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This excerpt taken from the AN 10-K filed Feb 28, 2007. Hedging
Risk
We have utilized interest rate derivatives to hedge portions of
our variable rate debt. All of these instruments were designated
as cash flow hedges. During 2006, we had $800.0 million of
interest rate hedge instruments mature, consisting of
$200.0 million in swaps, which effectively locked in a
LIBOR-based rate of 3.0%, and $600.0 million in collars
that capped floating rates to a maximum LIBOR-based rate no
greater than 2.4%. We held no derivative contracts as of
December 31, 2006.
We reflect the current fair value of all derivatives on our
balance sheet. The related gains or losses on these transactions
are deferred in stockholders’ equity as a component of
Accumulated Other Comprehensive Income (Loss). These deferred
gains and losses are recognized in income in the period in which
the related items being hedged are recognized in expense.
However, to the extent that the change in value of a derivative
contract does not perfectly offset the change in the value of
the items being hedged, that ineffective portion is immediately
recognized in income. At December 31, 2005, net unrealized
gains related to hedges included in Accumulated Other
Comprehensive Gain (Loss), was $2.1 million. For 2006 and
2005, the income statement impact from interest rate hedges was
an additional income of $1.8 million and $.2 million,
respectively.
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This excerpt taken from the AN 10-K filed Feb 24, 2005. Hedging Risk
We reflect the current fair value of all derivatives on our balance sheet. The related gains or losses on these transactions are deferred in stockholders’ equity as a component of accumulated other comprehensive income (loss). These deferred gains and losses are recognized in income in the period in which the related items being hedged are recognized in expense. However, to the extent that the change in value of a derivative contract does not perfectly offset the change in the value of the items being hedged, that ineffective portion is immediately recognized in income. All of our interest rate hedges are designated as cash flow hedges. We have a series of interest rate hedge transactions with a notional value of $800 million, consisting of a combination of swaps, and cap and floor options (collars). The hedge instruments are designed to convert certain floating rate vehicle floorplan payable and portions of our mortgage facilities to fixed rate debt. We have $200 million in swaps, which started in 2004 and effectively lock in a rate of approximately 3.0%, and $600 million in collars that cap floating rates to a maximum rate no greater than 2.4%. All of our hedge instruments mature over the next two years. At December 31, 2004 and 2003, net unrealized losses, net of income taxes, related to hedges included in Accumulated Other Comprehensive Loss were $1.5 million and $3.1 million, respectively. For the years ended December 31, 2004 and 2003, the income statement impact from interest rate hedges was an additional expense of $2.9 million and $.6 million, respectively. At December 31, 2004 and 2003, all of our derivative contracts were determined to be highly effective, and no ineffective portion was recognized in income. We had no outstanding derivatives during 2002. 38
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