10-Q 1 lad-20220930.htm 10-Q lad-20220930
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-14733
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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 StreetMedford,Oregon97501
(Address of principal executive offices)(Zip Code)
(541) 776-6401
Registrant’s telephone number, including area code
 
Securities registered pursuant to Section 12(b) of the Act: 
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock without par valueLADThe New York Stock Exchange

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 No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes 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 filerNon-accelerated filerAccelerated filerSmaller reporting companyEmerging 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
As of October 27, 2022, there were 27,338,411 shares of the registrant’s common stock outstanding.



LITHIA MOTORS, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
 
Item NumberItemPage
PART IFINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART IIOTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.
Item 2.
Item 6.
SIGNATURE


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CONSOLIDATED BALANCE SHEETS
(In millions; Unaudited)September 30, 2022December 31, 2021
Assets  
Current assets:  
Cash, restricted cash, and cash equivalents$233.0 $174.8 
Accounts receivable, net of allowance for doubtful accounts of $37.0 and $17.3
1,004.6 910.0 
Inventories, net3,309.3 2,385.5 
Other current assets135.4 63.0 
Total current assets4,682.3 3,533.3 
Property and equipment, net of accumulated depreciation of $490.5 and $422.6
3,473.0 3,052.6 
Operating lease right-of-use assets373.2 395.9 
Goodwill1,463.1 977.3 
Franchise value1,866.8 799.1 
Other non-current assets2,216.1 2,388.7 
Total assets$14,074.5 $11,146.9 
Liabilities and equity  
Current liabilities:  
Floor plan notes payable$454.8 $354.2 
Floor plan notes payable: non-trade1,208.1 835.9 
Current maturities of long-term debt113.4 223.7 
Trade payables241.3 235.4 
Accrued liabilities809.0 753.6 
Total current liabilities2,826.6 2,402.8 
Long-term debt, less current maturities5,222.3 3,185.7 
Deferred revenue219.9 191.2 
Deferred income taxes254.5 191.0 
Non-current operating lease liabilities337.7 361.7 
Other long-term liabilities185.3 151.3 
Total liabilities9,046.3 6,483.7 
Redeemable non-controlling interest40.5 34.0 
Equity:  
Preferred stock - no par value; authorized 15.0 shares; none outstanding
  
Common stock - no par value; authorized 125.0 shares; issued and outstanding 27.5 and 29.5
1,107.1 1,711.6 
Additional paid-in capital69.0 58.3 
Accumulated other comprehensive loss(21.5)(3.0)
Retained earnings3,829.1 2,859.5 
Total stockholders’ equity - Lithia Motors, Inc.4,983.7 4,626.4 
Non-controlling interest4.0 2.8 
Total equity4,987.7 4,629.2 
Total liabilities, redeemable non-controlling interest and equity$14,074.5 $11,146.9 

 See accompanying condensed notes to consolidated financial statements.
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FINANCIAL STATEMENTS
1


CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended September 30,Nine Months Ended September 30,
(In millions, except per share amounts; Unaudited)2022202120222021
Revenues:    
New vehicle retail$3,306.9 $2,898.2 $9,619.4 $8,237.7 
Used vehicle retail2,465.8 2,079.5 7,197.0 5,236.6 
Used vehicle wholesale363.2 260.9 1,131.5 613.5 
Finance and insurance333.3 297.0 977.0 765.0 
Service, body and parts712.2 578.3 2,022.6 1,503.4 
Fleet and other114.3 55.9 293.8 166.0 
Total revenues7,295.7 6,169.8 21,241.3 16,522.2 
Cost of sales:    
New vehicle retail2,903.2 2,548.9 8,403.9 7,418.0 
Used vehicle retail2,264.5 1,846.9 6,533.6 4,635.2 
Used vehicle wholesale374.8 255.2 1,131.5 586.8 
Service, body and parts328.0 275.8 945.9 704.3 
Fleet and other111.0 53.9 283.1 162.7 
Total cost of sales5,981.5 4,980.7 17,298.0 13,507.0 
Gross profit1,314.2 1,189.1 3,943.3 3,015.2 
Asset impairments 1.9  1.9 
Selling, general and administrative749.2 673.3 2,256.8 1,757.6 
Depreciation and amortization41.9 34.4 122.1 91.5 
Operating income523.1 479.5 1,564.4 1,164.2 
Floor plan interest expense(10.7)(3.6)(19.4)(17.0)
Other interest expense, net(49.6)(28.0)(114.1)(79.6)
Other expense, net(7.1)(25.7)(37.0)(14.6)
Income before income taxes455.7 422.2 1,393.9 1,053.0 
Income tax provision(125.4)(113.2)(382.1)(282.9)
Net income330.3 309.0 1,011.8 770.1 
(Net income) loss attributable to non-controlling interest0.5 (0.8)(3.9)(0.8)
Net income attributable to redeemable non-controlling interest(1.2)(0.3)(4.5)(0.3)
Net income attributable to Lithia Motors, Inc.$329.6 $307.9 $1,003.4 $769.0 
Basic earnings per share attributable to Lithia Motors, Inc.$11.97 $10.18 $35.23 $27.12 
Shares used in basic per share calculations27.5 30.3 28.5 28.4 
Diluted earnings per share attributable to Lithia Motors, Inc.$11.92 $10.11 $35.10 $26.91 
Shares used in diluted per share calculations27.6 30.5 28.6 28.6 
Cash dividends paid per share$0.42 $0.35 $1.19 $1.01 
    
See accompanying condensed notes to consolidated financial statements.
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FINANCIAL STATEMENTS
2


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Three Months Ended September 30,Nine Months Ended September 30,
(In millions; Unaudited)2022202120222021
Net income$330.3 $309.0 $1,011.8 $770.1 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment(16.4)0.2 (20.3)0.2 
Gain on cash flow hedges, net of tax expense of $, ($0.2), ($0.7), and ($0.9) respectively
 0.5 1.8 2.5 
Total other comprehensive income (loss), net of tax(16.4)0.7 (18.5)2.7 
Comprehensive income313.9 309.7 993.3 772.8 
Comprehensive (income) loss attributable to non-controlling interest0.5 (0.8)(3.9)(0.8)
Comprehensive income attributable to redeemable non-controlling interest(1.2)(0.3)(4.5)(0.3)
Comprehensive income attributable to Lithia Motors, Inc.$313.2 $308.6 $984.9 $771.7 
See accompanying condensed notes to consolidated financial statements.
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FINANCIAL STATEMENTS
3


CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NON-CONTROLLING INTEREST
Three Months Ended September 30,Nine Months Ended September 30,
(In millions; Unaudited)2022202120222021
Total equity, beginning balances$4,698.0 $4,228.4 $4,629.2 $2,661.5 
Common stock1, beginning balances
1,123.9 1,906.9 1,711.6 788.2 
Compensation for stock and stock option issuances and excess tax benefits from option exercises1.9 1.6 21.0 16.2 
Issuance of stock in connection with employee stock plans9.4 8.0 28.1 17.6 
Class B common stock converted to class A common stock1
    
Repurchase of common stock(28.1) (653.6)(15.9)
Equity issuances, net of issuance costs (0.1) 1,110.3 
Common stock1, ending balances
1,107.1 1,916.4 1,107.1 1,916.4 
Class B common stock1, beginning balances
    
