Lithia Reports Record Second Quarter Results and Increases 2016 Guidance

MEDFORD, OR--(Marketwired - Jul 28, 2016) - Lithia Motors, Inc. (NYSE: LAD) reported the highest second quarter adjusted net income in company history, an increase of 2% over the prior year period.

2016 second quarter unadjusted net income was $51.4 million, or $2.01 per diluted share, compared to $51.2 million, or $1.93 per diluted share, for the second quarter of 2015. Adjusted net income for the second quarter of 2016 was $50.2 million, or $1.96 per diluted share, compared to 2015 second quarter adjusted net income of $49.4 million, or $1.86 per diluted share.

As shown in the attached non-GAAP reconciliation tables, the 2016 second quarter adjusted results exclude a non-core benefit of $0.05 related to an equity investment. The 2015 second quarter adjusted results exclude a $0.07 non-core net benefit from an equity investment and a gain on the sale of a store partially offset by an asset impairment.

Second quarter 2016 revenue increased $136.4 million, or 7%, to $2.1 billion from $2.0 billion for the second quarter 2015.

Second Quarter-over-Quarter Operating Highlights:

• Total same store sales increased 3.8%
• New vehicle same store sales increased 2.3%
• Used vehicle retail same store sales increased 10.2%
• Service, body and parts same store sales increased 7.4%
• Same store F&I per unit increased $60 to $1,273
• SG&A expense as a percentage of gross profit was 66.9%
  
  

For the first six months of 2016, revenues increased 8.7% to $4.1 billion from $3.8 billion in the first six months of 2015 and unadjusted net income was $3.56 per diluted share, compared to $3.47 per diluted share. Adjusted net income per diluted share for the first six months of 2016 increased 8.0% to $3.52 from $3.26 for the first six months of 2015.

"Our stores delivered strong results in the quarter, growing all business lines," said Bryan DeBoer, President and CEO. "Led by a 10.2% increase in used vehicle sales and a 7.4% increase in service, body and parts sales, our team is capitalizing on both a growing supply of used vehicles and units in operation sold over the past seven years that are now returning for service. We are capturing new vehicle market share and increasing F&I per unit, which we believe are the key drivers to future organic growth, while maintaining adjusted SG&A as a percentage of gross profit below 67%."

Corporate Development
With the addition of a GMC Buick franchise in Helena, Montana during the quarter, we have completed three acquisitions in 2016.

Mr. DeBoer added, "We anticipate a sustained new vehicle sales environment of 17 million units in the coming years. This provides Lithia several benefits including a predictable and profitable cadence of new car sales and incrementally higher service revenues as the vehicles sold over the past six years age and require maintenance. Additionally, the increasing supply of used vehicles will drive incremental revenue opportunities. Most importantly, a static SAAR level will spur further acquisitions as the aging dealer body seeks the optimal time to retire. These factors increase our confidence in establishing a new milestone of $9.00 in earnings per share, which we will strive to achieve through improvement in our existing locations and acquisition activity in both the Lithia and DCH platforms. We will continue our growth and believe the best use of capital is expanding our store base."

Balance Sheet Update
We ended the second quarter with $15 million in cash and $135 million in availability under our credit facilities. Additionally, approximately $218 million of our operating real estate is currently unfinanced, which we estimate could provide $164 million in capital, for total potential liquidity of $314 million.

On July 27, 2016, we amended our credit agreement to increase the facility by $300 million to $2.05 billion and extended the maturity to July 2021. The amended agreement provides for up to $1.3 billion in new vehicle inventory floor plan financing, $350 million in used vehicle inventory floor plan financing and $400 million in revolving loan financing.

Chris Holzshu, SVP and CFO, said, "We appreciate the support of our 18 commercial lender partners to increase the capacity and extend the duration of our credit facility. The primary reason for the amendment is to provide new vehicle floor plan financing for future acquisitions. We believe it is an opportune time to secure incremental capacity to meet our robust growth objectives and our $9.00 earnings milestone."

