Annual Reports

 
Quarterly Reports

  • 10-Q (Nov 7, 2017)
  • 10-Q (Aug 2, 2017)
  • 10-Q (Apr 28, 2017)
  • 10-Q (Oct 28, 2016)
  • 10-Q (Jul 29, 2016)
  • 10-Q (Apr 29, 2016)

 
8-K

 
Other

Lithia Motors 10-Q 2017

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
 

(Mark One)
 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from       to         
 
Commission file number: 001-14733
 
LITHIA MOTORS, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Oregon
 
93-0572810
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
150 N. Bartlett Street, Medford, Oregon
 
97501
(Address of principal executive offices)
 
(Zip Code)
 
Registrant's telephone number, including area code: 541-776-6401
 
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ] Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class A common stock without par value
 
24,022,953
Class B common stock without par value
 
1,000,000
(Class)
 
Outstanding at August 2, 2017




LITHIA MOTORS, INC.
FORM 10-Q
INDEX 
 
PART I - FINANCIAL INFORMATION
Page
 
 
 
Item 1.
 
 
 
 
Consolidated Balance Sheets (Unaudited) - June 30, 2017 and December 31, 2016
 
 
 
 
Consolidated Statements of Operations (Unaudited) – Three and Six Months Ended June 30, 2017 and 2016
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended June 30, 2017 and 2016
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 

1



LITHIA MOTORS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
 
 
June 30, 2017
 
December 31, 2016
Assets
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
31,177

 
$
50,282

Accounts receivable, net of allowance for doubtful accounts of $6,457 and $5,281
 
359,010

 
417,714

Inventories, net
 
1,878,780

 
1,772,587

Other current assets
 
54,801

 
46,611

Total Current Assets
 
2,323,768

 
2,287,194

 
 
 
 
 
Property and equipment, net of accumulated depreciation of $184,283 and $167,300
 
1,067,104

 
1,006,130

Goodwill
 
259,399

 
259,399

Franchise value
 
184,763

 
184,268

Other non-current assets
 
141,461

 
107,159

Total Assets
 
$
3,976,495

 
$
3,844,150

 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
Current Liabilities:
 
 
 
 
Floor plan notes payable
 
$
99,932

 
$
94,602

Floor plan notes payable: non-trade
 
1,534,715

 
1,506,895

Current maturities of long-term debt
 
20,901

 
20,965

Trade payables
 
89,795

 
88,423

Accrued liabilities
 
212,309

 
211,109

Total Current Liabilities
 
1,957,652

 
1,921,994

 
 
 
 
 
Long-term debt, less current maturities
 
777,814

 
769,916

Deferred revenue
 
92,335

 
81,929

Deferred income taxes
 
57,919

 
59,075

Other long-term liabilities
 
102,948

 
100,460

Total Liabilities
 
2,988,668

 
2,933,374

 
 
 
 
 
Stockholders' Equity:
 
 
 
 
Preferred stock - no par value; authorized 15,000 shares; none outstanding
 

 

Class A common stock - no par value; authorized 100,000 shares; issued and outstanding 23,757 and 23,382
 
158,527

 
165,512

Class B common stock - no par value; authorized 25,000 shares; issued and outstanding 1,262 and 1,762
 
157

 
219

Additional paid-in capital
 
34,280

 
41,225

Retained earnings
 
794,863

 
703,820

Total Stockholders' Equity
 
987,827

 
910,776

Total Liabilities and Stockholders' Equity
 
$
3,976,495

 
$
3,844,150

 
See accompanying condensed notes to consolidated financial statements.

2



LITHIA MOTORS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
 
New vehicle
 
$
1,384,055

 
$
1,209,037

 
$
2,594,359

 
$
2,305,092

Used vehicle retail
 
633,635

 
553,647

 
1,235,858

 
1,086,373

Used vehicle wholesale
 
69,512

 
66,714

 
141,015

 
131,860

Finance and insurance
 
94,851

 
81,043

 
181,628

 
158,681

Service, body and parts
 
246,005

 
202,265

 
478,579

 
398,940

Fleet and other
 
38,978

 
20,633

 
71,698

 
35,254

Total revenues
 
2,467,036

 
2,133,339

 
4,703,137

 
4,116,200

Cost of sales:
 
 
 
 
 
 
 
 
New vehicle
 
1,303,516

 
1,136,175

 
2,443,702

 
2,165,464

Used vehicle retail
 
559,129

 
486,422

 
1,092,569

 
954,871

Used vehicle wholesale
 
67,800

 
65,228

 
137,786

 
128,544

Service, body and parts
 
123,525

 
103,666

 
242,905

 
204,222

Fleet and other
 
37,795

 
19,812

 
69,252

 
33,881

Total cost of sales
 
2,091,765

 
1,811,303

 
3,986,214

 
3,486,982

Gross profit
 
375,271

 
322,036

 
716,923

 
629,218

Asset impairments
 

 
3,498

 

 
6,996

Selling, general and administrative
 
257,290

 
215,526

 
500,062

 
434,632

Depreciation and amortization
 
14,031

 
12,503

 
26,770

 
24,166

Operating income
 
103,950

 
90,509

 
190,091

 
163,424

Floor plan interest expense
 
(9,332
)
 
(6,209
)
 
(17,384
)
 
(12,118
)
Other interest expense, net
 
(7,169
)
 
(5,502
)
 
(13,840
)
 
