Lithia Reports Record Fourth Quarter and Full Year 2016 Results

MEDFORD, OR--(Marketwired - Feb 15, 2017) - Lithia Motors, Inc. (NYSE: LAD) today reported the highest fourth quarter and full year revenue and earnings per share in company history.

Fourth quarter 2016 net income per diluted share increased 13% to $2.03 from $1.80 for 2015. Adjusted net income per diluted share increased 7% to $1.86 from $1.74 for 2015. Fourth quarter 2016 net income increased 8% to $51.3 million from $47.7 million for 2015. Adjusted net income increased 2% to $46.9 million from $46.1 million for 2015.

As shown in the attached non-GAAP reconciliation tables, the fourth quarter 2016 adjusted results exclude a $0.17 non-core benefit related to an equity investment, an indemnified legal reserve and a tax attribute. The fourth quarter 2015 adjusted results exclude a $0.06 net non-core benefit related to an equity investment offset by an asset impairment.

Fourth quarter 2016 revenue increased 15% to $2.3 billion from $2.0 billion in 2015.

Fourth Quarter-over-Quarter Operating Highlights:

• Total same store sales increased 5%
• New vehicle same store sales increased 4%
• Used vehicle retail same store sales increased 11%
• Service, body and parts same store sales increased 7%
• Same store F&I per unit increased $108 to $1,295
• Adjusted SG&A expense as a percentage of gross profit was 70.1%

2016 net income per diluted share increased 12% to $7.72 from $6.91 for 2015. Adjusted net income per diluted share increased 6% to $7.42 from $7.02 for 2015. 2016 net income increased 8% to $197.1 million from $183.0 million for 2015. 2016 adjusted net income increased 2% to $189.5 million from $186.0 million for 2015.

As shown in the attached non-GAAP reconciliation tables, the 2016 adjusted results exclude a $0.30 net non-core benefit related to an equity investment, a disposal gain and a tax attribute offset by an indemnified legal reserve. The 2015 adjusted results exclude a $0.11 net non-core charge from an asset impairment and a transition agreement offset by an equity investment and a disposal gain.

Full year 2016 revenue increased 10% to $8.7 billion from $7.9 billion in 2015.

Full Year-over-Year Operating Highlights:

• Total same store sales increased 5%
• New vehicle same store sales increased 3%
• Used vehicle retail same store sales increased 11%
• Service, body and parts same store sales increased 9%
• Same store F&I per unit increased $94 to $1,291
• Adjusted SG&A expense as a percentage of gross profit was 68.9%

Bryan DeBoer, President and CEO, said, "We increased same store sales in all core business lines, including double digit growth in used vehicle sales and record performance in F&I. Our store leaders remain focused on capturing incremental used vehicle sales and driving additional service work. 60 locations attained record profitability in 2016, while significant opportunities remain in the roughly 90 stores that did not achieve record performance this year. We will continue to target gaining market share and controlling costs to improve store performance in 2017 and beyond."

Corporate Development
In 2016, we completed the acquisition of 15 stores: a Ford store in Honolulu, Hawaii; the Carbone Auto Group, a nine store platform based in New York and Vermont; a Subaru store in Riverside, California; a Toyota store in Milford, Massachusetts; a Ford store in Thousand Oaks, California; a Ford store in Casper, Wyoming and an Audi store in Calabasas, California. We also opened a Volkswagen store in Freehold, New Jersey. These stores are expected to add over $1.1 billion in annual revenues.

Commenting on the acquired stores, Bryan DeBoer said, "Our entrepreneurial culture allows our team to rapidly grow our store base through accretive acquisitions. Since 2010, when we completed our first acquisitions after the great recession, we have increased our store count from 85 locations to 154, and grown our revenue nearly four hundred percent, from $1.8 billion to $8.7 billion. During this time, we have diversified our brand mix, added metropolitan locations from coast to coast, and maintained our sector low leverage ratio. We remain optimistic that significant acquisition opportunities remain across the United States, and will continue to seek accretive purchases."

Balance Sheet Update
We ended the fourth quarter with approximately $50 million in cash and $138 million in availability under our credit facilities. Additionally, approximately $225 million of our operating real estate is currently unfinanced, which we estimate could provide $168 million in capital, for total potential liquidity of $356 million.

Dividend Payment and Share Repurchase
Our Board of Directors has approved a dividend of $0.25 per share related to fourth quarter 2016 financial results. We expect to pay the dividend on March 24, 2017 to shareholders of record on March 10, 2017.

