What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-02-25 compared with 2021-02-22 · 157 added, 128 removed, 287 unchanged (50% of the section changed)

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of Iowa, Heartland Express Services, Inc., Heartland Express Maintenance Services, Inc., Midwest Holding Group, LLC and Millis Transfer, LLC.

On December 31, 2018, A & M Express, Inc.

was merged into Heartland Express, Inc.

On August 26, 2019, Heartland Express, Inc.

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We operate our consolidated operations under the brand names of Heartland Express and Millis Transfer.

We primarily provide nationwide asset-based dry van truckload service for major shippers from Washington to Florida and New England to

We primarily provide

nationwide asset-based dry van truckload service for major shippers from Washington to Florida and New England to California.

Approximately 99.9% of our operating revenue is derived from shipments within the United States ("U.S.") with the remainder being Canada.

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We believe that our service standards, safety record, and equipment accessibility have made us a core carrier to many of our major customers, as well as allowed us to build solid, long-term relationships with customers and brand ourselves as an industry leader for on-time service.

Our headquarters is located in North Liberty, Iowa, in a low-cost environment with ready access to a skilled, educated, and industrious workforce.

Our headquarters is located in North Liberty, Iowa, in a lower-cost environment with ready access to a skilled, educated, and industrious workforce.

Our other terminals are located near major shipping corridors nationwide, affording proximity to customer locations, driver domiciles, and distribution centers.

Approximately 80% of our terminals are located within 200 miles of the 25 largest cities in the U.S.

Approximately 80% of our terminals are located within 200 miles of the 25 largest metropolitan areas in the U.S.

We believe our geographic reach and terminal locations assist us with driver recruiting and retention, efficient fleet maintenance, and consistent customer engagement.

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Gerdin in 1978 and became publicly traded in November 1986.

Over the thirty-four years from 1986 to 2020, we have grown our revenues to $645.3 million from $21.6 million and our net income has increased to $70.8 million from $3.0 million.

Over the thirty-five years from 1986 to 2021, we have grown our revenues to $607.3 million from $21.6 million and our net income has increased to $79.3 million from $3.0 million.

For the five year period 2017 through 2021 we had the highest net income, $370.9 million, of any previous five year period.

Much of our growth has been attributable to expanding service for existing customers, acquiring new customers, and continued expansion of our operating regions through new and existing customers as well as strategic acquisitions.

More information regarding our total assets, revenues and profits for the past three and five years can be found in our “Consolidated Statements of Comprehensive Income” and “Selected Financial Data” that are included in this report.

In addition to organic growth through the development of our regional operating areas, we have completed eight acquisitions since 1986, with the most recent and our third acquisition within the last seven years, Millis Transfer, occurring on August 26, 2019.

These eight acquisitions have enabled us to solidify our position within existing regions, expand into new operating regions, and pursue new customer relationships in new markets.

More information regarding our total assets, revenues and profits for the past three years can be found in our “Consolidated Statements of Comprehensive Income” that is included in this report.

In addition to organic growth through the development of our regional operating areas, we have completed eight acquisitions since 1986, with the most recent and our third acquisition within the last eight years, Millis Transfer, occurring on August 26, 2019.

These eight acquisitions have enabled us to solidify our position within existing regions, expand into new operating regions, pursue new customer relationships in new markets, as well as expand business relationships with current customers in new markets.

We are highly selective about acquisitions, with our main criteria being (i) safe operations, (ii) high quality professional truck drivers, (iii) fleet profile that is compatible with our philosophy or can be replaced economically, and (iv) freight profile that will allow a path to a low-80s operating ratio upon full integration, application of our cost structure, and freight optimization, including exiting certain loads that fail to meet our operating profile.

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Our customer service department is responsible for maintaining the continuity between the customer’s needs and our ability to meet those needs by communicating the customer’s expectations to the fleet management group.

Collectively, the operations group (customer service and fleet management) and marketing are charged with developing customer relationships, ensuring service standards, coordinating proper freight-to-capacity balancing, trailer asset management, and daily tactical decisions to match customer demand with revenue equipment availability across our entire network.

Fleet management assigns orders to drivers based on well-defined criteria, such as United States Department of Transportation (the “DOT”) hours of service ("HOS") compliance, customer requirements, equipment utilization, driver “home time”, limiting non-revenue miles, and equipment maintenance needs.

Fleet management employees are responsible for driver management and development.

Collectively, the marketing and operations groups (customer service and fleet management) are charged with developing customer relationships, ensuring service standards, coordinating proper freight-to-capacity balancing, trailer asset management, and daily tactical decisions to match customer demand with revenue equipment availability across our entire network.

Fleet management assigns orders to drivers based on well-defined criteria, such as United States Department of Transportation (the “DOT”) hours of service ("HOS") compliance, customer requirements, equipment utilization, driver “home time” and other driver needs, limiting non-revenue miles, and equipment maintenance needs.

Fleet management employees are responsible for driver management, development, and retention.

Additionally, they maximize the capacity that is available to meet the service needs of our customers.

Their responsibilities include meeting the needs of the drivers within the standards that have been set by the organization and communicating the requirements of the customers to the drivers on each order to ensure successful execution.

Their responsibilities include meeting the needs of the

drivers within the standards that have been set by the organization and communicating the requirements of the customers to the drivers on each order to ensure successful execution.

Serving the short-to-medium haul market permits us to use primarily single rather than team drivers and dispatch most loads directly from origin to destination without an intermediate equipment change other than for driver scheduling purposes.

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We do not have, nor have we during the last three fiscal years had, any long-lived assets permanently located outside the U.S.

We operate twenty-six terminal facilities throughout the contiguous U.S.

We operate twenty-four terminal facilities throughout the contiguous U.S.

in addition to our terminal and corporate headquarters in North Liberty, Iowa.

