Note 12 - Derivative Financial Instruments

12 Months Ended

Dec. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Text Block]

(12)         Derivative Financial 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 for the effective portion of these interest rate swaps in 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.See Note 13.

At December 31, 2012 and 2011, the net fair value of all of our agreements totaled a loss of $4.7 million and $7.5 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 $1.9 million at December 31, 2012.

As of December 31, 2012, we had outstanding the following interest rate swaps with U.S. Bank Dealer Commercial Services:

● $25 million interest rate swap at a fixed rate of 4.495% per annum, variable rate adjusted on the 26th of each month, matures January 25, 2013;

● $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, matures April 30, 2013;

● $25 million interest rate swap at a fixed rate of 3.495% per annum, variable rate adjusted on the 1st and16th of each month, matures April 30, 2013 and

● $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, matures June 15, 2016.

We receive interest on all of the interest rate swaps at the one-month LIBOR rate. The one-month LIBOR rate at December 31, 2012 was 0.21% per annum, as reported in the Wall Street Journal.

At December 31, 2012 and 2011, the fair value of our derivative instruments was included in our Consolidated Balance Sheets as follows (in thousands):

Balance Sheet Information (in thousands)	Fair Value of Liability Derivatives
	Location in Balance Sheet	December 31, 2012
Derivatives designated as hedging instruments
Interest rate swap contracts	Accrued liabilities	$	1,839
	Other long-term liabilities		2,840
		$	4,679

Balance Sheet Information (in thousands)	Fair Value of Liability Derivatives
	Location in Balance Sheet	December 31, 2011
Derivatives designated as hedging instruments
Interest rate swap contracts	Accrued liabilities	$	3,522
	Other long-term liabilities		4,008
		$	7,530

The effect of derivative instruments on our Consolidated Statements of Operations for the years ended December 31, 2012, 2011 and 2010 was as follows (in thousands):

Derivatives in Cash Flow Hedging Relationships	Amount of gain (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)
For the Year Ended December 31, 2012
Interest rate swap contracts	$	1,655		Floor plan Interest expense	$	(1,413	)	Floor plan Interest expense	$	(2,900	)
For the Year Ended December 31, 2011
Interest rate swap contracts	$	(1,343	)	Floor plan Interest expense	$	(1,899	)	Floor plan Interest expense	$	(1,587	)
For the Year Ended December 31, 2010
Interest rate swap contracts	$	(4,459	)	Floor plan Interest expense	$	(2,814	)	Floor plan Interest expense	$	(1,483	)