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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 


 

FORM 10-Q

 


 

(Mark One)

 

ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended March 31, 2005

 

 

 

OR

 

 

 

o

 

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.)

 

 

 

360 E. Jackson Street, Medford, Oregon

 

97501

(Address of principal executive offices)

 

(Zip Code)

 

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   ý          No   o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes   ý          No   o

 

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

 

15,437,909

Class B common stock without par value

 

3,762,231

(Class)

 

(Outstanding at May 5, 2005)

 

 



 

LITHIA MOTORS, INC.

FORM 10-Q

INDEX

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) - March 31, 2005 and December 31, 2004

 

 

 

 

 

Consolidated Statements of Operations (Unaudited) - Three Months Ended March 31, 2005 and 2004

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2005 and 2004

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

Item 6.

Exhibits

 

 

 

 

Signatures

 

 

1



 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

LITHIA MOTORS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

March 31,
2005

 

December 31,
2004

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

19,562

 

$

29,264

 

Contracts in transit

 

42,683

 

42,913

 

Trade receivables, net of allowance for doubtful accounts of $432 and $436

 

41,932

 

41,576

 

Inventories, net

 

563,995

 

536,653

 

Vehicles leased to others, current portion

 

5,240

 

5,494

 

Prepaid expenses and other

 

8,832

 

6,840

 

Assets held for sale

 

15,260

 

135

 

Total Current Assets

 

697,504

 

662,875

 

 

 

 

 

 

 

Land and buildings, net of accumulated depreciation of $8,819 and $8,110

 

233,113

 

226,356

 

Equipment and other, net of accumulated depreciation of $27,620 and $25,922

 

75,095

 

73,275

 

Goodwill

 

249,905

 

244,532

 

Other intangible assets, net of accumulated amortization of $69 and $63

 

45,483

 

44,649

 

Other non-current assets

 

4,467

 

5,217

 

Total Assets

 

$

1,305,567

 

$

1,256,904

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Flooring notes payable

 

$

467,929

 

$

450,859

 

Current maturities of long-term debt

 

6,589

 

6,565

 

Trade payables

 

26,987

 

26,821

 

Accrued liabilities

 

51,475

 

52,043

 

Liabilities held for sale

 

3,719

 

 

Deferred income taxes

 

1,071

 

410

 

Total Current Liabilities

 

557,770

 

536,698

 

 

 

 

 

 

 

Real estate debt, less current maturities

 

147,677

 

139,702

 

Other long-term debt, less current maturities

 

131,820

 

127,608

 

Other long-term liabilities

 

10,380

 

10,611

 

Deferred income taxes

 

38,532

 

36,339

 

Total Liabilities

 

886,179

 

850,958

 

 

 

 

 

 

 

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 15,359 and 15,142

 

219,545

 

215,333

 

Class B common stock - no par value authorized 25,000 shares; issued and outstanding 3,762 and 3,762

 

468

 

468

 

Additional paid-in capital

 

2,114

 

1,811

 

Unearned compensation

 

(1,579

)

 

Accumulated other comprehensive income

 

2,833

 

789

 

Retained earnings

 

196,007

 

187,545

 

Total Stockholders’ Equity

 

419,388

 

405,946

 

Total Liabilities and Stockholders’ Equity

 

$

1,305,567

 

$

1,256,904

 

 

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

 

2



 

LITHIA MOTORS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2005

 

2004

 

Revenues:

 

 

 

 

 

New vehicle sales

 

$

365,647

 

$

351,405

 

Used vehicle sales

 

200,534

 

187,856

 

Finance and insurance

 

25,633

 

23,227

 

Service, body and parts

 

76,027

 

68,771

 

Fleet and other

 

2,964

 

1,531

 

Total revenues

 

670,805

 

632,790

 

Cost of sales

 

551,533

 

527,302

 

Gross profit

 

119,272

 

105,488

 

Selling, general and administrative

 

91,681

 

84,853

 

Depreciation - buildings

 

828

 

604

 

Depreciation and amortization - other

 

2,613

 

2,296

 

Income from operations

 

24,150

 

17,735

 

Other income (expense):

 

 

 

 

 

Floorplan interest expense

 

(5,248

)

(3,582

)

Other interest expense

 

(2,809

)

(1,734

)

Other income, net

 

317

 

221

 

 

 

(7,740

)

(5,095

)

Income from continuing operations before income taxes

 

16,410

 

12,640

 

Income taxes

 

(6,350

)

(4,930

)

Income before discontinued operations

 

10,060

 

7,710

 

Loss from discontinued operations, net of income tax benefit of $44 and $148

 

(70

)

(231

)

Net income

 

$

9,990

 

$

7,479

 

 

 

 

 

 

 

Basic income per share from continuing operations

 

$

0.53

 

$

0.41

 

Basic loss per share from discontinued operations

 

(0.01

)

(0.01

)

Basic net income per share

 

$

0.52

 

$

0.40

 

 

 

 

 

 

 

Shares used in basic per share calculations

 

19,060

 

18,626

 

 

 

 

 

 

 

Diluted income per share from continuing operations

 

$

0.49

 

$

0.40

 

Diluted loss per share from discontinued operations

 

(0.01

)

(0.01

)

Diluted net income per share

 

$

0.48

 

$

0.39

 

 

 

 

 

 

 

Shares used in diluted per share calculations

 

21,704

 

19,111

 

 

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

 

3



 

LITHIA MOTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2005

 

2004

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

9,990

 

