Lithia Motors, Inc. Form 10-Q Dated March 31, 2003

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CWt4erUmPBQKAxopqN37Gt/evovCkzTvrVt3G0kBM3BltAyRQsM0FNxGBFM/t1MV h9a9iehbPLcJEXWAILAL8w== 0000891020-03-001591.txt : 20030515 0000891020-03-001591.hdr.sgml : 20030515 20030514190601 ACCESSION NUMBER: 0000891020-03-001591 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LITHIA MOTORS INC CENTRAL INDEX KEY: 0001023128 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 930572810 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14733 FILM NUMBER: 03700649 BUSINESS ADDRESS: STREET 1: 360 E JACKSON ST CITY: MEDFORD STATE: OR ZIP: 97501 BUSINESS PHONE: 5417766899 MAIL ADDRESS: STREET 1: 360 E JACKSON ST CITY: MEDFORD STATE: OR ZIP: 97501 10-Q 1 v90259e10vq.htm FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2003 Lithia Motors, Inc. Form 10-Q Dated March 31, 2003

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 March 31, 2003

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.

(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.)

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 x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x 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		14,466,210
Class B common stock without par value		3,762,231
(Class)		(Outstanding at May 9, 2003)

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	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 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATION PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 10.1
EXHIBIT 99.1
EXHIBIT 99.2

LITHIA MOTORS, INC.
FORM 10-Q
INDEX


PART I - FINANCIAL INFORMATION		Page

Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited) — March 31, 2003 and December 31, 2002		2
	Consolidated Statements of Operations (Unaudited) - Three Months Ended March 31, 2003 and 2002		3
	Consolidated Statements of Cash Flows (Unaudited) — Three Months Ended March 31, 2003 and 2002		4
	Notes to Consolidated Financial Statements (Unaudited)		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		14
Item 4.	Controls and Procedures		14

PART II — OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8-K		15
Signatures			16
Certifications			17

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

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


			March 31,			December 31,
			2003			2002

			(Unaudited)
Assets
Current Assets:
	Cash and cash equivalents		$	29,593		$	15,932
	Contracts in transit			45,155			41,493
	Trade receivables, net of allowance for doubtful accounts of $518 and $455			38,340			40,680
	Notes receivable, current portion, net of allowance for doubtful accounts of $147 and $247			188			167
	Inventories, net			468,478			445,908
	Vehicles leased to others, current portion			5,503			5,341
	Prepaid expenses and other			5,136			5,707
	Deferred income taxes			1,287			550

		Total Current Assets		593,680			555,778
Land and buildings, net of accumulated depreciation of $4,079 and $3,618				119,896			118,696
Equipment and other, net of accumulated depreciation of $15,985 and $14,602				60,545			58,215
Notes receivable, less current portion				779			881
Vehicles leased to others, less current portion				106			19
Goodwill, net				191,799			185,212
Other intangible assets, net of accumulated amortization of $335 and $330				23,287			20,985
Other non-current assets				2,429			2,263

		Total Assets	$	992,521		$	942,049

Liabilities and Stockholders’ Equity
Current Liabilities:
	Flooring notes payable		$	396,128		$	364,635
	Current maturities of long-term debt			4,974			4,466
	Trade payables			23,007			19,445
	Accrued liabilities			41,621			40,924

		Total Current Liabilities		465,730			429,470
Used Vehicle Flooring				62,000			63,000
Real Estate Debt, less current maturities				84,186			73,798
Other Long-Term Debt, less current maturities				30,652			30,914
Deferred Revenue				1,667			1,617
Other Long-Term Liabilities				7,447			9,581
Deferred Income Taxes				15,916			13,676

		Total Liabilities		667,598			622,056

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 14,359 and 14,299			204,402			203,577
	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			969			929
	Accumulated other comprehensive loss			(2,617	)		(2,517	)
	Retained earnings			121,701			117,536

	Total Stockholders’ Equity			324,923			319,993

	Total Liabilities and Stockholders’ Equity		$	992,521		$	942,049

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

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


			Three months ended March 31,

			2003			2002

Revenues:
	New vehicle sales		$	323,448		$	267,817
	Used vehicle sales			176,986			183,312
	Service, body and parts			59,751			52,038
	Finance and insurance			21,214			17,832
	Fleet and other			2,078			3,399

		Total revenues		583,477			524,398
Cost of sales				492,142			440,751

Gross profit				91,335			83,647
Selling, general and administrative				76,964			67,736
Depreciation — buildings				459			431
Depreciation — equipment and other				1,828			1,237

		Income from operations		12,084			14,243
Other income (expense):
	Floorplan interest expense			(3,702	)		(2,337	)
	Other interest expense			(1,410	)		(1,592	)
	Other income (expense), net			(172	)		95

				(5,284	)		(3,834	)

Income before income taxes				6,800			10,409
Income tax expense				2,635			4,018

Net income			$	4,165		$	6,391

Basic net income per share			$	0.23		$	0.43

Shares used in basic net income per share				18,133			14,991

Diluted net income per share			$	0.23		$	0.42

Shares used in diluted net income per share				18,272			15,369

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

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


					Three months ended March 31,

					2003			2002

Cash flows from operating activities:
	Net income				$	4,165		$	6,391
	Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation and amortization			2,287			1,668
			Compensation related to stock option issuances			40			41
			(Gain) loss on sale of assets			48			(207	)
			Loss on sale of vehicles leased to others			12			18
			Deferred income taxes			1,574			2,201
			(Increase) decrease, net of effect of acquisitions:
				Trade and installment contract receivables, net		2,314			(939	)
				Contracts in transit		(3,662	)		(998	)
				Inventories		(7,255	)		(40,178	)
				Prepaid expenses and other		610			5,378
				Other noncurrent assets		(184	)		(116	)
			Increase (decrease), net of effect of acquisitions:
				Floorplan notes payable		19,044			39,184
				Trade payables		3,562			2,952
				Accrued liabilities		(150	)		(1,628	)
				Other liabilities		(2,285	)		(41	)

				Net cash provided by operating activities		20,120			13,726
Cash flows from investing activities:
	Notes receivable issued					(20	)		(41	)
	Principal payments received on notes receivable					149			551
	Capital expenditures:
		Non-financeable				(1,179	)		(1,623	)
		Financeable				(4,360	)		(5,643	)
Proceeds from sale of assets						171			988
Proceeds from sale of vehicles leased to others						69			168
Expenditures for vehicles leased to others						(1,320	)		(2,299	)
Cash paid for acquisitions, net of cash acquired						(10,426	)		(26,736	)
Cash from sale of franchises						—			606

				Net cash used in investing activities		(16,916	)		(34,029	)
Cash flows from financing activities:
	Net borrowings (repayments) on lines of credit					5,300			(67,000	)
	Principal payments on all other long-term debt and capital leases					(909	)		(4,443	)
	Proceeds from issuance of long-term debt					5,242			1,705
	Repurchase of common stock					(215	)		—
	Net proceeds from issuance of common stock					1,039			77,989

				Net cash provided by financing activities		10,457			8,251

Increase (decrease) in cash and cash equivalents						13,661			(12,052	)
Cash and cash equivalents:
	Beginning of period					15,932			18,814

	End of period				$	29,593		$	6,762

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

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

Note 1. Basis of Presentation
The financial information included herein as of March 31, 2003 and for the three-month periods ended March 31, 2003 and 2002 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, 2002 is derived from our 2002 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 2002 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 the first-in first-out (FIFO) method of accounting for parts (collectively, the FIFO method). Detail of inventory is as follows (in thousands):


	March 31, 2003		December 31, 2002

New and program vehicles	$	367,627	$	340,457
Used vehicles		80,963		85,170
Parts and accessories		19,888		20,281

	$	468,478	$	445,908

Note 3. 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,” which we adopted in December 2002, 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:


Three Months Ended March 31,		2003			2002

Net income, as reported		$	4,165		$	6,391
Add — Stock-based employee compensation expense included in reported net income, net of related tax effects			24			25
Deduct — total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects			(714	)		(504	)

Net income, pro forma		$	3,475		$	5,912

Basic net income per share:
	As reported	$	0.23		$	0.43

	Pro forma	$	0.19		$	0.39

Diluted net income per share:
	As reported	$	0.23		$	0.42

	Pro forma	$	0.19		$	0.39

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,		2003			2002

Risk-free interest rate			3.0	%		4.0	%
Expected dividend yield			0	%		0	%
Expected lives - 2001 Plan		8 years			8 years
	Purchase Plan	3 months			3 months
Expected volatility			46.24	%		46.80	%

Note 4. Supplemental Cash Flow Information
Supplemental disclosure of cash flow information is as follows (in thousands):


	Three Months Ended March 31,

	2003		2002

Cash paid during the period for income taxes	$	44	$	81
Cash paid during the period for interest		4,760		4,042

Note 5. Earnings Per Share
Following is a reconciliation of basic earnings per share (“EPS”) and diluted EPS (in thousands, except per share amounts):


Three Months Ended March 31,	2003						2002

Basic EPS	Income		Shares		Per Share Amount		Income		Shares		Per Share Amount

Income available to common shareholders	$	4,165		18,133	$	0.23	$	6,391		14,991	$	0.43

Diluted EPS
Effect of dilutive stock options				139						378

Income available to common shareholders	$	4,165		18,272	$	0.23	$	6,391		15,369	$	0.42

Potentially dilutive securities that are not included in the diluted EPS calculations because they would be antidilutive are as follows:


	Three Months Ended March 31,

	2003		2002

Stock options		1,047,692		34,280

Note 6. Comprehensive Income
Comprehensive income includes the fair value of cash flow 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,

		2003			2002

Net income		$	4,165		$	6,391
Unrealized gain (loss) on investments, net			(11	)		2
Cash flow hedges:
	Net derivative gains (losses), net of tax effect of $381 and $(33), respectively		(588	)		52
	Reclassification adjustment, net of tax effect of $(315) and $(233), respectively		499			371

Total comprehensive income		$	4,065		$	6,816

Note 7. Acquisitions
The following acquisitions were made in the first quarter of 2003. For information on the acquisition made in April 2003, see Note 11. Subsequent Events.

• In February 2003, we acquired Richardson Chevrolet in Salinas, California, which has anticipated 2003 annual revenues of approximately $35.0 million. This store has been renamed Chevrolet of Salinas.

• In March 2003, we acquired Pacific Hyundai of Anchorage, Alaska, which has anticipated 2003 revenues of approximately $10.0 million. The store has been renamed Lithia Hyundai of Anchorage.

• In March 2003, we acquired Randy Hansen Chevrolet of Twin Falls, Idaho, which has anticipated 2003 annual revenues of approximately $30.0 million. The store has been renamed Chevrolet, Cadillac, Suzuki of Twin Falls.

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


	Three Months Ended March 31,

	2003		2002

Total revenues	$	595,213	$	541,671
Net income		4,268		6,710
Basic earnings per share		0.24		0.45
Diluted earnings per share		0.23		0.44

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


Inventory		$	14,483
Other current assets			39
Property and equipment			355
Goodwill			5,287
Other intangible assets — franchise value			2,308

	Total assets acquired		22,472
Flooring notes payable			12,449
Other current liabilities			19

	Total liabilities acquired		12,468

Net assets acquired		$	10,004

We anticipate that approximately 100% of the goodwill acquired in the above acquisitions will be deductible for tax purposes over the period of 15 years.

Note 8. DaimlerChrysler Agreement
In February 2003 we entered into a working capital and used vehicle flooring credit facility with DaimlerChrysler Services North America LLC totaling up to $200 million, which expires in February 2006, with interest due monthly.

The credit line with DaimlerChrysler Services is cross-collateralized and secured by cash and cash equivalents, new and used vehicle and parts inventories, accounts receivable, intangible assets and equipment. We pledged to DaimlerChrysler Services the stock of all of our subsidiaries except entities operating BMW, Honda, Nissan or Toyota stores.

The financial covenants in the agreement with DaimlerChrysler Services 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.

Our previous facility with Ford Motor Credit Company was terminated and paid off on February 25, 2003.

Note 9. Recent Accounting Pronouncements
In July 2002, the FASB approved SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses the financial accounting and reporting for obligations associated with an exit activity, including restructuring, or with a disposal of long-lived assets. Exit activities include, but are not limited to, eliminating or reducing product lines, terminating employees and contracts and relocating plant facilities or personnel. SFAS No. 146 specifies that a company will

record a liability for a cost associated with an exit or disposal activity only when that liability is incurred and can be measured at fair value. Therefore, commitment to an exit plan or a plan of disposal expresses only management’s intended future actions and, therefore, does not meet the requirement for recognizing a liability and the related expense. SFAS No. 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. The adoption of SFAS No. 146 on January 1, 2003 did not have any effect on our financial position or results of operations.

In March 2003, the Emerging Issues Task Force (EITF) issued EITF 02-16 “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.” EITF 02-16 primarily applies to floorplan interest credits and advertising credits received by us from auto manufacturers and specifies the timing of and appropriate classification of such items in our statement of operations. We recognize floorplan interest credits as a reduction to cost of goods sold as related vehicles are sold and recognize advertising credits as a credit to advertising expense. The adoption of EITF 02-16 on January 1, 2003 did not have any effect on our results of operations or financial position.

Note 10. Reclassification
In the fourth quarter of 2002, we reclassified documentation fees from finance and insurance income to new and used vehicle revenue, as appropriate, in order to bring our reporting in line with industry practice. The resulting effect was a reduction of approximately $100 per vehicle of finance and insurance income and an increase in new and retail used vehicle gross margins of between 20 and 50 basis points. Accordingly, the finance and insurance sales per retail unit, revenue by product line and gross margin percentage disclosures have been recalculated for the first three quarters of 2002. Net income was not affected by this reclassification.

In addition, reclassifications related to the reclassification of contracts in transit to a separate line item on the balance sheet from cash and cash equivalents have been made to the 2002 financial statements to be consistent with the 2003 presentation.

Note 11. Subsequent Events

U.S. Bank Agreement Amendment
In April 2003, our U.S. Bank N.A. agreement was amended to provide for a $35.0 million revolving line of credit for leased vehicles and equipment purchases, which expires January 31, 2005. Previously, the amount available under this line of credit was $27.5 million and it expired January 31, 2004.

