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~~September 30, 2021


☐			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,~~October 27, 2021, there were ~~30,250,672~~30,279,561 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 ,September 30, 2021, and December 31, 2020	1
	Consolidated Statements of Operations (Unaudited) - Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020	2
	Consolidated Statements of Comprehensive Income (Unaudited) – Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020	3
	Consolidated Statements of ~~Changes in Stockholders’~~ Equity and Redeemable Non-controlling Interest (Unaudited) - Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020	4
	Consolidated Statements of Cash Flows (Unaudited) - ~~Six~~Nine Months Ended ~~June~~September 30,, 2021 and 2020	5
	Condensed Notes to Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1820
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)	September 30, 2021		December 31, 2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	780.9	$	160.2	Cash and cash equivalents	$	137.8	$	160.2
Accounts receivable, net of allowance for doubtful accounts of $11.1 and $5.9		799.7		614.0
Accounts receivable, net of allowance for doubtful accounts of $14.3 and $5.9						Accounts receivable, net of allowance for doubtful accounts of $14.3 and $5.9	812.6		614.0
Inventories, net	Inventories, net	2,238.8		2,492.9		Inventories, net	2,012.6		2,492.9

Other current assets	Other current assets	51.4		70.5		Other current assets	112.5		70.5

Total current assets	Total current assets	3,870.8		3,337.6		Total current assets	3,075.5		3,337.6

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 $399.9 and $338.0						Property and equipment, net of accumulated depreciation of $399.9 and $338.0	2,352.9		2,197.5
Operating lease right-of-use assets	Operating lease right-of-use assets	255.1		264.0		Operating lease right-of-use assets	367.3		264.0
Goodwill	Goodwill	617.3		593.0		Goodwill	740.3		593.0
Franchise value	Franchise value	369.7		350.2		Franchise value	608.4		350.2

Other non-current assets	Other non-current assets	2,680.3		1,159.8		Other non-current assets	3,060.2		1,159.8
Total assets	Total assets	$	10,092.5	$	7,902.1	Total assets	$	10,204.6	$	7,902.1

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	$	329.4	$	234.2
Floor plan notes payable: non-trade	Floor plan notes payable: non-trade	966.9		1,563.0		Floor plan notes payable: non-trade	688.9		1,563.0
Current maturities of long-term debt	Current maturities of long-term debt	486.1		66.0		Current maturities of long-term debt	206.9		66.0
Trade payables	Trade payables	256.0		158.2		Trade payables	248.1		158.2
Accrued liabilities	Accrued liabilities	601.7		458.3		Accrued liabilities	708.5		458.3

Total current liabilities	Total current liabilities	2,595.8		2,479.7		Total current liabilities	2,181.8		2,479.7

Long-term debt, less current maturities	Long-term debt, less current maturities	2,521.9		2,064.7		Long-term debt, less current maturities	2,586.1		2,064.7
Deferred revenue	Deferred revenue	172.1		155.7		Deferred revenue	181.7		155.7
Deferred income taxes	Deferred income taxes	178.8		146.3		Deferred income taxes	172.9		146.3
Non-current operating lease liabilities	Non-current operating lease liabilities	237.2		246.7		Non-current operating lease liabilities	338.6		246.7
Other long-term liabilities	Other long-term liabilities	158.3		147.5		Other long-term liabilities	165.6		147.5
Total liabilities	Total liabilities	5,864.1		5,240.6		Total liabilities	5,626.7		5,240.6

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	33.3		—

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 stock1 - no par value; authorized 100.0 shares; issued and outstanding 30.3 and 26.3						Common stock1 - no par value; authorized 100.0 shares; issued and outstanding 30.3 and 26.3	1,916.4		788.2
Class B common stock1 - no par value; no shares authorized; issued and outstanding none and 0.2						Class B common stock1 - no par value; no shares authorized; issued and outstanding none and 0.2	—		—
Additional paid-in capital	Additional paid-in capital	44.0		41.4		Additional paid-in capital	50.8		41.4
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(4.3)		(6.3)		Accumulated other comprehensive loss	(3.6)		(6.3)
Retained earnings	Retained earnings	2,281.8		1,838.2		Retained earnings	2,579.1		1,838.2
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.	4,542.7		2,661.5
Non-controlling interest						Non-controlling interest	1.9		—
Total equity						Total equity	4,544.6		2,661.5
Total liabilities, redeemable non-controlling interest and equity						Total liabilities, redeemable non-controlling interest and equity	$	10,204.6	$	7,902.1

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 OPERATIONS	CONSOLIDATED STATEMENTS OF OPERATIONS									CONSOLIDATED STATEMENTS OF OPERATIONS
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 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)	2021		2020		2021		2020
Revenues:	Revenues:									Revenues:
New vehicle retail	New vehicle retail	$	3,146.2	$	1,367.8	$	5,339.5	$	2,741.3	New vehicle retail	$	2,898.2	$	1,883.3	$	8,237.7	$	4,624.6
Used vehicle retail	Used vehicle retail	1,804.9		922.2		3,157.0		1,796.5		Used vehicle retail	2,079.5		1,093.2		5,236.6		2,889.7
Used vehicle wholesale	Used vehicle wholesale	217.4		51.3		352.6		118.0		Used vehicle wholesale	260.9		98.8		613.5		216.8
Finance and insurance	Finance and insurance	269.6		124.9		467.9		246.7		Finance and insurance	297.0		160.5		765.0		407.2
Service, body and parts	Service, body and parts	521.0		275.5		925.0		605.4		Service, body and parts	578.3		359.5		1,503.4		964.9
Fleet and other	Fleet and other	50.3		16.9		110.4		54.4		Fleet and other	55.9		24.9		166.0		79.3
Total revenues	Total revenues	6,009.4		2,758.6		10,352.4		5,562.3		Total revenues	6,169.8		3,620.2		16,522.2		9,182.5
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	2,548.9		1,743.2		7,418.0		4,314.2
Used vehicle retail	Used vehicle retail	1,572.3		823.9		2,788.3		1,608.3		Used vehicle retail	1,846.9		948.4		4,635.2		2,556.8
Used vehicle wholesale	Used vehicle wholesale	201.0		49.2		331.6		115.3		Used vehicle wholesale	255.2		91.2		586.8		206.5
Service, body and parts	Service, body and parts	242.9		131.1		428.6		292.8		Service, body and parts	275.8		163.6		704.3		456.5
Fleet and other	Fleet and other	50.1		14.4		108.8		49.7		Fleet and other	53.9		22.2		162.7		71.6
Total cost of sales	Total cost of sales	4,898.8		2,294.2		8,526.3		4,637.0		Total cost of sales	4,980.7		2,968.6		13,507.0		7,605.6
Gross profit	Gross profit	1,110.6		464.4		1,826.1		925.3		Gross profit	1,189.1		651.6		3,015.2		1,576.9
Asset impairments	Asset impairments	0		7.9		0		7.9		Asset impairments	1.9		—		1.9		7.9
Selling, general and administrative	Selling, general and administrative	634.0		304.5		1,084.2		650.5		Selling, general and administrative	673.3		389.1		1,757.6		1,039.6
Depreciation and amortization	Depreciation and amortization	30.3		22.3		57.2		44.3		Depreciation and amortization	34.4		22.9		91.5		67.3
Operating income	Operating income	446.3		129.7		684.7		222.6		Operating income	479.5		239.6		1,164.2		462.1
Floor plan interest expense	Floor plan interest expense	(6.4)		(8.1)		(13.3)		(22.1)		Floor plan interest expense	(3.6)		(6.1)		(17.0)		(28.3)
Other interest expense, net	Other interest expense, net	(28.1)		(16.8)		(51.6)		(33.8)		Other interest expense, net	(28.0)		(16.6)		(79.6)		(50.4)
Other income, net		7.6		3.5		11.1		5.8
Other income (expense), net										Other income (expense), net	(25.7)		2.2		(14.6)		8.2
Income before income taxes	Income before income taxes	419.4		108.3		630.9		172.5		Income before income taxes	422.2		219.1		1,053.0		391.6
Income tax provision	Income tax provision	(114.5)		(30.6)		(169.8)		(48.6)		Income tax provision	(113.2)		(60.3)		(282.9)		(108.9)
Net income	Net income	$	304.9	$	77.7	$	461.1	$	123.9	Net income	309.0		158.8		770.1		282.7
Net income attributable to non-controlling interest										Net income attributable to non-controlling interest	(0.8)		—		(0.8)		—
Net income attributable to redeemable non-controlling interest										Net income attributable to redeemable non-controlling interest	(0.3)		—		(0.3)		—
Net income attributable to Lithia Motors, Inc.										Net income attributable to Lithia Motors, Inc.	$	307.9	$	158.8	$	769.0	$	282.7

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.	$	10.18	$	6.95	$	27.12	$	12.30
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	30.3		22.9		28.4		23.0

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.	$	10.11	$	6.86	$	26.91	$	12.18
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	30.5		23.1		28.6		23.2

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	$	0.35	$	0.31	$	1.01	$	0.91

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 September 30,				Nine Months Ended September 30,
(In millions; Unaudited)	(In millions; Unaudited)	2021		2020		2021		2020		(In millions; Unaudited)	2021		2020		2021		2020
Net income	Net income	$	304.9	$	77.7	$	461.1	$	123.9	Net income	$	309.0	$	158.8	$	770.1	$	282.7
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	0.2		—		0.2		—
Gain (loss) on cash flow hedges, net of tax (expense) benefit of ($0.2), ($0.1), ($0.9), and $2.2, respectively										Gain (loss) on cash flow hedges, net of tax (expense) benefit of ($0.2), ($0.1), ($0.9), and $2.2, respectively	0.5		0.4		2.5		(6.1)
Total other comprehensive income (loss), net of tax										Total other comprehensive income (loss), net of tax	0.7		0.4		2.7		(6.1)
Comprehensive income	Comprehensive income	$	305.1	$	76.3	$	463.1	$	117.4	Comprehensive income	309.7		159.2		772.8		276.6

Comprehensive income attributable to non-controlling interest										Comprehensive income attributable to non-controlling interest	(0.8)		—		(0.8)		—
Comprehensive income attributable to redeemable non-controlling interest										Comprehensive income attributable to redeemable non-controlling interest	(0.3)		—		(0.3)		—
Comprehensive income attributable to Lithia Motors, Inc.										Comprehensive income attributable to Lithia Motors, Inc.	$	308.6	$	159.2	$	771.7	$	276.6

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 September 30,				Nine Months Ended September 30,
(In millions; Unaudited)	2021		2020		2021		2020
Total equity, beginning balances	$	4,228.4	$	1,532.2	$	2,661.5	$	1,467.7

Common stock1, beginning balances	1,906.9		2.1		788.2		20.5
Compensation for stock and stock option issuances and excess tax benefits from option exercises	1.6		0.8		16.2		10.6
Issuance of stock in connection with employee stock plans	8.0		3.1		17.6		9.2

Class B common stock converted to class A common stock1	—		—		—		—
Repurchase of common stock	—		(0.1)		(15.9)		(34.4)
Equity issuances, net of issuance costs	(0.1)		—		1,110.3		—
Common stock1, ending balances	1,916.4		5.9		1,916.4		5.9

Class B common stock1, beginning balances	—		0.1		—		0.1
Class B common stock converted to class A common stock1	—		—		—		—
Class B common stock1, ending balances	—		0.1		—		0.1

Additional paid-in capital, beginning balances	44.0		30.1		41.4		46.0
Compensation for stock and stock option issuances and excess tax benefits from option exercises	6.8		6.3		9.4		6.6

Repurchase of common stock	—		—		—		(16.2)
Additional paid-in capital, ending balances	50.8		36.4		50.8		36.4

Accumulated other comprehensive loss, beginning balances	(4.3)		(7.2)		(6.3)		(0.7)
Foreign currency translation adjustment	0.2		—		0.2		—
Gain (loss) on cash flow hedges, net of tax (expense) benefit of ($0.2), ($0.1), ($0.9), and $2.2, respectively	0.5		0.4		2.5		(6.1)
Accumulated other comprehensive loss, ending balances	(3.6)		(6.8)		(3.6)		(6.8)

Retained earnings, beginning balances	2,281.8		1,507.1		1,838.2		1,401.8
Adjustment to adopt ASC 326	—		—		—		(4.8)
Net income attributable to Lithia Motors, Inc.	307.9		158.8		769.0		282.7
Dividends paid	(10.6)		(7.1)		(28.2)		(20.9)

Retained earnings, ending balances	2,579.1		1,658.8		2,579.1		1,658.8

Non-controlling interest, beginning balances	—		—		—		—
Acquired non-controlling interest	1.1		—		1.1		—
Net income attributable to non-controlling interest	0.8		—		0.8		—
Non-controlling interest, ending balances	1.9		—		1.9		—

Total equity, ending balances	$	4,544.6	$	1,694.4	$	4,544.6	$	1,694.4

Redeemable non-controlling interest, beginning balances	$	—	$	—	$	—	$	—
Acquired redeemable non-controlling interest	33.0		—		33.0		—
Net income attributable to redeemable non-controlling interest	0.3		—		0.3		—
Redeemable non-controlling interest, ending balances	$	33.3	$	—	$	33.3	$	—

*Certain amounts may not compute due to rounding

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,					Nine Months Ended September 30,
(In millions; Unaudited)	(In millions; Unaudited)	2021		2020		(In millions; Unaudited)	2021		2020
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	$	770.1	$	282.7
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Asset impairments	Asset impairments	0		7.9		Asset impairments	1.9		7.9
Depreciation and amortization	Depreciation and amortization	57.1		44.3		Depreciation and amortization	91.5		67.3
Stock-based compensation	Stock-based compensation	17.2		10.1		Stock-based compensation	25.6		17.2

Loss (gain) on disposal of other assets		0.1		(0.3)
Loss on redemption of senior notes						Loss on redemption of senior notes	10.3		—
Gain on disposal of other assets						Gain on disposal of other assets	(2.5)		(0.5)
Loss (gain) on disposal of franchise	Loss (gain) on disposal of franchise	5.2		(1.4)		Loss (gain) on disposal of franchise	5.2		(1.4)
Unrealized investment gain		(0.9)		0
Unrealized investment loss						Unrealized investment loss	22.3		—
Deferred income taxes	Deferred income taxes	31.8		(4.9)		Deferred income taxes	25.6		6.8