$

7,479

 

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

 

 

 

 

 

Depreciation and amortization

 

3,441

 

2,900

 

Depreciation and amortization from discontinued operations

 

47

 

54

 

Compensation expense related to stock issuances

 

75

 

41

 

Loss on sale of assets

 

126

 

102

 

Gain on sale of franchise

 

(36

)

(540

)

Deferred income taxes

 

1,827

 

2,371

 

(Increase) decrease, net of effect of acquisitions:

 

 

 

 

 

Trade and installment contract receivables, net

 

(355

)

(299

)

Contracts in transit

 

230

 

2,168

 

Inventories

 

(18,275

)

(21,463

)

Vehicles leased to others

 

10

 

591

 

Prepaid expenses and other

 

1,206

 

(250

)

Other non-current assets

 

767

 

(6

)

Increase (decrease), net of effect of acquisitions:

 

 

 

 

 

Flooring notes payable

 

9,913

 

15,732

 

Trade payables

 

166

 

702

 

Accrued liabilities

 

(299

)

2,526

 

Other long-term liabilities and deferred revenue

 

(230

)

(228

)

Net cash provided by operating activities

 

8,603

 

11,880

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures:

 

 

 

 

 

Non-financeable

 

(7,185

)

(2,258

)

Financeable

 

(8,053

)

(10,973

)

Proceeds from sale of assets

 

187

 

227

 

Cash paid for acquisitions, net of cash acquired

 

(16,535

)

(16,864

)

Proceeds from sale of franchises

 

 

649

 

Net cash used in investing activities

 

(31,586

)

(29,219

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net borrowings (repayments) on lines of credit

 

4,314

 

(28,000

)

Principal payments on long-term debt and capital leases

 

(1,780

)

(3,197

)

Proceeds from issuance of long-term debt

 

9,676

 

12,626

 

Proceeds from issuance of common stock

 

2,599

 

2,619

 

Dividends paid

 

(1,528

)

(1,304

)

Net cash provided by (used in) financing activities

 

13,281

 

(17,256

)

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(9,702

)

(34,595

)

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Beginning of period

 

29,264

 

74,408

 

End of period

 

$

19,562

 

$

39,813

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid during the period for interest

 

$

7,322

 

$

5,357

 

Cash paid during the period for income taxes

 

72

 

2,223

 

 

 

 

 

 

 

Supplemental schedule of noncash investing and financing activities:

 

 

 

 

 

Flooring debt assumed in connection with acquisitions

 

$

12,359

 

$

8,620

 

 

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

 

4



 

LITHIA MOTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1.  Basis of Presentation

The financial information included herein as of March 31, 2005 and for the three-month periods ended March 31, 2005 and 2004 is unaudited; however, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, 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, 2004 is derived from our 2004 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 2004 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 the lower of market value or cost, using the specific identification method for vehicles and parts. The cost of used vehicle inventories includes the cost of any equipment added, reconditioning and transportation (in thousands).

 

 

 

March 31,
2005

 

December 31,
2004

 

New and program vehicles

 

$

452,423

 

$

427,134

 

Used vehicles

 

85,986

 

84,739

 

Parts and accessories

 

25,586

 

24,780

 

 

 

$

563,995

 

$

536,653

 

 

Note 3.  Earnings Per Share

Computation of Per Share Amounts

Following is a reconciliation of the income from continuing operations and weighted average shares used for our basic earnings per share (“EPS”) and diluted EPS (in thousands, except per share amounts).

 

 

 

2005

 

2004

 

Three Months Ended March 31,

 

Income from
Continuing
Operations

 

Shares

 

Per Share
Amount

 

Income from
Continuing
Operations

 

Shares

 

Per Share
Amount

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations available to common stockholders

 

$

10,060

 

19,060

 

$

0.53

 

$

7,710

 

18,626

 

$

0.41

 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

2 7/8% convertible senior subordinated notes

 

468

 

2,255

 

(0.03

)

 

 

 

Stock options

 

 

389

 

(0.01

)

 

485

 

(0.01

)

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations available to common stockholders

 

$

10,528

 

21,704

 

$

0.49

 

$

7,710

 

19,111

 

$

0.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Antidilutive Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issuable pursuant to stock options not included since they were antidilutive

 

 

 

406

 

 

 

 

 

380

 

 

 

 

5



 

Note 4.  Comprehensive Income

Comprehensive income includes the change in hedging instruments that are reflected in shareholders’ equity instead of net income and unrealized gains and losses on investments.  The following table sets forth the calculation of comprehensive income for the periods indicated (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2005

 

2004

 

Net income

 

$

9,990

 

$

7,479

 

Cash flow hedges:

 

 

 

 

 

Net derivative gains (losses), net of tax effect of $(1,070) and $1,190, respectively

 

1,697

 

(1,909

)

Reversal of net derivative losses previously recorded due to their recognition in our statements of operations as incremental interest expense, net of tax effect of $(219) and $(395), respectively

 

347

 

618

 

Total comprehensive income

 

$

12,034

 

$

6,188

 

 

Note 5.  Acquisitions

The following acquisitions were made in the first quarter of 2005.  For information on the acquisition made in April 2005, see Note 11 Subsequent Events.

 

                  In January 2005, we acquired a Chrysler and Jeep franchise in Concord, California.  The franchises were added to our Dodge store in that market.  The store is now named Lithia Chrysler Jeep Dodge of Concord.