Acquisitions
The following acquisition was made subsequent to March 31, 2003:

• In April 2003, we acquired Grizzly Chrysler Dodge of Missoula, Montana, which has anticipated 2003 revenues of approximately $25.0 million. The store has been renamed Lithia Auto Center of Missoula.

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 99.3 to our 2002 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.

General
We are a leading operator of automotive franchises and retailer of new and used vehicles and services. As of May 5, 2003, we offered 24 brands of new vehicles through 136 franchises in 73 stores in the western United States and over the Internet. As of May 5, 2003, we operate 16 stores in Oregon, 12 in California, 10 in Washington, 7 in Texas, 7 in Idaho, 7 in Colorado, 5 in Nevada, 3 in South Dakota, 3 in Alaska, 2 in Nebraska and 1 in Montana. 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. Over 75% of our stores are located in cities where our store does not compete directly with any other franchised dealers selling the same brand.

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 generally 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. The most recent three-month period was characterized by a very strong incentive environment, which led to higher than normal new vehicle sales for the period. 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:


	Percent of			Gross			Percent of Total
Three Months Ended March 31, 2003	Total Revenues			Margin			Gross Profit

New vehicles		55.4	%		7.1	%		25.1	%
Retail used vehicles⁽¹⁾		24.8			13.0			20.7
Service, body and parts		10.2			47.7			31.2
Finance and insurance⁽²⁾		3.6			99.7			23.2
Fleet and other		0.4			13.0			0.3


	Percent of			Gross			Percent of Total
Three Months Ended March 31, 2002	Total Revenues			Margin			Gross Profit

New vehicles		51.1	%		8.4	%		26.9	%
Retail used vehicles⁽¹⁾		28.6			12.6			22.5
Service, body and parts		9.9			47.8			29.7
Finance and insurance⁽²⁾		3.4			99.5			21.2
Fleet and other		0.6			9.4			0.4

⁽¹⁾		Excludes wholesale used vehicle sales, representing 5.6% and 6.4% of total revenues, respectively, and a negative gross margin contribution of 1.2% and 1.9%, respectively, for the three month periods ended March 31, 2003 and 2002.

⁽²⁾		Reported net of administration fees and anticipated cancellations.

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


Lithia Motors, Inc.⁽¹⁾			Three Months Ended March 31,

			2003			2002

Revenues:
	New vehicles			55.4	%		51.1	%
	Used vehicles			30.4			35.0
	Service, body and parts			10.2			9.9
	Finance and insurance			3.6			3.4
	Fleet and other			0.4			0.6

		Total revenues		100.0	%		100.0	%
Gross profit				15.7			16.0
Selling, general and administrative expenses				13.2			12.9
Depreciation and amortization				0.4			0.3
Income from operations				2.1			2.7
Floorplan interest expense				0.6			0.4
Other interest expense				0.2			0.3
Income before taxes				1.2			2.0
Income tax expense				0.5			0.8
Net income				0.7	%		1.2	%

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

Results of Operations


			Three Months Ended
(Dollars in thousands)			March 31,									%
									Increase			Increase
			2003			2002			(Decrease)			(Decrease)

Revenues:
	New vehicle sales		$	323,448		$	267,817		$	55,631			20.8	%
	Used vehicle sales			176,986			183,312			(6,326	)		(3.5	)
	Service, body and parts			59,751			52,038			7,713			14.8
	Finance and insurance			21,214			17,832			3,382			19.0
	Fleet and other			2,078			3,399			(1,321	)		(38.9	)

		Total revenues		583,477			524,398			59,079			11.3
Cost of sales				492,142			440,751			51,391			11.7

Gross profit				91,335			83,647			7,688			9.2
Selling, general and administrative				76,964			67,736			9,228			13.6
Depreciation and amortization				2,287			1,668			619			37.1

Income from operations				12,084			14,243			(2,159	)		(15.2	)
Floorplan interest expense				(3,702	)		(2,337	)		1,365			58.4
Other interest expense				(1,410	)		(1,592	)		(182	)		(11.4	)
Other income (expense), net				(172	)		95			(267	)		(281.1	)

Income before income taxes				6,800			10,409			(3,609	)		(34.7	)
Income tax expense				2,635			4,018			(1,383	)		(34.4	)

Net income			$	4,165		$	6,391		$	(2,226	)		(34.8	)%


	Three Months Ended
	March 31,							%
					Increase			Increase
	2003		2002		(Decrease)			(Decrease)

New units sold		12,621		10,416		2,205			21.2	%
Average selling price per new vehicle	$	25,628	$	25,712	$	(84	)		(0.3	)
Used units sold — retail		10,006		10,364		(358	)		(3.5	)
Average selling price per retail used vehicle	$	14,464	$	14,476	$	(12	)		(0.1	)
Used units sold — wholesale		6,351		6,106		245			4.0
Average selling price per wholesale used vehicle	$	5,080	$	5,452	$	(372	)		(6.8	)
Finance and insurance sales per retail unit	$	938	$	858	$	80			9.3	%