In the fourth quarter 2016, we repurchased 47,250 shares at a weighted average price of $91.68 per share. In 2016, we deployed $113 million to repurchase 6% of our outstanding float or 1.4 million shares at a weighted average price of $80.24. Approximately $193 million remains available under our existing repurchase authorization.

2017 Earnings Guidance
We project 2017 full year earnings of $8.00 to $8.30 per diluted share. This projection is based on the following annual assumptions:

• Total revenue of $9.2 to $9.4 billion
• New vehicle same store sales increasing 1.5%
• New vehicle gross margin of 5.5% to 5.7%
• Used vehicle same store sales increasing 5.5%
• Used vehicle gross margin of 11.5% to 11.7%
• Service body and parts same store sales increasing 5.0%
• Service body and parts gross margin of 48.2% to 48.4%
• Finance and insurance gross profit of $1,270 to $1,295 per unit
• Tax rate of 39.5%
• Average diluted shares outstanding of 25.3 million

These projections exclude the impact of future acquisitions, dispositions and non-core items. Actual results may be affected by items described under Forward-Looking Statements below.

Fourth Quarter Earnings Conference Call and Updated Presentation
The fourth quarter conference call may be accessed at 10:00 a.m. ET today by telephone at 877-407-8029. An updated presentation highlighting the fourth quarter results has been added to our investor relations website.

To listen live on our website or for replay, visit www.lithiainvestorrelations.com and click on webcasts.

About Lithia
Lithia Motors, Inc. is one of the largest automotive retailers in the United States and is among the fastest growing companies in the Fortune 500. Lithia sells 30 brands of new vehicles and all brands of used vehicles at 154 stores in 17 states. Lithia also arranges finance, warranty, and credit insurance contracts. In addition, Lithia provides vehicle parts, maintenance and repair services at all of its locations.

Sites
www.lithiamotors.com
www.lithiainvestorrelations.com
www.lithiacareers.com

Lithia Motors on Facebook
www.facebook.com/LithiaMotors

Lithia Motors on Twitter
http://twitter.com/lithiamotors

Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of the "Safe-Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements include statements regarding our goals, plans, projections and guidance regarding our financial position, results of operations, market position, pending and potential future acquisitions and business strategy, and often contain words such as "project," "outlook," "expect," "anticipate," "intend," "plan," "believe," "estimate," "may," "seek," "would," "should," "likely," "goal," "strategy," "future," "maintain," "continue," "remain," "target" or "will" and similar references to future periods. Examples of forward-looking statements in this press release include, among others, statements regarding:

• Expected operating results, such as improved store efficiency and performance; generating 2017 full year earnings of $8.00 to $8.30 per diluted share and all projections set forth under the headings "2017 Earnings Guidance"; 
• Our ability to improve store performance;
• Anticipated acquisition opportunities and additions of dealership locations to our portfolio in the future, and our ability to achieve returns on investments;
• Anticipated revenues from acquired stores; and
• Anticipated availability of liquidity from our credit facility and unfinanced operating real estate.

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. Forward-looking statements are not guarantees of future performance, and our actual results of operations, financial condition and liquidity and development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements in this press release. The risks and uncertainties that could cause actual results to differ materially from estimated or projected results include, without limitation, future economic and financial conditions (both nationally and locally), changes in customer demand, our relationship with, and the financial and operational stability of, vehicle manufacturers and other suppliers, risks associated with our indebtedness (including available borrowing capacity, compliance with financial covenants and ability to refinance or repay indebtedness on favorable terms), government regulations, legislation and others set forth throughout "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and in "Part I, Item 1A. Risk Factors" of our most recent Annual Report on Form 10-K, and from time to time in our other filings with the SEC. We urge you to carefully consider this information and not place undue reliance on forward-looking statements. We undertake no duty to update our forward-looking statements, including our earnings outlook, which are made as of the date of this release.

Non-GAAP Financial Measures
This press release and the attached financial tables contain non-GAAP financial measures such as adjusted net income and diluted earnings per share, adjusted SG&A as a percentage of revenue and gross profit, adjusted operating margin, adjusted operating profit as a percentage of gross profit, and adjusted pre-tax margin. 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 present cash flows from operations in the attached tables, adjusted to include the change in non-trade floor plan debt to improve the visibility of cash flows related to vehicle financing. As required by SEC rules, we have reconciled these measures to the most directly comparable GAAP measures in the attachments to this release. We believe the non-GAAP financial measures we present improve the transparency of our disclosures; provide a meaningful presentation of our results from core business operations, because they exclude items not related to core business operations and other non-cash items; and improve the period-to-period comparability of our results from core business operations. These presentations should not be considered an alternative to GAAP measures.

