-----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, CBPd+wBFK14gj/6s9e5V73LMl/90rXNJ6Og1PKDVnujs2trzHgjaBYDiHDkYZ3nK ZGJ72LTUb+Z+tnfKgRDorg== /in/edgar/work/0000896595-00-000045/0000896595-00-000045.txt : 20001116 0000896595-00-000045.hdr.sgml : 20001116 ACCESSION NUMBER: 0000896595-00-000045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LITHIA MOTORS INC CENTRAL INDEX KEY: 0001023128 STANDARD INDUSTRIAL CLASSIFICATION: [5500 ] IRS NUMBER: 930572810 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14733 FILM NUMBER: 768419 BUSINESS ADDRESS: STREET 1: 360 E JACKSON ST CITY: MEDFORD STATE: OR ZIP: 97501 BUSINESS PHONE: 5417766899 MAIL ADDRESS: STREET 1: LITHIA MOTORS INC STREET 2: 360 E JACKSON CITY: MEDFORD STATE: OR ZIP: 97501 10-Q 1 0001.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2000 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 September 30, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 000-21789 LITHIA MOTORS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Oregon 93-0572810 ------------------------------ ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) 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 _X_ No ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class A Common stock without par value 8,412,087 Class B Common stock without par value 4,087,000 (Class) (Outstanding at October 31, 2000) LITHIA MOTORS, INC. FORM 10-Q INDEX PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance Sheets - September 30, 2000 (unaudited) 2 and December 31, 1999 Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2000 and 1999 (unaudited) 3 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2000 and 1999 (unaudited) 4 Notes to Consolidated Financial Statements (unaudited) 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 1 CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
September 30, December 31, 2000 1999 -------------- -------------- (Unaudited) Assets Current Assets: Cash and cash equivalents $ 52,520 $ 30,364 Trade receivables, net of allowance for doubtful accounts of $396 and $851 34,605 25,683 Notes receivable, current portion, net of allowance for doubtful accounts of $1,059 and $677 1,966 2,777 Related party receivable 187 - Inventories, net 261,899 268,281 Vehicles leased to others, current portion 2,691 3,000 Prepaid expenses and other 2,423 3,815 Deferred income taxes - 724 -------------- -------------- Total Current Assets 356,291 334,644 Land and buildings, net of accumulated depreciation of $1,072 and $646 47,620 31,301 Equipment and other, net of accumulated depreciation of $6,479 and $5,037 26,813 21,067 Notes Receivable, less current portion 2,040 4,095 Vehicles Leased to Others, less current portion 5,015 2,808 Goodwill, net of accumulated amortization of $5,344 and $3,073 119,262 110,677 Other Non-Current Assets, net of accumulated amortization of $172 and $143 1,772 1,841 -------------- -------------- Total Assets $ 558,813 $ 506,433 ============== ============== Liabilities and Shareholders' Equity Current Liabilities: Flooring notes payable $ 202,029 $ 208,403 Current maturities of long-term debt 4,816 7,039 Current portion of capital leases 62 93 Trade payables 13,290 11,873 Payable to related party - 9,000 Accrued liabilities 25,149 23,237 Deferred income taxes 308 - -------------- -------------- Total Current Liabilities 245,654 259,645 Used Vehicle Flooring Facility 56,000 35,500 Real Estate Debt, less current maturities 26,205 18,963 Other Long-Term Debt, less current maturities 38,564 19,252 Long-Term Capital Lease Obligation, less current maturities 118 196 Deferred Revenue 2,131 2,262 Other Long-Term Liabilities 6,336 5,456 Deferred Income Taxes 8,067 9,521 -------------- -------------- Total Liabilities 383,075 350,795 -------------- -------------- Shareholders' Equity: Preferred stock - no par value; authorized 15,000 shares; 15 shares designated Series M Preferred; issued and outstanding 14.9 and 10.4 8,915 6,216 Class A common stock - no par value; authorized 100,000 shares; issued and outstanding 8,375 and 7,824 108,185 102,333 Class B common stock authorized 25,000 shares; issued and outstanding 4,087 508 508 Additional paid-in capital 296 7,428 Retained earnings 57,834 39,153 -------------- -------------- Total Shareholders' Equity 175,738 155,638 -------------- -------------- Total Liabilities and Shareholders' Equity $ 558,813 $ 506,433 ============== ==============
