SEC Company Response from PENSKE AUTOMOTIVE GROUP, INC. (PAG) (CIK 0001019849) (PAG) — Nov 21, 2005
PENSKE AUTOMOTIVE GROUP, INC. (PAG) (CIK 0001019849)
Date: Nov. 21, 2005 · CIK: 0001019849 · Accession: 0000950124-05-006556
AI Filing Summary & Sentiment
Letter
Securities and Exchange Commission United Auto Group, Inc. File No. l-12297 Form 10-K for the year ended December 31, 2004
Re:
Dear Mr. Moran:
Following is a response to each of the comments raised in your November 7, 2005 letter to James Davidson, Chief Financial Officer of United Auto Group, Inc. (the “Company”). For ease of review we have reproduced your original comments.
1.
We note you do not believe retroactive restatement is required or necessary. The reclassification adjustments provided in your response relate only to 2004 and it is not clear to us if you have considered the qualitative and quantitative impact of the reclassifications for all periods presented in your Form 10-K for the year ended December 31, 2004. Please advise or amend your filings and restate your financial statements to comply with FAS 95.
The Company has calculated the impact of the reclassifications on its balance sheets as of December 31, 2004 and 2003 and its statements of cash flows for the years ended December 31, 2004, 2003 and 2002, an estimate of which was disclosed in the Company’s recently filed September 30, 2005 Form 10-Q. Accompanying this letter is the following: (1) historical condensed balance sheets as of December 31, 2004 and 2003, as reported and as reclassified to present floor plan notes payable to a party other than the manufacturer of a particular new vehicle, and all floor plan notes payable related to pre-owned vehicles, as floor plan notes payable non-trade, (2) historical condensed statements of cash flows for the years ended December 31, 2004, 2003 and 2002, respectively, as reported and as reclassified to present cash flows relating to floor plan notes payable non-trade as a financing activity rather than as an operating activity, and (3) a copy of the disclosure relating to this issue in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the September 30, 2005 Form 10-Q.
As outlined in our October 26, 2005 letter to you, we believe the following qualitative factors should be considered when evaluating the impact of the revisions on the Company’s financial statements:
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.
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.
The Company also believes that it is not probable that the judgment of a reasonable person relying on the Company’s financial statements would have been changed or influenced by the inclusion of the revisions to the balance sheets and statements of cash flows outlined above, since the total mix of information available to investors would not have been significantly altered. The Company further notes that the disclosure of the estimated impact of the revisions to our balance sheets and statements of cash flows in the September 30, 2005 Form 10-Q provides investors the information required to understand the impact of such items on our financial statements.
After considering the quantitative impact of the revisions on the financial statements in our December 31, 2004 Form 10-K, coupled with the qualitative factors outlined above, the Company continues to believe that amendment of prior filings is not required. The Company, as previously communicated to the Staff, intends to reclassify amounts for all periods presented in future filings. If, after completing its review, the Staff disagrees with the Company’s conclusion, we are prepared to proceed as expeditiously as possible to amend our previously issued financial statements by filing restated financial statements on Form 8-K, or, if necessary, in amended filings.
2.
You state cash flows have been presented on a net change basis due to the fact that the balances are payable within specified periods of time. Tell us what is meant by specified periods of time, that is, 90 days, 180 days or 365 days. It is not clear that all of your floor plan financing qualifies for net reporting under FAS 95. Please advise and revise your financial statements as necessary.
In the United States, all of the Company’s floor plan borrowings are payable on demand. In the Company’s foreign operations, substantially all of our floor plan borrowings are payable on demand or have original maturities of 90 days or less. Specifically, as of September 30, 2005, the Company had approximately $6.0 million of floor plan notes payable with original maturities greater than 90 days, which balance does not fluctuate significantly during the year. The Company believes that the gross reporting of cash flows relating to such floor plan notes payable is not material to the Company’s financial statements taken as a whole.
3.
Please expand your footnote disclosure on floor plan notes payable to state the original maturity of the notes and identify those arrangements where payment is due on demand. Further, where you do not have the discretion to receive the cash directly from the lender, please disclose that fact. Reference is made to Rule 5-02.19 of Regulation S-X.
