LAD Lithia Motors Inc

Lithia Motors, Inc. (NYSE:LAD): -0- *T Lithia Motors' Highlights for continuing operations for period ended Sept. 30, 2005: Third quarter 2005 First Nine Months 2005 -------------------------- -------------------------- Total Revenues: +16% Total Revenues: +12% Total Same-Store Revenues: +7.9% Total Same-Store Revenues: +2.7% Operating Profits: +27% Operating Profits: +29% Net Income: +22% Net Income: +23% *T Lithia Motors, Inc. (NYSE:LAD) today announced that net income from continuing operations rose 22% to $17.7 million in the third quarter of 2005 compared to $14.5 million in the third quarter of 2004. Earnings per share from continuing operations, including the effect of the accounting change for convertible notes and discontinued operations, increased 19% to $0.83 per fully diluted share as compared to $0.70 in the third quarter of 2004. This was on 2% more diluted shares outstanding. Third quarter 2005 sales increased 16% to $869.3 million from $751.0 million in the third quarter of 2004. New vehicle sales increased 15%, used vehicle sales increased 16%, finance/insurance sales increased 19%, and parts/service sales increased 11%. Sidney B. DeBoer, Lithia's Chairman and Chief Executive Officer, commented, "The third quarter can be characterized by same-store sales and same-store gross profit growth across all business lines, cost savings, and margin improvement in the used retail business. The third quarter operating margin improved 40 basis points to 4.4%, as compared to the same period last year. This is the highest operating margin level that the company has achieved for the third quarter. We have now seen operating margin improvements in every quarter of the year." "Finally, new vehicle inventories are well positioned going into the fourth quarter. New vehicle inventories at the end of September were 24 days lower than year-end 2004 levels and 14 days lower than at the end of the second quarter of the year," concluded Mr. DeBoer. For the nine-month period ended September 30, 2005, Lithia's net income from continuing operations rose 23% to $40.6 million as compared to $33.0 million in the same period last year. Earnings per share from continuing operations, including the effect of the accounting change for convertible notes and discontinued operations, increased 16% to $1.91 per fully diluted share as compared to $1.65 in the same period last year. This was on 7% more diluted shares outstanding. For the first nine months, total sales increased 12% to $2.30 billion from $2.06 billion in the same period last year. New vehicle sales increased 11%, used vehicle sales increased 11%, finance/insurance sales increased 15% and parts/service sales increased 10%. Jeffrey B. DeBoer, Senior Vice President and CFO added, "Lithia has demonstrated its operating strength in the first nine months of the year. Year to date through the end of September, we have seen improvements in our total gross margin, operating margin and pretax margin. We have made significant gains on the cost side of the business as demonstrated by our SG&A as a percentage of gross profit that improved by 300 basis points. Total same-store sales have grown 2.7% while total same-store gross profit demonstrated better results, growing 3.5%." "Our guidance for the fourth quarter and full-year 2005 and 2006 is included in the table below. We have raised our full-year 2005 guidance by two cents. The full-year 2006 guidance assumes a steady pace of acquisitions and includes the effect of FAS 123, expensing for stock options, that will take affect in the first quarter of the year," concluded Jeffrey B. DeBoer. -0- *T Guidance Guidance Guidance 4Q 2005 FY 2005 FY 2006 EPS excluding new accounting ------------- ------------- ------------- pronouncements: $0.45 - $0.48 $2.51 - $2.54 N/A Effect of Convertible Notes ($0.03) ($0.18) N/A ------------ ------------ ------------- EPS - Reportable 2005 $0.42 - $0.45 $2.33 - $2.36 $2.45 - $2.55 