2 CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
Three months ended September 30, Nine months ended September 30, ------------------------------------------------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Revenues: New vehicle sales $ 243,169 $ 199,107 $ 683,217 $ 483,182 Used vehicle sales 128,960 105,434 364,935 270,292 Service, body and parts 42,333 33,898 121,266 85,805 Other revenues 28,604 18,930 87,102 49,988 ----------- ----------- ----------- ----------- Total revenues 443,066 357,369 1,256,520 889,267 Cost of sales 372,146 300,124 1,055,552 748,036 ----------- ----------- ----------- ----------- Gross profit 70,920 57,245 200,968 141,231 Selling, general and administrative 51,041 41,564 146,770 104,273 Depreciation - buildings 162 83 430 233 Depreciation - equipment and other 971 948 2,808 2,505 Amortization 799 529 2,301 1,261 ----------- ----------- ----------- ----------- Income from operations 17,947 14,121 48,659 32,959 Other income (expense) Floorplan interest expense (5,321) (3,090) (13,894) (7,378) Other interest expense (1,271) (1,191) (4,928) (2,885) Other income, net 451 84 884 12 ----------- ----------- ----------- ----------- (6,141) (4,197) (17,938) (10,251) ----------- ----------- ----------- ----------- Income before income taxes 11,806 9,924 30,721 22,708 Income tax expense 4,283 4,071 12,040 9,249 ----------- ----------- ----------- ----------- Net income $ 7,523 $ 5,853 $ 18,681 $ 13,459 =========== =========== =========== =========== Basic net income per share $ 0.60 $ 0.50 $ 1.50 $ 1.23 =========== =========== =========== =========== Diluted net income per share $ 0.55 $ 0.47 $ 1.36 $ 1.16 =========== =========== =========== ===========
3 CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
Nine months ended September 30, ------------------------------- 2000 1999 ------------------------------- Cash flows from operating activities: Net income $ 18,681 $ 13,459 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,539 3,999 Compensation expense related to stock option issuances 59 59 Loss on sale of assets 53 39 Loss on sale of vehicles leased to others 88 220 Deferred income taxes (422) 1,289 Equity in income of affiliate (28) (44) (Increase) decrease, net of effect of acquisitions: Trade and installment contract receivables, net (8,313) 654 Inventories 18,978 16,256 Prepaid expenses and other 1,236 (4,296) Other noncurrent assets (278) (239) Increase (decrease), net of effect of acquisitions: Floorplan notes payable (14,549) (20,314) Trade payables 1,417 (3,824) Accrued liabilities 1,910 7,616 Other liabilities 1,193 199 -------- -------- Net cash provided by operating activities 25,564 15,073 Cash flows from investing activities: Notes receivable issued (523) (772) Principal payments received on notes receivable 3,398 6,222 Capital expenditures (21,117) (6,833) Proceeds from sale of assets 1,035 1,379 Proceeds from sale of vehicles leased to others 5,247 5,432 Expenditures for vehicles leased to others (8,037) (7,302) Cash paid for acquisitions (31,187) (29,042) Cash from sale of franchise 1,287 - Distribution from affiliate 379 1,268 -------- -------- Net cash used in investing activities (49,518) (29,648) Cash flows from financing activities: Net borrowing on lines of credit 47,620 25,500 Payments on capital lease obligations (71) (977) Principal payments on long-term debt (12,050) (6,560) Proceeds from issuance of long-term debt 9,261 1,449 Repurchase of common stock (443) - Proceeds from issuance of common stock 1,793 548 -------- -------- Net cash provided by financing activities 46,110 19,960 -------- -------- Increase in cash and cash equivalents 22,156 5,385 Cash and cash equivalents: Beginning of period 30,364 20,879 -------- -------- End of period $ 52,520 $ 26,264 ======== ========