Dividend Payment and Share Repurchase
Our Board of Directors has approved a dividend of $0.25 per share related to second quarter 2016 financial results. We expect to pay the dividend on August 26, 2016 to shareholders of record on August 12, 2016.

In the second quarter 2016, we repurchased 603,225 shares at a weighted average price of $78.09 per share. In the first six months of 2016, we have repurchased approximately 5% of our outstanding float or 1.2 million shares at a weighted average price of $78.86. Approximately $201 million remains available under our existing repurchase authorization.

2016 Outlook
We project 2016 third quarter earnings of $2.11 to $2.15 per diluted share and 2016 full year earnings of $7.50 to $7.65 per diluted share. Both projections are based on the following annual assumptions:

• Total revenues of $8.5 to $8.6 billion
• New vehicle sales increasing 3.5%
• New vehicle gross margin of 5.9% to 6.1%
• Used vehicle sales increasing 9.5%
• Used vehicle gross margin of 11.9% to 12.1%
• Service body and parts sales increasing 7.5%
• Service body and parts gross margin of 48.8% to 49.0%
• Finance and insurance gross profit of $1,270 to $1,290 per unit
• Tax rate of 39.5%
• Average diluted shares outstanding of 25.6 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.

In October 2016, we expect to provide only annual earnings guidance with our regular quarterly and annual earnings announcements.

Second Quarter Earnings Conference Call and Updated Presentation
The second quarter conference call may be accessed at 11:00 a.m. ET today by telephone at 877-407-8029. An updated presentation highlighting the second quarter results has been added to www.lithiainvestorrelations.com.

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 31 brands of new vehicles and all brands of used vehicles at 139 stores in 15 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.lithia.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 2016 third quarter earnings per share of $2.11 to $2.15 per diluted share and 2016 full year earnings of $7.50 to $7.65 per diluted share and all projections set forth under the headings "2016 Outlook"; 
• Anticipated national new car sales levels
• Anticipated ability to improve store performance;
• Anticipated acquisition opportunities and additions of dealership locations to our portfolio in the future; 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 revenues 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												%
		June 30,								Increase				Increase
		2016				2015				(Decrease)				(Decrease)
Revenues:
New vehicle retail		$	1,209,037			$	1,149,512			$	59,525			5.2	%
Used vehicle retail			553,647				488,801				64,846			13.3
Used vehicle wholesale			66,714				66,796				(82	)		(0.1	)
Finance and insurance			81,043				72,463				8,580			11.8
Service, body and parts			202,265				182,695				19,570			10.7
Fleet and other			20,633				36,680				(16,047	)		(43.7	)
	Total revenues		2,133,339				1,996,947				136,392			6.8
Cost of sales:
New vehicle retail			1,136,175				1,080,170				56,005			5.2
Used vehicle retail			486,422				426,108				60,314			14.2
Used vehicle wholesale			65,228				65,390				(162	)		(0.2	)
Service, body and parts			103,666				91,946				11,720			12.7
Fleet and other			19,812				35,684				(15,872	)		(44.5	)
	Total cost of sales		1,811,303				1,699,298				112,005			6.6
Gross profit			322,036				297,649				24,387			8.2
Asset impairments			3,498				6,130				(2,632	)		NM
SG&A expense			215,526				195,610				19,916			10.2
Depreciation and amortization			12,503				10,287				2,216			21.5
Income from operations			90,509				85,622				4,887			5.7
Floor plan interest expense			(6,209	)			(4,655	)			1,554			33.4
Other interest expense			(5,502	)			(4,972	)			530			10.7
Other expense, net			(1,495	)			(356	)			1,139			NM
Income before income taxes			77,303				75,639				1,664			2.2
Income tax expense			(25,875	)			(24,416	)			1,459			6.0
Income tax rate			33.5	%			32.3	%
Net income		$	51,428			$	51,223			$	205			0.4	%
Diluted net income per share:
Net income per share		$	2.01			$	1.93			$	0.08			4.1	%
Diluted shares outstanding			25,534				26,496				(962	)		(3.6	)%
NM - not meaningful