                  In January 2005, we acquired a Chrysler franchise in Eugene, Oregon.  The franchise was added to our Dodge store in that market.  The stores name is now Lithia Chrysler Dodge of Eugene.

                  In February 2005, we acquired a Chrysler, Dodge and Jeep store in Omaha, Nebraska.  The store has anticipated annualized revenues of $110 million.  The store was renamed Lithia Chrysler Jeep Dodge of Omaha.

 

The above acquisitions were accounted for under the purchase method of accounting.  Pro forma results of operations assuming all of the first quarter 2005 and the previously disclosed 2004 acquisitions occurred as of January 1, 2004 are as follows (in thousands, except per share amounts):

 

 

 

Three Months Ended
March 31,

 

 

 

2005

 

2004

 

Total revenues

 

$

674,284

 

$

723,076

 

Net income

 

9,961

 

8,112

 

Basic earnings per share

 

0.52

 

0.44

 

Diluted earnings per share

 

0.46

 

0.42

 

 

There are no future contingent payouts related to any of the above acquisitions and no portion of the purchase price was paid with our equity securities. During the first three months of 2005 we acquired three additional franchises and one new store discussed above for $16.5 million, which included $5.9 million of goodwill and $2.1 million of other intangible assets. Within one year from the purchase date, we may update the value allocated to purchased assets and the resulting goodwill balances based on information received regarding the valuation of such assets.

 

6



 

Note 6.  Dividend Payment

Cash dividends at the rate of $0.08 per common share, which totaled approximately $1.5 million, were paid on March 14, 2005 to shareholders of record on February 28, 2005.

 

Note 7.  Stock-Based Compensation

We account for stock options using the intrinsic value method as prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.”   Pursuant to Statement of Financial Accounting Standards (SFAS) No. 148 “Accounting for Stock-Based Compensation - Transition and Disclosure,” we have computed, for pro forma disclosure purposes, the impact on net income and net income per share as if we had accounted for our stock-based compensation plans in accordance with the fair value method prescribed by SFAS No. 123 “Accounting for Stock-Based Compensation” as follows (in thousands, except per share amounts):

 

Three Months Ended March 31,

 

2005

 

2004

 

Net income, as reported

 

$

 9,990

 

$

 7,479

 

Add – Stock-based employee compensation expense included in reported net income, net of related tax effects

 

25

 

25

 

Deduct - total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects

 

(700

)

(689

)

Net income, pro forma

 

$

9,315

 

$

6,815

 

Basic net income per share:

 

 

 

 

 

As reported

 

$

0.52

 

$

0.40

 

Pro forma

 

$

0.49

 

$

0.37

 

Diluted net income per share:

 

 

 

 

 

As reported

 

$

0.48

 

$

0.39

 

Pro forma

 

$

0.45

 

$

0.36

 

 

To determine the fair value of stock-based awards granted, we used the Black-Scholes option pricing model and the following weighted average assumptions:

 

Three Months Ended March 31,

 

2005

 

2004

 

Employee Stock Purchase Plan

 

 

 

 

 

Risk-free interest rates

 

2.32

%

0.95

%

Dividend yield

 

1.23

%

1.12

%

Expected lives

 

3 months

 

3 months

 

Volatility

 

28.18

%

47.31

%

 

 

 

 

 

 

Option Plans

 

 

 

 

 

Risk-free interest rates

 

3.58 - 3.71

%

2.80

%

Dividend yield

 

1.16 - 1.20

%

1.04

%

Expected lives

 

5.4 years

 

5.4 years

 

Volatility

 

41.92 - 42.04

%

43.32

%

 

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment,” which requires companies to recognize in their income statement the grant-date fair value of stock options and other equity-based compensation issued to employees.  Originally, the FASB had determined that the new rules would be effective for the first interim or annual period beginning after June 15, 2005. However, in April 2005, the Securities and Exchange Commission amended SFAS 123R to be effective for the first annual period beginning after June 15, 2005.  Accordingly, we will adopt SFAS No. 123R in our first quarter of 2006. We do not expect the results of SFAS No. 123R to be significantly different than those of applying SFAS No. 123.  SFAS No. 123R will not have any effect on our cash flows.

 

Note 8.  Unearned Compensation

Unearned compensation includes the value of restricted stock issued to employees for which vesting provisions have not yet been met.  The unearned compensation will be recognized over the vesting periods of up to five years.

 

7



 

Note 9.  Discontinued Operations

During the first quarter of 2005, we classified one dealership as a discontinued operation.  We had additional discontinued operations during 2004.  Revenue related to discontinued operations was $4.6 million and $18.2 million, respectively, and pre-tax loss was $149,000 and $371,000, respectively, for the three months ended March 31, 2005 and 2004. Our loss from discontinued operations in the first quarter of 2005 and 2004 includes a gain (loss) on disposal of discontinued operations, net of tax, of $22,000 and $(5,000), respectively.  At March 31, 2005, assets held for sale of $15.3 million related to our one dealership classified as a discontinued operation and was comprised primarily of inventory, property, plant and equipment and goodwill.  Liabilities held for sale of $3.7 million at March 31, 2005 was comprised of flooring notes related to the inventory of the discontinued operation. See also Note 11 Subsequent Events.

 

We continually monitor the performance of each of our stores and make determinations to sell based on return on capital criteria.

 

Interest expense is allocated to stores classified as discontinued operations for actual flooring interest expense directly related to the new vehicles in the store.  Interest expense related to the used vehicle line of credit is allocated based on total used vehicle inventory of the store, and interest expense related to the equipment line of credit is allocated based on the amount of fixed assets.