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	27.0		20.8
(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	(85.0)		(11.3)
Inventories	Inventories	663.1		624.7		Inventories	1,003.2		457.0
Other assets	Other assets	(103.0)		(14.8)		Other assets	(351.1)		(36.4)
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	91.3		(128.0)
Trade payables	Trade payables	97.4		0.3		Trade payables	97.2		25.0
Accrued liabilities	Accrued liabilities	144.3		55.4		Accrued liabilities	236.9		66.8
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	19.7		26.7
Net cash provided by operating activities	Net cash provided by operating activities	1,263.5		790.0		Net cash provided by operating activities	1,989.2		800.6
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	(194.1)		(125.6)
Proceeds from sales of assets	Proceeds from sales of assets	0		1.6		Proceeds from sales of assets	4.6		5.1
Cash paid for other investments	Cash paid for other investments	(9.9)		(9.7)		Cash paid for other investments	(9.8)		(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	(2,409.5)		(609.5)
Proceeds from sales of stores	Proceeds from sales of stores	43.7		11.6		Proceeds from sales of stores	45.7		11.6
Net cash used in investing activities	Net cash used in investing activities	(1,821.1)		(167.1)		Net cash used in investing activities	(2,563.1)		(728.3)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Repayments on floor plan notes payable, net: non-trade	Repayments on floor plan notes payable, net: non-trade	(571.6)		(456.8)		Repayments on floor plan notes payable, net: non-trade	(840.9)		(317.8)
Borrowings on lines of credit	Borrowings on lines of credit	1,454.9		925.4		Borrowings on lines of credit	1,642.5		1,740.5
Repayments on lines of credit	Repayments on lines of credit	(1,519.5)		(1,034.4)		Repayments on lines of credit	(1,631.6)		(1,485.0)
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	(24.7)		(20.7)
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	(483.6)		(6.3)
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	817.5		56.5
Payment of debt issuance costs	Payment of debt issuance costs	(10.6)		(0.9)		Payment of debt issuance costs	(10.9)		(4.1)
Proceeds from issuance of common stock	Proceeds from issuance of common stock	1,120.0		6.1		Proceeds from issuance of common stock	1,127.9		9.2
Repurchase of common stock	Repurchase of common stock	(15.9)		(50.5)		Repurchase of common stock	(15.9)		(50.6)

Dividends paid	Dividends paid	(17.5)		(13.8)		Dividends paid	(28.2)		(20.9)
Payment of contingent consideration related to acquisitions	Payment of contingent consideration related to acquisitions	(1.4)		0		Payment of contingent consideration related to acquisitions	(1.4)		—

Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	1,178.3		(586.6)		Net cash provided by (used in) financing activities	550.7		(99.2)
Increase in cash and cash equivalents		620.7		36.3
Effect of exchange rate changes on cash and cash equivalents						Effect of exchange rate changes on cash and cash equivalents	0.9		—
Decrease in cash and cash equivalents						Decrease in cash and cash equivalents	(22.3)		(26.9)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	160.2		84.0		Cash and cash equivalents at beginning of period	160.1		84.0
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	780.9	$	120.3	Cash and cash equivalents at end of period	$	137.8	$	57.1
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid during the period for interest	Cash paid during the period for interest	$	57.2	$	61.3	Cash paid during the period for interest	$	89.5	$	82.7
Cash paid during the period for income taxes, net	Cash paid during the period for income taxes, net	129.3		4.4		Cash paid during the period for income taxes, net	237.3		74.1
Floor plan debt paid in connection with store disposals	Floor plan debt paid in connection with store disposals	8.7		22.0		Floor plan debt paid in connection with store disposals	8.7		22.0
Supplemental schedule of non-cash activities:	Supplemental schedule of non-cash activities:					Supplemental schedule of non-cash activities:
Debt issued in connection with acquisitions	Debt issued in connection with acquisitions	$	225.6	$	0	Debt issued in connection with acquisitions	$	355.4	$	—

Contingent consideration in connection with acquisitions						Contingent consideration in connection with acquisitions	0.9		9.7
Debt assumed in connection with acquisitions						Debt assumed in connection with acquisitions	4.0		—

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	Right-of-use assets obtained in exchange for lease liabilities	8.1		4.2		Right-of-use assets obtained in exchange for lease liabilities	131.2		44.1

See accompanying condensed notes to consolidated financial statements.

FINANCIAL STATEMENTS

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Interim Financial Statements

Basis of Presentation

These condensed Consolidated Financial Statements contain unaudited information as of ~~June~~September 30, 2021, and for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020. 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 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 2020, is derived from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 19, 2021. 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 2. Contract Liabilities and Assets

Contract Liabilities

We are the obligor on our lifetime oil contracts. Revenue is allocated to these performance obligations and is recognized over time as services are provided to the customer. The amount of revenue recognized is calculated, net of cancellations, using an input method, which most closely depicts performance of the contracts. Our contract liability balances were ~~$214.9~~$226.9 million and $194.1 million as of ~~June~~September 30, 2021, and December 31, 2020, respectively; and we recognized ~~$9.0~~$8.3 million and ~~$18.4~~$26.8 million of revenue in the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively, related to our contract liability balance at December 31, 2020. 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~~$9.0 million and $8.2 million as of ~~June~~September 30, 2021 and December 31, 2020, respectively; and are included in trade receivables and other non-current assets.

NOTES TO FINANCIAL STATEMENTS

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~~


(in millions)	September 30, 2021		December 31, 2020
Contracts in transit	$	300.7	$	286.8
Trade receivables	111.1		67.0
Vehicle receivables	93.8		61.8
Manufacturer receivables	113.8		118.1
Auto loan receivables	535.1		175.6

Sales-type lease receivables	102.6		—
Other receivables	18.8		11.6
	1,275.9		720.9
Less: Allowance for doubtful accounts	(14.3)		(5.9)
Less: Long-term portion of accounts receivable, net	(449.0)		(101.0)
Total accounts receivable, net	$	812.6	$	614.0

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 sales of vehicles and certain finance and insurance products.

•Sales-type lease receivables include amounts due from customers related to retail leases of vehicles and certain finance and insurance products.

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 receivables isare made up of loans secured by the related ~~vehicle.~~vehicles. More than 98% of the portfolio is aged less than 60 days past due with less than 2% on non-accrual status. As of ~~June~~September 30, 2021, the allowance for credit losses related to auto loan and lease receivables was ~~$13.3~~$17.2 million and included in allowance for doubtful accounts and other non-current assets. 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. 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 was included as a component of other non-current assets in the Consolidated Balance Sheets.

NOTES TO FINANCIAL STATEMENTS

Note 4. Inventories

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


(in millions)	(in millions)	June 30, 2021		December 31, 2020		(in millions)	September 30, 2021		December 31, 2020
New vehicles	New vehicles	$	872.5	$	1,556.6	New vehicles	$	696.8	$	1,556.6
Used vehicles	Used vehicles	1,238.4		835.9		Used vehicles	1,172.6		835.9
Parts and accessories	Parts and accessories	127.9		100.4		Parts and accessories	143.2		100.4
Total inventories	Total inventories	$	2,238.8	$	2,492.9	Total inventories	$	2,012.6	$	2,492.9

Note 5. 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		Consolidated
Balance as of December 31, 2019 ¹	Balance as of December 31, 2019 ¹	$	171.8	$	197.3	$	85.5	$	454.6	Balance as of December 31, 2019 ¹	$	171.8	$	197.3	$	85.5	$	454.6

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

Additions through acquisitions 3	Additions through acquisitions 3	7.4		11.9		8.2		27.5		Additions through acquisitions 3	52.0		64.3		34.2		150.5
Reductions through divestitures	Reductions through divestitures	0		(3.2)		0		(3.2)		Reductions through divestitures	—		(3.2)		—		(3.2)

Balance as of June 30, 2021		$	211.9	$	296.6	$	108.8	$	617.3
Balance as of September 30, 2021										Balance as of September 30, 2021	$	256.5	$	349.0	$	134.8	$	740.3

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 acquisitions were finalized in 2020. As a result, we added $144.9 million of goodwill.

3 Our purchase price allocation for a portion of the 2020 acquisitions was finalized in 2021. As a result, we added ~~$27.5~~$150.5 million of goodwill. Our purchase price allocation for the remaining 2020 and 2021 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.

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


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

Additions through acquisitions 1	51.9
Reductions through divestitures	(4.0)
Reductions from impairments	(4.4)
Balance as of December 31, 2020	350.2

Additions through acquisitions 2	~~21.6~~262.4
Reductions through divestitures	~~(2.1)~~(2.3)
Reductions from impairments	(1.9)
Balance as of ~~June~~September 30, 2021	$	~~369.7~~608.4

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

2 Our purchase price allocation for a portion of the 2020 acquisitions was finalized in 2021. As a result, we added ~~$21.6~~$262.4 million of franchise value. Our purchase price allocation for the remaining 2020 and 2021 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.

Note 6. ~~Stockholders’~~Credit Facilities and Long-term Debt

On August 30, 2021, we entered into a credit agreement with The Bank of Nova Scotia. The credit agreement makes available 3 primary lines of credit including a working capital revolving credit facility of up to $50 million CAD, up to $300 million CAD floor plan financing for new and used vehicles; and $350 million CAD to provide wholesale lease financing. The credit facilities accrue interest at rates equal to the Lender’s 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

NOTES TO FINANCIAL STATEMENTS

1.50% per annum. The credit agreement includes various financial and other covenants typical of such agreements. All indebtedness under this agreement is due on demand.

On August 1, 2021, we redeemed in full the aggregate $300 million principal amount of our 5.250% senior notes due 2025 at a redemption price equal to 102.625% of the principal amount of the notes plus accrued and unpaid interest thereon.

Note 7. Equity and Redeemable Non-controlling Interest

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, our Board of Directors approved an additional $250 million repurchase authorization of our ~~Class A~~ common stock, increasing our total share repurchase authorization to $500 million. 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


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

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

In addition, during 2021, we repurchased ~~54,251~~54,284 shares at an average price of ~~$292.91~~$292.97 per share, for a total of $15.9 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 purchase transactions. As of September 30, 2021, no amounts have been issued in relation to the ATM Equity Offering Sales Agreement.

Redeemable Non-controlling Interest

On August 30, 2021, the Company expanded into Canada through a partnership with Toronto-based Pfaff Automotive Partners. As part of the acquisition, the Company was 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, the Company 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 at September 30, 2021. The non-controlling interest is adjusted each reporting period for income (loss) attributable to the non-controlling interest and adjustments in fair value.

NOTES TO FINANCIAL STATEMENTS

~~purchase transactions. As of June 30, 2021, 0 amounts have been issued in relation to the ATM Equity Offering Sales Agreement.~~

Note 7.8. 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~~nine months ended ~~June~~September 30, 2021, we recognized a ~~$1.2~~$23.2 million and ~~$0.9~~$22.3 million unrealized investment ~~gain~~loss related to Shift, which was recorded as a component of Other income, net. ~~NaN~~No amounts were recognized for the three and ~~six~~nine months ended ~~June~~September 30, 2020.

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

We have derivative instruments consisting of interest rate collars. 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 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~~nine-month period ended ~~June~~September 30, 2021.

NOTES TO FINANCIAL STATEMENTS

910

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


Fair Value at June 30, 2021		Level 1		Level 2		Level 3
Fair Value at September 30, 2021								Fair Value at September 30, 2021	Level 1		Level 2		Level 3
Measured on a recurring basis:	Measured on a recurring basis:							Measured on a recurring basis:
Investments	Investments	$	101.6	$	6.7	$	0	Investments	$	82.2	$	2.9	$	—


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

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


Fair Value at September 30, 2021	Level 1		Level 2		Level 3
Measured on a recurring basis:
Derivative asset	$	—	$	4.2	$	—
Derivative liability	—		9.4		—


Fair Value at December 31, 2020	Level 1		Level 2		Level 3
Measured on a recurring basis:
Derivative asset	$	—	$	0.5	$	—
Derivative liability	—		9.0		—

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)	September 30, 2021		December 31, 2020
Carrying value	Carrying value					Carrying value
5.250% Senior notes due 2025	5.250% Senior notes due 2025	$	300.0	$	300.0	5.250% Senior notes due 2025	$	—	$	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		—
Real estate mortgages and other debt	Real estate mortgages and other debt	603.2		714.8		Real estate mortgages and other debt	483.0		714.8
		$	2,653.2	$	1,964.8		$	2,233.0	$	1,964.8
Fair value	Fair value					Fair value
5.250% Senior notes due 2025	5.250% Senior notes due 2025	$	309.0	$	311.6	5.250% Senior notes due 2025	$	—	$	311.6
4.625% Senior notes due 2027	4.625% Senior notes due 2027	422.0		425.0		4.625% Senior notes due 2027	421.5		425.0
4.375% Senior notes due 2031	4.375% Senior notes due 2031	586.4		589.9		4.375% Senior notes due 2031	588.5		589.9
3.875% Senior notes due 2029	3.875% Senior notes due 2029	828.0		0		3.875% Senior notes due 2029	832.0		—
Real estate mortgages and other debt	Real estate mortgages and other debt	627.7		713.2		Real estate mortgages and other debt	506.6		713.2
		$	2,773.1	$	2,039.7		$	2,348.6	$	2,039.7

Note 8.9. 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

1011

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
Three Months Ended September 30,										Three Months Ended September 30,	2021				2020
(in millions, except per share amounts)	(in millions, except per share amounts)	Class A		Class B		Class A		Class B		(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
Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - basic										Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - basic	$	307.9	$	—	$	156.0	$	2.8

Reallocation of net income due to conversion of Class B to Class A common shares outstanding	Reallocation of net income due to conversion of Class B to Class A common shares outstanding	0		0		0.1		0		Reallocation of net income due to conversion of Class B to Class A common shares outstanding	—		—		0.2		—
Conversion of Class B common shares into Class A common shares	Conversion of Class B common shares into Class A common shares	0		0		1.3		0		Conversion of Class B common shares into Class A common shares	—		—		2.6		—

