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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K/A-1
-----------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 1, 1997
------------------------
LITHIA MOTORS, INC.
(Exact name of registrant as specified in its charter)
OREGON 000-21789 93-0572810
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or organization) File Number) 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
Former name or former address, if changed since last report: N/A
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LITHIA MOTORS, INC.
FORM 8-K/A-1
INDEX
Item Description Page
- ---- ----------- ----
Item 2. Acquisition or Disposition of Assets 2
Item 7. Financial Statements and Exhibits 2
Signatures 3
1
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On October 1, 1997, Lithia Motors, Inc. (the "Company"), acquired
the inventories, operating assets and intangible assets of Dick
Donnelly Automotive Enterprises, Inc., a Delaware corporation, dba
Dick Donnelly Lincoln, Mercury, Audi, Suzuki, Isuzu, ("Dick
Donnelly"), located in Reno, Nevada, pursuant to an Agreement for
Purchase and Sale of Business Assets (the "Agreement") dated July
8, 1997. Pursuant to the Agreement, the total purchase price was
$12.8 million, consisting of $6.0 million in cash from the
Company's existing cash balances, $0.6 million in notes to Dick
Donnelly and $6.2 million financed through the Company's flooring
line of credit. The Company is leasing the land and facilities
from Dick Donnelly.
There was no previous relationship between the Company and Dick
Donnelly, nor any of the Company's and Dick Donnelly's affiliates,
officers or directors.
(b) The Company acquired vehicle and parts and supplies
inventories, as well as other assets used in the business of
vehicle sales, service and support. The Company intends to utilize
the purchased assets in the same capacity.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND
EXHIBITS
(a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED
The financial statements required by this item begin on page F-1.
(b) PRO FORMA FINANCIAL INFORMATION
The Pro Forma financial information required by this item
begins on page PF-1.
(c) EXHIBITS
The exhibits filed as a part of this report are listed
below and this list constitutes the exhibit index.
2 Agreement for Purchase and Sale of Business
Assets, by and between Dick Donnelly Automotive Enterprises,
Inc., a Delaware corporation, dba Dick Donnelly Lincoln,
Mercury, Audi, Suzuki, Isuzu, and the Company, dated July 8,
1997, previously filed as Exhibit 10.3 to the Company's Form
10-Q for the quarter ended June 30, 1997 as filed with the
Securities and Exchange Commission on August 12, 1997, and is
incorporated herein by reference.
23 Consent of Moss Adams LLP
2
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: December 10, 1997 LITHIA MOTORS, INC.
By /s/ SIDNEY B. DEBOER
---------------------
Sidney B. DeBoer
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By /s/ BRIAN R. NEILL
---------------------
Brian R. Neill
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
3
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DICK DONNELLY
AUTOMOTIVE ENTERPRISES, INC.
dba DICK DONNELLY LINCOLN MERCURY
INDEPENDENT AUDITOR'S REPORT
AND
FINANCIAL STATEMENTS
DECEMBER 31, 1996
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F-1
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CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . 1
FINANCIAL STATEMENTS
Balance sheets . . . . . . . . . . . . . . . . . . . . . . 2
Statements of income and retained earnings . . . . . . . . 4
Statements of cash flows . . . . . . . . . . . . . . . . . 5
Notes to financial statements . . . . . . . . . . . . . . . 6
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F-2
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Dick Donnelly Automotive Enterprises, Inc., dba Dick Donnelly Lincoln Mercury
We have audited the accompanying balance sheet of Dick Donnelly Automotive
Enterprises, Inc., dba Dick Donnelly Lincoln Mercury, as of December 31,
1996, and the related statements of income and retained earnings and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dick Donnelly Automotive
Enterprises, Inc., as of December 31, 1996, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Santa Rosa, California
November 7, 1997
F-3
DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC.