Effect of FAS 123(R) N/A ($0.08) ------------ ------------- EPS - Reportable 2006 N/A $2.37 - $2.47 *T In October of 2004, the Financial Accounting Standards Board's Emerging Issues Task Force (EITF) ratified Issue No. 04-8, requiring the company to include in its share count in determining diluted earnings per share, the shares potentially issuable to the holders of its $85,000,000 in principal amount 2.875% Senior Subordinated Notes Due 2014, even though the holder of such notes cannot convert the notes into common stock except under certain limited circumstances and then only at a conversion price of approximately $37.69 per share. Previously, the shares issuable would only have been included in the calculation of diluted EPS if the holders were then entitled to convert the notes. For purposes of calculating reported diluted EPS for the third quarter ended 2005, Lithia is required to increase its share count by the amount contingently issuable to the noteholders. This resulted in an additional 2.255 million shares for the first three quarters of 2005. Adoption of the accounting statement did not affect the cash flow of the company. Also, in December 2004, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standards Statement 123 (revised 2004) ("FAS 123 (R)") that will require that the value of all equity-based compensation arrangements, including stock options and employee stock purchase plans, be accounted for using a "fair value" method. Previously, the Company had accounted for such arrangements under the "intrinsic method" permitted by APB 25 and the amounts noted in the footnotes to the companies financials filed on form 10K. The new rules, absent any change, will be effective for the Company commencing with the first quarter of 2006. Adoption of this accounting change does not affect the cash flow of the Company. Conference Call Information Lithia Motors will be providing more detailed information on the results for the third quarter 2005 in its conference call scheduled for 11 a.m. PDT today. The call can be accessed live by calling 973-582-2700. To listen to a live webcast or hear a replay, log-on to: www.lithia.com -- go to Investor Relations -- and click on the Live Webcast icon. About Lithia Lithia Motors, Inc. is a Fortune 1000 and Russell 2000 Company that sells 25 brands of new vehicles and operates 92 stores and 184 franchises in 12 states in the Western United States and over the Internet through "Lithia.com-America's Car & Truck Store." 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 98,331 new and used vehicles and had $2.7 billion in total revenue in 2004. 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, economic conditions, acquisition risk factors and others set forth from time to time in the company's filings with the SEC. Specific risks in this press release include the benefits of Lithia's operating model, inventory position, anticipated revenues of recently acquired stores, ability to complete additional acquisitions in 2005 and projected fourth quarter, full-year 2005 and full-year 2006 earnings per share guidance, and potential changes in accounting standards. Additional Information For additional information on Lithia Motors, contact the Investor Relations Department: 541-776-6591 or log-on to: www.lithia.com -- go to Investor Relations. -0- *T LITHIA MOTORS, INC. (In Thousands except per share and unit data) Unaudited Three Months Ended --------- September 30, ----------------- $ Increase % Increase 2005 2004 (Decrease) (Decrease) ------- ------- -------- --------- New Vehicle Sales $517,536 $448,805 $ 68,731 15.3% Used Vehicle Sales 227,959 196,784 31,175 15.8 Finance & Insurance 32,979 27,660 5,319 19.2 Service, Body & Parts Sales 82,456 74,147 8,309 11.2 Fleet & Other Revenues 8,380 3,631 4,749 130.8 -------- -------- -------- -------- Total Revenues 869,310 751,027 118,283 15.7 Cost of Sales 726,555 627,242 99,313 15.8 -------- -------- -------- -------- Gross Profit 