Net income applicable to common stockholders - diluted		$	304.9	$	0	$	77.7	$	1.4
Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - diluted										Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - diluted	$	307.9	$	—	$	158.8	$	2.8

Weighted average common shares outstanding – basic	Weighted average common shares outstanding – basic	28.1		0		22.4		0.4		Weighted average common shares outstanding – basic	30.3		—		22.5		0.4
Conversion of Class B common shares into Class A common shares	Conversion of Class B common shares into Class A common shares	0		0		0.4		0		Conversion of Class B common shares into Class A common shares	—		—		0.4		—
Effect of dilutive stock options on weighted average common shares	Effect of dilutive stock options on weighted average common shares	0.3		0		0.2		0		Effect of dilutive stock options on weighted average common shares	0.2		—		0.2		—
Weighted average common shares outstanding – diluted	Weighted average common shares outstanding – diluted	28.4		0		23.0		0.4		Weighted average common shares outstanding – diluted	30.5		—		23.1		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
Basic earnings per share attributable to Lithia Motors, Inc.										Basic earnings per share attributable to Lithia Motors, Inc.	$	10.18	$	—	$	6.95	$	6.95
Diluted earnings per share attributable to Lithia Motors, Inc.										Diluted earnings per share attributable to Lithia Motors, Inc.	$	10.11	$	—	$	6.86	$	6.86

The effect of antidilutive securities on Class A and Class B common stock was evaluated for the three-month periods ended ~~June~~September 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.~~


Nine Months Ended September 30,	2021				2020
(in millions, except per share amounts)	Class A		Class B		Class A		Class B
Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - basic	$	768.4	$	0.6	$	276.4	$	6.3

Reallocation of net income due to conversion of class B to class A common shares outstanding	—		—		0.5		—
Conversion of class B common shares into class A common shares	0.6		—		5.8		—

Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - diluted	$	769.0	$	0.6	$	282.7	$	6.3

Weighted average common shares outstanding – basic	28.4		—		22.5		0.5
Conversion of class B common shares into class A common shares	—		—		0.5		—
Effect of employee stock purchases and restricted stock units on weighted average common shares	0.2		—		0.2		—
Weighted average common shares outstanding – diluted	28.6		—		23.2		0.5

Basic earnings per share attributable to Lithia Motors, Inc.	$	27.12	$	27.12	$	12.29	$	12.29
Diluted earnings per share attributable to Lithia Motors, Inc.	$	26.91	$	26.91	$	12.18	$	12.18

NOTES TO FINANCIAL STATEMENTS

1112

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

Note 9.10. 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, General Motors and Ford. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Honda, Toyota, 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 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.

NOTES TO FINANCIAL STATEMENTS

1213

Certain financial information on a segment basis is as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)	2021		2020		2021		2020
Revenues:	Revenues:									Revenues:
Domestic	Domestic									Domestic
New vehicle retail	New vehicle retail	$	924.6��	$	499.1	$	1,539.2	$	969.6	New vehicle retail	$	766.1	$	621.3	$	2,305.3	$	1,591.0
Used vehicle retail	Used vehicle retail	641.7		389.9		1,103.9		717.6		Used vehicle retail	699.7		378.8		1,803.7		1,096.4
Used vehicle wholesale	Used vehicle wholesale	63.8		19.8		100.0		45.8		Used vehicle wholesale	74.5		31.9		174.4		77.7
Finance and insurance	Finance and insurance	78.6		50.9		137.2		96.1		Finance and insurance	80.5		53.2		217.7		149.2
Service, body and parts	Service, body and parts	159.1		102.2		279.8		219.5		Service, body and parts	170.2		118.0		450.0		337.5
Fleet and other	Fleet and other	21.6		9.9		39.2		23.6		Fleet and other	28.2		11.5		67.4		35.1
		1,889.4		1,071.8		3,199.3		2,072.2			1,819.2		1,214.7		5,018.5		3,286.9
Import	Import									Import
New vehicle retail	New vehicle retail	1,385.7		572.7		2,353.8		1,173.0		New vehicle retail	1,376.9		823.7		3,730.7		1,996.6
Used vehicle retail	Used vehicle retail	717.8		345.9		1,280.0		700.6		Used vehicle retail	847.9		452.2		2,127.8		1,152.8
Used vehicle wholesale	Used vehicle wholesale	90.0		20.3		148.3		46.5		Used vehicle wholesale	99.5		42.2		247.8		88.7
Finance and insurance	Finance and insurance	140.5		55.9		246.0		113.9		Finance and insurance	162.9		81.2		408.9		195.1
Service, body and parts	Service, body and parts	204.8		105.3		361.5		230.1		Service, body and parts	235.3		141.3		596.9		371.4
Fleet and other	Fleet and other	18.6		5.9		32.6		17.8		Fleet and other	4.9		11.1		37.5		28.9
		2,557.4		1,106.0		4,422.2		2,281.9			2,727.4		1,551.7		7,149.6		3,833.5
Luxury	Luxury									Luxury
New vehicle retail	New vehicle retail	839.2		297.2		1,453.3		598.2		New vehicle retail	750.9		440.0		2,204.1		1,038.2
Used vehicle retail	Used vehicle retail	448.4		189.5		779.6		380.6		Used vehicle retail	530.3		261.6		1,309.9		642.2
Used vehicle wholesale	Used vehicle wholesale	59.3		11.3		99.0		25.5		Used vehicle wholesale	72.8		24.7		171.9		50.2
Finance and insurance	Finance and insurance	52.6		17.7		89.5		34.6		Finance and insurance	56.1		25.5		145.7		60.1
Service, body and parts	Service, body and parts	150.1		65.4		271.8		148.8		Service, body and parts	162.8		96.0		434.7		244.8
Fleet and other	Fleet and other	9.6		0.6		37.4		12.0		Fleet and other	22.2		1.9		59.5		14.0
		1,559.2		581.7		2,730.6		1,199.7			1,595.1		849.7		4,325.8		2,049.5
		6,006.0		2,759.5		10,352.1		5,553.8			6,141.7		3,616.1		16,493.9		9,169.9
Corporate and other	Corporate and other	3.4		(0.9)		0.3		8.5		Corporate and other	28.1		4.1		28.3		12.6
		$	6,009.4	$	2,758.6	$	10,352.4	$	5,562.3		$	6,169.8	$	3,620.2	$	16,522.2	$	9,182.5
Segment income1:	Segment income1:									Segment income1:
Domestic	Domestic	$	138.1	$	59.4	$	212.0	$	87.2	Domestic	$	123.6	$	81.1	$	335.6	$	168.3
Import	Import	216.3		48.8		317.8		73.6		Import	255.4		102.6		573.2		176.2
Luxury	Luxury	97.2		12.3		141.3		13.9		Luxury	108.5		39.2		249.8		53.1
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	$	487.5	$	222.9	$	1,158.6	$	397.6

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.

NOTES TO FINANCIAL STATEMENTS

1314

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 September 30,				Nine Months Ended September 30,
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)	2021		2020		2021		2020
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	$	487.5	$	222.9	$	1,158.6	$	397.6
Corporate and other	Corporate and other	18.6		23.4		57.4		70.1		Corporate and other	22.8		33.5		80.1		103.5
Depreciation and amortization	Depreciation and amortization	(30.3)		(22.3)		(57.1)		(44.3)		Depreciation and amortization	(34.4)		(22.9)		(91.5)		(67.3)
Other interest expense	Other interest expense	(28.1)		(16.8)		(51.6)		(33.8)		Other interest expense	(28.0)		(16.6)		(79.6)		(50.4)
Other income, net		7.6		3.5		11.1		5.8
Other income (expense), net										Other income (expense), net	(25.7)		2.2		(14.6)		8.2
Income before income taxes	Income before income taxes	$	419.4	$	108.3	$	630.9	$	172.5	Income before income taxes	$	422.2	$	219.1	$	1,053.0	$	391.6

Total assets by reportable segments is as follows:


(in millions)	(in millions)	June 30, 2021		December 31, 2020		(in millions)	September 30, 2021		December 31, 2020
Total assets:	Total assets:					Total assets:
Domestic	Domestic	$	1,298.3	$	1,262.4	Domestic	$	1,282.1	$	1,262.4
Import	Import	1,579.1		1,654.7		Import	1,634.8		1,654.7
Luxury	Luxury	1,057.9		1,132.4		Luxury	1,100.8		1,132.4
Corporate and other	Corporate and other	6,157.2		3,852.6		Corporate and other	6,186.9		3,852.6
		$	10,092.5	$	7,902.1		$	10,204.6	$	7,902.1

Note ~~10.~~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 2423 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.~~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 (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 hedges interest rate risk related to a portion of our $688.2 million of non-trade floor plan notes payable.

NOTES TO FINANCIAL STATEMENTS

1415

~~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		Total
Balance as of December 31, 2019	Balance as of December 31, 2019	$	(0.1)	$	(0.9)	$	(1.0)	Balance as of December 31, 2019	$	(0.1)	$	(0.9)	$	(1.0)

Loss recorded from interest rate collar	Loss recorded from interest rate collar	(1.8)		(5.1)		(6.9)		Loss recorded from interest rate collar	(1.8)		(5.1)		(6.9)
Balance as of March 31, 2020	Balance as of March 31, 2020	(1.9)		(6.0)		(7.9)		Balance as of March 31, 2020	(1.9)		(6.0)		(7.9)
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	0.4		—		0.4
Loss recorded from interest rate collar	Loss recorded from interest rate collar	(1.0)		(1.3)		(2.3)		Loss recorded from interest rate collar	(1.0)		(1.3)		(2.3)
Balance as of June 30, 2020	Balance as of June 30, 2020	(2.5)		(7.3)		(9.8)		Balance as of June 30, 2020	(2.5)		(7.3)		(9.8)
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)		0.6		(0.1)
Balance as of September 30, 2020	Balance as of September 30, 2020	(2.5)		(6.7)		(9.2)		Balance as of September 30, 2020	(2.5)		(6.7)		(9.2)
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	(0.8)		0.7		(0.1)
Balance as of December 31, 2020	Balance as of December 31, 2020	(2.6)		(6.0)		(8.6)		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	0.7		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	(0.6)		2.4		1.8
Balance as of March 31, 2021	Balance as of March 31, 2021	(2.5)		(3.5)		(6.0)		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		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)		0.2		(0.5)		(Loss) gain 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)	$	(3.3)	$	(5.8)	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		—		0.7
(Loss) gain recorded from interest rate collar								(Loss) gain recorded from interest rate collar	(0.7)		0.7		—
Balance as of September 30, 2021								Balance as of September 30, 2021	$	(2.5)	$	(2.7)	$	(5.2)

As of ~~June~~September 30, 2021, the amount of net losses we expect to reclassify from AOCI into 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.

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~~September 30, 2021, the balance on all 4 agreements was an offsetting ~~$4.1~~$4.2 million and was located in other current assets and accrued liabilities, respectively.

See Note 78 for information on the fair value of the derivative contracts.

NOTES TO FINANCIAL STATEMENTS

Note ~~12.~~13. Acquisitions

In the first ~~six~~nine 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, The 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, Center BMW ~~of Sherman Oaks~~ and Center 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.

•In July 2021, Koby Subaru in Alabama.

•In August 2021, Rock Honda in California.

•In August 2021, Pfaff Automotive Partners in Canada.

•In September 2021, Curry Honda in Georgia.

•In September 2021, Orange Coast Chrysler Dodge Jeep Ram Fiat in California.

~~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~~Nine Months Ended ~~June~~September 30,	2021
Revenue	$	~~976.3~~2,385.9
Operating income	~~45.9~~121.9

In the first ~~six~~nine 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, Smolich Chrysler Dodge Jeep Ram ~~of Bend~~ and Smolich Nissan ~~of Bend~~ in Oregon.

•In July 2020, BMW of San Francisco in California.

•In July 2020, Ladin Subaru in California.

•In August 2020, John Eagle Auto Group in Texas.

•In September 2020, Cogdill Chrysler Jeep Dodge Ram in Tennessee.

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 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~~2,376.4
Debt issued	355.4
Preliminary fair value of redeemable non-controlling interest	33.0


Total consideration transferred	$	2,764.8

NOTES TO FINANCIAL STATEMENTS


(in millions)	Assets Acquired and Liabilities Assumed
Accounts receivable	$	~~0.7~~1.1
Inventories, net	~~439.3~~565.6

Property and equipment, net	~~86.0~~112.6
Other non-current assets	~~1,443.9~~2,117.4
Floor plan notes payable	~~(4.0)~~
~~Borrowings on lines-of-credit~~	~~(225.6)~~(3.9)


Other long-term liabilities	~~(6.0)~~(28.0)
	~~1,734.3~~
~~Goodwill~~	~~7.6~~
	$	~~1,741.9~~2,764.8

The purchase price allocations for the acquisitions from the ~~third~~fourth quarter of 2020 through the ~~second~~third quarter of 2021 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 to be deductible for federal income tax purposes.

In the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, we recorded ~~$10.4~~$6.3 million and ~~$11.6~~$17.9 million, respectively, in acquisition-related expenses as a component of selling, general and administrative expense. Comparatively, we recorded ~~$0.5~~$0.6 million and ~~$1.0~~$1.6 million of acquisition-related expenses in the same periods of 2020.

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

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

~~NOTES TO FINANCIAL STATEMENTS~~


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share amounts)	2021		2020		2021		2020
Revenue	$	6,483.3	$	5,840.4	$	18,699.8	$	15,455.9
Net income attributable to Lithia Motors, Inc.	317.8		216.9		825.4		400.5
Basic earnings attributable to Lithia Motors, Inc. per share	10.50		9.49		29.10		17.43
Diluted earnings attributable to Lithia Motors, Inc. per share	10.44		9.37		28.88		17.26

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.~~14. Recent Accounting Pronouncements

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 first quarter of 2021. The adoption of the guidance did not have a material impact on our consolidated financial statements.

In October 2020, 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 adopted the new guidance in the first quarter of 2021. The adoption of the guidance did not have a material impact on our consolidated financial statements.

