SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
SEC Registration No. 333-43593
LITHIA MOTORS, INC. SALARY REDUCTION PROFIT SHARING PLAN
LITHIA MOTORS, INC.
360 East Jackson Street
Medford, OR 97501
LITHIA MOTORS, INC.
SALARY REDUCTION
PROFIT SHARING PLAN
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM’S AUDITOR’S REPORT
AND
FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
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CONTENTS |
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| Page | ||
| INDEPENDENT REGISTERED PUBLIC | ||
| ACCOUNTING FIRM’S AUDITOR’S REPORT | 1 | |
| FINANCIAL STATEMENTS | ||
| Statements of net assets available for benefits | 2 | |
| Statement of changes in net assets available for benefits | 3 | |
| Notes to financial statements | 4-7 | |
| SUPPLEMENTAL SCHEDULE | ||
| Schedule H, Line 4I – Schedule of assets (held at end of year) | 8 | |
| EXHIBIT INDEX | 10 | |
| Consent of Independent Registered Public Accounting Firm | ||
C E R T I F I E D P U B L I C A C C O U N T A N T S
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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To the Board of Trustees Lithia Motors, Inc. Salary Reduction Profit Sharing Plan |
We have audited the accompanying statements of net assets available for benefits of the Lithia Motors, Inc. Salary Reduction Profit Sharing Plan as of December 31, 2005 and 2004 and the related statement of changes in net assets available for benefits for the year ended December 31, 2005. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Lithia Motors, Inc. Salary Reduction Profit Sharing Plan as of December 31, 2005 and 2004, and the changes in the net assets available for benefits for the year ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule on page 8 is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplemental information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Medford, Oregon
June 20, 2006
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LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
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December 31, |
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2005 |
2004 |
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| ASSETS | ||||||||
| Investments, at fair value | ||||||||
| Registered investment companies | $ | 38,509,928 | $ | 30,938,931 | ||||
| Interest-bearing cash | 6,722,921 | 4,794,420 | ||||||
| Lithia Motors, Inc. Class A Common Stock | 4,265,734 | 4,671,106 | ||||||
| Participant loans | 2,349,936 | 2,017,816 | ||||||
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| 51,848,519 | 42,422,273 | |||||||
| Employer's contribution receivable | 1,659,315 | 1,299,801 | ||||||
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| NET ASSETS AVAILABLE FOR BENEFITS | $ | 53,507,834 | $ | 43,722,074 | ||||
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| See accompanying notes. |
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LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2005
| ADDITIONS TO NET ASSETS ATTRIBUTED TO | ||||
| Investment income | ||||
| Net appreciation in fair value of investments | $ | 4,198,280 | ||
| Interest and dividends | 117,185 | |||
| Other income | 49,374 | |||
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| 4,364,839 | ||||
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| Contributions | ||||
| Employer's | 1,663,739 | |||
| Participants' | 10,661,891 | |||
| Rollovers | 1,843,398 | |||
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| 14,169,028 | ||||
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| 18,533,867 | ||||
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| DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO | ||||
| Benefits paid to participants | 8,452,299 | |||
| Investment fees | 147,229 | |||
| Administrative expenses | 34,729 | |||
| Deemed distributions | 113,850 | |||
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| 8,748,107 | ||||
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| NET INCREASE | 9,785,760 | |||
| NET ASSETS AVAILABLE FOR BENEFITS | ||||
| Beginning of year | 43,722,074 | |||
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| End of year | $ | 53,507,834 | ||
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| See accompanying notes. |
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LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
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NOTE 1 – DESCRIPTION OF PLAN |
The following description of Lithia Motors, Inc. Salary Reduction Profit Sharing Plan (the Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
General – The Plan is a defined contribution plan covering all employees of Lithia Motors, Inc. and its subsidiaries (the Company) beginning the first of the month following hire date who are age 18 or older, who are not members of a union and are not temporary employees. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
The Company, and as a result, the Plan, have grown primarily due to the Company’s acquisition and integration of automobile dealerships and by obtaining new dealer franchises. As the Company continues to grow and to acquire dealerships, the existing retirement plans at the acquired dealerships, if any, are terminated. Employees of the acquired dealerships are given the option of participating in the Plan and are given credit for years of service prior to the acquisitions.
Contributions – Each year, the Company contributes to the Plan an amount determined annually by the Company’s senior management. Participants may contribute, under a salary reduction agreement, the maximum allowed by the Internal Revenue Service under Code Section 402(g). Participants direct the investment of contributions into various investment options offered by the Plan. The Plan currently offers various registered investment companies managed by Morgan Stanley as well as shares of Class A Common Stock of the Plan sponsor, Lithia Motors, Inc. Subsequently, beginning in 2006, investments in the Plan will be managed by DWS Scudder.
