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Note 8 - Lease Obligations

6 Months Ended

Jun. 30, 2020

Note 8.

Lease Obligations

We finance a portion of our revenue equipment, office and terminal properties, computer and office equipment, and other equipment using leases. A number of these leases include one or more options to renew or extend the agreements beyond the expiration date or to terminate the agreement prior to the lease expiration date, and such options are included in or excluded from the lease term, respectively, when those options are reasonably certain to be exercised.

Finance lease obligations are utilized to finance a portion of our revenue equipment and are entered into with certain finance companies who are not parties to our Credit Facility. The finance leases in effect at June 30, 2020 terminate from September 2020 through April 2025 and contain guarantees of the residual value of the related equipment by us. As such, the residual guarantees are included in the related debt balance as a balloon payment at the end of the related term as well as included in the future minimum finance lease payments. These lease agreements require us to pay personal property taxes, maintenance, and operating expenses. Our operating lease obligations do not typically include residual value guarantees or material restrictive covenants.

A summary of our lease obligations at June 30, 2020 and 2019 are as follows:

(dollars in thousands)	Three Months Ended			Three Months Ended		Six Months Ended		Six Months Ended
	June 30, 2020			June 30, 2019		June 30, 2020		June 30, 2019

Finance lease cost:
Amortization of right-of-use assets	$	968		$	1,408	$	2,005	$	2,819
Interest on lease liabilities		278			206		525		433
Operating lease cost		7,445			5,475		14,047		11,657
Variable lease cost		156			-		314		-

Total lease cost	$	8,847		$	7,089	$	16,891	$	14,909

Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases		968			1,297		2,005		2,443
Operating cash flows from operating leases		7,601			5,475		14,361		11,657
Financing cash flows from finance leases		278			206		525		433
Right-of-use assets obtained in exchange for new finance lease liabilities		2,127			-		2,127		-
Right-of-use assets obtained in exchange for new operating lease liabilities		2,176			3,089		2,637		6,325
Weighted-average remaining lease term—finance leases	2.4 years
Weighted-average remaining lease term—operating leases	2.7 years
Weighted-average discount rate—finance leases		3.3	%
Weighted-average discount rate—operating leases		5.2	%

During the second quarter of 2020 we recognized approximately $2.2 million of impairment expense related to a leased office facility in Chattanooga, TN held under an operating lease and $0.8 million of additional revenue equipment and purchased transportation expense related to the abandonment of revenue equipment held under an operating lease. At June 30, 2020 and December 31, 2019, right-of-use assets of $46.4 million and $58.8 million for operating leases and $32.0 million and $35.6 million for finance leases, respectively, are included in net property and equipment in our condensed consolidated balance sheets. Operating lease right-of-use asset amortization is included in revenue equipment rentals and purchased transportation, communication and utilities, and general supplies and expenses, depending on the underlying asset, in the condensed consolidated statement of operations. Amortization of finance leased assets is included in depreciation and amortization expense in the condensed consolidated statement of operations.

Our future minimum lease payments as of June 30, 2020, are summarized as follows by lease category:

(in thousands)	*Operating*			*Finance*
2020 (1)	$	10,885		$	8,076
2021		18,682			8,548
2022		15,713			9,580
2023		6,869			7,524
2024		28			1,212
Thereafter		9			-
Total minimum lease payments	$	52,186		$	34,940
Less: amount representing interest		(3,554	)		(2,206	)
Present value of minimum lease payments	$	48,632		$	32,734
Less: current portion		(18,407	)		(7,125	)
Lease obligations, long-term	$	30,225		$	25,609

⁽¹⁾ Excludes the six months ended June 30, 2020.