UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934September 30, 2003March 31, 2004oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-14733
LITHIA MOTORS, INC. Oregon 93-0572810 (State or other jurisdiction of (I.R.S. Employer Identification No.) 360 E. Jackson Street, Medford, Oregon 97501 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: 541-776-6899 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Class A common stock without par value 14,982,842 Class B common stock without par value 3,762,231 (Class) (Outstanding at FORM 10-Q INDEX 1 PART I LITHIA MOTORS, INC. AND SUBSIDIARIES (In thousands) March 31, December 31, (Unaudited) Assets Current Assets: Cash and cash equivalents $ 39,813 $ 74,408 Contracts in transit 42,541 44,709 Trade receivables, net of allowance for doubtful accounts of $401 and $413 42,587 42,199 Notes receivable, current portion, net of allowance for doubtful accounts of $42 and $49 116 208 Inventories, net 482,212 445,281 Vehicles leased to others, current portion 4,926 5,747 Prepaid expenses and other 3,688 3,392 Assets held for sale 15,673 20,408 Deferred income taxes 818 585 Total Current Assets 632,374 636,937 Land and buildings, net of accumulated depreciation of $6,328 and $5,683 179,527 164,676 Equipment and other, net of accumulated depreciation of $20,370 and $18,315 64,173 62,637 Notes receivable, less current portion 664 676 Vehicles leased to others, less current portion 7 10 Goodwill 212,829 207,027 Other intangible assets, net of accumulated amortization of $45 and $39 31,220 28,946 Other non-current assets 1,891 1,873 Total Assets $ 1,122,685 $ 1,102,782 Liabilities and Stockholders’ Equity Current Liabilities: Flooring notes payable $ 407,179 $ 378,961 Current maturities of long-term debt 16,508 14,299 Trade payables 25,107 24,402 Accrued liabilities 50,834 46,164 Liabilities held for sale 8,874 13,045 Total Current Liabilities 508,502 476,871 Used Vehicle Flooring Facility 58,950 56,267 Real Estate Debt, less current maturities 88,999 80,159 Other Long-Term Debt, less current maturities 66,005 98,308 Deferred Revenue 807 875 Other Long-Term Liabilities 7,001 7,235 Deferred Income Taxes 25,726 24,141 Total Liabilities 755,990 743,856 Stockholders’ Equity: Preferred stock - no par value; authorized 15,000 shares; none outstanding — — Class A common stock - no par value; authorized 100,000 shares; issued and outstanding 14,914 and 14,693 210,806 208,187 Class B common stock - no par value authorized 25,000 shares; issued and outstanding 3,762 and 3,762 468 468 Additional paid-in capital 1,497 1,231 Accumulated other comprehensive loss (2,759 ) (1,468 ) Retained earnings 156,683 150,508 Total Stockholders’ Equity 366,695 358,926 Total Liabilities and Stockholders’ Equity $ 1,122,685 $ 1,102,782 The accompanying notes are an integral part of these consolidated financial statements. 2 LITHIA MOTORS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ( (Unaudited) Three Months Ended March 31, 2004 2003 Revenues: New vehicle sales $ 353,601 $ 308,494 Used vehicle sales 189,906 172,096 Service, body and parts 69,426 56,485 Finance and insurance 23,385 20,410 Fleet and other 1,531 2,075 Total revenues 637,849 559,560 Cost of sales 531,615 471,073 Gross profit 106,234 88,487 Selling, general and administrative 85,187 74,229 Depreciation - buildings 644 459 Depreciation and amortization - other 2,310 1,672 Income from operations 18,093 12,127 Other income (expense): Floorplan interest expense (3,616 ) (3,546 ) Other interest expense (1,740 ) (1,388 ) Other income, net (339 ) (147 ) (5,695 ) (5,081 ) Income from continuing operations before income taxes 12,398 7,046 Income taxes (4,836 ) (2,731 ) Income before discontinued operations 7,562 4,315 Income (loss) from discontinued operations, net of income tax benefit of $53 and $95 (83 ) (150 ) Net income $ 7,479 $ 4,165 Basic income per share from continuing operations $ 0.41 $ 0.24 Basic income (loss) per share from discontinued operations (0.01 ) (0.01 ) Basic net income per share $ 0.40 $ 0.23 Shares used in basic net income per share 18,626 18,133 Diluted income per share from continuing operations $ 0.40 $ 0.24 Diluted income (loss) per share from discontinued operations (0.01 ) (0.01 ) Diluted net income per share $ 0.39 $ 0.23 Shares used in diluted net income per share 19,111 18,272 The accompanying notes are an integral part of these consolidated financial statements. 3 LITHIA MOTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three months ended March 31, 2004 2003 Cash flows from operating activities: Net income $ 7,479 $ 4,165 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,954 2,131 Depreciation and amortization of discontinued operations — 156 Compensation related to stock option issuances 41 40 Loss on sale of assets 102 48 Loss on sale of vehicles leased to others 85 12 Gain on sale of franchise (540 ) — Deferred income taxes 2,371 1,574 (Increase) decrease, net of effect of acquisitions: Trade and installment contract receivables, net (391 ) 2,314 Contracts in transit 2,168 (3,662 ) Inventories (19,450 ) (7,255 ) Prepaid expenses and other (250 ) 610 Other noncurrent assets (18 ) (184 ) Increase (decrease), net of effect of acquisitions: Floorplan notes payable 15,732 19,044 Trade payables 702 3,562 Accrued liabilities 2,526 (150 ) Other liabilities (228 ) (2,285 ) Net cash provided by operating activities 13,283 20,120 Cash flows from investing activities: Notes receivable issued — (20 ) Principal payments received on notes receivable 104 149 Capital expenditures: Non-financeable (2,258 ) (1,179 ) Financeable (10,973 ) (4,360 ) Proceeds from sale of assets 227 171 Proceeds from sale of vehicles leased to others 504 69 Expenditures for vehicles leased to others (2,011 ) (1,320 ) Cash paid for acquisitions, net of cash acquired (16,864 ) (10,426 ) Proceeds from sale of franchises 649 — Net cash used in investing activities (30,622 ) (16,916 ) Cash flows from financing activities: Net borrowings (repayments) on lines of credit (28,000 ) 5,300 Principal payments on all other long-term debt and capital leases (3,197 ) (909 ) Proceeds from issuance of long-term debt 12,626 5,242 Repurchase of common stock — (215 ) Net proceeds from issuance of common stock 2,619 1,039 Dividends paid (1,304 ) — Net cash provided by (used in) financing activities (17,256 ) 10,457 Increase (decrease) in cash and cash equivalents (34,595 ) 13,661 Cash and cash equivalents: Beginning of period 74,408 15,932 End of period $ 39,813 $ 29,593 Supplemental disclosures of cash flow information: Cash paid during the period for interest 5,357 4,760 Cash paid during the period for income taxes 2,223 44 The accompanying notes are an integral part of these consolidated financial statements. 4 LITHIA MOTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The financial information included herein as of Note 2. Inventories Inventories are valued at the lower of market value or cost, using the specific identification method for vehicles and the first-in first-out (FIFO) method of accounting for parts (collectively, the FIFO method). Detail of inventory is as follows (in thousands): March 31, December 31, New and program vehicles $ 387,508 $ 355,937 Used vehicles 72,967 68,747 Parts and accessories 21,737 20,597 $ 482,212 $ 445,281 Note Following is a reconciliation of basic earnings per share (“EPS”) and diluted EPS (in thousands, except per share amounts) Three Months Ended March 31, 2004 2003 Net Shares Per Net Shares Per Basic EPS Net income $ 7,479 18,626 $ 0.40 $ 4,165 18,133 $ 0.23 Diluted EPS Effect of dilutive stock options 485 139 Net income $ 7,479 19,111 $ 0.39 $ 4,165 18,272 $ 0.23 Potentially dilutive securities that are not included in the diluted EPS calculations because they would be antidilutive are as Three Months Ended March 31, 2004 2003 Stock options 379,616 1,047,692 5 Note Comprehensive income includes the Three Months Ended 2004 2003 Net income $ 7,479 $ 4,165 Unrealized gain (loss) on investments, net, subsequently realized — (11 ) Cash flow hedges: Net derivative gains (losses), net of tax effect of $1,205 and $381, respectively (1,909 ) (588 ) Reversal of net derivative losses previously disclosed. This component has been recognized in our statements of operations as incremental interest expense, net of tax effect of $(395) and $(315), respectively 618 499 Total comprehensive income $ 6,188 $ 4,065 Note The following acquisitions were made in the first The above acquisitions were accounted for under the purchase method of accounting. Pro forma results of operations assuming the above acquisitions occurred at the beginning of the respective periods are as follows (in thousands, except per share amounts): Three Months Ended 2004 2003 Total revenues $ 662,975 $ 607,498 Net income 7,617 4,431 Basic earnings per share 0.41 0.24 Diluted earnings per share 0.40 0.24 There are no future contingent payouts related to any of the above acquisitions and no portion of the purchase price was paid with our equity securities. The purchase price for the above acquisitions was allocated as follows (in thousands): Inventories $ 11,060 Other current assets 28 Property and equipment 6,316 Goodwill 5,942 Other intangible assets - franchise value 2,130 Total assets acquired 25,476 Flooring notes payable 8,620 Other current liabilities 16 Total liabilities acquired 8,636 Net assets acquired $ 16,840 