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FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS | 9 Months Ended
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Sep. 30, 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. 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 September 30, 2021 and December 31, 2020, the carrying value of these instruments was $271.6 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 estimates the fair value of its $550.0 million 4.00% Senior Notes due August 2028 (“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 8. 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):
|  | September 30, 2021 |  | December 31, 2020
|  | Carrying Value (1) |  | Fair Value |  | Carrying Value (1) |  | Fair Value
4.00% Senior Notes |  | $ | 550.0 |  |  | $ | 563.0 |  |  | $ | 550.0 |  |  | $ | 567.0 |
Real estate related |  | 79.3 |  |  | 72.0 |  |  | 84.3 |  |  | 77.0 |
Total |  | $ | 629.3 |  |  | $ | 635.0 |  |  | $ | 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 Company’s interest rate swaps are measured at fair value utilizing 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 of the hierarchy framework. Assets and liabilities associated with the Company’s interest rate swaps, as reflected gross in the Condensed Consolidated Balance Sheets, were as follows (in millions):
|  | September 30, 2021 |  | December 31, 2020
Assets: |  |  |  |
Other current assets |  | $ | — |  |  | $ | 1.9 |
Other long-term assets |  | 11.5 |  |  | 0.3 |
Total assets |  | $ | 11.5 |  |  | $ | 2.3 |
Liabilities: |  |  |  |
Accrued expenses and other current liabilities (1) |  | $ | 1.1 |  |  | $ | 4.2 |
Other long-term liabilities |  | 22.1 |  |  | 40.6 |
Total liabilities |  | $ | 23.2 |  |  | $ | 44.8 |
(1) As of September 30, 2021, the entire balance consisted of the gross fair value of the de-designated swaps as described below. Interest Rate Swaps De-designated as Cash Flow Hedges All interest rate swaps had previously been designated as cash flow hedges. During the three months ended June 30, 2021, the Company de-designated five interest rate swaps, with aggregate notional value of $250.0 million and a weighted average interest rate of 1.76% that will mature on December 31, 2021, due to the continued decline in the net floorplan liability balance as a result of decreased vehicle inventory levels. The realized and unrealized gains or losses on the de-designated swaps for each period after de-designation are recognized within income as Floorplan interest expense in the Company’s Condensed Consolidated Statements of Operations. No interest rate swaps were de-designated by the Company during the three months ended September 30, 2021. The Company reclassified the entire previously deferred loss associated with the de-designated interest rate swaps of $2.4 million, net of tax of $0.7 million, from Accumulated other comprehensive income (loss) into income as an adjustment to Floorplan interest expense, as the remaining forecasted hedged transactions associated with these interest rate swaps were probable of not occurring due to the reduced inventory levels described above. Additionally, the Company recorded unrealized mark-to-market gains of $1.0 million and $2.0 million and realized losses of $1.1 million and $2.1 million associated with these interest rate swaps within Floorplan interest expense for the three months and nine months ended September 30, 2021, respectively. Interest Rate Swaps Designated as Cash Flow Hedges Interest rate swaps 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) in the Company’s Condensed Consolidated Balance Sheets. 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. Gains or losses for periods where future forecasted hedged transactions are deemed probable of not occurring are reclassified from Accumulated other comprehensive income (loss) into income as Floorplan interest expense. Amounts reclassified related to the portion of forecasted transactions deemed probable of not occurring were immaterial for the three and nine months ended September 30, 2021. As of September 30, 2021, the Company held 33 interest rate swaps designated as cash flow hedges with a total notional value of $686.1 million that fixed the underlying one-month LIBOR at a weighted average rate of 1.37%. The Company also held 8 additional interest rate swaps designated as cash flow hedges with forward start dates beginning in December 2021, that had an aggregate notional value of $425.0 million and a weighted average interest rate of 1.20% as of September 30, 2021. The maturity dates of the Company’s designated interest rate swaps with forward start dates range between January 2025 and December 2031. The following tables present the impact of the Company’s interest rate swaps designated as cash flow hedges (in millions):
|  | Amount of Unrealized Income (Loss), Net of Tax, Recognized in Other Comprehensive Income (Loss)
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationship |  | 2021 |  | 2020 |  | 2021 |  | 2020
Interest rate swaps |  | $ | (0.6) |  |  | $ | (1.8) |  |  | $ | 16.1 |  |  | $ | (40.4) |
|  | Amount of Loss Reclassified from Other Comprehensive Income (Loss) into Statements of Operations
Statement of Operations Classification |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Floorplan interest expense |  | $ | (1.4) |  |  | $ | (2.6) |  |  | $ | (5.0) |  |  | $ | (5.3) |
Other interest expense, net |  | $ | (1.0) |  |  | $ | (1.0) |  |  | $ | (2.9) |  |  | $ | (1.8) |
The 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 $10.6 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=123874694&loc=d3e19207-110258 + Details
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