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


☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172022
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to 
Commission file number: 001-14733
LITHIA MOTORS, INC.

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-14733
lad-20220930_g1.jpg
Lithia Motors, Inc.
(Exact name of registrant as specified in its charter)
Oregon93-0572810
Oregon93-0572810
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
150 N. Bartlett Street Medford, OregonMedford,Oregon97501
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: 541-776-6401
(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 [X]☒ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X]☒ 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“emerging growth company"company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ] Emerging growth company [ ]

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 [X]☒
Indicate the numberAs of October 27, 2022, there were 27,338,411 shares outstanding of each of the issuer’s classes ofregistrant’s common stock as of the latest practicable date.
outstanding.


LITHIA MOTORS, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
Item NumberItemPage
PART IFINANCIAL INFORMATION
Class A common stock without par valueItem 1.
Financial Statements
23,958,168
Class B common stock without par value1,000,000
(Class)Outstanding at November 7, 2017
1


LITHIA MOTORS, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATIONPage
Item 1.
Financial Statements
2
Consolidated Balance Sheets (Unaudited) - September 30, 20172022, and December 31, 20162021
21
Consolidated Statements of Operations (Unaudited) –- Three and Nine Months Ended September 30, 20172022 and 20162021
32
Consolidated Statements of Comprehensive Income (Unaudited) – Three and Nine Months Ended September 30, 20172022 and 20162021
43
Consolidated Statements of Equity and Redeemable Non-controlling Interest (Unaudited) - Three and Nine Months Ended September 30, 2022 and 2021
4
Consolidated Statements of Cash Flows (Unaudited) – - Nine Months Ended September 30, 20172022 and 20162021
5
Condensed Notes to Consolidated Financial Statements (Unaudited)
67
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1722
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
4346
Item 4.
Controls and Procedures
4346
PART II - OTHER INFORMATION
Item 1.Legal Proceedings
4347
Item 1A.
Risk Factors
4347
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
4547
Item 5.Other Information6.
45Exhibits
48
Item 6.SIGNATURE
Exhibits49
46
Signature
47




LITHIA MOTORS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
(Unaudited)
  September 30, 2017 December 31, 2016
Assets    
Current Assets:    
Cash and cash equivalents $38,577
 $50,282
Accounts receivable, net of allowance for doubtful accounts of $6,145 and $5,281 446,613
 417,714
Inventories, net 1,966,456
 1,772,587
Other current assets 59,622
 46,611
Total Current Assets 2,511,268
 2,287,194
     
Property and equipment, net of accumulated depreciation of $190,962 and $167,300 1,087,920
 1,006,130
Goodwill 257,185
 259,399
Franchise value 186,977
 184,268
Other non-current assets 328,243
 107,159
Total Assets $4,371,593
 $3,844,150
     
Liabilities and Stockholders' Equity    
Current Liabilities:    
Floor plan notes payable $114,833
 $94,602
Floor plan notes payable: non-trade 1,598,111
 1,506,895
Current maturities of long-term debt 17,619
 20,965
Trade payables 103,105
 88,423
Accrued liabilities 241,094
 211,109
Total Current Liabilities 2,074,762
 1,921,994
     
Long-term debt, less current maturities 991,333
 769,916
Deferred revenue 98,265
 81,929
Deferred income taxes 66,474
 59,075
Other long-term liabilities 109,383
 100,460
Total Liabilities 3,340,217
 2,933,374
     
Stockholders' Equity:    
Preferred stock - no par value; authorized 15,000 shares; none outstanding —
 —
Class A common stock - no par value; authorized 100,000 shares; issued and outstanding 23,966 and 23,382 148,880
 165,512
Class B common stock - no par value; authorized 25,000 shares; issued and outstanding 1,000 and 1,762 124
 219
Additional paid-in capital 42,373
 41,225
Retained earnings 839,999
 703,820
Total Stockholders' Equity 1,031,376
 910,776
Total Liabilities and Stockholders' Equity $4,371,593
 $3,844,150
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CONSOLIDATED BALANCE SHEETS
(In millions; Unaudited)September 30, 2022December 31, 2021
Assets  
Current assets:  
Cash, restricted cash, and cash equivalents$233.0 $174.8 
Accounts receivable, net of allowance for doubtful accounts of $37.0 and $17.31,004.6 910.0 
Inventories, net3,309.3 2,385.5 
Other current assets135.4 63.0 
Total current assets4,682.3 3,533.3 
Property and equipment, net of accumulated depreciation of $490.5 and $422.63,473.0 3,052.6 
Operating lease right-of-use assets373.2 395.9 
Goodwill1,463.1 977.3 
Franchise value1,866.8 799.1 
Other non-current assets2,216.1 2,388.7 
Total assets$14,074.5 $11,146.9 
Liabilities and equity  
Current liabilities:  
Floor plan notes payable$454.8 $354.2 
Floor plan notes payable: non-trade1,208.1 835.9 
Current maturities of long-term debt113.4 223.7 
Trade payables241.3 235.4 
Accrued liabilities809.0 753.6 
Total current liabilities2,826.6 2,402.8 
Long-term debt, less current maturities5,222.3 3,185.7 
Deferred revenue219.9 191.2 
Deferred income taxes254.5 191.0 
Non-current operating lease liabilities337.7 361.7 
Other long-term liabilities185.3 151.3 
Total liabilities9,046.3 6,483.7 
Redeemable non-controlling interest40.5 34.0 
Equity:  
Preferred stock - no par value; authorized 15.0 shares; none outstanding— — 
Common stock - no par value; authorized 125.0 shares; issued and outstanding 27.5 and 29.51,107.1 1,711.6 
Additional paid-in capital69.0 58.3 
Accumulated other comprehensive loss(21.5)(3.0)
Retained earnings3,829.1 2,859.5 
Total stockholders’ equity - Lithia Motors, Inc.4,983.7 4,626.4 
Non-controlling interest4.0 2.8 
Total equity4,987.7 4,629.2 
Total liabilities, redeemable non-controlling interest and equity$14,074.5 $11,146.9 

 
See accompanying condensed notes to consolidated financial statements.


LITHIA MOTORS, INC. AND SUBSIDIARIES
Consolidated Statements ofOperations
(In thousands, except per share amounts)
(Unaudited)
  Three Months Ended September 30, Nine Months Ended
September 30,
  2017 2016 2017 2016
Revenues:        
New vehicle $1,553,511
 $1,297,511
 $4,147,870
 $3,602,603
Used vehicle retail 679,180
 580,885
 1,915,038
 1,667,258
Used vehicle wholesale 65,739
 75,271
 206,754
 207,131
Finance and insurance 101,044
 87,709
 282,672
 246,390
Service, body and parts 265,683
 217,148
 744,262
 616,088
Fleet and other 15,185
 11,443
 86,883
 46,697
Total revenues 2,680,342
 2,269,967
 7,383,479
 6,386,167
Cost of sales:        
New vehicle 1,465,466
 1,221,668
 3,909,168
 3,387,132
Used vehicle retail 600,522
 512,076
 1,693,091
 1,466,947
Used vehicle wholesale 64,565
 74,353
 202,351
 202,897
Service, body and parts 133,191
 112,806
 376,096
 317,028
Fleet and other 13,577
 11,803
 82,829
 45,684
Total cost of sales 2,277,321
 1,932,706
 6,263,535
 5,419,688
Gross profit 403,021
 337,261
 1,119,944
 966,479
Asset impairments —
 3,498
 —
 10,494
Selling, general and administrative 282,241
 228,134
 782,303
 662,766
Depreciation and amortization 14,828
 12,206
 41,598
 36,372
Operating income 105,952
 93,423
 296,043
 256,847
Floor plan interest expense (10,629) (6,186) (28,013) (18,304)
Other interest expense, net (9,905) (5,647) (23,745) (16,608)
Other income (expense), net 1,125
 (1,513) 11,357
 (4,534)
Income before income taxes 86,543
 80,077
 255,642
 217,401
Income tax provision (34,657) (26,036) (99,829) (71,662)
Net income $51,886
 $54,041
 $155,813
 $145,739
         
Basic net income per share $2.07
 $2.15
 $6.21
 $5.72
Shares used in basic per share calculations 25,008
 25,194
 25,090
 25,490
         
Diluted net income per share $2.07
 $2.14
 $6.19
 $5.69
Shares used in diluted per share calculations 25,076
 25,290
 25,158
 25,598
         
Cash dividends declared per Class A and Class B share $0.27
 $0.25
 $0.79
 $0.70
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FINANCIAL STATEMENTS1
See accompanying condensed notes to consolidated financial statements.


LITHIA MOTORS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)

  Three Months Ended September 30, Nine Months Ended
September 30,
  2017 2016 2017 2016
Net income $51,886
 $54,041
 $155,813
 $145,739
Other comprehensive income, net of tax:     
 
Gain on cash flow hedges, net of tax expense of $0, $0, $0, and $175, respectively —
 —
 —
 277
Comprehensive income $51,886
 $54,041
 $155,813
 $146,016
CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended September 30,Nine Months Ended September 30,
(In millions, except per share amounts; Unaudited)2022202120222021
Revenues:    
New vehicle retail$3,306.9 $2,898.2 $9,619.4 $8,237.7 
Used vehicle retail2,465.8 2,079.5 7,197.0 5,236.6 
Used vehicle wholesale363.2 260.9 1,131.5 613.5 
Finance and insurance333.3 297.0 977.0 765.0 
Service, body and parts712.2 578.3 2,022.6 1,503.4 
Fleet and other114.3 55.9 293.8 166.0 
Total revenues7,295.7 6,169.8 21,241.3 16,522.2 
Cost of sales:    
New vehicle retail2,903.2 2,548.9 8,403.9 7,418.0 
Used vehicle retail2,264.5 1,846.9 6,533.6 4,635.2 
Used vehicle wholesale374.8 255.2 1,131.5 586.8 
Service, body and parts328.0 275.8 945.9 704.3 
Fleet and other111.0 53.9 283.1 162.7 
Total cost of sales5,981.5 4,980.7 17,298.0 13,507.0 
Gross profit1,314.2 1,189.1 3,943.3 3,015.2 
Asset impairments— 1.9 — 1.9 
Selling, general and administrative749.2 673.3 2,256.8 1,757.6 
Depreciation and amortization41.9 34.4 122.1 91.5 
Operating income523.1 479.5 1,564.4 1,164.2 
Floor plan interest expense(10.7)(3.6)(19.4)(17.0)
Other interest expense, net(49.6)(28.0)(114.1)(79.6)
Other expense, net(7.1)(25.7)(37.0)(14.6)
Income before income taxes455.7 422.2 1,393.9 1,053.0 
Income tax provision(125.4)(113.2)(382.1)(282.9)
Net income330.3 309.0 1,011.8 770.1 
(Net income) loss attributable to non-controlling interest0.5 (0.8)(3.9)(0.8)
Net income attributable to redeemable non-controlling interest(1.2)(0.3)(4.5)(0.3)
Net income attributable to Lithia Motors, Inc.$329.6 $307.9 $1,003.4 $769.0 
Basic earnings per share attributable to Lithia Motors, Inc.$11.97 $10.18 $35.23 $27.12 
Shares used in basic per share calculations27.5 30.3 28.5 28.4 
Diluted earnings per share attributable to Lithia Motors, Inc.$11.92 $10.11 $35.10 $26.91 
Shares used in diluted per share calculations27.6 30.5 28.6 28.6 
Cash dividends paid per share$0.42 $0.35 $1.19 $1.01 
See accompanying condensed notes to consolidated financial statements.



LITHIA MOTORS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
  Nine Months Ended September 30,
  2017 2016
Cash flows from operating activities:    
Net income $155,813
 $145,739
Adjustments to reconcile net income to net cash provided by operating activities:    
Asset impairments —
 10,494
Depreciation and amortization 41,598
 36,372
Stock-based compensation 8,396
 8,665
Gain on disposal of other assets (382) (4,299)
Gain on disposal of franchise —
 (1,102)
Deferred income taxes 7,398
 9,782
(Increase) decrease (net of acquisitions and dispositions):    
Trade receivables, net (13,345) (5,911)
Inventories (16,098) (85,564)
Other assets 15,207
 4,688
Increase (net of acquisitions and dispositions):    
Floor plan notes payable 12,126
 18,122
Trade payables 12,397
 6,153
Accrued liabilities 25,907
 32,874
Other long-term liabilities and deferred revenue 11,519
 18,227
Net cash provided by operating activities 260,536
 194,240
     
Cash flows from investing activities:    
Capital expenditures (72,174) (81,363)
Proceeds from sales of assets 12,327
 1,756
Cash paid for other investments (7,929) (22,279)
Cash paid for acquisitions, net of cash acquired (400,558) (199,435)
Proceeds from sales of stores 3,417
 11,837
Net cash used in investing activities (464,917) (289,484)
     
Cash flows from financing activities:    
Borrowings on floor plan notes payable, net: non-trade 34,056
 93,817
Borrowings on lines of credit 1,306,000
 841,623
Repayments on lines of credit (1,432,853) (744,494)
Principal payments on long-term debt and capital leases, scheduled (13,697) (12,278)
Principal payments on long-term debt and capital leases, other (46,471) (5,903)
Proceeds from issuance of long-term debt 395,905
 22,816
Payments of debt issuance costs (4,517) —
Proceeds from issuance of common stock 5,577
 5,191
Repurchase of common stock (31,521) (108,597)
Dividends paid (19,803) (17,823)
Net cash provided by financing activities 192,676
 74,352
Decrease in cash and cash equivalents (11,705) (20,892)
Cash and cash equivalents at beginning of period 50,282
 45,008
Cash and cash equivalents at end of period $38,577
 $24,116
     
Supplemental disclosure of cash flow information:    
Cash paid during the period for interest $51,160
 $36,641
Cash paid during the period for income taxes, net 89,206
 29,478
Floor plan debt paid in connection with store disposals —
 5,284
     
Supplemental schedule of non-cash activities:    
Debt issued in connection with acquisitions $1,748
 $—
Non-cash assets transferred in connection with acquisitions —
 2,637
Debt assumed in connection with acquisitions 86,902
 19,657
Issuance of Class A common stock in connection with acquisitions 2,137
 —

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FINANCIAL STATEMENTS2

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Three Months Ended September 30,Nine Months Ended September 30,
(In millions; Unaudited)2022202120222021
Net income$330.3 $309.0 $1,011.8 $770.1 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment(16.4)0.2 (20.3)0.2 
Gain on cash flow hedges, net of tax expense of $—, ($0.2), ($0.7), and ($0.9) respectively— 0.5 1.8 2.5 
Total other comprehensive income (loss), net of tax(16.4)0.7 (18.5)2.7 
Comprehensive income313.9 309.7 993.3 772.8 
Comprehensive (income) loss attributable to non-controlling interest0.5 (0.8)(3.9)(0.8)
Comprehensive income attributable to redeemable non-controlling interest(1.2)(0.3)(4.5)(0.3)
Comprehensive income attributable to Lithia Motors, Inc.$313.2 $308.6 $984.9 $771.7 
See accompanying condensed notes to consolidated financial statements.


lad-20220930_g2.jpg
FINANCIAL STATEMENTS3
LITHIA MOTORS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NON-CONTROLLING INTEREST
Three Months Ended September 30,Nine Months Ended September 30,
(In millions; Unaudited)2022202120222021
Total equity, beginning balances$4,698.0 $4,228.4 $4,629.2 $2,661.5 
Common stock1, beginning balances
1,123.9 1,906.9 1,711.6 788.2 
Compensation for stock and stock option issuances and excess tax benefits from option exercises1.9 1.6 21.0 16.2 
Issuance of stock in connection with employee stock plans9.4 8.0 28.1 17.6 
Class B common stock converted to class A common stock1
— — — — 
Repurchase of common stock(28.1)— (653.6)(15.9)
Equity issuances, net of issuance costs— (0.1)— 1,110.3 
Common stock1, ending balances
1,107.1 1,916.4 1,107.1 1,916.4 
Class B common stock1, beginning balances
— — — — 
Class B common stock converted to class A common stock1
— — — — 
Class B common stock1, ending balances
— — — — 
Additional paid-in capital, beginning balances62.2 44.0 58.3 41.4 
Compensation for stock and stock option issuances and excess tax benefits from option exercises6.8 6.8 10.7 9.4 
Additional paid-in capital, ending balances69.0 50.8 69.0 50.8 
Accumulated other comprehensive loss, beginning balances(5.1)(4.3)(3.0)(6.3)
Foreign currency translation adjustment(16.4)0.2 (20.3)0.2 
Gain on cash flow hedges, net of tax expense of $—, ($0.2), ($0.7), and ($0.9), respectively— 0.5 1.8 2.5 
Accumulated other comprehensive loss, ending balances(21.5)(3.6)(21.5)(3.6)
Retained earnings, beginning balances3,510.8 2,281.8 2,859.5 1,838.2 
Net income attributable to Lithia Motors, Inc.329.6 307.9 1,003.4 769.0 
Dividends paid(11.3)(10.6)(33.8)(28.2)
Retained earnings, ending balances3,829.1 2,579.1 3,829.1 2,579.1 
Non-controlling interest, beginning balances6.1 — 2.8 — 
Contribution (distribution) of non-controlling interest(1.6)1.1 (2.7)1.1 
Net income (loss) attributable to non-controlling interest(0.5)0.8 3.9 0.8 
Non-controlling interest, ending balances4.0 1.9 4.0 1.9 
Total equity, ending balances$4,987.7 $4,544.6 $4,987.7 $4,544.6 
Redeemable non-controlling interest, beginning balances$39.8 $— $34.0 $— 
Contribution (distribution) of redeemable non-controlling interest(0.5)33.0 2.0 33.0 
Net income attributable to redeemable non-controlling interest1.2 0.3 4.5 0.3 
Redeemable non-controlling interest, ending balances$40.5 $33.3 $40.5 $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.


See accompanying condensed notes to consolidated financial statements.
lad-20220930_g2.jpg
FINANCIAL STATEMENTS4

CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months Ended September 30,
(In millions; Unaudited)20222021
Cash flows from operating activities:  
Net income$1,011.8 $770.1 
Adjustments to reconcile net income to net cash used for operating activities: 
Asset impairments— 1.9 
Depreciation and amortization122.1 91.5 
Stock-based compensation31.7 25.6 
Loss on redemption of senior notes— 10.3 
Gain on disposal of other assets(0.4)(2.5)
(Gain) loss on disposal of franchise(49.6)5.2 
Unrealized investment loss32.6 22.3 
Deferred income taxes63.5 25.6 
Amortization of operating lease right-of-use assets37.6 27.0 
(Increase) decrease (net of acquisitions and dispositions):
Accounts receivable, net(54.0)(85.0)
Inventories(852.4)1,003.2 
Other assets(1,032.5)(338.4)
Increase (net of acquisitions and dispositions):
Floor plan notes payable101.1 91.3 
Trade payables9.3 97.2 
Accrued liabilities19.1 236.9 
Other long-term liabilities and deferred revenue42.6 19.7 
Net cash provided by (used in) operating activities(517.5)2,001.9 
Cash flows from investing activities:  
Capital expenditures(209.8)(194.1)
Proceeds from sales of assets16.4 4.6 
Cash paid for other investments(9.3)(9.8)
Cash paid for acquisitions, net of cash acquired(962.6)(2,409.5)
Proceeds from sales of stores148.0 45.7 
Net cash used in investing activities(1,017.3)(2,563.1)
Cash flows from financing activities:  
Borrowings (repayments) on floor plan notes payable, net: non-trade429.6 (840.9)
Borrowings on lines of credit9,178.4 1,642.5 
Repayments on lines of credit(7,430.0)(1,631.6)
Principal payments on long-term debt and finance lease liabilities, scheduled(181.1)(24.7)
Principal payments on long-term debt and finance lease liabilities, other(70.0)(483.6)
Proceeds from issuance of long-term debt337.8 817.5 
Payment of debt issuance costs(4.7)(10.9)
Proceeds from issuance of common stock28.1 1,127.9 
Repurchase of common stock(644.4)(15.9)
Dividends paid(33.8)(28.2)
Payment of contingent consideration related to acquisitions(7.2)(1.4)
Other financing activity(2.7)— 
Net cash provided by financing activities1,600.0 550.7 
Effect of exchange rate changes on cash and cash equivalents(3.3)0.9 
Increase (decrease) in cash, restricted cash, and cash equivalents61.9 (9.6)
Cash, restricted cash, and cash equivalents at beginning of year178.4 162.4 
Cash, restricted cash, and cash equivalents at end of period$240.3 $152.8 
See accompanying condensed notes to consolidated financial statements.
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FINANCIAL STATEMENTS5

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Nine Months Ended September 30,
(In millions)20222021
Reconciliation of cash, restricted cash, and cash equivalents to the consolidated balance sheets
Cash and cash equivalents$172.7 $137.8 
Restricted cash from collections on auto loans receivable and customer deposits60.3 15.0 
Cash, restricted cash, and cash equivalents233.0 152.8 
Restricted cash on deposit in reserve accounts, included in other non-current assets7.3 — 
Total cash, restricted cash, and cash equivalents reported in the Consolidated Statements of Cash Flows$240.3 $152.8 
Supplemental cash flow information:
Cash paid during the period for interest$122.2 $89.5 
Cash paid during the period for income taxes, net380.0 237.3 
Debt paid in connection with store disposals23.6 8.7 
Non-cash activities:
Debt issued in connection with acquisitions$— $355.4 
Contingent consideration in connection with acquisitions21.7 0.9 
Debt assumed in connection with acquisitions0.7 4.0 
Acquisition of finance leases in connection with acquisitions78.2 — 
Right-of-use assets obtained in exchange for lease liabilities22.3 131.2 
Unsettled repurchases of common stock9.2 — 

See accompanying condensed notes to consolidated financial statements.
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FINANCIAL STATEMENTS6

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NoteNOTE 1. Interim Financial StatementsINTERIM FINANCIAL STATEMENTS
 
Basis of Presentation
These condensed Consolidated Financial Statements contain unaudited information as of September 30, 20172022, and for the three and nine-monthsnine months ended September 30, 20172022 and 2016.2021. 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 20162021 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 20162021, is derived from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2017. The interim condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our 2016 Annual Report on Form 10-K.18, 2022. 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. These reclassifications

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 $274.0 million and $239.0 million as of September 30, 2022, and December 31, 2021, respectively; and we recognized $10.4 million and $32.5 million of revenue in the three and nine months ended September 30, 2022 related to our adoptioncontract liability balance at December 31, 2021. Our contract liability balance is included in accrued liabilities and deferred revenue.

Contract Assets
Revenue from finance and insurance sales is recognized, net of ASU 2016-09, "Compensation - Stock Compensation - Improvementsestimated 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 Employee Share-Based Payment Accounting." Specifically, we reclassifiedsales of finance and insurance contracts is considered variable consideration and is estimated and recognized upon the presentationsale of excess tax benefits on our Consolidated Statementsthe contract. Our contract asset balances associated with future estimated variable consideration were $12.7 million and $9.6 million as of Cash Flows between financingSeptember 30, 2022 and operating cash flowsDecember 31, 2021, respectively; and recorded reclassifications between additional paid-in capitalare included in trade receivables and retained earnings. See also Note 13.other non-current assets.


Note 2. Accounts Receivable
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NOTES TO FINANCIAL STATEMENTS7



NOTE 3. ACCOUNTS RECEIVABLE AND OTHER NON-CURRENT ASSETS

Accounts receivable consisted of the following (in thousands):following:
(in millions)September 30, 2022December 31, 2021
Contracts in transit$356.9 $304.9 
Trade receivables115.2 125.5 
Vehicle receivables114.0 106.6 
Manufacturer receivables145.8 120.5 
Auto loan and lease receivables1,821.5 829.2 
Other receivables17.2 43.2 
 2,570.6 1,529.9 
Less: Allowance for doubtful accounts(37.0)(17.3)
Less: Long-term portion of accounts receivable, net1
(1,529.0)(602.6)
Total accounts receivable, net$1,004.6 $910.0 
  September 30, 2017 December 31, 2016
Contracts in transit $225,564
 $233,506
Trade receivables 45,243
 45,193
Vehicle receivables 53,166
 43,937
Manufacturer receivables 85,307
 76,948
Auto loan receivables 75,651
 69,859
Other receivables 16,892
 3,857
  501,823

473,300
Less: Allowance (6,145) (5,281)
Less: Long-term portion of accounts receivable, net (49,065) (50,305)
Total accounts receivable, net $446,613

$417,714
1The long-term portions of accounts receivable and allowance for doubtful accounts were included as a component of other non-current assets in the Consolidated Balance Sheets.


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 retailvehicle sales offinanced through Driveway Finance Corporation.
•Lease receivables include amounts related to vehicles and certain finance and insurance products.leased to customers through Pfaff Leasing.


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 and lease 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.

(Dollars in millions)September 30, 2022December 31, 2021
Total Auto loan and lease receivables$1,821.5 $829.2 
Less: Allowance for loan and lease losses(52.4)(25.0)
Auto loan and lease receivables, net$1,769.1 $804.2 

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NOTES TO FINANCIAL STATEMENTS8

Below is a breakdown of the current and long term portions of our auto loan and lease receivables:
(Dollars in millions)September 30, 2022December 31, 2021
Current portion of auto loan and lease receivables, net of allowance of $33.8 and $13.6$267.7 $224.5 
Long term portion of auto loan and lease receivables, net of allowance of $18.6 and $11.41,501.4 579.7 
Auto loan and lease receivables, net$1,769.1 $804.2 

Our allowance for doubtful accountsloan and lease losses represents the net credit losses expected over the remaining contractual life of our managed receivables. The allowances for credit losses related to auto loan and lease receivables consisted of the following changes during the period:
Nine Months Ended September 30,
(Dollars in millions)20222021
Allowance for loan losses at beginning of period$22.5 $12.9 
Charge-offs(36.3)(9.7)
Recoveries12.2 6.1 
Provision expense49.7 6.0 
Allowance for loan losses at end of period48.1 15.3 
Allowance for lease losses4.3 1.9 
Total allowance for loan and lease losses balance at end of period$52.4 $17.2 

Ending auto loan receivables (principal balances) by FICO score:
(Dollars in millions)September 30, 2022December 31, 2021
<5991
$97.9 $83.2 
600-699811.7 437.6 
700-774526.4 166.8 
775+250.5 37.4 
Total auto loan receivables1,686.5 725.0 
Lease portfolio and accrued interest135.0 104.2 
Total auto loan and lease receivables$1,821.5 $829.2 
1Includes loans that are originated with no FICO score available.