Lithia Motors, Inc.
Consolidated Statements of Operations (Unaudited)
(In thousands except per share data)
			Three months ended												%
			December 31,								Increase				Increase
			2016				2015				(Decrease)				(Decrease)
Revenues:
New vehicle retail			$	1,335,833			$	1,167,893			$	167,940			14.4	%
Used vehicle retail				559,693				469,399				90,294			19.2
Used vehicle wholesale				69,485				63,054				6,431			10.2
Finance and insurance				84,532				69,318				15,214			21.9
Service, body and parts				228,417				193,024				35,393			18.3
Fleet and other				14,030				30,594				(16,564	)		(54.1	)
	Total revenues			2,291,990				1,993,282				298,708			15.0	%
Cost of sales:
New vehicle retail				1,261,892				1,095,796				166,096			15.2
Used vehicle retail				496,320				412,572				83,748			20.3
Used vehicle wholesale				69,406				62,744				6,662			10.6
Service, body and parts				117,194				98,241				18,953			19.3
Fleet and other				12,342				30,506				(18,164	)		(59.5	)
	Total cost of sales			1,957,154				1,699,859				257,295			15.1
Gross profit				334,836				293,423				41,413			14.1	%
Asset impairments				3,498				5,733				(2,235	)		(39.0	)
SG&A expense				236,824				200,219				36,605			18.3
Depreciation and amortization				12,997				11,056				1,941			17.6
Income from operations				81,517				76,415				5,102			6.7	%
Floor plan interest expense				(7,227	)			(5,279	)			1,948			36.9
Other interest expense				(6,599	)			(4,791	)			1,808			37.7
Other (expense) income, net				(1,569	)			25				1,594			NM
Income before income taxes				66,122				66,370				(248	)		(0.4	)%
Income tax expense				(14,803	)			(18,638	)			(3,835	)		(20.6	)
Income tax rate				22.4	%			28.1	%
Net income			$	51,319			$	47,732			$	3,587			7.5	%
Diluted net income per share:
Net income per share			$	2.03			$	1.80			$	0.23			12.8	%
Diluted shares outstanding				25,294				26,462				(1,168	)		(4.4	)%

NM - not meaningful

Lithia Motors, Inc.
Key Performance Metrics (Unaudited)
		Three months ended												%
		December 31,								Increase				Increase
		2016				2015				(Decrease)				(Decrease)
Gross margin
New vehicle retail			5.5	%			6.2	%			(70	)bps
Used vehicle retail			11.3				12.1				(80	)
Used vehicle wholesale			0.1				0.5				(40	)
Finance and insurance			100.0				100.0				-
Service, body and parts			48.7				49.1				(40	)
Fleet and other			12.0				0.3				1,170
Gross profit margin			14.6				14.7				(10	)
Unit sales
New vehicle retail			38,547				34,350				4,197			12.2	%
Used vehicle retail			28,715				24,010				4,705			19.6
Total retail units sold			67,262				58,360				8,902			15.3
Used vehicle wholesale			10,475				9,345				1,130			12.1
Average selling price
New vehicle retail		$	34,655			$	34,000			$	655			1.9	%
Used vehicle retail			19,491				19,550				(59	)		(0.3	)
Used vehicle wholesale			6,633				6,747				(114	)		(1.7	)
Average gross profit per unit
New vehicle retail		$	1,918			$	2,099			$	(181	)		(8.6	)%
Used vehicle retail			2,207				2,367				(160	)		(6.8	)
Used vehicle wholesale			8				33				(25	)		(75.8	)
Finance and insurance			1,257				1,188				69			5.8
Total vehicle(1)			3,299				3,402				(103	)		(3.0	)
Revenue mix
New vehicle retail			58.3	%			58.6	%
Used vehicle retail			24.4				23.5
Used vehicle wholesale			3.0				3.2
Finance and insurance, net			3.7				3.5
Service, body and parts			10.0				9.7
Fleet and other			0.6				1.5

		Adjusted						As reported
		Three months ended December 31,						Three months ended December 31,
Other metrics		2016			2015			2016			2015
SG&A as a % of revenue		10.2	%		10.0	%		10.3	%		10.0	%
SG&A as a % of gross profit		70.1			68.2			70.7			68.2
Operating profit as a % of revenue		3.8			4.1			3.6			3.8
Operating profit as a % of gross profit		26.0			28.0			24.3			26.0
Pretax margin		3.2			3.7			2.9			3.3
Net profit margin		2.0			2.3			2.2			2.4

