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Note 9 - Leases

12 Months Ended

Dec. 31, 2022

9.	LEASES

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 leases in effect at December 31, 2022 terminate in January 2023 through November 2033 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 for the twelve months ended December 31, 2022 and 2021 are as follows:

(dollars in thousands)	Twelve Months Ended			Twelve Months Ended
	December 31, 2022			December 31, 2021

Finance lease cost:
Amortization of right-of-use assets	$	2,314		$	3,620
Interest on lease liabilities		377			637
Operating lease cost		20,538			19,583
Short-term lease cost		13,625			4,419
Variable lease cost		232			89

Total lease cost	$	37,086		$	28,348

Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	377		$	637
Operating cash flows from operating leases	$	17,114		$	17,188
Financing cash flows from finance leases	$	5,516		$	5,626
Right-of-use assets obtained in exchange for new finance lease liabilities	$	458		$	-
Right-of-use assets obtained in exchange for new operating lease liabilities	$	48,515		$	15,795
Weighted-average remaining lease term—finance leases	5.7 years			1.0 years
Weighted-average remaining lease term—operating leases	4.6 years			4.9 years
Weighted-average discount rate—finance leases		5.1	%		4.7	%
Weighted-average discount rate—operating leases		9.1	%		6.4	%

During the year ended December 31, 2022, we recognized $7.5 million of expense related to the early abandonment and disposal charges related to revenue equipment held under operating leases as the equipment was a source of significant operational headwinds throughout the year due to poor fuel economy, unusually high maintenance costs, and elevated downtime. At December 31, 2022 and 2021, right-of-use assets of $58.9 million and $35.7 million for operating leases, respectively, and $5.3 million and $23.2 million for finance leases, are included in net property and equipment in our 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 consolidated statement of operations. Amortization of finance leased assets is included in depreciation and amortization expense in the consolidated statement of operations.

Our future minimum lease payments as of December 31, 2022, summarized as follows by lease category:

(in thousands)	Operating			Finance
2023	$	22,653		$	5,138
2024		18,147			108
2025		11,719			108
2026		8,433			108
2027		7,730			108
Thereafter		10,572			640
Total minimum lease payments	$	79,254		$	6,210
Less: amount representing interest		(14,647	)		(452	)
Present value of minimum lease payments	$	64,607		$	5,758
Less: current portion		(18,179	)		(5,326	)
Lease obligations, long-term	$	46,428		$	432

Certain leases contain cross-default provisions with other financing agreements and additional charges if the unit's mileage exceeds certain thresholds defined in the lease agreement.

Rental expense is summarized as follows for each of the two years ended December 31:

(in thousands)	2022		2021
Revenue equipment rentals	$	26,478	$	20,114
Building and lot rentals		7,567		3,651
Other equipment rentals		350		326
Total rental expense	$	34,395	$	24,091