Derivative Instruments and Risk Management Activities

12 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT ACTIVITIES

DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT ACTIVITIES

The periodic interest rates of the Revolving Credit Facility (as defined in Note 11, “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, 2017 and December 31, 2016, the Company held interest rate derivative instruments with an aggregate notional value of $623.0 million and $765.3 million, respectively, that fixed its underlying one-month LIBOR at a weighted average rate of 2.5% and 2.5%, respectively. Of the $623.0 million in notional value of swaps in effect as of December 31, 2017, $110.6 million became effective during the year ended December 31, 2017. The following table presents the notional value of the annual expiration of swaps in effect as of December 31, 2017 (excludes forward starting swaps):

	2018		2019		2020		2021		2022		2023		2024
Notional amount of swaps expiring (in millions)	$	153.6	$	353.7	$	53.7	$	12.0	$	18.8	$	26.9	$	4.2

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, 2017, 2016 and 2015, the impact of the Company’s interest rate hedges in effect increased floorplan interest expense by $10.3 million, $11.1 million, and $11.5 million, respectively. Total floorplan interest expense, inclusive of the aforementioned impact of the Company’s interest rate hedges, was $52.4 million, $44.9 million, and $39.3 million for the years ended December 31, 2017, 2016 and 2015, respectively.

In addition to the $623.0 million of swaps in effect as of December 31, 2017, the Company held 11 additional interest rate derivative instruments with forward start dates between January 2018 and December 2020 and expiration dates between December 2020 and December 2030. As of December 31, 2017, the aggregate notional value of these 11 forward-starting swaps was $575.0 million, of which $200.0 million were to become effective by January 2, 2018, and the weighted average interest rate was 2.1%. 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 $918.4 million, which is less than the Company’s expectation for variable rate debt outstanding during such period.

In aggregate, as of December 31, 2017 and December 31, 2016, the Company reflected liabilities from interest rate risk management activities of $10.6 million and $24.4 million, respectively, in its Consolidated Balance Sheets. In addition, as of both December 31, 2017 and December 31, 2016, the Company reflected $9.5 million of assets from interest rate risk management activities included in Other Assets in the Consolidated Balance Sheet. Included in Accumulated Other Comprehensive Loss at December 31, 2017, 2016 and 2015, were accumulated unrealized losses, net of income taxes, totaling $0.7 million, $9.3 million, and $19.5 million, respectively, related to these interest rate derivative instruments. As of December 31, 2017 and 2016, 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, 2017, 2016 or 2015, 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.

	Amount of Unrealized Income (Loss), Net of Tax, Recognized in OCI
	Year Ended December 31,
	2017			2016			2015
	(In thousands)
Derivatives in Cash Flow Hedging Relationship
Interest rate derivative instruments	$	1,034		$	1,728		$	(9,856	)
	Amount of Loss Reclassified from OCI into Statement of Operations
	Year Ended December 31,
	2017			2016			2015
	(In thousands)
Location of Loss Reclassified from OCI into Statements of Operations
Floorplan interest expense	$	(10,272	)	$	(11,097	)	$	(11,486	)
Other interest expense	(1,924		)	(2,332		)	(1,814		)

The amount expected to be reclassified out of other comprehensive income (loss) into earnings as additional floorplan interest expense or other interest expense in the next twelve months is $6.9 million.