Lithia Motors Announces Second Quarter 2008 Results
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Sid DeBoer, Lithia's Chairman and CEO, commented, "Lithia Motors continues to show improved operating results for the third consecutive quarter despite a more difficult operating environment. We were able to return to profitability this quarter on our core operations with the strategic steps we have taken since the start of the year, despite same-store sales declining 20.8%. Our cost-cutting measures and restructuring actions are progressing as planned; the results of which are clearly evident in our second quarter operating results. The asset impairment charges recorded this quarter are non-cash accounting charges. They primarily result from our declining stock price, and franchise locations that have not performed up to our operating expectations, as more fully explained below." "Our current book value per basic share is $13.05, which does not include any appreciation of real estate values above our carrying value. Recent pending and completed store sales have indicated that franchise value and "blue-sky" exist, particularly with import and luxury brands and domestic stores in stronger market areas. Additionally, this applies to many stores acquired prior to 2002 when GAAP did not require franchise value to be allocated at the time of purchase." "We have shown success this quarter in our efforts to raise capital, restructure our workforce, and continue the strategic shift in our brand mix through the identification of stores for divestiture. These efforts and results show our ability, as a retailer, to adjust to market conditions as necessary. The Company's reported quarterly sales, general and administrative expenses in continuing operations have represented as a percentage of gross profits 89.9%; 85.9%; and 82.5%, sequentially improving since the fourth quarter of 2007, excluding one-time expenses from terminated construction projects this quarter of $4.5 million. June showed solid progress coming in at 80.7%." "Historically, Lithia Motors had been structured and staffed for growth. Our current focus is to keep our company strong and profitable. In the last year, we have successfully reduced our headcount by over 800 employees. In the second quarter, we eliminated over 150 positions and made further reductions in July. The disposition of stores, as we have outlined, will result in even lower costs necessary to run our operations. Our high-caliber team continues to identify opportunities to streamline and operate more efficiently, while not sacrificing the high level of service to our customers." On June 2nd, 2008, the Company announced restructuring plans that would generate annualized savings of $18 million. Additionally, the Company outlined a list of steps it is taking to right-size and realign its business. Mr. DeBoer continued, "Those cost savings have all been completed, and we are now on track for $22 million in total cost reductions - as we have recently added an additional $4 million in planned annualized cost cuts. Since the beginning of the year, we have reduced the outstanding debt on our credit line from $184 million to $138 million. We have sold one domestic store and have agreements on six of the thirteen remaining store divestitures. An additional two domestic stores are pending sale as a result of an unsolicited offer, showing a demand still exists for domestic auto retail stores. These store sales are estimated to generate over $35 million in total net cash proceeds." Lithia's CFO and Senior Vice President, Jeff DeBoer said, "We realized positive cash flows from operations of $15.3 million in the first half of 2008, and we anticipate that our cost cutting measures will continue to increase our cash flows from operations despite the current economic environment." "Through the second quarter, financing of real estate has raised net proceeds of approximately $65 million. The depreciated value of our real estate portfolio in continuing operations has book value of over $300 million, and we are confident it would appraise for significantly more; we have real estate debt of approximately $220 million - leaving substantial room for additional financing to be completed throughout the remainder of the year. This does not include $22.8 million in development properties and our airplane which are held for sale - many of which have pending buy-sell agreements." "Through the reduction of used vehicle inventory, we estimate to generate another $30 to $40 million of cash. All of these steps create proceeds to further reduce the outstanding borrowings on the line of credit and to help retire the $85 million in subordinated convertible notes due in May 2009," concluded Mr. Jeff DeBoer. Under SFAS No. 142, "Goodwill and Other Intangible Assets," the Company is required to perform a goodwill impairment analysis on an interim basis if certain events or circumstances indicate that it is more likely than not that an impairment loss has been incurred. Recent restructuring actions taken, including the placing of stores up for sale, an adverse change in business climate, reduced earnings forecast and the significant decrease in the Company's share price required goodwill to be tested on an interim basis in the second quarter. The Company performed the required steps for impairment analysis and concluded that the entire balance of goodwill was impaired. The Company recorded a non-cash impairment charge to write-off the entire balance of goodwill of $210.6 million after tax in the second quarter, of which $24.8 million is classified in discontinued operations. In the quarter, the Company also recorded a non-cash asset impairment charge of $32.8 million after tax related to certain indefinite-lived intangible assets (franchise value) and other long-lived assets, of which $10.0 million is classified in discontinued operations. Due to the resulting complexities of reporting second quarter results, the Company will be filing a Form 12b-25 with the Securities and Exchange Commission to request an extension of the filing deadline for its Form 10-Q. The expected date for filing the Form 10-Q is August 18, 2008. About Lithia Lithia Motors, Inc. is a Fortune 700 Company, selling 28 brands of new and all brands of used vehicles at 109 stores, which are located in 46 markets within 15 states. Internet sales are centralized at www.Lithia.com, or through 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 accessible on the web at www.Lithia.com. 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. 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, future economic conditions and others set forth from time to time in the company's filings with the SEC. We make forward-looking statements about (i) our ability to manage through the current sales and economic environment, (ii) our ability to reduce infrastructure costs, (iii) the sale of stores in discontinued operations and development properties at the prices anticipated, (iv) the raising of cash from our restructuring efforts and ongoing operations and (v) our ability to secure financing on real estate at expected values. We also make forward-looking statements about the filing of our Form 10-Q. Specific risks in this press release include execution of the restructuring plan and macro-economic and market factors affecting the company's profitability and cash flows. LITHIA MOTORS, INC.
