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Related Party Transactions

12 Months Ended

Dec. 31, 2019

12. Related Party Transactions

We sometimes pay to and/or receive fees from Penske Corporation and its affiliates for services rendered in the normal 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. During 2019, 2018, and 2017, Penske Corporation and its affiliates billed us $5.4 million, $6.2 million, and $6.2 million, respectively, and we billed Penske Corporation and its affiliates $80 thousand, $183 thousand, and $159 thousand, respectively, for such services. As of December 31, 2019 and 2018, we had $46 thousand and $100 thousand of receivables from, and $0.6 million and $0.6 million of payables to, Penske Corporation and its subsidiaries, respectively.

On September 7, 2017, we acquired an additional 5.5% ownership interest in PTS, a leading provider of transportation and supply chain services, from GE Capital for approximately $239.1 million in cash. At the same time, Mitsui, our second largest shareholder, acquired an additional 10.0% ownership interest in PTS at the same valuation. After the transaction, PTS is owned 41.1% by Penske Corporation, 28.9% by us, and 30.0% by Mitsui. GE Capital no longer owns any ownership interests in PTS. In connection with this transaction, the PTS partners agreed to amend and restate the existing partnership agreement among the partners, which among other things, provides us with specified partner distribution and governance rights and restricts our ability to transfer our interests. We and Mitsui were granted additional governance rights as part of the transaction. In addition, the partnership now has a six member advisory committee (previously seven member) and we continue to be entitled to one of the six representatives. We continue to have the right to pro rata quarterly distributions equal to 50% of PTS’ consolidated net income and we expect to continue to realize significant cash tax savings.

We continue to be able to transfer our directly owned interests with the unanimous consent of the other partners, or if we provide the remaining partners with a right of first offer to acquire our interests, except that we may transfer up to 9.02% of our interest to Penske Corporation without complying with the right of first offer to the remaining partner. We and Penske Corporation have previously agreed that (1) in the event of any transfer by Penske Corporation of their partnership interests to a third party, we will be entitled to “tag-along” by transferring a pro rata amount of our partnership interests on similar terms and conditions, and (2) Penske Corporation is entitled to a right of first refusal in the event of any transfer of our partnership interests, subject to the terms of the partnership agreement. Additionally, PTS has agreed to indemnify the general partner for any actions in connection with managing PTS, except those taken in bad faith or in violation of the partnership agreement.

The partnership agreement continues to allow Penske Corporation, beginning December 31, 2017, to give notice to require PTS to begin to effect an initial public offering of equity securities, subject to certain limitations, as soon as practicable after the first anniversary of the initial notice, and, beginning in 2025, we and Mitsui continue to have a similar right to require PTS to begin an initial public offering of equity securities, subject to certain limitations, as soon as reasonably practicable. The term of the partnership agreement was amended as part of the transaction to be indefinite.

In 2019, 2018, and 2017, we received $71.9 million, $63.2 million, and $52.4 million, respectively, from PTS in pro rata cash dividends. In 2014, we formed a venture with PTS, Penske Commercial Leasing Australia. This venture combines PTS’ fleet operations expertise with our market knowledge of commercial vehicles to rent heavy duty commercial vehicles in Australia. This venture is accounted for as an equity method investment as discussed in Note 4.

In December 2017, we sold our 31% ownership interest in Penske Vehicle Services, an automotive fleet management company, to PTS for a purchase price of $19.2 million. We previously accounted for this venture as an equity method investment.

Joint Venture Relationships

From time to time we enter into joint venture relationships in the ordinary course of business, pursuant to which we own and operate automotive dealerships together with other investors. We may also provide these dealerships with working capital and other debt financing at costs that are based on our incremental borrowing rate. As of December 31, 2019, our automotive joint venture relationships were as follows:


Location	Dealerships	Ownership Interest
Fairfield, Connecticut	Audi, Mercedes-Benz, Sprinter, Porsche	80.00	% (A)
Greenwich, Connecticut	Mercedes-Benz	80.00	% (A)
Edison, New Jersey	Bentley, Ferrari, Maserati	20.00	% (B) (D)
Northern Italy	BMW, MINI, Maserati, Porsche, Audi, Land Rover, Volvo, Mercedes-Benz, smart, Lamborghini	84.10	% (A)
Aachen, Germany	Audi, Maserati, SEAT, Skoda, Volkswagen	91.80	% (A) (C)
Frankfurt, Germany	Lexus, Toyota, Volkswagen	50.00	% (B)
Barcelona, Spain	BMW, MINI	50.00	% (B)
Tokyo, Japan	BMW, MINI, Rolls-Royce, Ferrari, ALPINA	49.00	% (B)

(a)	Entity is consolidated in our financial statements.

(b)	Entity is accounted for using the equity method of accounting.

(c)	In 2019, we acquired an additional 12.4% ownership interest in this joint venture and now own 91.8%.

(d)	In 2019, we sold a majority interest in dealerships in Edison, New Jersey representing the Bentley, Ferrari, and Maserati brands and now maintain a 20% ownership interest in this joint venture.

Additionally, we are party to non-automotive joint ventures representing our investments in PTS (28.9%) and Penske Commercial Leasing Australia (28%) that are accounted for under the equity method, as more fully discussed in Note 4.