(10,961
)
Other income (expense), net
 
387

 
(1,495
)
 
10,232

 
(3,021
)
Income before income taxes
 
87,836

 
77,303

 
169,099

 
137,324

Income tax provision
 
(34,636
)
 
(25,875
)
 
(65,172
)
 
(45,626
)
Net income
 
$
53,200

 
$
51,428

 
$
103,927

 
$
91,698

 
 
 
 
 
 
 
 
 
Basic net income per share
 
$
2.12

 
$
2.02

 
$
4.14

 
$
3.58

Shares used in basic per share calculations
 
25,053

 
25,462

 
25,116

 
25,639

 
 
 
 
 
 
 
 
 
Diluted net income per share
 
$
2.12

 
$
2.01

 
$
4.13

 
$
3.56

Shares used in diluted per share calculations
 
25,106

 
25,534

 
25,177

 
25,754

 
 
 
 
 
 
 
 
 
Cash dividends declared per Class A and Class B share
 
$
0.27

 
$
0.25

 
$
0.52

 
$
0.45

 
See accompanying condensed notes to consolidated financial statements.

3



LITHIA MOTORS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
 
 
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
53,200

 
$
51,428

 
$
103,927

 
$
91,698

Other comprehensive income, net of tax:
 
 
 
 
 

 

Gain on cash flow hedges, net of tax expense of $0, $72, $0, and $175, respectively
 

 
114

 

 
277

Comprehensive income
 
$
53,200

 
$
51,542

 
$
103,927

 
$
91,975

 
See accompanying condensed notes to consolidated financial statements.


4



LITHIA MOTORS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
Six Months Ended June 30,
 
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
Net income
 
$
103,927

 
$
91,698

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

 
6,996

Depreciation and amortization
 
26,770

 
24,166

Stock-based compensation
 
5,432

 
6,018

(Gain) loss on disposal of other assets
 
256

 
(4,512
)
Gain on disposal of franchise
 

 
(1,102
)
Deferred income taxes
 
(1,156
)
 
5,704

(Increase) decrease (net of acquisitions and dispositions):
 
 
 
 
Trade receivables, net
 
70,908

 
6,564

Inventories
 
(36,078
)
 
(114,052
)
Other assets
 
479

 
5,652

Increase (decrease) (net of acquisitions and dispositions):
 
 
 
 
Floor plan notes payable
 
1,330

 
8,685

Trade payables
 
414

 
6,678

Accrued liabilities
 
(3,684
)
 
17,595

Other long-term liabilities and deferred revenue
 
9,957

 
10,668

Net cash provided by operating activities
 
178,555

 
70,758

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(32,266
)
 
(43,247
)
Proceeds from sales of assets
 
2,870

 
197

Cash paid for other investments
 
(7,748
)
 
(16,690
)
Cash paid for acquisitions, net of cash acquired
 
(88,075
)
 
(18,807
)
Proceeds from sales of stores
 

 
11,837

Net cash used in investing activities
 
(125,219
)
 
(66,710
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
(Repayments) borrowings on floor plan notes payable, net: non-trade
 
(32,124
)
 
58,622

Borrowings on lines of credit
 
773,500

 
487,623

Repayments on lines of credit
 
(808,846
)
 
(468,955
)
Principal payments on long-term debt and capital leases, scheduled
 
(8,825
)
 
(8,026
)
Principal payments on long-term debt and capital leases, other
 
(35,765
)
 
(2,303
)
Proceeds from issuance of long-term debt
 
74,065

 
12,080

Proceeds from issuance of common stock
 
3,519

 
3,329

Repurchase of common stock
 
(24,913
)
 
(104,858
)
Dividends paid
 
(13,052
)
 
(11,524
)
Net cash used in financing activities
 
(72,441
)
 
(34,012
)
Decrease in cash and cash equivalents
 
(19,105
)
 
(29,964
)
Cash and cash equivalents at beginning of period
 
50,282

 
45,008

Cash and cash equivalents at end of period
 
$
31,177

 
$
15,044

 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid during the period for interest
 
$
33,476

 
$
24,960

Cash paid during the period for income taxes, net
 
62,274

 
9,684

Floor plan debt paid in connection with store disposals
 

 
5,284

 
 
 
 
 
Supplemental schedule of non-cash activities:
 
 
 
 
Debt issued in connection with acquisitions
 
$
1,748

 
$

Non-cash assets transferred in connection with acquisitions
 

 
2,637

Debt assumed in connection with acquisitions
 
11,837

 

Issuance of class A common stock in connection with acquisitions
 
2,137

 


 See accompanying condensed notes to consolidated financial statements.

5



LITHIA MOTORS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1. Interim Financial Statements
 
Basis of Presentation
These condensed Consolidated Financial Statements contain unaudited information as of June 30, 2017 and for the three and six months ended June 30, 2017 and 2016. 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 2016 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 2016 is derived from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2017. The interim condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our 2016 Annual Report on Form 10-K. 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 condensed Consolidated Financial Statements to maintain consistency and comparability between periods presented. These reclassifications were related to our adoption of ASU 2016-09, "Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting." Specifically, we reclassified the presentation of excess tax benefits on our Consolidated Statements of Cash Flows between financing and operating cash flows and recorded reclassifications between additional paid-in capital and retained earnings. See also Note 12.

