LAD Lithia Motors Inc

Declares Dividend of $0.27 Per Share for Fourth Quarter

Lithia Motors, Inc. (NYSE: LAD) today reported the highest fourth quarter and full year revenue and earnings per share in company history and the 29th consecutive quarter of record results.

Fourth quarter 2017 net income per diluted share increased 75% to $3.56 from $2.03 for the fourth quarter of 2016. Adjusted net income per diluted share increased 16% to $2.15 from $1.86 for the same period in 2016. Fourth quarter 2017 net income increased 74% to $89 million from $51 million for the fourth quarter of 2016. Adjusted net income increased 15% to $54 million compared to $47 million for the same period of 2016.

As shown in the attached non-GAAP reconciliation tables, the 2017 fourth quarter adjusted results excludes $0.10 per share of non-core benefit related to the sale of a store and a $1.31 benefit related to adjustments to deferred tax balances due to the recent tax law changes. The 2016 fourth quarter adjusted results exclude a $0.10 benefit associated with an equity investment, a $0.02 benefit related to an indemnified legal reserve and a 0.05 benefit from a tax attribute.

Fourth quarter 2017 revenue increased 18% to $2.7 billion from $2.3 billion in the fourth quarter of 2016.

Fourth Quarter-over-Quarter Operating Highlights:

• Total same store sales increased 3%
• New vehicle same store sales increased 3%
• Used vehicle retail same store sales increased 2%
• Service, body and parts same store sales increased 4%
• Same store F&I per unit was $1,342
• Adjusted SG&A expense as a percentage of gross profit was 68.7%

Net income per diluted share in 2017 increased 26% to $9.75 from $7.72 for 2016. Adjusted net income per diluted share increased 13% to $8.39 from $7.42 for 2016. Net income for 2017 increased 24% to $245 million from $197 million for 2016. Adjusted net income increased 11% to $211 million for 2017 from $189 million for 2016.

As shown in the attached non-GAAP reconciliation tables, the 2017 adjusted results exclude a $1.36 net non-core benefit from an OEM settlement, the sale of a store and the Tax Cuts and Jobs Act partially offset by a charge for insurance reserves and acquisition expenses. The 2016 adjusted results exclude a $0.30 net non-core benefit from an equity investment, a disposal gain and a tax attribute partially offset by an indemnified legal reserve.

Full year 2017 revenue increased 16% to $10.1 billion from $8.7 billion in 2016.

Full Year-over-Year Operating Highlights:

• Total same store sales increased 2%
• New vehicle same store sales increased 1%
• Used vehicle retail same store sales increased 4%
• Service, body and parts same store sales increased 5%
• Same store F&I per unit increased $53 to $1,333
• Adjusted SG&A expense as a percentage of gross profit was 68.8%

"We are excited to have added an eleventh digit to our annual revenues, as we exceeded ten billion dollars this year," said Bryan DeBoer, President and CEO. "We delivered double digit growth in 2017 and our organization is poised to continue its upward growth trajectory regardless of market conditions. Our store leaders have significant opportunity to unlock earnings dry powder by improving operations. We estimate over $200 million in unrealized earnings potential is possible and remain focused on challenging and inspiring each other to achieve higher levels of performance."

Corporate DevelopmentDuring the fourth quarter, we completed the acquisition of Armory Chrysler Jeep Dodge Ram in Albany, New York and Crater Lake Ford Lincoln and Crater Lake Mazda in Medford, Oregon. In 2017, we completed the acquisition of 18 stores and opened one store which we forecast will generate over $1.7 billion in annualized revenues. In January, 2018, we completed the acquisition of Ray Laks Honda in Orchard Park, NY and Ray Laks Acura in Buffalo, New York, which we estimate will add $140 million in annualized revenues.

"For the second consecutive year, we acquired over a billion dollars in annualized revenues," said DeBoer. "We continue to see an active acquisition market with ample stores available. Our leverage ratio is approximately 2.0 times, and coupled with the free cash flow produced by our operations, we remain poised for additional acquisition growth in 2018."

