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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(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, 1997
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
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LITHIA MOTORS, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0572810
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 2,895,550
Class B Common stock without par value 4,110,000
(Class) (Outstanding at May 9, 1997)
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LITHIA MOTORS, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets -March 31, 1997 and
December 31, 1996 2
Consolidated Statements of Operations - Three Months
Ended March 31, 1997 and 1996 3
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
1
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LITHIA MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, December 31,
1997 1996 (1)
--------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 13,528 $ 15,413
Trade receivables 3,200 2,260
Notes receivable, current portion 430 414
Notes receivable - related party - 308
Inventories, net 39,100 33,362
Vehicles leased to others, current portion 414 524
Prepaid expenses and other 521 372
Deferred income taxes 1,444 1,646
--------- ---------
Total Current Assets 58,637 54,299
Property and Equipment, net of accumulated
depreciation of $3,481 and $2,073 8,258 4,616
Vehicles Leased to Others, less current portion 4,629 4,500
Notes Receivable, less current portion 406 377
Goodwill, net of accumulated amortization of
$58 and $23 4,241 4,101
Other Non-Current Assets 1,403 1,071
--------- ---------
Total Assets $ 77,574 $ 68,964
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ - $ 500
Flooring notes payable 24,766 19,645
Current maturities of long-term debt 2,142 1,855
Trade payables 2,158 2,434
Accrued liabilities 3,076 2,482
Payable to related parties - 1,952
--------- ---------
Total Current Liabilities 32,142 28,868
Long-Term Debt, less current maturities 6,629 6,160
Deferred Revenue 2,995 3,250
Other Long-Term Liabilities 116 -
Deferred Income Taxes 2,736 2,772
--------- ---------
Total Liabilities 44,618 41,050
--------- ---------
Shareholders' Equity
Preferred stock - no par value; authorized
15,000 shares; issued and outstanding; none - -
Class A common stock - no par value;
authorized 100,000 shares; issued and
outstanding 2,896 and 2,500 28,070 24,172
Class B common stock
authorized 25,000 shares; issued and
outstanding 4,110 and 4,110 511 511
Retained earnings 4,375 3,231
--------- ---------
Total Shareholders' Equity 32,956 27,914
--------- ---------
Total Liabilities and Shareholders' Equity $ 77,574 $ 68,964
--------- ---------
--------- ---------
(1) Restated, see Note 2 of Notes to Consolidated Financial Statements
2
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LITHIA MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
Three months ended March 31,
----------------------------
1997 1996 (1)
---------- ----------
Sales:
Vehicles $ 47,470 $ 28,056
Service, body, parts and other 7,234 4,390
--------- ---------
Net Sales 54,704 32,446
Cost of sales
Vehicles 42,479 24,726
Service, body, parts and other 3,277 2,121
--------- ---------
Cost of Sales 45,755 26,847
--------- ---------
Gross profit 8,949 5,599
Selling, general and administrative 7,164 4,517
--------- ---------
Operating income 1,785 1,082
Other income (expense)
Equity in income of affiliate 50 17
Interest income 28 44
Interest expense (146) (368)
Other, net 147 162
--------- ---------
79 (145)
--------- ---------
Income before minority interest and income
taxes 1,864 937
Minority interest - 157
--------- ---------
Income before income taxes 1,864 780
Income tax expense 720 -
--------- ---------
Net income $ 1,144 $ 780
--------- ---------
--------- ---------
Net income per share $ 0.16 $ 0.16 (2)
--------- ---------
--------- ---------
Shares used in per share calculations 7,221,314 4,883,016
--------- ---------
--------- ---------
Pro Forma Net Income Data (unaudited)
- -------------------------------------------------------------
Income before minority interest and income taxes, as reported $ 937
Pro forma income taxes 360
---------
Pro forma net income $ 577
---------
---------
Pro forma net income per share $ 0.12
---------
---------
(1) Restated, see Note 2 of Notes to Consolidated Financial Statements.
(2) Not comparable to 1997 data due to S Corporation status in 1996.
See Note 6 of Notes to Consolidated Financial Statements.