NOTES TO FINANCIAL STATEMENTS

Note ~~14. Subsequent Events~~15. Net Investment in Operating Leases

~~On July 1,~~In the third quarter of 2021, we purchased a leasing entity and the sales-type financing and operating leases it manages.

Net investment in ~~accordance~~operating leases consists primarily of lease contracts for vehicles with individuals and business entities. Assets subject to operating leases are depreciated using 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~~straight-line method over the ~~aggregate principal amount of notes outstanding on August 1, 2021 at a redemption price equal to 102.625%~~term of the ~~principal amount~~lease to reduce the asset to its estimated residual value. Estimated residual values are based on assumptions for used vehicle prices at lease termination and the number of ~~the notes plus accrued and unpaid interest thereon.~~vehicles that are expected to be returned.

Net investment in operating leases was as follows:


(in millions)	September 30, 2021		December 31, 2020
Vehicles, at cost1	$	53.1	$	—
Accumulated depreciation1	(1.1)		—
Net investment in operating leases	$	52.0	$	—

1Vehicles, at cost and accumulated depreciation are recorded in other current assets, on the balance sheet.

NOTES TO FINANCIAL STATEMENTS

1719

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”, 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 sales levels;

•Anticipated impacts of the continued COVID-19 pandemic on the ~~U.S~~national and local economies in which we operate, our business operations and consumer 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 compliance with financial and restrictive covenants in our credit facility and other debt agreements;

•Statements regarding furloughed employees and cost reductions;

•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.

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 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~~plan to profitably consolidate the largest retail sector in our ~~country.~~country and reach $50 billion in revenue by 2025. As a leading provider of personal transportation solutions in the ~~United States,~~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~~September 30, 2021, we operated ~~259~~277 locations representing 3839 brands in ~~26 states.~~25 states and 3 Canadian provinces. We strive to achieve operational excellence by focusing the business on convenient and transparent consumer experiences supported by proprietary data science to increase market share and profitability.

MANAGEMENT’S DISCUSSION AND ANALYSIS

1820

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

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 network. We seek to provide customers a ~~seamless~~frictionless experience across online 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 personal transportation solutions wherever, whenever and however consumers desire.

~~In July 2020, we launched a 5-Year Plan~~Our plan is to grow to $50 billion in revenues by ~~designing our~~2025 with a strategy designed to focus on the most expansive addressable market of any retailer in the United States. Our long-term strategy and value creation for our customers, employees and shareholders centers around the following elements:

Driving operational excellence, innovation and diversification

We create value and high performance by focusing on convenient and transparent consumer experiences, gaining market share 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 and service their vehicles over the full ownership lifecycle. Driveway, 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 combines our experienced, knowledgeable workforce with our owned inventory and physical network of stores, enabling us to be agile and adapt to consumer preferences with digital shopping experiences, contactless test drives and home delivery or curbside pickup for vehicle purchases.

Our in-store experiences also incorporate digital experiences to provide consumers options that meet the accelerating trend in digitization. During the third quarter, over 19% of our units retailed within our stores incorporated a digital experience. Our in-store offerings, combined with Driveway, provide a variety of options to customize the experience each individual consumer.

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 of the 5-Year Plan, we~~We have already reached ~~approximately 40%~~nearly 50% of our targeted network development goal.

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 of our free cash flows generated continues to target a 65% investment in acquisitions, 25% investment in capital expenditures, modernization 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, 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 September 30,								Nine Months Ended September 30,
($ in millions)	($ in millions)	2021			2020			Change		2021			2020			Change		($ in millions)	2021			2020			Change		2021			2020			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	$	2,898.2		$	1,883.3		53.9	%	$	8,237.7		$	4,624.6		78.1	%
Used vehicle retail	Used vehicle retail	1,804.9			922.2			95.7		3,157.0			1,796.5			75.7		Used vehicle retail	2,079.5			1,093.2			90.2		5,236.6			2,889.7			81.2
Finance and insurance	Finance and insurance	269.6			124.9			115.9		467.9			246.7			89.7		Finance and insurance	297.0			160.5			85.0		765.0			407.2			87.9
Service, body and parts	Service, body and parts	521.0			275.5			89.1		925.0			605.4			52.8		Service, body and parts	578.3			359.5			60.9		1,503.4			964.9			55.8
Total Revenues	Total Revenues	6,009.4			2,758.6			117.8		10,352.4			5,562.3			86.1		Total Revenues	6,169.8			3,620.2			70.4		16,522.2			9,182.5			79.9

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	$	349.2		$	140.1		149.3	%	$	819.7		$	310.4		164.1	%
Used vehicle retail	Used vehicle retail	232.6			98.3			136.6		368.7			188.2			95.9		Used vehicle retail	232.6			144.8			60.6		601.3			332.9			80.6
Finance and insurance	Finance and insurance	269.6			124.9			115.9		467.9			246.7			89.7		Finance and insurance	297.0			160.5			85.0		765.0			407.2			87.9
Service, body and parts	Service, body and parts	278.2			144.4			92.7		496.5			312.5			58.9		Service, body and parts	302.6			195.9			54.5		799.0			508.4			57.2
Total Gross Profit	Total Gross Profit	1,110.6			464.4			139.1		1,826.1			925.3			97.4		Total Gross Profit	1,189.1			651.6			82.5		3,015.2			1,576.9			91.2

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	12.1		%	7.4		%	470	bps	10.0		%	6.7		%	330	bps
Used vehicle retail	Used vehicle retail	12.9			10.7			220		11.7			10.5			120		Used vehicle retail	11.2			13.2			(200)		11.5			11.5			—
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	52.3			54.5			(220)		53.2			52.7			50
Total Gross Profit Margin	Total Gross Profit Margin	18.5			16.8			170		17.6			16.6			100		Total Gross Profit Margin	19.3			18.0			130		18.2			17.2			100

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	66,894			47,923			39.6	%	195,934			118,699			65.1	%
Used vehicles	Used vehicles	70,254			43,505			61.5		129,281			86,136			50.1		Used vehicles	76,362			49,363			54.7		205,643			135,499			51.8

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	$	43,325		$	39,298		10.2	%	$	42,043		$	38,960		7.9	%
Used vehicles	Used vehicles	25,691			21,196			21.2		24,420			20,857			17.1		Used vehicles	27,233			22,145			23.0		25,464			21,326			19.4

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	$	5,221		$	2,922		78.7	%	$	4,184		$	2,615		60.0	%
Used vehicles	Used vehicles	3,311			2,259			46.6		2,852			2,185			30.5		Used vehicles	3,046			2,932			3.9		2,924			2,457			19.0
Finance and insurance	Finance and insurance	1,854			1,593			16.4		1,811			1,572			15.2		Finance and insurance	2,074			1,649			25.8		1,905			1,602			18.9
Total vehicle1	Total vehicle1	5,723			4,050			41.3		5,141			3,875			32.7		Total vehicle1	6,175			4,655			32.7		5,510			4,173			32.0

1 Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail.

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~~August 2020 would be included in same store operating data beginning in ~~June~~September 2021, after its first full complete comparable month of operation. The ~~second~~third quarter operating results for the same store comparisons would include results for that store in only the month of ~~June~~September 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 September 30,								Nine Months Ended September 30,
($ in millions)	($ in millions)	2021			2020			Change		2021			2020			Change		($ in millions)	2021			2020			Change		2021			2020			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	$	1,765.0		$	1,822.6		(3.2)	%	$	5,566.6		$	4,494.5		23.9	%
Used vehicle retail	Used vehicle retail	1,342.7			902.1			48.8		2,462.2			1,751.5			40.6		Used vehicle retail	1,485.8			1,062.4			39.9		3,948.0			2,813.8			40.3
Finance and insurance	Finance and insurance	183.6			122.4			50.0		337.2			241.2			39.8		Finance and insurance	189.2			154.9			22.1		526.4			396.0			32.9
Service, body and parts	Service, body and parts	352.3			269.9			30.5		668.3			589.1			13.4		Service, body and parts	374.3			349.0			7.2		1,042.6			938.1			11.1
Total Revenues	Total Revenues	4,128.1			2,700.2			52.9		7,596.7			5,421.9			40.1		Total Revenues	3,978.2			3,509.1			13.4		11,574.8			8,931.0			29.6

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	$	213.9		$	136.5		56.7	%	$	550.4		$	302.9		81.7	%
Used vehicle retail	Used vehicle retail	180.4			97.1			85.8		300.2			185.5			61.8		Used vehicle retail	172.0			141.5			21.6		472.1			327.0			44.4
Finance and insurance	Finance and insurance	183.6			122.4			50.0		337.2			241.2			39.8		Finance and insurance	189.2			154.9			22.1		526.4			396.0			32.9
Service, body and parts	Service, body and parts	193.3			141.5			36.6		362.2			304.3			19.0		Service, body and parts	201.5			189.5			6.3		563.7			493.8			14.2
Total Gross Profit	Total Gross Profit	777.1			455.8			70.5		1,350.8			904.9			49.3		Total Gross Profit	779.3			632.5			23.2		2,130.1			1,537.4			38.6

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	12.1		%	7.5		%	460	bps	9.9		%	6.7		%	320	bps
Used vehicle retail	Used vehicle retail	13.4			10.8			260		12.2			10.6			160		Used vehicle retail	11.6			13.3			(170)		12.0			11.6			40
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	53.8			54.3			(50)		54.1			52.6			150
Total Gross Profit Margin	Total Gross Profit Margin	18.8			16.9			190		17.8			16.7			110		Total Gross Profit Margin	19.6			18.0			160		18.4			17.2			120

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	39,886			46,161			(13.6)	%	131,478			115,031			14.3	%
Used vehicles	Used vehicles	51,806			42,495			21.9		101,075			83,823			20.6		Used vehicles	54,300			47,863			13.4		155,375			131,686			18.0

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	$	44,251		$	39,484		12.1	%	$	42,339		$	39,072		8.4	%
Used vehicles	Used vehicles	25,918			21,228			22.1		24,360			20,895			16.6		Used vehicles	27,362			22,196			23.3		25,409			21,368			18.9

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	$	5,362		$	2,956		81.4	%	$	4,186		$	2,633		59.0	%
Used vehicles	Used vehicles	3,483			2,285			52.4		2,970			2,212			34.3		Used vehicles	3,167			2,956			7.1		3,039			2,483			22.4
Finance and insurance	Finance and insurance	1,818			1,599			13.7		1,750			1,579			10.8		Finance and insurance	2,009			1,647			22.0		1,835			1,605			14.3
Total vehicle1	Total vehicle1	5,778			4,072			41.9		5,121			3,903			31.2		Total vehicle1	6,130			4,681			31.0		5,452			4,200			29.8

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~~September 30, 2021, we had net income of ~~$304.9~~$309.0 million, or ~~$10.75~~$10.11 per share on a diluted basis, compared to net income of ~~$77.7~~$158.8 million, or ~~$3.38~~$6.86 per share on a diluted basis, during the same period of 2020. During the ~~six~~nine months ended ~~June~~September 30, 2021, we had net income of ~~$461.1~~$770.1 million, or ~~$16.69~~$26.91 per share on a diluted basis, compared to net income of ~~$123.9~~$282.7 million, or ~~$5.32~~$12.18 per share on a diluted basis, during the same period of 2020.

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 decreased 3.2% and increased ~~55.2% and 42.3%~~23.9% for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 compared to the same periods in 2020, respectively. This was due to ~~an increase~~a decrease in unit volume of ~~44.4% and 33.0%~~13.6%, ~~and~~offset partially by an increase in average selling prices of ~~7.5% and 7.0%, in~~12.1% for the ~~three and six-month periods~~three-month period ended ~~June~~September 30, 2021 ~~respectively,~~ compared to the same ~~periods~~period in 2020; and an increase in unit volume of 14.3%, combined with an increase in average selling prices of 8.4%, in the nine-month period ended September 30, 2021, compared to the same period of 2020. 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~~

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

~~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%~~81.4% and ~~52.1%~~59.0%, increasing new vehicle gross profit margins ~~340~~460 bps and ~~270~~320 bps in the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, respectively, compared to the same periods of 2020.

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~~$2,692 to ~~$6,150~~$7,446 and ~~$1,388~~$1,723 to ~~$5,521~~$6,105 for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, respectively, compared to the same periods of 2020.

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 years old. During the last twelve months ended ~~June~~September 30, 2021, our stores sold an average of 8892 used vehicles per store per month, compared to 7778 used vehicles per store per month for the same period ended ~~June~~September 30, 2020.

Used vehicle demand remains high, due in part to the lower levels of new vehicle inventory available for sale. This demand is resulting in higher than normal average selling prices and gross profits per unit for the three and nine-month periods ended September 30, 2021.

Used vehicle revenue for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 increased ~~95.7%~~90.2% and ~~75.7%~~81.2%, respectively, compared to the same periods of ~~2020.~~2020, 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~~nine-month periods ended ~~June~~September 30, 2021 increased ~~48.8%~~39.9% and ~~40.6%~~40.3%, respectively, as compared to the same periods of 2020, driven by increases in our core vehicle category of ~~53.3%~~47.1% and ~~45.6%~~46.2%, respectively. Our core vehicle category had growth in unit sales of ~~26.2%~~19.5% and ~~26.0%~~23.6%, with improvements in average selling price per vehicle of ~~21.4%~~23.1% and ~~15.6%~~18.2%, respectively, for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021. Our ~~CPO and~~ value auto ~~vehicle categories~~vehicles also ~~had increases~~experienced strong demand with an increase in unit sales of ~~10.3%~~15.9% and ~~12.1%~~15.1% and increases in average selling prices of 25.0% and 21.9%, respectively, for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, compared to the same periods of 2020. Our CPO vehicle unit sales decreased 4.6% and increased 5.9%, respectively, for the three and nine-month periods ended September 30, 2021, as compared to the same periods of 2020. We continue to focus on procuring vehicles across the full spectrum of the addressable used vehicle market to provide customers with a wider selection, driving increased used vehicle unit volumes.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

~~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, increased ~~28.3%~~14.9%, or ~~$1,154~~$663, to ~~$5,237~~$5,121 and ~~25.9%~~21.2%, or ~~$954~~$841, to ~~$4,633~~$4,803 for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, respectively, as compared to the same periods of 2020.