Participant Accounts – Each participant’s account is credited with the participant’s contribution and an allocation of the Company’s contribution and Plan earnings, and is charged with an allocation of administrative expenses. Allocations are based on account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Vesting – Participants are immediately vested in their voluntary contributions plus actual earnings thereon. Vesting in the remainder of their accounts is based on years of continuous service. A participant is 100% vested after six years of credited service.
Participant Loans – Participants may borrow from their fund accounts a minimum of $500 and a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Loan transactions are treated as a transfer from the investment fund to the participant loan fund. Loan terms range up to five years or up to thirty years for the purchase of a primary residence. The loans are secured by the balance in the participant’s account and bear interest at a rate of prime + 1% (from 5.0% to 10.5% as of December 31, 2005) at the time the loan is issued. Principal and interest are paid ratably through semimonthly payroll deductions.
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LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – DESCRIPTION OF PLAN (Continued)
Payment of Benefits – There were no participant balances attributable to participants who had withdrawn from the Plan but whose balances had not been paid at December 31, 2005. On termination of service or upon reaching retirement age, a participant receives a lump-sum amount equal to the value of his or her account.
Forfeited Accounts – In 2005, forfeited non-vested accounts amounted to $112,044. Forfeited balances of terminated participants’ non-vested accounts are used to reduce future Company contributions.
NOTE 2 – SUMMARY OF ACCOUNTING POLICIES
Basis of Accounting – The financial statements of the Plan are prepared under the accrual method of accounting.
Use of Estimates – The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Investment Valuation and Income Recognition – The Plan’s investments are stated at fair value. Shares of registered investment companies and shares of Lithia Motors, Inc. are valued at quoted market prices, which represent the net asset value of shares held by the Plan at year-end. Participant loans are valued at cost, which approximates fair value.
Purchases and sales of securities are recorded on the trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Investment securities are exposed to various risks, such as interest rate, market, and credit risk. It is reasonably possible, given the level of risk associated with investment securities, that changes in the near term could materially affect participants’ account balances and the amounts reported in the financial statements.
Payment of Benefits – Benefits are recorded when paid.
Administrative Expenses – The Plan sponsor has voluntarily paid for certain administrative expenses of the Plan, and these expenses are not reflected in these financial statements. Reclassifications – Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year financial statements. These reclassifications have no effect on the previously reported net assets available for benefits.
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NOTE 3 – PLAN TERMINATION |
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants would become 100% vested in their accounts.
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LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
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NOTE 4 – INCOME TAX STATUS |
The Plan obtained its latest determination letter on May 3, 2002, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended since receiving the determination letter. However, the Plan administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
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NOTE 5 – INVESTMENTS |
The following presents investments that represent 5% or more of Plan net assets:
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| 2005 | 2004 | |||||||
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Registered investment companies |
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| Morgan Stanley Liquid Asset | $ | 6,722,921 | $ | 4,794,420 | ||||
| Davis New York Venture A | $ | 4,436,108 | $ | 3,371,131 | ||||
| Morgan Stanley S&P 500 Index A | $ | 4,410,688 | $ | 4,314,782 | ||||
| Van Kampen Comstock A | $ | 3,908,747 | $ | 3,422,079 | ||||
| Calvert Income A | $ | 2,911,009 | $ | 2,778,469 | ||||
| Eaton Vance World Health A | $ | 2,684,162 | $ | 2,194,280 | ||||
| Morgan Stanley International A | $ | 2,675,355 | $ | 2,108,625 | ||||
| Van Kampen Aggressive Growth A | $ | 2,673,091 | $ | 2,172,506 | ||||
| Lithia Motors, Inc. Class A Common Stock | $ | 4,265,734 | $ | 4,671,106 | ||||
For the year ended December 31, 2005, the Plan’s investments, including gains and losses on investments bought and sold, as well as held during the period, appreciated in value as follows:
| Registered investment companies | $ | 3,383,111 | ||
| Lithia Motors, Inc. Class A Common Stock | 815,169 | |||
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| $ | 4,198,280 | |||
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LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 6 – RECONCILIATION OF FINANCIAL STATEMENTS TO SCHEDULE H OF FORM 5500
The following is a reconciliation of net assets available for benefits per the financial statements to Schedule H of Form 5500:
| December 31, | ||||||||
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| 2005 | 2004 | |||||||
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| Net assets available for benefits per | ||||||||
| the financial statements | $ | 53,507,834 | $ | 43,722,074 | ||||
| Employer contributions receivable | ||||||||
| not accrued on Schedule H | ||||||||
| of Form 5500 | (1,659,315) | (1,299,801) | ||||||
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| Net assets available for benefits per | ||||||||
| Schedule H of Form 5500 | $ | 51,848,519 | $ | 42,422,273 | ||||
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The following are reconciliations of employer contributions and distributions per the financial statements for the year ended December 31, 2005 to Schedule H of Form 5500 as the Form 5500 is prepared on a cash basis while the financial statements are prepared on the accrual basis of accounting:
| Employer Contributions | ||||
| Employer contributions per the | ||||
| financial statements | $ | 1,663,739 | ||
| Plus employer contributions received | ||||
| by the Plan not accrued on Schedule H | ||||
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of Form 5500 |
1,299,801 | |||
| Less employer contributions not | ||||
| received by the Plan and not | ||||
| accrued on Schedule H of | ||||
| Form 5500 | (1,659,315) | |||
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| Employer contributions per Schedule H | ||||
| of Form 5500 | $ | 1,304,225 | ||
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SUPPLEMENTAL SCHEDULE |
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LITHIA MOTORS, INC.