3
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LITHIA MOTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,144 $ 780
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 475 401
Gain on sale of assets (76) (60)
Deferred income taxes 720 -
Minority interest in income - 157
Equity in income of affiliate (50) (17)
(Increase) decrease in:
Trade and installment contract receivables, net (632) 21
Inventories (5,738) 71
Prepaid expenses and other 53 (70)
Other noncurrent assets (457) 1
Increase (decrease) in:
Trade payables (996) (614)
Accrued liabilities 594 (292)
Other liabilities (2,127) 225
Proceeds from sale of vehicles leased to others 1,587 1,326
Expenditures for vehicles leased to others (1,851) (1,036)
-------- -------
Net cash provided by (used in) operating activities (7,354) 893
Cash flows from investing activities:
Notes receivable issued (127) (614)
Principal payments received on notes receivable 81 276
Capital expenditures (3,761) (75)
-------- -------
Net cash provided by (used in) investing activities (3,807) (413)
Cash flows from financing activities:
Net borrowings (repayments) on notes payable (500) (451)
Net borrowings (repayments) on flooring notes payable 5,121 (1,399)
Principal payments on long-term debt (1,945) (3,053)
Proceeds from issuance of long-term debt 2,702 1,362
Proceeds from issuance of common stock 3,898 -
Proceeds from minority interest share receivable - 309
-------- -------
Net cash provided by (used in) financing activities 9,276 (3,232)
-------- -------
Decrease in cash and cash equivalents (1,885) (2,752)
Cash and cash equivalents:
Beginning of period 15,413 9,706
-------- -------
End of period $ 13,528 $ 6,954
-------- -------
-------- -------
</TABLE>
4
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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-month periods ended
March 31, 1997 and 1996 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, 1996 is derived from Lithia Motors,
Inc.'s (the Company's) 1996 Annual Report to Shareholders 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 1996 Annual Report to Shareholders.
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. CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1997, the Company changed its method of accounting for
inventories from the last-in first-out (LIFO) method to the specific
identification method for vehicles and the first-in first-out (FIFO) method
of accounting for parts (collectively, the FIFO method). Management believes
the FIFO method is preferable because the FIFO method of valuing inventories
more accurately presents the Company's financial position as it reflects more
recent costs at the balance sheet date, more accurately matches revenues with
costs reported during the period presented and provides comparability to
industry information. The financial statements of prior periods have been
restated to apply the new method of accounting for inventories retroactively.
The effect of this restatement was to increase retained earnings as of
January 1, 1996 by $4,896. The restatement increased net income by $118, or
$0.02 per share, for the three months ended March 31, 1996.
NOTE 3. 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).
March 31, 1997 December 31, 1996
-------------- -----------------
New and demonstrator vehicles $ 24,392 $ 19,402
Used vehicles 12,875 12,199
Parts and accessories 1,833 1,761
--------- --------
$ 39,100 $ 33,362
--------- --------
--------- --------
5
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NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
Three Months Ended March 31,
1997 1996
---------- ---------
Cash paid during the period for income taxes $ 99 $ --
Cash paid during the period for interest 243 494
Property acquired through debt 1,424 --
NOTE 5. EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement 128,
EARNINGS PER SHARE ("SFAS 128"), superseding Opinion 15. SFAS 128
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common
stock. SFAS 128 is required to be adopted for periods ending after December
15, 1997. Pro forma effects of applying SFAS 128 are as follows:
Three Months Ended: March 31, 1997 March 31, 1996
- ------------------------ -------------- --------------
Primary EPS as reported $ 0.16 $ 0.14
Effect of SFAS 128 0.01 0.00
-------------- --------------
Basic EPS as restated $ 0.17 $ 0.14
-------------- --------------
-------------- --------------
Fully diluted EPS as reported $ 0.16 $ 0.14
Effect of SFAS 128 0.00 0.00
-------------- --------------
Diluted EPS as restated $ 0.16 $ 0.14
-------------- --------------
-------------- --------------
NOTE 6. RECLASSIFICATIONS
Certain reclassifications have been made to the prior period statements to
conform to current presentation. Such reclassifications are a result of the
change from an S Corporation to a C Corporation as of December 18, 1996, the
date of the Company's initial public offering and also as a result of the change
in accounting principle discussed above in Note 2.