(In Thousands except per share data)
Unaudited Three Months Ended %
June 30, Increase Increase
--------------------
2008 2007 (Decrease) (Decrease)
---------- --------- ---------- ----------
New vehicle sales $ 372,476 $482,612 $(110,136) (22.8)%
Used vehicle sales 179,975 219,673 (39,698) (18.1)
Finance and insurance 24,287 31,433 (7,146) (22.7)
Service, body and parts 86,916 88,435 (1,519) (1.7)
Fleet and other revenues 1,490 1,297 193 14.9
---------- --------- ---------- ---------
Total revenues 665,144 823,450 (158,306) (19.2)
---------- --------- ---------- ---------
Cost of sales 554,351 685,126 (130,775) (19.1)
---------- --------- ---------- ---------
Gross Profit 110,793 138,324 (27,531) (19.9)
Asset impairment charges 300,952 300,952 NM
SG&A expense 95,910 103,668 (7,758) (7.5)
Depreciation and
amortization 5,425 4,784 641 13.4
---------- --------- ---------- ---------
Income (loss) from
operations (291,494) 29,872 (321,366) NM
Floorplan interest expense (5,790) (7,875) (2,085) (26.5)
Other interest expense (5,894) (4,648) 1,246 26.8
Other income, net 1,104 111 993 894.6
---------- --------- ---------- ---------
Income (loss) from
continuing operations
before income taxes (302,074) 17,460 (319,534) NM
Income tax expense (benefit) (95,254) 6,937 (102,191) (1,473.1)
Income Tax Rate 31.5% 39.7%
---------- --------- ---------- ---------
Income (loss) from
continuing operations (206,820) 10,523 (217,343) NM
Discontinued Operations:
Loss from operations, net
of income tax (2,174) (99) 2,075 1,972.7
Loss on disposal
activities, net of income
tax (34,790) (2,481) 32,309 1,307.2
---------- --------- ---------- ---------
Net income (loss) $(243,784) $ 7,943 $(251,727) NM
========== ========= ========== =========
Diluted net income (loss)
per share:
Continuing Operations $ (10.41) $ 0.50
Discontinued Operations:
Loss from operations, net
of income tax (0.10)
Loss on disposal
activities, net of
income tax (1.76) (0.12)
---------- --------- ---------- ---------
Net income (loss) per share $ (12.27) $ 0.38 $ (12.65) NM
========== ========= ========== =========
Diluted shares outstanding 19,873(A) 22,109 (2,236) (10.1)%
========== ========= ========== =========
(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.