Lithia Motors, Inc.
Key Performance Metrics (Unaudited)

	Three months ended											%
	June 30,								Increase			Increase
	2016				2015				(Decrease)			(Decrease)
Gross margin
New vehicle retail		6.0	%			6.0	%			--	bps
Used vehicle retail		12.1				12.8				(70	)
Used vehicle wholesale		2.2				2.1				10
Finance and insurance		100.0				100.0				--
Service, body and parts		48.7				49.7				(100	)
Fleet and other		4.0				2.7				130
Gross profit margin		15.1				14.9				20
Unit sales
New vehicle retail		36,059				35,112				947		2.7	%
Used vehicle retail		27,716				24,689				3,027		12.3
Total retail units sold		63,775				59,801				3,974		6.6
Used vehicle wholesale		9,774				9,439				335		3.5
Average selling price
New vehicle retail	$	33,529			$	32,738			$	791		2.4	%
Used vehicle retail		19,976				19,798				178		0.9
Used vehicle wholesale		6,826				7,077				(251	)	(3.5	)
Average gross profit per unit
New vehicle retail	$	2,021			$	1,975			$	46		2.3	%
Used vehicle retail		2,425				2,539				(114	)	(4.5	)
Used vehicle wholesale		152				149				3		2.0
Finance and insurance		1,271				1,212				59		4.9
Total vehicle(1)		3,491				3,443				48		1.4
Revenue mix
New vehicle retail		56.7	%			57.6	%
Used vehicle retail		26.0				24.5
Used vehicle wholesale		3.1				3.3
Finance and insurance, net		3.8				3.6
Service, body and parts		9.5				9.1
Fleet and other		0.9				1.9

	Adjusted						As reported
	Three months ended June 30,						Three months ended June 30,
Other metrics	2016			2015			2016			2015
SG&A as a % of revenue	10.1	%		9.9	%		10.1	%		9.8	%
SG&A as a % of gross profit	66.9			66.6			66.9			65.7
Operating profit as a % of revenue	4.4			4.5			4.2			4.3
Operating profit as a % of gross profit	29.2			30.0			28.1			28.8
Pretax margin	3.9			4.1			3.6			3.8
Net profit margin	2.4			2.5			2.4			2.6
(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											%
	June 30,								Increase			Increase
	2016				2015				(Decrease)			(Decrease)
Revenues
New vehicle retail	$	1,172,249			$	1,145,910			$	26,339		2.3	%
Used vehicle retail		536,454				486,600				49,854		10.2
Used vehicle wholesale		64,900				66,356				(1,456	)	(2.2	)
Finance and insurance		78,634				72,284				6,350		8.8
Service, body and parts		195,164				181,720				13,444		7.4
Fleet and other		18,358				36,678				(18,320	)	(49.9	)
Total revenues	$	2,065,759			$	1,989,548			$	76,211		3.8
Gross profit
New vehicle retail	$	70,532			$	69,178			$	1,354		2.0	%
Used vehicle retail		65,169				62,584				2,585		4.1
Used vehicle wholesale		1,452				1,455				(3	)	(0.2	)
Finance and insurance		78,634				72,284				6,350		8.8
Service, body and parts		95,330				90,266				5,064		5.6
Fleet and other		811				959				(148	)	(15.4	)
Total gross profit	$	311,928			$	296,726			$	15,202		5.1
Gross margin
New vehicle retail		6.0	%			6.0	%			--	bps
Used vehicle retail		12.1				12.9				(80	)
Used vehicle wholesale		2.2				2.2				--
Finance and insurance		100.0				100.0				--
Service, body and parts		48.8				49.7				(90	)
Fleet and other		4.4				2.6				180
Gross profit margin		15.1				14.9				20
Unit sales
New vehicle retail		34,995				35,017				(22	)	(0.1	)%
Used vehicle retail		26,778				24,568				2,210		9.0
Total retail units sold		61,773				59,585				2,188		3.7
Used vehicle wholesale		9,429				9,390				39		0.4
Average selling price
New vehicle retail	$	33,498			$	32,724			$	774		2.4	%
Used vehicle retail		20,033				19,806				227		1.1
Used vehicle wholesale		6,883				7,067				(184	)	(2.6	)
Average gross profit per unit
New vehicle retail	$	2,015			$	1,976			$	39		2.0	%
Used vehicle retail		2,434				2,547				(113	)	(4.4	)
Used vehicle wholesale		154				155				(1	)	(0.6	)
Finance and insurance		1,273				1,213				60		4.9
Total vehicle(1)		3,493				3,449				44		1.3
(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.
Consolidated Statements of Operations (Unaudited)
(In thousands except per share data)

