1.40
Shares used in determining basic earnings per share	90,264			91,390			90,330			92,106
Diluted earnings per share attributable to Penske Automotive Group common stockholders:
Continuing operations	$	0.46		$	0.62		$	1.56		$	1.43
Discontinued operations	—			(0.01		)	(0.04		)	(0.03		)
Net income attributable to Penske Automotive Group common stockholders	$	0.45		$	0.61		$	1.52		$	1.40
Shares used in determining diluted earnings per share	90,296			91,431			90,362			92,169
Amounts attributable to Penske Automotive Group common stockholders:
Income from continuing operations	$	41,536		$	56,940		$	141,768		$	132,934
Less: Income attributable to non-controlling interests	282			338			990			907
Income from continuing operations, net of tax	41,254			56,602			140,778			132,027
Loss from discontinued operations, net of tax	(223		)	(895		)	(3,837		)	(2,833		)
Net income attributable to Penske Automotive Group common stockholders	$	41,031		$	55,707		$	136,941		$	129,194

See Notes to Consolidated Condensed Financial Statements

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PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(Unaudited)
	(In thousands, except per share amounts)
Net Income	$	41,313		$	56,045		$	137,931		$	130,101
Other Comprehensive Income:
Foreign currency translation adjustment	16,707			(20,904		)	15,224			(1,170		)
Unrealized gain (loss) on interest rate swaps:
Unrealized gain(loss) arising during the period, net of tax benefit of $590, $3,519, $2,114, and $5,995, respectively	(903		)	(5,379		)	(3,232		)	(9,163		)
Reclassification adjustment for loss included in floor plan interest expense, net of tax provision of $705, $0, $2,066, and $46, respectively	1,078			—			3,158			70
Unrealized gain (loss) on interest rate swaps, net of tax	175			(5,379		)	(74		)	(9,093		)
Other adjustments to Comprehensive Income, net	1,066			456			2,608			(519		)
Other Comprehensive Income (Loss), Net of Taxes	17,948			(25,827		)	17,758			(10,782		)
Comprehensive Income	59,261			30,218			155,689			119,319
Less: Comprehensive income attributable to non-controlling interest	489			338			1,197			907
Comprehensive income attributable to Penske Automotive Group common stockholders	$	58,772		$	29,880		$	154,492		$	118,412

See Notes to Consolidated Condensed Financial Statements

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PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

	Nine Months Ended
	September 30,
	2012			2011
	(Unaudited)
	(In thousands)
Operating Activities:
Net income	$	137,931		$	130,101
Adjustments to reconcile net income to net cash from continuing operating activities:
Depreciation	41,013			36,132
Debt discount amortization	—			1,718
Earnings of equity method investments	(16,796		)	(17,527		)
Loss from discontinued operations, net of tax	3,837			2,833
Debt redemption costs	17,753			—
Deferred income taxes	14,867			14,801
Changes in operating assets and liabilities:
Accounts receivable	(36,412		)	918
Inventories	(193,658		)	34,757
Floor plan notes payable	258,337			(14,774		)
Accounts payable and accrued expenses	45,986			15,193
Other	(8,246		)	(24,042		)
Net cash from continuing operating activities	264,612			180,110
Investing Activities:
Purchase of equipment and improvements	(96,447		)	(79,770		)
Proceeds from sale-leaseback transactions	1,584			—
Dealership acquisitions net, including repayment of sellers’ floor plan notes payable of $49,467 and $54,453, respectively	(137,805		)	(232,106		)
Other	3,496			2,865
Net cash from continuing investing activities	(229,172		)	(309,011		)
Financing Activities:
Proceeds from borrowings under U.S. credit agreement revolving credit line	525,800			494,500
Repayments under U.S. credit agreement revolving credit line	(657,800		)	(374,500		)
Issuance of 5.75% senior subordinated notes	550,000			—
Repurchase of 7.75% senior subordinated notes	(390,755		)	—
Repurchase of 3.5% senior subordinated convertible notes	(62,687		)	(87,278		)
Net borrowings (repayments) of other long-term debt	(1,913		)	31,807
Net borrowings of floor plan notes payable — non-trade	29,681			98,131
Repurchases of common stock	(9,829		)	(44,263		)
Dividends	(29,760		)	(13,866		)
Payment of deferred financing fees	(8,502		)	—
Proceeds from exercises of options, including excess tax benefit	—			3,018
Net cash from continuing financing activities	(55,765		)	107,549
Discontinued operations:
Net cash from discontinued operating activities	(6,852		)	(39,383		)
Net cash from discontinued investing activities	34,620			47,549
Net cash from discontinued financing activities	(10,184		)	3,181
Net cash from discontinued operations	17,584			11,347
Net change in cash and cash equivalents	(2,741		)	(10,005		)
Cash and cash equivalents, beginning of period	28,676			19,904
Cash and cash equivalents, end of period	$	25,935		$	9,899

Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	64,340		$	47,004
Income taxes	35,232			38,664
Seller financed/assumed debt	—			4,865

See Notes to Consolidated Condensed Financial Statements

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PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENT OF EQUITY

											Accumulated			Total
	Common Stock				Additional						Other			Penske Automotive
	Issued Shares		Amount		Paid-in Capital			Retained Earnings			Comprehensive Income (Loss)			Group Stockholders’ Equity			Non-controlling Interest			Total Equity
	(Unaudited)
	(Dollars in thousands)
Balance, January 1, 2012	90,277,356		$	9	$	702,335		$	459,375		$	(25,734	)	$	1,135,985		$	4,428		$	1,140,413
Equity compensation	392,789		—		5,102			—			—			5,102			—			5,102
Distributions to non-controlling interests	—		—		—			—			—			—			(1,319		)	(1,319		)
Sale of subsidiary shares to non-controlling interest	—		—		317			—			—			317			7,231			7,548
Foreign currency translation	—		—		—			—			15,017			15,017			207			15,224
Repurchase of common stock	(405,631	)	—		(9,829		)				—			(9,829		)	—			(9,829		)
Dividends	—		—		—			(29,760		)	—			(29,760		)	—			(29,760		)
Convertible debt redemption	—		—		564			—			—			564			—			564
Other	—		—		—			—			2,517			2,517			—			2,517
Net income	—		—		—			136,941			—			136,941			990			137,931
Balance, September 30, 2012	90,264,514		$	9	$	698,489		$	566,556		$	(8,200	)	$	1,256,854		$	11,537		$	1,268,391

See Notes to Consolidated Condensed Financial Statements

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PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except per share amounts)

1. Interim Financial Statements

Business Overview

Unless the context otherwise requires, the use of the terms “PAG,” “we,” “us,” and “our” in these Notes to the Consolidated Condensed Financial Statements refers to Penske Automotive Group, Inc. and its consolidated subsidiaries.

We are the second largest automotive retailer headquartered in the U.S. as measured by total revenue. As of September 30, 2012, we operated 342 retail franchises, of which 169 franchises are located in the U.S. and 173 franchises are located outside of the U.S. The franchises outside the U.S. are located primarily in the U.K. Each of our dealerships offers a wide selection of new and used vehicles for sale. In addition to selling new and used vehicles, we generate higher-margin revenue at each of our dealerships through maintenance and repair services and the sale and placement of higher-margin products, such as third-party finance and insurance products, third-party extended service contracts and replacement and aftermarket automotive products. We also hold a 9.0% limited partnership interest in Penske Truck Leasing Co., L.P. (“PTL”), a leading provider of transportation services and supply chain management.

During the nine months ended September 30, 2012, we acquired the Agnew Group in the United Kingdom, representing fourteen franchises, and seven other franchises. We also were awarded seven franchises representing seven different brands, including Mini of Marin (California) and Nissan and Infiniti San Francisco. We disposed of seven franchises representing seven different brands, including Jaguar and Land Rover in Gatwick (U.K.), and Scottsdale Lexus.

In the third quarter of 2012, we signed an agreement with Hertz System, Inc. to join Hertz’s franchise network in the Memphis, Tennessee market. In October 2012, we purchased the assets of Hertz’s Memphis market, which provides us the opportunity to operate airport and off-airport rental locations in that area.

Basis of Presentation

The accompanying unaudited consolidated condensed financial statements of PAG have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the SEC rules and regulations. The information presented as of September 30, 2012 and December 31, 2011 and for the three and nine month periods ended September 30, 2012 and 2011 is unaudited, but includes all adjustments which our management 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 September 30, 2012, 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 our audited financial statements for the year ended December 31, 2011, which are included as part of our Annual Report on Form 10-K.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-04, “Fair Value Measurements and Disclosures (Topic 820) — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 clarifies the application of existing fair value measurement and disclosure requirements, changes certain principles related to measuring fair value, and requires additional disclosures about fair value measurements. ASU No. 2011-04 is effective for periods beginning after December 15, 2011. We adopted the standard on January 1, 2012. Adoption of ASU No. 2011-04 did not affect our consolidated financial position, results of operations, or cash flows.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220) — Presentation of Comprehensive Income”, which requires the presentation of components of other comprehensive income with the components of net income. We adopted the standard on January 1, 2012. Adoption of ASU No. 2011-05 did not affect our consolidated financial position, results of operations, or cash flows.

In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210) — Disclosures about Offsetting Assets and Liabilities.” ASU No. 2011-11 will require disclosure of the effect or potential effect of offsetting arrangements on our financial position as well as enhanced disclosure of the rights of setoff associated with our recognized assets and recognized liabilities. ASU No. 2011-11 is effective for periods beginning on or after January 1, 2013. Since these amended principles

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require only additional disclosures concerning offsetting and related arrangements, adoption will not affect our consolidated financial position, results of operations, or cash flows.

In July 2012, the FASB issued ASU No. 2012-02, “Intangibles — Goodwill and Other (Topic 350) — Testing Indefinite-Lived Intangible Assets for Impairment.” In accordance with the amendments in ASU No. 2012-02, we have the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the indefinite-lived intangible asset is impaired, we are not required to take further action. We will adopt ASU No. 2012-02 during the fourth quarter of 2012 when our annual indefinite-lived intangible asset impairment assessment is performed. We do not expect adoption of ASU No. 2012-02 to affect our consolidated financial position, results of operations, or cash flows.

Discontinued Operations

We account for dispositions in our retail operations as discontinued operations when it is evident that the operations and cash flows of a franchise being disposed will be eliminated from on-going operations and that we will not have any significant continuing involvement in its operations.

In evaluating whether the cash flows of a dealership in our Retail reportable segment will be eliminated from ongoing operations, we consider whether it is likely that customers will migrate to similar franchises that we own in the same geographic market. Our consideration includes an evaluation of the brands sold at other dealerships we operate in the market and their proximity to the disposed dealership. When we dispose of franchises, we typically do not have continuing brand representation in that market. If the franchise being disposed of is located in a complex of PAG owned dealerships, we do not treat the disposition as a discontinued operation if we believe that the cash flows previously generated by the disposed franchise will be replaced by expanded operations of the remaining or replacement franchises.

Combined financial information regarding entities accounted for as discontinued operations follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues	$	42,002		$	114,129		$	141,031		$	388,871
Pre-tax loss	(393		)	(1,411		)	(12,581		)	(6,207		)
Gain on disposal	285			250			10,445			2,016

	September 30,		December 31,
	2012		2011

Inventories	$	28,436	$	48,203
Other assets	9,569		32,919
Total assets	$	38,005	$	81,122

Floor plan notes payable (including non-trade)	$	27,898	$	44,869
Other liabilities	6,226		10,951
Total liabilities	$	34,124	$	55,820

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.

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.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

2. Inventories

Inventories consisted of the following:

	September 30,		December 31,
	2012		2011
New vehicles	$	1,299,364	$	1,051,120
Used vehicles	479,460		441,655
Parts, accessories and other	85,949		79,793

Total inventories	$	1,864,773	$	1,572,568

We receive credits from certain vehicle manufacturers that reduce cost of sales when the vehicles are sold. Such credits amounted to $23,190 and $20,967 during the nine months ended September 30, 2012 and 2011, respectively.

3. Business Combinations

We acquired twenty-one and three franchises during the nine months ended September 30, 2012 and 2011, respectively, in our retail operations. Our 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 our 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 for the nine months ended September 30, 2012 and 2011 follows:

	September 30,
	2012			2011
Accounts receivable	$	28,907		$	953
Inventory	94,627			61,247
Other current assets	411			—
Property and equipment	34,261			40,190
Goodwill	35,343			107,498
Franchise Value	26,343			29,491
Other non-current assets	745			628
Current liabilities	(58,926		)	(6,190		)
Non-current liabilities	(23,906		)	—
Total consideration	137,805			233,817
Seller financed/assumed debt	—			(1,711		)
Cash used in dealership acquisitions	$	137,805		$	232,106

The following unaudited consolidated pro forma results of operations of PAG for the three and nine months ended September 30, 2012 and 2011 give effect to acquisitions consummated during 2012 and 2011 as if they had occurred on January 1, 2011:

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(amounts in millions, except per share data)
Revenues	$	3,407	$	3,072	$	10,075	$	9,011
Income from continuing operations	42		58		142		138
Net income	41		57		137		135
Income from continuing operations per diluted common share	$	0.46	$	0.63	$	1.56	$	1.49
Net income per diluted common share	$	0.45	$	0.62	$	1.52	$	1.46

4. Intangible Assets

Following is a summary of the changes in the carrying amount of goodwill and franchise value during the nine months ended September 30, 2012:

	Goodwill		Franchise Value
Balance, January 1, 2012	$	903,721	$	228,460
Additions	35,343		26,343
Foreign currency translation	13,784		3,308
Balance, September 30, 2012	$	952,848	$	258,111

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

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

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

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 any dilutive effects. A reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2012 and 2011 follows:

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	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2012	2011	2012	2011
Weighted average number of common shares outstanding	90,264	91,390	90,330	92,106
Effect of non-participatory equity compensation	32	41	32	63
Weighted average number of common shares outstanding, including effect of dilutive securities	90,296	91,431	90,362	92,169

7. Long-Term Debt

Long-term debt consisted of the following:

	September 30,			December 31,
	2012			2011
U.S. credit agreement - revolving credit line	$	—		$	132,000
U.S. credit agreement - term loan	110,000			127,000
U.K. acquisition term loan	41,216			—
U.K. credit agreement - revolving credit line	45,256			59,060
U.K. credit agreement - overdraft line of credit	3,113			13,333
3.5% senior subordinated convertible notes due 2026, net of debt discount	—			63,324
5.75% senior subordinated notes due 2022	550,000			—
7.75% senior subordinated notes due 2016	—			375,000
Mortgage facilities	73,549			75,684
Other	7,713			4,790
Total long-term debt	830,847			850,191
Less: current portion	(14,929		)	(3,414		)
Net long-term debt	$	815,918		$	846,777

U.S. Credit Agreement

We are party to a credit agreement with Mercedes-Benz Financial Services USA LLC and Toyota Motor Credit Corporation, as amended (the “U.S. Credit Agreement”), which provides for up to $375,000 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 $110,000, and for an additional $10,000 of availability for letters of credit, through September 2015. The revolving loans bear interest at a defined LIBOR plus 2.50%, subject to an incremental 1.00% for uncollateralized borrowings in excess of a defined borrowing base. The term loan, which bears interest at defined LIBOR plus 2.50%, may be prepaid at any time, but then may not be re-borrowed.

