10-Q 1 lad-20210930.htm 10-Q lad-20210930
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-14733
lad-20210930_g1.jpg
Lithia Motors, Inc.
(Exact name of registrant as specified in its charter)
Oregon 93-0572810
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
150 N. Bartlett StreetMedford,Oregon97501
(Address of principal executive offices)(Zip Code)
(541) 776-6401
Registrant’s telephone number, including area code
 
Securities registered pursuant to Section 12(b) of the Act: 
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock without par valueLADThe New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerNon-accelerated filerAccelerated filerSmaller reporting companyEmerging growth company
 ☒ ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of October 27, 2021, there were 30,279,561 shares of the registrant’s common stock outstanding.



LITHIA MOTORS, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
 
Item NumberItemPage
PART IFINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART IIOTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.
Item 2.
Item 6.
SIGNATURE


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CONSOLIDATED BALANCE SHEETS
(In millions; Unaudited)September 30, 2021December 31, 2020
Assets  
Current assets:  
Cash and cash equivalents$137.8 $160.2 
Accounts receivable, net of allowance for doubtful accounts of $14.3 and $5.9
812.6 614.0 
Inventories, net2,012.6 2,492.9 
Other current assets112.5 70.5 
Total current assets3,075.5 3,337.6 
Property and equipment, net of accumulated depreciation of $399.9 and $338.0
2,352.9 2,197.5 
Operating lease right-of-use assets367.3 264.0 
Goodwill740.3 593.0 
Franchise value608.4 350.2 
Other non-current assets3,060.2 1,159.8 
Total assets$10,204.6 $7,902.1 
Liabilities and equity  
Current liabilities:  
Floor plan notes payable$329.4 $234.2 
Floor plan notes payable: non-trade688.9 1,563.0 
Current maturities of long-term debt206.9 66.0 
Trade payables248.1 158.2 
Accrued liabilities708.5 458.3 
Total current liabilities2,181.8 2,479.7 
Long-term debt, less current maturities2,586.1 2,064.7 
Deferred revenue181.7 155.7 
Deferred income taxes172.9 146.3 
Non-current operating lease liabilities338.6 246.7 
Other long-term liabilities165.6 147.5 
Total liabilities5,626.7 5,240.6 
Redeemable non-controlling interest33.3  
Equity:  
Preferred stock - no par value; authorized 15.0 shares; none outstanding
  
Common stock1 - no par value; authorized 100.0 shares; issued and outstanding 30.3 and 26.3
1,916.4 788.2 
Class B common stock1 - no par value; no shares authorized; issued and outstanding none and 0.2
  
Additional paid-in capital50.8 41.4 
Accumulated other comprehensive loss(3.6)(6.3)
Retained earnings2,579.1 1,838.2 
Total stockholders’ equity - Lithia Motors, Inc.4,542.7 2,661.5 
Non-controlling interest1.9  
Total equity4,544.6 2,661.5 
Total liabilities, redeemable non-controlling interest and equity$10,204.6 $7,902.1 
1 Prior to June 7, 2021, common stock was classified as Class A common stock. The Class A common stock reclassification as common stock occurred in connection with the elimination of our classified common stock structure following the conversion of all Class B common stock to Class A common stock.
 See accompanying condensed notes to consolidated financial statements.
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FINANCIAL STATEMENTS
1


CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended September 30,Nine Months Ended September 30,
(In millions, except per share amounts; Unaudited)2021202020212020
Revenues:    
New vehicle retail$2,898.2 $1,883.3 $8,237.7 $4,624.6 
Used vehicle retail2,079.5 1,093.2 5,236.6 2,889.7 
Used vehicle wholesale260.9 98.8 613.5 216.8 
Finance and insurance297.0 160.5 765.0 407.2 
Service, body and parts578.3 359.5 1,503.4 964.9 
Fleet and other55.9 24.9 166.0 79.3 
Total revenues6,169.8 3,620.2 16,522.2 9,182.5 
Cost of sales:    
New vehicle retail2,548.9 1,743.2 7,418.0 4,314.2 
Used vehicle retail1,846.9 948.4 4,635.2 2,556.8 
Used vehicle wholesale255.2 91.2 586.8 206.5 
Service, body and parts275.8 163.6 704.3 456.5 
Fleet and other53.9 22.2 162.7 71.6 
Total cost of sales4,980.7 2,968.6 13,507.0 7,605.6 
Gross profit1,189.1 651.6 3,015.2 1,576.9 
Asset impairments1.9  1.9 7.9 
Selling, general and administrative673.3 389.1 1,757.6 1,039.6 
Depreciation and amortization34.4 22.9 91.5 67.3 
Operating income479.5 239.6 1,164.2 462.1 
Floor plan interest expense(3.6)(6.1)(17.0)(28.3)
Other interest expense, net(28.0)(16.6)(79.6)(50.4)
Other income (expense), net(25.7)2.2 (14.6)8.2 
Income before income taxes422.2 219.1 1,053.0 391.6 
Income tax provision(113.2)(60.3)(282.9)(108.9)
Net income309.0 158.8 770.1 282.7 
Net income attributable to non-controlling interest(0.8) (0.8) 
Net income attributable to redeemable non-controlling interest(0.3) (0.3) 
Net income attributable to Lithia Motors, Inc.$307.9 $158.8 $769.0 $282.7 
Basic earnings per share attributable to Lithia Motors, Inc.$10.18 $6.95 $27.12 $12.30 
Shares used in basic per share calculations30.3 22.9 28.4 23.0 
Diluted earnings per share attributable to Lithia Motors, Inc.$10.11 $6.86 $26.91 $12.18 
Shares used in diluted per share calculations30.5 23.1 28.6 23.2 
Cash dividends paid per share$0.35 $0.31 $1.01 $0.91 
    
See accompanying condensed notes to consolidated financial statements.
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FINANCIAL STATEMENTS
2


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Three Months Ended September 30,Nine Months Ended September 30,
(In millions; Unaudited)2021202020212020
Net income$309.0 $158.8 $770.1 $282.7 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment0.2  0.2  
Gain (loss) on cash flow hedges, net of tax (expense) benefit of ($0.2), ($0.1), ($0.9), and $2.2, respectively
0.5 0.4 2.5 (6.1)
Total other comprehensive income (loss), net of tax0.7 0.4 2.7 (6.1)
Comprehensive income309.7 159.2 772.8 276.6 
Comprehensive income attributable to non-controlling interest(0.8) (0.8) 
Comprehensive income attributable to redeemable non-controlling interest(0.3) (0.3) 
Comprehensive income attributable to Lithia Motors, Inc.$308.6 $159.2 $771.7 $276.6 
See accompanying condensed notes to consolidated financial statements.
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FINANCIAL STATEMENTS
3


CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NON-CONTROLLING INTEREST
Three Months Ended September 30,Nine Months Ended September 30,
(In millions; Unaudited)2021202020212020
Total equity, beginning balances$4,228.4 $1,532.2 $2,661.5 $1,467.7 
Common stock1, beginning balances
1,906.9 2.1 788.2 20.5 
Compensation for stock and stock option issuances and excess tax benefits from option exercises1.6 0.8 16.2 10.6 
Issuance of stock in connection with employee stock plans8.0 3.1 17.6 9.2 
Class B common stock converted to class A common stock1
— — — — 
Repurchase of common stock— (0.1)(15.9)(34.4)
Equity issuances, net of issuance costs(0.1)— 1,110.3 — 
Common stock1, ending balances
1,916.4 5.9 1,916.4 5.9 
Class B common stock1, beginning balances
 0.1  0.1 
Class B common stock converted to class A common stock1
— — — — 
Class B common stock1, ending balances
 0.1  0.1 
Additional paid-in capital, beginning balances44.0 30.1 41.4 46.0 
Compensation for stock and stock option issuances and excess tax benefits from option exercises6.8 6.3 9.4 6.6 
Repurchase of common stock— — — (16.2)
Additional paid-in capital, ending balances50.8 36.4 50.8 36.4 
Accumulated other comprehensive loss, beginning balances(4.3)(7.2)(6.3)(0.7)
Foreign currency translation adjustment0.2 — 0.2 — 
Gain (loss) on cash flow hedges, net of tax (expense) benefit of ($0.2), ($0.1), ($0.9), and $2.2, respectively
0.5 0.4 2.5 (6.1)
Accumulated other comprehensive loss, ending balances(3.6)(6.8)(3.6)(6.8)
Retained earnings, beginning balances2,281.8 1,507.1 1,838.2 1,401.8 
Adjustment to adopt ASC 326— — — (4.8)
Net income attributable to Lithia Motors, Inc.307.9 158.8 769.0 282.7 
Dividends paid(10.6)(7.1)(28.2)(20.9)
Retained earnings, ending balances2,579.1 1,658.8 2,579.1 1,658.8 
Non-controlling interest, beginning balances    
Acquired non-controlling interest1.1 — 1.1 — 
Net income attributable to non-controlling interest0.8 — 0.8 — 
Non-controlling interest, ending balances1.9  1.9  
Total equity, ending balances$4,544.6 $1,694.4 $4,544.6 $1,694.4 
Redeemable non-controlling interest, beginning balances$ $ $ $ 
Acquired redeemable non-controlling interest33.0 — 33.0 — 
Net income attributable to redeemable non-controlling interest0.3 — 0.3 — 
Redeemable non-controlling interest, ending balances$33.3 $ $33.3 $ 
1 Prior to June 7, 2021, common stock was classified as Class A common stock. The Class A common stock reclassification as common stock occurred in connection with the elimination of our classified common stock structure following the conversion of all Class B common stock to Class A common stock.
*Certain amounts may not compute due to rounding

See accompanying condensed notes to consolidated financial statements.
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FINANCIAL STATEMENTS
4


CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months Ended September 30,
(In millions; Unaudited)20212020
Cash flows from operating activities:  
Net income$770.1 $282.7 
Adjustments to reconcile net income to net cash provided by operating activities: 
Asset impairments1.9 7.9 
Depreciation and amortization91.5 67.3 
Stock-based compensation25.6 17.2 
Loss on redemption of senior notes10.3  
Gain on disposal of other assets(2.5)(0.5)
Loss (gain) on disposal of franchise5.2 (1.4)
Unrealized investment loss22.3  
Deferred income taxes25.6 6.8 
Amortization of operating lease right-of-use assets27.0 20.8 
(Increase) decrease (net of acquisitions and dispositions):
Accounts receivable, net(85.0)(11.3)
Inventories1,003.2 457.0 
Other assets(351.1)(36.4)
Increase (decrease) (net of acquisitions and dispositions):
Floor plan notes payable91.3 (128.0)
Trade payables97.2 25.0 
Accrued liabilities236.9 66.8 
Other long-term liabilities and deferred revenue19.7 26.7 
Net cash provided by operating activities1,989.2 800.6 
Cash flows from investing activities:  
Capital expenditures(194.1)(125.6)
Proceeds from sales of assets4.6 5.1 
Cash paid for other investments(9.8)(9.9)
Cash paid for acquisitions, net of cash acquired(2,409.5)(609.5)
Proceeds from sales of stores45.7 11.6 
Net cash used in investing activities(2,563.1)(728.3)
Cash flows from financing activities:  
Repayments on floor plan notes payable, net: non-trade(840.9)(317.8)
Borrowings on lines of credit1,642.5 1,740.5 
Repayments on lines of credit(1,631.6)(1,485.0)
Principal payments on long-term debt and finance lease liabilities, scheduled(24.7)(20.7)
Principal payments on long-term debt and finance lease liabilities, other(483.6)(6.3)
Proceeds from issuance of long-term debt817.5 56.5 
Payment of debt issuance costs(10.9)(4.1)
Proceeds from issuance of common stock1,127.9 9.2 
Repurchase of common stock(15.9)(50.6)
Dividends paid(28.2)(20.9)
Payment of contingent consideration related to acquisitions(1.4) 
Net cash provided by (used in) financing activities550.7 (99.2)
Effect of exchange rate changes on cash and cash equivalents0.9  
Decrease in cash and cash equivalents(22.3)(26.9)
Cash and cash equivalents at beginning of period160.1 84.0 
Cash and cash equivalents at end of period$137.8 $57.1 
Supplemental disclosure of cash flow information:  
Cash paid during the period for interest$89.5 $82.7 
Cash paid during the period for income taxes, net237.3 74.1 
Floor plan debt paid in connection with store disposals8.7 22.0 
Supplemental schedule of non-cash activities:  
Debt issued in connection with acquisitions$355.4 $ 
Contingent consideration in connection with acquisitions0.9 9.7 
Debt assumed in connection with acquisitions4.0  
Right-of-use assets obtained in exchange for lease liabilities131.2 44.1 
See accompanying condensed notes to consolidated financial statements.
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FINANCIAL STATEMENTS
5


CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1. Interim Financial Statements
 
Basis of Presentation
These condensed Consolidated Financial Statements contain unaudited information as of September 30, 2021, and for the three and nine months ended September 30, 2021 and 2020. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America for annual financial statements are not included herein. In management’s opinion, these unaudited financial statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the information when read in conjunction with our 2020 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 2020, is derived from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 19, 2021. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

Reclassifications
Certain immaterial reclassifications of amounts previously reported have been made to the accompanying condensed Consolidated Financial Statements to maintain consistency and comparability between periods presented.

Note 2. Contract Liabilities and Assets

Contract Liabilities
We are the obligor on our lifetime oil contracts. Revenue is allocated to these performance obligations and is recognized over time as services are provided to the customer. The amount of revenue recognized is calculated, net of cancellations, using an input method, which most closely depicts performance of the contracts. Our contract liability balances were $226.9 million and $194.1 million as of September 30, 2021, and December 31, 2020, respectively; and we recognized $8.3 million and $26.8 million of revenue in the three and nine months ended September 30, 2021, respectively, related to our contract liability balance at December 31, 2020. Our contract liability balance is included in accrued liabilities and deferred revenue.

Contract Assets
Revenue from finance and insurance sales is recognized, net of estimated charge-backs, at the time of the sale of the related vehicle. We act as an agent in the sale of these contracts as the pricing is set by the third-party provider, and our commission is preset. A portion of the transaction price related to sales of finance and insurance contracts is considered variable consideration and is estimated and recognized upon the sale of the contract. Our contract asset balances associated with future estimated variable consideration were $9.0 million and $8.2 million as of September 30, 2021 and December 31, 2020, respectively; and are included in trade receivables and other non-current assets.

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NOTES TO FINANCIAL STATEMENTS
6



Note 3. Accounts Receivable and Contract Assets

Accounts receivable consisted of the following:
(in millions)September 30, 2021December 31, 2020
Contracts in transit$300.7 $286.8 
Trade receivables111.1 67.0 
Vehicle receivables93.8 61.8 
Manufacturer receivables113.8 118.1 
Auto loan receivables535.1 175.6 
Sales-type lease receivables102.6  
Other receivables18.8 11.6 
 1,275.9 720.9 
Less: Allowance for doubtful accounts(14.3)(5.9)
Less: Long-term portion of accounts receivable, net(449.0)(101.0)
Total accounts receivable, net$812.6 $614.0 

Accounts receivable classifications include the following:

Contracts in transit are receivables from various lenders for the financing of vehicles that we have arranged on behalf of the customer and are typically received approximately ten days after selling a vehicle.
Trade receivables are comprised of amounts due from customers for open charge accounts, lenders for the commissions earned on financing and others for commissions earned on service contracts and insurance products.
Vehicle receivables represent receivables for the portion of the vehicle sales price paid directly by the customer.
Manufacturer receivables represent amounts due from manufacturers, including holdbacks, rebates, incentives and warranty claims.
Auto loan receivables include amounts due from customers related to retail sales of vehicles and certain finance and insurance products.
Sales-type lease receivables include amounts due from customers related to retail leases of vehicles and certain finance and insurance products.

