UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2021~~2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-14733

Lithia Motors, Inc.

(Exact name of registrant as specified in its charter)


Oregon			93-0572810
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
150 N. Bartlett Street	Medford,	Oregon	97501
(Address of principal executive offices)			(Zip Code)

(541) 776-6401

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock without par value

LAD

The 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Non-accelerated filer

Accelerated filer

Smaller reporting company

Emerging 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 ☒

As of July 28, ~~2021,~~2022, there were ~~30,250,672~~27,526,861 shares of the registrant’s common stock outstanding.

LITHIA MOTORS, INC.

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS


Item Number	Item	Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Consolidated Balance Sheets (Unaudited) - June 3 0 ~~, 2021,~~ 30, 2022, and December 31, ~~2020~~2021	1
	Consolidated Statements of Operations (Unaudited) - Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	2
	Consolidated Statements of Comprehensive Income (Unaudited) – Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	3
	Consolidated Statements of ~~Changes in Stockholders’~~ Equity and Redeemable Non-controlling Interest (Unaudited) - Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	4
	Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30,, 2022 and 2021 ~~and 2020~~	5
	Condensed Notes to Consolidated Financial Statements (Unaudited)	67

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1821
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4144
Item 4.	Controls and Procedures	4144

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	4245
Item 1A.	Risk Factors	4245
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4246



Item 6.	Exhibits	4347

SIGNATURE		4448


CONSOLIDATED BALANCE SHEETS	CONSOLIDATED BALANCE SHEETS					CONSOLIDATED BALANCE SHEETS
(In millions; Unaudited)	(In millions; Unaudited)	June 30, 2021		December 31, 2020		(In millions; Unaudited)	June 30, 2022		December 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents		$	780.9	$	160.2
Accounts receivable, net of allowance for doubtful accounts of $11.1 and $5.9		799.7		614.0
Cash, restricted cash, and cash equivalents						Cash, restricted cash, and cash equivalents	$	113.2	$	174.8
Accounts receivable, net of allowance for doubtful accounts of $22.0 and $17.3						Accounts receivable, net of allowance for doubtful accounts of $22.0 and $17.3	978.4		910.0
Inventories, net	Inventories, net	2,238.8		2,492.9		Inventories, net	2,985.0		2,385.5

Other current assets	Other current assets	51.4		70.5		Other current assets	85.2		63.0

Total current assets	Total current assets	3,870.8		3,337.6		Total current assets	4,161.8		3,533.3

Property and equipment, net of accumulated depreciation of $375.7 and $338.0		2,299.3		2,197.5
Property and equipment, net of accumulated depreciation of $470.6 and $422.6						Property and equipment, net of accumulated depreciation of $470.6 and $422.6	3,390.9		3,052.6
Operating lease right-of-use assets	Operating lease right-of-use assets	255.1		264.0		Operating lease right-of-use assets	385.9		395.9
Goodwill	Goodwill	617.3		593.0		Goodwill	1,237.6		977.3
Franchise value	Franchise value	369.7		350.2		Franchise value	1,443.8		799.1

Other non-current assets	Other non-current assets	2,680.3		1,159.8		Other non-current assets	2,387.7		2,388.7
Total assets	Total assets	$	10,092.5	$	7,902.1	Total assets	$	13,007.7	$	11,146.9

Liabilities and stockholders’ equity
Liabilities and equity						Liabilities and equity
Current liabilities:	Current liabilities:					Current liabilities:
Floor plan notes payable	Floor plan notes payable	$	285.1	$	234.2	Floor plan notes payable	$	410.8	$	354.2
Floor plan notes payable: non-trade	Floor plan notes payable: non-trade	966.9		1,563.0		Floor plan notes payable: non-trade	1,060.2		835.9
Current maturities of long-term debt	Current maturities of long-term debt	486.1		66.0		Current maturities of long-term debt	120.3		223.7
Trade payables	Trade payables	256.0		158.2		Trade payables	266.5		235.4
Accrued liabilities	Accrued liabilities	601.7		458.3		Accrued liabilities	756.6		753.6

Total current liabilities	Total current liabilities	2,595.8		2,479.7		Total current liabilities	2,614.4		2,402.8

Long-term debt, less current maturities	Long-term debt, less current maturities	2,521.9		2,064.7		Long-term debt, less current maturities	4,721.7		3,185.7
Deferred revenue	Deferred revenue	172.1		155.7		Deferred revenue	210.3		191.2
Deferred income taxes	Deferred income taxes	178.8		146.3		Deferred income taxes	207.6		191.0
Non-current operating lease liabilities	Non-current operating lease liabilities	237.2		246.7		Non-current operating lease liabilities	350.0		361.7
Other long-term liabilities	Other long-term liabilities	158.3		147.5		Other long-term liabilities	165.9		151.3
Total liabilities	Total liabilities	5,864.1		5,240.6		Total liabilities	8,269.9		6,483.7

Stockholders’ equity:
Preferred stock - no par value; authorized 15.0 shares; NaN outstanding		0		0
Common stock1 - no par value; authorized 100.0 shares; issued and outstanding 30.2 and 26.3		1,906.9		788.2
Class B common stock - no par value; authorized 25.0 shares; issued and outstanding NaN and 0.2		0		0
Redeemable non-controlling interest						Redeemable non-controlling interest	39.8		34.0

Equity:						Equity:
Preferred stock - no par value; authorized 15.0 shares; none outstanding						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 29.5						Common stock - no par value; authorized 125.0 shares; issued and outstanding 27.5 and 29.5	1,124.0		1,711.6

Additional paid-in capital	Additional paid-in capital	44.0		41.4		Additional paid-in capital	62.2		58.3
Accumulated other comprehensive loss		(4.3)		(6.3)
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	(5.1)		(3.0)
Retained earnings	Retained earnings	2,281.8		1,838.2		Retained earnings	3,510.8		2,859.5
Total stockholders’ equity		4,228.4		2,661.5
Total liabilities and stockholders’ equity		$	10,092.5	$	7,902.1
Total stockholders’ equity - Lithia Motors, Inc.						Total stockholders’ equity - Lithia Motors, Inc.	4,691.9		4,626.4
Non-controlling interest						Non-controlling interest	6.1		2.8
Total equity						Total equity	4,698.0		4,629.2
Total liabilities, redeemable non-controlling interest and equity						Total liabilities, redeemable non-controlling interest and equity	$	13,007.7	$	11,146.9

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 the Company’s 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.

FINANCIAL STATEMENTS


CONSOLIDATED STATEMENTS OF OPERATIONS	CONSOLIDATED STATEMENTS OF OPERATIONS									CONSOLIDATED STATEMENTS OF OPERATIONS
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In millions, except per share amounts; Unaudited)	(In millions, except per share amounts; Unaudited)	2021		2020		2021		2020		(In millions, except per share amounts; Unaudited)	2022		2021		2022		2021
Revenues:	Revenues:									Revenues:
New vehicle retail	New vehicle retail	$	3,146.2	$	1,367.8	$	5,339.5	$	2,741.3	New vehicle retail	$	3,250.7	$	3,146.2	$	6,312.4	$	5,339.5
Used vehicle retail	Used vehicle retail	1,804.9		922.2		3,157.0		1,796.5		Used vehicle retail	2,496.7		1,804.9		4,731.2		3,157.0
Used vehicle wholesale	Used vehicle wholesale	217.4		51.3		352.6		118.0		Used vehicle wholesale	382.4		217.4		768.3		352.6
Finance and insurance	Finance and insurance	269.6		124.9		467.9		246.7		Finance and insurance	330.4		269.6		643.7		467.9
Service, body and parts	Service, body and parts	521.0		275.5		925.0		605.4		Service, body and parts	682.6		521.0		1,310.4		925.0
Fleet and other	Fleet and other	50.3		16.9		110.4		54.4		Fleet and other	97.3		50.3		179.5		110.4
Total revenues	Total revenues	6,009.4		2,758.6		10,352.4		5,562.3		Total revenues	7,240.1		6,009.4		13,945.4		10,352.4
Cost of sales:	Cost of sales:									Cost of sales:
New vehicle retail	New vehicle retail	2,832.5		1,275.6		4,869.0		2,570.9		New vehicle retail	2,840.3		2,832.5		5,500.7		4,869.0
Used vehicle retail	Used vehicle retail	1,572.3		823.9		2,788.3		1,608.3		Used vehicle retail	2,258.4		1,572.3		4,269.0		2,788.3
Used vehicle wholesale	Used vehicle wholesale	201.0		49.2		331.6		115.3		Used vehicle wholesale	378.6		201.0		756.7		331.6
Service, body and parts	Service, body and parts	242.9		131.1		428.6		292.8		Service, body and parts	319.1		242.9		617.9		428.6
Fleet and other	Fleet and other	50.1		14.4		108.8		49.7		Fleet and other	93.0		50.1		172.1		108.8
Total cost of sales	Total cost of sales	4,898.8		2,294.2		8,526.3		4,637.0		Total cost of sales	5,889.4		4,898.8		11,316.5		8,526.3
Gross profit	Gross profit	1,110.6		464.4		1,826.1		925.3		Gross profit	1,350.7		1,110.6		2,628.9		1,826.1
Asset impairments		0		7.9		0		7.9

Selling, general and administrative	Selling, general and administrative	634.0		304.5		1,084.2		650.5		Selling, general and administrative	781.5		634.0		1,507.6		1,084.2
Depreciation and amortization	Depreciation and amortization	30.3		22.3		57.2		44.3		Depreciation and amortization	40.9		30.3		80.2		57.2
Operating income	Operating income	446.3		129.7		684.7		222.6		Operating income	528.3		446.3		1,041.1		684.7
Floor plan interest expense	Floor plan interest expense	(6.4)		(8.1)		(13.3)		(22.1)		Floor plan interest expense	(3.8)		(6.4)		(8.7)		(13.3)
Other interest expense, net	Other interest expense, net	(28.1)		(16.8)		(51.6)		(33.8)		Other interest expense, net	(34.4)		(28.1)		(64.5)		(51.6)
Other income, net		7.6		3.5		11.1		5.8
Other income (expense), net										Other income (expense), net	(21.9)		7.6		(29.9)		11.1
Income before income taxes	Income before income taxes	419.4		108.3		630.9		172.5		Income before income taxes	468.2		419.4		938.0		630.9
Income tax provision	Income tax provision	(114.5)		(30.6)		(169.8)		(48.6)		Income tax provision	(130.6)		(114.5)		(256.7)		(169.8)
Net income	Net income	$	304.9	$	77.7	$	461.1	$	123.9	Net income	337.6		304.9		681.3		461.1
Net income attributable to non-controlling interest										Net income attributable to non-controlling interest	(3.8)		—		(4.4)		—
Net income attributable to redeemable non-controlling interest										Net income attributable to redeemable non-controlling interest	(2.5)		—		(3.4)		—
Net income attributable to Lithia Motors, Inc.										Net income attributable to Lithia Motors, Inc.	$	331.3	$	304.9	$	673.5	$	461.1

Basic net income per share		$	10.83	$	3.40	$	16.83	$	5.37
Basic earnings per share attributable to Lithia Motors, Inc.										Basic earnings per share attributable to Lithia Motors, Inc.	$	11.67	$	10.83	$	23.25	$	16.83
Shares used in basic per share calculations	Shares used in basic per share calculations	28.1		22.8		27.4		23.1		Shares used in basic per share calculations	28.4		28.1		29.0		27.4

Diluted net income per share		$	10.75	$	3.38	$	16.69	$	5.32
Diluted earnings per share attributable to Lithia Motors, Inc.										Diluted earnings per share attributable to Lithia Motors, Inc.	$	11.60	$	10.75	$	23.15	$	16.69
Shares used in diluted per share calculations	Shares used in diluted per share calculations	28.4		23.0		27.6		23.3		Shares used in diluted per share calculations	28.6		28.4		29.1		27.6

Cash dividends paid per Class A and Class B share		$	0.35	$	0.30	$	0.66	$	0.60
Cash dividends paid per share										Cash dividends paid per share	$	0.42	$	0.35	$	0.77	$	0.66

See accompanying condensed notes to consolidated financial statements.

FINANCIAL STATEMENTS


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME									CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In millions; Unaudited)	(In millions; Unaudited)	2021		2020		2021		2020		(In millions; Unaudited)	2022		2021		2022		2021
Net income	Net income	$	304.9	$	77.7	$	461.1	$	123.9	Net income	$	337.6	$	304.9	$	681.3	$	461.1
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:
Gain (loss) on cash flow hedges, net of tax (expense) benefit of ($0.1), $0.5, ($0.7), and $2.3, respectively		0.2		(1.4)		2.0		(6.5)
Foreign currency translation adjustment										Foreign currency translation adjustment	(8.0)		—		(4.0)		—
Gain (loss) on cash flow hedges, net of tax benefit (expense) of $0.7, ($0.1), ($0.7), and ($0.7) respectively										Gain (loss) on cash flow hedges, net of tax benefit (expense) of $0.7, ($0.1), ($0.7), and ($0.7) respectively	(2.0)		0.2		1.8		2.0
Total other comprehensive income (loss), net of tax										Total other comprehensive income (loss), net of tax	(10.0)		0.2		(2.1)		2.0
Comprehensive income	Comprehensive income	$	305.1	$	76.3	$	463.1	$	117.4	Comprehensive income	327.6		305.1		679.1		463.1

Comprehensive income attributable to non-controlling interest										Comprehensive income attributable to non-controlling interest	(3.8)		—		(4.4)		—
Comprehensive income attributable to redeemable non-controlling interest										Comprehensive income attributable to redeemable non-controlling interest	(2.5)		—		(3.4)		—
Comprehensive income attributable to Lithia Motors, Inc.										Comprehensive income attributable to Lithia Motors, Inc.	$	321.3	$	305.1	$	671.3	$	463.1

See accompanying condensed notes to consolidated financial statements.

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Three Months Ended June 30, Six Months Ended June 30,
(In millions; Unaudited) 2021 2020 2021 2020
Total stockholders’ equity, beginning balances $ 2,807.6 $ 1,456.5 $ 2,661.5 $ 1,467.7
Common stock1:
Beginning balances 789.9 0 788.2 20.5
Compensation for stock and stock option issuances and excess tax benefits from option exercises 1.2 0.9 14.6 9.8
Issuance of stock in connection with employee stock plans 5.5 3.5 9.7 6.1
Class B common stock converted to class A common stock1
— — — —
Repurchase of common stock 0 (2.3) (15.9) (34.3)
Equity issuances, net of issuance costs 1,110.3 — 1,110.3 —
Ending balances 1,906.9 2.1 1,906.9 2.1
Class B common stock1:
Beginning balances 0 0.1 0 0.1
Class B common stock converted to class A common stock1
— — — —
Ending balances 0 0.1 0 0.1
Additional paid-in capital:
Beginning balances 36.0 26.0 41.4 46.0
Compensation for stock and stock option issuances and excess tax benefits from option exercises 8.0 4.1 2.6 0.3
Repurchase of common stock — — — (16.2)
Ending balances 44.0 30.1 44.0 30.1
Accumulated other comprehensive loss:
Beginning balances (4.5) (5.8) (6.3) (0.7)
Gain (loss) on cash flow hedges, net of tax (expense) benefit of ($0.1), $0.5, ($0.7), and $2.3, respectively 0.2 (1.4) 2.0 (6.5)
Ending balances (4.3) (7.2) (4.3) (7.2)
Retained earnings:
Beginning balances 1,986.2 1,436.2 1,838.2 1,401.8
Adjustment to adopt ASC 326 — — — (4.8)
Net income 304.9 77.7 461.1 123.9
Dividends paid (9.3) (6.8) (17.5) (13.8)
Ending balances 2,281.8 1,507.1 2,281.8 1,507.1
Total stockholders’ equity, ending balances $ 4,228.4 $ 1,532.2 $ 4,228.4 $ 1,532.2


CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NON-CONTROLLING INTEREST
	Three Months Ended June 30,				Six Months Ended June 30,
(In millions; Unaudited)	2022		2021		2022		2021
Total equity, beginning balances	$	4,907.9	$	2,807.6	$	4,629.2	$	2,661.5

Common stock1, beginning balances	1,656.3		789.9		1,711.6		788.2
Compensation for stock and stock option issuances and excess tax benefits from option exercises	2.2		1.2		19.2		14.6
Issuance of stock in connection with employee stock plans	11.0		5.5		18.8		9.7


Repurchase of common stock	(545.5)		—		(625.6)		(15.9)
Equity issuances, net of issuance costs	—		1,110.3		—		1,110.3
Common stock1, ending balances	1,124.0		1,906.9		1,124.0		1,906.9

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 balances	51.8		36.0		58.3		41.4
Compensation for stock and stock option issuances and excess tax benefits from option exercises	10.4		8.0		3.9		2.6


Additional paid-in capital, ending balances	62.2		44.0		62.2		44.0

Accumulated other comprehensive income (loss), beginning balances	4.9		(4.5)		(3.0)		(6.3)
Foreign currency translation adjustment	(8.0)		—		(4.0)		—
Gain (loss) on cash flow hedges, net of tax benefit (expense) of $0.7, ($0.1), ($0.7), and ($0.7), respectively	(2.0)		0.2		1.8		2.0
Accumulated other comprehensive income (loss), ending balances	(5.1)		(4.3)		(5.1)		(4.3)

Retained earnings, beginning balances	3,191.4		1,986.2		2,859.5		1,838.2

Net income attributable to Lithia Motors, Inc.	331.3		304.9		673.5		461.1
Dividends paid	(11.9)		(9.3)		(22.2)		(17.5)

Retained earnings, ending balances	3,510.8		2,281.8		3,510.8		2,281.8

Non-controlling interest, beginning balances	3.3		—		2.8		—
Distribution of non-controlling interest	(1.0)		—		(1.1)		—
Net income attributable to non-controlling interest	3.8		—		4.4		—
Non-controlling interest, ending balances	6.1		—		6.1		—

Total equity, ending balances	$	4,698.0	$	4,228.4	$	4,698.0	$	4,228.4

Redeemable non-controlling interest, beginning balances	$	34.9	$	—	$	34.0	$	—
Acquired redeemable non-controlling interest	2.4		—		2.4		—
Net income attributable to redeemable non-controlling interest	2.5		—		3.4		—
Redeemable non-controlling interest, ending balances	$	39.8	$	—	$	39.8	$	—

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 ~~the Company’s~~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.

FINANCIAL STATEMENTS


CONSOLIDATED STATEMENTS OF CASH FLOWS	CONSOLIDATED STATEMENTS OF CASH FLOWS					CONSOLIDATED STATEMENTS OF CASH FLOWS
		Six Months Ended June 30,					Six Months Ended June 30,
(In millions; Unaudited)	(In millions; Unaudited)	2021		2020		(In millions; Unaudited)	2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	461.1	$	123.9	Net income	$	681.3	$	461.1
Adjustments to reconcile net income to net cash provided by operating activities:
Asset impairments		0		7.9
Adjustments to reconcile net income to net cash used for operating activities:						Adjustments to reconcile net income to net cash used for operating activities:

Depreciation and amortization	Depreciation and amortization	57.1		44.3		Depreciation and amortization	80.2		57.1
Stock-based compensation	Stock-based compensation	17.2		10.1		Stock-based compensation	23.1		17.2

Loss (gain) on disposal of other assets		0.1		(0.3)
Loss (gain) on disposal of franchise		5.2		(1.4)
Unrealized investment gain		(0.9)		0
(Gain) loss on disposal of other assets						(Gain) loss on disposal of other assets	(0.6)		0.1
(Gain) loss on disposal of franchise						(Gain) loss on disposal of franchise	(13.1)		5.2
Unrealized investment loss (gain)						Unrealized investment loss (gain)	33.0		(0.9)
Deferred income taxes	Deferred income taxes	31.8		(4.9)		Deferred income taxes	16.6		31.8

Amortization of operating lease right-of-use assets	Amortization of operating lease right-of-use assets	16.5		13.5		Amortization of operating lease right-of-use assets	19.3		16.5
(Increase) decrease (net of acquisitions and dispositions):	(Increase) decrease (net of acquisitions and dispositions):					(Increase) decrease (net of acquisitions and dispositions):
Accounts receivable, net	Accounts receivable, net	(185.0)		53.8		Accounts receivable, net	(76.4)		(185.0)
Inventories	Inventories	663.1		624.7		Inventories	(507.0)		663.1
Other assets	Other assets	(103.0)		(14.8)		Other assets	(628.3)		(95.5)
Increase (decrease) (net of acquisitions and dispositions):	Increase (decrease) (net of acquisitions and dispositions):					Increase (decrease) (net of acquisitions and dispositions):
Floor plan notes payable	Floor plan notes payable	47.0		(130.7)		Floor plan notes payable	56.9		47.0
Trade payables	Trade payables	97.4		0.3		Trade payables	32.6		97.4
Accrued liabilities	Accrued liabilities	144.3		55.4		Accrued liabilities	(16.8)		144.3
Other long-term liabilities and deferred revenue	Other long-term liabilities and deferred revenue	11.6		8.2		Other long-term liabilities and deferred revenue	36.1		11.6
Net cash provided by operating activities		1,263.5		790.0
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	(263.1)		1,271.0
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:

Capital expenditures	Capital expenditures	(113.0)		(78.3)		Capital expenditures	(136.6)		(113.0)
Proceeds from sales of assets	Proceeds from sales of assets	0		1.6		Proceeds from sales of assets	16.5		—
Cash paid for other investments	Cash paid for other investments	(9.9)		(9.7)		Cash paid for other investments	(9.3)		(9.9)
Cash paid for acquisitions, net of cash acquired	Cash paid for acquisitions, net of cash acquired	(1,741.9)		(92.3)		Cash paid for acquisitions, net of cash acquired	(706.0)		(1,741.9)
Proceeds from sales of stores	Proceeds from sales of stores	43.7		11.6		Proceeds from sales of stores	52.7		43.7
Net cash used in investing activities	Net cash used in investing activities	(1,821.1)		(167.1)		Net cash used in investing activities	(782.7)		(1,821.1)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Repayments on floor plan notes payable, net: non-trade		(571.6)		(456.8)
Borrowings (repayments) on floor plan notes payable, net: non-trade						Borrowings (repayments) on floor plan notes payable, net: non-trade	243.5		(571.6)
Borrowings on lines of credit	Borrowings on lines of credit	1,454.9		925.4		Borrowings on lines of credit	6,047.8		1,454.9
Repayments on lines of credit	Repayments on lines of credit	(1,519.5)		(1,034.4)		Repayments on lines of credit	(4,543.9)		(1,519.5)
Principal payments on long-term debt and finance lease liabilities, scheduled	Principal payments on long-term debt and finance lease liabilities, scheduled	(12.6)		(13.3)		Principal payments on long-term debt and finance lease liabilities, scheduled	(96.0)		(12.6)
Principal payments on long-term debt and finance lease liabilities, other	Principal payments on long-term debt and finance lease liabilities, other	(65.0)		(4.9)		Principal payments on long-term debt and finance lease liabilities, other	(60.3)		(65.0)
Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	817.5		56.5		Proceeds from issuance of long-term debt	26.7		817.5
Payment of debt issuance costs	Payment of debt issuance costs	(10.6)		(0.9)		Payment of debt issuance costs	(1.5)		(10.6)
Proceeds from issuance of common stock	Proceeds from issuance of common stock	1,120.0		6.1		Proceeds from issuance of common stock	18.7		1,120.0
Repurchase of common stock	Repurchase of common stock	(15.9)		(50.5)		Repurchase of common stock	(623.4)		(15.9)

Dividends paid	Dividends paid	(17.5)		(13.8)		Dividends paid	(22.2)		(17.5)
Payment of contingent consideration related to acquisitions	Payment of contingent consideration related to acquisitions	(1.4)		0		Payment of contingent consideration related to acquisitions	(3.7)		(1.4)

Net cash provided by (used in) financing activities		1,178.3		(586.6)
Increase in cash and cash equivalents		620.7		36.3
Cash and cash equivalents at beginning of period		160.2		84.0
Cash and cash equivalents at end of period		$	780.9	$	120.3
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	57.2	$	61.3
Cash paid during the period for income taxes, net		129.3		4.4
Floor plan debt paid in connection with store disposals		8.7		22.0
Supplemental schedule of non-cash activities:
Debt issued in connection with acquisitions		$	225.6	$	0

Debt assumed in connection with acquisitions		4.0		0
Acquisition of finance leases in connection with acquisitions		0		15.4

Right-of-use assets obtained in exchange for lease liabilities		8.1		4.2
Other financing activity						Other financing activity	(1.1)		—
Net cash provided by financing activities						Net cash provided by financing activities	984.6		1,178.3
Effect of exchange rate changes on cash and cash equivalents						Effect of exchange rate changes on cash and cash equivalents	(0.4)		—
Increase (decrease) in cash, restricted cash, and cash equivalents						Increase (decrease) in cash, restricted cash, and cash equivalents	(61.6)		628.3
Cash, restricted cash, and cash equivalents at beginning of year						Cash, restricted cash, and cash equivalents at beginning of year	178.5		162.4
Cash, restricted cash, and cash equivalents at end of period						Cash, restricted cash, and cash equivalents at end of period	$	116.9	$	790.7

See accompanying condensed notes to consolidated financial statements.

FINANCIAL STATEMENTS


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
	Six Months Ended June 30,
(In millions)	2022		2021
Reconciliation of cash, restricted cash, and cash equivalents to the consolidated balance sheets
Cash and cash equivalents	$	64.4	$	780.9
Restricted cash from collections on auto loans receivable and customer deposits	48.8		9.8
Cash, restricted cash, and cash equivalents	113.2		790.7
Restricted cash on deposit in reserve accounts, included in other non-current assets	3.7		—
Total cash, restricted cash, and cash equivalents reported in the Consolidated Statements of Cash Flows	$	116.9	$	790.7

Supplemental cash flow information:
Cash paid during the period for interest	$	71.9	$	57.2
Cash paid during the period for income taxes, net	259.2		129.3
Floor plan debt paid in connection with store disposals	—		8.7

Non-cash activities:
Debt issued in connection with acquisitions	$	—	$	225.6


Debt assumed in connection with acquisitions	—		4.0
Acquisition of finance leases in connection with acquisitions	59.0		—

Right-of-use assets obtained in exchange for lease liabilities	16.5		8.1
Unsettled repurchases of common stock	2.2		—

See accompanying condensed notes to consolidated financial statements.

FINANCIAL STATEMENTS

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Note~~NOTE 1. ~~Interim Financial Statements~~INTERIM FINANCIAL STATEMENTS

Basis of Presentation

These condensed Consolidated Financial Statements contain unaudited information as of June 30, ~~2021,~~2022, and for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~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 ~~2020~~2021 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, ~~2020,~~2021, is derived from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February ~~19, 2021.~~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.

~~Note~~NOTE 2. ~~Contract Liabilities and Assets~~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 ~~$214.9~~$263.0 million and ~~$194.1~~$239.0 million as of June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively; and we recognized ~~$9.0~~$11.0 million and ~~$18.4~~$22.1 million of revenue in the three and six months ended June 30, ~~2021, respectively,~~2022 related to our contract liability balance at December 31, ~~2020.~~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 estimated 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 sales of finance and insurance contracts is considered variable consideration and is estimated and recognized upon the sale of the contract. Our contract asset balances associated with future estimated variable consideration were ~~$8.2~~$10.3 million and ~~$8.2~~$9.6 million as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively; and are included in trade receivables and other non-current assets.

~~Note 3. Accounts Receivable and Contract Assets~~

~~Accounts receivable consisted of the following:~~

(in millions) June 30, 2021 December 31, 2020
Contracts in transit $ 369.3 $ 286.8
Trade receivables 87.3 67.0
Vehicle receivables 84.4 61.8
Manufacturer receivables 132.8 118.1
Auto loan receivables 370.9 175.6
Other receivables 16.6 11.6
1,061.3 720.9
Less: Allowance for doubtful accounts (11.1) (5.9)
Less: Long-term portion of accounts receivable, net (250.5) (101.0)
Total accounts receivable, net $ 799.7 $ 614.0

NOTES TO FINANCIAL STATEMENTS

NOTE 3. ACCOUNTS RECEIVABLE AND OTHER NON-CURRENT ASSETS

Accounts receivable consisted of the following:


(in millions)	June 30, 2022		December 31, 2021
Contracts in transit	$	391.8	$	304.9
Trade receivables	109.9		125.5
Vehicle receivables	121.4		106.6
Manufacturer receivables	131.4		120.5
Auto loan and lease receivables	1,412.2		829.2
Other receivables	20.8		43.2
	2,187.5		1,529.9
Less: Allowance for doubtful accounts	(22.0)		(17.3)
Less: Long-term portion of accounts receivable, net1	(1,187.1)		(602.6)
Total accounts receivable, net	$	978.4	$	910.0

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 ~~retail~~vehicle 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 ~~balance~~balances of auto loan and lease receivables isare made up of loans secured by the related ~~vehicle.~~vehicles. More than ~~98%~~99% of the portfolio is aged less than 60 days past due with less than 2%1% on non-accrual status. As


(Dollars in millions)	June 30, 2022		December 31, 2021
Total Auto loan and lease receivables	$	1,412.2	$	829.2
Less: Allowance for loan and lease losses	(37.4)		(25.0)
Auto loan and lease receivables, net	$	1,374.8	$	804.2

NOTES TO FINANCIAL STATEMENTS

Below is a breakdown of ~~June 30, 2021,~~ the current and long term portions of our auto loan and lease receivables:


(Dollars in millions)	June 30, 2022		December 31, 2021
Current portion of auto loan and lease receivables, net of allowance of $18.8 and $13.6	$	216.1	$	224.5
Long term portion of auto loan and lease receivables, net of allowance of $18.6 and $11.4	1,158.7		579.7
Auto loan and lease receivables, net	$	1,374.8	$	804.2

Our allowance for loan 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 ~~was $13.3 million and included in allowance for doubtful accounts and other non-current assets.~~ consisted of the following changes during the period:


	Six Months Ended June 30,
(Dollars in millions)	2022		2021
Allowance for loan losses at beginning of period	$	22.5	$	13.9
Charge-offs	(20.1)		(5.5)
Recoveries	8.1		3.7
Provision expense	23.0		1.2
Allowance for loan losses at end of period	33.5		13.3
Allowance for lease losses	3.9		—
Total allowance for loan and lease losses balance at end of period	$	37.4	$	13.3

Ending auto loan receivables (principal balances) by FICO score:


(Dollars in millions)	June 30, 2022		December 31, 2021
<5991	$	89.6	$	83.2
600-699	676.3		437.6
700-774	379.3		166.8
775+	149.2		37.4
Total auto loan receivables	1,294.4		725.0
Lease portfolio and accrued interest	117.8		104.2
Total auto loan and lease receivables	$	1,412.2	$	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 forecasts, as well as the value of any underlying assets securing these ~~loans and is reviewed monthly.~~loans. Consideration is given to recent delinquency trends and recovery rates. Account balances are charged against the allowance upon reaching 120 days past due status. The annual activity for charges and subsequent recoveries is immaterial. The remainder of our receivables are due primarily from manufacturer partners and various third-party lenders. The historical losses related to these balances are immaterial.

The long-term portion of ~~accounts receivable~~auto 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)	June 30, 2022		December 31, 2021
Long term portion of auto loan and lease receivables, net of allowance of $18.6 and $11.4	$	1,158.7	$	579.7
Unallocated acquisition purchase price	970.3		1,554.6
Other	258.7		254.4
Other non-current assets	$	2,387.7	$	2,388.7

~~Note~~

NOTES TO FINANCIAL STATEMENTS

NOTE 4. ~~Inventories~~INVENTORIES

The components of inventories, net, consisted of the following:


(in millions)	(in millions)	June 30, 2021		December 31, 2020		(in millions)	June 30, 2022		December 31, 2021
New vehicles	New vehicles	$	872.5	$	1,556.6	New vehicles	$	1,059.2	$	812.9
Used vehicles	Used vehicles	1,238.4		835.9		Used vehicles	1,745.5		1,418.3
Parts and accessories	Parts and accessories	127.9		100.4		Parts and accessories	180.3		154.3
Total inventories	Total inventories	$	2,238.8	$	2,492.9	Total inventories	$	2,985.0	$	2,385.5

~~Note~~NOTE 5. ~~Goodwill and Franchise Value~~GOODWILL AND FRANCHISE VALUE

The changes in the carrying amounts of goodwill are as follows:


(in millions)	(in millions)	Domestic		Import		Luxury		Consolidated		(in millions)	Domestic		Import		Luxury		Corporate and Other		Consolidated
Balance as of December 31, 2019 ¹		$	171.8	$	197.3	$	85.5	$	454.6
Balance as of December 31, 2020 ¹										Balance as of December 31, 2020 ¹	$	204.5	$	287.9	$	100.6	$	—	$	593.0

Additions through acquisitions 2	Additions through acquisitions 2	33.3		94.3		17.3		144.9		Additions through acquisitions 2	101.0		188.7		105.8		—		395.5
Reductions through divestitures	Reductions through divestitures	(0.1)		(0.7)		(2.2)		(3.0)		Reductions through divestitures	(1.5)		(8.4)		(1.3)		—		(11.2)
Reductions from impairments		(0.5)		(3.0)		0		(3.5)
Balance as of December 31, 2020 ¹		204.5		287.9		100.6		593.0

Balance as of December 31, 2021 ¹										Balance as of December 31, 2021 ¹	304.0		468.2		205.1		—		977.3

Additions through acquisitions 3	Additions through acquisitions 3	7.4		11.9		8.2		27.5		Additions through acquisitions 3	75.9		130.1		59.4		0.7		266.1
Reductions through divestitures	Reductions through divestitures	0		(3.2)		0		(3.2)		Reductions through divestitures	(4.1)		(1.7)		—		—		(5.8)

Balance as of June 30, 2021		$	211.9	$	296.6	$	108.8	$	617.3
Balance as of June 30, 2022 ¹										Balance as of June 30, 2022 ¹	$	375.8	$	596.6	$	264.5	$	0.7	$	1,237.6

1 Net of accumulated impairment losses of $299.3 million recorded during the year ended December 31, 2008.

~~NOTES TO FINANCIAL STATEMENTS~~

2 Our purchase price allocation for the ~~2019~~2020 acquisitions were finalized in ~~2020.~~2021. As a result, we added ~~$144.9~~$395.5 million of goodwill.

3 Our purchase price allocation for a portion of the ~~2020~~2021 acquisitions was finalized in ~~2021.~~2022. As a result, we added ~~$27.5~~$266.1 million of goodwill. Our purchase price allocation for the remaining ~~2020~~2021 and ~~2021~~2022 acquisitions are preliminary and goodwill is not yet allocated to our ~~segments.~~reporting units. These amounts are included in other non-current assets until we finalize our purchase accounting. See Note ~~12.~~13 – Acquisitions.

The changes in the carrying amounts of franchise value are as follows:


(in millions)	Franchise Value
Balance as of December 31, ~~2019~~2020	$	~~306.7~~350.2

Additions through acquisitions 1	~~51.9~~459.7
Reductions through divestitures	~~(4.0)~~(8.9)
Reductions from impairments	~~(4.4)~~(1.9)
Balance as of December 31, ~~2020~~2021	~~350.2~~799.1

Additions through acquisitions 2	~~21.6~~646.7
Reductions through divestitures	~~(2.1)~~(2.0)

Balance as of June 30, ~~2021~~2022	$	~~369.7~~1,443.8

1 Our purchase price allocation for the ~~2019~~2020 acquisitions were finalized in ~~2020.~~2021. As a result, we added ~~$51.9~~$459.7 million of franchise value.

2 Our purchase price allocation for a portion of the ~~2020~~2021 acquisitions was finalized in ~~2021.~~2022. As a result, we added ~~$21.6~~$646.7 million of franchise value. Our purchase price allocation for the remaining ~~2020~~2021 and ~~2021~~2022 acquisitions are preliminary and franchise value is not yet allocated to our ~~segments.~~reporting units. These amounts are included in other non-current assets until we finalize our purchase accounting. See Note ~~12.~~13 – Acquisitions.

~~Note~~NOTE 6. ~~Stockholders’ Equity~~CREDIT FACILITIES AND LONG-TERM DEBT

US Bank Credit Facility

On June 2, 2022, we entered into a Second Amendment to our Fourth 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 provide for a total financing commitment of $3.75 billion, which may be further expanded under the Second Amendment, subject to lender approval and the satisfaction of other conditions, up to a total of $4.5 billion. Among other changes, the Second Amendment:

NOTES TO FINANCIAL STATEMENTS

•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 $1.0 billion in used vehicle inventory floorplan financing, up to $1.5 billion in revolving financing for general corporate purposes, including acquisitions and working capital, 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 more 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 better 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:


Commitment			Annual Interest Rate at June 30, 2022
New vehicle floor plan			2.93%
Used vehicle floor plan			3.00%
Service loaner floor plan			2.80%
Revolving line of credit			2.60%

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 CAD, including (i) up to $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.

NOTE 7. EQUITY AND REDEEMABLE NON-CONTROLLING INTERESTS

Repurchases of ~~Class A~~ Common Stock

Repurchases of our ~~Class A Common Stock~~common 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). On ~~October 22, 2018,~~November 30, 2021, our Board of Directors approved an additional ~~$250~~$750 million repurchase authorization of our ~~Class A~~ common stock, increasing our total ~~share~~ repurchase authorization to ~~$500 million.~~$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 2021 Cumulative Repurchases as of June 30, 2021
Shares Average Price Shares Average Price
Share Repurchase Authorization 0 $ 0 3,719,048 $ 84.02

NOTES TO FINANCIAL STATEMENTS


	Repurchases Occurring in 2022			Cumulative Repurchases as of June 30, 2022
	Shares	Average Price		Shares	Average Price
Share Repurchase Authorization	2,138,878	$	284.58	6,614,809	$	171.73

As of June 30, ~~2021,~~2022, we had ~~$187.5~~$114.1 million available for repurchases pursuant to our share repurchase authorization.

In addition, during ~~2021,~~2022, we repurchased ~~54,251~~56,823 shares at an average price of ~~$292.91~~$296.96 per share, for a total of ~~$15.9~~$16.9 million, related to tax withholding associated with the vesting of RSUs. The repurchase of shares related to tax withholding associated with stock awards does not reduce the number of shares available for repurchase as approved by our Board of Directors.

~~Follow-on Public Offering~~

On May 24, 2021, we completed the public offering of 3,571,428 shares of our common stock, no par value per share, which included the exercise in full by the underwriters of their option to purchase up to 465,838 additional shares of our common stock, at the public offering price of $322.00 per share. We received $1.11 billion from the offering, net of the underwriting discount and before deducting the offering expenses of $0.6 million.

ATM Equity Offering

On July 24, 2020, we entered into an ATM Equity Offering Sales Agreement, which allows us to offer and sell, from time to time, shares of our ~~Class A~~ 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

~~NOTES TO FINANCIAL STATEMENTS~~

purchase transactions. As of June 30, ~~2021, 0~~2022, no amounts have been issued in relation to the ATM Equity Offering Sales Agreement.

Redeemable Non-Controlling Interest

On August 30, 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, at its preliminary estimate of acquisition-date fair value, 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 and adjustments in fair value.

~~Note 7. Fair Value Measurements~~NOTE 8. FAIR VALUE MEASUREMENTS

Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories:

•Level 1 - quoted prices in active markets for identical securities;

•Level 2 - other significant observable inputs, including quoted prices for similar securities, interest rates, prepayment spreads, credit risk; and

•Level 3 - significant unobservable inputs, including our own assumptions in determining fair value.

We determined 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 ~~asset~~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 six months ended June 30, 2022, we recognized a $18.1 million and $33.0 million unrealized investment loss related to Shift, respectively. For the three and six months ended June 30, 2021, we recognized a $1.2 million and $0.9 million unrealized investment gain related to Shift, ~~which was~~respectively. These amounts were recorded as a component of Other income (expense), net. ~~NaN amounts were recognized for the three and six months ended June 30, 2020.~~

NOTES TO FINANCIAL STATEMENTS

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 June 30, ~~2021,~~2022, our real estate mortgages and other debt, which includes capital leases, had maturity dates between ~~October~~August 1, ~~2021,~~2022, and July 1, 2038.

We have derivative instruments consisting of interest rate ~~collars.~~caps and have had an interest rate collar in prior periods. The fair value of derivative assets and liabilities isare 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 1112 – 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 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 six-month period ended June 30, ~~2021.~~2022.

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


Fair Value at June 30, 2022	Level 1		Level 2		Level 3
Measured on a recurring basis:
Investments	$	8.0	$	—	$	—


Fair Value at December 31, 2021	Level 1		Level 2		Level 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 June 30, 2022	Level 1		Level 2		Level 3
Measured on a recurring basis:
Derivative asset	$	—	$	18.4	$	—
Derivative liability	—		18.4		—


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

NOTES TO FINANCIAL STATEMENTS

913

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

Fair Value at June 30, 2021 Level 1 Level 2 Level 3
Measured on a recurring basis:
Investments $ 101.6 $ 6.7 $ 0

Fair Value at December 31, 2020 Level 1 Level 2 Level 3
Measured on a recurring basis:
Investments $ 97.9 $ 9.4 $ 0

~~Below are our derivative assets and liabilities that are measured at fair value (in millions):~~

Fair Value at June 30, 2021 Level 1 Level 2 Level 3
Measured on a recurring basis:
Derivative asset $ 0 $ 4.1 $ 0
Derivative liability 0 9.9 0
Fair Value at December 31, 2020 Level 1 Level 2 Level 3
Measured on a recurring basis:
Derivative asset $ 0 $ 0.5 $ 0
Derivative liability 0 9.0 0

A summary of the aggregate carrying values, excluding unamortized debt issuance cost, and fair values of our long-term fixed interest rate debt is as follows:


(in millions)	(in millions)	June 30, 2021		December 31, 2020		(in millions)	June 30, 2022		December 31, 2021
Carrying value	Carrying value					Carrying value
5.250% Senior notes due 2025		$	300.0	$	300.0
4.625% Senior notes due 2027	4.625% Senior notes due 2027	400.0		400.0		4.625% Senior notes due 2027	$	400.0	$	400.0
4.375% Senior notes due 2031	4.375% Senior notes due 2031	550.0		550.0		4.375% Senior notes due 2031	550.0		550.0
3.875% Senior notes due 2029	3.875% Senior notes due 2029	800.0		0		3.875% Senior notes due 2029	800.0		800.0
Non-recourse notes payable						Non-recourse notes payable	237.4		317.6
Real estate mortgages and other debt	Real estate mortgages and other debt	603.2		714.8		Real estate mortgages and other debt	492.5		477.6
		$	2,653.2	$	1,964.8		$	2,479.9	$	2,545.2
Fair value	Fair value					Fair value
5.250% Senior notes due 2025		$	309.0	$	311.6
4.625% Senior notes due 2027	4.625% Senior notes due 2027	422.0		425.0		4.625% Senior notes due 2027	$	364.0	$	420.0
4.375% Senior notes due 2031	4.375% Senior notes due 2031	586.4		589.9		4.375% Senior notes due 2031	470.3		583.0
3.875% Senior notes due 2029	3.875% Senior notes due 2029	828.0		0		3.875% Senior notes due 2029	728.0		815.0
Non-recourse notes payable						Non-recourse notes payable	230.2		316.8
Real estate mortgages and other debt	Real estate mortgages and other debt	627.7		713.2		Real estate mortgages and other debt	434.6		488.7
		$	2,773.1	$	2,039.7		$	2,227.1	$	2,623.5

~~Note 8. Net Income Per Share~~NOTE 9. NET INCOME PER SHARE

We compute net income per share 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 assumes the conversion of Class B common stock, while the diluted net income per share of Class B common stock does not assume the conversion of those shares.