The U.S. Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by our domestic subsidiaries and contains a number of significant covenants that, among other things, restrict our ability to dispose of assets, incur additional indebtedness, repay other indebtedness, pay dividends, create liens on assets, make investments or acquisitions and engage in mergers or consolidations. We are also required to comply with specified financial and other tests and ratios, each as defined in the U.S. Credit Agreement including: a ratio of current assets to current liabilities, a fixed charge coverage ratio, a ratio of debt to stockholders’ equity and a ratio of debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”). A breach of these requirements would give rise to certain remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of the amounts owed. As of September 30, 2012, we were in compliance with all covenants under the U.S. Credit Agreement.

The U.S. Credit Agreement also contains typical events of default, including change of control, non-payment of obligations and cross-defaults to our other material indebtedness. Substantially all of our domestic assets are subject to

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security interests granted to lenders under the U.S. Credit Agreement. As of September 30, 2012, $110,000 of term loans and $500 of letters of credit were outstanding under the U.S. Credit Agreement.

U.K. Credit Agreement

Our subsidiaries in the U.K. (the “U.K. subsidiaries”) are party to a £100,000 revolving credit agreement with the Royal Bank of Scotland plc (RBS) and BMW Financial Services (GB) Limited, and an additional £10,000 demand overdraft line of credit with RBS (collectively, the “U.K. credit agreement”) to be used for working capital, acquisitions, capital expenditures, investments and general corporate purposes through November 2015. The revolving loans bear interest between defined LIBOR plus 1.35% and defined LIBOR plus 3.0% and the demand overdraft line of credit bears interest at the Bank of England Base Rate plus 1.75%. As of September 30, 2012, outstanding loans under the U.K. credit agreement amounted to £29,926 ($48,369).

The U.K. Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by our U.K. subsidiaries, and contains a number of significant covenants that, among other things, restrict the ability of our U.K. subsidiaries to pay dividends, dispose of assets, incur additional indebtedness, repay other indebtedness, create liens on assets, make investments or acquisitions and engage in mergers or consolidations. In addition, our U.K. subsidiaries are required to comply with defined ratios and tests, including: a ratio of earnings before interest, taxes, amortization, and rental payments (“EBITAR”) to interest plus rental payments, a measurement of maximum capital expenditures, and a debt to EBITDA ratio. A breach of these requirements would give rise to certain remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of any amounts owed. As of September 30, 2012, our 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 our U.K. subsidiaries. Substantially all of our U.K. subsidiaries’ assets are subject to security interests granted to lenders under the U.K. credit agreement.

In January 2012, our U.K. subsidiaries entered into a separate agreement with RBS, as agent for National Westminster Bank plc, providing for a £30,000 term loan which was used for working capital and an acquisition. The term loan is repayable in £1,500 quarterly installments through 2015 with a final payment of £7,500 due December 31, 2015. The term loan bears interest between 2.675% and 4.325%, depending on the U.K. subsidiaries’ ratio of net borrowings to earnings before interest, taxes, depreciation and amortization (as defined). As of September 30, 2012, the amount outstanding under the U.K. term loan was £25,500 ($41,216).

3.5% Senior Subordinated Convertible Notes

In May 2012, we provided notice to holders of our 3.5% Senior Subordinated Convertible Notes due 2026 that we were exercising our right to redeem the Convertible Notes at a price of 100% of the principal amount outstanding plus accrued and unpaid interest to, but excluding June 25, 2012. In lieu of surrendering the Notes for redemption, Note holders could elect to convert the Notes at any time prior to the close of business on June 21, 2012 based on a conversion rate of 42.7796 shares of our common stock per $1,000 principal amount of the Convertible Notes (which is equal to a conversion price of approximately $23.38 per share).

Upon conversion of the Convertible Notes, for each $1,000 Note, a holder was entitled to receive an amount in cash, equal to the lesser of (i) $1,000 or (ii) the conversion value, determined in the manner set forth in the indenture covering the Convertible Notes. To the extent the conversion value exceeded $1,000, we were required to also deliver, cash, common stock or a combination of cash and common stock with respect to the value in excess of $1,000.

Holders of $25,546 outstanding principal amount of Convertible Notes elected to convert their Notes. We settled the principal and interest due on the remaining $37,778 on June 25, 2012. In July, we paid the converting holders the conversion balance due of $24,909 in cash. Following this payment, we had fulfilled all of our obligations under the Convertible Notes.

5.75% Senior Subordinated Notes

In August 2012, we issued $550,000 in aggregate principal amount of 5.75% Senior Subordinated Notes due 2022 (the “5.75% Notes”) in a private offering under Rule 144A and Regulation S of the Securities Act of 1933.

We used a portion of the net proceeds of the 5.75% Notes to redeem $375,000 in aggregate principal amount of our 7.75% Senior Subordinated Notes due 2016, and to pay fees and expenses in connection with the

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

offering. The remaining proceeds from the 5.75% Notes were used to repay amounts outstanding under our U.S. credit agreement and our U.S. floor plan borrowings.

Interest on the 5.75% Notes is payable semiannually on April 1 and October 1 of each year, beginning on April 1, 2013. The 5.75% Notes mature on October 1, 2022, unless earlier redeemed or purchased by us. The Notes are our unsecured senior subordinated obligations and are guaranteed on an unsecured senior subordinated basis by our existing wholly-owned domestic subsidiaries. The 5.75% Notes also contain customary negative covenants and events of default. As of September 30, 2012, the Company was in compliance with all negative covenants, and there were no events of default.

On or after October 1, 2017, we may redeem the 5.75% Notes for cash at the redemption prices noted in the indenture, plus any accrued and unpaid interest. We may also redeem up to 40% of the 5.75% Notes using the proceeds of specified equity offerings at any time prior to October 1, 2015 at a price specified in the indenture.

If we experience certain “change of control” events specified in the indenture, holders of the 5.75% Notes will have the option to require us to purchase for cash all or a portion of their notes at a price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest. In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the notes at a price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest.

7.75% Senior Subordinated Notes

During the third quarter of 2012, we redeemed our $375,000 principal amount of 7.75% Notes plus accrued interest. We incurred a $17,753 pre-tax charge in connection with the redemption, consisting of a $15,755 redemption premium and the write-off of $1,998 of unamortized deferred financing costs.

Mortgage Facilities

We are party to several mortgages which bear interest at defined rates and require monthly principal and interest payments. These mortgage facilities also contain typical events of default, including non-payment of obligations, cross-defaults to our other material indebtedness, certain change of control events, and the loss or sale of certain franchises operated at the properties. Substantially all of the buildings and improvements on the properties financed pursuant to the mortgage facilities are subject to security interests granted to the lender. As of September 30, 2012, we owed $73,549 of principal under our mortgage facilities.

8. Interest Rate Swaps

Through January 2011, we were party to interest rate swap agreements pursuant to which the LIBOR portion of $300,000 of our floating rate floor plan debt was fixed at 3.67%.

We used Level 2 inputs to estimate the fair value of the interest rate swap agreements. As of September 30, 2012 and December 31, 2011, the fair value of the swaps designated as hedging instruments was estimated to be a liability of $16,057 and $15,952, respectively.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

During the three and nine months ended September 30, 2012 and 2011, there was no hedge ineffectiveness recorded on our income statement. During the three and nine months ended September 30, 2012, the swaps increased interest expense by approximately $1,800 and $5,300, respectively, which increased the weighted average interest rate on our floor plan borrowings by approximately 37 and 39 basis points, respectively.

9. Commitments and Contingent Liabilities

We are involved in litigation which may relate to claims brought by governmental authorities, issues with customers, and employment related matters, including class action claims and purported class action claims. As of September 30, 2012, we were not party to any legal proceedings, including class action lawsuits, that individually or in the aggregate, are reasonably expected to have a material adverse effect on our results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our results of operations, financial condition or cash flows.

We have historically structured our operations so as to minimize ownership of real property. As a result, we lease or sublease substantially all of our facilities. These leases are generally for a period between five and twenty years, and are typically structured to include renewal options at our election. Pursuant to the leases for some of our larger facilities, we are required to comply with specified financial ratios, including a “rent coverage” ratio and a debt to EBITDA ratio, each as defined. For these leases, non-compliance with the ratios may require us to post collateral in the form of a letter of credit. A breach of the other lease covenants gives rise to certain remedies by the landlord, the most severe of which include the termination of the applicable lease and acceleration of the total rent payments due under the lease. As of September 30, 2012, we were in compliance with all covenants under these leases.

We have sold a number of dealerships to third parties and, as a condition to certain of those sales, we remain liable for the lease payments relating to the properties on which those businesses operate in the event of non-payment by the buyer. We are also party to lease agreements on properties that we no longer use in our retail operations that we have sublet to third parties. We rely on subtenants to pay the rent and maintain the property at these locations. In the event the subtenant does not perform as expected, we may not be able to recover amounts owed to us, and we could be required to fulfill these obligations.

We hold a 9.0% limited partnership interest in PTL. During 2012, PTL has refinanced a significant amount of its indebtedness. As part of that refinancing, we and the other PTL partners created a new company (“Holdings”), which, together with General Electric Capital Corporation (“GECC”), co-issued $700,000 of 3.8% senior unsecured notes due 2019 to certain investors through an offering pursuant to Rule 144A of the Securities Act of 1933, as amended (the “Holdings Bonds”). A wholly-owned subsidiary of Holdings contributed $700,000 derived from the net proceeds from the offering of the Holdings Bonds and a portion of its cash on hand to PTL in exchange for a 21.5% limited partner interest in PTL. PTL used the $700,000 of funds to reduce its outstanding debt owed to GECC. GECC agreed to be a co-obligor of the Holdings Bonds in order to achieve lower interest rates on the Holdings Bonds.

Additional capital contributions from the members may be required to fund interest and principal payments on the Holdings Bonds. In addition, we have agreed to indemnify GECC for 9.0% of any principal or interest that GECC is required to pay as co-obligor, and pay GECC an annual fee of approximately $950 for acting as co-obligor. The maximum amount of our potential obligations to GECC under this agreement are 9% of the required principal repayment due in 2019 (which is expected to be $63,100) and 9% of interest payments under the Holdings Bonds, plus fees and default interest, if any.

We have $18,997 of letters of credit outstanding as of September 30, 2012, and have posted $8,270 of surety bonds in the ordinary course of business.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

10. Equity

During the nine months ended September 30, 2012, we repurchased 350,000 shares of our outstanding common stock for $8,522, or an average of $24.35 per share, under a program approved by our Board of Directors. During the nine months ended September 30, 2012, we acquired an additional 55,631 shares of our common stock for $1,307, or an average of $23.49 per share, from employees in connection with vesting of employee restricted stock awards.

11. Segment Information

Our operations are organized by management into operating segments by line of business and geography. We have determined we have two reportable segments as defined in generally accepted accounting principles for segment reporting, including: (i) Retail, consisting of our automotive retail operations, and (ii) PAG Investments, consisting of our investments in businesses other than automotive retail operations. The Retail reportable segment includes all automotive dealerships and all departments relevant to the operation of the dealerships and the retail automotive joint ventures. The individual dealership operations included in the Retail reportable segment have been grouped into four 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).

Three Months Ended September 30

	Retail		PAG Investments		Total
Revenues
2012	$	3,401,409	$	—	$	3,401,409
2011	2,898,441		—		2,898,441
Segment income
2012	48,932		7,912		56,844
2011	61,711		8,475		70,186

Nine Months Ended September 30

	Retail		PAG Investments		Total
Revenues
2012	$	10,006,631	$	—	$	10,006,631
2011	8,466,560		—		8,466,560
Segment income
2012	191,873		18,947		210,820
2011	166,356		15,867		182,223

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

12. Consolidating Condensed Financial Information

The following tables include condensed consolidating financial information as of September 30, 2012 and December 31, 2011 and for the three and nine month periods ended September 30, 2012 and 2011 for Penske Automotive Group, Inc. (as the issuer of the 5.75% 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 and cash flows of these entities on a stand-alone basis.