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These awards include:

• FedEx Express Core Carrier of the Year (10 years in a row)

• FedEx Express Platinum Award (99.96% On-Time Delivery)

• FedEx Ground Superior Performance Award

• Lowe's - One-Way Store Carrier of the Year

• MillerCoors National Logistics & Transportation Supplier of the Year

• Quaker/Gatorade - Central West Region Carrier of the Year

• Unilever - 2019 Carrier of the Year

• DHL - 2019 National Truckload Carrier of the Year

• Hills Pet Nutrition for Commitment, Dedication, and Outstanding Service

• FedEx Express - 2021 National Carrier of the Year (11 years in a row)

• FedEx Express - Platinum Service Level Award (99.99% On-Time Delivery)

• Transplace - 2020 Carrier of the Year

• Tosca - 2020 Carrier of the Year

• Unilever - Carrier Award (Asset Division)

During 2021, we were also recognized with the following safety, operational, community service, and environmental awards:

• BP Driving Safety Standards Award 2019

• Logistics Management Quest for Quality Award (our seventeenth award in eighteen years)

• US EPA SmartWay Excellence Award (7 of the last 9 years)

• Commercial Carrier Journal Top 250 Award (#42)

• Wreaths Across America Honor Fleet

EPA SmartWay Excellence Award

Our primary customers include retailers and manufacturers.

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During 2020, our 25, 10, and 5 largest customers were approximately 74%, 50%, and 34%, of our operating revenues respectively.

Our broad capacity network and customer base has allowed us to remain appropriately diversified and no customer accounted for more than 10% of our operating revenues in 2020.

One customer accounted for more than 10% of our operating revenues in 2019 at 10.9% and 2018 at 12.5%.

The nature of our primary traffic (appliances, automotive parts, consumer products, paper products, packaged foodstuffs, and retail goods) generally causes it to be distributed with relative uniformity throughout the year.

However, seasonal variations associated with the winter holiday season have historically resulted in increased shipment volumes by retail customers during the fourth quarter, followed by reduced shipment volumes by customers in several industries after the holiday season.

In addition, our operating expenses historically have been higher during the winter months due to decreased fuel efficiency, increased colder weather-related equipment maintenance and repairs, and increased claims and costs attributed to higher accident frequency from harsh weather.

Our broad capacity network and customer base has allowed us to remain appropriately diversified as only one customer accounted for more than 10% of our operating revenues in 2021 at 10.0%.

No customer accounted for more than 10% of our operating revenues in 2020 while one customer accounted for more than 10% of our 2019 operating revenues at 10.9%.

Environmental and Sustainability

We have adopted an "Environmental and Sustainability Mission".

This document portrays our commitment to the environment and sustainability through our long track record of successful business practices.

Through equipment designs, equipment replacement strategies, idle reduction techniques, solar energy and battery usage, and practices at each of our terminals, we are focused on reducing waste and conserving energy.

Heartland's sustainability efforts are endorsed and overseen by senior management throughout the Company.

Our efforts have been recognized by the US EPA SmartWay Excellence Award in 7 of the last 9 years.

We have adopted a "Human Rights Mission".

This document portrays our commitment to human rights through diversity and inclusion, workplace safety and health, and prohibitions on forced labor and human trafficking.

Heartland's human rights efforts are endorsed and overseen by senior management throughout the Company.

In the trucking industry, revenue typically follows a seasonal pattern for various commodities and customer businesses.

Peak freight demand has historically occurred in the months of September, October and November.

After the December holiday season and during the remaining winter months, freight volumes are typically lower as many customers reduce shipment levels.

Although this is the general pattern of revenues, demand for freight services dropped significantly in the first part of the second quarter of 2020 and then began to increase.

We have now been in a positive freight environment for approximately two years.

Operating expenses have historically been higher in the winter months due primarily to decreased fuel efficiency, increased cold weather-related maintenance costs of revenue equipment and increased insurance and claims costs attributed to adverse winter driving conditions.

Revenue can also be impacted by weather, holidays and the number of business days that occur during a given period, as revenue is directly related to the available working days of shippers.

Weather-related events, such as tornadoes, hurricanes, blizzards, ice storms, floods, and fires, could increase in frequency and severity due to climate change.

Drivers, Independent Contractors, and Other Employees

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During the year ended December 31, 2021, we employed an average of approximately 3,180 people compared to approximately 3,780 people during the year ended December 31, 2020.

The decrease in employees as of December 31, 2020 was generally due to a decline in drivers due to the challenging qualified driver recruiting and retention environment experienced during 2020 along with the ongoing right-sizing of support staff following the acquisition of Millis Transfer.

The decrease in employees as of December 31, 2021 was predominantly due to a decline in drivers due to the challenging qualified driver recruiting and retention environment.

In addition, the ongoing right-sizing of support staff following the decrease in overall fleet size further contributed to the reduction.

We also contracted with independent contractors to provide and operate tractors which provides us additional revenue equipment capacity, although not material to our operations.

Independent contractors own their own tractors and are responsible for all associated expenses, including financing costs, fuel, maintenance, insurance, and highway use taxes.

For the year ended December 31, 2020, independent contractors accounted for approximately 0.7% of our total miles compared to 1.2% in 2019.

For the years ended December 31, 2021 and 2020, independent contractors accounted for approximately 0.7% of our total miles.

Historically our strategy for both employee drivers and independent contractors is to (i) hire and engage safe and experienced drivers (the majority of drivers we hire and engage must have at least six months of qualifying over-the-road experience);

(ii) promote retention with an industry-competitive compensation package, positive working conditions, and freight that requires little or no handling;

and (iii) minimize safety problems through careful screening, mandatory drug testing, continuous training, the use of electronic logging devices ("ELDs"), and financial rewards for accident-free driving.

(ii) promote retention with an industry-competitive compensation package, positive working conditions, driver amenities at terminal locations, and freight that requires little or no handling;

and (iii) minimize safety problems through careful screening, mandatory drug testing, continuous training, the ease of use of electronic logging devices ("ELDs") platform, and financial rewards for accident-free driving.

