SEC Company Response from PENSKE AUTOMOTIVE GROUP, INC. (PAG) (CIK 0001019849) (PAG) — Oct 26, 2005
PENSKE AUTOMOTIVE GROUP, INC. (PAG) (CIK 0001019849)
Date: Oct. 26, 2005 · CIK: 0001019849 · Accession: 0000950124-05-005947
AI Filing Summary & Sentiment
Letter
Securities and Exchange Commission United Auto Group, Inc. File No. 1 – 12297 Form 10-K for the year ended December 31, 2004
Re:
Dear Mr. Moran:
Pursuant to your request, we have prepared the accompanying balance sheet and cash flow data of United Auto Group, Inc. The information presents (1) the historical balance sheet as of December 31, 2004, as reported and as reclassified to present floor plan payables to lenders unaffiliated with vehicle manufacturers as floor plan payables non-trade, (2) the historical balance sheet as of June 30, 2005, as reported and as reclassified to present floor plan payables to lenders unaffiliated with vehicle manufacturers as floor plan payables non-trade, (3) the historical statement of cash flows for the year ended December 31, 2004, as reported and as reclassified to present floor plan payables to lenders unaffiliated with vehicle manufacturers as floor plan payables non-trade within financing activities, (4) the historical statement of cash flows for the six months ended June 30, 2005, as reported and as reclassified to present floor plan payables to lenders unaffiliated with vehicle manufacturers as floor plan payables non-trade within financing activities. The reclassified statements of cash flows have been presented on a net change basis as provided for in paragraph 13 of SFAS No. 95 due to the fact that floor plan balances are payable on demand or within specified periods of time and the volume of floor plan transactions is high. In addition, outstanding floor plan notes payable balances are typically repaid within 60 days.
While the Company believes it had a reasonable basis for its historical presentation, it is our intention to present the balance sheet and cash flows in our September 30, 2005 Form 10-Q and all prospective filings in the fashion outlined on the accompanying exhibits, with consistent reclassification for all prior periods. The Company does not believe retroactive restatement is required, and requests that the staff not require it to amend and restate previously filed financial statements. In addition to the views expressed in our letter of August 23, 2005, the Company considered the following factors in reaching its conclusions:
a.
From the time of United Auto Group, Inc.’s initial public offering in 1996 to the present, prevailing industry practice in the retail automotive business has been to treat all floor plan transactions as operating in nature.
b.
The operating versus financing classification of these transactions was questioned during the Staff’s review of the Company’s initial registration statement in 1996, and the Company provided an explanation of its basis for such presentation. At that time, the Staff did not object to the Company’s presentation of cash flows and the registration statement was declared effective. For reference, following is the content of the Staff’s comment and related response from our September 13, 1996 letter:
Staff Comment No. 32. Supplementally advise the staff why the floor plan notes payable activity is considered an operating activity rather than a financing activity on the statement of cash flows.
Company Response. Substantially all of the Company’s automobile inventory is financed under floor plan arrangements. Under these floor plan arrangements, the Company purchases its inventory from the Manufacturer, which purchases are financed through a finance subsidiary of the Manufacturer or another lender. Cash is not disbursed by the dealer until the automobile is sold. Paragraph 23(a) of SFAS 95 states that cash payments to acquire goods for resale, including principal payments on short and long-term notes payable to those suppliers for those goods, should be classified as an operating cash flow. This treatment is consistent with a Technical Practice Aid for auto dealerships issued by the AICPA Technical Information Services Division. In certain cases the floor plan lender is not an affiliate of the Manufacturer, but in substance the transaction is the same.
c.
The Company and its peer group have historically reported floor plan transactions consistently in accordance with prevailing industry practice in all periods prior to September 30, 2005. It is the Company’s belief that industry practice has been considered an acceptable application within the hierarchy of generally accepted accounting principles.
d.
There is no change in reported income statements.
e.
The proposed reclassification of cash flows has no effect on the Company’s compliance with any loan covenants or other contractual requirements.
In connection with the change in prospective reporting and related reclassification of historical financial statements outlined above, the Company proposes to include language consistent with the following in the notes to its financial statements:
Cash Flow Reclassifications
Certain information in the Statement of Consolidated Cash Flows has been reclassified for all periods presented. This reclassification is related to concerns raised by the staff of the U.S. Securities and Exchange Commission. Previously, the Company reported all cash flow information relating to floor plan notes payable as operating cash flows. Cash flows relating to floor plan notes payable to a party other than the manufacturer of the particular vehicle, including all floor plan notes payable relating to pre-owned vehicles, has been reclassified from operating activities to financing activities.