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.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~The 115.9% and 89.7% increase in~~Total finance and insurance ~~revenue~~income increased 85.0% and 87.9% in the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, respectively, 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.~~2020. Same store finance and insurance revenues increased ~~50.0%~~22.1% and ~~39.8%~~32.9%, respectively, for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 compared to the same periods of ~~2020.~~2020, driven by increases in service contract revenue of 18.6% and 27.9%, respectively. On a same store basis, our finance and insurance revenue per retail unit increased ~~$219~~$362 to ~~$1,818~~$2,009 and ~~$171~~$230 to ~~$1,750~~$1,835 in the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, respectively, compared to the same periods of ~~2020, primarily due to an increase in service contract revenue per unit.~~2020.

Service, body and parts

We provide service, body and parts 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 are an integral part of our customer retention and the largest contributor to our overall profitability. Earnings from service, body and parts 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%~~60.9% and ~~52.8%~~55.8% in the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, respectively, compared to the same periods of 2020, 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~~nine-month periods ended ~~June~~September 30, 2021, the largest contribution to our service, body and parts revenue was same store customer pay revenue of ~~$205.9~~$223.2 million and ~~$388.0~~$611.3 million, respectively.

Same store service, body and parts gross profit increased ~~36.6%~~6.3% and ~~19.0%~~14.2% in the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, respectively, compared to the same periods of ~~2020 and increased 11.0% in same periods compared to 2019.~~2020. The ~~increase was~~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~~decreased 50 bps and ~~250~~increased 150 bps in the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, respectively, compared to the same periods of 2020, 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 was flat and increased ~~390 bps and 310~~180 bps in the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, respectively, compared to the same periods of 2020.

~~Segments~~

~~Certain financial information by segment is as follows:~~

Three Months Ended June 30, Increase % Increase
(in millions) 2021 2020
Revenues:
Domestic $ 1,889.4 $ 1,071.8 $ 817.6 76.3 %
Import 2,557.4 1,106.0 1,451.4 131.2
Luxury 1,559.2 581.7 977.5 168.0
6,006.0 2,759.5 3,246.5 117.6
Corporate and other 3.4 (0.9) 4.3 NM
$ 6,009.4 $ 2,758.6 $ 3,250.8 117.8 %

~~NM - not meaningful~~

MANAGEMENT’S DISCUSSION AND ANALYSIS

2325

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 %
Segments

Certain financial information by segment is as follows:


	Three Months Ended September 30,				Increase		% Increase
(in millions)	2021		2020
Revenues:
Domestic	$	1,819.2	$	1,214.7	$	604.5	49.8	%
Import	2,727.4		1,551.7		1,175.7		75.8
Luxury	1,595.1		849.7		745.4		87.7
	6,141.7		3,616.1		2,525.6		69.8
Corporate and other	28.1		4.1		24.0		NM
	$	6,169.8	$	3,620.2	$	2,549.6	70.4	%

NM - not meaningful


	Nine Months Ended September 30,				Increase		% Increase
(in millions)	2021		2020
Revenues:
Domestic	$	5,018.5	$	3,286.9	$	1,731.6	52.7	%
Import	7,149.6		3,833.5		3,316.1		86.5
Luxury	4,325.8		2,049.5		2,276.3		111.1
	16,493.9		9,169.9		7,324.0		79.9
Corporate and other	28.3		12.6		15.7		NM
	$	16,522.2	$	9,182.5	$	7,339.7	79.9	%

NM - not meaningful


		Three Months Ended June 30,				Increase (Decrease)			% Increase (Decrease)			Three Months Ended September 30,				Increase (Decrease)		% Increase (Decrease)
(in millions)	(in millions)	2021		2020				(in millions)			2021		2020
Segment income1:	Segment income1:											Segment income1:
Domestic	Domestic	$	138.1	$	59.4	$	78.7		132.5	%	Domestic	$	123.6	$	81.1	$	42.5	52.4	%
Import	Import	216.3		48.8		167.5			343.2		Import	255.4		102.6		152.8		148.9
Luxury	Luxury	97.2		12.3		84.9			690.2		Luxury	108.5		39.2		69.3		176.8
		451.6		120.5		331.1			274.8			487.5		222.9		264.6		118.7
Corporate and other	Corporate and other	18.6		23.4		(4.8)			(20.5)		Corporate and other	22.8		33.5		(10.7)		(31.9)
		$	470.2	$	143.9	$	326.3		226.8			$	510.3	$	256.4	$	253.9	99.0


		Six Months Ended June 30,				Increase (Decrease)			% Increase (Decrease)			Nine Months Ended September 30,				Increase (Decrease)		% Increase (Decrease)
(in millions)	(in millions)	2021		2020				(in millions)			2021		2020
Segment income1:	Segment income1:											Segment income1:
Domestic	Domestic	$	212.0	$	87.2	$	124.8		143.1	%	Domestic	$	335.6	$	168.3	$	167.3	99.4	%
Import	Import	317.8		73.6		244.2			331.8		Import	573.2		176.2		397.0		225.3
Luxury	Luxury	141.3		13.9		127.4			916.5		Luxury	249.8		53.1		196.7		370.4
		671.1		174.7		496.4			284.1			1,158.6		397.6		761.0		191.4
Corporate and other	Corporate and other	57.4		70.1		(12.7)			(18.1)		Corporate and other	80.1		103.5		(23.4)		(22.6)
		$	728.5	$	244.8	$	483.7		197.6			$	1,238.7	$	501.1	$	737.6	147.2

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 910 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~~


	Three Months Ended September 30,		Increase (Decrease)	% Increase
	2021	2020
Retail new vehicle unit sales:
Domestic	15,171	13,319	1,852	13.9	%
Import	39,645	26,633	13,012	48.9
Luxury	12,096	8,139	3,957	48.6
	66,912	48,091	18,821	39.1
Allocated to management	(18)	(168)	(150)	NM
	66,894	47,923	18,971	39.6	%

NM – Not meaningful


	Nine Months Ended September 30,		Increase	% Increase
	2021	2020
Retail new vehicle unit sales:
Domestic	47,227	34,834	12,393	35.6	%
Import	112,303	65,117	47,186	72.5
Luxury	36,718	19,048	17,670	92.8
	196,248	118,999	77,249	64.9
Allocated to management	(314)	(300)	14	NM
	195,934	118,699	77,235	65.1	%

NM – Not meaningful

Domestic

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


		Three Months Ended June 30,				Increase			% Increase			Three Months Ended September 30,				Increase		% Increase
($ in millions)	($ in millions)	2021		2020				($ in millions)			2021		2020
Revenue:	Revenue:											Revenue:
New vehicle retail	New vehicle retail	$	839.2	$	297.2	$	542.0		182.4	%	New vehicle retail	$	766.1	$	621.3	$	144.8	23.3	%
Used vehicle retail	Used vehicle retail	448.4		189.5		258.9			136.6		Used vehicle retail	699.7		378.8		320.9		84.7
Used vehicle wholesale	Used vehicle wholesale	59.3		11.3		48.0			424.8		Used vehicle wholesale	74.5		31.9		42.6		133.5
Finance and insurance	Finance and insurance	52.6		17.7		34.9			197.2		Finance and insurance	80.5		53.2		27.3		51.3
Service, body and parts	Service, body and parts	150.1		65.4		84.7			129.5		Service, body and parts	170.2		118.0		52.2		44.2
Fleet and other	Fleet and other	9.6		0.6		9.0			NM		Fleet and other	28.2		11.5		16.7		NM
		$	1,559.2	$	581.7	$	977.5		168.0			$	1,819.2	$	1,214.7	$	604.5	49.8
Segment income	Segment income	$	97.2	$	12.3	$	84.9		690.2		Segment income	$	123.6	$	81.1	$	42.5	52.4
Retail new vehicle unit sales	Retail new vehicle unit sales	14,127		5,418		8,709			160.7		Retail new vehicle unit sales	15,171		13,319		1,852		13.9	%

NM - not meaningful


	Nine Months Ended September 30,				Increase		% Increase
($ in millions)	2021		2020
Revenue:
New vehicle retail	$	2,305.3	$	1,591.0	$	714.3	44.9	%
Used vehicle retail	1,803.7		1,096.4		707.3		64.5
Used vehicle wholesale	174.4		77.7		96.7		124.5
Finance and insurance	217.7		149.2		68.5		45.9
Service, body and parts	450.0		337.5		112.5		33.3
Fleet and other	67.4		35.1		32.3		NM
	$	5,018.5	$	3,286.9	$	1,731.6	52.7
Segment income	$	335.6	$	168.3	$	167.3	99.4
Retail new vehicle unit sales	47,227		34,834		12,393		35.6	%

NM - not meaningful

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 %

~~NM - not meaningful~~

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.

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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Our Domestic segment revenue increased 49.8% and 52.7% in the three and nine-month periods ended September 30, 2021, respectively, compared to the same periods of 2020, driven by increases across all business lines. The acquisition of 14 stores in 2021 was the primary contributor to these increases.

Our Domestic segment income increased 52.4% and 99.4% in the three and nine-month periods ended September 30, 2021, respectively, compared to the same periods of 2020, primarily due to gross profit growth of 46.3% and 56.6%, respectively. Total Domestic SG&A as a percentage of gross profit decreased from 60.1% to 59.4% and from 65.7% to 59.7% for the three and nine-month periods ended September 30, 2021, compared to the same periods of 2020. The decreases for the three and nine-month periods ended September 30, 2021 were primarily driven by increased gross profit without proportional increases in all SG&A costs. In addition, floor plan interest expense for Domestic stores was relatively flat and decreased 23.6% for the three and nine-month periods ended September 30, 2021, respectively, compared to the same periods of 2020, primarily due to lower inventory levels.

Import

A summary of financial information for our Import segment follows:


	Three Months Ended September 30,				Increase (Decrease)		% Increase
($ in millions)	2021		2020
Revenue:
New vehicle retail	$	1,376.9	$	823.7	$	553.2	67.2	%
Used vehicle retail	847.9		452.2		395.7		87.5
Used vehicle wholesale	99.5		42.2		57.3		135.8
Finance and insurance	162.9		81.2		81.7		100.6
Service, body and parts	235.3		141.3		94.0		66.5
Fleet and other	4.9		11.1		(6.2)		NM
	$	2,727.4	$	1,551.7	$	1,175.7	75.8
Segment income	$	255.4	$	102.6	$	152.8	148.9
Retail new vehicle unit sales	39,645		26,633		13,012		48.9	%

NM - not meaningful


	Nine Months Ended September 30,				Increase		% Increase
($ in millions)	2021		2020
Revenue:
New vehicle retail	$	3,730.7	$	1,996.6	$	1,734.1	86.9	%
Used vehicle retail	2,127.8		1,152.8		975.0		84.6
Used vehicle wholesale	247.8		88.7		159.1		179.4
Finance and insurance	408.9		195.1		213.8		109.6
Service, body and parts	596.9		371.4		225.5		60.7
Fleet and other	37.5		28.9		8.6		NM
	$	7,149.6	$	3,833.5	$	3,316.1	86.5
Segment income	$	573.2	$	176.2	$	397.0	225.3

Retail new vehicle unit sales	112,303		65,117		47,186		72.5	%

NM - not meaningful

Our Import segment revenue increased 75.8% and 86.5% in the three and nine-month periods ended September 30, 2021, respectively, compared to the same periods of 2020, driven by increases in all business lines. The acquisition of 30 stores in 2021 was the primary contributor to these increases.

Our Import segment income increased 148.9% and 225.3% in the three and nine-month periods ended September 30, 2021 compared to the same periods of 2020, due to gross profit growth of 101.6% and 106.7%, respectively. Total Import SG&A as a percentage of gross profit decreased from 62.8% to 55.6% and from 71.2% to 58.3% for the three and nine-month periods ended September 30, 2021, respectively, compared to the same periods of 2020. The decreases for the three and nine-month periods ended September 30, 2021 were primarily driven by increased gross profit without proportional increases in all SG&A costs. Floor plan interest expense for

MANAGEMENT’S DISCUSSION AND ANALYSIS

Import stores increased in both the three and nine-month periods ended September 30, 2021 compared to the same periods of 2020, primarily due to increased inventory levels from acquisitions.

Luxury

A summary of financial information for our Luxury segment follows:


	Three Months Ended September 30,				Increase		% Increase
($ in millions)	2021		2020
Revenue:
New vehicle retail	$	750.9	$	440.0	$	310.9	70.7	%
Used vehicle retail	530.3		261.6		268.7		102.7
Used vehicle wholesale	72.8		24.7		48.1		194.7
Finance and insurance	56.1		25.5		30.6		120.0
Service, body and parts	162.8		96.0		66.8		69.6
Fleet and other	22.2		1.9		20.3		NM
	$	1,595.1	$	849.7	$	745.4	87.7
Segment income	$	108.5	$	39.2	$	69.3	176.8
Retail new vehicle unit sales	12,096		8,139		3,957		48.6	%

NM - not meaningful


	Nine Months Ended September 30,				Increase		% Increase
($ in millions)	2021		2020
Revenue:
New vehicle retail	$	2,204.1	$	1,038.2	$	1,165.9	112.3	%
Used vehicle retail	1,309.9		642.2		667.7		104.0
Used vehicle wholesale	171.9		50.2		121.7		242.4
Finance and insurance	145.7		60.1		85.6		142.4
Service, body and parts	434.7		244.8		189.9		77.6
Fleet and other	59.5		14.0		45.5		NM
	$	4,325.8	$	2,049.5	$	2,276.3	111.1
Segment income	$	249.8	$	53.1	$	196.7	370.4
Retail new vehicle unit sales	36,718		19,048		17,670		92.8	%

NM - not meaningful

Our Luxury segment revenue increased 87.7% and 111.1% in the three and nine-month periods ended September 30, 2021, respectively, compared to the same periods of 2020, driven by increases in all business lines. The acquisition of 27 stores in 2021 was the primary contributor to these increases.