Note 2. Accounts Receivable

Accounts receivable consisted of the following (in thousands):
 
 
June 30, 2017
 
December 31, 2016
Contracts in transit
 
$
179,556

 
$
233,506

Trade receivables
 
51,009

 
47,450

Vehicle receivables
 
40,120

 
43,937

Manufacturer receivables
 
73,067

 
76,948

Auto loan receivables
 
74,123

 
69,859

Other receivables
 
1,057

 
1,600

 
 
418,932


473,300

Less: Allowance
 
(6,457
)
 
(5,281
)
Less: Long-term portion of accounts receivable, net
 
(53,465
)
 
(50,305
)
Total accounts receivable, net
 
$
359,010


$
417,714


Accounts receivable classifications include the following:

Contracts in transit are receivables from various lenders for the financing of vehicles that we have arranged on behalf of the customer and are typically received approximately ten days after selling a vehicle.
Trade receivables are comprised of amounts due from customers for open charge accounts, lenders for the commissions earned on financing and others for commissions earned on service contracts and insurance products.
Vehicle receivables represent receivables for the portion of the vehicle sales price paid directly by the customer.
Manufacturer receivables represent amounts due from manufacturers, including holdbacks, rebates, incentives and warranty claims.
Auto loan receivables include amounts due from customers related to retail sales of vehicles and certain finance and insurance products.

Interest income on auto loan receivables is recognized based on the contractual terms of each loan and is accrued until repayment, charge-off, or repossession. Direct costs associated with loan originations are capitalized and expensed as an offset to interest

6



income when recognized on the loans. All other receivables are recorded at invoice and do not bear interest until they are 60 days past due.

The allowance for doubtful accounts is estimated based on our historical write-off experience and is reviewed monthly. Consideration is given to recent delinquency trends and recovery rates. Account balances are charged against the allowance after all appropriate means of collection have been exhausted and the potential for recovery is considered remote. The annual activity for charges and subsequent recoveries is immaterial.

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

The components of inventories, net, consisted of the following (in thousands):
 
 
June 30, 2017
 
December 31, 2016
New vehicles
 
$
1,376,995

 
$
1,338,110

Used vehicles
 
428,361

 
368,067

Parts and accessories
 
73,424

 
66,410

Total inventories
 
$
1,878,780

 
$
1,772,587


Inventories are valued at the lower of net realizable value or cost, using a pooled approach for vehicles and the specific identification method for parts. Certain inventories are valued using the last-in first-out (LIFO) method.
 
Note 4. Goodwill and Franchise Value

The changes in the carrying amounts of goodwill are as follows (in thousands):
 
 
Domestic
 
Import
 
Luxury
 
Consolidated
Balance as of December 31, 2015 ¹
 
$
97,903

 
$
84,384

 
$
30,933

 
$
213,220

Additions through acquisitions2
 
18,154

 
21,795

 
7,448

 
47,397

Reductions through divestitures
 
(1,218
)
 

 

 
(1,218
)
Balance as of December 31, 20161
 
114,839

 
106,179

 
38,381

 
259,399

Additions through acquisitions3
 

 

 

 

Balance as of June 30, 2017 ¹
 
$
114,839

 
$
106,179

 
$
38,381

 
$
259,399

1 Net of accumulated impairment losses of $299.3 million recorded during the year ended December 31, 2008.
2 Our purchase price allocation is preliminary for our acquisition of the Carbone Auto Group. The initial purchase price allocation is subject to change upon final valuation analysis. The primary balances still subject to analysis are the segment allocation of goodwill and other intangible assets.
3 Our purchase price allocation is preliminary for the acquisition of the Baierl Auto Group. Unallocated items, including goodwill and other intangible values, are recorded as a component of other non-current assets in the Consolidated Balance Sheets. See also Note 11.

The changes in the carrying amounts of franchise value are as follows (in thousands):
 
Franchise Value
Balance as of December 31, 2015
$
157,699

Additions through acquisitions1
27,087

Reductions through divestitures
(518
)
Balance as of December 31, 2016
184,268

Additions through acquisitions2
495

Balance as of June 30, 2017
$
184,763

1 Our purchase price allocation is preliminary for the acquisitions related to the Carbone Auto Group. The initial purchase price allocation is subject to change upon final valuation analysis. The primary balances still subject to analysis are certain intangible assets.

7



2 Our purchase price allocation is preliminary for the acquisition of the Baierl Auto Group. Unallocated items, including franchise value and other intangible values, are recorded as a component of other non-current assets in the Consolidated Balance Sheets. See also Note 11.

Note 5. Stockholders’ Equity

Repurchases of Class A Common Stock
Repurchases of our Class A Common Stock occurred under a repurchase authorization granted by our Board of Directors and related to shares withheld as part of the vesting of restricted stock units ("RSUs"). In February 2016, our Board of Directors authorized the repurchase of up to $250 million of our Class A common stock. Share repurchases under this authorization were as follows:
 
 
Repurchases Occurring in the Six Months Ended June 30, 2017
 
Cumulative Repurchases as of June 30, 2017
 
 
Shares
 
Average Price
 
Shares
 
Average Price
2016 Share Repurchase Authorization
 
247,000

 
$
87.94

 
960,725

 
$
81.85


As of June 30, 2017, we had $171.4 million available for repurchases pursuant to our 2016 share repurchase authorization.