The Company will also include a reconciliation of amounts reported in previous filings to the reclassified amounts in each period presented, and will address the effect of the changes to consolidated cash flows in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Sincerely,
James R. Davidson
Show Raw Text
CORRESP
1
filename1.htm
corresp
October 26, 2005
Michael Moran, Esq.
Branch Chief
Securities and Exchange Commission
Washington, D. C. 20549
Re:
United Auto Group, Inc.
File No. 1 – 12297
Form 10-K for the year ended December 31, 2004
Dear Mr. Moran:
Pursuant to your request, we have prepared the accompanying balance sheet and cash flow data
of United Auto Group, Inc. The information presents (1) the historical balance sheet as of December
31, 2004, as reported and as reclassified to present floor plan payables to lenders unaffiliated
with vehicle manufacturers as floor plan payables non-trade, (2) the historical balance sheet as of
June 30, 2005, as reported and as reclassified to present floor plan payables to lenders
unaffiliated with vehicle manufacturers as floor plan payables non-trade, (3) the historical
statement of cash flows for the year ended December 31, 2004, as reported and as reclassified to
present floor plan payables to lenders unaffiliated with vehicle manufacturers as floor plan
payables non-trade within financing activities, (4) the historical statement of cash flows for the
six months ended June 30, 2005, as reported and as reclassified to present floor plan payables to
lenders unaffiliated with vehicle manufacturers as floor plan payables non-trade within financing
activities. The reclassified statements of cash flows have been presented on a net change basis as
provided for in paragraph 13 of SFAS No. 95 due to the fact that floor plan balances are payable on
demand or within specified periods of time and the volume of floor
plan transactions is high. In addition, outstanding floor plan notes payable balances are typically repaid within 60 days.
While the Company believes it had a reasonable basis for its historical presentation, it is
our intention to present the balance sheet and cash flows in our September 30, 2005 Form 10-Q and
all prospective filings in the fashion outlined on the accompanying exhibits, with consistent
reclassification for all prior periods. The Company does not believe retroactive restatement is
required, and requests that the staff not require it to amend and restate previously filed
financial statements. In addition to the views expressed in our letter of August 23, 2005, the
Company considered the following factors in reaching its conclusions:
a.
From the time of United Auto Group, Inc.’s initial public offering in 1996 to the
present, prevailing industry practice in the retail automotive business has been to treat
all floor plan transactions as operating in nature.
b.
The operating versus financing classification of these transactions was questioned during
the Staff’s review of the Company’s initial registration statement in 1996, and the Company
provided an explanation of its basis for such presentation. At that time, the Staff did not
object to the Company’s presentation of cash flows and the registration statement was
declared effective. For reference, following is the content of the Staff’s comment and
related response from our September 13, 1996 letter:
Staff Comment No. 32. Supplementally advise the staff why the
floor plan notes payable activity is considered an operating activity
rather than a financing activity on the statement of cash flows.
Company Response. Substantially all of the Company’s automobile
inventory is financed under floor plan arrangements. Under these floor
plan arrangements, the Company purchases its inventory from the
Manufacturer, which purchases are financed through a finance subsidiary of
the Manufacturer or another lender. Cash is not disbursed by the dealer
until the automobile is sold. Paragraph 23(a) of SFAS 95 states that cash
payments to acquire goods for resale, including principal payments on
short and long-term notes payable to those suppliers for those goods,
should be classified as an operating cash flow. This treatment is
consistent with a Technical Practice Aid for auto dealerships issued by
the AICPA Technical Information Services Division. In certain cases the
floor plan lender is not an affiliate of the Manufacturer, but in
substance the transaction is the same.
c.
The Company and its peer group have historically reported floor plan transactions
consistently in accordance with prevailing industry practice in all periods prior to
September 30, 2005. It is the Company’s belief that industry practice has been considered
an acceptable application within the hierarchy of generally accepted accounting
principles.
d.
There is no change in reported income statements.
e.
The proposed reclassification of cash flows has no effect on the Company’s compliance
with any loan covenants or other contractual requirements.
In connection with the change in prospective reporting and related reclassification of
historical financial statements outlined above, the Company proposes to include language consistent
with the following in the notes to its financial statements:
Cash Flow Reclassifications
Certain information in the Statement of Consolidated Cash Flows has been
reclassified for all periods presented. This reclassification is related to
concerns raised by the staff of the U.S. Securities and Exchange Commission.
Previously, the Company reported all cash flow information relating to floor plan
notes payable as operating cash flows. Cash flows relating to floor plan notes
payable to a party other than the manufacturer of the particular
vehicle, including all floor plan notes
payable relating to pre-owned vehicles, has been reclassified from operating
activities to financing activities.
