LITHIA MOTORS INC

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. INTERIM FINANCIAL STATEMENTS

Basis of Presentation

These Consolidated Financial Statements contain unaudited information as of March 31, 2025, and for thethree

months ended March 31, 2025 and 2024. The unaudited interim financial statements have been prepared pursuant

to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting

principles generally accepted in the United States of America for annual financial statements are not included

herein. In management’s opinion, these unaudited financial statements reflect all adjustments (which include only

normal recurring adjustments) necessary for a fair presentation of the information when read in conjunction with our

2024 audited Consolidated Financial Statements and the related notes thereto. The financial information as of

December 31, 2024, is derived from our Annual Report on Form 10-K filed with the SEC on February 24, 2025. The

results of operations for the interim periods presented are not necessarily indicative of the results to be expected for

the full year.

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying Consolidated

Financial Statements to maintain consistency and comparability between periods presented. Within our financing

operations income, we disaggregated our lease income out of our previously reported interest, fee, and lease

income to be its own separately presented line item, as well as revised the related lease depreciation and

amortization to now be reported as lease costs, reclassifying amounts previously reported net within lease income.

Correction of an Error

In the three months ended March 31, 2025, the Company identified an immaterial error related to interest and fee

income recognition in our previously issued financial statements for the year ended December 31, 2024. As a result,

retained earnings and finance receivables were overstated, and prepaid income taxes were understated.

In accordance with ASC 250, Accounting Changes and Error Corrections, the Company has corrected this error by

retrospectively restating the affected prior periods in this Form 10-Q.

The following tables summarize the impact of the correction on the Company’s consolidated financial statements:

NOTE 2. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

The long-term portion of accounts receivable was included as a component of Other non-current assets in the

Consolidated Balance Sheets.

NOTE 3. INVENTORIES AND FLOOR PLAN NOTES PAYABLE

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

Vehicle inventory costs are generally reduced by manufacturer holdbacks and incentives, while the related floor plan

notes payable are reflective of the gross cost of the vehicle.

NOTE 4. FINANCE RECEIVABLES

Interest income on finance receivables is recognized based on the contractual terms of each receivable and is

accrued until repayment, reaching non-accrual status, charge-off, or repossession. Direct costs associated with

originations are capitalized and expensed as an offset to interest income when recognized on the receivables.

The balances of finance receivables are made up of loans and finance leases secured by the related vehicles. More

than 99% of the portfolio is aged less than 60 days past due with less than 1% on non-accrual status.

Finance Receivables, net

Finance Receivables by FICO Score

1 Includes legacy portfolio, loans that are originated with no FICO score available, lease receivables, and deferred origination

fees.

In accordance with FASB ASC Topic 326, the allowance for finance receivable losses is estimated based on our

historical write-off experience, current conditions and forecasts, as well as the value of any underlying assets

securing these receivables. Consideration is given to recent delinquency trends and recovery rates. Account

balances are charged against the allowance upon reaching 120 days past due status.

Rollforward of Allowance for Finance Receivable Losses

Our allowance for finance receivable losses represents the net credit losses expected over the remaining

contractual life of our managed receivables. The allowances for credit losses related to finance receivables

consisted of the following changes during the period:

Charge-off Activity by Year of Origination

1 Includes legacy portfolio, loans that are originated with no FICO score available, and finance lease receivables.

NOTE 5. GOODWILL AND FRANCHISE VALUE

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

1 Our purchase price allocations (PPA) for the 2023 acquisitions were finalized in 2024. As a result, we added$146.6 million

of goodwill. Preliminary PPA for a portion of our 2024 acquisitions resulted in adding$20.4 million of goodwill. Our PPA for

the remaining 2024 acquisitions are preliminary and goodwill is not yet allocated to our segments. These amounts are

included in other non-current assets until we finalize our purchase accounting. See Note 12 – Acquisitions.

2 Our PPA for a portion of the 2023 acquisitions recognized in 2023 was adjusted and finalized in 2024 upon the completion of

our fair value adjustments for assumed contract liabilities, acquired loan portfolio, and contingent consideration, adding

$47.7 million of goodwill.

3 Our PPA for a portion of the 2024 acquisitions were finalized in 2025. As a result, we added$281.5 million of goodwill. Our

PPA for the remainder of the 2024 acquisitions and 2025 acquisitions are preliminary and goodwill is not yet allocated to our

segments. These amounts are included in other non-current assets until we finalize our purchase accounting. See Note 12 –

Acquisitions.