														%
		Six months ended June 30,								Increase				Increase
		2016				2015				(Decrease)				(Decrease)
Revenues:
New vehicle retail		$	2,305,092			$	2,157,328			$	147,764			6.8	%
Used vehicle retail			1,086,373				951,732				134,641			14.1
Used vehicle wholesale			131,860				129,004				2,856			2.2
Finance and insurance			158,681				137,067				21,614			15.8
Service, body and parts			398,940				356,170				42,770			12.0
Fleet and other			35,254				54,824				(19,570	)		(35.7	)
	Total revenues		4,116,200				3,786,125				330,075			8.7
Cost of sales:
New vehicle retail			2,165,464				2,026,212				139,252			6.9
Used vehicle retail			954,871				829,597				125,274			15.1
Used vehicle wholesale			128,544				125,437				3,107			2.5
Service, body and parts			204,222				180,982				23,240			12.8
Fleet and other			33,881				52,873				(18,992	)		(35.9	)
	Total cost of sales		3,486,982				3,215,101				271,881			8.5
Gross profit			629,218				571,024				58,194			10.2
Asset impairments			6,996				10,260				(3,264	)		NM
SG&A expense			434,632				387,228				47,404			12.2
Depreciation and amortization			24,166				20,013				4,153			20.8
Income from operations			163,424				153,523				9,901			6.4
Floor plan interest expense			(12,118	)			(9,304	)			2,814			30.2
Other interest expense			(10,961	)			(9,800	)			1,161			11.8
Other expense, net			(3,021	)			(724	)			2,297			NM
Income before income taxes			137,324				133,695				3,629			2.7
Income tax expense			(45,626	)			(41,819	)			3,807			9.1
Income tax rate			33.2	%			31.3	%
Net income		$	91,698			$	91,876			$	(178	)		(0.2	)%
Diluted net income per share:
Net income per share		$	3.56			$	3.47			$	0.09			2.6	%
Diluted shares outstanding			25,754				26,509				(755	)		(2.8	)%
NM - not meaningful

Lithia Motors, Inc.
Key Performance Metrics (Unaudited)

												%
	Six months ended June 30,								Increase			Increase
	2016				2015				(Decrease)			(Decrease)
Gross margin
New vehicle retail		6.1	%			6.1	%			--	bps
Used vehicle retail		12.1				12.8				(70	)
Used vehicle wholesale		2.5				2.8				(30	)
Finance and insurance		100.0				100.0				--
Service, body and parts		48.8				49.2				(40	)
Fleet and other		3.9				3.6				30
Gross profit margin		15.3				15.1				20
Unit sales
New vehicle retail		68,808				65,735				3,073		4.7	%
Used vehicle retail		55,147				48,893				6,254		12.8
Total retail units sold		123,955				114,628				9,327		8.1
Used vehicle wholesale		19,287				18,583				704		3.8
Average selling price
New vehicle retail	$	33,500			$	32,819			$	681		2.1	%
Used vehicle retail		19,700				19,466				234		1.2
Used vehicle wholesale		6,837				6,942				(105	)	(1.5	)
Average gross profit per unit
New vehicle retail	$	2,029			$	1,995			$	34		1.7	%
Used vehicle retail		2,385				2,498				(113	)	(4.5	)
Used vehicle wholesale		172				192				(20	)	(10.4	)
Finance and insurance		1,280				1,196				84		7.0
Total vehicle(1)		3,494				3,436				58		1.7
Revenue mix
New vehicle retail		56.0	%			57.0	%
Used vehicle retail		26.4				25.1
Used vehicle wholesale		3.2				3.4
Finance and insurance, net		3.9				3.6
Service, body and parts		9.7				9.4
Fleet and other		0.8				1.5