Our Luxury segment income increased 176.8% and 370.4% for the three and nine-month periods ended September 30, 2021 compared to the same periods of 2020, due to gross profit growth of 103.7% and 122.7%, respectively. Total Luxury SG&A as a percentage of gross profit decreased from 68.5% to 59.6% and from 78.2% to 62.6% for the three and nine-month periods ended September 30, 2021 compared to the same periods of 2020. The decreases for the three and nine-month periods ended September 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 18.4% and was flat for the three and nine-month periods ended September 30, 2021, respectively, compared to the same periods of 2020, primarily due to increased inventory from acquisitions.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Corporate and Other

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


		Three Months Ended June 30,				Increase (Decrease)				% Decrease				Three Months Ended September 30,						Increase (Decrease)			% Decrease
(in millions)	(in millions)	2021		2020				(in millions)				2021			2020
Revenue, net	Revenue, net	$	3.4	$	(0.9)			$	4.3				NM	Revenue, net		$	28.1		$	4.1		$	24.0		NM
Segment income	Segment income	$	18.6	$	23.4	$	(4.8)			(20.5)	%	Segment income		$	22.8		$	33.5		$	(10.7)		(31.9)	%

NM - not meaningful


		Six Months Ended June 30,				Decrease				% Decrease				Nine Months Ended September 30,						Increase (Decrease)			% Decrease
(in millions)	(in millions)	2021		2020				(in millions)				2021			2020
Revenue, net	Revenue, net	$	0.3	$	8.5			$	(8.2)				NM	Revenue, net		$	28.3		$	12.6		$	15.7		NM
Segment income	Segment income	$	57.4	$	70.1	$	(12.7)			(18.1)	%	Segment income		$	80.1		$	103.5		$	(23.4)		(22.6)	%

NM - not meaningful

The changes in Corporate and other revenue in the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 compared to the same periods of 2020 were primarily related to 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 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~~$10.7 million and ~~$12.7~~$23.4 million for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, respectively, compared to the same periods of 2020, primarily due to decreases in internal floor plan financing charges received from dealerships and increases in internal finance reserve paid to dealerships.

Asset Impairments

Asset impairments consist of the following:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)	2021		2020		2021		2020

Franchise value	Franchise value	$	—	$	4.4	$	—	$	4.4	Franchise value	$	1.9	$	—	$	1.9	$	4.4
Goodwill	Goodwill	—		3.5		—		3.5		Goodwill	—		—		—		3.5
		$	—	$	7.9	$	—	$	7.9		$	1.9	$	—	$	1.9	$	7.9

NoDuring the third quarter of 2021, we recognized asset impairments ~~have been recognized in 2021.~~of $1.9 million related to the franchise value associated with certain dealership locations. See Note 5 and Note 7 of the Condensed Notes to the Consolidated Financial Statements for additional information.

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 78 of the Condensed Notes to the Consolidated Financial Statements for additional information.

MANAGEMENT’S DISCUSSION AND ANALYSIS

2830

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 September 30,						Increase (Decrease)			% Increase
(in millions)	(in millions)	2021		2020				(in millions)				2021				2020
Personnel	Personnel	$	452.6	$	203.7			$	248.9				122.2	%	Personnel		$	475.4		$	271.1		$	204.3		75.4	%
Advertising	Advertising	38.4		17.6		20.8				118.2		Advertising			46.4			24.0			22.4			93.3
Rent	Rent	12.3		9.8		2.5				25.5		Rent			14.3			10.6			3.7			34.9
Facility costs1	Facility costs1	27.4		17.8		9.6				53.9		Facility costs1			31.2			19.8			11.4			57.6
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			(2.6)			(0.2)			(2.4)			NM
Other	Other	98.9		57.4		41.5				72.3		Other			108.6			63.8			44.8			70.2
Total SG&A	Total SG&A	$	634.0	$	304.5	$	329.5			108.2	%	Total SG&A			$	673.3		$	389.1		$	284.2		73.0	%

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 September 30,				Increase (Decrease)
As a % of gross profit	As a % of gross profit	2021		2020				As a % of gross profit	2021		2020
Personnel	Personnel	40.8	%	43.9	%	(310)	bps	Personnel	40.0	%	41.6	%	(160)	bps
Advertising	Advertising	3.5		3.8		(30)		Advertising	3.9		3.7		20
Rent	Rent	1.1		2.1		(100)		Rent	1.2		1.6		(40)
Facility costs	Facility costs	2.5		3.8		(130)		Facility costs	2.6		3.0		(40)
Loss (gain) on sale of assets	Loss (gain) on sale of assets	0.4		(0.4)		80		Loss (gain) on sale of assets	(0.2)		—		(20)
Other	Other	8.8		12.4		(360)		Other	9.1		9.8		(70)
Total SG&A	Total SG&A	57.1	%	65.6	%	(850)	bps	Total SG&A	56.6	%	59.7	%	(310)	bps


		Six Months Ended June 30,				Increase				% Increase					Nine Months Ended September 30,						Increase			% Increase
(in millions)	(in millions)	2021		2020				(in millions)				2021				2020
Personnel	Personnel	$	766.7	$	432.2			$	334.5				77.4	%	Personnel		$	1,242.0		$	703.3		$	538.7		76.6	%
Advertising	Advertising	67.9		45.3		22.6				49.9		Advertising			114.3			69.2			45.1			65.2
Rent	Rent	23.6		19.9		3.7				18.6		Rent			37.9			30.5			7.4			24.3
Facility costs1	Facility costs1	51.7		37.9		13.8				36.4		Facility costs1			82.9			57.7			25.2			43.7
Loss (gain) on sale of assets	Loss (gain) on sale of assets	5.4		(1.7)		7.1				NM		Loss (gain) on sale of assets			2.8			(1.8)			4.6			NM
Other	Other	168.9		116.9		52.0				44.5		Other			277.7			180.7			97.0			53.7
Total SG&A	Total SG&A	$	1,084.2	$	650.5	$	433.7			66.7	%	Total SG&A			$	1,757.6		$	1,039.6		$	718.0		69.1	%

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)			Nine Months Ended September 30,				Increase (Decrease)
As a % of gross profit	As a % of gross profit	2021		2020				As a % of gross profit	2021		2020
Personnel	Personnel	42.0	%	46.7	%	(470)	bps	Personnel	41.2	%	44.6	%	(340)	bps
Advertising	Advertising	3.7		4.9		(120)		Advertising	3.8		4.4		(60)
Rent	Rent	1.3		2.2		(90)		Rent	1.3		1.9		(60)
Facility costs	Facility costs	2.8		4.1		(130)		Facility costs	2.7		3.7		(100)
Loss (gain) on sale of assets	Loss (gain) on sale of assets	0.3		(0.2)		50		Loss (gain) on sale of assets	0.1		(0.1)		20
Other	Other	9.3		12.6		(330)		Other	9.2		11.4		(220)
Total SG&A	Total SG&A	59.4	%	70.3	%	(1,090)	bps	Total SG&A	58.3	%	65.9	%	(760)	bps

SG&A as a percentage of gross profit was ~~57.1%~~56.6% and ~~59.4%~~58.3% for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 compared to ~~65.6%~~59.7% and ~~70.3%~~65.9% for the same periods of 2020. SG&A expense increased ~~108.2%~~73.0% and ~~66.7%~~69.1% in the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 compared to the same periods of 2020. Overall, SG&A expense increased in all areas, primarily ~~due to increased personnel costs~~ as a result of our network expansion in ~~2021 with the remainder of costs seeing minimal increases in the three and six-month periods ended June 30, 2021 compared to~~2021. However, as

MANAGEMENT’S DISCUSSION AND ANALYSIS

2931

~~the same periods~~a percentage of ~~2020. Our performance-based culture is geared towards an incentive-based compensation structure for the majority~~gross profit we experienced improvements in all areas of ~~personnel. This approach allows us~~SG&A due in part to ~~maintain a responsive~~increased gross profits as well as continuing to focus on our cost ~~structure in relation to fluctuations in vehicle sales and service volumes and general economic conditions.~~structure.

On a same store basis and excluding non-core charges, SG&A as a percentage of gross profit was ~~57.0%~~57.7% and ~~59.9%~~59.1% for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 compared to ~~64.2%~~59.3% and ~~69.0%~~65.0% for the same periods of 2020. The decreases for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 were primarily related to increased gross profit without proportionate increases in SG&A costs.


		Three Months Ended June 30,				Increase				% Increase					Three Months Ended September 30,						Increase (Decrease)			% Increase
(in millions)	(in millions)	2021		2020				(in millions)				2021				2020
Personnel	Personnel	$	452.6	$	203.7			$	248.9				122.2	%	Personnel		$	475.4		$	271.1		$	204.3		75.4	%
Advertising	Advertising	38.4		17.6		20.8				118.2		Advertising			46.4			24.0			22.4			93.3
Rent	Rent	12.3		9.8		2.5				25.5		Rent			14.3			10.6			3.7			34.9
Facility costs1	Facility costs1	27.4		17.8		9.6				53.9		Facility costs1			31.2			19.8			11.4			57.6
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			(2.6)			(0.2)			(2.4)			NM
Adjusted other	Adjusted other	87.7		51.8		35.9				69.3		Adjusted other			98.9			62.9			36.0			57.2
Adjusted total SG&A	Adjusted total SG&A	$	618.3	$	300.3	$	318.0			105.9	%	Adjusted total SG&A			$	663.6		$	388.2		$	275.4		70.9	%

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


		Three Months Ended June 30,				Increase (Decrease)			Three Months Ended September 30,				Increase (Decrease)
As a % of gross profit	As a % of gross profit	2021		2020				As a % of gross profit	2021		2020
Personnel	Personnel	40.8	%	43.9	%	(310)	bps	Personnel	40.0	%	41.6	%	(160)	bps
Advertising	Advertising	3.5		3.8		(30)		Advertising	3.9		3.7		20
Rent	Rent	1.1		2.1		(100)		Rent	1.2		1.6		(40)
Facility costs	Facility costs	2.5		3.8		(130)		Facility costs	2.6		3.0		(40)
Adjusted gain on sale of assets	Adjusted gain on sale of assets	—		(0.1)		10		Adjusted gain on sale of assets	(0.2)		—		(20)
Adjusted other	Adjusted other	7.8		11.2		(340)		Adjusted other	8.3		9.7		(140)
Adjusted total SG&A	Adjusted total SG&A	55.7	%	64.7	%	(900)	bps	Adjusted total SG&A	55.8	%	59.6	%	(380)	bps

MANAGEMENT’S DISCUSSION AND ANALYSIS

3032

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


		Six Months Ended June 30,				Increase				% Increase					Nine Months Ended September 30,						Increase (Decrease)			% Increase
(in millions)	(in millions)	2021		2020				(in millions)				2021				2020
Personnel	Personnel	$	766.7	$	432.2			$	334.5				77.4	%	Personnel		$	1,242.0		$	703.3		$	538.7		76.6	%
Advertising	Advertising	67.9		45.3		22.6				49.9	%	Advertising			114.3			69.2			45.1			65.2	%
Rent	Rent	23.6		19.9		3.7				18.6	%	Rent			37.9			30.5			7.4			24.3	%
Facility costs1	Facility costs1	51.7		37.9		13.8				36.4	%	Facility costs1			82.9			57.7			25.2			43.7	%
Adjusted loss (gain) on sale of assets	Adjusted loss (gain) on sale of assets	0.2		(0.2)		0.4				NM		Adjusted loss (gain) on sale of assets			(2.4)			(0.4)			(2.0)			NM
Adjusted other	Adjusted other	155.7		110.0		45.7				41.5	%	Adjusted other			254.8			173.0			81.8			47.3	%
Adjusted total SG&A	Adjusted total SG&A	$	1,065.8	$	645.1	$	420.7			65.2	%	Adjusted total SG&A			$	1,729.5		$	1,033.3		$	696.2		67.4	%

1 Includes variable lease costs related to the reimbursement of actual costs incurred by our lessors for common area maintenance, property taxes and insurance on leased property.

NM - not meaningful


		Six Months Ended June 30,				Decrease			Nine Months Ended September 30,				Decrease
As a % of gross profit	As a % of gross profit	2021		2020				As a % of gross profit	2021		2020
Personnel	Personnel	42.0	%	46.7	%	(470)	bps	Personnel	41.2	%	44.6	%	(340)	bps
Advertising	Advertising	3.7		4.9		(120)		Advertising	3.8		4.4		(60)
Rent	Rent	1.3		2.2		(90)		Rent	1.3		1.9		(60)
Facility costs	Facility costs	2.8		4.1		(130)		Facility costs	2.7		3.7		(100)
Adjusted loss on sale of assets	Adjusted loss on sale of assets	—		—		—		Adjusted loss on sale of assets	(0.1)		—		(10)
Adjusted other	Adjusted other	8.6		11.8		(320)		Adjusted other	8.5		10.9		(240)
Adjusted total SG&A	Adjusted total SG&A	58.4	%	69.7	%	(1,130)	bps	Adjusted total SG&A	57.4	%	65.5	%	(810)	bps

Adjusted SG&A for the three-month period ended ~~June~~September 30, 2021 excludes ~~$0.8~~$3.4 million in storm insurance reserve charges, ~~$10.4~~and $6.3 million in acquisition-related ~~expenses, and a $4.5 million net loss on store disposals.~~expenses. For the ~~six-months~~nine-months ended ~~June~~September 30, 2021, Adjusted SG&A excludes ~~$1.6~~$5.0 million in storm insurance reserve charges, ~~$11.6~~$17.9 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~~September 30, 2020 excludes ~~$5.0~~$0.3 million in storm insurance reserve charges ~~$0.5~~and $0.6 million in acquisition-related ~~expenses, and a $1.3 million net gain on store disposals.~~expenses. For the ~~six-months~~nine-months ended ~~June~~September 30, 2020, Adjusted SG&A excludes ~~$5.8~~$6.1 million in storm insurance reserve charges, ~~$1.0~~$1.6 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 September 30,					Increase		% Increase
(in millions)	(in millions)	2021		2020			(in millions)			2021				2020
Depreciation and amortization	Depreciation and amortization	$	30.3	$	22.3		$	8.0			35.9	%	Depreciation and amortization		$	34.4	$	22.9	$	11.5	50.2	%


		Six Months Ended June 30,				Increase			% Increase				Nine Months Ended September 30,					Increase		% Increase
(in millions)	(in millions)	2021		2020			(in millions)			2021				2020
Depreciation and amortization	Depreciation and amortization	$	57.2	$	44.3		$	12.9			29.1	%	Depreciation and amortization		$	91.5	$	67.3	$	24.2	36.0	%

Acquisition activity contributed to the increase in depreciation and amortization in 2021 compared to 2020. We acquired approximately ~~$640~~$800 million of depreciable property as part of our acquisition activity over the last twelve months ending ~~June~~September 30, 2021. For the ~~six-months~~nine-months ended ~~June~~September 30, 2021, we invested ~~$113.0~~$194.1 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.~~nine-month

MANAGEMENT’S DISCUSSION AND ANALYSIS

3133

periods ended September 30, 2021. 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 September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Operating margin	Operating margin	7.4	%	4.7	%	6.6	%	4.0	%	Operating margin	7.8	%	6.6	%	7.0	%	5.0	%
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	8.0	%	6.6	%	7.2	%	5.2	%

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

Operating margins increased ~~270~~120 bps and ~~260~~200 bps in the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 compared to the same periods in 2020. The increases in operating margins for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 were primarily due to increased gross profit of ~~139.1%~~82.5% and ~~97.4%~~91.2%, respectively, with offsetting increases to SG&A of ~~108.2%~~73.0% and ~~66.7%~~69.1%, respectively, compared to the same periods in 2020.