In addition, during the first six months of 2017, we repurchased 32,143 shares at an average price of $99.32 per share, for a total of $3.2 million, related to tax withholdings associated with the vesting of RSUs. The repurchase of shares related to tax withholdings associated with stock awards does not reduce the number of shares available for repurchase as approved by our Board of Directors.

Note 6. Fair Value Measurements

Fair Value Disclosures for Financial Assets and Liabilities
We determined the carrying value of cash equivalents, accounts receivable, trade payables, accrued liabilities 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 fixed rate debt and calculate the estimated fair value of our fixed rate debt using a discounted cash flow methodology. Using 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. As of June 30, 2017, this debt had maturity dates between December 31, 2017 and December 31, 2050. There were no changes to our valuation techniques during the six-month period ended June 30, 2017.

A summary of the aggregate carrying values and fair values of our long-term fixed interest rate debt is as follows (in thousands):
 
 
June 30, 2017
 
December 31, 2016
Carrying value
 
$
370,768

 
$
286,660

Fair value
 
368,142

 
293,522


Note 7. Net Income Per Share of Class A and Class B Common Stock

We compute net income per share of Class A and Class B common stock using the two-class method. Under this method, basic net income per share is computed using the weighted average number of common shares outstanding during the period excluding common shares underlying equity awards that are unvested or subject to forfeiture. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the common shares issuable upon the net exercise of stock options and unvested RSUs and is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net income per share of Class A common stock assumes the conversion of Class B common stock, while the diluted net income per share of Class B common stock does not assume the conversion of those shares.
 
Except with respect to voting and transfer rights, the rights of the holders of our Class A and Class B common stock are identical. Under our Articles of Incorporation, the Class A and Class B common stock share equally in any dividends, liquidation proceeds or other distribution with respect to our common stock and the Articles of Incorporation can only be amended by a vote of the shareholders. Additionally, Oregon law provides that amendments to our Articles of Incorporation that would adversely alter the

8



rights, powers or preferences of a given class of stock, must be approved by the class of stock adversely affected by the proposed amendment. As a result, the undistributed earnings for each year are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the year had been distributed. Because the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis.

Following is a reconciliation of net income and weighted average shares used for our basic earnings per share (“EPS”) and diluted EPS (in thousands, except per share amounts):
Three Months Ended June 30,
 
2017
 
2016
(in thousands, except per share data)
 
Class A
 
Class B
 
Class A
 
Class B
Net income applicable to common stockholders - basic
 
$
50,520

 
$
2,680

 
$
47,869

 
$
3,559

Reallocation of net income as a result of conversion of dilutive stock options
 
1

 
(1
)
 
1

 
(1
)
Reallocation of net income due to conversion of Class B to Class A common shares outstanding
 
340

 

 
440

 

Conversion of Class B common shares into Class A common shares
 
2,334

 

 
3,109

 

Effect of dilutive stock options on net income
 
5

 
(5
)
 
9

 
(9
)
Net income applicable to common stockholders - diluted
 
$
53,200

 
$
2,674

 
$
51,428

 
$
3,549

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding – basic
 
23,791

 
1,262

 
23,700

 
1,762

Conversion of Class B common shares into Class A common shares
 
1,262

 

 
1,762

 

Effect of dilutive stock options on weighted average common shares
 
53

 

 
72

 

Weighted average common shares outstanding – diluted
 
25,106

 
1,262

 
25,534

 
1,762

 
 
 
 
 
 
 
 
 
Net income per common share - basic
 
$
2.12

 
$
2.12

 
$
2.02

 
$
2.02

Net income per common share - diluted
 
$
2.12

 
$
2.12

 
$
2.01

 
$
2.01

  
Three Months Ended June 30,
 
2017
 
2016
Diluted EPS
 
Class A
 
Class B
 
Class A
 
Class B
Antidilutive Securities
 
 
 
 
 
 
 
 
Shares issuable pursuant to stock options not included since they were antidilutive
 
22

 

 

 



9



Six Months Ended June 30,
 
2017
 
2016
(in thousands, except per share data)
 
Class A
 
Class B
 
Class A
 
Class B
Net income applicable to common stockholders - basic
 
$
98,337

 
$
5,590

 
$
84,445

 
$
7,253

Reallocation of distributed net income as a result of conversion of dilutive stock options
 
2

 
(2
)
 
5

 
(5
)
Reallocation of distributed net income due to conversion of Class B to Class A common shares outstanding
 
700

 

 
907

 

Conversion of Class B common shares into Class A common shares
 
4,876

 

 
6,313

 

Effect of dilutive stock options on net income
 
12

 
(12
)
 
28

 
(28
)
Net income applicable to common stockholders - diluted
 
$
103,927

 
$
5,576

 
$
91,698

 
$
7,220

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding – basic
 
23,765

 
1,351

 
23,611

 
2,028

Conversion of Class B common shares into Class A common shares
 
1,351

 

 
2,028

 

Effect of dilutive stock options on weighted average common shares
 
61

 

 
115

 

Weighted average common shares outstanding – diluted
 
25,177

 
1,351

 
25,754

 
2,028

 
 
 
 
 
 
 
 
 
Net income per common share - basic
 
$
4.14

 
$
4.14

 
$
3.58

 
$
3.58

Net income per common share - diluted
 
$
4.13

 
$
4.13

 
$
3.56

 
$
3.56

Six Months Ended June 30,
 
2017
 
2016
Diluted EPS
 
Class A
 
Class B
 
Class A
 
Class B
Antidilutive Securities
 
 
 
 
 
 
 
 
Shares issuable pursuant to stock options not included since they were antidilutive
 
11

 

 
10

 


Note 8. Equity-Method Investment

In October 2014, we acquired a 99.9% membership interest in a limited liability company managed by U.S. Bancorp Community Development Corporation with a total equity contribution of $49.8 million. This investment generated new markets tax credits under the New Markets Tax Credit Program (“NMTC Program”). The NMTC Program was established by Congress in 2000 to spur new or increased investments into operating businesses and real estate projects located in low-income communities.