Interest income on auto loan receivables is recognized based on the contractual terms of each loan and is accrued until repayment, reaching non-accrual status, charge-off, or repossession. Direct costs associated with loan originations are capitalized and expensed as an offset to interest income when recognized on the loans. All other receivables are recorded at invoice and do not bear interest until they are 60 days past due.

The balances of auto loan receivables are made up of loans secured by the related vehicles. More than 98% of the portfolio is aged less than 60 days past due with less than 2% on non-accrual status. As of September 30, 2021, the allowance for credit losses related to auto loan and lease receivables was $17.2 million and included in allowance for doubtful accounts and other non-current assets. In accordance with Topic 326, the allowance for loan and lease losses is estimated based on our historical write-off experience, current conditions and forecasts as well as the value of any underlying assets securing these loans and is reviewed monthly. Consideration is given to recent delinquency trends and recovery rates. Account balances are charged against the allowance upon reaching 120 days past due status. The annual activity for charges and subsequent recoveries is immaterial. The remainder of our receivables are due primarily from manufacturer partners and various third-party lenders. The historical losses related to these balances are immaterial.

The long-term portion of accounts receivable was included as a component of other non-current assets in the Consolidated Balance Sheets.

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NOTES TO FINANCIAL STATEMENTS
7


Note 4. Inventories

The components of inventories, net, consisted of the following:
(in millions)September 30, 2021December 31, 2020
New vehicles$696.8 $1,556.6 
Used vehicles1,172.6 835.9 
Parts and accessories143.2 100.4 
Total inventories$2,012.6 $2,492.9 

Note 5. Goodwill and Franchise Value

The changes in the carrying amounts of goodwill are as follows:
(in millions)DomesticImportLuxuryConsolidated
Balance as of December 31, 2019 ¹$171.8 $197.3 $85.5 $454.6 
Additions through acquisitions 2
33.3 94.3 17.3 144.9 
Reductions through divestitures(0.1)(0.7)(2.2)(3.0)
Reductions from impairments(0.5)(3.0) (3.5)
Balance as of December 31, 2020 ¹204.5 287.9 100.6 593.0 
Additions through acquisitions 3
52.0 64.3 34.2 150.5 
Reductions through divestitures (3.2) (3.2)
Balance as of September 30, 2021$256.5 $349.0 $134.8 $740.3 
1 Net of accumulated impairment losses of $299.3 million recorded during the year ended December 31, 2008.
2 Our purchase price allocation for the 2019 acquisitions were finalized in 2020. As a result, we added $144.9 million of goodwill.
3 Our purchase price allocation for a portion of the 2020 acquisitions was finalized in 2021. As a result, we added $150.5 million of goodwill. Our purchase price allocation for the remaining 2020 and 2021 acquisitions are preliminary and goodwill is not yet allocated to our reporting units. These amounts are included in other non-current assets until we finalize our purchase accounting. See Note 13.

The changes in the carrying amounts of franchise value are as follows:
(in millions)Franchise Value
Balance as of December 31, 2019$306.7 
Additions through acquisitions 1
51.9 
Reductions through divestitures(4.0)
Reductions from impairments(4.4)
Balance as of December 31, 2020350.2 
Additions through acquisitions 2
262.4 
Reductions through divestitures(2.3)
Reductions from impairments(1.9)
Balance as of September 30, 2021$608.4 
1 Our purchase price allocation for the 2019 acquisitions were finalized in 2020. As a result, we added $51.9 million of franchise value.
2 Our purchase price allocation for a portion of the 2020 acquisitions was finalized in 2021. As a result, we added $262.4 million of franchise value. Our purchase price allocation for the remaining 2020 and 2021 acquisitions are preliminary and franchise value is not yet allocated to our reporting units. These amounts are included in other non-current assets until we finalize our purchase accounting. See Note 13.