In accordance with Topic 326, the allowance for loan and lease losses is estimated based on our historical write-off experience, current conditions and is reviewed monthly.forecasts, as well as the value of any underlying assets securing these loans. Consideration is given to recent delinquency trends and recovery rates. Account balances are charged against the allowance after all appropriate meansupon reaching 120 days past due status. The remainder of collection have been exhaustedour receivables are due primarily from manufacturer partners and the potential for recovery is considered remote.various third-party lenders. The annual activity for charges and subsequent recoveries ishistorical losses related to these balances are immaterial.


The long-term portion of accounts receivableauto loan and lease receivables was included as a component of other non-current assets in the Consolidated Balance Sheets.Sheets as follows:

(Dollars in millions)September 30, 2022December 31, 2021
Long term portion of auto loan and lease receivables, net of allowance of $18.6 and $11.4$1,501.4 $579.7 
Unallocated acquisition purchase price456.6 1,554.6 
Other258.1 254.4 
Other non-current assets$2,216.1 $2,388.7 

Note 3. Inventories




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NOTES TO FINANCIAL STATEMENTS9

NOTE 4. INVENTORIES

The components of inventories, net, consisted of the following (in thousands):following:
(in millions)September 30, 2022December 31, 2021
New vehicles$1,292.8 $812.9 
Used vehicles1,826.5 1,418.3 
Parts and accessories190.0 154.3 
Total inventories$3,309.3 $2,385.5 

  September 30, 2017 December 31, 2016
New vehicles $1,412,668
 $1,338,110
Used vehicles 474,948
 368,067
Parts and accessories 78,840
 66,410
Total inventories $1,966,456
 $1,772,587
Note 4. Goodwill and Franchise ValueNOTE 5. GOODWILL AND FRANCHISE VALUE


The changes in the carrying amounts of goodwill are as follows (in thousands):follows:
(in millions)DomesticImportLuxuryCorporate and OtherConsolidated
Balance as of December 31, 2020 ¹$204.5 $287.9 $100.6 $— $593.0 
Additions through acquisitions 2
101.0 188.7 105.8 — 395.5 
Reductions through divestitures(1.5)(8.4)(1.3)— (11.2)
Balance as of December 31, 2021 ¹304.0 468.2 205.1 — 977.3 
Additions through acquisitions 3
121.0 219.1 137.3 23.0 500.4 
Reductions through divestitures(5.8)(8.8)— — (14.6)
Balance as of September 30, 2022 ¹$419.2 $678.5 $342.4 $23.0 $1,463.1 
  Domestic Import Luxury Consolidated
Balance as of December 31, 2015 ¹ $97,903
 $84,384
 $30,933
 $213,220
Additions through acquisitions2
 18,154
 21,795
 7,448
 47,397
Reductions through divestitures (1,218) —
 —
 (1,218)
Balance as of December 31, 2016 1
 114,839
 106,179
 38,381
 259,399
Adjustments to purchase price allocations2,3
 (817) (1,006) (391) (2,214)
Balance as of September 30, 2017 ¹ $114,022
 $105,173
 $37,990
 $257,185

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 acquisition of the Carbone Auto Group was2020 acquisitions were finalized in the third quarter of 2017.2021. As a result, we reclassified $2.2added $395.5 million of value from goodwill to franchise value.goodwill.
3 Our purchase price allocations for the 2021 acquisitions and a portion of the 2022 acquisitions were finalized in 2022. As a result, we added $500.4 million of goodwill. Our purchase price allocation for the remaining 2022 acquisitions is preliminary for the acquisitions of the Baierl Auto Group and the Downtown LA Auto Group and the associated goodwill hasis not beenyet allocated to each of our segments.reporting units. These amounts are included in other non-current assets until we finalize our purchase accounting. See also Note 12.13 – Acquisitions.


The changes in the carrying amounts of franchise value are as follows (in thousands):follows:
(in millions)Franchise Value
Balance as of December 31, 2020$350.2 
Additions through acquisitions 1
459.7 
Reductions through divestitures(8.9)
Reductions from impairments(1.9)
Balance as of December 31, 2021799.1 
Additions through acquisitions 2
1,088.3 
Reductions through divestitures(20.6)
Balance as of September 30, 2022$1,866.8 
 Franchise Value
Balance as of December 31, 2015$157,699
Additions through acquisitions27,087
Reductions through divestitures(518)
Balance as of December 31, 2016184,268
Additions through acquisitions 1
495
Adjustments to purchase price allocations 2
2,214
Balance as of September 30, 2017$186,977

1 Our purchase price allocation is preliminary for the acquisitions of the Baierl Auto Group and the Downtown LA Auto Group and have not been included in the above franchise value additions. See also Note 12.
2Our purchase price allocation for the acquisition2020 acquisitions were finalized in 2021. As a result, we added $459.7 million of franchise value.
2 Our purchase price allocations for the 2021 acquisitions and a portion of the Carbone Auto Group was2022 acquisitions were finalized in the third quarter2022. As a result, we added $1,088.3 million of 2017, resulting in a reclassification in the current year of $2.2 million from goodwill to franchise value. Our purchase price allocation for the remaining 2022 acquisitions is 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 – Acquisitions.




Note 5. Long-term DebtNOTE 6. CREDIT FACILITIES AND LONG-TERM DEBT


Long-term debt consisted of the following:
(Dollars in thousands) September 30, 2017 December 31, 2016
Real estate mortgages $476,559
 $428,367
5.25% Senior Notes due 2025 300,000
 —
Used vehicle inventory financing facility and revolving lines of credit 226,654
 353,507
Capital leases and other debt 12,699
 11,191
Total long-term debt outstanding 1,015,912
 793,065
Less: unamortized debt issuance costs (6,960) (2,184)
Less: current maturities (net of current debt issuance costs) (17,619) (20,965)
Long-term debt $991,333
 $769,916

5.25% Senior Notes Due 2025
On July 24, 2017, we issued $300 million in aggregate principal amount of 5.25% Senior Notes due 2025 ("the Notes") to eligible purchasers in a private placement under Rule 144A and Regulation S of the Securities Act of 1933. Interest accrues on the Notes from July 24, 2017 and is payable semiannually on February 1 and August 1. The first interest payment is due on February 1, 2018. We may redeem the Notes in whole or in part at any time prior to August 1, 2020 at a price equal to 100% of the principal amount plus a make-whole premium set forth in the Indenture and accrued and unpaid interest. After August 1, 2020, we may redeem some or all of the Notes subject to the redemption prices set forth in the Indenture. If we experience specific kinds of changes of control, as described in the Indenture, we must offer to repurchase the Notes at 101% of their principal amount plus accrued and unpaid interest to the date of purchase.

We paid approximately $5.0 million in underwriting and other fees in connection with this issuance, which will be amortized as interest expense over the term of the Notes. The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of our existing and future restricted subsidiaries that is a borrower under, or that guarantees obligations under, our credit facility or other indebtedness. The terms of the Notes, in certain circumstances, may restrict our ability to, among other things, incur additional indebtedness, pay dividends, repurchase our common stock, or merge, consolidate or sell all or substantially all our assets.

US Bank Credit Facility
On August 1, 2017,June 2, 2022, we amendedentered into a Second Amendment to our existingFourth Amended and Restated Loan Agreement with U.S. Bank National Association as agent for the lenders, and each of the lenders party to the loan agreement, as lenders. The credit facility continues to increase theprovide for a total financing commitment of $3.75 billion, which may be further expanded under the Second Amendment, subject to $2.4 billion. This syndicated credit facility is comprisedlender approval and the satisfaction of 18 financial institutions, including seven manufacturer-affiliated finance companies. Our credit facility provides forother conditions, up to $1.9 billion in new vehicle inventory floor plana total of $4.5 billion. Among other changes, the Second Amendment:

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NOTES TO FINANCIAL STATEMENTS10

•Incorporates the adoption of the Secured Overnight Financing Rate (SOFR) as a replacement of the London Interbank Offered Rate (LIBOR).
•Modifies the initial allocation of the financing commitment to up to $250 million$1.0 billion in used vehicle inventory floor planfloorplan financing, and a maximum of $250 millionup to $1.5 billion in revolving financing for general corporate purposes, including acquisitions and working capital. Thiscapital, up to $1.2 billion in new vehicle inventory floorplan financing, and up to $50 million in service loaner vehicle floorplan financing.
•Modifies our option to reallocate the commitments under the credit facility, such that the new and used vehicle floor plan commitments may have unlimited allocation and the aggregate revolving loan commitment may not be expandedmore than the 40% of the amount of the aggregate commitment, and the aggregate service loaner vehicle floorplan commitment may not be more than the 3% of the amount of the aggregate commitment.
•Modifies the conditions for including real property in the Revolving Loan Borrowing Base to $2.75better facilitate borrowing against real estate and modifies the overall cap to $1.0 billion.

All borrowings from, and repayments to, our lending group are presented in the Consolidated Statements of Cash Flows as financing activities.

The interest rate on the credit facility varies based on the type of debt, with the rate One-month Term SOFR plus 1.20% for new vehicle floor plan financing, Daily Simple SOFR plus 1.50% for used vehicle floor plan financing, 1.30% for service loaner floor plan financing and 1.10% for our working capital revolver. The annual interest rates associated with our floor plan commitments are as follows:
CommitmentAnnual Interest Rate at September 30, 2022
New vehicle floor plan4.30%
Used vehicle floor plan4.48%
Service loaner floor plan4.28%
Revolving line of credit4.08%

Other Credit Facilities and Lines of Credit
On June 3, 2022, we entered into a credit agreement with The Bank of Nova Scotia (BNS), Royal Bank of Canada, Bank of Montreal, The Toronto-Dominion Bank, VW Credit Canada, Inc. and BMW Group Financial Services, as lenders, and BNS, as administrative agent for the lenders. Pursuant to the credit agreement, the lenders assumed all of the indebtedness under our original commitment letter, dated August 30, 2021, between us and BNS, including the letters of credit issued thereunder, and agreed to certain new and amended terms. Among other things, the credit agreement establishes a total financing commitment of approximately $1.125 billion total availability, subjectCAD, including (i) up to lender approval.$100.0 million CAD to finance our working capital and for general corporate purposes; (ii) up to $500.0 million CAD to finance the purchase of new motor vehicles (Wholesale Flooring Facility); (iii) up to $100.0 million CAD to finance the purchase of used motor vehicles for sale in Canada and for export to the United States; (iv) up to $400.0 million CAD for the wholesale lease financing of leased units and finance contracts, and (v) up to $25.0 million CAD to finance certain motor vehicle leases. The credit agreement also establishes sublimits for swingline commitments and/or letter of credit commitments under certain of the Canadian facilities and incorporates an accordion feature to increase maximum potential borrowings under the Wholesale Flooring Facility by up to $200.0 million CAD and under the other Canadian facilities by up to $200.0 million CAD in aggregate. Borrowings under the credit agreement accrue interest at rates equal to the greater of BNS’ 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 1.30% per annum. All Canadian Facilities other than the Wholesale Flooring Facility, which is a demand facility, mature on June 3, 2025.


Other Credit Facilities and Lines of Credit
Note 6. Stockholders’ EquityIn 2022, we amended our securitization facility agreement, increasing our commitment for borrowings of up to $1.0 billion and extending the maturity date to July 2024. As of September 30, 2022, we had $350.0 million drawn on the securitization facility.


Repurchases
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NOTES TO FINANCIAL STATEMENTS11

Non-Recourse Notes Payable
Driveway Finance Corporation auto loans receivable are primarily funded through our warehouse facilities and asset-backed term funding transactions. These non-recourse funding vehicles are structured to legally isolate the auto loans receivable, and we would not expect to be able to access the assets of Class Aour non-recourse funding vehicles, even in insolvency, receivership or conservatorship proceedings. Similarly, the investors in the non-recourse notes payable have no recourse to our assets beyond the related receivables, the amounts on deposit in reserve accounts and the restricted cash from collections on auto loans receivable. We do, however, continue to have the rights associated with the interest we retain in these non-recourse funding vehicles.

In August 2022, we issued $298.1 million in non-recourse notes payable related to the asset-backed term funding transaction.

NOTE 7. EQUITY AND REDEEMABLE NON-CONTROLLING INTERESTS

Repurchases of Common Stock
Repurchases of our Class A Common Stockcommon 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")(RSUs). In February 2016,On November 30, 2021, our Board of Directors authorized theapproved an additional $750 million repurchase of up to $250 millionauthorization of our Class A common stock.stock, increasing our total repurchase authorization to $1.25 billion when combined with the amount previously authorized by the Board for repurchase. Share repurchases under this authorization were as follows:
 Repurchases Occurring in 2022Cumulative Repurchases as of September 30, 2022
 SharesAverage PriceSharesAverage Price
Share Repurchase Authorization2,254,193 $282.46 6,730,124 $172.95 
  Repurchases Occurring in the Nine Months Ended September 30, 2017 Cumulative Repurchases as of September 30, 2017
  Shares Average Price Shares Average Price
2016 Share Repurchase Authorization 310,000
 $91.33
 1,023,725
 $83.25


As of September 30, 2017,2022, we had $164.8$86.0 million available for repurchases pursuant to our 2016 share repurchase authorization.




In addition, during the first nine months of 2017,2022, we repurchased 32,30056,867 shares at an average price of $99.33$296.94 per share, for a total of $3.2$16.9 million, related to tax withholdingswithholding associated with the vesting of RSUs. The repurchase of shares related to tax withholdingswithholding associated with stock awards does not reduce the number of shares available for repurchase as approved by our Board of Directors.


ATM Equity Offering
In 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, 2022, no amounts have been issued in relation to the ATM Equity Offering Sales Agreement.

Redeemable Non-Controlling Interest
In 2021, we expanded into Canada through a partnership with Toronto-based Pfaff Automotive Partners. As part of the acquisition, we were 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, we recorded redeemable non-controlling interest that is classified as mezzanine equity in the accompanying Consolidated Balance Sheets. The non-controlling interest is adjusted each reporting period for income (loss) attributable to the non-controlling interest.

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NOTES TO FINANCIAL STATEMENTS12

Note 7. Fair Value MeasurementsNOTE 8. FAIR VALUE MEASUREMENTS


Fair Value DisclosuresFactors 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 Financial Assetsidentical securities;
•Level 2 - other significant observable inputs, including quoted prices for similar securities, interest rates, prepayment spreads, credit risk; and Liabilities
•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, 2022, we recognized a $0.3 million and $32.6 million unrealized investment gain and loss related to Shift, respectively. 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, respectively. These amounts were recorded as a component of Other expense, 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 September 30, 2017,2022, our real estate mortgages and other debt, which includes capital leases, had maturity dates between JanuaryOctober 1, 2022, and July 1, 2038.

We have derivative instruments consisting of interest rate caps and have had an interest rate collar in prior periods. 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 2019– Derivative Financial Instruments 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 December 31, 2050.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, 2017.2022.


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NOTES TO FINANCIAL STATEMENTS13

Below are our investments that are measured at fair value (in millions):
Fair Value at September 30, 2022Level 1Level 2Level 3
Measured on a recurring basis:
Investments$8.3 $— $— 
Fair Value at December 31, 2021Level 1Level 2Level 3
Measured on a recurring basis:
Investments$40.4 $0.5 $— 

Below are our derivative assets and liabilities that are measured at fair value (in millions):
Fair Value at September 30, 2022Level 1Level 2Level 3
Measured on a recurring basis:
Derivative asset$— $23.8 $— 
Derivative liability— 23.8 — 
Fair Value at December 31, 2021Level 1Level 2Level 3
Measured on a recurring basis:
Derivative asset$— $6.4 $— 
Derivative liability— 8.9 — 

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 thousands):follows:
(in millions)September 30, 2022December 31, 2021
Carrying value
4.625% Senior notes due 2027$400.0 $400.0 
4.375% Senior notes due 2031550.0 550.0 
3.875% Senior notes due 2029800.0 800.0 
Non-recourse notes payable494.1 317.6 
Real estate mortgages and other debt477.5 477.6 
$2,721.6 $2,545.2 
Fair value
4.625% Senior notes due 2027$360.0 $420.0 
4.375% Senior notes due 2031442.8 583.0 
3.875% Senior notes due 2029642.0 815.0 
Non-recourse notes payable482.0 316.8 
Real estate mortgages and other debt421.5 488.7 
$2,348.3 $2,623.5 

NOTE 9. NET INCOME PER SHARE
  September 30, 2017 December 31, 2016
Carrying value    
5.25% Senior Notes due 2025 $300,000
 $—
Real Estate Mortgages and Other Debt 382,562
 286,660
  $682,562

$286,660
Fair value    
5.25% Senior Notes due 2025 $309,750
 $—
Real Estate Mortgages and Other Debt 403,009
 293,522
  $712,759
 $293,522

Note 8. Net Income Per Share of Class A and Class B Common Stock


We compute net income per share of Class A and Class B common stock using the two-class method. Under this method, basic net income per share is computed using the weighted average number of common shares outstanding during the period excluding common shares underlying equity awards that are unvested or subject to forfeiture. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the common shares issuable upon the net exercise of stock options and unvested RSUs and is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net income per share of Class A common stock assumesassumed the conversion of Class B common stock, while the diluted net income per share of Class B common stock doesdid not assume the conversion of those shares.
 
ExceptPrior to June 7, 2021, our common stock was classified as Class A common stock. The Class A common stock reclassification as common stock occurred pursuant to an amendment and restatement of our Articles of Incorporation 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. Prior to the reclassification, except with respect to voting and transfer rights, the rights of the holders of our Class A and Class B common stock arewere identical. Under our Articles
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NOTES TO FINANCIAL STATEMENTS14

of Incorporation, the Class A and Class B common stock shareshared equally in any dividends, liquidation proceeds or other distribution with respect to our common stock and the Articles of Incorporation can only be amended by a vote of the shareholders. Additionally, Oregon law provides that amendments to our Articles of Incorporation that would adversely alter the rights, powers or preferences of a given class of stock, must be approved by the class of stock adversely affected by the proposed amendment. As a result, the undistributed earnings for each year arewere allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the year had been distributed. Because the liquidation and dividend rights arewere identical, the undistributed earnings arewere allocated on a proportionate basis.




FollowingThe following is a reconciliation of net income and weighted average shares used for our basic earnings per share (“EPS”)(EPS) and diluted EPS (in thousands, except per share amounts):EPS:
Three Months Ended September 30,20222021
(in millions, except per share amounts)Common StockCommon Stock
Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - diluted$329.6 $307.9 
Weighted average common shares outstanding – basic27.5 30.3 
Effect of dilutive stock options on weighted average common shares0.1 0.2 
Weighted average common shares outstanding – diluted27.6 30.5 
Basic earnings per share attributable to Lithia Motors, Inc.$11.97 $10.18 
Diluted earnings per share attributable to Lithia Motors, Inc.$11.92 $10.11 
Three Months Ended September 30, 2017 2016
(in thousands, except per share data) Class A Class B Class A Class B
Net income applicable to common stockholders - basic $49,687
 $2,199
 $50,262
 $3,779
Reallocation of net income as a result of conversion of dilutive stock options 1
 (1) 1
 (1)
Reallocation of net income due to conversion of Class B to Class A common shares outstanding 285
 —
 439
 —
Conversion of Class B common shares into Class A common shares 1,908
 —
 3,326
 —
Effect of dilutive stock options on net income 5
 (5) 13
 (13)
Net income applicable to common stockholders - diluted $51,886
 $2,193
 $54,041
 $3,765
         
Weighted average common shares outstanding – basic 23,948
 1,060
 23,432
 1,762
Conversion of Class B common shares into Class A common shares 1,060
 —
 1,762
 —
Effect of dilutive stock options on weighted average common shares 68
 —
 96
 —
Weighted average common shares outstanding – diluted 25,076
 1,060
 25,290
 1,762
         
Net income per common share - basic $2.07
 $2.07
 $2.15
 $2.15
Net income per common share - diluted $2.07
 $2.07
 $2.14
 $2.14
Three Months Ended September 30, 2017 2016
Diluted EPS Class A Class B Class A Class B
Antidilutive Securities        
Shares issuable pursuant to stock options not included since they were antidilutive 9
 —
 —
 —



Nine Months Ended September 30, 2017 2016
(in thousands, except per share data) Class A Class B Class A Class B
Net income applicable to common stockholders - basic $147,876
 $7,937
 $134,533
 $11,206
Reallocation of distributed net income as a result of conversion of dilutive stock options 3
 (3) 5
 (5)
Reallocation of distributed net income due to conversion of Class B to Class A common shares outstanding 1,006
 —
 1,365
 —
Conversion of Class B common shares into Class A common shares 6,909
 —
 9,794
 —
Effect of dilutive stock options on net income 19
 (19) 42
 (42)
Net income applicable to common stockholders - diluted $155,813
 $7,915
 $145,739
 $11,159
         
Weighted average common shares outstanding – basic 23,812
 1,278
 23,530
 1,960
Conversion of Class B common shares into Class A common shares 1,278
 —
 1,960
 —
Effect of dilutive stock options on weighted average common shares 68
 —
 108
 —
Weighted average common shares outstanding – diluted 25,158
 1,278
 25,598
 1,960
         
Net income per common share - basic $6.21
 $6.21
 $5.72
 $5.72
Net income per common share - diluted $6.19
 $6.19
 $5.69
 $5.69
Nine Months Ended September 30, 2017 2016
Diluted EPS Class A Class B Class A Class B
Antidilutive Securities        
Shares issuable pursuant to stock options not included since they were antidilutive 10
 —
 —
 —

Note 9. Equity-Method Investment

In October 2014, we acquired a 99.9% membership interest in a limited liability company managed by U.S. Bancorp Community Development Corporation with a total equity contribution of $49.8 million. This investment generated new markets tax credits under the New Markets Tax Credit Program (“NMTC Program”). The NMTC Program was established by Congress in 2000 to spur new or increased investments into operating businesses and real estate projects located in low-income communities.

While U.S. Bancorp Community Development Corporation exercised management control over the limited liability company, due to the economic interest we held in the entity, we determined our ownership portion of the entity was appropriately accounted for using the equity method. We exited this equity-method investment in December 2016.
We estimated the value of our equity-method investment, which was recorded at fair value on a non-recurring basis, based on a market valuation approach. We used prices and other relevant information generated primarily by recent market transactions involving similar or comparable assets. Because these valuations contained unobservable inputs, we classified the measurement of fair value of our equity-method investment as Level 3.


The following amounts relatedeffect of antidilutive securities on Class A and Class B common stock was evaluated for the three-month periods ended September 30, 2022, and 2021 and was determined to this equity-method investment were recorded in our Consolidated Statementsbe immaterial.

Nine Months Ended September 30,20222021
(in millions, except per share amounts)Common StockClass AClass B
Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - basic$1,003.4 $768.4 $0.6 
Conversion of class B common shares into class A common shares— 0.6 — 
Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - diluted$1,003.4 $769.0 $0.6 
Weighted average common shares outstanding – basic28.5 28.4 — 
Conversion of class B common shares into class A common shares— — — 
Effect of employee stock purchases and restricted stock units on weighted average common shares0.1 0.2 — 
Weighted average common shares outstanding – diluted28.6 28.6 — 
Basic earnings per share attributable to Lithia Motors, Inc.$35.23 $27.12 $27.12 
Diluted earnings per share attributable to Lithia Motors, Inc.$35.10 $26.91 $26.91 

The effect of Operations (in thousands):antidilutive securities on Class A and Class B common stock was evaluated for the nine-month periods ended September 30, 2022, and 2021 and was determined to be immaterial.

NOTE 10. SEGMENTS
  Three Months Ended September 30, Nine Months Ended
September 30,
  2017 2016 2017 2016
Asset impairments to write investment down to fair value $—
 $3,498
 $—
 $10,494
Our portion of the partnership’s operating losses —
 2,066
 —
 6,197
Non-cash interest expense related to the amortization of the discounted fair value of future equity contributions —
 31
 —
 185
Tax benefits and credits generated —
 7,592
 —
 20,374



Note 10. Segments


While we have determined that each individual store is a reporting unit, we have aggregated our reporting units into three reportable segments based on their economic similarities: Domestic, Import and Luxury.


Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Chrysler,Stellantis, General Motors and Ford. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, Toyota,Hyundai, Subaru, Nissan and Volkswagen. Our Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by BMW, Mercedes-BenzMercedes and Lexus. The franchises in each segment also sell used vehicles, parts and automotive services, as well as automotive finance and insurance products.

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NOTES TO FINANCIAL STATEMENTS15


Corporate and other revenue and income includes the results of operations of our stand-alone body shopshops offset by unallocated corporate overhead expenses, such as corporate personnel costs, and certain unallocated reserve and elimination adjustments. Additionally, certain internal corporate expense allocations increase segment income for Corporate and other while decreasing segment income for the other reportable segments. These internal corporate expense allocations are used to increase comparability of our dealerships and reflect the capital burden a stand-alone dealership would experience. Examples of these internal allocations include internal rent expense, internal floor plan financing charges, and internal fees charged to offset employees within our corporate headquarters thatwho perform certain dealership functions.


We define our chief operating decision maker (“CODM”)(CODM) to be certain members of our executive management group. Historical and forecasted operational performance is evaluated on a store-by-store basis and on a consolidated basis by the CODM. We derive the operating results of the segments directly from our internal management reporting system. The accounting policies used to derive segment results are substantially the same as those used to determine our consolidated results, exceptexcepted for the internal allocation within Corporate and other discussed above. Our CODM measures the performancedoes not regularly review capital expenditures on a reporting unit level. Performance measurement of each operatingreportable segment by the CODM are based on several metrics, including earnings from operations, andoperations. The CODM uses these results, in part, to evaluate the performance of and to allocate resources, mainly associated with expected inventory and working capital requirements, to each of the operatingreportable segments.