Class B common stock converted to class A common stock1
    
Class B common stock1, ending balances
    
Additional paid-in capital, beginning balances62.2 44.0 58.3 41.4 
Compensation for stock and stock option issuances and excess tax benefits from option exercises6.8 6.8 10.7 9.4 
Additional paid-in capital, ending balances69.0 50.8 69.0 50.8 
Accumulated other comprehensive loss, beginning balances(5.1)(4.3)(3.0)(6.3)
Foreign currency translation adjustment(16.4)0.2 (20.3)0.2 
Gain on cash flow hedges, net of tax expense of $, ($0.2), ($0.7), and ($0.9), respectively
 0.5 1.8 2.5 
Accumulated other comprehensive loss, ending balances(21.5)(3.6)(21.5)(3.6)
Retained earnings, beginning balances3,510.8 2,281.8 2,859.5 1,838.2 
Net income attributable to Lithia Motors, Inc.329.6 307.9 1,003.4 769.0 
Dividends paid(11.3)(10.6)(33.8)(28.2)
Retained earnings, ending balances3,829.1 2,579.1 3,829.1 2,579.1 
Non-controlling interest, beginning balances6.1  2.8  
Contribution (distribution) of non-controlling interest(1.6)1.1 (2.7)1.1 
Net income (loss) attributable to non-controlling interest(0.5)0.8 3.9 0.8 
Non-controlling interest, ending balances4.0 1.9 4.0 1.9 
Total equity, ending balances$4,987.7 $4,544.6 $4,987.7 $4,544.6 
Redeemable non-controlling interest, beginning balances$39.8 $ $34.0 $ 
Contribution (distribution) of redeemable non-controlling interest(0.5)33.0 2.0 33.0 
Net income attributable to redeemable non-controlling interest1.2 0.3 4.5 0.3 
Redeemable non-controlling interest, ending balances$40.5 $33.3 $40.5 $33.3 
1 Prior to June 7, 2021, common stock was classified as Class A common stock. The Class A common stock reclassification as common stock occurred in connection with the elimination of our classified common stock structure following the conversion of all Class B common stock to Class A common stock.


See accompanying condensed notes to consolidated financial statements.
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FINANCIAL STATEMENTS
4


CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months Ended September 30,
(In millions; Unaudited)20222021
Cash flows from operating activities:  
Net income$1,011.8 $770.1 
Adjustments to reconcile net income to net cash used for operating activities: 
Asset impairments 1.9 
Depreciation and amortization122.1 91.5 
Stock-based compensation31.7 25.6 
Loss on redemption of senior notes 10.3 
Gain on disposal of other assets(0.4)(2.5)
(Gain) loss on disposal of franchise(49.6)5.2 
Unrealized investment loss32.6 22.3 
Deferred income taxes63.5 25.6 
Amortization of operating lease right-of-use assets37.6 27.0 
(Increase) decrease (net of acquisitions and dispositions):
Accounts receivable, net(54.0)(85.0)
Inventories(852.4)1,003.2 
Other assets(1,032.5)(338.4)
Increase (net of acquisitions and dispositions):
Floor plan notes payable101.1 91.3 
Trade payables9.3 97.2 
Accrued liabilities19.1 236.9 
Other long-term liabilities and deferred revenue42.6 19.7 
Net cash provided by (used in) operating activities(517.5)2,001.9 
Cash flows from investing activities:  
Capital expenditures(209.8)(194.1)
Proceeds from sales of assets16.4 4.6 
Cash paid for other investments(9.3)(9.8)
Cash paid for acquisitions, net of cash acquired(962.6)(2,409.5)
Proceeds from sales of stores148.0 45.7 
Net cash used in investing activities(1,017.3)(2,563.1)
Cash flows from financing activities:  
Borrowings (repayments) on floor plan notes payable, net: non-trade429.6 (840.9)
Borrowings on lines of credit9,178.4 1,642.5 
Repayments on lines of credit(7,430.0)(1,631.6)
Principal payments on long-term debt and finance lease liabilities, scheduled(181.1)(24.7)
Principal payments on long-term debt and finance lease liabilities, other(70.0)(483.6)
Proceeds from issuance of long-term debt337.8 817.5 
Payment of debt issuance costs(4.7)(10.9)
Proceeds from issuance of common stock28.1 1,127.9 
Repurchase of common stock(644.4)(15.9)
Dividends paid(33.8)(28.2)
Payment of contingent consideration related to acquisitions(7.2)(1.4)
Other financing activity(2.7) 
Net cash provided by financing activities1,600.0 550.7 
Effect of exchange rate changes on cash and cash equivalents(3.3)0.9 
Increase (decrease) in cash, restricted cash, and cash equivalents61.9 (9.6)
Cash, restricted cash, and cash equivalents at beginning of year178.4 162.4 
Cash, restricted cash, and cash equivalents at end of period$240.3 $152.8 
See accompanying condensed notes to consolidated financial statements.
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FINANCIAL STATEMENTS
5