4 LITHIA MOTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) (Unaudited) Note 1. Basis of Presentation The financial information included herein for the three and nine-month periods ended September 30, 2000 and 1999 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, 1999 is derived from Lithia Motors, Inc.'s (the Company's) 1999 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 the Company's 1999 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. Note 2. Inventories Inventories are valued at cost, using the specific identification method for vehicles and the first-in first-out (FIFO) method of accounting for parts (collectively, the FIFO method). September 30, 2000 December 31, 1999 ------------------ ----------------- New and program vehicles $193,081 $198,812 Used vehicles 54,684 56,292 Parts and accessories 14,134 13,177 -------- -------- $261,899 $268,281 ======== ======== Note 3. Credit Line Amendment In July 2000, Lithia's $10,000 leased vehicle and $15,000 equipment lines of credit were amended to combine the two lines of credit into one line of credit with a maximum borrowing amount of $20,000, which expires April 30, 2002. The line of credit is secured by Lithia's inventory, equipment, accounts receivable and other assets. Interest rates on all of Lithia's lines of credit ranged from 8.27% to 9.49% at September 30, 2000. Note 4. Supplemental Cash Flow Information Supplemental disclosure of cash flow information is as follows: Nine Months Ended September 30, --------------------------------- 2000 1999 ------------- ------------ Cash paid during the period for income $9,896 $ 9,848 taxes Cash paid during the period for interest 19,047 10,209 Stock issued in connection with - 32,761 acquisitions 5 Note 5. Earnings Per Share Following is a reconciliation of basic earnings per share ("EPS") and diluted EPS:
Three Months Ended September 30, 2000 1999 - ---------------------------------- ------------------------------- -------------------------------- Per Share Per Share Income Shares Amount Income Shares Amount ------ ------ ------ ------ ------ ------ Basic EPS Net income available to Common Shareholders $7,523 12,467 $0.60 $5,853 11,596 $0.50 ========= ========== Diluted EPS Dilutive stock options - 129 - 396 Convertible preferred stock - 1,161 - 494 --------- ---------- ---------- ---------- Net income available to Common Shareholders $7,523 13,757 $0.55 $5,853 12,486 $0.47 ========= ==========
Nine Months Ended September 30, 2000 1999 - ---------------------------------- ------------------------------- -------------------------------- Per Share Per Share Income Shares Amount Income Shares Amount ------ ------ ------ ------ ------ ------ Basic EPS Net income available to Common Shareholders $18,681 12,428 $1.50 $13,459 10,926 $1.23 ========= ========== Diluted EPS Dilutive stock options - 157 - 367 Convertible preferred stock - 1,161 - 277 --------- ---------- ---------- ---------- Net income available to Common Shareholders $18,681 13,746 $1.36 $13,459 11,570 $1.16 ========= ==========
Potentially dilutive securities that are not included in the diluted EPS calculations because they would be antidilutive are as follows: Three Months Ended Nine Months Ended September September 30, 30, ---------------------------- ------------------------------ 2000 1999 2000 1999 ------------ ------------ ------------ ----------- Stock options 703 - 711 34 Note 6. Acquisitions The following acquisitions have been made in 2000: o In March, Lithia acquired the Bob Rice Ford/Chrysler dealership in Boise, Idaho. The dealership had estimated 1999 revenues of approximately $73,000. o In May, Lithia acquired Shumate Honda in Kennewick, Washington with estimated annual revenues of $27,000. o In July 2000, Saturn of Eugene, Oregon was acquired with estimated revenues of $5,000. The above acquisitions were accounted for under the purchase method of accounting. Pro forma results of operations are not materially different from actual results of operations. Two shared franchises in Reno, Nevada have been split, creating two separate stores; Lithia Reno Subaru and Lithia Reno Hyundai. The Daewoo franchise that was located in Twin Falls, Idaho, was closed in October 2000. Additionally, 6 the Jeep franchise at our Lithia Jeep/Hyundai store in Fresno, California was exchanged in July 2000 for Dodge and Chrysler/Jeep franchises that remain to be opened in another market. The Lithia Jeep of Bakersfield store and franchise was exchanged in