The Company will also include a reconciliation of amounts reported in previous filings to the
reclassified amounts in each period presented, and will address the effect of the changes to
consolidated cash flows in Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
Sincerely,
James R. Davidson
Executive Vice President — Finance
December 31, 2004
As Reported
Reclassification
Reclassified
ASSETS
Total Assets
$
3,532,801
$
3,532,801
LIABILITIES AND STOCKHOLDERS’ EQUITY
Floor plan notes payable
$
1,266,656
(337,894
)
$
928,762
Floor plan notes payable — non trade
—
337,894
337,894
Accounts payable
221,206
221,206
Accrued expenses
192,479
192,479
Current portion of long-term debt
11,367
11,367
Total current liabilities
1,691,708
1,691,708
Long-term debt
574,970
574,970
Other long-term liabilities
179,116
179,116
Liabilities of discontinued operations
11,972
11,972
Total Liabilities
2,457,766
2,457,766
Commitments and contingent liabilities
Stockholders’ Equity
Total Stockholders’ Equity
1,075,035
1,075,035
Total Liabilities and Stockholders’
$
3,532,801
$
3,532,801
June 30, 2005
As Reported
Reclassification
Reclassified
ASSETS
Total Assets
$
3,572,247
$
3,572,247
LIABILITIES AND STOCKHOLDERS’ EQUITY
Floor plan notes payable
$
1,168,460
(283,016
)
$
885,444
Floor plan notes payable — non trade
—
283,016
283,016
Accounts payable
254,667
254,667
Accrued expenses
206,693
206,693
Current portion of long-term debt
3,561
3,561
Total current liabilities
1,633,381
1,633,381
Long-term debt
604,576
604,576
Other long-term liabilities
182,363
182,363
Liabilities of discontinued operations
53,459
53,459
Total Liabilities
2,473,779
2,473,779
Commitments and contingent liabilities
Stockholders’ Equity
Total Stockholders’ Equity
1,098,468
1,098,468
Total Liabilities and Stockholders’
$
3,572,247
$
3,572,247
December 31, 2004
As Reported
Reclassification
Reclassified
Operating Activities:
Net income
$
111,687
$
111,687
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization
42,146
42,146
Amortization of unearned compensation
2,828
2,828
Gain on sale of investment
(11,469
)
(11,469
)
Deferred income taxes
21,419
21,419
Minority interests and other
3,178
3,178
Changes in operating assets and liabilities:
Accounts receivable
(25,053
)
(25,053
)
Inventories
(94,513
)
(94,513
)
Floor plan notes payable
108,661
54,708
163,369
Accounts payable and accrued expenses
79,647
79,647
Other
(50,700
)
(50,700
)
Net cash from operating activities
187,831
54,708
242,539
Investing Activities:
Net cash from investing activities
(237,747
)
—
(237,747
)
Financing Activities:
Floor plan notes payable — Non trade
—
(54,708
)
(54,708
)
Net borrowings (repayments) of long-term debt
(74,297
)
(74,297
)
Proceeds from issuance of common stock
129,371
129,371
Dividends
(18,411
)
(18,411
)
Net cash from financing activities
36,663
(54,708
)
(18,045
)
Net cash from discontinued operations
11,238
—
11,238
Net increase (decrease) in cash and cash equivalents
(2,015
)
(2,015
)
Cash and cash equivalents, beginning of year
13,076
13,076
Cash and cash equivalents, end of year
$
11,061
—
$
11,061
June 30, 2005
As Reported
Reclassification
Reclassified
Operating Activities:
Net income
$
56,088
$
56,088
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization
20,677
20,677
Amortization of unearned compensation
1,261
1,261
Equity Earnings
(1,251
)
(1,251
)
Minority interests
764
764
Changes in operating assets and liabilities:
Accounts receivable
(40,256
)
(40,256
)
Inventories
29,403
29,403
Floor plan notes payable
(71,714
)
48,307
(23,407
)
Accounts payable and accrued expenses
53,723
53,723
Other
6,121
6,121
Net cash from operating activities
54,816
48,307
103,123
Investing Activities:
Net cash from investing activities
(96,306
)
—
(96,306
)
Financing Activities:
Floor plan notes payable — Non trade
—
(48,307
)
(48,307
)
Net borrowings (repayments) of long-term debt
29,394
29,394
Proceeds from issuance of common stock
2,181
2,181
Dividends
(10,157
)
(10,157
)
Net cash from financing activities
21,418
(48,307
)
(26,889
)
Net cash from discontinued operations
15,949
—
15,949
Net increase (decrease) in cash and cash equivalents
(4,123
)
(4,123
)
Cash and cash equivalents, beginning of year
15,187
15,187
Cash and cash equivalents, end of year
$
11,064
—
$
11,064