(1) - includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail

Lithia Motors, Inc.
Same Store Operating Highlights (Unaudited)
		Three Months Ended December 31,								Increase				% Increase
		2016				2015				(Decrease)				(Decrease)
Revenues
New vehicle retail		$	1,212,572			$	1,164,172			$	48,400			4.2	%
Used vehicle retail			519,369				466,604				52,765			11.3
Used vehicle wholesale			60,835				62,828				(1,993	)		(3.2	)
Finance and insurance			79,169				69,033				10,136			14.7
Service, body and parts			205,110				191,858				13,252			6.9
Fleet and other			9,422				30,591				(21,169	)		(69.2	)
Total revenues		$	2,086,477			$	1,985,086			$	101,391			5.1
Gross profit
New vehicle retail		$	67,093			$	71,826			$	(4,733	)		(6.6	)%
Used vehicle retail			58,701				56,589				2,112			3.7
Used vehicle wholesale			115				339				(224	)		(66.1	)
Finance and insurance			79,169				69,033				10,136			14.7
Service, body and parts			101,294				94,243				7,051			7.5
Fleet and other			1,626				86				1,540			1,790.7
Total gross profit		$	307,998			$	292,116			$	15,882			5.4
Gross margin
New vehicle retail			5.5	%			6.2	%			(70	)bps
Used vehicle retail			11.3				12.1				(80	)
Used vehicle wholesale			0.2				0.5				(30	)
Finance and insurance			100.0				100.0				-
Service, body and parts			49.4				49.1				30
Fleet and other			17.3				0.3				1,700
Gross profit margin			14.8				14.7				10
Unit sales
New vehicle retail			34,855				34,259				596			1.7	%
Used vehicle retail			26,288				23,883				2,405			10.1
Total retail units sold			61,143				58,142				3,001			5.2
Used vehicle wholesale			9,134				9,316				(182	)		(2.0	)
Average selling price
New vehicle retail		$	34,789			$	33,981			$	808			2.4	%
Used vehicle retail			19,757				19,537				220			1.1
Used vehicle wholesale			6,660				6,744				(84	)		(1.2	)
Average gross profit per unit
New vehicle retail		$	1,925			$	2,097			$	(172	)		(8.2	)%
Used vehicle retail			2,233				2,369				(136	)		(5.7	)
Used vehicle wholesale			13				36				(23	)		(63.9	)
Finance and insurance			1,295				1,187				108			9.1
Total vehicle(1)			3,354				3,402				(48	)		(1.4	)

(1) - includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail

Lithia Motors, Inc.
Consolidated Statements of Operations (Unaudited)
(In thousands except per share data)
			Twelve months ended December 31,								Increase				% Increase
			2016				2015				(Decrease)				(Decrease)
Revenues:
New vehicle retail			$	4,938,436			$	4,552,301			$	386,135			8.5	%
Used vehicle retail				2,226,951				1,927,016				299,935			15.6
Used vehicle wholesale				276,616				261,530				15,086			5.8
Finance and insurance				330,922				283,018				47,904			16.9
Service, body and parts				844,505				738,990				105,515			14.3
Fleet and other				60,727				101,397				(40,670	)		(40.1	)
	Total revenues			8,678,157				7,864,252				813,905			10.3	%
Cost of sales:
New vehicle retail				4,649,024				4,271,931				377,093			8.8
Used vehicle retail				1,963,267				1,685,767				277,500			16.5
Used vehicle wholesale				272,303				257,073				15,230			5.9
Service, body and parts				434,222				375,069				59,153			15.8
Fleet and other				58,026				98,778				(40,752	)		(41.3	)
	Total cost of sales			7,376,842				6,688,618				688,224			10.3
Gross profit				1,301,315				1,175,634				125,681			10.7
Asset impairments				13,992				20,124				(6,132	)		(30.5	)
SG&A expense				899,590				811,175				88,415			10.9
Depreciation and amortization				49,369				41,600				7,769			18.7
Income from operations				338,364				302,735				35,629			11.8
Floor plan interest expense				(25,531	)			(19,534	)			5,997			30.7
Other interest expense				(23,207	)			(19,491	)			3,716			19.1
Other expense, net				(6,103	)			(1,006	)			5,097			NM
Income before income taxes				283,523				262,704				20,819			7.9
Income tax expense				(86,465	)			(79,705	)			6,760			8.5
Income tax rate				30.5	%			30.3	%
Net income			$	197,058			$	182,999			$	14,059			7.7	%
Diluted net income per share:
Net income per share			$	7.72			$	6.91			$	0.81			11.7	%
Diluted shares outstanding				25,521				26,490				(969	)		(3.7	)%