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NOTES TO FINANCIAL STATEMENTS16

Certain financial information on a segment basis is as follows (in thousands):follows:
 Three Months Ended
September 30,		Nine Months Ended
September 30,
(in millions)2022202120222021
Revenues:    
Domestic
New vehicle retail$1,078.3 $766.1 $3,083.1 $2,305.3 
Used vehicle retail832.9 699.7 2,418.7 1,803.7 
Used vehicle wholesale115.4 74.5 376.3 174.4 
Finance and insurance98.9 80.5 284.6 217.7 
Service, body and parts206.7 170.2 597.5 450.0 
Fleet and other69.7 28.2 182.0 67.4 
2,401.9 1,819.2 6,942.2 5,018.5 
Import
New vehicle retail1,389.0 1,376.9 4,022.9 3,730.7 
Used vehicle retail1,015.5 847.9 2,920.9 2,127.8 
Used vehicle wholesale112.7 99.5 361.2 247.8 
Finance and insurance178.9 162.9 532.3 408.9 
Service, body and parts292.1 235.3 802.5 596.9 
Fleet and other12.7 4.9 27.6 37.5 
3,000.9 2,727.4 8,667.4 7,149.6 
Luxury
New vehicle retail840.3 750.9 2,513.2 2,204.1 
Used vehicle retail618.2 530.3 1,861.9 1,309.9 
Used vehicle wholesale92.1 72.8 300.5 171.9 
Finance and insurance61.2 56.1 187.2 145.7 
Service, body and parts200.3 162.8 580.3 434.7 
Fleet and other30.9 22.2 81.4 59.5 
1,843.0 1,595.1 5,524.5 4,325.8 
 7,245.8 6,141.7 21,134.1 16,493.9 
Corporate and other49.9 28.1 107.2 28.3 
 $7,295.7 $6,169.8 $21,241.3 $16,522.2 
Segment income1:
Domestic$127.9 $123.6 $400.1 $335.6 
Import261.5 255.4 782.8 573.2 
Luxury109.5 108.5 366.6 249.8 
Total segment income for reportable segments$498.9 $487.5 $1,549.5 $1,158.6 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Revenues:        
Domestic $1,008,310
 $893,156
 $2,863,018
 $2,495,468
Import 1,209,955
 983,947
 3,276,667
 2,777,007
Luxury 463,518
 392,537
 1,246,484
 1,111,215
  2,681,783

2,269,640

7,386,169
 6,383,690
Corporate and other (1,441) 327
 (2,690) 2,477
  $2,680,342

$2,269,967

$7,383,479
 $6,386,167
Segment income1:
        
Domestic $31,141
 $32,292
 $84,440
 $84,420
Import 36,954
 32,934
 91,365
 86,878
Luxury 7,515
 7,423
 22,542
 21,736
  75,610

72,649

198,347
 193,034
Corporate and other 34,541
 26,794
 111,281
 81,881
Depreciation and amortization (14,828) (12,206) (41,598) (36,372)
Other interest expense (9,905) (5,647) (23,745) (16,608)
Other income (expense), net 1,125
 (1,513) 11,357
 (4,534)
Income before income taxes $86,543

$80,077

$255,642
 $217,401
1Segment income for each of the segments is a Non-GAAP measure defined as incomeIncome from operations before income taxes, depreciation and amortization, other interest expense and other income, (expense), net.

  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Floor plan interest expense:        
Domestic $9,900
 $6,303
 $26,570
 $19,031
Import 8,007
 4,613
 20,608
 13,241
Luxury 4,494
 2,720
 11,018
 8,027
  22,401
 13,636
 58,196
 40,299
Corporate and other (11,772) (7,450) (30,183) (21,995)
  $10,629
 $6,186
 $28,013
 $18,304
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NOTES TO FINANCIAL STATEMENTS17

Reconciliation of total segment income for reportable segments to our consolidated income before income taxes:
 Three Months Ended
September 30,		Nine Months Ended
September 30,
(in millions)2022202120222021
Total segment income for reportable segments$498.9 $487.5 $1,549.5 $1,158.6 
Corporate and other55.4 22.8 117.6 80.1 
Depreciation and amortization(41.9)(34.4)(122.1)(91.5)
Other interest expense(49.6)(28.0)(114.1)(79.6)
Other income (expense), net(7.1)(25.7)(37.0)(14.6)
Income before income taxes$455.7 $422.2 $1,393.9 $1,053.0 
Total assets by reportable segments is as follows:
(in millions)September 30, 2022December 31, 2021
Total assets:  
Domestic$2,504.1 $1,574.7 
Import2,855.4 1,858.1 
Luxury2,007.3 1,407.1 
Corporate and other6,707.7 6,307.0 
 $14,074.5 $11,146.9 

NOTE 11. LEASES
 
We lease certain dealerships, office space, land and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. We have elected not to bifurcate lease and non-lease components related to leases of real property.
  September 30, 2017 December 31, 2016
Total assets:    
Domestic $1,256,960
 $1,225,387
Import 1,067,466
 959,355
Luxury 590,515
 511,779
Corporate and other 1,456,652
 1,147,629
  $4,371,593
 $3,844,150



Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 25 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Note 11. Contingencies

Certain of our lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Litigation
Our finance lease liabilities are included in long-term debt, with the current portion included in current maturities of long-term debt. The related assets are included in property, plant and equipment, net of accumulated amortization. These amounts are included in other non-current assets until we finalize our purchase accounting.

We rent or sublease certain real estate to third parties.

NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS

We account for derivative financial instruments by recording the fair value as either an asset or liability in our Consolidated Balance Sheets and recognize the resulting gains or losses as adjustments to accumulated other comprehensive income (loss). We do not hold or issue derivative financial instruments for trading or speculative purposes. For derivative instruments that hedge the exposure to variability in expected future cash flows that are party to numerous legal proceedings arisingdesignated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income (AOCI) in equity and reclassified into earnings in the normal coursesame period or periods during which the hedged transaction affects earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions.

In 2019, to hedge the business exposure to rising interest rates on a portion of our business. Althoughvariable rate debt, we do not anticipate thatentered into a five-year, zero-cost interest rate collar, with an aggregate notional amount of $300 million, effective June 1, 2019. This instrument hedged interest rate risk related to a portion of our $1.2 billion of non-trade floor plan notes payable.
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NOTES TO FINANCIAL STATEMENTS18


The table below presents the resolution of legal proceedings arising inliabilities related to the normal course of business or the proceedings described below will have a material adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with certainty.zero-cost interest rate collar:

(Dollars in millions)Accrued LiabilitiesOther Long-Term LiabilitiesOther Non-Current AssetsTotal
Balance as of December 31, 2020$(2.6)$(6.0)$— $(8.6)
Amounts reclassified from AOCI to floorplan interest expense0.7 — — 0.7 
(Loss) gain recorded from interest rate collar(0.6)2.4 — 1.8 
Balance as of March 31, 2021(2.5)(3.6)— (6.1)
Amounts reclassified from AOCI to floorplan interest expense0.7 — — 0.7 
(Loss) gain recorded from interest rate collar(0.7)0.2 — (0.5)
Balance as of June 30, 2021(2.5)(3.4)— (5.9)
Amounts reclassified from AOCI to floorplan interest expense0.7 — — 0.7 
(Loss) gain recorded from interest rate collar(0.7)0.7 — — 
Balance as of September 30, 2021(2.5)(2.7)— (5.2)
Amounts reclassified from AOCI to floorplan interest expense0.7 — — 0.7 
(Loss) gain recorded from interest rate collar(0.1)2.0 — 1.9 
Balance as of December 31, 2021(1.9)(0.7)— (2.6)
Amounts reclassified from AOCI to floorplan interest expense0.7 — — 0.7 
(Loss) gain recorded from interest rate collar1.2 0.7 2.7 4.6 
Balance as of March 31, 2022— — 2.7 2.7 
Amounts reclassified from AOCI to floorplan interest expense— — (2.7)(2.7)
(Loss) gain recorded from interest rate collar— — — — 
Balance as of June 30, 2022$— $— $— $— 
California Wage and Hour Litigations
In August 2014, Ms. Holzer filed a complaint in the Central District of California (Holzer v. DCH Auto Group (USA) Inc., Case No. BC558869) alleging that her employer, an affiliate of DCH Auto Group (USA) Inc., failed to provide vehicle finance and sales persons, service advisors, and other clerical and hourly workers accurate and complete wage statements; and statutory meal and rest periods. The complaint also alleges that the employer failed to pay these employees for off-the-clock time worked; and wages due at termination. The plaintiffs also seek attorney fees and costs. DCH has sought to compel arbitration based on plaintiffs’ arbitration agreements. The plaintiffs (and several other employees in separate actions) are seeking relief under California’s PAGA provisions.


During the pendencythree months ended June 30, 2022, we terminated our zero-cost interest rate collar, resulting in a $2.7 million reclassification from AOCI to floorplan interest expense.

In 2020, we entered into two offsetting derivative arrangements that do not qualify for hedge accounting. These are both related to a securitization facility, effective October 2, 2020. We purchased and sold offsetting interest rate caps, both of Holzer,which have a five-year term with notional amounts of $100 million.

In 2021, we entered into two additional offsetting derivative arrangements that do not qualify for hedge accounting. These are both related cases were filed that made substantially similar non-technician claims. DCHto a securitization facility, effective June 15, 2021. We purchased and sold offsetting interest rate caps, both of which have a five-year term with notional amounts of $100 million.

As of September 30, 2022, the balance on all non-technician claimants settled their individual claimsfour agreements was an offsetting $23.8 million and was recorded in mediation in 2017. In January 2017, DCHother current assets and all non-technician plaintiffs agreed in principle to settleaccrued liabilities, respectively.

See Note 8 – Fair Value Measurements for information on the representative claims, although this settlement has not yet been approved by the California courts as expressly contemplated by the parties and required by applicable law as a conditionfair value of the agreed release of claims. DCH Auto Group (USA) Limited must indemnify Lithia Motors, Inc. for losses related to this claim pursuant to the stock purchase agreement between Lithia Motors, Inc. and DCH Auto Group (USA) Limited dated June 14, 2014. We believe the exposure related to this lawsuit, when considered in relation to the terms of the stock purchase agreement, is immaterial to our financial statements.derivative contracts.


Note 12. AcquisitionsNOTE 13. ACQUISITIONS


In the first nine months of 2017,2022, we completed the following acquisitions:
On
•In January 2022, John L. Sullivan Chevrolet, John L. Sullivan Chrysler Dodge Jeep Ram, and Roseville Toyota in California.
•In March 2022, Sahara Chrysler Dodge Jeep Ram, Desert 215 Superstore, and Jeep Only in Nevada.
•In May 1, 2017, Baierl2022, Sisley Honda in Canada.
•In June 2022, Esserman International Volkswagen & Acura in Florida.
•In June 2022, Henderson Hyundai Superstore in Nevada.
•In June 2022, Lehman Auto Group an eight store platform based in Pennsylvania.Florida.
On August 7, 2017, Downtown LA ("DTLA") Auto Group, a seven store platform based•In July 2022, Elk Grove Ford in California.

•In September 2022, Wilde Honda, Wilde Subaru, Wilde Chrysler Dodge Jeep Ram, Wilde Toyota, and Wilde East Towne Honda in Wisconsin.

Revenue and netoperating income contributed by the 20172022 acquisitions subsequent to the date of acquisition were as follows (in thousands)millions):
Revenue$281,416
Net income$4,378
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NOTES TO FINANCIAL STATEMENTS19


Nine Months Ended September 30,2022
Revenue$812.6 
Operating income43.2 

In 2016,the first nine months of 2021, we completed the following acquisitions:
On January 26, 2016, Singh Subaru
•In February 2021, Fields Chrysler Jeep Dodge Ram and Land Rover Orlando in Riverside,Florida.
•In March 2021, Fink Auto Group in Florida.
•In March 2021, Avondale Nissan in Arizona.
•In April 2021, Suburban Collection Auto Group in Michigan.
•In April 2021, Planet Honda in New Jersey.
•In May 2021, Las Vegas Hyundai Superstore Auto Group in Nevada.
•In May 2021, BMW of Sherman Oaks and Acura of Sherman Oaks in California.
On February 1, 2016, Ira•In June 2021, Southwest Kia Group in Arizona.
•In June 2021, Herrin-Gear Toyota in Milford, Massachusetts.Mississippi.
On•In June 23, 2016, Helena Auto Center, LLC2021, Michael’s Subaru and Michael’s Toyota in Helena, Montana.Washington.
On•In July 2021, Subaru of Mobile in Alabama.
•In August 1, 2016, Kemp Ford2021, Rock Honda in Thousand Oaks, California.
On•In September 12, 2016, Carbone Auto Group, a nine store platform based2021, Curry Honda in New YorkGA.
•In September 2021, Orange Coast Chrysler, Dodge, Jeep, Ram and Vermont.Ford.
On September 28, 2016, Greiner Ford Lincoln in Casper, Wyoming.
On October 5, 2016, Woodland Hills Audi in Woodland Hills, California.
On November 16, 2016, Honolulu Ford in Honolulu, Hawaii.


All acquisitions were accounted for as business combinations under the acquisition method of accounting. The results of operations of the acquired stores are included in our Consolidated Financial Statements from the date of acquisition.
 
The following tables summarize the consideration paid for the 20172022 acquisitions and the amount ofpreliminary purchase price allocations for identified assets acquired and liabilities assumed as of the acquisition date (in thousands):date:
(in millions)Consideration
Cash paid, net of cash acquired$958.5 
  Consideration
Cash paid, net of cash acquired $400,558
Equity securities issued 1
 2,137
Debt issued 1,748
  $404,443
(in millions)Assets Acquired and Liabilities Assumed
Accounts receivable$0.1 
Inventories$166.1 
Franchise value63.7 
Property and equipment325.2 
Other non-current assets459.5 
Floor plan notes payable(0.7)
Debt and finance lease obligations(78.2)
Other long-term liabilities(7.3)
928.4 
Goodwill30.1 
$958.5 



1 In partial consideration for the purchase of Baierl Auto Group, we issued 4,489 shares of our Class A common stock on May 1, 2017 and will issue an additional 17,957 shares over the next four years for a total of 22,446 shares. As of May 1, 2017, these shares were deemed outstanding for purposes of calculating basic and diluted EPS and had a market value of $2.1 million, based on the closing price of our Class A common stock on May 1, 2017 of $95.22 per share. See also Note 8.


The purchase price allocations for the Baierl Auto Group and DTLA Auto Group acquisitions from the first quarter of 2022 through the third quarter of 2022 are preliminary, and we have not obtained and evaluated all of the detailed information necessary to finalize the opening balance sheet amounts in all respects. We recorded the purchase price allocations based upon information that is currently available. Unallocatedavailable and recorded unallocated items are recorded as a component of other non-current assets in the Consolidated Balance Sheets.

  Assets Acquired and Liabilities Assumed
Trade receivables, net $15,554
Inventories 190,079
Franchise value —
Property and equipment 57,217
Other assets 249,725
Floor plan notes payable (75,065)
Debt and capital lease obligations (11,837)
Other liabilities (21,230)
  $404,443
We expect substantially all of the goodwill related to acquisitions completed in 2022 to be deductible for federal income tax purposes.


In the three and nine-month periods ended September 30, 2017,2022, we recorded $3.5$2.0 million and $5.7$10.1 million, respectively, in acquisition relatedacquisition-related expenses as a component of selling, general and administrative expense. These
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NOTES TO FINANCIAL STATEMENTS20

Comparatively, we recorded $6.3 million and $17.9 million, respectively, of acquisition-related expenses include costs related to current year acquisitions, as well as reserve adjustments associated with contingent consideration recorded in association with previous acquisitions. We did not have any material acquisition expenses for the same periods in 2016.of 2021.
 
The following unaudited proformapro forma summary presents consolidated information as if all acquisitions in the three and nine-month periods ended September 30, 20172022 and 20162021 had occurred on January 1, 2016 (in thousands, except per share amounts):2021:
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Revenue $2,773,082
 $2,792,994
 $8,032,963
 $7,941,561
Net income 53,488
 59,925
 164,938
 163,473
Basic net income per share 2.14
 2.38
 6.57
 6.41
Diluted net income per share 2.13
 2.37
 6.56
 6.39
Three Months Ended September 30,Nine Months Ended September 30,
(in millions, except per share amounts)2022202120222021
Revenue$7,411.1 $6,791.7 $22,300.4 $18,194.2 
Net income attributable to Lithia Motors, Inc.337.3 343.9 1,065.0 857.3 
Basic earnings attributable to Lithia Motors, Inc. per share12.25 11.37 37.39 30.23 
Diluted earnings attributable to Lithia Motors, Inc. per share12.20 11.29 37.26 30.00 
 
These amounts have been calculated by applying our accounting policies and estimates. The results of the acquired stores have been adjusted to reflect the following: depreciation on a straight-line basis over the expected lives for property and equipment;equipment, accounting for inventory on a specific identification method;method, and recognition of interest expense for real estate financing related to stores where we purchased the facility. No nonrecurring proforma adjustments directly attributable to the acquisitions are included in the reported proforma revenues and earnings.


Note 13. Recent Accounting PronouncementsNOTE 14. NET INVESTMENT IN OPERATING LEASES


In May 2014,2021, we purchased a leasing entity and the Financial Accounting Standards Board ("FASB") issued accounting standards update ("ASU") 2014-09, "Revenue from Contracts with Customers," which amends the accounting guidance related to revenues. This amendment will replace most of the existing revenue recognition guidance when it becomes effective. The new standard, as amended in July 2015, is effective for fiscal years beginning after December 15, 2017 and entities are allowed to adopt the standard as early as annual periods beginning after December 15, 2016, and interim periods therein. The standard permits the use of either the retrospective or cumulative effect transition method. We have evaluated the effect this amendment will have on our most significant types of transactions and expect the timing of most of our revenue recognition to generally remain the same. A portion of the transaction price related to sales of finance and insurance contracts will likely be considered variable consideration and subject to accelerated recognition under the new standard. The new standard requires an entity to estimate variable consideration and apply the constraint in determining the transaction price. We are still evaluating how much variable consideration should be constrained and at what


point the constraint is resolved, which will also determine the amount of any potential cumulative effect adjustment. As a result, we have not yet quantified the impact to our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, "Leases." ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosing key information about leasing arrangements. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. We are evaluating the effect this pronouncement will have on our consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 simplifies the accounting for several aspects of share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. In January 2017, we adopted this new guidance. As a result, we recorded the following:
Reclassified $0.2 million as a decrease to additional paid-in capital and an increase to retained earnings related to our policy election to record forfeitures as they occur.
All prior periods presented in our Consolidated Statements of Cash Flows have been adjusted for the presentation of excess tax benefits on the cash flow statement. This resulted in a $4.4 million reclassification betweensales-type financing and operating cash flows.leases it manages.
We had $0.3 million
Net investment in operating leases consists primarily of tax-affected state netlease contracts for vehicles with individuals and business entities. Assets subject to operating loss carryforwards relatedleases are depreciated using the straight-line method over the term of the lease to excess tax benefits for which a deferred tax asset had not been recognized. At adoption, this amount was recorded with the offset to retained earnings. Additionally, we do not believe that it is more-likely-than-not thatreduce the asset willto its estimated residual value. Estimated residual values are based on assumptions for used vehicle prices at lease termination and the number of vehicles that are expected to be utilized and,returned.

Net investment in operating leases was as a result, a valuation allowance in the same amount was recorded that offset the impact to retained earnings. follows:


In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 provides guidance for eight cash flow classification issues to reduce diversity in practice. The clarification includes guidance on items such as debt prepayment or debt extinguishment cost, contingent consideration payment made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investees. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. We are evaluating the effect this pronouncement will have on our consolidated financial statements and related disclosures.
(in millions) September 30, 2022December 31, 2021
Vehicles, at cost1
$86.8 $66.0 
Accumulated depreciation1
(6.4)(0.9)
Net investment in operating leases$80.4 $65.1 

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment." ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the updated standard, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, if applicable. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The same impairment test also applies to any reporting unit with a zero or negative carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1 2017. We do not expect the adoption of ASU 2017-04 to have a material effect on our financial position, results of operations or cash flows.

In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting." ASU 2017-09 reduces both diversity in practice andVehicles, at cost and complexity when changingaccumulated depreciation are recorded in other current assets, on the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. ASU 2017-09 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. We do not expect the adoption of ASU 2017-09 to have a material effect on our financial position, results of operations or cash flows.Consolidated Balance Sheets.



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NOTES TO FINANCIAL STATEMENTS21
Note 14. Subsequent Events

Disposal of Stores
On October 16, 2017, we disposed of Spokane Mercedes in Spokane, Washington. The disposal generated cash of approximately $13.2 million.

Common Stock Dividend
On October 23, 2017, our Board of Directors approved a dividend of $0.27 per share on our Class A and Class B common stock related to our third quarter 2017 financial results. The dividend will total approximately $6.7 million and will be paid on November 24, 2017 to shareholders of record on November 10, 2017.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Forward-Looking Statements and Risk Factors
Certain statements under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” and elsewhere in this Form 10-Q constitute forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Generally, you can identify forward-looking statements by terms such as “project”,“project,” “outlook,” “target”,“target,” “may,” “will,” “would,” “should,” “seek,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “likely,” “goal,” “strategy,” “future,” “maintain,” and “continue” or the negative of these terms or other comparable terms. Examples of forward-looking statements in this Form 10-Q include, among others, statements we make regarding:

•Future market conditions, including anticipated national new car and other sales levels;levels and the supply of inventory
•Our business strategy and plans, including our achieving our 2025 Plan (or “50/50” Plan)
•The growth, expansion and success of our network, including our finding accretive acquisitions and acquiring additional stores
•Annualized revenues from acquired stores
•The growth and performance of our Driveway e-commerce home solution and Driveway Finance Corporation, their synergies and other impacts on our business and our ability to meet Driveway-related targets
•Our capital allocations and uses and levels of capital expenditures in the future
•Expected operating results, such as improved store performance;performance, continued improvement of selling, general and administrative expenses (“SG&A&A”) as a percentage of gross profit and all projections;any projections
Anticipated continued success of acquisitions;
Anticipated ability to capture additional market share;
Anticipated ability to find accretive acquisitions;
Anticipated additions of dealership locations to•Our anticipated financial condition and liquidity, including from our portfolio incash and the future;
Anticipatedfuture availability of liquidityour credit facility, unfinanced real estate and other financing sources
•Our continuing to purchase shares under our share repurchase program
•Impacts from the continued COVID-19 pandemic on the national and local economies in which we operate, our unfinanced operating real estate;business operations and consumer demand
Anticipated levels of capital expenditures•Our compliance with financial and restrictive covenants in the future.our credit facility and other debt agreements
•Our programs and initiatives for employee recruitment, training, and retention
•Our strategies for customer retention, growth, market position, financial results and risk management
 
The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our actual results to materially differ from the results expressed or implied by these statements. Certain important factors that could cause actual results to differ from our expectations are discussed in Part II - Other Information, Item 1A in this Form 10-Q and in the Risk Factors section of our 20162021 Annual Report on Form 10-K, as supplemented and amended from time to time in Quarterly Reports on Form 10-Q and our other filings with the Securities and Exchange Commission.Commission (SEC).
 
By their nature, forward-looking statements involve risks and uncertainties because they relate to events that depend on circumstances that may or may not occur in the future. You should not place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. We assume no obligation to update or revise any forward-looking statement.

Overview
Lithia & Driveway (LAD) is a growth company focused on profitably consolidating the largest retail sector in North America. We are one ofamong the largest automotive retailersfastest growing companies in the highly fragmented American auto retail industry.Fortune 500 (#2 on 10-year EPS Growth, #3 on 10-Year TSR and #12 on 10-year Revenue growth in 2021). As of November 7, 2017,September 30, 2022, we offered 30operated 291 locations representing 40 brands in 26 states and 3 Canadian provinces.

We offer a wide array of new vehiclesproducts and all major brands of used vehicles in 166 stores inservices fulfilling the United States and online at over 200 websites. We sellentire vehicle ownership lifecycle including new and used vehicles, and replacement parts, provide vehicle maintenance, warranty, paint and repair services, arrange related financing, and sell service contracts, vehicle protectioninsurance products and credit insurance.automotive repair and maintenance. We strive for diversification in our products, services, brands and geographic locations to reduce dependence on any one manufacturer, reduce susceptibility to changing consumer preferences, manage market risk and maintain profitability. Our diversification, along with our operating structure, provides a resilient and nimble business model.

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MANAGEMENT’S DISCUSSION AND ANALYSIS22

Our omni-channel strategy is designed to pragmatically disrupt the industry by leveraging our experienced teams, vast owned inventories, technology, and physical network. We continue to lead the industry’s consolidation and, combined with Driveway’s e-commerce in-home experiences and Driveway Finance Corporation’s growing auto loan portfolio, further accelerate our massive profit and capital engine. Together, these endeavors create a unique and compelling high-growth strategy that provides transportation solutions wherever, whenever and however consumers desire. Our long-term strategy to create value for our customers, employees and shareholders includes the following elements:

Driving operational excellence, innovation and diversification
LAD builds magnetic brand loyalty in our 291 locations within our Lithia channel and with Driveway, our e-commerce home delivery experience, and GreenCars, our electric vehicle learning resource and marketplace. Operational excellence is achieved by focusing the business on convenient and transparent consumer experiences supported by proprietary data science to improve market share, consumer loyalty, and profitability. By promoting an entrepreneurial model with our in-store experiences, we build strong businesses responsive to each of our local markets. Utilizing performance-based action plans, we develop high-performing teams and foster manufacturer relationships.

In 2016,response to evolving consumer preferences, we were the fifth largest public automotive retailerinvest in the U.S.,modernization that supports and expands our core business. These digital strategies combine our experienced, knowledgeable workforce with our owned inventory and physical network of stores, enabling us to be agile and adapt to consumer preferences and market specific conditions. Additionally, we systematically explore transformative adjacencies, which are identified to be synergistic and complementary to our existing business such as Driveway Finance Corporation, which holds our captive auto loan portfolio.

Our investments in modernization are well under way and are taking hold with our teams as they provide digital shopping experiences including finance, contactless test drives and home delivery or curbside pickup for vehicle purchases. Our people and these solutions power our national brands, overlaying our physical footprint in a way that we believe attracts a larger population of digital consumers seeking transparent, empowered, flexible and simple buying and servicing experiences.

