Leases

12 Months Ended

Dec. 31, 2022

NOTE 11. Leases

In accordance with ASC 842, “Leases,” (“ASC 842”) which requires lessees to recognize a right-of-use asset (“ROU”) and a lease obligation for all leases, we made an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less.

As of December 31, 2022, we recorded $103.3 million of ROU assets and $109.3 million of lease liabilities on our consolidated balance sheet. As of December 31, 2021, we recorded $45.3 million of ROU assets and $47.5 million of lease liabilities on our consolidated balance sheet. The increase in ROU assets and lease liabilities was primarily the result of the TAGG acquisition. The lease liabilities recognized are measured based upon the present value of minimum future payments. The ROU assets are equal to lease liabilities upon initial recording, adjusted for prepaid and accrued rent balances which are recorded in the Consolidated Balance Sheets.

Hub currently does not have any variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate). Some leases have options to extend or terminate the agreement, which management assesses in determining the estimated lease term. If any of the options to extend a lease are exercised, this change will be reflected as a remeasurement of the ROU asset and lease liability accordingly. As of December 31, 2022, the ROU asset and lease liabilities do not reflect any options to extend or terminate a lease as management is not reasonably certain it will exercise any of these options. Also, current leases do not contain any restrictions or covenants imposed by the leases or residual value guarantees.

As of December 31, 2022, Hub signed new property lease contracts which had not commenced. Based on the present value of the lease payments, the estimated ROU assets and lease liabilities related to these contracts will total approximately $74.4 million.

Discount rates are not specified on the individual lease contracts at the commencement date. To determine the present value of the lease payments, Hub used its incremental borrowing rate which was determined based on Hub’s credit standing and factoring in the current 12-month SOFR rate published at the time of the lease commencement. This incremental borrowing rate represents the rate of interest that Hub would have to pay to borrow on a collateralized basis over a similar term and amounts equal to the lease payments in a similar economic environment.

The following table summarizes the lease costs (in thousands), which are included in transportation costs and general and administrative costs in the accompanying consolidated statement of income:


	Years Ended December 31,
	2022			2021			2020

Amortization of finance right-of-use assets	$	2,075		$	2,304		$	2,309
Interest on finance lease liabilities		13			29			135
Finance lease cost		2,088			2,333			2,444

Operating lease cost		21,232			12,343			10,946
Short-term lease cost		379			171			238
Sublease income		(251	)		(327	)		(469	)
Total lease cost	$	23,448		$	14,520		$	13,159

The following table represents the maturity of operating and finance lease liabilities (in thousands):


	December 31, 2022
	Operating Leases		Finance Leases		Total
Year 1	$	33,547	$	1,179	$	34,726
Year 2		29,618		-		29,618
Year 3		24,081		-		24,081
Year 4		16,300		-		16,300
Year 5		9,136		-		9,136
Thereafter		5,618		-		5,618
Total		118,300		1,179		119,479
Imputed interest		10,196		4		10,200
Present value of lease payments		108,104		1,175		109,279
Less: current lease liabilities		29,547		1,175		30,722
Long-term lease liabilities	$	78,557	$	-	$	78,557


	December 31, 2021
	Operating Leases		Finance Leases		Total
Year 1	$	12,253	$	1,257	$	13,510
Year 2		9,904		-		9,904
Year 3		8,133		-		8,133
Year 4		6,842		-		6,842
Year 5		5,320		-		5,320
Thereafter		6,436		-		6,436
Total		48,888		1,257		50,145
Imputed interest		2,608		6		2,614
Present value of lease payments		46,280		1,251		47,531
Less: current lease liabilities		11,364		1,251		12,615
Long-term lease liabilities	$	34,916	$	-	$	34,916

The following table presents supplemental cash flow and noncash information related to leases:


	Years Ended December 31,
	2022			2021			2020
Operating cash flows from operating leases	$	19,135		$	11,523		$	9,419
Financing cash flows from finance leases		2,093			2,682			3,066
Operating cash flows from finance leases		13			29			135
Cash paid for lease liabilities	$	21,241		$	14,234		$	12,620

Right-of-use assets obtained in exchange for new	$	(2,017	)	$	(72	)	$	(71	)
financing lease liabilities (net of disposals)
Rights-of-use assets obtained in exchange for new	$	77,178		$	11,684		$	17,875
operating lease liabilities (net of disposals)

The weighted average remaining lease term and discount rates as of December 31, are as follows (in thousands):


	December 31, 2022	December 31, 2021
Weighted average remaining lease term — finance leases	0.6 years	0.6 years
Weighted average remaining lease term — operating leases	4.06 years	5.11 years

Weighted average discount rate — finance leases	1.20%	1.56%
Weighted average discount rate — operating leases	4.51%	2.14%