142,755 123,785 18,970 15.3 SG&A Expense 100,594 90,260 10,334 11.4 Depreciation/Amortization 3,678 3,208 470 14.7 -------- ------- -------- -------- Income from Operations 38,483 30,317 8,166 26.9 Flooring Interest Expense (5,628) (4,472) 1,156 25.8 Other Interest Expense (3,043) (2,305) 738 32.0 Other Expense, net 189 203 (14) (6.9) -------- ------- -------- -------- Income from continuing operations before income taxes 30,001 23,743 6,258 26.4 Income Tax Expense 12,276 9,260 3,016 32.6 Income Tax Rate 40.9% 39.0% -------- ------- Net Income from continuing ops. 17,725 14,483 3,242 22.4 Income (Loss) from discontinued operations, net of income taxes (93) (13) (80) 615.4 -------- ------- -------- -------- Net Income $ 17,632 $ 14,470 $ 3,162 21.9% ======== ======= ======== ======== Diluted Net Income per share including effect of convertibles notes: Continuing Operations $ 0.90 $ 0.76 $ 0.14 18.4% Effects of convertible senior notes (0.07) (0.06) Discontinued Operations - - -------- ------- Net Income per share $ 0.83 $ 0.70 0.13 18.6% ======== ======= ======== ======== Diluted Shares Outstanding 21,882 21,376 506 2.4% Diluted Net Income per share before effect of convertibles notes: Continuing Operations $ 0.90 $ 0.76 $ 0.14 18.4% Discontinued Operations - - -------- ------- Net Income per share $ 0.90 $ 0.76 0.14 18.4% ======== ======= ======== ======== Diluted Shares Outstanding 19,627 19,121 506 2.6% *T -0- *T LITHIA MOTORS, INC. Three Months Ended September 30, ----------------- Increase % Increase Unit Sales: 2005 2004 (Decrease) (Decrease) ---------- ------- ------- ---------- ---------- New Vehicle 18,926 15,928 2,998 18.8% Used - Retail Vehicle 12,138 10,741 1,397 13.0 Used - Wholesale 7,147 6,095 1,052 17.3 Total Units Sold 38,211 32,764 5,447 16.6 Average Selling Price: --------------------- New Vehicle $27,345 $ 28,177 ($832) (3.0)% Used - Retail Vehicle 15,495 15,336 159 1.0 Used - Wholesale 5,579 5,259 320 6.1 Key Financial Data: ------------------ Gross Profit Margin 16.4% 16.5% SG&A as a % of Gross Profit 70.5% 72.9% Operating Margin 4.4% 4.0% Pre-Tax Margin 3.5% 3.2% Gross Margin/Profit Data ------------------------ New Vehicle Retail 7.7% 7.9% Used Vehicle Retail 15.7% 14.2% Used Vehicle Wholesale 1.6% 3.2% Service, Body & Parts 47.9% 48.6% New Retail Gross Profit/Unit $ 2,105 $ 2,228 Used Retail Gross Profit/Unit $ 2,439 $ 2,183 Used Wholesale Gross Profit/Unit $ 92 $ 166 Finance & Insurance/Retail Unit $ 1,061 $ 1,036 Same Store Data --------------- New Vehicle Retail Sales 7.8% -3.0% Used Vehicle Sales (includes Wholesale) 9.3% -7.7% Total Vehicle Sales (excludes fleet) 8.3% -4.5% Finance & Insurance Sales 7.0% 0.6% Service, Body & Parts Sales 4.7% -0.9% Total Sales (Excluding Fleet) 7.9% -4.0% Total Gross Profit (Excluding Fleet) 6.1% -0.8% *T -0- *T LITHIA MOTORS, INC. (In Thousands except per share and unit data) Unaudited Nine Months Ended --------- September 30, ----------------------- $ Increase % Increase 2005 2004 (Decrease) (Decrease) ----------- ---------- ---------- ---------- New Vehicle Sales $ 1,327,960 $1,197,810 $ 130,150 10.9% Used Vehicle Sales 631,728 566,869 64,859 11.4 Finance & Insurance 85,868 74,963 10,905 14.5 Service, Body & Parts Sales 235,690 214,146 21,544 10.1 Fleet & Other Revenues 20,163 6,378 13,785 216.1 ----------- ---------- --------- ---------- Total Revenues 2,301,409 2,060,166 241,243 11.7 Cost of Sales 1,910,788 1,715,938 194,850 11.4 ----------- ---------- --------- ---------- Gross Profit 390,621 344,228 46,393 13.5 SG&A Expense 287,279 263,239 24,040 9.1 Depreciation/ Amortization 10,580 9,158 1,422 15.5 ----------- ---------- --------- ---------- Income from Operations 92,762 71,831 20,931 29.1 Flooring Interest Expense (17,020) (12,140) 4,880 40.2 Other Interest Expense (8,893) (6,194) 2,699 43.6 Other Expense, net 727 677 50 7.4 ----------- ---------- --------- ---------- Income from continuing operations before income taxes 67,576 54,174 13,402 24.7 