Balance Sheet UpdateWe ended the fourth quarter with $57 million in cash and $223 million in availability under our credit facility. Additionally, approximately $315 million of our operating real estate is currently unfinanced, which we estimate could provide $236 million in capital, for total potential liquidity of $516 million.

Dividend PaymentOur Board of Directors has approved a dividend of $0.27 per share related to fourth quarter 2017 financial results. We expect to pay the dividend on March 23, 2018 to shareholders of record on March 9, 2018.

Earnings OutlookFor 2018, we target full year revenues of $11.0 to $11.5 billion and earnings per share of $10.50.

Commenting on the earnings guidance, John North, Senior Vice President and CFO, stated, "We have updated our guidance to adjust for the recently passed tax legislation, anticipated interest rate increases and changing consumer behaviors on the east and west coasts due to the limitation on the deductibility of state and local taxes. We anticipate our effective tax rate will decline to approximately 27% in 2018."

Actual results may be affected by items described under Forward-Looking Statements below.

Fourth Quarter Earnings Conference Call and Updated PresentationThe 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 LithiaLithia Motors, Inc. is one of the largest automotive retailers in the United States and is among the fastest growing companies in the Fortune 500 (#318-2017) with 171 stores representing 30 brands in 18 states. We offer vehicles online and through our nationwide retail network. Our "Growth Powered by People" strategy drives us to innovate and continuously improve the customer experience.

Siteswww.lithiamotors.comwww.lithiainvestorrelations.comwww.lithiacareers.com

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Forward-Looking StatementsThis 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; achieving a 2018 full year earnings target of $10.50 per diluted share and all projections set forth under the headings "Earnings Outlook";
• Our ability to improve store performance;
• Anticipated acquisition opportunities and additions of dealership locations to our portfolio in the future, and our ability to improve earnings and achieve returns on investments;
• Anticipated revenues from acquired and open point 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 MeasuresThis 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, adjusted pre-tax margin, EBITDA, adjusted EBITDA, leveraged cash flow and adjusted total debt. 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 endedDecember 31,

  %Increase(Decrease)  

Twelve months endedDecember 31,

  %Increase(Decrease) 2017   2016 2017   2016 Revenues: New vehicle retail $ 1,615,717 $ 1,335,833 21.0 % $ 5,763,587 $ 4,938,436 16.7 % Used vehicle retail 629,341 559,693 12.4 2,544,379 2,226,951 14.3 Used vehicle wholesale 71,090 69,485 2.3 277,844 276,616 0.4 Finance and insurance 103,191 84,532 22.1 385,863 330,922 16.6 Service, body and parts 271,511 228,417 18.9 1,015,773 844,505 20.3 Fleet and other 12,180   14,030   (13.2 ) 99,064   60,727   63.1   Total revenues 2,703,030 2,291,990 17.9 % 10,086,510 8,678,157 16.2 % Cost of sales: New vehicle retail 1,514,576 1,261,892 20.0 5,423,744 4,649,024 16.7 Used vehicle retail 564,453 496,320 13.7 2,257,544 1,963,267 15.0 Used vehicle wholesale 70,706 69,406 1.9 273,058 272,303 0.3 Service, body and parts 146,554 117,194 25.1 522,649 434,222 20.4 Fleet and other 10,600   12,342   (14.1 ) 93,429   58,026   61.0   Total cost of sales 2,306,889   1,957,154   17.9   8,570,424   7,376,842   16.2   Gross profit 396,141 334,836 18.3 % 1,516,086 1,301,315 16.5 % Asset impairments — 3,498 (100.0 ) — 13,992 (100.0 ) SG&A expense 267,075 236,824 12.8 1,049,378 899,590 16.7 Depreciation and amortization 16,124   12,997   24.1   57,722   49,369   16.9   Income from operations 112,942 81,517 38.6 % 408,986 338,364 20.9 % Floor plan interest expense (11,323 ) (7,227 ) 56.7 (39,336 ) (25,531 ) 54.1 Other interest expense (11,031 ) (6,599 ) 67.2 (34,776 ) (23,207 ) 49.9 Other income (expense), net 839   (1,569 ) NM 12,195   (6,103 ) NM Income before income taxes 91,427 66,122 38.3 % 347,069 283,523 22.4 % Income tax expense (2,023 ) (14,803 ) (86.3 ) (101,852 ) (86,465 ) 17.8 Income tax rate 2.2 % 22.4 %   29.3 % 30.5 %   Net income $ 89,404   $ 51,319   74.2 % $ 245,217   $ 197,058   24.4 %   Diluted net income per share: Net income per share $ 3.56 2.03 75.4 % $ 9.75 7.72 26.3 %   Diluted shares outstanding 25,103 25,294 (0.8 )% 25,145 25,521 (1.5 )%

