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Financial Instruments and Fair Value Measurements | 9 Months Ended
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Sep. 30, 2019
Fair Value Disclosures [Abstract] |
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS | FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the most advantageous market in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:
• | Level 1 — Quoted prices for identical assets or liabilities in active markets.
• | Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or model-derived valuations or other inputs that are observable or that can be corroborated by observable market data for substantially the full term of the assets or liabilities.
• | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
The Company’s financial instruments consist of cash and cash equivalents, contracts-in-transit and vehicle receivables, accounts and notes receivable, investments in debt and equity securities, accounts payable, credit facilities, long-term debt and interest rate derivative instruments. Other than the Company’s fixed rate long-term debt, the carrying amount of all significant financial instruments approximates fair value due to either the length of maturity, the existence of variable interest rates that approximate prevailing market rates or as a result of mark to market accounting. Cash and Cash Equivalents, Contracts-In-Transit and Vehicle Receivables, Accounts and Notes Receivable, Accounts Payable and Credit Facilities The fair values of these financial instruments approximate their carrying values due to the short-term nature of these instruments and/or the existence of variable interest rates. Fixed Rate Long-Term Debt The Company’s fixed rate long-term debt primarily consists of amounts outstanding under its senior unsecured notes and mortgage facilities. The Company estimates the fair value of its senior unsecured notes using quoted prices for the identical liability (Level 1) and estimates the fair value of its mortgage facilities using a present value technique based on current market interest rates for similar type of financial instruments (Level 2). The carrying value and fair value of the Company’s fixed rate long-term debt were as follows at the dates indicated (in millions):
|  | September 30, 2019 |  | December 31, 2018
|  | Carrying Value(1) |  | Fair Value |  | Carrying Value(1) |  | Fair Value
5.00% Senior Notes |  | $ | 546.1 |  |  | $ | 558.6 |  |  | $ | 545.0 |  |  | $ | 521.6 |
5.25% Senior Notes |  | 297.9 |  |  | 309.1 |  |  | 297.5 |  |  | 286.5 |
Real estate related |  | 44.8 |  |  | 45.2 |  |  | 79.7 |  |  | 76.2 |
Total |  | $ | 888.8 |  |  | $ | 912.9 |  |  | $ | 922.2 |  |  | $ | 884.3 |
(1)Carrying value excludes unamortized debt issuance costs Investments The Company maintains investment balances with certain financial institutions in Brazil that provide credit facilities for the financing of new, used and rental vehicle inventories. The investment balances bear interest at a variable rate and are redeemable by the Company in the future under certain conditions. The investment balances totaled $3.6 million and $2.8 million as of September 30, 2019 and December 31, 2018, respectively, which the Company has classified as restricted cash within Other assets in its Condensed Consolidated Balance Sheets. The Company determined that the valuation measurement inputs of these instruments include inputs other than quoted market prices that are observable or that can be corroborated by observable data by correlation (Level 2). See Note 6, “Cash Flow Information” for further details regarding the Company’s investment balances. Derivative financial instruments The Company holds derivative financial instruments consisting of interest rate swaps which are designated as cash flow hedges. The related gains or losses on these interest rate swaps are deferred in stockholders’ equity as a component of accumulated other comprehensive income (loss). The deferred gains or losses are recognized in income in the period in which the related items being hedged are recognized in expense. Monthly contractual settlements of the positions are recognized as Floorplan interest expense or Other interest expense, net, in the Company’s Condensed Consolidated Statements of Operations. The Company had no gains or losses related to ineffectiveness recognized in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 or 2018. As of September 30, 2019, the Company held 25 interest rate swaps in effect with a total notional value of $896.9 million that fixed its underlying one-month LIBOR at a weighted average rate of 2.3%. For the three months ended September 30, 2019 and 2018, the Company’s interest rate swaps in effect increased interest expense by $0.1 million and by $1.1 million, respectively. For the nine months ended September 30, 2019 and 2018, the Company’s interest rate swaps in effect decreased interest expense by $0.7 million and increased interest expense by $4.5 million, respectively. The Company also held eight additional interest rate swaps with forward start dates between December 2020 and January 2022 and expiration dates between January 2024 and December 2030. The aggregate notional value of these eight forward-starting interest rate swaps was $450.0 million and the weighted average interest rate was 1.7%. The combination of the interest rate swaps currently in effect and the forward-starting interest rate swaps is structured such that the notional value in effect at any given time through December 2030 does not exceed $896.9 million, which is less than the Company’s expectation for variable-rate debt outstanding during such period. Assets and liabilities associated with the Company’s interest rate swaps, within Level 2 of the hierarchy framework, as reflected in the accompanying balance sheets were as follows (in millions):
|  | September 30, 2019 |  | December 31, 2018
Assets from interest rate risk management activities: |  |  |  |
Prepaid expenses and other current assets |  | $ | — |  |  | $ | 0.4 |
Other assets |  | 0.3 |  |  | 13.1 |
Total |  | $ | 0.3 |  |  | $ | 13.5 |
Liabilities from interest rate risk management activities: |  |  |  |
Accrued expenses and other current liabilities |  | $ | 0.5 |  |  | $ | 0.1 |
Other liabilities |  | 13.9 |  |  | 1.7 |
Total |  | $ | 14.4 |  |  | $ | 1.8 |
Included in Accumulated other comprehensive income (loss) as of September 30, 2019 and 2018, were unrealized gains, net of income taxes, totaling $10.8 million and $15.9 million, respectively, related to the Company’s interest rate swaps. The following tables present the impact of the Company’s interest rate swaps (in millions):
|  | Amount of Unrealized Income (Loss), Net of Tax, Recognized in Other Comprehensive Income (Loss)
|  | Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationship |  | 2019 |  | 2018
Interest rate swaps |  | $ | (19.2 | ) |  | $ | 14.0 |
|  | Amount of Income (Loss) Reclassified from Other Comprehensive Income (Loss) into Statements of Operations
Location of Income (Loss) Reclassified from Other Comprehensive Income (Loss) into Statements of Operations |  | Nine Months Ended September 30,
| 2019 |  | 2018
Floorplan interest expense, net |  | $ | 0.4 |  |  | $ | (4.0 | )
Other interest expense, net |  | $ | 0.3 |  |  | $ | (0.5 | )
The net amount of loss 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 $0.5 million.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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