 

Note 10. Reclassifications

During the first quarter of 2005, we reclassified bank fees and bank card charges, net of cash discounts earned, from other income (expense) to selling, general and administrative expense.  The effect on the first quarter of 2004 was to decrease other expense by $558,000 and increase selling, general and administrative by a like amount.

 

Note 11.  Subsequent Events

 

Acquisition

In April 2005, we acquired a Chrysler, Dodge store in Eureka, California.  The store has anticipated annualized revenues of $28 million.  The store was renamed Lithia Chrysler Dodge of Eureka.

 

In May 2005, we acquired a Chrysler, Jeep, Dodge, Dodge Truck store in Butte, Montana.  The store has anticipated annualized revenues of $26 million.  The store was renamed Lithia Chrysler Dodge Jeep of Butte.

 

Dividend

In April 2005, our Board of Directors approved a dividend on our Class A and Class B common stock of $0.08 per share for the first quarter of 2005.  The dividend, which will total approximately $1.5 million, will be paid on May 20, 2005 to shareholders of record on May 6, 2005.

 

Sale of Assets Held for Sale

In April 2005, we sold all of our assets and liabilities that were classified as held for sale on our balance sheet at March 31, 2005.

 

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

 

8



 

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 99.1 to our 2004 Annual Report on Form 10-K.

 

Although we believe that the assumptions underlying 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.

 

Overview

We are a leading operator of automotive franchises and retailer of new and used vehicles and services.  As of May 5, 2005, we offered 25 brands of new vehicles through 178 franchises in 88 stores in the Western United States and over the Internet.  As of May 5, 2005, we operated 16 stores in Oregon, 12 in California, 11 in Washington, 9 in Texas, 7 in Idaho, 7 in Colorado, 7 in Alaska, 7 in Montana, 6 in Nevada, 3 in Nebraska, 2 in South Dakota and 1 in New Mexico. We sell new and used cars and light trucks; sell replacement parts; provide vehicle maintenance, warranty, paint and repair services; and arrange related financing, service contracts, protection products and credit insurance for our automotive customers.

 

Our auto-retail model is focused on acquiring average performing new vehicle franchised stores and then integrating and improving them.  Our goal is to maximize the operations of all four departments of every store we acquire.  We have had success with this strategy since our initial public offering in late 1996.  While our strategy has not changed over the last eight years, our ability to integrate and improve the stores that we acquire has increased dramatically. We have also developed a better process for identifying acquisition targets that fit our operating model.  Our cash position, substantial lines of credit, plus an experienced and well-trained staff are all available to facilitate our continued growth as the opportunities develop.

 

In keeping with this model, we acquired three stores and a total of fourteen franchises from January 1, 2005 through May 5, 2005 with total estimated annual revenues of approximately $178 million.

 

Historically, new vehicle sales have accounted for over half of our total revenues but less than one-third of total gross profit.  We use a volume-based strategy for new vehicle sales that was initiated in 2002. This strategy complements the goal of most auto manufacturers, which have continued to offer a high level of cash or other incentives on purchases.

 

For 2005, we expect that manufacturers will continue to offer incentives on new vehicle sales through a combination of rebates and low interest rate loans to consumers.

 

Since the beginning of 2002, the used vehicle market has been negatively impacted by strong competition from the new vehicle market, with heavy manufacturer incentives in the form of cash rebates and low interest financing. In the first quarter of 2005, the used vehicle market showed positive signs as a result of constrained industry supply, which led to improvements in retail pricing and margins.  We have implemented new procedures in the used vehicle business, which have also demonstrated positive results for our used vehicle business:

 

                  We have begun conducting our own local used vehicle auctions in select markets and managing the disposal of used vehicles at larger auctions.  We no longer allow individual stores to dispose of their excess inventories on their own.  The process is centralized and controlled at the management level.

 

                  We utilize a “Used Vehicle Promo Pricing” strategy, which markets vehicles with a $99 down payment and then groups vehicles by payment level.  Vehicles are marked with clear and understandable pricing, which reduces haggling and speeds up the sale process.  This strategy resolves the three biggest issues of price, down payment and monthly payment for our customers and our sales personnel in a simple way.

 

9



 

In addition, as a complement to our ongoing used vehicle operation at each store, we use specialists in our support services group to increase the acquisition of used vehicles.  We believe that this will help bolster sales volumes in the 3 to 7 year old vehicle range.

 

Results of Continuing Operations

Certain revenue, gross margin and gross profit information by product line was as follows:

 

Three Months Ended March 31, 2005

 

Percent of
Total Revenues

 

Gross
Margin

 

Percent of Total
Gross Profit

 

New vehicle

 

54.5

%

8.1

%

24.8

%

Used vehicle

 

30.0

 

13.4

 

22.6

 

Finance and insurance(1)

 

3.8

 

99.8

 

21.5

 

Service, body and parts

 

11.3

 

48.5

 

30.9

 

Fleet and other

 

0.4

 

8.8

 

0.2

 

 

Three Months Ended March 31, 2004

 

Percent of
Total Revenues

 

Gross
Margin

 

Percent of Total
Gross Profit

 

New vehicle

 

55.5

%

7.5

%

25.0

%

Used vehicle

 

29.7

 

12.3

 

21.9

 

Finance and insurance(1)

 

3.7

 

99.3

 

21.9

 

Service, body and parts

 

10.9

 

47.4

 

30.9

 

Fleet and other

 

0.2

 

20.1

 

0.3

 

 


(1)  Reported net of anticipated cancellations.