DBA DICK DONNELLY LINCOLN MERCURY
BALANCE SHEETS
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ASSETS
SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, 1997 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ------------- -------------
CURRENT ASSETS
Cash $ 358,700 $ 90,700 $ 1,244,600
Receivables 1,957,100 2,147,500 2,228,500
Inventories 10,252,300 6,660,000 8,899,700
Prepaid expenses 48,900 63,900 102,400
------------ ------------- -------------
Total current assets 12,617,000 8,962,100 12,475,200
PROPERTY AND EQUIPMENT 600,300 535,400 559,500
DEFERRED RENT 108,600 117,300 105,700
------------ ------------- -------------
Total assets $ 13,325,900 $ 9,614,800 $ 13,140,400
------------ ------------- -------------
------------ ------------- -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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F-4 PAGE 2
DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC.
DBA DICK DONNELLY LINCOLN MERCURY
BALANCE SHEETS (CONTINUED)
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LIABILITIES AND STOCKHOLDER'S EQUITY
SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, 1997 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ------------- -------------
CURRENT LIABILITIES
Floor plan note payable $ 9,402,100 $ 4,852,700 $ 8,123,800
Accounts payable 298,100 193,900 193,200
Accrued liabilities and other
payables 582,000 622,700 733,300
Notes payable 27,500 -- --
Note payable to stockholder 577,600 39,700 583,800
------------ ------------- -------------
Total current liabilities 10,887,300 5,709,000 9,634,100
------------ ------------- -------------
DEFERRED RENT 146,300 188,400 132,300
------------ ------------- -------------
COMMITMENTS AND
CONTINGENCIES (NOTE 11) -- -- --
STOCKHOLDER'S EQUITY
Common stock, $100 par value;
1,700 shares authorized, 615
shares issued and outstanding 61,500 61,500 61,500
Additional paid-in capital 48,700 48,700 48,700
Retained earnings 2,182,100 3,607,200 3,263,800
------------ ------------- -------------
2,292,300 3,717,400 3,374,000
------------ ------------- -------------
Total liabilities and
stockholder's equity $ 13,325,900 $ 9,614,800 $ 13,140,400
------------ ------------- -------------
------------ ------------- -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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F-5 PAGE 3
DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC.
DBA DICK DONNELLY LINCOLN MERCURY
STATEMENTS OF INCOME AND RETAINED EARNINGS
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YEAR ENDED NINE MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, 1997 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ------------- -------------
SALES
New vehicles $ 34,927,900 $ 29,572,600 $ 26,792,400
Used vehicles 33,008,600 22,429,200 25,942,100
Service and parts 7,623,600 6,298,100 5,734,200
Used wholesale 2,709,900 2,544,600 2,115,900
Finance and insurance 968,500 722,400 748,300
Warranty 836,500 612,600 583,400
Other 513,000 403,500 407,100
------------ ------------- -------------
80,588,000 62,583,000 62,323,400
------------ ------------- -------------
COST OF SALES
New vehicles 33,453,600 27,914,600 25,785,200
Used vehicles 30,425,500 20,511,300 23,835,400
Service and parts 6,498,800 5,508,200 4,861,800
Used wholesale 2,720,100 2,580,300 2,144,800
Finance and insurance 252,700 177,300 183,200
------------ ------------- -------------
73,350,700 56,691,700 56,810,400
------------ ------------- -------------
GROSS PROFIT 7,237,300 5,891,300 5,513,000
SELLING, GENERAL AND ADMINISTRATIVE 6,723,200 4,503,400 4,089,500
------------ ------------- -------------
INCOME FROM OPERATIONS 514,100 1,387,900 1,423,500
------------ ------------- -------------
OTHER INCOME (EXPENSE)
Interest expense (301,800) (96,200) (133,900)
Miscellaneous 91,600 133,400 96,000
------------ ------------- -------------
(210,200) 37,200 (37,900)
------------ ------------- -------------
NET INCOME 303,900 1,425,100 1,385,600
RETAINED EARNINGS, beginning of
period 1,878,200 2,182,100 1,878,200
------------ ------------- -------------
RETAINED EARNINGS, end of period $ 2,182,100 $ 3,607,200 $ 3,263,800
------------ ------------- -------------
------------ ------------- -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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F-6 PAGE 4
DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC.
