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Note 9 - Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2013
Derivative Instruments and Hedging Activities Disclosure [Text Block]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 9. Derivative Financial Instruments


We enter into interest rate swaps to fix a portion of our interest expense. We do not enter into derivative instruments for any purpose other than to manage interest rate exposure to fluctuations in the one-month LIBOR benchmark. That is, we do not engage in interest rate speculation using derivative instruments.


Typically, we designate all interest rate swaps as cash flow hedges and, accordingly, we record the change in fair value for the effective portion of these interest rate swaps in comprehensive income rather than net income until the underlying hedged transaction affects net income. If a swap is no longer designated as a cash flow hedge and the forecasted transaction remains probable or reasonably possible of occurring, the gain or loss recorded in accumulated other comprehensive loss is recognized in income as the forecasted transaction occurs. If the forecasted transaction is probable of not occurring, the gain or loss recorded in accumulated other comprehensive loss is recognized in income immediately. The estimated amount that we expect to reclassify from accumulated other comprehensive loss to net income within the next twelve months is $1.1 million at June 30, 2013.


As of June 30, 2013, we had a $25 million interest rate swap outstanding with U.S. Bank Dealer Commercial Services. This interest rate swap matures on June 15, 2016 and has a fixed rate of 5.587% per annum. The variable rate on the interest rate swap is the one-month LIBOR rate. At June 30, 2013, the one-month LIBOR rate was 0.20% per annum, as reported in the Wall Street Journal.


At June 30, 2013 and December 31, 2012, the fair value of our derivative instruments was included in our Consolidated Balance Sheets as follows (in thousands):


Balance Sheet Information

 

Fair Value of Liability Derivatives

 

Derivatives Designated as Hedging Instruments

 

Location in Balance Sheet

 

June 30,

2013 

 
             

Interest Rate Swap Contracts

 

Accrued liabilities

  $ 1,211  
   

Other long-term liabilities

    2,145  
        $ 3,356  

Balance Sheet Information

  Fair Value of Liability Derivatives  

Derivatives Designated as Hedging Instruments

 

Location in Balance Sheet

 

December 31,

2012

 
             

Interest Rate Swap Contracts

 

Accrued liabilities

  $ 1,839  
   

Other long-term liabilities

    2,840  
        $ 4,679  

The effect of derivative instruments on our Consolidated Statements of Operations for the three- and six-month periods ended June 30, 2013 and 2012 was as follows (in thousands):


Derivatives in Cash Flow Hedging Relationships 

 

Amount of Gain Recognized in Accumulated OCI (Effective Portion) 

 

Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion) 

 

Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)  

 

Location of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)

 

Amount of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)

 
                             

Three Months Ended

June 30, 2013 

                           

Interest Rate Swap Contracts

  $ 381  

Floor plan

interest expense

  $ (166 )

Floor plan

interest expense

  $ (296 )
                             

Three Months Ended

June 30, 2012 

                           

Interest Rate Swap Contracts

  $ 239  

Floor plan

interest expense

  $ (350 )

Floor plan

interest expense

  $ (730 )

Derivatives in Cash Flow Hedging Relationships 

 

Amount of Gain Recognized in Accumulated OCI (Effective Portion) 

 

Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion) 

 

Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)  

 

Location of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)

 

Amount of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)

 
                             

Six Months Ended

June 30, 2013 

                           

Interest Rate Swap Contracts

  $ 896  

Floor plan

interest expense

  $ (472 )

Floor plan

interest expense

  $ (890 )
                             

Six Months Ended

June 30, 2012 

                           

Interest Rate Swap Contracts

  $ 522  

Floor plan

interest expense

  $ (758 )

Floor plan

interest expense

  $ (1,384 )

See also Note 8.