CONDENSED CONSOLIDATING BALANCE SHEET

September 30, 2012

	Total Company		Eliminations			Penske Automotive Group		Guarantor Subsidiaries		Non-Guarantor Subsidiaries
	(In thousands)

Cash and cash equivalents	$	25,935	$	—		$	—	$	17,573	$	8,362
Accounts receivable, net	505,770		(335,225		)	335,225		251,951		253,819
Inventories	1,864,773		—			—		1,088,681		776,092
Other current assets	91,204		—			4,359		39,216		47,629
Assets held for sale	38,005		—			—		14,261		23,744

Total current assets	2,525,687		(335,225		)	339,584		1,411,682		1,109,646
Property and equipment, net	961,488		—			4,527		593,139		363,822
Intangible assets	1,210,959		—			—		705,790		505,169
Equity method investments	304,101		—			256,258		—		47,843
Other long-term assets	21,945		(1,416,874		)	1,430,869		5,378		2,572

Total assets	$	5,024,180	$	(1,752,099	)	$	2,031,238	$	2,715,989	$	2,029,052

Floor plan notes payable	$	1,254,895	$	—		$	—	$	709,549	$	545,346
Floor plan notes payable — non-trade	704,280		—			100,255		335,054		268,971
Accounts payable	275,032		—			2,447		111,342		161,243
Accrued expenses	259,146		(335,225		)	145		142,064		452,162
Current portion of long-term debt	14,929		—			—		3,746		11,183
Liabilities held for sale	34,124		—			—		11,038		23,086

Total current liabilities	2,542,406		(335,225		)	102,847		1,312,793		1,461,991
Long-term debt	815,918		(38,382		)	660,000		75,129		119,171
Deferred tax liabilities	231,999		—			—		205,955		26,044
Other long-term liabilities	165,466		—			—		93,724		71,742

Total liabilities	3,755,789		(373,607		)	762,847		1,687,601		1,678,948
Total equity	1,268,391		(1,378,492		)	1,268,391		1,028,388		350,104

Total liabilities and equity	$	5,024,180	$	(1,752,099	)	$	2,031,238	$	2,715,989	$	2,029,052

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2011

	Total Company		Eliminations			Penske Automotive Group		Guarantor Subsidiaries		Non-Guarantor Subsidiaries
	(In thousands)

Cash and cash equivalents	$	28,676	$	—		$	—	$	27,249	$	1,427
Accounts receivable, net	438,769		(297,782		)	305,386		281,689		149,476
Inventories	1,572,568		—			—		894,246		678,322
Other current assets	80,179		—			2,306		40,321		37,552
Assets held for sale	81,122		—			—		36,642		44,480

Total current assets	2,201,314		(297,782		)	307,692		1,280,147		911,257
Property and equipment, net	856,674		—			6,730		547,731		302,213
Intangible assets	1,132,181		—			—		699,453		432,728
Equity method investments	298,640		—			246,658		—		51,982
Other long-term assets	13,490		(1,360,808		)	1,369,182		3,381		1,735

Total assets	$	4,502,299	$	(1,658,590	)	$	1,930,262	$	2,530,712	$	1,699,915

Floor plan notes payable	$	977,548	$	—		$	—	$	560,999	$	416,549
Floor plan notes payable — non-trade	691,888		—			90,892		335,621		265,375
Accounts payable	220,538		—			1,633		112,805		106,100
Accrued expenses	201,179		(297,782		)	—		99,092		399,869
Current portion of long-term debt	3,414		—			—		3,414		—
Liabilities held for sale	55,820		—			—		17,818		38,002

Total current liabilities	2,150,387		(297,782		)	92,525		1,129,749		1,225,895
Long-term debt	846,777		(38,073		)	697,324		77,060		110,466
Deferred tax liabilities	217,902		—			—		198,348		19,554
Other long-term liabilities	146,820		—			—		92,613		54,207

Total liabilities	3,361,886		(335,855		)	789,849		1,497,770		1,410,122
Total equity	1,140,413		(1,322,735		)	1,140,413		1,032,942		289,793

Total liabilities and equity	$	4,502,299	$	(1,658,590	)	$	1,930,262	$	2,530,712	$	1,699,915

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CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended September 30, 2012

	Total Company			Eliminations			Penske Automotive Group			Guarantor Subsidiaries			Non-Guarantor Subsidiaries
	(In thousands)

Revenues	$	3,401,409		$	—		$	—		$	2,008,394		$	1,393,015
Cost of sales	2,890,413			—			—			1,697,032			1,193,381

Gross profit	510,996			—			—			311,362			199,634
Selling, general and administrative expenses	409,432			—			5,073			245,553			158,806
Depreciation	14,037			—			328			7,661			6,048

Operating income (loss)	87,527			—			(5,401		)	58,148			34,780
Floor plan interest expense	(10,055		)	—			(2,322		)	(4,320		)	(3,413		)
Other interest expense	(11,689		)	—			(7,695		)	(804		)	(3,190		)
Equity in earnings of affiliates	8,814			—			7,784			—			1,030
Equity in earnings of subsidiaries	—			(81,949		)	81,949			—			—
Debt redemption costs	(17,753		)	—			(17,753		)	—			—

Income (loss) from continuing operations before income taxes	56,844			(81,949		)	56,562			53,024			29,207
Income taxes	(15,308		)	22,179			(15,308		)	(14,717		)	(7,462		)

Income (loss) from continuing operations	41,536			(59,770		)	41,254			38,307			21,745
(Loss) income from discontinued operations, net of tax	(223		)	223			(223		)	242			(465		)

Net income (loss)	41,313			(59,547		)	41,031			38,549			21,280
Other comprehensive income (loss), net of tax	17,948			(16,882		)	17,948			175			16,707

Comprehensive income	59,261			(76,429		)	58,979			38,724			37,987
Less: Comprehensive income attributable to non-controlling interest	489			(207		)	207			—			489

Comprehensive income attributable to Penske Automotive Group common stockholders	$	58,772		$	(76,222	)	$	58,772		$	38,724		$	37,498

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PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended September 30, 2011

	Total Company			Eliminations			Penske Automotive Group			Guarantor Subsidiaries			Non-Guarantor Subsidiaries
	(In thousands)

Revenues	$	2,898,441		$	—		$	—		$	1,704,606		$	1,193,835
Cost of sales	2,437,678			—			—			1,417,915			1,019,763

Gross profit	460,763			—			—			286,691			174,072
Selling, general and administrative expenses	369,783			—			4,381			225,818			139,584
Depreciation	12,427			—			471			6,655			5,301

Operating income (loss)	78,553			—			(4,852		)	54,218			29,187
Floor plan interest expense	(6,837		)	—			(449		)	(3,194		)	(3,194		)
Other interest expense	(11,153		)	—			(6,347		)	(988		)	(3,818		)
Debt discount amortization	—			—			—			—			—
Equity in earnings (losses) of affiliates	9,623			—			7,359			825			1,439
Equity in earnings of subsidiaries	—			(74,137		)	74,137			—			—

Income (loss) from continuing operations before income taxes	70,186			(74,137		)	69,848			50,861			23,614
Income taxes	(13,246		)	14,064			(13,246		)	(7,281		)	(6,783		)

Income (loss) from continuing operations	56,940			(60,073		)	56,602			43,580			16,831
(Loss) income from discontinued operations, net of tax	(895		)	895			(895		)	(754		)	(141		)

Net income (loss)	56,045			(59,178		)	55,707			42,826			16,690
Other comprehensive income (loss), net of tax	(25,827		)	26,327			(25,827		)	(5,379		)	(20,948		)

Comprehensive income	30,218			(32,851		)	29,880			37,447			(4,258		)
Less: Comprehensive income attributable to non-controlling interest	338			—			—			—			338

Comprehensive income attributable to Penske Automotive Group common stockholders	$	29,880		$	(32,851	)	$	29,880		$	37,447		$	(4,596	)

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PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF INCOME
Nine Months Ended September 30, 2012

	Total Company			Eliminations			Penske Automotive Group			Guarantor Subsidiaries			Non-Guarantor Subsidiaries
	(In thousands)

Revenues	$	10,006,631		$	—		$	—		$	5,852,620		$	4,154,011
Cost of sales	8,477,057			—			—			4,923,776			3,553,281

Gross profit	1,529,574			—			—			928,844			600,730
Selling, general and administrative expenses	1,216,231			—			14,408			732,673			469,150
Depreciation	41,013			—			936			22,258			17,819

Operating income (loss)	272,330			—			(15,344		)	173,913			113,761
Floor plan interest expense	(29,675		)	—			(6,774		)	(12,309		)	(10,592		)
Other interest expense	(35,474		)	—			(21,986		)	(2,668		)	(10,820		)
Equity in earnings (losses) of affiliates	21,392			—			18,538			—			2,854
Equity in earnings of subsidiaries	—			(253,149		)	253,149			—			—
Debt redemption costs	(17,753		)	—			(17,753		)	—			—

Income (loss) from continuing operations before income taxes	210,820			(253,149		)	209,830			158,936			95,203
Income taxes	(69,052		)	83,308			(69,052		)	(59,469		)	(23,839		)

Income (loss) from continuing operations	141,768			(169,841		)	140,778			99,467			71,364
(Loss) income from discontinued operations, net of tax	(3,837		)	3,837			(3,837		)	(1,755		)	(2,082		)

Net income (loss)	137,931			(166,004		)	136,941			97,712			69,282
Other comprehensive income (loss), net of tax	17,758			(15,150		)	17,758			(74		)	15,224

Comprehensive income	155,689			(181,154		)	154,699			97,638			84,506
Less: Comprehensive income attributable to non-controlling interest	1,197			(207		)	207			—			1,197

Comprehensive income attributable to Penske Automotive Group common stockholders	$	154,492		$	(180,947	)	$	154,492		$	97,638		$	83,309

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PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF INCOME
Nine Months Ended September 30, 2011

	Total Company			Eliminations			Penske Automotive Group			Guarantor Subsidiaries			Non-Guarantor Subsidiaries
	(In thousands)

Revenues	$	8,466,560		$	—		$	—		$	4,902,510		$	3,564,050
Cost of sales	7,112,376			—			—			4,071,715			3,040,661

Gross profit	1,354,184			—			—			830,795			523,389
Selling, general and administrative expenses	1,098,132			—			14,120			671,606			412,406
Depreciation	36,132			—			1,013			19,450			15,669

Operating income (loss)	219,920			—			(15,133		)	139,739			95,314
Floor plan interest expense	(20,617		)	—			(911		)	(10,414		)	(9,292		)
Other interest expense	(32,889		)	—			(18,581		)	(2,237		)	(12,071		)
Debt discount amortization	(1,718		)	—			(1,718		)	—			—
Equity in earnings (losses) of affiliates	17,527			—			14,711			825			1,991
Equity in earnings of subsidiaries	—			(202,948		)	202,948			—			—

Income (loss) from continuing operations before income taxes	182,223			(202,948		)	181,316			127,913			75,942
Income taxes	(49,289		)	55,235			(49,289		)	(33,581		)	(21,654		)

Income (loss) from continuing operations	132,934			(147,713		)	132,027			94,332			54,288
(Loss) income from discontinued operations, net of tax	(2,833		)	2,833			(2,833		)	(2,351		)	(482		)

Net income (loss)	130,101			(144,880		)	129,194			91,981			53,806
Other comprehensive income (loss), net of tax	(10,782		)	10,301			(10,782		)	(9,093		)	(1,208		)

Comprehensive income	119,319			(134,579		)	118,412			82,888			52,598
Less: Comprehensive income attributable to non-controlling interest	907			—			—			—			907

Comprehensive income attributable to Penske Automotive Group common stockholders	$	118,412		$	(134,579	)	$	118,412		$	82,888		$	51,691

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PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2012

	Total Company			Penske Automotive Group			Guarantor Subsidiaries			Non-Guarantor Subsidiaries
	(In thousands)

Net cash from continuing operating activities	$	264,612		$	95,748		$	34,840		$	134,024

Investing activities:
Purchase of equipment and improvements	(96,447		)	(766		)	(67,192		)	(28,489		)
Proceeds from sale-leaseback transactions	1,584			—			—			1,584
Dealership acquisitions, net	(137,805		)	—			(3,416		)	(134,389		)
Other	3,496			(3,812		)	—			7,308

Net cash from continuing investing activities	(229,172		)	(4,578		)	(70,608		)	(153,986		)

Financing activities:
Issuance of 5.75% senior subordinated notes	550,000			550,000			—			—
Repurchase of 7.75% senior subordinated notes	(390,755		)	(390,755		)	—			—
Repurchase of 3.5% senior subordinated convertible notes	(62,687		)	(62,687		)
Net borrowings (repayments) of other long-term debt	(133,913		)	(149,000		)	(1,598		)	16,685
Net borrowings (repayments) of floor plan notes payable — non-trade	29,681			9,363			11,179			9,139
Repurchase of common stock	(9,829		)	(9,829		)	—			—
Dividends	(29,760		)	(29,760		)	—			—
Payment of deferred financing fees	(8,502		)	(8,502		)	—			—
Distributions from (to) parent	—			—			4,747			(4,747		)

Net cash from continuing financing activities	(55,765		)	(91,170		)	14,328			21,077

Net cash from discontinued operations	17,584			—			11,764			5,820

Net change in cash and cash equivalents	(2,741		)	—			(9,676		)	6,935
Cash and cash equivalents, beginning of period	28,676			—			27,249			1,427

Cash and cash equivalents, end of period	$	25,935		$	—		$	17,573		$	8,362

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PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2011

	Total Company			Penske Automotive Group			Guarantor Subsidiaries			Non-Guarantor Subsidiaries
	(In thousands)

Net cash from continuing operating activities	$	180,110		$	(39,647	)	$	226,147		$	(6,390	)

Investing activities:
Purchase of equipment and improvements	(79,770		)	(1,972		)	(44,629		)	(33,169		)
Dealership acquisitions, net	(232,106		)	—			(230,426		)	(1,680		)
Other	2,865			—			—			2,865

Net cash from continuing investing activities	(309,011		)	(1,972		)	(275,055		)	(31,984		)

Financing activities:
Repurchase of 3.5% senior subordinated convertible notes	(87,278		)	(87,278		)	—			—
Net borrowings (repayments) of other long-term debt	151,807			120,000			57,015			(25,208		)
Net borrowings (repayments) of floor plan notes payable — non-trade	98,131			64,008			(32,995		)	67,118
Proceeds from exercises of options, including excess tax benefit	3,018			3,018			—			—
Repurchase of common stock	(44,263		)	(44,263		)	—			—
Dividends	(13,866		)	(13,866		)	—			—
Distributions from (to) parent	—			—			5,572			(5,572		)

Net cash from continuing financing activities	107,549			41,619			29,592			36,338

Net cash from discontinued operations	11,347			—			10,151			1,196

Net change in cash and cash equivalents	(10,005		)	—			(9,165		)	(840		)
Cash and cash equivalents, beginning of period	19,904			—			15,411			4,493

Cash and cash equivalents, end of period	$	9,899		$	—		$	6,246		$	3,653

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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 “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. This Management’s Discussion and Analysis of Financial Condition and Results of Operations has also been updated to reflect the revision of our financial statements for entities which have been treated as discontinued operations through September 30, 2012.