We also seek to minimize turnover of our employee drivers by providing quality pay for their time with additional pay for safety, modern equipment, and by regularly scheduling "home time." Our drivers are generally compensated on the basis of miles driven including empty miles, with the added benefit of compensation for circumstances outside of their control, such as inclement weather and equipment breakdowns.

This provides an incentive for us to minimize empty miles and at the same time does not penalize drivers for inefficiencies of operations that are beyond their control.

In addition to hiring experienced drivers, the acquisition of Millis Transfer in 2019, included a CDL training school.

In addition to hiring experienced drivers, the acquisition of Millis Transfer in 2019, included a commercial driver's license ("CDL") training school.

They have operated Millis Training Institute since 1989.

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Competition for professional drivers that meet our qualification standards is challenging due to the current trend of decreasing numbers of qualified drivers in our industry.

This driver training program currently provides a source of qualified professional drivers for Millis Transfer and will become an additional source of potential professional drivers for legacy Heartland as we expect to expand upon the current training program in 2021.

This driver training program currently provides a source of qualified professional drivers for Millis Transfer and Heartland Express as we expanded the current training program in 2021.

We are not a party to a collective bargaining agreement.

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Our comprehensive driver compensation program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance.

Our driver pay package generally includes guaranteed minimum pay for our newest drivers, future pay increases based on years of continued service with us, increased rates for accident-free miles of operation, detention pay, and other pay programs to assist drivers with unproductive time.

In addition to the scheduled pay increases based on years of continued service, we have increased the base pay package three times during the last four years.

Our driver pay package generally includes weekly base pay minimums for mileage based drivers, future pay increases based on years of continued service with us, increased rates for accident-free miles of operation, detention pay, and other pay programs to assist drivers with unproductive time.

In addition to the scheduled pay increases based on years of continued service, we have increased the base pay package and enhanced the compensation for our drivers multiple times during the last three years.

We believe that our driver compensation package, compared to others in our industry, is consistently among the best in the industry.

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The overall performance and reliability of tractor equipment typically has increased with each new model year of tractors that we have acquired in the last 5 years.

By maintaining late model year tractors, a low average age, we experience better operating performance, our drivers benefit from the latest safety technologies and features that we choose to equip our tractors with, helps us with appeal to new drivers, and retention of current drivers.

By maintaining late model year tractors, a low average age, we experience better operating performance.

Our drivers, along with the Company, benefit from the latest safety technologies and features that we choose to equip our tractors with.

The modern fleet appeals to new drivers and aids in the retention of current drivers.

Deploying this core strategy, along with idle management technology, also allows us to reduce our carbon footprint.

This is evidenced by us being awarded the U.S.

Environmental Protection Agency SmartWay Excellence Award six times in the last eight years.

Environmental Protection Agency SmartWay Excellence Award seven times in the last nine years.

We have historically owned our tractors and trailers and do not lease revenue equipment, other than when we have acquired companies that have utilized leases.

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All over-the-road tractors are equipped with mobile communication systems that comply with the latest ELD regulations.

This technology allows for efficient communication with our drivers regarding freight and safety, and provides the ability to manage the needs of our customers based on real-time information on load status.

These units are the base communication with our drivers.

This technology allows for efficient communication with our drivers regarding freight and safety (e.g.

weather shutdowns), as well as fueling decisions, and provides the ability to manage the needs of our customers based on real-time information on load status.

Our mobile communication systems also allow us to obtain information regarding equipment for better planning and efficient maintenance time as well as information regarding driver performance and efficiency.

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The average age of our trailer fleet was 3.4 years at December 31, 2021 compared to 3.7 years at December 31, 2020.

We obtain additional tractor capacity through the use of independent contractors who own their own tractor equipment, although our use of independent contractors is not material to our overall operations.

During 2022, we expect the age of both our tractor and trailer fleets to increase compared to 2021, based on estimated net capital expenditures in 2022 due to our expectation of a shortage of reasonably priced new revenue equipment availability.

We obtain a small portion of our tractor capacity through the use of independent contractors who own their own tractor equipment, although our use of independent contractors is not material to our overall operations.

Independent contractors are responsible for the maintenance of their equipment.

We utilized revenue equipment operating leases following our acquisition in 2017 until these leases ended on March 31, 2019.

The "Regulation" section in this Item 1 of Part I of this Annual Report discusses in detail several regulations that have impacted and could continue to affect our cost and use of revenue equipment.

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at which we have negotiated price discounts.

In addition, bulk fuel sites are maintained at the majority of our twenty-seven terminal locations.

In addition, bulk fuel sites are maintained at the majority of our twenty-five terminal locations.

We strategically manage fuel purchase decisions based on pricing of over-the-road fuel prices, bulk fuel prices, and the routing of equipment.

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For the years ended December 31, 2021 and 2020, fuel surcharge revenues were $76.1 million and $61.7 million, respectively.

Department of Energy (“DOE”) average price of fuel decreased 16.5% in 2020 compared to 2019, which had a corresponding positive impact on our net fuel cost, before the impacts

of improved fleet efficiency, for the year ended December 31, 2020 compared to 2019.

Department of Energy (“DOE”) average price of fuel increased 28.9% in 2021 compared to 2020, which had a corresponding negative impact on our net fuel cost, before the impacts of improved fleet efficiency, for the year ended December 31, 2021 compared to 2020.

Fuel consumed by empty and out-of-route miles and by truck engine idling time is not recoverable and therefore any increases or decreases in fuel costs related to empty and out-of-route miles and idling time will directly impact our operating results.

The decrease in the DOE diesel fuel prices seen in 2020 was mostly due to a 15.7% average price decrease during the second quarter of 2020 compared to the first quarter of 2020.

Fuel prices remained fairly consistent during the third and fourth quarters of 2020, although they began to increase in late 2020.