dba DICK DONNELLY LINCOLN MERCURY
STATEMENTS OF CASH FLOWS
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YEAR ENDED NINE MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, 1997 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ----------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 303,900 $ 1,425,100 $ 1,385,600
Adjustments to reconcile net income to net
cash provided by (used) by operating activities:
Depreciation and amortization 112,800 82,100 84,600
Allowance for doubtful accounts 36,000 (36,000) --
Changes in:
Receivables 90,600 (154,400) (144,800)
Inventories (2,081,600) 3,592,300 (729,000)
Prepaid expenses (48,900) (15,000) (102,400)
Deferred rent 44,500 33,400 33,400
Accounts payable (152,200) (104,200) (257,100)
Accrued liabilities and other payables 75,300 40,700 226,600
------------ ----------------- -------------
Net cash provided (used) by operating activities (1,619,600) 4,864,000 496,900
------------ ----------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (89,100) (17,200) (20,100)
------------ ----------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable to stockholder 385,000 -- 385,000
Proceeds from short term note payable 30,300 -- --
Net borrowings (payments) on floor plan note payable 978,100 (4,549,400) (300,200)
Principal repayments on note payable to stockholder (110,100) (537,900) (103,900)
Principal repayments on short term note payable (2,800) (27,500) --
------------ ----------------- -------------
Net cash provided (used) by financing activities 1,280,500 (5,114,800) (19,100)
------------ ----------------- -------------
NET CHANGE IN CASH (428,200) (268,000) 457,700
CASH, beginning of period 786,900 358,700 786,900
------------ ----------------- -------------
CASH, end of period $ 358,700 $ 90,700 $ 1,244,600
------------ ----------------- -------------
------------ ----------------- -------------
SUPPLEMENTAL CASH-FLOW INFORMATION:
Cash paid during the period for:
Interest $ 289,700 $ 292,400 $ 300,500
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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F-7 PAGE 5
DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC.
dba DICK DONNELLY LINCOLN MERCURY
NOTES TO FINANCIAL STATEMENTS
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NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
DESCRIPTION OF OPERATIONS - Dick Donnelly Automotive Enterprises, Inc., dba
Dick Donnelly Lincoln Mercury (the Company), engages in retail sales of new
Lincoln, Mercury, Audi, Suzuki, and Isuzu vehicles obtained through
dealership agreements, used vehicles, parts and service. The Company sells to
individuals and commercial businesses located primarily in the Reno and
Sparks, Nevada area.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the company
considers all highly liquid debt instruments with an original maturity of
three months or less to be cash equivalents.
CONCENTRATION OF RISK - Financial instruments potentially subjecting the
Company to concentrations of credit risk consist primarily of bank demand
deposits in excess of FDIC insurance thresholds, interest bearing demand
deposits with Ford Motor Company which are not FDIC or otherwise insured, and
receivables. The Company maintains its cash in bank deposit accounts which at
times, may exceed FDIC insurance thresholds. Deposits with Ford Motor Company
were $358,700 and $1 million (unaudited) at December 31, 1996 and September
30, 1996, respectively. No amounts were deposited with Ford Motor Company at
September 30, 1997. Credit risk related to receivables is mitigated through
ongoing credit evaluations of its customers and a large, diversified customer
base. Historically, the Company has not experienced significant losses on
trade receivables.
INVENTORIES - New and used vehicles are stated at the lower of specifically
identified cost or market. Parts and accessories are stated at current
replacement cost which approximates cost determined using the first-in,
first-out method.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and
depreciated or amortized using the straight-line method over the following
estimated useful lives:
Leasehold improvements 12 - 15 years
Machinery and equipments 5 - 7 years
Office equipments and signs 5 - 7 years
Company vehicles 5 years
INCOME TAXES - The Company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under this election, income taxes
on corporate taxable income are paid by the stockholder.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company to make
estimates and assumptions affecting the reported amounts of assets,
liabilities, revenues and expenses, and the disclosure of contingent assets
and liabilities. The amounts estimated could differ from actual results.
