Leases | Leases June 30, 2019 (ASC Topic 842 Disclosures) Lessee Disclosures for Lease Accounting under ASC Topic 842 Accounting Policy — Management evaluates the Company’s leases based on the underlying asset groups. The assets currently underlying the Company’s leases include revenue equipment (primarily tractors and trailers), real estate (primarily buildings, office space, land, and drop yards), as well as technology and other equipment that supports business operations. Management’s significant assumptions and judgments include the determination of the discount rate (discussed below), as well as the determination of whether a contract contains a lease (specifically with respect to whether the Company's drop yard contracts contain identified assets). • Lease Term — The Company’s leases generally have lease terms corresponding to the useful lives of the underlying assets. Revenue equipment leases have fixed payment terms based on the passage of time, which is typically three to five years for tractors and five to seven years for trailers. Certain finance leases for revenue equipment contain renewal or fixed price purchase options. Real estate leases, excluding drop yards, generally have varying lease terms between five and fifteen years and may include renewal options. Drop yards include month-to-month leases, as well as leases with varying lease terms generally ranging from two to five years. Options to renew or purchase the underlying assets are considered in the determination of the right-of-use asset and lease liability once reasonably certain of exercise. • Portfolio Approach — The Company typically leases its revenue equipment under master lease agreements, which contain general terms, conditions, definitions, representations, warranties and other general language, while the specific contract provisions are contained within the various individual lease schedules that fall under a master lease agreement. Each individual leased asset within a lease schedule is similar in nature (i.e. all tractors or all trailers) and has identical contract provisions to all of the other individual leased assets within the same lease schedule (such as the contract provisions discussed above). Management has elected to apply the portfolio approach to its revenue equipment leases, as accounting for its revenue equipment under the portfolio approach would not be materially different from separately accounting for each individual underlying asset as a lease. Each individual real estate and other lease is accounted for at the individual asset level. • Nonlease components — Management has elected to combine its nonlease components (such as fixed charges for common area maintenance, real estate taxes, utilities, and insurance) with lease components for each class of underlying asset, as applicable, as the nonlease components in the Company’s lease contracts typically are not material. These nonlease components are usually present within the Company’s real estate leases. The Company’s assets are generally insured by umbrella policies, in which the premiums change from one policy period to the next, making them variable in nature. Accordingly, these insurance costs are excluded from the Company’s calculation of right-of-use assets and corresponding lease liabilities. • Short-term lease exemption — Management has elected to apply the short-term lease exemption to all asset groups. Accordingly, leases with terms of twelve months or less are not capitalized and continue to be expensed on a straight-line basis over the term of the lease. This primarily affects the Company’s drop yards and corresponding temporary structures on those drop yards. To a lesser extent, certain short-term leases for revenue equipment, technology, and other assets are affected. • Discount rate — The Company uses the rate implicit in the lease, when readily determinable. Otherwise the Company’s incremental borrowing rate is applied. Due to the unique structure of the Company’s revenue equipment leases, management believes that the rate implicit in the lease is readily determinable for such leases and the implicit rate is used. The Company’s use of the implicit rate (rather than the incremental borrowing rate) for its revenue equipment leases does not materially change the Company’s financial position or financial results either by financial statement caption or in total. The implicit interest rate is not readily determinable for the Company’s real estate and other leases. As such, management applies the Company’s incremental borrowing rate, which is defined by GAAP as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company's incremental borrowing rate is based on the results of an independent third-party valuation. • Residual values — The Company's finance leases are typically structured with balloon payments at the end of the lease term equal to the residual value the Company is contracted to