The increase in the DOE diesel fuel prices seen in 2021 was due to steadily rising fuel costs throughout the year compared to 2020 when fuel prices were at comparatively lower rates from the second quarter through the end of the year.

This trend of fuel price increases has continued through February 2022.

The latest DOE diesel fuel price in February 2021 is up 8.9% compared to the end of 2020 and is up 12.7% compared to the 2020 yearly average.

The latest DOE diesel fuel price in February 2022 is up 12.2% compared to the end of 2021, is up 23.4% compared to the 2021 yearly average, and is up 42.4% to the February 2021 average.

Competition and Industry

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We operate in a cyclical industry.

Demand for our freight services was elevated throughout all of 2018 (peak in mid-2018 and began to decline in the second half of 2018), which resulted in tight freight capacity.

Throughout 2019, the general demand for freight services was at a level much lower than what was experienced throughout 2018.

Throughout 2019, the general demand for freight services was at a level much lower than what has been experienced since.

During 2020, the demand for freight services was volatile.

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In response to the outbreak of COVID-19, there was a short term drop in the demand for freight services in early second quarter of 2020, due to many businesses temporarily shutting down or scaling back operations with much of the working population of the United States working from home.

By the end of the second quarter of 2020, demand for freight services began to improve as most businesses implemented their respective responses and protections against the pandemic which continued to build throughout the back half of 2020.

This led to an overall increase in freight demand and favorable pricing environment as freight rates increased throughout the second half of 2020.

Freight demand generally increased further throughout 2021.

This led to an overall favorable pricing environment as freight rates increased throughout the second half of 2020 and continued to be strong throughout 2021.

The trucking industry has been faced with a qualified driver shortage.

The pandemic events of 2020-2021 intensified an already challenging qualified driver market.

Competition for drivers, which has historically been intense, escalates during periods of increased freight demand which intensified during the second half of 2020.

Competition for drivers, which has historically been intense, escalates during periods of increased freight demand which intensified during the second half of 2020 and continued throughout 2021.

Competition for qualified drivers will continue to be challenging going forward due to the decreasing numbers of qualified drivers in our industry.

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We hire the majority of our drivers with at least six months of over-the-road experience and safe driving records.

As previously discussed, Millis Transfer's driver training program will provide an additional source of future potential professional drivers.

As previously discussed, our driver training program will provide an additional source of future potential professional drivers.

In order to attract and retain experienced drivers who understand the importance of customer service, we have sought to solidify our position as an industry leader in driver compensation in our operating markets.

We have implemented three driver pay increases within the past four years (October 2017, July 2018, and October 2020).

Our comprehensive driver compensation and benefits program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance.

Our comprehensive driver compensation

and benefits program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance.

Our driver pay package includes future pay increases based on years of continued service with us, increased rates for accident-free miles of operation, detention pay, and other pay programs to assist drivers with unproductive time associated with circumstances outside of their control, such as inclement weather and equipment breakdowns.

We believe that our driver compensation and benefits package is consistently among the best in the industry.

We are committed to investing in our drivers and compensating them for safety as both are key to our operational and financial performance.

We expect freight demand to remain strong throughout 2022 based-upon the freight demand experienced in January and February of 2022 and expected normal seasonal trends.

Other contributing factors include the shortage of qualified drivers and availability of new revenue equipment.

Safety and Risk Management

Our safety program is designed to minimize accidents and to conduct our business within governmental safety regulations.

We communicate safety issues with drivers on a regular basis and emphasize safety through equipment specifications and regularly scheduled maintenance intervals.

We communicate safety issues with drivers on a regular basis and also emphasize safety through equipment specifications and regularly scheduled maintenance intervals.

Our drivers are compensated and recognized for achieving and maintaining a safe driving record.

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Within the Heartland policy, there is an additional one-time $1.0 million aggregate self-insurance corridor for auto liability claims between $2.0 million and $3.0 million.

For both Heartland and Millis claims, liabilities in excess of these deductibles are covered by insurance up to $60.0 million, including

retention of 50% of exposure from $5.0 million to $10.0 million.

For both Heartland and Millis claims, liabilities in excess of these deductibles are covered by insurance up to $60.0 million, including retention of 50% of exposure from $5.0 million to $10.0 million.

We retain any liability in excess of $60.0 million.

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In June 2020, the FMCSA adopted a final rule substantially as proposed, which became effective in September 2020.

Certain industry groups have challenged these rules in court, and it remains unclear what, if anything, will come from such challenges.

Since that time, we have seen a slight increase in the productivity of our drivers.

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This would replace the current methodology of determining a carrier’s fitness based solely on infrequent comprehensive onsite reviews.

The proposed rule underwent a public comment period that ended in June 2016 and several industry groups and lawmakers expressed their disagreement with the proposed rule, arguing that it violates the requirements of the Fixing America's Surface Transportation Act (“FAST Act”) and that the FMCSA must first finalize its review of the CSA scoring system, described in further detail below.

The proposed rule underwent a public comment period that ended in June 2016 and several industry groups and lawmakers expressed their disagreement with the proposed rule, arguing that it violates the requirements of the Fixing America's Surface Transportation Act (“FAST Act”) and that the FMCSA must first finalize its review of the Compliance Safety Accountability program (“CSA”) scoring system, described in further detail below.

Based on this feedback and other concerns raised by industry stakeholders, in March 2017, the FMCSA withdrew the Notice of Proposed Rulemaking related to the new safety rating system.

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Therefore, it is uncertain if, when, or under what form any such rule could be implemented.

The FMCSA also recently indicated its intent to perform a new study on the causation of crashes.

Although it remains unclear whether such a study will ultimately be undertaken and completed, the results of such a study could spur further proposed and/or final rules in regards to safety and fitness.

In addition to the safety rating system, the FMCSA has adopted the Compliance Safety Accountability program (“CSA”) as an additional safety enforcement and compliance model that evaluates and ranks fleets on certain safety-related standards.