ADVERTISING COSTS - Advertising costs are expenses as incurred and were
$1,174,800 for the year ended December 31, 1996. Advertising expense for the
nine months ended September 30, 1997 and 1996 were $912,700 (unaudited) and
$770,000 (unaudited), respectively.
REVENUE RECOGNITION - Revenues from vehicle and parts sales and from services
operations are recognized at the time the vehicle or parts are delivered to
the customer or service is completed.
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F-8 PAGE 6
DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC.
dba DICK DONNELLY LINCOLN MERCURY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
RECOGNITION OF FINANCE FEES AND INSURANCE COMMISSIONS - The Company arranges
for its customers' vehicle purchases and arranges insurance in connection
therewith. The Company receives a fee from the financial institution for
arranging the financing and receives a commission for the sale of an
insurance policy. The Company is charged back for a portion of this fee
should the customer terminate the finance or insurance contract before
specified dates under arrangements with such institutions. finance revenues
are fees due to the Company from financial institutions for fees on contracts
arranged to finance vehicle purchases.
MAJOR SUPPLIER AND DEALER AGREEMENTS - The Company purchases substantially
all of its new vehicles and inventory from automakers at the prevailing
prices charged by the automakers to all franchised dealers. The Company's
overall sales could be impacted by an automaker's ability or unwillingness to
supply the dealership with an adequate supply of popular models. The various
Dealer Agreements generally limit the location of the dealership and retains
automaker approval rights over changes in dealership management and
ownership. The automaker is also entitled to terminate the agreement if the
dealership is in material breach of the terms.
INTERIM FINANCIAL STATEMENTS - The accompanying unaudited financial
statements for the nine months ended September 30, 1997 and 1996, have been
prepared on substantially the same basis as the audited financial statements
and include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial information set forth
therein.
NOTE 2 - RECEIVABLES
SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, 1997 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ------------- -------------
Contracts in transit $ 964,700 $ 894,800 $1,007,300
Manufacturer 412,500 622,600 462,900
Vehicle 363,800 390,900 482,300
Parts and service 174,900 191,000 191,500
House contracts 64,200 43,800 65,800
Employees 13,000 4,400 18,700
------------ ------------- -------------
1,993,100 2,147,500 2,228,500
Less allowance for doubtfull
accounts (36,000) -- --
------------ ------------- -------------
$1,957,100 $2,147,500 $2,228,500
------------ ------------- -------------
------------ ------------- -------------
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F-9 PAGE 7
DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC.
dba DICK DONNELLY LINCOLN MERCURY
NOTES TO FINANCIAL STATEMENTS (Continued)
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NOTE 3 - INVENTORIES
SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, 1997 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ------------- -------------
New vehicles $ 7,544,500 $ 3,822,800 $ 6,503,200
Used vehicles 2,125,900 2,206,100 1,767,300
Parts, accessories and other 581,900 631,100 629,200
------------ ------------ -----------
$ 10,252,300 $ 6,660,000 $ 8,899,700
------------ ------------ ------------
------------ ------------ ------------
NOTE 4 - PROPERTY AND EQUIPMENT
SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, 1997 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ------------ -------------
Office equipment and signs $ 1,296,200 $ 1,269,200 $ 1,263,200
Leasehold improvements 598,800 598,800 598,800
Machinery and equipment 204,200 204,200 202,500
Company vehicles 127,800 145,000 66,500
------------ ------------ ------------
$ 2,200,000 $ 2,217,200 $ 2,131,000
Less accumulated depreciation
and amortization (1,599,700) $(1,681,800) $ (1,571,500)
------------ ------------ ------------
$ 600,300 $ 535,400 559,500
------------ ------------ ------------
------------ ------------ ------------
NOTE 5 - ACCRUED LIABILITIES AND OTHER PAYABLES
SEPTEMBER 30 SEPTEMBER 30,
DECEMBER 31, 1997 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ------------ -------------
Sales and use taxes payable $ 193,300 $ 312,500 $ 265,800
Accrued payroll and payroll
taxes 129,200 182,000 157,500
Vehicle lien payoff 113,500 25,200 139,800
Factory warranty advance 69,200 56,400 77,400
Other 76,800 46,600 92,800
------------ ------------ ------------
$ 582,000 $ 622,700 733,300
------------ ------------ ------------
------------ ------------ ------------
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F-10 PAGE 8
DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC.
