<HTML> <HEAD> <TITLE> Prepared by MERRILL CORPORATION www.edgaradvantage.com </TITLE> </HEAD> <BODY BGCOLOR="#FFFFFF"> <H2><FONT SIZE=3 ><A HREF="#99SFO2367_1">QuickLinks</A></FONT></H2> <HR NOSHADE> <HR NOSHADE> <BR> <P ALIGN="CENTER"><FONT SIZE=5><B>UNITED STATES<BR> SECURITIES AND EXCHANGE COMMISSION<BR> Washington, D.C. 20549</B></FONT></P> <HR NOSHADE WIDTH=120> <BR> <P ALIGN="CENTER"><FONT SIZE=5><B>FORM 10-Q</B></FONT></P> <HR NOSHADE WIDTH=120> <BR><BR> <P><FONT SIZE=2><B>(Mark One)</B></FONT></P> <!-- User-specified TAGGED TABLE --> <TABLE WIDTH="101%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="TOP"> <TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2> <BR></FONT><FONT SIZE=3>/x/</FONT></TD> <TD WIDTH="91%"><FONT SIZE=3> <BR></FONT><FONT SIZE=3><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD> </TR> </TABLE> <!-- end of user-specified TAGGED TABLE --> <P ALIGN="CENTER"><FONT SIZE=2><B>For the quarterly period ended September 30, 1999</B></FONT></P> <P ALIGN="CENTER"><FONT SIZE=2><B>OR</B></FONT></P> <!-- User-specified TAGGED TABLE --> <TABLE WIDTH="101%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="TOP"> <TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=3>/ /</FONT></TD> <TD WIDTH="91%"><FONT SIZE=3><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD> </TR> </TABLE> <!-- end of user-specified TAGGED TABLE --> <P ALIGN="CENTER"><FONT SIZE=2><B>For the transition period from <U> </U>to <U> </U></B></FONT></P> <P ALIGN="CENTER"><FONT SIZE=2><B>Commission file number: 000-21789</B></FONT></P> <HR NOSHADE WIDTH=120> <BR> <P ALIGN="CENTER"><FONT SIZE=5><B>LITHIA MOTORS, INC.</B></FONT></P> <P ALIGN="CENTER"><FONT SIZE=2>(Exact name of registrant as specified in its charter)</FONT></P> <!-- User-specified TAGGED TABLE --> <CENTER><TABLE WIDTH="66%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="TOP"> <TD WIDTH="48%" ALIGN="CENTER"><FONT SIZE=2><B>Oregon</B></FONT><FONT SIZE=2><BR> (State or other jurisdiction of incorporation or organization)</FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="43%" ALIGN="CENTER"><FONT SIZE=2><B>93-0572810</B></FONT><FONT SIZE=2><BR> (I.R.S. Employer<BR> Identification No.)</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="48%" ALIGN="CENTER"><FONT SIZE=2> <BR></FONT><FONT SIZE=2><B>360 E. Jackson Street,<BR> Medford, Oregon</B></FONT><FONT SIZE=2><BR> (Address of principal executive offices)</FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="43%" ALIGN="CENTER"><FONT SIZE=2> <BR></FONT><FONT SIZE=2><B>97501</B></FONT><FONT SIZE=2><BR> (Zip Code)</FONT></TD> </TR> </TABLE></CENTER> <!-- end of user-specified TAGGED TABLE --> <P ALIGN="CENTER"><FONT SIZE=2>Registrant's telephone number, including area code: </FONT><FONT SIZE=2><B>541-776-6899</B></FONT></P> <HR NOSHADE WIDTH=120> <BR><BR> <P><FONT SIZE=2> Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.</FONT></P> <P><FONT SIZE=2>Yes /x/ No / /</FONT></P> <P><FONT SIZE=2> Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.</FONT></P> <!-- User-specified TAGGED TABLE --> <TABLE WIDTH="101%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="TOP"> <TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>Class A Common stock without par value</B></FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>7,641,715</B></FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>Class B Common stock without par value</B></FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>4,087,000</B></FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2>(Class)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2>(Outstanding at November 9, 1999)</FONT></TD> </TR> </TABLE> <!-- end of user-specified TAGGED TABLE --> <HR NOSHADE> <HR NOSHADE> <P><FONT SIZE=2> <!-- ZEQ.=1,SEQ=1,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=blank,FILE='DISK037:[99SFO7.99SFO2367]BF2367A.;7',USER='BHUGHES',CD='12-NOV-1999;10:19' --> </FONT></P> <!-- Generated by Merrill Corporation (www.merrillcorp.com) --> <BR> <P ALIGN="CENTER"><FONT SIZE=2><B>LITHIA MOTORS, INC.<BR> FORM 10-Q<BR> INDEX</B></FONT></P> <!-- User-specified TAGGED TABLE --> <TABLE WIDTH="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="BOTTOM"> <TH WIDTH="92%" COLSPAN=3 ALIGN="LEFT"><FONT SIZE=2>PART I—FINANCIAL INFORMATION<BR></FONT> <BR></TH> <TH WIDTH="2%"><FONT SIZE=2> </FONT></TH> <TH WIDTH="6%" ALIGN="CENTER"><FONT SIZE=1><B>Page<BR></B></FONT><HR NOSHADE></TH> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="8%"><FONT SIZE=1><B> <BR></B></FONT><FONT SIZE=2>Item 1.</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="81%"><FONT SIZE=2> <BR> Financial Statements</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> <BR> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="8%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="81%"><FONT SIZE=2> <BR> Consolidated Balance Sheets—September 30, 1999 (unaudited) and December 31, 1998</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> <BR> 2</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="8%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="81%"><FONT SIZE=2> <BR> Consolidated Statements of Operations—Three and Nine Months Ended September 30, 1999 and 1998 (unaudited)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> <BR> 3</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="8%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="81%"><FONT SIZE=2> <BR> Consolidated Statements of Cash Flows—Nine Months Ended September 30, 1999 and 1998 (unaudited)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> <BR> 4</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="8%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="81%"><FONT SIZE=2> <BR> Notes to Consolidated Financial Statements (unaudited)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> <BR> 5</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="8%"><FONT SIZE=2> <BR> Item 2.</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="81%"><FONT SIZE=2> <BR> Management's Discussion and Analysis of Financial Condition and Results of Operations</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> <BR> 8</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="8%"><FONT SIZE=2> <BR> Item 3.</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="81%"><FONT SIZE=2> <BR> Quantitative and Qualitative Disclosures About Market Risk</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> <BR> 14</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="100%" COLSPAN=5><FONT SIZE=2> <BR> <BR> PART II—OTHER INFORMATION</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="8%"><FONT SIZE=2> <BR> Item 6.</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="81%"><FONT SIZE=2> <BR> Exhibits and Reports on Form 8-K</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> <BR> 15</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="92%" COLSPAN=3><FONT SIZE=2> <BR> Signatures</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> <BR> 16</FONT></TD> </TR> </TABLE> <!-- end of user-specified TAGGED TABLE --> <P><FONT SIZE=2><p align=center>1</p></FONT><FONT SIZE=2> <!-- ZEQ.=1,SEQ=2,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=1,FILE='DISK037:[99SFO7.99SFO2367]BG2367A.;21',USER='BHUGHES',CD='12-NOV-1999;10:29' --> </FONT></P> <!-- Generated by Merrill Corporation (www.merrillcorp.com) --> <H2><FONT SIZE=3 > </FONT></H2> <BR> <P ALIGN="CENTER"><FONT SIZE=2><A NAME="fa2367_part_i_#151;financial_information"> </A></FONT><FONT SIZE=2><B>PART I—FINANCIAL INFORMATION </B></FONT></P> <P><FONT SIZE=2><A NAME="fa2367_item_1._financial_statements"> </A></FONT><FONT SIZE=2><B>Item 1. Financial Statements </B></FONT></P> <P ALIGN="CENTER"><FONT SIZE=2> </FONT><FONT SIZE=2><B>LITHIA MOTORS, INC. AND SUBSIDIARIES<BR> CONSOLIDATED BALANCE SHEETS<BR> (In thousands)<BR> (Unaudited)</B></FONT></P> <!-- User-specified TAGGED TABLE --> <TABLE WIDTH="87%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="BOTTOM"> <TH WIDTH="65%" ALIGN="LEFT"><FONT SIZE=2> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="16%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>September 30,<BR> 1999</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="15%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December 31,<BR> 1998</B></FONT><HR NOSHADE></TH> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2><B>Assets</B></FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Current Assets:</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Cash and cash equivalents</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>26,264</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>20,879</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Trade receivables, net of allowances of $1,002 and $0</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>26,669</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>17,287</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Notes receivable, current portion, net of allowance for doubtful accounts of $396 and $714</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,967</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,074</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Inventories, net</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>212,323</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>157,455</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Vehicles leased to others, current portion</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,431</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>861</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Prepaid expenses and other</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>3,429</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,933</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Deferred income taxes</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>3,118</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,707</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="65%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Total Current Assets</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>276,201</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>204,196</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2> <BR> Property and Equipment, net of accumulated depreciation of $5,457 and $3,907</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2> <BR> 44,408</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2> <BR> 32,933</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Vehicles Leased to Others, net</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>5,760</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>5,647</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Notes Receivable, less current portion</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>4,438</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>7,173</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Goodwill, net of accumulated amortization of $2,411 and $1,180</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>83,048</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>42,951</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Other Non-Current Assets, net of accumulated amortization of $133 and $103</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,712</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,498</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="65%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Total Assets</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>415,567</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>294,398</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="65%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2><B>Liabilities and Shareholders' Equity</B></FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Current Liabilities:</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Floorplan notes payable</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>156,578</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>124,167</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Current maturities of long-term debt</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>8,213</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>8,116</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Current portion of capital leases</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>139</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>27</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Trade payables</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>11,347</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>6,313</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Accrued liabilities</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>24,557</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>12,020</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="65%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Total Current Liabilities</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>200,834</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>150,643</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2> <BR> Long-Term Debt, less current maturities</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2> <BR> 59,685</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2> <BR> 38,994</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Long-Term Capital Lease Obligation, less current portion</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,622</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,426</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Deferred Revenue</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,430</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,076</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Other Long-Term Liabilities</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,935</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,606</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Deferred Income Taxes</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>8,723</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>7,142</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="65%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Total Liabilities</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>277,229</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>202,887</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="65%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Shareholders' Equity</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Preferred stock—no par value; authorized 15,000 shares; issued and outstanding; none</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Convertible, redeemable Series M preferred stock; authorized 15 shares; issued and outstanding 10.4 and 0</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>6,216</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Class A common stock—par value; authorized 100,000 shares; issued and outstanding 7,592 and 6,105</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>97,966</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>70,871</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Class B common stock—par value; authorized 25,000 shares; issued and outstanding 4,087 and 4,110</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>508</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>511</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Additional paid-in capital</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>208</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>150</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Retained earnings</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>33,440</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>19,979</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="65%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Total Shareholders' Equity</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>138,338</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>91,511</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="65%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="65%"><FONT SIZE=2>Total Liabilities and Shareholders' Equity</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>415,567</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>294,398</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="65%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> </TR> </TABLE> <!-- end of user-specified TAGGED TABLE --> <P ALIGN="CENTER"><FONT SIZE=2>The accompanying notes are an integral part of these statements.</FONT></P> <P><FONT SIZE=2><p align=center>2</p></FONT><FONT SIZE=2> <!-- ZEQ.=1,SEQ=3,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=2,FILE='DISK037:[99SFO7.99SFO2367]FA2367A.;31',USER='BHUGHES',CD='12-NOV-1999;10:58' --> </FONT></P> <P ALIGN="CENTER"><FONT SIZE=2><B>LITHIA MOTORS, INC. AND SUBSIDIARIES<BR> CONSOLIDATED STATEMENTS OF OPERATIONS<BR> (Dollars in thousands, except per share amount)<BR> (Unaudited)</B></FONT></P> <!-- User-specified TAGGED TABLE --> <TABLE WIDTH="92%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="BOTTOM"> <TH WIDTH="38%" ALIGN="LEFT"><FONT SIZE=2> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="26%" COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended<BR> September 30,</B></FONT><HR NOSHADE></TH> <TH WIDTH="6%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="26%" COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Nine months ended<BR> September 30,</B></FONT><HR NOSHADE></TH> <TH WIDTH="1%"><FONT SIZE=1> </FONT></TH> </TR> <TR VALIGN="BOTTOM"> <TH WIDTH="38%" ALIGN="LEFT"><FONT SIZE=1> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="11%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH> <TH WIDTH="4%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="11%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH> <TH WIDTH="6%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="11%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH> <TH WIDTH="4%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="11%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH> <TH WIDTH="1%"><FONT SIZE=1> </FONT></TH> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Revenues:</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>New vehicle sales</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>199,107</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>110,497</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>483,182</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>280,109</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Used vehicle sales</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>105,434</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>56,605</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>270,292</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>162,300</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Service, body and parts</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>33,898</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>18,509</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>85,805</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>49,257</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Other revenues</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>18,930</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>10,303</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>49,988</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>23,988</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Total revenues</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>357,369</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>195,914</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>889,267</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>515,654</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Cost of sales</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>300,124</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>164,163</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>748,036</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>433,858</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Gross profit</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>57,245</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>31,751</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>141,231</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>81,796</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Selling, general and administrative</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>41,564</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>23,241</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>104,273</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>61,352</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Depreciation and amortization</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1,560</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>923</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>3,999</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2,447</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Income from operations</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>14,121</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>7,587</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>32,959</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>17,997</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Other income (expense) Floorplan interest