NM - not meaningful

 

Lithia Motors, Inc.

Key Performance Metrics (Unaudited)

 

Three months endedDecember 31,

  %Increase(Decrease)  

Twelve months endedDecember 31,

  %Increase(Decrease) 2017   2016 2017   2016 Gross margin New vehicle retail 6.3 % 5.5 % 80 bps 5.9 % 5.9 % — bps Used vehicle retail 10.3 11.3 (100 )bps 11.3 11.8 (50 )bps Finance and insurance 100.0 100.0 — bps 100.0 100.0 — bps Service, body and parts 46.0 48.7 (270 )bps 48.5 48.6 (10 )bps Gross profit margin 14.7 14.6 10 bps 15.0 15.0 — bps   Unit sales New vehicle retail 45,202 38,547 17.3 % 167,146 145,772 14.7 % Used vehicle retail 32,242 28,715 12.3 129,913 113,498 14.5 Total retail units sold 77,444 67,262 15.1 297,059 259,270 14.6   Average selling price New vehicle retail $ 35,744 $ 34,655 3.1 % $ 34,482 $ 33,878 1.8 % Used vehicle retail 19,519 19,491 0.1 19,585 19,621 (0.2 )   Average gross profit per unit New vehicle retail $ 2,238 $ 1,918 16.7 % $ 2,033 $ 1,985 2.4 % Used vehicle retail 2,013 2,207 (8.8 ) 2,208 2,323 (5.0 ) Finance and insurance 1,332 1,257 6.0 1,299 1,276 1.8 Total vehicle(1) 3,481 3,299 5.5 3,425 3,426 —   Revenue mix New vehicle retail 59.8 % 58.3 % 57.1 % 56.9 % Used vehicle retail 23.3 24.4 25.2 25.7 Used vehicle wholesale 2.6 3.0 2.8 3.2 Finance and insurance, net 3.8 3.7 3.8 3.8 Service, body and parts 10.0 10.0 10.1 9.7 Fleet and other 0.5 0.6 1.0 0.7         Adjusted As reported Adjusted As reported

Three months ended December 31,

Three months ended December 31,

Twelve monthsended December 31,

Twelve monthsended December 31,

Other metrics 2017   2016 2017   2016 2017   2016 2017   2016 SG&A as a % of revenue 10.1 % 10.2 % 9.9

%

10.3 % 10.3 % 10.3 % 10.4 % 10.4 % SG&A as a % of gross profit 68.7 70.1 67.4 70.7 68.8 68.9 69.2 69.1

Operating profit as a % ofrevenue

4.0 3.8 4.2 3.6 4.1 4.1 4.1 3.9

Operating profit as a % ofgross profit

27.2 26.0 28.5 24.3 27.4 27.3 27.0 26.0 Pretax margin 3.2 3.2 3.4 2.9 3.4 3.6 3.4 3.3 Net profit margin 2.0 2.0 3.3 2.2 2.1 2.2 2.4 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 andused retail

 

Lithia Motors, Inc.

