What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-02-24 compared with 2021-02-25 · 93 added, 44 removed, 239 unchanged (36% of the section changed)

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*Macroeconomic Changes *Independent Contractors *Insurance Regulation *Investments

*Mergers and Acquisitions *Vendors and Suppliers *Goodwill and Intangibles

*Mergers and Acquisitions *Vendors and Suppliers *ESG *Goodwill and Intangibles

*International Operations *Customers

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Strategic Risk

Our business is subject to economic, credit, business, and regulatory factors affecting the truckload industry that are largely beyond our control, any of which could have a materially adverse effect on our results of operations.

The truckload industry is highly cyclical, and our business is dependent on a number of factors that may have a materially adverse effect on our results of operations, many of which are beyond our control.

Our business is subject to economic, credit, business, and regulatory factors that are largely beyond our control, any of which could have a materially adverse effect on our results of operations.

The full truckload, LTL, intermodal, and brokerage industries are highly cyclical, and our business is dependent on a number of factors that may have a materially adverse effect on our results of operations, many of which are beyond our control.

Economic conditions that decrease shipping demand or increase the supply of available tractors and trailers can exert downward pressure on rates and equipment utilization, thereby decreasing asset productivity.

The risks associated with these factors are heightened when the US economy is weakened.

During such times, we may a experience a reduction in overall freight levels and freight patterns may change as supply chains are redesigned, resulting an imbalance between our capacity and our customers’ freight demands.

During such times, we may experience a reduction in overall freight levels and freight patterns may change as supply chains are redesigned, resulting in an imbalance between our capacity and our customers’ freight demands.

We cannot predict future economic conditions, fuel price fluctuations, cost increases, revenue equipment resale values, or how consumer confidence, macroeconomic conditions, or production capabilities, could be affected by armed conflicts or terrorist attacks, government efforts to combat terrorism, military action against a foreign state or group located in a foreign state, or heightened security requirements.

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Increased prices for new revenue equipment, design changes of new engines, decreased availability of new revenue equipment, future use of autonomous trucks, and the failure of manufacturers to meet their sale or trade-back obligations to us could have a materially adverse effect on our business, financial condition, results of operations, and profitability.

We are subject to risk with respect to higher prices for new equipment for our truckload operations.

We have experienced an increase in prices for new tractors over the past few years, and the resale value of the tractors has not increased to the same extent.

We are subject to risk with respect to higher prices for new equipment for our full truckload and LTL operations.

We have experienced an increase in prices for new tractors over the past few years, a significant increase in costs in recent quarters, and the resale value of the tractors has not increased to the same extent.

Increased regulation has increased the cost of our new tractors and could impair equipment productivity, in some cases, resulting in lower fuel mileage, and increasing our operating expenses.

Future use of autonomous tractors could increase the price of new tractors and decrease the value of used, non-autonomous tractors .

We expect to continue to pay increased prices for equipment and incur additional expenses for the foreseeable future.

Furthermore, a decrease in vendor output may have a materially adverse effect on our ability to purchase a quantity of new revenue equipment that is sufficient to sustain our desired growth rate and to maintain a late-model fleet.

Tractor and trailer vendors may reduce their manufacturing output in response to lower demand for their products in economic downturns or shortages of component parts.

Currently, tractor and trailer manufacturers are experiencing significant shortages of semiconductor chips and other component parts and supplies, including steel, forcing many manufacturers to curtail or suspend their production, which has led to a lower supply of tractors and trailers, higher prices, and lengthened trade cycles, which could have a material adverse effect on our business, financial condition, and results of operations, particularly our maintenance expense and driver retention.

We have certain revenue equipment leases and financing arrangements with balloon payments at the end of the lease term equal to the residual value we are contracted to receive from certain equipment manufacturers upon sale or trade back to the manufacturers.

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We are sensitive to the used equipment market and fluctuations in prices and demand for tractors and trailers.

The market for used equipment is affected by several factors, including the demand for freight, the supply of used equipment, the availability of financing, the presence of buyers for export to foreign countries, and commodity prices for scrap metal.

The market for used equipment is affected by several factors, including the demand for freight, the supply of new and used equipment, the availability of financing, the presence of buyers for export to foreign countries, and commodity prices for scrap metal.