NOTE 7. SUBSEQUENT EVENT
In April 1997, the Company closed its previously announced acquisition of
Magnussen Dodge and Magnussen Isuzu in Concord, California. The Company paid
a total of $10.4 million in cash and notes for all of the assets of the
dealerships and certain leasehold improvements, with bank finance funding a
substantial portion of the total payment. This acquisition was recorded as a
purchase transaction. Pro forma financial information is not presented, as it
is not materially different from the reported financial information of the
Company.
6
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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 as a result
of certain risks including those set forth in the Company's initial public
offering prospectus dated December 18, 1996 and in its 1996 Annual Report on
Form 10-K. These risk factors include, but are not limited to, the cyclical
nature of automobile sales, the intense competition in the automobile retail
industry and the Company's ability to negotiate profitable acquisitions and
secure manufacturer approvals for such acquisitions.
GENERAL
Lithia Motors is one of the larger retailers of new and used vehicles in the
western United States, offering 16 domestic and imported makes of new
automobiles and light trucks at eight locations. As an integral part of its
operations, the Company arranges related financing and insurance and sells
parts, service and ancillary products. The Company's headquarters are currently
located in Medford, Oregon, where it has a market share of over 40 percent. The
Company has grown primarily by successfully acquiring and integrating
dealerships and by obtaining new dealer franchises. The Company's strategy is to
become a leading acquirer of dealerships in the western United States.
The following table sets forth selected condensed financial data expressed as a
percentage of total sales for the periods indicated for the average automotive
dealer in the United States.
YEAR ENDED DECEMBER 31,
-------------------------------
AVERAGE U.S. DEALERSHIP 1996 1995
STATEMENT OF OPERATIONS DATA: ----------- -----------
Sales:
New vehicles 57.7 % 58.6 %
Used vehicles 30.4 29.0
Parts and service, other 11.9 12.4
----------- -----------
100.0 % 100.0 %
Gross profit 12.8 12.9
Total dealership expense 11.3 11.5
Income before taxes 1.5 % 1.4 %
- -------------
Source: NADA INDUSTRY ANALYSIS DIVISION
7
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The following table sets forth selected condensed financial data for the
Company, restated using the FIFO method, expressed as a percentage of total
sales for the periods indicated below.
THREE MONTHS ENDED MARCH 31,
-------------------------------
1997 1996
----------- -----------
STATEMENT OF OPERATIONS DATA:
Sales:
New vehicles 45.4 % 45.7 %
Used vehicles 41.4 40.9
Parts and service 8.3 9.0
Finance, insurance and other 4.9 4.4
----------- -----------
Total sales 100.0 % 100.0 %
Gross profit 16.4 17.1
Selling, general and administrative 13.1 13.8
----------- -----------
Operating income 3.3 3.3
Other income (expense), net 0.1 (0.4)
----------- -----------
Income before taxes and minority interest 3.4 % 2.9 %
----------- -----------
----------- -----------
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Net sales for the Company increased $22.3 million, or 68.8 percent, to $54.7
million for the quarter ended March 31, 1997 from $32.4 million for the
comparable period of 1996. The Company's revenue mix was relatively consistent
with the prior year with 45.4 percent from new vehicle sales, 41.4 percent from
used vehicle sales and 13.2 percent from other operating income. Same store
revenue growth was 3.2 percent with a 1.2 percent increase in vehicle sales, a
12.1 percent increase in service and parts and a 44.7 percent increase in other
operating revenue.
NEW VEHICLE SALES. The Company sells 16 domestic and imported brands ranging
from economy to luxury cars, as well as sport utility vehicles, minivans and
light trucks. Revenue on new vehicle sales increased 67.6 percent to $24.8
million for the quarter ended March 31, 1997 compared to $14.8 million for the
comparable quarter of 1996. This increase was achieved by a 58.8 percent
increase in units sold to 1,197 and a 5.6 percent increase in the average
selling price to $20,743. The increases are primarily attributable to the
Eugene Dodge and Vacaville Toyota stores, both of which have higher average
prices than the Company's existing stores, and were acquired in the fourth
quarter of 1996. Same store new vehicle revenue was down 3.5 percent as
increases in new Honda and Toyota vehicle sales were more than offset by
decreases in sales at the Saturn and Grants Pass stores.
