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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 11-K

ANNUAL REPORT PURSUANT TO SECTION 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

SEC Registration No. 333-43593

LITHIA MOTORS, INC. SALARY REDUCTION PROFIT SHARING PLAN

LITHIA MOTORS, INC.
360 East Jackson Street
Medford, OR 97501


LITHIA MOTORS, INC.
SALARY REDUCTION
PROFIT SHARING PLAN

     INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM’S AUDITOR’S REPORT
AND
FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006


    CONTENTS 

 
 
    Page 
INDEPENDENT REGISTERED PUBLIC     
         ACCOUNTING FIRM’S AUDITOR’S REPORT    1 
 
FINANCIAL STATEMENTS     
         Statements of net assets available for benefits    2 
         Statement of changes in net assets available for benefits    3 
         Notes to financial statements    4-9 
 
SUPPLEMENTAL SCHEDULE AS OF DECEMBER 31, 2007     
         Schedule H, Line 4I – Schedule of assets (held at end of year)    10 
 
EXHIBIT INDEX     
         Consent of Independent Registered Public Accounting Firm    12 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Participants and
Plan Administrator of the
Lithia Motors, Inc. Salary
Reduction Profit Sharing Plan

We have audited the financial statements of the Lithia Motors, Inc. Salary Reduction Profit Sharing Plan (the Plan) as of December 31, 2007 and 2006 and the related statement of changes in net assets available for benefits for the year ended December 31, 2007, as listed in the accompanying table of contents. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Plan’s internal control over financial reporting. Our audit included consideration over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Plan’s management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2007 and 2006, and the changes in net assets available for benefits for the year ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule, as listed in the accompanying table of contents, is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/s/ Mohler, Nixon & Williams        
MOHLER, NIXON & WILLIAMS

Accountancy Corporation

Campbell, California
June 24, 2008

1


LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS

    December 31, 
   
    2007    2006 
   
ASSETS         
     Investments, at fair value         
             Registered investment companies    $ 53,539,492    $ 49,601,922 
             Common collective trust    8,970,267    7,203,373 
             Lithia Motors, Inc. Class A Common Stock    5,047,145    5,958,055 
             Participant loans    3,911,262    3,136,988 
   
    71,468,166    65,900,338 
 
     Employer's contribution receivable    1,042,725    1,023,084 
   
    72,510,891    66,923,422 
 
LIABILITIES         
     Excess participant contributions payable    (33,195)                 (119,463) 
   
     Net assets available for benefits at fair value    72,477,696    66,803,959 
 
     Adjustment from fair value to contract value for         
             fully-benefit responsive investment contracts    162,180    218,765 
   
 
NET ASSETS AVAILABLE FOR BENEFITS    $ 72,639,876    $ 67,022,724 
   

2


LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2007

ADDITIONS TO NET ASSETS ATTRIBUTED TO
        Investment income
             Net appreciation in fair value of investments    $ 1,685,967 
             Interest and dividends    296,882 
             Other income    3,207 
   
 
    1,986,056 
   
 
        Contributions     
             Employer's    1,042,601 
             Participants'    12,856,070 
             Rollovers    922,629 
   
 
    14,821,300 
   
 
    16,807,356 
   
 
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO     
         Benefits paid to participants    10,559,280 
         Administrative expenses    255,720 
         Deemed distributed loans    375,204 
   
 
    11,190,204 
   
 
NET INCREASE IN NET ASSETS    5,617,152 
 
NET ASSETS AVAILABLE FOR BENEFITS     
         Beginning of year    67,022,724 
   
 
         End of year    $ 72,639,876 
   

3


LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF PLAN

The following description of Lithia Motors, Inc. Salary Reduction Profit Sharing Plan (the Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.

General – The Plan is a defined contribution plan covering all eligible employees of Lithia Motors, Inc. and its subsidiaries (the Company) as defined in plan documents. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) as amended.

Contributions – Each year, the Company contributes to the Plan an amount determined annually by the Company’s senior management. Participants may contribute, under a salary reduction agreement, the maximum allowed by the Internal Revenue Service under Code Section 402(g). Participants direct the investment of contributions into various investment options offered by the Plan. The Plan currently offers various registered investment companies managed by DWS Scudder as well as shares of Class A Common Stock of the Company.

Participant Accounts – Each participant’s account is credited with the participant’s contribution and an allocation of the Company’s contribution and Plan earnings, and is charged with an allocation of administrative expenses. Allocations are based on account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

Vesting – Participants are immediately vested in their voluntary contributions plus actual earnings thereon. Vesting in the remainder of their accounts is based on years of continuous service. A participant is 100% vested after six years of credited service.

Participant Loans – Participants may borrow from their fund accounts a minimum of $500 and a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Loan transactions are treated as a transfer from the investment fund to the participant loan fund. Loan terms range up to five years or up to thirty years for the purchase of a primary residence. The loans are secured by the vested balance in the participant’s account and bear interest at a rate of prime + 1% (from 5.0% to 10.5% as of December 31, 2007) at the time the loan is issued. Principal and interest are paid ratably through semimonthly payroll deductions.