Revenues. Total revenues increased 11.3% in the first quarter of 2003 compared to the first quarter of 2002 primarily as a result of acquisitions. An increase in same store new vehicle revenues of 7.7% and same store finance and insurance revenues of 7.3% in the first quarter of 2003 compared to the first quarter of 2002 were offset by declines in same store used vehicle revenues of 14.5% and same store service and parts revenues of 2.6%. The increase in new vehicle same store revenues of 7.7% compares favorably to an industry decline in new vehicle sales of over 4% for the first quarter of 2003. We estimate that the combined new and used vehicle market in the areas where we operate was down more than 10% in the first quarter of 2003 compared to the same period last year. Slowing economies in our markets and higher than normal new vehicle inventories at the end of 2002, coupled with a strong new vehicle incentive environment, spurred our aggressive approach to new vehicle sales in the first quarter of 2003. The aggressive company-wide marketing campaign was based on the “Driving America” theme aimed at increasing market share in order to secure a long-term customer base for future parts and service business and repeat and referral business. The used vehicle business was weak due to competition from highly incentivized new vehicles within the overall weaker total vehicle market. The service and parts business has been negatively impacted in the past couple of years by substantial improvements in the quality of domestic vehicles, resulting in less warranty work. We improved our finance and insurance penetration rate to 77% of all new and used retail units in the first quarter of 2003 compared to 75% in the same period last year. We also achieved 41% service contract penetration in the first quarter of 2003 compared to 40% in the same quarter of 2002 and 34% lifetime oil and filter service product penetration compared to 29% in the same periods, respectively.

During the first quarter of 2003, manufacturers offered, and are continuing to offer, incentives, including low interest rates and rebates, in order to attract new vehicle buyers. The availability of cash rebates and zero percent and low interest rate financing has also enhanced our ability to sell finance, warranty and insurance products and services. Our finance and insurance sales per retail unit increased 9.3% to $938 per retail vehicle in the first quarter of 2003 compared to the first quarter of 2002.

Gross Profit. Gross profit increased due to increased total revenues, offset in part by a lower overall gross profit percentage. Certain incentives and rebates received from manufacturers, including floorplan interest credits, are recorded as a reduction to cost of goods sold at the time of vehicle sale. Gross profit margins achieved were as follows:


	Three Months Ended March 31,
							Lithia
	2003			2002			Margin Change*

New vehicles		7.1	%		8.4	%	(130)bp
Retail used vehicles		13.0			12.6			40
Service and parts		47.7			47.8			(10	)
Finance and insurance		99.7			99.5			20
Overall		15.7			16.0			(30	)

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

The decrease in the overall gross profit margin in the first quarter of 2003 compared to the first quarter of 2002 is primarily a result of four factors:

• A significant shift towards our lowest margin new vehicle business as a result of the strong incentive environment;

• Lower floorplan interest credits from the manufacturers on new vehicles due to lower market rates; and

• Aggressive pricing of new vehicles in order to gain market share, which resulted in lower new vehicle margins.

These factors were partially offset by an increase in the gross margins achieved on our retail used vehicle sales and on our finance and insurance products in the first quarter of 2003 compared to 2002.

Selling, General and Administrative Expense. Selling, general and administrative expense includes salaries and related personnel expenses, facility lease expense, advertising, legal, accounting, professional services and general corporate expenses. Selling, general and administrative expense increased due to increased selling, or variable, expenses related to the increase in revenues and the number of locations. As a percentage of revenue, selling, general and administrative expense increased 30 basis points in the first quarter of 2003 compared to the first quarter of 2002 due partially to higher advertising and sales compensation expenses related to our aggressive new vehicle marketing.

Income from Operations. Operating margins decreased 60 basis points, in the first quarter of 2003 compared to the first quarter of 2002 due to the decrease in the overall gross margin percentage and increased operating expenses as a percentage of revenue as discussed above.

Floorplan Interest Expense. The increase in floorplan interest expense in the first quarter of 2003 compared to the first quarter of 2002 is primarily due to an approximately $974,000 increase in expense as a result of an increase in the average outstanding balances of our floorplan facilities, mainly due to acquisitions. In addition, an increase in flooring rates was responsible for $181,000 of the increase and additional expense from interest rate swaps was responsible for $210,000 of the increase. These increases were offset in part by a decrease in the LIBOR rate in the first quarter of 2003 compared to the first quarter of 2002.

Other Interest Expense. Other interest expense includes interest on debt incurred related to acquisitions, real estate mortgages, our used vehicle line of credit and equipment related notes. The decrease in other interest expense resulted from $382,000 of savings due to lower interest rates in the first quarter of 2003 compared to the first quarter of 2002, offset in part by a 4.7% increase in average outstanding balances.