NM - not meaningful

Lithia Motors, Inc.
Key Performance Metrics (Unaudited)
		Twelve months ended December 31,								Increase				% Increase
		2016				2015				(Decrease)				(Decrease)
Gross margin
New vehicle retail			5.9	%			6.2	%			(30	)bps
Used vehicle retail			11.8				12.5				(70	)
Used vehicle wholesale			1.6				1.7				(10	)
Finance and insurance			100.0				100.0				-
Service, body and parts			48.6				49.2				(60	)
Fleet and other			4.4				2.6				180
Gross profit margin			15.0				14.9				10
Unit sales
New vehicle retail			145,772				137,486				8,286			6.0	%
Used vehicle retail			113,498				99,109				14,389			14.5
Total retail units sold			259,270				236,595				22,675			9.6
Used vehicle wholesale			40,615				38,167				2,448			6.4
Average selling price
New vehicle retail		$	33,878			$	33,111			$	767			2.3	%
Used vehicle retail			19,621				19,443				178			0.9
Used vehicle wholesale			6,811				6,852				(41	)		(0.6	)
Average gross profit per unit
New vehicle retail		$	1,985			$	2,039			$	(54	)		(2.6	)%
Used vehicle retail			2,323				2,434				(111	)		(4.6	)
Used vehicle wholesale			106				117				(11	)		(9.4	)
Finance and insurance			1,276				1,196				80			6.7
Total vehicle(1)			3,426				3,420				6			0.2
Revenue mix
New vehicle retail			56.9	%			57.9	%
Used vehicle retail			25.7				24.5
Used vehicle wholesale			3.2				3.3
Finance and insurance, net			3.8				3.6
Service, body and parts			9.7				9.4
Fleet and other			0.7				1.3

		Adjusted						As reported
		Twelve Months Ended  December 31,						Twelve months ended  December 31,
Other metrics		2016			2015			2016			2015
SG&A as a % of revenue		10.3	%		10.2	%		10.4	%		10.3	%
SG&A as a % of gross profit		68.9			67.9			69.1			69.0
Operating profit as a % of revenue		4.1			4.3			3.9			3.8
Operating profit as a % of gross profit		27.3			28.5			26.0			25.8
Pretax margin		3.6			3.8			3.3			3.3
Net profit margin		2.2			2.4			2.3			2.3

(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

Lithia Motors, Inc.
Same Store Operating Highlights (Unaudited)
		Twelve months ended December 31,								Increase				% Increase
		2016				2015				(Decrease)				(Decrease)
Revenues
New vehicle retail		$	4,686,693			$	4,534,865			$	151,828			3.3	%
Used vehicle retail			2,129,402				1,916,309				213,093			11.1
Used vehicle wholesale			261,957				260,341				1,616			0.6
Finance and insurance			317,780				281,898				35,882			12.7
Service, body and parts			797,397				734,508				62,889			8.6
Fleet and other			52,992				101,396				(48,404	)		(47.7	)
Total revenues		$	8,246,221			$	7,829,317			$	416,904			5.3
Gross profit
New vehicle retail		$	274,772			$	279,201			$	(4,429	)		(1.6	)%
Used vehicle retail			252,554				240,299				12,255			5.1
Used vehicle wholesale			4,184				4,608				(424	)		(9.2	)
Finance and insurance			317,780				281,898				35,882			12.7
Service, body and parts			389,557				361,692				27,865			7.7
Fleet and other			2,593				2,583				10			0.4
Total gross profit		$	1,241,440			$	1,170,281			$	71,159			6.1
Gross margin
New vehicle retail			5.9	%			6.2	%			(30	)bps
Used vehicle retail			11.9				12.5				(60	)
Used vehicle wholesale			1.6				1.8				(20	)
Finance and insurance			100.0				100.0				-
Service, body and parts			48.9				49.2				(30	)
Fleet and other			4.9				2.5				240
Total gross profit			15.1				14.9				20
Unit sales
New vehicle retail			138,310				136,993				1,317			1.0	%
Used vehicle retail			107,919				98,531				9,388			9.5
Total retail units sold			246,229				235,524				10,705			4.5
Used vehicle wholesale			38,234				37,966				268			0.7
Average selling price
New vehicle retail		$	33,885			$	33,103			$	782			2.4	%
Used vehicle retail			19,731				19,449				282			1.4
Used vehicle wholesale			6,851				6,857				(6	)		(0.1	)
Average gross profit per unit
New vehicle retail		$	1,987			$	2,038			$	(51	)		(2.5	)%
Used vehicle retail			2,340				2,439				(99	)		(4.1	)
Used vehicle wholesale			109				121				(12	)		(9.9	)
Finance and insurance			1,291				1,197				94			7.9
Total vehicle(1)			3,449				3,422				27			0.8