Note 6. Credit Facilities and Long-term Debt

On August 30, 2021, we entered into a credit agreement with The Bank of Nova Scotia. The credit agreement makes available three primary lines of credit including a working capital revolving credit facility of up to $50 million CAD, up to $300 million CAD floor plan financing for new and used vehicles; and $350 million CAD to provide wholesale lease financing. The credit facilities accrue interest at rates equal to the Lender’s prime lending rate or the Canadian Dollar Offered Rate plus, in each case, a spread, with the spreads ranging from 0.25% per annum to
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NOTES TO FINANCIAL STATEMENTS
8


1.50% per annum. The credit agreement includes various financial and other covenants typical of such agreements. All indebtedness under this agreement is due on demand.

On August 1, 2021, we redeemed in full the aggregate $300 million principal amount of our 5.250% senior notes due 2025 at a redemption price equal to 102.625% of the principal amount of the notes plus accrued and unpaid interest thereon.

Note 7. Equity and Redeemable Non-controlling Interest

Repurchases of Common Stock
Repurchases of our common stock occurred under a repurchase authorization granted by our Board of Directors and related to shares withheld as part of the vesting of restricted stock units (RSUs). On October 22, 2018, our Board of Directors approved an additional $250 million repurchase authorization of our common stock, increasing our total share repurchase authorization to $500 million. Share repurchases under this authorization were as follows:
 Repurchases Occurring in 2021Cumulative Repurchases as of September 30, 2021
 SharesAverage PriceSharesAverage Price
Share Repurchase Authorization $ 3,719,048 $84.02 

As of September 30, 2021, we had $187.5 million available for repurchases pursuant to our share repurchase authorization.

In addition, during 2021, we repurchased 54,284 shares at an average price of $292.97 per share, for a total of $15.9 million, related to tax withholding associated with the vesting of RSUs. The repurchase of shares related to tax withholding associated with stock awards does not reduce the number of shares available for repurchase as approved by our Board of Directors.

Follow-on Public Offering
On May 24, 2021, we completed the public offering of 3,571,428 shares of our common stock, no par value per share, which included the exercise in full by the underwriters of their option to purchase up to 465,838 additional shares of our common stock, at the public offering price of $322.00 per share. We received $1.11 billion from the offering, net of the underwriting discount and before deducting the offering expenses of $0.6 million.

ATM Equity Offering
On July 24, 2020, we entered into an ATM Equity Offering Sales Agreement, which allows us to offer and sell, from time to time, shares of our common stock, no par value, having an aggregate gross sales price of up to $400 million. The shares will be issued pursuant to a registration statement on Form S-3 (File No. 333-239969), which became effective upon its filing on July 21, 2020. Under this agreement, we may enter into forward share purchase transactions. As of September 30, 2021, no amounts have been issued in relation to the ATM Equity Offering Sales Agreement.

Redeemable Non-controlling Interest
On August 30, 2021, the Company expanded into Canada through a partnership with Toronto-based Pfaff Automotive Partners. As part of the acquisition, the Company was granted the right to purchase (Call Option), and granted Pfaff Automotive a right to sell (Put Option), the remaining interest after a three-year period, with a purchase price based on Pfaff’s pro rata share of assets at the date of exercise of the Call or Put Option, as applicable. As a result of this redemption feature, the Company recorded redeemable non-controlling interest, at its preliminary estimate of acquisition-date fair value, that is classified as mezzanine equity in the accompanying consolidated balance sheets at September 30, 2021. The non-controlling interest is adjusted each reporting period for income (loss) attributable to the non-controlling interest and adjustments in fair value.

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NOTES TO FINANCIAL STATEMENTS
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Note 8. Fair Value Measurements

Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories:

Level 1 - quoted prices in active markets for identical securities;
Level 2 - other significant observable inputs, including quoted prices for similar securities, interest rates, prepayment spreads, credit risk; and
Level 3 - significant unobservable inputs, including our own assumptions in determining fair value.

We determined that the carrying value of cash equivalents, accounts receivable, trade payables, accrued liabilities and short-term borrowings approximate their fair values because of the nature of their terms and current market rates of these instruments. We believe the carrying value of our variable rate debt approximates fair value.

