NOTE M: LEASES

Adoption of ASU

2016

The Company currently leases shop, office and parking spaces in various locations in the United States and Mexico. The initial term for the majority of these leases is

one

year or less, with an option for early cancellation and an option to renew for subsequent

one

month periods. These leases can be terminated by either party by providing notice to the other party of the intent to cancel or to

not

extend. Relatively short lease durations for these properties are intended to provide flexibility to the Company as changing operational needs and shifting opportunities often result in cancellation or non-renewal of these leases by the Company or the lessor.

The initial lease term for certain shop and office locations is for periods ranging from

one

five

years with early cancellation options. The Company prefers that leases include early cancellation provisions to prevent becoming locked into long term leases that become operationally unjustified and to allow the flexibility to pursue more cost effective options for similar properties if they become available. These leases often include the option to extend for additional periods, which

may

not

be exercised. Based on historical experience, the Company does

not

always extend these leases, sometimes exercises the option to cancel leases early and sometimes lessors choose to cancel leases or

not

extend.

The Company adopted ASU

2016

and related amendments on

January 1, 2019

utilizing the modified retrospective approach and elected to apply the practical expedients outlined above. This election allowed the Company to continue to recognize lease expense for operating leases for which the initial term was

twelve

months or less, or for which it is reasonably likely that early cancellation provisions will be exercised, on a straight-line basis over the remaining term of the leases.

The Company leases trucks to owner-operators under our lease-to-own program. We also lease dock space to a related party at our Laredo, Texas terminal. We have reviewed these operating leases and determined that the adoption of ASU

2016

did

not

require a change to our financial statements, as our method of accounting for related assets and lease revenue is consistent with the provisions of the new standard.

Because the Company’s historical method of accounting for leases is consistent with the provisions of ASU

2016

02,

the adoption of ASU

2016

January 1, 2019

did

not

have a material impact on the Company’s financial condition, results of operations, or cash flows.

2019

Leases

During

2019,

the Company entered into operating leases which include initial terms of approximately

five

years and which do

not

include an option for early cancellation. In accordance with the provisions of ASC Topic

842,

these lease resulted in the recognition of right-of-use assets and corresponding operating lease liability, respectively valued at

$1.4

million as of

September 30, 2019.

These assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date, using the Company’s incremental borrowing rate as of the respective dates of lease inception, as the rate implicit in each lease is

not

readily determinable. The right-of-use assets are recorded in other assets, and the lease liability is recorded in accrued expenses and other liabilities and in other long-term liabilities on our Condensed Consolidated Balance Sheet. Lease expense is recorded on a straight-line basis over the lease term and is recorded in rent and purchased transportation in our Condensed Consolidated Statements of Operations. While the lease agreements contain provisions to extend after the initial term for an additional

five

years, the Company is

not

reasonably certain these extension options will be exercised. Therefore, potential lease payments that might occur under this extension period are

not

included in amounts recorded in our Condensed Consolidated Balance Sheets as of

September 30, 2019.

Scheduled amounts and timing of cash flows arising from operating lease payments at

September 30, 2019,

are:

	(In thousands)
Maturity of Lease Liabilities
2019 (remaining)	$	80
2020		325
2021		330
2022		335
2023		340
Thereafter		114
Total undiscounted operating lease payments	$	1,524
Less: Imputed interest		(122	)
Present value of operating lease liabilities	$	1,402

Balance Sheet Classification
Right-of-use assets (recorded in other non-current assets)	$	1,402

Current lease liabilities (recorded in other current liabilities)	$	324
Long-term lease liabilities (recorded in other long-term liabilities)		1,078
Total operating lease liabilities	$	1,402

Other Information
Weighted-average remaining lease term for operating leases (years)	4.58
Weighted-average discount rate for operating leases		3.74	%

Cash Flows

A right-of-use asset of

$0.2

million was recognized as a non-cash asset addition that resulted from new operating lease liabilities during the

three

months ended

September 30, 2019.

Cash paid for amounts included in the present value of operating lease liabilities was

$0.1

million during the

three

months ended

September 30, 2019

and is included in operating cash flows.

Operating Lease Costs

	Three Months Ended				Nine months Ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in thousands)

Long term	$	67	$	-	$	106	$	-
Short term		563		572		1,649		1,579
Total	$	630	$	572	$	1,755	$	1,579

Lessor Disclosures under ASC Topic

842

The Company leases trucks to owner-operators under operating leases, which generally have a term of up to

five

years, and include options to purchase the truck at the end of the lease. In the event that an independent contractor defaults on their lease, the Company generally leases the truck to another independent contractor.

As of

September

30,

2019,

the gross carrying value of trucks underlying these leases was

$53.8

million and accumulated depreciation was

$25.4

million. Depreciation is calculated on a straight-line basis over the estimated useful life of the equipment, down to an estimated salvage value. In most cases, the Company has agreements in place with certain manufacturers whereby salvage values are guaranteed by the manufacturer. In other cases, where salvage values are

not

guaranteed, estimates of salvage value are based on the expected market values of equipment at the time of disposal. During the quarter ended

September 30, 2019,

the Company incurred

$1.6

million of depreciation expense for these assets.

The Company leases dock space to a related party at our Laredo, Texas terminal. The dock space leased to the related party is depreciated in conjunction with the structures and improvements for the entire Laredo terminal on a straight-line basis over the estimated useful life of the assets. Lease income is recorded as a component of Non-operating income in our Condensed Consolidated Statements of Operations.

Lease Revenue

The Company's operating lease revenue is disclosed in the table below.

	Three Months Ended				Nine months Ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in thousands)

Leased truck revenue (recorded in revenue, before fuel surcharge)	$	2,244	$	1,936	$	7,024	$	5,563
Leased dock space revenue (recorded in non-operating income)		39		39		116		116
Total lease revenue	$	2,283	$	1,975	$	7,140	$	5,679

Lease Receivables

Future minimum operating lease payments receivable at

September 30, 2019:

	(i n thousands)

2019 (remaining)	$	2,479
2020		6,879
2021		3,042
2022		2,657
2023		1,645
Thereafter		-
Total future minimum lease payments receivable	$	16,702