Within one year from the purchase date, we may update the value allocated to purchased assets and the resulting goodwill balances for new information received regarding the valuation of such assets. Note In Note In February 2004, our U.S. Bank N.A. agreement was amended to provide for Note 8. Interest Rate Swaps In March 2004, we entered into the following interest rate swaps with U.S. Bank Dealer Commercial Services: • effective March 9, 2004 – a • effective March 18, 2004 – a five year, $25 million interest rate swap at a fixed rate of 3.10% per annum, variable rate adjusted on the 1st and 16th of each month. Note We account for stock options using the intrinsic value method as prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” Pursuant to Statement of Financial Accounting Standards (SFAS) No. 148 “Accounting for Stock-Based Compensation Three Months Ended March 31, 2004 2003 Net income, as reported $ 7,479 $ 4,165 Add – Stock-based employee compensation expense included in reported net income, net of related tax effects 25 25 Deduct – total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects (618 ) (537 ) Net income, pro forma $ 6,886 $ 3,653 Basic net income per share: As reported $ 0.40 $ 0.23 Pro forma $ 0.37 $ 0.20 Diluted net income per share: As reported $ 0.39 $ 0.23 Pro forma $ 0.37 $ 0.20 To determine the fair value of stock-based awards granted, we used the Black-Scholes option pricing model and the following weighted average assumptions: Three Months Ended March 31, 2004 2003 Risk-free interest rate 2.80 % 3.00 % Expected dividend yield 1.04 % 0 % Expected lives - 2001 Plan 5.4 years 8.0 years - Purchase Plan 3 months 3 months Expected volatility 43.32 % 46.24 % Note Acquisition The following acquisition was made subsequent to March 31, 2004: •In April 2004, we acquired Tony Chevrolet of Anchorage and Tony Chevrolet of Wasilla, Alaska, which have anticipated combined annual revenues of approximately $125 million. The stores have been renamed Chevrolet of South Anchorage and Chevrolet of Wasilla, respectively. In In May 2004, we sold $85 million of 2.88% senior subordinated convertible notes due 2014 through a Rule 144A offering to qualified institutional buyers. Net proceeds from this offering were approximately $82.5 million and were used to pay down our working capital and used vehicle line and new vehicle flooring notes payable. The Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements and Risk Factors Some of the statements in this Form 10-Q constitute forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” and “continue” or the negative of these terms or other comparable terminology. The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. Some of the important factors that could cause actual results to differ from our expectations are discussed in Exhibit Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements. General We are a leading operator of automotive franchises and retailer of new and used vehicles and services. As of 8 services; and arrange related financing, service contracts, protection products and Historically, new vehicle sales have accounted for approximately 50% of our total revenues but less than 30% of total gross profit. Competition from highly incentivized new vehicles in the past two years has had a strong negative impact on the used vehicle market. This trend is likely to continue in 2004. However, we have implemented new procedures to help combat this negative impact as follows: • We have initiated our “Used Vehicle Promo Pricing” strategy, which markets vehicles with a $99 down payment and then groups vehicles by payment level. Vehicles are marked with clear and understandable pricing, which reduces haggling and speeds up the sale process. This strategy resolves the three biggest issues of price, down payment and monthly payment for our customers and sales people in a simple way. Results of Continuing Operations Certain revenue, gross margin and gross profit information by product line Three Months Ended March 31, 2004 Percent of Gross Percent of Total New vehicles 55.4 % 7.5 % 24.9 % Retail used vehicles(1) 24.7 14.2 21.1 Service, body and parts 10.9 47.3 30.9 Finance and insurance(2) 3.7 99.3 21.9 Fleet and other 0.2 20.1 0.3 Three Months Ended March 31, 2003 Percent of Gross Percent of Total New vehicles 55.1 % 7.4 % 25.9 % Retail used vehicles(1) 25.3 13.0 20.8 Service, body and parts 10.1 47.6 30.4 Finance and insurance(2) 3.6 99.7 23.0 Fleet and other 0.4 12.9 0.3 (1) Excludes wholesale used vehicle sales, representing 5.1% and 5.5% of total revenues, respectively, and a gross margin contribution of 0.9% and (0.4)%, respectively, for the three month periods ended March 31, 2004 and 2003. (2) Reported net of anticipated cancellations. 9 The following table sets forth selected condensed financial data, expressed as a percentage of total revenues for the periods indicated. Lithia Motors, Inc. (1) Three Months Ended March 31, 2004 2003 Revenues: New vehicles 55.4 % 55.1 % Used vehicles 29.8 30.8 Service, body and parts 10.9 10.1 Finance and insurance 3.7 3.6 Fleet and other 0.2 0.4 Total revenues 100.0 % 100.0 % Gross profit 16.7 15.8 Selling, general and administrative expenses 13.4 13.3 Depreciation and amortization 0.5 0.4 Income from operations 2.8 2.2 Floorplan interest expense 0.6 0.6 Other interest expense 0.3 0.2 Other expense, net — — Income from continuing operations before taxes 1.9 1.3 Income tax expense 0.8 0.5 Income from continuing operations 1.2 % 0.8 % (1)The percentages may not add due to rounding. (Dollars in thousands) Three Months Ended Increase % 2004 2003 Revenues: New vehicle sales $ 353,601 $ 308,494 $ 45,107 14.6 % Used vehicle sales 189,906 172,096 17,810 10.3 Service, body and parts 69,426 56,485 12,941 22.9 Finance and insurance 23,385 20,410 2,975 14.6 Fleet and other 1,531 2,075 (544 ) (26.2 ) Total revenues 637,849 559,560 78,289 14.0 Cost of sales 531,615 471,073 60,542 12.9 Gross profit 106,234 88,487 17,747 20.1 Selling, general and administrative 85,187 74,229 10,958 14.8 Depreciation and amortization 2,954 2,131 823 38.6 Income from operations 18,093 12,127 5,966 49.2 Floorplan interest expense (3,616 ) (3,546 ) 70 2.0 Other interest expense (1,740 ) (1,388 ) 352 25.4 Other income (expense), net (339 ) (147 ) 192 130.6 Income from continuing operations before taxes 12,398 7,046 5,352 76.0 Income tax expense 4,836 2,731 2,105 77.1 Income from continuing operations $ 7,562 $ 4,315 $ 3,247 75.2 % Three Months Ended Increase % 2004 2003 New units sold 12,845 12,010 835 7.0 % Average selling price per new vehicle $ 27,528 $ 25,686 $ 1,842 7.2 Used units sold - retail 10,777 9,752 1,025 10.5 Average selling price per retail used vehicle $ 14,634 $ 14,498 $ 136 0.9 Used units sold – wholesale 6,087 6,147 (60 ) (1.0 ) Average selling price per wholesale used vehicle $ 5,289 $ 4,996 $ 293 5.9 Finance and insurance sales per retail unit $ 990 $ 938 $ 52 5.5 10 Revenues Total revenues increased 14.0% in the first quarter of 2004 compared to the first quarter of 2003 as a result of acquisitions and First quarter of 2004 vs New vehicles 1.4 % Retail used vehicles (0.4 ) Service, body and parts 8.0 Finance and insurance 2.7 Total retail sales 1.7 Same-store sales are calculated by dealership comparing only those months that contain full-month operating data. Both domestic and import new vehicle sales continue to be spurred by manufacturer incentives. While the used vehicle market has been negatively affected by strong new vehicle sales, it showed signs of The Fleet and Penetration rates for certain products were as follows: Three Months Ended March 31, 2004 2003 Finance and insurance 75 % 76 % Service contracts 44 41 Lifetime oil change and filter 36 34 Gross Profit Gross profit increased $17.7 million in the first Three Months Ended Lithia 2004 2003 Margin Change* New vehicles 7.5 % 7.4 % 10 bp Retail used vehicles 14.2 13.0 120 Service and parts 47.3 47.6 (30 ) Finance and insurance 99.3 99.7 (40 ) Overall 16.7 15.8 90 * “bp” stands for basis points (one hundred basis points equals one percent). 