expense</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(3,090</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1,685</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(7,378</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(5,201</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Other interest expense</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1,191</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(547</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(2,885</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1,898</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Other income, net</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>84</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>610</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>12</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1,163</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(4,197</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1,622</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(10,251</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(5,936</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Income before income taxes</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>9,924</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>5,965</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>22,708</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>12,061</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Income tax expense</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4,071</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2,307</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>9,249</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4,661</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Net income</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>5,853</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>3,658</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>13,459</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>7,400</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Basic net income per share</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>0.50</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>0.36</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1.23</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>0.84</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="38%"><FONT SIZE=2>Diluted net income per share</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>0.47</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>0.35</FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1.16</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>0.81</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> </TABLE> <!-- end of user-specified TAGGED TABLE --> <P ALIGN="CENTER"><FONT SIZE=2>The accompanying notes are an integral part of these consolidated statements.</FONT></P> <P><FONT SIZE=2><p align=center>3</p></FONT><FONT SIZE=2> <!-- ZEQ.=2,SEQ=4,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=3,FILE='DISK037:[99SFO7.99SFO2367]FA2367A.;31',USER='BHUGHES',CD='12-NOV-1999;10:58' --> </FONT></P> <P ALIGN="CENTER"><FONT SIZE=2><B>LITHIA MOTORS, INC. AND SUBSIDIARIES<BR> CONSOLIDATED STATEMENTS OF CASH FLOWS<BR> (In thousands)<BR> (Unaudited)</B></FONT></P> <!-- User-specified TAGGED TABLE --> <TABLE WIDTH="84%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="BOTTOM"> <TH WIDTH="69%" ALIGN="LEFT"><FONT SIZE=2> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="27%" COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Nine months ended<BR> September 30,</B></FONT><HR NOSHADE></TH> <TH WIDTH="1%"><FONT SIZE=1> </FONT></TH> </TR> <TR VALIGN="BOTTOM"> <TH WIDTH="69%" ALIGN="LEFT"><FONT SIZE=1> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="11%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH> <TH WIDTH="4%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="11%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH> <TH WIDTH="1%"><FONT SIZE=1> </FONT></TH> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Cash flows from operating activities:</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Net income</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>13,459</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>7,400</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Adjustments to reconcile net income to net cash provided by operating activities:</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Depreciation and amortization</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>3,999</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2,447</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Compensation expense related to stock option issuances</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>59</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>103</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Loss on sale of assets</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>39</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>32</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>(Gain) loss on sale of vehicles leased to others</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>220</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(14</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Deferred income taxes</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1,418</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(64</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Equity in income of affiliate</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(44</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(35</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>(Increase) decrease, net of effect of acquisitions:</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Trade and installment contract receivables, net</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>654</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(6,855</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Inventories</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>16,256</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(5,959</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Prepaid expenses and other</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1,589</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>75</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Other noncurrent assets</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(239</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>141</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Increase (decrease), net of effect of acquisitions:</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Floorplan notes payable</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(20,314</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>5,829</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Trade payables</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(3,824</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1,000</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Accrued liabilities</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>7,616</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4,638</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Other liabilities</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>199</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>224</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="69%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Net cash provided by operating activities</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>15,073</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>8,962</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2> <BR> Cash flows from investing activities:</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> <BR> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Notes receivable issued</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(772</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(621</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Principal payments received on notes receivable</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>6,222</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>302</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Capital expenditures</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(6,833</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(2,840</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Proceeds from sale of assets</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1,379</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>168</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Proceeds from sale of vehicles leased to others</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>5,432</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>5,416</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Expenditures for vehicles leased to others</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(7,302</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(6,602</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Cash paid for acquisitions</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(29,042</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(28,256</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Distribution from affiliate</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1,268</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="69%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Net cash used in investing activities</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(29,648</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(32,433</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Cash flows from financing activities:</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Net borrowings (repayments) on lines of credit</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>25,500</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(15,500</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Payments on capital lease obligations</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(977</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Principal payments on long-term debt</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(6,560</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2>)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(37,531</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Proceeds from issuance of long-term debt</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1,449</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>33,174</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Proceeds from issuance of common stock</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>548</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>42,529</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="69%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Net cash provided by financing activities</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>19,960</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>22,672</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="69%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Increase (decrease) in cash and cash equivalents</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>5,385</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(799</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Cash and cash equivalents:</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>Beginning of period</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>20,879</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>18,454</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="69%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM"> <TD WIDTH="69%"><FONT SIZE=2>End of period</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>26,264</FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>17,655</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="69%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="4%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="1%"><FONT SIZE=2> </FONT></TD> </TR> </TABLE> <!