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 September 30, 2026, and for the

three and nine months ended September 30, 2026 and 2025. 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 2025 audited Consolidated Financial Statements and the related notes thereto. The financial

information as of December 31, 2025, is derived from our Annual Report on Form 10-K filed with the SEC on

February 25, 2026. 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

Consolidated Statements of Operations, we combined used wholesale revenue with used retail revenue and now

present these revenues collectively as used vehicle revenue. In addition, we combined fleet revenue with new retail

revenue and now present these revenues collectively as new vehicle revenue.

These changes were made to better reflect how management evaluates our revenue performance and to improve

comparability with industry practice. The reclassifications had no impact on total revenue, gross profit, operating

income, net income, or cash flows for any period presented.

NOTE 2. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

The long-term portion of other receivables 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 credit losses on finance receivables 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 Credit Losses on Finance Receivables

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

contractual life of our managed receivables. The allowance for credit losses on 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 2024 acquisitions were finalized in 2025. As a result, we added$348.2 million

of goodwill. Preliminary PPA for a portion of our 2025 acquisitions resulted in adding$34.9 million of goodwill. Our PPA for

the remaining 2025 acquisitions are preliminary and goodwill is not yet allocated to our segments. These amounts are

2 Our PPA for the remainder of the 2025 acquisitions were finalized in 2026. As a result, we added$268.2 million of goodwill.

Our PPA for 2026 acquisitions are preliminary and goodwill is not yet allocated to our segments. These amounts are

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

1 Our PPA for the 2024 acquisitions were finalized in 2025. As a result, we added$218.0 million of franchise value.

Preliminary PPA for a portion of our 2025 acquisitions resulted in adding$13.1 million of franchise value. These amounts

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

2 In our annual impairment testing in 2025, we determined the franchise value ofone underperforming store was not

recoverable, resulting in an impairment of$5.8 million being recorded in the Consolidated Statements of Operations as

Asset impairments. Balance as of September 30, 2026 and December 31, 2025 is net of accumulated impairments of this

amount only.

3 Our PPA for theremainder of the 2025 acquisitions were finalized in 2026. As a result, we added$153.6 million of franchise

value. Our PPA for the 2026 acquisitions are preliminary and franchise value is not yet allocated. These amounts are

NOTE 6. INVESTMENTS

Marketable Securities

As of September 30, 2026 and December 31, 2025, marketable equity securities recorded within Other current

assets in the Consolidated Balance Sheets were$8.9 million and$2.4 million, respectively. Net unrealized gains

recognized during thenine months ended September 30, 2026 and 2025 on marketable equity securities held at the

reporting date were $0.7 million and$0.2 million, respectively.

Marketable debt securities accounted for as available-for-sale (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$7.9 million and$8.2 million for thenine months ended

September 30, 2026 and 2025. There wereno gross realized gains or losses on the maturity of AFS debt securities

for thethree and nine months ended September 30, 2026 and 2025.

Equity Method Investments

Our investment in Pinewood Technologies, PLC (PINE.L), a U.K.-based automotive dealership management system

provider, consists of 31.95% of the common stock voting interests accountedfor herein asan equity method

investment. The investment is measured at fair value based on quoted market prices, and all fair value changes in

the investment are recorded as unrealized gains or losses as a component of Other income (expense), net in the

Consolidated Statements of Operations. The fair value of our investment was$217.5 million and$177.2 million as

of September 30, 2026 and December 31, 2025, respectively. See Note 11 – Fair Value Measurements.

Our investment in Wheels, Inc., an automotive fleet management provider, through Lithia Marubeni Mobility

Holdings (LMMH) consists of 26.5% of the common stock voting interests accounted for herein asan equity method

investment. The investment is measured at cost plus or minus our share of equity method investee income or loss

as a component of Other non-current assets in the Consolidated Balance Sheets. The book value of our investment

was$221.0 million and$222.0 million as of September 30, 2026 and December 31, 2025, respectively. We received

a dividend of$9.8 million during thenine months ended September 30, 2026. Using the cumulative earnings

approach, this dividend is classified within Operating Activities in the Consolidated Statements of Cash Flows, as it

is less than our cumulative equity in the investee's earnings.

NOTE 7. COMMITMENTS AND CONTINGENCIES

Contract Liabilities

We retain the obligation for various contracts sold to our customers and assumed in acquisitions. These amounts

are recorded as a contract liability. At the time of sale, we defer the full sale price and recognize the revenue based

on the rate at which we expect to incur further costs.