The Company has expanded its disclosure in the September 30, 2005 Form 10-Q to state that in the United States floor plan notes are payable on demand, and that substantially all of its floor plan borrowings in its foreign operations are either payable on demand or have original maturities of 90 days or less. The Company further advises the Staff that it believes it has the discretion to receive cash directly from lenders under all of its floor plan borrowing arrangements.
4.
Your proposed disclosure regarding the cash flow reclassifications should be revised to clearly state that the financial statements are being restated and reclassifications are being made to comply with the guidance under FAS 95, “Statement of Cash Flows,” which states that payments to suppliers should be classified as an operating activity.
The Company has complied with this request in its September 30, 2005 Form 10Q.
Sincerely,
James R. Davidson
Show Raw Text
CORRESP
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filename1.htm
corresp
November 21, 2005
Mr. Michael Moran, Esq.
Branch Chief
Securities and Exchange Commission
Washington, D. C. 20549
Re:
United Auto Group, Inc.
File No. l-12297
Form 10-K for the year ended December 31, 2004
Dear Mr. Moran:
Following is a response to each of the comments raised in your November 7, 2005 letter to James
Davidson, Chief Financial Officer of United Auto Group, Inc. (the “Company”). For ease of review
we have reproduced your original comments.
1.
We note you do not believe retroactive restatement is required or necessary. The
reclassification adjustments provided in your response relate only to 2004 and it is not clear
to us if you have considered the qualitative and quantitative impact of the reclassifications
for all periods presented in your Form 10-K for the year ended December 31, 2004. Please
advise or amend your filings and restate your financial statements to comply with FAS 95.
The Company has calculated the impact of the
reclassifications on its balance sheets as of
December 31, 2004 and 2003 and its statements of cash flows for the
years ended December 31, 2004, 2003 and 2002, an estimate of which was
disclosed in the Company’s recently filed September 30, 2005
Form 10-Q.
Accompanying this letter is the following: (1) historical
condensed balance sheets
as of December 31, 2004 and 2003, as reported and as reclassified to present floor plan notes
payable to a party other than the manufacturer of a particular new vehicle, and all floor plan
notes payable related to pre-owned vehicles, as floor plan notes
payable non-trade, (2) historical condensed statements of cash flows for the years ended December 31, 2004, 2003 and 2002,
respectively, as reported and as reclassified to present cash flows relating to floor plan
notes payable non-trade as a financing activity rather than as an
operating activity, and (3) a copy of the disclosure relating to this
issue in Management’s Discussion and Analysis of Financial
Condition and Results of Operations in the September 30, 2005 Form
10-Q.
As outlined in our October 26, 2005 letter to you, we believe the following qualitative
factors should be considered when evaluating the impact of the
revisions on the Company’s financial
statements:
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.
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.
The Company also believes that it is not probable that the judgment of a reasonable person relying
on the Company’s financial statements would have been changed or influenced by the inclusion of the
revisions to the balance sheets and statements of cash flows outlined
above, since the total
mix of information available to investors would not have been significantly altered. The Company
further notes that the disclosure of the estimated impact of the
revisions to our balance sheets and statements of cash flows in the September 30, 2005 Form 10-Q provides investors the information required to
understand the impact of such items on our financial statements.
After considering the quantitative impact of the revisions
on the financial statements
in our December 31, 2004 Form 10-K, coupled with
the qualitative factors outlined above,
the Company continues to believe that amendment of prior filings is not
required. The Company, as previously communicated to the Staff,
intends to reclassify amounts for all periods presented in future
filings. If, after completing its review, the Staff disagrees with the Company’s conclusion, we are prepared
to proceed as expeditiously as possible to amend our previously issued financial statements by
filing restated financial statements on Form 8-K, or, if necessary,
in amended filings.
2.
You state cash flows have been presented on a net change basis due to the fact that the
balances are payable within specified periods of time. Tell us what is meant by specified
periods of time, that is, 90 days, 180 days or 365 days. It is not clear that all of your
floor plan financing qualifies for net reporting under FAS 95. Please advise and revise your
financial statements as necessary.
