LITHIA MOTORS INCLAD
LITHIA MOTORS INC Fair Value Disclosure
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 the carrying value of cash, restricted cash, cash equivalents, accounts receivable, trade payables, accrued liabilities, finance receivables, 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 money market securities, which include restricted cash from collections on finance receivables, recorded as a component of “Cash, restricted cash, and cash equivalents” in our Consolidated Balance Sheets, as well as
restricted cash on deposit in reserve accounts, recorded as a component of “Other non-current assets” in our Consolidated Balance Sheets. These money market securities consist of highly liquid investments with original maturities of three months or less and are classified as Level 1.
We have investments consisting of equity securities, available for sale debt securities, and equity method investment with a fair value election. We calculated the estimated fair value of the equity securities, equity method investment with a fair value election, and U.S. Treasury debt securities using quoted market prices (Level 1). The fair value of corporate and municipal debt securities are measured using observable Level 2 market expectations at each measurement date. See Note 7 – Investments.
We have fixed rate debt primarily consisting of amounts outstanding under our senior notes, non-recourse notes payable, and real estate mortgages. We calculated the estimated fair value of the senior notes using quoted prices for the identical liability (Level 1). The fair value of non-recourse notes payable are measured using observable Level 2 market expectations at each measurement date. The calculated estimated fair values of the fixed rate real estate mortgages and finance lease liabilities use 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.
We have derivative instruments consisting of 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 – Derivative Financial Instruments for more details regarding our derivative contracts.
Nonfinancial assets such as goodwill, franchise value, or other long-lived assets are measured and recorded at fair value during a business combination or when there is an indicator of impairment. We evaluate our goodwill and franchise value using a qualitative assessment process. If the qualitative factors determine that it is more likely than not that the carrying value exceeds the fair value, we would further evaluate for potential impairment using a quantitative assessment. The quantitative assessment estimates fair values using unobservable (Level 3) inputs by discounting expected future cash flows of the store. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions related to growth rates, margins, working capital requirements, and cost of capital, for which we utilize certain market participant-based assumptions we believe to be reasonable. 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, 2025.
Below are our assets and liabilities that are measured at fair value on a recurring basis:
| As of December 31 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | Carrying Value | Level 1 | Level 2 | Level 3 | Carrying Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||||||
Recorded at fair value | |||||||||||||||||||||||||||||||||||||||||||||||
| Marketable securities | |||||||||||||||||||||||||||||||||||||||||||||||
Restricted cash - collections | $ | 131.3 | $ | 131.3 | $ | — | $ | — | $ | 97.6 | $ | 97.6 | $ | — | $ | — | |||||||||||||||||||||||||||||||
Restricted cash - reserve | 34.3 | 34.3 | — | — | 30.7 | 30.7 | — | — | |||||||||||||||||||||||||||||||||||||||
Total money market funds | $ | 165.6 | $ | 165.6 | $ | — | $ | — | $ | 128.3 | $ | 128.3 | $ | — | $ | — | |||||||||||||||||||||||||||||||
| Equity securities | $ | 2.4 | $ | 2.4 | $ | — | $ | — | $ | 2.2 | $ | 2.2 | $ | — | $ | — | |||||||||||||||||||||||||||||||
| U.S. Treasury | $ | 21.6 | $ | 21.6 | $ | — | $ | — | $ | 20.2 | $ | 20.2 | $ | — | $ | — | |||||||||||||||||||||||||||||||
| Municipal debt | 10.6 | — | 10.6 | — | 10.0 | — | 10.0 | — | |||||||||||||||||||||||||||||||||||||||
| Corporate debt | 21.8 | — | 21.8 | — | 20.9 | — | 20.9 | — | |||||||||||||||||||||||||||||||||||||||
| Total debt securities | $ | 54.0 | $ | 21.6 | $ | 32.4 | $ | — | $ | 51.1 | $ | 20.2 | $ | 30.9 | $ | — | |||||||||||||||||||||||||||||||
Equity method investment | |||||||||||||||||||||||||||||||||||||||||||||||
| PINE.L | $ | 177.2 | $ | 177.2 | $ | — | $ | — | $ | 100.0 | $ | 100.0 | $ | — | $ | — | |||||||||||||||||||||||||||||||
| Derivatives | |||||||||||||||||||||||||||||||||||||||||||||||
| $ | 0.7 | $ | — | $ | 0.7 | $ | — | $ | 4.5 | $ | — | $ | 4.5 | $ | — | ||||||||||||||||||||||||||||||||
| 0.7 | — | 0.7 | — | 4.5 | — | 4.5 | — | ||||||||||||||||||||||||||||||||||||||||
Recorded at historical value | |||||||||||||||||||||||||||||||||||||||||||||||
Fixed rate debt (1) | |||||||||||||||||||||||||||||||||||||||||||||||
4.625% Senior notes due 2027 | $ | 400.0 | $ | 398.0 | $ | — | $ | — | $ | 400.0 | $ | 385.0 | $ | — | $ | — | |||||||||||||||||||||||||||||||
4.375% Senior notes due 2031 | 550.0 | 526.6 | — | — | 550.0 | 500.5 | — | — | |||||||||||||||||||||||||||||||||||||||
3.875% Senior notes due 2029 | 800.0 | 770.0 | — | — | 800.0 | 732.0 | — | — | |||||||||||||||||||||||||||||||||||||||
5.500% Senior notes due 2030 | 600.0 | 602.3 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Non-recourse notes payable | 2,473.9 | — | 2,489.0 | — | 2,109.3 | — | 2,115.7 | — | |||||||||||||||||||||||||||||||||||||||
| Real estate mortgages and other debt | 730.0 | — | 703.8 | — | 698.0 | — | 701.3 | — | |||||||||||||||||||||||||||||||||||||||
(1)Excluding unamortized debt issuance cost
Impairment charges related to franchise value of $5.8 million were recorded in the twelve months ended December 31, 2025. No impairment charges were recorded in 2024 or 2023.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 24, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 24, 2023 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.