The amount of revenue recognized related to aftersales contract liabilities is calculated, net of cancellations, using

an input method, which most closely depicts performance of the contracts. Our contract liability balances associated

with aftersales were$549.7 million and$501.5 million as of September 30, 2026, and December 31, 2025,

respectively; we recognized$31.2 million and$99.5 million of revenue in thethree and nine months ended

September 30, 2026, related to our opening contract liability balances associated with aftersales.

The amount of revenue recognized related to operating lease vehicle contract liabilities is recognized evenly over

the life of the related lease contracts. Our contract liability balances associated with operating lease vehicles were

$155.2 million and$136.4 million as of September 30, 2026, and December 31, 2025, respectively; we recognized

$19.3 million and$51.5 million of revenue in thethree and nine months ended September 30, 2026, related to our

opening contract liability balances associated with operating lease vehicles.

Our contract liability balances are included in Accrued liabilities and Deferred revenue.

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

Credit Facilities

US Bank Syndicated Credit Facility

On February 27, 2026, we amended our existing syndicated credit facility with US Bank as agent (USB credit

facility), now comprised of 18 financial institutions, includingsix manufacturer-affiliated finance companies, maturing

February 27, 2031. The amendment extended the maturity date, converted the existing used vehicle floorplan and

service loaner floorplan facilities to VIN-specific facilities, eliminated the credit spread adjustment of 0.10%, and

reduced the margin on used vehicle floor plan financing from 1.40% to 1.20%.

This USB credit facility provides for a total financing commitment of$6.5 billion, which may be further expanded,

subject to lender approval and the satisfaction of other conditions, up to a total of$7.0 billion. The allocation of the

financing commitment is for up to$2.7 billion in new vehicle inventory floorplan financing, up to$1.3 billion in used

vehicle inventory floorplan financing, up to$150 million in service loaner vehicle floorplan financing, and up to

$2.4 billion in revolving financing for general corporate purposes, including acquisitions and working capital. We

have the option to reallocate the commitments under this USB credit facility, provided that the aggregate revolving

loan commitment may not be more than 50% of the amount of the aggregate commitment. All borrowings from, and

repayments to, our lending group are presented in the Consolidated Statements of Cash Flows as part of Net cash

provided by financing activities.

Our obligations under our USB credit facility are secured by a substantial amount of our assets, including our

inventory (including new and used vehicles, parts and accessories), equipment, accounts receivable (and other

rights to payment), real property, and our equity interests in certain of our subsidiaries.

The interest rate on the USB credit facility varies based on the type of debt, with the rate of Daily Simple SOFR plus

a margin of 1.10% for new vehicle floor plan financing,1.20% for used vehicle floor plan financing,1.20% for

service loaner floor plan financing, and an applicable margin on the revolving financing ranging from 1.00% to

2.00% depending on our leverage ratio. The annual interest rates associated with our commitments are as follows:

Bank of Nova Scotia Syndicated Credit Facility

On February 27, 2026, we amended our syndicated credit agreement with the Bank of Nova Scotia as agent (BNS

credit facility), which is comprised ofsix financing institutions, includingtwo manufacturer-affiliated finance

companies. The amendment extended the maturity date, converted the existing used vehicle floorplan facility to a

VIN-specific facility, and reduced the margin on used vehicle floor plan financing from 1.25% to 1.10%.

The BNS credit facility provides for a total financing commitment of approximately$1.1 billion CAD, including a

working capital revolving credit facility of up to$125 million CAD, a wholesale flooring facility for new vehicles up to

$375 million CAD, used vehicle flooring facility of up to$100 million CAD, wholesale leasing facility of up to$500

million CAD, and daily rental vehicle facility up to$25 million CAD.

The interest rate on the BNS credit facility varies based on the type of debt, using either the Term or Daily

Compounded rate of the Canadian Overnight Repo Rate Average (CORRA) plus a credit spread adjustment of

0.30% plus a margin of 1.00% for the wholesale flooring facility,1.10% for the used vehicle flooring facility,1.20%

for the daily rental facility,1.30% for the wholesale leasing facility, and an applicable margin on the working capital

revolving facility ranging from 1.25% to 2.25% depending on our leverage ratio. The annual interest rates

associated with our commitments are as follows:

All BNS facilities other than the wholesale and used flooring facilities, which are demand facilities, mature on

March 18, 2029. The credit agreement includes various financial and other covenants typical of such agreements.

