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)
<PAGE>
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
<PAGE>
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
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
============== ==============
</TABLE>
2
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------------------------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues:
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
</TABLE>
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
2000 1999
-------------------------------
<S> <C> <C>
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
======== ========
</TABLE>
4
<PAGE>
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
<PAGE>
Note 5. Earnings Per Share
Following is a reconciliation of basic earnings per share ("EPS") and diluted
EPS:
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000 1999
---------------------------------- ------------------------------- --------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
========= ==========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000 1999
---------------------------------- ------------------------------- --------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
========= ==========
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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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.
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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: 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)