Overview

We are the second largest automotive retailer headquartered in the U.S. as measured by the $11.6 billion in total revenue we generated in 2011. As of September 30, 2012, we operated 342 retail automotive franchises, of which 169 franchises are located in the U.S. and 173 franchises are located outside of the U.S. The franchises outside the U.S. are located primarily in the U.K. During the nine months ended September 30, 2012, we retailed and wholesaled more than 314,000 vehicles. We are diversified geographically, with 62% of our total revenues during the nine months ended September 30, 2012, generated in the U.S. and Puerto Rico and 38% generated outside the U.S. We offer approximately 40 brands with 96% of our total retail revenue during the nine months ended September 30, 2012, generated from brands of non-U.S. based manufacturers, and 68% generated from premium brands, such as Audi, BMW, Mercedes-Benz and Porsche. Each of our dealerships offers a wide selection of new and used vehicles for sale. In addition to selling new and used vehicles, we generate higher-margin revenue at each of our dealerships through maintenance and repair services and the sale and placement of higher-margin products, such as third-party finance and insurance products, third-party extended service contracts and replacement and aftermarket automotive products.

We also hold a 9.0% limited partnership interest in Penske Truck Leasing Co., L.P. (“PTL”), a leading provider of transportation services and supply chain management. PTL operates and maintains more than 200,000 vehicles and serves customers in North America, South America, Europe and Asia and is one of the largest purchasers of commercial trucks in North America. Product lines include full-service leasing, contract maintenance, commercial and consumer truck rentals, used truck sales, transportation and warehousing management and supply chain management solutions. The general partner of PTL is Penske Truck Leasing Corporation, a wholly-owned subsidiary of Penske Corporation, which, together with other wholly-owned subsidiaries of Penske Corporation, owns 41.1% of PTL. The remaining 49.9% of PTL is owned by General Electric Capital Corporation.

Outlook

The level of new automotive unit sales in our markets affects our results. The new vehicle market and the amount of customer traffic visiting our dealerships have improved during the past few years, and there are market expectations for continued improvement in the automotive market in the U.S. over the next several years. During the nine months ended September 30, 2012, 10.90 million cars and light trucks were sold in the U.S., representing a 14.5% improvement over the 9.52 million cars and light trucks sold during the same period last year. We believe the U.S. automotive market will continue to improve based upon industry forecasts from companies such as JD Power, coupled with demand in the marketplace, an aging vehicle population, lower cost of credit for consumers, and the planned introduction of new models by many different vehicle brands.

Vehicle registrations in the U.K were 1.62 million during the nine months ended September 30, 2012, compared to 1.56 million during the same period of 2011, representing an increase of 4.4%. Based on industry forecasts from entities such as the Society of Motor Manufacturers and Traders (www.smmt.co.uk), we believe despite domestic and international economic concerns, U.K. motorists are responding positively to new products and the latest fuel-efficient technology. We also expect continued resiliency in premium brand sales in the U.K. See “Forward-Looking Statements.”

In late October 2012, several of our dealerships along the East Coast were impacted by super-storm Sandy. These dealerships experienced, and continue to experience, varying degrees of power outage, property damage, loss of inventory and flooding, resulting in a loss of service to their local communities. We are currently assessing the impact of the storm to these locations as well as the impact of closure of local roads and availability of replacement vehicles and parts from the applicable manufacturers.

Operating Overview

New and used vehicle revenues include sales to retail customers and to leasing companies providing consumer automobile leasing. We generate finance and insurance revenues from sales of third-party extended service contracts, sales of third-party insurance policies, commissions relating to the sale of finance and lease contracts to third parties and the sales of certain other products. Service and parts revenues include fees paid for repair, maintenance and collision services, and the sale of replacement parts and other aftermarket accessories.

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

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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. Aggregate gross profit increased $50.2 million, or 10.9%, and $175.4 million, or 13.0%, during the three and nine months ended September 30, 2012, compared to the same periods in prior year. The increase in gross profit is largely attributable to same-store increases in new and used unit sales and finance and insurance revenues. Our retail gross margin percentage declined from 16.8% and 16.9% during the three and nine months ended September 30, 2011 to 15.8% and 16.3% during the three and nine months ended September 30, 2012, respectively, due primarily to lower gross margin on new and used vehicle retail sales primarily during the three months ended September 30, 2012, as well as an increase in the percentage of our revenues generated by vehicle sales, which carry a lower gross margin than other parts of our business. We believe that a significant factor contributing to the reduced new and used gross margin is the increased inventory levels of our Japanese volume foreign brands as compared to the prior year as these manufacturers have returned to normal production levels following the March 2011 earthquake and tsunami.

Our selling expenses consist of advertising and compensation for sales personnel, including commissions and related bonuses. General and administrative expenses include compensation for administration, finance, legal and general management personnel, rent, insurance, utilities, and other expenses. As the majority of our selling expenses are variable, and we believe a significant portion of our general and administrative expenses are subject to our control, we believe our expenses can be adjusted over time to reflect economic trends.

Floor plan interest expense relates to financing incurred in connection with the acquisition of new and used vehicle inventories that is secured by those vehicles. Other interest expense consists of interest charges on all of our interest-bearing debt, other than interest relating to floor plan financing. The cost of our variable rate indebtedness is based on the prime rate, defined London Interbank Offered Rate (“LIBOR”), the Bank of England Base Rate, the Finance House Base Rate, or the Euro Interbank Offered Rate. Our floor plan interest expense has increased during the three and nine months ended September 30, 2012, as a result of higher applicable interest rates due to the impact of interest rate swap transactions, as well as an increase in the amounts outstanding under floor plan arrangements. Our other interest expense has increased during the three and nine months ended September 30, 2012, due to the increase in borrowings under our revolving credit agreements in the U.S. and U.K. following acquisitions in 2011 and during the nine months ended September 30, 2012.

Equity in earnings of affiliates represents our share of the earnings from our investments in joint ventures and other non-consolidated investments, including PTL. It is our expectation that operating conditions as outlined above in the Outlook section will similarly impact these businesses through the end of 2012. However, because PTL is engaged in different businesses than we are, its operating performance may vary significantly from ours.

The future success of our business is dependent upon, among other things, general economic and industry conditions, our ability to consummate and integrate acquisitions, the level of vehicle sales in the markets where we operate, our ability to increase sales of higher margin products, especially service and parts services, our ability to realize returns on our significant capital investment in new and upgraded dealership facilities, and the return realized from our investments in various joint ventures and other non-consolidated investments. See “Forward-Looking Statements.”

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the application of accounting policies that often involve making estimates and employing judgments. Such judgments influence the assets, liabilities, revenues and expenses recognized in our financial statements. Management, on an ongoing basis, reviews these estimates and assumptions. Management may determine that modifications in assumptions and estimates are required, which may result in a material change in our results of operations or financial position.

The following are the accounting policies applied in the preparation of our financial statements that management believes are most dependent upon the use of estimates and assumptions.

Revenue Recognition

Vehicle, Parts and Service Sales

We record revenue when vehicles are delivered and title has passed to the customer, when vehicle service or repair work is completed and when parts are delivered to our customers. Sales promotions that we offer to customers are accounted for as a reduction of revenues at the time of sale. Rebates and other incentives offered directly to us by manufacturers are recognized as a reduction of cost of sales. Reimbursements of qualified advertising expenses are treated as a reduction of selling, general and administrative expenses. The amounts received under certain manufacturer rebate and incentive programs are based on the attainment of program objectives, and such earnings are recognized either upon the sale of the vehicle for which the award was received, or upon attainment of the particular program goals if not associated with individual vehicles. During the nine months ended September 30, 2012 and 2011, we earned $349.9 million and $273.5 million, respectively, of rebates, incentives and reimbursements from manufacturers, of which $341.2 million and $266.4 million was recorded as a reduction of cost of sales.

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Finance and Insurance Sales

Subsequent to the sale of a vehicle to a customer, we sell installment sale contracts to various financial institutions on a non-recourse basis (with specified exceptions) to mitigate the risk of default. We receive a commission from the lender equal to either the difference between the interest rate charged to the customer and the interest rate set by the financing institution or a flat fee. We also receive commissions for facilitating the sale of various third-party insurance products to customers, including credit and life insurance policies and extended service contracts. These commissions are recorded as revenue at the time the customer enters into the contract.

Impairment Testing

Franchise value impairment is assessed as of October 1 every year and upon the occurrence of an indicator of impairment through a comparison of its carrying amount and estimated fair value. An indicator of impairment exists if the carrying value of a franchise exceeds its estimated fair value and an impairment loss may be recognized up to that excess. The fair value of franchise value is determined using a discounted cash flow approach, which includes assumptions about revenue and profitability growth, franchise profit margins, and our cost of capital. We also evaluate our franchise agreements in connection with the annual impairment testing to determine whether events and circumstances continue to support our assessment that the franchise agreements have an indefinite life.

Goodwill impairment is assessed at the reporting unit level as of October 1 every year and upon the occurrence of an indicator of impairment. Our operations are organized by management into operating segments by line of business and geography. We have determined we have two reportable segments as defined in generally accepted accounting principles for segment reporting, including: (i) Retail, consisting of our automotive retail operations, and (ii) PAG Investments, consisting of our investments in businesses other than automotive retail operations. We have determined that the dealerships in each of our operating segments within the Retail reportable segment are components that are aggregated into four geographical reporting units for the purpose of goodwill impairment testing, as they (A) have similar economic characteristics (all are automotive dealerships having similar margins), (B) offer similar products and services (all sell new and used vehicles, service, parts and third-party finance and insurance products), (C) have similar target markets and customers (generally individuals) and (D) have similar distribution and marketing practices (all distribute products and services through dealership facilities that market to customers in similar fashions). There is no goodwill recorded in our PAG Investments reportable segment.

We prepare a qualitative assessment of the carrying value of goodwill in our reportable segments using the criteria in ASC 350-20-35-3 to determine whether it is more likely than not that a reporting unit’s fair value is less than its carrying value. If it were determined through the qualitative assessment that a reporting unit’s fair value is more likely than not greater than its carrying value, additional analysis would be unnecessary. During 2011, we concluded that it was not more likely than not that any of the four reporting unit’s fair value was less than their carrying amount. If the additional impairment testing was necessary, we would have estimated the fair value of our reporting units using an “income” valuation approach. The “income” valuation approach estimates our enterprise value using a net present value model, which discounts projected free cash flows of our business using our weighted average cost of capital as the discount rate. This consideration would also include a control premium that represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest and other significant assumptions including revenue and profitability growth, franchise profit margins, residual values and our cost of capital.

Investments

We account for each of our investments under the equity method, pursuant to which we record our proportionate share of the investee’s income each period. The net book value of our investments was $304.1 million and $298.6 million as of September 30, 2012 and December 31, 2011, respectively. Investments for which there is not a liquid, actively traded market are reviewed periodically by management for indicators of impairment. If an indicator of impairment is identified, management estimates the fair value of the investment using a discounted cash flow approach, which includes assumptions relating to revenue and profitability growth, profit margins, and our cost of capital. Declines in investment values that are deemed to be other than temporary may result in an impairment charge reducing the investments’ carrying value to fair value.

Self-Insurance

We retain risk relating to certain of our general liability insurance, workers’ compensation insurance, auto physical damage insurance, property insurance, employment practices liability insurance, directors and officers insurance and employee medical benefits in the U.S. As a result, we are likely to be responsible for a significant portion of the claims and losses incurred under these programs. The amount of risk we retain varies by program, and, for certain exposures, we have pre-determined maximum loss limits for certain individual claims and/or insurance periods. Losses, if any, above any such pre-determined loss limits are paid by third-party insurance carriers. Our estimate of future losses is prepared by management using our historical loss experience and industry-based development factors. Aggregate reserves relating to retained risk were $26.3 million and

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$25.9 million as of September 30, 2012 and December 31, 2011, respectively. Changes in the reserve estimate during 2012 relate primarily to our general liability and workers compensation programs.

Income Taxes

Tax regulations may require items to be included in our tax returns at different times than the items are reflected in our financial statements. Some of these differences are permanent, such as expenses that are not deductible on our tax return, and some are temporary differences, such as the timing of depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that will be used as a tax deduction or credit in our tax returns in future years which we have already recorded in our financial statements. Deferred tax liabilities generally represent deductions taken on our tax returns that have not yet been recognized as expense in our financial statements. We establish valuation allowances for our deferred tax assets if the amount of expected future taxable income is not likely to allow for the use of the deduction or credit.

Classification in Continuing and Discontinued Operations

We classify the results of our operations in our consolidated financial statements based on generally accepted accounting principles relating to discontinued operations, which requires judgments, including whether a business will be divested, the period required to complete the divestiture, and the likelihood of changes to the divestiture plans. If we determine that a business should be either reclassified from continuing operations to discontinued operations or from discontinued operations to continuing operations, our consolidated financial statements for prior periods are revised to reflect such reclassification.