dba DICK DONNELLY LINCOLN MERCURY
NOTES TO FINANCIAL STATEMENTS (Continued)
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NOTE 6 - FLOOR PLAN NOTE PAYABLE
The Company has available a $7,400,000 flooring credit line with variable
interest at prime plus 1%. The Company is allowed to exceed the credit limit
with the approval of the lender. The line is due on demand and is secured by
floored new and used vehicle inventory and contracts in transit, vehicle and
factory receivables related to floored vehicles. The agreement calls for
principal payment within the earlier of receipt of funds from the sale of
floored vehicles or fifteen days following the date of sale.
The Company recognized manufacturers' floor plan interest expense subsidies of
approximately $464,800 for the year ended December 31, 1996, and $302,900
(unaudited) and $385,100 (unaudited) for the nine months ended September 30,
1997 and 1996, respectively. Interest expense for each period is net of
subsidies.
NOTE 7 - NOTE PAYABLE TO STOCKHOLDER
A note payable to stockholder is unsecured, and bears interest at 12%.
Principal and accrued interest are payable on demand. Interest expense was
$55,500 for the year ended December 31, 1996, and $22,400 (unaudited) and
$38,000 (unaudited) for the nine months ended September 30, 1997 and 1996,
respectively.
NOTE 8 - NOTES PAYABLE
Notes payable are due in monthly installments of $930, including interest at
9.75%, and are secured by Company vehicles. The notes were repaid in
September 1997.
NOTE 9 - COMMITMENTS
The Company rents its primary facility under an operating lease expiring in
October 1999. The monthly lease payment, currently $30,000, is adjusted every
two years based on increases in the Consumer Price Index. The Company has an
option to extend the lease for an additional ten years under the same terms,
with monthly lease payments at a mutually agreed upon amount at the time the
option is exercised.
The Company rents a second facility from the stockholder under an operating
lease expiring in August 2010. The total amount of the base rent payments is
being charged to expense on the straight-line method over the term of the
lease. Since inception of the lease, the Company has recorded deferred rent
payable to reflect the excess of rent expense over cash payments. The Company
has an option to extend the lease for an additonal five years under the same
terms with monthly lease payments of $53,240.
The Company subleases a third facility under an operating lease expiring in
April 2003. The total amount of the base rent payments is being charged to
expense on the straight-line method over the term of the sublease. Since
inception of the sublease, the Company has recorded a deferred rent payable to
reflect the excess of rent expense over cash payments. The landlord has the
option to terminate the sublease if the Company's Ford Motor Company dealership
agreement expires or termintates during the sublease period and is not renewed
or replaced. As discussed below, this facility is subleased to a third party.
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F-11 PAGE 9
DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC.
dba DICK DONNELLY LINCOLN MERCURY
NOTES TO FINANCIAL STATEMENTS (Continued)
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NOTE 9 - COMMITMENTS (Continued)
The Company is responsible for substantially all costs associated with
repairs, maintenance, taxes, and insurance on leased facilities.
Future minimum payments under these operating leases are as follows:
YEAR ENDING DECEMBER 31,
-------------------------
1997 $ 969,600
1998 993,600
1999 933,600
2000 649,600
2001 681,600
Thereafter 5,038,100
-------------
$ 9,266,100
-------------
-------------
Rent expenses was $1,025,700 for the year ended December 31, 1996, including
$480,00 of rent paid to stockholder. Rent expense for the nine months ended
September 30, 1997 and 1996, was $769,300 (unaudited). Related party rent
expense for the nine months ended September 30, 1997 and 1996, was $397,200
(unaudited).