 

The following table sets forth selected condensed financial data, expressed as a percentage of total revenues for the periods indicated.

 

 

 

Three Months Ended March 31,

 

Lithia Motors, Inc.(1)

 

2005

 

2004

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

New vehicle

 

54.5

%

55.5

%

Used vehicle

 

30.0

 

29.7

 

Finance and insurance

 

3.8

 

3.7

 

Service, body and parts

 

11.3

 

10.9

 

Fleet and other

 

0.4

 

0.2

 

Total revenues

 

100.0

%

100.0

%

Gross profit

 

17.8

 

16.7

 

Selling, general and administrative expenses

 

13.7

 

13.4

 

Depreciation and amortization

 

0.5

 

0.5

 

Income from operations

 

3.6

 

2.8

 

Floorplan interest expense

 

0.8

 

0.6

 

Other interest expense

 

0.4

 

0.3

 

Other expense, net

 

 

 

Income from continuing operations before taxes

 

2.4

 

2.0

 

Income tax expense

 

0.9

 

0.8

 

Income from continuing operations

 

1.5

%

1.2

%

 


(1)  The percentages may not add due to rounding.

 

10



 

The following tables set forth the changes in our operating results from continuing operations in the first quarter of 2005 compared to the first quarter of 2004:

 

(Dollars in thousands)

 

Three Months Ended
March 31,

 

Increase
(Decrease)

 

%
Increase
(Decrease)

 

2005

 

2004

Revenues:

 

 

 

 

 

 

 

 

 

New vehicle

 

$

365,647

 

$

351,405

 

$

14,242

 

4.1

%

Used vehicle

 

200,534

 

187,856

 

12,678

 

6.7

 

Finance and insurance

 

25,633

 

23,227

 

2,406

 

10.4

 

Service, body and parts

 

76,027

 

68,771

 

7,256

 

10.6

 

Fleet and other

 

2,964

 

1,531

 

1,433

 

93.6

 

Total revenues

 

670,805

 

632,790

 

38,015

 

6.0

 

Cost of sales

 

551,533

 

527,302

 

24,231

 

4.6

 

Gross profit

 

119,272

 

105,488

 

13,784

 

13.1

 

Selling, general and administrative

 

91,681

 

84,853

 

6,828

 

8.0

 

Depreciation and amortization

 

3,441

 

2,900

 

541

 

18.7

 

Income from operations

 

24,150

 

17,735

 

6,415

 

36.2

 

Floorplan interest expense

 

(5,248

)

(3,582

)

1,666

 

46.5

 

Other interest expense

 

(2,809

)

(1,734

)

1,075

 

62.0

 

Other income, net

 

317

 

221

 

96

 

43.4

 

Income from continuing operations before taxes

 

16,410

 

12,640

 

3,770

 

29.8

 

Income tax expense

 

6,350

 

4,930

 

1,420

 

28.8

 

Income from continuing operations

 

$

10,060

 

$

7,710

 

$

2,350

 

30.5

%

 

 

 

Three Months Ended
March 31,

 

Increase
(Decrease)

 

%
Increase
(Decrease)

 

2005

 

2004

New units sold

 

13,065

 

12,756

 

309

 

2.4

%

Average selling price per new vehicle

 

$

27,987

 

$

27,548

 

$

439

 

1.6

 

 

 

 

 

 

 

 

 

 

 

Used units sold

 

16,656

 

16,665

 

(9

)

(0.1

)

Average selling price per used vehicle

 

$

12,040

 

$

11,272

 

$

767

 

6.8

 

 

 

 

 

 

 

 

 

 

 

Finance and insurance sales per retail unit

 

$

1,067

 

$

992

 

$

75

 

7.6

 

 

Revenues

Total revenues increased 6.0% in the first quarter of 2005 compared to the first quarter of 2004 as a result of acquisitions, partially offset by a 4.4% decrease in same-store retail sales.  The decrease in same-store retail sales was due to continued lackluster performance in our economic regions and our focus on margins as a trade-off to volume.  Same-store sales percentage decreases were as follows:

 

 

 

First quarter of 2005 vs.
first quarter of 2004

 

New vehicles

 

(6.4

)%

Used vehicles

 

(1.9

)

Finance and insurance

 

(1.8

)

Service, body and parts

 

(0.1

)

Total retail sales

 

(4.4

)

 

Same-store sales are calculated by dealership comparing only those months that contain full-month operating data.

 

Penetration rates for certain products were as follows:

 

Three Months Ended March 31,

 

2005

 

2004

 

Finance and insurance

 

79

%

75

%

Service contracts

 

43

 

44

 

Lifetime oil change and filter

 

39

 

36

 

 

The improved penetration rates contributed to same-store improvements in gross margin despite the decreases in same-store sales.

 

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Gross Profit

 

Gross profit increased $13.8 million in the first quarter of 2005 compared to the first quarter of 2004 due to increased total revenues as well as an increase in our overall gross margin. Our gross margins increased in all business lines, particularly in the retail used vehicle and service and parts businesses, as detailed in the table below:

 

 

 

Three Months Ended
March 31,

 

Lithia
Margin Change*

 

2005

 

2004

New vehicle

 

8.1

%

7.5

%

60

bp

Retail used vehicle

 

15.2

 

14.2

 

100

 

Wholesale used vehicle

 

4.4

 

3.0

 

140

 

Finance and insurance

 

99.8

 

99.3

 

50

 

Service and parts

 

48.5

 

47.4

 

110

 

Overall

 

17.8

 

16.7

 

110

 

 


* “bp” stands for basis points (one hundred basis points equals one percent).