Income Tax Expense. Our effective tax rate was 38.8% in the first quarter of 2003 compared to 38.6% in the first quarter of 2002. 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.

Net Income. Net income decreased as a result of the lower gross margin percentage, higher operating expenses and higher floorplan interest expense, offset in part by increased revenues.

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 and the reduced number of business days during the holiday season. As a result, financial performance may 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 general economic conditions, also contribute to fluctuations in sales and operating results. Historically, the timing, performance and frequency of acquisitions has been the largest 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 offerings to finance operations and expansion.

Our inventories increased to $468.5 million at March 31, 2003 from $445.9 million at December 31, 2002 due primarily to acquisitions. Accordingly, our new and used flooring notes payable increased to $458.1 million at March 31, 2003 from $427.6 million at December 31, 2002. Our days supply of new vehicles decreased by approximately 10 days at March 31, 2003 compared to December 31, 2002. We believe that our new and used vehicle inventories are at appropriate levels going into the second quarter. The second quarter typically represents the second strongest sales environment of the year.

Primarily as a result of the acquisition of three stores in the first quarter of 2003, our goodwill and other intangibles increased $8.9 million to $215.1 million at March 31, 2003 compared to $206.2 million at December 31, 2002.

In June 2000, our Board of Directors authorized the repurchase of up to 1,000,000 shares of our Class A common stock. Through April 2003, we have purchased a total of 59,400 shares under this program and may continue to do so from time to time in the future as conditions warrant.

In February 2003 we entered into a working capital and used vehicle flooring credit facility with DaimlerChrysler Services North America LLC totaling up to $200 million, which expires in February 2006, with interest due monthly.

Our previous facility with Ford Motor Credit Company was terminated and paid off on February 25, 2003.

The financial covenants in our agreement with DaimlerChrysler Services 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, 2003, we were in compliance with all of the covenants of this agreement.

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

We also have a real estate line of credit with Toyota Motor Credit totaling $40 million, which expires in May 2005. This line of credit is secured by the real estate financed under this line of credit.

In April 2003, our U.S. Bank N.A. agreement was amended to provide for a $35.0 million revolving line of credit for leased vehicles and equipment purchases, which expires January 31, 2005. Previously, the amount available under this line of credit was $27.5 million and it expired January 31, 2004.

Interest rates on all of the above facilities ranged from 2.78% to 4.05% at March 31, 2003. Amounts outstanding on the lines at March 31, 2003 together with amounts remaining available under such lines were as follows (in thousands):


	Outstanding at		Remaining Availability as of
	March 31, 2003		March 31, 2003

New and program vehicle lines	$	396,128	$		*
Working capital and used vehicle line		62,000		114,100	**
Real estate line		30,851		9,149
Equipment/leased vehicle line		27,500		—

	$	516,479	$		*

*		There are no formal limits on the new and program vehicle lines with certain lenders.
**		As limited by the terms of the line regarding the borrowing base.

At March 31, 2003, our long-term debt and lease commitments were as follows (in thousands):


Year Ending December 31,	Long-term debt		Leases		Total

2003	$	4,160	$	14,602	$	18,762
2004		31,946		18,693		50,639
2005		4,087		18,494		22,581
2006		65,900		17,707		83,607
2007		3,921		16,680		20,601
Thereafter		71,798		63,885		135,683

Total	$	181,812	$	150,061	$	331,873

At March 31, 2003, we had capital commitments of approximately $13.3 million for the construction of two new store facilities, an addition to one existing facility and the remodel of three facilities. The two new facilities will be a Ford store in Boise, Idaho, a body shop in Boise, Idaho. We have already incurred $2.5 million for these commitments and anticipate incurring the remaining $13.3 million during the remaining three quarters of 2003. 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

We reaffirm our critical accounting policies as described in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 31, 2003.

Recent Accounting Pronouncements

See Note 9 of Notes to Consolidated Financial Statements.

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 2002 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 31, 2003.

Item 4. Controls and Procedures

Disclosure Controls and Procedures
Within the 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15b under the Securities Exchange Act of 1934. Based on their review of our disclosure controls and procedures, the President and Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be included in our periodic SEC filings.

Internal Controls and Procedures
There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II — OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits


10.1		Second Amendment, dated April 2, 2003, to Amended and Restated Loan Agreement, dated December 28, 2001, between Lithia Financial Corporation, Lithia Motors, Inc., Lithia Aircraft, Inc. and Lithia SALMIR, Inc. and U.S. Bank National Association.

99.1		Certification of Sidney B. DeBoer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2		Certification of Jeffrey B. DeBoer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

The following reports of Form 8-K were filed during the quarter ended March 31, 2003:

• On February 14, 2003, we filed a Form 8-K pursuant to Item 9. Regulation FD Disclosure, attaching our press release regarding summary financial results for the fourth quarter and year ended December 31, 2002; and

• On March 6, 2003, we filed a Form 8-K pursuant to Item 9. Regulation FD Disclosure, attaching our press release regarding a new credit facility with DaimlerChrysler Services North America.