	Adjusted						As reported
	Six Months Ended June 30,						Six months ended June 30,
Other metrics	2016			2015			2016		2015
SG&A as a % of revenue	10.5	%		10.4	%		10.6		10.2	%
SG&A as a % of gross profit	68.9			68.8			69.1		67.8
Operating profit as a % of revenue	4.2			4.2			4.0		4.1
Operating profit as a % of gross profit	27.2			27.6			26.0		26.9
Pretax margin	3.6			3.7			3.3		3.5
Net profit margin	2.2			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)

												%
	Six months ended June 30,								Increase			Increase
	2016				2015				(Decrease)			(Decrease)
Revenues
New vehicle retail	$	2,234,584			$	2,146,678			$	87,906		4.1	%
Used vehicle retail		1,052,731				945,792				106,939		11.3
Used vehicle wholesale		128,705				128,305				400		0.3
Finance and insurance		153,999				136,490				17,509		12.8
Service, body and parts		385,132				353,836				31,296		8.8
Fleet and other		32,941				54,823				(21,882	)	(39.9	)
Total revenues	$	3,988,092			$	3,765,924			$	222,168		5.9
Gross profit
New vehicle retail	$	135,350			$	130,456			$	4,894		3.8	%
Used vehicle retail		127,712				121,610				6,102		5.0
Used vehicle wholesale		3,207				3,677				(470	)	(12.8	)
Finance and insurance		153,999				136,490				17,509		12.8
Service, body and parts		188,286				174,015				14,271		8.2
Fleet and other		1,355				1,915				(560	)	(29.2	)
Total gross profit	$	609,909			$	568,163			$	41,746		7.3
Gross margin
New vehicle retail		6.1	%			6.1	%			--	bps
Used vehicle retail		12.1				12.9				(80	)
Used vehicle wholesale		2.5				2.9				(40	)
Finance and insurance		100.0				100.0				--
Service, body and parts		48.9				49.2				(30	)
Fleet and other		4.1				3.5				60
Total gross profit		15.3				15.1				20
Unit sales
New vehicle retail		66,774				65,408				1,366		2.1	%
Used vehicle retail		53,309				48,540				4,769		9.8
Total retail units sold		120,083				113,948				6,135		5.4
Used vehicle wholesale		18,684				18,453				231		1.3
Average selling price
New vehicle retail	$	33,465			$	32,820			$	645		2.0	%
Used vehicle retail		19,748				19,485				263		1.3
Used vehicle wholesale		6,889				6,953				(64	)	(0.9	)
Average gross profit per unit
New vehicle retail	$	2,027			$	1,994			$	33		1.7	%
Used vehicle retail		2,396				2,505				(109	)	(4.4	)
Used vehicle wholesale		172				199				(27	)	(13.6	)
Finance and insurance		1,282				1,198				84		7.0
Total vehicle(1)		3,500				3,442				58		1.7
(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 June 30,								Increase				% Increase
	2016				2015				(Decrease)				(Decrease)
Revenues
Domestic	$	826,709			$	768,170			$	58,539			7.6	%
Import		934,018				855,305				78,713			9.2
Luxury		371,866				372,500				(634	)		(0.2	)
Total segment revenues		2,132,593				1,995,975				136,618			6.8
Corporate and other		746				972				(226	)		(23.3	)
Total revenues	$	2,133,339			$	1,996,947			$	136,392			6.8
Segment Income(1)
Domestic	$	27,614			$	31,320			$	(3,706	)		(11.8	)%
Import		28,228				28,149				79			0.3
Luxury		9,398				10,801				(1,403	)		(13.0	)
Total segment income		65,240				70,270				(5,030	)		(7.2	)
Corporate and other		31,563				20,984				10,579			50.4
Depreciation and amortization		(12,503	)			(10,287	)			2,216			21.5
Other interest expense		(5,502	)			(4,972	)			530			10.7
Other expense, net		(1,495	)			(356	)			1,139			NM
Income before income taxes	$	77,303			$	75,639			$	1,664			2.2
(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	11,634			11,479			155			1.4	%
Import	20,158			19,351			807			4.2
Luxury	4,317			4,330			(13	)		(0.3	)
Total	36,109			35,160			949			2.7
Allocated to management	(50	)		(48	)		(2	)		NM
Total retail new vehicle unit sales	36,059			35,112			947			2.7
NM - not meaningful