Our performance-based culture is geared toward an incentive-based compensation structure for a majority of our personnel. We develop pay plans that are measured by revenue. Ourbased upon various factors such as customer satisfaction, profitability and individual performance metrics. These plans serve to reward team members for creating customer loyalty, achieving store potential, developing high-performing talent, meeting and exceeding manufacturer requirements and living our core values.

We have centralized many administrative functions to drive efficiencies and streamline store-level operations. The reduction of administrative functions at our stores are located in 18 states with concentrations west of the Mississippiallows our local managers to focus on customer-facing opportunities to increase revenues and in the Northeast and offer 30 brands of new vehicles and all major brands of used vehicles.gross profit. Our operations consistare supported by regional and corporate management, as well as dedicated training and personnel development programs which allow us to share best practices across our network and develop management talent.

Growth through network development
The foundation of domestic, importour omni-channel plan is the growth and luxury storesexpansion of our physical network to provide consumers convenient access to all of our business lines in-store or through Driveway. Acquiring new vehicle franchises, which operate in markets ranging from mid-sized regional citiesmarkets to metropolitan urban areas.markets, provides us a cash generating and profitable model to expand our network of locations. In addition to being financially accretive, these businesses improve our ability to serve customers through wider selection, greater density and convenient access to vehicle repair services, our highest margin offerings. Our physical footprint currently reaches 95% of American consumers within an average radius of 250 miles.


While we target an annual after tax return of more than 15% for our acquisitions, we have averaged over a 25% return by the third year of ownership due to a disciplined approach focusing on accretive, cash flow positive targets at reasonable valuations. Culturally, we have a greater than 95% acquisition employee retention rate, demonstrating the valuable career opportunities we provide to our employees. We regularly optimize and balance our network through strategic divestitures to ensure continued high performance. We believe our disciplined approach provides us with attractive acquisition opportunities and expanded coast-to-coast coverage.
Results
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MANAGEMENT’S DISCUSSION AND ANALYSIS23

Thoughtful capital allocation
Our capital deployment strategy targets deployment of Operations65% of free cash flows generated toward acquisitions, 25% toward capital expenditures, innovation and diversification and 10% in shareholder return in the form of dividends and share repurchases. As we identify acquisition opportunities that further enhance our business, we may consider other potential sources of capital, including financing of real estate and proceeds from debt or equity offerings. This disciplined approach, combined with our ability to successfully integrate newly-acquired locations, drives growth and profitability.
For the three months ended September 30, 2017 and 2016, we reported net income of $51.9 million, or $2.07 per diluted share, and $54.0 million, or $2.14 per diluted share, respectively. For the nine months ended September 30, 2017 and 2016, we reported net income of $155.8 million, or $6.19 per diluted share, and $145.7 million, or $5.69 per diluted share, respectively.



Key Revenue and Gross Profit Metrics
Key performance metrics for revenue and gross profit were as follows (dollars in thousands):follows:

Three Months Ended September 30,Nine Months Ended September 30,
($ in millions, except per unit values)20222021Change20222021Change
Revenues
New vehicle retail$3,306.9 $2,898.2 14.1  %$9,619.4 $8,237.7 16.8  %
Used vehicle retail2,465.8 2,079.5 18.6 7,197.0 5,236.6 37.4 
Finance and insurance333.3 297.0 12.2 977.0 765.0 27.7 
Service, body and parts712.2 578.3 23.2 2,022.6 1,503.4 34.5 
Total Revenues7,295.7 6,169.8 18.2 21,241.3 16,522.2 28.6 
Gross profit
New vehicle retail$403.7 $349.2 15.6  %$1,215.5 $819.7 48.3  %
Used vehicle retail201.3 232.6 (13.5)663.4 601.3 10.3 
Finance and insurance333.3 297.0 12.2 977.0 765.0 27.7 
Service, body and parts384.2 302.6 27.0 1,076.7 799.0 34.8 
Total Gross Profit1,314.2 1,189.1 10.5 3,943.3 3,015.2 30.8 
Gross profit margins
New vehicle retail12.2 %12.1 %10  bps12.6 %10.0 %260  bps
Used vehicle retail8.2 11.2 (300)9.2 11.5 (230)
Finance and insurance100.0 100.0 — 100.0 100.0 — 
Service, body and parts54.0 52.3 170 53.2 53.2 — 
Total Gross Profit Margin18.0 19.3 (130)18.6 18.2 40 
Retail units sold
New vehicles69,743 66,894 4.3  %203,437 195,934 3.8  %
Used vehicles81,215 76,362 6.4 235,930 205,643 14.7 
Average selling price per retail unit
New vehicles$47,416 $43,325 9.4  %$47,284 $42,043 12.5  %
Used vehicles30,361 27,233 11.5 30,505 25,464 19.8 
Average gross profit per retail unit
New vehicles$5,789 $5,221 10.9 %$5,975 $4,184 42.8 %
Used vehicles2,478 3,046 (18.6)2,812 2,924 (3.8)
Finance and insurance2,208 2,073 6.5 2,224 1,905 16.7 
Total vehicle1
6,139 6,175 (0.6)6,500 5,510 18.0 
Three Months Ended
September 30, 2017		 Revenues 
Percent of
Total Revenues
 
Gross Profit
 
Gross Profit
Margin
 
Percent of Total
Gross Profit
New vehicle $1,553,511
 58.0% $88,045
 5.7% 21.8%
Used vehicle retail 679,180
 25.3
 78,658
 11.6
 19.5
Used vehicle wholesale 65,739
 2.5
 1,174
 1.8
 0.3
Finance and insurance 1
 101,044
 3.8
 101,044
 100.0
 25.1
Service, body and parts 265,683
 9.9
 132,492
 49.9
 32.9
Fleet and other 15,185
 0.5
 1,608
 10.6
 0.4
  $2,680,342
 100.0% $403,021
 15.0% 100.0%
1 Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail.

Three Months Ended
September 30, 2016		 Revenues 
Percent of
Total Revenues
 
Gross Profit
 
Gross Profit
Margin
 
Percent of Total
Gross Profit
New vehicle $1,297,511
 57.2% $75,843
 5.8 % 22.5 %
Used vehicle retail 580,885
 25.6
 68,809
 11.8
 20.4
Used vehicle wholesale 75,271
 3.3
 918
 1.2
 0.3
Finance and insurance 1
 87,709
 3.9
 87,709
 100.0
 26.0
Service, body and parts 217,148
 9.6
 104,342
 48.1
 30.9
Fleet and other 11,443
 0.4
 (360) (3.1) (0.1)
  $2,269,967
 100.0% $337,261
 14.9 % 100.0 %

1 Commissions reported net of anticipated cancellations.
Nine Months Ended
September 30, 2017		 Revenues 
Percent of
Total Revenues
 
Gross Profit
 
Gross Profit
Margin
 
Percent of Total
Gross Profit
New vehicle $4,147,870
 56.2% $238,702
 5.8% 21.3%
Used vehicle retail 1,915,038
 25.9
 221,947
 11.6
 19.8
Used vehicle wholesale 206,754
 2.8
 4,403
 2.1
 0.4
Finance and insurance 1
 282,672
 3.8
 282,672
 100.0
 25.2
Service, body and parts 744,262
 10.1
 368,166
 49.5
 32.9
Fleet and other 86,883
 1.2
 4,054
 4.7
 0.4
  $7,383,479
 100.0% $1,119,944
 15.2% 100.0%
Nine Months Ended
September 30, 2016		 Revenues 
Percent of
Total Revenues
 
Gross Profit
 
Gross Profit
Margin
 
Percent of Total
Gross Profit
New vehicle $3,602,603
 56.4% $215,471
 6.0% 22.3%
Used vehicle retail 1,667,258
 26.1
 200,311
 12.0
 20.7
Used vehicle wholesale 207,131
 3.2
 4,234
 2.0
 0.4
Finance and insurance 1
 246,390
 3.9
 246,390
 100.0
 25.5
Service, body and parts 616,088
 9.6
 299,060
 48.5
 30.9
Fleet and other 46,697
 0.8
 1,013
 2.2
 0.2
  $6,386,167
 100.0% $966,479
 15.1% 100.0%

1 Commissions reported net of anticipated cancellations.



Same Store Operating Data
We believe that same store comparisons are an important indicator of our financial performance. Same store measures demonstrate our ability to grow revenues in our existing locations. As a result, same store measures have been integrated into the discussion below.
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS24

Same store measures reflect results for stores that were operating in each comparison period and only include the months when operations occurred in both periods. For example, a store acquired in August 20162021 would be included in same store operating data beginning in September 2017,2022, after its first full complete comparable month of operation. The third quarter operating results for the same store comparisons would include results for that store in only the periodmonth of September for both comparable periods.


Three Months Ended September 30,Nine Months Ended September 30,
($ in millions, except per unit values)20222021Change20222021Change
Revenues
New vehicle retail$2,770.4 $2,824.5 (1.9) %$7,316.1 $7,896.8 (7.4) %
Used vehicle retail2,180.2 2,033.7 7.2 5,908.5 5,058.5 16.8 
Finance and insurance285.7 289.0 (1.1)762.4 736.9 3.5 
Service, body and parts615.2 564.6 9.0 1,599.7 1,450.0 10.3 
Total Revenues6,245.9 6,021.1 3.7 16,585.1 15,891.5 4.4 
Gross profit
New vehicle retail$334.6 $342.2 (2.2) %$922.3 $791.5 16.5  %
Used vehicle retail174.9 228.6 (23.5)534.1 582.3 (8.3)
Finance and insurance285.7 289.0 (1.1)762.4 736.9 3.5 
Service, body and parts331.9 294.5 12.7 864.5 771.6 12.0 
Total Gross Profit1,117.2 1,161.8 (3.8)3,081.3 2,912.3 5.8 
Gross profit margins
New vehicle retail12.1 %12.1 %—  bps12.6 %10.0 %260  bps
Used vehicle retail8.0 11.2 (320)9.0 11.5 (250)
Finance and insurance100.0 100.0 — 100.0 100.0 — 
Service, body and parts53.9 52.2 170 54.0 53.2 80 
Total Gross Profit Margin17.9 19.3 (140)18.6 18.3 30 
Retail units sold
New vehicles58,086 64,873 (10.5) %152,689 187,024 (18.4) %
Used vehicles72,292 74,363 (2.8)194,946 197,621 (1.4)
Average selling price per retail unit
New vehicles$47,695 $43,540 9.5  %$47,915 $42,224 13.5  %
Used vehicles30,158 27,348 10.3 30,308 25,597 18.4 
Average gross profit per retail unit
New vehicles$5,761 $5,275 9.2 %$6,040 $4,232 42.7 %
Used vehicles2,419 3,074 (21.3)2,740 2,947 (7.0)
Finance and insurance2,191 2,075 5.6 2,193 1,916 14.5 
Total vehicle1
6,007 6,215 (3.3)6,356 5,557 14.4 
1 Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail.
New Vehicle Revenue and Gross Profit
  Three Months Ended September 30, Increase (Decrease) % Increase (Decrease)
(Dollars in thousands, except per unit amounts) 2017 2016  
Reported        
Revenue $1,553,511
 $1,297,511
 $256,000
 19.7 %
Gross profit $88,045
 $75,843
 $12,202
 16.1
Gross margin 5.7% 5.8% (10)bp
1 
 
         
Retail units sold 45,452
 38,417
 7,035
 18.3
Average selling price per retail unit $34,179
 $33,774
 $405
 1.2
Average gross profit per retail unit $1,937
 $1,974
 $(37) (1.9)
        

Same store  
  
  
  
Revenue $1,288,680
 $1,280,030
 $8,650
 0.7
Gross profit $72,246
 $74,903
 $(2,657) (3.5)
Gross margin 5.6% 5.9% (30)bp 

        

Retail units sold 37,762
 37,870
 (108) (0.3)
Average selling price per retail unit $34,126
 $33,801
 $325
 1.0
Average gross profit per retail unit $1,913
 $1,978
 $(65) (3.3)

1 A basis point is equal to 1/100th of one percent


  Nine Months Ended
September 30,		 Increase (Decrease) % Increase (Decrease)
(Dollars in thousands, except per unit amounts) 2017 2016  
Reported        
Revenue $4,147,870
 $3,602,603
 $545,267
 15.1 %
Gross profit $238,702
 $215,471
 $23,231
 10.8
Gross margin 5.8% 6.0% (20)bp
1 
 
         
Retail units sold 121,944
 107,225
 14,719
 13.7
Average selling price per retail unit $34,015
 $33,599
 $416
 1.2
Average gross profit per retail unit $1,957
 $2,010
 $(53) (2.6)
        

Same store      
  
Revenue $3,602,946
 $3,582,725
 $20,221
 0.6
Gross profit $207,549
 $214,415
 $(6,866) (3.2)
Gross margin 5.8% 6.0% (20)bp 

        

Retail units sold 105,870
 106,599
 (729) (0.7)
Average selling price per retail unit $34,032
 $33,609
 $423
 1.3
Average gross profit per retail unit $1,960
 $2,011
 $(51) (2.5)
1 A basis point is equal to 1/100th of one percent

New vehicle sales increased 19.7% and 15.1% inDuring the three and nine-month periodsmonths ended September 30, 20172022, we had net income attributable to Lithia Motors, Inc. of $329.6 million, or $11.92 per share on a diluted basis, compared to the same periods of 2016, primarily driven by an increase in volume related to acquisitions.

Same store new vehicle unit sales decreased 0.3% and 0.7%, respectively, in the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016. These volume decreases were offset by$307.9 million, or $10.11 per share on a 1.0% and 1.3% increase, respectively, in average price per unit for the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016. On a same storediluted basis, our stores performed better than national new vehicle sales levels, which decreased 1.2% and 1.9% , respectively, in the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016.
Same store unit sales increased (decreased) as follows:

 Three months ended September 30, 2017 compared to the same period of 2016 National growth in the three months ended September 30, 2017 compared to the same period of 2016 ¹ Nine months ended September 30, 2017 compared to the same period of 2016 National growth in the nine months ended September 30, 2017 compared to the same period of 2016 ¹
Domestic brand same store unit sales change (5.8)% (2.9)% (3.1)% (3.6)%
Import brand same store unit sales change 4.5
 0.6
 2.7
 (0.6)
Luxury brand same store unit sales change (7.8) (2.7) (9.7) 0.3
Overall (0.3) (1.2) (0.7) (1.9)

1 National auto unit sales and seasonally adjusted annual rate ("SAAR") data obtained from Stephens Auto Unit Sales and SAAR report as of September 2017.

National new vehicle sales market growth continues to moderate for all brands. Our domestic brand unit volume change outperformed the national average for the nine-month period ended September 30, 2017 compared toduring the same period of 2016 despite a decline in2021. During the third quarter of 2017 that exceeded the national domestic brand decline for the same period. Our performance, compared to the national trend for domestic brands, was mainly driven by Chrysler, which had same store unit sales decreases of 9.0% and 3.4%, respectively, offset by Ford, which had a same store unit sales increases of 6.5% and 1.5%, respectively, for the three and nine-month periodsnine months ended September 30, 20172022, we had net income attributable to Lithia Motors, Inc. of $1,003.4 million, or $35.10 per share on a diluted basis, compared to $769.0 million, or $26.91 per share on a diluted basis, during the same periodsperiod of 2016. This performance compares to2021.



national market decreases of 10.3% and 8.0%, respectively, for Chrysler and 0.9% and 2.9%, respectively, for Ford for the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016.
lad-20220930_g2.jpg
MANAGEMENT’S DISCUSSION AND ANALYSIS25


Our import brand unit volume outperformed the national average for the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016. Our Toyota stores, which comprised 21.2% of our total new vehicle unit sales in the third quarter of 2017, grew 11.3% and 4.0% for the three and nine-month periods ended September 30, 2017 compared to the same periods in 2016. This compares to national market increases of 8.3% and 0.5%, respectively, for the three and nine-months ended September 30, 2017 compared to the same periods of 2016. Our Honda stores, which comprised 20.4% of our total new vehicle unit sales in the third quarter of 2017, had same store unit increases of 2.1% and 1.1%, respectively, for the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016. The national average unit volume increases were 0.8% and 0.3%, respectively, for Honda in the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016.

The period-over-period volume decreases for our luxury brand unit volume exceeded the national average in the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016. The decreases were primarily associated with our BMW and Mercedes stores, which comprised 3.3% and 1.2%, respectively, of our total new vehicle unit sales in the third quarter of 2017. Our BMW stores had same store unit sales decreases of 24.6% and 18.6%, respectively, for the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016. This compares to national average decreases for BMW of 7.5% and 5.2% for the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016. Our Mercedes stores had same store unit sales decreases of 7.1% and 12.1%, respectively, for the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016. This compares to national average decreases for Mercedes of 7.1% and 3.0% for the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016. Our luxury brands were down more than the national average due to decreases in our local markets. We are concentrated in areas such as Seattle and New Jersey, where new vehicle registrations were down. Additionally, our BMW stores lost market share.

We seek to grow our new vehicle sales organically by gaining share in the markets we serve. To increase awareness and customer traffic, we use a combination of traditional, digital and social media advertisements to reach customers. We have established a company-wide target of achieving 25% higher sales than the national OEM average. As of September 30, 2017, our sales were 9% higher than the national OEM average.

New vehicle gross profit increased 16.1% and 10.8%, respectively, in the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016. On a same store basis, new vehicle gross profit decreased 3.5% and 3.2% in the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016. The same store average gross profit per unit for new vehicles decreased $65 and $51 in the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016.Vehicles

Under our business strategy, weWe believe that our new vehicle sales create incremental profit opportunities through certain manufacturer incentive programs, arranging of third partythird-party financing, vehicle service and insurance contracts, future resale of used vehicles acquired through trade-in, and parts and service work. Same store new vehicle revenue decreased 1.9% and 7.4%, respectively, for the three and nine-month periods ended September 30, 2022 compared to the same periods in 2021. This was due to a decrease in unit volume of 10.5%, offset by an increase in average selling prices of 9.5% for the three months ended September 30, 2022, compared to the same period of 2021; and a decrease in unit volume of 18.4%, offset by an increase in average selling prices of 13.5% in the nine months ended September 30, 2022, compared to the same period of 2021. Our leaders in each market continue to adapt to changing conditions, respond to customer needs and manage inventory availability and selection.



Consumer demand continued to outpace supply in the third quarter of 2022 and as each manufacturer navigates component shortages and recovery of inventory production varies. This imbalance has resulted in higher than normal average selling prices and gross profits per unit. While there has been improvements in certain brands, we continue to expect reduced levels of new vehicle availability throughout the remainder of 2022.


Same store new vehicle gross profit per unit increased 9.2% and 42.7%, respectively, increasing new vehicle gross profit margins zero bps and 260 bps, respectively, in the three and nine-month periods ended September 30, 2022 compared to the same periods of 2021.

Total same store new vehicle gross profit per unit, which includes the finance and insurance revenue generated from the sales of new vehicles, increased $670 to $8,080 and increased $2,116 to $8,343 for the three and nine-month periods ended September 30, 2022 compared to the same periods of 2021, respectively.

Used Vehicle Retail Revenue and Gross Profit
  Three Months Ended September 30, Increase (Decrease) % Increase (Decrease)
(Dollars in thousands, except per unit amounts) 2017 2016  
Reported        
Retail revenue $679,180
 $580,885
 $98,295
 16.9 %
Retail gross profit $78,658
 $68,809
 $9,849
 14.3
Retail gross margin 11.6% 11.8% (20)bp  
         
Retail units sold 34,717
 29,636
 5,081
 17.1
Average selling price per retail unit $19,563
 $19,601
 $(38) (0.2)
Average gross profit per retail unit $2,266
 $2,322
 $(56) (2.4)
         
Same store      
  
Retail revenue $593,285
 $572,862
 $20,423
 3.6
Retail gross profit $71,248
 $68,215
 $3,033
 4.4
Retail gross margin 12.0% 11.9% 10bp  
         
Retail units sold 30,115
 29,171
 944
 3.2
Average selling price per retail unit $19,701
 $19,638
 $63
 0.3
Average gross profit per retail unit $2,366
 $2,338
 $28
 1.2
  Nine Months Ended
September 30,		 Increase (Decrease) % Increase (Decrease)
(Dollars in thousands, except per unit amounts) 2017 2016  
Reported        
Retail revenue $1,915,038
 $1,667,258
 $247,780
 14.9 %
Retail gross profit $221,947
 $200,311
 $21,636
 10.8
Retail gross margin 11.6% 12.0% (40)bp  
         
Retail units sold 97,671
 84,783
 12,888
 15.2
Average selling price per retail unit $19,607
 $19,665
 $(58) (0.3)
Average gross profit per retail unit $2,272
 $2,363
 $(91) (3.9)
         
Same store      
  
Retail revenue $1,730,495
 $1,656,119
 $74,376
 4.5
Retail gross profit $205,438
 $199,432
 $6,006
 3.0
Retail gross margin 11.9% 12.0% (10)bp  
         
Retail units sold 87,553
 84,148
 3,405
 4.0
Average selling price per retail unit $19,765
 $19,681
 $84
 0.4
Average gross profit per retail unit $2,346
 $2,370
 $(24) (1.0)

Vehicles
Used vehicle retail sales are a strategic focus for organic growth. We offer three categories of used vehicles: manufacturer certified pre-owned ("CPO")(CPO) vehicles; core vehicles, or late-model vehicles with lower mileage; and value autos, or vehicles with over 80,000 miles. We have established a company-wide target of achieving a per store average of 85100 used retail units per month. Strategies to achieve this target include reducing wholesale sales and selling the full spectrum of used units, from late model CPO models to vehicles over tenup to twenty years old.



Same store sales of used vehicles increased (decreased) as follows:
  Three months ended September 30, 2017 compared to the same period of 2016 Nine months ended September 30, 2017 compared to the same period of 2016
Certified pre-owned vehicles (5.3)% (1.2)%
Core vehicles 7.6
 6.4
Value autos 9.3
 10.8
Overall 3.6
 4.5
The increases in same store used vehicle sales were primarily driven by increased unit sales in our core and value auto categories. For value autos, average selling prices increased 4.8% and 5.7%, respectively, for During the three and nine-monthsmonths ended September 30, 20172022, our stores sold an average of 90 used vehicles per store per month, compared to 92 used vehicles per store per month for the same periods of 2016. For core autos, average selling prices increased 1.1% and 0.2%, respectively, for the three and nine-monthsperiod ended September 30, 2017 compared2021. This slight decrease is due to the same periods of 2016. These increases offset the decreases in growth of our CPO vehicles, which had difficult comparisons as this category had double digit growth in 2016. On an annualized average, as of September 30, 2017 and 2016, each of our stores sold 67 and 65 retail used vehicle units, respectively, per month.performance at recently acquired locations.

Used retail vehicle gross profit increased 14.3% and 10.8%, respectively, in the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016. On a same store basis, gross profit increased 4.4% and 3.0%, respectively, in the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016, primarily driven by volume growth, partially offset in the nine-month period by a decrease in the average gross profit per unit sold. The same store gross profit per unit increased $28 and decreased $24, respectively,revenue for the three and nine-month periods ended September 30, 20172022 increased 18.6% and 37.4%, respectively, compared to the same periods of 2016.2021 due to higher average selling prices, driven by the shortage of new vehicles, and acquisition activity. On a same store basis, used vehicle sales for the three and nine-month periods ended September 30, 2022 increased 7.2% and 16.8%, respectively, as compared to the same periods of 2021. The changes were mainly due to increases of 10.3% and 18.4%, respectively, in average selling prices, offset by decreases of 2.8% and 1.4%, respectively, in volumes for the three and nine-month periods ended September 30, 2022. Volume decreases were driven by declining volumes associated with certified vehicles offset by positive growth in value autos. We continue to focus on procuring vehicles across the full spectrum of the addressable used vehicle market to provide customers with a wide selection meeting all levels of affordability, driving increased used vehicle unit volumes.


Our used vehicle operations provide an opportunity to generate sales to customers unable or unwilling to purchase a new vehicle, sell brands other than the store’s new vehicle franchise(s) and increase sales from finance and insurance and parts and service.


Total same store used vehicle gross profit per unit, which includes the finance and insurance revenue generated from the sales of retail used vehicles, decreased $601 to $4,496 and increased $56 to $4,843 for the three and nine-month periods ended September 30, 2022, as compared to the same periods of 2021, respectively.

Used Vehicle Wholesale Revenue and Gross Profit
  Three Months Ended September 30, Increase (Decrease) % Increase (Decrease)
(Dollars in thousands, except per unit amounts) 2017 2016  
Reported        
Wholesale revenue $65,739
 $75,271
 $(9,532) (12.7)%
Wholesale gross profit $1,174
 $918
 $256
 27.9
Wholesale gross margin 1.8% 1.2% 60bp  
         
Wholesale units sold 11,122
 10,853
 269
 2.5
Average selling price per wholesale unit $5,911
 $6,936
 $(1,025) (14.8)
Average gross profit per retail unit $106
 $85
 $21
 24.7

lad-20220930_g2.jpg
MANAGEMENT’S DISCUSSION AND ANALYSIS26

  Nine Months Ended
September 30,		 Increase (Decrease) % Increase (Decrease)
(Dollars in thousands, except per unit amounts) 2017 2016  
Reported        
Wholesale revenue $206,754
 $207,131
 $(377) (0.2)%
Wholesale gross profit $4,403
 $4,234
 $169
 4.0
Wholesale gross margin 2.1% 2.0% 10bp  
         
Wholesale units sold 32,868
 30,140
 2,728
 9.1
Average selling price per wholesale unit $6,290
 $6,872
 $(582) (8.5)
Average gross profit per retail unit $134
 $140
 $(6) (4.3)



Wholesale transactions are vehicles we have purchased from customers or vehicles we have attempted to sell via retail that we elect to dispose of due to age or other factors. Wholesale vehicles are typically sold at or near cost and do not comprise a meaningful component of our gross profit.