------------------------------
(Continuing Operations) Three Months
Unaudited Ended %
June 30, Increase Increase
------------------------------ ----------------
2008 2007 (Decrease) (Decrease)
-------- ------- ---------- ----------
Unit Sales:
------------------------------
New Vehicle 13,285 16,719 (3,434) (20.5)%
Used - Retail Vehicle 8,903 10,821 (1,918) (17.7)
Used - Wholesale 5,490 6,097 (607) (10.0)
Total Units Sold 27,678 33,637 (5,959) (17.7)
Average Selling Price:
------------------------------
New Vehicle $28,037 $28,866 ($829) (2.9)%
Used - Retail Vehicle 16,765 16,681 $84 0.5
Used - Wholesale 5,594 6,423 ($829) (12.9)
Gross Margin/Profit Data
------------------------------
New Vehicle Retail 7.8 % 7.6% 20 bps
Used Vehicle Retail 11.1 % 14.5% -340 bps
Used Vehicle Wholesale (3.7)% 2.7% -640 bps
Service, Body & Parts 47.9 % 48.3% -40 bps
Finance & Insurance 100.0 % 100.0% 0 bps
Gross Profit Margin 16.7 % 16.8% -10 bps
New Retail Gross Profit/Unit $ 2,177 $2,180 -$3
Used Retail Gross Profit/Unit $ 1,868 $2,422 -$554
Used Wholesale Gross
Profit/Unit $ (207) $176 -$383
Finance & Insurance/Retail
Unit $ 1,095 $1,141 -$46
Revenue Mix:
------------------------------
New Vehicles 56.0 % 58.6%
Used Retail Vehicles 22.4 % 21.9%
Used Wholesale Vehicles 4.6 % 4.8%
Finance and Insurance, Net 3.7 % 3.8%
Service and Parts 13.1 % 10.7%
Fleet and other 0.2 % 0.2%
New Vehicle Unit Sales Brand
Mix:
------------------------------
Chrysler Brands 32.5 % 38.9%
General Motors & Saturn 18.1 % 16.4%
Toyota 16.1 % 14.6%
Honda 9.6 % 7.7%
BMW 4.0 % 4.1%
Nissan 3.9 % 3.8%
Hyundai 3.9 % 3.7%
Ford 3.8 % 4.6%
Volkswagen, Audi 3.0 % 2.5%
Subaru 2.1 % 1.6%
Mercedes 1.0 % 0.8%
Other 2.0 % 1.3%
LITHIA MOTORS, INC.
(Selected Same Store Data)
Unaudited Three Months
Ended
June 30,
--------------
2008 2007
------- ------
Same Store Total Sales Geographic Mix:
--------------------------------------------------------
Texas 26.1% 21.9%
Oregon 12.8% 14.7%
California 12.4% 13.6%
Alaska 7.8% 7.0%
Washington 7.8% 8.0%
Iowa 7.2% 6.3%
Colorado 5.8% 6.6%
Montana 5.7% 6.2%
Idaho 5.3% 6.1%
Nevada 4.0% 4.2%
Nebraska 2.1% 2.0%
South Dakota 2.1% 2.2%
New Mexico 0.9% 1.2%
Same Store Revenue:
--------------------------------------------------------
New Vehicle Retail Sales (23.3)% (1.5)%
Used Vehicle Retail Sales (21.5)% (3.7)%
Used Wholesale Sales (25.7)% 3.6%
Total Vehicle Sales (excluding Fleet) (22.9)% (1.8)%
Finance & Insurance Sales (23.5)% %
Service, Body and Parts Sales (2.9)% 4.9%
Total Sales (excluding Fleet) (20.8)% (1.1)%
Total Gross Profit (excluding Fleet) (20.9)% (2.1)%
LITHIA MOTORS, INC.
(In Thousands except per share data)
Unaudited Six Months Ended %
June 30, Increase Increase
-----------------------
2008 2007 (Decrease) (Decrease)
----------- ----------- ---------- ----------
New vehicle sales $ 726,915 $ 892,657 $(165,742) (18.6)%
Used vehicle sales 367,335 415,207 (47,872) (11.5)
Finance and insurance 48,852 59,505 (10,653) (17.9)
Service, body and parts 176,677 173,805 2,872 1.7
Fleet and other revenues 2,438 1,979 459 23.2
----------- ----------- ---------- ---------
Total revenues 1,322,217 1,543,153 (220,936) (14.3)
Cost of sales 1,100,161 1,278,414 (178,253) (13.9)
----------- ----------- ---------- ---------
Gross Profit 222,056 264,739 (42,683) (16.1)
Asset impairment charges 300,952 300,952 NM
SG&A expense 191,438 202,749 (11,311) (5.6)
Depreciation and
amortization 10,787 9,237 1,550 16.8
----------- ----------- ---------- ---------
Income (loss) from
operations (281,121) 52,753 (333,874) NM
Floorplan interest
expense (11,727) (14,608) (2,881) (19.7)
Other interest expense (11,004) (9,013) 1,991 22.1
Other income, net 1,199 324 875 270.1
----------- ----------- ---------- ---------
Income (loss) from
continuing operations
before income taxes (302,653) 29,456 (332,109) NM
Income tax expense
(benefit) (95,378) 11,651 (107,029) NM
Income Tax Rate 31.5% 39.6%
----------- ----------- ---------- ---------
Income (loss) from
continuing operations (207,275) 17,805 (225,080) NM
Discontinued Operations:
Loss from operations,
net of income tax (3,880) (306) 3,452 1,128.1
Loss on disposal
activities, net of
income tax (34,790) (2,481) 32,431 1,307.2
----------- ----------- ---------- ---------
Net income (loss) $ (245,945) $ 15,018 $(260,963) NM
=========== =========== ========== =========
Diluted net income (loss)
per share:
Continuing Operations $ (10.47) $ 0.85
Discontinued Operations:
Loss from operations,
net of income tax (0.17) (0.01)
Loss on disposal
activities, net of
income tax (1.79) (0.12)
----------- ----------- ---------- ---------
Net income (loss) per
share $ (12.43) $ 0.72 $ (13.15) NM
=========== =========== ========== =========
Diluted shares
outstanding 19,793(A) 22,116 (2,323) (10.5)%
=========== =========== ========== =========
(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.
