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Note 10 - Leases | 12 Months Ended
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Dec. 31, 2023
Notes to Financial Statements |
Leases of Lessee and Lessor Disclosure [Text Block] |
10. | LEASES:
In February 2016, the FASB issued ASU No. 2016-02, “Leases (“Topic 842”),” which was intended to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than twelve months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A lease is classified as a finance lease if any of the following conditions exist on the date of lease commencement:
| ● | The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
| ● | The lease provides the lessee an option to purchase the underlying asset, and that option is reasonably certain to be exercised.
| ● | The lease term is for the major part of the remaining economic life of the underlying asset.
| ● | The present value of the lease payments equals or exceeds substantially all of the fair value of the underlying asset.
| ● | The underlying asset is of such a specialized nature that only the lessee can use it without major modifications.
| ● | The lessor expects to have no alternative use for the leased asset at the end of the lease.
The Company applied the practical expedients permitted under Topic 842, which among other things, allowed it to retain its existing assessment of whether an arrangement is, or contains, a lease and whether such lease is classified as an operating or finance lease. The Company made an accounting policy election that keeps leases with an initial term of twelve months or less off of the balance sheet and results in recognizing those lease payments in the Consolidated Statements of Income and Comprehensive Income on a straight-line basis over the lease term. The Company leases certain commercial vehicles and real estate under finance and operating leases. The Company determines whether an arrangement is a lease at its inception. For leases with terms greater than twelve months, the Company records the related asset and obligation at the present value of lease payments over the term. Many of the Company’s leases include renewal options and/or termination options that are factored into its determination of lease payments when appropriate. The Company has elected not to account for lease and nonlease components as a single combined lease component as lessee. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of its leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement. Lease of Vehicles as Lessee The Company leases commercial vehicles as the lessee under finance leases and operating leases. The lease terms vary from one year to ten years. Commercial vehicle finance leases have always been reported on the Consolidated Balance Sheet, while operating leases were added to the Consolidated Balance Sheet in 2019 with the adoption of Topic 842. These vehicles are then subleased or rented by the Company to customers under various agreements. The Company received sublease income under non-cancelable subleases of $50.0 million for the year ended December 31, 2023, and $41.7 million for the year ended December 31, 2022. The Company usually guarantees the residual value of vehicles under operating lease and finance lease arrangements. As of December 31, 2023, the Company guaranteed commercial vehicle residual values of approximately $72.3 million under operating lease and finance lease arrangements. Lease of Facilities as Lessee The Company’s facility leases are classified as operating and finance leases and primarily reflect its use of dealership facilities and office space. The lease terms vary from one year to 83 years, some of which include options to extend the lease term, and some of which include options to terminate the lease within one year. The Company considers these options in determining the lease term used to establish its right-of-use assets and lease liabilities. The Company leases facilities in Ontario, Canada from entities owned by the noncontrolling interest holder of RTC Canada. In 2023, the Company recorded approximately $2.1 million in operating lease expense related to these leases. Lease Costs and Supplemental Information Components of lease cost are as follows (in thousands):
|  |  |  | Year Ended |
Component |  | Classification |  | December 31, 2023 |  |  | December 31, 2022 |
Operating lease cost |  | SG&A expense |  | $ | 14,924 |  |  | $ | 11,288 |
Operating lease cost |  | Lease and rental cost of products sold |  |  | 5,981 |  |  |  | 6,081 |
Finance lease cost – amortization of right-of-use assets |  | Lease and rental cost of products sold |  |  | 24,655 |  |  |  | 20,135 |
Finance lease cost – interest on lease liabilities |  | Lease and rental cost of products sold |  |  | 5,454 |  |  |  | 4,783 |
Short-term lease cost |  | SG&A expense |  |  | 191 |  |  |  | 413 |
Supplemental cash flow information and non-cash activity related to operating and finance leases are as follows (in thousands):
|  | Year Ended |
|  | December 31, 2023 |  |  | December 31, 2022 |
Operating cash flow information: |  |  |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities |  | $ | 26,359 |  |  | $ | 21,874 |
Financing cash flow information: |  |  |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities |  | $ | 17,693 |  |  | $ | 14,780 |
Non-cash activity: |  |  |  |  |  |  |  |
Operating lease right-of-use assets obtained in exchange for lease obligations |  | $ | 40,093 |  |  | $ | 54,385 |
Weighted-average remaining lease term and discount rate for operating and finance leases as of December 31, 2023 are as follows:
|  | Finance Leases |  |  | Operating Leases |
Weighted-average remaining lease term (in months) |  | 39 |  |  | 106 |
Weighted-average discount rate |  |  | 4.3 | % |  |  | 4.8 | %
Maturities of lease liabilities by fiscal year for finance leases and operating leases as of December 31, 2023 are as follows (in thousands):
|  | Finance Leases |  |  | Operating Leases |
2024 |  | $ | 41,189 |  |  | $ | 23,359 |
2025 |  |  | 34,172 |  |  |  | 19,282 |
2026 |  |  | 26,904 |  |  |  | 18,578 |
2027 |  |  | 18,587 |  |  |  | 17,730 |
2028 |  |  | 14,961 |  |  |  | 15,502 |
2029 and beyond |  |  | 12,730 |  |  |  | 60,158 |
Total lease payments |  | $ | 148,543 |  |  | $ | 154,609 |
Less: Imputed interest |  |  | (14,807 | ) |  |  | (32,658 | )
Present value of lease liabilities |  | $ | 133,736 |  |  | $ | 121,951 |
Lease of Vehicles as Lessor The Company leases commercial vehicles that the Company owns to customers primarily over periods of one to ten years. The Company applied the practical expedient permitted within Topic 842 that allows it not to separate lease and nonlease components. Nonlease components typically consist of maintenance and licensing for the commercial vehicle. The variable nonlease components are generally based on mileage. Some leases contain an option for the lessee to purchase the commercial vehicle. The Company’s policy is to depreciate its lease and rental fleet using a straight-line method over each customer’s contractual lease term. The lease unit is depreciated to a residual value that approximates fair value at the expiration of the lease term. This policy results in the Company realizing reasonable gross margins while the unit is in service and a corresponding gain or loss on sale when the unit is sold at the end of the lease term. Sales-type leases are recognized by the Company as lease receivables. The lessee obtains control of the underlying asset and the Company recognizes sales revenue upon lease commencement. The receivable for sales-type leases as of December 31, 2023, in the amount of $8.4 million is reflected in Other Assets on the Consolidated Balance Sheet. Minimum rental revenue to be received for non-cancelable leases and subleases in effect as of December 31, 2023, are as follows (in thousands):
2024 |  | $ | 174,835 |
2025 |  |  | 140,135 |
2026 |  |  | 105,495 |
2027 |  |  | 75,672 |
2028 |  |  | 44,081 |
Thereafter |  |  | 25,405 |
Total |  | $ | 565,623 |
Rental income during the year ended December 31, 2023, and 2022, consisted of the following (in thousands):
|  | 2023 |  |  | 2022 |
Minimum rental payments |  | $ | 306,897 |  |  | $ | 278,330 |
Nonlease payments |  |  | 46,883 |  |  |  | 43,927 |
Total |  | $ | 353,780 |  |  | $ | 322,257 |

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- Definition The entire disclosure for lessee and lessor entity's leasing arrangements including, but not limited to, all of the following: (a.) The basis on which contingent rental payments are determined, (b.) The existence and terms of renewal or purchase options and escalation clauses, (c.) Restrictions imposed by lease agreements, such as those concerning dividends, additional debt, and further leasing. + References No definition available. + Details
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