Lithia Motors, Inc.
Segment Operating Highlights (Unaudited)

													%
	Six months ended June 30,								Increase				Increase
	2016				2015				(Decrease)				(Decrease)
Revenues
Domestic	$	1,595,611			$	1,458,853			$	136,758			9.4	%
Import		1,799,761				1,615,385				184,376			11.4
Luxury		718,679				709,493				9,186			1.3
Total segment revenues		4,114,051				3,783,731				330,320			8.7
Corporate and other		2,149				2,394				(245	)		(10.2	)
Total revenues	$	4,116,200			$	3,786,125			$	330,075			8.7
Segment Income(1)
Domestic	$	49,344			$	58,613			$	(9,269	)		(15.8	)%
Import		50,861				45,212				5,649			12.5
Luxury		13,633				17,446				(3,813	)		(21.9	)
Total segment income		113,838				121,271				(7,433	)		(6.1	)
Corporate and other		61,634				42,961				18,673			43.5
Depreciation and amortization		(24,166	)			(20,013	)			4,153			20.8
Other interest expense		(10,961	)			(9,800	)			1,161			11.8
Other expense, net		(3,021	)			(724	)			2,297			NM
Income before income taxes	$	137,324				133,695			$	3,629			2.7
(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	22,283			21,491			792			3.7	%
Import	38,272			36,156			2,116			5.9
Luxury	8,380			8,195			185			2.3
Total	68,935			65,842			3,093			4.7
Allocated to management	(127	)		(107	)		(20	)		NM
Total retail new vehicle unit sales	68,808			65,735			3,073			4.7
NM - not meaningful

Lithia Motors, Inc.
Other Highlights (Unaudited)

	As of
	June 30,		December 31,		June 30,
	2016		2015		2015
Days Supply(1)
New vehicle inventory	77		67		65
Used vehicle inventory	57		55		54
(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 June 30, 2016
Current ratio		Not less than 1.10 to 1		1.25 to 1
Fixed charge coverage ratio		Not less than 1.20 to 1		2.48 to 1
Leverage ratio		Not more than 5.00 to 1		1.78 to 1
Funded debt restriction		Not more than $900 million		$404.6 million

Lithia Motors, Inc.
Other Highlights (Unaudited)