New Accounting Pronouncements

In July 2012, the FASB issued ASU No. 2012-02, “Intangibles — Goodwill and Other (Topic 350) — Testing Indefinite-Lived Intangible Assets for Impairment.” In accordance with the amendment in ASU No. 2012-02, we have the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the indefinite-lived intangible asset is impaired, we are not required to take further action. We will adopt ASU No. 2012-02 during the fourth quarter of 2012 when our annual indefinite-lived intangible asset impairment assessment is performed. We do not expect adoption of ASU No. 2012-02 to affect our consolidated financial position, results of operations, or cash flows.

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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 was acquired on January 15, 2010, the results of the acquired entity would be included in annual same store comparisons beginning with the year ended December 31, 2012 and in quarterly same store comparisons beginning with the quarter ended June 30, 2011.

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Our results for the three months ended September 30, 2012 include debt redemption costs of $17.8 million ($13.0 million after-tax) relating to the redemption of $375.0 million aggregate principal amount of our 7.75% Notes. Our results for the three months ended September 30, 2011 include a net income tax benefit of $11.0 million, or $0.12 per share, reflecting a positive adjustment from the resolution of certain tax items in the U.K. of $17.0 million, or $0.19 per share, partially offset by a reduction in U.K. deferred tax assets of $6.0 million, or $0.07 per share.

New Vehicle Data

							2012 vs. 2011
Dollars in millions, except per unit amounts	2012			2011			Change		% Change
New retail unit sales	48,307			38,248			10,059		26.3	%
Same store new retail unit sales	44,254			37,057			7,197		19.4	%
New retail sales revenue	$	1,763.1		$	1,451.2		311.9		21.5	%
Same store new retail sales revenue	$	1,615.9		$	1,393.8		222.1		15.9	%
New retail sales revenue per unit	$	36,497		$	37,941		(1,444	)	(3.8	)%
Same store new retail sales revenue per unit	$	36,515		$	37,612		(1,097	)	(2.9	)%
Gross profit — new	$	136.3		$	123.2		13.1		10.6	%
Same store gross profit — new	$	124.5		$	118.2		6.3		5.3	%
Average gross profit per new vehicle retailed	$	2,821		$	3,221		(400	)	(12.4	)%
Same store average gross profit per new vehicle retailed	$	2,814		$	3,188		(374	)	(11.7	)%
Gross margin % — new	7.7		%	8.5		%	(0.8	)%	(9.4	)%
Same store gross margin % — new	7.7		%	8.5		%	(0.8	)%	(9.4	)%

Units

Retail unit sales of new vehicles increased 10,059 units, or 26.3%, from 2011 to 2012. The increase is due to a 7,197 unit, or 19.4%, increase in same store retail unit sales during the period, coupled with a 2,862 unit increase from net dealership acquisitions. Same store retail units increased 24.6% in the U.S. and 7.4% internationally. The same store increases were driven by an 11.5% increase in our premium brands and a 30.7% increase in our volume foreign brands. We believe our premium and volume foreign brands are being positively impacted by improved market conditions including increased credit availability, replacement demand resulting from an aging vehicle population, introduction of new models, and specifically in the case of our volume foreign Japanese brands, improved inventory levels as these manufacturers have returned to normal production levels following the March 2011 earthquake and tsunami.

Revenues

New vehicle retail sales revenue increased $311.9 million, or 21.5%, from 2011 to 2012. The increase is due to a $222.1 million, or 15.9%, increase in same store revenues, coupled with a $89.8 million increase from net dealership acquisitions. The same store revenue increase is due primarily to the 19.4% increase in same store retail unit sales, which increased revenue by $262.8 million, somewhat offset by a $1,097, or 2.9%, decrease in comparative average selling prices per unit which decreased revenue by $40.7 million.

Gross Profit

Retail gross profit from new vehicle sales increased $13.1 million, or 10.6%, from 2011 to 2012. The increase is due to a $6.3 million, or 5.3%, increase in same store gross profit, coupled with a $6.8 million increase from net dealership acquisitions. The same store increase is due primarily to the 19.4% increase in retail unit sales, which increased gross profit by $20.2 million, somewhat offset by a $374, or 11.7%, decrease in the average gross profit per new vehicle retailed, which decreased gross profit by $13.9 million. We believe that the higher 2011 gross profit per unit and gross margin were driven by the temporary lack of inventory of Japanese brands as a result of the March 2011 earthquake and tsunami.

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Used Vehicle Data

							2012 vs. 2011
Dollars in millions, except per unit amounts	2012			2011			Change		% Change
Used retail unit sales	39,844			33,084			6,760		20.4	%
Same store used retail unit sales	36,855			32,531			4,324		13.3	%
Used retail sales revenue	$	995.4		$	868.0		127.4		14.7	%
Same store used retail sales revenue	$	924.8		$	853.0		71.8		8.4	%
Used retail sales revenue per unit	$	24,982		$	26,235		(1,253	)	(4.8	)%
Same store used retail sales revenue per unit	$	25,094		$	26,221		(1,127	)	(4.3	)%
Gross profit — used	$	72.7		$	65.4		7.3		11.2	%
Same store gross profit — used	$	67.6		$	64.0		3.6		5.6	%
Average gross profit per used vehicle retailed	$	1,824		$	1,978		(154	)	(7.8	)%
Same store average gross profit per used vehicle retailed	$	1,834		$	1,967		(133	)	(6.8	)%
Gross margin % — used	7.3		%	7.5		%	(0.2	)%	(2.7	)%
Same store gross margin % — used	7.3		%	7.5		%	(0.2	)%	(2.7	)%

Units

Retail unit sales of used vehicles increased 6,760 units, or 20.4%, from 2011 to 2012. The increase is due to a 4,324 unit, or 13.3%, increase in same store retail unit sales, coupled with a 2,436 unit increase from net dealership acquisitions. Same store units increased 14.8% in the U.S. and 10.4% internationally. The same store increases were driven by a 13.1% increase in our premium brands and a 14.8% increase in our volume foreign brands. We believe that overall our same store used vehicle sales are being positively impacted by improved market conditions including increased credit availability, replacement demand resulting from an aging vehicle population, and an increase in customer trade-in units due to an increase in new unit sales.

Revenues

Used vehicle retail sales revenue increased $127.4 million, or 14.7%, from 2011 to 2012. The increase is due to a $71.8 million, or 8.4%, increase in same store revenues, coupled with a $55.6 million increase from net dealership acquisitions. The same store revenue increase is due to the 13.3% increase in same store retail unit sales which increased revenue by $108.5 million, somewhat offset by a $1,127, or 4.3%, decrease in comparative average selling prices per unit, which decreased revenue by $36.7 million.

Gross Profit

Retail gross profit from used vehicle sales increased $7.3 million, or 11.2%, from 2011 to 2012. The increase is due to a $3.6 million, or 5.6%, increase in same store gross profit, coupled with a $3.7 million increase from net dealership acquisitions. The increase in same store gross profit is due to the 13.3% increase in used retail unit sales, which increased gross profit by $7.9 million, somewhat offset by a $133, or 6.8%, decrease in average gross profit per used vehicle retailed, which decreased retail gross profit by $4.3 million.

Finance and Insurance Data

					2012 vs. 2011
Dollars in millions, except per unit amounts	2012		2011		Change			% Change
Finance and insurance revenue	$	85.4	$	73.2	$	12.2		16.7	%
Same store finance and insurance revenue	$	80.9	$	71.6	$	9.3		13.0	%
Finance and insurance revenue per unit	$	969	$	1,026	$	(57	)	(5.6	)%
Same store finance and insurance revenue per unit	$	998	$	1,029	$	(31	)	(3.0	)%

Finance and insurance revenue increased $12.2 million, or 16.7%, from 2011 to 2012. The increase is due to a $9.3 million, or 13.0%, increase in same store revenues during the period, coupled with a $2.9 million increase from net dealership acquisitions. The same store revenue increase is due to a 16.6% increase in same store retail unit sales, which increased revenue by $11.5 million, somewhat offset by a $31, or 3.0%, decrease in comparative average finance and insurance revenue per unit which decreased revenue by $2.2 million. We believe the decreased revenue per unit is being driven by lower per unit revenue at

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recently acquired dealerships and aggressive captive lender financing programs at some of our premium and volume foreign brands.

Service and Parts Data

							2012 vs. 2011
Dollars in millions, except per unit amounts	2012			2011			Change		% Change
Service and parts revenue	$	372.0		$	347.4		24.6		7.1	%
Same store service and parts revenue	$	342.1		$	335.8		6.3		1.9	%
Gross profit	$	215.1		$	198.0		17.1		8.6	%
Same store gross profit	$	199.2		$	191.6		7.6		4.0	%
Gross margin	57.8		%	57.0		%	0.8	%	1.4	%
Same store gross margin	58.2		%	57.1		%	1.1	%	1.9	%

Revenues

Service and parts revenue increased $24.6 million, or 7.1%, from 2011 to 2012. The increase is due to a $6.3 million, or 1.9%, increase in same store revenues during the period, coupled with an $18.3 million increase from net dealership acquisitions. The increase in same store revenue is due to a $2.8 million, or 1.1%, increase in customer pay revenue, a $1.8 million, or 2.8%, increase in warranty revenue, a $1.3 million, or 36.0%, increase in vehicle preparation revenue, and a $0.4 million, or 1.4%, increase in body shop revenue.

Gross Profit

Service and parts gross profit increased $17.1 million, or 8.6%, from 2011 to 2012. The increase is due to a $7.6 million, or 4.0%, increase in same store gross profit during the period, coupled with a $9.5 million increase from net dealership acquisitions. The same store gross profit increase is due to a $6.3 million, or 1.9%, increase in same store revenues, which increased gross profit by $3.7 million, coupled with a 0.8% increase in gross margin, which increased gross profit by $3.9 million. The same store gross profit increase is composed of a $5.5 million, or 21%, increase in vehicle preparation gross profit, a $1.3 million, or 1.1%, increase in customer pay gross profit, a $0.6 million, or 1.7%, increase in warranty gross profit, and a $0.2 million, or 1.2%, increase in body shop gross profit.

Selling, General and Administrative

Selling, general and administrative expenses (“SG&A”) increased $39.6 million, or 10.7%, from $369.8 million to $409.4 million. The aggregate increase is due to a $19.3 million, or 5.4%, increase in same store SG&A, coupled with a $20.3 million increase from net dealership acquisitions. The increase in same store SG&A is due to a net increase in variable selling expenses, including increases in variable compensation, as a result of a 6.0% increase in same store retail gross profit versus the prior year. SG&A expenses decreased as a percentage of gross profit from 80.3% to 80.1%.

Floor Plan Interest Expense

Floor plan interest expense, including the impact of swap transactions, increased $3.3 million, or 47.1%, from $6.8 million to $10.1 million, due primarily to a $3.1 million, or 47.5%, increase in same store floor plan interest expense. The same store increase is due to an increase in the effective interest rate due to the impact of our swap transactions in 2012 which increased interest expense by $1.8 million, as well as increased amounts outstanding under floor plan arrangements. The same store increase is coupled with a $0.2 million increase from net dealership acquisitions.

Other Interest Expense

Other interest expense increased $0.5 million, or 4.8%, from $11.2 million to $11.7 million. The increase is primarily due to interest expense incurred on our U.K. credit agreement term loan during the third quarter of 2012. The term loan originated in January 2012 and was used for working capital and to finance an acquisition in the U.K.

Equity in Earnings of Affiliates

Equity in earnings of affiliates decreased $0.8 million, or 8.4%, from $9.6 million to $8.8 million. The decrease is due to decreased equity earnings from PTL as a result of additional interest expense associated with refinancing activities as well as decreased earnings at certain of our other joint ventures.

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Income Taxes

Income taxes increased $2.1 million, or 15.6%, from $13.2 million to $15.3 million despite lower pre-tax income in the quarter ended September 2012 (due to the $17.8 million of debt redemption costs in 2012) because the effective tax rate in the third quarter of 2011 was lower than the statutory rates due to a net income tax benefit of $11.0 million reflecting a positive adjustment of $17.0 million from the resolution of certain tax items in the U.K., partially offset by a reduction in U.K. deferred tax assets of $6.0 million.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Our results for the nine months ended September 30, 2012 include debt redemption costs of $17.8 million ($13.0 million after-tax) relating to the redemption of $375.0 million aggregate principal amount of our 7.75% Notes. Our results for the nine months ended September 30, 2011 include a net income tax benefit of $11.0 million, or $0.12 per share, reflecting a positive adjustment from the resolution of certain tax items in the U.K. of $17.0 million, or $0.19 per share, partially offset by a reduction in U.K. deferred tax assets of $6.0 million, or $0.07 per share.

New Vehicle Data

							2012 vs. 2011
Dollars in millions, except per unit amounts	2012			2011			Change		% Change
New retail unit sales	138,080			114,242			23,838		20.9	%
Same store new retail unit sales	125,685			111,770			13,915		12.4	%
New retail sales revenue	$	5,066.4		$	4,229.2		837.2		19.8	%
Same store new retail sales revenue	$	4,617.5		$	4,131.5		486.0		11.8	%
New retail sales revenue per unit	$	36,692		$	37,020		(328	)	(0.9	)%
Same store new retail sales revenue per unit	$	36,739		$	36,964		(225	)	(0.6	)%
Gross profit — new	$	406.9		$	351.6		55.3		15.7	%
Same store gross profit — new	$	368.9		$	343.0		25.9		7.6	%
Average gross profit per new vehicle retailed	$	2,947		$	3,077		(130	)	(4.2	)%
Same store average gross profit per new vehicle retailed	$	2,935		$	3,069		(134	)	(4.4	)%
Gross margin % — new	8.0		%	8.3		%	(0.3	)%	(3.6	)%
Same store gross margin % — new	8.0		%	8.3		%	(0.3	)%	(3.6	)%

Units

Retail unit sales of new vehicles increased 23,838 units, or 20.9%, from 2011 to 2012. The increase is due to a 13,915 unit, or 12.4%, increase in same store retail unit sales during the period, coupled with a 9,923 unit increase from net dealership acquisitions. Same store retail units increased 14.7% in the U.S. and 6.7% internationally. The same store increases were driven by a 7.9% increase in our premium brands and a 17.0% increase in our volume foreign brands. We believe our premium and volume foreign brands are being positively impacted by improved market conditions including increased credit availability, replacement demand resulting from an aging vehicle population, introduction of new models, and specifically in the case of our volume foreign Japanese brands, improved inventory levels as these manufacturers have returned to normal production levels following the March 2011 earthquake and tsunami.

