–

Financial Instruments and Fair Value

The Company has various financial instruments that it must measure at fair value on a recurring basis. The Company also applies the provisions of fair value measurement to various nonrecurring measurements for its financial and nonfinancial assets and liabilities.

Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The Company measures its assets and liabilities using inputs from the following

three

levels of the fair value hierarchy:

Level

inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level

inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level

includes unobservable inputs that reflect the Company’s assumptions about what factors market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.

Financial instruments consist primarily of cash, accounts receivable, accounts payable and floor plan notes payable. The carrying values of the Company’s financial instruments approximate fair value due either to their short-term nature or existence of variable interest rates, which approximate market rates.

Certain methods and assumptions were used by the Company in estimating the fair value of financial instruments at

March

31,

2017,

and

December

31,

2016.

The carrying value of current assets and current liabilities approximates the fair value due to the short maturity of these items.

The fair value of the Company’s long-term debt is based on

secondary

market indicators. Because the Company’s debt is not quoted, estimates are based on each obligation’s characteristics, including remaining maturities, interest rate, credit rating, collateral and liquidity. Accordingly, the Company concluded that the valuation measurement inputs of its long-term debt represent, at its lowest level, current market interest rates available to the Company for similar debt and its current credit standing and has categorized such debt within Level

of the hierarchy framework. The carrying amount approximates fair value.

If investments are deemed to be impaired, the Company determines whether the impairment is temporary or other than temporary. If the impairment is deemed to be temporary, the Company records an unrealized loss in other comprehensive income. If the impairment is deemed other than temporary, the Company records the impairment in the Company’s Consolidated Statements of Income and Comprehensive Income.

Auction Rate Securities

In prior years, the Company invested in interest-bearing short-term investments primarily consisting of investment-grade auction rate securities classified as available-for-sale and reported at fair value. These types of investments were designed to provide liquidity through an auction process that reset the applicable interest rates at predetermined periods ranging from

days. This reset mechanism was intended to allow existing investors to continue to own their respective interest in the auction rate security or to gain immediate liquidity by selling their interests at par.

Auctions for investment grade securities held by the Company have failed. However, a failed auction does not represent a default by the issuer. The auction rate securities continue to pay interest in accordance with the terms of the underlying security; however, liquidity will be limited until there is a successful auction or until such time as other markets for these investments develop. The Company has the intent and ability to hold these auction rate securities until liquidity returns to the market. The Company does not believe that the lack of liquidity relating to its auction rate securities will have a material impact on its ability to fund operations.

As of

March

31,

2017

and

December

31,

2016,

the Company held auction rate securities with underlying tax-exempt municipal bonds that mature in

2030

and have a fair value of

6.2

million and a cost basis of

6.7

million. The issuer redeemed

$150,000

of the auction rate securities during the

second

quarter of

2014,

$275,000

during the

second

quarter of

2015,

$250,000

during the

second

quarter of

2016,

and

$200,000

during the

third

quarter of

2016.

These bonds have credit wrap insurance and a credit rating of A by a major credit rating agency.

The Company valued the auction rate securities at

March

31,

2017

using a discounted cash flow model based on the characteristics of the individual securities, which the Company believes yields the best estimate of fair value. The

first

step in the valuation included a credit analysis of the security which considered various factors including the credit quality of the issuer, the instrument’s position within the capital structure of the issuing authority, and the composition of the authority’s assets including the effect of insurance and/or government guarantees. Next, the future cash flows of the instruments were projected based on certain assumptions regarding the auction rate market significant to the valuation, including that the auction rate market will remain illiquid and auctions will continue to fail, causing the interest rate to be the maximum applicable rate. This assumption resulted in a discounted cash flow analysis being performed through

2019,

the point at which the Company estimates the securities will be redeemed by the municipality. The projected cash flows were then discounted using the applicable yield curve plus a

225

basis point liquidity premium added to the applicable discount rate.

The Company recorded a pre-tax impairment charge of

$1.0

million on these auction rate securities in

2011

and a subsequent pre-tax increase in fair value of

$427,000

during

2014.

The Company believes that the impairment is temporary and has included the impairment in accumulated other comprehensive loss.

The table below presents disclosures about the auction rate securities measured at fair value on a recurring basis in the Company’s financial statements as follows (in thousands):

	At March 31, 2017						At December 31, 2016
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Investment in auction rate securities	$	-	$	-	$	6,231	$	-	$	-	$	6,231

	C ost Basis Amount		Gross Unrealized Loss In Accumulated OCI		Fair Value
March 31, 2017
Investment in auction rate securities	$	6,700	$	469	$	6,231

December 31, 2016
Investment in auction rate securities	$	6,700	$	469	$	6,231

Long-Lived Assets

During the

first

quarter of

2016,

the Company instituted plans to consolidate its dealership network. The Company recorded an impairment charge related to the value of the real estate in the affected locations and excess real estate in the amount of

$7.1

million in the quarter ended

March

31,

2016

and

$0.4

million in the quarter ended

June

30,

2016.

The fair value measurements for the Company’s long-lived assets are based on Level

inputs. Fair values were based on evaluations by a

third

-party real estate broker that utilized its knowledge and historical experience in real estate markets and transactions.

During the

third

and

fourth

quarter of

2016,

the Company sold

four

properties with a fair value of

$6.1

million and during the

first

quarter of

2017,

the Company sold

one

property with a fair value of

$1.0

million. The Company is actively marketing the remaining real estate held for sale.

The following table presents long-lived assets measured and recorded at fair value on a nonrecurring basis (in thousands):

Description		Fair Value Measurements Using Significant Unobservable Inputs March 31, 2017				Loss D uring the Quarter Ended March 31, 2017
Long-lived assets held for sale		$	12,932			$	−

For further discussion of assets held for sale, see Note

– Restructuring Costs of the Notes to Consolidated Financial Statements. For the quarter ended

March

31,

2016,

a loss of

$7.1

million was reported in selling, general and administrative expenses in the Consolidated Statements of Income and Comprehensive Income and was reported under the Truck Segment.