	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
New vehicle unit sales brand mix
Honda, Acura	23.8	%		23.1	%		23.5	%		22.6	%
Toyota, Lexus	19.8			20.0			19.7			20.1
Chrysler	18.9			19.1			18.8			19.1
General Motors	8.7			9.6			8.8			9.3
Subaru	6.8			6.5			7.0			6.8
BMW, Mini	5.3			5.5			5.4			5.6
Ford	4.6			4.0			4.9			4.3
Nissan	3.8			3.4			3.8			3.6
Volkswagen, Audi	2.9			3.4			2.8			3.1
Hyundai	2.1			2.0			2.0			2.1
Mercedes Benz	1.3			1.5			1.3			1.5
Kia	1.3			1.4			1.3			1.4
Other	0.7			0.5			0.7			0.5
	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
Revenue geographic mix
California	22.5	%		20.7	%		22.7	%		21.5	%
Oregon	16.7			16.3			16.7			16.6
New Jersey	14.4			15.1			14.2			14.4
Texas	13.7			15.8			13.8			15.7
Montana	6.4			5.8			6.4			5.8
Washington	5.2			5.1			5.3			5.1
Alaska	5.1			5.6			4.9			5.4
New York	3.0			3.3			3.0			3.0
Nevada	2.9			2.9			3.1			3.0
Idaho	2.7			2.8			2.7			2.9
Iowa	2.7			2.9			2.6			2.8
Hawaii	2.0			1.4			2.0			1.4
North Dakota	1.4			1.5			1.3			1.5
New Mexico	0.8			0.8			0.9			0.9
Massachusetts	0.5			--			0.4			--

	As of June 30, 2016
Current store count mix	# of stores		% of total
Chrysler	27		19.6	%
Honda, Acura	21		15.2
Toyota, Lexus	20		14.5
General Motors	16		11.6
BMW, Mini	11		8.0
Subaru	8		5.8
Volkswagen, Audi	8		5.8
Ford	7		5.1
Nissan	6		4.3
Hyundai	4		2.9
Mercedes Benz	4		2.9
Other	7		5.0

Lithia Motors, Inc.
Consolidated Balance Sheets (Unaudited)
(In thousands)

	June 30, 2016			December 31, 2015
Cash and cash equivalents	$	15,044		$	45,008
Trade receivables, net		305,293			308,462
Inventories, net		1,582,274			1,470,987
Other current assets		38,192			54,408
Total current assets	$	1,940,803		$	1,878,865
Property and equipment, net		898,239			876,660
Goodwill		214,444			213,220
Franchise value		162,296			157,699
Other non-current assets		106,288			100,855
Total assets	$	3,322,070		$	3,227,299
Floor plan notes payable	$	56,767		$	48,083
Floor plan notes payable: non trade		1,316,747			1,265,872
Current maturities of long-term debt		28,053			38,891
Trade payables		77,979			70,871
Accrued liabilities		184,160			167,108
Total current liabilities	$	1,663,706		$	1,590,825
Long-term debt		626,543			606,463
Deferred revenue		73,540			66,734
Deferred income taxes		54,647			53,129
Other long-term liabilities		86,173			81,984
Total liabilities	$	2,504,609		$	2,399,135
Class A common stock		168,950			258,410
Class B common stock		219			316
Additional paid-in capital		37,230			38,822
Accumulated other comprehensive loss		--			(277	)
Retained earnings		611,062			530,893
Total liabilities & stockholders' equity	$	3,322,070		$	3,227,299

Lithia Motors, Inc.
Summarized Cash Flow from Operations (Unaudited)
(In thousands)

		Six Months Ended June 30,
		2016				2015
Net income		$	91,698			$	91,876
Adjustments to reconcile net income to net cash provided by operating activities:
Asset impairments			6,996				10,260
Depreciation and amortization			24,166				20,013
Stock-based compensation			6,018				5,822
(Gain) loss on disposal of assets			(4,512	)			44
Gain on sale of franchise			(1,102	)			(5,919	)
Deferred income taxes			5,704				(1,145	)
Excess tax benefit from share-based payment arrangements			(4,384	)			(4,865	)
(Increase) decrease:
	Trade receivables, net		6,564				7,570
	Inventories		(114,052	)			(122,660	)
	Other assets		5,688				(3,815	)
Increase (decrease):
	Floor plan notes payable, net		8,685				4,417
	Trade payables		6,678				8,854
	Accrued liabilities		17,595				7,717
	Other long-term liabilities and deferred revenue		10,668				11,161
Net cash provided by operating activities		$	66,410			$	29,330

