DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT ACTIVITIES

The periodic interest rates of the Revolving Credit Facility (as defined in Note 12, “Credit Facilities”) and certain variable-rate real estate related borrowings in the U.S. are indexed to the one-month LIBOR plus an associated company credit risk rate. In order to minimize the earnings variability related to fluctuations in these rates, the Company employs an interest rate hedging strategy, whereby it enters into arrangements with various financial institutional counterparties with investment grade credit ratings, swapping its variable interest rate exposure for a fixed interest rate over terms not to exceed the related variable-rate debt.

In effect as of December 31, 2018 and December 31, 2017, the Company held interest rate derivative instruments with an aggregate notional value of $753.1 million and $623.0 million, respectively, that fixed its underlying one-month LIBOR at a weighted average rate of 2.4% and 2.5%, respectively. Of the $753.1 million in notional value of swaps in effect as of December 31, 2018, $300.0 million became effective during the year ended December 31, 2018. The following table presents the notional value of the annual expiration of swaps in effect as of December 31, 2018, excluding forward starting swaps (in millions):



	2019		2020		2021		2022		2023		2024
Notional amount of swaps expiring	$	353.0	$	253.0	$	111.3	$	18.1	$	13.6	$	4.2

In addition to the $753.1 million of swaps in effect as of December 31, 2018, the Company held 5 additional interest rate derivative instruments with forward start dates between January 2019 and December 2020 and expiration dates between December 2021 and December 2030. As of December 31, 2018, the aggregate notional value of these 5 forward-starting swaps was $275.0 million, of which $150.0 million are to become effective by January 2, 2019, and the weighted average interest rate was 1.9%. The combination of the interest rate derivative instruments currently in effect and these forward-starting derivative instruments is structured such that the notional value in effect at any given time through December 2030 does not exceed $902.4 million, which is less than the Company’s expectation for variable rate debt outstanding during such period.

In aggregate, as of December 31, 2018 and December 31, 2017, the Company reflected liabilities from interest rate risk management activities of $1.8 million and $10.6 million, respectively, in its Consolidated Balance Sheets. In addition, as of December 31, 2018 and December 31, 2017, the Company reflected $13.6 million and $9.5 million, respectively, of assets from interest rate risk management activities, which is included in Other assets. Included in Accumulated other comprehensive income (loss) at December 31, 2018, were accumulated unrealized gains, net of income taxes, totaling $8.9 million, related to these interest rate derivative instruments. At December 31, 2017 and 2016, accumulated unrealized losses, net of income taxes totaled $0.7 million, and $9.3 million, respectively, related to these interest rate derivative instruments. As of December 31, 2018 and 2017, all of the Company’s derivative contracts that were in effect were determined to be effective. The Company had no gains or losses related to ineffectiveness or amounts excluded from effectiveness testing recognized in the Consolidated Statements of Operations for the years ended December 31, 2018, 2017 or 2016, respectively. The following table presents the impact during the current and comparative prior year periods for the Company’s derivative financial instruments on its Consolidated Statements of Operations and Consolidated Balance Sheets.

The Company records the majority of the impact of the periodic settlements of these swaps as a component of floorplan interest expense. For the years ended December 31, 2018, 2017 and 2016, the impact of the Company’s interest rate hedges in effect increased floorplan interest expense by $4.7 million, $10.3 million, and $11.1 million, respectively. Total floorplan interest expense, inclusive of the aforementioned impact of the Company’s interest rate hedges, was $59.9 million, $52.4 million, and $44.9 million for the years ended December 31, 2018, 2017 and 2016, respectively.

The following tables present the impact for the Company’s interest rate derivative instruments on its Consolidated Statements of Operations and Consolidated Balance Sheets (in thousands):



	Amount of Unrealized Income (Loss), Net of Tax, Recognized in OCI
	Years Ended December 31,
	2018			2017			2016
Derivatives in Cash Flow Hedging Relationship
Interest rate derivative instruments	$	6,546		$	1,034		$	1,728

	Amount of Income (Loss) Reclassified from OCI into Statement of Operations
	Years Ended December 31,
	2018			2017			2016
Location of Income (Loss) Reclassified from OCI into Statements of Operations
Floorplan interest expense	$	(4,671	)	$	(10,272	)	$	(11,097	)
Other interest expense	(476		)	(1,924		)	(2,332		)

The net amount of gain expected to be reclassified out of other comprehensive income (loss) into earnings as an offset to floorplan interest expense or other interest expense, net in the next twelve months is $4.2 million.