The Company subleases the third facility noted above, along with certain
leasehold improvements under an operating lease expiring in April 2003. The
subleases is responsible for substantially all costs associated with repairs,
maintenance, taxes and insurance. The total amount of base rent receipts is
being recognized as income on the straight-line method over the term of the
lease. Since the inception of the sublease, the Company has recorded a
deferred rent asset to reflect excess rent income over cash recceipts.
Future minimum rental receipts for the sublease are as follows:
YEAR ENDING DECEMBER 31,
-------------------------
1997 $ 144,000
1998 180,000
1999 180,000
2000 180,000
2001 180,000
Thereafter 230,000
-------------
$ 1,094,000
-------------
-------------
Sublease income was $155,600 for the year ended December 31, 1996. Sublease
income for the nine months ended September 30, 1997 and 1996, was $116,700
(unaudited).
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F-12 PAGE 10
DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC.
dba DICK DONNELLY LINCOLN MERCURY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 10 - FAIR VALUE OF SIGNIFICANT FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significatly affect the estimates.
The carrying amount of cash equivalents, trade receivables, trade payables,
notes payable, and floor plan note payable approximate fair value because of
the short-term nature of these instruments. It is not practicable to estimate
the fair values of the stockholder note payable, as the relationship of the
stockholder to the Company influences the terms of the instruments, and
similar instruments are not generally available.
The carrying amounts and estimated fair values of the Company's significant
financial instruments, none of which are held for trading purposes, are as
follows:
DECEMBER 31, 1996 SEPTEMBER 30, 1997
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ---------- ------------- ----------
Financial liabilities:
Floor plan note payable $ 9,402,100 $ 9,402,100 $ 4,852,700 $4,852,700
Notes payable 27,500 27,500 - -
The carrying amounts shown in the above table are included in the balance
sheet under the indicated captions.
The carrying amount of the floor plan note payable approximates fair value
because the interest rate fluctuates with the lender's prime rate.
NOTE 11 - CONTINGENCIES
Substantially all of the Company's facilities are subject to federal, state
and local provisions regulating the discharge of materials into the
environment. Compliance with these provisions has not had, nor does the
Company expect such compliance to have any material effect upon the capital
expenditures, net income, financial condition or competitive position of the
Company. Management believes that its current practices and procedures for
the control and disposition of such wastes comply with applicable federal and
state requirements.
Certain of the Company's computers and other systems are not Year 2000
compliant, which may result in financial and other information containing
dates beyond December 31, 1999, to be incorrectly processed. The Company's
primary software system was acquired from a major software vendor to the
automotive industry. The vendor is currently working on this problem and
believes it will be able to resolve any Year 2000 issues prior to the time
Year 2000 compliance will affect the Company's financial or other processes.
Costs of compliance to be borne by the Company, if any, cannot be estimated
at this time.
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F-13 PAGE 11
DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC.
dba DICK DONNELLY LINCOLN MERCURY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 12 - PREFERRED STOCK
The Company is authorized to issue up to 1,700 shares of preferred stock with
a par value of $100. There are no outstanding shares of preferred stock.
NOTE 13 - OFFICER BONUS
During the fourth quarter of 1996, the Company paid a $700,000 bonus to its
President, who is also the stockholder.
NOTE 14 - SUBSEQUENT EVENT - EMPLOYEE BENEFIT PLAN
Subsequent to December 31, 1996, the Company adopted a 401(k) plan covering
substantially all employees meeting minimum service and age requirements. The
Company does not contribute to the plan.
NOTE 15 - SUBSEQUENT EVENT - SALE OF ASSETS
The Company has executed a purchase and sale agreement whereby it has sold
substantially all if its assets to Lithia Motors, Inc. The purchase price
consisted of cash consideration and notes payable to the stockholder of
approximately $12.8 million for inventories, operating and intangible assets
used in the business of vehicle sales, service and support. Lithia Motors,
Inc., intends to utilize the purchased assets in the same capacity.