Revenues

New vehicle retail sales revenue increased $837.2 million, or 19.8%, from 2011 to 2012. The increase is due to a $486.0 million, or 11.8%, increase in same store revenues, coupled with a $351.2 million increase from net dealership acquisitions. The same store revenue increase is due to the 12.4% increase in retail unit sales, which increased revenue by $511.2 million, somewhat offset by a $225, or 0.6%, decrease in average selling prices per unit, which decreased revenue by $25.2 million.

Gross Profit

Retail gross profit from new vehicle sales increased $55.3 million, or 15.7%, from 2011 to 2012. The increase is due to a $25.9 million, or 7.6%, increase in same store gross profit, coupled with a $29.4 million increase from net dealership acquisitions. The same store increase is due primarily to the 12.4% increase in retail unit sales, which increased gross profit by $40.9 million, somewhat offset by a $134, or 4.4%, decrease in the average gross profit per new vehicle retailed, which decreased gross profit by $15.0 million. We believe that the higher 2011 gross profit per unit and gross margin were driven by the temporary lack of inventory of Japanese brands as a result of the March 2011 earthquake and tsunami.

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Used Vehicle Data

							2012 vs. 2011
Dollars in millions, except per unit amounts	2012			2011			Change		% Change
Used retail unit sales	115,692			95,525			20,167		21.1	%
Same store used retail unit sales	106,364			93,808			12,556		13.4	%
Used retail sales revenue	$	2,926.5		$	2,511.6		414.9		16.5	%
Same store used retail sales revenue	$	2,697.3		$	2,470.4		226.9		9.2	%
Used retail sales revenue per unit	$	25,296		$	26,292		(996	)	(3.8	)%
Same store used retail sales revenue per unit	$	25,359		$	26,334		(975	)	(3.7	)%
Gross profit — used	$	224.9		$	201.4		23.5		11.7	%
Same store gross profit — used	$	208.6		$	197.9		10.7		5.4	%
Average gross profit per used vehicle retailed	$	1,944		$	2,109		(165	)	(7.8	)%
Same store average gross profit per used vehicle retailed	$	1,961		$	2,110		(149	)	(7.1	)%
Gross margin % — used	7.7		%	8.0		%	(0.3	)%	(3.8	)%
Same store gross margin % — used	7.7		%	8.0		%	(0.3	)%	(3.8	)%

Units

Retail unit sales of used vehicles increased 20,167 units, or 21.1%, from 2011 to 2012. The increase is due to a 12,556 unit, or 13.4%, increase in same store retail unit sales, coupled with a 7,611 unit increase from net dealership acquisitions. Same store units increased 15.1% in the U.S. and 10.0% internationally. The same store increases were driven by a 12.3% increase in our premium brands and a 15.5% increase in our volume foreign brands. We believe that overall our same store used vehicle sales are being positively impacted by improved market conditions including increased credit availability, replacement demand resulting from an aging vehicle population, and an increase in customer trade-in units due to an increase in new unit sales.

Revenues

Used vehicle retail sales revenue increased $414.9 million, or 16.5%, from 2011 to 2012. The increase is due to a $226.9 million, or 9.2%, increase in same store revenues, coupled with a $188.0 million increase from net dealership acquisitions. The same store revenue increase is due to the 13.4% increase in same store retail unit sales which increased revenue by $318.4 million, somewhat offset by a $975, or 3.7%, decrease in comparative average selling prices per unit, which decreased revenue by $91.5 million.

Gross Profit

Retail gross profit from used vehicle sales increased $23.5 million, or 11.7%, from 2011 to 2012. The increase is due to a $10.7 million, or 5.4%, increase in same store gross profit, coupled with a $12.8 million increase from net dealership acquisitions. The increase in same store gross profit is due to the 13.4% increase in used retail unit sales, which increased gross profit by $24.6 million, somewhat offset by a $149, or 7.1%, decrease in average gross profit per used vehicle retailed, which decreased retail gross profit by $13.9 million.

Finance and Insurance Data

					2012 vs. 2011
Dollars in millions, except per unit amounts	2012		2011		Change			% Change
Finance and insurance revenue	$	247.9	$	208.5	$	39.4		18.9	%
Same store finance and insurance revenue	$	232.4	$	204.5	$	27.9		13.6	%
Finance and insurance revenue per unit	$	977	$	994	$	(17	)	(1.7	)%
Same store finance and insurance revenue per unit	$	1,001	$	995	$	6		0.6	%

Finance and insurance revenue increased $39.4 million, or 18.9%, from 2011 to 2012. The increase is due to a $27.9 million, or 13.6%, increase in same store revenues during the period, coupled with an $11.5 million increase from net dealership acquisitions. The same store revenue increase is due to a 12.9% increase in total retail unit sales, which increased revenue by $26.6 million, coupled with a $6, or 0.6%, increase in comparative average finance and insurance revenue per unit which increased revenue by $1.3 million.

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Service and Parts Data

							2012 vs. 2011
Dollars in millions, except per unit amounts	2012			2011			Change		% Change
Service and parts revenue	$	1,109.1		$	1,027.1		82.0		8.0	%
Same store service and parts revenue	$	1,018.1		$	1,007.0		11.1		1.1	%
Gross profit	$	643.5		$	586.7		56.8		9.7	%
Same store gross profit	$	592.7		$	575.9		16.8		2.9	%
Gross margin	58.0		%	57.1		%	0.9	%	1.6	%
Same store gross margin	58.2		%	57.2		%	1.0	%	1.7	%

Revenues

Service and parts revenue increased $82.0 million, or 8.0%, from 2011 to 2012. The increase is due to an $11.1 million, or 1.1%, increase in same store revenues during the period, coupled with a $70.9 million increase from net dealership acquisitions. The increase in same store revenue is due to an $11.9 million, or 1.6%, increase in customer pay revenue, and a $3.8 million, or 36.5%, increase in vehicle preparation revenue. These same store revenue increases were somewhat offset by a $3.8 million, or 1.9%, decrease in warranty revenue, and a $0.8 million, or 1.3%, decrease in body shop revenue.

Gross Profit

Service and parts gross profit increased $56.8 million, or 9.7%, from 2011 to 2012. The increase is due to a $16.8 million, or 2.9%, increase in same store gross profit during the period, coupled with a $40.0 million increase from net dealership acquisitions. The same store gross profit increase is due to the $11.1 million, or 1.1%, increase in same store revenues, which increased gross profit by $6.5 million, coupled with a 1.0% increase in gross margin, which increased gross profit by $10.3 million. The same store gross profit increase is composed of a $14.6 million, or 18.2%, increase in vehicle preparation gross profit, and a $7.0 million, or 2.0%, increase in customer pay gross profit. These same store gross profit increases were somewhat offset by a $4.6 million, or 4.4%, decrease in warranty gross profit, and a $0.2 million, or 0.6%, decrease in body shop gross profit.

Selling, General and Administrative

Selling, general and administrative expenses (“SG&A”) increased $118.1 million, or 10.8%, from $1,098.1 million to $1,216.2 million. The aggregate increase is due to a $44.5 million, or 4.1%, increase in same store SG&A, coupled with a $73.6 million increase from net dealership acquisitions. The increase in same store SG&A is due to a net increase in variable selling expenses, including increases in variable compensation, as a result of a 6.2% increase in same store retail gross profit versus the prior year. SG&A expenses decreased as a percentage of gross profit from 81.1% to 79.5%.

Floor Plan Interest Expense

Floor plan interest expense, including the impact of swap transactions, increased $9.1 million, or 43.9%, from $20.6 million to $29.7 million, due primarily to a $8.2 million, or 40.7%, increase in same store floor plan interest expense. The same store increase is due to an increase in the effective interest rate due to the impact of our swap transactions in 2012 which increased interest expense by $5.3 million, as well as increased amounts outstanding under floor plan arrangements. The same store increase is coupled with a $0.9 million increase from net dealership acquisitions.

Other Interest Expense

Other interest expense increased $2.6 million, or 7.9%, from $32.9 million to $35.5 million. The increase is due primarily to incremental borrowings made during the latter part of 2011 and first nine months of 2012 to finance acquisitions.

Equity in Earnings of Affiliates

Equity in earnings of affiliates increased $3.9 million, or 22.1%, from $17.5 million to $21.4 million. The increase is primarily due to an increase in equity in earnings from our investment in PTL and increases in earnings at our foreign automotive joint ventures.

Income Taxes

Income taxes increased $19.8 million, or 40.1%, from $49.3 million to $69.1 million. The increase from 2011 to 2012 is due to an overall increase in our pre-tax income versus the prior year despite the $17.8 million of debt redemption costs in the third quarter 2012; however, the nine months ended September 30, 2011 includes a net income tax benefit of $11.0 million

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reflecting a positive adjustment of $17.0 million from the resolution of certain tax items in the U.K. partially offset by a reduction in U.K. deferred tax assets of $6.0 million.

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, debt service and repayments, dividends, and potentially repurchases of our outstanding securities under the program discussed below. Historically, these cash requirements have been met through cash flow from operations, borrowings under our credit agreements and floor plan arrangements, the issuance of debt securities, sale-leaseback transactions, mortgages, dividends and distributions from joint venture investments, or the issuance of equity securities.

We have historically expanded our retail automotive operations through organic growth and the acquisition of retail automotive dealerships. We believe that cash flow from operations, dividends and distributions from our joint venture investments and our existing capital resources, including the liquidity provided by our credit agreements and floor plan financing arrangements, will be sufficient to fund our operations and commitments for at least the next twelve months. In the event we pursue significant acquisitions, other expansion opportunities, significant repurchases of our outstanding securities; or refinance or repay existing debt, we may need to raise additional capital either through the public or private issuance of equity or debt securities or through additional borrowings, which sources of funds may not necessarily be available on terms acceptable to us, if at all. In addition, our liquidity could be negatively impacted in the event we fail to comply with the covenants under our various financing and operating agreements or in the event our floor plan financing is withdrawn.

As of September 30, 2012, we had $368.1 million and £73.8 million ($119.3 million) available for borrowing under our U.S. credit agreement and our U.K. credit agreement, 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, debt or convertible debt on the open market, in privately negotiated transactions, via a tender offer, or through a pre-arranged trading plan. We have historically funded any such repurchases using cash flow from operations and borrowings under our U.S. credit facility. The decision to make repurchases will be based on factors such as the market price of the relevant security versus our view of its intrinsic value, the potential impact of such repurchases on our capital structure, and our consideration of any alternative uses of our capital, such as for strategic investments in our current businesses, in addition to any then-existing limits imposed by our finance agreements and securities trading policy.

During the nine months ended September 30, 2012, we acquired 55,631 shares of our common stock for $1,307, or an average of $23.49 per share, from employees in connection with vesting of employee restricted stock awards. During the nine months ended September 30, 2012, we repurchased 350,000 shares of our outstanding common stock for $8,522, or an average of $24.35 per share, under a program approved by our Board of Directors. As of September 30, 2012, we have $98.3 million in authorization under the existing securities repurchase program.

Dividends

We paid the following cash dividends on our common stock in 2011 and 2012:

	Per Share Dividends
2011

Second Quarter	$	0.07
Third Quarter	0.08
Fourth Quarter	0.09

2012

First Quarter	$	0.10
Second Quarter	0.11
Third Quarter	0.12

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We also have announced a cash dividend of $0.13 per share payable on December 3, 2012 to shareholders of record on November 12, 2012. Future quarterly or other cash dividends will depend upon a variety of factors considered relevant by our Board of Directors which may include our earnings, capital requirements, restrictions relating to any then-existing indebtedness, financial condition, and other factors.

Inventory Financing

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

The floor plan agreements typically grant a security interest in substantially all of the assets of our dealership subsidiaries, and in the U.S. are guaranteed by us. Interest rates under the floor plan arrangements are variable and increase or decrease based on changes in the prime rate, defined LIBOR, Finance House Base Rate, or Euro Interbank Offered Rate. To date, we have not experienced any material limitation with respect to the amount or availability of financing from any institution providing us vehicle financing. We also receive non-refundable credits from certain of our vehicle manufacturers, which are treated as a reduction of cost of sales as vehicles are sold.

U.S. Credit Agreement

We are party to a credit agreement with Mercedes-Benz Financial Services USA LLC and Toyota Motor Credit Corporation, as amended (the “U.S. credit agreement”), which provides for up to $375 million in revolving loans for working capital, acquisitions, capital expenditures, investments and other general corporate purposes, a non-amortizing term loan with a balance of $110 million, and for an additional $10 million of availability for letters of credit, through September 2015. The revolving loans bear interest at a defined LIBOR plus 2.50%, subject to an incremental 1.00% for uncollateralized borrowings in excess of a defined borrowing base. The term loan, which bears interest at defined LIBOR plus 2.50%, may be prepaid at any time, but then may not be re-borrowed.

