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Note 11 - Leases

12 Months Ended

Dec. 31, 2023

11.

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, 2023 terminate in June 2028 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, 2023, 2022, and 2021 are as follows:

(dollars in thousands)	Twelve Months Ended			Twelve Months Ended			Twelve Months Ended
	December 31, 2023			December 31, 2022			December 31, 2021

Finance lease cost:
Amortization of right-of-use assets	$	689		$	2,314		$	3,620
Interest on lease liabilities		510			377			637
Operating lease cost		18,296			20,538			19,583
Short-term lease cost		7,514			13,625			4,419
Variable lease cost		1,024			232			89
Total lease cost	$	28,033		$	37,086		$	28,348

Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	510		$	377		$	637
Operating cash flows from operating leases	$	13,965		$	17,114		$	17,188
Financing cash flows from finance leases	$	5,619		$	5,516		$	5,626
Right-of-use assets obtained in exchange for new finance lease liabilities	$	5,938		$	458		$	-
Right-of-use assets obtained in exchange for new operating lease liabilities	$	3,992		$	48,515		$	15,795
Weighted-average remaining lease term—finance leases	3.8 years			5.7 years			1.0 years
Weighted-average remaining lease term—operating leases	4.6 years			4.6 years			4.9 years
Weighted-average discount rate—finance leases		13.2	%		5.1	%		4.7	%
Weighted-average discount rate—operating leases		10.1	%		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, 2023 and 2022, right-of-use assets of $41.2 million and $58.9 million for operating leases, respectively, and $6.4 million and $5.3 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, 2023, summarized as follows by lease category:

(in thousands)	Operating			Finance
2024	$	15,285		$	1,543
2025		11,158			1,543
2026		8,399			1,543
2027		7,530			1,543
2028		3,604			1,262
Thereafter		7,211			1,629
Total minimum lease payments	$	53,187		$	9,063
Less: amount representing interest		(10,345	)		(2,986	)
Present value of minimum lease payments	$	42,842		$	6,077
Less: current portion		(11,950	)		(781	)
Lease obligations, long-term	$	30,892		$	5,296

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 three years ended December 31:

(in thousands)	2023		2022		2021
Revenue equipment rentals		$ 12,735		$ 26,478		$ 20,114
Building and lot rentals		13,721		7,567		3,651
Other equipment rentals		378		350		326
Total rental expense		$ 26,834		$ 34,395		$ 24,091