 

In the new vehicle business, margins improved as a result of strategic initiatives designed to increase gross profit per vehicle sold.  Retail used vehicle margins improved as a result of a stronger retail environment for used vehicles.  Margins in our wholesale used vehicle business improved due to our continued strategy of holding our own local used vehicle auctions and managing the disposal of our units at larger auctions. The service and parts business has benefited from our focus on service advisor training, which has led to gains in the sale of higher margin service items.  In addition, we have also instituted a number of pricing and cost saving initiatives across the entire service and parts business. Improved penetration rates for our finance and insurance products and our lifetime oil change and filter service also contributed to our gross profit margin increases.

 

The improved gross margins led to an increase in total same-store gross profit despite a decrease in total same-store sales in the first quarter of 2005 compared to the first quarter of 2004.

 

Selling, General and Administrative Expense

Selling, general and administrative expense includes salaries and related personnel expenses, facility lease expense, advertising (net of manufacturer cooperative advertising credits), legal, accounting, professional services and general corporate expenses.

 

Selling, general and administrative expense increased $6.8 million in the first quarter of 2005 compared to the first quarter of 2004, but increased only 30 basis points as a percentage of revenue.  The increase in dollars spent is due to increased selling, or variable, expenses related to the increase in revenues and the number of locations. More importantly, SG&A as a percentage of gross profit is an industry standard and better gauge for measuring performance relative to SG&A expense. SG&A as a percentage of gross profit improved by 350 basis points in the first quarter of 2005 compared to the first quarter of 2004.

 

Depreciation and Amortization

Depreciation and amortization increased $0.5 million in the first quarter of 2005 compared to the first quarter of 2004 due to the addition of property and equipment primarily related to our acquisitions, as well as leasehold improvements to existing facilities.

 

Income from Operations

Operating margins improved by 80 basis points in the first quarter of 2005 to 3.6% from 2.8% in the first quarter of 2004.  The increase is due to the improved overall gross profit margin as discussed above, partially offset by higher operating expenses as a percentage of revenue.

 

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Floorplan Interest Expense

The $1.7 million increase in floorplan interest expense in the first quarter of 2005 compared to the first quarter of 2004 resulted primarily from a $79 million increase in the average outstanding balances of our floorplan facilities, mainly due to acquisitions, and a $1.6 million increase in expense due to an increase in the average interest rates charged on our floorplan facilities.  These increases were offset in part by a decrease of $446,000 related to our interest rate swaps.

 

Other Interest Expense

Other interest expense includes interest on our convertible notes, debt incurred related to acquisitions, real estate mortgages, our used vehicle line of credit and equipment related notes.

 

Other interest expense increased $1.1 million in the first quarter of 2005 compared to the first quarter of 2004. Changes in the weighted average interest rate on our debt in the first quarter of 2005 compared to the first quarter of 2004 increased other interest expense by approximately $324,000 and changes in the average outstanding balances resulted in an increase of approximately $785,000.  Our average interest rate increased at only about half the pace of market interest rates due to our hedging strategies.  Interest expense related to the $85.0 million of convertible notes that were issued in May 2004 totals approximately $764,000 per quarter, which consists of $611,000 of contractual interest and $153,000 of amortization of debt issuance costs.

 

Income Tax Expense

Our effective tax rate was 38.7% in the first quarter of 2005 compared to 39.0% in the first quarter of 2004. Our effective tax rate may be affected in the future by the mix of asset acquisitions compared to corporate acquisitions, as well as by the mix of states where our stores are located.

 

Income from Continuing Operations

Income from continuing operations as a percentage of revenue increased in the first quarter of 2005 compared to the first quarter of 2004 as a result of improvements in gross margins being partially offset by increased operating expenses as discussed above.

 

Discontinued Operations

During the first quarter of 2005, we classified one dealership as a discontinued operation.  Revenue related to discontinued operations was $4.6 million and $18.2 million, respectively, and pre-tax loss was $149,000 and $371,000, respectively, for the three months ended March 31, 2005 and 2004. Our loss from discontinued operations in the first quarter of 2005 and 2004 includes a gain (loss) on disposal of discontinued operations, net of tax, of $22,000 and $(5,000), respectively.  At March 31, 2005, assets held for sale of $15.3 million related to our one dealership classified as a discontinued operation and was comprised primarily of inventory, property, plant and equipment and goodwill.  Liabilities held for sale of $3.7 million at March 31, 2005 was comprised of flooring notes related to the inventory of the discontinued operation.

 

We continually monitor the performance of each of our stores and make determinations to sell based on return on capital criteria.

 

Interest expense is allocated to stores classified as discontinued operations for actual flooring interest expense directly related to the new vehicles in the store.  Interest expense related to the used vehicle line of credit is allocated based on total used vehicle inventory of the store, and interest expense related to the equipment line of credit is allocated based on the amount of fixed assets.

 

Seasonality and Quarterly Fluctuations

Historically, our sales have been lower in the first and fourth quarters of each year due to consumer purchasing patterns during the holiday season, inclement weather in certain of our markets and the reduced number of business days during the holiday season.  As a result, financial performance is expected to be lower during the first and fourth quarters than during the other quarters of each fiscal year. We believe that interest rates, levels of consumer debt and consumer confidence, as well as

 

13



 

general economic conditions, also contribute to fluctuations in sales and operating results. Acquisitions have also been a contributor to fluctuations in our operating results from quarter to quarter.