Finance and Insurance
  Three Months Ended
September 30,		 Increase (Decrease) % Increase (Decrease)
(Dollars in thousands, except per unit amounts) 2017 2016  
Reported        
Revenue $101,044
 $87,709
 $13,335
 15.2 %
Average finance and insurance per retail unit $1,260
 $1,289
 $(29) (2.2)%
         
Same store        
Revenue $87,371
 $86,951
 $420
 0.5 %
Average finance and insurance per retail unit $1,287
 $1,297
 $(10) (0.8)%

  Nine Months Ended
September 30,		 Increase % Increase
(Dollars in thousands, except per unit amounts) 2017 2016  
Reported        
Revenue $282,672
 $246,390
 $36,282
 14.7%
Average finance and insurance per retail unit $1,287
 $1,283
 $4
 0.3%
         
Same store        
Revenue $257,155
 $245,397
 $11,758
 4.8%
Average finance and insurance per retail unit $1,329
 $1,287
 $42
 3.3%

We believe that arranging timely vehicle financing is an important part of our ability to sell vehicles, and we attempt to arrange financing for every vehicle we sell. We also offer related products such as extended warranties, insurance contracts and vehicle and theft protection.protection which drive continued engagement with the consumer throughout the ownership lifecycle.


Same storeTotal finance and insurance revenues were flat for the three-month period ended September 30, 2017income increased 12.2% and increased 4.8% for the nine-month period ended September 30, 2017 as compared to the same periods of 2016. The slowing in the third quarter of 2017 was primarily due to a decline in penetration rates and a decrease in the average finance and insurance amount per retail unit. On a same store basis, our finance and insurance revenues per retail unit decreased $10 and increased $42,27.7%, respectively, in the three and nine-month periods ended September 30, 20172022 compared to the same periods of 2016, mainly due2021. Same store finance and insurance revenues decreased 1.1% and increased 3.5%, respectively, for the three and nine-month periods ended September 30, 2022 compared to the same periods of 2021. Revenue increases in unit volumeassociated with service contracts were offset by flat or slightly declining penetration rates.

Trendsa decline in penetration rates for total new and used retail vehicles sold are detailed below:
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Finance and insurance 75% 76% 76% 77%
Service contracts 45
 44
 45
 44
Lifetime lube, oil and filter contracts 26
 27
 26
 27

We seek tofinance reserve revenues as we increase our penetration rates associated with Driveway Finance Corporation and the growth of vehicle financing on the number of vehicles that we sellour captive auto loan portfolio business. On a same store basis, our finance and to offer a comprehensive suite of products. We target an average F&Iinsurance revenue per retail unit increased $116 to $2,191 and $277 to $2,193, respectively, in the three and nine-month periods ended September 30, 2022 compared to the same periods of $1,450. We believe improved performance from sales training and revised compensation plans will be critical factors in achieving this target.2021.




Service, Bodybody and Parts Revenue and Gross Profit
  Three Months Ended September 30, Increase % Increase
(Dollars in thousands) 2017 2016  
Reported        
Customer pay $143,842
 $118,915
 $24,927
 21.0%
Warranty 63,350
 53,203
 10,147
 19.1
Wholesale parts 39,463
 30,543
 8,920
 29.2
Body shop 19,028
 14,487
 4,541
 31.3
Total service, body and parts $265,683
 $217,148
 $48,535
 22.4%
         
Service, body and parts gross profit $132,492
 $104,342
 $28,150
 27.0%
Service, body and parts gross margin 49.9% 48.1% 180 bp
  
         
Same store        
Customer pay $123,001
 $117,904
 $5,097
 4.3%
Warranty 52,836
 52,801
 35
 0.1
Wholesale parts 30,836
 29,844
 992
 3.3
Body shop 14,683
 13,842
 841
 6.1
Total service, body and parts $221,356
 $214,391
 $6,965
 3.2%
         
Service, body and parts gross profit $109,591
 $103,025
 $6,566
 6.4%
Service, body and parts gross margin 49.5% 48.1% 140 bp
  

  Nine Months Ended
September 30,		 Increase % Increase
(Dollars in thousands) 2017 2016  
Reported        
Customer pay $402,313
 $339,640
 $62,673
 18.5%
Warranty 174,552
 145,747
 28,805
 19.8
Wholesale parts 111,796
 88,710
 23,086
 26.0
Body shop 55,601
 41,991
 13,610
 32.4
Total service, body and parts $744,262
 $616,088
 $128,174
 20.8%
         
Service, body and parts gross profit $368,166
 $299,060
 $69,106
 23.1%
Service, body and parts gross margin 49.5% 48.5% 100 bp  
         
Same store        
Customer pay $358,724
 $338,078
 $20,646
 6.1%
Warranty 152,738
 145,140
 7,598
 5.2
Wholesale parts 92,124
 87,958
 4,166
 4.7
Body shop 44,723
 40,966
 3,757
 9.2
Total service, body and parts $648,309
 $612,142
 $36,167
 5.9%
         
Service, body and parts gross profit $320,345
 $297,185
 $23,160
 7.8%
Service, body and parts gross margin 49.4% 48.5% 90 bp  

parts
We provide service, bodyautomotive repair and partsmaintenance services for customers for the new vehicle brands sold by our stores, as well as service and repairs for most other makes and models. Our parts and service operationsThese after sales services are an integral part of our customer retention and the largest contributor to our overall profitability. Earnings from service, body and parts have historically beenafter sales continue to prove to be more resilient during economic downturns, when owners have tendedtend to repair their existing vehicles rather than buy new vehicles.




Our service, body, and parts sales grew in all areasrevenue increased 23.2% and 34.5%, respectively, in the three and nine-month periods ended September 30, 20172022 compared to the same periods of 2016. There are more late-model units2021, driven by acquisitions, as well as increases in operation as new vehicle sales volumes have been increasing since 2010.customer pay revenues. We believe this increase inthe increased number of units in operation will continue to benefit our service, body and parts salesrevenue in the coming years as more late-model vehicles age, and requirenecessitating repairs and maintenance.

We focus on retaining customers by offering competitively-priced routine maintenance and through our marketing efforts. We increasedIn the three and nine-month periods ended September 30, 2022, the largest contribution to our service, body and parts revenue was same store customer pay business 4.3%revenue of $350.5 million and 6.1%$918.7 million, respectively.

Same store service, body and parts gross profit increased 12.7% and 12.0%, respectively, in the three and nine-month periods ended September 30, 20172022 compared to the same periods of 2016.
Same2021. These increases were primarily due to increased volumes of customer pay transactions. Overall same store warranty salesservice, body, and parts gross margins increased 0.1%170 and 5.2%,80 bps, respectively, in the three and nine-month periods ended September 30, 20172022 compared to the same periods of 2016. Warranty sales growth slowed in the third quarter2021, primarily as a result of 2017, as comparedour mix continuing to the growth experience in the nine-month period ended September 30, 2017. This is due to slowing warranty work related to recalls, particularly Honda and Toyota,shift towards customer pay, which had decreases in warranty sales of 39.2% and 14.9%, respectively, in the three month period ended September 30, 2017 and decreases of 14.9% and 11.3%, respectively, in the nine-month period ended September 30, 2017 as compared to the same periods of 2016. Our domestic and luxury stores offset this trend, resulting in the slight increase for the quarter.
The increases in same-store warranty work by segment were as follows:
  Three months ended September 30, 2017 compared to the same period of 2016 Nine months ended September 30, 2017 compared to the same period of 2016
Domestic 10.0 % 6.5 %
Import (11.5) (0.3)
Luxury 9.8
 13.8
has higher margins than other service work. Same store wholesale partscustomer pay gross margin increased 3.3%210 and 4.7% in the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016. We target independent repair shops, competing new vehicle dealers and wholesale accounts to expand parts sales to other repair shops.
Same store body shop increased 6.1% and 9.2%,170 bps, respectively, in the three and nine-month periods ended September 30, 20172022 compared to the same periods of 2016. Our stores have increased production through calculated adjustments to optimize personnel and equipment.2021.

Same store service, body and parts gross profit increased 6.4% and 7.8%, respectively, in the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016, which is in line with our revenue growth. Our gross margins increased as our mix shifted toward customer pay, which has a higher margin than other service.

Segments
Certain financial information by segment is as follows:
  Three Months Ended September 30, Increase (Decrease) % Increase
(Dollars in thousands) 2017 2016  
Revenues:        
Domestic $1,008,310
 $893,156
 $115,154
 12.9%
Import 1,209,955
 983,947
 226,008
 23.0
Luxury 463,518
 392,537
 70,981
 18.1
  2,681,783
 2,269,640
 412,143
 18.2
Corporate and other (1,441) 327
 (1,768) NM
  $2,680,342
 $2,269,967
 $410,375
 18.1%
NM - not meaningful


Three Months Ended September 30,Increase% Increase
 Nine Months Ended
September 30,		 Increase (Decrease) % Increase
(Dollars in thousands) 2017 2016 
(in millions)(in millions)20222021Increase% Increase
Revenues:        Revenues:  
Domestic $2,863,018
 $2,495,468
 $367,550
 14.7%Domestic$2,401.9 $1,819.2 $582.7 32.0 %
Import 3,276,667
 2,777,007
 499,660
 18.0
Import3,000.9 2,727.4 273.5 10.0 
Luxury 1,246,484
 1,111,215
 135,269
 12.2
Luxury1,843.0 1,595.1 247.9 15.5 
 7,386,169
 6,383,690
 1,002,479
 15.7
 7,245.8 6,141.7 1,104.1 18.0 
Corporate and other (2,690) 2,477
 (5,167) NM
Corporate and other49.9 28.1 21.8 NM
 $7,383,479
 $6,386,167
 $997,312
 15.6% $7,295.7 $6,169.8 $1,125.9 18.2 %
NM - not meaningful

  Three Months Ended September 30, Increase (Decrease) % Increase (Decrease)
(Dollars in thousands) 2017 2016  
Segment income1:
        
Domestic $31,141
 $32,292
 $(1,151) (3.6)%
Import 36,954
 32,934
 4,020
 12.2
Luxury 7,515
 7,423
 92
 1.2
  75,610
 72,649
 2,961
 4.1
Corporate and other 34,541
 26,794
 7,747
 28.9
Depreciation and amortization (14,828) (12,206) 2,622
 21.5
Other interest expense (9,905) (5,647) 4,258
 75.4
Other income (expense), net 1,125
 (1,513) 2,638
 NM
Income before income taxes $86,543
 $80,077
 $6,466
 8.1 %
lad-20220930_g2.jpg
MANAGEMENT’S DISCUSSION AND ANALYSIS27

 Nine Months Ended
September 30,		Increase% Increase
(in millions)20222021
Revenues:
Domestic$6,942.2 $5,018.5 $1,923.7 38.3 %
Import8,667.4 7,149.6 1,517.8 21.2 
Luxury5,524.5 4,325.8 1,198.7 27.7 
 21,134.1 16,493.9 4,640.2 28.1 
Corporate and other107.2 28.3 78.9 NM
 $21,241.3 $16,522.2 $4,719.1 28.6 %
NM –- not meaningful
 Three Months Ended September 30,Increase% Increase
(in millions)20222021
Segment income1:
    
Domestic$127.9 $123.6 $4.3 3.5 %
Import261.5 255.4 6.1 2.4 
Luxury109.5 108.5 1.0 0.9 
 498.9 487.5 11.4 2.3 
Corporate and other55.4 22.8 32.6 NM
$554.3 $510.3 $44.0 8.6 
 Nine Months Ended
September 30,		Increase% Increase
(in millions)20222021
Segment income1:
    
Domestic$400.1 $335.6 $64.5 19.2 %
Import782.8 573.2 209.6 36.6 
Luxury366.6 249.8 116.8 46.8 
 1,549.5 1,158.6 390.9 33.7 
Corporate and other117.6 80.1 37.5 NM
$1,667.1 $1,238.7 $428.4 34.6 
  Nine Months Ended
September 30,		 Increase % Increase
(Dollars in thousands) 2017 2016  
Segment income1:
        
Domestic $84,440
 $84,420
 $20
 —%
Import 91,365
 86,878
 4,487
 5.2
Luxury 22,542
 21,736
 806
 3.7
  198,347
 193,034
 5,313
 2.8
Corporate and other 111,281
 81,881
 29,400
 35.9
Depreciation and amortization (41,598) (36,372) 5,226
 14.4
Other interest expense (23,745) (16,608) 7,137
 43.0
Other income (expense), net 11,357
 (4,534) 15,891
 NM
Income before income taxes $255,642
 $217,401
 $38,241
 17.6%
 NM – Not meaningful

1Segment income for each reportable segmentof the segments is a Non-GAAP measure defined as incomeIncome from operations before income taxes, depreciation and amortization, other interest expense and other expense,income, net.

See Note 10 – Segments of the Condensed Notes to the Consolidated Financial Statements for additional information.


 Three Months Ended September 30, Increase % Increase Three Months Ended September 30,Increase (Decrease)% Increase (Decrease)
 2017 2016  20222021
Retail new vehicle unit sales:        Retail new vehicle unit sales:    
Domestic 13,911
 12,735
 1,176
 9.2%Domestic20,243 15,163 5,080 33.5 %
Import 26,621
 21,467
 5,154
 24.0
Import37,235 39,645 (2,410)(6.1)
Luxury 5,029
 4,287
 742
 17.3
Luxury12,282 12,096 186 1.5 
 45,561
 38,489
 7,072
 18.4
 69,760 66,904 2,856 4.3 
Allocated to management (109) (72) 37
 NM
Allocated to management(17)(18)(1)NM
 45,452
 38,417
 7,035
 18.3% 69,743 66,894 2,849 4.3 %
NM – Not meaningful

  Nine Months Ended
September 30,		 Increase % Increase
  2017 2016  
Retail new vehicle unit sales:        
Domestic 39,407
 35,176
 4,231
 12.0%
Import 69,643
 59,581
 10,062
 16.9
Luxury 13,168
 12,667
 501
 4.0
  122,218
 107,424
 14,794
 13.8
Allocated to management (274) (199) 75
 NM
  121,944
 107,225
 14,719
 13.7%
lad-20220930_g2.jpg
MANAGEMENT’S DISCUSSION AND ANALYSIS28


 Nine Months Ended
September 30,		Increase (Decrease)% Increase (Decrease)
 20222021
Retail new vehicle unit sales:    
Domestic58,463 47,219 11,244 23.8 %
Import108,329 112,303 (3,974)(3.5)
Luxury37,032 36,718 314 0.9 
 203,824 196,240 7,584 3.9 
Allocated to management(387)(314)73 NM
 203,437 195,934 7,503 3.8 %
NM – Not meaningful

Domestic
A summary of financial information for our Domestic segment follows:
Three Months Ended
September 30,		Increase% Increase
($ in millions)($ in millions)20222021
Revenue:Revenue:
New vehicle retailNew vehicle retail$1,078.3 $766.1 $312.2 40.8 %
Used vehicle retailUsed vehicle retail832.9 699.7 133.2 19.0 
Used vehicle wholesaleUsed vehicle wholesale115.4 74.5 40.9 54.9 
Finance and insuranceFinance and insurance98.9 80.5 18.4 22.9 
Service, body and partsService, body and parts206.7 170.2 36.5 21.4
Fleet and otherFleet and other69.7 28.2 41.5 147.2
 Three Months Ended
September 30,		 Increase (Decrease) % Increase (Decrease)$2,401.9 $1,819.2 $582.7 32.0 
(Dollars in thousands) 2017 2016 
Revenue $1,008,310
 $893,156
 $115,154
 12.9 %
Segment income $31,141
 $32,292
 $(1,151) (3.6)Segment income$127.9 $123.6 $4.3 3.5 
Retail new vehicle unit sales 13,911
 12,735
 1,176
 9.2
Retail new vehicle unit sales20,243 15,163 5,080 33.5 %
NM - not meaningful


  Nine Months Ended
September 30,		 Increase % Increase
(Dollars in thousands) 2017 2016  
Revenue $2,863,018
 $2,495,468
 $367,550
 14.7%
Segment income $84,440
 $84,420
 $20
 —
Retail new vehicle unit sales 39,407
 35,176
 4,231
 12.0

Our Domestic segment revenue increased 12.9% and 14.7%, respectively,32.0% in the three and nine-month periodsthree-month period ended September 30, 20172022 compared to the same periodsperiod of 2016. Since September 2016, we acquired five additional domestic brand stores, which contributed to2021, driven by increases in new vehicle, used vehicle retail, financeall major business lines. The acquisition of nine stores in 2022 and insurancethe acquisition and service body and parts sales.integration of 18 stores from 2021 were the primary contributors to these increases.


Our Domestic segment income decreased 3.6% and was unchanged, respectively,increased 3.5% in the three and nine-month periodsthree-month period ended September 30, 20172022 compared to the same periodsperiod of 2016. In2021, primarily due to gross profit growth of 18.0%. Total Domestic SG&A as a percentage of gross profit increased from 59.4% to 61.2% for the three-monthsthree-month period ended September 30, 2017, the decrease in segment income was due2022, compared to gross profits growth of 14.4%, in line with revenues, offset by growth in SG&A of 17.7% due to expense growth exceeding the rate of gross profit growth in all categories. Our Domestic segment experienced higher SG&A expenses in all areas. Additionally, floor plan interest expense increased 57.1%, comprised of approximately 26% related to increased volume due to acquisitions, 9% related to increased volume at existing stores and 22% related to rising interest rates. For the nine months ended September 30, 2017, segment income was flat despite growth in both revenue and gross profit. Growth in SG&A expenses of 18.6% and floor plan interest expense of 39.6% were the main drivers, offsetting all revenue growth resulting in flat segment income over the same period of 2016.

2021. The increase for the three-month period ended September 30, 2022 was primarily driven by increases in all SG&A categories without proportional increases in gross profit. Floor plan interest expense for Domestic stores increased 198.2% for the three-month period ended September 30, 2022 compared to the same period of 2021.



 Nine Months Ended
September 30,		Increase% Increase
($ in millions)20222021
Revenue:
New vehicle retail$3,083.1 $2,305.3 $777.8 33.7 %
Used vehicle retail2,418.7 1,803.7 615.0 34.1 
Used vehicle wholesale376.3 174.4 201.9 115.8 
Finance and insurance284.6 217.7 66.9 30.7 
Service, body and parts597.5 450.0 147.5 32.8 
Fleet and other182.0 67.4 114.6 170.0
$6,942.2 $5,018.5 $1,923.7 38.3 
Segment income$400.1 $335.6 $64.5 19.2 
Retail new vehicle unit sales58,463 47,219 11,244 23.8 %
NM - not meaningful

lad-20220930_g2.jpg
MANAGEMENT’S DISCUSSION AND ANALYSIS29

Our Domestic segment revenue increased 38.3% in the nine-month period ended September 30, 2022 compared to the same period of 2021, driven by increases across all business lines, primarily related to acquisition activity.

Our Domestic segment income increased 19.2% in the nine-month period ended September 30, 2022 compared to the same period of 2021, primarily due to gross profit growth of 27.4%. Total Domestic SG&A as a percentage of gross profit increased from 59.7% to 60.8% for the nine-month period ended September 30, 2022, compared to the same period of 2021. The increase for the nine-month period ended September 30, 2022 was primarily driven by increases in all SG&A categories without proportional increases in gross profit. Floor plan interest expense for Domestic stores increased 105.6% for the nine-month period ended September 30, 2022 compared to the same period of 2021.

Import
A summary of financial information for our Import segment follows:
Three Months Ended
September 30,		Increase (Decrease)% Increase (Decrease)
($ in millions)($ in millions)20222021
Revenue:Revenue:
New vehicle retailNew vehicle retail$1,389.0 $1,376.9 $12.1 0.9 %
Used vehicle retailUsed vehicle retail1,015.5 847.9 167.6 19.8 
Used vehicle wholesaleUsed vehicle wholesale112.7 99.5 13.2 13.3 
Finance and insuranceFinance and insurance178.9 162.9 16.0 9.8 
Service, body and partsService, body and parts292.1 235.3 56.8 24.1 
Fleet and otherFleet and other12.7 4.9 7.8 159.2
 Three Months Ended
September 30,		 Increase % Increase$3,000.9 $2,727.4 $273.5 10.0 
(Dollars in thousands) 2017 2016 
Revenue $1,209,955
 $983,947
 $226,008
 23.0%
Segment income $36,954
 $32,934
 $4,020
 12.2
Segment income$261.5 $255.4 $6.1 2.4 
Retail new vehicle unit sales 26,621
 21,467
 5,154
 24.0
Retail new vehicle unit sales37,235 39,645 (2,410)(6.1)%

NM - not meaningful

  Nine Months Ended
September 30,		 Increase % Increase
(Dollars in thousands) 2017 2016  
Revenue $3,276,667
 $2,777,007
 $499,660
 18.0%
Segment income $91,365
 $86,878
 $4,487
 5.2
Retail new vehicle unit sales 69,643
 59,581
 10,062
 16.9
Our Import segment revenue increased 23.0% and 18.0%, respectively,10.0% in the three and nine-month periodsthree-month period ended September 30, 20172022 compared to the same periodsperiod of 2016 due to2021, driven by increases in all major business lines. Since September 2016, we added eight import brand stores.The acquisition of 13 stores in 2022 and the acquisition and integration of 34 stores from 2021 were the primary contributors to these increases.


Segment income for our
Our Import segment income increased 12.2% and 5.2%, respectively,2.4% in the three andthree-month period ended September 30, 2022 compared to the same period of 2021, due to gross profit growth of 9.0%. Total Import SG&A as a percentage of gross profit increased from 55.6% to 57.3% for the three-month period ended September 30, 2022 compared to the same period of 2021. The increase for the three-month period ended September 30, 2022 was primarily driven by increases in all SG&A categories without proportional increases in gross profit. Floor plan interest expense for Import stores increased 82.7% in the three-month period ended September 30, 2022 compared to the same period of 2021.

 Nine Months Ended
September 30,		Increase (Decrease)% Increase (Decrease)
($ in millions)20222021
Revenue:
New vehicle retail$4,022.9 $3,730.7 $292.2 7.8 %
Used vehicle retail2,920.9 2,127.8 793.1 37.3 
Used vehicle wholesale361.2 247.8 113.4 45.8 
Finance and insurance532.3 408.9 123.4 30.2 
Service, body and parts802.5 596.9 205.6 34.4 
Fleet and other27.6 37.5 (9.9)(26.4)
$8,667.4 $7,149.6 $1,517.8 21.2 
Segment income$782.8 $573.2 $209.6 36.6 
Retail new vehicle unit sales108,329 112,303 (3,974)(3.5)%
 NM - not meaningful

Our Import segment revenue increased 21.2% in the nine-month period ended September 30, 2022 compared to the same period of 2021, driven by increases across all major business lines, primarily due to acquisition activity.
lad-20220930_g2.jpg
MANAGEMENT’S DISCUSSION AND ANALYSIS30


Our Import segment income increased 36.6% in the nine-month period ended September 30, 2022 compared to the same period of 2021, due to gross profit growth of 32.2%. Total Import SG&A as a percentage of gross profit decreased from 58.3% to 57.0% for the nine-month period ended September 30, 2022 compared to the same period of 2021. The decrease for the nine-month periods ended September 30, 20172022 was primarily driven by increased gross profit without proportional increases in all SG&A costs. Floor plan interest expense for Import stores increased 26.3% in the nine-month period ended September 30, 2022 compared to the same periodsperiod of 2016. In the three months ended September 30, 2017, the 12.2% growth in segment income was due to gross profits growth of 22.3%, in line with revenues, offset by SG&A expense growth of 23.2% mainly related to rising facility cost. Floor plan interest expense increased 73.6% and was a significant contributor to the slower growth in segment income. Acquisitions, resulting in increased volumes, comprised 27.5% of this increase, increased inventory levels at existing stores increased floor plan interest expense 14.2% and rising interest rates increased the expense 31.9%. For the nine months ended September 30, 2017, segment income grew 5.2% and lagged our revenue growth. Gross profit growth was 16.3% and lagged behind revenue growth for the period. Additionally, growth in SG&A expenses was 17.7%, slightly higher than the growth in gross profit, and floor plan interest expense increased 55.6% due to increased inventory levels and rising interest rates. The net effect of these factors was slower segment income growth compared to revenue growth.2021, respectively.


Luxury
A summary of financial information for our Luxury segment follows:
Three Months Ended
September 30,		Increase% Increase
($ in millions)($ in millions)20222021
Revenue:Revenue:
New vehicle retailNew vehicle retail$840.3 $750.9 $89.4 11.9 %
Used vehicle retailUsed vehicle retail618.2 530.3 87.9 16.6 
Used vehicle wholesaleUsed vehicle wholesale92.1 72.8 19.3 26.5 
Finance and insuranceFinance and insurance61.2 56.1 5.1 9.1 
Service, body and partsService, body and parts200.3 162.8 37.5 23.0 
Fleet and otherFleet and other30.9 22.2 8.7 39.2
 Three Months Ended
September 30,		 Increase % Increase$1,843.0 $1,595.1 $247.9 15.5 
(Dollars in thousands) 2017 2016 
Revenue $463,518
 $392,537
 $70,981
 18.1%
Segment income $7,515
 $7,423
 $92
 1.2
Segment income$109.5 $108.5 $1.0 0.9 
Retail new vehicle unit sales 5,029
 4,287
 742
 17.3
Retail new vehicle unit sales12,282 12,096 186 1.5 %

NM - not meaningful

  Nine Months Ended
September 30,		 Increase % Increase
(Dollars in thousands) 2017 2016  
Revenue $1,246,484
 $1,111,215
 $135,269
 12.2%
Segment income $22,542
 $21,736
 $806
 3.7
Retail new vehicle unit sales 13,168
 12,667
 501
 4.0

Our Luxury segment revenue increased 18.1% and 12.2%, respectively,15.5% in the three and nine-month periodsthree-month period ended September 30, 20172022 compared to the same periodsperiod of 2016 due to2021, driven by increases in used vehicle retail, financeall business lines. The acquisition of three stores in 2022 and insuranceacquisition and service body and parts sales. Inintegration of 26 stores from 2021 were the past twelve months, we added five luxury brand stores.primary contributors to these increases.