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 14, 2003	LITHIA MOTORS, INC.


	By	/s/ SIDNEY B. DEBOER

	Sidney B. DeBoer Chairman of the Board, Chief Executive Officer and Secretary (Principal Executive Officer)


	By	/s/ JEFFREY B. DEBOER

	Jeffrey B. DeBoer Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

CERTIFICATION PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Sidney B. DeBoer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Lithia Motors, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003


/s/Sidney B. DeBoer Sidney B. DeBoer Chairman of the Board, Chief Executive Officer and Secretary Lithia Motors, Inc.

CERTIFICATION PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey B. DeBoer, certify that:

Date: May 14, 2003


/s/Jeffrey B. DeBoer Jeffrey B. DeBoer Senior Vice President and Chief Financial Officer Lithia Motors, Inc.

18 EX-10.1 3 v90259exv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT Dated as of: April 2, 2003 ------------- Parties: Lithia Financial Corporation ("LFC") Lithia Motors, Inc. ("LMI") Lithia Aircraft, Inc. ("LAI") And: U.S. BANK NATIONAL ASSOCIATION ("Lender") This Agreement amends the Amended and Restated Loan Agreement between the parties and Lithia Salmir, Inc. dated as of December 28, 2001, as amended by agreement dated January 31, 2003 (collectively, the "Loan Agreement"). For valuable consideration, the parties agree as follows: 1. AMENDMENTS TO LOAN AGREEMENT. 1.1 The definitions of the following terms in Section 1.1 of the Loan Agreement are deleted and replaced with the following: "Loan Party" means LFC, LMI or LAI. "Maximum Revolving Loan Amount" means, as of any date of determination, an amount equal to $35,000,000 minus the then outstanding aggregate principal balance of the Term-Out Notes. "Permitted Acquisition" means an acquisition permitted by Section 9.10(c) of the Credit Agreement among Lithia Motors, Inc., various lenders and DaimlerChrysler Services North America LLC, as Agent, dated February 25, 2003. "Revolving Loan Termination Date" means January 31, 2005. 1.2 Section 3.1 of the Loan Agreement is deleted and replaced with the following: 3.1 MAXIMUM AMOUNT. Subject to the terms and conditions of this Agreement, Lender agrees to make loans to LFC and LAI (who shall be jointly and severally liable) from time to time on a revolving credit basis (each a "Revolving Advance", collectively, "Revolving Loans"), provided that the principal balance of the New Revolving Note shall at no time exceed the lesser of (a) the Maximum Revolving Loan Amount or (b) the amount required to maintain compliance with Section 9.1.7. The availability of Revolving Advances shall terminate on the Revolving Loan Termination Date. 1.3 Section 3.3 of the Loan Agreement is deleted and replaced with the following: Page 1 - SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT 3.3 NEW REVOLVING NOTE 3.3.1 NOTE. The Revolving Loans shall be evidenced by a promissory note executed by LFC and LAI in the principal amount of $35,000,000, substantially in the form attached as Exhibit A ("New Revolving Note"). The Revolving Loans shall be subject to all terms and conditions of the New Revolving Note and of this Agreement. 3.3.2 INTEREST. Interest on the unpaid principal balance of the New Revolving Note shall be due and payable at the times and at the rates set forth in the New Revolving Note. 3.3.3 PRINCIPAL PAYMENTS. The principal balance of the New Revolving Note shall be due and payable on January 31, 2005. 3.3.4 REQUESTS FOR REVOLVING ADVANCES. Whenever LFC wishes to request a Revolving Advance, it shall give Lender notice thereof in accordance with the provisions of the New Revolving Note. 1.4 The last sentence of Section 3.4.1 is deleted and replaced with the following: Each Term-Out Loan shall be in the minimum principal amount of $5,000,000. The sum of the principal balance of the New Revolving Note plus the aggregate principal balance of all Term-Out Notes shall at no time exceed $35,000,000, or if less, the amount required to maintain compliance with Section 9.1.7. 1.5 Section 9.1.5 of the Loan Agreement is deleted and replaced with the following: 9.1.5 MINIMUM TANGIBLE NET WORTH. The sum of (a) LFC's Tangible Net Worth plus the principal balance, up to a maximum of $4,500,000, of loans made by LFC to its affiliates (excluding any amounts owed by such affiliates to LFC under leases between LFC and such affiliates) shall not be less than $10,000,000. 1.6 The following is added to the Loan Agreement as Section 9.1.7 thereof: 9.1.7 BORROWING BASE AMOUNT. The Borrowing Base Amount shall at all times be at least equal to 110% of the sum of the then outstanding principal balance of the New Revolving Note and the aggregate principal balance of the Term Notes. As used herein: "Borrowing Base Amount" means an amount equal to the sum of (i) 80% of LFC's cash minus book overdraft, if any; plus (ii) 80% of the net book value of aircraft owned by LAI; plus (iii) 90% of the net book value of LFC's inventory of vehicles leased by LFC to third parties; plus (iv) 90% of the net book value LFC's inventory of used vehicles (excluding amounts included in clause (iii)); plus (v) 70% of accounts owed to LFC by Persons other than LAI, which are not more than 90 days past due; (vi) plus 40% of the net book value of LFC's equipment. Page 2 - SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT 1.7 Exhibit A to the Loan Agreement is deleted and replaced with the Exhibit A attached hereto. 