Prior 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 the Company’s 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 were identical.

~~NOTES TO FINANCIAL STATEMENTS~~

Under our Articles of Incorporation, the Class A and Class B common stock shared 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 are 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 were identical, the undistributed earnings are allocated on a proportionate basis.

The following is a reconciliation of net income and weighted average shares used for our basic earnings per share (EPS) and diluted EPS:

Three Months Ended June 30, 2021 2020
(in millions, except per share amounts) Class A Class B Class A Class B
Net income applicable to common stockholders - basic $ 304.9 $ 0 $ 76.3 $ 1.4
Reallocation of net income due to conversion of Class B to Class A common shares outstanding 0 0 0.1 0
Conversion of Class B common shares into Class A common shares 0 0 1.3 0
Net income applicable to common stockholders - diluted $ 304.9 $ 0 $ 77.7 $ 1.4
Weighted average common shares outstanding – basic 28.1 0 22.4 0.4
Conversion of Class B common shares into Class A common shares 0 0 0.4 0
Effect of dilutive stock options on weighted average common shares 0.3 0 0.2 0
Weighted average common shares outstanding – diluted 28.4 0 23.0 0.4
Net income per common share - basic $ 10.83 $ 0 $ 3.40 $ 3.40
Net income per common share - diluted $ 10.75 $ 0 $ 3.38 $ 3.38

~~The effect of antidilutive securities on Class A and Class B common stock was evaluated for the three-month periods ended June 30, 2021, and 2020 and was determined to be immaterial.~~

Six Months Ended June 30, 2021 2020
(in millions, except per share amounts) Class A Class B Class A Class B
Net income applicable to common stockholders - basic $ 460.5 $ 0.6 $ 121.8 $ 2.1
Reallocation of net income due to conversion of class B to class A common shares outstanding 0 0 0.2 0
Conversion of class B common shares into class A common shares 0.6 0 1.9 0
Net income applicable to common stockholders - diluted $ 461.1 $ 0.6 $ 123.9 $ 2.1
Weighted average common shares outstanding – basic 27.4 0 22.7 0.4
Conversion of class B common shares into class A common shares 0 0 0.4 0
Effect of employee stock purchases and restricted stock units on weighted average common shares 0.2 0 0.2 0
Weighted average common shares outstanding – diluted 27.6 0 23.3 0.4
Net income per common share - basic $ 16.83 $ 16.83 $ 5.37 $ 5.37
Net income per common share - diluted $ 16.69 $ 16.69 $ 5.32 $ 5.32

~~The effect of antidilutive securities on Class A and Class B common stock was evaluated for the six-month periods ended June 30, 2021, and 2020 and was determined to be immaterial.~~

NOTES TO FINANCIAL STATEMENTS

1114

~~Note 9. Segments~~


Three Months Ended June 30,	2022		2021
(in millions, except per share amounts)	Common Stock			Class A		Class B
Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - basic	$	331.4		$	304.9	$	—

Reallocation of net income due to conversion of Class B to Class A common shares outstanding	—			—		—
Conversion of Class B common shares into Class A common shares	—			—		—

Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - diluted	$	331.4		$	304.9	$	—

Weighted average common shares outstanding – basic	28.4			28.1		—
Conversion of Class B common shares into Class A common shares	—			—		—
Effect of dilutive stock options on weighted average common shares	0.2			0.3		—
Weighted average common shares outstanding – diluted	28.6			28.4		—

Basic earnings per share attributable to Lithia Motors, Inc.	$	11.67		$	10.83	$	—
Diluted earnings per share attributable to Lithia Motors, Inc.	$	11.60		$	10.75	$	—

The effect of antidilutive securities on Class A and Class B common stock was evaluated for the three-month periods ended June 30, 2022, and 2021 and was determined to be immaterial.


Six Months Ended June 30,	2022		2021
(in millions, except per share amounts)	Common Stock			Class A		Class B
Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - basic	$	673.6		$	460.5	$	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	$	673.6		$	461.1	$	0.6

Weighted average common shares outstanding – basic	29.0			27.4		—
Conversion of class B common shares into class A common shares	—			—		—
Effect of employee stock purchases and restricted stock units on weighted average common shares	0.1			0.2		—
Weighted average common shares outstanding – diluted	29.1			27.6		—

Basic earnings per share attributable to Lithia Motors, Inc.	$	23.25		$	16.83	$	16.83
Diluted earnings per share attributable to Lithia Motors, Inc.	$	23.15		$	16.69	$	16.69

The effect of antidilutive securities on Class A and Class B common stock was evaluated for the six-month periods ended June 30, 2022, and 2021 and was determined to be immaterial.

NOTE 10. SEGMENTS

While we have determined that each individual store is a reporting unit, we have aggregated our reporting units into 3 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 and Lexus. The franchises in each segment also sell used vehicles, parts and automotive services, as well as automotive finance and insurance products.

Corporate and other revenue and income includes the results of operations of our stand-alone body shops offset by unallocated corporate overhead expenses, such as corporate personnel costs, and certain unallocated reserve and

NOTES TO FINANCIAL STATEMENTS

elimination adjustments. Additionally, certain internal corporate expense allocations increase income for Corporate and other while decreasing segment income for the 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 who perform certain dealership functions.

We define our chief operating decision maker (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, excepted for the internal allocation within Corporate and other discussed above. Our CODM does not regularly review capital expenditures on a reporting unit level. Performance measurement of each reportable segment by the CODM are based on several metrics, including earnings from operations. 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 reportable segments.

Certain financial information on a segment basis is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2022		2021		2022		2021
Revenues:
Domestic
New vehicle retail	$	1,069.2	$	924.6	$	2,004.8	$	1,539.2
Used vehicle retail	839.4		641.7		1,585.8		1,103.9
Used vehicle wholesale	132.7		63.8		260.8		100.0
Finance and insurance	96.4		78.6		185.7		137.2
Service, body and parts	203.3		159.1		390.9		279.8
Fleet and other	58.2		21.6		112.3		39.2
	2,399.2		1,889.4		4,540.3		3,199.3
Import
New vehicle retail	1,345.5		1,385.7		2,633.9		2,353.8
Used vehicle retail	1,009.4		717.8		1,905.3		1,280.0
Used vehicle wholesale	116.8		90.0		248.6		148.3
Finance and insurance	183.0		140.5		353.4		246.0
Service, body and parts	267.3		204.8		510.4		361.5
Fleet and other	4.8		18.6		14.9		32.6
	2,926.8		2,557.4		5,666.5		4,422.2
Luxury
New vehicle retail	836.4		839.2		1,672.9		1,453.3
Used vehicle retail	647.1		448.4		1,243.7		779.6
Used vehicle wholesale	101.3		59.3		208.4		99.0
Finance and insurance	63.6		52.6		126.0		89.5
Service, body and parts	196.9		150.1		380.0		271.8
Fleet and other	33.2		9.6		50.5		37.4
	1,878.5		1,559.2		3,681.5		2,730.6
	7,204.5		6,006.0		13,888.3		10,352.1
Corporate and other	35.6		3.4		57.1		0.3
	$	7,240.1	$	6,009.4	$	13,945.4	$	10,352.4
Segment income1:
Domestic	$	141.6	$	138.1	$	272.1	$	212.0
Import	275.5		216.3		521.3		317.8
Luxury	126.7		97.2		257.1		141.3
Total segment income for reportable segments	$	543.8	$	451.6	$	1,050.5	$	671.1

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

NOTES TO FINANCIAL STATEMENTS

~~Certain financial information on a segment basis is as follows:~~

Three Months Ended
June 30, Six Months Ended
June 30,
(in millions) 2021 2020 2021 2020
Revenues:
Domestic
New vehicle retail $ 924.6�� $ 499.1 $ 1,539.2 $ 969.6
Used vehicle retail 641.7 389.9 1,103.9 717.6
Used vehicle wholesale 63.8 19.8 100.0 45.8
Finance and insurance 78.6 50.9 137.2 96.1
Service, body and parts 159.1 102.2 279.8 219.5
Fleet and other 21.6 9.9 39.2 23.6
1,889.4 1,071.8 3,199.3 2,072.2
Import
New vehicle retail 1,385.7 572.7 2,353.8 1,173.0
Used vehicle retail 717.8 345.9 1,280.0 700.6
Used vehicle wholesale 90.0 20.3 148.3 46.5
Finance and insurance 140.5 55.9 246.0 113.9
Service, body and parts 204.8 105.3 361.5 230.1
Fleet and other 18.6 5.9 32.6 17.8
2,557.4 1,106.0 4,422.2 2,281.9
Luxury
New vehicle retail 839.2 297.2 1,453.3 598.2
Used vehicle retail 448.4 189.5 779.6 380.6
Used vehicle wholesale 59.3 11.3 99.0 25.5
Finance and insurance 52.6 17.7 89.5 34.6
Service, body and parts 150.1 65.4 271.8 148.8
Fleet and other 9.6 0.6 37.4 12.0
1,559.2 581.7 2,730.6 1,199.7
6,006.0 2,759.5 10,352.1 5,553.8
Corporate and other 3.4 (0.9) 0.3 8.5
$ 6,009.4 $ 2,758.6 $ 10,352.4 $ 5,562.3
Segment income1:

Domestic $ 138.1 $ 59.4 $ 212.0 $ 87.2
Import 216.3 48.8 317.8 73.6
Luxury 97.2 12.3 141.3 13.9
Total segment income for reportable segments $ 451.6 $ 120.5 $ 671.1 $ 174.7

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

~~NOTES TO FINANCIAL STATEMENTS~~

1316

Reconciliation of total segment income for reportable segments to our consolidated income before income taxes:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)	2022		2021		2022		2021
Total segment income for reportable segments	Total segment income for reportable segments	$	451.6	$	120.5	$	671.1	$	174.7	Total segment income for reportable segments	$	543.8	$	451.6	$	1,050.5	$	671.1
Corporate and other	Corporate and other	18.6		23.4		57.4		70.1		Corporate and other	21.6		18.6		62.1		57.4
Depreciation and amortization	Depreciation and amortization	(30.3)		(22.3)		(57.1)		(44.3)		Depreciation and amortization	(40.9)		(30.3)		(80.2)		(57.1)
Other interest expense	Other interest expense	(28.1)		(16.8)		(51.6)		(33.8)		Other interest expense	(34.4)		(28.1)		(64.5)		(51.6)
Other income, net		7.6		3.5		11.1		5.8
Other income (expense), net										Other income (expense), net	(21.9)		7.6		(29.9)		11.1
Income before income taxes	Income before income taxes	$	419.4	$	108.3	$	630.9	$	172.5	Income before income taxes	$	468.2	$	419.4	$	938.0	$	630.9

Total assets by reportable segments is as follows:


(in millions)	(in millions)	June 30, 2021		December 31, 2020		(in millions)	June 30, 2022		December 31, 2021
Total assets:	Total assets:					Total assets:
Domestic	Domestic	$	1,298.3	$	1,262.4	Domestic	$	2,215.4	$	1,574.7
Import	Import	1,579.1		1,654.7		Import	2,488.5		1,858.1
Luxury	Luxury	1,057.9		1,132.4		Luxury	1,681.2		1,407.1
Corporate and other	Corporate and other	6,157.2		3,852.6		Corporate and other	6,622.6		6,307.0
		$	10,092.5	$	7,902.1		$	13,007.7	$	11,146.9

~~Note 10. Leases~~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.

Most leases include 1 or more options to renew, with renewal terms that can extend the lease term from one to 2425 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.

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.

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. ~~The valuations related to leases entered into as part of certain 2020 acquisitions are still preliminary.~~ 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 11. Derivative Financial Instruments~~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 designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive ~~loss~~income (AOCI) in ~~stockholders’~~ equity and reclassified into earnings in the same 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 variable rate debt, we entered 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 $1.1 billion of non-trade floor plan notes payable.

NOTES TO FINANCIAL STATEMENTS

1417

~~2019. This instrument hedges interest rate risk related to a portion of our $1.0 billion of non-trade floor plan notes payable.~~

The table below presents the liabilities related to the zero-cost interest rate collar:


(Dollars in millions)	(Dollars in millions)	Accrued Liabilities		Other Long-Term Liabilities		Total		(Dollars in millions)	Accrued Liabilities		Other Long-Term Liabilities		Other Non-Current Assets		Total
Balance as of December 31, 2019		$	(0.1)	$	(0.9)	$	(1.0)

Loss recorded from interest rate collar		(1.8)		(5.1)		(6.9)
Balance as of March 31, 2020		(1.9)		(6.0)		(7.9)
Balance as of December 31, 2020								Balance as of December 31, 2020	$	(2.6)	$	(6.0)	$	—	$	(8.6)
Amounts reclassified from AOCI to floorplan interest expense	Amounts reclassified from AOCI to floorplan interest expense	0.4		0		0.4		Amounts reclassified from AOCI to floorplan interest expense	0.7		—		—		0.7
Loss recorded from interest rate collar	Loss recorded from interest rate collar	(1.0)		(1.3)		(2.3)		Loss recorded from interest rate collar	(0.6)		2.4		—		1.8
Balance as of June 30, 2020		(2.5)		(7.3)		(9.8)
Balance as of March 31, 2021								Balance as of March 31, 2021	(2.5)		(3.6)		—		(6.1)
Amounts reclassified from AOCI to floorplan interest expense								Amounts reclassified from AOCI to floorplan interest expense	0.7		—		—		0.7
Loss recorded from interest rate collar								Loss recorded from interest rate collar	(0.7)		0.2		—		(0.5)
Balance as of June 30, 2021								Balance as of June 30, 2021	(2.5)		(3.4)		—		(5.9)
Amounts reclassified from AOCI to floorplan interest expense	Amounts reclassified from AOCI to floorplan interest expense	0.7		0		0.7		Amounts reclassified from AOCI to floorplan interest expense	0.7		—		—		0.7
(Loss) gain recorded from interest rate collar	(Loss) gain recorded from interest rate collar	(0.7)		0.6		(0.1)		(Loss) gain recorded from interest rate collar	(0.7)		0.7		—		—
Balance as of September 30, 2020		(2.5)		(6.7)		(9.2)
Balance as of September 30, 2021								Balance as of September 30, 2021	(2.5)		(2.7)		—		(5.2)
Amounts reclassified from AOCI to floorplan interest expense	Amounts reclassified from AOCI to floorplan interest expense	0.7		0		0.7		Amounts reclassified from AOCI to floorplan interest expense	0.7		—		—		0.7
(Loss) gain recorded from interest rate collar	(Loss) gain recorded from interest rate collar	(0.8)		0.7		(0.1)		(Loss) gain recorded from interest rate collar	(0.1)		2.0		—		1.9
Balance as of December 31, 2020		(2.6)		(6.0)		(8.6)
Balance as of December 31, 2021								Balance as of December 31, 2021	(1.9)		(0.7)		—		(2.6)
Amounts reclassified from AOCI to floorplan interest expense	Amounts reclassified from AOCI to floorplan interest expense	0.7		0		0.7		Amounts reclassified from AOCI to floorplan interest expense	0.7		—		—		0.7
(Loss) gain recorded from interest rate collar	(Loss) gain recorded from interest rate collar	(0.6)		2.5		1.9		(Loss) gain recorded from interest rate collar	1.2		0.7		2.7		4.6
Balance as of March 31, 2021		(2.5)		(3.5)		(6.0)
Balance as of March 31, 2022								Balance as of March 31, 2022	—		—		2.7		2.7
Amounts reclassified from AOCI to floorplan interest expense	Amounts reclassified from AOCI to floorplan interest expense	0.7		0		0.7		Amounts reclassified from AOCI to floorplan interest expense	—		—		(2.7)		(2.7)
(Loss) gain recorded from interest rate collar		(0.7)		0.2		(0.5)
Balance as of June 30, 2021		$	(2.5)	$	(3.3)	$	(5.8)

Balance as of June 30, 2022								Balance as of June 30, 2022	$	—	$	—	$	—	$	—

~~As of~~During the three months ended June 30, ~~2021, the amount of net losses~~2022, we ~~expect to reclassify~~terminated our zero-cost interest rate collar, resulting in a $2.7 million reclassification from AOCI ~~into~~to floorplan interest ~~expense in earnings within the next twelve months is $2.7 million. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.~~expense.

In 2020, we entered into 2 ~~immaterial and~~ 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 which have a five-year term with notional amounts of $100 million.

In 2021, we entered into 2 additional ~~immaterial and~~ offsetting derivative arrangements that do not qualify for hedge accounting. These are both related to 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 June 30, ~~2021,~~2022, the balance on all 4 agreements was an offsetting ~~$4.1~~$18.4 million and was located in other current assets and accrued liabilities, respectively.

See Note 78 – Fair Value Measurements for information on the fair value of the derivative contracts.

~~Note 12. Acquisitions~~NOTE 13. ACQUISITIONS

In the first six months of 2022, we completed the following acquisitions:

•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 2022, 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 in Florida.

Revenue and operating income contributed by the 2022 acquisitions subsequent to the date of acquisition were as follows (in millions):


Six Months Ended June 30,	2022
Revenue	$	341.2
Operating income	17.6

NOTES TO FINANCIAL STATEMENTS

In the first six months of 2021, we completed the following acquisitions:

•In February 2021, Fields Chrysler Jeep Dodge Ram ~~of Sanford~~ and ~~Orlando~~ Land Rover Orlando in 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.

•In June 2021, Southwest Kia Group in Arizona.

•In June 2021, Herrin-Gear Toyota in Mississippi.

•In June 2021, Michael’s Subaru and Michael’s Toyota in Washington.

~~NOTES TO FINANCIAL STATEMENTS~~

~~Revenue and operating income contributed by the 2021 acquisitions subsequent to the date of acquisition were as follows (in millions):~~


~~Six Months Ended June 30,~~	~~2021~~
~~Revenue~~	$	~~976.3~~
~~Operating income~~	~~45.9~~

~~In the first six months of 2020, we completed the following acquisitions:~~

•~~In February 2020, Sacramento Lexus and Roseville Lexus in California.~~

•~~In June 2020, Hank’s Body Shop in Billings, Montana.~~

•~~In June 2020, Chrysler Dodge Jeep Ram of Bend and Nissan of Bend in Oregon.~~

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 ~~2021~~2022 acquisitions and the preliminary purchase price allocations for identified assets acquired and liabilities assumed as of the acquisition date:


(in millions)	Consideration
Cash paid, net of cash acquired	$	~~1,741.9~~698.3


(in millions)	Assets Acquired and Liabilities Assumed

~~Accounts receivable~~Inventories	$	~~0.7~~
~~Inventories, net~~	~~439.3~~131.9

Property and equipment ~~net~~	~~86.0~~236.5
Other non-current assets	~~1,443.9~~
~~Floor plan notes payable~~	~~(4.0)~~
~~Borrowings on lines-of-credit~~	~~(225.6)~~393.8

Debt and finance lease obligations	(59.0)

Other long-term liabilities	~~(6.0)~~(4.9)
	~~1,734.3~~
~~Goodwill~~	~~7.6~~
	$	~~1,741.9~~698.3

The purchase price allocations for the acquisitions from the third quarter of ~~2020~~2021 through the second quarter of ~~2021~~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. Unallocated items are recorded as a component of other non-current assets in the Consolidated Balance Sheets.

We expect substantially all of the goodwill related to acquisitions completed in ~~2021~~2022 to be deductible for federal income tax purposes.

In the three and six-month periods ended June 30, ~~2021,~~2022, we recorded ~~$10.4~~$1.5 million and ~~$11.6~~$8.1 million, respectively, in acquisition-related expenses as a component of selling, general and administrative expense. Comparatively, we recorded ~~$0.5~~$10.4 million and ~~$1.0~~$11.6 million, respectively, of acquisition-related expenses in the same periods of ~~2020.~~2021.

The following unaudited pro forma summary presents consolidated information as if all acquisitions in the three and six-month periods ended June 30, ~~2021~~2022 and ~~2020,~~2021 had occurred on January 1, ~~2020:~~2021:

Three Months Ended June 30, Six Months Ended June 30,
(in millions, except per share amounts) 2021 2020 2021 2020
Revenue $ 6,246.2 $ 4,436.0 $ 11,443.6 $ 8,859.6
Net income 310.8 104.3 485.5 170.3
Basic net income per share 11.04 4.57 17.72 7.38
Diluted net income per share 10.96 4.53 17.58 7.31


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per share amounts)	2022		2021		2022		2021
Revenue	$	7,562.4	$	6,579.9	$	14,588.3	$	11,331.5
Net income attributable to Lithia Motors, Inc.	356.2		337.4		712.5		510.2
Basic earnings attributable to Lithia Motors, Inc. per share	12.54		11.99		24.60		18.62
Diluted earnings attributable to Lithia Motors, Inc. per share	12.46		11.89		24.48		18.47

These amounts have been calculated by applying our accounting policies and estimates. The results of the acquired

NOTES TO FINANCIAL STATEMENTS

1619

~~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, accounting for inventory on a specific identification 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 Pronouncements~~NOTE 14. NET INVESTMENT IN OPERATING LEASES

In ~~December 2019,~~ the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, "Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.” The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We adopted the new guidance in the firstthird quarter of ~~2021. The adoption of~~2021, we purchased a leasing entity and the ~~guidance did not have a material impact on our consolidated financial statements.~~sales-type financing and operating leases it manages.