-- end of user-specified TAGGED TABLE --> <P ALIGN="CENTER"><FONT SIZE=2>The accompanying notes are an integral part of these consolidated statements.</FONT></P> <P><FONT SIZE=2><p align=center>4</p></FONT><FONT SIZE=2> <!-- ZEQ.=3,SEQ=5,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=4,FILE='DISK037:[99SFO7.99SFO2367]FA2367A.;31',USER='BHUGHES',CD='12-NOV-1999;10:58' --> </FONT></P> <!-- Generated by Merrill Corporation (www.merrillcorp.com) --> <H2><FONT SIZE=3 > </FONT></H2> <P ALIGN="CENTER"><FONT SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B></FONT></P> <P ALIGN="CENTER"><FONT SIZE=2><B>(In thousands, except per share amounts)<BR> (Unaudited)</B></FONT></P> <P><FONT SIZE=2><B>Note 1. Basis of Presentation</B></FONT></P> <P><FONT SIZE=2> The financial information included herein for the three and nine-month periods ended September 30, 1999 and 1998 is unaudited; however, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 1998 is derived from Lithia Motors, Inc.'s (the Company's) 1998 Annual Report on Form 10-K. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's 1998 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.</FONT></P> <P><FONT SIZE=2><B>Note 2. Inventories</B></FONT></P> <P><FONT SIZE=2> Inventories are valued at cost, using the specific identification method for vehicles and the first-in first-out (FIFO) method of accounting for parts (collectively, the FIFO method).</FONT></P> <!-- User-specified TAGGED TABLE --> <TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="BOTTOM"> <TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=2> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="15%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>September 30, 1999</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="15%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December 31, 1998</B></FONT><HR NOSHADE></TH> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="66%"><FONT SIZE=2>New and demonstrator vehicles</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>142,999</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>112,990</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="66%"><FONT SIZE=2>Used vehicles</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>56,973</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>34,599</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="66%"><FONT SIZE=2>Parts and accessories</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>12,351</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,866</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="66%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="66%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>212,323</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>157,455</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="66%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> </TABLE> <!-- end of user-specified TAGGED TABLE --> <P><FONT SIZE=2><B>Note 3. Acquisitions</B></FONT></P> <P><FONT SIZE=2> In May 1999, Lithia acquired all of the stock of seven commonly controlled automotive dealerships constituting the Moreland Automotive Group ("Moreland") for approximately $35.7 million in cash drawn from the Company's existing used vehicle line of credit, 1,273 shares of the Company's Class A Common Stock with a value of approximately $24.1 million at the time of issuance, and 10 shares of Lithia's newly created Series M Preferred Stock with a value of approximately $6.2 million at the time of issuance. Additional amounts will be payable by Lithia to the Moreland shareholders if the performance of the Moreland stores exceeds certain profit targets set for 1999. At closing, Moreland had approximately $18.2 million of used vehicles available for flooring under the Lithia's used vehicle line of credit, reducing Lithia's net investment in the acquired dealerships by that amount to a total of $47.8 million.</FONT></P> <P><FONT SIZE=2> Lithia also acquired one store in Klamath Falls, Oregon in May 1999 and two stores in Roseburg, Oregon in August 1999.</FONT></P> <P><FONT SIZE=2> The above acquisitions were accounted for under the purchase method of accounting. Pro forma results of operations including the Klamath Falls and Roseburg acquisitions are not materially different from actual results of operations. <p align=center>5</p></FONT><FONT SIZE=2> <!-- ZEQ.=1,SEQ=6,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=5,FILE='DISK037:[99SFO7.99SFO2367]GA2367A.;19',USER='CSTCLAI',CD='12-NOV-1999;13:44' --> </FONT></P> <P><FONT SIZE=2> Pro forma results of operations including the Moreland Automotive acquisition for the nine months ended September 30, 1999 and 1998 are as follows:</FONT></P> <!-- User-specified TAGGED TABLE --> <CENTER><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="BOTTOM"> <TH WIDTH="64%" ALIGN="LEFT"><FONT SIZE=2> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="34%" COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Nine Months Ended September 30,</B></FONT><HR NOSHADE></TH> </TR> <TR VALIGN="BOTTOM"> <TH WIDTH="64%" ALIGN="LEFT"><FONT SIZE=1> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="17%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="14%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="64%"><FONT SIZE=2>Revenue</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,056,012</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>798,393</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="64%"><FONT SIZE=2>Net income</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>15,294</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>7,493</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="64%"><FONT SIZE=2>EPS: Basic</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1.36</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0.74</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="64%"><FONT SIZE=2> Diluted</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1.26</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0.68</FONT></TD> </TR> </TABLE></CENTER> <!-- end of user-specified TAGGED TABLE --> <P><FONT SIZE=2> The 1998 pro forma results of operations include bonuses paid by Moreland to its owners. Excluding such bonuses, which would not have been paid under Lithia's ownership, the acquisition would have been accretive to Lithia's 1998 earnings.</FONT></P> <P><FONT SIZE=2><B>Note 4. Supplemental Cash Flow Information</B></FONT></P> <P><FONT SIZE=2> Supplemental disclosure of cash flow information is as follows:</FONT></P> <!-- User-specified TAGGED TABLE --> <CENTER><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="BOTTOM"> <TH WIDTH="71%" ALIGN="LEFT"><FONT SIZE=2> </FONT><BR></TH> <TH WIDTH="3%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="27%" COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Nine Months Ended September 30,</B></FONT><HR NOSHADE></TH> </TR> <TR VALIGN="BOTTOM"> <TH WIDTH="71%" ALIGN="LEFT"><FONT SIZE=1> </FONT><BR></TH> <TH WIDTH="3%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH> <TH WIDTH="3%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="11%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="71%"><FONT SIZE=2>Cash paid during the period for income taxes</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>9,848</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4,372</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="71%"><FONT SIZE=2>Cash paid during the period for interest</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>10,209</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>7,099</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="71%"><FONT SIZE=2>Stock issued in connection with acquisitions</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>32,761</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> </TR> </TABLE></CENTER> <!-- end of user-specified TAGGED TABLE --> <P><FONT SIZE=2><B>Note 5. Earnings Per Share</B></FONT></P> <P><FONT SIZE=2> Following is a reconciliation of basic earnings per share ("EPS") and diluted EPS:</FONT></P> <!-- User-specified TAGGED TABLE --> <TABLE WIDTH="93%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="BOTTOM"> <TH WIDTH="38%" ALIGN="LEFT"><FONT SIZE=2> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="61%" COLSPAN=15 ALIGN="CENTER"><FONT SIZE=1><B>Three Months Ended September 30,</B></FONT><HR NOSHADE></TH> </TR> <TR VALIGN="BOTTOM"> <TH WIDTH="38%" ALIGN="LEFT"><FONT SIZE=1> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="29%" COLSPAN=7 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="29%" COLSPAN=7 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH> </TR> <TR VALIGN="BOTTOM"> <TH WIDTH="38%" ALIGN="LEFT"><FONT SIZE=1> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Income</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Per<BR> Share<BR> Amount</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Income</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Per<BR> Share<BR> Amount</B></FONT><HR NOSHADE></TH> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2><B>Basic EPS</B></FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2>Net income available to Common Shareholders</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5,853</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>11,596</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0.50</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3,658</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10,192</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0.36</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2><B>Diluted EPS</B></FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2>Effect of dilutive stock options</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>396</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>316</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2>Convertible preferred stock</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>494</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2>Net income available to Common Shareholders</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5,853</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>12,486</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0.47</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3,658</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10,508</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0.35</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> </TABLE> <!