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

1 Our PPA for the 2023 acquisitions were finalized in 2024. As a result, we added$172.5 million of franchise value. Our PPA

for 2024 acquisitions is preliminary and franchise value is not yet allocated to our reporting units. These amounts are

included in other non-current assets until we finalize our purchase accounting. See Note 12 – Acquisitions.

2 Our PPA for a portion of the 2024 acquisitions were finalized in 2025. As a result, we added$192.0 million of franchise

value. Our PPA for the remainder of the 2024 acquisitions and 2025 acquisitions are preliminary and franchise value is not

yet allocated to our reporting units. These amounts are included in other non-current assets until we finalize our purchase

accounting. See Note 12 – Acquisitions.

NOTE 6. INVESTMENTS

Marketable Securities

As of March 31, 2025 and December 31, 2024, marketable equity securities recorded within other current assets in

the Consolidated Balance Sheets were$2.1 million and$2.2 million, respectively. Net unrealized gains recognized

during thethree-months ended March 31, 2025 and 2024 on marketable equity securities held at the reporting date

were none and$0.1 million, respectively.

Marketable debt securities accounted for as AFS, and recorded within Other current assets in the Consolidated

Balance Sheets, were as follows:

1 Represents total unrealized gains (losses) for securities with net gains (losses) in accumulated other comprehensive

income.

Proceeds from the maturity of AFS debt securities were$0.6 million andnone for thethree-months ended March 31,

2025 and 2024. There wereno gross realized gains or losses on the maturity of AFS debt securities for thethree-

months ended March 31, 2025 and 2024.

NOTE 7. COMMITMENTS AND CONTINGENCIES

Contract Liabilities

We are the obligor on our lifetime oil and at home valet contracts. Revenue is allocated to these performance

obligations and is recognized over time as services are provided to the customer. The amount of revenue

recognized is calculated, net of cancellations, using an input method, which most closely depicts performance of the

contracts. Our contract liability balances were$427.2 million and$410.4 million as of March 31, 2025, and

December 31, 2024, respectively; and we recognized$20.3 million of revenue in thethree months ended March 31,

2025 related to our contract liability balance at December 31, 2024. Our contract liability balance is included in

Accrued liabilities and Deferred revenue on the Consolidated Balance Sheets.

Litigation

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

anticipate that the resolution of legal proceedings arising in the normal course of business will have a material

adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with

certainty.

NOTE 8. DEBT

Non-Recourse Notes Payable

In 2025, we issued$564.0 million in non-recourse notes payable related to asset-backed term funding transactions.

Below is a summary of outstanding non-recourse notes payable issued:

NOTE 9. RETIREMENT PLANS AND POSTRETIREMENT BENEFITS

Company-Sponsored Defined Benefit Pension Plan

We maintaintwo company-sponsored defined benefit plans applicable to a portion of salaried pastand present

team members, which is closed to future accrual.

Net Periodic (Benefit) Cost

Interest cost represents the increase in the projected benefit obligation, which is a discounted amount, due to the

passage of time. The expected return on plan assets reflects the computed amount of current-year earnings from

the investment of plan assets using an estimated long-term rate of return.

During thethree months ended March 31, 2025, funding of pension plans was$1.1 million. For the remainder of

2025, we estimate approximately$9.9 million of cash contributions.

NOTE 10. EQUITY

Repurchases of Common Stock

Repurchases of our common stock occurred under a repurchase authorization granted by our Board and related to

shares withheld as part of the vesting of RSUs.

On March 4, 2025, our Board approved an additional$350 million repurchase authorization of our common stock.

This authorization is in addition to the amount previously authorized by the Board for repurchase. Share

repurchases under our authorization were as follows:

1 Price excludes excise taxes imposed under the Inflation Reduction Act of$0.9 million for thethree months ended March 31,

As of March 31, 2025, we had$687.3 million available for repurchases pursuant to our share repurchase

authorizations from our Board in 2025 and prior years.

In addition, during 2025, we repurchased 36,378 shares at an average price of$357.40 per share, for a total of

$13.0 million, related to tax withholding associated with the vesting of RSUs. The repurchase of shares related to

tax withholding associated with stock awards does not reduce the number of shares available for repurchase as

approved by our Board.