~~In October 2020,~~Net investment in operating leases consists primarily of lease contracts for vehicles with individuals and business entities. Assets subject to operating leases are depreciated using the FASB issued ASU 2020-10, “Codification Improvements.” The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We adoptedstraight-line method over the ~~new guidance in the first quarter of 2021. The adoption~~term of the ~~guidance did not have a material impact~~lease to reduce the asset to its estimated residual value. Estimated residual values are based on ~~our consolidated financial statements.~~assumptions for used vehicle prices at lease termination and the number of vehicles that are expected to be returned.

~~Note 14. Subsequent Events~~Net investment in operating leases was as follows:

~~On July~~


(in millions)	June 30, 2022		December 31, 2021
Vehicles, at cost1	$	84.7	$	66.0
Accumulated depreciation1	(6.7)		(0.9)
Net investment in operating leases	$	78.0	$	65.1

1 ~~2021,~~Vehicles, at cost and accumulated depreciation are recorded in ~~accordance with~~other current assets, on the indenture dated July 24, 2017, governing our 5.250% senior notes due 2025, we notified holders that we have elected to redeem in full the aggregate principal amount of notes outstanding on August 1, 2021 at a redemption price equal to 102.625% of the principal amount of the notes plus accrued and unpaid interest thereon.

Consolidated Balance Sheets.

NOTES TO FINANCIAL STATEMENTS

1720

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”, “outlook”, “target”, “may”, “will”, “would”, “should”, “seek”, “expect”, “plan”, “intend”, “forecast”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “likely”, “goal”, “strategy”, “future”, “maintain”,“project,” “outlook,” “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 ~~vehicle~~car and other sales ~~levels;~~levels and the supply of inventory

•~~Anticipated~~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, 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, continued improvement of selling, general and administrative expenses (“SG&A”) as a percentage of gross profit and any projections

•Our anticipated financial condition and liquidity, including from our cash and the future availability of our 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 ~~U.S~~national and local economies in which we operate, our business operations and consumer ~~demand;~~demand

•~~Continuation of our sales and services, including in-store appointments and home deliveries;~~

•~~Expectations regarding our inventory levels and manufacturer and lender incentives;~~

•~~Expected growth from our e-commerce home solutions and digital strategies;~~

•~~Expected operating results, such as improved store performance; continued improvement of selling, general and administrative expenses (SG&A) as a percentage of gross profit and all projections;~~

•~~Anticipated integration, success and growth of acquired stores;~~

•~~Anticipated ability to capture additional market share;~~

•~~Anticipated ability to find accretive acquisitions;~~

•~~Expected revenues from acquired stores;~~

•~~Anticipated synergies, ability to monetize our investment in digital innovation;~~

•~~Anticipated additions of dealership locations to our portfolio in the future;~~

•~~Anticipated financial condition and liquidity, including from our cash, availability on our credit facility and unfinanced real estate;~~

•~~Anticipated use of proceeds from our financings;~~

•~~Anticipated allocations, uses and levels of capital expenditures in the future;~~

•~~Expectations regarding~~Our compliance with financial and restrictive covenants in our credit facility and other debt ~~agreements;~~agreements

•~~Statements regarding furloughed employees~~Our programs and ~~cost reductions;~~initiatives for employee recruitment, training, and retention

•Our strategies for customer retention, growth, market position, financial results and risk ~~management; and~~

•~~Expectations regarding programs and initiatives for employee recruitment, training and retention.~~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 the Risk Factors section of our ~~2020~~2021 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 (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 ~~powered by people and innovation with a 5-Year Plan to~~focused on profitably ~~consolidate~~consolidating the largest retail sector in ~~our country. As a leading provider of personal transportation solutions in the United States, we~~North America. We are among the fastest growing companies in the Fortune 500 (#2 on 10-year EPS Growth, #3 on 10-Year TSR and #12 on 10-year Revenue growth in 2021). As of June 30, ~~2021,~~2022, we operated ~~259~~292 locations representing 3840 brands in ~~26 states. We strive to achieve operational excellence by focusing the business on convenient~~25 states and ~~transparent consumer experiences supported by proprietary data science to increase market share and profitability.~~3 Canadian provinces.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

We offer a wide array of products and services fulfilling the entire vehicle ownership lifecycle including new and used vehicles, ~~finance~~financing, and insurance products and 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Our omni-channel strategy ~~will continue~~is designed to pragmatically disrupt the industry by leveraging our experienced teams, vast ~~selection of~~ owned inventories, technology, and ~~nationwide~~physical network. We ~~seek~~continue to ~~provide customers~~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 ~~seamless experience across online~~unique and physical offerings, broad selection and access to specialized expertise and knowledge. Our physical logistics network enables us to provide convenient touch points for customers and provide services throughout the entire ownership life cycle. This unique growth model generates significant cash flows, which fund innovation and the expansion of our nationwide network, creating personalcompelling high-growth strategy that provides transportation solutions wherever, whenever and however consumers desire.

~~In July 2020, we launched a 5-Year Plan to grow to $50 billion in revenues by designing our strategy to focus on the most expansive addressable market of any retailer in the United States.~~ Our long-term strategy ~~and~~to create value ~~creation~~ for our customers, employees and shareholders ~~centers around~~includes the following elements:

Driving operational excellence, innovation and diversification

~~We create value~~LAD builds magnetic brand loyalty in our 292 locations within our Lithia channel and ~~high performance~~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 ~~gaining~~supported by proprietary data science to improve market share, consumer loyalty, and ~~increasing~~ 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 response to evolving consumer preferences, we ~~have reimagined the way consumers buy, sell~~invest in modernization that supports and ~~service their vehicles over the full ownership lifecycle. Driveway,~~expands our national brand launched in June 2020, empowers consumers to simply and transparently shop, sell and service their vehicles from the convenience of their home. The Driveway experience is designed to attract a different and incrementally new consumer compared to our in-store options. Driveway combinescore 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, 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 based 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 allows our local managers to focus on customer-facing opportunities to increase revenues and gross profit. Our operations are 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 our omni-channel plan is the growth and expansion 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 markets to metropolitan 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. ~~During the first full year~~Our physical footprint currently reaches 95% of ~~the 5-Year Plan, we have already reached approximately 40%~~American consumers within an average radius of ~~our targeted network development goal.~~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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Thoughtful capital allocation

Our capital deployment strategy targets deployment of ~~our~~65% of free cash flows generated ~~continues to target a 65% investment in~~toward acquisitions, 25% ~~investment in~~toward capital expenditures, ~~modernization~~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.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Key Revenue and Gross Profit Metrics

Key performance metrics for revenue and gross profit were as follows:


		Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended June 30,								Six Months Ended June 30,
($ in millions)		2021			2020			Change		2021			2020			Change
($ in millions, except per unit values)																		($ in millions, except per unit values)	2022			2021			Change		2022			2021			Change
Revenues	Revenues																	Revenues
New vehicle retail	New vehicle retail	$	3,146.2		$	1,367.8		130.0	%	$	5,339.5		$	2,741.3		94.8	%	New vehicle retail	$	3,250.7		$	3,146.2		3.3	%	$	6,312.4		$	5,339.5		18.2	%
Used vehicle retail	Used vehicle retail	1,804.9			922.2			95.7		3,157.0			1,796.5			75.7		Used vehicle retail	2,496.7			1,804.9			38.3		4,731.2			3,157.0			49.9
Finance and insurance	Finance and insurance	269.6			124.9			115.9		467.9			246.7			89.7		Finance and insurance	330.4			269.6			22.6		643.7			467.9			37.6
Service, body and parts	Service, body and parts	521.0			275.5			89.1		925.0			605.4			52.8		Service, body and parts	682.6			521.0			31.0		1,310.4			925.0			41.7
Total Revenues	Total Revenues	6,009.4			2,758.6			117.8		10,352.4			5,562.3			86.1		Total Revenues	7,240.1			6,009.4			20.5		13,945.4			10,352.4			34.7

Gross profit	Gross profit																	Gross profit
New vehicle retail	New vehicle retail	$	313.7		$	92.2		240.2	%	$	470.5		$	170.4		176.1	%	New vehicle retail	$	410.4		$	313.7		30.8	%	$	811.7		$	470.5		72.5	%
Used vehicle retail	Used vehicle retail	232.6			98.3			136.6		368.7			188.2			95.9		Used vehicle retail	238.3			232.6			2.5		462.1			368.7			25.3
Finance and insurance	Finance and insurance	269.6			124.9			115.9		467.9			246.7			89.7		Finance and insurance	330.4			269.6			22.6		643.7			467.9			37.6
Service, body and parts	Service, body and parts	278.2			144.4			92.7		496.5			312.5			58.9		Service, body and parts	363.5			278.2			30.7		692.5			496.5			39.5
Total Gross Profit	Total Gross Profit	1,110.6			464.4			139.1		1,826.1			925.3			97.4		Total Gross Profit	1,350.7			1,110.6			21.6		2,628.9			1,826.1			44.0

Gross profit margins	Gross profit margins																	Gross profit margins
New vehicle retail	New vehicle retail	10.0		%	6.7		%	330	bps	8.8		%	6.2		%	260	bps	New vehicle retail	12.6		%	10.0		%	260	bps	12.9		%	8.8		%	410	bps
Used vehicle retail	Used vehicle retail	12.9			10.7			220		11.7			10.5			120		Used vehicle retail	9.5			12.9			(340)		9.8			11.7			(190)
Finance and insurance	Finance and insurance	100.0			100.0			—		100.0			100.0			—		Finance and insurance	100.0			100.0			—		100.0			100.0			—
Service, body and parts	Service, body and parts	53.4			52.4			100		53.7			51.6			210		Service, body and parts	53.3			53.4			(10)		52.9			53.7			(80)
Total Gross Profit Margin	Total Gross Profit Margin	18.5			16.8			170		17.6			16.6			100		Total Gross Profit Margin	18.7			18.5			20		18.9			17.6			130

Retail units sold	Retail units sold																	Retail units sold
New vehicles	New vehicles	75,176			34,869			115.6	%	129,040			70,776			82.3	%	New vehicles	68,752			75,176			(8.5)	%	133,694			129,040			3.6	%
Used vehicles	Used vehicles	70,254			43,505			61.5		129,281			86,136			50.1		Used vehicles	81,026			70,254			15.3		154,715			129,281			19.7

Average selling price per retail unit	Average selling price per retail unit																	Average selling price per retail unit
New vehicles	New vehicles	$	41,852		$	39,226		6.7	%	$	41,379		$	38,732		6.8	%	New vehicles	$	47,281		$	41,852		13.0	%	$	47,216		$	41,379		14.1	%
Used vehicles	Used vehicles	25,691			21,196			21.2		24,420			20,857			17.1		Used vehicles	30,814			25,691			19.9		30,580			24,420			25.2

Average gross profit per retail unit	Average gross profit per retail unit																	Average gross profit per retail unit
New vehicles	New vehicles	$	4,173		$	2,643		57.9	%	$	3,646		$	2,407		51.5	%	New vehicles	$	5,970		$	4,173		43.1	%	$	6,071		$	3,646		66.5	%
Used vehicles	Used vehicles	3,311			2,259			46.6		2,852			2,185			30.5		Used vehicles	2,942			3,311			(11.1)		2,987			2,852			4.7
Finance and insurance	Finance and insurance	1,854			1,593			16.4		1,811			1,572			15.2		Finance and insurance	2,206			1,854			19.0		2,232			1,811			23.2
Total vehicle1	Total vehicle1	5,723			4,050			41.3		5,141			3,875			32.7		Total vehicle1	6,563			5,723			14.7		6,689			5,141			30.1

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.

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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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 May ~~2020~~2021 would be included in same store operating data beginning in June ~~2021,~~2022, after its first full complete comparable month of operation. The second quarter operating results for the same store comparisons would include results for that store in only the month of June for both comparable periods. ~~Similar for comparisons of 2021 to 2019, metrics would only include results for the stores with full complete comparable months of operations in both years.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~


		Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended June 30,								Six Months Ended June 30,
($ in millions)		2021			2020			Change		2021			2020			Change
($ in millions, except per unit values)																		($ in millions, except per unit values)	2022			2021			Change		2022			2021			Change
Revenues	Revenues																	Revenues
New vehicle retail	New vehicle retail	$	2,078.1		$	1,338.8		55.2	%	$	3,801.6		$	2,671.9		42.3	%	New vehicle retail	$	2,475.1		$	2,980.2		(16.9)	%	$	4,578.0		$	5,118.4		(10.6)	%
Used vehicle retail	Used vehicle retail	1,342.7			902.1			48.8		2,462.2			1,751.5			40.6		Used vehicle retail	2,042.2			1,737.4			17.5		3,756.8			3,050.9			23.1
Finance and insurance	Finance and insurance	183.6			122.4			50.0		337.2			241.2			39.8		Finance and insurance	255.5			259.6			(1.6)		481.5			453.4			6.2
Service, body and parts	Service, body and parts	352.3			269.9			30.5		668.3			589.1			13.4		Service, body and parts	546.3			499.4			9.4		994.4			895.1			11.1
Total Revenues	Total Revenues	4,128.1			2,700.2			52.9		7,596.7			5,421.9			40.1		Total Revenues	5,658.8			5,730.4			(1.2)		10,418.8			9,961.8			4.6

Gross profit	Gross profit																	Gross profit
New vehicle retail	New vehicle retail	$	209.8		$	90.2		132.6	%	$	336.5		$	166.4		102.2	%	New vehicle retail	$	311.6		$	299.0		4.2	%	$	591.7		$	452.3		30.8	%
Used vehicle retail	Used vehicle retail	180.4			97.1			85.8		300.2			185.5			61.8		Used vehicle retail	192.6			223.5			(13.8)		361.7			356.8			1.4
Finance and insurance	Finance and insurance	183.6			122.4			50.0		337.2			241.2			39.8		Finance and insurance	255.5			259.6			(1.6)		481.5			453.4			6.2
Service, body and parts	Service, body and parts	193.3			141.5			36.6		362.2			304.3			19.0		Service, body and parts	294.4			268.5			9.6		538.4			482.4			11.6
Total Gross Profit	Total Gross Profit	777.1			455.8			70.5		1,350.8			904.9			49.3		Total Gross Profit	1,057.6			1,066.5			(0.8)		1,980.9			1,767.1			12.1

Gross profit margins	Gross profit margins																	Gross profit margins
New vehicle retail	New vehicle retail	10.1		%	6.7		%	340	bps	8.9		%	6.2		%	270	bps	New vehicle retail	12.6		%	10.0		%	260	bps	12.9		%	8.8		%	410	bps
Used vehicle retail	Used vehicle retail	13.4			10.8			260		12.2			10.6			160		Used vehicle retail	9.4			12.9			(350)		9.6			11.7			(210)
Finance and insurance	Finance and insurance	100.0			100.0			—		100.0			100.0			—		Finance and insurance	100.0			100.0			—		100.0			100.0			—
Service, body and parts	Service, body and parts	54.9			52.4			250		54.2			51.7			250		Service, body and parts	53.9			53.8			10		54.1			53.9			20
Total Gross Profit Margin	Total Gross Profit Margin	18.8			16.9			190		17.8			16.7			110		Total Gross Profit Margin	18.7			18.6			10		19.0			17.7			130

Retail units sold	Retail units sold																	Retail units sold
New vehicles	New vehicles	49,181			34,069			44.4	%	91,592			68,870			33.0	%	New vehicles	51,822			71,160			(27.2)	%	95,453			123,571			(22.8)	%
Used vehicles	Used vehicles	51,806			42,495			21.9		101,075			83,823			20.6		Used vehicles	67,201			67,324			(0.2)		123,753			124,474			(0.6)

Average selling price per retail unit	Average selling price per retail unit																	Average selling price per retail unit
New vehicles	New vehicles	$	42,255		$	39,296		7.5	%	$	41,506		$	38,797		7.0	%	New vehicles	$	47,762		$	41,880		14.0	%	$	47,961		$	41,421		15.8	%
Used vehicles	Used vehicles	25,918			21,228			22.1		24,360			20,895			16.6		Used vehicles	30,389			25,806			17.8		30,357			24,510			23.9

Average gross profit per retail unit	Average gross profit per retail unit																	Average gross profit per retail unit
New vehicles	New vehicles	$	4,266		$	2,646		61.2	%	$	3,674		$	2,416		52.1	%	New vehicles	$	6,013		$	4,201		43.1	%	$	6,199		$	3,660		69.4	%
Used vehicles	Used vehicles	3,483			2,285			52.4		2,970			2,212			34.3		Used vehicles	2,866			3,319			(13.6)		2,922			2,867			1.9
Finance and insurance	Finance and insurance	1,818			1,599			13.7		1,750			1,579			10.8		Finance and insurance	2,146			1,875			14.5		2,196			1,828			20.1
Total vehicle1	Total vehicle1	5,778			4,072			41.9		5,121			3,903			31.2		Total vehicle1	6,388			5,762			10.9		6,558			5,173			26.8

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.

During the three months ended June 30, ~~2021,~~2022, we had net income attributable to Lithia Motors, Inc. of ~~$304.9~~$331.3 million, or ~~$10.75~~$11.60 per share on a diluted basis, compared to ~~net income of $77.7~~$304.9 million, or ~~$3.38~~$10.75 per share on a diluted basis, during the same period of ~~2020.~~2021. During the six months ended June 30, ~~2021,~~2022, we had net income attributable to Lithia Motors, Inc. of ~~$461.1~~$673.5 million, or ~~$16.69~~$23.15 per share on a diluted basis, compared to ~~net income of $123.9~~$461.1 million, or ~~$5.32~~$16.69 per share on a diluted basis, during the same period of ~~2020.~~2021.

MANAGEMENT’S DISCUSSION AND ANALYSIS

New Vehicles

We believe that our new vehicle sales create incremental profit opportunities through certain manufacturer incentive programs, arranging of third-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 ~~increased 55.2%~~decreased 16.9% and ~~42.3%~~10.6%, respectively, for the three and six-month periods ended June 30, ~~2021~~2022 compared to the same periods in ~~2020, respectively.~~2021. This was due to ~~an increase~~a decrease in unit volume of ~~44.4% and 33.0%~~27.2%, ~~and~~offset by an increase in average selling prices of ~~7.5% and 7.0%, in~~14.0% for the three ~~and six-month periods~~months ended June 30, ~~2021, respectively,~~2022, compared to the same ~~periods~~period of ~~2020.~~2021; and a decrease in unit volume of 22.8%, offset by an increase in average selling prices of 15.8% in the six months ended June 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.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

InConsumer demand remained strong through the second quarter of ~~2020, volumes were significantly impacted~~2022 and there continued to be a shortage of available new vehicles for sale driven largely by ~~shelter~~component shortages in ~~place policies~~certain manufacturers’ supply chains. This imbalance has resulted in higher than normal average selling prices and ~~restrictions enacted by various states, counties and local governments in response to the COVID-19 pandemic. We experienced initial declines on average~~gross profits per unit. The reduced levels of ~~approximately 50% compared to the same period of 2019 and as restrictions eased during the quarter,~~ new vehicle ~~sales began~~availability are expected to improve. In order to provide a more meaningful comparison of current year growth, same store new vehicle revenues increased 19.8% and 21.3% for the three and six month periods ended June 30, 2021, respectively compared to the same period of 2019.continue throughout 2022.

~~New vehicle gross profit margins continued to grow in the second quarter of 2021 due to strong customer demand and lower inventory levels.~~ Same store new vehicle gross profit per unit increased ~~61.2%~~43.1% and ~~52.1%~~69.4%, respectively, increasing new vehicle gross profit margins ~~340~~260 bps and ~~270~~410 bps, respectively, in the three and six-month periods ended June 30, ~~2021, respectively,~~2022 compared to the same periods of ~~2020.~~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 ~~$1,770~~$2,106 to ~~$6,150~~$8,243 and ~~$1,388~~increased $2,911 to ~~$5,521~~$8,492 for the three and six-month periods ended June 30, ~~2021, respectively,~~2022 compared to the same periods of ~~2020.~~2021, respectively.

Used Vehicles

Used vehicle retail sales are a strategic focus for organic growth. We offer three categories of used vehicles: manufacturer certified pre-owned (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 100 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 ten~~up to twenty years old. During the ~~last twelve~~three months ended June 30, ~~2021,~~2022, our stores sold an average of 8891 used vehicles per store per month, compared to 7788 used vehicles per store per month for the same period ended June 30, ~~2020.~~2021.

Used vehicle demand remains high, due in part to the lower levels of new vehicle inventory available for sale. This demand resulted in higher than normal average selling prices and gross profits per unit for the six-month period ended June 30, 2022.

Used vehicle revenue for the three and six-month periods ended June 30, ~~2021~~2022 increased ~~95.7%~~38.3% and ~~75.7%~~49.9%, respectively, compared to the same periods of ~~2020.~~2021 due to a combination of strong same store performance and acquisition activity. On a same store basis, used vehicle sales for the three and six-month periods ended June 30, ~~2021~~2022 increased ~~48.8%~~17.5% and ~~40.6%~~23.1%, respectively, as compared to the same periods of ~~2020,~~2021, driven by increases in our core vehicle category of ~~53.3%~~23.8% and ~~45.6%~~29.1%, respectively. Our core vehicle category had growth in unit sales of ~~26.2%~~3.8% and ~~26.0%~~3.2%, with improvements in average selling price per vehicle of ~~21.4%~~19.3% and ~~15.6%, respectively,~~25.1% for the three and six-month periods ended June 30, ~~2021.~~2022, respectively. Our CPO ~~and value auto~~ vehicle ~~categories also had increases in~~ unit sales ~~of 10.3%~~decreased 10.6% and ~~12.1%, respectively,~~12.2% for the three and six-month periods ended June 30, ~~2021,~~2022, respectively, as compared to the same periods of ~~2020.~~2021. We continue to focus on procuring vehicles across the full spectrum of the addressable used vehicle market to provide customers with a ~~wider~~wide selection meeting all levels of affordability, driving increased used vehicle unit volumes.