-- end of user-specified TAGGED TABLE --> <P><FONT SIZE=2><p align=center>6</p></FONT><FONT SIZE=2> <!-- ZEQ.=2,SEQ=7,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=6,FILE='DISK037:[99SFO7.99SFO2367]GA2367A.;19',USER='CSTCLAI',CD='12-NOV-1999;13:44' --> </FONT></P> <!-- User-specified TAGGED TABLE --> <TABLE WIDTH="93%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="BOTTOM"> <TH WIDTH="38%" ALIGN="LEFT"><FONT SIZE=2> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="61%" COLSPAN=15 ALIGN="CENTER"><FONT SIZE=1><B>Nine Months Ended September 30,</B></FONT><HR NOSHADE></TH> </TR> <TR VALIGN="BOTTOM"> <TH WIDTH="38%" ALIGN="LEFT"><FONT SIZE=1> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="31%" COLSPAN=7 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="28%" COLSPAN=7 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH> </TR> <TR VALIGN="BOTTOM"> <TH WIDTH="38%" ALIGN="LEFT"><FONT SIZE=1> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Income</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Per<BR> Share<BR> Amount</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Income</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="6%" ALIGN="CENTER"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Per<BR> Share<BR> Amount</B></FONT><HR NOSHADE></TH> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2><B>Basic EPS</B></FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2>Net income available to Common Shareholders</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>13,459</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10,926</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.23</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>7,400</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>8,789</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0.84</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2><B>Diluted EPS</B></FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2>Effect of dilutive stock options</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>367</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>324</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2>Convertible preferred stock</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>277</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2>Net income available to Common Shareholders</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>13,459</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>11,570</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.16</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>7,400</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>9,113</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0.81</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="38%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> </TABLE> <!-- end of user-specified TAGGED TABLE --> <P><FONT SIZE=2> Potentially dilutive securities that are not included in the diluted EPS calculations because they would be antidilutive include 0 and 140 shares, respectively, issuable pursuant to stock options for the three month periods ended September 30, 1999 and 1998, respectively, and 34 and 44 shares, respectively, for the nine month periods ended September 30, 1999 and 1998, respectively.</FONT></P> <P><FONT SIZE=2><B>Note 6. Sale of Properties</B></FONT></P> <P><FONT SIZE=2> In June 1999, Lithia Properties, LLC, of which 20% is owned by Lithia, completed its sale of certain real estate holdings in the Southern Oregon region to Capital Automotive Real Estate Investment Trust ("Capital") for $18.3 million. As a result of this sale, Lithia received a distribution for its portion of the realized gain, totaling approximately $1.3 million, which will be realized ratably over the 12 year life of the new lease. Lithia now leases such properties from Capital for amounts that are not materially different from the lease amounts under the previous lease agreements.</FONT></P> <P><FONT SIZE=2><B>Note 7. Reclassifications</B></FONT></P> <P><FONT SIZE=2> Certain amounts in the prior period financial statements have been reclassified to conform to current period presentation.</FONT></P> <P><FONT SIZE=2><B>Note 8. Subsequent Events</B></FONT></P> <P><FONT SIZE=2> In October 1999, Lithia acquired Tri-Cities Dodge in Kennewick, Washington. This acquisition was accounted for under the purchase method of accounting. Pro forma results of operations are not materially different from actual results of operations.</FONT></P> <P><FONT SIZE=2> Also in October 1999, Lithia revised and renewed a $15.0 million line of credit agreement for equipment purchases and a $10.0 million line of credit agreement for vehicle leases with U.S. Bank N.A.</FONT></P> <P><FONT SIZE=2><p align=center>7</p></FONT><FONT SIZE=2> <!-- ZEQ.=3,SEQ=8,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=7,FILE='DISK037:[99SFO7.99SFO2367]GA2367A.;19',USER='CSTCLAI',CD='12-NOV-1999;13:44' --> </FONT></P> <BR> <P><FONT SIZE=2><A NAME="ga2367_item_2._management_s_discussio__ite03663"> </A></FONT><FONT SIZE=2><B>Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations </B></FONT></P> <P><FONT SIZE=2><B>Forward Looking Statements and Risk Factors</B></FONT></P> <P><FONT SIZE=2> This Form 10-Q contains 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. These risk factors include, but are not limited to, the following:</FONT></P> <UL> <DL compact> <DT><FONT SIZE=2>•</FONT></DT><DD><FONT SIZE=2>The cyclical nature of automobile sales; <BR><BR></FONT></DD><DT><FONT SIZE=2>•</FONT></DT><DD><FONT SIZE=2>Lithia's ability to negotiate profitable, accretive acquisitions; <BR><BR></FONT></DD><DT><FONT SIZE=2>•</FONT></DT><DD><FONT SIZE=2>Lithia's ability to secure manufacturer approvals for acquisitions; and <BR><BR></FONT></DD><DT><FONT SIZE=2>•</FONT></DT><DD><FONT SIZE=2>Lithia's ability to retain existing management.</FONT></DD></DL> </UL> <BR> <P><FONT SIZE=2> See Exhibit 99 to Lithia's 1998 Form 10-K for a more complete discussion of risk factors.</FONT></P> <P><FONT SIZE=2><B>General</B></FONT></P> <P><FONT SIZE=2> Lithia is a leading operator and retailer in the highly fragmented automotive industry. As of November 10, 1999, we offer 24 brands of new vehicles, through 94 franchises in 39 locations in the western United States and over the Internet. We currently operate 14 dealerships in California, 12 in Oregon, 3 in Washington, 6 in Colorado and 4 in Nevada. Lithia sells new and used cars and light trucks, sells replacement parts, provides vehicle maintenance, warranty, paint and repair services, and arranges related financing and insurance for its automotive customers.</FONT></P> <P><FONT SIZE=2> The following table shows selected condensed financial data expressed as a percentage of total revenues for the periods indicated for the average automotive dealer in the United States.</FONT></P> <!-- User-specified TAGGED TABLE --> <CENTER><TABLE WIDTH="64%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="BOTTOM"> <TH WIDTH="76%" ALIGN="LEFT"><FONT SIZE=2> </FONT><BR></TH> <TH WIDTH="3%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="19%" COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended December 31,</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> </TR> <TR VALIGN="BOTTOM"> <TH WIDTH="76%" ALIGN="LEFT"><FONT SIZE=2><B>Average U.S. Dealership<BR></B></FONT><BR></TH> <TH WIDTH="3%"><FONT SIZE=2> </FONT></TH> <TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH> <TH WIDTH="3%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>1997</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="76%"><FONT SIZE=2><B>Statement of Operations Data:</B></FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="76%"><FONT SIZE=2>Revenues:</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="76%"><FONT SIZE=2>New vehicles</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>59.0</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>58.3</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="76%"><FONT SIZE=2>Used vehicles</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>29.4</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>29.8</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="76%"><FONT SIZE=2>Parts and service, other</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>11.6</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>11.9</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="76%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="76%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>100.0</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>100.0</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="76%"><FONT SIZE=2>Gross profit</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>12.9</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>12.7</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="76%"><FONT SIZE=2>Total dealership expense</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>11.2</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>11.3</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="76%"><FONT SIZE=2>Income before taxes</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.7</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD> <TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.4</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> </TR> </TABLE></CENTER> <!-- end of user-specified TAGGED TABLE --> <P><FONT SIZE=2>Source: </FONT><FONT SIZE=2><B>NADA Industry Analysis Division</B></FONT><FONT SIZE=2><p align=center>8</p></FONT><FONT SIZE=2> <!-- ZEQ.=4,SEQ=9,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=8,FILE='DISK037:[99SFO7.99SFO2367]GA2367A.;19',USER='CSTCLAI',CD='12-NOV-1999;13:44' --> </FONT></P> <P><FONT SIZE=2> The following table sets forth selected condensed financial data for Lithia, expressed as a percentage of total revenues for the periods indicated below:</FONT></P> <!