While U.S. Bancorp Community Development Corporation exercised management control over the limited liability company, due to the economic interest we held in the entity, we determined our ownership portion of the entity was appropriately accounted for using the equity method. We exited this equity-method investment in December 2016.
 
We estimated the value of our equity-method investment, which was recorded at fair value on a non-recurring basis, based on a market valuation approach. We used prices and other relevant information generated primarily by recent market transactions involving similar or comparable assets. Because these valuations contained unobservable inputs, we classified the measurement of fair value of our equity-method investment as Level 3.
The following amounts related to this equity-method investment were recorded in our Consolidated Statements of Operations (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Asset impairments to write investment down to fair value
 
$

 
$
3,498

 
$

 
$
6,996

Our portion of the partnership’s operating losses
 

 
2,065

 

 
4,131

Non-cash interest expense related to the amortization of the discounted fair value of future equity contributions
 

 
62

 

 
154

Tax benefits and credits generated
 

 
6,837

 

 
12,782


10



Note 9. Segments

While we have determined that each individual store is a reporting unit, we have aggregated our reporting units into three reportable segments based on their economic similarities: Domestic, Import and Luxury.

Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Chrysler, General Motors and Ford. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Honda, Toyota, Subaru, Nissan and Volkswagen. Our Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by BMW, Mercedes-Benz and Lexus. The franchises in each segment also sell used vehicles, parts and automotive services, and automotive finance and insurance products.

Corporate and other revenue and income includes the results of operations of our stand-alone body shop offset by unallocated corporate overhead expenses, such as corporate personnel costs, and certain unallocated reserve and elimination adjustments. Additionally, certain internal corporate expense allocations increase segment income for Corporate and other while decreasing segment income for the other reportable segments. These internal corporate expense allocations are used to increase comparability of our dealerships and reflect the capital burden a stand-alone dealership would experience. Examples of these internal allocations include internal rent expense, internal floor plan financing charges, and internal fees charged to offset employees within our corporate headquarters that perform certain dealership functions.

We define our chief operating decision maker (“CODM”) to be certain members of our executive management group. Historical and forecasted operational performance is evaluated on a store-by-store basis and on a consolidated basis by the CODM. We derive the operating results of the segments directly from our internal management reporting system. The accounting policies used to derive segment results are substantially the same as those used to determine our consolidated results, except for the internal allocation within Corporate and other discussed above. Our CODM measures the performance of each operating segment based on several metrics, including earnings from operations, and uses these results, in part, to evaluate the performance of, and to allocate resources to, each of the operating segments.
Certain financial information on a segment basis is as follows (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
 
Domestic
 
$
954,949

 
$
830,410

 
$
1,854,707

 
$
1,602,312

Import
 
1,101,314

 
930,317

 
2,072,787

 
1,793,060

Luxury
 
413,088

 
371,866

 
776,891

 
718,679

 
 
2,469,351


2,132,593


4,704,385

 
4,114,051

Corporate and other
 
(2,315
)
 
746

 
(1,248
)
 
2,149

 
 
$
2,467,036


$
2,133,339


$
4,703,137

 
$
4,116,200

Segment income*:
 
 
 
 
 
 
 
 
Domestic
 
$
27,857

 
$
28,999

 
$
53,299

 
$
52,129

Import
 
32,465

 
29,680

 
54,637

 
53,943

Luxury
 
10,088

 
9,730

 
14,801

 
14,312

 
 
70,410


68,409


122,737

 
120,384

Corporate and other
 
38,239

 
28,394

 
76,740

 
55,088

Depreciation and amortization
 
(14,031
)
 
(12,503
)
 
(26,770
)
 
(24,166
)
Other interest expense
 
(7,169
)
 
(5,502
)
 
(13,840
)
 
(10,961
)
Other income (expense), net
 
387

 
(1,495
)
 
10,232

 
(3,021
)
Income before income taxes
 
$
87,836


$
77,303


$
169,099

 
$
137,324

 *Segment income for each of the segments is defined as income before income taxes, depreciation and amortization, other interest expense and other income (expense), net.

11



 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Floor plan interest expense:
 
 
 
 
 
 
 
 
Domestic
 
$
8,716

 
$
6,233

 
$
16,670

 
$
12,729

Import
 
6,793

 
4,393

 
12,666

 
8,627

Luxury
 
3,383

 
2,650

 
6,459

 
5,308

 
 
18,892

 
13,276

 
35,795

 
26,664

Corporate and other
 
(9,560
)
 
(7,067
)
 
(18,411
)
 
(14,546
)
 
 
$
9,332

 
$
6,209

 
$
17,384

 
$
12,118

 
 
 
June 30, 2017
 
December 31, 2016
Total assets:
 
 
 
 
Domestic
 
$
1,253,814

 
$
1,225,387

Import
 
1,037,626

 
959,355

Luxury
 
491,627

 
511,779

Corporate and other
 
1,193,428

 
1,147,629

 
 