 

Liquidity and Capital Resources

Our principal needs for capital resources are to finance acquisitions and capital expenditures, as well as for working capital. We have relied primarily upon internally generated cash flows from operations, borrowings under our credit agreements and the proceeds from public equity and private debt offerings to finance operations and expansion. We believe that our available cash, cash equivalents, available lines of credit and cash flows from operation will be sufficient to meet our anticipated operating expenses and capital requirements for at least 24 to 36 months from March 31, 2005.

 

Our inventories increased to $564.0 million at March 31, 2005 from $536.7 million at December 31, 2004 due primarily to acquisitions and our decision to purchase a greater stock of vehicles going into the seasonally strongest selling period of the year.  This was a strategic decision designed to ensure a good allocation of popular models and good inventories at our stores going into the summer selling season in order to take advantage of what we believe will be a strong selling season supported by manufacturer incentives.  As a result, our new and used flooring notes payable increased to $467.9 million at March 31, 2005 from $450.9 million at December 31, 2004.  New vehicles are financed at approximately 100% and used vehicles are financed at approximately 80% of cost. Our days supply of new vehicles decreased by approximately 9 days at March 31, 2005 compared to December 31, 2004. Our days supply of used vehicles increased by approximately 3 days at March 31, 2005 compared to December 31, 2004.  We believe that our new and used vehicle inventories are at appropriate levels at this time.

 

At March 31, 2005, assets held for sale of $15.3 million related to our one dealership classified as a discontinued operation and was comprised primarily of inventory, property, plant and equipment and goodwill.  Liabilities held for sale of $3.7 million at March 31, 2005 was comprised of flooring notes related to the inventory of the discontinued operation.  This discontinued operation was sold in April 2005.

 

As a result of the acquisition of three franchises and one store in the first quarter of 2005, our goodwill and other intangibles increased $6.2 million to $295.4 million at March 31, 2005, compared to $289.2 million at December 31, 2004. Cash paid for acquisitions, net of cash received, in the first quarter of 2005 was $16.5 million.

 

Our Board of Directors declared a dividend on our Class A and Class B common stock of $0.08 per share for the fourth quarter of 2004, which was paid in the first quarter of 2005 and totaled approximately $1.5 million.  Our Board of Directors also declared a dividend on our Class A and Class B common stock of $0.08 per share for the first quarter of 2005, which was paid in the second quarter of 2005 and totaled approximately $1.5 million. We anticipate recommending to the Board of Directors the approval of a cash dividend each quarter.

 

In June 2000, our Board of Directors authorized the repurchase of up to 1,000,000 shares of our Class A common stock. Through March 31, 2005, we have purchased a total of 60,216 shares under this program and may continue to do so from time to time in the future as conditions warrant.  However, the recent change in the tax law tends to equalize the benefits of dividends and share repurchases as a means to return capital or earnings to shareholders. As a result, we believe it is now advantageous to shareholders to have a dividend in place.  With the dividend, we are able to offer an immediate and tangible return to our shareholders without reducing our already limited market float, which occurs when we repurchase shares.

 

We have a working capital and used vehicle flooring credit facility with DaimlerChrysler Services North America LLC and Toyota Motor Credit Corporation, as amended in June 2004, totaling up to $150 million, which expires May 1, 2007 with an option for the lenders to extend to May 1, 2008, with interest due monthly.  This credit facility is cross-collateralized and secured by cash and cash equivalents, new and used vehicles on a subordinated basis to the extent not specifically financed by other lenders, parts

 

14



 

inventories, accounts receivable, intangible assets and equipment.  We pledged to DaimlerChrysler Services and Toyota Motor Credit the stock of all of our dealership subsidiaries except entities operating BMW, Honda, Nissan or Toyota stores.

 

The financial covenants in our agreement with DaimlerChrysler Services and Toyota Motor Credit require us to maintain compliance with, among other things, (i) a specified current ratio; (ii) a specified fixed charge coverage ratio; (iii) a specified interest coverage ratio; (iv) a specified adjusted leverage ratio; and (v) certain working capital levels.   At March 31, 2005, we were in compliance with all of the covenants of this agreement.

 

Ford Motor Credit, General Motors Acceptance Corporation and Volkswagen Credit have agreed to floor all of our new vehicles for their respective brands with DaimlerChrysler Services North America LLC and Toyota Motor Credit Corporation serving as the primary lenders for substantially all other brands.  These new vehicle lines are secured by new vehicle inventory of the relevant brands.

 

We also have a revolving credit real estate line with Toyota Motor Credit totaling $40 million, which expires in May 2005. The advances are secured by the real estate financed under this line of credit. We do not intend to renew this facility upon its expiration.

 

We have a credit facility with U.S. Bank N.A., which provides for a $50.0 million revolving line of credit for leased vehicles and equipment purchases and expires April 30, 2006, but will be extended during the second quarter of 2005. The financial covenants in our agreement with U.S. Bank N.A. require us to maintain compliance with, among other things, (i) a specified current ratio; (ii) a specified fixed charge coverage ratio; (iii) a minimum total net worth; and (iv) a minimum tangible net worth.   At March 31, 2005, we were in compliance with all of the covenants of this agreement.