-------------------------------
(Continuing Operations) Six Months Ended %
Unaudited June 30, Increase Increase
------------------------------- ----------------
2008 2007 (Decrease) (Decrease)
-------- ------- ---------- ----------
Unit Sales:
-------------------------------
New Vehicle 25,292 31,004 (5,712) (18.4)%
Used - Retail Vehicle 17,676 20,505 (2,829) (13.8)
Used - Wholesale 10,961 11,711 (750) (6.4)
Total Units Sold 53,929 63,220 (9,291) (14.7)
Average Selling Price:
-------------------------------
New Vehicle $28,741 $28,792 ($51) (0.2)%
Used - Retail Vehicle 17,025 16,471 $554 3.4
Used - Wholesale 6,058 6,615 ($557) (8.4)
Gross Margin/Profit Data
-------------------------------
New Vehicle Retail 7.7 % 7.7% 0 bps
Used Vehicle Retail 11.4 % 14.6% -320 bps
Used Vehicle Wholesale (2.4)% 3.4% -580 bps
Service, Body & Parts 47.2 % 48.0% -80 bps
Finance & Insurance 100.0 % 100.0% 0 bps
Gross Profit Margin 16.8 % 17.2% -40 bps
New Retail Gross Profit/Unit $ 2,227 $2,227 $0
Used Retail Gross Profit/Unit $ 1,938 $2,412 ($474)
Used Wholesale Gross
Profit/Unit $ (146) $225 ($371)
Finance & Insurance/Retail Unit $ 1,137 $1,155 ($18)
Revenue Mix:
-------------------------------
New Vehicles 55.0 % 57.8%
Used Retail Vehicles 22.8 % 21.9%
Used Wholesale Vehicles 4.9 % 5.0%
Finance and Insurance, Net 3.7 % 3.9%
Service and Parts 13.4 % 11.3%
Fleet and other 0.2 % 0.1%
New Vehicle Unit Sales Brand
Mix:
-------------------------------
Chrysler Brands 34.7 % 39.8%
General Motors & Saturn 18.0 % 16.9%
Toyota 15.6 % 14.0%
Honda 8.6 % 6.8%
Nissan 4.1 % 3.8%
Ford 4.0 % 5.0%
BMW 3.9 % 4.1%
Hyundai 3.3 % 3.3%
Volkswagen, Audi 2.8 % 2.2%
Subaru 2.1 % 1.7%
Mercedes 1.0 % 0.8%
Other 1.9 % 1.6%
LITHIA MOTORS, INC.
(Selected Same Store Data)
Unaudited Six Months
Ended
June 30,
--------------
2008 2007
------- ------
Same Store Total Sales Geographic Mix:
--------------------------------------------------------
Texas 25.9% 21.5%
Oregon 13.3% 15.1%
California 12.5% 14.0%
Washington 8.1% 8.1%
Alaska 7.5% 6.9%
Colorado 6.0% 6.9%
Iowa 6.1% 5.3%
Montana 5.9% 5.9%
Idaho 5.6% 6.3%
Nevada 4.0% 4.5%
Nebraska 2.1% 2.0%
South Dakota 2.0% 2.3%
New Mexico 1.0% 1.2%
Same Store Revenue:
--------------------------------------------------------
New Vehicle Retail Sales (19.7)% (2.1)%
Used Vehicle Retail Sales (16.1)% (4.3)%
Used Wholesale Sales (17.8)% 9.3%
Total Vehicle Sales (excluding Fleet) (18.6)% (2.1)%
Finance & Insurance Sales (19.1)% 1.9%
Service, Body and Parts Sales (0.4)% 5.0%
Total Sales (excluding Fleet) (16.6)% (1.2)%
Total Gross Profit (excluding Fleet) (18.4)% (1.5)%
LITHIA MOTORS, INC.