$
3,976,495

 
$
3,844,150

Note 10. Contingencies

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 or the proceedings described below will have a material adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with certainty.
California Wage and Hour Litigations

In June 2012, Mr. Robles and Mr. Laredo brought claims against DCH Tustin Acura (Robles v. Tustin Motors, Inc., Case No. 30-2012-579414, filed in the Superior Court of California, Orange County) alleging that the employer underpaid technicians citing California Wage Order provisions that require an employer to pay at least two times the minimum wage for each hour worked if the employee is required to bring his or her own tools. The plaintiffs amended the complaint in late 2013 to include allegations that the employer failed to pay technicians for non-productive time and time spent performing tasks not compensated by the flat-rate compensation system; off-the-clock time worked; and wages due at termination. The amended complaint also alleged that the employer failed to provide technicians accurate and complete wage statements; and statutory meal and rest periods. The plaintiffs are seeking relief on behalf of all employees at all DCH Auto Group dealerships in California in addition to attorney fees and costs. These plaintiffs (and several other former technicians in separate but partially overlapping actions) also seek relief under California’s Private Attorney General Action (PAGA) provisions, which allow private plaintiffs to recover civil penalties on behalf of the State of California. DCH successfully compelled arbitration based on arbitration agreements between these claimants and the employer, although certain representative claims were excluded and stayed pending arbitration.

During the pendency of Robles, related cases were filed that made substantially similar technician claims including Holzer (see below). DCH and the Robles claimants settled their individual claims in mediation in 2015. In April 2016, DCH and all technician plaintiffs in Robles and the related cases agreed in principle to settle the representative claims, and this settlement has been approved by the California courts. DCH Auto Group (USA) Limited must indemnify Lithia Motors, Inc. for losses related to this claim pursuant to the stock purchase agreement between Lithia Motors, Inc. and DCH Auto Group (USA) Limited dated June 14, 2014. We believe the exposure related to this lawsuit, when considered in relation to the terms of the stock purchase agreement, is immaterial to our financial statements.

In August 2014, Ms. Holzer filed a complaint in the Central District of California (Holzer v. DCH Auto Group (USA) Inc., Case No. BC558869) alleging that her employer, an affiliate of DCH Auto Group (USA) Inc., failed to provide vehicle finance and sales persons, service advisors, and other clerical and hourly workers accurate and complete wage statements; and statutory meal and rest periods. The complaint also alleges that the employer failed to pay these employees for off-the-clock time worked; and wages due at termination. The plaintiffs also seek attorney fees and costs. DCH has sought to compel arbitration based on plaintiffs’ arbitration agreements. The plaintiffs (and several other employees in separate actions) are seeking relief under California’s PAGA provisions.


12



During the pendency of Holzer, related cases were filed that made substantially similar non-technician claims.  DCH and all non-technician claimants settled their individual claims in mediation in 2017. In January 2017, DCH and all non-technician plaintiffs agreed in principle to settle the representative claims, although this settlement has not yet been approved by the California courts as expressly contemplated by the parties and required by applicable law as a condition of the agreed release of claims. DCH Auto Group (USA) Limited must indemnify Lithia Motors, Inc. for losses related to this claim pursuant to the stock purchase agreement between Lithia Motors, Inc. and DCH Auto Group (USA) Limited dated June 14, 2014. We believe the exposure related to this lawsuit, when considered in relation to the terms of the stock purchase agreement, is immaterial to our financial statements.

Note 11. Acquisitions

In the first six months of 2017, we completed the following acquisition:
On May 1, 2017, Baierl Auto Group, an eight store platform based in Pennsylvania.

Revenue and operating income contributed by the 2017 acquisition subsequent to the date of acquisition were as follows (in thousands):
Revenue
$
69,445

Operating income
$
2,168


In 2016, we completed the following acquisitions:
On January 26, 2016, Singh Subaru in Riverside, California.
On February 1, 2016, Ira Toyota in Milford, Massachusetts.
On June 23, 2016, Helena Auto Center, LLC in Helena, Montana.
On August 1, 2016, Kemp Ford in Thousand Oaks, California.
On September 12, 2016, Carbone Auto Group, a nine store platform based in New York and Vermont.
On September 28, 2016, Greiner Ford Lincoln in Casper, Wyoming.
On October 5, 2016, Woodland Hills Audi in Woodland Hills, California.
On November 16, 2016, Honolulu Ford in Honolulu, Hawaii.

All 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.
 
The following tables summarize the consideration paid for the 2017 acquisition and the amount of identified assets acquired and liabilities assumed as of the acquisition date (in thousands):
 
 
Consideration
Cash paid, net of cash acquired
 
$
88,075

Equity securities issued 1
 
2,137

 
 
$
90,212

1 In partial consideration for the purchase of Baierl Auto Group, we issued 4,489 shares of our class A common stock on May 1, 2017 and will issue an additional 17,957 shares over the next 4 years for a total of 22,446 shares. As of May 1, 2017, these shares were deemed outstanding for purposes of calculating basic and diluted EPS and had a market value of $2.1 million, based on the closing price of our class A common stock on May 1, 2017 of $95.22 per share. See also Note 7.

The purchase price allocations for the Baierl Auto Group acquisition are preliminary and 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 purchase price allocations based upon information that is currently available. Unallocated items are recorded as a component of other non-current assets in the Consolidated Balance Sheets.