Similar to new vehicles, volumes were impacted during the second quarter of 2020 by the shelter in place policies and restrictions. Initial declines were similar to new vehicles; however, we experienced improvements during the second quarter of 2020, which accelerated in June when same store used vehicle unit sales grew over 19% compared to the same period in 2019.

~~Same store used vehicle revenues increased 49.4% and 46.5% for the three and six month periods ended June 30, 2021, respectively compared to the same period of 2019.~~

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 $182 to $4,948 and increased ~~28.3% or $1,154~~$441 to ~~$5,237 and 25.9% or $954 to $4,633~~$5,043 for the three and six-month periods ended June 30, ~~2021, respectively,~~2022, as compared to the same periods of ~~2020.~~2021, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Finance and Insurance

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.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~The 115.9% and 89.7% increase in~~Total finance and insurance ~~revenue~~income increased 22.6% and 37.6%, respectively, in the three and six-month periods ended June 30, ~~2021, respectively,~~2022 compared to the same periods of ~~2020, overcame the 3.2% decrease and 0.1% increase experienced in the same periods of 2020 compared to 2019.~~2021. Same store finance and insurance revenues decreased 1.6% and increased ~~50.0% and 39.8%~~6.2%, respectively, for the three and six-month periods ended June 30, ~~2021~~2022 compared to the same periods of ~~2020.~~2021. Revenue increases associated with service contracts were offset by a decline in finance reserve revenues as we increase our penetration rates associated with Driveway Finance Corp and the growth of our captive auto loan portfolio business. On a same store basis, our finance and insurance revenue per retail unit increased ~~$219~~$271 to ~~$1,818~~$2,146 and ~~$171~~$368 to ~~$1,750~~$2,196, respectively, in the three and six-month periods ended June 30, ~~2021, respectively,~~2022 compared to the same periods of ~~2020, primarily due to an increase in service contract revenue per unit.~~2021.

Service, body and parts

We provide ~~service, body~~automotive repair and ~~parts~~maintenance 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 operations~~These 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~~after sales continue to prove to be more resilient during economic downturns, when owners tend to repair their existing vehicles rather than buy new vehicles.

Our service, body, and parts revenue increased ~~89.1%~~31.0% and ~~52.8%~~41.7%, respectively, in the three and six-month periods ended June 30, ~~2021,~~2022 compared to the same periods of ~~2020,~~2021, driven by acquisitions, as well as increases in customer pay revenues. We believe the increased number of units in operation will continue to benefit our service, body and parts revenue in the coming years as more late-model vehicles age, necessitating repairs and maintenance.

We focus on retaining customers by offering competitively-priced routine maintenance and through our marketing efforts. In the three and six-month periods ended June 30, ~~2021,~~2022, the largest contribution to our service, body and parts revenue was same store customer pay revenue of ~~$205.9~~$314.5 million and ~~$388.0~~$575.2 million, respectively.

Same store service, body and parts gross profit increased ~~36.6%~~9.6% and ~~19.0%~~11.6%, respectively, in the three and six-month periods ended June 30, ~~2021, respectively,~~2022 compared to the same periods of ~~2020 and increased 11.0% in same periods compared to 2019. The increase was~~2021. These increases were primarily due to increased ~~volume~~volumes of customer pay ~~transactions and increased gross margin in all areas.~~transactions. Overall same store service, body, and parts gross margins increased ~~250~~10 and 20 bps, ~~and 250 bps~~respectively, in the three and six-month periods ended June 30, ~~2021, respectively,~~2022 compared to the same periods of ~~2020,~~2021, primarily as a result of our mix continuing to shift towards customer pay, which has higher margins than other service work. Same store customer pay gross margin increased ~~390~~90 and 140 bps, ~~and 310 bps~~respectively, in the three and six-month periods ended June 30, ~~2021, respectively,~~2022 compared to the same periods of ~~2020.~~2021.

Segments

Certain financial information by segment is as follows:


		Three Months Ended June 30,				Increase			% Increase			Three Months Ended June 30,				Increase		% Increase
(in millions)	(in millions)	2021		2020				(in millions)			2022		2021
Revenues:	Revenues:											Revenues:
Domestic	Domestic	$	1,889.4	$	1,071.8	$	817.6		76.3	%	Domestic	$	2,399.2	$	1,889.4	$	509.8	27.0	%
Import	Import	2,557.4		1,106.0		1,451.4			131.2		Import	2,926.8		2,557.4		369.4		14.4
Luxury	Luxury	1,559.2		581.7		977.5			168.0		Luxury	1,878.5		1,559.2		319.3		20.5
		6,006.0		2,759.5		3,246.5			117.6			7,204.5		6,006.0		1,198.5		20.0
Corporate and other	Corporate and other	3.4		(0.9)		4.3			NM		Corporate and other	35.6		3.4		32.2		NM
		$	6,009.4	$	2,758.6	$	3,250.8		117.8	%		$	7,240.1	$	6,009.4	$	1,230.7	20.5	%

NM - not meaningful

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Six Months Ended
June 30, Increase (Decrease) % Increase
(in millions) 2021 2020
Revenues:
Domestic $ 3,199.3 $ 2,072.2 $ 1,127.1 54.4 %
Import 4,422.2 2,281.9 2,140.3 93.8
Luxury 2,730.6 1,199.7 1,530.9 127.6
10,352.1 5,553.8 4,798.3 86.4
Corporate and other 0.3 8.5 (8.2) NM
$ 10,352.4 $ 5,562.3 $ 4,790.1 86.1 %

~~NM - not meaningful~~

Three Months Ended June 30, Increase (Decrease) % Increase (Decrease)
(in millions) 2021 2020
Segment income1:

Domestic $ 138.1 $ 59.4 $ 78.7 132.5 %
Import 216.3 48.8 167.5 343.2
Luxury 97.2 12.3 84.9 690.2
451.6 120.5 331.1 274.8
Corporate and other 18.6 23.4 (4.8) (20.5)
$ 470.2 $ 143.9 $ 326.3 226.8

Six Months Ended
June 30, Increase (Decrease) % Increase (Decrease)
(in millions) 2021 2020
Segment income1:

Domestic $ 212.0 $ 87.2 $ 124.8 143.1 %
Import 317.8 73.6 244.2 331.8
Luxury 141.3 13.9 127.4 916.5
671.1 174.7 496.4 284.1
Corporate and other 57.4 70.1 (12.7) (18.1)
$ 728.5 $ 244.8 $ 483.7 197.6

1Segment income for each of the segments is a Non-GAAP measure defined as Income from operations before income taxes, depreciation and amortization, other interest expense and other income, net. See Note 9 of the Condensed Notes to the Consolidated Financial Statements for additional information.

Three Months Ended June 30, Increase % Increase
2021 2020
Retail new vehicle unit sales:
Domestic 18,991 10,889 8,102 74.4 %
Import 42,204 18,642 23,562 126.4
Luxury 14,127 5,418 8,709 160.7
75,322 34,949 40,373 115.5
Allocated to management (146) (80) 66 NM
75,176 34,869 40,307 115.6 %

~~NM – Not meaningful~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Six Months Ended
June 30, Increase % Increase
2021 2020
Retail new vehicle unit sales:
Domestic 32,056 21,515 10,541 49.0 %
Import 72,658 38,484 34,174 88.8
Luxury 24,622 10,909 13,713 125.7
129,336 70,908 58,428 82.4
Allocated to management (296) (132) 164 NM
129,040 70,776 58,264 82.3 %

~~NM – Not meaningful~~

~~Domestic~~

~~A summary of financial information for our Domestic segment follows:~~

Three Months Ended
June 30, Increase % Increase
($ in millions) 2021 2020
Revenue:
New vehicle retail $ 924.6 $ 499.1 $ 425.5 85.3 %
Used vehicle retail 641.7 389.9 251.8 64.6
Used vehicle wholesale 63.8 19.8 44.0 222.2
Finance and insurance 78.6 50.9 27.7 54.4
Service, body and parts 159.1 102.2 56.9 55.7
Fleet and other 21.6 9.9 11.7 NM
$ 1,889.4 $ 1,071.8 $ 817.6 76.3
Segment income $ 138.1 $ 59.4 $ 78.7 132.5
Retail new vehicle unit sales 18,991 10,889 8,102 74.4
~~NM - not meaningful~~

Six Months Ended
June 30, Increase % Increase
($ in millions) 2021 2020
Revenue:
New vehicle retail $ 1,539.2 $ 969.6 $ 569.6 58.7 %
Used vehicle retail 1,103.9 717.6 386.3 53.8
Used vehicle wholesale 100.0 45.8 54.2 118.3
Finance and insurance 137.2 96.1 41.1 42.8
Service, body and parts 279.8 219.5 60.3 27.5
Fleet and other 39.2 23.6 15.6 NM
$ 3,199.3 $ 2,072.2 $ 1,127.1 54.4 %
Segment income $ 212.0 $ 87.2 $ 124.8 143.1 %
Retail new vehicle unit sales 32,056 21,515 10,541 49.0 %

~~NM - not meaningful~~

Our Domestic segment revenue increased 76.3% and 54.4% in the three and six-month periods ended June 30, 2021, compared to the same periods of 2020, driven by increases across all business lines. The acquisition of 13 stores in 2021 was the primary contributor to these increases.

Our Domestic segment income increased 132.5% and 143.1% in the three and six-month periods ended June 30, 2021 compared to the same periods of 2020, due to gross profit growth of 88.6% and 63.2% and a decrease in floor plan interest expense of 5.9% and 31.9%, respectively. Total Domestic SG&A as a percentage of gross profit decreased from 63.3% to 57.5% and from 69.2% to 59.8% for the three and six-month periods ended June 30, 2021, compared to the same periods of 2020. The decreases for the three and six-month periods ended June 30, 2021 were primarily driven by increased gross profit without proportional increases in all SG&A costs. Floor plan interest expense for Domestic stores decreased primarily due to lower inventory levels for the three and six-month periods ended June 30, 2021, compared to the same periods of 2020.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~Import~~

~~A summary of financial information for our Import segment follows:~~

Three Months Ended
June 30, Increase % Increase
($ in millions) 2021 2020
Revenue:
New vehicle retail $ 1,385.7 $ 572.7 $ 813.0 142.0 %
Used vehicle retail 717.8 345.9 371.9 107.5
Used vehicle wholesale 90.0 20.3 69.7 343.3
Finance and insurance 140.5 55.9 84.6 151.3
Service, body and parts 204.8 105.3 99.5 94.5
Fleet and other 18.6 5.9 12.7 NM
$ 2,557.4 $ 1,106.0 $ 1,451.4 131.2
Segment income $ 216.3 $ 48.8 $ 167.5 343.2
Retail new vehicle unit sales 42,204 18,642 23,562 126.4

~~NM - not meaningful~~

Six Months Ended
June 30, Increase % Increase
($ in millions) 2021 2020
Revenue:
New vehicle retail $ 2,353.8 $ 1,173.0 $ 1,180.8 100.7 %
Used vehicle retail 1,280.0 700.6 579.4 82.7
Used vehicle wholesale 148.3 46.5 101.8 218.9
Finance and insurance 246.0 113.9 132.1 116.0
Service, body and parts 361.5 230.1 131.4 57.1
Fleet and other 32.6 17.8 14.8 NM
$ 4,422.2 $ 2,281.9 $ 2,140.3 93.8 %
Segment income $ 317.8 $ 73.6 $ 244.2 331.8 %
Retail new vehicle unit sales 72,658 38,484 34,174 88.8 %

~~NM - not meaningful~~

Our Import segment revenue increased 131.2% and 93.8%in the three and six-month periods ended June 30, 2021 compared to the same periods of 2020, driven by increases in all business lines. The acquisition of 26 stores in 2021 was the primary contributor to these increases.

Our Import segment income increased 343.2% and 331.8% in the three and six-month periods ended June 30, 2021 compared to the same periods of 2020, due to gross profit growth of 159.9% and 110.5%, respectively. Total Import SG&A as a percentage of gross profit decreased from 72.0% to 56.4% and from 77.4% to 60.2% for the three and six-month periods ended June 30, 2021, respectively, compared to the same periods of 2020. The decreases for the three and six-month periods ended June 30, 2021 were primarily driven by increased gross profit without proportional increases in all SG&A costs. Floor plan interest expense for Import stores increased due to higher interest rates in the three-month period ended June 30, 2021 compared to the same period of 2020, but decreased slightly in the six-month period ended June 30, 2021 compared to the same period of 2020 due to lower inventory levels, partially offset by higher interest rates.

MANAGEMENT’S DISCUSSION AND ANALYSIS

~~Luxury~~

~~A summary of financial information for our Luxury segment follows:~~

Three Months Ended
June 30, Increase % Increase
($ in millions) 2021 2020
Revenue:
New vehicle retail $ 839.2 $ 297.2 $ 542.0 182.4 %
Used vehicle retail 448.4 189.5 258.9 136.6
Used vehicle wholesale 59.3 11.3 48.0 424.8
Finance and insurance 52.6 17.7 34.9 197.2
Service, body and parts 150.1 65.4 84.7 129.5
Fleet and other 9.6 0.6 9.0 NM
$ 1,559.2 $ 581.7 $ 977.5 168.0
Segment income $ 97.2 $ 12.3 $ 84.9 690.2
Retail new vehicle unit sales 14,127 5,418 8,709 160.7


	Six Months Ended June 30,			Increase		% Increase
(in millions)	2022	2021
Revenues:
Domestic		$	4,540.3	$	3,199.3	$	1,341.0	41.9	%
Import		5,666.5		4,422.2		1,244.3		28.1
Luxury		3,681.5		2,730.6		950.9		34.8
		13,888.3		10,352.1		3,536.2		34.2
Corporate and other		57.1		0.3		56.8		NM
		$	13,945.4	$	10,352.4	$	3,593.0	34.7	%

NM - not meaningful


	Three Months Ended June 30,				Increase		% Increase
(in millions)	2022		2021
Segment income1:
Domestic	$	141.6	$	138.1	$	3.5	2.5	%
Import	275.5		216.3		59.2		27.4
Luxury	126.7		97.2		29.5		30.3
	543.8		451.6		92.2		20.4
Corporate and other	21.6		18.6		3.0		16.1
	$	565.5	$	470.2	$	95.3	20.3

Six Months Ended
June 30, Increase % Increase
($ in millions) 2021 2020
Revenue:
New vehicle retail $ 1,453.3 $ 598.2 $ 855.1 142.9 %
Used vehicle retail 779.6 380.6 399.0 104.8
Used vehicle wholesale 99.0 25.5 73.5 288.2
Finance and insurance 89.5 34.6 54.9 158.7
Service, body and parts 271.8 148.8 123.0 82.7
Fleet and other 37.4 12.0 25.4 NM
$ 2,730.6 $ 1,199.7 $ 1,530.9 127.6 %
Segment income $ 141.3 $ 13.9 $ 127.4 916.5 %
Retail new vehicle unit sales 24,622 10,909 13,713 125.7 %


	Six Months Ended June 30,				Increase		% Increase
(in millions)	2022		2021
Segment income1:
Domestic	$	272.1	$	212.0	$	60.1	28.3	%
Import	521.3		317.8		203.5		64.0
Luxury	257.1		141.3		115.8		82.0
	1,050.5		671.1		379.4		56.5
Corporate and other	62.1		57.4		4.7		8.2
	$	1,112.6	$	728.5	$	384.1	52.7

~~NM - not meaningful~~1Segment income for each of the segments is a Non-GAAP measure defined as Income from operations before income taxes, depreciation and amortization, other interest expense and other income, net. See Note 10 – Segments of the Condensed Notes to the Consolidated Financial Statements for additional information.

Our Luxury segment revenue increased 168.0% and 127.6% in the three and six-month periods ended June 30, 2021 compared to the same periods of 2020, driven by increases in all business lines. The acquisition of 16 stores in 2021 was the primary contributor to these increases.


	Three Months Ended June 30,		Increase (Decrease)	% Increase (Decrease)
	2022	2021
Retail new vehicle unit sales:
Domestic	20,208	18,991	1,217	6.4	%
Import	36,041	42,204	(6,163)	(14.6)
Luxury	12,453	14,127	(1,674)	(11.8)
	68,702	75,322	(6,620)	(8.8)
Allocated to management	50	(146)	(196)	NM
	68,752	75,176	(6,424)	(8.5)	%

Our Luxury segment income increased 690.2% and 916.5% for the three and six-month periods ended June 30, 2021 compared to the same periods of 2020, due to gross profit growth of 192.7% and 137.1%, respectively. Total Luxury SG&A as a percentage of gross profit decreased from 80.6% to 60.4% and from 85.7% to 64.5% for the three and six-month periods ended June 30, 2021 compared to the same periods of 2020. The decreases for the three and six-month periods ended June 30, 2021 were primarily driven by increased gross profit without proportional increases in all SG&A costs. Floor plan interest expense for Luxury stores increased due to higher interest rates in the three-month period ended June 30, 2021 compared to the same period of 2020, but decreased in the six-month period ended June 30, 2021 compared to the same period of 2020 due to lower inventory levels, partially offset by higher interest rates.

NM – Not meaningful

MANAGEMENT’S DISCUSSION AND ANALYSIS


	Six Months Ended June 30,		Increase (Decrease)	% Increase (Decrease)
	2022	2021
Retail new vehicle unit sales:
Domestic	38,220	32,056	6,164	19.2	%
Import	71,094	72,658	(1,564)	(2.2)
Luxury	24,750	24,622	128	0.5
	134,064	129,336	4,728	3.7
Allocated to management	(370)	(296)	74	NM
	133,694	129,040	4,654	3.6	%

NM – Not meaningful

Domestic

A summary of financial information for our Domestic segment follows:


	Three Months Ended June 30,				Increase		% Increase
($ in millions)	2022		2021
Revenue:
New vehicle retail	$	1,069.2	$	924.6	$	144.6	15.6	%
Used vehicle retail	839.4		641.7		197.7		30.8
Used vehicle wholesale	132.7		63.8		68.9		108.0
Finance and insurance	96.4		78.6		17.8		22.6
Service, body and parts	203.3		159.1		44.2		27.8
Fleet and other	58.2		21.6		36.6		NM
	$	2,399.2	$	1,889.4	$	509.8	27.0
Segment income	$	141.6	$	138.1	$	3.5	2.5
Retail new vehicle unit sales	20,208		18,991		1,217		6.4	%

NM - not meaningful


	Six Months Ended June 30,				Increase		% Increase
($ in millions)	2022		2021
Revenue:
New vehicle retail	$	2,004.8	$	1,539.2	$	465.6	30.2	%
Used vehicle retail	1,585.8		1,103.9		481.9		43.7
Used vehicle wholesale	260.8		100.0		160.8		160.8
Finance and insurance	185.7		137.2		48.5		35.3
Service, body and parts	390.9		279.8		111.1		39.7
Fleet and other	112.2		39.2		73.0		NM
	$	4,540.3	$	3,199.3	$	1,341.0	41.9
Segment income	$	272.1	$	212.0	$	60.1	28.3
Retail new vehicle unit sales	38,220		32,056		6,164		19.2	%

NM - not meaningful

Our Domestic segment revenue increased 27.0% and 41.9%, respectively, in the three and six-month periods ended June 30, 2022 compared to the same periods of 2021, respectively, driven by increases across all business lines. The acquisition of 18 stores in 2021 and seven stores in 2022 was the primary contributor to these increases.

Our Domestic segment income increased 2.5% and 28.3%, respectively, in the three and six-month periods ended June 30, 2022 compared to the same periods of 2021, primarily due to gross profit growth of 13.9% and 32.8%, respectively. Total Domestic SG&A as a percentage of gross profit increased from 57.5% to 60.4% and from 59.8% to 60.6% for the three and six-month periods ended June 30, 2022, compared to the same periods of 2021, respectively. The increases for the three and six-month periods ended June 30, 2022 were primarily driven by increases in all SG&A categories without proportional increases in gross profit. Floor plan interest expense for Domestic stores increased 88.0% and 60.1% for the three and six-month periods ended June 30, 2022 compared to the same periods of 2021, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Import

A summary of financial information for our Import segment follows:


	Three Months Ended June 30,				Increase (Decrease)		% Increase (Decrease)
($ in millions)	2022		2021
Revenue:
New vehicle retail	$	1,345.5	$	1,385.7	$	(40.2)	(2.9)	%
Used vehicle retail	1,009.4		717.8		291.6		40.6
Used vehicle wholesale	116.8		90.0		26.8		29.8
Finance and insurance	183.0		140.5		42.5		30.2
Service, body and parts	267.3		204.8		62.5		30.5
Fleet and other	4.8		18.6		(13.8)		NM
	$	2,926.8	$	2,557.4	$	369.4	14.4
Segment income	$	275.5	$	216.3	$	59.2	27.4
Retail new vehicle unit sales	36,041		42,204		(6,163)		(14.6)	%

NM - not meaningful


	Six Months Ended June 30,				Increase (Decrease)		% Decrease
($ in millions)	2022		2021
Revenue:
New vehicle retail	$	2,633.9	$	2,353.8	$	280.1	11.9	%
Used vehicle retail	1,905.3		1,280.0		625.3		48.9
Used vehicle wholesale	248.6		148.3		100.3		67.6
Finance and insurance	353.4		246.0		107.4		43.7
Service, body and parts	510.4		361.5		148.9		41.2
Fleet and other	14.9		32.6		(17.7)		NM
	$	5,666.5	$	4,422.2	$	1,244.3	28.1
Segment income	$	521.3	$	317.8	$	203.5	64.0
Retail new vehicle unit sales	71,094		72,658		(1,564)		(2.2)	%

NM - not meaningful

Our Import segment revenue increased 14.4% and 28.1% in the three and six-month periods ended June 30, 2022 compared to the same periods of 2021, respectively, primarily driven by increases in used vehicle retail sales. The acquisition of 34 stores in 2021 and nine stores in 2022 was the primary contributor to these increases.