receive from certain equipment manufacturers upon sale or trade back to the manufacturers. If the Company does not receive proceeds of the contracted residual value from the manufacturer, the Company is still obligated to make the balloon payment at the end of the lease term. In connection with certain revenue equipment operating leases, the Company issues residual value guarantees, which provide that if the Company does not purchase the leased equipment from the lessor at the end of the lease term, then the Company is liable to the lessor for an amount equal to the shortage (if any) between the proceeds from the sale of the equipment and an agreed value. To the extent management believes any manufacturer will refuse or be unable to meet its obligation, the Company recognizes additional rental expense to the extent the fair market value at the lease termination is expected to be less than the obligation to the lessor. Proceeds from the sale of equipment under the Company’s operating leases generally exceed the payment obligation on substantially all operating leases. Although the Company typically owes certain amounts to its lessors at the end of its revenue equipment leases, the Company’s equipment manufacturers have corresponding guarantees back to the Company as to the buyback value of the units. Lease Cost — The components of the Company's lease cost were as follows: Quarter-to-Date June 30, 2019 Year-to-Date June 30, 2019 (in thousands) Operating lease cost $ 32,376 $ 67,194 Short-term lease cost ¹ 589 1,406 Sublease income (90 ) (180 ) Rental expense 32,875 68,420 Finance lease cost: Amortization of property and equipment 4,120 12,453 Interest expense 845 1,772 Total finance lease cost 4,965 14,225 Total operating and finance lease cost $ 37,840 $ 82,645 1 Short-term lease cost includes month-to-month and variable lease costs. Lease Liability Calculation Assumptions — The assumptions underlying the calculation of the Company's right-of-use assets and lease liabilities are disclosed below. June 30, 2019 Operating Finance Revenue equipment leases Weighted average remaining lease term 2.6 years 1.7 years Weighted average discount rate 2.6 % 3.8 % Real estate and other leases Weighted average remaining lease term 12.4 years 1.7 years Weighted average discount rate 4.2 % 2.0 % Maturity Analysis of Lease Liabilities (as Lessee) — Future minimum lease payments for all noncancelable leases were: June 30, 2019 Operating Finance (In thousands) Remainder of 2019 $ 57,858 $ 54,754 2020 81,449 15,828 2021 44,487 30,829 2022 26,643 18,528 2023 13,669 1,347 Thereafter 26,257 9,572 Future minimum lease payments 250,363 130,858 Less: amounts representing interest (21,779 ) (6,147 ) Present value of minimum lease payments 228,584 124,711 Less: current portion (98,904 ) (58,684 ) Lease liabilities, less current portion $ 129,680 $ 66,027 Supplemental Cash Flow Lease Disclosures — The following table sets forth cash paid for amounts included in the measurement of lease liabilities: Year-to-Date June 30, 2019 (in thousands) Operating cash flows from operating leases $ 65,995 Operating cash flows from finance leases 1,757 Financing cash flows from finance leases 36,941 Refer to Note 15 for information regarding the leasing transactions between the Company and related parties. Lessor Disclosures for Lease Accounting under ASC Topic 842 The Company's wholly-owned financing subsidiaries lease revenue equipment to the Company's independent contractors under operating leases, which generally have terms between three and four years, and include renewal and purchase options. These leases also include variable charges associated with miles driven in excess of the stipulated allowable miles in the contract, which are accounted for separately and presented in the table below. Lease classification is determined based on minimum rental receipts per the agreement, including residual value guarantees, when applicable, as well as receivables due to the Company upon default or cross-default. When independent contractors default on their leases, the Company typically re-leases the equipment to other independent contractors. As such, future lease receipts reflect original leases and re-leases. The owned assets underlying the Company's leases as lessor primarily consist of revenue equipment. As of June 30, 2019 , the gross carrying value of such revenue equipment underlying these leases was $99.0 million and accumulated depreciation was $31.0 million . Depreciation is calculated on a straight-line basis down to the residual value, as applicable, over the estimated useful life of the equipment. Depreciation expense for these assets was $3.9 million for the second quarter of 2019 and $7.7 million for year-to-date June 30, 2019 . Additionally, the Company periodically leases out real estate for use by third parties, some of which are subleases. These leases have varying terms, and may