September 2000 for two new store locations for Chrysler/Dodge/Jeep and Dodge that remain to be opened in other markets. Note 7. Purchase of Common Stock In June 2000, Lithia's Board of Directors authorized the repurchase of up to 1,000 shares of Lithia's Class A Common Stock. Lithia has purchased shares under this program and will continue to do so from time to time in the future as market conditions warrant. Note 8. Subsequent Event In October 2000, Lithia acquired the Terry Schulte dealerships in Sioux Falls, South Dakota. The dealerships consist of two stores, one with Chevrolet, Subaru, Jeep and Mitsubishi franchises and one with Kia. The dealerships had estimated 1999 revenues of approximately $75,000. Note 9. Reclassifications Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements and Risk Factors This Form 10-Q contains forward-looking statements. These statements are necessarily subject to risk and uncertainty. Actual results could differ materially from those projected in these forward-looking statements. These risk factors include, but are not limited to, the following: o The cyclical nature of automobile sales; o Lithia's ability to negotiate profitable, accretive acquisitions; o Lithia's ability to secure manufacturer approvals for acquisitions; and o Lithia's ability to retain existing management. See Exhibit 99 to Lithia's 1999 Form 10-K for a more complete discussion of risk factors. General Lithia is a leading operator of automotive franchises and retailer of new and used vehicles and services through a well developed franchise system with its automotive manufacturer partners. As of October 31, 2000, we offer 26 brands of new vehicles, through 106 franchises in 49 locations in the western United States and over the Internet. We currently operate 14 dealerships in California, 14 in Oregon, 4 in Washington, 6 in Colorado, 5 in Nevada, 4 in Idaho and 2 in South Dakota. Lithia sells new and used cars and light trucks, sells replacement parts, provides vehicle maintenance, warranty, paint and repair services, and arranges related financing and insurance for its automotive customers. 7 The following table shows selected condensed financial data expressed as a percentage of total revenues for the periods indicated for the average automotive dealer in the United States. Average U.S. Dealership Year Ended December 31, ------------------------------- Statement of Operations Data: 1999 1998 ------------ ----------- Revenues: New vehicles 59.9 % 59.0 % Used vehicles 28.9 29.4 Parts and service, other 11.2 11.6 ------------ ----------- 100.0 % 100.0 % Total sales Gross profit 12.6 12.9 Total dealership expense 10.8 11.2 Income before taxes 1.8 % 1.7 % Source: NADA Industry Analysis Division The following table sets forth selected condensed financial data for the Company, expressed as a percentage of total revenues for the periods indicated below. Three Months Ended Nine Months Ended September 30, September 30, ------------------ -------------------- 2000 1999 2000 1999 --------- -------- -------- ------- Statement of Operations Data: Revenues: New vehicles 54.9 % 55.7 % 54.4 % 54.3 % Used vehicles 29.1 29.5 29.0 30.4 Service, body and parts 9.6 9.5 9.7 9.7 Other 6.4 5.3 6.9 5.6 --------- -------- -------- ------- Total revenues 100.0 % 100.0 % 100.0 % 100.0 % Gross profit 16.0 16.0 16.0 15.9 Selling, general and 11.5 11.6 11.7 11.7 administrative Depreciation and 0.4 0.4 0.4 0.4 amortization Income from operations 4.1 4.0 3.9 3.7 Floorplan interest expense 1.2 0.9 1.1 0.8 Other interest expense 0.3 0.3 0.4 0.3 Other, net 0.1 0.0 0.1 0.0 Income before tax 2.7 % 2.8 % 2.4 % 2.6 % 8 Results of Operations Three Months Ended September 30, % -------------------- Increase Increase 2000 1999 (Decrease) (Decrease) --------- -------- ---------- ---------- Revenues: New vehicle sales $243,169 $199,107 $44,062 22.1% Used vehicle sales 128,960 105,434 23,526 22.3 Service, body and parts 42,333 33,898 8,435 24.9 Other revenues 28,604 18,930 9,674 51.1 --------- -------- ---------- ---------- Total revenues 443,066 357,369 85,697 24.0 Cost of sales 372,146 300,124 72,022 24.0 --------- -------- ---------- ---------- Gross profit 70,920 57,245 13,675 23.9 Selling, general and 51,041 41,564 9,477 