Same Store Operating Highlights (Unaudited)

   

Three months endedDecember 31,

  %  

Twelve months endedDecember 31,

  % Increase Increase 2017   2016 (Decrease) 2017   2016 (Decrease)

Revenues

New vehicle retail $ 1,369,616 $ 1,326,611 3.2 % $ 4,959,751 $ 4,898,292 1.3 % Used vehicle retail 567,055 554,555 2.3 2,288,290 2,204,795 3.8 Finance and insurance 91,158 84,091 8.4 347,583 329,031 5.6 Service, body and parts 233,835 225,841 3.5 877,222 835,002 5.1 Total revenues 2,332,960 2,274,020 2.6 8,791,044 8,600,716 2.2  

Gross profit

New vehicle retail $ 84,379 $ 73,250 15.2 % $ 290,309 $ 286,519 1.3 % Used vehicle retail 58,637 62,918 (6.8 ) 263,119 261,589 0.6 Finance and insurance 91,158 84,091 8.4 347,583 329,031 5.6 Service, body and parts 110,336 110,022 0.3 428,169 405,661 5.5 Total gross profit 346,223 332,064 4.3 1,337,976 1,289,862 3.7  

Gross margin

New vehicle retail 6.2 % 5.5 % 70 bps 5.9 % 5.8 % 10 bps Used vehicle retail 10.3 11.3 (100 )bps 11.5 11.9 (40 )bps Finance and insurance 100.0 100.0 — bps 100.0 100.0 — bps Service, body and parts 47.2 48.7 (150 )bps 48.8 48.6 20 bps Gross profit margin 14.8 14.6 20 bps 15.2 15.0 20 bps  

Unit sales

New vehicle retail 38,669 38,351 0.8 % 144,308 144,728 (0.3 )% Used vehicle retail 29,273 28,489 2.8 116,359 112,387 3.5  

Average selling price

New vehicle retail $ 35,419 $ 34,591 2.4 % $ 34,369 $ 33,845 1.5 % Used vehicle retail 19,371 19,466 (0.5 ) 19,666 19,618 0.2  

Average gross profit per unit

New vehicle retail $ 2,182 $ 1,910 14.2 % $ 2,012 $ 1,980 1.6 % Used vehicle retail 2,003 2,209 (9.3 ) 2,261 2,328 (2.9 ) Finance and insurance 1,342 1,258 6.7 1,333 1,280 4.1

Total vehicle(1)

3,451 3,297 4.7 3,472 3,429 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.

Segment Operating Highlights (Unaudited)

 

Three months endedDecember 31,

  %Increase(Decrease)  

Twelve months endedDecember 31,

  %Increase(Decrease) 2017   2016 2017   2016

Revenues

Domestic $ 982,812 $ 886,247 10.9 % $ 3,845,830 $ 3,381,715 13.7 % Import 1,156,093 987,248 17.1 4,432,760 3,764,255 17.8

Luxury

563,601   417,544   35.0 1,810,085   1,528,760   18.4 Total segment revenues 2,702,506 2,291,039 18.0 10,088,675 8,674,730 16.3 Corporate and other 524   951   (44.9 ) (2,165 ) 3,427   NM Total revenues $ 2,703,030   $ 2,291,990   17.9 $ 10,086,510   $ 8,678,157   16.2  

Segment Income(1)

Domestic $ 20,768 $ 21,790 (4.7 )% $ 105,208 $ 106,210 (0.9 )% Import 26,411 23,326 13.2 117,776 110,204 6.9 Luxury 14,480   9,731   48.8 37,022   31,467   17.7 Total segment income 61,659 54,847 12.4 260,006 247,881 4.9 Corporate and other 56,084 32,440 72.9 167,366 114,321 46.4 Depreciation and amortization (16,124 ) (12,997 ) 24.1 (57,722 ) (49,369 ) 16.9 Other interest expense (11,031 ) (6,599 ) 67.2 (34,776 ) (23,207 ) 49.9 Other income (expense), net 839   (1,569 ) NM 12,195   (6,103 ) NM Income before income taxes $ 91,427   $ 66,122   38.3 $ 347,069   $ 283,523   22.4 (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

Three months endedDecember 31,

%

Twelve months endedDecember 31,

% Increase Increase 2017   2016 (Decrease) 2017   2016 (Decrease) Domestic 13,881 12,531 10.8 % 53,288 47,707 11.7 % Import 24,991 21,188 17.9 94,634 80,769 17.2 Luxury 6,429   4,924   30.6 19,597   17,591   11.4 Total 45,301 38,643 17.2 167,519 146,067 14.7 Allocated to management (99 ) (96 ) 3.1 (373 ) (295 ) 26.4 Total new retail unit sales 45,202   38,547   17.3 167,146   145,772   14.7

NM - not meaningful

Lithia Motors, Inc.