11 The increase in the overall gross profit margin Selling, General and Administrative Selling, general and administrative expense includes salaries and related personnel expenses, facility lease expense, advertising (net of manufacturer cooperative advertising credits), legal, accounting, professional services and general corporate expenses. Selling, general and administrative expense increased $11.0 million in the first quarter of 2004 compared to the first quarter of 2003, but increased only 10 basis points as a percentage of revenue. The increase in dollars spent is due to increased selling, or variable, expenses related to the increase in revenues and the number of locations. Depreciation and Amortization Depreciation and amortization increased $0.8 million in the first quarter of Income from Operating margins improved by Floorplan Interest Floorplan interest expense was relatively flat in the Other Interest Other interest expense includes interest on debt incurred related to acquisitions, real estate mortgages, our used vehicle line of credit and equipment related notes. Changes in the weighted average interest rate on our debt in the Income Tax Our effective tax rate was Income from continuing operations as a percentage of revenue increased Discontinued Operations During 2003, we decided to sell certain of our stores and related franchises. We did not dispose of any stores during the first quarter of 2004. At March 31, 2004, we had $15.7 million of assets classified as assets held for sale on our balance sheet related to one store we intend to sell during 2004. The 12 sale of $8.9 million at March 31, 2004 represent new vehicle flooring notes payable related to the We continually monitor the Seasonality and Quarterly Fluctuations Historically, our sales have been lower in the first and fourth quarters of each year due to consumer purchasing patterns during the holiday season, inclement weather and the reduced number of business days during the holiday season. As a result, financial performance may be lower during the first and fourth quarters than during the other quarters of each fiscal year. We believe that interest rates, levels of consumer debt and consumer confidence, as well as general economic conditions, also contribute to fluctuations in sales and operating results. Historically, the timing, performance and frequency of acquisitions Liquidity and Capital Resources Our principal needs for capital resources are to finance acquisitions and capital expenditures, as well as for working capital. We have relied primarily upon internally generated cash flows from operations, borrowings under our credit agreements and the proceeds from public equity offerings to finance operations and expansion. In addition, in May 2004, we closed an $85.0 million public debt offering. We believe that our available cash, cash equivalents, available lines of credit, cash received from our public debt offering in May 2004 and cash flows from operations will be sufficient to meet our anticipated operating expenses and capital requirements for at least Our free cash flow, defined as net income plus depreciation minus dividends and maintenance (unfinanceable) capital expenditures was approximately $6.9 million and $5.1 million, respectively, in the first quarter of 2004 and 2003. Management believes that free cash flow is an important metric for evaluating the strength and viability of our business model. The reconciliation of net income to free cash flow is as follows (in thousands): Three Months Ended March 31, 2004 2003 Net income $ 7,479 $ 4,165 Depreciation 2,954 2,131 Dividends (1,304 ) — Maintenance capital expenditures (2,258 ) (1,179 ) Free cash flow $ 6,871 $ 5,117 Our inventories increased Assets of discontinued operations held for sale include inventory and property, plant and equipment related to one store held for sale and are recorded on our balance sheet at the lower of book value or estimated fair market value, less applicable selling costs. As a result of the acquisition of 13 In In June 2000, our Board of Directors authorized the repurchase of up to 1,000,000 shares of our Class A common stock. Through We have a working capital and used vehicle flooring credit facility with DaimlerChrysler Services North America LLC and Toyota Motor Credit totaling up to $200 million, which expires in February 2006, with interest due monthly. equipment. We pledged to DaimlerChrysler Services and Toyota Motor Credit the stock of all of our subsidiaries except entities operating BMW, Honda, Nissan or Toyota stores. The financial covenants in our agreement with DaimlerChrysler Services and Toyota Motor Credit require us to maintain compliance with, among other things, (i) a specified current ratio; (ii) a specified fixed charge coverage ratio; (iii) a specified interest coverage ratio; (iv) a specified adjusted leverage ratio; and (v) certain working capital levels. At Ford Motor Credit and General Motors Acceptance Corporation have agreed to floor all of our new vehicles for their respective brands with DaimlerChrysler Services and Toyota Motor Credit Corporation serving as the primary We also have a real estate line of revolving credit with Toyota Motor Credit totaling $40 million, which expires in May 2005. This line of credit is secured by the real estate financed under this line of credit. We have a credit facility with U.S. Bank N.A. Interest rates on all of the above facilities ranged from Outstanding at Remaining Availability as New and program vehicle lines $ 407,179 $ 0 * Working capital and used vehicle line 74,000 126,000 ** Real estate line 9,018 30,982 Equipment/leased vehicle line 50,000 — $ 540,197 $ 156,982 * ** * There are no formal limits on the new and program vehicle lines with certain lenders. ** As limited by the terms of the line regarding the borrowing base. 14 We had capital commitments Critical Accounting Policies and Use of Estimates We reaffirm our critical accounting policies and use of estimates as described in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March Item 3.Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in our reported market risks or risk management policies since the filing of our h was filed with the Securities and Exchange Commission on March 15 Item 4.Controls and Procedures Disclosure Controls and Procedures Our management has evaluated, under the supervision and with the participation of our President and Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our President and Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Internal Control Over Financial Reporting There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 6.Exhibits and Reports on Form 8-K (a) Exhibits The following exhibits are filed herewith and this list is intended to constitute the exhibit index: 3.1 Restated Articles of Incorporation (filed as Exhibit 3.1 to Form 10-K filed March 30, 2000 and incorporated herein by reference). 3.2 Bylaws (filed as Exhibit 3.2 to Form S-1, Registration Statement No. 333-14031, as declared effective by the Securities and Exchange Commission on December 18, 1996 and incorporated herein by reference). 4.1 Indenture dated 10.1 Second Amendment, dated as of December 4, 2003, to Credit Agreement dated February 25, 2003, between DaimlerChrysler Services North America LLC, as Agent and Lithia Motors, Inc. 10.2 10.3 Modification No. 3, dated as 31.1 Certification of Sidney B. DeBoer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Jeffrey B. DeBoer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Sidney B. DeBoer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Jeffrey B. DeBoer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 10, 2004 LITHIA MOTORS, INC. By /s/ JEFFREY B. DEBOER Jeffrey B. DeBoer Senior Vice President and Chief Financial Officer (Principal Financial Officer) By /s/ LINDA A. GANIM Linda A. Ganim Vice President and Chief Accounting Officer (Principal Accounting Officer)
(Exact name of registrant as specified in its charter)Oregon93-0572810
incorporation or organization)Registrant’s telephone number, including area code:541-776-6899Yes X NoXý Noo14,691,277November 10, 2003)May 4, 2004)
LITHIA MOTORS, INC.TABLE OF CONTENTSLITHIA MOTORS, INC.FORM 10-QINDEXPagePART I — FINANCIAL INFORMATIONItem 1.Financial StatementsConsolidated Balance Sheets – September 30, 2003 (unaudited) and December 31, 20022Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2003 and 2002 (unaudited)3Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2003 and 2002 (unaudited)4Notes to Consolidated Financial Statements (unaudited)5Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations11Item 3.Quantitative and Qualitative Disclosures About Market Risk19Item 4.Controls and Procedures19PART II — OTHER INFORMATIONItem 6.Exhibits and Reports on Form 8-K19Signatures20—- FINANCIAL INFORMATION(Unaudited) September 30, December 31, 2003 2002 (Unaudited) Current Assets: Cash and cash equivalents $ 50,231 $ 15,932 Contracts in transit 42,632 41,493 Trade receivables, net of allowance for doubtful accounts of $578 and $455 42,908 40,680 Notes receivable, current portion, net of allowance for doubtful accounts of $138 and $247 124 167 Inventories, net 448,019 445,908 Vehicles leased to others, current portion 5,507 5,341 Prepaid expenses and other 3,657 5,707 Deferred income taxes 3,696 550 Total Current Assets 596,774 555,778 Land and buildings, net of accumulated depreciation of $5,051 and $3,618 141,358 118,696 Equipment and other, net of accumulated depreciation of $18,955 and $14,602 64,659 58,215 Notes receivable, less current portion 706 881 Vehicles leased to others, less current portion 19 19 Goodwill, net 206,442 185,212 Other intangible assets, net of accumulated amortization of $345 and $330 27,837 20,985 Other non-current assets 1,841 2,263 Total Assets $ 1,039,636 $ 942,049 Current Liabilities: Flooring notes payable $ 376,337 $ 364,635 Current maturities of long-term debt 5,166 4,466 Trade payables 23,785 19,445 Accrued liabilities 58,378 40,924 Total Current Liabilities 463,666 429,470 Used Vehicle Flooring 58,149 63,000 Real Estate Debt, less current maturities 79,706 73,798 Other Long-Term Debt, less current maturities 59,704 30,914 Deferred Revenue 957 1,617 Other Long-Term Liabilities 7,863 9,581 Deferred Income Taxes 21,383 13,676 Total Liabilities 691,428 622,056 Stockholders’ Equity: Preferred stock — no par value; authorized 15,000 shares; none outstanding — — Class A common stock — no par value; authorized 100,000 shares; issued and outstanding 14,593 and 14,299 206,840 203,577 Class B common stock — no par value authorized 25,000 shares; issued and outstanding 3,762 and 3,762 468 468 Additional paid-in capital 1,052 929 Accumulated other comprehensive loss (1,970 ) (2,517 ) Retained earnings 141,818 117,536 Total Stockholders’ Equity 348,208 319,993 Total Liabilities and Stockholders’ Equity $ 1,039,636 $ 942,049
2004
2003Dollars inIn thousands, except per share amounts) Three months ended September 30, Nine months ended September 30, 2003 2002 2003 2002 Revenues: New vehicle sales $ 429,434 $ 390,229 $ 1,134,504 $ 958,651 Used vehicle sales 200,899 199,443 574,205 568,415 Service, body and parts 71,155 62,964 195,267 169,997 Finance and insurance 25,908 22,107 70,486 60,186 Fleet and other 888 12,902 4,833 39,112 Total revenues 728,284 687,645 1,979,295 1,796,361 Cost of sales 611,280 583,039 1,663,896 1,515,226 Gross profit 117,004 104,606 315,399 281,135 Selling, general and administrative 87,730 80,209 249,342 221,485 Depreciation — buildings 543 648 1,483 1,706 Depreciation and amortization — other 2,138 1,396 5,923 3,901 Income from operations 26,593 22,353 58,651 54,043 Other income (expense) Floorplan interest expense (3,413 ) (2,943 ) (10,954 ) (8,162 ) Other interest expense (1,510 ) (1,581 ) (4,506 ) (4,637 ) Other expense, net (272 ) (252 ) (724 ) (334 ) (5,195 ) (4,776 ) (16,184 ) (13,133 ) Income before income taxes 21,398 17,577 42,467 40,910 Income tax expense 8,517 6,848 16,902 15,855 Net income $ 12,881 $ 10,729 $ 25,565 $ 25,055 Basic net income per share $ 0.70 $ 0.60 $ 1.40 $ 1.48 Shares used in basic net income per share 18,338 17,950 18,234 16,959 Diluted net income per share $ 0.69 $ 0.59 $ 1.39 $ 1.44 Shares used in diluted net income per share 18,708 18,269 18,430 17,381 AND SUBSIDIARIES Nine months ended September 30, 2003 2002 Cash flows from operating activities: Net income $ 25,565 $ 25,055 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,406 5,607 Compensation expense related to stock option issuances 144 124 Gain on sale of assets (656 ) (4 ) Loss on sale of vehicles leased to others 136 33 Gain on sale of franchise (275 ) (50 ) Deferred income taxes 4,288 1,974 Equity in (income) loss of affiliate 13 (1 ) (Increase) decrease, net of effect of acquisitions: Trade and installment contract receivables, net (2,194 ) (2,560 ) Contracts in transit (1,139 ) 397 Inventories 37,538 (63,262 ) Prepaid expenses and other 2,244 1,558 Other noncurrent assets 380 (441 ) Increase (decrease), net of effect of acquisitions: Flooring notes payable (17,470 ) 56,591 Trade payables 4,306 3,872 Accrued liabilities 17,406 4,368 Other long-term liabilities and deferred revenue (2,578 ) 2,180 Net cash provided by operating activities 75,114 35,441 Cash flows from investing activities: Notes receivable issued (58 ) (159 ) Principal payments received on notes receivable 371 1,407 Capital expenditures: Non-financeable (3,712 ) (4,799 ) Financeable (18,598 ) (24,292 ) Proceeds from sale of assets 441 1,635 Expenditures for vehicles leased to others (4,626 ) (5,562 ) Proceeds from sale of vehicles leased to others 832 1,274 Cash paid for acquisitions, net of cash acquired (48,256 ) (77,163 ) Cash from sale of franchises 252 535 Distribution from affiliate 33 — Net cash used in investing activities (73,321 ) (107,124 ) Cash flows from financing activities: Net borrowings (repayments) on lines of credit 25,842 (16,000 ) Prinicpal payments on long-term debt and capital leases (2,983 ) (10,072 ) Proceeds from issuance of long-term debt 7,688 23,026 Repurchase of common stock (215 ) — Proceeds from issuance of common stock 3,457 81,067 Redemption of Series M Preferred Stock — (4,355 ) Dividends paid (1,283 ) — Net cash provided by financing activities 32,506 73,666 Increase in cash and cash equivalents 34,299 1,983 Cash and cash equivalents: Beginning of period 15,932 18,814 End of period $ 50,231 $ 20,797 September 30, 2003March 31, 2004 and for the three and nine-monththree-month periods ended September 30,March 31, 2004 and 2003 and 2002 is unaudited; however, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, are 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, 20022003 is derived from our 20022003 Annual Report on Form 10-K. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our 20022003 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. September 30, December 31, 2003 2002 New and program vehicles $ 354,612 $ 340,457 Used vehicles 72,686 85,170 Parts and accessories 20,721 20,281 $ 448,019 $ 445,908 Note 3. Supplemental Cash Flow InformationSupplemental disclosure of cash flow information is as follows (in thousands): Nine Months Ended September 30, 2003 2002 Cash paid during the period for income taxes $ 3,966 $ 10,904 Cash paid during the period for interest 15,391 12,530 Assets acquired through real estate exchange 1,987 —
2004
20034.3. Earnings Per Share. Three Months Ended September 30, 2003 2002 Per Per Share Share Income Shares Amount Income Shares Amount Net income available to common shareholders $ 12,881 18,338 $ 0.70 $ 10,729 17,950 $ 0.60 Dilutive stock options 370 319 Net income available to common shareholders $ 12,881 18,708 $ 0.69 $ 10,729 18,269 $ 0.59 5
Income
Share
Amount
Income
Share
Amount Nine Months Ended September 30, 2003 2002 Per Per Share Share Income Shares Amount Income Shares Amount Net income available to common shareholders $ 25,565 18,234 $ 1.40 $ 25,055 16,959 $ 1.48 Dilutive stock options 196 422 Net income available to common shareholders $ 25,565 18,430 $ 1.39 $ 25,055 17,381 $ 1.44 follows (in thousands):follows: Three Months Ended September 30, Nine Months Ended September 30, 2003 2002 2003 2002 Stock options 20 38 609 10 5.4. Comprehensive Incomefair value of cash flowchange in hedging instruments that are reflected in shareholders’ equity instead of net income.income and unrealized gains and losses on investments. The following table sets forth the calculation of comprehensive income for the periods indicated (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Net income $ 12,881 $ 10,729 $ 25,565 $ 25,055 Unrealized gain (loss) on investments, net, subsequently realized 14 (3 ) 8 — Cash flow hedges: Net derivative gains (losses), net of tax effect of $(189), $590, $809 and $1,105, respectively 412 (923 ) (1,103 ) (1,745 ) Reversal of net derivative losses previously recorded due to their recognition in our statements of operations as incremental interest expense, net of tax effect of $(393), $(244), $(1,086) and $(712), respectively 594 377 1,642 1,122 Total comprehensive income $ 13,901 $ 10,180 $ 26,112 $ 24,432
March 31,6.5. Acquisitionsnine monthsquarter of 2003:2004. For information on the acquisition made in April 2004, see Note 10. Subsequent Events.February 2003,January 2004, we acquired Richardson Chevroletone Chrysler and Jeep store in Salinas, California,Reno, Nevada, which has anticipated 2003 annual revenues of approximately $35.0 million. This store has been renamed Chevrolet of Salinas.In March 2003, we acquired Pacific Hyundai of Anchorage, Alaska, which has anticipated 2003 revenues of approximately $10.0$55.0 million. The store has been renamed Lithia HyundaiChrysler Jeep of Anchorage.2003,2004, we acquired Randy Hansenone Chevrolet of Twin Falls, Idaho, which has anticipated 2003 annual revenues of approximately $30.0 million. The store has been renamed Chevrolet Cadillac of Twin Falls.In April 2003, we acquired Grizzly Chrysler Dodge of Missoula,in Helena, Montana, which has anticipated 2003 revenues of approximately $25.0 million. The store has been renamed Lithia Auto Center of Missoula.6In May 2003, we acquired Expressway Dodge of Broken Arrow, Oklahoma, which has anticipated 2003annual revenues of approximately $40.0 million. The store has been renamed Lithia DodgeChevrolet of Broken Arrow.In June 2003, we acquired Midland Dodge of Billings, Montana, which has anticipated 2003 revenues of approximately $35.0 million. The store has been renamed Lithia Dodge of Billings.In August 2003, we acquired Mercedes Benz of Spokane, Washington, which has anticipated 2003 revenues of approximately $20.0 million. The store has been renamed Mercedes-Benz of Spokane.In August 2003, we acquired Santa Rosa Dodge in California, which has anticipated 2003 revenues of approximately $30.0 million. The store has been renamed Lithia Dodge of Santa Rosa.See Note 15 Subsequent Events for acquisitions that occurred in October 2003. Three Months Ended September 30, Nine Months Ended September 30, 2003 2002 2003 2002 Total revenues $ 735,188 $ 753,337 $ 2,071,025 $ 1,983,842 Net income 12,964 11,226 26,681 26,078 Basic earnings per share 0.71 0.63 1.46 1.54 Diluted earnings per share 0.69 0.61 1.45 1.50
March 31, Inventory $ 37,770 Other current assets 211 Property and equipment 14,529 Goodwill 19,421 Other intangible assets – primarily franchise value 6,867 Total assets acquired 78,798 Flooring notes payable 30,474 Other current liabilities 204 Total liabilities acquired 30,678 Net assets acquired $ 48,120 We anticipate that approximately 100% of the goodwill acquired in the above acquisitions will be deductible for tax purposes over the period of 15 years.Note 7. DaimlerChrysler AgreementIn February 2003 we entered into a working capital and used vehicle flooring credit facility with DaimlerChrysler Services North America LLC totaling up to $200 million, which expires in February 2006, with interest due monthly.6The credit line with DaimlerChrysler Services is cross-collateralized and secured by cash and cash equivalents, new and used vehicle and parts inventories, accounts receivable, intangible assets and equipment. We pledged to DaimlerChrysler Services the stock of all of our subsidiaries except entities operating BMW, Honda, Nissan or Toyota stores.7The financial covenants in the agreement with DaimlerChrysler Services require us to maintain compliance with, among other things, (i) a specified current ratio; (ii) a specified fixed charge coverage ratio; (iii) a specified interest coverage ratio; (iv) a specified adjusted leverage ratio; and (v) certain working capital levels. We were in compliance with these covenants at September 30, 2003.Our previous facility with Ford Motor Credit Company was terminated and paid off on February 25, 2003.Note 8. U.S. Bank Agreement AmendmentIn April 2003, our U.S. Bank N.A. agreement was amended to provide for a $35.0 million revolving line of credit for leased vehicles and equipment purchases, which expires January 31, 2005. At September 30, 2003, we had $35.0 million outstanding on this line of credit. Previously, the amount available under this line of credit was $27.5 million and it expired January 31, 2004.Note 9. 2003 Stock Incentive PlanAt our annual shareholders meeting in May 2003, our shareholders approved an amendment to and restatement of our 2001 Stock Option Plan in the form of the 2003 Stock Incentive Plan in order to bring the plan in compliance with new requirements related to the Sarbanes-Oxley Act of 2002. There were no additions made to the number of shares of our common stock reserved for issuance under the restated plan.Note 10. Amendment to 1998 Employee Stock Purchase PlanAt our annual shareholders meeting in May 2003, our shareholders approved an amendment to our 1998 Employee Stock Purchase Plan to increase the number of shares reserved for issuance thereunder from 1,000,000 to 1,500,000.11.6. Dividend PaymentJuly 2003,January 2004, our Board of Directors approved a dividend on our Class A and Class B common stock of $0.07 per share for the secondfourth quarter of 2003. The dividend, which totaled approximately $1.3 million, and was paid on August 22, 2003March 19, 2004 to shareholders of record on August 8, 2003. See March 5, 2004.15 Subsequent Events7. U.S. Bank Agreement Amendmentinformation regardinga $50.0 million revolving line of credit for leased vehicles and equipment purchases, which expires January 31, 2006. Previously, the declarationamount available under this line of credit was $35.0 million and it was set to expire January 31, 2005.dividend in October 2003.five year, $25 million interest rate swap at a fixed rate of 3.25% per annum, variable rate adjusted on the 1st and 16th of each month;12.9. Stock-Based Compensation—- Transition and Disclosure,” which we adopted in December 2002, we have computed, for pro forma disclosure purposes, the impact on net income and net income per share as if we had accounted for our stock-based compensation plans in accordance with the fair value method prescribed by SFAS No. 123 “Accounting for Stock-Based Compensation” as follows (in thousands): Three Months Ended September 30, 2003 2002 Net income, as reported $ 12,881 $ 10,729 Add – Stock-based employee compensation expense included in reported net income, net of related tax effects 25 25 Deduct — total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects (631 ) (527 ) Net income, pro forma $ 12,275 $ 10,227 Basic net income per share: As reported $ 0.70 $ 0.60 Pro forma $ 0.67 $ 0.57 Diluted net income per share: As reported $ 0.69 $ 0.59 Pro forma $ 0.67 $ 0.57 8 Nine Months Ended September 30, 2003 2002 Net income, as reported $ 25,565 $ 25,055 Add – Stock-based employee compensation expense included in reported net income, net of related tax effects 74 76 Deduct — total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects (1,855 ) (1,521 ) Net income, pro forma $ 23,784 $ 23,610 Basic net income per share: As reported $ 1.40 $ 1.48 Pro forma $ 1.30 $ 1.39 Diluted net income per share: As reported $ 1.39 $ 1.44 Pro forma $ 1.30 $ 1.38 Three and Nine Months Ended September 30, 2003 2002 Risk-free interest rate 2.5% - 3.0 % 4.0 % Expected dividend yield 0–1.7 % 0 % Expected lives - 2001 Plan 7.7- 8 years 8 years - Purchase Plan 3 months 3 months Expected volatility 45.63% – 46.79 % 46.80 % Note 13. Recent Accounting PronouncementsIn July 2002, the FASB approved SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses the financial accounting and reporting for obligations associated with an exit activity, including restructuring, or with a disposal of long-lived assets. Exit activities include, but are not limited to, eliminating or reducing product lines, terminating employees and contracts and relocating plant facilities or personnel. SFAS No. 146 specifies that a company will record a liability for a cost associated with an exit or disposal activity only when that liability is incurred and can be measured at fair value. Therefore, commitment to an exit plan or a plan of disposal expresses only management’s intended future actions and, therefore, does not meet the requirement for recognizing a liability and the related expense. SFAS No. 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. The adoption of SFAS No. 146 on January 1, 2003 did not have any effect on our financial position or results of operations.7The FASB’s Emerging Issues Task Force (EITF) finalized EITF 00-21 “Accounting for Multiple Element Arrangements” in November 2002. EITF 00-21 requires arrangements with multiple elements to be broken out as separate units of accounting based on their relative fair values. Revenue for a separate unit of accounting should be recognized only if the amount due can be reliably measured and the earnings process is substantially complete. Any units that can not be separated must be accounted for as a combined unit. Our accounting policy is consistent with EITF 00-21 and therefore, the adoption on January 1, 2003 did not have any effect on our financial position or results of operations.In March 2003, the EITF issued EITF 02-16 “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.” EITF 02-16 primarily applies to floorplan interest credits and advertising credits received by us from auto manufacturers and specifies the timing of and appropriate classification of such items in our statement of operations. We recognize floorplan interest credits and advertising credits that are tied to specific vehicles as a reduction to the carrying value of the specific inventory and ultimately as a reduction to cost of goods sold as related vehicles are sold and we recognize other advertising credits as a credit to advertising expense. The adoption of EITF 02-16 on January 1, 2003 resulted in the reclassification of certain expenses, but did not have any effect on our net income or financial position (see Note 14).9In May 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 addresses certain accounting issues related to hedging activity and derivative instruments embedded in other contracts. In general, the amendments require contracts with comparable characteristics to be accounted for similarly. In addition, SFAS No. 149 provides guidance as to when a financing component of a derivative must be given special reporting treatment in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on our financial position or results of operations.In May 2003, the FASB approved SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS No. 150 establishes standards for how to classify and measure financial instruments with characteristics of both liabilities and equity. It requires financial instruments that fall within its scope to be classified as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and, for pre-existing financial instruments, as of July 1, 2003. We do not have any financial instruments that fall under the guidance of SFAS No. 150 and, therefore, the adoption did not have any effect on our financial position or results of operations.Note 14. ReclassificationsIn the fourth quarter of 2002, we reclassified documentation fees from finance and insurance income to new and used vehicle revenue, as appropriate, in order to bring our reporting in line with industry practice. The resulting effect was a reduction of approximately $100 per vehicle of finance and insurance income and an increase in new and retail used vehicle gross margins of between 20 and 50 basis points. Accordingly, the finance and insurance sales per retail unit, revenue by product line and gross margin percentage disclosures have been recalculated for the first three quarters of 2002. Net income was not affected by this reclassification.Pursuant to EITF 02-16 “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,” in the second quarter of 2003 we began classifying advertising credits that are tied to specific vehicles as a reduction to cost of goods sold as related vehicles are sold. Accordingly, $1.1 million of credits included in selling, general and administrative costs in the first quarter of 2003 were reclassified as a credit to cost of sales for that period. Net income was not affected by this reclassification.15.10. Subsequent EventsQuarterly DividendOctober 2003,April 2004, our Board of Directors approved a dividend on our Class A and Class B common stock of $0.07 per share for the thirdfirst quarter of 2003.2004. The dividend, which will total approximately $1.3 million, will be paid on NovemberMay 21, 20032004 to shareholders of record on NovemberMay 7, 2003.2004.AcquisitionsDebt Offeringfollowing acquisitions were made subsequentnotes are convertible into shares of our Class A common stock at a price of $37.69 per share upon the satisfaction of certain conditions and upon the occurrence of certain events. The notes are redeemable at our option beginning May 6, 2009 at the redemption price of 100% of the principal amount plus any accrued interest. The holders of the notes can require us to September 30, 2003:In October 2003, werepurchase all or some of the notes on May 1, 2009 and upon certain events constituting a fundamental change. A fundamental change is any transaction or event in which all or substantially all of our common stock is exchanged for, converted into, acquired Chevrolet Cadillac of Fairbanks, Alaska, which has anticipated 2003 revenues of approximately $15.0 million. The store namefor, or constitutes solely the right to receive, consideration that is not all, or substantially all, common stock that is listed on, or immediately after the transaction or event, will remain the same; andIn October 2003, we acquired Grapevine Dodge in Grapevine, Texas, which has anticipated 2003 revenues of approximately $70.0 million. The store has been renamed Lithia Dodge of Grapevine.1099.399.1 to our 20022003 Annual Report on Form 10-K.NovemberMay 10, 2003,2004, we offered 2425 brands of new vehicles through 146151 franchises in 7882 stores in the westernWestern United States and over the Internet. As of NovemberMay 10, 2003,2004, we operateoperated 16 stores in Oregon, 13 in California, 11 in Washington, 8 in Texas, 7 in Idaho, 7 in Colorado, 56 in Nevada, 46 in Alaska, 3 in Montana, 2 in South Dakota, 2 in Nebraska 2 in Montana and 1 in Oklahoma. We sell new and used cars and light trucks; sell replacement parts; provide vehicle maintenance, warranty, paint and repairwarrantycredit insurance for our automotive customers. Approximately 79% of our stores are located in cities where they benefit from little or no competition from the same brand in that city.During an economic downturn, customers tend to shift towards the purchase of more reasonably priced new vehicle models or used vehicles. Many customers decide to delay purchasing a new vehicle and instead repair existing vehicles. In addition, manufacturers typically offer increased dealer and customer incentives during an economic downturn in order to support new vehicle sales volume. These factors generally lead to less volatility in earnings for automobile retailers than for automobile manufacturers.The first nine months of 2003 have been characterized byWe are continuing with a very strong incentive environment, which led to higher than normalvolume-based strategy for our new vehicle sales forthat we initiated in 2002. Through an advertising campaign called “Driving America” that is centered on “Promo Pricing,” we were able to gain new vehicle market share in many of our markets. This strategy complements the period.approach taken by the auto manufacturers, which have continued to offer a high level of customer incentives.11
In 2004, we expect that manufacturers will continue to incentivize new vehicle sales through a combination of rebates and low interest rate loans to consumers. We plan to continue with our volume-based new vehicle strategy in most of the markets where we operate. As the economy and the incentive environment change, we will adjust our new vehicle sales strategy accordingly to take advantage of any new conditions.Our revenues• We have begun a strategy of conducting our own local used vehicle auctions in select markets and managing the disposal of used vehicles at larger auctions. We no longer allow stores to dispose of their excess inventories on their own. The process is centralized and controlled at the management level; andwerewas as follows: Percent of Gross Percent of Total Three Months Ended September 30, 2003 Total Revenues Margin Gross Profit New vehicles 59.0 % 7.6 % 28.0 % 23.1 14.6 21.0 Service, body and parts 9.8 47.3 28.7 3.6 99.9 22.1 Fleet and other 0.1 17.6 0.1 Percent of Gross Percent of Total Three Months Ended September 30, 2002 Total Revenues Margin Gross Profit New vehicles 56.7 % 8.2 % 30.7 % 24.3 12.5 20.0 Service, body and parts 9.2 47.5 28.6 3.2 99.5 21.0 Fleet and other 1.9 1.7 0.2 Percent of Gross Percent of Total Nine Months Ended September 30, 2003 Total Revenues Margin Gross Profit New vehicles 57.3 % 7.6 % 27.4 % 24.0 13.8 20.9 Service, body and parts 9.9 47.3 29.3 3.6 99.7 22.3 Fleet and other 0.2 17.5 0.3 Percent of Gross Percent of Total Nine Months Ended September 30, 2002 Total Revenues Margin Gross Profit New vehicles 53.4 % 8.5 % 28.9 % 26.3 12.6 21.1 Service, body and parts 9.5 47.9 29.0 3.4 99.4 21.3 Fleet and other 2.2 1.7 0.2 (1)Excludes wholesale used vehicle sales, representing 4.4%, 4.7%, 5.0% and 5.2% of total revenues, respectively, and a negative gross margin contribution of 0.0%, 0.5%, 0.2% and 0.5%, respectively, for the three and nine month periods ended September 30, 2003 and 2002.(2)Reported net of administration fees and anticipated cancellations.
Total Revenues
Margin
Gross Profit
Total Revenues
Margin
Gross Profit Three Months Ended Nine Months Ended Lithia Motors, Inc.(1) September 30, September 30, 2003 2002 2003 2002 Revenues: New vehicles 59.0 % 56.7 % 57.3 % 53.4 % Used vehicles 27.5 29.0 29.0 31.5 Service, body and parts 9.8 9.2 9.9 9.5 Finance and insurance 3.6 3.2 3.6 3.4 Fleet and other 0.1 1.9 0.2 2.2 Total revenues 100.0 % 100.0 % 100.0 % 100.0 % Gross profit 16.1 15.2 15.9 15.7 Selling, general and administrative expenses 12.0 11.7 12.6 12.3 Depreciation and amortization 0.4 0.3 0.4 0.3 Income from operations 3.7 3.3 3.0 3.0 Floorplan interest expense 0.5 0.4 0.6 0.5 Other interest expense 0.2 0.2 0.2 0.3 Income before taxes 2.9 2.6 2.1 2.3 Income tax expense 1.2 1.0 0.9 0.9 Net income 1.8 % 1.6 % 1.3 % 1.4 % The percentages may not add due to rounding.12Results of Operations Three Months Ended September 30, % Increase Increase 2003 2002 (Decrease) (Decrease) Revenues: New vehicle sales $ 429,434 $ 390,229 $ 39,205 10.0 % Used vehicle sales 200,899 199,443 1,456 0.7 Service, body and parts 71,155 62,964 8,191 13.0 Finance and insurance 25,908 22,107 3,801 17.2 Fleet and other 888 12,902 (12,014 ) (93.1 ) Total revenues 728,284 687,645 40,639 5.9 Cost of sales 611,280 583,039 28,241 4.8 Gross profit 117,004 104,606 12,398 11.9 Selling, general and administrative 87,730 80,209 7,521 9.4 Depreciation and amortization 2,681 2,044 637 31.2 Income from operations 26,593 22,353 4,240 19.0 Floorplan interest expense (3,413 ) (2,943 ) 470 16.0 Other interest expense (1,510 ) (1,581 ) (71 ) (4.5 ) Other, net (272 ) (252 ) 20 7.9 Income before income taxes 21,398 17,577 3,821 21.7 Income tax expense 8,517 6,848 1,669 24.4 Net income $ 12,881 $ 10,729 $ 2,152 20.1 % New units sold 16,056 14,972 1,084 7.2 % Average selling price per new vehicle $ 26,746 $ 26,064 $ 682 2.6 Used units sold — retail 11,732 11,538 194 1.7 Average selling price per retail used vehicle $ 14,358 $ 14,472 $ (114 ) (0.8 ) Used units sold – wholesale 7,207 6,923 284 4.1 Average selling price per wholesale used vehicle $ 4,503 $ 4,690 $ (187 ) (4.0 ) Finance and insurance sales per retail unit $ 932 $ 834 $ 98 11.8 % Nine Months Ended September 30, % Increase Increase 2003 2002 (Decrease) (Decrease) Revenues: New vehicle sales $ 1,134,504 $ 958,651 $ 175,853 18.3 % Used vehicle sales 574,205 568,415 5,790 1.0 Service, body and parts 195,267 169,997 25,270 14.9 Finance and insurance 70,486 60,186 10,300 17.1 Fleet and other 4,833 39,112 (34,279 ) (87.6 ) Total revenues 1,979,295 1,796,361 182,934 10.2 Cost of sales 1,663,896 1,515,226 148,670 9.8 Gross profit 315,399 281,135 34,264 12.2 Selling, general and administrative 249,342 221,485 27,857 12.6 Depreciation and amortization 7,406 5,607 1,799 32.1 Income from operations 58,651 54,043 4,608 8.5 Floorplan interest expense (10,954 ) (8,162 ) 2,792 34.2 Other interest expense (4,506 ) (4,637 ) (131 ) (2.8 ) Other, net (724 ) (334 ) 390 116.8 Income before income taxes 42,467 40,910 1,557 3.8 Income tax expense 16,902 15,855 1,047 6.6 Net income $ 25,565 $ 25,055 $ 510 2.0 % 13 Nine Months Ended September 30, % Increase Increase 2003 2002 (Decrease) (Decrease) New units sold 43,108 37,249 5,859 15.7 % Average selling price per new vehicle $ 26,318 $ 25,736 $ 582 2.3 Used units sold �� retail 32,811 32,482 329 1.0 Average selling price per retail used vehicle $ 14,503 $ 14,521 $ (18 ) (0.1 ) Used units sold – wholesale 20,547 19,180 1,367 7.1 Average selling price per wholesale used vehicle $ 4,786 $ 5,044 $ (258 ) (5.1 ) Finance and insurance sales per retail unit $ 928 $ 863 $ 65 7.5 % Revenues.Total revenues increased 5.9%The following tables set forth the changes in the third quarter of 2003 compared to the third quarter of 2002 as a result of acquisitions, which were partially offset by an overall same store retail sales decrease of 0.6% Total revenues increased 10.2%our operating results from continuing operations in the first nine monthsquarter of 20032004 compared to the first nine monthsquarter of 20022003:
March 31,
(Decrease)
Increase
(Decrease)
March 31,
(Decrease)
Increase
(Decrease)1.6%1.7% growth in same storesame-store retail sales.Same store retail Same-store sales percentage increases (decreases) for the 2003 periods compared to the 2002 periods were as follows: Three Months Ended Nine Months Ended September 30, 2003 September 30,2003 New vehicles 1.5 % 6.9 % Retail used vehicles (7.9 ) (9.7 ) Service, body and parts 3.9 0.6 Finance and insurance 5.0 6.1 The automotive retailing industry reported declines in
first quarter of 2003approximately 0.2% and 1.6%, respectively, for the same three and nine month periods of 2003 compared to 2002. The industry has reported an approximate 6.0% decrease in sales of Chrysler products, which is our largest brand,stabilization in the first nine monthsquarter of 20032004. While used vehicle same-store sales declined slightly, our used vehicle same-store gross profit has increased in the first quarter of 2004 compared to the first nine monthsquarter of 2002. Our same-store Chrysler sales have increased approximately 6.3% in the same period. We have same-store sales increases in the nine month period ended September 30, 2003 compared to the same period of 2002 for all domestic brands, which is counter to national trends. We are able to generate positive sales trends that run contrary to industry and specific brand trends due to our operating model that is focused on increasing market share at the stores and the market dynamics of smaller, non-metropolitan, western markets where domestic trucks and SUVs are still the staple.2003.Slowing economies in our markets and higher than normal new vehicle inventories at the end of 2002, coupled with a strong new vehicle incentive environment, spurred our aggressive approach to new vehicle sales in the first three quarters of 2003. We have utilized an aggressive company-wide marketing campaign based on the “Driving America” theme that is aimed at increasing market share by competitively pricing new vehicles in order to secure a long-term customer base for future parts and service business and repeat and referral business. increases in new vehicle sales also led to increasesincrease in same-store finance and insurance sales, as we have been able to maintain our high penetration rate for such sales.The industry used vehicle business was weak in the first nine months of 2003 due to competition from highly incentivized new vehicles within the overall weaker total vehicle market. However, in the second and third quarters of 2003, Lithia’s used vehicle business demonstrated improvement over the first quarter of the year. We were able to substantially improve our used vehicle margins by 160 basis points and 80 basis points in the third quarter of 2003 compared to the first two quarters of 2003, respectively. The improvements in used vehicle margins in the 2003 periods more than offset the14declines in same-store sales resulting in positive same-store gross profit growth for the three and nine month periods ended September 30, 2003.The service, body and parts business has been negatively impacted in the past couple of years by substantial improvements in the quality of domestic vehicles, resulting in less warranty work, offset in part by increasesrevenue resulted from an increase in the customer-pay portion of the business. However,Improvements in the third quarterquality of 2003 we saw positive trends with thedomestic vehicles have resulted in a decline in domestic warranty repairs slowingwork, although that decline has slowed in comparisonrecent quarters. Import brands, however, continue to declinesdemonstrate increases in previous quarterssame-store warranty sales.customer-pay serviceother sales include both fleet sales and parts growth increasing 4.5%fees received for delivering vehicles on behalf of the manufacturer, the U.S. military, rent-a-car companies or leasing companies. In 2003 we decided to deemphasize fleet sales due to their low margins. This has resulted in a decrease in total fleet and 3.8%, respectively, on a same store basisother sales, but an increase in the three and nine month periods ended September 30, 2003gross margin percentage due to a higher percentage of fee income compared to the same periods of 2002.fleet income. Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Finance and insurance 76 % 76 % 75 % 75 % Service contract 42 40 42 40 Lifetime oil and filter 34 32 35 30 Duringthree quartersquarter of 2003, manufacturers offered, and are continuing2004 compared to offer, incentives, including low interest rates and rebates, in order to attract new vehicle buyers. The availabilitythe first quarter of cash rebates and zero percent and low interest rate financing have enhanced our ability to sell finance, warranty and insurance products and services.Gross Profit.Gross profit increased2003 due to increased total revenues. Certain incentives and rebates received from manufacturers, including floorplan interest credits and advertising credits that are tied to specific vehicles are recordedrevenues as a reduction to cost of goods sold at the time of vehicle sale.well as an increase in our overall gross margin. Gross profit margins achieved were as follows: Three Months Ended September 30, Lithia 2003 2002 Margin Change* New vehicles 7.6 % 8.2 % (60 )bp Retail used vehicles 14.6 12.5 210 Service and parts 47.3 47.5 (20 ) Finance and insurance 99.9 99.5 40 Overall 16.1 % 15.2 % 90 Nine Months Ended September 30, Lithia 2003 2002 Margin Change* New vehicles 7.6 % 8.5 % (90 )bp Retail used vehicles 13.8 12.6 120 Service and parts 47.3 47.9 (60 ) Finance and insurance 99.7 99.4 30 Overall 15.9 % 15.7 % 20
March 31,*“bp”Ourincreased in the three and nine month periods ended September 30, 2003first quarter of 2004 compared to the same periodsfirst quarter of 2002 due2003 is primarily to increasesa result of improvements in the margins achieved on our used vehicle business as well as an increase in our high margin service and parts revenue as a percentage of total revenue. We have been able to improve the margins on our used vehicle sales as a result of selling older aged vehicles which carry a higher margin and improved inventory management. These increases in the used vehicle gross profit margin also contributed to a same store increase in total gross margin dollars per used vehicle sold.The improvements in our gross profit margin were offset by the following factors:A significant shift towards our lowest margin new vehicle business as a result of the strong incentive environment;15Lower floorplan interest credits from the manufacturers on new vehiclesprimarily due to lower market rates;the strategies discussed above regarding the auctioning of our used vehicles andAggressive pricing of new vehicles in order to gain market share, which resulted in lower new vehicle margins.Expense.Expense As a percentagerevenue, selling, general and administrative expense increased 30 basis points in both the three and nine month periods ended September 30, 20032004 compared to the same periodsfirst quarter of 2002. The increases as a percentage2003 due to the addition of revenue are due partially to higher advertisingproperty and sales compensation expensesequipment primarily related to our aggressive new vehicle marketing.acquisitions.Operations.Operations4060 basis points in the three months ended September 30, 2003 comparedfirst quarter of 2004 to the same period of 2002 and was flat2.8% from 2.2% in the nine month period ended September 30, 2003 compared to the nine month period ended September 30, 2002.first quarter of 2003. The increase in the three month period is due to the improved overall gross profit margin as discussed above, partially offset by higher operating expenses as a percentage of revenue.Expense.ExpenseThe increases in floorplanthree and nine-month periods ended September 30, 2003first quarter of 2004 compared to the same periodsfirst quarter of 2002 are primarily due to an approximately $509,000 and $2.36 million, respectively,2003. A $213,000 increase in expense as a result of an increase in the average outstanding balances of our floorplan facilities, mainly due to acquisitions. In addition, increased expenseacquisitions, and an increase of $200,000 resulting from our interest rate swaps was responsible for $367,000 and $0.9 million, respectively, of the increase. These increases were mostly offset in part by a decrease in the LIBOR and the prime raterates in the first nine monthsquarter of 20032004 compared to the first nine monthsquarter of 2002.2003.Expense.ExpenseOtherthree and nine month periods ended September 30, 2003first quarter of 2004 compared to the same periodsfirst quarter of 20022003 increased (decreased) other interest expense by $152,000approximately $153,000 and $(401,000), respectively. Changeschanges in the average outstanding balances in the 2003 periodsfirst quarter of 2004 compared to the 2002 periodsfirst quarter of 2003 resulted in increases (decreases) to other interest expense of $(223,000) and $270,000, respectively.approximately $199,000.Expense.Expense39.8%39.0% in the first nine monthsquarter of 20032004 compared to 38.8% in the first nine monthsquarter of 2002.2003. Our effective tax rate may be affected in the future by the mix of asset acquisitions compared to corporate acquisitions, as well as by the mix of states where our stores are located.Net Income from Continuing Operations.Net income20 basis points and decreased 10 basis points, respectively, forin the three and nine month periods ended September 30, 2003first quarter of 2004 compared to the same periodsfirst quarter of 2002.2003 as a result of improvements in gross margins being offset by increased operating expenses as discussed above.increase in the three month period isassets primarily dueinclude inventory and property, plant and equipment. Liabilities held forincrease instores held for sale.overall gross profit margin discussed above, offset in part by higher operating expensesperformance of each of our stores and income taxes as a percentage of revenue.make determinations to sell based on return on capital criteria.16havehas been the largest contributor to fluctuations in our operating results from quarter to quarter.twelve24 to 36 months from September 30,March 31, 2004.slightly to $448.0$482.2 million at September 30, 2003March 31, 2004 from $445.9$445.3 million at December 31, 20022003 due primarily to acquisitions, offset by efficiencies gained from the implementation of our new centralized inventory control process. Accordingly, ourOur new and used flooring notes payable increased to $434.5$466.1 million at September 30, 2003March 31, 2004 from $427.6$435.2 million at December 31, 2002. Despite the overall increase in inventories, our2003 due to acquisitions. New vehicles are financed at approximately 100% and used vehicles are financed at approximately 80%. Our days supply of new vehicles decreased by approximately 195 days at September 30, 2003March 31, 2004 compared to December 31, 2002 and decreased by approximately 15 days compared to June 30, 2003. Our days supply of used vehicles decreased by approximately 20 days at September 30, 2003 compared toMarch 31, 2004 was consistent with December 31, 2002 and decreased by approximately 8 days compared to June 30, 2003. Our used vehicle inventories are at historically low levels for this time of year compared to the last five years. We believe that our new and used vehicle inventories are at appropriate levels at this time.Primarily aseighttwo stores in the first nine monthsquarter of 2003,2004, our goodwill and other intangibles increased $28.1$8.1 million to $234.3$244.0 million at September 30, 2003March 31, 2004 compared to $206.2$236.0 million at December 31, 2002.2003.July 2003,February 2004, our Board of Directors approved a dividend on our Class A and Class B common stock of $0.07 per share for the secondfourth quarter of 2003. The dividend2003, which totaled approximately $1.3 million and was paid on August 22, 2003 to shareholders of record on August 8, 2003.million. In October 2003,April 2004, our Board of Directors approved a dividend on our Class A and Class B common stock of $0.07 per share for the thirdfirst quarter of 2003. The dividend2004, which will also total approximately $1.3 million and will be paid on November 21, 2003 to shareholders of record on November 7, 2003.million. We anticipate recommending to the Board of Directors the approval of a cash dividend each quarter.October 2003,April 2004, we have purchased a total of 59,400 shares under this program and may continue to do so from time to time in the future as conditions warrant. However, the recent change in the tax law tends to equalize the benefits of dividends and share repurchases as a means to return capital or earnings to shareholders. As a result, we believe it is now advantageous to shareholders to have a dividend in place. With the dividend, we are able to offer an immediate and tangible return to our shareholders without reducing our already limited market float, which occurs when we repurchase shares.In February 2003 we entered intoOur previous $150 million used vehicle flooring This credit facility with Ford Motor Credit Company was terminated and paid off on February 25, 2003.The credit line with DaimlerChrysler Services is cross-collateralized and secured by cash and cash equivalents, new and used vehicle andvehicles that are not specifically financed by other lenders, parts inventories, accounts receivable, intangible assets and17September 30, 2003,March 31, 2004, we were in compliance with all of the covenants of this agreement.Toyota Motor Credit Corporation, lenderlenders for substantially all other brands. These new vehicle lines are secured by new vehicle inventory of the relevant brands.In April 2003, our agreement was amended to provide, which provides for a $35.0$50.0 million revolving line of credit for leased vehicles and equipment purchases whichand expires January 31, 2005. Previously, the amount available under this line of credit was $27.5 million and it was set to expire January 31, 2004.2006.2.66%2.61% to 3.87%3.84% at September 30, 2003.March 31, 2004. Amounts outstanding on the lines at September 30, 2003March 31, 2004 together with amounts remaining available under such lines were as follows (in thousands): Outstanding at Remaining Availability as September 30, 2003 of September 30, 2003 New and program vehicle lines $ 376,337 $ * Working capital and used vehicle line 80,000 112,000 ** Real estate line 15,903 24,097 Equipment/leased vehicle line 35,000 — $ 507,240 $ 136,097 *
March 31, 2004
of March 31, 2004*There are no formal limits on the new and program vehicle lines with certain lenders.**As limited by the terms of the line regarding the borrowing base.At September 30, 2003,In May 2004, we sold $85 million of 2.88% senior subordinated convertible notes due 2014 through a Rule 144A offering to qualified institutional buyers. Net proceeds from this offering were approximately $82.5 million and were used to pay down our long-term debtworking capital and lease commitments were as follows (in thousands):used vehicle line and new vehicle flooring notes payable. The notes are convertible into shares of our Class A common stock at a price of $37.69 per share upon the satisfaction of certain conditions and upon the occurrence of certain events. The notes are redeemable at our option beginning May 6, 2009 at the redemption price of 100% of the principal amount plus any accrued interest. The holders of the notes can require us to repurchase all or some of the notes on May 1, 2009 and upon certain events constituting a fundamental change. Long-term Year Ending December 31, debt Leases Total 2003 $ 2,422 $ 5,442 $ 7,864 2004 3,707 20,274 23,981 2005 40,556 19,829 60,385 2006 83,624 19,015 102,639 2007 11,768 18,026 29,794 Thereafter 60,648 72,538 133,186 Total $ 202,725 $ 155,124 $ 357,849 At September 30, 2003, wetotaling approximately $11.1of $6.0 million at March 31, 2004 for the construction of one new store facility, additions to twofive existing facilities and the remodel of fivethree facilities. The new facility will be a Hyundai store in Anchorage, Alaska. We have already incurred $2.9$4.6 million for these commitments and anticipate incurring $9.3projects, with the remaining $6.0 million expected to be incurred during the remaining quarterremainder of 2003 and the remaining $1.8 million in 2004. We expect to pay for the construction out of existing cash balances until completion of the projects, at which time we anticipate securing long-term financing and general borrowings from third party lenders for 70% to 90% of the amounts expended.31, 2003.15, 2004, except for the addition of the following that only applies to our quarterly filings.18
Executive BonusesRecent Accounting PronouncementsSee Note 13We make certain estimates, judgments and assumptions regarding the likelihood of Notesour attainment, and the level thereof, of the annual executive bonus criteria in order to Condensed Consolidated Financial Statements.20022003 Annual Report on Form 10-K, which31, 2003.15, 2004.Disclosure Controls and Procedures3.13.210.1Second Amendment,April 2, 2003, to Amended and Restated Loan Agreement, dated December 28, 2001,May 4, 2004, between Lithia Financial Corporation, Lithia Motors, Inc., Lithia Aircraft, Inc. and Lithia SALMIR,motors, Inc. and U.S. Bank National Association. Incorporated by referenceAssociation, as Trustee, relating to 2.875% Convertible Senior Subordinated Notes due 2014.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 as filed with the Securities and Exchange Commission on May 15, 2003.10.22003 Stock Incentive Plan (Filed as Exhibit 99.1 to Form 8-K filed April 28, 2003 and incorporated herein by reference).10.3Executive Bonus Plan (filed as Exhibit 99.2 to Form 8-K filed April 28, 2003 and incorporated herein by reference).10.41998 Employee Stock Purchase Plan, as amended (filed as Exhibit 10.4 to Form 10-Q for the quarter ended June 30, 2003 as filed August 14, 2003 and incorporated herein by reference).10.5Modification No. 12, dated June 16,as of November 1, 2003, to Amended and Restated Revolving Loan and Security Agreement and Notes Secured by Deed of Trust (filedTrust.Exhibit 10.5of February 20, 2004, to Form 10-Q for the quarter ended June 30, 2003 as filed August 14, 2003Amended and incorporated hereinRestated Revolving Loan and Security Agreement and Notes Secured by reference).Deed of Trust.31.131.232.132.2The followingThere were no reports on Form 8-K were filed during the quarter ended September 30, 2003:March 31, 2004.Dated and filed July 24, 2003 pursuant to Item 9. Regulation FD Disclosure regarding operating results for the quarter ended June 30, 2003; andDated and filed July 24, 2003 pursuant to Item 9. Regulation FD Disclosure regarding the declaration of a cash dividend.19Date: November 13, 2003LITHIA MOTORS, INCBy (PrincipalBy (Principal2017