LITHIA MOTORS INCLAD
LITHIA MOTORS INC Commitments Disclosure
COMMITMENTS AND CONTINGENCIES
Leases
We lease certain dealerships, office space, land, and equipment. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease term. We have elected not to bifurcate lease and non-lease components related to leases of real property.
Most leases include one or more options to renew, with renewal terms that can extend the lease term from to 25 or more years. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Certain of our lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
We rent or sublease certain real estate to third parties.
The table below presents the lease-related liabilities and finance lease right-of-use assets recorded on the Consolidated Balance Sheets:
| December 31, | |||||||||||
| ($ in millions) | 2025 | 2024 | |||||||||
| Operating lease liabilities: | |||||||||||
| $ | 103.2 | $ | 97.6 | ||||||||
| Non-current operating lease liabilities | 662.1 | 596.5 | |||||||||
| Total operating lease liabilities | 765.3 | 694.1 | |||||||||
| Finance lease liabilities: | |||||||||||
| 2.4 | 20.6 | ||||||||||
| 110.0 | 93.7 | ||||||||||
| Total finance lease liabilities | 112.4 | 114.3 | |||||||||
| Total lease liabilities | $ | 877.7 | $ | 808.4 | |||||||
| Finance lease right-of-use assets: | |||||||||||
Total finance lease right-of-use assets (1) | $ | 100.8 | $ | 114.0 | |||||||
| Weighted-average remaining lease term: | |||||||||||
| Operating leases | 11 years | 11 years | |||||||||
| Finance leases | 6 years | 7 years | |||||||||
| Weighted-average discount rate: | |||||||||||
| Operating leases | 5.65 | % | 5.56 | % | |||||||
| Finance leases | 5.63 | % | 5.64 | % | |||||||
(1)Finance lease right-of-use assets included in property and equipment, net of accumulated depreciation.
The components of lease costs, which were included in our Consolidated Statements of Operations, were as follows:
| Year Ended December 31, | ||||||||||||||||||||
| ($ in millions) | Classification | 2025 | 2024 | 2023 | ||||||||||||||||
Operating lease cost (1) | Selling, general and administrative | $ | 140.0 | $ | 135.9 | $ | 96.9 | |||||||||||||
Variable lease cost (2) | Selling, general and administrative | 7.5 | 7.4 | 7.1 | ||||||||||||||||
| Amortization of finance lease right-of-use assets | Depreciation and amortization | 3.8 | 4.4 | 3.8 | ||||||||||||||||
| Interest on finance lease liabilities | Other interest expense | 6.2 | 5.7 | 4.1 | ||||||||||||||||
| Sublease income | Selling, general and administrative | (15.3) | (14.0) | (9.0) | ||||||||||||||||
| Total lease costs | $ | 142.2 | $ | 139.4 | $ | 102.9 | ||||||||||||||
(1)Includes short-term and month-to-month lease costs, which are immaterial.
(2)Variable lease cost generally includes reimbursement for actual costs incurred by our lessors for common area maintenance, property taxes and insurance on leased real estate.
As of December 31, 2025, the maturities of our operating and finance lease liabilities were as follows:
| ($ in millions) | Operating Lease Liabilities | Finance Lease Liabilities | |||||||||
| Year Ending December 31, | |||||||||||
| 2026 | $ | 132.1 | $ | 8.5 | |||||||
| 2027 | 119.8 | 47.6 | |||||||||
| 2028 | 108.9 | 5.9 | |||||||||
| 2029 | 96.8 | 5.9 | |||||||||
| 2030 | 90.0 | 12.9 | |||||||||
| Thereafter | 514.2 | 66.4 | |||||||||
| Total minimum lease payments | 1,061.8 | 147.2 | |||||||||
| Less: present value adjustment | (296.5) | (34.8) | |||||||||
| Total lease liabilities | $ | 765.3 | $ | 112.4 | |||||||
Charge-Backs for Various Contracts
We have recorded a liability of $202.5 million as of December 31, 2025 for our estimated contractual obligations related to potential charge-backs for vehicle service contracts and other various insurance contracts that are terminated early by the customer. We estimate that the charge-backs will be paid out as follows:
| Year Ending December 31, | ($ in millions) | ||||
| 2026 | $ | 112.8 | |||
| 2027 | 55.3 | ||||
| 2028 | 24.2 | ||||
| 2029 | 8.3 | ||||
| 2030 | 1.8 | ||||
| Thereafter | 0.1 | ||||
| Total | $ | 202.5 | |||
Contract Liabilities
We retain the obligation for various contracts sold to our customers and assumed in acquisitions. These amounts are recorded as a contract liability. At the time of sale, we defer the full sale price and recognize the revenue based on the rate we expect future costs to be incurred. As of December 31, 2025, we had a contract liability balance of $638.0 million associated with these contracts and estimate the contract liability will be recognized as follows:
| Year Ending December 31, | ($ in millions) | ||||
| 2026 | $ | 176.1 | |||
| 2027 | 132.8 | ||||
| 2028 | 90.2 | ||||
| 2029 | 62.4 | ||||
| 2030 | 46.8 | ||||
| Thereafter | 129.7 | ||||
| Total | $ | 638.0 | |||
The contract liability balance is recorded as components of deferred revenue and accrued liabilities in our Consolidated Balance Sheets.
Self-insurance Programs
We self-insure a portion of our property and casualty insurance, vehicle open lot coverage, medical insurance, and workers’ compensation insurance. Third parties are engaged to assist in estimating the loss exposure related to the self-retained portion of the risk associated with these insurances. Additionally, we analyze our historical loss and claims experience to estimate the loss exposure associated with these programs. As of December 31, 2025 and 2024, we had liabilities associated with these programs of $113.0 million and $95.6 million, respectively, recorded as a component of accrued liabilities and other long-term liabilities in our Consolidated Balance Sheets.
Litigation
We are party to numerous legal proceedings arising in the normal course of our business. Although we do not anticipate that the resolution of legal proceedings arising in the normal course of business will have a material adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with certainty.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 24, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 24, 2023 | |
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.