The U.S. credit agreement is fully and unconditionally guaranteed on a joint and several basis by our domestic subsidiaries and contains a number of significant covenants that, among other things, restrict our ability to dispose of assets, incur additional indebtedness, repay other indebtedness, pay dividends, create liens on assets, make investments or acquisitions and engage in mergers or consolidations. We are also required to comply with specified financial and other tests and ratios, each as defined in the U.S. credit agreement, including: a ratio of current assets to current liabilities, a fixed charge coverage ratio, a ratio of debt to stockholders’ equity and a ratio of debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”). A breach of these requirements would give rise to certain remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of any amounts owed. As of September 30, 2012, we were in compliance with all covenants under the U.S. credit agreement, and we believe we will remain in compliance with such covenants for the next twelve months. In making such determination, we considered the current margin of compliance with the covenants and our expected future results of operations, working capital requirements, acquisitions, capital expenditures and investments. See “Forward Looking Statements.”

The U.S. credit agreement also contains typical events of default, including change of control, non-payment of obligations and cross-defaults to our other material indebtedness. Substantially all of our domestic assets are subject to security interests granted to lenders under the U.S. credit agreement. As of September 30, 2012, $110 million of term loans and $0.5 million of letters of credit were outstanding under the U.S. credit agreement.

U.K. Credit Agreement

Our subsidiaries in the U.K. (the “U.K. subsidiaries”) are party to a £100 million revolving credit agreement with the Royal Bank of Scotland plc (RBS) and BMW Financial Services (GB) Limited, and an additional £10 million demand overdraft line of credit with RBS (collectively, the “U.K. credit agreement”) to be used for working capital, acquisitions, capital expenditures, investments and general corporate purposes through November 2015. The revolving loans bear interest between defined LIBOR plus 1.35% and defined LIBOR plus 3.0% and the demand overdraft line of credit bears interest at the Bank of England Base Rate plus 1.75%. As of September 30, 2012, outstanding loans under the U.K. credit agreement amounted to £29.9 million ($48.4 million).

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In January 2012, our U.K. subsidiaries entered into a separate agreement with RBS, as agent for National Westminster Bank plc, providing for a £30 million term loan which was used for working capital and an acquisition. The term loan is repayable in £1.5 million quarterly installments through 2015 with a final payment of £7.5 million due December 31, 2015. The term loan bears interest between 2.675% and 4.325%, depending on the U.K. subsidiaries’ ratio of net borrowings to earnings before interest, taxes, depreciation and amortization (as defined). As of September 30, 2012, the amount outstanding under the U.K. term loan was £25.5 million ($41.2 million).

3.5% Senior Subordinated Convertible Notes

In May 2012, we provided notice to holders of our 3.5% Senior Subordinated Convertible Notes that we were exercising our right to redeem the Convertible Notes at a price of 100% of the principal amount outstanding plus accrued and unpaid interest to, but excluding June 25, 2012. In lieu of surrendering the Notes for redemption, Note holders could elect to convert the Notes at any time prior to the close of business on June 21, 2012 based on a conversion rate of 42.7796 shares of our common stock per $1,000 principal amount of the Convertible Notes (which is equal to a conversion price of approximately $23.38 per share).

Holders of $25.5 million outstanding principal amount of Convertible Notes elected to convert their Notes. We settled the principal and interest due on the remaining $37.8 million on June 25, 2012. In July, we paid the converting holders the conversion balance due of $24.9 million in cash. Following this payment, we had fulfilled all of our obligations under the Convertible Notes.

5.75% Senior Subordinated Notes

In August 2012, we issued $550 million in aggregate principal amount of 5.75% Senior Subordinated Notes due 2022 (the “5.75% Notes”) in a private offering under Rule 144A and Regulation S of the Securities Act of 1933.

We used a portion of the net proceeds of the 5.75% Notes to redeem $375 million in aggregate principal amount of our 7.75% Senior Subordinated Notes due 2016, and to pay fees and expenses in connection with the offering. The remaining proceeds from the 5.75% Notes were used to repay amounts outstanding under our U.S. credit agreement and our U.S. floor plan borrowings.

Interest on the 5.75% Notes is payable semiannually on April 1 and October 1 of each year, beginning on April 1, 2013. The 5.75% Notes mature on October 1, 2022, unless earlier redeemed or purchased by us. The Notes are our unsecured senior subordinated obligations and are guaranteed on an unsecured senior subordinated basis by our existing wholly-owned domestic subsidiaries. The 5.75% Notes also contain customary negative covenants and events of default. As of September 30, 2012, we were in compliance with all negative covenants, and there were no events of default.

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notes, plus accrued and unpaid interest. In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the notes at a price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest.

7.75% Senior Subordinated Notes

In the third quarter of 2012, we redeemed our $375.0 million principal amount of 7.75% Notes plus accrued interest. We incurred a $17.8 million pre-tax charge in connection with the redemption, consisting of a $15.8 million redemption premium and the write-off of $2.0 million of unamortized deferred financing costs.

Mortgage Facilities

We are party to several mortgages, which bear interest at defined rates and require monthly principal and interest payments. These mortgage facilities also contain typical events of default, including non-payment of obligations, cross-defaults to our other material indebtedness, certain change of control events, and the loss or sale of certain franchises operated at the properties. Substantially all of the buildings and improvements on the properties financed pursuant to the mortgage facilities are subject to security interests granted to the lender. As of September 30, 2012, we owed $73.5 million of principal under our mortgage facilities.

Short-term Borrowings

We have three principal sources of short-term borrowing: the revolving portion of the U.S. credit agreement, the revolving portion of the U.K. credit agreement, and the floor plan agreements in place that we utilize to finance our vehicle inventories. All of the cash generated in our operations is initially used to pay down our floor plan indebtedness. Over time, we are able to access availability under the floor plan agreements to fund our cash needs, including payments made relating to our higher interest rate revolving credit agreements.

During the nine months ended September 30, 2012, outstanding revolving commitments varied between $0 and $188.5 million under the U.S. credit agreement and between £0 and £92.0 million under the U.K. credit agreement’s revolving credit line (excluding the overdraft facility), and 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

We periodically use interest rate swaps to manage interest rate risk associated with our variable rate floor plan debt. We are party to interest rate swap agreements through December 2014 pursuant to which the LIBOR portion of $300.0 million of our floating rate floor plan debt is fixed at 2.135% and $100.0 million of our floating rate floor plan debt is fixed at 1.55%. We may terminate these agreements at any time, subject to the settlement of the then current fair value of the swap arrangements. During the three and nine months ended September 30, 2012, the swaps increased interest expense by approximately $1.8 million and $5.3 million, respectively, which increased the weighted average interest rate on our floor plan borrowing by 37 and 39 basis points, respectively.

PTL Dividends

We own a 9.0% limited partnership interest in Penske Truck Leasing. During the nine months ended September 30, 2012 and 2011, respectively, we received $15.4 million and $7.8 million of pro rata cash distributions relating to this investment. We currently expect to continue to receive future distributions from PTL quarterly, subject to its financial performance.

Operating Leases

We have historically structured our operations so as to minimize our ownership of real property. As a result, we lease or sublease substantially all of our facilities. These leases are generally for a period between five and twenty years, and are typically structured to include renewal options at our election. Pursuant to the leases for some of our larger facilities, we are required to comply with specified financial ratios, including a “rent coverage” ratio and a debt to EBITDA ratio, each as defined. For these leases, non-compliance with the ratios may require us to post collateral in the form of a letter of credit. A breach of our other

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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 September 30, 2012, we were in compliance with all covenants under these leases, and we believe we will remain in compliance with such covenants for the next twelve months.

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 which vary from period to period.

Off-Balance Sheet Arrangements

We have sold a number of dealerships to third parties and, as a condition to certain of those sales, remain liable for the lease payments relating to the properties on which those businesses operate in the event of non-payment by the buyer. We are also party to lease agreements on properties that we no longer use in our retail operations that we have sublet to third parties. We rely on subtenants to pay the rent and maintain the property at these locations. In the event a subtenant does not perform as expected, we may not be able to recover amounts owed to us and we could be required to fulfill these obligations. We believe we have made appropriate reserves relating to these locations.

We hold a 9.0% limited partnership interest in PTL. In April and May 2012, PTL has refinanced a significant amount of its indebtedness. As part of that refinancing, we and the other PTL partners created a new company (“Holdings”), which, together with General Electric Capital Corporation (“GECC”), co-issued $700 million of 3.8% senior unsecured notes due 2019 to certain investors through an offering pursuant to Rule 144A of the Securities Act of 1933, as amended (the “Holdings Bonds”). A wholly-owned subsidiary of Holdings contributed $700 million derived from the net proceeds from the offering of the Holdings Bonds and a portion of its cash on hand to PTL in exchange for a 21.5% limited partner interest in PTL. PTL used the $700 million of funds to reduce its outstanding debt owed to GECC. GECC agreed to be a co-obligor of the Holdings Bonds in order to achieve lower interest rates on the Holdings Bonds.

Additional capital contributions from the members may be required to fund interest and principal payments on the Holdings Bonds. In addition, we have agreed to indemnify GECC for 9.0% of any principal or interest that GECC is required to pay as co-obligor, and pay GECC an annual fee of approximately $0.95 million for acting as co-obligor. The maximum amount of our potential obligations to GECC under this agreement are 9% of the required principal repayment due in 2019 (which is expected to be $63.1 million) and 9% of interest payments under the Holdings Bonds, plus fees and default interest, if any. Although we do not currently expect to make material payments to GECC under this agreement, this outcome cannot be predicted with certainty.

Cash Flows

Cash and cash equivalents decreased by $2.7 million and $10.0 million during the nine months ended September 30, 2012 and 2011, respectively. The major components of these changes are discussed below.

Cash Flows from Continuing Operating Activities

Cash provided by continuing operating activities was $264.6 million and $180.1 million during the nine months ended September 30, 2012 and 2011, respectively. 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 our new and a portion of our used vehicle inventories under revolving floor plan notes payable with various lenders. We retain the right to select which, if any, financing source to utilize in connection with the procurement of 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

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our statement of cash flows, and all cash flows arising in connection with floor plan notes payable to a party other than the manufacturer of a particular new vehicle and all floor plan notes payable relating to pre-owned vehicles as a financing activity in our statement of cash flows. Currently, the majority of our non-trade vehicle financing is with other manufacturer captive lenders. To date, we have not experienced any material limitation with respect to the amount or availability of financing from any institution providing us vehicle financing.

We believe that changes in aggregate floor plan liabilities are typically linked to changes in vehicle inventory and, therefore, are an integral part of understanding changes in our working capital and operating cash flow. As a result, we prepare the following reconciliation to highlight our operating cash flows with all changes in vehicle floor plan being classified as an operating activity for informational purposes:

	Nine Months Ended September 30,
Dollars in millions	2012		2011
Net cash from continuing operating activities as reported	$	246.6	$	180.1
Floor plan notes payable — non-trade as reported	29.7		98.1
Net cash from continuing operating activities including all floor plan notes payable	$	276.3	$	278.2

Cash Flows from Continuing Investing Activities

Cash used in continuing investing activities was $229.2 million and $309.0 million during the nine months ended September 30, 2012 and 2011, respectively. Cash flows from continuing investing activities consist primarily of cash used for capital expenditures and net expenditures for acquisitions and other investments. Capital expenditures were $96.4 million and $79.8 million during the nine months ended September 30, 2012 and 2011, respectively. Capital expenditures relate primarily to improvements to our existing dealership facilities and the construction of new facilities. We do not have material commitments related to our planned or ongoing capital projects. We currently expect to finance our capital expenditures with operating cash flows or borrowings under our U.S. or U.K. credit facilities. Cash used in acquisitions and other investments, net of cash acquired, was $137.8 million and $232.1 million during the nine months ended September 30, 2012 and 2011, respectively, and included cash used to repay sellers floor plan liabilities in such business acquisitions of $49.5 million and $54.5 million, respectively. Additionally, cash provided by other investing activities was $3.5 million and $2.9 million during the nine months ended September 30, 2012 and 2011, respectively.

Cash Flows from Continuing Financing Activities

Cash used in continuing financing activities was $55.8 million during the nine months ended September 30, 2012. Cash provided by continuing financing activities was $107.5 million during the nine months ended September 30, 2011. Cash flows from continuing financing activities include net borrowings or repayments of long-term debt, issuance and repurchases of long-term debt, repurchases of securities, net borrowings or repayments of floor plan notes payable non-trade, proceeds from the issuance of common stock and the exercise of stock options, and dividends. We had net repayments of long-term debt of $133.9 million during the nine months ended September 30, 2012, including net repayments under revolving credit facilities. We had net borrowings of long-term debt of $151.8 million during the nine months ended September 30, 2011, including net borrowings under revolving credit facilities. We issued $550.0 million of senior subordinated notes during the nine months ended September 30, 2012. Cash used to redeem debt was $453.4 million and $87.3 million during the nine months ended September 30, 2012 and 2011, respectively. We had net borrowings of floor plan notes payable non-trade of $29.7 million and $98.1 million during the nine months ended September 30, 2012 and 2011, respectively. During the nine months ended September 30, 2012, we acquired 405,631 shares of common stock for $9.8 million and paid cash dividends to our stockholders of $29.8 million. During the nine months ended September 30, 2011, we acquired 2,449,768 shares of common stock for $44.3 million, and paid cash dividends to our stockholders of $13.9 million.

Cash Flows from Discontinued Operations

Cash flows relating to discontinued operations are not currently considered, nor are they expected to be, material to our liquidity or our capital resources. Management does not believe that the net impact of upcoming cash transactions relating to discontinued operations will be material.