 

Interest rates on all of the above facilities ranged from 4.52% to 5.62% at March 31, 2005.  Amounts outstanding on the lines at March 31, 2005, together with amounts remaining available under such lines were as follows (in thousands):

 

 

 

Outstanding at
March 31, 2005

 

Remaining Availability
as of March 31, 2005

 

New and program vehicle lines

 

$

467,929

 

$

 

*

Working capital and used vehicle line

 

 

150,000

 

Real estate line

 

 

40,000

 

Equipment/leased vehicle line

 

45,000

 

5,000

 

 

 

$

512,929

 

$

195,000

 

 


*  There are no formal limits on the new and program vehicle lines with certain lenders.

 

We also have outstanding $85.0 million of 2.875% senior subordinated convertible notes due 2014. We will also pay contingent interest on the notes during any six-month interest period beginning May 1, 2009, in which the trading price of the notes for a specified period of time equals or exceeds 120% of the principal amount of the notes.  The notes are convertible into shares of our Class A common stock at a price of $37.69 per share upon the satisfaction of certain conditions and upon the occurrence of certain events as follows:

 

                  if, prior to May 1, 2009, and during any calendar quarter, the closing sale price of our common stock exceeds 120% of the conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter;

                  if, after May 1, 2009, the closing sale price of our common stock exceeds 120% of the conversion price;

                  if, during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each day of such period was less than 98% of the product of the closing sale price of our common stock and the number of shares issuable upon conversion of $1,000 principal amount of the notes;

                  if the notes have been called for redemption; or

                  upon certain specified corporate events.

 

15



 

Any declaration and payment of a dividend in excess of $0.08 per share per quarter will result in an adjustment in the conversion rate for the notes.

 

The notes are redeemable at our option beginning May 6, 2009 at the redemption price of 100% of the principal amount plus any accrued interest. The holders of the notes can require us to repurchase all or some of the notes on May 1, 2009 and upon certain events constituting a fundamental change or a termination of trading. A fundamental change is any transaction or event in which all or substantially all of our common stock is exchanged for, converted into, acquired for, or constitutes solely the right to receive, consideration that is not all, or substantially all, common stock that is listed on, or immediately after the transaction or event, will be listed on, a United States national securities exchange. A termination of trading will have occurred if our common stock is not listed for trading on a national securities exchange or the NASDAQ stock market.

 

We had capital commitments of $8.4 million at March 31, 2005 for the construction of four new facilities, additions to three existing facilities and the remodel of one facility.  The new facilities will be for our Toyota dealership in Springfield, Oregon, our Chevrolet and Hyundai dealerships in Odessa, Texas and a body shop also in Odessa, Texas.  We have already incurred $6.0 million for these projects and anticipate incurring the remaining $8.4 million in 2005. We expect to pay for the construction out of existing cash balances until completion of the projects, at which time we anticipate securing long-term financing and general borrowings from third party lenders for 70% to 90% of the amounts expended.

 

Critical Accounting Policies and Use of Estimates

 

We reaffirm our critical accounting policies and use of estimates as described in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 15, 2005.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

There have been no material changes in our reported market risks or risk management policies since the filing of our 2004 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 15, 2005.

 

Item 4.  Controls and Procedures

 

Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer, our Chief Financial Officer and our Chief Accounting Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer, our Chief Financial Officer and our Chief Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

 

16



 

PART II - OTHER INFORMATION

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

We repurchased the following shares of our Class A common stock during the first quarter of 2005:

 

 

 

Total number
of shares
purchased

 

Average
price paid
per share
(1)

 

Total number of
shares purchased
as part of publicly
announced plan

 

Maximum number
of shares that may
yet be purchased
under the plan

 

January 1 to January 31

 

 

 

60,000

 

940,000

 

February 1 to February 28

 

167

 

$

40.00

 

60,167

 

939,833

 

March 1 to March 31

 

49

 

$

40.00

 

60,216

 

939,784

 

Total

 

216

 

$

40.00

 

60,216

 

939,784

 

 


(1)          In December 1998, in connection with our listing on the NYSE, we issued a single share of our Class A common stock to approximately 1,750 employees in order to meet the NYSE requirements for the minimum number of shareholders of record.  We no longer require these single share shareholders to meet this requirement and have initiated a buyback plan for those single shares at a set price of $40 per share in order to eliminate future mailing and other costs related to these shareholders.  The offer to buy back these shares at $40 per share expired March 28, 2005.

 

The plan to repurchase up to a total of 1.0 million shares of our Class A common stock was approved by our Board of Directors in June 2000 and does not have an expiration date.

 

Item 6.  Exhibits

 

The following exhibits are filed herewith and this list is intended to constitute the exhibit index:

 

3.1

 

Restated Articles of Incorporation (filed as Exhibit 3.1 to Form 10-K filed March 30, 2000 and incorporated herein by reference).

3.2

 

Bylaws (filed as Exhibit 3.2 to Form S-1, Registration Statement No. 333-14031, as declared effective by the Securities and Exchange Commission on December 18, 1996 and incorporated herein by reference).

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.

32.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

32.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Date:  May 10, 2005

LITHIA MOTORS, INC.

 

 

 

 

 

By

/s/ JEFFREY B. DEBOER

 

 

Jeffrey B. DeBoer

 

Senior Vice President and

 

Chief Financial Officer

 

(Principal Financial Officer)

 

 

 

 

 

By

/s/ LINDA A. GANIM

 

 

Linda A. Ganim

 

Vice President and Chief Accounting Officer

 

(Principal Accounting Officer)

 

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