22.8 administrative Depreciation and amortization 1,932 1,560 372 23.8 --------- -------- ---------- ---------- Income from operations 17,947 14,121 3,826 27.1 Floorplan interest expense (5,321) (3,090) (2,231) 72.2 Other interest expense (1,271) (1,191) (80) 6.7 Other, net 451 84 367 436.9 --------- -------- ---------- ---------- Income before income taxes 11,806 9,924 1,882 19.0 Income tax expense 4,283 4,071 212 5.2 --------- -------- ---------- ---------- Net income $7,523 $5,853 $1,670 28.5% ========= ======== ========== ========== New units sold 10,222 8,399 1,823 21.7% Average selling price $23,789 $23,706 $83 0.3% Used units sold 8,320 7,018 1,302 18.6% Average selling price $13,068 $13,114 $(46) (0.4)% Used units sold - wholesale 4,606 3,364 1,242 36.9% Average selling price $4,393 $3,983 $410 10.3% Nine Months Ended September 30, % -------------------- Increase Increase 2000 1999 (Decrease) (Decrease) --------- -------- ---------- ---------- Revenues: New vehicle sales $683,217 $483,182 $200,035 41.4% Used vehicle sales 364,935 270,292 94,643 35.0 Service, body and parts 121,266 85,805 35,461 41.3 Other revenues 87,102 49,988 37,114 74.2 --------- -------- ---------- ---------- Total revenues 1,256,520 889,267 367,253 41.3 Cost of sales 1,055,552 748,036 307,516 41.1 --------- -------- ---------- ---------- Gross profit 200,968 141,231 59,737 42.3 Selling, general and 146,770 104,273 42,497 40.8 administrative Depreciation and amortization 5,539 3,999 1,540 38.5 --------- -------- ---------- ---------- Income from operations 48,659 32,959 15,700 47.6 Floorplan interest expense (13,894) (7,378) (6,516) 88.3 Other interest expense (4,928) (2,885) (2,043) 70.8 Other, net 884 12 872 7,266.7 --------- -------- ---------- ---------- Income before income taxes 30,721 22,708 8,013 35.3 Income tax expense 12,040 9,249 2,791 30.2 --------- -------- ---------- ---------- Net income $18,681 $13,459 $5,222 38.8% ========= ======== ========== ========== New units sold 28,555 20,859 7,696 36.9% Average selling price $23,926 $23,164 $762 3.3% Used units sold 23,453 17,146 6,307 36.8% Average selling price $13,161 $13,132 $29 0.2% Used units sold - wholesale 12,637 9,692 2,945 30.4% Average selling price $4,452 $4,657 $(205) (4.4)% 9 Revenues. Same store retail sales increased 3.1% in the third quarter of 2000 compared to the third quarter of 1999 and 2.3% in the first nine months of 2000 compared to the first nine months of 1999. The increases in units sold and revenue from all sources are a result of acquisitions and internal growth. Gross Profit. Gross profit increased primarily due to increased total revenues and increased other revenues as a percentage of total revenues. Gross profit margins achieved in 2000 and 1999 were as follows: 1999 industry Lithia Lithia Lithia Lithia average Q3 2000 Q3 1999 YTD 2000 YTD 1999 -------- -------- -------- -------- --------- New vehicles 6.4% 8.7% 8.6% 8.9% 8.6% Retail used 10.7% 13.3% 12.8% 13.6% 12.9% vehicles Service and n/a 45.0% 45.3% 45.2% 44.6% parts Overall 12.6% 16.0% 16.0% 16.0% 15.9% Selling, General and Administrative Expense. Selling, general and administrative expense increased due primarily to increased selling, or variable, expense related to the increase in revenues and the number of total locations. Selling, general and administrative expense as a percentage of revenue improved one-tenth of one percent in the three months ended September 30, 2000 compared to the three months ended September 30, 1999 and was the same for the comparable nine month periods. The improvement in the three month period was due to continued realization of economies of scale. Depreciation and Amortization. Depreciation and amortization expense increased primarily as a result of increased property and equipment and goodwill related to acquisitions in 1999 and 2000. Income from Operations. Operating margins improved for both the three and nine month periods ended September 30, 2000. In addition to gaining efficiencies related to economies of scale, Lithia has seen improvements in the operating margins at stores that it has acquired and operated for a full year, bringing them more in line with its pre-existing stores. Floorplan Interest Expense. Floorplan