The FMCSA has also indicated that it is in the early phases of a new study on the causation of crashes.

Although it remains unclear whether such a study will ultimately be completed, the results of such study could spur further proposed and/or final rules in regards to safety and fitness.

In addition to the safety rating system, the FMCSA has adopted the CSA program as an additional safety enforcement and compliance model that evaluates and ranks fleets on certain safety-related standards.

The CSA program analyzes data from roadside inspections, moving violations, crash reports from the last two years, and investigation results.

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Currently, these scores do not have a direct impact on a carrier’s safety rating.

reviews and roadside inspections, or (iv) cause us to incur greater than expected expenses in our attempts to improve unfavorable scores, any of which could adversely affect our results of operations and profitability.

However, the occurrence of unfavorable scores in one or more categories may (i) affect driver recruiting and retention by causing high-quality drivers to seek employment with other carriers, (ii) cause our customers to direct their business away from us and to carriers with higher fleet rankings (iii), subject us to an increase in compliance reviews and roadside inspections, or (iv) cause us to incur greater than expected expenses in our attempts to improve unfavorable scores, any of which could adversely affect our results of operations and profitability.

Under CSA, these scores were initially made available to the public in five of the seven categories.

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The FMCSA published a final rule in December 2015 that required the use of ELDs or automatic onboard recording devices ("AOBRs") by nearly all carriers by December 2017 (the "2015 ELD Rule").

Enforcement of the 2015 ELD Rule was phased in, as states did not begin putting tractors out of service for non-compliance until April 2018.

However, carriers were subject to citations, on a state-by-state basis, for non-compliance with the rule after the December 2017 compliance deadline.

The use of AOBRs was permitted until December 2019, at which time the use of ELDs was required.

Since we had proactively installed AOBRs on 100% of our tractor fleet, implementation of the 2015 ELD Rule did not impact our operations or profitability or our use of AOBRs.

We had ELDs (not AOBRs) installed on 100% of our fleet by the December 2019 deadline.

The use of AOBRs was permitted until December

2019, at which time the use of ELDs was required.

We were compliant with both aspects of the 2015 ELD Rule within the requisite deadlines.

We believe that more effective HOS enforcement under the 2015 ELD Rule may improve our competitive position by causing all carriers to adhere more closely to HOS requirements and may further reduce industry capacity.

In the aftermath of the September 11, 2001 terrorist attacks, the Department of Homeland Security ("DHS") and other federal, state, and municipal authorities implemented and continue to implement various security measures, including checkpoints and travel restrictions on large trucks.

Transportation Security Administration ("TSA") adopted regulations that require determination by the TSA that each driver who applies for or renews his or her license for carrying hazardous materials is not a security threat.

This could reduce the pool of qualified drivers who are permitted to transport hazardous waste, which could require us to increase driver compensation, limit our fleet growth, or allow trucks to sit idle.

These regulations also could complicate the matching of available equipment with hazardous material shipments, thereby increasing our response time on customer orders and our non-revenue miles.

As a result, it is possible we could fail to meet the needs of our customers or could incur increased expenses to do so.

While transporting hazardous materials subjects us to a wide array of regulations, the number of hazardous material shipments we make is insignificant relative to our total number of shipments.

In December 2016, the FMCSA issued a final rule establishing a national clearinghouse for drug and alcohol testing results and requiring motor carriers and medical review officers to provide records of violations by commercial drivers of FMCSA drug and alcohol testing requirements.

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This new action will allow states’ compliance with the requirement, which was set to begin January 2020, to be delayed until January 2023.

That being said, the FMCSA has indicated that it will allow states the option to voluntarily query

Clearinghouse information beginning January 2020.

That being said, the FMCSA has indicated that it will allow states the option to voluntarily query Clearinghouse information beginning January 2020.

The compliance date of January 2020 remained in place for all other requirements set forth in the Clearinghouse final rule.

However, upon implementation, the rule may reduce the number of available drivers in an already constrained driver market.

Pursuant to a new rule finalized by the FMCSA, effective November 2021, states are required to query the Clearinghouse when issuing, renewing, transferring, or upgrading a commercial driver’s license and must revoke a driver’s commercial driving privileges if such driver is prohibited from driving a motor vehicle for one or more drug or alcohol violations.

In September 2020, the Department of Health and Human Services (“DHHS”) announced proposed mandatory guidelines to allow employers to drug test truck drivers and other federal workers for pre-employment and random testing using hair specimens.

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Any final rule may reduce the number of available drivers.

In November 2015, the FMCSA published its final rule related to driver coercion, which took effect in January 2016.

Under this rule, carriers, shippers, receivers, or transportation intermediaries that are found to have coerced drivers to violate certain FMCSA regulations (including HOS rules) may be fined up to $16,000 for each offense.

In addition, other rules have been recently proposed or made final by the FMCSA, including (i) a rule requiring the use of speed limiting devices on heavy duty tractors to restrict maximum speeds, which was proposed in 2016, and (ii) a rule setting forth minimum driver training standards for new drivers applying for commercial driver’s licenses for the first time and to experienced drivers upgrading their licenses or seeking a hazardous materials endorsement, which was made final in December 2016, with a compliance date in February 2020.

However, in May 2020, the FMCSA approved an interim rule delaying implementation of the final rule by two years which extends the compliance date to February 2022.

Other rules have been recently proposed or made final by the FMCSA, including (i) a rule requiring the use of speed limiting devices on heavy duty tractors to restrict maximum speeds, which was proposed in 2016, and (ii) a rule setting forth minimum driver training standards for new drivers applying for commercial driver’s licenses for the first time and to experienced drivers upgrading their licenses or seeking certain endorsements, including a hazardous materials endorsement, which was made final in December 2016, with an initial compliance date in February 2020.

