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FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
 3 Months Ended
Mar. 31, 2021
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.
Cash and Cash Equivalents, Contracts-In-Transit and Vehicle Receivables, Accounts and Notes Receivable, Accounts Payable, Variable Rate Long-Term Debt and Floorplan Notes Payable
The fair values of these financial instruments approximate their carrying values due to the short-term nature of the instruments and/or the existence of variable interest rates.
Demand Notes
The Company periodically invests in demand notes with manufacturer-affiliated finance companies that bear interest at variable rates determined by the manufacturers and represent unsecured, unsubordinated and unguaranteed debt obligations of the manufacturers. The instruments are redeemable on demand by the Company and therefore the Company has classified these instruments as Cash and cash equivalents in the accompanying Condensed Consolidated Balance Sheets. As of March 31, 2021 and December 31, 2020, the carrying value of these instruments was $59.9 million and $60.0 million, respectively. 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. Accordingly, the Company has classified these instruments within Level 2 of the hierarchy framework.
Fixed Rate Long-Term Debt
The Company’s fixed rate long-term debt primarily consists of amounts outstanding under its senior unsecured notes and certain mortgage facilities. In August 2020, the Company issued $550.0 million in aggregate principal of 4.00% Senior Notes due August 2028 (“4.00% Senior Notes”). The Company estimates the fair value of its 4.00% Senior Notes using quoted prices for the identical liability (Level 1) and estimates the fair value of its fixed-rate mortgage facilities using a present value technique based on current market interest rates for similar types of financial instruments (Level 2). Refer to Note 9. Debt for further discussion of the Company’s long-term debt arrangements.
The carrying value and fair value of the Company’s 4.00% Senior Notes and fixed rate mortgages were as follows (in millions):
March 31, 2021December 31, 2020
Carrying Value (1)
Fair Value
Carrying Value (1)
Fair Value
4.00% Senior Notes
$550.0 $545.6 $550.0 $567.0 
Real estate related82.6 74.2 84.3 77.0 
Total$632.6 $619.7 $634.3 $644.0 
(1) Carrying value excludes unamortized debt issuance costs.
Derivative Financial Instruments
The Company holds interest rate swaps to hedge against variability of interest payments indexed to LIBOR. The interest rate swaps are designated as cash flow hedges and the related gains or losses 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 months ended March 31, 2021 and 2020.
As of March 31, 2021, the Company held 38 interest rate swaps in effect with a total notional value of $943.0 million that fixed its underlying one-month LIBOR at a weighted average rate of 1.48%. The Company also held 8 additional interest rate swaps with forward start dates beginning December 2021, that had an aggregate notional value of $425.0 million and a weighted average interest rate of 1.20% as of March 31, 2021. The maturity dates of the Company’s interest rate swaps with forward start dates range between January 2025 and December 2031.
The Company’s interest rate swaps are measured at fair value utilizing the option-pricing Black-Scholes present value technique. This technique utilizes a one-month LIBOR forward yield curve matched to the identical maturity term of the instrument being measured. Observable inputs utilized in the income approach valuation technique incorporate identical contractual notional amounts, fixed coupon rates, periodic terms for interest payments and contract maturity. The fair value of the interest rate swaps also considers the credit risk of the Company for instruments in a liability position or the counterparty for instruments in an asset position. The credit risk is calculated using the spread between the one-month LIBOR yield curve and the relevant interest rate according to rating agencies. The inputs to the fair value measurements reflect Level 2 inputs.
Assets and liabilities associated with the Company’s interest rate swaps as reflected in the Condensed Consolidated Balance Sheets were as follows (in millions):
 March 31, 2021December 31, 2020
Assets:
Other current assets$— $1.9 
Other long-term assets18.1 0.3 
Total assets$18.1 $2.3 
Liabilities:
Accrued expenses and other current liabilities$3.2 $4.2 
Other long-term liabilities17.9 40.6 
Total liabilities$21.1 $44.8 
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)
Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationship20212020
Interest rate swaps$27.8 $(31.6)
 Amount of Income (Loss) Reclassified from Other Comprehensive Income (Loss) into Statements of Operations
Income Statement ClassificationThree Months Ended March 31,
20212020
Floorplan interest expense$(2.2)$(0.6)
Other interest expense, net$(0.9)$(0.1)
The net amount of loss expected to be reclassified out of Accumulated other comprehensive income (loss) into earnings as an offset to Floorplan interest expense or Other interest expense, net in the next twelve months is $3.2 million.