Our Luxury segment income increased 1.2% and 3.7%, respectively,0.9% for the three and nine-month periodsthree-month period ended September 30, 20172022 compared to the same periodsperiod of 2016. In the three months ended September 30, 2017, the 1.2% growth in segment income was2021, due to gross profit growth of 21.9%, offset12.8%. Total Luxury SG&A as a percentage of gross profit increased from 59.6% to 61.9% for the three-month period ended September 30, 2022 compared to the same period of 2021. The increase for the three-month period ended September 30, 2022 was primarily driven by anincreases in all SG&A expense increase of 22.7%, mainly related to advertising expense.categories without proportional increases in gross profit. Floor plan interest expense increasefor Luxury stores increased 124.4% for the three-month period ended September 30, 2022 compared to the same period of 65.2%, which was comprised2021.

 Nine Months Ended
September 30,		Increase% Increase
($ in millions)20222021
Revenue:
New vehicle retail$2,513.2 $2,204.1 $309.1 14.0 %
Used vehicle retail1,861.9 1,309.9 552.0 42.1 
Used vehicle wholesale300.5 171.9 128.6 74.8 
Finance and insurance187.2 145.7 41.5 28.5 
Service, body and parts580.3 434.7 145.6 33.5 
Fleet and other81.4 59.5 21.9 36.8
$5,524.5 $4,325.8 $1,198.7 27.7 
Segment income$366.6 $249.8 $116.8 46.8 
Retail new vehicle unit sales37,032 36,718 314 0.9 %
NM - not meaningful

Our Luxury segment revenue increased 27.7% in the nine-month period ended September 30, 2022 compared to the same period of 33.1% related2021, driven by increases in all business lines, primarily due to increased volume from acquisitions, 7.8% related to increased volume at existing stores and 24.3% related to rising interest rates. These factors resulted in sloweracquisition activity.
lad-20220930_g2.jpg
MANAGEMENT’S DISCUSSION AND ANALYSIS31

Our Luxury segment income growth compared to revenue growth. Forincreased 46.8% for the nine monthsnine-month period ended September 30, 2017, segment income grew 3.7% and lagged our revenue growth for that period. Gross2022 compared to the same period of 2021, due to gross profit growth was 13.5%, slightly better than revenue growthof 37.7%. Total Luxury SG&A as a percentage of gross profit decreased from 62.6% to 60.0% for the period. Thisnine-month period ended September 30, 2022 compared to the same period of 2021. The decrease for the nine-month period ended September 30, 2022 was offsetprimarily driven by growthincreased gross profit without proportional increases in all SG&A expense of 13.7% and floorcosts. Floor plan interest expense growthfor Luxury stores increased 52.3% for the nine-month period ended September 30, 2022 compared to the same period of 37.3% due to rising interest rates and increasing inventories. These factors resulted in slower segment income growth than revenue growth.2021.


Corporate and Other
Revenues attributable to Corporate and other include the results of operations of our stand-alone body shop,shops and centralized used vehicle team, offset by certain unallocated reservereserves and elimination adjustments related to vehicle sales.
 Three Months Ended
September 30,		Increase% Increase
(in millions)20222021
Revenue, net$49.9 $28.1 $21.8 77.6 %
Segment income$55.4 $22.8 $32.6 143.0 %
NM - not meaningful

 Nine Months Ended
September 30,		Increase% Increase
(in millions)20222021
Revenue, net$107.2 $28.3 $78.9 278.8 %
Segment income$117.6 $80.1 $37.5 46.8 %
  Three Months Ended
September 30,		 Increase (Decrease) % Increase (Decrease)
(Dollars in thousands) 2017 2016  
Revenue, net $(1,441) $327
 $(1,768) (540.7)%
Segment income $34,541
 $26,794
 $7,747
 28.9

  Nine Months Ended
September 30,		 Increase (Decrease) % Increase (Decrease)
(Dollars in thousands) 2017 2016  
Revenue, net $(2,690) $2,477
 $(5,167) (208.6)%
Segment income $111,281
 $81,881
 $29,400
 35.9
NM - not meaningful
 
The decreaseschanges in Corporate and other revenue in the three and nine-month periods ended September 30, 20172022 compared to the same periods of 20162021 were primarily related to increased used vehicle wholesales associated with our centralized used vehicle team and changes to certain reserves that arewere not specifically identified with our domestic, importDomestic, Import or luxuryLuxury segment revenue, such as our reserve for revenue reversals associated with unwound vehicle sales and elimination of revenues associated with internal corporate vehicle purchases and leases with our stores. Corporate and other revenues were impacted in 2017 from an increase in internal corporate vehicle purchases and leases with our stores resulting in negative revenues for the three and nine month-periods ended September 30, 2017.sales.
 
Segment incomeIncome attributable to Corporate and other includes amounts associated with the operating income from our stand-alone body shop,shops, centralized used vehicle team and certain internal corporate expense allocations that reduce reportable segment income but increase Corporate and other income. These internal corporate expense allocations are used to increase comparability of our dealerships and reflect the capital burden a stand-alone dealership would experience. Examples of these internal allocations include internal rent expense, internal floor plan financing charges, and internal fees charged to offset employees within our corporate headquarters who perform certain dealership functions. Income attributable to Corporate and other also includes gains on the divestiture of stores.


Corporate and other segment income increased $7.7$32.6 million and $29.4$37.5 million respectively, for the three and nine-month periods ended September 30, 20172022, compared to the same periods of 2016. These increases were2021, primarily due to the addition of 18 storesincreases in the past twelve months, reducedinternal corporate expense allocations with dealerships, offset by certain unusual expenses. The three and nine-month periods ended September 30, 2017 included acquisition expenses of $3.5 million and $5.7 million, respectively, and an insurance reserve charge of $1.7 million and $5.6 million, respectively, related storm damages. The 2016 results included impairment charges of $3.5 million and $10.5 million, respectively, for the three and nine-month periods ended September 30, 2016 related to an equity investment.increases in SG&A.


Asset Impairments
Asset impairments consist of the following:
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
(Dollars in thousands) 2017 2016 2017 2016
Equity-method investment $—
 $3,498
 $—
 $10,494


The asset impairments recorded in 2016 were associated with our equity-method investment in a limited liability company. We evaluated this equity-method investment at the end of each reporting period and identified indications of loss resulting from other than temporary declines in value. We exited this equity-method investment in December 2016. See Note 9 of the Condensed Notes to the Consolidated Financial Statements for additional information.

Selling, General and Administrative Expense (“SG&A”)(SG&A)
SG&A includes salaries and related personnel expenses, advertising (net of manufacturer cooperative advertising credits), rent, facility costs, and other general corporate expenses.
  Three Months Ended September 30, Increase % Increase
(Dollars in thousands) 2017 2016  
Personnel $182,443
 $151,801
 $30,642
 20.2%
Advertising 24,572
 20,110
 4,462
 22.2
Rent 8,768
 6,694
 2,074
 31.0
Facility costs 14,992
 12,488
 2,504
 20.1
Other 51,466
 37,041
 14,425
 38.9
Total SG&A $282,241
 $228,134
 $54,107
 23.7%
  Three Months Ended September 30, Increase
As a % of gross profit 2017 2016 
Personnel 45.3% 45.0% 30bp
Advertising 6.1
 6.0
 10
Rent 2.2
 2.0
 20
Facility costs 3.7
 3.7
 —
Other 12.7
 10.9
 180
Total SG&A 70.0% 67.6% 240bp

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MANAGEMENT’S DISCUSSION AND ANALYSIS32

Three Months Ended September 30,Increase (Decrease)% Increase
 Nine Months Ended
September 30,		 Increase % Increase
(Dollars in thousands) 2017 2016 
(in millions)(in millions)20222021Increase (Decrease)% Increase
Personnel $513,439
 $445,053
 $68,386
 15.4%Personnel$536.4 $475.4 
Advertising 67,516
 59,229
 8,287
 14.0
Advertising64.7 46.4 18.3 39.4 
Rent 23,216
 20,040
 3,176
 15.8
Rent18.3 14.3 4.0 28.0 
Facility costs 44,371
 30,920
 13,451
 43.5
Facility costs1
Facility costs1
39.5 31.2 8.3 26.6 
Gain on sale of assetsGain on sale of assets(36.3)(2.6)(33.7)NM
Other 133,761
 107,524
 26,237
 24.4
Other126.6 108.6 18.0 16.6 
Total SG&A $782,303
 $662,766
 $119,537
 18.0%Total SG&A$749.2 $673.3 $75.9 11.3 %
  Nine Months Ended
September 30,		 Increase (Decrease)
As a % of gross profit 2017 2016 
Personnel 45.8% 46.0% (20)bp
Advertising 6.0% 6.1% (10)
Rent 2.1% 2.1% —
Facility costs 4.0% 3.2% 80
Other 12.0% 11.2% 80
Total SG&A 69.9% 68.6% 130bp
1 Includes variable lease costs related to the reimbursement of actual costs incurred by our lessors for common area maintenance, property taxes and insurance on leased property.

NM - not meaningful
Three Months Ended September 30,Increase (Decrease)
As a % of gross profit20222021
Personnel40.8 %40.0 %80 bps
Advertising4.9 3.9 100 
Rent1.4 1.2 20 
Facility costs3.0 2.6 40 
Gain on sale of assets(2.8)(0.2)(260)
Other9.7 9.1 60 
Total SG&A57.0 %56.6 %40 bps

 Nine Months Ended
September 30,		Increase (Decrease)% Increase
(in millions)20222021
Personnel$1,606.8 $1,242.0 $364.8 29.4 %
Advertising190.1 114.3 75.8 66.3 
Rent54.0 37.9 16.1 42.5 
Facility costs1
111.2 82.9 28.3 34.1 
(Gain) loss on sale of assets(49.9)2.8 (52.7)NM
Other344.6 277.7 66.9 24.1 
Total SG&A$2,256.8 $1,757.6 $499.2 28.4 %
1 Includes variable lease costs related to the reimbursement of actual costs incurred by our lessors for common area maintenance, property taxes and insurance on leased property.
NM - not meaningful
 Nine Months Ended
September 30,		Increase (Decrease)
As a % of gross profit20222021
Personnel40.7 %41.2 %(50)bps
Advertising4.8 3.8 100 
Rent1.4 1.3 10 
Facility costs2.8 2.7 10 
(Gain) loss on sale of assets(1.3)0.1 (140)
Other8.8 9.2 (40)
Total SG&A57.2 %58.3 %(110)bps

SG&A as a percentage of gross profit was 57.0% and 57.2% for the three and nine-month periods ended September 30, 2022 compared to 56.6% and 58.3% for the same periods of 2021, respectively. SG&A expense increased 23.7%11.3% and 18.0%, respectively,28.4% in the three and nine-month periods ended September 30, 20172022 compared to the same periods of 2016.2021, respectively. Overall, increases in SG&A expense were dueincreased in all areas, primarily to growth through acquisitions. In the three-month period ended September 30, 2017 compared to the same period in 2016, increases related to rent expenses and other expenses outpaced the overall increase. Increased rent expense in the three-month period ended September 30, 2017 was a result of our


recent acquisitions in the current quarter with leased properties. Other expenses in the three-month period ended September 30, 2017 include acquisition expenses of $3.5 million, storm insurance reserve charges of $1.7 million and other reserve adjustments related to our auto loan receivables and medical insurance. For the nine-month period ended September 30, 2017, facility cost and other expenses increased more significantly than other components of SG&A. The increase in facility costs was mainly due to lower costs as a result of our network expansion in 2021 and 2022.

On a $3.4 million gainsame store basis and excluding non-core charges, SG&A as a percentage of gross profit was 61.2% and 60.0% for property-related insurance proceedsthe three and a $1.1 million gain on the sale of stores in the first quarter 2016. For the nine-month periodperiods ended September 30, 2017, other expenses included $5.7 million2022 compared to 55.7% and 57.2% for the
lad-20220930_g2.jpg
MANAGEMENT’S DISCUSSION AND ANALYSIS33

same periods of acquisition expenses, a $5.6 million increase in storm insurance reserve related charges2021, respectively. The increases for the three and increases to other reservesnine-month periods ended September 30, 2022 were primarily related to our auto loan receivables.increased SG&A costs without proportionate increases in gross profit.


SG&A expense adjusted for non-core charges was as follows (in thousands):follows:
 Three Months Ended
September 30,		Increase% Increase
(in millions)20222021
Personnel$536.4 $475.4 $61.0 12.8 %
Advertising64.7 46.4 18.3 39.4 
Rent18.3 14.3 4.0 28.0 
Facility costs1
39.5 31.2 8.3 26.6 
Adjusted (gain) loss on sale of assets0.2 (2.6)2.8 NM
Adjusted other124.6 98.9 25.7 26.0 
Adjusted total SG&A$783.7 $663.6 $120.1 18.1 %
1 Includes variable lease costs related to the reimbursement of actual costs incurred by our lessors for common area maintenance, property taxes and insurance on leased property.
NM - not meaningful

 Three Months Ended
September 30,		Increase
As a % of gross profit20222021
Personnel40.8 %40.0 %80 bps
Advertising4.9 3.9 100 
Rent1.4 1.2 20 
Facility costs3.0 2.6 40 
Adjusted (gain) loss on sale of assets— (0.2)20 
Adjusted other9.5 8.3 120 
Adjusted total SG&A59.6 %55.8 %380 bps

 Nine Months Ended
September 30,		Increase% Increase
(in millions)20222021
Personnel$1,606.8 $1,242.0 $364.8 29.4 %
Advertising190.1 114.3 75.8 66.3 %
Rent54.0 37.9 16.1 42.5 %
Facility costs1
111.2 82.9 28.3 34.1 %
Adjusted gain on sale of assets(0.3)(2.4)2.1 NM
Adjusted other334.5 254.8 79.7 31.3 %
Adjusted total SG&A$2,296.3 $1,729.5 $566.8 32.8 %
1 Includes variable lease costs related to the reimbursement of actual costs incurred by our lessors for common area maintenance, property taxes and insurance on leased property.
NM - not meaningful
 Nine Months Ended
September 30,		Increase (Decrease)
As a % of gross profit20222021
Personnel40.7 %41.2 %(50)bps
Advertising4.8 3.8 100 
Rent1.4 1.3 10 
Facility costs2.8 2.7 10 
Adjusted gain on sale of assets— (0.1)10 
Adjusted other8.5 8.5 — 
Adjusted total SG&A58.2 %57.4 %80 bps

  Three Months Ended
September 30,		 Increase % Increase
(Dollars in thousands) 2017 2016  
Personnel $182,443
 $151,803
 $30,640
 20.2%
Advertising 24,572
 20,110
 4,462
 22.2
Rent 8,768
 6,694
 2,074
 31.0
Adjusted facility costs 14,992
 12,489
 2,503
 20.0
Adjusted other 46,246
 37,038
 9,208
 24.9
Adjusted total SG&A $277,021
 $228,134
 $48,887
 21.4%
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MANAGEMENT’S DISCUSSION AND ANALYSIS34

  Three Months Ended
September 30,		 Increase
As a % of gross profit 2017 2016 
Personnel 45.3% 45.0% 30bp
Advertising 6.1% 6.0% 10
Rent 2.2% 2.0% 20
Adjusted facility costs 3.7% 3.7% —
Adjusted other 11.4% 10.9% 50
Adjusted total SG&A 68.7% 67.6% 110bp
Adjusted SG&A for three-months ended September 30, 2022 excludes $2.0 million in acquisition-related expenses and a $36.5 million net gain on store disposals. For the nine-months ended September 30, 2022, adjusted SG&A excludes $10.1 million in acquisition-related expenses and a $49.6 million net gain on store disposals.

  Nine Months Ended
September 30,		 Increase % Increase
(Dollars in thousands) 2017 2016  
Personnel $513,439
 $445,055
 $68,384
 15.4%
Advertising 67,516
 59,229
 8,287
 14.0%
Rent 23,216
 20,040
 3,176
 15.8%
Adjusted facility costs 44,371
 32,007
 12,364
 38.6%
Adjusted other 122,526
 105,616
 16,910
 16.0%
Adjusted total SG&A $771,068
 $661,947
 $109,121
 16.5%

  Nine Months Ended
September 30,		 Increase (Decrease)
As a % of gross profit 2017 2016 
Personnel 45.8% 46.0% (20)bp
Advertising 6.0% 6.1% (10)
Rent 2.1% 2.1% —
Adjusted facility costs 4.0% 3.3% 70
Adjusted other 10.9% 11.0% (10)
Adjusted total SG&A 68.8% 68.5% 30bp




Adjusted SG&A for the three monthsthree-months ended September 30, 20172021 excludes acquisition expenses of $3.5$3.4 million and ain storm insurance reserve related charge of $1.7 million.charges and $6.3 million in acquisition-related expenses. For the three monthsnine-months ended September 30, 2016 there were no adjustments to SG&A. Adjusted SG&A for the nine month period ended September 30, 2017 excludes $5.7 million of acquisition expense and $5.6 million of storm insurance related charges. In the nine month period ended September 30, 20162021, adjusted SG&A excludes $5.0 million in storm insurance reserve charges, $17.9 million in acquisition-related expenses, and a $1.1$5.2 million gain for the disposal of stores, offset by a $1.9 million legal reserve adjustment. net loss on store disposals.

See “Non-GAAP Reconciliations” for more details.


Depreciation and Amortization
Depreciation and amortization is comprised of depreciation expense related to buildings, significant remodels or improvements, furniture, tools, equipment, and signage, and amortization of certain intangible assets, including customer lists and non-compete agreements.lists.
 Three Months Ended September 30,Increase% Increase
(in millions)20222021
Depreciation and amortization$41.9 $34.4 $7.5 21.8 %

 Nine Months Ended
September 30,		Increase% Increase
(in millions)20222021
Depreciation and amortization$122.1 $91.5 $30.6 33.4 %
  Three Months Ended September 30, Increase % Increase
(Dollars in thousands) 2017 2016  
Depreciation and amortization $14,828
 $12,206
 $2,622
 21.5%

  Nine Months Ended
September 30,		 Increase % Increase
(Dollars in thousands) 2017 2016  
Depreciation and amortization $41,598
 $36,372
 $5,226
 14.4%

TheAcquisition activity contributed to the increases in depreciation and amortization in 2022 compared to 2021. We acquired approximately $268 million of depreciable property as part of our acquisition activity over the last twelve months ended September 30, 2022. For the nine-months ended September 30, 2022, we invested $209.8 million in capital expenditures. These investments increased the amount of depreciation expense in the three and nine-month periods ended September 30, 2017 compared to2022. See the same periods of 2016 were primarily due to capital expendituresdiscussion under “Liquidity and acquisitions that occurred since September 30, 2016. Our largest capital investments were related to expanding and improving facilities subsequent to the acquisition of stores, as well as investments in improvements at our existing facilities. These investments increase the amount of depreciable assets and amortizable expenses. In the full year of 2016 and the first nine months of 2017, we had capital expenditures of $100.8 million and $72.2 million, respectively.Capital Resources” for additional information.


Operating Margin
Operating income as a percentage of revenue, or operating margin, was as follows:
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2022202120222021
Operating margin7.2 %7.8 %7.4 %7.0 %
Operating margin adjusted for non-core charges 1
6.7 %8.0 %7.2 %7.2 %
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Operating margin 4.0% 4.1% 4.0% 4.0%
Operating margin adjusted for non-core charges 1
 4.1% 4.3% 4.2% 4.2%

1 See “Non-GAAP Reconciliations” for more details.
 
Operating margin declined slightlymargins decreased 60 bps and increased 40 bps in the three monthsand nine-month periods ended September 30, 20172022 compared to the same period in 2016 and was consistent with prior year2021, respectively. The changes in operating margins for the nine monthsthree and nine-month periods ended September 30, 2017. Adjusting for non-core charges, as detailed below in Non-GAAP Reconciliations, adjusted operating margin declined slightly in the three months ended September 30, 20172022 were primarily due to increased gross profit of 10.5% and 30.8% with offsetting increases to SG&A of 11.3% and 28.4%, respectively, compared to the same periodperiods in 2016 and was consistent with the prior year for the nine months ended September 30, 2017. Our recent acquisitions of the Baierl Auto Group and DTLA Auto Group impacted our operating margin as we continue to integrate these stores into our cost structure. We continue to focus on cost control, which allows us to leverage our cost structure in an environment of improving sales.2021.


Floor Plan Interest Expense and Floor Plan Assistance

 Three Months Ended
September 30,		Nine Months Ended
September 30,
(in millions)20222021% Change20222021% Change
Floor plan interest expense (new vehicles)$10.7 $3.6 197.2 %$19.4 $17.0 14.1 %
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		  
(Dollars in thousands) 2017 2016 % Change 2017 2016 % Change
Floor plan interest expense (new vehicles) 10,629
 6,186
 71.8% 28,013
 18,304
 53.0%




Floor plan interest expense increased $4.4$7.1 million and $9.7$2.4 million respectively, in the three and nine-month periods ended September 30, 20172022 compared to the same periods of 2016. The 72% increase in floor plan interest expense for the three-month period ended September 30, 2017 compared to the same period in 2016 was2021, respectively. These increases were primarily due to a 31% increaseincreases in inventory levels related to acquisitions, a 22% increase in existing store inventory levels, and a 19% increase related to increasing LIBOR rates as compared to the same period of 2016. The 53% increase in floor planrising interest expense for the nine-month period ended September 30, 2017 compared to the same period in 2016 was due to a 21% increase related to acquisitions, an 17% due to increasing inventory levels at existing stores and a 15% increase due to increasing LIBOR rates.

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MANAGEMENT’S DISCUSSION AND ANALYSIS35

Floor plan assistance is provided by manufacturers to support store financing of new vehicle inventory. Under accounting standards, floor plan assistanceinventory and is recorded as a component of new vehicle gross profit when the specific vehicle is sold. However, because manufacturers provide this assistance to offset inventory carrying costs, we believe a comparison of floor plan interest expense to floor plan assistance is a useful measure of the efficiency of our new vehicle sales relative to stocking levels.


The following tables detailtable details the carrying costs for new vehicles and includeincludes new vehicle floor plan interest net of floor plan assistance earned.
 Three Months Ended September 30, %
(in millions)20222021ChangeChange
Floor plan interest expense (new vehicles)$10.7 $3.6 $7.1 197.2 %
Floor plan assistance (included as an offset to cost of sales)(33.3)(30.4)(2.9)9.5 
Net new vehicle carrying costs$(22.6)$(26.8)$4.2 (15.7)
NM - not meaningful
 Nine Months Ended
September 30,		 %
(in millions)20222021ChangeChange
Floor plan interest expense (new vehicles)$19.4 $17.0 $2.4 14.1 %
Floor plan assistance (included as an offset to cost of sales)(96.6)(90.0)(6.6)7.3 
Net new vehicle carrying costs$(77.2)$(73.0)$(4.2)5.8 
  Three Months Ended September 30,   %
(Dollars in thousands) 2017 2016 Change Change
Floor plan interest expense (new vehicles) $10,629
 $6,186
 $4,443
 71.8 %
Floor plan assistance (included as an offset to cost of sales) (15,130) (12,044) (3,086) 25.6
Net new vehicle carrying costs $(4,501) $(5,858) $1,357
 (23.2)%
NM - Not meaningful


  Nine Months Ended
September 30,		   %
(Dollars in thousands) 2017 2016 Change Change
Floor plan interest expense (new vehicles) $28,013
 $18,304
 $9,709
 53.0 %
Floor plan assistance (included as an offset to cost of sales) (40,186) (33,614) (6,572) 19.6
Net new vehicle carrying costs $(12,173) $(15,310) $3,137
 (20.5)%

Other Interest Expense
Other interest expense includes interest on senior notes, debt incurred related to acquisitions, real estate mortgages, our used and service loaner vehicle inventory financing facilitycommitments, non-recourse notes payable and our revolving linelines of credit.
 Three Months Ended September 30,Increase% Increase
(in millions)20222021
Mortgage interest$6.7 $6.1 $0.6 9.8 
Other interest43.6 22.5 21.1 93.8 
Capitalized interest(0.7)(0.6)0.1 NM
Total other interest expense$49.6 $28.0 $21.6 77.1 %
NM - not meaningful
 Nine Months Ended
September 30,		Increase (Decrease)% Increase (Decrease)
(in millions)20222021
Mortgage interest$18.1 $19.4 $(1.3)(6.7)%
Other interest97.9 61.7 36.2 58.7 
Capitalized interest(1.9)(1.5)0.4 NM
Total other interest expense$114.1 $79.6 $34.5 43.3 %
  Three Months Ended September 30, Increase % Increase
(Dollars in thousands) 2017 2016  
Mortgage interest $4,964
 $3,787
 $1,177
 31.1
Other interest 5,092
 1,939
 3,153
 162.6
Capitalized interest (151) (79) 72
 91.1
Total other interest expense $9,905
 $5,647
 4,258
 75.4%
NM - not meaningful


Other interest expense for the three and nine-month periods ended September 30, 2022 increased $21.6 million and $34.5 million related to increased borrowings and interest rates compared to the same periods of 2021.

Other Expense, net
 Three Months Ended September 30,Decrease% Decrease
(Dollars in millions)20222021
Other Expense, net$(7.1)$(25.7)$18.6 (72.4)%

  Nine Months Ended
September 30,		 Increase % Increase
(Dollars in thousands) 2017 2016  
Mortgage interest $14,049
 $11,034
 $3,015
 27.3%
Other interest 10,040
 5,889
 4,151
 70.5
Capitalized interest (344) (315) 29
 9.2
Total other interest expense $23,745
 $16,608
 7,137
 43.0%

lad-20220930_g2.jpg
MANAGEMENT’S DISCUSSION AND ANALYSIS36

The increases
 Nine Months Ended
September 30,		Increase% Decrease
(Dollars in millions)20222021
Other Expense, net$(37.0)$(14.6)$(22.4)153.4 %

Other expense, net in the nine-month period ended September 30, 2022, was primarily related to a $32.6 million unrealized investment loss associated with the change in fair value of $4.3our investment in Shift Technologies, Inc. We also experienced a $15.0 million and $7.1$18.6 million loss, respectively, in other interest expensedue to foreign currency exchange in the three and nine-month periods ended September 30, 2017 compared to the same periods of 2016 were primarily2022. We experienced a $1.6 million loss due to higher volumes of borrowing on our credit


facility and higher mortgage interest due to additional mortgage financings and increased interest rates. In July 2017, we issued $300 million in 5.25% Senior Notes, which contributed $3.0 million of additional interest expenseforeign currency exchange in the third quarter of 2017.

Other Income (Expense), Net
  Three Months Ended September 30, Increase % Increase
(Dollars in thousands) 2017 2016  
Other Income (Expense), net $1,125
 $(1,513) $2,638
 NM
  Nine Months Ended
September 30,		 Increase % Increase
(Dollars in thousands) 2017 2016  
Other Income (Expense), net $11,357
 $(4,534) $15,891
 NM

Other income (expense), net in thethree and nine-month periodperiods ended September 30, 2017 included a $9.1 million gain related to legal settlements with OEMs recorded in the first quarter of 2017. Other income (expense), net in 2016 included the gains and losses related to equity-method investments, which we exited in December 2016.2021.


Income Tax Provision
Our effective income tax rate was as follows:
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Effective income tax rate 40.0% 32.5% 39.1% 33.0%
Effective income tax rate excluding tax credits generated through our equity-method investment and other non-core items 1
 40.3% 39.3% 39.1% 39.3%

1 See “Non-GAAP Reconciliations” for more details.
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2022202120222021
Effective income tax rate27.5 %26.8 %27.4 %26.9 %
Effective income tax rate excluding other non-core items27.0 %26.7 %26.6 %26.8 %
 
Our 2016 tax rate was positively affected by new markets tax credits that were generated through our equity-method investment with U.S. Bancorp Community Development Corporation. Our effective tax rates for the three and nine-month periods ended September 30, 2017 were negatively impacted by an increasing presence in states with higher income tax rates. Our effective tax rate for the nine-month period ended September 30, 20172022 compared to last year was favorably impactednegatively affected by excessa valuation allowance established for certain deferred tax benefits relatedassets not expected to our stock-based compensation as a result of the adoption of new guidance that was applied prospectively beginning in 2017. See Note 13 of the Condensed Notes to the Consolidated Financial Statements for additional information.
be realized. Excluding the tax credits generated by our equity-method investmentvaluation allowance and adjusting for other non-core items,charges, we estimate our annual effective income tax rate was slightly impacted by the recognition of excess tax benefits related to our stock-based compensation offset by our increasing presence in states with higher state income tax rates.be 27.0%.



Non-GAAP Reconciliations
Non-GAAP measures do not have definitions under GAAP and may be defined differently by and not comparable to similarly titled measures used by other companies. As a result, we review any non-GAAP financial measures in connection with a review of the most directly comparable measures calculated in accordance with GAAP. We caution you not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable GAAP measures. We believe each of the non-GAAP financial measures below improves the transparency of our disclosures, provides a meaningful presentation of our results from the core business operations because they exclude adjustments for items not related to our ongoing core business operations and other non-cash adjustments,items, and improves the period-to-period comparability of our results from the core business operations. We use these measures in conjunction with GAAP financial measures to assess our business, including our compliance with covenants in our credit facility and in communications with our Board of Directors concerning financial performance. These measures should not be considered an alternative to GAAP measures.



The following tables reconcile certain reported non-GAAP measures, which we refer to as “adjusted,” to the most comparable GAAP measure from our Consolidated Statements of Operations:Operations.

  Three Months Ended September 30, 2017
(Dollars in Thousands, Except per Share Amounts) As reported Insurance reserves Acquisition expenses Adjusted
Selling, general and administrative $282,241
 $(1,704) $(3,516) $277,021
Operating income 105,952
 1,704
 3,516
 111,172
         
Income before income taxes $86,543
 $1,704
 $3,516
 $91,763
Income tax provision (34,657) (943) (1,380) (36,980)
Net income $51,886
 $761
 $2,136
 $54,783
         
Diluted net income per share $2.07
 $0.03
 $0.08
 $2.18
Diluted share count 25,076
      
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MANAGEMENT’S DISCUSSION AND ANALYSIS37

  Three Months Ended September 30, 2016
(Dollars in thousands, except per share amounts) As reported Equity-method investment Adjusted
Asset impairment $3,498
 $(3,498) $—
Operating income 93,423
 3,498
 96,921
Other income (expense) (1,513) 2,066
 553
       
Income before income taxes $80,077
 $5,564
 $85,641
Income tax provision (26,036) (7,592) (33,628)
Net income (loss) $54,041
 $(2,028) $52,013
       
Diluted net income (loss) per share $2.14
 $(0.08) $2.06
Diluted share count 25,290
    
 Three Months Ended September 30, 2022
(in millions, except per share amounts)As reportedNet disposal gain on sale of storesInvestment gainAcquisition expensesAdjusted
Selling, general and administrative$749.2 $36.5 $— $(2.0)$783.7 
Operating income (loss)523.1 (36.5)— 2.0 488.6 
Other expense, net(7.1)— (0.3)— (7.4)
Income before income taxes$455.7 $(36.5)$(0.3)$2.0 $420.9 
Income tax (provision) benefit(125.4)9.8 — 1.9 (113.7)
Net income (loss)330.3 (26.7)(0.3)3.9 307.2 
Net income attributable to non-controlling interest0.5 — — — 0.5 
Net income attributable to redeemable non-controlling interest(1.2)— — — (1.2)
Net income (loss) attributable to Lithia Motors, Inc.$329.6 $(26.7)$(0.3)$3.9 $306.5 
Diluted earnings (loss) per share attributable to Lithia Motors, Inc.$11.92 $(0.97)$(0.01)$0.14 $11.08 
Diluted share count27.6


 Three Months Ended September 30, 2021
(in millions, except per share amounts)As reportedAsset impairmentInvestment lossInsurance reservesAcquisition expensesLoss on redemption of senior notesAdjusted
Asset impairment$1.9 $(1.9)$— $— $— $— $— 
Selling, general and administrative673.3 — — (3.4)(6.3)— 663.6 
Operating income479.5 1.9 — 3.4 6.3 — 491.1 
Other income (expense), net(25.7)— 23.2 — — 10.3 7.8 
Income before income taxes$422.2 $1.9 $23.2 $3.4 $6.3 $10.3 $467.3 
Income tax provision(113.2)(0.5)(6.2)(0.9)(1.4)(2.7)(124.9)
Net income$309.0 $1.4 $17.0 $2.5 $4.9 $7.6 $342.3 
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 $1.4 $17.0 $2.5 $4.9 $7.6 $341.3 
Diluted earnings per share attributable to Lithia Motors, Inc.$10.11 $0.05 $0.56 $0.08 $0.16 0.25 $11.21 
Diluted share count30.5 

  Nine Months Ended September 30, 2017
(Dollars in thousands, except per share amounts) As reported Insurance reserves Acquisition expenses OEM settlement Adjusted
Selling, general and administrative $782,303
 $(5,582) $(5,653) $—
 $771,068
Operating income 296,043
 5,582
 5,653
 —
 307,278
Other (expense) income, net 11,357
 —
 —
 (9,111) 2,246
          

Income (loss) before income taxes $255,642
 $5,582
 $5,653
 $(9,111) $257,766
Income tax (provision) benefit (99,829) (2,174) (2,201) 3,423
 (100,781)
Net income (loss) $155,813
 $3,408
 $3,452
 $(5,688) $156,985
           
Diluted net income (loss) per share $6.19
 $0.14
 $0.14
 $(0.23) $6.24
Diluted share count 25,158
        
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MANAGEMENT’S DISCUSSION AND ANALYSIS38



 Nine Months Ended September 30, 2022
(in millions, except per share amounts)As reportedNet disposal gain on sale of storesInvestment lossAcquisition expensesAdjusted
Selling, general and administrative$2,256.8 $49.6 $— $(10.1)$2,296.3 
Operating income (loss)1,564.4 (49.6)— 10.1 1,524.9 
Other (expense) income, net(37.0)— 32.6 — (4.4)
Income (loss) before income taxes$1,393.9 $(49.6)$32.6 $10.1 $1,387.0 
Income tax (provision) benefit(382.1)13.2 — (0.5)(369.4)
Net income (loss)1,011.8 (36.4)32.6 9.6 1,017.6 
Net income attributable to non-controlling interest(3.9)— — — (3.9)
Net income attributable to redeemable non-controlling interest(4.5)— — — (4.5)
Net income (loss) attributable to Lithia Motors, Inc.$1,003.4 $(36.4)$32.6 $9.6 $1,009.2 
Diluted earnings (loss) per share attributable to Lithia Motors, Inc.$35.10 $(1.27)$1.14 $0.33 $35.30 
Diluted share count28.6 

 Nine Months Ended September 30, 2021
(in millions, except per share amounts)As reportedNet disposal loss on sale of storesAsset impairmentInvestment lossInsurance reservesAcquisition expensesLoss on redemption of senior notesAdjusted
Asset impairment$1.9 $— $(1.9)$— $— $— $— $— 
Selling, general and administrative1,757.6 (5.2)— — (5.0)(17.9)— 1,729.5 
Operating income1,164.2 5.2 1.9 — 5.0 17.9 — 1,194.2 
Other (expense) income, net(14.6)— — 22.3 — — 10.3 18.0 
Income before income taxes$1,053.0 $5.2 $1.9 22.3 $5.0 $17.9 $10.3 $1,115.6 
Income tax provision(282.9)(1.4)(0.5)(6.0)(1.4)(4.5)(2.7)(299.4)
Net income$770.1 $3.8 $1.4 $16.3 $3.6 $13.4 $7.6 $816.2 
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 (loss) attributable to Lithia Motors, Inc.$769.0 $3.8 $1.4 $16.3 $3.6 $13.4 $7.6 $815.1 
Diluted earnings (loss) per share attributable to Lithia Motors, Inc.$26.91 $0.13 $0.05 $0.57 $0.13 $0.47 $0.26 $28.52 
Diluted share count28.6 

  Nine Months Ended September 30, 2016
(Dollars in thousands, except per share amounts) As reported Disposal gain on sale of stores Equity-method investment Legal reserve adjustment Adjusted
Asset impairment $10,494
 $—
 $(10,494) $—
 $—
Selling, general and administrative 662,766
 1,087
 —
 (1,906) 661,947
Operating Income (expense) 256,847
 (1,087) 10,494
 1,906
 268,160
Other (expense) income, net (4,534) —
 6,197
 —
 1,663
          

Income (loss) before income taxes $217,401
 $(1,087) $16,691
 $1,906
 $234,911
Income tax (provision) benefit (71,662) 426
 (20,374) (747) (92,357)
Net income (loss) $145,739
 $(661) $(3,683) $1,159
 $142,554
           
Diluted net income (loss) per share $5.69
 $(0.03) $(0.14) $0.05
 $5.57
Diluted share count 25,598
        

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MANAGEMENT’S DISCUSSION AND ANALYSIS39

Liquidity and Capital Resources
We manage our liquidity and capital resources to fundin the context of our operating, investingoverall business strategy, continually forecasting and financing activities. We rely primarily onmanaging our cash, working capital balances and capital structure in a way that we believe will meet the short-term and long-term obligations of our business while maintaining liquidity and financial flexibility. Our capital deployment strategy for our free cash flows targets an allocation of 65% investment in acquisitions, 25% internal investments including capital expenditures, Driveway and Driveway Finance Corporation and 10% in shareholder return in the form of dividends and share repurchases.

Cash flows from operations and borrowings under our credit facilities or in capital markets as theare our main sources for liquidity. We use those funds to invest in capital expenditures, increase working capital and fulfill contractual obligations. Remaining funds are used for acquisitions, debt retirement, cash dividends, share repurchases and general business purposes.
Available Sources
Below is a summary of our immediately available funds:
  As of September 30, Increase % Increase
(Dollars in thousands) 2017 2016  
Cash and cash equivalents $38,577
 $24,116
 $14,461
 60.0%
Available credit on the credit facilities 268,831
 122,138
 146,693
 120.1
Total current available funds 307,408
 146,254

161,154
 110.2
Estimated funds from unfinanced real estate 211,379
 193,247
 18,132
 9.4
Total estimated available funds $518,787
 $339,501

$179,286
 52.8%
Cash flows generated by operating activities and borrowings under our credit facility and other types of debt are our most significant sources of liquidity. We also have the ability to raise funds through mortgaging real estate. As of September 30, 2017, our unencumbered owned operating real estate had a book value of $282 million. Assuming we can obtain financing on 75% of this value, we estimate we could have obtained additional funds of approximately $211 million at September 30, 2017; however, no assurances can be provided that the appraised value of these properties will match or exceed their book values or that this capital source will be available on terms acceptable to us.
In July 2017, we issued $300 million in aggregate principal amount of 5.25% senior notes due 2025 in a private placement under Rule 144A and Regulation S of the Securities Act of 1933. We used the net proceeds for general corporate purposes, including funding acquisitions, capital expenditures and debt repayment.

In addition to the above sources of liquidity, potential sources to fund our business strategy include the placementissuing equity through our $400 million ATM Equity Offering Agreement, financing of subordinatedreal estate and proceeds from debt or loans, the sale of equity securities and the sale of stores or other assets.offerings. We evaluate all of these options and may select one or more of them depending on overall capital needs and the availability and cost of capital, although no assurances can be provided that these capital sources will be available in sufficient amounts or with terms acceptable to us.
 


Available Sources
Below is a summary of our immediately available funds:
(in millions)September 30, 2022December 31, 2021Change% Change
Cash and cash equivalents$172.7 $153.1 $19.6 12.8 %
Available credit on credit facilities1,400.2 1,344.8 55.4 4.1 
Total current available funds$1,572.9 $1,497.9 $75.0 5.0 %

Information about our cash flows, by category, is presented in our Consolidated Statements of Cash Flows. The following table summarizes our cash flows:
 Nine Months Ended September 30,Increase (Decrease)
(in millions)20222021in Cash Flow
Net cash provided by (used in) operating activities$(517.5)$2,001.9 $(2,519.4)
Net cash used in investing activities(1,017.3)(2,563.1)1,545.8 
Net cash provided by financing activities1,600.0 550.7 1,049.3 
  Nine Months Ended September 30, Increase (Decrease)
(Dollars in thousands) 2017 2016 in Cash Flow
Net cash provided by operating activities $260,536
 $194,240
 $66,296
Net cash used in investing activities (464,917) (289,484) (175,433)
Net cash provided by financing activities 192,676
 74,352
 118,324

Operating Activities
Cash provided by operating activities for the nine monthsnine-month period ended September 30, 2017 increased $66.3 million2022 decreased $2.5 billion compared to the same period of 2016,2021, primarily related to changesan increase in inventory.inventories and other assets as we build our portfolio of auto loans associated with Driveway Finance Corporation, partially offset by increased net income compared to the same period of 2021.
 
Borrowings from and repayments to our syndicated lending groupcredit facility related to our new vehicle inventory floor plan financing and our non-recourse notes payable related to our portfolio of auto loans are presented as financing activities. To better understand the impact of changes in inventory, other assets, and the associated financing, we also consider our adjusted net cash provided by operating activities to include borrowings or repayments associated with our new vehicle floor plan credit facility.commitment and non-recourse notes payable.


Adjusted net cash provided by operating activities is presented below (in thousands):below:
 Nine Months Ended September 30,Increase (Decrease)
(in millions)20222021in Cash Flow
Net cash provided by (used in) operating activities – as reported$(517.5)$2,001.9 $(2,519.4)
Adjust: Net borrowings (repayments) on floor plan notes payable, non-trade429.6 (840.9)1,270.5 
Adjust: Net borrowings (repayments) on non-recourse notes payable419.4 236.0 183.4 
Less: Borrowings on floor plan notes payable, non-trade associated with acquired new vehicle inventory(72.4)(271.5)199.1 
Net cash provided by (used in) operating activities – adjusted$259.1 $1,125.5 $(866.4)

  Nine Months Ended September 30, Increase (Decrease)
(Dollars in thousands) 2017 2016 in Cash Flow
Net cash provided by operating activities – as reported $260,536
 $194,240
 $66,296
Add: Net borrowings on floor plan notes payable, non-trade 34,056
 93,817
 (59,761)
Less: Borrowings on floor plan notes payable, non-trade associated with acquired new vehicle inventory (85,527) (88,147) 2,620
Net cash provided by operating activities – adjusted $209,065

$199,910

$9,155
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MANAGEMENT’S DISCUSSION AND ANALYSIS40
Inventories are the most significant component of our cash flow from operations. As of September 30, 2017, our new vehicle days supply was 69, or one day higher than our days supply as of December 31, 2016. Our days supply of used vehicles was 63 days as of September 30, 2017, or seven days higher than our days supply as of December 31, 2016. We calculate days supply of inventory based on current inventory levels, excluding in-transit vehicles, and a 30-day historical cost of sales level. We have continued to focus on managing our unit mix and maintaining an appropriate level of new and used vehicle inventory.

Investing Activities
Net cash used in investing activities totaled $464.9 million$1.0 billion and $289.5 million,$2.6 billion, respectively, for the nine-month periods ended September 30, 20172022 and 2016. Cash flows from investing activities relate primarily to capital expenditures, acquisition and divestiture activity and sales of property and equipment.2021.
 
Below are highlights of significant activity related to our cash flows from investing activities:
 Nine Months Ended September 30,Increase (Decrease)
(in millions)20222021in Cash Flow
Capital expenditures$(209.8)$(194.1)$(15.7)
Cash paid for acquisitions, net of cash acquired(962.6)(2,409.5)1,446.9 
Cash paid for other investments(9.3)(9.8)0.5 
Proceeds from sales of stores148.0 45.7 102.3 
  Nine Months Ended September 30, Increase (Decrease)
(Dollars in thousands) 2017 2016 in Cash Flow
Capital expenditures $(72,174) $(81,363) $9,189
Cash paid for acquisitions, net of cash acquired (400,558) (199,435) (201,123)
Cash paid for other investments (7,929) (22,279) 14,350
Proceeds from sales of stores 3,417
 11,837
 (8,420)




Capital Expenditures
Below is a summary of our capital expenditure activities:
Nine Months Ended September 30,
 Nine Months Ended September 30,
(Dollars in thousands) 2017 2016
(in millions)(in millions)20222021
Post-acquisition capital improvements $19,893
 $37,714
Post-acquisition capital improvements$37.3 $14.7 
Facilities for open points 714
 32
Facilities for open points(2.5)14.1 
Purchases of previously leased facilities —
 27,381
Purchase of facilities for existing operationsPurchase of facilities for existing operations8.3 23.6 
Existing facility improvements 26,400
 11,810
Existing facility improvements58.4 79.1 
Maintenance 25,167
 4,426
Maintenance108.3 62.6 
Total capital expenditures $72,174
 $81,363
Total capital expenditures$209.8 $194.1 
 
Many manufacturers provide assistance in the form of additional incentives or assistance if facilities meet specified standards and requirements. We expect that certain facility upgrades and remodels will generate additional manufacturer incentive payments. Also, tax laws allowing accelerated deductions for capital expenditures reduce the overall investment needed and encourage accelerated project timelines.timeliness.
We expect to use a portion of our future capital expenditures to upgrade facilities that we recently acquired. This additional capital investment is contemplated in our initial evaluation of the investment return metrics applied to each acquisition and is usually associated with manufacturer standards and requirements.


The increase in capital expenditures for the nine-month period ended September 30, 2022, compared to the same period of 2021 related primarily to higher maintenance and post-acquisition capital improvements.

If we undertake a significant capital commitment in the future, we expect to pay for the commitment out of existing cash balances, construction financing and borrowings on our credit facility. Upon completion of the projects, we believe we would have the ability to secure long-term financing and general borrowings from third party lenders for 70% to 90% of the amounts expended, although no assurances can be provided that these financings will be available to us in sufficient amounts or on terms acceptable to us.

We expect to make expenditures of approximately $93 million in 2017 for capital improvements at recently acquired stores, purchases of land for expansion of existing stores, facility image improvements, purchases of store facilities, purchases of previously leased facilities and replacement of equipment.
 
Acquisitions
We focus on acquiring stores at attractive purchase prices that meet our return thresholds and strategic objectives. We look for acquisitions that diversify our brand and geographic mix as we continue to evaluate our portfolio to minimize exposure to any one manufacturer and achieve financial returns.
 
We are able to subsequently floor new vehicle inventory acquired as part of an acquisition; however, the cash generated by this transaction is recorded as borrowings on floor plan notes payable, non-trade.


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MANAGEMENT’S DISCUSSION AND ANALYSIS41

Adjusted net cash paid for acquisitions, as well as certain other acquisition-related information is presented below:
  Nine Months Ended September 30,
  2017 2016
Number of stores acquired 15
 13
Number of stores opened 1
 1
Number of franchises added —
 1
     
(Dollars in thousands)    
Cash paid for acquisitions, net of cash acquired $400,558
 $199,435
Less: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory (85,527) (88,147)
Cash paid for acquisitions, net of cash acquired – adjusted $315,031
 $111,288
 Nine Months Ended September 30,
20222021
Number of locations acquired34 73 
(in millions)
Cash paid for acquisitions, net of cash acquired$(962.6)$(2,409.5)
Less: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory72.4 271.5 
Cash paid for acquisitions, net of cash acquired – adjusted$(890.2)$(2,138.0)
 
We evaluate potential capital investments primarily based on targeted rates of return on assets and return on our net equity investment.




Financing Activities
Net cash provided or (used) inby financing activities, adjusted for borrowing on floor plan facilities: non-trade and non-recourse notes payable was as follows:
 Nine Months Ended September 30,Increase (Decrease)
(in millions)20222021in Cash Flow
Cash provided by financing activities, as reported$1,600.0 $550.7 $1,049.3 
Adjust: Net (borrowings) repayments on floor plan notes payable: non-trade(429.6)840.9 (1,270.5)
Adjust: Net (borrowings) repayments on non-recourse notes payable$(419.4)$(236.0)(183.4)
Cash provided by financing activities – adjusted$751.0 $1,155.6 $(404.6)
  Nine Months Ended September 30, Increase
(Dollars in thousands) 2017 2016 in Cash Flow
Cash provided in financing activities, as reported $192,676
 $74,352
 $118,324
Adjust: Repayments (borrowings) on floor plan notes payable: non-trade (34,056) (93,817) 59,761
Cash provided (used) in financing activities – adjusted $158,620
 $(19,465) $178,085

Below are highlights of significant activity related to our cash flows from financing activities, excluding net borrowings (repayments) on floor plan notes payable: non-trade, which are discussed above:
 Nine Months Ended September 30,Increase (Decrease)
(in millions)20222021in Cash Flow
Net borrowings on lines of credit$1,748.4 $10.9 $1,737.5 
Principal payments on long-term debt and finance lease liabilities, other(70.0)(483.6)413.6 
Proceeds from issuance of long-term debt337.8 817.5 (479.7)
Repurchase of common stock(644.4)(15.9)(628.5)
Dividends paid(33.8)(28.2)(5.6)
Proceeds from issuance of common stock28.1 1,127.9 (1,099.8)
  Nine Months Ended September 30, Increase (Decrease)
(Dollars in thousands) 2017 2016 in Cash Flow
Net (repayments) borrowings on lines of credit $(126,853) $97,129
 $(223,982)
Principal payments on long-term debt and capital leases, unscheduled (46,471) (5,903) (40,568)
Proceeds from issuance of long-term debt 395,905
 22,816
 373,089
Repurchases of common stock (31,521) (108,597) 77,076
Dividends paid (19,803) (17,823) (1,980)
Borrowing and Repayment Activity
During the first nine months of 2017, we raised net proceeds of $349.4 million from our Senior Notes offering and real estate mortgage debt. We used the funds to pay down our outstanding balances on our long-term debt and our lines of credit, acquire stores and fund repurchases of common stock. Our debt to total capital ratio, excluding floor plan notes payable, was 49.5% at September 30, 2017 compared to 46.5% at September 30, 2016.

Equity Transactions
On February 25, 2016,In November 2021, our Board of Directors authorized the repurchase of up to $250$750 million of our Class A common stock.Common Stock, increasing our total repurchase authorization to $1.25 billion combined with the amount previously authorized by the Board for repurchase. We repurchased a total of 342,3002,311,060 shares of our Class A common stockCommon Stock at an average price of $92.08 per share$282.81 in the first nine months of 2017.2022. This included 310,0002,254,193 shares as part of theour repurchase planauthorization at an average price per share of $91.33$282.46 and 32,30056,867 shares related to tax withholding on vesting RSUs at an average price of $99.33.$296.94 per share. As of September 30, 2017,2022, we had $164.8$86.0 million remaining available for repurchases and the authorization does not have an expiration date.

In the first nine months of 2017,2022, we declared and paid dividends on our Class A and Class B common stockCommon Stock as follows:
Dividend paid: 
Dividend amount
per share
 
Total amount of dividend
(in thousands)
March 2017 $0.25
 $6,292
May 2017 $0.27
 $6,760
August 2017 $0.27
 $6,751
Dividend paid:Dividend amount
per share		Total amount of dividend
(in millions)
March 2022$0.35 $10.3 
May 2022$0.42 $11.9 
August 2022$0.42 $11.6 
 
We evaluate performance and make a recommendation to the Board of Directors on dividend payments on a quarterly basis.

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MANAGEMENT’S DISCUSSION AND ANALYSIS42



Summary of Outstanding Balances on Credit Facilities and Long-Term Debt
Below is a summary of our outstanding balances on credit facilities and long-term debt:
As of September 30, 2022
 As of September 30, 2017 
(Dollars in thousands) Outstanding Remaining Available  
(in millions)(in millions)OutstandingRemaining Available 
Floor plan note payable: non-trade $1,598,111
 $—
 
1 
Floor plan note payable: non-trade$1,208.1 $— 1
Floor plan notes payable 114,833
 —
  Floor plan notes payable454.8 —  
Used vehicle inventory financing facility 5,000
 45,000
 
2 
Used and service loaner vehicle inventory financing commitmentsUsed and service loaner vehicle inventory financing commitments1,061.8 3.5 2
Revolving lines of credit 221,654
 223,831
 
2, 3 
Revolving lines of credit1,396.0 1,365.9 2, 3
Real estate mortgages 476,559
 —
 
  
Real estate mortgages545.3 —  
5.25% Senior Subordinated Notes due 2025 300,000
 —
 
Finance lease obligationsFinance lease obligations113.8 — 
Non-recourse notes payableNon-recourse notes payable494.1 — 
4.625% Senior notes due 20274.625% Senior notes due 2027400.0 — 
4.375% Senior notes due 20314.375% Senior notes due 2031550.0 — 
3.875% Senior notes due 20293.875% Senior notes due 2029800.0 — 
Other debt 12,699
 —
 
  
Other debt1.5 —  
Total debt outstanding 2,728,856
 268,831
  
Less: unamortized debt issuance costs (6,960) —
 
Unamortized debt issuance costsUnamortized debt issuance costs(26.8)— 4
Total debt $2,721,896
 $268,831
 Total debt$6,998.6 $1,369.4 

1 As of September 30, 2017,2022, we had a $1.9$1.2 billion new vehicle floor plan commitment as part of our credit facility.
2 The amount available on the credit facility is limited based on a borrowing base calculation and fluctuates monthly.
3 Available credit is based on the borrowing base amount effective as of August 31, 2017.2022. This amount is reduced by $8.3$51.7 million for outstanding letters of credit.

