Note 12 - Derivative Instruments

9 Months Ended

Sep. 30, 2011

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 12. Derivative Instruments

We enter into interest rate swaps to manage the variability of our interest rate exposure, thus fixing a portion of our interest expense in a rising or falling rate environment. We do not enter into derivative instruments for any purpose other than to manage interest rate exposure of the one-month LIBOR benchmark. That is, we do not engage in interest rate speculation using derivative instruments.

Typically, we designate all interest rate swaps as cash flow hedges and, accordingly, we record the change in fair value of these interest rate swaps in other comprehensive income rather than net income until the underlying hedged transaction affects net income. If a swap is no longer accounted for as a cash flow hedge and the forecasted transaction remains probable or reasonably possible of occurring, the gain or loss recorded in accumulated other comprehensive loss is recognized in income as the forecasted transaction occurs. If the forecasted transaction is probable of not occurring, the gain or loss recorded in accumulated other comprehensive loss is recognized in income immediately.

At September 30, 2011 and December 31, 2010, the net fair value of all of our agreements totaled a loss of $8.3million and $8.7 million, respectively, which was recorded on our Consolidated Balance Sheets as a component of accrued liabilities and other long-term liabilities. The estimated amount expected to be reclassified into earnings within the next twelve months was $3.9 million at September 30, 2011.

As of September 30, 2011, we had outstanding the following interest rate swaps with U.S. Bank Dealer Commercial Services:

· effective September 16, 2006 – a ten year, $25 million interest rate swap at a fixed rate of 5.587% per annum, variable rate adjusted on the 1st and 16th of each month;

· effective January 26, 2008 – a five year, $25 million interest rate swap at a fixed rate of 4.495% per annum, variable rate adjusted on the 26th of each month;

· effective May 1, 2008 – a five year, $25 million interest rate swap at a fixed rate of 3.495% per annum, variable rate adjusted on the 1st and 16th of each month; and

· effective May 1, 2008 – a five year, $25 million interest rate swap at a fixed rate of 3.495% per annum, variable rate adjusted on the 1st and 16th of each month.

We receive interest on all of the interest rate swaps at the one-month LIBOR rate. The one-month LIBOR rate at September 30, 2011 was 0.24% per annum, as reported in the Wall Street Journal.

The fair value of our derivative instruments was included in our Consolidated Balance Sheets as follows:

Balance Sheet Information (in thousands)	Fair Value of Asset Derivatives			Fair Value of Liability Derivatives
	Location in Balance Sheet	September 30, 2011		Location in Balance Sheet	September 30, 2011
Derivatives Designated as Hedging Instruments
Interest Rate Swap Contracts	Prepaid expenses and other	$	-	Accrued liabilities	$	3,565
	Other non-current assets		-	Other long-term liabilities		4,727
		$	-		$	8,292

Balance Sheet Information (in thousands)	Fair Value of Asset Derivatives			Fair Value of Liability Derivatives
	Location in Balance Sheet	December 31, 2010		Location in Balance Sheet	December 31, 2010
Derivatives Designated as Hedging Instruments
Interest Rate Swap Contracts	Prepaid expenses and other	$	-	Accrued liabilities	$	2,862
	Other non-current assets		-	Other long-term liabilities		5,830
		$	-		$	8,692

The effect of derivative instruments on our Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2011 and 2010 was as follows (in thousands):

Derivatives in Cash Flow Hedging Relationships	Amount of Loss Recognized in Accumulated OCI (Effective Portion)			Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Three Months Ended September 30, 2011				Floor plan				Floor plan
Interest Rate Swap Contracts	$	(1,544	)	Interest expense	$	(535	)	Interest expense	$	271
Three Months Ended September 30, 2010				Floor plan				Floor plan
Interest Rate Swap Contracts	$	(1,132	)	Interest expense	$	(692	)	Interest expense	$	(903	)

Derivatives in Cash Flow Hedging Relationships	Amount of Loss Recognized in Accumulated OCI (Effective Portion)			Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Nine Months Ended September 30, 2011				Floor plan				Floor plan
Interest Rate Swap Contracts	$	(1,664	)	Interest expense	$	(1,446	)	Interest expense	$	(1,002	)
Nine Months Ended September 30, 2010				Floor plan				Floor plan
Interest Rate Swap Contracts	$	(5,164	)	Interest expense	$	(2,216	)	Interest expense	$	(1,390	)

See also Note 11.