Our Import segment income increased 27.4% and 64.0% in the three and six-month periods ended June 30, 2022 compared to the same periods of 2021, due to gross profit growth of 26.2% and 48.5%, respectively. Total Import SG&A as a percentage of gross profit decreased from 56.4% to 56.1% and from 60.2% to 56.9% for the three and six-month periods ended June 30, 2022 compared to the same periods of 2021, respectively. The decreases for the three and six-month periods ended June 30, 2022 were primarily driven by increased gross profit without proportional increases in all SG&A costs. Floor plan interest expense for Import stores increased 18.7% and 0.4% in the three and six-month periods ended June 30, 2022 compared to the same periods of 2021, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Luxury

A summary of financial information for our Luxury segment follows:


	Three Months Ended June 30,				Increase (Decrease)		% Increase (Decrease)
($ in millions)	2022		2021
Revenue:
New vehicle retail	$	836.4	$	839.2	$	(2.8)	(0.3)	%
Used vehicle retail	647.1		448.4		198.7		44.3
Used vehicle wholesale	101.3		59.3		42.0		70.8
Finance and insurance	63.6		52.6		11.0		20.9
Service, body and parts	196.9		150.1		46.8		31.2
Fleet and other	33.3		9.6		23.7		NM
	$	1,878.5	$	1,559.2	$	319.3	20.5
Segment income	$	126.7	$	97.2	$	29.5	30.3
Retail new vehicle unit sales	12,453		14,127		(1,674)		(11.8)	%

NM - not meaningful


	Six Months Ended June 30,				Increase		% Increase
($ in millions)	2022		2021
Revenue:
New vehicle retail	$	1,672.9	$	1,453.3	$	219.6	15.1	%
Used vehicle retail	1,243.7		779.6		464.1		59.5
Used vehicle wholesale	208.4		99.0		109.4		110.5
Finance and insurance	125.9		89.5		36.4		40.7
Service, body and parts	380.0		271.8		108.2		39.8
Fleet and other	50.5		37.4		13.1		NM
	$	3,681.5	$	2,730.6	$	950.9	34.8
Segment income	$	257.1	$	141.3	$	115.8	82.0
Retail new vehicle unit sales	24,750		24,622		128		0.5	%

NM - not meaningful

Our Luxury segment revenue increased 20.5% and 34.8% in the three and six-month periods ended June 30, 2022 compared to the same periods of 2021, respectively, driven by increases in all major business lines. The acquisition of 26 stores in 2021 and three stores in 2022 was the primary contributor to these increases.

Our Luxury segment income increased 30.3% and 82.0% for the three and six-month periods ended June 30, 2022 compared to the same periods of 2021, due to gross profit growth of 28.3% and 54.0%, respectively. Total Luxury SG&A as a percentage of gross profit decreased from 60.4% to 59.6% and from 64.5% to 59.1% for the three and six-month periods ended June 30, 2022 compared to the same periods of 2021, respectively. The decreases for the three and six-month periods ended June 30, 2022 were primarily driven by increased gross profit without proportional increases in all SG&A costs. Floor plan interest expense for Luxury stores increased 43.1% and 20.2% for the three and six-month periods ended June 30, 2022 compared to the same periods of 2021, respectively.

Corporate and Other

Revenues attributable to Corporate and other include the results of operations of our stand-alone body shops and centralized used vehicle team, offset by certain unallocated reserves and elimination adjustments related to vehicle sales.


		Three Months Ended June 30,				Increase (Decrease)				% Decrease				Three Months Ended June 30,						Increase			% Increase
(in millions)	(in millions)	2021		2020				(in millions)				2022			2021
Revenue, net	Revenue, net	$	3.4	$	(0.9)			$	4.3				NM	Revenue, net		$	35.6		$	3.4		$	32.2		NM
Segment income	Segment income	$	18.6	$	23.4	$	(4.8)			(20.5)	%	Segment income		$	21.6		$	18.6		$	3.0		16.1	%

NM - not meaningful

Six Months Ended
June 30, Decrease % Decrease
(in millions) 2021 2020
Revenue, net $ 0.3 $ 8.5 $ (8.2) NM
Segment income $ 57.4 $ 70.1 $ (12.7) (18.1) %

MANAGEMENT’S DISCUSSION AND ANALYSIS


	Six Months Ended June 30,				Increase		% Increase
(in millions)	2022		2021
Revenue, net	$	57.1	$	0.3	$	56.8	NM
Segment income	$	62.1	$	57.4	$	4.7	8.2	%

NM - not meaningful

The ~~changes~~change in Corporate and other revenue in the three and six-month periods ended June 30, ~~2021~~2022 compared to the same periods of ~~2020 were~~2021 was primarily related to increased used vehicle wholesales associated with our centralized used vehicle team and changes to certain reserves that were not specifically identified with our Domestic, Import or Luxury segment revenue, such as our reserve for revenue reversals associated with unwound vehicle sales.

Income attributable to Corporate and other includes amounts associated with the operating income from our stand-alone body 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 income ~~decreased $4.8~~increased $3.0 million and ~~$12.7~~$4.7 million for the three and six-month periods ended June 30, ~~2021~~2022, compared to the same periods of ~~2020,~~2021, primarily due to ~~decreases in internal floor plan financing charges received from dealerships and~~ increases in internal ~~finance reserve paid to dealerships.~~corporate expense allocations with dealerships, offset by increases in SG&A.

~~Asset Impairments~~

~~Asset impairments consist of the following:~~

Three Months Ended
June 30, Six Months Ended
June 30,
(in millions) 2021 2020 2021 2020
Franchise value $ — $ 4.4 $ — $ 4.4
Goodwill — 3.5 — 3.5
$ — $ 7.9 $ — $ 7.9

~~No asset impairments have been recognized in 2021.~~

During the second quarter of 2020, we recorded asset impairments of $7.9 million related to the franchise value and goodwill associated with certain dealership locations. See Note 5 and Note 7 of the Condensed Notes to the Consolidated Financial Statements for additional information.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Selling, General and Administrative Expense (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 June 30,				Increase				% Increase					Three Months Ended June 30,						Increase (Decrease)			% Increase
(in millions)	(in millions)	2021		2020				(in millions)				2022				2021
Personnel	Personnel	$	452.6	$	203.7			$	248.9				122.2	%	Personnel		$	552.7		$	452.6		$	100.1		22.1	%
Advertising	Advertising	38.4		17.6		20.8				118.2		Advertising			67.0			38.4			28.6			74.5
Rent	Rent	12.3		9.8		2.5				25.5		Rent			17.9			12.3			5.6			45.5
Facility costs1	Facility costs1	27.4		17.8		9.6				53.9		Facility costs1			35.9			27.4			8.5			31.0
Loss (gain) on sale of assets	Loss (gain) on sale of assets	4.4		(1.8)		6.2				NM		Loss (gain) on sale of assets			(4.6)			4.4			(9.0)			NM
Other	Other	98.9		57.4		41.5				72.3		Other			112.6			98.9			13.7			13.9
Total SG&A	Total SG&A	$	634.0	$	304.5	$	329.5			108.2	%	Total SG&A			$	781.5		$	634.0		$	147.5		23.3	%

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 June 30,				Increase (Decrease)			Three Months Ended June 30,				Increase (Decrease)
As a % of gross profit	As a % of gross profit	2021		2020				As a % of gross profit	2022		2021
Personnel	Personnel	40.8	%	43.9	%	(310)	bps	Personnel	40.9	%	40.8	%	10	bps
Advertising	Advertising	3.5		3.8		(30)		Advertising	5.0		3.5		150
Rent	Rent	1.1		2.1		(100)		Rent	1.3		1.1		20
Facility costs	Facility costs	2.5		3.8		(130)		Facility costs	2.7		2.5		20
Loss (gain) on sale of assets	Loss (gain) on sale of assets	0.4		(0.4)		80		Loss (gain) on sale of assets	(0.3)		0.4		(70)
Other	Other	8.8		12.4		(360)		Other	8.3		8.8		(50)
Total SG&A	Total SG&A	57.1	%	65.6	%	(850)	bps	Total SG&A	57.9	%	57.1	%	80	bps

Six Months Ended
June 30, Increase % Increase
(in millions) 2021 2020
Personnel $ 766.7 $ 432.2 $ 334.5 77.4 %
Advertising 67.9 45.3 22.6 49.9
Rent 23.6 19.9 3.7 18.6
Facility costs1
51.7 37.9 13.8 36.4
Loss (gain) on sale of assets 5.4 (1.7) 7.1 NM
Other 168.9 116.9 52.0 44.5
Total SG&A $ 1,084.2 $ 650.5 $ 433.7 66.7 %

MANAGEMENT’S DISCUSSION AND ANALYSIS


	Six Months Ended June 30,				Increase (Decrease)		% Increase
(in millions)	2022		2021
Personnel	$	1,070.4	$	766.7	$	303.7	39.6	%
Advertising	125.4		67.9		57.5		84.7
Rent	35.7		23.6		12.1		51.3
Facility costs1	71.7		51.7		20.0		38.7
(Gain) loss on sale of assets	(13.6)		5.4		(19.0)		NM
Other	218.0		168.9		49.1		29.1
Total SG&A	$	1,507.6	$	1,084.2	$	423.4	39.1	%

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


		Six Months Ended June 30,				Increase (Decrease)			Six Months Ended June 30,				Increase (Decrease)
As a % of gross profit	As a % of gross profit	2021		2020				As a % of gross profit	2022		2021
Personnel	Personnel	42.0	%	46.7	%	(470)	bps	Personnel	40.7	%	42.0	%	(130)	bps
Advertising	Advertising	3.7		4.9		(120)		Advertising	4.8		3.7		110
Rent	Rent	1.3		2.2		(90)		Rent	1.4		1.3		10
Facility costs	Facility costs	2.8		4.1		(130)		Facility costs	2.7		2.8		(10)
Loss (gain) on sale of assets		0.3		(0.2)		50
(Gain) loss on sale of assets								(Gain) loss on sale of assets	(0.5)		0.3		(80)
Other	Other	9.3		12.6		(330)		Other	8.2		9.3		(110)
Total SG&A	Total SG&A	59.4	%	70.3	%	(1,090)	bps	Total SG&A	57.3	%	59.4	%	(210)	bps

SG&A as a percentage of gross profit was ~~57.1%~~57.9% and ~~59.4%~~57.3% for the three and six-month periods ended June 30, ~~2021~~2022 compared to ~~65.6%~~57.1% and ~~70.3%~~59.4% for the same periods of ~~2020.~~2021, respectively. SG&A expense increased ~~108.2%~~23.3% and ~~66.7%~~39.1% in the three and six-month periods ended June 30, ~~2021~~2022 compared to the same periods of ~~2020.~~2021, respectively. Overall, SG&A expense increased in all areas, primarily ~~due to increased personnel costs~~ as a result of our network expansion in ~~2021 with~~2021. However, we did not see the ~~remainder~~same level of ~~costs seeing minimal~~ increases in SG&A as a percentage of gross profit as our gross profit growth kept in line or exceeded the ~~three and six-month periods ended June 30, 2021 compared to~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

the same periods of 2020. Our performance-based culture is geared towards an incentive-based compensation structure for the majority of personnel. This approach allows us to maintain a responsive cost structureincreases in ~~relation to fluctuations in vehicle sales and service volumes and general economic conditions.~~SG&A experienced.

On a same store basis and excluding non-core charges, SG&A as a percentage of gross profit was ~~57.0%~~60.2% and ~~59.9%~~59.3% for the three and six-month periods ended June 30, ~~2021~~2022 compared to ~~64.2%~~55.5% and ~~69.0%~~58.2% for the same periods of ~~2020.~~2021, respectively. The ~~decreases~~increases for the three and six-month periods ended June 30, ~~2021~~2022 were primarily related to increased ~~gross profit~~SG&A costs without proportionate increases in ~~SG&A costs.~~gross profit.

SG&A expense adjusted for non-core charges was as follows:


		Three Months Ended June 30,				Increase				% Increase					Three Months Ended June 30,						Increase (Decrease)			% Increase
(in millions)	(in millions)	2021		2020				(in millions)				2022				2021
Personnel	Personnel	$	452.6	$	203.7			$	248.9				122.2	%	Personnel		$	552.7		$	452.6		$	100.1		22.1	%
Advertising	Advertising	38.4		17.6		20.8				118.2		Advertising			67.0			38.4			28.6			74.5
Rent	Rent	12.3		9.8		2.5				25.5		Rent			17.9			12.3			5.6			45.5
Facility costs1	Facility costs1	27.4		17.8		9.6				53.9		Facility costs1			35.9			27.4			8.5			31.0
Adjusted gain on sale of assets	Adjusted gain on sale of assets	(0.1)		(0.4)		0.3				NM		Adjusted gain on sale of assets			(1.5)			(0.1)			(1.4)			NM
Adjusted other	Adjusted other	87.7		51.8		35.9				69.3		Adjusted other			111.1			87.7			23.4			26.7
Adjusted total SG&A	Adjusted total SG&A	$	618.3	$	300.3	$	318.0			105.9	%	Adjusted total SG&A			$	783.1		$	618.3		$	164.8		26.7	%

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
June 30, Increase (Decrease)
As a % of gross profit 2021 2020
Personnel 40.8 % 43.9 % (310) bps
Advertising 3.5 3.8 (30)
Rent 1.1 2.1 (100)
Facility costs 2.5 3.8 (130)
Adjusted gain on sale of assets — (0.1) 10
Adjusted other 7.8 11.2 (340)
Adjusted total SG&A 55.7 % 64.7 % (900) bps

MANAGEMENT’S DISCUSSION AND ANALYSIS

3032

~~SG&A expense adjusted for non-core charges was as follows:~~


	Three Months Ended June 30,				Increase (Decrease)
As a % of gross profit	2022		2021
Personnel	40.9	%	40.8	%	10	bps
Advertising	5.0		3.5		150
Rent	1.3		1.1		20
Facility costs	2.7		2.5		20
Adjusted gain on sale of assets	(0.1)		—		(10)
Adjusted other	8.2		7.8		40
Adjusted total SG&A	58.0	%	55.7	%	230	bps

Six Months Ended
June 30, Increase % Increase
(in millions) 2021 2020
Personnel $ 766.7 $ 432.2 $ 334.5 77.4 %
Advertising 67.9 45.3 22.6 49.9 %
Rent 23.6 19.9 3.7 18.6 %
Facility costs1
51.7 37.9 13.8 36.4 %
Adjusted loss (gain) on sale of assets 0.2 (0.2) 0.4 NM
Adjusted other 155.7 110.0 45.7 41.5 %
Adjusted total SG&A $ 1,065.8 $ 645.1 $ 420.7 65.2 %


	Six Months Ended June 30,				Increase (Decrease)		% Increase
(in millions)	2022		2021
Personnel	$	1,070.4	$	766.7	$	303.7	39.6	%
Advertising	125.4		67.9		57.5		84.7	%
Rent	35.7		23.6		12.1		51.3	%
Facility costs1	71.7		51.7		20.0		38.7	%
Adjusted (gain) loss on sale of assets	(0.6)		0.2		(0.8)		NM
Adjusted other	210.0		155.7		54.3		34.9	%
Adjusted total SG&A	$	1,512.6	$	1,065.8	$	446.8	41.9	%

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


		Six Months Ended June 30,				Decrease			Six Months Ended June 30,				Increase (Decrease)
As a % of gross profit	As a % of gross profit	2021		2020				As a % of gross profit	2022		2021
Personnel	Personnel	42.0	%	46.7	%	(470)	bps	Personnel	40.7	%	42.0	%	(130)	bps
Advertising	Advertising	3.7		4.9		(120)		Advertising	4.8		3.7		110
Rent	Rent	1.3		2.2		(90)		Rent	1.4		1.3		10
Facility costs	Facility costs	2.8		4.1		(130)		Facility costs	2.7		2.8		(10)
Adjusted loss on sale of assets	Adjusted loss on sale of assets	—		—		—		Adjusted loss on sale of assets	—		—		—
Adjusted other	Adjusted other	8.6		11.8		(320)		Adjusted other	7.9		8.6		(70)
Adjusted total SG&A	Adjusted total SG&A	58.4	%	69.7	%	(1,130)	bps	Adjusted total SG&A	57.5	%	58.4	%	(90)	bps

Adjusted SG&A for three-months ended June 30, 2022 excludes $1.5 million in acquisition-related expenses and a $3.1 million net gain on store disposals. For the ~~three-month period~~six-months ended June 30, 2022, adjusted SG&A excludes $8.1 million in acquisition-related expenses and a $13.1 million net gain on store disposals.

Adjusted SG&A for the three-months ended June 30, 2021 excludes $0.8 million in storm insurance reserve charges, $10.4 million in acquisition-related expenses, and a $4.5 million net loss on store disposals. For the six-months ended June 30, 2021, ~~Adjusted~~adjusted SG&A excludes $1.6 million in storm insurance reserve charges, $11.6 million in acquisition-related expenses, and a $5.2 million net loss ~~on store disposals.~~

Adjusted SG&A for the three-month period ended June 30, 2020 excludes $5.0 million in storm insurance reserve charges, $0.5 million in acquisition-related expenses, and a $1.3 million net gain on store disposals. For the six-months ended June 30, 2020, Adjusted SG&A excludes $5.8 million in storm insurance reserve charges, $1.0 million in acquisition-related expenses, and a $1.4 million net gain 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, signage, and amortization of certain intangible assets, including customer lists.


		Three Months Ended June 30,				Increase			% Increase				Three Months Ended June 30,					Increase		% Increase
(in millions)	(in millions)	2021		2020			(in millions)			2022				2021
Depreciation and amortization	Depreciation and amortization	$	30.3	$	22.3		$	8.0			35.9	%	Depreciation and amortization		$	40.9	$	30.3	$	10.6	35.0	%

Six Months Ended
June 30, Increase % Increase
(in millions) 2021 2020
Depreciation and amortization $ 57.2 $ 44.3 $ 12.9 29.1 %

Acquisition activity contributed to the increase in depreciation and amortization in 2021 compared to 2020. We acquired approximately $640 million of depreciable property as part of our acquisition activity over the last twelve months ending June 30, 2021. For the six-months ended June 30, 2021, we invested $113.0 million in capital expenditures. These investments increased the amount of depreciation expense in the three and six-month periods ended June 30, 2021. See the discussion under “Liquidity and Capital Resources” for additional information.

MANAGEMENT’S DISCUSSION AND ANALYSIS

3133


	Six Months Ended June 30,				Increase		% Increase
(in millions)	2022		2021
Depreciation and amortization	$	80.2	$	57.2	$	23.0	40.2	%

Acquisition activity contributed to the increases in depreciation and amortization in 2022 compared to 2021. We acquired approximately $287 million of depreciable property as part of our acquisition activity over the last twelve months ended June 30, 2022. For the six-months ended June 30, 2022, we invested $136.6 million in capital expenditures. These investments increased the amount of depreciation expense in the three and six-month periods ended June 30, 2022. See the discussion under “Liquidity and Capital Resources” for additional information.

Operating Margin

Operating income as a percentage of revenue, or operating margin, was as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Operating margin	Operating margin	7.4	%	4.7	%	6.6	%	4.0	%	Operating margin	7.3	%	7.4	%	7.5	%	6.6	%
Operating margin adjusted for non-core charges 1	Operating margin adjusted for non-core charges 1	7.7	%	5.1	%	6.8	%	4.2	%	Operating margin adjusted for non-core charges 1	7.3	%	7.7	%	7.4	%	6.8	%

1 See “Non-GAAP Reconciliations” for more details.

Operating margins ~~increased 270~~decreased 10 bps and ~~260~~increased 90 bps in the three and six-month periods ended June 30, ~~2021~~2022 compared to the same ~~periods~~period in ~~2020.~~2021, respectively. The ~~increases~~changes in operating margins for the three and six-month periods ended June 30, ~~2021~~2022 were primarily due to increased gross profit of ~~139.1%~~21.6% and ~~97.4%, respectively,~~44.0% with offsetting increases to SG&A of ~~108.2%~~23.3% and ~~66.7%~~39.1%, respectively, compared to the same periods in ~~2020.~~2021.

Floor Plan Interest Expense and Floor Plan Assistance


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	(in millions)	2021		2020		% Change		2021		2020		% Change		(in millions)	2022		2021		% Change		2022		2021		% Change
Floor plan interest expense (new vehicles)	Floor plan interest expense (new vehicles)	$	6.4	$	8.1	(21.0)	%	$	13.3	$	22.1	(39.8)	%	Floor plan interest expense (new vehicles)	$	3.8	$	6.4	(40.6)	%	$	8.7	$	13.3	(34.6)	%

Floor plan interest expense decreased ~~$1.7~~$2.6 million and ~~$8.8~~$4.6 million in the three and six-month periods ended June 30, ~~2021, respectively,~~2022 compared to the same periods of ~~2020. The 21.0% decrease in floor plan interest expense for the three-month period ended June 30,~~ 2021, ~~compared~~respectively. These decreases were primarily due to ~~the same period of 2020, includes a 41.6% decrease related to same store~~decreased inventory levels, ~~a 6.1% increase related to increased~~partially offset by increases from acquisition volume and interest rates, and a 14.5% increase related to acquisition volume. The 39.8% decrease in floor plan interest expense for the six-month period ended June 30, 2021, compared to the same period in 2020, includes a 41.6% decrease related to same store inventory levels, a 6.5% decrease related to decreased interest rates, and an 8.3% increase related to acquisition volume.rate fluctuations.