(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

Lithia Motors, Inc.
Segment Operating Highlights  (Unaudited)
		Three months ended December 31,								Increase				% Increase
		2016				2015				(Decrease)				(Decrease)
Revenues
Domestic		$	886,247			$	763,289			$	122,958			16.1	%
Import			987,248				823,718				163,530			19.9
Luxury			417,544				406,581				10,963			2.7
Total segment revenues			2,291,039				1,993,588				297,451			14.9
Corporate and other			951				(306	)			1,257			(410.8	)
Total revenues		$	2,291,990			$	1,993,282			$	298,708			15.0
Segment Income(1)
Domestic		$	21,790			$	23,532			$	(1,742	)		(7.4	)%
Import			23,326				21,846				1,480			6.8
Luxury			9,731				10,627				(896	)		(8.4	)
Total segment income			54,847				56,005				(1,158	)		(2.1	)
Corporate and other			32,440				26,187				6,253			23.9
Depreciation and amortization			(12,997	)			(11,056	)			1,941			17.6
Other interest expense			(6,599	)			(4,791	)			1,808			37.7
Other (expense) income, net			(1,569	)			25				1,594			NM
Income before income taxes		$	66,122			$	66,370			$	(248	)		(0.4	)

(1) Segment income for each of the segments is defined as Income before income taxes, less Depreciation and amortization, Other interest expense and Other income, net.

Retail New Vehicle Unit Sales
Domestic		12,531			11,124			1,407			12.6	%
Import		21,188			18,381			2,807			15.3
Luxury		4,924			4,906			18			0.4
Total		38,643			34,411			4,232			12.3
Allocated to management		(96	)		(61	)		(35	)		NM
Total retail new vehicle unit sales		38,547			34,350			4,197			12.2

NM - not meaningful

Lithia Motors, Inc.
Segment Operating Highlights (Unaudited)
		Twelve months ended December 31,								Increase				% Increase
		2016				2015				(Decrease)				(Decrease)
Revenues
Domestic		$	3,381,715			$	3,038,882			$	342,833			11.3	%
Import			3,764,255				3,330,949				433,306			13.0
Luxury			1,528,760				1,490,632				38,128			2.6
Total segment revenues			8,674,730				7,860,463				814,267			10.4
Corporate and other			3,427				3,789				(362	)		(9.6	)
Total revenues		$	8,678,157			$	7,864,252			$	813,905			10.3
Segment Income(1)
Domestic		$	106,210			$	115,145			$	(8,935	)		(7.8	)%
Import			110,204				98,751				11,453			11.6
Luxury			31,467				36,391				(4,924	)		(13.5	)
Total segment income			247,881				250,287				(2,406	)		(1.0	)
Corporate and other			114,321				74,514				39,807			53.4
Depreciation and amortization			(49,369	)			(41,600	)			7,769			18.7
Other interest expense			(23,207	)			(19,491	)			3,716			19.1
Other expense, net			(6,103	)			(1,006	)			5,097			NM
Income before income taxes		$	283,523				262,704			$	20,819			7.9

(1) Segment income for each of the segments is defined as Income before income taxes, less Depreciation and amortization, Other interest expense and Other expense, net.

Retail New Vehicle Unit Sales
Domestic		47,707			45,080			2,627			5.8	%
Import		80,769			75,091			5,678			7.6
Luxury		17,591			17,556			35			0.2
Total		146,067			137,727			8,340			6.1
Allocated to management		(295	)		(241	)		(54	)		NM
Total retail new vehicle unit sales		145,772			137,486			8,286			6.0

NM - not meaningful

Lithia Motors, Inc.
Other Highlights  (Unaudited)
		As of
		December 31,		December 31,		December 31,
		2016		2015		2014
Days Supply(1)
New vehicle inventory		68		67		62
Used vehicle inventory		56		55		53

(1) Days supply calculated based on current inventory levels, excluding in-transit vehicles, and a 30-day historical cost of sales level.