In the United States, all of the Company’s floor plan borrowings are payable on demand. In the
Company’s foreign operations, substantially all of our floor plan borrowings are payable on demand or have
original maturities of 90 days or less. Specifically, as of September 30, 2005, the Company had
approximately $6.0 million of floor plan notes payable with original maturities greater than 90
days, which balance does not fluctuate significantly during the year.
The Company believes that the gross reporting of cash flows relating
to such floor plan notes payable is
not material to the Company’s financial statements taken as a whole.
3.
Please expand your footnote disclosure on floor plan notes payable to state the original
maturity of the notes and identify those arrangements where payment is due on demand. Further,
where you do not have the discretion to receive the cash directly from the lender, please
disclose that fact. Reference is made to Rule 5-02.19 of Regulation S-X.
The Company has expanded its disclosure in the September
30, 2005 Form 10-Q to state that in the United States floor plan notes are
payable on demand, and that substantially all of its floor plan
borrowings in its foreign operations are
either payable on demand or have original maturities of 90 days or less. The Company further advises the
Staff that it believes it has the discretion to receive cash directly from lenders under all of
its floor plan borrowing arrangements.
4.
Your proposed disclosure regarding the cash flow reclassifications should be revised to clearly
state that the financial statements are being restated and reclassifications are being made to
comply with the guidance under FAS 95, “Statement of Cash Flows,” which states that payments to
suppliers should be classified as an operating activity.
The Company has complied with this request in its September 30, 2005 Form 10Q.
Sincerely,
James R. Davidson
Executive Vice President — Finance
Cc: Robert Kurnick
December 31, 2004
As
Reported (A)
Reclassification
Reclassified
ASSETS
Total Assets
$
3,532,801
$
3,532,801
LIABILITIES AND STOCKHOLDERS’ EQUITY
Floor plan notes payable
$
1,197,540
$
(320,782
)
$
876,758
Floor plan
notes payable — non-trade
—
320,782
320,782
Accounts payable
213,851
213,851
Accrued expenses
188,381
188,381
Current portion of long-term debt
11,367
11,367
Total current liabilities
1,611,139
1,611,139
Long-term debt
574,970
574,970
Other long-term liabilities
179,104
179,104
Liabilities of discontinued operations
92,553
92,553
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’ equity
$
3,532,801
$
3,532,801
(A) Reclassified for discontinued
operations.
December
31, 2003
As Reported(A)
Reclassification
Reclassified
ASSETS
Total Assets
$
3,144,198
$
3,144,198
LIABILITIES AND STOCKHOLDERS’ EQUITY
Floor plan notes payable
$
1,051,200
$
(380,681
)
$
670,519
Floor plan
notes payable — non-trade
—
380,681
380,681
Accounts payable
162,081
162,081
Accrued expenses
181,026
181,026
Current portion of long-term debt
8,540
8,540
Total current liabilities
1,402,847
1,402,847
Long-term debt
643,145
643,145
Other long-term liabilities
167,480
167,480
Liabilities of discontinued operations
102,314
102,314
Total liabilities
2,315,786
2,315,786
Commitments and contingent liabilities
Stockholders’ Equity
Total
stockholders’ equity
828,412
828,412
Total
liabilities and stockholders’ equity
$
3,144,198
$
3,144,198
(A) Reclassified for discontinued
operations.
December 31, 2004
As Reported (A)
Reclassification
Reclassified
Operating Activities:
Net income
$
111,687
$
111,687
Adjustments to reconcile net income to net cash
from continuing operating activities:
Depreciation and amortization
40,350
40,350
Amortization of unearned compensation
2,828
2,828
Gain on sale of investment
(11,469
)
(11,469
)
Deferred income taxes
27,368
27,368
Minority interests
2,047
2,047
Changes in operating assets and liabilities:
Accounts receivable
(22,571
)
(22,571
)
Inventories
(91,813
)
(91,813
)
Floor plan notes payable
103,111
$
59,901
163,012
Accounts payable and accrued expenses
49,311
49,311
Other
(23,303
)
(23,303
)
Net cash
from continuing operating activities
187,546
59,901
247,447
Investing Activities:
Net cash
from continuing investing activities
(237,366
)
—
(237,366
)
Financing Activities:
Net
repayments of floor plan notes payable — non-trade
—
(59,901
)
(59,901
)
Net repayments of long-term debt
(74,297
)
(74,297
)
Proceeds from issuance of common stock
125,433
125,433
Dividends
(18,411
)
(18,411
)
Net cash
from continuing financing activities
32,725
(59,901
)
(27,176
)
Net cash from discontinued operations
18,381
—
18,381
Net increase in cash and cash equivalents
1,286
1,286
Cash and cash equivalents, beginning of year
13,901
13,901
Cash and cash equivalents, end of year
$
15,187
$
—
$
15,187
(A) Reclassified for discontinued operations.