2. CONDITIONS PRECEDENT. The effectiveness of this Agreement is subject to satisfaction of each of the following conditions: 2.1 Lender has received executed originals of this Agreement, a new Revolving Note and such other Loan Documents as Lender requires and each Loan Party has provided such information and satisfied such requirements as Lender reasonably requires. 2.2 No Default has occurred and is continuing. 2.3 All representations and warranties in the Loan Agreement are true and correct as of the date of this Agreement. 3. DEFINED TERMS. Capitalized terms not otherwise defined herein shall have the meanings given to such terms in the Loan Agreement. 4. REAFFIRMATION. Each Loan Party reaffirms the representations and warranties in each of the existing Loan Documents and agrees that (a) except as amended previously or in connection herewith, each Loan Document is and shall remain valid and enforceable in accordance with its terms and (b) such Loan Party has no claims, defenses, setoffs, counterclaims or claims for recoupment against Lender or the indebtedness and obligations represented by the Notes, Guaranties, LC Agreements, Letter of Credit, and other Loan Documents. 5. EXPENSES. Borrower shall pay all costs, fees and expenses incurred by Lender in connection with the preparation, negotiation, execution, and delivery of this Agreement and any other document required to be furnished herewith, including without limitation the charges of Lender's legal counsel. 6. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of said counterparts taken together shall be deemed to constitute but one document. 7. DISCLOSURE. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE. Page 3 - SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT EACH LOAN PARTY ACKNOWLEDGES RECEIPT OF A COPY OF THIS AGREEMENT. LITHIA FINANCIAL CORPORATION LITHIA MOTORS, INC. By:/s/Jeff DeBoer By:/s/Jeff DeBoer Its: Senior Vice President and CFO Its: Senior Vice President and CFO ------------------------------ ------------------------------- LITHIA AIRCRAFT, INC. U.S. BANK NATIONAL ASSOCIATION By:/s/Jeff DeBoer By: /s/Steven Paladino ----------------------------- ----------------------------- Its: Senior Vice President and CFO Its: ------------------------------ ------------------------------- Page 4 - SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT EX-99.1 4 v90259exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Lithia Motors, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sidney B. DeBoer, Chairman of the Board, Chief Executive Officer and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Sidney B. DeBoer - -------------------- Sidney B. DeBoer Chairman of the Board, Chief Executive Officer and Secretary Lithia Motors, Inc. May 14, 2003 This certification is made solely for the purpose of 18 U.S.C. Section 1350, and not for any other purpose. A signed original of this written statement required by Section 906 has been provided to Lithia Motors, Inc. and will be retained by Lithia Motors, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.2 5 v90259exv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Lithia Motors, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey B. DeBoer, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Jeffrey B. DeBoer - --------------------- Jeffrey B. DeBoer Senior Vice President and Chief Financial Officer Lithia Motors, Inc. May 14, 2003 This certification is made solely for the purpose of 18 U.S.C. Section 1350, and not for any other purpose. A signed original of this written statement required by Section 906 has been provided to Lithia Motors, Inc. and will be retained by Lithia Motors, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----

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	•		In February 2003, we acquired Richardson Chevrolet in Salinas, California, which has anticipated 2003 annual revenues of approximately $35.0 million. This store has been renamed Chevrolet of Salinas.

	•		In March 2003, we acquired Pacific Hyundai of Anchorage, Alaska, which has anticipated 2003 revenues of approximately $10.0 million. The store has been renamed Lithia Hyundai of Anchorage.

	•		A significant shift towards our lowest margin new vehicle business as a result of the strong incentive environment;

	•		Lower floorplan interest credits from the manufacturers on new vehicles due to lower market rates; and

	•		Aggressive pricing of new vehicles in order to gain market share, which resulted in lower new vehicle margins.

	•		On February 14, 2003, we filed a Form 8-K pursuant to Item 9. Regulation FD Disclosure, attaching our press release regarding summary financial results for the fourth quarter and year ended December 31, 2002; and

	•		On March 6, 2003, we filed a Form 8-K pursuant to Item 9. Regulation FD Disclosure, attaching our press release regarding a new credit facility with DaimlerChrysler Services North America.

1.		I have reviewed this quarterly report on Form 10-Q of Lithia Motors, Inc.;

2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.		Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and