The Company purchases substantially all of its new car inventory directly from
manufacturers who allocate new vehicles to dealerships based on the amount of
vehicles sold by the dealership and by the dealership's market area. The Company
will also
8
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exchange vehicles with other dealers to accommodate customer demand
and to balance inventory.
The Company sells vehicles from the factory to a fleet purchaser utilizing
(i) "book only" fleet sales in which the Company does not take delivery of a
vehicle; or (ii) fleet sales which pass through the Company's inventory. The
Company realizes substantially less profit per vehicle on fleet sales than it
does through retail sales. For "book only" fleet sales, only the net revenue is
included in the Company's revenue. Fleet sales do not represent a material
portion of the Company's sales.
USED VEHICLE SALES. The Company offers a variety of makes and models of used
cars and light trucks of varying model years and prices. Revenue from retail
used vehicle sales increased 67.6 percent to $17.6 million for the quarter ended
March 31, 1997 from $10.5 million for the comparable quarter of 1996. Retail
used unit volume increased 62.0 percent to 1,450 units and the average unit
price increased 3.5 percent to $12,112. The increases are attributable to the
addition of the two new stores and a same store used retail revenue increase of
10.0 percent with a 0.2 percent increase in same store average selling prices.
Used vehicle sales are an important part of the Company's overall profitability.
The Company has made a strategic commitment to emphasize used vehicle sales. As
part of its focus on used vehicle sales, the Company retains a full-time used
vehicle manager at each of its locations and has allocated additional financing
and display space to this effort. The Company believes there is substantial
consumer demand for quality used vehicles.
The Company sells used vehicles to retail customers and, in the case of vehicles
in poor condition, or vehicles which have not sold within a specified period of
time, to other dealers, and to wholesalers. Sales to other dealers and to
wholesalers are frequently at, or close to, cost and therefore affect the
Company's overall gross profit margin on used vehicle sales.
SERVICE, BODY, PARTS AND OTHER. The Company's service, body, parts and other
operating revenue, the Company's highest margin product area, increased 66.4
percent to $7.2 million during the first quarter of 1997, from $4.3 million
during the comparable period of 1996. This increase is primarily due to an
increased number of finance and insurance transactions and an increase in
revenues derived from service department maintenance and repairs. In the first
quarter of 1997, the Company began buying protection for its extended service
contracts from a third party. This practice removes the ongoing liability from
the balance sheet for contracts entered into after January 1, 1997. To a
limited extent, revenues from the parts and service department are
countercyclical to new car sales as owners repair existing vehicles rather than
buy new vehicles. The Company believes this helps mitigate the affects of a
downturn in the new vehicle sales cycle.
GROSS PROFIT. Gross profit increased 61.0 percent to $8.9 million for the first
quarter of 1997, compared with $5.6 million for the comparable quarter of 1996,
primarily due to an increase in new and used vehicle unit sales during the
period at the Company's new stores as discussed above. Gross profit margin
decreased to 16.4 percent for the quarter ended March 31, 1997 from 17.1 percent
for the comparable quarter of 1996. The decrease in the gross profit margin is
attributable to the two stores acquired in the fourth quarter of
9
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1996, which came in with margins lower than Company standards. The margins
on the newly acquired stores have improved, however, from pre-acquisition
margins. Same store gross profit margin increased to 17.2 percent for the
first quarter of 1997 from 16.5 percent for the comparable period of 1996, as
a result of growth in service and parts and finance and insurance income.
The Company's gross profit margin continues to exceed the average U.S.
dealership gross profit margin of 12.8 percent for 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. The Company's SG&A expense
increased 60.0 percent to $7.2 million (13.1 percent of total sales) for the
three months ended March 31, 1997 compared to $4.5 million (13.8 percent of
total sales) for the comparable period of 1996. The increase in SG&A was due
primarily to increased selling, or variable, expense related to the increase in
sales and increased costs associated with being a public company. The decrease
in SG&A as a percent of total sales is a result of economies of scale gained as
the fixed expenses are spread over a larger revenue base.
