Non-controlling Interests

9 Months Ended

Sep. 30, 2018

NOTE 10 — NON-CONTROLLING INTERESTS

As discussed in Note 1 — Business Organization, Carvana Co. consolidates the financial results of Carvana Group and reports a non-controlling interest related to the portion of Carvana Group owned by the LLC Unitholders. Changes in the ownership interest in Carvana Group while Carvana Co. retains its controlling interest will be accounted for as equity transactions. Exchanges of LLC Units result in a change in ownership and reduce the amount recorded as non-controlling interests and increase additional paid-in capital.

Upon the issuance of shares of Class A common stock by Carvana Co. related to the Company’s equity compensation plans such as the exercise of options, issuance of restricted or non-restricted stock, payment of bonuses in stock or settlement of stock appreciation rights in stock, Carvana Group is required to issue to Carvana Co. a number of Class A Units equal to 1.25 times the number of shares of Class A common stock being issued in connection with the exercise of such options or issuance of other types of equity compensation, subject to adjustment for stock splits, stock dividends, reclassifications and similar transactions. Activity related to the Company's equity compensation plans may result in a change in ownership which will impact the amount recorded as non-controlling interest and additional paid-in capital.

The non-controlling interest related to the Class B Units is determined based on the respective participation thresholds and the share price of Class A common stock on an as-converted basis. To the extent that the number of as-converted Class B Units change or Class B Units are forfeited, the resulting difference in ownership will be accounted for as equity transactions adjusting the non-controlling interest and additional paid-in capital.

During the nine months ended September 30, 2018, the total adjustments related to exchanges of LLC Units was a decrease in non-controlling interests and a corresponding increase in additional paid-in capital of approximately $13.2 million, which has been included in exchanges of LLC Units in the accompanying unaudited condensed consolidated statement of stockholders' equity. During the nine months ended September 30, 2018, Carvana Co. utilized its net proceeds from its follow-on offering to purchase LLC Units, which together with the follow-on offering resulted in an adjustment to increase non-controlling interests and to decrease additional paid-in capital by approximately $132.4 million, which has been included in adjustment to non-controlling interests related to follow-on offering in the accompanying unaudited condensed consolidated statement of stockholders' equity. During the nine months ended September 30, 2018, Carvana Group issued approximately 0.5 million Class A Units with a fair value of approximately $10.0 million as part of the purchase price consideration for Car360, which is reflected as an increase in non-controlling interests in the accompanying unaudited condensed consolidated statement of stockholders' equity. The adjustment related to the issuance of Class A Units to acquire Car360 was a decrease in non-controlling interests and a corresponding increase in additional paid-in capital of approximately $1.3 million, which has been included in adjustment to non-controlling interests related to business acquisitions in the accompanying unaudited condensed consolidated statement of stockholders' equity. During the nine months ended September 30, 2018, the holder of the Convertible Preferred Stock converted 75,000 shares of Convertible Preferred Stock into approximately 3.8 million shares of Class A common stock, Carvana Co. canceled and retired 75,000 Convertible Preferred Units, and Carvana Group issued approximately 4.8 million Class A Units to Carvana Co. The adjustment related to the conversion of Convertible Preferred Stock was an increase in non-controlling interests and a corresponding decrease in additional paid-in capital of approximately $51.3 million, which has been included in adjustment to non-controlling interests related to conversion of Class A Convertible Preferred Stock in the accompanying unaudited condensed consolidated statement of stockholders' equity.

As of September 30, 2018, Carvana Co. owned approximately 25.5% of Carvana Group with the LLC Unitholders owning the remaining 74.5%. The non-controlling interests on the accompanying unaudited condensed consolidated statements of operations represents the portion of the loss attributable to the economic interest in Carvana Group held by the non-controlling LLC Unitholders calculated based on the weighted average non-controlling interests' ownership during the periods presented.

The following table summarizes the effects of changes in ownership in Carvana Group on the Company's additional paid-in capital during the nine months ended September 30, 2018 (in thousands):


	Nine Months Ended September 30,
	2018		2017
Transfers (to) from non-controlling interests:
Decrease as a result of issuances of Class A common stock	$	(132,375)	$	(174,255)
Increase as a result of Carvana Group's issuance of Class A Units in connection with business acquisitions	1,297		—
Increase as a result of exchanges of LLC Units	13,203		—
Decrease as a result of conversion of Class A Convertible Preferred Stock	(51,289)		—
Increase as a result of adjustments to non-controlling interests	—		333
Total transfers to non-controlling interests	$	(169,164)	$	(173,922)