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LEASES

12 Months Ended

Dec. 31, 2023

NOTE H – LEASES

The Company has operating lease arrangements for certain facilities and revenue equipment used in the Asset-Based and Asset-Light segment operations and certain other facilities and office equipment. Current operating leases have remaining terms of 9.8 years or less, some of which include one or more options to renew, with renewal option terms up to ten years. There is one early termination option available on an operating lease as of December 31, 2023, provided notification is given 24 months prior to the end of the lease term, which is included in the right-of-use assets and liabilities as of December 31, 2023. All renewal options that have been exercised or are reasonably certain to be exercised as of December 31, 2023 and 2022, are included in the right-of-use assets and lease liabilities. Variable lease cost for operating leases consists of subsequent changes in the consumer price index, rent payments that are based on usage, and other lease related payments which are subject to change and not considered fixed payments. All fixed lease and non-lease component payments are combined in determining the right-of-use asset and lease liability.

The components of operating lease expense were as follows:



	Year Ended December 31
	2023		2022		2021

	(in thousands)
Operating lease expense	$	38,794	$	31,790	$	26,552
Variable lease expense		6,804		4,188		4,128
Sublease income		(246)		(391)		(626)
Total operating lease expense⁽¹⁾	$	45,352	$	35,587	$	30,054

(1)	Operating lease expense excludes short-term leases with a term of 12 months or less.

The operating cash flows from operating lease activity were as follows:




	Year Ended December 31
	2023		2022		2021

	(in thousands)
Noncash change in operating right-of-use assets	$	33,470	$	27,465	$	24,023
Change in operating lease liabilities		(30,550)		(24,513)		(23,400)
Operating right-of-use-assets and lease liabilities, net	$	2,920	$	2,952	$	623

Cash paid for amounts included in the measurement of operating lease liabilities	$	(35,759)	$	(28,830)	$	(25,909)

Supplemental balance sheet information related to operating leases was as follows:


	December 31, 2023
	(in thousands, except lease term and discount rate)
			Land and		Equipment
		Total	Structures		and Others
Operating right-of-use assets (long-term)	$	169,999	$	169,663	$	336

Operating lease liabilities (current)	$	32,172	$	31,865	$	307
Operating lease liabilities (long-term)		176,621		176,598		23
Total operating lease liabilities	$	208,793	$	208,463	$	330

Weighted-average remaining lease term (in years)		7.4
Weighted-average discount rate		4.29%


	December 31, 2022
	(in thousands, except lease term and discount rate)
			Land and		Equipment
		Total	Structures		and Others
Operating right-of-use assets (long-term)	$	166,515	$	165,822	$	693

Operating lease liabilities (current)	$	26,225	$	25,824	$	401
Operating lease liabilities (long-term)		147,828		147,534		294
Total operating lease liabilities	$	174,053	$	173,358	$	695

Weighted-average remaining lease term (in years)		7.6
Weighted-average discount rate		3.58%

Maturities of operating lease liabilities at December 31, 2023 were as follows:


					Equipment
			Land and		and
	Total		Structures⁽¹⁾		Other

	(in thousands)
2024	$	40,218	$	39,905	$	313
2025		36,458		36,435		23
2026		33,187		33,187		—
2027		27,071		27,071		—
2028		24,033		24,033		—
Thereafter		86,011		86,011		—
Total lease payments		246,978		246,642		336
Less imputed interest		(38,185)		(38,179)		(6)
Total	$	208,793	$	208,463	$	330

(1)	Excludes future minimum lease payments for leases which were executed but had not yet commenced as of December 31, 2023, of $28.8 million which will be paid over approximately 10 years.

Lease Impairment Charges

Long-lived assets, including operating right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. During the third quarter of 2023, the Company evaluated for impairment certain long-lived operating right-of-use assets that were made available for sublease. The assets evaluated for impairment included the operating right-of-use assets and leasehold improvements for a service center within the Asset-Based segment from which operations were relocated to a purchased facility; certain office spaces within the Asset-Light segment that have been vacated as a cost reduction measure in light of ongoing market changes impacting the Asset-Light business and changing employee work location trends; and certain leased facilities reported within “Other and eliminations” utilized for the service center operations of a freight handling pilot location, as operations transitioned back to the owned Asset-Based service center facility where they had previously been located, following the pause of the hardware pilot program at ABF Freight.

After determining the carrying values of these asset groups were not recoverable, impairment was measured and lease impairment charges were recognized for the amount by which the carrying value exceeded the fair value of the asset groups. To estimate the fair value of the asset groups, the Company relied on a discounted cash flow method utilizing market-participant discount rates estimated with Level 3 inputs (see Note C).

As a result of these evaluations, the Company recognized $30.2 million of lease impairment charges as a component of operating expenses in the consolidated statements of operations for the year ended December 31, 2023. The impairment losses recorded include $28.1 million related to the operating right-of-use assets with the remaining amount related to leasehold improvements. The Company determined the right-of-use assets and leasehold improvements are not or will not be abandoned, as there is a plan to sublease the properties, and the right-of-use assets will continue to be classified as held and used.