However, in May 2020, the FMCSA approved an interim rule delaying implementation of the final rule by two years which extended the compliance date to February 2022.

These recently effective entry level driver training regulations, among other things, unify driver training curriculum nationwide by mandating certain theory and behind-the-wheel training standards prior to taking the skills test, and require commercial driving schools and other training programs (including ours) to implement such curriculum and register with the FMCSA’s Training Provider Registry, certifying that their curriculum meets the new standards.

The rules generally do not apply retroactively, however, so current holders of commercial driver’s licenses will largely be unaffected.

That being said, these rules could result in a decrease in fleet production and driver availability, either of which could adversely affect our business or operations.

They may also result in an increase in the time and expense required to operate or expand our driver training schools and programs, which could adversely affect our results and profitability.

In July 2017, the DOT announced that it would no longer pursue a speed limiter rule, but left open the possibility that it could resume such a pursuit in the future.

In 2019, U.S.

Congressional representatives proposed a similar rule related to speed-limiting devices.

In May 2021, however, the Cullum Owings Large Truck Safe Operating Speed Act was reintroduced into the U.S.

House of Representatives and would require commercial motor vehicles with a gross weight of more than 26,000 pounds to be equipped with a speed limiter that would limit the vehicle’s speed to no more than 65 M.P.H.

The effect of these rules, to the extent they become effective, could result in a decrease in fleet production and driver availability, either of which could adversely affect our business or operations.

Congressional representatives proposed a bill in 2019 that would lower the age requirement from 21 to 18 for interstate commercial driving if certain requirements are met, which received support from the ATA during a February 2020 Senate hearing.

It is unclear how long the process of finalizing such a bill will take, however, if one comes to fruition at all.

Meanwhile, the FMCSA announced in September 2020 that it is seeking public comment on a new pilot program to allow drivers aged 18, 19, and 20 to operate commercial motor vehicles in interstate commerce.

In March 2014, the Ninth Circuit Court of Appeals held that California state wage and hour laws are not preempted by federal law.

The case was appealed to the Supreme Court of the United States, which in May 2015 refused to review the case, and accordingly, the Ninth Circuit Court of Appeals decision stood.

However, in December 2018, the FMCSA granted a petition filed by the ATA and in doing so determined that federal law does preempt California’s wage and hour laws, and interstate truck drivers are not subject to such laws.

The FMCSA’s decision has been appealed by labor groups and multiple lawsuits have been filed in federal courts seeking to overturn the decision, and while the Ninth Circuit Court of Appeals has since upheld the FMCSA's decision, it still remains uncertain whether it will stand.

The Infrastructure Investment and Jobs Act (“IIJA”), signed into law by President Biden in November 2021, created an apprenticeship program for drivers younger than 21 to eventually qualify to drive commercial trucks in interstate commerce.

The provision drew certain mechanics from the bills introduced in Congress in 2019 related to lowering the age requirements for interstate commercial driving.

The FMCSA announced the establishment of this apprenticeship program in January 2022 in an effort to help the industry’s ongoing driver shortage.

The program is open to 18 to 20-year-old drivers who already hold intrastate commercial driver’s licenses and sets a strict training regimen for participating drivers and carriers to comply with.

Motor carriers interested in participating must complete an application for participation and submit monthly data on an apprentice’s driver activity, safety outcomes, and additional supporting information.

It remains unclear whether any regulatory changes will stem from the apprenticeship program.

In December 2018, the FMCSA granted a petition filed by the ATA and in doing so determined that federal law does preempt California’s wage and hour laws, and interstate truck drivers are not subject to such laws.

The FMCSA’s decision has been appealed by labor groups and multiple lawsuits have been filed in federal courts seeking to overturn the decision.

In January 2021, the Ninth Circuit Court of Appeals has since upheld the FMCSA's determination that federal law does preempt California's meal and rest break laws, as applied to drivers of property-carrying commercial motor vehicles.

Other current and future state and local laws, including laws related to employee meal breaks and rest periods, may also vary significantly from federal law.

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Federal legislators have introduced legislation in the past to make it easier for tax and other authorities to reclassify independent contractor drivers as employees, including legislation to increase the recordkeeping requirements for those that engage independent contractor drivers and to heighten the penalties of companies who misclassify their employees and are found to have violated employees' overtime and/or wage requirements.

Additionally, federal legislators have sought to abolish the

current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent contractors if they are following a long-standing, recognized practice, extend the Fair Labor Standards Act to independent contractors, and impose notice requirements based upon employment or independent contractor status and fines for failure to comply.

The most recent example being the Protecting the Rights to Organize (“PRO”) Act, which was passed by the House of Representatives and received by the Senate in March 2021 and remains with the Senate’s Committee on Health, Education, Labor, and Pensions.

The PRO Act proposes to apply the “ABC Test” for classifying workers under Federal Fair Labor Standards Act claims.

It is unknown whether any of the proposed legislation will become law or whether any industry-based exemptions from any resulting law will be granted.

Additionally, federal legislators have sought to abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent contractors if they are following a long-standing, recognized practice, extend the Fair Labor Standards Act to independent contractors, and impose notice requirements based upon employment or independent contractor status and fines for failure to comply.

Some states have put initiatives in place to increase their revenues from items such as unemployment, workers' compensation, and income taxes, and a reclassification of independent contractor drivers as employees would help states with these initiatives.

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While AB5 was set to go into effect in January 2020, a federal judge in California issued a preliminary injunction barring the enforcement of AB5 on the trucking industry while the California Trucking Association (“CTA”) moves forward with its suit seeking to invalidate AB5.

While this preliminary injunction provides temporary relief to the enforcement of AB5, it remains unclear how long such relief will last, and whether the CTA will ultimately be successful in invalidating the law.

The Ninth Circuit Court of Appeals rejected the reasoning behind the injunction in April 2021, ruling that AB5 is not pre-empted by federal law, but granted a stay of the AB5 mandate in June 2021 (preventing its application and temporarily continuing the injunction) while the CTA petitioned the U.S.