- -------------------------------------------------------------------------------
F-14 PAGE 12
LITHIA MOTORS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1997
(In thousands)
Lithia Motors
Lithia Motors, Dick Inc.
Inc. Donnelly Adjustments Pro Forma
----------- ----------- ----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 15,296 $ - $ (6,049)(a) $ 9,247
Trade receivables 3,851 - - 3,851
Notes receivable, current portion 204 - - 204
Inventories, net 42,626 8,867 - 51,493
Vehicles leased to others, current portion 859 - - 859
Prepaid expenses and other 286 - - 286
Deferred income taxes 1,316 - - 1,316
----------- ----------- ----------- -----------
Total Current Assets 64,438 8,867 (6,049) 67,256
Property and Equipment, net of accumulated
depreciation 8,816 127 - 8,943
Vehicles Leased to Others, less current portion 5,269 - - 5,269
Notes Receivable, less current portion 599 - - 599
Goodwill, net of accumulated amortization 6,808 - 3,833 10,641
Other Non-Current Assets 1,291 - - 1,291
----------- ----------- ----------- -----------
Total Assets $ 87,221 $ 8,994 $ (2,216) $ 93,999
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Flooring notes payable $ 29,146 $ - $ 6,178(b) $ 35,324
Current maturities of long-term debt 3,975 - - 3,975
Trade payables 1,699 - - 1,699
Accrued liabilities 2,801 - - 2,801
----------- ----------- ----------- -----------
Total Current Liabilities 37,621 - 6,178 43,799
Long-Term Debt, less current maturities 9,599 - 600(c) 10,199
Deferred Revenue 2,784 - - 2,784
Other Long-Term Liabilities 175 - - 175
Deferred Income Taxes 2,753 - - 2,753
----------- ----------- ----------- -----------
Total Liabilities 52,932 - 6,778 59,710
----------- ----------- ----------- -----------
Shareholders' Equity
Preferred stock - no par value; authorized 15,000
shares; issued and outstanding; none - - - -
Class A common stock - no par value;
authorized 100,000 shares; issued and
outstanding 2,896 28,037 - - 28,037
Class B common stock
authorized 25,000 shares; issued and
outstanding 4,110 511 - - 511
Retained earnings 5,741 - - 5,741
----------- ----------- ----------- -----------
Total Shareholders' Equity 34,289 - - 34,289
----------- ----------- ----------- -----------
Total Liabilities and Shareholders' Equity $ 87,221 $ - $ 6,778 $ 93,999
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
PF-1
LITHA MOTORS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(In thousands, except per share amounts)
Lithia Motors,
Lithia Motors, Dick Inc.
Inc. Donnelly Adjustments Pro Forma
----------- ----------- ----------- -----------
Sales:
Vehicles $ 123,703 $ 70,646 $ - $ 194,349
Service, body, parts and other 19,141 9,942 - 29,083
----------- ----------- ----------- -----------
Net Sales 142,844 80,588 - 223,432
Cost of sales
Vehicles 109,082 66,599 (314)(d) 175,367
Service, body, parts and other 9,565 6,752 - 16,317
----------- ----------- ----------- -----------
Cost of Sales 118,647 73,351 (314) 191,684
----------- ----------- ----------- -----------
Gross profit 24,197 7,237 (314) 31,748
Selling, general and administrative 20,277 6,723 96 (e) 27,096
----------- ----------- ----------- -----------
Operating income 3,920 514 218 4,652
Other income (expense)
Equity in income of affiliate 44 - - 44
Interest income 193 - - 193
Interest expense (1,353) (302) 8 (f) (1,647)
Other, net 1,112 92 - 1,204
----------- ----------- ----------- -----------
(4) (210) 8 (206)
----------- ----------- ----------- -----------
Income before minority interest and income taxes 3,916 304 226 4,446
Minority interest (687) - 687 (g) -
----------- ----------- ----------- -----------
Income before income taxes 3,229 304 913 4,446
Income tax (benefit) expense (813) - 2,502 (h) 1,689
----------- ----------- ----------- -----------
Net income $ 4,042 $ 304 $ (1,589) $ 2,757
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share $ 0.81 $ - $ - $ 0.55
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares used in per share calculations 4,973 - - 4,973
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
PF-2
LITHIA MOTORS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1997
(In thousands, except per share amounts)
Lithia Motors,
Lithia Motors, Dick Inc.