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Nine Months Ended September 30,
(In millions)20222021
Reconciliation of cash, restricted cash, and cash equivalents to the consolidated balance sheets
Cash and cash equivalents$172.7 $137.8 
Restricted cash from collections on auto loans receivable and customer deposits60.3 15.0 
Cash, restricted cash, and cash equivalents233.0 152.8 
Restricted cash on deposit in reserve accounts, included in other non-current assets7.3  
Total cash, restricted cash, and cash equivalents reported in the Consolidated Statements of Cash Flows$240.3 $152.8 
Supplemental cash flow information:
Cash paid during the period for interest$122.2 $89.5 
Cash paid during the period for income taxes, net380.0 237.3 
Debt paid in connection with store disposals23.6 8.7 
Non-cash activities:
Debt issued in connection with acquisitions$ $355.4 
Contingent consideration in connection with acquisitions21.7 0.9 
Debt assumed in connection with acquisitions0.7 4.0 
Acquisition of finance leases in connection with acquisitions78.2  
Right-of-use assets obtained in exchange for lease liabilities22.3 131.2 
Unsettled repurchases of common stock9.2  

See accompanying condensed notes to consolidated financial statements.
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FINANCIAL STATEMENTS
6


CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1. INTERIM FINANCIAL STATEMENTS
 
Basis of Presentation
These condensed Consolidated Financial Statements contain unaudited information as of September 30, 2022, and for the three and nine months ended September 30, 2022 and 2021. 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 2021 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 2021, is derived from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 18, 2022. 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 immaterial reclassifications of amounts previously reported have been made to the accompanying condensed Consolidated Financial Statements to maintain consistency and comparability between periods presented.

NOTE 2. CONTRACT LIABILITIES AND ASSETS

Contract Liabilities
We are the obligor on our lifetime oil 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 $274.0 million and $239.0 million as of September 30, 2022, and December 31, 2021, respectively; and we recognized $10.4 million and $32.5 million of revenue in the three and nine months ended September 30, 2022 related to our contract liability balance at December 31, 2021. Our contract liability balance is included in accrued liabilities and deferred revenue.

Contract Assets
Revenue from finance and insurance sales is recognized, net of estimated charge-backs, at the time of the sale of the related vehicle. We act as an agent in the sale of these contracts as the pricing is set by the third-party provider, and our commission is preset. A portion of the transaction price related to sales of finance and insurance contracts is considered variable consideration and is estimated and recognized upon the sale of the contract. Our contract asset balances associated with future estimated variable consideration were $12.7 million and $9.6 million as of September 30, 2022 and December 31, 2021, respectively; and are included in trade receivables and other non-current assets.

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NOTES TO FINANCIAL STATEMENTS
7



NOTE 3. ACCOUNTS RECEIVABLE AND OTHER NON-CURRENT ASSETS

Accounts receivable consisted of the following:
(in millions)September 30, 2022December 31, 2021
Contracts in transit$356.9 $304.9 
Trade receivables115.2 125.5 
Vehicle receivables114.0 106.6 
Manufacturer receivables145.8 120.5 
Auto loan and lease receivables1,821.5 829.2 
Other receivables17.2 43.2 
 2,570.6 1,529.9 
Less: Allowance for doubtful accounts(37.0)(17.3)
Less: Long-term portion of accounts receivable, net1
(1,529.0)(602.6)
Total accounts receivable, net$1,004.6 $910.0 
1The long-term portions of accounts receivable and allowance for doubtful accounts were included as a component of other non-current assets in the Consolidated Balance Sheets.

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 vehicle sales financed through Driveway Finance Corporation.
Lease receivables include amounts related to vehicles leased to customers through Pfaff Leasing.

Interest income on auto loan receivables is recognized based on the contractual terms of each loan and is accrued until repayment, reaching non-accrual status, charge-off, or repossession. Direct costs associated with loan originations are capitalized and expensed as an offset to interest 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 balances of auto loan and lease receivables are made up of loans secured by the related vehicles. More than 98% of the portfolio is aged less than 60 days past due with less than 2% on non-accrual status.