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Related Party Transactions

Stockholders Agreement

Several of our directors and officers are affiliated with Penske Corporation or related entities. Roger S. Penske, our Chairman of the Board and Chief Executive Officer, is also Chairman of the Board and Chief Executive Officer of Penske Corporation, and through entities affiliated with Penske Corporation, our largest stockholder owning approximately 35% of our outstanding common stock. Mitsui & Co., Ltd. and Mitsui & Co. (USA), Inc. (collectively, “Mitsui”) own approximately 17% of our outstanding common stock. Mitsui, Penske Corporation and certain other affiliates of Penske Corporation are parties to a stockholders agreement pursuant to which the Penske affiliated companies agreed to vote their shares for one director who is a representative of Mitsui. In turn, Mitsui agreed to vote their shares for up to fourteen directors voted for by the Penske affiliated companies. This agreement terminates in March 2014, upon the mutual consent of the parties, or when either party no longer owns any of our common stock.

Other Related Party Interests and Transactions

Roger S. Penske is also a managing member of Transportation Resource Partners, an organization that invests in transportation-related industries. Richard J. Peters, one of our directors, is a managing director of Transportation Resource Partners and is a director of Penske Corporation. Robert H. Kurnick, Jr., our President and a director, is also the President and a director of Penske Corporation. Yoshimi Namba, one of our directors and officers, 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.

As discussed above, we are a 9.0% limited partner of PTL, a leading global transportation services provider. The general partner of PTL is Penske Truck Leasing Corporation, a wholly-owned subsidiary of Penske Corporation, which together with other wholly-owned subsidiaries of Penske Corporation, owns 41.1% of PTL. The remaining 49.9% of PTL is owned by General Electric Capital Corporation. Among other things, the partnership agreement provides us with specified partner distribution and governance rights and restricts our ability to transfer our interests. We have also entered into other joint ventures with certain related parties as more fully discussed below.

Joint Venture Relationships

We are party to a number of joint ventures pursuant to which we own and operate automotive dealerships together with other investors. We may provide these dealerships with working capital and other debt financing at costs that are based on our incremental borrowing rate. As of September 30, 2012, our automotive retail joint venture relationships included:

Location	Dealerships	Ownership Interest
Fairfield, Connecticut	Audi, Mercedes-Benz, Porsche, smart	84.95	% (A) (B)
Las Vegas, Nevada	Ferrari, Maserati	50.00	% (C)
Frankfurt, Germany	Lexus, Toyota	50.00	% (C)
Aachen, Germany	Audi, Lexus, Skoda, Toyota, Volkswagen, Citroën	50.00	% (C)
Northern Italy	BMW, Mini	70.00	% (B)

(A) An entity controlled by one of our directors, Lucio A. Noto (the “Investor”), owns a 15.05% interest in this joint venture which entitles the Investor to 20% of the joint venture’s operating profits. In addition, the Investor has an option to purchase up to a 20% interest in the joint venture for specified amounts.

(B) Entity is consolidated in our financial statements.

Cyclicality

Unit sales of motor vehicles, particularly new vehicles, have been cyclical historically, fluctuating with general economic cycles. During economic downturns, the automotive retailing industry tends to experience periods of decline and recession similar to those experienced by the general economy. We believe that the industry is influenced by general economic conditions and particularly by consumer confidence, the level of personal discretionary spending, fuel prices, interest rates and credit availability.

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Seasonality

Our business is modestly seasonal overall. Our U.S. operations generally experience higher volumes of vehicle sales in the second and third quarters of each year due in part to consumer buying trends and the introduction of new vehicle models. Also, vehicle demand, and to a lesser extent demand for service and parts, is generally lower during the winter months than in other seasons, particularly in regions of the U.S. where dealerships may be subject to severe winters. Our U.K. operations generally experience higher volumes of vehicle sales in the first and third quarters of each year, due primarily to vehicle registration practices in the U.K.

Effects of Inflation

We believe that inflation rates over the last few years have not had a significant impact on revenues or profitability. We do not expect inflation to have any near-term material effects on the sale of our products and services; however, we cannot be sure there will be no such effect in the future. We finance substantially all of our inventory through various revolving floor plan arrangements with interest rates that vary based on various benchmarks. Such rates have historically increased during periods of increasing inflation.

Forward Looking Statements

This quarterly report on Form 10-Q contains “forward-looking statements” which generally can be identified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “intend,” “plan,” “estimate,” “predict,” “potential,” “forecast,” “continue” or variations of such terms, or the use of these terms in the negative. Forward-looking statements include statements regarding our current plans, forecasts, estimates, beliefs or expectations, including, without limitation, statements with respect to:

· our future financial and operating performance;

· future acquisitions and dispositions;

· future potential capital expenditures and securities repurchases;

· our ability to realize cost savings and synergies;

· our ability to respond to economic cycles;

· trends in the automotive retail industry and 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 PTL;

· future foreign exchange rates;

· the outcome of various legal proceedings;

· trends affecting 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 2011 annual report on Form 10-K filed February 24, 2012. Important factors that could cause actual results to differ materially from our expectations include the following:

· our business and the automotive retail industry in general are susceptible to adverse economic conditions, including changes in interest rates, foreign exchange rates, consumer demand, consumer confidence, fuel prices, unemployment rates and credit availability;

· the number of new and used vehicles sold in our markets;

· automobile manufacturers exercise significant control over our operations, and we depend on them and continuation of our franchise agreements in order to operate our business;

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· we depend on the success, popularity and availability of the brands we sell, and adverse conditions affecting one or more automobile manufacturers, including the adverse impact on the vehicle and parts supply chain due to natural disasters or other disruptions that interrupt the supply of vehicles and parts to us, may negatively impact our revenues and profitability;

· a restructuring of any significant automotive manufacturers or automotive suppliers;

· our dealership operations may be affected by severe weather or other periodic business interruptions;

· we may not be able to satisfy our capital requirements for acquisitions, dealership renovation projects, financing the purchase of our inventory, or refinancing of our debt when it becomes due;

· 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;

· our operations outside of the U.S. subject our profitability to fluctuations relating to changes in foreign currency valuations;

· import product restrictions and foreign trade risks that may impair our ability to sell foreign vehicles profitably;

· with respect to PTL, changes in the financial health of its customers, labor strikes or work stoppages by its employees, a reduction in PTL’s asset utilization rates and industry competition which could impact distributions to us;

· we are dependent on continued availability of our information technology systems;

· 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;

· changes in tax, financial or regulatory rules or requirements;

· we are subject to numerous 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, our automotive dealerships may be subject to increased competition and may be more susceptible to termination, non-renewal or renegotiation of their franchise agreements; and

· some of our directors and officers may have conflicts of interest with respect to certain related party transactions and other business interests.

In addition:

· the price of our common stock is subject to substantial fluctuation, which may be unrelated to our performance; and

· shares eligible for future sale, or issuable under the terms of our convertible notes, may cause the market price of our common stock to drop significantly, even if our business is doing well.

We urge you to carefully consider these risk factors in evaluating all forward-looking statements regarding our business. Readers of this report are cautioned not to place undue reliance on the forward-looking statements contained in this report. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Except to the extent required by 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rates. We are exposed to market risk from changes in interest rates on a significant portion of our debt. Outstanding revolving balances under our credit agreements bear interest at variable rates based on a margin over defined LIBOR or the Bank

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of England Base Rate. Based on the amount outstanding under these facilities as of September 30, 2012, a 100 basis point change in interest rates would result in an approximate $1.6 million change to our annual other interest expense. Similarly, amounts outstanding under floor plan financing arrangements bear interest at a variable rate based on a margin over the prime rate, defined LIBOR, the Finance House Base Rate, or the Euro Interbank Offered Rate. In 2012, we are party to swap agreements pursuant to which a notional $400.0 million of our floating rate floor plan debt is exchanged for fixed rate debt through December 2014. Based on an average of the aggregate amounts outstanding under our floor plan financing arrangements subject to variable interest payments during the trailing twelve months ended September 30, 2012, considering the swap agreements, a 100 basis point change in interest rates would result in an approximate $14.5 million change to our annual floor plan interest expense.

We evaluate our exposure to interest rate fluctuations and follow established policies and procedures to implement strategies designed to manage the amount of variable rate indebtedness outstanding at any point in time in an effort to mitigate the effect of interest rate fluctuations on our earnings and cash flows. These policies include:

· the maintenance of our overall debt portfolio with targeted fixed and variable rate components;

· the use of authorized derivative instruments;

· the prohibition of using derivatives for trading or other speculative purposes; and

· the prohibition of highly leveraged derivatives or derivatives which we are unable to reliably value, or for which we are unable to obtain a market quotation.

Interest rate fluctuations affect the fair market value of our fixed rate debt, including our swaps, mortgages, the 5.75% Notes, and certain seller financed promissory notes, but, with respect to such fixed rate debt instruments, do not impact our earnings or cash flows.

Foreign Currency Exchange Rates. As of September 30, 2012, we had dealership operations in the U.K., Germany and Italy. In each of these markets, the local currency is the functional currency. Due to our intent to remain permanently invested in these foreign markets, we do not hedge against foreign currency fluctuations. In the event we change our intent with respect to the investment in any of our international operations, we would expect to implement strategies designed to manage those risks in an effort to mitigate the effect of foreign currency fluctuations on our earnings and cash flows. A ten percent change in average exchange rates versus the U.S. Dollar would have resulted in an approximate $378.1 million change to our revenues for the nine months ended September 30, 2012.

In common with other automotive retailers, we purchase certain of our new vehicle and parts inventories from foreign manufacturers. Although we purchase the majority of our inventories in the local functional currency, our business is subject to certain risks, including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility which may influence such manufacturers’ ability to provide their products at competitive prices in the local jurisdictions. Our future results could be materially and adversely impacted by changes in these or other factors.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including the principal executive and financial officers, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our principal executive and financial officers, to allow timely discussions regarding required disclosure.

Based upon this evaluation, the Company’s principal executive and financial officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, we maintain internal controls designed to provide us with the information required for accounting and financial reporting purposes. There were no changes in our internal control over financial reporting that occurred during the most recent quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in litigation which may relate to claims brought by governmental authorities, customers, vendors, or employees, including class action claims and purported class action claims. We are not a 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 us. 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.

Item 6. Exhibits

4.1		Seventh Amendment dated September 28, 2012 to the Third Amended and Restated Credit Agreement dated September 30, 2008 by and among us, Mercedes-Benz Financial Services USA LLC and Toyota Motor Credit Corporation (incorporated by reference to Exhibit 4.1 to our Form 8-K filed October 1, 2012).

4.2		Indenture, dated as of August 28, 2012, by and among us, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.S., as trustee (incorporated by reference to exhibit 41 of the Form 8-k filed on August 28, 2012).

4.3		Form of 5.75% Senior Subordinated Notes due 2022 (included within the Indenture filed as Exhibit 4.2).

4.4		Registration Rights Agreement, dated August 28, 2012, by and among us, the subsidiary guarantors named therein, Merrill Lynch, Pierce, Fenner & Smith Incorporated, RBS Securities Inc., J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, U.S. Bancorp Investments, Inc. Stephens Inc. and BNP Paribas Securities Corp., relating to the 5.75% Senior Subordinated Notes due 2022 (incorporated by reference to exhibit 4.3 of the Form 8-k filed on August 28, 2012).

12		Computation of Ratio of Earnings to Fixed Charges

31.1		Rule 13(a)-14(a)/15(d)-14(a) Certification.

31.2		Rule 13(a)-14(a)/15(d)-14(a) Certification.

32		Section 1350 Certification.

101		The following materials from Penske Automotive Group’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Condensed Balance Sheets as of September 30, 2012 and December 31, 2011, (ii) the Consolidated Condensed Statements of Income for the three and nine months ended September 30, 2012 and 2011, (iii) the Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2012 and 2011, (iv) the Consolidated Condensed Statement of Equity for the nine months ended September 30, 2012, and (v) the Notes to Consolidated Condensed Financial Statements.*

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PENSKE AUTOMOTIVE GROUP, INC.

	By:	/s/ Roger S. Penske

		Roger S. Penske
Date: November 2, 2012		Chief Executive Officer

	By:	/s/ David K. Jones
		David K. Jones
Date: November 2, 2012		Chief Financial Officer

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EXHIBIT INDEX

Exhibit
No		Description

4.1		Seventh Amendment dated September 28, 2012 to the Third Amended and Restated Credit Agreement dated September 30, 2008 by and among us, Mercedes-Benz Financial Services USA LLC and Toyota Motor Credit Corporation (incorporated by reference to Exhibit 4.1 to our Form 8-K filed October 1, 2012).

4.2		Indenture, dated as of August 28, 2012, by and among us, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.S., as trustee (incorporated by reference to exhibit 41 of the Form 8-k filed on August 28, 2012).

4.3		Form of 5.75% Senior Subordinated Notes due 2022 (included within the Indenture filed as Exhibit 4.2).

4.4		Registration Rights Agreement, dated August 28, 2012, by and among us, the subsidiary guarantors named therein, Merrill Lynch, Pierce, Fenner & Smith Incorporated, RBS Securities Inc., J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, U.S. Bancorp Investments, Inc. Stephens Inc. and BNP Paribas Securities Corp., relating to the 5.75% Senior Subordinated Notes due 2022 (incorporated by reference to exhibit 4.3 of the Form 8-k filed on August 28, 2012).

12		Computation of Ratio of Earnings to Fixed Charges

31.1		Rule 13(a)-14(a)/15(d)-14(a) Certification.

31.2		Rule 13(a)-14(a)/15(d)-14(a) Certification.

32		Section 1350 Certification.

101		The following materials from Penske Automotive Group’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Condensed Balance Sheets as of September 30, 2012 and December 31, 2011, (ii) the Consolidated Condensed Statements of Income for the three and nine months ended September 30, 2012 and 2011, (iii) the Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2012 and 2011, (iv) the Consolidated Condensed Statement of Equity for the nine months ended September 30, 2012, and (v) the Notes to Consolidated Condensed Financial Statements.*

TABLE OF CONTENTS

Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 6. Exhibits

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PAG 10-Q Quarter ended Sept. 30, 2012