Supreme Court (the “Supreme Court”) to review the decision.

In November 2021, the Supreme Court requested that the U.S.

solicitor general weigh in on the case.

The injunction will remain in place until the Supreme Court makes a decision on whether to proceed in hearing the case.

While the stay of the AB5 mandate provides temporary relief to the enforcement of AB5, it remains unclear how long such relief will last, and whether the CTA will ultimately be successful in invalidating the law.

It is also possible AB5 will spur similar legislation in states other than California, which could adversely affect our results of operations and profitability.

In September 2020, the U.S.

Court of Appeals for the Ninth Circuit heard oral arguments in the case to decide whether the preliminary injunction should remain in effect.

A decision on the matter is expected soon.

Further, class actions and other lawsuits have been filed against certain members of our industry seeking to reclassify independent contractors as employees for a variety of purposes, including workers' compensation and health care coverage.

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The Phase 1 Standards apply to tractor model years 2014 to 2018 and require the achievement of an approximate 20 percent reduction in fuel consumption by the 2018 model year, which equates to approximately four gallons of fuel for every 100 miles traveled.

In addition, in February 2014, President Obama announced that

his administration would begin developing the next phase of tighter fuel efficiency and greenhouse gas standards for medium-and heavy-duty tractors and trailers (the “Phase 2 Standards”).

In addition, in February 2014, President Obama announced that his administration would begin developing the next phase of tighter fuel efficiency and greenhouse gas standards for medium-and heavy-duty tractors and trailers (the “Phase 2 Standards”).

In October 2016, the EPA and NHTSA published the final rule mandating that the Phase 2 Standards will apply to trailers beginning with model year 2018 and tractors beginning with model year 2021.

The Phase 2 Standards require nine percent and 25 percent reductions in emissions and fuel consumption for trailers and tractors, respectively, by 2027.

We believe these requirements will result in additional increases in new tractor and trailer prices and additional parts and maintenance costs incurred to retrofit our tractors and trailers with technology to achieve compliance with such standards, which could adversely affect our operating results and profitability, particularly if such costs are not offset by potential fuel savings.

We cannot predict, however, the extent to which our operations and productivity will be impacted.

The final rule was effective in December 2016 but has since faced challenges and delays.

In October 2017, the EPA announced a proposal to repeal the Phase 2 Standards as they relate to gliders (which mix refurbished older components, including transmissions and pre-emission-rule engines, with a new frame, cab, steer axle, wheels, and other standard equipment).

The outcome of such proposal is still undetermined as the EPA continues to consider Congressionally requested investigations into the legality of the proposal and the merits of an anti-glider study that was published shortly after the proposal became official.

Additionally, implementation of the Phase 2 Standards as they relate to trailers has been delayed due to a provisional stay granted in October 2017 by the U.S.

Court of Appeals for the District of Columbia, which is overseeing a case against the EPA by the Truck Trailer Manufacturers Association, Inc.

regarding the Phase 2 Standards.

The outcome of such proposal is still undetermined.

Additionally, implementation of the Phase 2 Standards as they relate to trailers has been challenged in the U.S.

Court of Appeals for the District of Columbia.

In November 2021, a panel for the U.S.

Court of Appeals for the District of Columbia ruled in favor of the association challenging the standards and vacated all portions of the Phase 2 Standards that applied to trailers, and consequently, the Phase 2 Standards will only require reductions in emissions and fuel consumption for tractors.

Even though the trailer provisions of the Phase 2 standards have been removed, we will still need to ensure the majority of our fleet is compliant with the California Phase 2 standards.

In January 2020, the EPA announced it is seeking input on reducing emissions of nitrogen oxides and other pollutants from heavy-duty trucks.

The EPA is aiming to release proposed rulemaking for the new plan, commonly referred to as the “Cleaner Trucks Initiative,” later in 2020, and may take final action in 2021.

The EPA is targeting 2027 for these new standards to take effect.

The EPA anticipates taking final action on the new plan, commonly referred to as the “Cleaner Trucks Initiative,” as soon as 2022.

The EPA is targeting 2027 for these new standards to take effect and is also working on enacting more stringent greenhouse gas emission standards (beginning with model year 2030 vehicles) by the end of 2024.

The California Air Resources Board ("CARB") also adopted emission control regulations that will be applicable to all heavy-duty tractors that pull 53-foot or longer box-type trailers within the State of California.

The tractors and trailers subject to these CARB regulations must be either EPA SmartWay certified or equipped with low-rolling resistance tires and retrofitted with SmartWay-approved aerodynamic technologies.

The tractors and trailers subject to these

CARB regulations must be either EPA SmartWay certified or equipped with low-rolling resistance tires and retrofitted with SmartWay-approved aerodynamic technologies.

Enforcement of these CARB regulations for model year 2011 equipment began in January 2010 and have been phased in over several years for older equipment.

In addition, in February 2017 CARB proposed California Phase 2 standards that would generally align with the federal Phase 2 Standards, with some minor additional requirements, and as proposed would stay in place even if the federal Phase 2 Standards were affected by action from President Trump’s administration.

In February 2019, the California Phase 2 standards became final.

Thus, even if the trailer provisions of the Phase 2 Standards are permanently removed, we would still need to ensure the majority of our fleet is compliant with the California Phase 2 standards, which may result in increased equipment costs and could adversely affect our operating results and profitability.

Thus, even though the trailer provisions of the Phase 2 Standards were removed, we will still need to ensure the majority of our fleet is compliant with the California Phase 2 standards, which may result in increased equipment costs and could adversely affect our operating results and profitability.

CARB has also recently announced intentions to adopt regulations ensuring that 100% of tractors operating in California are operating with battery or fuel cell-electric engines in the future.

