LITHIA MOTORS INCLAD

LITHIA MOTORS INC Leases Disclosure

10-KFiled Feb 18, 20223 min read
Leases
 
Lease Accounting
We lease certain dealerships, office space, land and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; 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 one 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 ROU assets recorded on the Consolidated Balance Sheets:
(Dollars in millions)December 31, 2021December 31, 2020
Operating lease liabilities:
Current portion included in accrued liabilities$49.0 $30.8 
Noncurrent operating lease liabilities361.7 246.7 
Total operating lease liabilities410.7 277.5 
Finance lease liabilities:
Current portion included in current maturities of long-term debt16.3 6.0 
Long-term portion of lease liabilities in long-term debt37.3 240.4 
Total finance lease liabilities53.6 246.4 
Total lease liabilities$464.3 $523.9 
Finance lease right-of-use assets:
Total finance lease right-of-use assets 1
$58.7 $253.9 
Weighted-average remaining lease term:
Operating leases8 years5 years
Finance leases11 years12 years
Weighted-average discount rate:
Operating leases4.12 %4.69 %
Finance leases2.42 %4.12 %
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 selling, general and administrative in our Consolidated Statements of Operations, were as follows:
Year Ended December 31,Year Ended December 31,
(Dollars in millions)20212020
Operating lease cost 1
$53.1 $41.6 
Variable lease cost 2
3.5 3.1 
Amortization of finance lease right-of-use assets5.9 4.5 
Interest on finance lease liabilities4.2 3.4 
Sublease income(6.4)(4.9)
Total lease costs$60.3 $47.7 
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.

Rent expense, net of sublease income, for all operating leases was $41.3 million for the year ended December 31, 2019. This amount is included as a component of selling, general and administrative expenses in our Consolidated Statements of Operations.

As of December 31, 2021, the maturities of our operating and finance lease liabilities were as follows:
(Dollars in millions)Operating Lease LiabilitiesFinance Lease Liabilities
Year Ending December 31,
2021$60.5 $18.3 
202254.13.6
202347.89.2
202444.72.9
202540.62.9
Thereafter256.129.9
Total minimum lease payments503.866.8
Less:
Present value adjustment(93.1)(13.2)
Total lease liabilities$410.7 $53.6 
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Historical Timeline

Fiscal YearFiled
2021Feb 18, 2022Showing above
2020Feb 19, 2021
2019Feb 21, 2020

About Leases Disclosures

Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.

Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.

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