-- User-specified TAGGED TABLE --> <TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="BOTTOM"> <TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=2> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="16%" COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Three Months Ended<BR> September 30,</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="16%" COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Nine Months Ended<BR> September 30,</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> </TR> <TR VALIGN="BOTTOM"> <TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=1> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2><B>Statement of Operations Data:</B></FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2>Revenues:</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2>New vehicles</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>55.7</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>56.4</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>54.3</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>54.3</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2>Used vehicles</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>29.5</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>28.9</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>30.4</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>31.5</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2>Service, body and parts</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>9.5</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>9.5</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>9.7</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>9.6</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2>Other</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>5.3</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>5.2</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>5.6</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>4.6</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2>Total revenues</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100.0</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100.0</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100.0</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100.0</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2>Gross profit</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>16.0</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>16.2</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>15.9</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>15.9</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2>Selling, general and administrative</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>11.6</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>11.8</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>11.7</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>11.9</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2>Depreciation and amortization</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.4</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.5</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.5</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.5</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2>Operating income</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>4.0</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3.9</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3.7</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3.5</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2>Other expense, net</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(1.2)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(0.8)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(1.1)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(1.2)</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2>Income before taxes</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>2.8</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3.1</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>2.6</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>2.3</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="62%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> </TR> </TABLE> <!-- end of user-specified TAGGED TABLE --> <P><FONT SIZE=2><B>Results of Operations</B></FONT></P> <P><FONT SIZE=2><B><I>Revenues. </I></B></FONT><FONT SIZE=2>Revenues increased $161.5 million, or 82.4 percent, to $357.4 million for the quarter ended September 30, 1999 from $195.9 million for the comparable period of 1998. Revenues increased $373.6 million, or 72.5 percent, to $889.3 million for the nine months ended September 30, 1999 compared to $515.7 million for the comparable period of 1998. Same store sales increased 4.9 percent and 6.9 percent, respectively, for the three and nine month periods ended September 30, 1999 compared to the same periods of 1998.</FONT></P> <P><FONT SIZE=2><B><I>New Vehicles. </I></B></FONT><FONT SIZE=2>Total revenue from new vehicle sales increased 80.2% and 72.5%, respectively, to $199.1 million and $483.2 million, respectively (55.7% and 54.3%, respectively, of total revenues) in the three and nine month periods ended September 30, 1999 compared to $110.5 million and $280.1 million, respectively (56.4% and 54.3%, respectively, of total revenues) for the three and nine-month periods ended September 30, 1998. Lithia sold 8,399 and 20,859 new vehicles, respectively, in the three and nine month periods ended September 30, 1999, a 63.3% and 61.4% increase, respectively, over the 5,142 and 12,926 sold, respectively, in the three and nine month periods ended September 30, 1998. Average selling prices for new vehicles increased 10.3% and 6.9%, respectively, to $23,706 and $23,164, respectively, in the three and nine month periods ended September 30, 1999 compared to $21,489 and $21,670, respectively, in the three and nine month periods ended September 30, 1998. The increases in units sold are a result of acquisitions and internal growth.</FONT></P> <P><FONT SIZE=2> Lithia purchases substantially all of its new car inventory directly from manufacturers who allocate new vehicles to dealerships based on orders and the amount of vehicles sold by the dealership and by the dealership's market area. Lithia also exchanges vehicles with other dealers to accommodate customer demand and to balance inventory.</FONT></P> <P><FONT SIZE=2><B><I>Retail Used Vehicles. </I></B></FONT><FONT SIZE=2>Total revenue from retail used vehicle sales increased 108.3% and 77.1%, respectively, to $92.0 million and $225.2 million, respectively (25.8% and 25.3%, respectively, of total revenues) in the three and nine month periods ended September 30, 1999 compared to $44.2 million and $127.1 million, respectively (22.6% and 24.7%, respectively, of total revenues) for the three and nine month periods ended September 30, 1998. Lithia sold 7,018 and 17,146 retail used vehicles, <p align=center>9</p></FONT><FONT SIZE=2> <!-- ZEQ.=5,SEQ=10,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=9,FILE='DISK037:[99SFO7.99SFO2367]GA2367B.;8',USER='CSTCLAI',CD='12-NOV-1999;13:44' --> respectively, in the three and nine month periods ended September 30, 1999, a 100.9% and 72.2% increase, respectively, over the 3,493 units and 9,959 sold, respectively, in the three and nine month periods ended September 30, 1998. Average selling prices for used retail vehicles increased 3.7% and 2.9%, respectively, to $13,114 and $13,132, respectively, in the three and nine month periods ended September 30, 1999 compared to $12,650 and $12,763, respectively, in the three and nine month periods ended September 30, 1998. The increases in units sold are a result of acquisitions and internal growth.</FONT></P> <P><FONT SIZE=2><B><I>Service, Body and Parts. </I></B></FONT><FONT SIZE=2>Lithia derives additional revenue from the sale of parts and accessories, maintenance and repair services and collision repair work. Revenues from these services increased 83.1% and 74.2%, respectively, to $33.9 million and $85.8 million, respectively (9.5% and 9.7% of total revenues, respectively), in the three and nine month periods ended September 30, 1999 compared to $18.5 million and $49.3 million, respectively (9.5% and 9.6% of total revenues, respectively), in the three and nine month periods ended September 30, 1998. The increases are a result of internal growth and dealership acquisitions.</FONT></P> <P><FONT SIZE=2><B><I>Other Revenues. </I></B></FONT><FONT SIZE=2>Other revenues consist primarily of fleet, financing and insurance ("F&I") transactions. Other revenues increased 83.7% and 108.4%, respectively, to $18.9 million and $50.0 million, respectively (5.3% and 5.6% of total revenues, respectively), in the three and nine month periods ended September 30, 1999 compared to $10.3 million and $24.0 million, respectively (5.2% and 4.6% of total revenues, respectively), in the three and nine month periods ended September 30, 1998. The increases are a result of internal growth and dealership acquisitions.</FONT></P> <P><FONT SIZE=2><B><I>Gross Profit. </I></B></FONT><FONT SIZE=2>Gross profit increased 80.3% and 72.7%, respectively, to $57.2 million and $141.2 million, respectively, for the three and nine month periods ended September 30, 1999, compared with $31.8 million and $81.8 million, respectively, for the three and nine month periods ended September 30, 1998, primarily due to increased revenues as indicated above. The gross profit margin achieved by the Company on new vehicle sales during the three and nine month periods ended September 30, 1999 was 9.4% and 9.4%, respectively, compared to 9.8% and 9.9%, respectively, for the three and nine month periods ended September 30, 1998. These figures compare favorably with the average gross profit margin of 6.5% realized by franchised automobile dealers in the United States on sales of new vehicles in 1998. Lithia's gross profit margin on retail used vehicle sales during the three and nine month periods ended September 30, 1999 was 11.5% and 11.3%, respectively, compared to 11.3% and 10.9%, respectively, for the three and nine month periods ended September 30, 1998, and compared to the industry average for 1998 of 10.9%. Sales of used vehicles to other dealers and to wholesalers are frequently at, or close to, cost. Total gross profit margin was 16.0% and 15.9% for the three and nine month periods ended September 30, 1999, respectively, compared to 16.2% and 15.9% for the comparable periods of 1998.</FONT></P> <P><FONT SIZE=2><B><I>Selling, General and Administrative Expense. </I></B></FONT><FONT SIZE=2>Selling, general and administrative ("SG&A") expense increased 78.8% and 70.0%, respectively, to $41.6 million and $104.3 million, respectively (11.6% and 11.7% of total revenues, respectively), for the three and nine month periods ended September 30, 1999, compared with $23.2 million and $61.4 million, respectively (11.8% and 11.9% of total revenues, respectively), for the three and nine month periods ended September 30, 1998. The increase in SG&A was due primarily to increased selling, or variable, expense related to the increase in revenues and the number of total locations.