interest expense increased primarily as a result of increased flooring notes payable and an overall increase in borrowing rates during 2000. Other Interest Expense. Other interest expense increased primarily as a result of increased average debt balances as a result of borrowings related to acquisitions, as well as an overall increase in borrowing rates during 2000. Income Tax Expense. Lithia's effective tax rate declined as a result of an increasing mix of asset acquisitions compared to corporate acquisitions and the increased weighting of deductible goodwill. Net Income. Net income increased primarily as a result of increased revenues and decreased costs as a percentage of revenues as discussed above. 10 Liquidity and Capital Resources Lithia's principal needs for capital resources are to finance acquisitions and capital expenditures, as well as for working capital. Lithia has relied primarily upon internally generated cash flows from operations, borrowings under its credit facilities and the proceeds from public equity offerings to finance its operations and expansion. In June 2000, Lithia's Board of Directors authorized the repurchase of up to 1,000,000 shares of Lithia's Class A Common Stock. Lithia has purchased shares under this program and will continue to do so from time to time in the future as conditions warrant. Ford Motor Credit Company, Toyota Motor Credit Corporation, Chrysler Financial Corporation and General Motors Acceptance Corporation have agreed to floor all of Lithia's new vehicles for their respective brands with Ford Credit serving as the primary lender for all other brands. There are no formal limits to these commitments for new vehicle wholesale financing. Ford Credit has also extended an $85 million revolving line of credit for used vehicles and a $115 million acquisition line of credit to purchase dealerships of any brand. These commitments have an expiration date of December 1, 2002, with interest due monthly. Lithia also has the option to convert the acquisition line into a five-year term loan. In addition, U.S. Bank N.A. has extended a $20 million revolving line of credit for leased vehicles and equipment purchases. The lines with Ford Credit are cross-collateralized and are secured by inventory, accounts receivable, intangible assets and equipment. The other new vehicle lines are secured by new vehicle inventory of the relevant dealerships. The Ford Credit lines of credit contain financial covenants requiring Lithia to maintain compliance with, among other things, specified ratios of (i) total debt to tangible base capital; (ii) total adjusted debt to tangible base capital; (iii) current ratio; (iv) fixed charge coverage; and (v) net cash. The Ford Credit lines of credit agreements also preclude the payment of cash dividends without the prior consent of Ford Credit. Lithia was in compliance with all such covenants at September 30, 2000. Interest rates on all of the above facilities ranged from 8.27% to 9.49% at September 30, 2000. Amounts outstanding on the lines at September 30, 2000 were as follows (in thousands): New and Program Vehicle Lines $202,029 Used Vehicle Line 56,000 Acquisition Line 12,000 Equipment and Leased Vehicle Line 20,000 -------------- $290,029 ============== 11 The $9.0 million related party payable at December 31, 1999 was related to additional purchase price for the Moreland acquisition as a result of contingent payouts that were earned during 1999. In addition to the $9.0 million of cash, the Company accrued for the issuance of $4.5 million of its Class A Common Stock and $4.5 million redemption value of its Series M Preferred Stock to satisfy the contingent payout requirements. The cash was paid and the stock was issued in the first quarter of 2000. At September 30, 2000, Lithia had capital commitments of approximately $16.0 million for the construction of five new dealership facilities, of which $12.5 million is anticipated to be incurred through the end of 2001 and $3.5 million is anticipated to be incurred in 2002. Approximately $5.3 million has already been paid out of existing cash balances. Lithia anticipates paying for the construction out of existing cash balances until completion of the projects, at which time, Lithia