13



 
 
Assets Acquired and Liabilities Assumed
Trade receivables, net
 
$
12,203

Inventories
 
78,820

Property and equipment
 
54,433

Other assets
 
39,345

Floor plan notes payable
 
(70,960
)
Debt and capital lease obligations
 
(13,585
)
Other liabilities
 
(10,044
)
 
 
$
90,212


In the six months ended June 30, 2017, we recorded $2.1 million in acquisition expense as a component of selling, general and administrative expense. We did not have any material acquisition expenses for the same period in 2016.
 
The following unaudited pro forma summary presents consolidated information as if all acquisitions in the three and six-month periods ended June 30, 2017 and 2016 had occurred on January 1, 2016 (in thousands, except per share amounts):
Three Months Ended June 30,
 
2017
 
2016
Revenue
 
$
2,502,299

 
$
2,452,886

Net income
 
53,380

 
54,019

Basic net income per share
 
2.13

 
2.12

Diluted net income per share
 
2.13

 
2.12

 
Six Months Ended June 30, 2017
 
2017
 
2016
Revenue
 
$
4,838,047

 
$
4,735,415

Net income
 
104,546

 
96,687

Basic net income per share
 
4.16

 
3.77

Diluted net income per share
 
4.15

 
3.75


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

Note 12. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued accounting standards update ("ASU") 2014-09, "Revenue from Contracts with Customers," which amends the accounting guidance related to revenues. This amendment will replace most of the existing revenue recognition guidance when it becomes effective. The new standard, as amended in July 2015, is effective for fiscal years beginning after December 15, 2017 and entities are allowed to adopt the standard as early as annual periods beginning after December 15, 2016, and interim periods therein. The standard permits the use of either the retrospective or cumulative effect transition method. We have evaluated the effect this amendment will have on our most significant types of transactions and expect the timing of our revenue recognition to generally remain the same.

In February 2016, the FASB issued ASU 2016-02, "Leases." ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosing key information about leasing arrangements. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. We are evaluating the effect this pronouncement will have on our consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 simplifies the accounting for several aspects of share-based payment transactions, including

14



the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. In January 2017, we adopted this new guidance. As a result, we recorded the following:
Reclassified $0.2 million as a decrease to additional paid-in capital and an increase to retained earnings related to our policy election to record forfeitures as they occur.
All prior periods presented in our Consolidated Statements of Cash Flows have been adjusted for the presentation of excess tax benefits on the cash flow statement. This resulted in a $4.4 million reclassification between financing and operating cash flows.
We had $0.3 million of tax-affected state net operating loss carryforwards related to excess tax benefits for which a deferred tax asset had not been recognized. At adoption, this amount was recorded with the offset to retained earnings. Additionally, we do not believe that it is more-likely-than-not that the asset will be utilized and, as a result, a valuation allowance in the same amount was recorded that offset the impact to retained earnings. 

In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 provides guidance for eight cash flow classification issues to reduce diversity in practice. The clarification includes guidance on items such as debt prepayment or debt extinguishment cost, contingent consideration payment made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investees. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. We are evaluating the effect this pronouncement will have on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment." ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the updated standard, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, if applicable. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The same impairment test also applies to any reporting unit with a zero or negative carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We do not expect the adoption of ASU 2017-04 to have a material effect on our financial position, results of operations or cash flows.

In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting." ASU 2017-09 reduces both diversity in practice and cost and complexity when changing the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. ASU 2017-09 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. We do not expect the adoption of ASU 2017-09 to have a material effect on our financial position, results of operations or cash flows.

Note 13. Subsequent Events
 
Common Stock Dividend
On July 24, 2017, our Board of Directors approved a dividend of $0.27 per share on our Class A and Class B common stock related to our second quarter 2017 financial results. The dividend will total approximately $6.8 million and will be paid on August 25, 2017 to shareholders of record on August 11, 2017.

5.25% Senior Notes Due 2025
On July 24, 2017, we issued $300 million in aggregate principal amount of 5.25% Senior Notes due 2025 ("the Notes") to eligible purchasers in a private placement under Rule 144A and Regulation S of the Securities Act of 1933. Interest accrues on the Notes from July 24, 2017 and is payable semiannually on February 1 and August 1. The first interest payment is on February 1, 2018. We may redeem the Notes in whole or in part at any time prior to August 1, 2020 at a price equal to 100% of the principal amount plus a make-whole premium set forth in the Indenture and accrued and unpaid interest. After August 1, 2020, we may redeem some or all of the Notes subject to the redemption prices set forth in the Indenture. If we experience specific kinds of changes of control, as described in the Indenture, we must offer to repurchase the Notes at 101% of their principal amount plus accrued and unpaid interest to the date of purchase.


15



We paid approximately $5 million in underwriting and other fees in connection with this issuance, which will be amortized as interest expense over the term of the Notes. The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of the Company’s existing and future restricted subsidiaries that is a borrower under or that guarantees obligations under the Company’s credit facility or other indebtedness of the Company or any subsidiary guarantor. The terms of the Notes, in certain circumstances, may restrict our ability to, among other things, incur additional indebtedness, pay dividends, repurchase our common stock, or merge, consolidate or sell all or substantially all our assets.

