Note 9 - Derivative Financial Instruments

3 Months Ended

Mar. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 9. Derivative Financial Instruments

We enter into interest rate swaps to fix a portion of our interest expense. We do not enter into derivative instruments for any purpose other than to manage interest rate exposure to fluctuations in 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 designated 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 March 31, 2013 and December 31, 2012, the net fair value of all of our agreements totaled a liability of $3.9 million and $4.7 million, respectively, which was recorded on our Consolidated Balance Sheets as a component of accrued liabilities and other long-term liabilities. The estimated amount that we expect to reclassify as earnings within the next twelve months is $1.3 million at March 31, 2013.

As of March 31, 2013, we had outstanding the following interest rate swaps with U.S. Bank Dealer Commercial Services:

· $50 million interest rate swap at a fixed rate of 3.495% per annum, matures April 30, 2013; and

· $25 million interest rate swap at a fixed rate of 5.587% per annum, 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 March 31, 2013 was 0.20% per annum, as reported in the Wall Street Journal.

At March 31, 2013 and December 31, 2012, the fair value of our derivative instruments was included in our Consolidated Balance Sheets as follows (in thousands):

Balance Sheet Information	Fair Value of Liability Derivatives
	Location in Balance Sheet	March 31, 2013
Derivatives Designated as Hedging Instruments
Interest Rate Swap Contracts	Accrued liabilities	$	1,351
	Other long-term liabilities		2,568
		$	3,919

Balance Sheet Information	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

The effect of derivative instruments on our Consolidated Statements of Operations for the three-month periods ended March 31, 2013 and 2012 was as follows (in thousands):

Derivatives in Cash Flow Hedging Relationships	Amount of Gain 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)
Three Months Ended March 31, 2013
Interest Rate Swap Contracts	$	514	Floor plan interest expense	$	(307	)	Floor plan interest expense	$	(594	)
Three Months Ended March 31, 2012
Interest Rate Swap Contracts	$	283	Floor plan interest expense	$	(408	)	Floor plan interest expense	$	(654	)

See also Note 8.