December 31, 2003
As
Reported (A)
Reclassification
Reclassified
Operating Activities:
Net income
$
82,929
$
82,929
Adjustments to reconcile net income to net cash
from continuing operating activities:
Depreciation and amortization
29,369
29,369
Amortization of unearned compensation
1,495
1,495
Cumulative
effect of accounting change
3,058
3,058
Deferred income taxes
26,614
26,614
Minority interests and other
2,272
2,272
Changes in operating assets and liabilities:
Accounts receivable
(46,099
)
(46,099
)
Inventories
(222,339
)
(222,339
)
Floor plan notes payable
237,581
$
(150,705
)
86,876
Accounts payable and accrued expenses
62,552
62,552
Other
(2,463
)
(2,463
)
Net cash
from continuing operating activity
174,969
(150,705
)
24,264
Investing Activities:
Net cash
from continuing investing activities
(178,218
)
—
(178,218
)
Financing Activities:
Net
borrowings of floor plan notes payable — non-trade
—
150,705
150,705
Net repayments of long-term debt
(25,600
)
(25,600
)
Proceeds from issuance of common stock
9,907
9,907
Dividends
(4,118
)
(4,118
)
Net cash
from continuing financing activities
(19,811
)
150,705
130,894
Net cash from discontinued operations
26,702
—
26,702
Net increase in cash and cash equivalents
3,642
3,642
Cash and cash equivalents, beginning of year
10,259
10,259
Cash and cash equivalents, end of year
$
13,901
$
—
$
13,901
(A) Reclassified for
discontinued operations.
December 31, 2002
As Reported(A)
Reclassification
Reclassified
Operating Activities:
Net income
$
62,241
$
62,241
Adjustments to reconcile net income to net cash
from continuing operating activities:
Depreciation and amortization
19,616
19,616
Long-term contract settlement
22,839
22,839
Deferred income taxes
12,878
12,878
Minority interests and other
1,996
1,996
Changes in operating assets and liabilities:
Accounts receivable
(23,229
)
(23,229
)
Inventories
(161,226
)
(161,226
)
Floor plan notes payable
156,820
$
(47,967
)
108,853
Accounts payable and accrued expenses
(26,642
)
(26,642
)
Other
22,009
22,009
Net cash
from continuing operating activities
87,302
(47,967
)
39,335
Investing Activities:
Net cash
from continuing investing activities
(291,320
)
—
(291,320
)
Financing Activities:
Net
repayment of floor plan notes payable — non-trade
—
47,967
47,967
Net borrowings of long-term debt
78,262
78,262
Proceeds from issuance of common stock
135,295
135,295
Deferred
financing cost
(8,065
)
(8,065
)
Repurchase of common stock
(16,000
)
(16,000
)
Net cash
from continuing financing activities
189,492
47,967
237,459
Net cash from discontinued operations
20,973
—
20,973
Net increase in cash and cash equivalents
6,447
6,447
Cash and cash equivalents, beginning of year
3,812
3,812
Cash and cash equivalents, end of year
$
10,259
$
—
$
10,259
(A) Reclassified for discontinued
operations.
Excerpt from Third
Quarter Form 10-Q
Cash Flows
We finance substantially all of our new and a portion of our
used vehicle inventories under revolving floor plan notes
payable with various lenders. Historically, we have reported all
cash flows arising in connection with changes in floor plan
notes payable as an operating activity. In the third quarter of
2005, we reclassified 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, and have reclassified related cash flows
as a financing activity to comply with the guidance under SFAS
No. 95, “Statement of Cash Flows.” As a result,
the Consolidated Condensed Statement of Cash Flows for the nine
months ended September 30, 2004 has been restated,
resulting