Back to GetFilings.com

Table of Contents

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, 2002
	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: 000-21789

LITHIA MOTORS, INC.

Registrant’s telephone number, including area code: 541-776-6899

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 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 Class B common stock without par value                               (Class)		14,032,200 3,918,231 (Outstanding at August 7, 2002)

Table of Contents

LITHIA MOTORS, INC.
FORM 10-Q
INDEX

1

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

LITHIA MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)

The accompanying notes are an integral part of these consolidated statements.

2

Table of Contents

LITHIA MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

The accompanying notes are an integral part of these consolidated statements.

3

Table of Contents

LITHIA MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

The accompanying notes are an integral part of these consolidated statements.

4

Table of Contents

LITHIA MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Basis of Presentation

The financial information included herein as of June 30, 2002 and for the three and six-month periods ended June 30, 2002 and 2001 is unaudited; however, such information reflects all adjustments, consisting only of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 2001 is derived from our 2001 Annual Report on Form 10-K. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2001 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.

Note 2. Inventories

Inventories are valued at cost, using the specific identification method for vehicles and the first-in first-out (FIFO) method of accounting for parts (collectively, the FIFO method). Detail of inventory is as follows (in thousands):

Note 3. Supplemental Cash Flow Information

Supplemental disclosure of cash flow information is as follows (in thousands):

5

Table of Contents

Note 4. Earnings Per Share

Following is a reconciliation of basic earnings per share (“EPS”) and diluted EPS (in thousands, except per share amounts).

Potentially dilutive securities that are not included in the diluted EPS calculations because they would be antidilutive include 10,000 and 126,000 shares, respectively, issuable pursuant to stock options, for the three month periods ended June 30, 2002 and 2001, respectively, and 10,000 and 485,000 shares, respectively, for the six month periods ended June 30, 2002 and 2001, respectively.

Note 5. Comprehensive Income

Comprehensive income includes the fair value of cash flow hedging instruments that are reflected in shareholders’ equity instead of net income. The following table sets forth the calculation of comprehensive income for the periods indicated (in thousands):

6

Table of Contents

Note 6. Acquisitions

The following acquisitions were made in the first six months of 2002:

•		In January 2002, we acquired Lynn Alexander Auto Group, which is comprised of All American Chrysler/Jeep/Dodge and All American Chevrolet located in San Angelo, Texas and All American Chrysler/Jeep/Dodge in Big Spring, Texas. The stores have anticipated 2002 annual revenues of $115.0 million.
•		In January 2002, we acquired Premier Chrysler/Jeep/Dodge in Odessa, Texas, which has anticipated 2002 annual revenues of $33.0 million.
•		In February 2002, we acquired Thomason Subaru in Oregon City, Oregon, which has anticipated 2002 annual revenues of $20.0 million. The store has been renamed to Lithia Subaru of Oregon City.
•		In April 2002, we acquired Village Dodge-Hyundai in Midland, Texas, which has anticipated 2002 annual revenues of $35.0 million.
•		In May 2002, we opened a newly awarded Hummer franchise in Bellevue, Washington.
•		In June 2002, we acquired Jay Wolfe Ford in Omaha, Nebraska, which has anticipated 2002 annual revenues of $55.0 million.
•		In June 2002, we acquired Broncho Chevrolet in Odessa, Texas and Sherman Chevrolet in Midland, Texas. The stores have combined anticipated 2002 revenues of $115.0 million. The stores were renamed Chevrolet of Odessa and Chevrolet of Midland, respectively.

The above acquisitions were accounted for under the purchase method of accounting. Pro forma results of operations assuming all of the above acquisitions occurred at the beginning of the respective periods are as follows (in thousands, except per share amounts):

There are no future contingent payouts related to any of the 2002 acquisitions. The purchase price for the 2002 acquisitions was allocated as follows (in thousands):

We anticipate that approximately 90 percent of the goodwill acquired in 2002 will be deductible for tax purposes over the period of 15 years.