Floor plan assistance is provided by manufacturers to support store financing of new vehicle inventory 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 table details the carrying costs for new vehicles and includes new vehicle floor plan interest net of floor plan assistance earned.


		Three Months Ended June 30,						%			Three Months Ended June 30,						%
(in millions)	(in millions)	2021		2020		Change		Change		(in millions)	2022		2021		Change		Change
Floor plan interest expense (new vehicles)	Floor plan interest expense (new vehicles)	$	6.4	$	8.1	$	(1.7)	(21.0)	%	Floor plan interest expense (new vehicles)	$	3.8	$	6.4	$	(2.6)	(40.6)	%
Floor plan assistance (included as an offset to cost of sales)	Floor plan assistance (included as an offset to cost of sales)	(34.8)		(14.8)		(20.0)		135.1		Floor plan assistance (included as an offset to cost of sales)	(32.0)		(34.8)		2.8		(8.0)
Net new vehicle carrying costs	Net new vehicle carrying costs	$	(28.4)	$	(6.7)	$	(21.7)	NM		Net new vehicle carrying costs	$	(28.2)	$	(28.4)	$	0.2	NM

NM - not meaningful

Six Months Ended
June 30, %
(in millions) 2021 2020 Change Change
Floor plan interest expense (new vehicles) $ 13.3 $ 22.1 $ (8.8) (39.8) %
Floor plan assistance (included as an offset to cost of sales) (59.7) (29.7) (30.0) 101.0
Net new vehicle carrying costs $ (46.4) $ (7.6) $ (38.8) NM

~~NM - Not meaningful~~

~~Other Interest Expense~~

Other interest expense includes interest on debt incurred related to acquisitions, real estate mortgages, our used and service loaner vehicle inventory financing commitments, and our revolving line of credit.

MANAGEMENT’S DISCUSSION AND ANALYSIS

3234

Three Months Ended June 30, Increase % Increase
(in millions) 2021 2020
Mortgage interest $ 6.5 $ 6.1 $ 0.4 6.6
Other interest 22.1 11.1 11.0 99.1
Capitalized interest (0.5) (0.4) 0.1 NM
Total other interest expense $ 28.1 $ 16.8 $ 11.3 67.3 %


	Six Months Ended June 30,						%
(in millions)	2022		2021		Change		Change
Floor plan interest expense (new vehicles)	$	8.7	$	13.3	$	(4.6)	(34.6)	%
Floor plan assistance (included as an offset to cost of sales)	(63.3)		(59.7)		(3.6)		6.0
Net new vehicle carrying costs	$	(54.6)	$	(46.4)	$	(8.2)	NM

NM - Not meaningful

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 commitments, and our revolving lines of credit.


	Three Months Ended June 30,				Increase (Decrease)		% Increase (Decrease)
(in millions)	2022		2021
Mortgage interest	$	5.9	$	6.5	$	(0.6)	(9.2)
Other interest	29.2		22.0		7.2		32.7
Capitalized interest	(0.6)		(0.5)		0.1		NM
Total other interest expense	$	34.4	$	28.1	$	6.3	22.4	%

NM - not meaningful


		Six Months Ended June 30,				Increase				% Increase					Six Months Ended June 30,						Increase (Decrease)			% Increase (Decrease)
(in millions)	(in millions)	2021		2020				(in millions)				2022				2021
Mortgage interest	Mortgage interest	$	13.3	$	12.7			$	0.6				4.7	%	Mortgage interest		$	11.5		$	13.3		$	(1.8)		(13.5)	%
Other interest	Other interest	39.2		21.9		17.3				79.0		Other interest			54.3			39.1			15.2			38.9
Capitalized interest	Capitalized interest	(0.9)		(0.8)		0.1				NM		Capitalized interest			(1.2)			(0.9)			0.3			NM
Total other interest expense	Total other interest expense	$	51.6	$	33.8	$	17.8			52.7	%	Total other interest expense			$	64.5		$	51.6		$	12.9		25.0	%

NM - not meaningful

Other interest expense for the three and six-month periods ended June 30, ~~2021~~2022 increased ~~$11.3~~$6.3 million and ~~$17.8~~$12.9 million primarily related to the additional interest expense associated with the senior notes issued in ~~2020.~~May 2021.

Other Income (Expense), net


	Three Months Ended June 30,				Decrease		% Decrease
(Dollars in millions)	2022		2021
Other Income (Expense), net	$	(21.9)	$	7.6	$	(29.5)	(388.2)	%


	Six Months Ended June 30,				Decrease		% Decrease
(Dollars in millions)	2022		2021
Other Income (Expense), net	$	(29.9)	$	11.1	$	(41.0)	(369.4)	%

Other income (expense), net in the three and six-month periods ended June 30, 2022, was primarily related to an $18.1 million and a $33.0 million, respectively, unrealized investment loss associated with the change in fair value of our investment in Shift Technologies, Inc. We also experienced a $7.2 million and $3.6 million loss, respectively, due to foreign currency exchange in the three and six-month periods ended June 30, 2022. No loss due to foreign currency exchange was recognized in the three and six-month periods ended June 30, 2021.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Income Tax Provision

Our effective income tax rate was as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Effective income tax rate	Effective income tax rate	27.3	%	28.3	%	26.9	%	28.2	%	Effective income tax rate	27.9	%	27.3	%	27.4	%	26.9	%
Effective income tax rate excluding other non-core items	Effective income tax rate excluding other non-core items	27.3	%	29.0	%	26.9	%	28.6	%	Effective income tax rate excluding other non-core items	26.9	%	27.3	%	26.5	%	26.9	%

Our effective income tax rate for the six-month period ended June 30, ~~2021~~2022 compared to last year was ~~positively~~negatively affected by ~~excess~~a valuation allowance established for certain deferred tax ~~benefits on~~assets not expected to be realized. The increase in tax rate was offset by stock awards vesting in the current ~~period~~period. Excluding the valuation allowance and ~~a reduction in our current state effective tax rate due to changing state mix. Additionally, our effective income tax rate was favorably affected by an increase in forecasted pre-tax income. We~~other non-core charges, we estimate our annual effective income tax rate ~~excluding non-core charges,~~ to be ~~27.5%~~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 items not related to our ongoing core business operations and other non-cash 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.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Three Months Ended June 30, 2021
(in millions, except per share amounts) As reported Net disposal loss on sale of stores Investment gain Insurance reserves Acquisition expenses Adjusted
Selling, general and administrative $ 634.0 $ (4.5) $ — $ (0.8) $ (10.4) $ 618.3
Operating income 446.3 4.5 — 0.8 10.4 462.0
Other income (expense) 7.6 — (1.2) — — 6.4
Income before income taxes $ 419.4 $ 4.5 $ (1.2) $ 0.8 10.4 $ 433.9
Income tax (provision) benefit (114.5) (1.2) 0.3 (0.2) (2.8) (118.4)
Net income (loss) $ 304.9 $ 3.3 $ (0.9) $ 0.6 $ 7.6 $ 315.5
Diluted net income (loss) per share $ 10.75 $ 0.12 $ (0.03) $ 0.02 $ 0.26 $ 11.12
Diluted share count 28.4

Three Months Ended June 30, 2020
(in millions, except per share amounts) As reported Net disposal gain on sale of stores Asset impairment Insurance reserves Acquisition expenses Tax attribute Adjusted
Asset impairment $ 7.9 $ — $ (7.9) $ — $ — $ — $ —
Selling, general and administrative 304.5 1.3 — (5.0) (0.5) — 300.3
Operating income (loss) 129.7 (1.3) 7.9 5.0 0.5 — 141.8
Other income, net 3.5 — — — — — 3.5
Income (loss) before income taxes $ 108.3 $ (1.3) $ 7.9 $ 5.0 $ 0.5 $ — $ 120.4
Income tax (provision) benefit (30.6) 0.4 (2.3) (1.4) (0.2) (0.8) (34.9)
Net income (loss) $ 77.7 $ (0.9) $ 5.6 $ 3.6 $ 0.3 $ (0.8) $ 85.5
Diluted net income (loss) per share $ 3.38 $ (0.04) $ 0.24 $ 0.16 $ 0.01 $ (0.03) $ 3.72
Diluted share count 23.0


		Six Months Ended June 30, 2021										Three Months Ended June 30, 2022
(in millions, except per share amounts)	(in millions, except per share amounts)	As reported		Net disposal loss on sale of stores		Investment gain		Insurance reserves		Acquisition expenses			Adjusted		(in millions, except per share amounts)	As reported		Net disposal gain on sale of stores		Investment loss		Acquisition expenses		Adjusted

Selling, general and administrative	Selling, general and administrative	$	1,084.2	$	(5.2)	$	—	$	(1.6)	$	(11.6)		$	1,065.8	Selling, general and administrative	$	781.5	$	3.1	$	—	$	(1.5)	$	783.1
Operating income		684.7		5.2		—		1.6		11.6			703.1
Other income (expense), net		11.1		—		(1.0)		—		—			10.1
Operating income (loss)															Operating income (loss)	528.3		(3.1)		—		1.5		526.7
Other income (expense)															Other income (expense)	(21.9)		—		18.1		—		(3.8)

Income (loss) before income taxes		$	630.9	$	5.2	$	(1.0)	$	1.6	$	11.6		$	648.3
Income before income taxes															Income before income taxes	$	468.2	$	(3.1)	$	18.1	1.5		$	484.7
Income tax (provision) benefit	Income tax (provision) benefit	(169.8)		(1.4)		0.3		(0.4)		(3.1)			(174.4)		Income tax (provision) benefit	(130.6)		0.9		—		(0.5)		(130.2)
Net income (loss)	Net income (loss)	$	461.1	$	3.8	$	(0.7)	$	1.2	$	8.5		$	473.9	Net income (loss)	337.6		(2.2)		18.1		1.0		354.5
Net income attributable to non-controlling interest															Net income attributable to non-controlling interest	(3.8)		—		—		—		(3.8)
Net income attributable to redeemable non-controlling interest															Net income attributable to redeemable non-controlling interest	(2.5)		—		—		—		(2.5)
Net income (loss) attributable to Lithia Motors, Inc.															Net income (loss) attributable to Lithia Motors, Inc.	$	331.3	$	(2.2)	$	18.1	$	1.0	$	348.2

Diluted net income (loss) per share		$	16.69	$	0.14	$	(0.03)	$	0.04	$	0.31		$	17.15
Diluted earnings (loss) per share attributable to Lithia Motors, Inc.															Diluted earnings (loss) per share attributable to Lithia Motors, Inc.	$	11.60	$	(0.08)	$	0.63	$	0.03	$	12.18
Diluted share count	Diluted share count	27.6													Diluted share count	28.6

MANAGEMENT’S DISCUSSION AND ANALYSIS

3436


		Six Months Ended June 30, 2020												Three Months Ended June 30, 2021
(in millions, except per share amounts)	(in millions, except per share amounts)	As reported		Net disposal gain on sale of stores		Asset impairment		Insurance reserves		Acquisition expenses		Tax attribute			Adjusted		(in millions, except per share amounts)	As reported		Net disposal loss on sale of stores		Investment gain		Insurance reserves		Acquisition expenses		Adjusted
Asset impairment		$	7.9	$	—	$	(7.9)	$	—	$	—	$	—		$	—

Selling, general and administrative	Selling, general and administrative	650.5		1.4		—		(5.8)		(1.0)		—			645.1		Selling, general and administrative	$	634.0	$	(4.5)	$	—	$	(0.8)	$	(10.4)	$	618.3
Operating income (loss)		222.6		(1.4)		7.9		5.8		1.0		—			235.9
Other income, net		5.8		—		—		—		—		—			5.8
Operating income																	Operating income	446.3		4.5		—		0.8		10.4		462.0
Other income (expense)																	Other income (expense)	7.6		—		(1.2)		—		—		6.4

Income (loss) before income taxes	Income (loss) before income taxes	$	172.5	$	(1.4)	$	7.9	$	5.8	$	1.0	$	—		$	185.8	Income (loss) before income taxes	$	419.4	$	4.5	(1.2)		$	0.8	$	10.4	$	433.9
Income tax (provision) benefit	Income tax (provision) benefit	(48.6)		0.4		(2.3)		(1.6)		(0.3)		(0.8)			(53.2)		Income tax (provision) benefit	(114.5)		(1.2)		0.3		(0.2)		(2.8)		(118.4)
Net income (loss)		$	123.9	$	(1.0)	$	5.6	$	4.2	$	0.7	$	(0.8)		$	132.6

Diluted net income (loss) per share		$	5.32	$	(0.04)	$	0.24	$	0.18	$	0.03	$	(0.03)		$	5.70

Net income (loss) attributable to Lithia Motors, Inc.																	Net income (loss) attributable to Lithia Motors, Inc.	$	304.9	$	3.3	$	(0.9)	$	0.6	$	7.6	$	315.5

Diluted earnings (loss) per share attributable to Lithia Motors, Inc.																	Diluted earnings (loss) per share attributable to Lithia Motors, Inc.	$	10.75	$	0.12	$	(0.03)	$	0.02	$	0.26	$	11.12
Diluted share count	Diluted share count	23.3															Diluted share count	28.4


	Six Months Ended June 30, 2022
(in millions, except per share amounts)	As reported		Net disposal gain on sale of stores		Investment loss		Acquisition expenses		Adjusted

Selling, general and administrative	$	1,507.6	$	13.1	$	—	$	(8.1)	$	1,512.6
Operating income (loss)	1,041.1		(13.1)		—		8.1		1,036.1
Other (expense) income, net	(29.9)		—		33.0		—		3.1

Income (loss) before income taxes	$	938.0	$	(13.1)	$	33.0	$	8.1	$	966.0
Income tax (provision) benefit	(256.7)		3.5		—		(2.5)		(255.7)
Net income (loss)	681.3		(9.6)		33.0		5.6		710.3
Net income attributable to non-controlling interest	(4.4)		—		—		—		(4.4)
Net income attributable to redeemable non-controlling interest	(3.4)		—		—		(0.1)		(3.5)
Net income (loss) attributable to Lithia Motors, Inc.	$	673.5	$	(9.6)	$	33.0	$	5.5	$	702.4

Diluted earnings (loss) per share attributable to Lithia Motors, Inc.	$	23.15	$	(0.33)	$	1.13	$	0.19	$	24.14
Diluted share count	29.1


	Six Months Ended June 30, 2021
(in millions, except per share amounts)	As reported		Net disposal loss on sale of stores		Investment gain		Insurance reserves		Acquisition expenses		Adjusted

Selling, general and administrative	$	1,084.2	$	(5.2)	$	—	$	(1.6)	$	(11.6)	$	1,065.8
Operating income (loss)	684.7		5.2		—		1.6		11.6		703.1
Other (expense) income, net	11.1		—		(1.0)		—		—		10.1

Income (loss) before income taxes	$	630.9	$	5.2	(1.0)		$	1.6	$	11.6	$	648.3
Income tax (provision) benefit)	(169.8)		(1.4)		0.3		(0.4)		(3.1)		(174.4)



Net income (loss) attributable to Lithia Motors, Inc.	$	461.1	$	3.8	$	(0.7)	$	1.2	$	8.5	$	473.9

Diluted earnings (loss) per share attributable to Lithia Motors, Inc.	$	16.69	$	0.14	$	(0.03)	$	0.04	$	0.31	$	17.15
Diluted share count	27.6

MANAGEMENT’S DISCUSSION AND ANALYSIS

Liquidity and Capital Resources

We manage our liquidity and capital resources in the context of our overall business strategy, continually forecasting and managing 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% ~~investment in~~internal investments including capital expenditures, Driveway and Driveway Finance and 10% in shareholder return in the form of dividends and share repurchases.

Cash flows from operations and borrowings under our credit facilities are our main sources for liquidity. In addition to the above sources of liquidity, potential sources to fund our business strategy include issuing equity through our $400 million ATM Equity Offering Agreement, financing of real estate and proceeds from debt or equity 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)	(in millions)	June 30, 2021		December 31, 2020		Change		%		(in millions)	June 30, 2022		December 31, 2021		Change		% Change
Cash and cash equivalents		$	780.9	$	160.2	$	620.7	387.5	%

Cash, restricted cash, and cash equivalents										Cash, restricted cash, and cash equivalents	$	113.2	$	174.8	$	(61.6)	(35.2)	%

Available credit on credit facilities	Available credit on credit facilities	1,853.0		1,237.1		615.9		49.8		Available credit on credit facilities	733.3		1,318.4		(585.1)		(44.4)
Total current available funds	Total current available funds	$	2,633.9	$	1,397.3	$	1,236.6	88.5	%	Total current available funds	$	846.5	$	1,493.2	$	(646.7)	(43.3)	%

Information about our cash flows, by category, is presented in our Consolidated Statements of Cash Flows. The following table summarizes our cash flows:


		Six Months Ended June 30,				Increase (Decrease)			Six Months Ended June 30,				Increase (Decrease)
(in millions)	(in millions)	2021		2020		in Cash Flow		(in millions)	2022		2021		in Cash Flow
Net cash provided by operating activities		$	1,263.5	$	790.0	$	473.5
Net cash provided by (used in) operating activities								Net cash provided by (used in) operating activities	$	(263.1)	$	1,271.0	$	(1,534.1)
Net cash used in investing activities	Net cash used in investing activities	(1,821.1)		(167.1)		(1,654.0)		Net cash used in investing activities	(782.7)		(1,821.1)		1,038.4
Net cash provided by (used in) financing activities		1,178.3		(586.6)		1,764.9
Net cash provided by financing activities								Net cash provided by financing activities	984.6		1,178.3		(193.7)

Operating Activities

Cash provided by operating activities for the six-month period ended June 30, ~~2021 increased $473.5 million~~2022 decreased $1.5 billion compared to the same period of ~~2020,~~2021, primarily related to an increase in inventories and other assets, partially offset by increased net income ~~a decrease in inventories~~ and ~~an increase in borrowings~~collection on ~~our floor plan notes payable, partially offset by an increase in accounts receivable~~trade receivables compared to the same period of ~~2020.~~2021.

Borrowings from and repayments to our syndicated credit facility related to our new vehicle inventory floor plan financing are presented as financing activities. To better understand the impact of changes in inventory and the

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

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 commitment.

Adjusted net cash provided by operating activities is presented below:

Six Months Ended June 30, Increase (Decrease)
(in millions) 2021 2020 in Cash Flow
Net cash provided by operating activities – as reported $ 1,263.5 $ 790.0 $ 473.5
Less: Net repayments on floor plan notes payable, non-trade (571.6) (456.8) (114.8)
Less: Borrowings on floor plan notes payable, non-trade associated with acquired new vehicle inventory (271.5) (22.3) (249.2)
Net cash provided by operating activities – adjusted $ 420.4 $ 310.9 $ 109.5


	Six Months Ended June 30,				Increase (Decrease)
(in millions)	2022		2021		in Cash Flow
Net cash provided by (used in) operating activities – as reported	$	(263.1)	$	1,271.0	$	(1,534.1)
Adjust: Net borrowings (repayments) on floor plan notes payable, non-trade	243.5		(571.6)		815.1
Less: Borrowings on floor plan notes payable, non-trade associated with acquired new vehicle inventory	(63.1)		(271.5)		208.4
Net cash provided by (used in) operating activities – adjusted	$	(82.7)	$	427.9	$	(510.6)

Investing Activities

Net cash used in investing activities totaled ~~$1,821.1 million~~$0.8 billion and ~~$167.1 million,~~$1.8 billion, respectively, for the six-month ~~periods~~period ended June 30, ~~2021~~2022 and ~~2020.~~2021.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Below are highlights of significant activity related to our cash flows from investing activities:


		Six Months Ended June 30,				Increase (Decrease)			Six Months Ended June 30,				Increase (Decrease)
(in millions)	(in millions)	2021		2020		in Cash Flow		(in millions)	2022		2021		in Cash Flow
Capital expenditures	Capital expenditures	$	(113.0)	$	(78.3)	$	(34.7)	Capital expenditures	$	(136.6)	$	(113.0)	$	(23.6)
Cash paid for acquisitions, net of cash acquired	Cash paid for acquisitions, net of cash acquired	(1,741.9)		(92.3)		(1,649.6)		Cash paid for acquisitions, net of cash acquired	(706.0)		(1,741.9)		1,035.9
Cash paid for other investments	Cash paid for other investments	(9.9)		(9.7)		(0.2)		Cash paid for other investments	(9.3)		(9.9)		0.6
Proceeds from sales of stores	Proceeds from sales of stores	43.7		11.6		32.1		Proceeds from sales of stores	52.7		43.7		9.0

Capital Expenditures

Below is a summary of our capital expenditure activities:


		Six Months Ended June 30,					Six Months Ended June 30,
(in millions)	(in millions)	2021		2020		(in millions)	2022		2021
Post-acquisition capital improvements	Post-acquisition capital improvements	$	5.6	$	22.7	Post-acquisition capital improvements	$	23.1	$	5.6
Facilities for open points	Facilities for open points	12.3		0.5		Facilities for open points	0.4		12.3
Purchase of facilities for existing operations	Purchase of facilities for existing operations	22.2		11.5		Purchase of facilities for existing operations	2.0		22.1
Existing facility improvements	Existing facility improvements	37.9		19.2		Existing facility improvements	37.1		37.9
Maintenance	Maintenance	35.0		24.4		Maintenance	74.0		35.1
Total capital expenditures	Total capital expenditures	$	113.0	$	78.3	Total capital expenditures	$	136.6	$	113.0

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 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 six-month period ended June 30, ~~2021,~~2022, compared to the same period of ~~2020~~2021 related primarily to higher ~~existing facility~~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.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

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.