Lithia Motors, Inc.
Reconciliation of Non-GAAP Cash Flow from Operations (Unaudited)
(In thousands)

		Six Months Ended June 30,
Net cash provided by operating activities		2016			2015
As reported		$	66,410		$	29,330
	Floor plan notes payable, non-trade, net		58,622			35,685
Adjusted		$	125,032		$	65,015

Lithia Motors, Inc.
Reconciliation of Certain Non-GAAP Financial Measures (Unaudited)
(In thousands, except for per share data)

	Three Months Ended June 30, 2016
	As reported				Equity investment fair value adjustment				Adjusted
Asset impairments	$	3,498			$	(3,498	)		$	--
Income from operations		90,509				3,498				94,007
Other (expense) income, net		(1,495	)			2,065				570
Income before income taxes	$	77,303			$	5,563			$	82,866
Income tax expense		(25,875	)			(6,837	)			(32,712	)
Net income	$	51,428			$	(1,274	)		$	50,154
Diluted earnings per share	$	2.01			$	(0.05	)		$	1.96
Diluted share count		25,534

	Three Months Ended June 30, 2015
	As reported				Disposal gain on sale of stores				Asset impairment				Equity investment fair value adjustment				Adjusted
Asset impairments	$	6,130			$	--			$	(2,000	)		$	(4,130	)		$	--
Selling, general and administrative		195,610				2,570				--				--				198,180
Income from operations		85,622				(2,570	)			2,000				4,130				89,182
Other (expense) income, net		(356	)			--				--				1,733				1,377
Income before income taxes	$	75,639			$	(2,570	)		$	2,000			$	5,863			$	80,932
Income tax expense		(24,416	)			1,305				(780	)			(7,652	)			(31,543	)
Net income	$	51,223			$	(1,265	)		$	1,220			$	(1,789	)		$	49,389
Diluted earnings per share	$	1.93			$	(0.05	)		$	0.05			$	(0.07	)		$	1.86
Diluted share count		26,496

Lithia Motors, Inc.
Reconciliation of Certain Non-GAAP Financial Measures (Unaudited)
(In thousands, except for per share data)

	Six Months Ended June 30, 2016
	As reported				Disposal gain on sale of store				Equity investment fair value adjustment				Legal reserve adjustment				Adjusted
Asset impairments	$	6,996			$	--			$	(6,996	)		$	--			$	--
Selling, general and administrative		434,632				1,087				--				(1,906	)			433,813
Income from operations		163,424				(1,087	)			6,996				1,906				171,239
Other expense, net		(3,021	)			--				4,131				--				1,110
Income before income taxes	$	137,324			$	(1,087	)		$	11,127			$	1,906			$	149,270
Income tax expense		(45,626	)			426				(12,782	)			(747	)			(58,729	)
Net income	$	91,698			$	(661	)		$	(1,655	)		$	1,159			$	90,541
Diluted earnings per share	$	3.56			$	(0.03	)		$	(0.06	)		$	0.05			$	3.52
Diluted share count		25,754
	Six Months Ended June 30, 2015
	As reported				Disposal gain on sale of store				Asset impairment				Equity investment fair value adjustment				Adjusted
Asset impairments	$	10,260			$	--			$	(2,000	)		$	(8,260	)		$	--
Selling, general and administrative		387,228				5,919				--				--				393,147
Income from operations		153,523				(5,919	)			2,000				8,260				157,864
Other expense, net		(724	)			--				--				3,465				2,741
Income before income taxes	$	133,695			$	(5,919	)		$	2,000			$	11,725			$	141,501
Income tax expense		(41,819	)			2,309				(780	)			(14,902	)			(55,192	)
Net income	$	91,876			$	(3,610	)		$	1,220			$	(3,177	)		$	86,309
Diluted earnings per share	$	3.47			$	(0.14	)		$	0.05			$	(0.12	)		$	3.26
Diluted share count		26,509