(Dollars in millions)September 30, 2022December 31, 2021
Total Auto loan and lease receivables$1,821.5 $829.2 
Less: Allowance for loan and lease losses(52.4)(25.0)
Auto loan and lease receivables, net$1,769.1 $804.2 

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NOTES TO FINANCIAL STATEMENTS
8


Below is a breakdown of the current and long term portions of our auto loan and lease receivables:
(Dollars in millions)September 30, 2022December 31, 2021
Current portion of auto loan and lease receivables, net of allowance of $33.8 and $13.6
$267.7 $224.5 
Long term portion of auto loan and lease receivables, net of allowance of $18.6 and $11.4
1,501.4 579.7 
Auto loan and lease receivables, net$1,769.1 $804.2 

Our allowance for loan and lease losses represents the net credit losses expected over the remaining contractual life of our managed receivables. The allowances for credit losses related to auto loan and lease receivables consisted of the following changes during the period:
Nine Months Ended September 30,
(Dollars in millions)20222021
Allowance for loan losses at beginning of period$22.5 $12.9 
Charge-offs(36.3)(9.7)
Recoveries12.2 6.1 
Provision expense49.7 6.0 
Allowance for loan losses at end of period48.1 15.3 
Allowance for lease losses4.3 1.9 
Total allowance for loan and lease losses balance at end of period$52.4 $17.2 

Ending auto loan receivables (principal balances) by FICO score:
(Dollars in millions)September 30, 2022December 31, 2021
<5991
$97.9 $83.2 
600-699811.7 437.6 
700-774526.4 166.8 
775+250.5 37.4 
Total auto loan receivables1,686.5 725.0 
Lease portfolio and accrued interest135.0 104.2 
Total auto loan and lease receivables$1,821.5 $829.2 
1Includes loans that are originated with no FICO score available.

In accordance with Topic 326, the allowance for loan and lease 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 loans. Consideration is given to recent delinquency trends and recovery rates. Account balances are charged against the allowance upon reaching 120 days past due status. The remainder of our receivables are due primarily from manufacturer partners and various third-party lenders. The historical losses related to these balances are immaterial.

The long-term portion of auto loan and lease receivables was included as a component of other non-current assets in the Consolidated Balance Sheets as follows:
(Dollars in millions)September 30, 2022December 31, 2021
Long term portion of auto loan and lease receivables, net of allowance of $18.6 and $11.4
$1,501.4 $579.7 
Unallocated acquisition purchase price456.6 1,554.6 
Other258.1 254.4 
Other non-current assets$2,216.1 $2,388.7 





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NOTES TO FINANCIAL STATEMENTS
9


NOTE 4. INVENTORIES

The components of inventories, net, consisted of the following:
(in millions)September 30, 2022December 31, 2021
New vehicles$1,292.8 $812.9 
Used vehicles1,826.5 1,418.3 
Parts and accessories190.0 154.3 
Total inventories$3,309.3 $2,385.5 

NOTE 5. GOODWILL AND FRANCHISE VALUE

The changes in the carrying amounts of goodwill are as follows:
(in millions)DomesticImportLuxuryCorporate and OtherConsolidated
Balance as of December 31, 2020 ¹$204.5 $287.9 $100.6 $ $593.0 
Additions through acquisitions 2
101.0 188.7 105.8  395.5 
Reductions through divestitures(1.5)(8.4)(1.3) (11.2)
Balance as of December 31, 2021 ¹304.0 468.2 205.1  977.3 
Additions through acquisitions 3
121.0 219.1 137.3 23.0 500.4 
Reductions through divestitures(5.8)(8.8)  (14.6)
Balance as of September 30, 2022 ¹$419.2 $678.5 $342.4 $23.0 $1,463.1 
1 Net of accumulated impairment losses of $299.3 million recorded during the year ended December 31, 2008.
2 Our purchase price allocation for the 2020 acquisitions were finalized in 2021. As a result, we added $395.5 million of goodwill.
3 Our purchase price allocations for the 2021 acquisitions and a portion of the 2022 acquisitions were finalized in 2022. As a result, we added $500.4 million of goodwill. Our purchase price allocation for the remaining 2022 acquisitions is preliminary and goodwill 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 13 – Acquisitions.

The changes in the carrying amounts of franchise value are as follows:
(in millions)Franchise Value
Balance as of December 31, 2020$350.2