Floor Plan Interest Expense and Floor Plan Assistance


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	(in millions)	2021		2020		% Change		2021		2020		% Change		(in millions)	2021		2020		% Change		2021		2020		% 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)	$	3.6	$	6.1	(41.0)	%	$	17.0	$	28.3	(39.9)	%

Floor plan interest expense decreased ~~$1.7~~$2.5 million and ~~$8.8~~$11.3 million in the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, respectively, 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~~These decreases are due primarily to ~~the same period of 2020, includes a 41.6% decrease~~lower inventory levels related to ~~same store inventory levels, a 6.1% increase related to increased~~scarcity of new and used vehicles, 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 September 30,						%
(in millions)	(in millions)	2021		2020		Change		Change		(in millions)	2021		2020		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)	$	3.6	$	6.1	$	(2.5)	(41.0)	%
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)	(30.4)		(19.8)		(10.6)		53.5
Net new vehicle carrying costs	Net new vehicle carrying costs	$	(28.4)	$	(6.7)	$	(21.7)	NM		Net new vehicle carrying costs	$	(26.8)	$	(13.7)	$	(13.1)	NM

NM - not meaningful


		Six Months Ended June 30,						%			Nine Months Ended September 30,						%
(in millions)	(in millions)	2021		2020		Change		Change		(in millions)	2021		2020		Change		Change
Floor plan interest expense (new vehicles)	Floor plan interest expense (new vehicles)	$	13.3	$	22.1	$	(8.8)	(39.8)	%	Floor plan interest expense (new vehicles)	$	17.0	$	28.3	$	(11.3)	(39.9)	%
Floor plan assistance (included as an offset to cost of sales)	Floor plan assistance (included as an offset to cost of sales)	(59.7)		(29.7)		(30.0)		101.0		Floor plan assistance (included as an offset to cost of sales)	(90.0)		(49.5)		(40.5)		81.8
Net new vehicle carrying costs	Net new vehicle carrying costs	$	(46.4)	$	(7.6)	$	(38.8)	NM		Net new vehicle carrying costs	$	(73.0)	$	(21.2)	$	(51.8)	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				Three Months Ended September 30,						Increase (Decrease)			% Increase (Decrease)
(in millions)	(in millions)	2021		2020				(in millions)				2021			2020
Mortgage interest	Mortgage interest	$	6.5	$	6.1			$	0.4				6.6	Mortgage interest		$	6.1		$	6.3		$	(0.2)		(3.2)
Other interest	Other interest	22.1		11.1		11.0				99.1		Other interest		22.5			10.7			11.8			110.3
Capitalized interest	Capitalized interest	(0.5)		(0.4)		0.1				NM		Capitalized interest		(0.6)			(0.4)			0.2			NM
Total other interest expense	Total other interest expense	$	28.1	$	16.8	$	11.3			67.3	%	Total other interest expense		$	28.0		$	16.6		$	11.4		68.7	%

NM - not meaningful


		Six Months Ended June 30,				Increase				% Increase					Nine Months Ended September 30,						Increase			% Increase
(in millions)	(in millions)	2021		2020				(in millions)				2021				2020
Mortgage interest	Mortgage interest	$	13.3	$	12.7			$	0.6				4.7	%	Mortgage interest		$	19.4		$	19.0		$	0.4		2.1	%
Other interest	Other interest	39.2		21.9		17.3				79.0		Other interest			61.7			32.6			29.1			89.3
Capitalized interest	Capitalized interest	(0.9)		(0.8)		0.1				NM		Capitalized interest			(1.5)			(1.2)			0.3			NM
Total other interest expense	Total other interest expense	$	51.6	$	33.8	$	17.8			52.7	%	Total other interest expense			$	79.6		$	50.4		$	29.2		57.9	%

NM - not meaningful

Other interest expense for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 increased ~~$11.3~~$11.4 million and ~~$17.8~~$29.2 million, respectively, primarily related to the additional interest expense associated with the senior notes issued in ~~2020.~~October 2020 and May 2021.

Other Income, Net


	Three Months Ended September 30,				Decrease		% Decrease
(Dollars in millions)	2021		2020
Other Income (Expense), net	$	(25.7)	$	2.2	$	(27.9)	(1,268.2)	%


	Nine Months Ended September 30,				Decrease		% Decrease
(Dollars in millions)	2021		2020
Other Income (Expense), net	$	(14.6)	$	8.2	$	(22.8)	(278.0)	%

Other income, net in the three and nine-month periods ended September 30, 2020, was primarily related to a $10.3 million loss on extinguishment of debt associated with the redemption of our 5.250% senior notes due 2025 and a $25.2 million unrealized investment loss associated with the change in fair value of our investment in Shift Technologies, Inc.

Income Tax Provision

Our effective income tax rate was as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Effective income tax rate	Effective income tax rate	27.3	%	28.3	%	26.9	%	28.2	%	Effective income tax rate	26.8	%	27.5	%	26.9	%	27.8	%
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	26.7	%	27.5	%	26.8	%	28.0	%

Our effective income tax rate for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 was positively affected by excess tax benefits on stock awards vesting in the current period 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 estimate our annual effective income tax rate, excluding non-core charges, to be ~~27.5%~~27.0%.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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										Three Months Ended September 30, 2021
(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		Asset impairment		Investment loss		Insurance reserves		Acquisition expenses		Loss on redemption of senior notes		Adjusted

Asset impairment															Asset impairment	$	1.9	$	(1.9)	$	—	$	—	$	—	$	—	$	—
Selling, general and administrative	Selling, general and administrative	$	634.0	$	(4.5)	$	—	$	(0.8)	$	(10.4)		$	618.3	Selling, general and administrative	673.3		—		—		(3.4)		(6.3)		—		663.6
Operating income	Operating income	446.3		4.5		—		0.8		10.4			462.0		Operating income	479.5		1.9		—		3.4		6.3		—		491.1
Other income (expense)	Other income (expense)	7.6		—		(1.2)		—		—			6.4		Other income (expense)	(25.7)		—		23.2		—		—		10.3		7.8

Income before income taxes	Income before income taxes	$	419.4	$	4.5	$	(1.2)	$	0.8	10.4			$	433.9	Income before income taxes	$	422.2	$	1.9	$	23.2	$	3.4	6.3		10.3		$	467.3
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
Income tax provision															Income tax provision	(113.2)		(0.5)		(6.2)		(0.9)		(1.4)		(2.7)		(124.9)
Net income															Net income	309.0		1.4		17.0		2.5		4.9		7.6		342.4
Net income attributable to non-controlling interest															Net income attributable to non-controlling interest	(0.8)		—		—		—		—		—		(0.8)
Net income attributable to redeemable non-controlling interest															Net income attributable to redeemable non-controlling interest	$	(0.3)	—		—		—		—		—		$	(0.3)
Net income attributable to Lithia Motors, Inc.															Net income attributable to Lithia Motors, Inc.	$	307.9	$	1.4	$	17.0	$	2.5	$	4.9	$	7.6	$	341.3

Diluted net income (loss) per share		$	10.75	$	0.12	$	(0.03)	$	0.02	$	0.26		$	11.12
Diluted earnings per share attributable to Lithia Motors, Inc.															Diluted earnings per share attributable to Lithia Motors, Inc.	$	10.11	$	0.05	$	0.56	$	0.08	$	0.16	$	0.25	$	11.21
Diluted share count	Diluted share count	28.4													Diluted share count	30.5

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
(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 684.7 5.2 — 1.6 11.6 703.1
Other income (expense), 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) $ 461.1 $ 3.8 $ (0.7) $ 1.2 $ 8.5 $ 473.9
Diluted net income (loss) per share $ 16.69 $ 0.14 $ (0.03) $ 0.04 $ 0.31 $ 17.15
Diluted share count 27.6


	Three Months Ended September 30, 2020
(in millions, except per share amounts)	As reported		Insurance reserves		Acquisition expenses		Adjusted

Selling, general and administrative	$	389.1	$	(0.3)	$	(0.6)	$	388.2
Operating income (loss)	239.6		0.3		0.6		240.5


Income before income taxes	$	219.1	$	0.3	$	0.6	$	220.0
Income tax provision	(60.3)		—		(0.1)		(60.4)
Net income attributable to Lithia Motors, Inc.	$	158.8	$	0.3	$	0.5	$	159.6

Diluted earnings per share attributable to Lithia Motors, Inc.	$	6.86	$	0.01	$	0.02	$	6.89
Diluted share count	23.1

MANAGEMENT’S DISCUSSION AND ANALYSIS

3436

Six 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 650.5 1.4 — (5.8) (1.0) — 645.1
Operating income (loss) 222.6 (1.4) 7.9 5.8 1.0 — 235.9
Other income, net 5.8 — — — — — 5.8
Income (loss) before income taxes $ 172.5 $ (1.4) $ 7.9 $ 5.8 $ 1.0 $ — $ 185.8
Income tax (provision) benefit (48.6) 0.4 (2.3) (1.6) (0.3) (0.8) (53.2)
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
Diluted share count 23.3


	Nine Months Ended September 30, 2021
(in millions, except per share amounts)	As reported		Net disposal loss on sale of stores		Asset impairment		Investment loss		Insurance reserves		Acquisition expenses		Loss on redemption of senior notes		Adjusted
Asset impairment	$	1.9	$	—	$	(1.9)	$	—	$	—	$	—	$	—	$	—
Selling, general and administrative	1,757.6		(5.2)		—		—		(5.0)		(17.9)		—		1,729.5
Operating income	1,164.2		5.2		1.9		—		5.0		17.9		—		1,194.2
Other income (expense), net	(14.6)		—		—		22.3		—		—		10.3		18.0

Income before income taxes	$	1,053.0	$	5.2	$	1.9	$	22.3	$	5.0	$	17.9	10.3		$	1,115.6
Income tax provision	(282.9)		(1.4)		(0.5)		(6.0)		(1.4)		(4.5)		(2.7)		(299.4)
Net income	770.1		3.8		1.4		16.3		3.6		13.4		7.6		816.2
Net income attributable to non-controlling interest	(0.8)		—		—		—		—		—		—		(0.8)
Net income attributable to redeemable non-controlling interest	(0.3)		—		—		—		—		—		—		(0.3)
Net income attributable to Lithia Motors, Inc.	$	769.0	$	3.8	$	1.4	$	16.3	$	3.6	$	13.4	$	7.6	$	815.1

Diluted earnings per share attributable to Lithia Motors, Inc.	$	26.91	$	0.13	$	0.05	$	0.57	$	0.13	$	0.47	$	0.26	$	28.52
Diluted share count	28.6


	Nine Months Ended September 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	1,039.6		1.4		—		(6.1)		(1.6)		—		1,033.3
Operating income (loss)	462.1		(1.4)		7.9		6.1		1.6		—		476.3


Income (loss) before income taxes	$	391.6	$	(1.4)	$	7.9	$	6.1	$	1.6	$	—	$	405.8
Income tax (provision) benefit	(108.9)		0.4		(2.3)		(1.6)		(0.4)		(0.8)		(113.6)
Net income attributable to Lithia Motors, Inc.	$	282.7	$	(1.0)	$	5.6	$	4.5	$	1.2	$	(0.8)	$	292.2

Diluted earnings per share attributable to Lithia Motors, Inc.	$	12.18	$	(0.04)	$	0.24	$	0.19	$	0.05	$	(0.03)	$	12.59
Diluted share count	23.2

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 capital expenditures and 10% in shareholder return in the form of dividends and share repurchases.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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)	September 30, 2021		December 31, 2020		Change		% Change
Cash and cash equivalents	Cash and cash equivalents	$	780.9	$	160.2	$	620.7	387.5	%	Cash and cash equivalents	$	137.8	$	160.2	$	(22.4)	(14.0)	%

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	1,566.1		1,237.1		329.0		26.6
Total current available funds	Total current available funds	$	2,633.9	$	1,397.3	$	1,236.6	88.5	%	Total current available funds	$	1,703.9	$	1,397.3	$	306.6	21.9	%

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)			Nine Months Ended September 30,				Increase (Decrease)
(in millions)	(in millions)	2021		2020		in Cash Flow		(in millions)	2021		2020		in Cash Flow
Net cash provided by operating activities	Net cash provided by operating activities	$	1,263.5	$	790.0	$	473.5	Net cash provided by operating activities	$	1,989.2	$	800.6	$	1,188.6
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	(2,563.1)		(728.3)		(1,834.8)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	1,178.3		(586.6)		1,764.9		Net cash provided by (used in) financing activities	550.7		(99.2)		649.9

Operating Activities

Cash provided by operating activities for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 increased ~~$473.5~~$1,188.6 million compared to the same period of 2020, primarily related to increased net income, a decrease in inventories and an increase in borrowings on our floor plan notes payable, partially offset by ~~an increase~~increases in accounts receivable and other assets compared to the same period of 2020.