</FONT></P> <P><FONT SIZE=2><B><I>Depreciation and Amortization. </I></B></FONT><FONT SIZE=2>Depreciation and amortization expense increased 69.0% and 63.4%, respectively, to $1.6 million and $4.0 million, respectively (0.4% and 0.5% of total revenues, respectively), for the three and nine month periods ended September 30, 1999, compared with $0.9 million and $2.4 million, respectively (0.5% and 0.5% of total revenues, respectively), for the three and nine month periods ended September 30, 1998. The increases are primarily a result of increased property and equipment and goodwill related to acquisitions in 1998 and 1999. <p align=center>10</p></FONT><FONT SIZE=2> <!-- ZEQ.=6,SEQ=11,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=10,FILE='DISK037:[99SFO7.99SFO2367]GA2367B.;8',USER='CSTCLAI',CD='12-NOV-1999;13:44' --> </FONT></P> <P><FONT SIZE=2><B><I>Floorplan Interest Expense. </I></B></FONT><FONT SIZE=2>Floorplan interest expense increased 83.4% and 41.9%, respectively, to $3.1 million and $7.4 million, respectively (0.9% and 0.8% of total revenues, respectively), for the three and nine month periods ended September 30, 1999, compared with $1.7 million and $5.2 million, respectively (0.9% and 1.0% of total revenues, respectively), for the three and nine month periods ended September 30, 1998. The increases are primarily a result of increased flooring notes payable related to increased inventories as a result of the increase in stores owned and vehicles sold. Lithia has been able to reduce its floorplan interest expense as a percentage of total revenues by successfully managing inventory levels.</FONT></P> <P><FONT SIZE=2><B><I>Income Tax Expense. </I></B></FONT><FONT SIZE=2>Lithia's effective tax rate for the first nine months of 1999 was 40.7% compared to 38.7% in the first nine months of 1998 and 39.3% for the full year of 1998. The Company's effective tax rate may be affected by the purchase of new dealerships in jurisdictions with tax rates either higher or lower than the current effective rate and by the deductibility or non-deductibility of goodwill related to acquisitions.</FONT></P> <P><FONT SIZE=2><B><I>Net Income. </I></B></FONT><FONT SIZE=2>Net income increased 60.0% and 81.9%, respectively, to $5.9 million and $13.5 million, respectively (1.6% and 1.5% of total revenues, respectively), for the three and nine month periods ended September 30, 1999, compared with $3.7 million and $7.4 million, respectively (1.9% and 1.4% of total revenues, respectively), for the three and nine month periods ended September 30, 1998, primarily as a result of increased revenues and decreased floorplan interest expense as a percent of total revenues.</FONT></P> <P><FONT SIZE=2><B>Liquidity and Capital Resources</B></FONT></P> <P><FONT SIZE=2> Lithia's principal needs for capital resources are for acquisitions, capital expenditures and working capital. Historically, Lithia has relied primarily upon internally generated cash flows from operations, borrowings under its credit facility and the proceeds from its public offerings to finance its operations and expansion.</FONT></P> <P><FONT SIZE=2> At September 30, 1999, Lithia had working capital of $75.4 million, which included $26.3 million of cash and cash equivalents. The $5.4 million increase in cash since December 31, 1998 is primarily a result of $15.1 million provided by operations, $25.5 million net borrowings on lines of credit and $5.5 million of principal payments received on notes receivable, offset by $29.0 million used for acquisitions, $6.8 million used for the purchase of property and equipment and $5.1 million net payments on long-term debt. The current ratio was 1.4:1 at September 30, 1999 and December 31, 1998.</FONT></P> <P><FONT SIZE=2> The increases in trade receivables, inventory and goodwill are primarily a result of acquisitions in the first nine months of 1999.</FONT></P> <P><FONT SIZE=2> Ford Motor Credit Corporation, Toyota Motor Credit Corporation, Chrysler Financial Corporation and General Motors Acceptance Corporation have agreed to floor all of Lithia's new vehicles for their respective brands with Ford serving as the primary lender for all other brands. There are no formal limits to these commitments for new vehicle wholesale financing.</FONT></P> <P><FONT SIZE=2> Ford Credit has also extended a $60 million revolving line of credit for used vehicles and a $75 million acquisition line of credit to purchase dealerships of any brand. These commitments have an expiration date of November 23, 2000 with interest due monthly. Lithia has the right to elect to extend the term on these lines of credit for an additional two years at November 23, 1999 and intends to exercise this right. Lithia also has the option to convert the acquisition line into a five-year term loan on November 23, 1999 or November 23, 2000. In addition, U.S. Bank N.A. has extended a $10 million revolving line of credit for leased vehicles and a $15 million line of credit for equipment purchases. <p align=center>11</p></FONT><FONT SIZE=2> <!-- ZEQ.=7,SEQ=12,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=11,FILE='DISK037:[99SFO7.99SFO2367]GA2367B.;8',USER='CSTCLAI',CD='12-NOV-1999;13:44' --> </FONT></P> <P><FONT SIZE=2> The lines with Ford Credit are cross-collateralized and are secured by inventory, accounts receivable, intangible assets and equipment. The other new vehicle lines are secured by new vehicle inventory of the relevant dealerships.</FONT></P> <P><FONT SIZE=2> The Ford Credit lines of credit contain financial covenants requiring Lithia to maintain compliance with, among other things, specified ratios of (i) total debt to tangible base capital; (ii) total adjusted debt to tangible base capital; (iii) current ratio; (iv) fixed charge coverage; and (v) net cash. The Ford Credit lines of credit agreements also preclude the payment of cash dividends without the prior consent of Ford Credit. Lithia was in compliance with all such covenants at September 30, 1999.</FONT></P> <P><FONT SIZE=2> Interest rates on all of the above facilities ranged from 6.91% to 8.28% at September 30, 1999. Amounts outstanding on the lines at September 30, 1999 were as follows (in thousands):</FONT></P> <!-- User-specified TAGGED TABLE --> <CENTER><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="82%"><FONT SIZE=2>New and Program Vehicle Lines</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>156,578</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="82%"><FONT SIZE=2>Used Vehicle Line</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>29,500</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="82%"><FONT SIZE=2>Acquisition Line</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="82%"><FONT SIZE=2>Leased Vehicle Line</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD> </TR> <TR BGCOLOR="#CCEEFF" VALIGN="TOP"> <TD WIDTH="82%"><FONT SIZE=2>Equipment Line</FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>—</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="82%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD> </TR> <TR BGCOLOR="White" VALIGN="TOP"> <TD WIDTH="82%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD> <TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>191,078</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="82%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="3%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD> </TR> </TABLE></CENTER> <!-- end of user-specified TAGGED TABLE --> <P><FONT SIZE=2> Since December 1996 when Lithia completed its initial public offering, it has acquired 34 dealerships, 2 in 1996, 10 in 1997, 11 in 1998 and 11 in 1999.</FONT></P> <P><FONT SIZE=2><B>Seasonality and Quarterly Fluctuations</B></FONT></P> <P><FONT SIZE=2> Historically, Lithia's sales have been lower in the first and fourth quarters of each year largely due to consumer purchasing patterns during the holiday season, inclement weather and the reduced number of business days during the holiday season. As a result, financial performance may be lower during the first and fourth quarters than during the other quarters of each fiscal year. Management believes that interest rates, levels of consumer debt, consumer buying patterns and confidence, as well as general economic conditions, also contribute to fluctuations in sales and operating results. The timing of acquisitions may cause substantial fluctuations in operating results from quarter to quarter.</FONT></P> <P><FONT SIZE=2><B>Year 2000</B></FONT></P> <P><FONT SIZE=2> Various disclosures and announcements of Lithia concerning its products and year 2000 programs, including those contained in this report, are intended to constitute "Year 2000 Readiness Disclosures" as defined in the Year 2000 Information and Readiness Disclosure Act. This Act provides added protection from liability for certain public and private statements concerning an entity's year 2000 readiness and the year 2000 readiness of its products and services. It also potentially provides added protection from liability for certain types of year 2000 disclosures made after January 1, 1996 and before the date of enactment of the Act.</FONT></P> <P><FONT SIZE=2><B><I>General. </I></B></FONT><FONT SIZE=2>Lithia has identified three major areas of concern:</FONT></P> <DL compact> <DT><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>The functionality of its internal systems and Lithia's ability to run its daily business after January 1, 2000; <BR><BR></FONT></DD><DT><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>The visual representation of "2000;" and <BR><BR></FONT></DD><DT><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>Third party systems.</FONT></DD></DL> <BR> <P><FONT SIZE=2> Lithia is using the National Auto Dealers Association dealer guide to assist in resolving its year 2000 issues and problems. With the exception of acquisitions completed within the past six months, <p align=center>12</p></FONT><FONT SIZE=2> <!-- ZEQ.=8,SEQ=13,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=12,FILE='DISK037:[99SFO7.99SFO2367]GA2367C.;11',USER='CSTCLAI',CD='12-NOV-1999;13:44' --> Lithia believes it is year 2000 compliant. Lithia estimates its recent acquisitions are 87% compliant and expects them to be 100% compliant by December 10, 1999.</FONT></P> <P><FONT SIZE=2><B><I>Internal Systems. </I></B></FONT><FONT SIZE=2>Lithia is in the process of analyzing and updating its internal systems, including its dealer management systems, dealer communication systems, personal computer systems, shared port systems and phone systems. With the exception of acquisitions completed within the past six months, Lithia has completed the implementation of various internal systems upgrades in order to make them year 2000 compliant. Lithia will complete such implementations at its recent acquisitions by December 10, 1999.