Adjusted net cash paid for acquisitions, as well as certain other acquisition-related information is presented below:


		Six Months Ended June 30,					Six Months Ended June 30,
		2021		2020			2022		2021
Number of locations acquired	Number of locations acquired	55		4		Number of locations acquired	22		55

(in millions)	(in millions)					(in millions)
Cash paid for acquisitions, net of cash acquired	Cash paid for acquisitions, net of cash acquired	$	(1,741.9)	$	(92.3)	Cash paid for acquisitions, net of cash acquired	$	(706.0)	$	(1,741.9)
Less: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory	Less: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory	271.5		22.3		Less: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory	63.1		271.5

Cash paid for acquisitions, net of cash acquired – adjusted	Cash paid for acquisitions, net of cash acquired – adjusted	$	(1,470.4)	$	(70.0)	Cash paid for acquisitions, net of cash acquired – adjusted	$	(642.9)	$	(1,470.4)

MANAGEMENT’S DISCUSSION AND ANALYSIS

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 by (used in) financing activities, adjusted for borrowing on floor plan facilities: non-trade was as follows:

Six Months Ended June 30, Increase
(in millions) 2021 2020 in Cash Flow
Cash provided by (used in) financing activities, as reported $ 1,178.3 $ (586.6) $ 1,764.9
Adjust: Repayments on floor plan notes payable: non-trade 571.6 456.8 114.8
Cash provided by (used in) financing activities – adjusted $ 1,749.9 $ (129.8) $ 1,879.7


	Six Months Ended June 30,				Decrease
(in millions)	2022		2021		in Cash Flow
Cash provided by financing activities, as reported	$	984.6	$	1,178.3	$	(193.7)
Adjust: Net (borrowings) repayments on floor plan notes payable: non-trade	(243.5)		571.6		(815.1)

Cash provided by financing activities – adjusted	$	741.1	$	1,749.9	$	(1,008.8)

Below are highlights of significant activity related to our cash flows from financing activities, excluding net ~~repayments~~borrowings (repayments) on floor plan notes payable: non-trade, which are discussed above:


		Six Months Ended June 30,				Increase (Decrease)			Six Months Ended June 30,				Increase (Decrease)
(in millions)	(in millions)	2021		2020		in Cash Flow		(in millions)	2022		2021		in Cash Flow
Net borrowings on lines of credit	Net borrowings on lines of credit	$	(64.6)	$	(109.0)	$	44.4	Net borrowings on lines of credit	$	1,503.9	$	(64.6)	$	1,568.5
Principal payments on long-term debt and capital leases, unscheduled		(65.0)		(4.9)		(60.1)
Principal payments on long-term debt and finance lease liabilities, other								Principal payments on long-term debt and finance lease liabilities, other	(60.3)		(65.0)		4.7
Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	817.5		56.5		761.0		Proceeds from issuance of long-term debt	26.7		817.5		(790.8)
Repurchases of common stock		(15.9)		(50.5)		34.6
Repurchase of common stock								Repurchase of common stock	(623.4)		(15.9)		(607.5)
Dividends paid	Dividends paid	(17.5)		(13.8)		(3.7)		Dividends paid	(22.2)		(17.5)		(4.7)
Proceeds from issuance of common stock	Proceeds from issuance of common stock	1,120.0		6.1		1,113.9		Proceeds from issuance of common stock	18.7		1,120.0		(1,101.3)

Equity Transactions

~~On October 22, 2018,~~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 ~~share~~ repurchase authorization to ~~$500 million.~~$1.25 billion combined with the amount previously authorized by the Board for repurchase. We repurchased a total of ~~54,251~~2,195,701 shares of our ~~Class A common stock~~Common Stock at an average price of ~~$292.91 per share~~$284.90 in the first six months of ~~2021, none of which were purchased~~2022. This included 2,138,878 shares as part of our repurchase ~~authorization; all~~authorization at an average price per share of $284.58 and 56,823 shares ~~purchased were~~ related to tax withholding on vesting ~~RSUs.~~RSUs at an average price of $296.96 per share. As of June 30, ~~2021,~~2022, we had ~~$187.5~~$114.1 million remaining available for repurchases and the authorization does not have an expiration date.

~~On May 24, 2021,~~In the first six months of 2022, we ~~completed~~declared and paid dividends on our Common Stock as follows:


Dividend paid:	Dividend amount per share		Total amount of dividend (in millions)
March 2022	$	0.35	$	10.3
May 2022	$	0.42	$	11.9

We evaluate performance and make a recommendation to the ~~public offering~~Board of 3,571,428 shares of our common stock, no par value per share, which included the exercise in full by the underwriters of their option to purchase up to 465,838 additional shares of our common stock, at the public offering price of $322.00 per share. We received $1.11 billion from the offering, net of the underwriting discount and before deducting the offering expenses of $0.6 million.Directors on dividend payments on a quarterly basis.

MANAGEMENT’S DISCUSSION AND ANALYSIS

3740

~~In the first six months of 2021, we declared and paid dividends on our Class A and Class B common stock as follows:~~

Dividend paid: Dividend amount
per share Total amount of dividend
(in millions)
March 2021 $ 0.31 $ 8.2
May 2021 $ 0.35 $ 9.3

~~We evaluate performance and make a recommendation to the Board of Directors on dividend payments on a quarterly basis.~~

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 June 30, 2021						As of June 30, 2022
(in millions)	(in millions)	Outstanding		Remaining Available			(in millions)	Outstanding		Remaining Available
Floor plan note payable: non-trade	Floor plan note payable: non-trade	$	966.9	$	—	1	Floor plan note payable: non-trade	$	1,060.2	$	—	1
Floor plan notes payable	Floor plan notes payable	285.1		—			Floor plan notes payable	410.8		—
Used and service loaner vehicle inventory financing commitments	Used and service loaner vehicle inventory financing commitments	—		653.4		2	Used and service loaner vehicle inventory financing commitments	1,063.3		1.2		2
Revolving lines of credit	Revolving lines of credit	200.0		1,199.6		2, 3	Revolving lines of credit	1,158.5		702.6		2, 3
Real estate mortgages	Real estate mortgages	612.8		—			Real estate mortgages	560.3		—
Finance lease obligations	Finance lease obligations	170.2		—			Finance lease obligations	96.1		—
5.250% Senior notes due 2025		300.0		—
Non-recourse notes payable							Non-recourse notes payable	237.4		—
4.625% Senior notes due 2027	4.625% Senior notes due 2027	400.0		—			4.625% Senior notes due 2027	400.0		—
4.375% Senior notes due 2031	4.375% Senior notes due 2031	550.0		—			4.375% Senior notes due 2031	550.0		—
3.875% Senior notes due 2029	3.875% Senior notes due 2029	800.0		—			3.875% Senior notes due 2029	800.0		—
Other debt	Other debt	2.2		—			Other debt	1.6		—
Unamortized debt issuance costs	Unamortized debt issuance costs	(27.2)		—		4	Unamortized debt issuance costs	(25.2)		—		4
Total debt	Total debt	$	4,260.0	$	1,853.0		Total debt	$	6,313.0	$	703.8

1 As of June 30, ~~2021,~~2022, we had a ~~$2.9~~$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 May 31, ~~2021.~~2022. This amount is reduced by ~~$20.4~~$41.5 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 ~~April 29, 2021,~~June 2, 2022, we ~~amended~~entered into a Second Amendment to our ~~existing syndicated~~Fourth 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 ~~(credit facility), comprised of 20 financial institutions, including eight manufacturer-affiliated finance companies, extending the maturity date~~continues to ~~April 2026.~~

~~This credit facility provides~~provide for a total financing commitment of $3.75 billion, which may be further expanded under the Second Amendment, subject to lender approval and the satisfaction of other conditions, up to a total of ~~$4.25~~$4.5 billion. ~~The~~Among other changes, the Second 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 ~~is for~~to up to ~~$336 million~~$1.0 billion in used vehicle inventory floorplan financing, up to ~~$434 million~~$1.5 billion in revolving financing for general corporate purposes, including acquisitions and working capital, up to ~~$2.88~~$1.2 billion in new vehicle inventory floorplan financing, and up to ~~$100~~$50 million in service loaner vehicle floorplan financing. ~~We have the~~

•Modifies our option to reallocate the commitments under ~~this credit facility, provided~~the Credit Facility, such that ~~each of~~ the new and used vehicle floor plan ~~commitment~~commitments may have unlimited allocation and the aggregate revolving loan commitment may not be more than the ~~20%~~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 better 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.

Our obligations under our 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 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

3841

The interest rate on the credit facility varies based on the type of debt, with the rate of one-month LIBOR plus 1.10% for new vehicle floor plan financing, one-month LIBOR plus 1.40% for used vehicle floor plan financing, 1.20%1.30% for service loaner floor plan financing and ~~a variable interest rate on the revolving financing ranging from the one-month LIBOR plus 1.00% to 2.00% depending on~~1.10% for our ~~leverage ratio.~~working capital revolver. The annual interest rates associated with our floor plan commitments are as follows:


Commitment			Annual Interest Rate at June 30, ~~2021~~2022
New vehicle floor plan			~~1.20%~~2.93%
Used vehicle floor plan			~~1.50%~~3.00%
Service loaner floor plan			~~1.30%~~2.80%
Revolving line of credit			~~1.10%~~2.60%

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 Ratio

Requirement

As of June 30, ~~2021~~2022

~~Current ratio~~

~~Not less than 1.10 to 1~~

~~1.68 to 1~~

Fixed charge coverage ratio

Not less than 1.20 to 1

~~6.82~~2.80 to 1

Leverage ratio

Not more than 5.75 to 1

~~1.95~~1.46 to 1

As of June 30, ~~2021,~~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 and vehicles that are designated for use as service loaners. The interest rates on these floor plan notes payable commitments vary by manufacturer and are variable rates. As of June 30, ~~2021, $285.1~~2022, $410.8 million was outstanding on these agreements. Borrowings from, and repayments to, manufacturer-affiliated finance companies are classified as operating activities in the Consolidated Statements of Cash Flows.

Other Credit Facilities and Lines of Credit

Our other lines of credit include a commitment of up to $20.0 million, secured by certain assets from select Chrysler locations and a commitment of $60.0 million with Ford Motor Credit Company, secured by certain assets from all Ford locations. These other lines of credit mature in 2021 and have interest rates up to 5.65%. As of June 30, 2021, no amounts were outstanding on these other lines of credit.

~~On July 14,~~In 2020, we entered into a ~~five-year~~ 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 ~~$245.1~~$226.5 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. ~~The facility includes financial and restrictive covenants typical of such agreements, lending conditions, and representations and warranties by us. Financial covenants include~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

requirements to maintain minimum current and fixed charge coverage ratios, and a maximum leverage ratio, consistent with those under existing syndicated credit facility with U.S. Bank National Association as administrative agent. As of June 30, ~~2021, no amounts were~~2022, $215.0 million was outstanding on the real-estate backed facility.

~~On July 31,~~In 2020, we entered into a securitization facility which provides initial commitments for borrowings of up to ~~$300~~$400 million and matures in ~~July 2022.~~June 2023. As of June 30, ~~2021,~~2022, we had ~~$200.0~~$300.0 million drawn on the securitization ~~facility, which is included as part of “Revolving lines of credit” in the “Summary of Outstanding Balances on Credit Facilities and Long-Term Debt” table above.~~facility.

~~On April 12,~~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 ~~(Ally credit facility)~~ of up to $300.0 million and is secured by real estate owned by us. The ~~Ally~~ credit facility ~~will bear~~bears interest at a rate per annum equal to the greater of 3.00% or the prime rate designated by Ally Bank, minus 25 basis points. ~~The~~As of June 30, 2022, $95.0 million was outstanding on the Ally credit facility.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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 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, ~~includes~~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. Financial covenants, including the requirements to maintain minimum current and fixed charge coverage ratios, and a maximum leverage ratio, are the same as the requirements under our existing syndicated credit facility with U.S. Bank National Association. The covenants restrict us from disposing of assets and granting additional security interests.warranties by us. As of June 30, ~~2021,~~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 ~~amounts were outstanding on~~assurances can be provided that we will continue to remain in compliance with the ~~Ally credit facility.~~financial and restrictive covenants.

Senior 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 and is payable semiannually. We may redeem the notes in whole or in part, on or after the redemption dates, at the redemption prices set forth in the Indentures. Prior to the 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 make-whole premiums set forth in the Indentures. Upon certain change of control events (as set forth in the Indentures), 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.

~~3.875% Senior Notes due 2029~~

On May 27, 2021, we issued $800 million in aggregate principal amount of 3.875% notes due 2029 to eligible purchases in a private placement under Rule 144A and Regulation S of the Securities Act of 1933. Interest accrues on the notes from May 27, 2021 and is payable semiannually on June 1 and December 1. We may redeem the notes in whole or in part, on or after June 1, 2024, at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but, excluding, the redemption date. Prior to June 1, 2024, we may redeem up to 40% of the aggregate principal amount of the Senior Notes with funds in an aggregate amount up to the net cash proceeds of certain equity offerings at a redemption price equal to 103.875% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time prior to June 1, 2024, the Company may redeem some or all of the notes at a price equal to 100% of the principal amount, plus a “make-whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

Below is a summary of ~~issued~~outstanding senior ~~notes:~~notes issued:


Description	Maturity Date	Interest Payment Dates	Principal Amount
~~5.250% Senior notes due 2025~~1	~~August 1, 2025~~	~~February 1, August 1~~	~~$300 million~~
4.625% Senior notes due 2027	December 15, 2027	June 15, December 15	$400 million
4.375% Senior notes due 2031	January 15, 2031	January 15, July 15	$550 million
3.875% Senior notes due 2029	June 1, 2029	June 1, December 1	$800 million

1On July 1, 2021, we notified holders that we have elected to redeem in full the aggregate principal amount of notes outstanding on August 1, 2021 at a redemption price equal to 102.625% of the principal amount of the notes plus accrued and unpaid interest thereon.

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 ~~1.8%~~2.7% to ~~5.3%~~5.0% at June 30, ~~2021.~~2022. The mortgages are payable in various installments through July 1, 2038. As of June 30, ~~2021,~~2022, we had fixed interest rates on ~~70.4%~~70.5% 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 1.9% to 8.5% at June 30, 2022. The leases have terms extending through August 2037.

Our other debt includes sellers’ notes. The interest rates associated with our other debt ranged from 5.0% to 10.0% at June 30, 2022. This debt is due in various installments through April 2027.

LIBOR Transition

We are working closely and cooperatively with our lending partners to update remaining LIBOR-based agreements. We expect to transition all of our LIBOR-based agreements to appropriate replacement rates well before the June 30, 2023 LIBOR cessation. We do not anticipate this transition to have any material impact on our results of operations or financial position.

MANAGEMENT’S DISCUSSION AND ANALYSIS

4043

We have finance lease obligations with some of our leased real estate. Interest rates related to this debt ranged from 1.9% to 8.5% at June 30, 2021. The leases have terms extending through August 2037.

~~Our other debt includes sellers’ notes. The interest rates associated with our other debt ranged from 3.9% to 5.3% at June 30, 2021. This debt is due in various installments through January 2031.~~

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 ~~2020~~2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February ~~19, 2021.~~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 ~~2020~~2021 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on February ~~19, 2021.~~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.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

MANAGEMENT’S DISCUSSION AND ANALYSIS

4144

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are party to numerous legal proceedings arising in the normal course of our business. Although we do not anticipate that the resolution of legal proceedings arising in the 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

~~There have been no material changes from the risk factors previously disclosed in our 2020 Annual Report on Form 10-K.~~ The information in this Form 10-Q should be read in conjunction with the risk factors and information disclosed in our ~~2020~~2021 Annual Report on Form 10-K, which was filed with the SEC on February ~~19, 2021.~~18, 2022. We have described in our ~~2020~~2021 Annual Report on Form 10-K, under “Risk Factors” in Item 1A, the primary risks related to our business and securities.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We repurchased the following shares of our common stock during the second quarter of ~~2021:~~2022:


		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
For the full calendar month of								For 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
April	April	—	$	—	—	$	187,522	April	583,702	$	289.05	583,702	$	490,819
May	May	33	384.38		—	187,522		May	1,003,023	285.56		1,002,979	204,408
June	June	—	—		—	187,522		June	333,952	270.52		333,952	114,069
		33	$	384.38	—	$	187,522
Total								Total	1,920,677	$	284.01	1,920,633	$	114,069

1 ~~On October 22, 2018, our Board of Directors approved a $250 million repurchase authorization, increasing our total~~The current share repurchase ~~authorization to $500 million. This authorization does not have an~~plan has no expiration date.

2 Of the shares repurchased in the second quarter of ~~2021, all~~2022, 44 were related to tax withholding upon the vesting of RSUs.

4246

Item 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. (incorporated by reference to exhibit 3.1 to the Company’s Form 10-Q filed July 28, 2021).
3.2			Second Amended and Restated Bylaws of Lithia Motors, Inc. (incorporated by reference to exhibit 3.2 to the Company’s Form 8-K filed April 25, 2019).
~~4.1~~			~~Indenture, dated as of May 27, 2021, among Lithia Motors, Inc., the Guarantors and the Trustee (incorporated by reference to exhibit 4.1 to the Company’s Form 8-K filed May 27, 2021).~~
~~4.2~~			~~Form of 3.875% senior notes due 2029 (included as part of exhibit 4.1 to the Company’s Form 8-K filed May 27, 2021).~~
10.1			~~Credit Agreement dated April 12, 2021, among Lithia Motors, Inc., Lithia Real Estate, Inc., and Ally Bank (Ally Capital in Hawaii, Mississippi, Montana and New Jersey) (incorporated by reference~~Second Amendment to ~~exhibit 10.1 to the Company’s Form 8-K filed April 15, 2021).~~
~~10.2~~			Fourth Amended and Restated Loan Agreement, dated ~~April 29, 2021,~~June 2, 2022, among Lithia Motors, Inc., the subsidiaries of Lithia Motors, Inc. listed on the signature pages of the agreement or that thereafter become borrowers thereunder, the lenders party thereto from time to time, and U.S. Bank National ~~Association~~Association.* (incorporated by reference to exhibit 10.1 to the ~~Company’s Form~~ 8-K filed ~~May 4, 2021).~~June 8, 2022.)
~~10.3~~10.2			~~Amended and Restated Loan~~Credit Agreement, dated ~~December 31, 2020,~~June 3, 2022, among ~~SCFC Business Services LLC, Driveway Finance Corporation,~~Lithia Master LP Company, LP, the subsidiaries of Lithia Motors, Inc. listed on the signature pages of the agreement or that thereafter become borrowers thereunder, Lithia Master GP Company, Inc. and the other general partners of the Borrowers, the lenders party thereto from time to time, and ~~JPMorgan Chase~~The Bank ~~N.A. (incorporated by reference to exhibit 10.1 to the Company’s Form 8-K filed June 9, 2021).~~
~~10.4~~			~~Amendment No. 1 to Amended and Restated Loan Agreement, dated June 4, 2021, among SCFC Business Services LLC, Chariot Funding LLC and JPMorgan Chase Bank, N.A.~~of Nova Scotia.* (incorporated by reference to exhibit 10.2 to the ~~Company’s Form~~ 8-K filed June ~~9, 2021).~~8, 2022.)
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 Principal 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 Principal 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.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH			Inline XBRL Taxonomy Extension Schema Document.
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104			Cover page formatted as Inline XBRL and contained in Exhibit 101.

* Certain confidential and immaterial terms redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

4347

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: July 28, ~~2021~~2022	LITHIA MOTORS, INC.
	Registrant

	By:	/s/ Tina Miller
		Tina Miller
		Chief Financial Officer, Senior Vice President, and Principal Accounting Officer

4448


	Repurchases Occurring in 2021			Cumulative Repurchases as of June 30, 2021
	Shares	Average Price		Shares	Average Price
Share Repurchase Authorization	0	$	0	3,719,048	$	84.02


Fair Value at June 30, 2021	Level 1		Level 2		Level 3
Measured on a recurring basis:
Investments	$	101.6	$	6.7	$	0


Fair Value at December 31, 2020	Level 1		Level 2		Level 3
Measured on a recurring basis:
Investments	$	97.9	$	9.4	$	0


	Three Months Ended June 30, 2020
(in millions, except per share amounts)	As reported		Net disposal gain on sale of stores		Asset impairment		Insurance reserves		Acquisition expenses		Tax attribute		Adjusted
Asset impairment	$	7.9	$	—	$	(7.9)	$	—	$	—	$	—	$	—
Selling, general and administrative	304.5		1.3		—		(5.0)		(0.5)		—		300.3
Operating income (loss)	129.7		(1.3)		7.9		5.0		0.5		—		141.8
Other income, net	3.5		—		—		—		—		—		3.5

Income (loss) before income taxes	$	108.3	$	(1.3)	$	7.9	$	5.0	$	0.5	$	—	$	120.4
Income tax (provision) benefit	(30.6)		0.4		(2.3)		(1.4)		(0.2)		(0.8)		(34.9)
Net income (loss)	$	77.7	$	(0.9)	$	5.6	$	3.6	$	0.3	$	(0.8)	$	85.5

Diluted net income (loss) per share	$	3.38	$	(0.04)	$	0.24	$	0.16	$	0.01	$	(0.03)	$	3.72
Diluted share count	23.0