Declines in demand for the used equipment we sell could result in diminished sales volumes or lower used equipment sales prices, either of which could negatively affect our gains on sales of assets.

If fuel prices increase significantly, our results of operations could be adversely affected.

Our truckload operations are dependent upon diesel fuel, and accordingly, significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition if we are unable to pass increased costs on to customers through rate increases or fuel surcharges.

Our full truckload and LTL operations are dependent upon diesel fuel, and accordingly, significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition if we are unable to pass increased costs on to customers through rate increases or fuel surcharges.

Fuel is subject to regional pricing differences and often costs more on the West Coast and in the Northeast, where we have significant operations.

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Because our fuel surcharge recovery lags behind changes in fuel prices, our fuel surcharge recovery may not capture the increased costs we pay for fuel, especially when prices are rising.

Our results of operations would be negatively affected and more volatile to the extent we cannot recover higher fuel costs or fail to improve our fuel price protection through our fuel surcharge program.

Our results of operations would be negatively affected and more volatile to the extent we cannot recover higher fuel costs or fail to improve our fuel price protection through our fuel

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surcharge program.

Additionally, a shortage or rationing of diesel fuel, could materially and adversely affect our results of operations.

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• changes in trade agreements and US-Mexico relations;

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• theft or vandalism of our revenue equipment;

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We may not make acquisitions in the future, or if we do, we may not be successful in our acquisition strategy.

Historically, acquisitions were a part of our growth strategy.

Historically, acquisitions have been a part of our growth strategy.

There is no assurance that we will be successful in identifying, negotiating, or consummating any future acquisitions.

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• the potential loss of customers, key employees, or driving associates of the acquired company.

Our acquisition of ACT presents certain additional risks to our business and operations.

On July 5, 2021, we acquired ACT, a leading LTL carrier that also offers dedicated contract carriage and ancillary services.

The acquisition presents certain additional risks to our business and operations, including, among other things:

• prior to the acquisition of ACT, our management team had limited experience with LTL operations and therefore may be challenged in managing the LTL operations, particularly if there were a loss of the ACT management team;

• LTL operations are more capital intensive than full truckload operations, including the need for additional terminals and types of equipment;

• LTL operations require more human capital than full truckload operations, including the need for dock employees and maintenance technicians, both of which are difficult to recruit and retain given the tight labor market;

• potential adverse reactions or changes to business relationships resulting from the completion of the acquisition, including potential breakdown of alliances between ACT and its capacity providers that are needed to meet customer requirements;

• increased workers' compensation incidence rates generally associated with LTL operations.

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Operational Risk

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Furthermore, there is no assurance that our operating margins will not be adversely affected by future changes in and expansion of our business or by changes in economic conditions or that we will be able to sustain or improve our profitability in the future.

Furthermore, the continued progression and development of new business offering’s are subject to risks, including, but not limited to:

Furthermore, the continued progression and development of new business offerings are subject to risks, including, but not limited to:

• initial unfamiliarity with pricing, service, operational, and liability issues;

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A reduction in or termination of our services by one or more of our major customers could have a materially adverse effect on our business, financial condition, and results of operations.

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Retail and discount retail customers account for a substantial portion of our freight.

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For our multi-year and dedicated contracts, the rates we charge may not remain advantageous.

Further, despite the existence of contractual arrangements, certain of our customers may nonetheless engage in competitive bidding processes that could negatively impact our contractual relationship.

We depend on third-party capacity providers, and service instability from these transportation providers could increase our operating costs and reduce our ability to offer intermodal and brokerage services, which could adversely affect our revenue, results of operations, and customer relationships.

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In addition, we may not be able to negotiate additional contracts with railroads to expand our capacity, add additional routes, obtain multiple providers, or obtain railroad services at current cost levels, any of which could limit our ability to provide this service.

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Our logistics operations are dependent upon the services of third-party capacity providers, including other truckload capacity providers.

These third-party providers may seek other freight opportunities and may require increased compensation in times of improved freight demand or tight truckload capacity.

These third-party providers may seek other freight opportunities and may require increased compensation in times of improved freight demand or tight full truckload and LTL capacity.