INTEREST EXPENSE. Interest expense decreased to $146,000 for the three month
period ended March 31, 1997 from $368,000 for the comparable period of 1996,
primarily as a result of lower debt for most of the 1997 period.
INCOME TAX EXPENSE. The Company's effective tax rate for the quarter ended
March 31, 1997 was 38.6 percent compared to 38.4 percent (on a pro forma basis)
for the quarter ended March 31, 1996. The Company's effective tax rate may be
effected by the purchase of new stores in jurisdictions with tax rates either
higher or lower than the current estimated rate.
NET INCOME. Net income was $1.1 million (2.1 percent of total sales) for the
three months ended March 31, 1997 compared to $0.6 million (1.8 percent of total
sales) for the comparable period of 1996, as a result of the individual line
item changes discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997 the Company had working capital of $26.5 million, which
included $13.5 million of cash. The $1.9 million decrease in cash since
December 31, 1996 is primarily a result of $7.4 million used in operations and
$3.8 million used for the purchase of property and equipment, offset by $3.9
million in net proceeds from the sale of the Company's common stock as a result
of the exercise of the underwriters' overallotment option and $5.1 million in
advances under the Company's flooring line. The current ratio at March 31, 1997
was 1.8:1 compared to 1.9:1 at December 31, 1996.
Inventories increased $5.7 million to $39.1 million at March 31, 1997 from $33.4
million at December 31, 1996 in preparation for the strong spring selling
season.
Property and equipment increased $3.6 million primarily as a result of the
purchase of a new body and paint shop and a vacant parcel of land, which is
being held for future development.
10
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Total debt, excluding flooring lines, increased by $782,000 to $8.8 million,
for a 27 percent debt to equity ratio. Including the flooring line of $24.8
million, the debt to equity ratio increases to 102 percent.
The Company currently has a credit facility with U.S. Bank, giving the Company
access to an aggregate of approximately $45.9 million of credit for various
purposes. The principal component of the credit facility is the Flooring Line,
which permits the Company to borrow up to $27.9 million, based on the level of
the new and used vehicle inventories securing the line. Management believes
that the Flooring Line provides the Company with financing at rates lower than
those available from manufacturers. At March 31, 1997, there was approximately
$24.8 million outstanding under the Flooring Line and $33.5 million outstanding
under the credit facility in total.
In anticipation of growth due to future acquisitions, all lines of credit are
being reviewed for increases with the issuing financial institution. Although
the Company is optimistic about such increases being approved by the financial
institution, there can be no assurances that such increases will be approved or,
if approved, that the terms will be acceptable to the Company.
Total shareholders' equity increased $8.2 million as a result of the
underwriters' exercise of their over allotment option for 375,000 additional
shares of Class A Common Stock for a total of $3.9 million, $3.2 million of
non-cash, after-tax LIFO reserves resulting from the conversion to the FIFO
method of accounting (the industry standard) and $1.1 million of retained
earnings from the quarter ended March 31, 1997.
The Company's principal needs for capital resources are to finance acquisitions,
capital expenditures and increased working capital requirements. Historically,
the Company has relied primarily upon internally generated cash flows from
operations, borrowings under its credit facility and borrowings from its
shareholders to finance its operations and expansion.
In April 1997, the Company closed its acquisition of Magnussen Dodge Isuzu in
Concord, California for $10.4 million in cash and notes, canceled its agreement
to acquire Linder Honda of Salinas, California and signed a definitive agreement
to purchase Sun Valley Ford Volkswagen Hyundai in Concord, California.
The following table sets forth the estimated purchase price of currently pending
acquisitions. Acquisition costs are estimates, as the actual purchase prices
will depend on inventory levels at each acquired dealership upon closing.
Estimates assume the purchase of used vehicles at each store location. Actual
cash used in these purchases is much lower than the total purchase price as bank
financing is used for most of the inventory purchase and notes held by the
seller, payable over a number of years, are often part of the purchase
agreement.
