Note 6 - Financial Instruments and Fair Value

3 Months Ended

Mar. 31, 2015

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

6 – Financial Instruments and Fair Value

The Company measures certain financial assets and liabilities at fair value on a recurring basis. Financial instruments consist primarily of cash, accounts receivable, accounts payable and floor plan notes payable. The carrying values of our financial instruments approximate fair value due either to their short-term nature or existence of variable interest rates, which approximate market rates. Certain methods and assumptions were used by the Company in estimating the fair value of financial instruments at March 31, 2015, and December 31, 2014. The carrying value of current assets and current liabilities approximates the fair value due to the short maturity of these items.

The fair value of our long-term debt is based on secondary market indicators. Because our debt is not quoted, estimates are based on each obligation’s characteristics, including remaining maturities, interest rate, credit rating, collateral and liquidity. Accordingly, the Company concluded that the valuation measurement inputs of its long-term debt represent, at its lowest level, current market interest rates available to the Company for similar debt and our current credit standing and has categorized such debt within Level 2 of the hierarchy framework. The carrying amount approximates fair value.

If investments are deemed to be impaired, the Company determines whether the impairment is temporary or other than temporary. If the impairment is deemed to be temporary, the Company records an unrealized loss in other comprehensive income. If the impairment is deemed other than temporary, the Company records the impairment in the Company’s Consolidated Statements of Income.

Auction Rate Securities

In prior years, the Company invested in interest-bearing short-term investments primarily consisting of investment-grade auction rate securities classified as available-for-sale and reported at fair value. These types of investments were designed to provide liquidity through an auction process that reset the applicable interest rates at predetermined periods ranging from 1 to 35 days. This reset mechanism was intended to allow existing investors to continue to own their respective interest in the auction rate security or to gain immediate liquidity by selling their interests at par.

Auctions for investment grade securities held by the Company have failed. However, a failed auction does not represent a default by the issuer. The auction rate securities continue to pay interest in accordance with the terms of the underlying security; however, liquidity will be limited until there is a successful auction or until such time as other markets for these investments develop. The Company has the intent and ability to hold these auction rate securities until liquidity returns to the market. The Company does not believe that the lack of liquidity relating to its auction rate securities will have a material impact on its ability to fund operations.

As of March 31, 2015 and December 31, 2014, the Company held auction rate securities with underlying tax-exempt municipal bonds that mature in 2030 and have a fair value of $6.9 million and a cost basis of $7.4 million. These bonds have credit wrap insurance and a credit rating of A by a major credit rating agency.

The Company valued the auction rate securities at March 31, 2015 using a discounted cash flow model based on the characteristics of the individual securities, which the Company believes yields the best estimate of fair value. The first step in the valuation included a credit analysis of the security which considered various factors, including the credit quality of the issuer, the instrument’s position within the capital structure of the issuing authority, and the composition of the authority’s assets including the effect of insurance and/or government guarantees. Next, the future cash flows of the instruments were projected based on certain assumptions regarding the auction rate market significant to the valuation, including that the auction rate market will remain illiquid and auctions will continue to fail, causing the interest rate to be the maximum applicable rate. This assumption resulted in discounted cash flow analysis being performed through 2019, the point at which the Company estimates the securities will be redeemed by the municipality. The projected cash flows were then discounted using the applicable yield curve plus a 225 basis point liquidity premium added to the applicable discount rate.

The Company recorded a pre-tax impairment charge of $1.0 million on these auction rate securities in 2011 and a subsequent pre-tax increase in fair value of $427,000 during 2014. The Company believes that the impairment is temporary and has included the impairment in accumulated other comprehensive loss.

The table below presents disclosures about the auction rate securities measured at fair value on a recurring basis in our financial statements as follows (in thousands):

	At March 31, 2015						At December 31, 2014
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Investment in auction rate securities	$	—	$	—	$	6,905	$	—	$	—	$	6,905

	Cost Basis Amount		Gross Unrealized Loss In Accumulated OCI		Fair Value
March 31, 2015
Investment in auction rate securities	$	7,425	$	520	$	6,905
December 31, 2014
Investment in auction rate securities	$	7,425	$	520	$	6,905

Interest Rate Swap Agreements

The Company has entered into swap agreements to hedge against the potential impact of increases in interest rates on its floating-rate debt instruments.  Swap agreements that hedge exposures to changes in interest rates expose us to credit risk and market risk.  Credit risk is the potential failure of the counterparty to perform under the terms of the swap agreement.  The Company attempts to minimize this risk by entering into transactions with high-quality counterparties.  Market risk is the potential adverse effect on the value of the swap agreement that results from a decline in interest rates.  The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

At March 31, 2015, the Company had an aggregate $20.4 million notional amount of interest rate swap contracts, which have been designated as cash flow hedges, to pay fixed rates of interest and receive a floating interest rate based on LIBOR. The fixed interest rates specified in the interest rate swap contracts became effective on or about January 1, 2012. Our interest rate swaps qualify for cash flow hedge accounting treatment.  Unrealized gains or losses are recorded in Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheets. Realized gains and losses will be recognized in interest expense, if they occur. Amounts to be received or paid under the contracts will be recognized as interest expense over the life of the contracts. These swaps were effective during the three months ended March 31, 2015 and 2014.

The fair value of cash flow hedges is calculated as the present value of expected future cash flows, determined on the basis of forward interest rates and present value factors. As such, the carrying amounts for these swaps are designated to be Level 2 fair values and totaled $117,000 as of March 31, 2015. The carrying value of these swaps is included in Other Long-Term Liabilities on the accompanying Consolidated Balance Sheets as of March 31, 2015.

As of March 31, 2015 the Company was a party to certain derivative financial instruments, as described in the following table (in thousands):

Agreement	Notional Amount		Fixed Interest Rate			Underlying Rate	Expiration Date	Fair Value
Interest Rate Swap	$	1,667		5.075	%	3 month LIBOR	July 1, 2015	$	(9	)
Interest Rate Swap		3,444		5.075	%	3 month LIBOR	July 1, 2015		(18	)
Interest Rate Swap		4,264		5.38	%	1 month LIBOR	June 29, 2015		(26	)
Interest Rate Swap		656		5.29	%	1 month LIBOR	June 30, 2015		(4	)
Interest Rate Swap		1,258		5.29	%	1 month LIBOR	June 30, 2015		(7	)
Interest Rate Swap		6,341		5.29	%	1 month LIBOR	June 30, 2015		(37	)
Interest Rate Swap		547		5.29	%	1 month LIBOR	June 30, 2015		(3	)
Interest Rate Swap		2,197		5.29	%	1 month LIBOR	June 30, 2015		(13	)

Fair values of derivative instruments are on the accompanying Consolidated Balance Sheets (in thousands):

		Fair Value at
Derivative Liabilities Designated as Hedging Instruments	Balance Sheet Location	March 31, 2015		December 31, 2014
Interest Rate Swaps	Other Long-Term Liabilities	$	117	$	235

	Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) during the Three Months Ended				Location of Loss	Loss Reclassified from Accumulated OCI into Income (Effective Portion) during the Three Months Ended
	March 31, 2015		March 31, 2014		Reclassified into Income	March 31, 2015			March 31, 2014
Interest rate swaps	$	118	$	187	Interest Expense	$	(29	)	$	(64	)