include renewal options. Management’s significant assumptions and judgments include the determination of the amount the Company expects to derive from the underlying asset at the end of the lease term, as well as whether a contract contains a lease. Lease Revenue and Rental Income — The components of the Company's lease revenue are included in "Revenue, excluding trucking fuel surcharge" and the Company's rental income is included in "Other income, net" in the condensed consolidated statements of comprehensive income. These amounts are disclosed in the table below. Quarter-to-Date June 30, 2019 Year-to-Date June 30, 2019 (in thousands) Operating lease revenue $ 11,078 $ 24,035 Variable lease revenue 599 1,110 Total lease revenue 1 $ 11,677 $ 25,145 Rental income 2 $ 2,499 $ 4,940 1 Primarily represents operating revenue earned by the Company's financing subsidiaries for leasing equipment to third-party independent contractors. 2 Represents non-operating income earned from leasing real estate to third parties. Maturity Analysis of Future Lease Revenues (as Lessor) — Future minimum lease revenues for all noncancelable leases were: June 30, 2019 (In thousands) Remainder of 2019 $ 29,903 2020 46,312 2021 31,547 2022 16,089 2023 4,692 Thereafter 1,943 Future minimum lease revenues $ 130,486 Refer to Note 15 for information regarding the leasing transactions between the Company and related parties. December 31, 2018 (ASC Topic 840 Disclosures) Note: The ASC Topic 840 Comparative Approach for adopting ASC Topic 842 requires companies to provide disclosures for all periods that continue to be in accordance with ASC Topic 840. Refer to Note 2 for more information regarding the Company's adoption methods and impact of adoption for ASC Topic 842. The Company finances a portion of its revenue equipment under capital and operating leases and certain terminals under operating leases. Capital Leases (as Lessee) — The Company's capital leases are typically structured with balloon payments at the end of the lease term equal to the residual value the Company is contracted to receive from certain equipment manufacturers upon sale or trade back to the manufacturers. If the Company does not receive proceeds of the contracted residual value from the manufacturer, the Company is still obligated to make the balloon payment at the end of the lease term. Certain leases contain renewal or fixed price purchase options. The present value of obligations under capital leases is included under "Capital lease obligations and long-term debt – current portion" and "Capital lease obligations – less current portion" in the condensed consolidated balance sheets. As of December 31, 2018 , the leases were collateralized by revenue equipment with a cost of $154.3 million and accumulated amortization of $34.2 million . Amortization of the equipment under capital leases is included in "Depreciation and amortization of property and equipment" in the Company's condensed consolidated statements of comprehensive income. Operating Leases (as Lessee) — Operating leases generally include tractors, trailers, chassis, and facilities. Substantially all lease agreements for revenue equipment have fixed payment terms based on the passage of time. The tractor lease agreements generally stipulate maximum miles and provide for mileage penalties for excess miles. These leases generally run for a period of three to five years for tractors and five to seven years for trailers. Operating and Capital Leases (as Lessee) — Annual future minimum lease payments for all noncancelable leases were: December 31, 2018 Operating Capital (In thousands) 2019 $ 123,380 $ 61,285 2020 79,088 15,843 2021 42,441 30,845 2022 24,693 18,528 2023 11,728 1,347 Thereafter 25,403 9,572 Future minimum lease payments $ 306,733 $ 137,420 Less: amounts representing interest (7,921 ) Present value of minimum lease payments 129,499 Less: current portion (58,251 ) Capital lease obligations – less current portion $ 71,248 Operating Leases (as Lessor) — The Company's wholly-owned financing subsidiaries lease revenue equipment to the Company's independent contractors under operating leases. Additionally, the Company periodically leases out facilities for use by third-parties. Annual future minimum lease payments receivable under operating leases for the periods noted below were: December 31, 2018 (In thousands) 2019 $ 54,080 2020 37,694 2021 22,991 2022 8,343 2023 13 Thereafter — Future minimum lease payments receivable $ 123,121 Lease classification is determined based on minimum rental payments per the agreement, including residual value guarantees, when applicable, as well as receivables due to the Company upon default or cross-default. When independent contractors default on their leases, the Company typically re-leases the equipment to other independent contractors. As such, future minimum lease payments reflect original leases and re-leases. |