We have investments primarily consisting of our investment in Shift Technologies, Inc. (Shift), a San Francisco-based digital retail company. Shift has a readily determinable fair value following Shift going public in a reverse-merger deal with Insurance Acquisition, a special purpose acquisition company, in the fourth quarter of 2020. We calculated the fair value of this investment using quoted prices for the identical security (Level 1) and recorded the fair value as part of other non-current assets. An additional component of our investment in Shift consists of shares in escrow subject to release upon certain market conditions being met. The fair value of this component of our investment in Shift is measured using observable Level 2 market expectations at each measurement date and is recorded as part of other non-current assets. For the three and nine months ended September 30, 2021, we recognized a $23.2 million and $22.3 million unrealized investment loss related to Shift, which was recorded as a component of Other income, net. No amounts were recognized for the three and nine months ended September 30, 2020.

We have fixed rate debt primarily consisting of amounts outstanding under our senior notes and real estate mortgages. We calculated the estimated fair value of the senior notes using quoted prices for the identical liability (Level 1) and calculated the estimated fair value of the fixed rate real estate mortgages using a discounted cash flow methodology with estimated current interest rates based on a similar risk profile and duration (Level 2). The fixed cash flows are discounted and summed to compute the fair value of the debt. As of September 30, 2021, our real estate mortgages and other debt, which includes capital leases, had maturity dates between October 1, 2021, and July 1, 2038.

We have derivative instruments consisting of interest rate collars. The fair value of derivative assets and liabilities are measured using observable Level 2 market expectations at each measurement date and is recorded as current liabilities and other long-term liabilities in the Consolidated Balance Sheets. See Note 12 for more details regarding our derivative contracts.

We estimate the value of other long-lived assets that are recorded at fair value on a non-recurring basis on a market valuation approach. We use prices and other relevant information generated primarily by recent market transactions involving similar or comparable assets, as well as our historical experience in divestitures, acquisitions and real estate transactions. Additionally, we may use a cost valuation approach to value long-lived assets when a market valuation approach is unavailable. Under this approach, we determine the cost to replace the service capacity of an asset, adjusted for physical and economic obsolescence. When available, we use valuation inputs from independent valuation experts, such as real estate appraisers and brokers, to corroborate our estimates of fair value. Real estate appraisers’ and brokers’ valuations are typically developed using one or more valuation techniques including market, income and replacement cost approaches. Because these valuations contain unobservable inputs, we classified the measurement of fair value of long-lived assets as Level 3.

There were no changes to our valuation techniques during the nine-month period ended September 30, 2021.

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NOTES TO FINANCIAL STATEMENTS
10


Below are our investments that are measured at fair value (in millions):
Fair Value at September 30, 2021Level 1Level 2Level 3
Measured on a recurring basis:
Investments$82.2 $2.9 $ 
Fair Value at December 31, 2020Level 1Level 2Level 3
Measured on a recurring basis:
Investments$97.9 $9.4 $ 

Below are our derivative assets and liabilities that are measured at fair value (in millions):
Fair Value at September 30, 2021Level 1Level 2Level 3
Measured on a recurring basis:
Derivative asset$ $4.2 $ 
Derivative liability 9.4  
Fair Value at December 31, 2020Level 1Level 2Level 3
Measured on a recurring basis:
Derivative asset$ $0.5 $ 
Derivative liability 9.0  

A summary of the aggregate carrying values, excluding unamortized debt issuance cost, and fair values of our long-term fixed interest rate debt is as follows:
(in millions)September 30, 2021December 31, 2020
Carrying value
5.250% Senior notes due 2025
$ $300.0 
4.625% Senior notes due 2027
400.0 400.0 
4.375% Senior notes due 2031
550.0 550.0 
3.875% Senior notes due 2029
800.0  
Real estate mortgages and other debt483.0 714.8 
$2,233.0 $1,964.8 
Fair value
5.250% Senior notes due 2025
$ $311.6 
4.625% Senior notes due 2027
421.5 425.0 
4.375% Senior notes due 2031
588.5 589.9 
3.875% Senior notes due 2029
832.0