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These effects, combined with the uncertainty as to the operating results that will be produced by the newly designed diesel engines and the residual values of these vehicles, could increase our costs or otherwise adversely affect our business or operations.

In June 2020, CARB also passed the Advanced Clean Trucks (“ACT”) regulation, requiring original equipment manufacturers to begin shifting towards greater production of zero-emission heavy duty tractors starting in 2024.

In June 2020, CARB also passed the Advanced Clean Trucks (“ACT”) regulation, which became effective in March 2021 and generally requires original equipment manufacturers to begin shifting towards greater production of zero-emission heavy duty tractors starting in 2024.

Under ACT, by 2045, every new tractor sold in California will need to be zero-emission.

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Executive and Legislative Climate

It is still uncertain how President Biden’s leadership will impact our industry.

It is still to be determined how President Biden’s leadership will impact our industry.

That being said, President Biden has indicated his intent to make a green infrastructure package a top priority for his administration.

Any measure in furtherance thereof could draw from the Moving Forward Act, a $1.5 trillion infrastructure bill that passed the U.S.

House of Representatives in June 2020, but is still waiting to be heard by the U.S.

The Moving Forward Act incorporated and expanded upon the Investing in a New Vision for the Environment and Surface Transportation in America (INVEST in America) Act, a nearly $500 billion bill intended to rebuild and reimagine U.S.

transportation and infrastructure that was passed out of the House Committee on Transportation and Infrastructure in June 2020.

It is unclear whether these legislative initiatives will be signed into law and what changes they may undergo prior thereto.

However, adoption and implementation of the same could negatively impact our business by increasing our compliance obligations and related expenses.

President Biden has also

indicated an intention to make substantial changes to the current U.S.

Any measure in furtherance thereof could draw from the Build Back Better Act (the “BBB”), which passed the U.S.

House of Representatives, but is facing resistance in the U.S.

As currently proposed, the BBB would impact transportation by allocating funds to address various industry related issues such as port congestion and traffic safety enforcement.

The bill also promotes a myriad of low-emission programs, transit services and clean energy projects, as well as funding for climate change research.

It is unclear whether these legislative initiatives will be signed into law and what changes they may undergo.

However, adoption and implementation could negatively impact our business by increasing our compliance obligations and related expenses.

President Biden has also indicated an intention to make substantial changes to the current U.S.

tax laws during his administration, including changes to the way capital gains are treated.

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However, given the amount of North American trade that moves by truck, it could have a significant impact on supply and demand in the transportation industry, and could adversely impact the amount, movement, and patterns of freight we transport.

With the FAST Act originally set to expire in September 2020, Congress had noted its intent to consider a multiyear highway measure that would update the FAST Act.

However, in September 2020 Congress approved a one year extension of the FAST Act, now set to expire in September 2021.

If Congress fails to reauthorize the FAST Act or pass updated replacement legislation by the September 2021 deadline, and proceeds to manage transportation policy via short-term legislative directives, there will be uncertainty that could have a negative impact on our operations.

Given COVID-19’s considerable effect on our industry in 2020, the FMCSA issued various temporary responsive measures throughout the year in order to combat the same, including, without limitation, those related to hours of service, commercial driver’s licenses and medical certifications.

The IIJA was signed into law by President Biden in November 2021.

The roughly $1.2 trillion bill contains an estimated $550 billion in new spending, which will impact transportation.

In particular, it dedicates more than $100 billion for surface transportation networks and roughly $66 billion for freight and passenger rail operations.

Among provisions in the law specific to trucking is the aforementioned apprenticeship program for drivers younger than 21 to eventually qualify to drive commercial trucks in interstate commerce.

It remains unclear how the IIJA will be implemented into and effect our industry.

The IIJA may result in increased compliance and implementation related expenses, which could have a negative impact on our operations.

Given COVID-19’s considerable effect on our industry, the FMCSA issued and/or extended various temporary responsive measures throughout the year.

Although, to date, these measures have largely been enacted in order to assist industry participants in operating under adverse circumstances, any further responsive measures remain unclear and could have a negative impact on our operations.

In November 2021 the U.S.

Department of Labor’s Occupational Safety and Health Administration (“OSHA”) published an emergency temporary standard (the “Emergency Rule”) requiring all employers with at least 100 employees to ensure that their employees are fully vaccinated or require any employees who remain unvaccinated to produce a negative COVID-19 test result on at least a weekly basis before coming to work.

The Emergency Rule has been blocked by the Supreme Court.

Effective January 2022, the U.S.

is prohibiting unvaccinated foreigners from crossing the U.S.-Mexico border and U.S.-Canada border.

The Company does not have any Mexican or Canadian domiciled drivers that will be impacted by this requirement.

Furthermore, effective January 2022, Canada is prohibiting unvaccinated foreigners, including U.S.

citizens, from crossing their border.

The Company has a minimal volume of freight into Canada, therefore border restrictions will not significantly impact our operations.

These border requirements, as well as any future vaccination, testing or mask mandates that are allowed to go into effect, could, among other things, (i) cause our unvaccinated employees to go to smaller employers, if such employers are not subject to future mandates, or leave us or the trucking industry, especially our unvaccinated drivers, (ii) result in logistical issues, increased expenses, and operational issues from arranging for weekly tests of our unvaccinated employees, especially our unvaccinated drivers, (iii) result in increased costs for recruiting and retention of drivers, as well as the cost of weekly testing, and (iv) result in decreased revenue if we are unable to recruit and retain drivers.

Any vaccination, testing or mask mandates that are interpreted as applying to drivers would significantly reduce the pool of drivers available to us and our industry, which would further impact the extreme shortage of available drivers.

Accordingly, any vaccination, testing or mask mandates, if allowed to go into effect, could have a material adverse effect on our business, financial condition, and results of operations.

For further discussion regarding laws and regulations, refer to the "Risk Factors" section under Item 1A of Part I of this Annual Report.

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What changed 10-K

Item 1. Business