Financial covenants
		Requirement		As of December 31, 2016
Current ratio		Not less than 1.10 to 1			1.26 to 1
Fixed charge coverage ratio		Not less than 1.20 to 1			2.63 to 1
Leverage ratio		Not more than 5.00 to 1			2.18 to 1
Funded debt restriction		Not more than $900 million		$	485.2 million

Lithia Motors, Inc.
Other Highlights (Unaudited)
		Three months ended December 31,						Twelve months ended December 31,
		2016			2015			2016			2015
New vehicle unit sales brand mix
Honda, Acura		21.5	%		22.1	%		22.7	%		22.4	%
Toyota, Lexus		19.0			19.6			19.5			19.9
Chrysler, Fiat		16.9			18.6			18.4			18.9
General Motors		9.3			9.0			9.0			9.2
Subaru		8.5			7.4			7.6			6.9
Ford		6.3			4.9			5.4			4.7
BMW, Mini		5.5			6.9			5.3			5.9
Nissan		4.3			3.5			3.9			3.7
Volkswagen, Audi		4.0			2.9			3.2			3.1
Hyundai		2.1			1.9			2.0			2.1
Mercedes Benz		1.3			1.6			1.3			1.5
Kia		1.1			1.2			1.3			1.3
Other		0.2			0.4			0.4			0.4

		Three months ended  December 31,						Twelve months ended December 31,
		2016			2015			2016			2015
Revenue geographic mix
California		22.2	%		22.1	%		22.5	%		21.6	%
Oregon		16.6			16.8			16.7			16.7
New Jersey		13.8			15.1			14.0			14.6
Texas		11.9			13.6			13.1			15.0
Montana		5.4			6.2			6.1			6.0
Washington		5.2			5.5			5.3			5.2
Alaska		4.4			5.4			4.8			5.4
New York		6.7			2.8			4.2			2.9
Nevada		2.8			3.0			3.0			3.0
Idaho		2.5			2.8			2.7			2.9
Iowa		2.4			2.7			2.6			2.8
Hawaii		2.1			1.8			2.0			1.5
North Dakota		1.2			1.4			1.3			1.5
New Mexico		0.7			0.8			0.8			0.9
Massachusetts		0.7			-			0.5			-
Vermont		0.9			-			0.3			-
Wyoming		0.5			-			0.1			-

		As of February 15, 2017
Current store count mix		# of stores		% of total
Chrysler, Fiat		30		19.5	%
Honda, Acura		22		14.3
Toyota, Lexus		21		13.6
General Motors		18		11.7
Ford		12		7.8
BMW, Mini		11		7.1
Volkswagen, Audi		10		6.5
Subaru		9		5.8
Nissan		7		4.5
Hyundai		5		3.2
Mercedes Benz		4		2.6
Kia		3		1.9
Other		2		1.5

Lithia Motors, Inc.
Consolidated Balance Sheets (Unaudited)
(In thousands)
		December 31, 2016			December 31, 2015
Cash and cash equivalents		$	50,282		$	45,008
Trade receivables, net			417,714			308,462
Inventories, net			1,772,587			1,470,987
Other current assets			46,611			54,022
Total current assets		$	2,287,194		$	1,878,479
Property and equipment, net			1,006,130			876,660
Goodwill			259,399			213,220
Franchise value			184,268			157,699
Other non-current assets			107,159			99,072
Total assets		$	3,844,150		$	3,225,130
Floor plan notes payable		$	94,602		$	48,083
Floor plan notes payable: non trade			1,506,895			1,265,872
Current maturities of long-term debt			20,965			38,506
Trade payables			88,423			70,871
Accrued liabilities			211,109			167,107
Total current liabilities		$	1,921,994		$	1,590,439
Long-term debt			769,916			604,680
Deferred revenue			81,929			66,734
Deferred income taxes			59,075			53,129
Other long-term liabilities			100,460			81,984
Total liabilities		$	2,933,374		$	2,396,966
Class A common stock			165,512			258,410
Class B common stock			219			316
Additional paid-in capital			41,225			38,822
Accumulated other comprehensive loss			-			(277	)
Retained earnings			703,820			530,893
Total liabilities & stockholders' equity		$	3,844,150		$	3,225,130

Lithia Motors, Inc.
Summarized Cash Flow from Operations (Unaudited)
(In thousands)
		Twelve Months Ended December 31,
		2016			2015
Net income		$	197,058		$	182,999
Adjustments to reconcile net income to net cash provided by operating activities:
Asset impairments			13,992			20,124
Depreciation and amortization			49,369			41,600
Stock-based compensation			11,047			11,871
(Gain) loss on disposal of assets			(4,343	)		203
Gain on sale of franchise			(1,102	)		(5,919	)
Deferred income taxes			10,138			12,341
Excess tax benefit from share-based payment arrangements			(4,389	)		(5,012	)
(Increase) decrease:
	Trade receivables, net		(105,961	)		(13,047	)
	Inventories		(168,847	)		(197,079	)
	Other assets		(13,305	)		(31,290	)
Increase (decrease):
	Floor plan notes payable, net		16,385			7,035
	Trade payables		16,449			674
	Accrued liabilities		42,853			16,273
	Other long-term liabilities and deferred revenue		27,173			33,766
Net cash provided by operating activities		$	86,517		$	74,539