Income Tax Expense 27,024 21,128 5,896 27.9 Income Tax Rate 40.0% 39.0% ----------- ---------- Net Income from continuing ops. 40,552 33,046 7,506 22.7% Income (Loss) from discontinued operations, net of income taxes (255) (257) (2) (0.8) ----------- ---------- --------- ---------- Net Income $ 40,297 $ 32,789 $ 7,508 22.9% =========== ========== ========= ========== Diluted Net Income per share including effect of convertibles notes: Continuing Operations $ 2.08 $ 1.73 $ 0.35 20.2% Effects of convertible senior sub. notes (0.16) (0.07) Discontinued Operations (0.01) (0.01) ----------- ---------- Net Income per share $ 1.91 $ 1.65 0.26 15.8% =========== ========== ========= ========== Diluted Shares Outstanding 21,765 20,353 1,412 6.9% Diluted Net Income per share before effect of convertibles notes: Continuing Operations $ 2.08 $ 1.73 $ 0.35 20.2% Discontinued Operations (0.01) (0.02) ------------ ---------- Net Income per share $ 2.07 $ 1.71 0.36 21.1% =========== ========== ========= ========== Diluted Shares Outstanding 19,510 19,127 383 2.0% *T -0- *T LITHIA MOTORS, INC. Nine Months Ended September 30, ----------------- Increase % Increase Unit Sales: 2005 2004 (Decrease) (Decrease) ---------- ------- ------- ---------- ---------- New Vehicle 47,808 42,985 4,823 11.2% Used - Retail Vehicle 33,820 31,550 2,270 7.2 Used - Wholesale 18,631 17,747 884 5.0 Total Units Sold 100,259 92,282 7,977 8.6 Average Selling Price: --------------------- New Vehicle $ 27,777 $27,866 ($89) (0.3)% Used - Retail Vehicle 15,460 14,984 476 3.2 Used - Wholesale 5,844 5,304 540 10.2 Key Financial Data: ------------------ Gross Profit Margin 17.0% 16.7% SG&A as a % of Gross Profit 73.5% 76.5% Operating Margin 4.0% 3.5% Pre-Tax Margin 2.9% 2.6% Gross Margin/Profit Data ------------------------ New Vehicle Retail 7.9% 7.8% Used Vehicle Retail 15.6% 14.4% Used Vehicle Wholesale 3.2% 3.4% Service, Body & Parts 48.5% 48.3% New Retail Gross Profit/Unit $ 2,185 $ 2,187 Used Retail Gross Profit/Unit $ 2,419 $ 2,164 Used Wholesale Gross Profit/Unit $ 184 $ 181 Finance & Insurance/Retail Unit $ 1,051 $ 1,003 Same Store Data --------------- New Vehicle Retail Sales 2.3% -1.9% Used Vehicle Sales (includes Wholesale) 3.8% -7.8% Total Vehicle Sales (excludes fleet) 2.8% -3.9% Finance & Insurance Sales 2.7% 0.6% Service, Body & Parts Sales 1.9% 3.3% Total Sales (Excluding Fleet) 2.7% -3.1% Total Gross Profit (Excluding Fleet) 3.5% 1.9% *T -0- *T LITHIA MOTORS, INC. Balance Sheet Highlights (Dollars in Thousands) September 30, 2005 December 31, 2004 ------------------ ----------------- Unaudited ------------------ Cash & Cash Equivalents $ 41,687 $ 29,264 Trade Receivables (a) 93,086 84,489 Inventory 516,068 536,653 Assets Held for Sale - 135 Other Current Assets 17,102 12,334 ----------------- ---------------- Total Current Assets 667,943 662,875 Real Estate, net 257,221 226,357 Equipment & Leases, net 76,470 73,274 Goodwill, net 252,325 244,532 Other Assets 51,832 49,866 ----------------- ---------------- Total Assets $ 1,305,791 $ 1,256,904 ================= ================ Floorplan Notes Payable $ 415,134 $ 450,860 Other Current Liabilities 96,718 85,838 ----------------- ---------------- Total Current Liabilities 511,852 536,698 Used Vehicle Flooring 11,000 - Real Estate Debt 144,568 139,703 Other Long-Term Debt 136,612 127,608 Other Liabilities 51,835 46,949 ----------------- ---------------- Total Liabilities 855,867 850,958 ----------------- ---------------- Shareholders' Equity 449,924 405,946 ----------------- ---------------- Total Liabilities & Shareholders' Equity $ 1,305,791 $ 1,256,904 ================= ================ ------------------- (a) Includes contracts-in-transit of $45,285 and $42,913 for 2005 and 2004. Other Balance Sheet Data (Dollars in Thousands) Current Ratio 1.3x 1.2x LT Debt/Total Cap. (Excludes Used -Vehicle Flooring and Real Estate) 23% 24% Working Capital $156,091 $126,177 Book Value per Basic Share $23.52 $21.62 *T