Other Highlights (Unaudited)

As of December 31,   December 31,   December 31, 2017 2016 2015

Days Supply(1)

New vehicle inventory 69 68 67 Used vehicle inventory 67 56 55 (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, 2017 Current ratio Not less than 1.10 to 1

1.21 to 1

Fixed charge coverage ratio Not less than 1.20 to 1

2.82 to 1

Leverage ratio Not more than 5.00 to 1

2.59 to 1

 

Lithia Motors, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands)

  December 31, 2017   December 31, 2016 Cash and cash equivalents $ 57,253 $ 50,282 Trade receivables, net 521,938 417,714 Inventories, net 2,132,744 1,772,587 Other current assets 70,847   46,611 Total current assets $ 2,782,782 $ 2,287,194   Property and equipment, net 1,185,169 1,006,130 Intangibles 443,297 443,667 Other non-current assets 271,818   107,159 Total assets $ 4,683,066   $ 3,844,150   Floor plan notes payable 1,919,026 1,601,497 Other current liabilities 381,955   320,497 Total current liabilities $ 2,300,981 $ 1,921,994   Long-term debt 1,028,476 769,916 Other long-term liabilities and deferred revenue 270,391   241,464 Total liabilities $ 3,599,848   $ 2,933,374   Stockholder's Equity 1,083,218   910,776 Total liabilities & stockholders' equity $ 4,683,066   $ 3,844,150  

Lithia Motors, Inc.

Summarized Cash Flow from Operations (Unaudited)

(In thousands)

  Twelve months ended December 31, 2017   2016 Net income $ 245,217 $ 197,058

Adjustments to reconcile net income to net cash provided by operating activities:

Asset impairments — 13,992 Depreciation and amortization 57,722 49,369 Stock-based compensation 11,272 11,047 (Gain) loss on disposal of assets (438 ) (4,343 ) Gain on sale of franchise (5,110 ) (1,102 ) Deferred income taxes (2,798 ) 10,138 (Increase) decrease: Trade receivables, net (57,360 ) (105,961 ) Inventories (193,099 ) (168,847 ) Other assets (2,682 ) (13,305 ) Increase (decrease): Floor plan notes payable, net 20,273 16,385 Trade payables 20,008 16,449 Accrued liabilities 37,227 42,852 Other long-term liabilities and deferred revenue 19,062   27,173   Net cash provided by operating activities $ 149,294   $ 90,905    

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

2017   2016 As reported $ 149,294 $ 90,905 Floor plan notes payable, non-trade, net 241,479 252,893

Less: Borrowings on floor plan notes payable, non-trade associated withacquired new vehicle inventory

(111,017 ) (94,550 ) Adjusted $ 279,756   $ 249,248    

Lithia Motors, Inc.

Reconciliation of Certain Non-GAAP Financial Measures (Unaudited)

(In thousands, except for per share data)

  Three Months Ended December 31, 2017 As reported  

Disposalgain on sale of store

  Tax act   Adjusted Selling, general and administrative $ 267,075 5,104 — $ 272,179   Income from operations 112,942 (5,104 ) — 107,838   Other income (expense), net 839 — — 839   Income before income taxes $ 91,427 $ (5,104 ) $ — $ 86,323 Income tax benefit (expense) (2,023 ) 2,482   (32,901 ) (32,443 ) Net income $ 89,404   $ (2,622 ) $ (32,901 ) $ 53,880     Diluted earnings per share $ 3.56 $ (0.10 ) $ (1.31 ) $ 2.15 Diluted share count 25,103   Three Months Ended December 31, 2016 As reported  

Equityinvestmentfair value adjustment

 

Taxattribute

 

LegalReserve

  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 income (expense), net (1,569 ) 2,065 — — 496   Income before income taxes $ 66,122 $ 5,563 $ — $ 2,030 $ 73,715 Income tax expense (14,803 ) (8,155 ) (1,320 )   (2,503 ) (26,782 ) Net income $ 51,319   $ (2,593 ) $ (1,320 )   $ (473 ) $ 46,933     Diluted earnings per share $ 2.03 $ (0.10 ) $ (0.05 ) $ (0.02 ) $ 1.86 Diluted share count 25,294  

Lithia Motors, Inc.

