Penske Automotive     Print Page | Close Window

SEC Filings

10-K
PENSKE AUTOMOTIVE GROUP, INC. filed this Form 10-K on 02/24/2017
Entire Document
 

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

 

Interest Rates. We are exposed to market risk from changes in the interest rates on a significant portion of our outstanding debt. Outstanding revolving balances under our credit agreements bear interest at variable rates based on a margin over defined LIBOR or the Bank of England Base Rate. Based on the amount outstanding under these facilities as of December 31, 2016, a 100 basis point change in interest rates would result in an approximate $2.9 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, the Canadian Prime Rate, or the Australian or New Zealand Bank Bill Swap Rate (“BBSW”).

 

Based on an average of the aggregate amounts outstanding under our floor plan financing arrangements subject to variable interest payments during the year ended December 31, 2016, a 100 basis point change in interest rates would result in an approximate $32.3 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, mortgages, 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 December 31, 2016, we had consolidated operations in the U.K., Germany, Italy, Canada, Australia and New Zealand. In each of these markets, the local currency is the functional currency. 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 $811.3 million change to our revenues for the year ended December 31, 2016. On June 23, 2016, the United Kingdom held a referendum in which a majority voted to exit the European Union (“Brexit”). The British Pound has weakened since the Brexit vote, with an average exchange rate of British Pounds to U.S. Dollars of 1.28 after the Brexit vote through December 31, 2016, as compared to the average exchange rate for the first six months of 2016 before the Brexit vote of 1.44, a decrease of 10.9%. If such a decline had occurred at the beginning of the period, it would have resulted in an approximate $362.6 million decrease to our revenues for the year ended December 31, 2016.

 

We purchase certain of our new vehicles, parts and other products from non-U.S. 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 8.  Financial Statements and Supplementary Data

 

The consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements are incorporated by reference into this Item 8.

 

57