Balance Sheet Highlights (Dollars in Thousands)
Unaudited
June 30, December
2008 31, 2007
----------- -----------
Cash & Cash Equivalents $21,352 $ 21,665
Trade Receivables(A) 93,656 109,387
Inventory 623,162 601,759
Assets held for sale 133,070 23,807
Other Current Assets 24,393 21,920
----------- -----------
Total Current Assets 895,633 778,538
Real Estate, net 305,347 363,391
Equipment & Other, net 92,834 98,355
Goodwill, net -- 311,527
Other Assets 97,805 74,924
----------- -----------
Total Assets $1,391,619 $1,626,735
=========== ===========
Flooring Notes Payable $479,786 $ 451,590
Liabilities held for sale 79,287 17,857
Other Current Liabilities 223,945 115,644
----------- -----------
Total Current Liabilities 783,018 585,091
Used Vehicle Flooring 121,679 122,550
Real Estate Debt 172,948 179,160
Other Long-Term Debt 42,615 153,785
Other Liabilities 13,005 77,937
----------- -----------
Total Liabilities $1,133,265 $1,118,523
=========== ===========
Shareholders' Equity 258,354 508,212
----------- -----------
Total Liabilities & Shareholders' Equity $1,391,619 $1,626,735
=========== ===========
(A) Note: Includes contracts-in-transit of $38,058 and $48,474 for
2008 and 2007
Other Balance Sheet Data (Dollars in Thousands)
Current Ratio 1.1x 1.3x
LT Debt/Total Cap.
(Excludes Real Estate) 39% 35%
Working Capital $112,615 $ 193,447
Book Value per Basic Share 13.05 26.02
The following table reconciles reported GAAP net income (loss) per the
income statement to non-GAAP net income (loss):
Unaudited Three Months Six Months Ended
Ended June 30
June 30,
----------------- -----------------
2008 2007 2008 2007
--------- ------- --------- -------
Income (loss) from continuing
operations - as reported (206,820) 10,523 (207,275) 17,805
Goodwill and other asset impairment 208,601 208,601
--------- ------- --------- -------
Income from continuing operations
- non GAAP 1,781 10,523 1,326 17,805
========= ======= ========= =======
Loss from discontinued operations -
as reported (36,964) (2,580) (38,670) (2,787)
Goodwill and other asset impairment 34,790 2,481 34,790 2,481
--------- ------- --------- -------
Loss from discontinued operations
- non GAAP (2,174) (99) (3,880) (306)
========= ======= ========= =======
Net income (loss) - as reported (243,784) 7,943 (245,945) 15,018
Goodwill and other asset impairment 243,391 2,481 243,391 2,481
--------- ------- --------- -------
Net income (loss) - non GAAP (393) 10,424 (2,554) 17,499
========= ======= ========= =======
The following table reconciles reported GAAP diluted earnings (loss)
per share ("EPS") to non-GAAP diluted earnings (loss) per share:
Unaudited Three Months Six Months Ended
Ended June 30
June 30,
----------------- -----------------
2008 2007 2008 2007
--------- ------- --------- -------
Net income per share from
Continuing Operations - as
reported (10.41) 0.50 (10.47) 0.85
Goodwill and other asset impairment 10.51 10.57
--------- ------- --------- -------
Net income per share from
Continuing Operations - non GAAP 0.10 0.50 0.10 0.85
========= ======= ========= =======
Loss per share from Discontinued
Operations - as reported (1.86) (0.12) (1.96) (0.13)
Goodwill and other asset impairment 1.76 0.11 1.79 0.11
--------- ------- --------- -------
Loss per share from Discontinued
Operations - non GAAP (0.10) (0.01) (0.17) (0.02)
========= ======= ========= =======
Net income (loss) per share as
reported (12.27) 0.38 (12.43) 0.72
Goodwill and other asset impairment 12.27 0.11 12.36 0.11
--------- ------- --------- -------
Net income (loss) per share
- non GAAP 0.00 0.49 (0.07) 0.83
========= ======= ========= =======
Adjusted results for the periods with net income are shown on a diluted share basis. Due to anti-dilutive effects, adjusted results per basic and diluted share are the same in periods showing a loss. SOURCE: Lithia Motors, Inc. Lithia Motors |
Safe Harbor Statement under the Private Securities Reform Act of 1995
With the exception of historical information, the matters discussed or incorporated by reference in this Annual Report include forward-looking statements. These statements are necessarily subject to risk and uncertainty. Actual results could differ materially from those projected in these forward-looking statements as a result of certain risks including those set forth from time to time in the Company's filings with the SEC. These risk factors include, but are not limited to, the cyclical nature of automobile sales and the intense competition in the automobile retail industry, the Company's ability to negotiate profitable acquisitions, and the ability to secure manufacturer approvals for such acquisitions.
