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$75 million sale of stock primes Lithia for more purchases

It hopes to buy 12 auto stores this year

Lithia Motors Inc.'s ownership base is expanding once again as the Medford-based auto retailer's latest stock offering, announced in January, closes today.

The company has issued 4 million new shares along with — million sold by board member Doug Moreland of Colorado. The approximately $75 million raised reduces Lithia's long-term debt to between $25 and $30 million - excluding real estate.

"This will allow us to aggressively acquire more dealerships this year," said Lithia's Chief Financial Officer Jeff DeBoer. "We've already acquired stores this year and we plan to acquire a minimum of 12 by the end of the year."

The share price was established at $18.25 on Monday. Morgan Stanley & Co. managed the offering and sold 20 to 25 percent of the new issues through its retail brokers. The remainder was sold to institutional buyers. The company now has 17.8 million outstanding shares.

DeBoer and head of investor relations Dan Retzlaff conducted a three-week whirlwind tour of American financial centers, as well as a stop in London, meeting with 60 fund managers.

"We'd get one dinner in a town and seven or eight meetings a day - back-to-back," DeBoer said. "It was very intense with some of the smartest people in the country asking questions about business."

Morgan Stanley arranged the meetings, including five in London.

"Some asked about our management structure and others just wanted to see the balance sheets and know the financial details," DeBoer said. "The majority wanted to know about the economy and our company. A lot of them have (financial) models and they were trying to understand the way the business works."

A critical component for DeBoer and Retzlaff was explaining how 75 percent of Lithia's profits come from other sources than the sale of new vehicles.

"That was important to them, because it adds to the stability of the company," DeBoer said. "Last year we were able to put up good numbers and profitability because of our used vehicles sales, service and financing and insurance sales."

Manufacturing sector profits were off 115 percent last year, while the auto sector was down just 0.3 percent. Lithia profits were down 9 percent after a succession of large increases.

"The real issue was how we compared to other retailers and our earnings were down less than other hard-good retailers," DeBoer said. "Home Depot, Lowe's, Circuit City, Staples, Costco and such - those hard-good retailers were down 26 percent as a group."

Lithia's long-term debt to total capitalization was at 32 percent prior to the offering and will be an estimated 22 percent after.

"We've been as high as 50 percent and this is at the low end of where we've been historically," DeBoer said. "In our sector, there are some companies with a long-term debt figure as high as 60 percent. We're going to be the lowest in our sector and that means we'll have one of the strongest balance sheets in the sector."

The company has maintained an average per-share earnings growth of 20 to 25 percent the past five years.

"With this offering," DeBoer said, "we're on target to continue that growth rate."

Lithia shares closed at $19.60 on Thursday. The company's initial public offering of 2.5 million shares in December 1996 were valued at $11 per share. A secondary offering of — million shares in April 1998 was pegged at $14.50 per share.

Lithia's 52-week high was $21.75 and its all-time high of $23.44 was in September 1999.

Reach reporter Greg Stiles at 776-4463 or e-mail