Derivative Financial Instruments

6 Months Ended

Jun. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We account for derivative financial instruments by recording the fair value as either an asset or liability in our Consolidated Balance Sheets and recognize the resulting gains or losses as adjustments to accumulated other comprehensive income (loss). We do not hold or issue derivative financial instruments for trading or speculative purposes. For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive loss (AOCI) in stockholders’ equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions.

In 2019, to hedge the business exposure to rising interest rates on a portion of our variable rate debt, we entered into a five-year, zero-cost interest rate collar, with an aggregate notional amount of $300 million, effective June 1,

2019. This instrument hedges interest rate risk related to a portion of our $1.0 billion of non-trade floor plan notes payable.

The table below presents the liabilities related to the zero-cost interest rate collar:


(Dollars in millions)	Accrued Liabilities		Other Long-Term Liabilities		Total
Balance as of December 31, 2019	$	(0.1)	$	(0.9)	$	(1.0)

Loss recorded from interest rate collar	(1.8)		(5.1)		(6.9)
Balance as of March 31, 2020	(1.9)		(6.0)		(7.9)
Amounts reclassified from AOCI to floorplan interest expense	0.4		—		0.4
Loss recorded from interest rate collar	(1.0)		(1.3)		(2.3)
Balance as of June 30, 2020	(2.5)		(7.3)		(9.8)
Amounts reclassified from AOCI to floorplan interest expense	0.7		—		0.7
(Loss) gain recorded from interest rate collar	(0.7)		0.6		(0.1)
Balance as of September 30, 2020	(2.5)		(6.7)		(9.2)
Amounts reclassified from AOCI to floorplan interest expense	0.7		—		0.7
(Loss) gain recorded from interest rate collar	(0.8)		0.7		(0.1)
Balance as of December 31, 2020	(2.6)		(6.0)		(8.6)
Amounts reclassified from AOCI to floorplan interest expense	0.7		—		0.7
(Loss) gain recorded from interest rate collar	(0.6)		2.5		1.9
Balance as of March 31, 2021	(2.5)		(3.5)		(6.0)
Amounts reclassified from AOCI to floorplan interest expense	0.7		—		0.7
(Loss) gain recorded from interest rate collar	(0.7)		0.2		(0.5)
Balance as of June 30, 2021	$	(2.5)	$	(3.3)	$	(5.8)

As of June 30, 2021, the amount of net losses we expect to reclassify from AOCI into interest expense in earnings within the next twelve months is $2.7 million. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.

In 2020, we entered into two immaterial and offsetting derivative arrangements that do not qualify for hedge accounting. These are both related to a securitization facility, effective October 2, 2020. We purchased and sold offsetting interest rate caps, both of which have a five-year term with notional amounts of $100 million.

In 2021, we entered into two additional immaterial and offsetting derivative arrangements that do not qualify for hedge accounting. These are both related to a securitization facility, effective June 15, 2021. We purchased and sold offsetting interest rate caps, both of which have a five-year term with notional amounts of $100 million.

As of June 30, 2021, the balance on all four agreements was an offsetting $4.1 million and was located in other current assets and accrued liabilities, respectively.

See Note 7 for information on the fair value of the derivative contracts.