Fair Value Measurements

12 Months Ended

Dec. 31, 2021

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 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 asset (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 year ended December 31, 2021, we recognized a $66.4 million unrealized investment loss related to Shift, which was recorded as a component of other (expense) income, net.

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 December 31, 2021, our real estate mortgages and other debt, which includes finance lease liabilities, had maturity dates between April 1, 2022 and July 1, 2038.

We have derivative instruments consisting of an interest rate collar and an offsetting set of interest rate caps. The fair value of derivative assets and liabilities are measured using observable Level 2 market expectations at each measurement date and is recorded as other current assets, 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 year ended December 31, 2021.

Below are our investments that are measured at fair value (in millions):


Fair Value at December 31, 2021	Level 1		Level 2		Level 3
Measured on a recurring basis:
Investments	$	40.4	$	0.5	$	—


Fair Value at December 31, 2020	Level 1		Level 2		Level 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 December 31, 2021	Level 1		Level 2		Level 3
Measured on a recurring basis:
Derivative asset	$	—	$	6.4	$	—
Derivative liability	$	—	$	8.9	$	—


Fair Value at December 31, 2020	Level 1		Level 2		Level 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):


December 31,	2021		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		—




Non-recourse notes payable	317.6		—
Real estate mortgages and other debt	477.6		714.8
	$	2,545.2	$	1,964.8

Fair value
5.250% Senior notes due 2025	$	—	$	311.6
4.625% Senior notes due 2027	420.0		425.0
4.375% Senior notes due 2031	583.0		589.9
3.875% Senior notes due 2029	815.0		—




Non-recourse notes payable	316.8		—
Real estate mortgages and other debt	488.7		713.2
	$	2,623.5	$	2,039.7

During the third quarter of 2021, we recognized asset impairments of $1.9 million related to the franchise value associated with certain dealership locations indicating carrying values less than fair values. These locations were subsequently sold in the fourth quarter of 2021.

In the second quarter of 2020, we recognized asset impairments of $4.4 million and $3.5 million related to the franchise value and goodwill, respectively, associated with certain dealership locations indicating carrying values less than fair values. Certain of these locations were subsequently sold in the fourth quarter of 2020, with the remainder sold in 2021.

In the first quarter of 2019, we recorded an asset impairment of $0.5 million associated with certain real properties. The long-lived assets were tested for recoverability and were determined to have a carrying value exceeding their fair value. The impaired long-lived asset was subsequently sold in the second quarter of 2019. In the fourth quarter of 2019, we recognized asset impairments of $0.4 million and 1.7 million related to the franchise value and goodwill, respectively, associated with certain dealership locations indicating carrying values less than fair values. These locations were subsequently sold in 2020.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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