Inc. Donnelly Adjustments Pro Forma
----------- ----------- ----------- -----------
Sales:
Vehicles $ 178,400 $ 54,546 $ - $ 232,946
Service, body, parts and other 28,299 8,037 - 36,336
----------- ----------- ----------- -----------
Net Sales 206,699 62,583 - 269,282
Cost of sales
Vehicles 160,156 51,006 - 211,162
Service, body, parts and other 12,694 5,686 - 18,380
----------- ----------- ----------- -----------
Cost of Sales 172,850 56,692 - 229,542
----------- ----------- ----------- -----------
Gross profit 33,849 5,891 - 39,740
Selling, general and administrative 26,743 4,503 72 (e) 31,318
----------- ----------- ----------- -----------
Operating income 7,106 1,388 (72) 8,422
Other income (expense)
Equity in income of affiliate 52 - - 52
Interest income 100 - - 100
Interest expense (1,374) (96) (14)(f) (1,484)
Other, net 779 133 - 912
----------- ----------- ----------- -----------
(443) 37 (14) (420)
----------- ----------- ----------- -----------
Income before income taxes 6,663 1,425 (86) 8,002
Income tax expense 2,573 - 468 (h) 3,041
----------- ----------- ----------- -----------
Net income $ 4,090 $ 1,425 $ (554) $ 4,961
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share $ 0.56 $ - $ - $ 0.68
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares used in per share calculations 7,281 - - 7,281
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
PF-3
Lithia Motors, Inc. and Subsidiaries
Footnotes to Pro Forma Consolidated Financial Statements
(Unaudited)
(in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma financial statements have been prepared
to present the effect of the acquisition by the Company of Dick Donnelly.
The pro forma financial statements have been prepared based upon the
historical financial statements of the Company and Dick Donnelly as if the
acquisition had occurred at September 30, 1997 and at the beginning of the
respective periods.
The Pro Forma Consolidated Balance Sheet was prepared using only those assets
of Dick Donnelly that were purchased by the Company.
The Pro Forma Consolidated Statements of Operations may not be indicative of
the results of operations that actually would have occurred if the
transactions had been in effect as of the beginning of the respective periods
nor do they purport to indicate the results of future operations of the
Company. The pro forma financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
1996 Annual Report on Form 10-K and the audited financial statements and
notes thereto for Dick Donnelly included elsewhere in this report of Form
8-K/A-1. Management believes that all adjustments necessary to present
fairly such pro forma financial statements have been made based on the terms
and structure of the transaction.
PF-4
2. PRO FORMA ADJUSTMENTS
- ------------------------
(a) To record cash paid for Dick Donnelly
(b) To record flooring notes payable incurred as part of acquisition.
(c) To record note payable to Dick Donnelly.
(d) To record the conversion from the LIFO method of inventory
accounting to the FIFO method for Lithia Motors.
(e) To record amortization of intangibles associated with the purchase
of Dick Donnelly.
(f) To reverse related party interest expense and record additional
interest expense related to note payable to Dick Donnelly:
12/31/96 8/30/97
--------- -----------
Reverse related party $ (56) $ (22)
Interest on note payable 48 36
--------- -----------
$ (8) $ 14
--------- -----------
--------- -----------
(g) To reverse minority interest for comparability purposes.
(h) To record income tax expense at an effective rate of 38 percent.
PF-5