Mizuho Warehouse Facility

On September 30, 2026, we amended our securitization facility for our auto loan portfolio with Mizuho Bank Ltd.

(Mizuho warehouse facility), as administrative agent and account bank, to extend the commitment termination date

to July 31, 2028 and modify certain collateral eligibility, concentration and hedging provisions. The amendment also

reduced the interest rate on the facility to the Daily Simple SOFR rate plus 0.825%. The Mizuho warehouse facility

provides for a total financing commitment of up to$1.0 billion.

Non-Recourse Notes Payable

In 2026, we issued a total of$1.5 billion 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 past and present

team members, which are closed to future accrual.

Net Periodic Benefit

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 thenine months ended September 30, 2026, funding of pension plans was$6.0 million. For the remainder of

2026, we estimate approximately$2.2 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.

In May 2026, our Board approved an additional$500 million repurchase authorization of our common stock. This

authorization, when added to the amounts previously authorized by the Board for repurchase, brings the total

authorizations up to$3.7 billion. Share repurchases under our authorizations were as follows:

1 Price excludes excise taxes imposed under the Inflation Reduction Act of$5.5 million for thenine months ended

September 30, 2026.

As of September 30, 2026, we had$535.4 million available for repurchases pursuant to our share repurchase

authorizations from our Board in 2026 and prior years.

In addition, during 2026, we repurchased 115,367 shares at an average price of$332.32 per share, for a total of

$38.3 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.

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 thenine-month period ended September 30, 2026.

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

1 Excluding unamortized debt issuance costs

NOTE 12. ACQUISITIONS

In the first nine months of 2026, we completed the following acquisitions:

•In February 2026, Mercedes-Benz of Medford in Oregon.

•In March 2026, Toyota of Gallatin in Tennessee.

•In March 2026, Read Motor Group in the United Kingdom.

•In April 2026, Newport Citroen and Peugeot in the United Kingdom.

•In April 2026, Agility Fleet in the United Kingdom.

•In May 2026, Kia of North Tucson in Arizona.

•In May 2026, Preston, Chester & Derby Group 1 Jaguar Land Rover in the United Kingdom.

•In July 2026, Northwest CDJR of Beaverton in Oregon.

•In August 2026, Hyundai of Rockwall in Texas.

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 2026 acquisitions subsequent to the date of acquisition were as

follows (in millions):

The following tables summarize the consideration paid for the 2026 acquisitions and the PPA for identified assets

acquired and liabilities assumed as of the acquisition date:

The PPA for the 2026 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 U.S. acquisitions in 2026 to be deductible for U.S. federal income tax

purposes.

For the three months ended September 30, 2026, we recordedno acquisition-related expenses, compared with

$15.9 million in the corresponding period of 2025. For the nine months ended September 30, 2026, we recorded

$0.7 million of acquisition related expenses, compared with$16.1 million in the corresponding period of 2025.

Acquisition related expenses are included as a component of SG&A expense.

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

nine-month periods ended September 30, 2026 and 2025 had occurred on January 1,2025:

We calculated these amounts 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. We calculate diluted EPS 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:

We evaluated the effect of antidilutive securities on common stock for thethree and nine-month periods ended

September 30, 2026 and 2025 and determined the effect 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 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. We do not utilize asset information by segment for purposes of assessing performance or allocating

resources and, as a result, we do not present such information.

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.

We do not regularly provide total asset information by segment to our CODM or utilize the information for purposes

of assessing performance or allocating resources and, as a result, we do not present such information. 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 table presents revenue by geographic area:

NOTE 15. RECENT ACCOUNTING PRONOUNCEMENTS

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 judgments 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.

In December 2025, the FASB issued ASU 2025-11 that included amendments to improve the organization of

required interim disclosures and clarified the scope of their applicability. The amendments in this update are

effective for fiscal years beginning after December 15, 2027. We plan to adopt this pronouncement and make the

necessary updates to our disclosures for the year ending December 31, 2028, and, aside from these disclosure

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

In December 2025, the FASB issued ASU 2025-12 intended to make financial reporting more straightforward by

addressing 33 specific issues within the FASBASC. 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.