Reconciliation of Certain Non-GAAP Financial Measures (Unaudited)

(In thousands, except for per share data)

  Twelve Months Ended December 31, 2017

Asreported

 

Insurancereserves

 

Acquisitionexpenses

 

OEMsettlement

 

Disposalgain onsale ofstore

  Tax act   Adjusted Selling, general and administrative $ 1,049,378 $ (5,582 ) $ (5,653 ) $ — 5,104 $ — $ 1,043,247   Income from operations 408,986 5,582 5,653 — (5,104 ) — 415,117   Other income (expense), net 12,195 — — (9,111 ) — — 3,084   Income before income taxes $ 347,069 5,582 $ 5,653 $ (9,111 ) $ (5,104 ) $ — $ 344,089 Income tax benefit (expense) (101,852 ) (2,174 ) (2,202 ) 3,423   2,482   (32,901 ) (133,224 ) Net income $ 245,217   3,408   $ 3,451   $ (5,688 ) $ (2,622 ) $ (32,901 ) $ 210,865     Diluted earnings per share $ 9.75 0.14 $ 0.14 $ (0.23 ) $ (0.10 ) $ (1.31 ) $ 8.39 Diluted share count 25,145   Twelve Months Ended December 31, 2016 As reported  

Disposalgain onsale ofstore

 

Equityinvestmentfair valueadjustment

  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 income (expense), net (6,103 ) — 8,262 — — 2,159   Income before income taxes $ 283,523 $ (1,087 ) $ 22,254 $ 3,936 $ — $ 308,626 Income tax benefit (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  

Lithia Motors, Inc.

Adjusted EBITDA and Leveraged Free Cash Flow (Unaudited)

  Three months ended December 31,   %   Twelve months ended December 31,   % Increase Increase 2017   2016 (Decrease) 2017   2016 (Decrease)

EBITDA and Adjusted EBITDA

Net income $ 89,404 $ 51,319 74.2 % $ 245,217 $ 197,058 24.4 % Other interest expense 11,031 6,599 67.2 34,776 23,207 49.9 Income tax expense 2,023 14,803 NM 101,852 86,465 17.8 Depreciation and amortization 16,124   12,997   24.1 57,722   49,369   16.9 EBITDA $ 118,582   $ 85,718   38.3 % $ 439,567   $ 356,099   23.4 %   Other adjustments:

Less: used vehicle line of credit interestexpense

(218 ) (1,127 ) (80.7 ) (2,740 ) (3,732 ) (26.6 ) Add: equity investment fair value adjustment — 5,563 NM — 22,254 NM Add: insurance reserve — — NM 5,582 — NM Add. legal reserve — 2,030 NM — 3,936 NM Add: acquisition expenses — — NM 5,653 — NM Less: OEM legal settlements — — NM (9,111 ) — NM Less: disposal gain on sale of store (5,104 ) —   NM (5,104 ) (1,087 ) NM Adjusted EBITDA $ 113,260   $ 92,184   22.9 % $ 433,847   $ 377,470   14.9 %  

Leveraged EBITDA

Adjusted EBITDA $ 113,260 $ 92,184 22.9 % $ 433,847 $ 377,470 14.9 % Less: Capital expenditures (33,642 ) (19,398 ) 73.4 (105,816 ) (100,761 ) 5.0 Leveraged EBITDA $ 79,618   $ 72,786   9.4 % $ 328,031   $ 276,709   18.5 %

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Lithia Motors, Inc.John North, (541) 618-5748Senior Vice President and Chief Financial Officer