</FONT></P> <P><FONT SIZE=2> Like all businesses, Lithia is at risk from external infrastructure failures that could arise from year 2000 failures. It is not clear that electrical power, telephone and computer networks, for example, will be fully functional across the nation in the year 2000. Investigation and assessment of infrastructures, like the nation's power grid, is beyond the scope and resources of Lithia. Investors should use their own awareness of the issues in the nation's infrastructure to make ongoing infrastructure risk assessments and their potential impact to a company's performance.</FONT></P> <P><FONT SIZE=2><B><I>Visual Representation. </I></B></FONT><FONT SIZE=2>Lithia has completed ensuring that all report date stamps, timekeeping devices, etc. are year 2000 compliant.</FONT></P> <P><FONT SIZE=2><B><I>Third Parties. </I></B></FONT><FONT SIZE=2>Lithia has begun a year 2000 supplier audit program. It has contacted all of its critical suppliers to inform them of its year 2000 expectations, and requests have been made for each vendor's compliance program and/or year 2000 compliance assurance. In regard to the automobile manufacturers, Lithia has received written or other confirmation that they are year 2000 compliant.</FONT></P> <P><FONT SIZE=2> It should be noted that there have been predictions of failures of key components in the transportation infrastructure due to the Year 2000 problem. It is possible that there could be delays in rail, over-the-road and air shipments due to failure in transportation control systems. Investigation and validation of the world's transportation infrastructure is beyond the scope and the resources of Lithia. Investors should use their own awareness of the issues in the transportation infrastructure to make ongoing infrastructure risk assessments and their potential impact to a company's performance.</FONT></P> <P><FONT SIZE=2><B><I>Cost. </I></B></FONT><FONT SIZE=2>Lithia has incurred costs totaling approximately $1,091,000 to ensure year 2000 compliance, not including acquisitions completed within the past six months. Lithia is 87% complete with its program for recent acquisitions, which is estimated to cost approximately $223,000. A majority of the $1,314,000 represents replacement of non-compliant systems, and therefore will be capitalized and amortized over a three to five year period. This estimate could change depending on variances not anticipated in the initial bids.</FONT></P> <P><FONT SIZE=2><B><I>Risk. </I></B></FONT><FONT SIZE=2>The failure to correct a material year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could materially and adversely affect Lithia's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the year 2000 problem, resulting in part from the uncertainty of the year 2000 readiness of third-party suppliers, Lithia is unable to determine, at this time, whether the consequences of year 2000 failures will have a material impact on its results of operations, liquidity or financial condition. Lithia's efforts to help ensure year 2000 preparedness have, and will continue to, significantly reduce its level of uncertainty about the year 2000 problem. We believe that, with completion of the above plans, the possibility of significant interruptions of normal operations should be reduced.</FONT></P> <P><FONT SIZE=2> Lithia has developed contingency plans in regard to its internal systems and supplier issues and has distributed these plans to all relevant departments. The contingency plans consist primarily of manual processes and procedures to be followed in the event of system failures. <p align=center>13</p></FONT><FONT SIZE=2> <!-- ZEQ.=9,SEQ=14,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=13,FILE='DISK037:[99SFO7.99SFO2367]GA2367C.;11',USER='CSTCLAI',CD='12-NOV-1999;13:44' --> </FONT></P> <P><FONT SIZE=2><B>Recent Accounting Pronouncement</B></FONT></P> <P><FONT SIZE=2> In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 137"). SFAS 137 is an amendment to Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 137 establishes accounting and reporting standards for all derivative instruments. SFAS 137 is effective for fiscal years beginning after June 15, 2000. Lithia does not currently have any derivative instruments and, accordingly, does not expect the adoption of SFAS 137 to have an impact on its financial position or results of operations.</FONT></P> <BR> <P><FONT SIZE=2><A NAME="ga2367_item_3._quantitative_and_quali__ite02633"> </A></FONT><FONT SIZE=2><B>Item 3. Quantitative and Qualitative Disclosures About Market Risk </B></FONT></P> <P><FONT SIZE=2> Lithia's only financial instruments with market risk exposure are variable rate floor plan notes payable and other credit line borrowings. At September 30, 1999 Lithia had $191.1 million outstanding under such facilities at interest rates ranging from 6.91% to 8.03%. An increase or decrease in the interest rates would affect interest expense for the period accordingly.</FONT></P> <P><FONT SIZE=2><p align=center>14</p></FONT><FONT SIZE=2> <!-- ZEQ.=10,SEQ=15,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=14,FILE='DISK037:[99SFO7.99SFO2367]GA2367C.;11',USER='CSTCLAI',CD='12-NOV-1999;13:44' --> </FONT></P> <BR> <P ALIGN="CENTER"><FONT SIZE=2><A NAME="ga2367_part_ii_#151;other_information"> </A></FONT><FONT SIZE=2><B>PART II—OTHER INFORMATION </B></FONT></P> <P><FONT SIZE=2><A NAME="ga2367_item_6._exhibits_and_reports_on_form_8-k"> </A></FONT><FONT SIZE=2><B>Item 6. Exhibits and Reports on Form 8-K </B></FONT></P> <DL compact> <DT><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>Exhibits</FONT></DD></DL> <BR> <P><FONT SIZE=2> The exhibits filed as a part of this report are listed below and this list constitutes the exhibit index.</FONT></P> <P><FONT SIZE=2> </FONT><FONT SIZE=2><B>Exhibit No.</B></FONT></P> <!-- User-specified TAGGED TABLE --> <TABLE WIDTH="75%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="TOP"> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>10.1</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="91%"><FONT SIZE=2>$10.0 million vehicle lease line and $15.0 million equipment line of credit Loan Agreement between Lithia Financial Corporation, Lithia Motors, Inc. and Lithia Salmir, Inc. and U.S. Bank National Association</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>27</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="91%"><FONT SIZE=2>Financial Data Schedule</FONT></TD> </TR> </TABLE> <!-- end of user-specified TAGGED TABLE --> <DL compact> <DT><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Reports on Form 8-K</FONT></DD></DL> <BR> <P><FONT SIZE=2> There was one report on Form 8-K/A-1 filed during the quarter ended September 30, 1999. The report, including Items 2 and 7, relating to the filing of the financial statements required pursuant to the Moreland acquisition, was filed on July 28, 1999 and was dated May 14, 1999. <p align=center>15</p></FONT><FONT SIZE=2> <!-- ZEQ.=11,SEQ=16,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=15,FILE='DISK037:[99SFO7.99SFO2367]GA2367C.;11',USER='CSTCLAI',CD='12-NOV-1999;13:44' --> </FONT></P> <!-- Generated by Merrill Corporation (www.merrillcorp.com) --> <H2><FONT SIZE=3 > </FONT></H2> <BR> <P ALIGN="CENTER"><FONT SIZE=2><A NAME="ge2367_signatures"> </A></FONT><FONT SIZE=2><B>SIGNATURES </B></FONT></P> <P><FONT SIZE=2> 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.</FONT></P> <!-- User-specified TAGGED TABLE --> <TABLE WIDTH="77%" BORDER=0 CELLSPACING=0 CELLPADDING=0> <TR VALIGN="BOTTOM"> <TH WIDTH="46%" ALIGN="CENTER"><FONT SIZE=1> </FONT><BR></TH> <TH WIDTH="2%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="4%" ALIGN="CENTER"><FONT SIZE=1> </FONT><BR></TH> <TH WIDTH="1%"><FONT SIZE=1> </FONT></TH> <TH WIDTH="46%" ALIGN="LEFT"><FONT SIZE=1> </FONT><BR></TH> </TR> <TR VALIGN="TOP"> <TD WIDTH="46%"><FONT SIZE=2>Date: November 10, 1999</FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="51%" COLSPAN=3><FONT SIZE=2>LITHIA MOTORS, INC.</FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="46%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> <BR> By</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="46%" ALIGN="CENTER"><FONT SIZE=2> <BR> /s/ </FONT><FONT SIZE=2>SIDNEY B. DEBOER</FONT><HR NOSHADE></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="46%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="51%" COLSPAN=3 ALIGN="CENTER"><FONT SIZE=2>Sidney B. DeBoer<BR></FONT><FONT SIZE=2><I>Chairman of the Board,<BR> Chief Executive Officer and Secretary<BR> (Principal Executive Officer)</I></FONT></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="46%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="4%"><FONT SIZE=2> <BR> By</FONT></TD> <TD WIDTH="1%"><FONT SIZE=2> <BR> </FONT></TD> <TD WIDTH="46%" ALIGN="CENTER"><FONT SIZE=2> <BR> /s/ </FONT><FONT SIZE=2>BRIAN R. NEILL</FONT><HR NOSHADE></TD> </TR> <TR VALIGN="TOP"> <TD WIDTH="46%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="2%"><FONT SIZE=2> </FONT></TD> <TD WIDTH="51%" COLSPAN=3 ALIGN="CENTER"><FONT SIZE=2>Brian R. Neill<BR></FONT><FONT SIZE=2><I>Senior Vice President and<BR> Chief Financial Officer<BR> (Principal Financial and Accounting Officer)</I></FONT></TD> </TR> </TABLE> <!-- end of user-specified TAGGED TABLE --> <P><FONT SIZE=2><p align=center>16</p></FONT><FONT SIZE=2> <!-- ZEQ.=1,SEQ=17,EFW="9927404",CP="LITHIA MOTORS, INC.",DN="1",FOLIO=16,FILE='DISK037:[99SFO7.99SFO2367]GE2367A.;18',USER='BHUGHES',CD='12-NOV-1999;10:19' --> </FONT></P> <!-- Generated by Merrill Corporation (www.merrillcorp.com) --> <H2><FONT SIZE=3 ><A NAME="#99SFO2367_1">QuickLinks</A></FONT></H2> <!-- TOC_BEGIN --> <P><FONT SIZE=2><A HREF="#fa2367_part_i_#151;financial_information">PART I—FINANCIAL INFORMATION</A></FONT><BR> <FONT SIZE=2><A HREF="#fa2367_item_1._financial_statements">Item 1. Financial Statements</A></FONT><BR> </P> <!-- TOC_END --> <!-- TOC_BEGIN --> <P><FONT SIZE=2><A HREF="#ga2367_item_2._management_s_discussio__ite03663">Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations</A></FONT><BR> <FONT SIZE=2><A HREF="#ga2367_item_3._quantitative_and_quali__ite02633">Item 3. Quantitative and Qualitative Disclosures About Market Risk</A></FONT><BR> <FONT SIZE=2><A HREF="#ga2367_part_ii_#151;other_information">PART II—OTHER INFORMATION</A></FONT><BR> <FONT SIZE=2><A HREF="#ga2367_item_6._exhibits_and_reports_on_form_8-k">Item 6. Exhibits and Reports on Form 8-K</A></FONT><BR> </P> <!-- TOC_END --> <!-- TOC_BEGIN --> <P><FONT SIZE=2><A HREF="#ge2367_signatures">SIGNATURES</A></FONT><BR> </P> <!-- TOC_END --> </BODY> </HTML>