Lithia Motors, Inc.
Reconciliation of Non-GAAP Cash Flow from Operations  (Unaudited)
(In thousands)
			Twelve Months Ended December 31,
Net cash provided by operating activities			2016				2015
As reported			$	86,517			$	74,539
	Floor plan notes payable, non-trade, net			252,893				136,201
	Less: Borrowings on floor plan notes payable, non-trade associated with acquired new vehicle inventory			(94,550	)			(25,642	)
Adjusted			$	244,860			$	185,098

Lithia Motors, Inc.
Reconciliation of Certain Non-GAAP Financial Measures (Unaudited)
(In thousands, except for per share data)
		Three Months Ended December 31, 2016
		As reported				Equity investment fair value adjustment				Legal Reserve				Tax Attribute				Adjusted
Asset impairments		$	3,498			$	(3,498	)		$	-			$	-			$	-
Selling, general and administrative			236,824				-				(2,030	)			-				234,794
Income from operations			81,517				3,498				2,030				-				87,045
Other (expense) income, net			(1,569	)			2,065				-				-				497
Income before income taxes		$	66,122			$	5,563			$	2,030			$	-			$	73,715
Income tax expense			(14,803	)			(8,156	)			(2,503	)			(1,320	)			(26,782	)
Net income		$	51,319			$	(2,593	)		$	(473	)		$	(1,320	)		$	46,933
Diluted earnings per share		$	2.03			$	(0.10	)		$	(0.02	)		$	(0.05	)		$	1.86
Diluted share count			25,294

		Three Months Ended December 31, 2015
		As reported				Asset impairment				Equity investment fair value adjustment				Adjusted
Asset impairments		$	5,733			$	(1,603	)		$	(4,130	)		$	-
Income from operations			76,415				1,603				4,130				82,148
Other (expense) income, net			25				-				1,733				1,758
Income before income taxes		$	66,370			$	1,603			$	5,864			$	73,837
Income tax expense			(18,638	)			(605	)			(8,516	)			(27,759	)
Net income		$	47,732			$	998			$	(2,652	)		$	46,078
Diluted earnings per share		$	1.80			$	0.04			$	(0.10	)		$	1.74
Diluted share count			26,462

Lithia Motors, Inc.
Reconciliation of Certain Non-GAAP Financial Measures (Unaudited)
(In thousands, except for per share data)
		Twelve Months Ended December 31, 2016
		As reported				Disposal gain on sale of store				Equity investment fair value adjustment				Legal Reserve			Tax Attribute				Adjusted
Asset impairments		$	13,992			$	-			$	(13,992	)		-			$	-			$	-
Selling, general and administrative			899,590				1,087				-			(3,936	)			-				896,741
Income from operations			338,364				(1,087	)			13,992			3,936				-				355,205
Other (expense) income, net			(6,103	)			-				8,262			-				-				2,159
Income before income taxes		$	283,523			$	(1,087	)		$	22,254			3,936			$	-			$	308,626
Income tax expense			(86,465	)			426				(28,530	)		(3,250	)			(1,320	)			(119,139	)
Net income		$	197,058			$	(661	)		$	(6,276	)		686			$	(1,320	)		$	189,487
Diluted earnings per share		$	7.72			$	(0.03	)		$	(0.25	)		0.03			$	(0.05	)		$	7.42
Diluted share count			25,521

		Twelve Months Ended December 31, 2015
		As reported				Disposal gain on sale of store				Asset impairment				Equity investment fair value adjustment				Transition Agreement				Adjusted
Asset impairments		$	20,124			$	-			$	(3,603	)		$	(16,521	)						$	-
Selling, general and administrative			811,175				5,919				-				-				(18,296	)			798,798
Income from operations			302,735				(5,919	)			3,603				16,521				18,296				335,236
Other (expense) income, net			(1,006	)			-				-				6,930								5,924
Income before income taxes		$	262,704			$	(5,919	)		$	3,603			$	23,451			$	18,296			$	302,135
Income tax expense			(79,705	)			2,309				(1,385	)			(30,832	)			(6,507	)			(116,120	)
Net income		$	182,999			$	(3,610	)		$	2,218			$	(7,381	)		$	11,789			$	186,015
Diluted earnings per share		$	6.91			$	(0.14	)		$	0.08			$	(0.28	)		$	0.45			$	7.02
Diluted share count			26,490