NOTE 11. FAIR VALUE MEASUREMENTS

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

categories:

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

•Level 2 - other significant observable inputs, including quoted prices for similar securities, interest rates,

prepayment spreads, credit risk; and

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

We determined the carrying value of cash, restricted cash, cash equivalents, accounts receivable, trade payables,

accrued liabilities, finance receivables, and short-term borrowings approximate their fair values because of the

nature of their terms and current market rates of these instruments. We believe the carrying value of our variable

rate debt approximates fair value.

We have money market securities, which include restricted cash from collections on finance receivables, recorded

as a component of Cash, restricted cash, and cash equivalents in our Consolidated Balance Sheets, as well as

restricted cash on deposit in reserve accounts, recorded as a component of Other non-current assets in our

Consolidated Balance Sheets. These money market securities consist of highly liquid investments with original

maturities of three months or less and are classified as Level 1.

We have investments consisting of equity securities, available for sale debt securities, and equity method

investments with a fair value election. We calculated the estimated fair value of the equity securities, equity method

investments, and U.S. Treasury debt securities using quoted market prices (Level 1). The fair value of corporate and

municipal debt securities are measured using observable Level 2 market expectations at each measurement date.

See Note 6 – Investments.

We have fixed rate debt primarily consisting of amounts outstanding under our senior notes, non-recourse notes

payable, and real estate mortgages. We calculated the estimated fair value of the senior notes using quoted prices

for the identical liability (Level 1). The fair value of non-recourse notes payable are measured using observable

Level 2 market expectations at each measurement date. The calculated estimated fair values of the fixed rate real

estate mortgages and finance lease liabilities use a discounted cash flow methodology with estimated current

interest rates based on a similar risk profile and duration (Level 2). The fixed cash flows are discounted and

summed to compute the fair value of the debt.

We have derivative instruments consisting of an offsetting set of interest rate caps. The fair value of derivative

assets and liabilities are measured using observable Level 2 market expectations at each measurement date and is

recorded as other current assets, current liabilities and other long-term liabilities in the Consolidated Balance

Sheets.

Nonfinancial assets such as goodwill, franchise value, or other long-lived assets are measured and recorded at fair

value during a business combination or when there is an indicator of impairment. We evaluate our goodwill and

franchise value using a qualitative assessment process. If the qualitative factors determine that it is more likely than

not that the carrying value exceeds the fair value, we would further evaluate for potential impairment using a

quantitative assessment. The quantitative assessment estimates fair values using unobservable (Level 3) inputs by

discounting expected future cash flows of the store for franchise value, or reporting unit for goodwill. The forecasted

cash flows contain inherent uncertainties, including significant estimates and assumptions related to growth rates,

margins, working capital requirements, and cost of capital, for which we utilize certain market participant-based

assumptions we believe to be reasonable. We estimate the value of other long-lived assets that are recorded at fair

value on a non-recurring basis on a market valuation approach. We use prices and other relevant information

generated primarily by recent market transactions involving similar or comparable assets, as well as our historical

experience in divestitures, acquisitions and real estate transactions. Additionally, we may use a cost valuation

approach to value long-lived assets when a market valuation approach is unavailable. Under this approach, we

determine the cost to replace the service capacity of an asset, adjusted for physical and economic obsolescence.

When available, we use valuation inputs from independent valuation experts, such as real estate appraisers and

brokers, to corroborate our estimates of fair value. Real estate appraisers’ and brokers’ valuations are typically

developed using one or more valuation techniques including market, income and replacement cost approaches.

Because these valuations contain unobservable inputs, we classified the measurement of fair value of long-lived

assets as Level 3.

There were no changes to our valuation techniques during thethree-month period ended March 31, 2025.

Below are our assets and liabilities that are measured at fair value:

1 Excluding unamortized debt issuance costs

NOTE 12. ACQUISITIONS

In the first three months of 2025, we completed the following acquisitions:

•In January 2025, Stohlman Subaru in Virginia.

•In March 2025, Elk Grove Subaru in California.

The acquisitions were accounted for as business combinations under the acquisition method of accounting. The

results of operations of the acquired stores are included in our Consolidated Financial Statements from the date of

acquisition.

Revenue and operating income contributed by the 2025 acquisitions subsequent to the date of acquisition were as

follows (in millions):

The following tables summarize the consideration paid for the 2025 acquisitions and the PPA for identified assets

acquired and liabilities assumed as of the acquisition date:

The PPA for the 2025 acquisitions is preliminary, as we have not obtained and evaluated all of the detailed

information necessary to finalize the opening balance sheet amounts in all respects. We recorded the PPA based

upon information that is currently available and recorded unallocated items as a component of Other non-current

assets in the Consolidated Balance Sheets.