7

Table of Contents

Note 7. Conversion and Redemption of Series M Preferred Stock

On January 24, 2002, 5,177 shares of Series M Preferred Stock were converted at a price of $20.77 per common share into 249,311 shares of Class A common stock. On May 2, 2002, we redeemed the remaining 4,499 outstanding shares of Series M Preferred Stock for a total of $4.4 million from our existing cash balances. No shares of Series M Preferred Stock remain outstanding following the May 2, 2002 redemption.

Note 8. Offering of Class A Common Stock

In March 2002, we registered and sold 4.5 million newly issued shares of Class A common stock and 1.25 million shares from existing stockholders. Proceeds to the Company, net of offering expenses, totaled approximately $77.2 million. In connection with the sale of shares by existing stockholders, 121,488 shares of Class B common stock were converted into a like number of shares of Class A common stock.

Note 9. 2001 Stock Option Plan

At the Annual Meeting of Shareholders held on May 8, 2002, the shareholders approved the reservation of an additional 600,000 shares of our Class A common stock for issuance under our 2001 Stock Option Plan.

Note 10. 1998 Employee Stock Purchase Plan

At the Annual Meeting of Shareholders held on May 8, 2002, the shareholders approved the reservation of an additional 500,000 shares of our Class A common stock for issuance under our 1998 Employee Stock Purchase Plan.

Note 11. Adoption of SFAS No. 142

In July 2001, the Financial Accounting Standards Board issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.”

We adopted the provisions of SFAS No. 142 effective January 1, 2002. SFAS No. 141 “Business Combinations” requires, upon adoption of SFAS No. 142, that we evaluate our existing intangible assets and goodwill that were acquired in prior purchase business combinations, and make any necessary reclassifications in order to conform with the criteria in SFAS No. 141 for recognition apart from goodwill. We did not reclassify any intangibles upon adoption of SFAS No. 142. We tested our goodwill and other intangible assets with indefinite useful lives for impairment in accordance with the provisions of SFAS No. 142 during the first quarter of 2002. We determined that no impairment losses were required to be recognized.

8

Table of Contents

The following table discloses what reported net income would have been in all periods presented prior to the adoption of SFAS No. 142 exclusive of amortization expense (including any related tax effects) recognized in those periods related to goodwill and other intangible assets that are no longer being amortized.

Note 12. Subsequent Event — Acquisition

In July 2002, we acquired Mercedes of Omaha in Omaha, Nebraska, which has anticipated 2002 revenues of $22.0 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements and Risk Factors

Some of the statements in this Form 10-Q constitute forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” and “continue” or the negative of these terms or other comparable terminology. The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. Some of the important factors that could cause actual results to differ from our expectations are discussed in Exhibit 99 to our 2001 Annual Report on Form 10-K.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements.

9

Table of Contents

General

We are a leading operator of automotive franchises and retailer of new and used vehicles and services. As of July 31, 2002, we offered 25 brands of new vehicles through 130 franchises in 68 stores in the western United States and over the Internet. As of July 31, 2002, we operate 16 stores in Oregon, 10 in California, 9 in Washington, 6 in Colorado, 7 in Idaho, 5 in Nevada, 8 in Texas, 3 in South Dakota, 2 in Alaska and 2 in Nebraska. We sell new and used cars and light trucks; sell replacement parts; provide vehicle maintenance, warranty, paint and repair services; and arrange related financing and insurance for our automotive customers.

During an economic downturn, customers tend to shift towards the purchase of more reasonably priced new vehicle models or used vehicles. Many customers decide to delay purchasing a new vehicle and instead repair existing vehicles. In addition, manufacturers typically offer increased dealer and customer incentives during an economic downturn in order to support new vehicle sales volume. These factors lead to less volatility in earnings for automobile retailers than for automobile manufacturers.

Historically, new vehicle sales have accounted for approximately 50% of our total revenues but less than 30% of total gross profit. We emphasize sales of higher margin products, which generate over 70% of our gross profits. Our revenues and gross profit by product line were as follows: