Lithia Motors (LAD) 8-K Lithia Announces Results of Investigation; Revises Previously Released Preliminary 2007 Earnings

LITHIA ANNOUNCES RESULTS OF INVESTIGATION; REVISES PREVIOUSLY RELEASED PRELIMINARY 2007 EARNINGS

MEDFORD, OREGON, April 1^st, 2008 (For immediate release) – Lithia Motors, Inc. (NYSE: LAD) Lithia Motors, Inc. announced that the previously reported investigation has been completed and special legal counsel, together with Ernst & Young LLP, the independent external accounting firm assisting special counsel, have issued their final report to the company’s Audit Committee which has accepted the report. The investigation examined certain irregularities in the reporting of car sales for purposes of manufacturer sponsored volume-based incentive programs. The report’s conclusions were that occurrences of misconduct were found only in a limited number of stores; the financial impact of known instances is inconsequential, the most significant instances of misconduct were previously detected by the company or through manufacturer audits; and the misconduct arose only at the store level and was not directed or encouraged by senior management. The financial impact of the irregularities detected by the investigation did not materially change from those identified in the Company’s March 17^thForm 12b-25.

CEO Sid DeBoer stated, “We are pleased that the investigation is completed and our reporting problems were isolated and had minimal financial impact.”

Mr. DeBoer continued, “As the final investigative report was not delivered until March 29, KPMG LLP, our independent public accounting firm, has not had adequate time to review the results of the investigation. Accordingly, we are not able to file our Annual Report on Form 10-K within the time allotted; however, we are expecting to file our Annual Report in the near term.”

The Company also reported revised financial results for 2007, subject to completion of the independent public accountants’ final audit procedures. A copy of the company’s unaudited results and financial condition as of December 31, 2007 follows. Previously, the company had announced diluted EPS of $1.24 for the year-end 2007. As revised, unaudited diluted EPS increased $0.02 to $1.26 per share. The difference primarily results from a decision by management and the board of directors to not pay the cash bonuses earned under the Company’s 2007 Annual Bonus Plan to any of its senior executives because of the disappointing financial results for the year. The forfeiture of bonuses by senior management more than offset final year-end adjustments and accruals including a reserve established with respect to matters identified in the investigation. As a result of an analysis performed by the Company over revenue cutoff, revenue and income for the period were also adjusted to properly reflect the recognition of vehicle sales in accordance with Generally Accepted Accounting Principles. This resulted in certain vehicle sales initially recorded in the fourth quarter of 2007 to be recognized in the first quarter of 2008. The impact of this revenue cutoff matter was determined to be immaterial in prior periods.

About Lithia

Lithia Motors, Inc. is a Fortune 700 and Russell 2000 Company. Lithia sells 28 brands of new and all brands of used vehicles at 110 stores which are located in 46 markets within 15 states. Internet sales are centralized at www.Lithia.com, or through the recently launched www.L2Auto.com. Lithia also sells used vehicles; arranges finance, warranty, and credit insurance contracts; and provides vehicle parts, maintenance, and repair services at all of its locations. Lithia retailed 105,108 new and used vehicles and had $3.22 billion in total revenue in 2007. Lithia is publicly traded (NYSE:LAD) and is available on the web at www.Lithia.com.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of the “Safe-Harbor” provisions of the Private Securities Litigation Reform Act of 1995, which management believes are a benefit to shareholders. These statements are necessarily subject to risk and uncertainty and actual results could differ materially due to certain risk factors including, without limitation, the risk factors set in the company's filings with the SEC. Forward-looking statements are based on certain assumptions and analyses made by the company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. We make forward-looking statements in this press release about the company’s projected earnings and financial results for 2007 and the anticipated filing date of the Annual Report on Form 10-K. Specific risks in this press release include the completion by its independent accounting firm of its audit procedures.

Additional Information

For additional information on Lithia Motors, contact the Investor Relations Department: 541-618-5770 or log-on to: www.lithia.com - go to Investor Relations

(In Thousands except per share
and unit data)
Lithia Motors, Inc.
Unaudited		Three Months Ended
		December 31,										%
								Increase			Increase
		2007			2006				(Decrease)			(Decrease)
New vehicle sales	$	400,650		$	412,220		$		(11,570)			(2.8	)	%
Used vehicle sales		179,074			182,254				(3,180	)		(1.7	)
Finance and insurance		23,568			25,957				(2,389	)		(9.2	)
Service, body and parts sales		95,291			86,986				8,305			9.5
Fleet and other revenues		1,041			1,563				(522	)		(33.4	)
Total revenues		699,624			708,980				(9,356	)		(1.3	)
Cost of sales		584,047			587,031				(2,984	)		(0.5	)
Gross Profit		115,577			121,949				(6,372	)		(5.2	)
Selling, general and administrative		103,183			95,148				8,035			8.4
expense
Depreciation and amortization		5,733			4,446				1,287			28.9
Operating income		6,661			22,355				(15,694	)		(70.2	)
Floorplan interest expense		(6,809	)		(7,738	)			(929	)		(12.0	)
Other interest expense		(5,376	)		(4,427	)			949			21.4
Other income, net		319			191				128			67.0
Income (loss) from continuing		(5,205	)		10,381				(15,586	)		NM
operations before income taxes
Income tax expense (benefit)		(2,002	)		3,688				(5,690	)		NM
Income Tax Rate		38.5	%		35.5	%
Income (loss) from continuing		(3,203	)		6,693				(9,896	)		NM
operations
Discontinued Operations:
Loss from operations, net of		(415	)		(610	)			195			(32.0	)
income tax
Loss on disposal activities, net of		(1,088	)		(554	)			(534	)		96.4
income tax
Net income (loss)	$	(4,706	)	$	5,529		$		(10,235	)		NM
Diluted net income (loss) per share:
Continuing operations	$	(0.16	)	$	0.33		$		(0.49	)		NM
Discontinued operations:
Loss from operations, net of income tax	$	(0.02	)	$	(0.03	)
Loss on disposal activities, net of	$	(0.06	)	$	(0.03	)
income tax
Net income (loss) per share	$	(0.24	)	$	0.27		$		(0.51	)		NM
Diluted shares outstanding		19,597	(A)		22,041				(2,444	)		(11.1	)	%

^(A) Excludes shares issuable upon conversion of the convertible debt as well as common stock equivalents, as their effect on EPS would be antidilutive.
NM – Not Meaningful

Lithia Motors, Inc.		Three Months Ended
(Continuing Operations)		December 31,												%
									Increase				Increase
Unaudited		2007				2006				(Decrease)				(Decrease)
Unit Sales:
New vehicle		13,421				14,302				(881	)			(6.2	)	%
Used - retail vehicle		8,263				8,869				(606	)			(6.8	)
Used - wholesale		5,466				5,821				(355	)			(6.1	)
Total Units Sold		27,150				28,992				(1,842	)			(6.4	)
Average Selling Price:
New vehicle	$	29,852			$	28,823		$		1,029				3.6		%
Used - retail vehicle	$	17,338			$	16,445		$		893				5.4
Used - wholesale	$	6,552			$	6,254		$		298				4.8
Key Financial Data:
Gross Profit Margin		16.5		%		17.2	%			-70		bps
SG&A as a % of Gross Profit		89.3		%		78.0	%			+1,130		bps
Operating Margin		1.0		%		3.2	%			-220		bps
Pre-Tax Margin		(0.7	)	%		1.5	%			-220		bps
Gross Margin/Profit Data
New vehicle retail		7.1		%		7.8	%			-70		bps
Used vehicle retail		13.4		%		14.6	%			-120		bps
Used vehicle wholesale		0.2		%		1.4	%			-120		bps
Service, body & parts		46.0		%		47.8	%			-180		bps
Finance & insurance		100.0		%		100.0	%			0		bps
New retail gross profit/unit	$	2,117			$	2,250		$		(133	)
Used retail gross profit/unit	$	2,324			$	2,406		$		(82	)
Used wholesale gross profit/unit	$	15			$	90		$		(75	)
Finance & insurance/retail unit	$	1,087			$	1,120		$		(33	)

Lithia Motors, Inc.
(In Thousands except per share and
unit data)
Unaudited		Twelve Months Ended
		December 31,								%
								Increase		Increase
		2007			2006			(Decrease)		(Decrease)
New vehicle sales	$	1,848,273		$	1,773,132		$	75,141		4.2		%
Used vehicle sales		862,912			823,991			38,921		4.7
Finance and insurance		119,056			116,506			2,550		2.2
Service, body and parts sales		383,380			331,564			51,816		15.6
Fleet and other revenues		5,380			5,344			36		0.7
Total revenues		3,219,001			3,050,537			168,464		5.5
Cost of sales		2,674,349			2,529,543			144,806		5.7
Gross Profit		544,652			520,994			23,658		4.5
Selling, general and administrative expense		430,343			392,574			37,769		9.6
Depreciation and amortization		20,882			16,498			4,384		26.6
Operating income		93,427			111,922			(18,495	)	(16.5	)
Floorplan interest expense		(30,879	)		(32,957	)		(2,078	)	(6.3	)
Other interest expense		(19,943	)		(14,244	)		5,699		40.0
Other income, net		788			956			(168	)	(17.6	)
Income from continuing operations		43,393			65,677			(22,284	)	(33.9	)
before income taxes
Income tax expense		17,409			25,358			(7,949	)	(31.3	)
Income Tax Rate		40.1	%		38.6	%
Income from continuing operations		25,984			40,319			(14,335	)	(35.6	)	%
Discontinued Operations:
Loss from operations, net of income tax		(1,129	)		(2,461	)		1,332		(54.1	)
Loss on disposal activities, net of		(3,306	)		(554	)		(2,752	)	496.8
income tax
Net income	$	21,549		$	37,304			(15,755	)	(42.2	)	%
Diluted net income per share:
Continuing operations	$	1.26		$	1.91		$	(0.65	)	(34.0	)	%
Discontinued operations:
Loss from operations, net of income tax	$	(0.05	)	$	(0.11	)
Loss on disposal activities, net of income tax	$	(0.15	)	$	(0.03	)
Net income per share	$	1.06		$	1.77		$	(0.71	)	(40.1	)
Diluted shares outstanding		22,082			22,102			(20	)	(0.1	)	%

Lithia Motors, Inc.		Twelve Months Ended
(Continuing Operations)Unaudited		December 31,										%
									Increase			Increase
		2007				2006			(Decrease)			(Decrease)
Unit Sales:
New vehicle		63,470				63,960			(490	)		(0.8	)	%
Used - retail vehicle		41,638				41,808			(170	)		(0.4	)
Used - wholesale		25,517				24,213			1,304			5.4
Total Units Sold		130,625				129,981			644			0.5
Average Selling Price:
New vehicle	$	29,120			$	27,723		$	1,397			5.0		%
Used - retail vehicle	$	16,739			$	16,175		$	564			3.5
Used - wholesale	$	6,503			$	6,102		$	401			6.6
Key Financial Data:
Gross Profit Margin		16.9		%		17.1	%		-20		bps
SG&A as a % of Gross Profit		79.0		%		75.4	%		+360		bps
Operating Margin		2.9		%		3.7	%		-80		bps
Pre-Tax Margin		1.3		%		2.2	%		-90		bps
Gross Margin/Profit Data
New vehicle retail		7.4		%		7.7	%		-30		bps
Used vehicle retail		14.8		%		15.3	%		-50		bps
Used vehicle wholesale		1.9	��	%		2.5	%		-60		bps
Service, body & parts		47.0		%		48.2	%		-120		bps
Finance & insurance		100.0		%		100.0	%		0		bps
New retail gross profit/unit	$	2,162			$	2,124		$	38
Used retail gross profit/unit	$	2,483			$	2,473		$	10
Used wholesale gross profit/unit	$	122			$	154		$	(32	)
Finance & insurance/retail unit	$	1,133			$	1,102		$	31

Balance Sheet Highlights (Dollars in Thousands)
Unaudited
		December 31, 2007			December 31, 2006
Cash & Cash Equivalents	$	21,665		$	26,600
Trade Receivables*		109,387			118,528
Inventory		601,759			603,306
Assets held for sale		23,807			15,485
Other Current Assets		21,920			15,721
Total Current Assets		778,538			779,640
Real Estate, net		363,391			327,890
Equipment & Leases, net		98,355			89,213
Goodwill, net		311,527			307,424
Other Assets		74,924			75,190
Total Assets	$	1,626,735		$	1,579,357
Floorplan Notes Payable	$	451,590		$	499,679
Liabilities held for sale		17,857			11,610
Other Current Liabilities		115,644			118,650
Total Current Liabilities		585,091			629,939
Used Vehicle Flooring		122,550			95,614
Real Estate Debt		179,160			155,890
Other Long-Term Debt		153,785			140,879
Other Liabilities		77,937			63,642
Total Liabilities	$	1,118,523		$	1,085,964
Shareholders' Equity		508,212			493,393
Total Liabilities & Shareholders' Equity	$	1,626,735		$	1,579,357
*Note: Includes contracts-in-transit of $48,474 and $56,211 for 2007 and
2006
Other Balance Sheet Date (Dollars in
Thousands)
Current Ratio		1.3	x		1.2	x
LT Debt/Total Cap. (Excludes Real Estate)		35	%		32	%
Working Capital	$	193,447		$	149,701
Book Value per Basic Share		26.02			25.32