We expect all of the goodwill related to the acquisitions in 2025 to be deductible for U.S. federal income tax

purposes.

In thethree-month periods ended March 31, 2025, we recorded$0.2 million in acquisition-related expenses as a

component of SG&A expense. Comparatively, we recorded$7.7 million of acquisition-related expenses in the same

period of 2024.

The following unaudited pro forma summary presents consolidated information as if all acquisitions in thethree-

month periods ended March 31, 2025 and 2024 had occurred on January 1,2024:

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

stores have been adjusted to reflect the following: depreciation on a straight-line basis over the expected lives for

property and equipment, accounting for inventory on a specific identification method, and recognition of interest

expense for real estate financing related to stores where we purchased the facility. No nonrecurring proforma

adjustments directly attributable to the acquisitions are included in the reported proforma revenues and earnings.

NOTE 13. EARNINGS PER SHARE

We calculate basic EPS by dividing net income attributable to Lithia Motors, Inc. by the weighted average number of

common shares outstanding for the period, including vested RSU awards. Diluted EPS is calculated by dividing net

income attributable to Lithia Motors, Inc. by the weighted average number of shares outstanding, adjusted for the

dilutive effect of unvested RSU awards and employee stock purchases.

The following is a reconciliation of net income attributable to Lithia Motors, Inc. and weighted average shares used

for our basic EPS and diluted EPS:

The effect of antidilutive securities on common stock was evaluated for thethree-month periods ended March 31,

2025 and 2024 and was determined to be immaterial.

NOTE 14. SEGMENTS

We operate intwo reportable segments: Vehicle Operations and Financing Operations. Our Vehicle Operations

consists of all aspects of our auto merchandising and aftersales operations, excluding financing provided by our

Financing Operations. Our Financing Operations segment provides financing to customers buying and leasing retail

vehicles from our Vehicle Operations, as well as leasing vehicles from our fleet management services provider.

All other remaining unallocated corporate overhead expenses and internal charges are reported under Corporate

and Other. Asset information by segment is not utilized for purposes of assessing performance or allocating

resources and, as a result, such information has not been presented.

The reportable segments identified above represent our business activities for which discrete financial information is

available and for which operating results are regularly provided and reviewed by our CODM to allocate resources

and assess performance. Our CODM is our Chief Executive Officer. The CODM assesses segment performance

using segment income, which is measured as net segment profit before taxes on a U.S. GAAP basis.

Total asset information by segment is not regularly provided to our CODM or utilized for purposes of assessing

performance or allocating resources and, as a result, such information has not been presented below. Certain

financing operations asset information including total managed receivables are used by the financing operations

segment manager to manage operations and are included in various reports regularly provided to our CODM. See

Note 4 – Finance Receivables.

Certain financial information on a segment basis is as follows:

(1)Other vehicle operations expenses includes management fees, data processing fees, outside services fees, insurance

expense, office and other supplies expense, banking expense, and certain overhead expenses.

(2)Other financing operations expenses includes personnel expense, data processing fees, outside services fees, expenses

attributable to underwriting, funding, and loan servicing, and certain overhead expenses.

(3)Corporate and other includes management fee income.

The following tables present revenue and long-lived assets (all non-current assets except goodwill, franchise value, and other

intangible assets) by geographic area:

NOTE 15. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2023, the FASB issued ASU 2023-09 related to improvements to income tax disclosures. The

amendments in this update require enhanced jurisdictional and other disaggregated disclosures for the effective tax

rate reconciliation and income taxes paid. The amendments in this update are effective for annual periods beginning

after December 15, 2024. We plan to adopt this pronouncement and make the necessary updates to our

disclosures for the year ending December 31, 2025, and, aside from these disclosure changes, we do not expect

the amendments to have a material effect on our financial statements.

In November 2024, the FASB issued ASU 2024-03 related to the disaggregation of certain income statement

expenses. The amendments in this update require public entities to disclose incremental information related to

purchases of inventory, team member compensation, and depreciation, which will provide investors the ability to

better understand entity expenses and make their own judgements about entity performance. The amendments in

this update are effective for fiscal years beginning after December 15, 2026. We plan to adopt this pronouncement

and make the necessary updates to our disclosures for the year ending December 31, 2027, and, aside from these

disclosure changes, we do not expect the amendments to have a material effect on our financial statements.