LAD Lithia Motors Inc

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 17th Form 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 expense 103,183 95,148 8,035 8.4 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 operations before income taxes (5,205 ) 10,381 (15,586 ) NM Income tax expense (benefit) (2,002 ) 3,688 (5,690 ) NM Income Tax Rate 38.5 % 35.5 % � � Income (loss) from continuing operations (3,203 ) 6,693 (9,896 ) NM Discontinued Operations: Loss from operations, net of income tax (415 ) (610 ) 195 (32.0 ) Loss on disposal activities, net of income tax (1,088 ) (554 ) (534 ) 96.4 � 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 income tax $(0.06 ) $(0.03 ) � � 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 � Three Months Ended � � % Lithia Motors, Inc. (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 before income taxes 43,393 65,677 (22,284 ) (33.9 ) 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 income tax (3,306 ) (554 ) (2,752 ) 496.8 � 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(A) 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 � (A) Note: Includes contracts-in-transit of $48,474 and $56,211 for 2007 and 2006 � Other Balance Sheet Date (Dollars in Thousands) � Current Ratio 1.3x 1.2x LT Debt/Total Cap. (Excludes Real Estate) 35% 32% Working Capital $193,447 $149,701 Book Value per Basic Share 26.02 25.32