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Note 7 - Commitments and Contingencies
 12 Months Ended
Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure [Text Block]

(7)     Commitments and Contingencies


Leases


We lease certain facilities under non-cancelable operating and capital leases. These leases expire at various dates through 2066. Certain lease commitments contain fixed payment increases at predetermined intervals over the life of the lease, while other lease commitments are subject to escalation clauses of an amount equal to the increase in the cost of living based on the “Consumer Price Index - U.S. Cities Average - All Items for all Urban Consumers” published by the U.S. Department of Labor, or a substantially equivalent regional index. Lease expense related to operating leases is recognized on a straight-line basis over the life of the lease.


The minimum lease payments under our operating and capital leases after December 31, 2013 are as follows (in thousands):


Year Ending December 31,

       

2014

  $ 17,726  

2015

    15,655  

2016

    14,810  

2017

    12,874  

2018

    11,076  

Thereafter

    67,048  

Total minimum lease payments

    139,189  

Less: sublease rentals

    (7,025 )
    $ 132,164  

Rent expense, net of sublease income, for all operating leases was $14.0 million, $15.2 million and $13.3 million for the years ended December 31, 2013, 2012 and 2011, respectively. These amounts are included as a component of selling, general and administrative expenses in our Consolidated Statements of Operations.


In connection with dispositions of dealerships, we occasionally assign or sublet our interests in any real property leases associated with such dealerships to the purchaser. We often retain responsibility for the performance of certain obligations under such leases to the extent that the assignee or sublessee does not perform. Additionally, we may remain subject to the terms of any guarantees and have correlating indemnification rights against the assignee or sublessee in the event of non-performance, as well as certain other defenses. We may also be called upon to perform other obligations under these leases, such as environmental remediation of the premises or repairs upon termination of the lease. We currently have no reason to believe that we will be called upon to perform any such services; however, there can be no assurance that any future performance required by us under these leases will not have a material adverse effect on our financial condition or results of operations.


Certain of our facilities where a lease obligation still exists have been vacated for business reasons. In these instances, we make efforts to find qualified tenants to sublease the facilities and assume financial responsibility. However, due to the specific nature and size of our dealership facilities, tenants are not always available or the amount tenants are willing to pay does not recover the full lease obligation. When an exposure exists related to vacating certain leases, liabilities are accrued to reflect our estimate of future lease obligations, net of estimated sublease income.


Capital Expenditures


Capital expenditures were $50.0 million, $64.6 million and $31.7 million for 2013, 2012 and 2011, respectively. Capital expenditures in 2013 were associated with image improvements, purchases of store facilities, purchases of previously leased facilities and replacement of equipment. The increase in capital expenditures in 2012 compared to 2011 was related to improvements at certain of our store facilities, the purchase of previously leased facilities, the purchase of new store locations, replacement of equipment and construction of, and relocation to, a new headquarters building.


Many manufacturers provide assistance in the form of additional vehicle incentives if facilities meet image standards and requirements. We believe it is an attractive time to invest in facility upgrades and remodels that will generate additional manufacturer incentive payments. Also, tax laws allowing accelerated deductions for capital expenditures reduce the overall investment needed and encourage accelerated project timelines.


If we undertake a significant capital commitment in the future, we expect to pay for the commitment out of existing cash balances, construction financing and borrowings on our credit facility. Upon completion of the projects, we believe we would have the ability to secure long-term financing and general borrowings from third party lenders for 70% to 90% of the amounts expended, although no assurances can be provided that these financings will be available to us in sufficient amounts or on terms acceptable to us.


Charge-Backs for Various Contracts


We have recorded a liability of $18.2 million as of December 31, 2013 for our estimated contractual obligations related to potential charge-backs for vehicle service contracts, lifetime oil change 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 (in thousands):


Year Ending December 31,

       

2014

  $ 10,223  

2015

    5,218  

2016

    2,034  

2017

    554  

2018

    131  

Thereafter

    22  

Total

  $ 18,182  

Lifetime Lube, Oil and Filter Contracts


We retain the obligation for lifetime lube, oil and filter service contracts sold to our customers and assumed the liability of certain existing lifetime lube, oil and filter contracts. These amounts are recorded as deferred revenues. 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, 2013, we had a deferred revenue balance of $50.1 million associated with these contracts and estimate the deferred revenue will be recognized as follows (in thousands):


Year Ending December 31,

       

2014

  $ 10,888  

2015

    8,527  

2016

    6,760  

2017

    5,411  

2018

    4,315  

Thereafter

    14,157  

Total

  $ 50,058  

We periodically evaluate the estimated future costs of these assumed contracts and record a charge if future expected claim and cancellation costs exceed the deferred revenue to be recognized. As of December 31, 2013, we had a reserve balance of $3.4 million recorded as a component of accrued liabilities and other long-term liabilities on our Consolidated Balance Sheets. The charges associated with this reserve had been recognized in 2011 and earlier.


Self-insurance Programs


We self-insure a portion of our property and casualty insurance, 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, 2013 and 2012, we had liabilities associated with these programs of $12.0 million and $12.4 million, respectively, recorded as a component of accrued liabilities and other long-term liabilities on 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 or the proceedings described below will have a material adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with certainty.


Alaska Consumer Protection Act Claims


In December 2006, a class action suit was filed against us (Jackie Neese, et al vs. Lithia Chrysler Jeep of Anchorage, Inc., et al, Case No. 3AN-06-13341 CI), and in April 2007, a second class action suit (Jackie Neese, et al vs. Lithia Chrysler Jeep of Anchorage, Inc, et al, Case No. 3AN-06-4815 CI) was filed against us, in the Superior Court for the State of Alaska, Third Judicial District at Anchorage. These suits were subsequently consolidated. In the consolidated suit, plaintiffs alleged that we, through our Alaska dealerships, engaged in three practices that purportedly violate Alaska consumer protection laws: (i) charging customers dealer fees and costs (including document preparation fees) not disclosed in the advertised price, (ii) failing to disclose the acquisition, mechanical and accident history of used vehicles or whether the vehicles were originally manufactured for sale in a foreign country, and (iii) engaging in deception, misrepresentation and fraud by providing to customers financing from third parties without disclosing that we receive a fee or discount for placing that loan. The suit sought statutory damages of $500 for each violation or three times plaintiff’s actual damages, whichever was greater, and attorney fees and costs.


In June 2013, the parties agreed to mediate the claims. The mediation resulted in a settlement agreement that received the final approval of the Court on December 11, 2013. Under the settlement agreement, we agreed to reimburse plaintiffs’ legal fees and to pay (i) $450 in the form of cash and vouchers and (ii) $3,000 for each claim representative. As of December 31, 2013, we estimated costs of $6.2 million to settle all claims against us and to pay plaintiffs’ legal fees. The estimated costs are based on our assumptions of the final number of approved claims and a voucher redemption rate. We believe that these estimates are reasonable; however, actual cost could differ materially. We recorded this amount as a component of selling, general and administrative expense in our Consolidated Statements of Operations and, as of December 31, 2013, the amount was included as a component of accrued liabilities in our Consolidated Balance Sheets.