MERCURY GENERAL CORPMCY
MERCURY GENERAL CORP Leases Disclosure
Leases
The Company has operating leases for office space for insurance operations and administrative functions, automobiles for certain employees and general uses, and office equipment such as printers and computers. In addition, the Company has finance leases for electronic data processing ("EDP") equipment. As of December 31, 2025, the Company's leases had remaining terms ranging from less than one year to approximately eleven years. These leases may contain provisions for periodic adjustments to rates and charges applicable under such lease agreements. These rates and charges also may vary with the Company's level of use. Certain of these leases include one or more options to renew or early terminate, and the exercise of these options is at the Company's sole discretion. Certain leases also include options to purchase the leased property. The Company's lease agreements do not contain any residual value guarantees.
The Company determines if an arrangement is a lease at inception. Right-of-use ("ROU") assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
The Company uses its estimated incremental borrowing rate for leases for office space, office equipment and EDP equipment, which is derived from information available at the lease commencement date, in determining the present value of lease payments, as the rate implicit in the lease is not readily available for such leases. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates. For automobile leases, the Company uses the rate implicit in the lease at the lease commencement date in determining the present value of lease payments, as the readily-determinable implicit rate is provided in such leases.
The Company's lease terms include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. The Company does not use the short-term lease exemption practical expedient and records all leases on the balance sheets, including leases with a term of twelve months or less. The Company accounts for the lease and non-lease components as a single lease component for leases for office space, automobiles, and office equipment, while it accounts for the lease components separately from the non-lease components for EDP equipment leases.
The components of lease cost along with its classification on the Company's consolidated statements of operations were as follows:
| Year Ended December 31, | ||||||||||||||||||||||||||
| Lease Cost | Classification | 2025 | 2024 | 2023 | ||||||||||||||||||||||
| (Amounts in thousands) | ||||||||||||||||||||||||||
Operating lease cost (1) | Other operating expenses | $ | 8,599 | $ | 9,834 | $ | 11,687 | |||||||||||||||||||
| Finance lease cost: | ||||||||||||||||||||||||||
| Amortization of assets | Other operating expenses | 1,468 | 1,585 | 1,241 | ||||||||||||||||||||||
| Interest on lease liabilities | Interest expense | 42 | 126 | 40 | ||||||||||||||||||||||
Variable lease cost (1) | Other operating expenses | 277 | 403 | 1,100 | ||||||||||||||||||||||
Sublease income (2) | Other revenue | (238) | (469) | (799) | ||||||||||||||||||||||
| Net lease cost | $ | 10,148 | $ | 11,479 | $ | 13,269 | ||||||||||||||||||||
__________
(1) Includes short-term leases, which are immaterial.
(2) The Company subleased certain leased office space to third parties in 2025, 2024 and 2023.
The components of lease assets and liabilities along with their classification on the Company's consolidated balance sheets were as follows:
| December 31, | ||||||||||||||||||||
| Lease Assets and Liabilities | Classification | 2025 | 2024 | |||||||||||||||||
| (Amounts in thousands) | ||||||||||||||||||||
| Operating lease assets | Operating lease right-of-use assets | $ | 12,125 | $ | 13,407 | |||||||||||||||
| Operating lease liabilities | Operating lease liabilities | 12,328 | 13,580 | |||||||||||||||||
| Finance lease assets | 1,498 | 2,966 | ||||||||||||||||||
| Finance lease liabilities | 1,150 | 2,521 | ||||||||||||||||||
Weighted-average lease term and discount rate were as follows:
| December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Weighted-average remaining lease term (in years): | ||||||||||||||
| Operating leases | 2.8 | 2.9 | ||||||||||||
| Finance leases | 1.9 | 2.4 | ||||||||||||
| Weighted-average discount rate: | ||||||||||||||
| Operating leases | 6.05 | % | 5.68 | % | ||||||||||
Finance leases | 3.16 | % | 2.54 | % | ||||||||||
Supplemental cash flow and other information related to leases was as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| (Amounts in thousands) | ||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||
| Operating cash flows from operating leases | $ | 8,511 | $ | 9,485 | $ | 14,023 | ||||||||||||||
| Operating cash flows from finance leases | 40 | 68 | 41 | |||||||||||||||||
| Financing cash flows from finance leases | 1,372 | 1,533 | 1,102 | |||||||||||||||||
| ROU assets obtained in exchange for lease liabilities: | ||||||||||||||||||||
| Operating leases | 7,325 | 6,924 | 6,587 | |||||||||||||||||
| Finance leases | — | — | — | |||||||||||||||||
Maturities of lease liabilities as of December 31, 2025 were as follows:
| Year | Operating Leases | Finance Leases | ||||||||||||
| (Amounts in thousands) | ||||||||||||||
| 2026 | $ | 5,982 | $ | 785 | ||||||||||
| 2027 | 3,716 | 381 | ||||||||||||
| 2028 | 2,409 | — | ||||||||||||
| 2029 | 1,209 | — | ||||||||||||
| 2030 | 322 | — | ||||||||||||
| 2031 and thereafter | $ | — | $ | — | ||||||||||
| Total lease payments | $ | 13,638 | $ | 1,166 | ||||||||||
| Less: Imputed interest | 1,310 | 16 | ||||||||||||
| Total lease obligations | $ | 12,328 | $ | 1,150 | ||||||||||
As of December 31, 2025, the Company had additional lease commitments that have not yet commenced of approximately $8 million with each lease term of approximately to eleven years. These leases will commence in 2026.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 17, 2026 | Showing above |
| 2024 | Feb 11, 2025 | |
| 2023 | Feb 13, 2024 | |
| 2022 | Feb 14, 2023 | |
| 2021 | Feb 15, 2022 | |
| 2020 | Feb 16, 2021 | |
| 2019 | Feb 12, 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.