Credit Facility
On August 1, 2017, we amended our existing credit facility to increase the total financing commitment to $2.4 billion. This syndicated credit facility is comprised of 18 financial institutions, including seven manufacturer-affiliated finance companies. Our credit facility provides for up to $1.9 billion in new vehicle inventory floor plan financing, up to $250 million in used vehicle inventory floor plan financing and a maximum of $250 million in revolving financing for general corporate purposes, including acquisitions and working capital. This credit facility may be expanded to $2.75 billion total availability, subject to lender approval.

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Forward-Looking Statements and Risk Factors
Certain statements under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” and elsewhere in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, you can identify forward-looking statements by terms such as “project”, “outlook,” “target”, “may,” “will,” “would,” “should,” “seek,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “likely,” “goal,” “strategy,” “future,” “maintain,” and “continue” or the negative of these terms or other comparable terms. Examples of forward-looking statements in this Form 10-Q include, among others, statements we make regarding:
Future market conditions, including anticipated national new car sales levels;
Expected operating results, such as improved store performance; continued improvement of SG&A as a percentage of gross profit and all projections;
Anticipated continued success of acquisitions;
Anticipated ability to capture additional market share;
Anticipated ability to find accretive acquisitions;
Anticipated additions of dealership locations to our portfolio in the future;
Anticipated availability of liquidity from our unfinanced operating real estate; and
Anticipated levels of capital expenditures in the future.
 
The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our actual results to materially differ from the results expressed or implied by these statements. Certain important factors that could cause actual results to differ from our expectations are discussed in Part II - Other Information, Item 1A in this Form 10-Q and in the Risk Factors section of our 2016 Annual Report on Form 10-K, as supplemented and amended from time to time in Quarterly Reports on Form 10-Q and our other filings with the Securities and Exchange Commission.
 
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. You should not place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. We assume no obligation to update or revise any forward-looking statement.
 
Overview
We are one of the largest automotive retailers in the highly fragmented American auto retail industry. As of August 2, 2017, we offered 30 brands of new vehicles and all brands of used vehicles in 160 stores in the United States and online at over 200 websites. We sell new and used vehicles and replacement parts, provide vehicle maintenance, warranty, paint and repair services, arrange related financing, and sell service contracts, vehicle protection products and credit insurance.
 
In 2016, we were the fifth largest public automotive retailer in the U.S., as measured by revenue. Our stores are located in 18 states with concentrations west of the Mississippi and in the Northeast and offer 30 brands of new vehicles and all major brands of used vehicles. Our operations consist of domestic, import and luxury stores in markets ranging from mid-sized regional cities to metropolitan urban areas.


16



Results of Operations
For the three months ended June 30, 2017 and 2016, we reported net income of $53.2 million, or $2.12 per diluted share, and $51.4 million, or $2.01 per diluted share, respectively. For the six months ended June 30, 2017 and 2016, we reported net income of $103.9 million, or $4.13 per diluted share, and $91.7 million, or $3.56 per diluted share, respectively.

Key Revenue and Gross Profit Metrics
Key performance metrics for revenue and gross profit were as follows (dollars in thousands):
Three Months Ended
June 30, 2017
 
Revenues
 
Percent of
Total Revenues
 
Gross Profit
 
Gross Profit
Margin
 
Percent of Total
Gross Profit
New vehicle
 
$
1,384,055

 
56.1
%
 
$
80,539

 
5.8
%
 
21.5
%
Used vehicle retail
 
633,635

 
25.7

 
74,506

 
11.8

 
19.9

Used vehicle wholesale
 
69,512

 
2.8

 
1,712

 
2.5

 
0.5

Finance and insurance 1
 
94,851

 
3.8

 
94,851

 
100.0

 
25.3

Service, body and parts
 
246,005

 
10.0

 
122,480

 
49.8

 
32.6

Fleet and other
 
38,978

 
1.6

 
1,183

 
3.0

 
0.2

 
 
$
2,467,036

 
100.0
%
 
$
375,271

 
15.2
%
 
100.0
%
 
Three Months Ended
June 30, 2016
 
Revenues
 
Percent of
Total Revenues
 
Gross Profit
 
Gross Profit
Margin
 
Percent of Total
Gross Profit
New vehicle
 
$
1,209,037

 
56.7
%
 
$
72,862

 
6.0
%
 
22.6
%
Used vehicle retail
 
553,647

 
26.0

 
67,225

 
12.1

 
20.9

Used vehicle wholesale
 
66,714

 
3.1

 
1,486

 
2.2

 
0.5

Finance and insurance 1
 
81,043

 
3.8

 
81,043

 
100.0

 
25.2

Service, body and parts
 
202,265

 
9.5

 
98,599

 
48.7

 
30.6

Fleet and other
 
20,633

 
0.9

 
821

 
4.0

 
0.2

 
 
$
2,133,339

 
100.0
%
 
$
322,036

 
15.1
%
 
100.0
%
1 Commissions reported net of anticipated cancellations.
Six Months Ended
June 30, 2017
 
Revenues
 
Percent of
Total Revenues
 
Gross Profit
 
Gross Profit
Margin
 
Percent of Total
Gross Profit
New vehicle
 
$
2,594,359

 
55.2
%
 
$
150,657

 
5.8
%
 
21.0
%
Used vehicle retail
 
1,235,858

 
26.3

 
143,289

 
11.6

 
20.0

Used vehicle wholesale
 
141,015

 
3.0

 
3,229

 
2.3

 
0.5

Finance and insurance 1
 
181,628

 
3.9

 
181,628