SALARY
REDUCTION PROFIT SHARING PLAN
SCHEDULE H, LINE 4I – SCHEDULE OF ASSETS
(HELD AT END OF YEAR)
EIN 93-0572810 PN
003
| (c) Description of investment | ||||||||||||||
| including maturity date, rate of | ||||||||||||||
| (b) Identify of issue, borrower, | interest, collateral, par, or | |||||||||||||
| (a) | lessor, or similar party | maturity value | (d) Cost | (e) Current value | ||||||||||
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| Morgan Stanley American Opp. A | Registered Investment Company | 73,687 | shares | N/A | $ | 2,055,144 | ||||||||
| Oppenheimer Main St Sm Cap A | Registered Investment Company | 100,334 | shares | N/A | 2,069,894 | |||||||||
| Morgan Stanley International A | Registered Investment Company | 236,548 | shares | N/A | 2,675,355 | |||||||||
| Morgan Stanley Liquid Asset | Registered Investment Company | 6,722,921 | shares | N/A | 6,722,921 | |||||||||
| Morgan Stanley S&P 500 Index A | Registered Investment Company | 327,932 | shares | N/A | 4,410,688 | |||||||||
| Morgan Stanley Special Value A | Registered Investment Company | 37,349 | shares | N/A | 714,487 | |||||||||
| Morgan Stanley US Govt. Sec. A | Registered Investment Company | 147,673 | shares | N/A | 1,342,348 | |||||||||
| AllianceBer Global Tech Fnd A | Registered Investment Company | 22,148 | shares | N/A | 1,325,325 | |||||||||
| Morgan Stanley Utilities A | Registered Investment Company | 46,690 | shares | N/A | 670,937 | |||||||||
| Van Kampen Aggressive Growth A | Registered Investment Company | 169,828 | shares | N/A | 2,673,091 | |||||||||
| Van Kampen Comstock A | Registered Investment Company | 219,469 | shares | N/A | 3,908,747 | |||||||||
| Van Kampen Emerging Markets A | Registered Investment Company | 129,989 | shares | N/A | 2,512,687 | |||||||||
| Van Kampen Equity & Income A | Registered Investment Company | 233,889 | shares | N/A | 2,030,154 | |||||||||
| Calvert Income A | Registered Investment Company | 173,688 | shares | N/A | 2,911,009 | |||||||||
| Eaton Vance World Health A | Registered Investment Company | 233,812 | shares | N/A | 2,684,162 | |||||||||
| Eaton Vance Income FD of Boston A | Registered Investment Company | 68,170 | shares | N/A | 430,836 | |||||||||
| Davis New York Venture A | Registered Investment Company | 131,635 | shares | N/A | 4,436,108 | |||||||||
| Alger Capital Appreciation Instl. A | Registered Investment Company | 118,159 | shares | N/A | 1,658,956 | |||||||||
| * | Lithia Motors Co Stock | Other Investments | 188,404 | shares | N/A | 4,265,734 | ||||||||
| * | Participant Loans | Interest Rates (5.0% to 10.5%) | -0- | 2,349,936 | ||||||||||
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| $ | 51,848,519 | |||||||||||||
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N/A - Cost is not applicable as these are participant directed investments.
* - Party in interest to the Plan
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SIGNATURE PAGE |
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: June 21, 2006 | LITHIA MOTORS, INC. | |
| SALARY REDUCTION PROFIT SHARING PLAN TRUST | ||
| By: /s/ Linda Ganim | ||
| Linda Ganim, Trustee | ||
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Exhibit Index
Exhibit
Description
23.1
Consent of Independent Registered Public
Accounting Firm
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