4 Debt issuance costs are presented on the balance sheet as a reduction from the carrying amount of the related debt liability.

US Bank Credit Facility
On August 1, 2017,June 2, 2022, we amendedentered into a Second Amendment to our existingFourth Amended and Restated Loan Agreement with U.S. Bank National Association as agent for the lenders, and each of the lenders party to the loan agreement, as lenders. The credit facility continues to increase theprovide for a total financing commitment by $350 millionof $3.75 billion, which may be further expanded under the Second Amendment, subject to $2.4 billionlender approval and extend the maturitysatisfaction of other conditions, up to August 2022. This syndicated credit facility is compriseda total of 18 financial institutions, including seven manufacturer-affiliated finance companies. Under our credit facility we are permitted to allocate$4.5 billion. Among other changes, the totalSecond Amendment:

•Incorporates the adoption of the Secured Overnight Financing Rate (SOFR) as a replacement of the London Interbank Offered Rate (LIBOR).
•Modifies the initial allocation of the financing commitment among floor plan financing for newto up to $1.0 billion in used vehicle inventory floor planfloorplan financing, for used vehicles (upup to a maximum of 16.5% of the total aggregate commitment) and$1.5 billion in revolving financing for general corporate purposes, including acquisitions and working capital, (upup to a maximum of 18.75%$1.2 billion in new vehicle inventory floorplan financing, and up to $50 million in service loaner vehicle floorplan financing.
•Modifies our option to reallocate the commitments under the credit facility, such that the new and used vehicle floor plan commitments may have unlimited allocation and the aggregate revolving loan commitment may not be more than the 40% of the total commitment). Our credit facilityamount of the aggregate commitment, and the aggregate service loaner vehicle floorplan commitment may not be expandedmore than the 3% of the amount of the aggregate commitment.
•Modifies the conditions for including real property in the Revolving Loan Borrowing Base to $2.75 billion total availability, subjectbetter facilitate borrowing against real estate and modifies the overall cap to lender approval. $1.0 billion.

All borrowings from, and repayments to, our lending group are presented in the Consolidated Statements of Cash Flows as financing activities.


Our obligations under our revolving syndicated credit facility are secured by a substantial amount of our assets, including our inventory (including new and used vehicles, parts and accessories), equipment, accounts receivable (and other rights to payment) and our equity interests in certain of our subsidiaries. Under our revolving syndicated credit facility, our obligations relating to new vehicle floor plan loans are secured only by collateral owned by borrowers of new vehicle floor plan loans under the credit facility.

We have the ability to deposit up to $50 million in cash in Principal Reduction (PR) accounts associated with our new vehicle inventory floor plan commitment. The PR accounts are recognized as offsetting credits against outstanding amounts on our new vehicle floor plan commitment and would reduce interest expense associated with the outstanding principal balance. As of September 30, 2017, we had no balances in our PR accounts.

If the outstanding principal balance on our new vehicle inventory floor plan commitment, plus requests on any day, exceeds 95% of the loan commitment, a portion of the revolving line of credit must be reserved. The reserve amount is equal to the lesser of $15.0 million or the maximum revolving line of credit commitment less the outstanding balance on the line less outstanding letters of credit. The reserve amount will decrease the revolving line of credit availability and may be used to repay the new vehicle floor plan commitment balance.


The interest rate on the credit facility varies based on the type of debt, with the rate of one-month LIBOROne-month Term SOFR plus 1.25%1.20% for new vehicle floor plan financing, one-month LIBORDaily Simple SOFR plus 1.50% for used vehicle floor plan financing;financing,
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MANAGEMENT’S DISCUSSION AND ANALYSIS43

1.30% for service loaner floor plan financing and a variable interest rate on the revolving financing ranging from the one-month LIBOR plus 1.25% to 2.50%, depending on1.10% for our leverage ratio.working capital revolver. The annual interest raterates associated with our new vehicle floor plan commitment was 2.48% at September 30, 2017. The annual interest rate associated with our used vehicle inventory financing facility and our revolving line of credit was 2.73% and 2.48%, respectively, at September 30, 2017.commitments are as follows:

CommitmentAnnual Interest Rate at September 30, 2022
New vehicle floor plan4.30%
Used vehicle floor plan4.48%
Service loaner floor plan4.28%
Revolving line of credit4.08%

Under the terms of our credit facility we are subject to financial covenants and restrictive covenants that limit or restrict our incurring additional indebtedness, making investments, selling or acquiring assets and granting security interests in our assets.




Under our credit facility, we are required to maintain the ratios detailed in the following table:
Debt Covenant RatioRequirementAs of September 30, 20172022
Current ratioNot less than 1.10 to 11.32 to 1
Fixed charge coverage ratioNot less than 1.20 to 12.822.24 to 1
Leverage ratioNot more than 5.005.75 to 12.931.50 to 1
 
As of September 30, 2017,2022, we were in compliance with all covenants. We expect to remain in compliance with the financial and restrictive covenants in our credit facility and other debt agreements. However, no assurances can be provided that we will continue to remain in compliance with the financial and restrictive covenants.


If we do not meet the financial and restrictive covenants and are unable to remediate or cure the condition or obtain a waiver from our lenders, a breach would give rise to remedies under the agreement, the most severe of which are the termination of the agreement, acceleration of the amounts owed and the seizure and sale of our assets comprising the collateral for the loans. A breach would also trigger cross-defaults under other debt agreements.


Although we refer to the lenders’ obligations to make loans as “commitments,” each lender’s obligations to make any loan or other credit accommodations under the credit facility is subject to the satisfaction of the conditions precedent specified in the credit agreement including, for example, that our representations and warranties in the agreement are true and correct in all material respects as of the date of each credit extension. If we are unable to satisfy the applicable conditions precedent, we may not be able to request new loans or other credit accommodations under our credit facility.

Floor Plan Notes Payable
We have floor plan agreements with manufacturer-affiliated finance companies for certain new vehicles at certain stores and vehicles that are designated for use as service loaners. The variable interest rates on these floor plan notes payable commitments vary by manufacturer. Atmanufacturer and are variable rates. As of September 30, 2017, $114.82022, $454.8 million was outstanding on these arrangements.agreements. Borrowings from, and repayments to, manufacturer-affiliated finance companies are classified as operating activities in the Consolidated Statements of Cash Flows.

5.25% Senior Notes Due 2025Other Credit Facilities and Lines of Credit
In 2020, we entered into a real-estate backed facility with eight financial institutions, including two manufacturer affiliated finance companies, maturing in July 2025. The real-estate backed credit facility provides a total financing commitment of up to $219.0 million in working capital financing for general corporate purposes, including acquisitions and working capital, collateralized by real estate and certain other assets owned by us. The interest rate on this credit facility uses one-month LIBOR plus a margin ranging from 2.00% to 2.50% based on our leverage ratio, or a base rate of 0.75% plus a margin. As of September 30, 2022, nothing was outstanding on the real-estate backed facility.

In 2022, we amended our securitization facility agreement, increasing our commitment for borrowings of up to $1.0 billion and extending the maturity date to July 2024. As of September 30, 2022, we had $350.0 million drawn on the securitization facility.

In 2021, we entered into a credit agreement with Ally Bank (Ally Capital in Hawaii, Mississippi, Montana and New Jersey), as lender. The credit agreement matures in April 2023 and provides for a revolving line of credit facility of up to $300.0 million and is secured by real estate owned by us. The credit facility bears interest at a rate per annum
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MANAGEMENT’S DISCUSSION AND ANALYSIS44

equal to the greater of 3.00% or the prime rate designated by Ally Bank, minus 25 basis points. As of September 30, 2022, nothing was outstanding on the Ally credit facility.

On July 24, 2017,June 3, 2022, we entered into a credit agreement with The Bank of Nova Scotia (BNS), Royal Bank of Canada, Bank of Montreal, The Toronto-Dominion Bank, VW Credit Canada, Inc. and BMW Group Financial Services, as lenders, and BNS, as administrative agent for the lenders. Pursuant to the credit agreement, the lenders assumed all of the indebtedness under our original commitment letter, dated August 30, 2021, between us and BNS, including the letters of credit issued thereunder, and agreed to certain new and amended terms. Among other things, the credit agreement establishes a total financing commitment of approximately $1.125 billion CAD, including (i) up to $100.0 million CAD to finance the our working capital and for general corporate purposes; (ii) up to $500.0 million CAD to finance the purchase of new motor vehicles (Wholesale Flooring Facility); (iii) up to $100.0 million CAD to finance the purchase of used motor vehicles for sale in Canada and for export to the United States; (iv) up to $400.0 million CAD for the wholesale lease financing of leased units and finance contracts, and (v) up to $25.0 million CAD to finance certain motor vehicle leases. The credit agreement also establishes sublimits for swingline commitments and/or letter of credit commitments under certain of the Canadian facilities and incorporates an accordion feature to increase maximum potential borrowings under the Wholesale Flooring Facility by up to $200.0 million CAD and under the other Canadian facilities by up to $200.0 million CAD in aggregate. Borrowings under the credit agreement accrue interest at rates equal to the greater of BNS’ 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 1.30% per annum. All Canadian Facilities other than the Wholesale Flooring Facility, which is a demand facility, mature on June 3, 2025.

These other credit facilities and lines of credit above include financial and restrictive covenants typical of such agreements, lending conditions, and representations and warranties by us. As of September 30, 2022, we were in compliance with all covenants. We expect to remain in compliance with the financial and restrictive covenants in our other credit facilities and lines of credit. However, no assurances can be provided that we will continue to remain in compliance with the financial and restrictive covenants.

Non-Recourse Notes Payable
Driveway Finance Corporation auto loans receivable are primarily funded through our warehouse facilities and asset-backed term funding transactions. These non-recourse funding vehicles are structured to legally isolate the auto loans receivable, and we would not expect to be able to access the assets of our non-recourse funding vehicles, even in insolvency, receivership or conservatorship proceedings. Similarly, the investors in the non-recourse notes payable have no recourse to our assets beyond the related receivables, the amounts on deposit in reserve accounts and the restricted cash from collections on auto loans receivable. We do, however, continue to have the rights associated with the interest we retain in these non-recourse funding vehicles.

In August 2022, we issued $300$298.1 million in aggregate principle amount of 5.25% non-recourse notes payable related to the asset-backed term funding transaction.

Senior Notes due 2025 ("the Notes")
We have issued senior notes to eligible purchasers in a private placement under Rule 144A and Regulation S of the Securities Act of 1933. Interest accrues on the Notes from July 24, 2017notes and is payable semiannually on February 1 and August 1. The first interest payment is due on February 1, 2018.semiannually. We may redeem the Notes,notes in whole or in part, on or after the redemption dates, at any time priorthe redemption prices set forth in the Indentures. Prior to August 1, 2020the redemption dates set forth in the Indentures, we may redeem the notes, in whole or in part, at a price equal to 100% of the principal amount thereof plus a make-whole premiumpremiums set forth in the Indenture and accrued and unpaid interest. After August 1, 2020, we may redeem some or allIndentures. Upon certain change of the Notes subject to the redemption pricescontrol events (as set forth in the Indenture. If we experience specific kindsIndentures), the holders of changes of control, as described in the Indenture, we must offernotes may require us to repurchase all or a portion of the Notesnotes at a purchase price of 101% of their principal amount plus accrued and unpaid interest, if any, to the date of purchase.


We paid $5.0 million of underwriting and other fees in connection with this issuance, which is being amortized as interest expense over the term of the Notes. The Notes will be fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of our existing and future restricted subsidiaries thatBelow is a borrower under, or that guarantees obligations under, our credit facility or other indebtedness. The termssummary of the Notes, in certain circumstances, may restrict our ability to, among other things, incur additional indebtedness, pay dividends, repurchase our common stock, or merge, consolidate or sell all or substantially all our assets.outstanding senior notes issued:


We used the net proceeds for general corporate purposes, which included funding acquisitions, capital expenditures and debt repayment.
DescriptionMaturity DateInterest Payment DatesPrincipal Amount
4.625% Senior notes due 2027December 15, 2027June 15, December 15$400 million
4.375% Senior notes due 2031January 15, 2031January 15, July 15$550 million
3.875% Senior notes due 2029June 1, 2029June 1, December 1$800 million

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MANAGEMENT’S DISCUSSION AND ANALYSIS45


Real Estate Mortgages, Finance Lease Obligations, and Other Debt
We have mortgages associated with our owned real estate. Interest rates related to this debt ranged from 3.0% to 5.0%5.5% at September 30, 2017.2022. The mortgages are payable in various installments through October 2034.July 1, 2038. As of September 30, 2017,2022, we had fixed interest rates on 78%66.4% of our outstanding mortgage debt.
 
We have finance lease obligations with some of our leased real estate. Interest rates related to this debt ranged from 2.0% to 8.5% at September 30, 2022. The leases have terms extending through August 2037.

Our other debt includes capital leases and sellers’ notes. The interest rates associated with our other debt ranged from 3.1%5.0% to 8.0%10.0% at September 30, 2017.2022. This debt which totaled $12.7 million at September 30, 2017, is due in various installments through December 2050.April 2027.


LIBOR Transition
We have worked with our lending partners to update remaining LIBOR-based agreements and substantially all agreements have been updated. We do not anticipate this transition to have any material impact on our results of operations or financial position.

Recent Accounting Pronouncements
See Note 13 of the Condensed Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.None.
 


Critical Accounting Policies and Use of Estimates
There have been no material changes in the critical accounting policies and use of estimates described in our 20162021 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2017. 18, 2022.


Seasonality and Quarterly Fluctuations
Historically, our sales have been lower in the first quarter of each year due to consumer purchasing patterns and inclement weather in certain of our markets. As a result, financial performance is expected to be lower during the first quarter than during the second, third and fourth quarters of each fiscal year. We believe that interest rates, levels of consumer debt, consumer confidence and manufacturer sales incentives, as well as general economic conditions, also contribute to fluctuations in sales and operating results.
 
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
 
Item 3.Quantitative and Qualitative Disclosures About Market Risk
 
There have been no material changes in our reported market risks or risk management policies since the filing of our 20162021 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on February 28, 2017.18, 2022.


Item 4.Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
We evaluated, with the participation and under the supervision of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS46

Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our lastmost recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II - OTHER INFORMATION
 
Item 1.Legal Proceedings


See Note 11We are party to numerous legal proceedings arising in the normal course of our business. Although we do not anticipate that the Condensed Notes toresolution of legal proceedings arising in the Consolidated Financial Statements for additional information.normal course of business will have a material adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with certainty.


Item 1A.Risk Factors
 
The risk factors below are modified from those that are included in our 2016 Annual Report on Form 10-K which was filed with the Securities and Exchange Commission on February 28, 2017 to account for our recent note placement and the expansion of our credit facility. The information in this Form 10-Q should be read in conjunction with the risk factors and information disclosed in that report.

Our indebtedness and lease obligations could materially adversely affect our financial health, limit our ability to finance future acquisitions and capital expenditures and prevent us from fulfilling our financial obligations. Much of our debt is secured by a substantial portion of our assets. Much of our debt has a variable interest rate component that may significantly increase our interest costs in a rising rate environment.



Our indebtedness and lease obligations could2021 Annual Report on Form 10-K, which was filed with the SEC on February 18, 2022. We have important consequences to us, including the following:
limitations on our ability to complete acquisitions;
impaired ability to obtain additional financing for acquisitions, capital expenditures, working capital or general corporate purposes;
reduced funds available for our operations and other purposes, as a larger portion of our cash flow from operations would be dedicated to the payment of principal and interest on our indebtedness; and
exposure to the risk of increasing interest rates as certain borrowings are, and will continue to be, at variable rates of interest.

In addition, our loan agreements and the indenture governing our 5.25% notes due in 2025 contain covenants that limit our discretion with respect to business matters, including incurring additional debt, granting additional security interestsdescribed in our assets, acquisition activity, disposing of assets and other business matters. Other covenants are financial2021 Annual Report on Form 10-K, under “Risk Factors” in nature, including current ratio, fixed charge coverage and leverage ratio calculations. A breach of any of these covenants could result in a default underItem 1A, the applicable agreement. In addition, a default under one agreement could result in a default and acceleration of our repayment obligations under the other agreements under the cross-default provisions in such other agreements. For example, a default under our $2.4 billion syndicated credit facility could trigger a default and acceleration of our repayment obligations under the indenture governing our $300 million aggregate principal amount 5.25% Notes due in 2025, and vice versa.

We have granted in favor of certain of our lenders and other secured parties, including those under our $2.4 billion revolving syndicated credit facility, a security interest in a substantial portion of our assets. If we default on our obligations under those agreements, the secured parties may be ableprimary risks related to foreclose upon their security interests and otherwise be entitled to obtain or control those assets.

Certain debt agreements contain subjective acceleration clauses based on a lender deeming itself insecure or if a “material adverse change” in our business has occurred. If these clauses are implicated, and the lender declares that an event of default has occurred, the outstanding indebtedness could become immediately due and owing.

If these events were to occur, we may not be able to pay our debts or borrow sufficient funds to refinance them. Even if new financing were available, it may not be on terms acceptable to us. As a result of this risk, we could be forced to take actions that we otherwise would not take, or not take actions that we otherwise might take, in order to comply with these agreements.

In addition, the lenders’ obligations to make certain loans or other credit accommodations under our credit facility is subject to the satisfaction of certain conditions precedent including, for example, that our representations and warranties in the agreement and related loan documents are true and correct in all material respects as of the date of the proposed credit extension. If any of our representations and warranties in those agreements are not true and correct in all material respects as of the date of a proposed credit extension, or if other conditions precedent are not satisfied, we may not be able to request new loans or other credit accommodations under those credit facilities, which could have a material adverse impact on our business, results of operations, financial condition and cash flows.

Additionally, our real estate debt generally has a five to ten-year term, after which the debt needs to be renewed or replaced. A decline in the appraised value of real estate or a reduction in the loan-to-value lending ratios for new or renewed real estate loans could result in our inability to renew maturing real estate loans at the debt level existing at maturity, or on terms acceptable to us, requiring us to find replacement lenders or to refinance at lower loan amounts.

As of September 30, 2017, approximately 86% of our total debt was variable rate. The majority of our variable rate debt is indexed to the one-month LIBOR rate. The current interest rate environment is at historically low levels, and interest rates will likely increase in the future. In the event interest rates increase, our borrowing costs may increase substantially. Additionally, fixed rate debt that matures may be renewed at interest rates significantly higher than current levels. As a result, this could have a material adverse impact on our business, results of operations, financial condition and cash flows.

We may not be able to satisfy our debt obligations upon the occurrence of a change in control or another event of default under our credit agreement or indenture.

Upon the occurrence of a change in control or another event of default as defined in our credit agreement, the agent under the credit agreement will have the right to declare all outstanding obligations immediately due and payable and to terminate the availability of future advances to us. There can be no assurance that we would have sufficient resources available to satisfy all of our obligations under the credit agreement in the event of a change in control or fundamental change. A "change in control" as defined in our credit agreement includes, among other events, the acquisition by any person, or two or more persons acting in concert, in either case other than Lithia Holdings Company, L.L.C., Sid DeBoer or Bryan DeBoer, of beneficial ownership (within


the meaning of Rule 13d-3 of the SEC under the Securities Exchange Act of 1934) of 20% or more of the outstanding shares of our voting stock on a fully diluted basis.

Upon a change of control as defined in the indenture governing our 5.25% Senior Notes due in 2025, the holders of the notes may require us to repurchase all or a portion of the notes at a purchase price of 101% of their principal amount plus accrued and unpaid interest, if any, to the date of purchase. Generally, if an event of default occurs under the indenture, the trustee or the holders of at least 25% in principal amount of the then outstanding notes may declare all of the notes to be due and payable.

In the event we were unable to satisfy the above obligations, it could have a material adverse impact on our business and our common stock holders.securities.


Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
 
We repurchased the following shares of our Class A common stock during the third quarter of 2017:2022:
 
Total number of shares purchased 2
 Average price paid per share 
Total number of shares purchased as part of publicly announced plans 1
 
Maximum dollar value of shares that may yet be purchased under publicly announced plan (in thousands) 1
For the full calendar month ofFor the full calendar month of
Total number of shares purchased2
Average price paid per share
Total number of shares purchased as part of publicly announced plans1
Maximum dollar value of shares that may yet be purchased under publicly announced plan (in thousands)1
July 20,000
 $97.69
 20,000
 $169,411
July57,200 $270.11 57,200 $98,619 
August 23,157
 103.23
 23,000
 167,037
August44 265.28 — 98,619 
September 20,000
 113.16
 20,000
 164,774
September58,115 216.36 58,115 86,045 
 63,157
 $104.62
 63,000
 $164,774
TotalTotal115,359 243.03 115,315 86,045 

1 The current share repurchase plan has no expiration date.
1 Effective February 29, 2016, our Board of Directors authorized the repurchase of up to $250 million of our Class A common stock. This authorization does not have an expiration date and it replaced the previous authorizations, which limited the number of shares we were authorized to repurchase.
2 Of the shares repurchased in the third quarter of 2017, 157 shares2022, 44 were related to tax withholding upon the tax withholdings on vesting of RSUs.


Item 5.Other Information
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Subsequent to the earnings release filed on a Current Report on Form 8-K on October 25, 2017, and prior to the filing of this Quarterly Report on Form 10-Q, we recorded an elimination of internal used vehicle wholesale transactions and new and used vehicle retail sales. The transactions had no impact on gross profits and were primarily associated with recently acquired stores. This elimination resulted in a reduction of both revenues and cost of sales for the three and nine months ended September 30, 2017 of $10.0 million for used vehicle wholesales, or 15.2% and 4.8%, respectively, of used vehicle wholesale revenues; $3.6 million for new vehicles or 0.2% and 0.1%, respectively, of new vehicle revenues and $0.4 million for used vehicle retail or 0.1% and less than 0.1%, respectively, of used vehicle retail revenues. Adjusted for this elimination, total revenues were $2.7 billion and $7.4 billion, respectively, and total cost of sales were $2.3 billion and $6.3 billion, respectively, for the the three and nine months ended September 30, 2017. This elimination had no other impact to our Consolidated Statements of Operations.




Item 6.6. Exhibits
 
The following exhibits are filed herewith and this list is intended to constitute the exhibit index.
3.1
Restated Articles of Incorporation of Lithia Motors, Inc., as amended May 13, 1999 (incorporated by reference to
exhibit 3.1 to ourthe Company’s Form 10-K for the year ended December 31, 1999)10-Q filed July 28, 2021).
3.2
2017Second Amended and Restated Bylaws of Lithia Motors, Inc. (incorporated by reference to exhibit 3.13.2 to the Company’s Form 8-K datedfiled April 28, 2017 and filed with Securities and Exchange Commission on May 3, 2017)25, 2019).
4.110.1
Indenture,Amendment No. 2 to Amended and Restated Loan Agreement, dated as of July 24, 2017,September 14, 2021, among Lithia Motors, Inc., the GuarantorsSCFC Business Services LLC, Chariot Funding LLC and the Trustee (incorporated by reference to exhibit 4.1 to Form 8-K dated July 24, 2017 and filed with the Securities and Exchange Commission on July 24, 2017).JPMorgan Chase Bank, N.A.
4.210.2
Form of 5.250% Senior Notes due 2025 (included as part of Exhibit 4.1)(incorporated by referenceAmendment No. 3 to exhibit 4.1 to Form 8-KAmended and Restated Loan Agreement, dated July 24, 2017November 10, 2021, among SCFC Business Services LLC, Chariot Funding LLC and filed with the Securities and Exchange Commission on July 24, 2017).JPMorgan Chase Bank, N.A.
10.110.3
Sixth Amendment No. 4 to Amended and Restated Loan Agreement, dated February 8, 2022, among SCFC Business Services LLC, Chariot Funding LLC and JPMorgan Chase Bank, N.A.
10.4
Amendment No. 5 to Amended and Restated Loan Agreement, dated June 23, 2022, among SCFC Business Services LLC, Chariot Funding LLC and JPMorgan Chase Bank, N.A.
10.5
Amendment No. 6 to Amended and Restated Loan Agreement, dated July 12, 2017.29, 2022, among SCFC Business Services LLC, Chariot Funding LLC and JPMorgan Chase Bank, N.A.
10.210.6
Seventh Amendment No. 7 to Amended and Restated Loan Agreement, dated August 1, 2017 (incorporated by reference to exhibit 10.1 to Form 8-K dated August 1, 2017September 26, 2022, among SCFC Business Services LLC, Chariot Funding LLC and filed with the Securities and Exchange Commission on August 3, 2017)JPMorgan Chase Bank, N.A.
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
31.2
Certification of ChiefPrincipal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
32.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
32.2
Certification of ChiefPrincipal Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.INSInline XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover page formatted as Inline XBRL and contained in Exhibit 101.


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SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: October 27, 2022LITHIA MOTORS, INC.
Registrant
By:/s/ Tina Miller
Date: November 7, 2017LITHIA MOTORS, INC.Tina Miller
By: /s/ John F. North III
John F. North III
Chief Financial Officer, Senior Vice President, and Chief FinancialPrincipal Accounting Officer
(Duly Authorized Officer and Principal Financial and
Accounting Officer)

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