Forfeited Accounts – Forfeited non-vested accounts at December 31, 2007 and 2006 totaled $206,489 and $172,606, respectively, and are used to reduce future employer contributions. Forfeitures utilized to reduce the employer’s contribution for the year ended December 31, 2007 amounted to $222,671.

4


LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES

Basis of Accounting – The financial statements of the Plan are prepared under the accrual method of accounting.

As required by the FSP AAG INV-1, the Statements of Net Assets Available for Benefits presents the fair value of the Plan’s investment in a common/collective trust which has underlying assets in investment contracts as well as the adjustment of the underlying fully benefit-responsive investment contracts from fair value to contract value. The Statement of Changes in Net Assets Available for Benefits is prepared on a contract value basis.

Use of Estimates – The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Investment Valuation and Income Recognition – The Plan’s investments are stated at fair value. Shares of registered investment companies and shares of Lithia Motors, Inc. are valued at quoted market prices, which represent the net asset value of shares held by the Plan at year-end. Participant loans are valued at cost, which approximates fair value.

Purchases and sales of securities are recorded on the trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

Investment securities are exposed to various risks, such as interest rate, market, and credit risk. It is reasonably possible, given the level of risk associated with investment securities, that changes in the near term could materially affect participants’ account balances and the amounts reported in the financial statements.

Payment of Benefits – Benefits are recorded when paid.

Administrative Expenses – Substantially all expenses relating to the Plan are paid by the Plan.

NOTE 3 – PLAN TERMINATION

Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants would become 100% vested in their accounts.

NOTE 4 – INCOME TAX STATUS

The Plan obtained its latest determination letter on May 3, 2002, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended since receiving the determination letter. However, the Plan administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, no provision for income taxes has been included in the Plan’s financial statements.

5


LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS

NOTE 5 – INVESTMENTS

The following presents investments that represent 5% or more of Plan net assets at:

    December 31,
   
                 2007    2006 
   
 
 
Registered investment companies             
       BR Health SCI Opport Port Fund - A    $    4,028,769    $    3,490,755 
       AM FNDS Europacific Growth Fund    $    5,246,411    $    4,204,173 
       Templeton Developing Markets Fund -A    $    4,640,547    $    3,549,717 
       DWS S&P 500 Index Fund -S    $    4,576,313    $    4,856,077 
       Growth Fund of America -R3    $    5,116,757    $    4,704,903 
       DWS Equity Partners Fund -A    $    3,603,823    $    4,841,173 
       DWS Dreman High Return Equity Fund -A    $    4,197,104    $    4,847,116 
 
DWS Stable Value Fund A    $    9,132,447    $    7,422,138 
Lithia Motors, Inc. Common Stock    $    4,977,321    $    5,916,290 
Participant Loans    $    3,911,262    $    3,136,988 

For the year ended December 31, 2007, the Plan’s investments, including gains and losses on investments bought and sold, as well as held during the period, appreciated (depreciated) in value as follows:

Registered investment companies    $ 5,036,617 
Common/Collective Trust    307,049 
Lithia Motors, Inc. Class A Common Stock    (3,657,699) 
   
Total    $ 1,685,967 
   

6


LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS

NOTE 6 – RECONCILIATION OF FINANCIAL STATEMENTS TO SCHEDULE H OF
                          FORM 5500

The following is a reconciliation of net assets available for benefits per the financial statements to Schedule H of Form 5500:

    December 31,
   
    2007    2006 
   
 
Net assets available for benefits per 
       the financial statements     $ 72,639,876          $ 67,022,724 
Employer contributions receivable             
       not accrued on Schedule H of Form 5500    (1,042,725)        (1,023,084) 
Benefits payable accrued on Schedule H of             
       Form 5500 but not on financial statements    (30,086)        (44,077) 
Excess participant contributions payable             
       not accrued on Schedule H of Form 5500    33,195        119,463 
   
 
Net assets available for benefits per             
       Schedule H of Form 5500    $ 71,600,260    $ 66,075,026 



The following are reconciliations of employer and employee contributions and distributions per the financial statements for the year ended December 31, 2007 to Schedule H of Form 5500 as the Form 5500 is prepared on a cash basis while the financial statements are prepared on the accrual basis of accounting:

    12/31/2007 
   
 
Employer contributions per the     
       financial statements    $ 1,042,601 
 
Plus employer contributions received     
       by the Plan not accrued on Schedule H     
       of Form 5500    1,023,084 
 
Less employer contributions not     
       received by the Plan and not     
       accrued on Schedule H of Form 5500    (1,042,725) 
   
 
Employer contributions per Schedule H     
       of Form 5500    $ 1,022,960 
   

7


LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS

NOTE 6 – RECONCILIATION OF FINANCIAL STATEMENTS TO SCHEDULE H OF FORM 5500 (Continued)

    12/31/2007 
   
Employee contributions per the     
       financial statements    $ 12,856,070 
 
Excess participant contributions for 2007    33,195 
 
Excess contribution payable for 2006    (119,463) 
 
Actual excess contributions during     
       2007 relating to 2006    123,455 
   
 
Employee contributions per the     
       Schedule H of Form 5500    $ 12,893,257 
   
 
 
    12/31/2007 
   
Total distributions per the     
       financial statements    $ 10,934,484 
 
Less benefits payable accrued for 2006    (44,077) 
 
Benefits payable accrued on Schedule H of     
       Form 5500 but not on financial statements    30,086 
 
Excess contributions during 2007     
       relating to 2006    123,455 
   
 
Total distributions per the     
       Schedule H of Form 5500    $ 11,043,948 
   

NOTE 7 – TRANSACTIONS WITH PARTIES-IN-INTEREST AND RELATED PARTIES

Transactions in shares of the Plan Sponsor’s common stock qualify as party-in-interest transactions under the provisions of ERISA. During 2007, the Plan made purchases of $5,118,048 and sales of $2,371,259 of the Plan Sponsor’s common stock.

Certain Plan investments are managed by DWS Scudder, the trustee of the Plan. Any purchases and sales of these funds are performed in the open market at fair value. Such transactions, while considered party-in-interest transactions under ERISA regulations, are permitted under the provisions of the Plan and are specifically exempt from the prohibition of party-in-interest transactions under ERISA.

8


NOTE 8 – SUBSEQUENT EVENT

The Plan Sponsor’s common stock market value per share has decreased approximately 58% since its market value at December 31, 2007.  This would result in approximately 4% decline in the Plan’s net assets.

9


SUPPLEMENTAL SCHEDULE


     LITHIA MOTORS, INC.
SALARY REDUCTION PROFIT SHARING PLAN
SCHEDULE H, LINE 4I – SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER
31, 2007
EIN 93-
0572810 PN 003

        (c) Description of investment including             
    (b) Identify of issue, borrower, lessor, or    maturity date, rate of interest,             
(a)    similar party    collateral, par, or maturity value    Number of Shares    (d) Cost    (e) Current value 

*    DWS Stable Value Fund A    Common/Collective Trusts    N/A    N/A    $ 9,132,447 
    Amrcent Inflation -ADJ BDN Fund - ADV    Registered Investment Company    96,484    N/A    1,083,511 
    Dreyfus Premier SMCP Val Fund -A    Registered Investment Company    52,044    N/A    893,588 
    BR Health SCI Opport Port Fund - A    Registered Investment Company    134,248    N/A    4,028,769 
    Allianz RCM Global Tech Fund -A    Registered Investment Company    38,894    N/A    1,966,466 
    AM FNDS Europacific Growth Fund    Registered Investment Company    104,802    N/A    5,246,411 
    GS High Yield Fund -A    Registered Investment Company    128,865    N/A    981,949 
    Templeton Developing Markets Fund -A    Registered Investment Company    152,149    N/A    4,640,547 
    GS Mid Cap Value Fund -A    Registered Investment Company    16,595    N/A    586,637 
    Allianz CCM Mid Cap Fund    Registered Investment Company    104,859    N/A    2,841,669 
    MFS Utilities Fund Class A    Registered Investment Company    123,196    N/A    2,383,833 
    MFS Total Return Fund -A    Registered Investment Company    182,699    N/A    2,784,327 
    Alger Smallcap Growth Fund -A    Registered Investment Company    276,083    N/A    2,084,428 
*    DWS S&P 500 Index Fund -S    Registered Investment Company    234,794    N/A    4,576,313 
    Growth Fund of America -R3    Registered Investment Company    152,648    N/A    5,116,757 
*    DWS Moderate Allocation Fund -A    Registered Investment Company    189,476    N/A    2,377,921 
*    DWS Growth Allocation Fund -A    Registered Investment Company    16,415    N/A    247,212 
*    DWS Equity Partners Fund -A    Registered Investment Company    144,384    N/A    3,603,823 
*    DWS Core Fixed Income Fund -A    Registered Investment Company    241,120    N/A    2,582,399 
*    DWS Global Opportunities Fund -A    Registered Investment Company    23,582    N/A    995,410 
*    DWS Growth Plus Allocation Fund -A    Registered Investment Company    27,838    N/A    320,417 
*    DWS Dreman High Return Equity Fund -A    Registered Investment Company    90,221    N/A    4,197,104 
*    Company Stock Pending Fund    Other Investments    N/A    N/A    69,825 
*    Lithia Motors, Inc. Common Stock    Common Stock    362,514    N/A    4,977,321 
*    Participant Loans    Interest Rates (5.0% to 10.5%)    N/A    N/A    3,911,262 
   
                    $ 71,630,346 
   

N/A - Cost is not applicable as these are participant directed investments. 
   * - Party in interest to the Plan 


10


SIGNATURE PAGE

Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:    June 24, 2008                       LITHIA MOTORS, INC. 
        SALARY REDUCTION PROFIT SHARING PLAN TRUST 
By: /s/Jeffery B. DeBoer                
      Jeffrey B. DeBoer, Trustee

   

11


                                                                               EXHIBIT INDEX 
 
Exhibit    Description 
23   Consent of Independent Registered Public Accounting Firm 

12