anticipates securing long-term financing for 90% to 100% of the amounts from third party lenders. Seasonality and Quarterly Fluctuations Historically, Lithia's sales have been lower in the first and fourth quarters of each year largely 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. Management believes that interest rates, levels of consumer debt, consumer buying patterns and confidence, as well as general economic conditions, also contribute to fluctuations in sales and operating results. The timing of acquisitions may cause substantial fluctuations of operating results from quarter to quarter. Recent Accounting Pronouncements In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities-an amendment of FASB Statement No. 133" ("SFAS 138"). In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 137"). SFAS 137 is an amendment to Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 137 and 138 establish accounting and reporting standards for all derivative instruments. SFAS 137 and 138 are effective for fiscal years beginning after June 15, 2000. Lithia does not expect the adoption of SFAS 137 and 138 to have a material impact on its financial position, results of operations or cash flows. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarized certain areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. In June 2000, SAB 101B was issued which defers the implementation date of SAB 101 until October 1, 2000. The Company does not expect that SAB 101 will have a significant impact on its financial condition or results of operations. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk Lithia has variable rate floor plan notes payable and other credit line borrowings that subject it to market risk exposure. At September 30, 2000 Lithia had $290 million outstanding under such facilities at interest rates ranging from 8.27% to 9.49%. An increase or decrease in the interest rates would affect interest expense for the period accordingly. In order to reduce the variability of interest payments, Lithia has fixed a portion of its interest expense by utilizing interest rate swaps as follows: o Effective September 1, 2000, Lithia entered into a five year, $25 million interest rate swap at a fixed rate of 6.88%. o Effective November 1, 2000 Lithia entered into a three year, $25 million interest rate swap at a fixed rate of 6.47%. Lithia earns interest on both of the $25 million interest rate swaps at the one month LIBOR rate adjusted on the first and sixteenth of every month. The difference between interest paid and interest earned is recorded in the statement of operations as interest income or interest expense. The one month LIBOR rate at September 30, 2000 was 6.63%. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The exhibits filed as a part of this report are listed below and this list constitutes the exhibit index. Exhibit No. 10.1 Lease agreement dated February 28, 2000 between The Rice Family Limited Partnership and Lithia Real Estate, Inc. Incorporated by reference to the Company's Form 10-Q for the quarter ended March 31, 2000. 10.2 Amendment No. 2 dated July 26, 2000 to Loan Agreement dated September 20, 1999 between Lithia Financial Corporation, Lithia Motors, Inc., Lithia SALMIR, Inc. and Lithia Aircraft, Inc. and U.S. Bank National Association. 27 Financial Data Schedule (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended September 30, 2000. 13 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: November 10, 2000 LITHIA MOTORS, INC. By /s/ JEFFREY B. DEBOER ------------------------------------- Jeffrey B. DeBoer Senior Vice President (authorized officer of registrat) and Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the unaudited consolidated financial statements at September 30, 2000 and for the three months then ended, and is qualified in its entirety by reference to such financial statements. 0001023128 Lithia Motors, Inc. 1,000 U.S. Dollars 3-MOS Dec-31-2000 Jan-1-2000 Sep-30-2000 1 52,520 0 38,026 1,455 261,899 356,291 81,984 7,551 558,813 245,654 327,794 0 8,915 108,693 58,130 558,813 1,048,152 1,256,520 946,344 1,055,552 152,309 121 18,822 30,721 12,040 18,681 0 0 0 18,681 1.50 1.36
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