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)			Nine Months Ended September 30,				Increase (Decrease)
(in millions)	(in millions)	2021		2020		in Cash Flow		(in millions)	2021		2020		in Cash Flow
Net cash provided by operating activities – as reported	Net cash provided by operating activities – as reported	$	1,263.5	$	790.0	$	473.5	Net cash provided by operating activities – as reported	$	1,989.2	$	800.6	$	1,188.6
Less: Net repayments on floor plan notes payable, non-trade	Less: Net repayments on floor plan notes payable, non-trade	(571.6)		(456.8)		(114.8)		Less: Net repayments on floor plan notes payable, non-trade	(840.9)		(317.8)		(523.1)
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)		(249.2)		Less: Borrowings on floor plan notes payable, non-trade associated with acquired new vehicle inventory	(317.1)		(133.6)		(183.5)
Net cash provided by operating activities – adjusted	Net cash provided by operating activities – adjusted	$	420.4	$	310.9	$	109.5	Net cash provided by operating activities – adjusted	$	831.2	$	349.2	$	482.0

Investing Activities

Net cash used in investing activities totaled ~~$1,821.1~~$2,563.1 million and ~~$167.1~~$728.3 million, respectively, for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020.

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)			Nine Months Ended September 30,				Increase (Decrease)
(in millions)	(in millions)	2021		2020		in Cash Flow		(in millions)	2021		2020		in Cash Flow
Capital expenditures	Capital expenditures	$	(113.0)	$	(78.3)	$	(34.7)	Capital expenditures	$	(194.1)	$	(125.6)	$	(68.5)
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	(2,409.5)		(609.5)		(1,800.0)
Cash paid for other investments	Cash paid for other investments	(9.9)		(9.7)		(0.2)		Cash paid for other investments	(9.8)		(9.9)		0.1
Proceeds from sales of stores	Proceeds from sales of stores	43.7		11.6		32.1		Proceeds from sales of stores	45.7		11.6		34.1

Capital Expenditures

Below is a summary of our capital expenditure activities:


		Six Months Ended June 30,					Nine Months Ended September 30,
(in millions)	(in millions)	2021		2020		(in millions)	2021		2020
Post-acquisition capital improvements	Post-acquisition capital improvements	$	5.6	$	22.7	Post-acquisition capital improvements	$	14.7	$	26.4
Facilities for open points	Facilities for open points	12.3		0.5		Facilities for open points	14.1		—
Purchase of facilities for existing operations	Purchase of facilities for existing operations	22.2		11.5		Purchase of facilities for existing operations	23.6		29.6
Existing facility improvements	Existing facility improvements	37.9		19.2		Existing facility improvements	79.1		30.5
Maintenance	Maintenance	35.0		24.4		Maintenance	62.6		39.1
Total capital expenditures	Total capital expenditures	$	113.0	$	78.3	Total capital expenditures	$	194.1	$	125.6

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~~nine-month period ended ~~June~~September 30, 2021, compared to the same period of 2020 related primarily to higher existing facility 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,					Nine Months Ended September 30,
		2021		2020			2021		2020
Number of locations acquired	Number of locations acquired	55		4		Number of locations acquired	73		17

(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	$	(2,409.5)	$	(609.5)
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	317.1		133.6

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	$	(2,092.4)	$	(475.9)

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			Nine Months Ended September 30,				Increase
(in millions)	(in millions)	2021		2020		in Cash Flow		(in millions)	2021		2020		in Cash Flow
Cash provided by (used in) financing activities, as reported	Cash provided by (used in) financing activities, as reported	$	1,178.3	$	(586.6)	$	1,764.9	Cash provided by (used in) financing activities, as reported	$	550.7	$	(99.2)	$	649.9
Adjust: Repayments on floor plan notes payable: non-trade	Adjust: Repayments on floor plan notes payable: non-trade	571.6		456.8		114.8		Adjust: Repayments on floor plan notes payable: non-trade	840.9		317.8		523.1

Cash provided by (used in) financing activities – adjusted	Cash provided by (used in) financing activities – adjusted	$	1,749.9	$	(129.8)	$	1,879.7	Cash provided by (used in) financing activities – adjusted	$	1,391.6	$	218.6	$	1,173.0

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


		Six Months Ended June 30,				Increase (Decrease)			Nine Months Ended September 30,				Increase (Decrease)
(in millions)	(in millions)	2021		2020		in Cash Flow		(in millions)	2021		2020		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	$	10.9	$	255.5	$	(244.6)
Principal payments on long-term debt and capital leases, unscheduled	Principal payments on long-term debt and capital leases, unscheduled	(65.0)		(4.9)		(60.1)		Principal payments on long-term debt and capital leases, unscheduled	(483.6)		(6.3)		(477.3)
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	817.5		56.5		761.0
Repurchases of common stock	Repurchases of common stock	(15.9)		(50.5)		34.6		Repurchases of common stock	(15.9)		(50.6)		34.7
Dividends paid	Dividends paid	(17.5)		(13.8)		(3.7)		Dividends paid	(28.2)		(20.9)		(7.3)
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	1,127.9		9.2		1,118.7

Equity Transactions

On October 22, 2018, our Board of Directors authorized the repurchase of up to $250 million of our Class A common stock, increasing our total share repurchase authorization to $500 million. We repurchased a total of ~~54,251~~54,284 shares of our Class A common stock at an average price of ~~$292.91~~$292.97 per share in the first ~~six~~nine months of 2021, none of which were purchased as part of our repurchase authorization; all shares purchased were related to tax withholding on vesting RSUs. As of ~~June~~September 30, 2021, we had $187.5 million remaining available for repurchases and the authorization does not have an expiration date.

In the first nine 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
August 2021	$	0.35	$	10.6

We evaluate performance and make a recommendation to the Board of 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 September 30, 2021
(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	$	688.9	$	24.8	1
Floor plan notes payable	Floor plan notes payable	285.1		—			Floor plan notes payable	329.4		—
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	—		707.1		2
Revolving lines of credit	Revolving lines of credit	200.0		1,199.6		2, 3	Revolving lines of credit	404.8		834.2		2, 3
Real estate mortgages	Real estate mortgages	612.8		—			Real estate mortgages	606.0		—
Finance lease obligations	Finance lease obligations	170.2		—			Finance lease obligations	54.1		—
5.250% Senior notes due 2025	5.250% Senior notes due 2025	300.0		—			5.250% Senior notes due 2025	—		—
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	10.0		—
Unamortized debt issuance costs	Unamortized debt issuance costs	(27.2)		—		4	Unamortized debt issuance costs	(31.9)		—		4
Total debt	Total debt	$	4,260.0	$	1,853.0		Total debt	$	3,811.3	$	1,566.1

1 As of ~~June~~September 30, 2021, we had a $2.9 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~~August 31, 2021. This amount is reduced by ~~$20.4~~$22.8 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.

Credit Facility

On April 29, 2021, we amended our existing syndicated credit facility (credit facility), comprised of 20 financial institutions, including eight manufacturer-affiliated finance companies, extending the maturity date to April 2026.

This credit facility provides for a total financing commitment of $3.75 billion, which may be further expanded, subject to lender approval and the satisfaction of other conditions, up to a total of $4.25 billion. The initial allocation of the financing commitment is for up to $336 million in used vehicle inventory floorplan financing, up to $434 million in revolving financing for general corporate purposes, including acquisitions and working capital, up to $2.88 billion in new vehicle inventory floorplan financing, and up to $100 million in service loaner vehicle floorplan financing. We have the option to reallocate the commitments under this credit facility, provided that each of the used vehicle floor plan commitment and the aggregate revolving loan commitment may not be more than the 20% 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. 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~~

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% 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 our leverage ratio. The annual interest rates associated with our floor plan commitments are as follows:


Commitment			Annual Interest Rate at ~~June~~September 30, 2021
New vehicle floor plan			~~1.20%~~1.18%
Used vehicle floor plan			~~1.50%~~1.48%
Service loaner floor plan			~~1.30%~~1.28%
Revolving line of credit			~~1.10%~~1.08%

MANAGEMENT’S DISCUSSION AND ANALYSIS

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~~September 30, 2021

Current ratio

Not less than 1.10 to 1

~~1.68~~1.91 to 1

Fixed charge coverage ratio

Not less than 1.20 to 1

~~6.82~~6.91 to 1

Leverage ratio

Not more than 5.75 to 1

~~1.95~~1.51 to 1

As of ~~June~~September 30, 2021, 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~~September 30, 2021, ~~$285.1~~$329.4 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%~~5.63%. As of ~~June~~September 30, 2021, no amounts were outstanding on these other lines of credit.

On July 14, 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 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~~September 30, 2021, no amounts were outstanding on the real-estate backed facility.

On July 31, 2020, we entered into a securitization facility which provides initial commitments for borrowings of up to $300 million and matures in July 2022. As of ~~June~~September 30, 2021, we had ~~$200.0~~$275.0 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.

On April 12, 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

MANAGEMENT’S DISCUSSION AND ANALYSIS

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 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 Ally credit facility includes 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. As of ~~June~~September 30, 2021, no amounts were outstanding on the Ally credit facility.

On August 30, 2021, we entered into a credit agreement with The Bank of Nova Scotia. The credit agreement makes available three primary lines of credit including a working capital revolving credit facility of up to $50 million CAD, up to $300 million CAD floor plan financing for new and used vehicles; and $350 million CAD to provide wholesale lease financing. The credit facilities accrue interest at rates equal to the Lender’s 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 1.50% per annum. The credit agreement includes various financial and other covenants typical of such agreements. All indebtedness under this agreement is due on demand.

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

On ~~July~~August 1, 2021, we ~~notified holders that we have elected to redeem~~redeemed in full the aggregate $300 million principal amount of our 5.250% senior notes ~~outstanding on August 1, 2021~~due 2025 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% to 5.3% at ~~June~~September 30, 2021. The mortgages are payable in various installments through July 1, 2038. As of ~~June~~September 30, 2021, we had fixed interest rates on 70.4% of our outstanding mortgage debt.

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

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%~~5.0% at ~~June~~September 30, 2021. This debt is due in various installments through January 2031.

Recent Accounting Pronouncements

See Note 1314 of the Condensed Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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

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

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 Annual Report on Form 10-K, which was filed with the SEC on February 19, 2021. We have described in our 2020 Annual Report on Form 10-K, under “Risk Factors” in Item 1A, the primary risks related to our business and securities. We provide below the material changes to our risk factors described in that report.

Risks associated with our international operations may negatively affect our business, results of operations and financial condition.

We have operations outside the U.S., in Canada. In the third quarter of 2021, we acquired dealerships located in Canada. While our operations outside of the U.S. currently represent a small portion of our revenue, we anticipate that our international operations will expand. We face regulatory, operational, political and economic risks and uncertainties with respect to our international operations that may be different from those in the United States. These risks may include, but are not limited to, the following:

•fluctuations in foreign currency translations within our financial statements driven by exchange rate volatility;

•inability to obtain or preserve franchise rights in the foreign countries in which we operate;

•compliance with changing laws and regulations;

•compliance with U.S. Foreign Corrupt Practices Act and other anti-corruption laws;

•wage inflation;

•treatment of revenue from international sources and changes to tax rules, including being subject to foreign tax laws;

•difficulties in managing foreign operations and dealing with different customs, practices and local regulations with which we are less familiar;

•large uncertainties, timing delays and expenses associated with tariffs, labor matters, import or export licenses and other trade barriers; and

•changes in a country’s economic or political conditions, including inflation, recession and interest rate fluctuations, including uncertainties and instability in economic and market conditions caused by the COVID-19 pandemic.

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

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

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 — $ — — $ 187,522
May 33 384.38 — 187,522
June — — — 187,522
33 $ 384.38 — $ 187,522


	Total number of shares purchased2	Average price paid per share		Total number of shares purchased as part of publicly announced plans1	Maximum dollar value of shares that may yet be purchased under publicly announced plan (in thousands)1
July	—	$	—	—	$	187,522
August	33	377.22		—	187,522
September	—	—		—	187,522
	33	$	377.22	—	$	187,522

1 On October 22, 2018, our Board of Directors approved a $250 million repurchase authorization, increasing our total share repurchase authorization to $500 million. This authorization does not have an expiration date.

2 Of the shares repurchased in the ~~second~~third quarter of 2021, all 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~~Commitment Letter by The Bank ~~(Ally Capital in Hawaii, Mississippi, Montana and New Jersey)~~of Nova Scotia (incorporated by reference to exhibit 10.1 to the ~~Company’s~~Company's Form 8-K filed ~~April 15,~~September 3, 2021).*
10.2			~~Fourth Amended~~Form of Restricted Stock Unit Agreement (2021 Performance- and Restated Loan Agreement, dated April 29, 2021, 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 (incorporated by reference to exhibit 10.1 to the Company’s Form 8-K filed May 4, 2021).
~~10.3~~			Amended and Restated Loan Agreement, dated December 31, 2020, among SCFC Business Services LLC, Driveway Finance Corporation, the lenders party thereto from time to time, and JPMorgan Chase 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. (incorporated by reference to exhibit 10.2 to the Company’s Form 8-K filed June 9, 2021).Time-Vesting) (for Senior Executives)
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,~~October 27, 2021	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


	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
(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	684.7		5.2		—		1.6		11.6		703.1
Other income (expense), 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)	$	461.1	$	3.8	$	(0.7)	$	1.2	$	8.5	$	473.9

Diluted net income (loss) per share	$	16.69	$	0.14	$	(0.03)	$	0.04	$	0.31	$	17.15
Diluted share count	27.6


	Six 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	650.5		1.4		—		(5.8)		(1.0)		—		645.1
Operating income (loss)	222.6		(1.4)		7.9		5.8		1.0		—		235.9
Other income, net	5.8		—		—		—		—		—		5.8

Income (loss) before income taxes	$	172.5	$	(1.4)	$	7.9	$	5.8	$	1.0	$	—	$	185.8
Income tax (provision) benefit	(48.6)		0.4		(2.3)		(1.6)		(0.3)		(0.8)		(53.2)
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
Diluted share count	23.3