TOTAL ESTIMATED
ACQUISITIONS PURCHASE PRICE
------------ --------------
Magnussen - Barbee Ford Lincoln Mercury $6,900,000
Sun Valley Ford Volkswagen Hyundai $18,900,000
11
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SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, the Company's sales have been lower in the fourth quarter 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 for the Company is generally lower
during the fourth quarter than during the other quarters of each fiscal year;
however, this did not hold true for the years 1996 and 1995. 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.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings per Share" ("SFAS 128"). This
statement establishes a different method of computing net income per share than
is currently required under the provisions of Accounting Principles Board
Opinion No. 15. Under SFAS 128, the Company will be required to present both
basic net income per share and diluted net income per share. Basic net income
per share is expected to be comparable or slightly higher than the currently
presented net income per share as the effect of dilutive stock options will not
be considered in computing basic net income per share. Diluted net income per
share is expected to be comparable or slightly lower than the currently
presented net income per share. The Company expects to adopt SFAS 128 in the
fourth quarter of 1997 and, at that time, all historical net income per share
data presented will be restated to conform to the provisions of SFAS 128.
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.
Exhibit No.
-----------
11 Calculations of Net Income Per Share
18 Letter re change in accounting principles
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 31, 1997.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 8, 1997 LITHIA MOTORS, INC.
By /s/ SIDNEY B. DEBOER
------------------------------
Sidney B. DeBoer
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
By /s/ BRIAN R. NEILL
------------------------------
Brian R. Neill
Chief Financial Officer
(Principal Financial and Accounting
Officer)
13
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EXHIBIT 11
LITHIA MOTORS
CALCULATIONS OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------
1997 1996
----------------------- -----------------------
Primary Fully Diluted Primary Fully Diluted
<S> <C> <C> <C> <C>
Weighted Average Shares
Outstanding for the Period
Class A 2,797,090 2,797,090 390,000 390,000
Class B 4,110,000 4,110,000 4,110,000 4,110,000
Dilutive Common Stock
Options Using the Treasury
Stock Method 314,224 315,914 - -
Shares Added Pursuant
to SAB 83 - - 383,016 383,016
----------------------- -----------------------
Total Shares Used for Per
Share Calculations 7,221,314 7,223,004 4,883,016 4,883,016
Net Income $1,144,000 $1,144,000 $780,000 $780,000
----------------------- -----------------------
Net Income Per Share $0.16 $0.16 $0.16 $0.16
----------------------- -----------------------
----------------------- -----------------------
</TABLE>
<PAGE>
EXHIBIT 18
May 7, 1997
Lithia Motors, Inc.
Medford, Oregon
Ladies and Gentlemen:
We have been furnished with a copy of Form 10-Q of Lithia Motors, Inc. and
Subsidiaries (the Company) for the three months ended March 31, 1997, and
have read the Company's statements contained in note 2 to the consolidated
financial statements included therein. As stated in note 2, the Company
changed its method of accounting for inventories from the last-in first-out
(LIFO) method to the first-in first-out (FIFO) method and states that the
newly adopted accounting principle is preferable in the circumstances because
the FIFO method of valuing inventories more accurately presents the Company's
financial position as it reflects more recent costs on the consolidated
balance sheet, more accurately matches costs with revenues reported during
the period presented and provides comparability to industry information. In
accordance with your request, we have reviewed and discussed with Company
officials the circumstances and business judgment and planning upon which the
decision to make this change in the method of accounting was based.
We have not audited any financial statements of Lithia Motors, Inc. and
Subsidiaries as of any date or for any period subsequent to December 31,
1996, nor have we audited the information set forth in the aforementioned
note 2 to the consolidated financial statements; accordingly, we do not
express an opinion concerning the factual information contained therein.
With regard to the aforementioned accounting change, authoritative criteria
have not been established for evaluating the preferability of one acceptable
method of accounting over another acceptable method. However, for purposes
of Lithia Motors, Inc. and Subsidiaries' compliance with the requirements of
the Securities and Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting
is preferable in the Company's circumstances.
Very truly yours,
KPMG PEAT MARWICK LLP
Portland, Oregon
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 13,528
<SECURITIES> 0
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