Most of our third-party capacity provider transportation services contracts are cancelable on 30 days' notice or less.

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Insuring risk through our captive insurance companies could adversely impact our operations.

We insure a portion of our risk through our captive insurance companies, Mohave and Red Rock.

In addition to insuring portions of our own risk, Mohave provides reinsurance coverage to third-party insurance companies associated with our affiliated companies' independent contractors.

We insure certain affiliated risks through our captive insurance company, Mohave and through our risk retention group, Red Rock.

Additionally, Mohave provides reinsurance to third-party insurance companies for affiliated risks insured by those third-party insurance companies.

Red Rock insures a share of our automobile liability risk.

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Our captive insurance companies' abilities or needs to access the reinsurance markets may involve the retention of additional risk, which could expose us to volatility in claims expenses.

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Our captive insurance companies are regulated by state authorities.

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We currently do not have employment agreements with our key employees, and the loss of any of their services or inadequate succession planning could negatively impact our operations and future profitability.

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Increases in driving associate compensation or difficulties attracting and retaining qualified driving associates could have a materially adverse effect on our profitability and the ability to maintain or grow our fleet.

Difficulty in attracting and retaining sufficient numbers of qualified driving associates, independent contractors, and third-party capacity providers, could have a materially adverse effect on our growth and profitability.

The truckload transportation industry is subject to a shortage of qualified driving associates.

The full truckload and LTL transportation industries are subject to a shortage of qualified driving associates.

Such shortage is exacerbated during periods of economic expansion, in which there may be alternative employment opportunities, or during periods of economic downturns, in which unemployment benefits might be extended and financing is limited for independent contractors who seek to purchase equipment or for students who seek financial aid for driving school.

Furthermore, capacity at driving schools may be limited by COVID-19-related social distancing requirements.

Vaccination, testing, and mask mandates may reduce the pool of potential drivers.

Regulatory requirements could further reduce the number of eligible driving associates.

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If any of our critical information or communications systems fail or become unavailable, it could temporarily affect the efficiency and effectiveness of our operations.

Our operations and those of our providers are vulnerable to interruption by

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natural disaster, fire, power loss, telecommunications failure, cyber-attacks, terrorist attacks, internet failures, and other events beyond our control.

Our operations and those of our providers are vulnerable to interruption by natural disasters, such as fires, storms, and floods, which may increase in frequency and severity due to climate change.

We are also vulnerable to interruption by power loss, telecommunications failure, cyber-attacks, terrorist attacks, internet failures, and other events beyond our control.

Our business and operations could be adversely affected in the event of a system failure, disruption, or security breach that causes a delay, interruption, or impairment of our services and operations.

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A security breach could damage our business operations and reputation and could cause us to incur costs associated with repairing our systems, increased security, customer notifications, lost operating revenue, litigation, regulatory action, and reputational damage.

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Some of our employees work remotely, which may increase the cybersecurity risks to our business, including an increased demand for information technology resources, increased risk of phishing, and other cybersecurity attacks.

We have, and will continue to have, a portion of our employee population that works from home full-time or under flexible work arrangements, and we have provided associates with expanded remote network access options which enable them to work outside of our corporate infrastructure and, in some cases, use their own personal devices, which exposes us to additional cybersecurity risks.

Our employees working remotely may expose us to cybersecurity risks through:

(i) unauthorized access to sensitive information as a result of increased remote access, including our employees’ use of Company-owned and personal devices and videoconferencing functions and applications to remotely handle, access, discuss, or transmit confidential information, (ii) increased exposure to phishing and other scams as cybercriminals may, among other things, install malicious software on our systems and equipment and access sensitive information, and (iii) violation of international, federal, or state-specific privacy laws.

We believe that the increased number of employees working remotely has incrementally increased our cyber risk profile, but we are unable to predict the extent or impacts of those risks at this time.

A significant disruption of our information technology systems, unauthorized access to or loss of confidential information, or legal claims resulting from our violation of privacy laws could each have a material adverse effect on our business.

Seasonality and the impact of weather and other catastrophic events could have a materially adverse effect on our results of operations and profitability or make our results of operations and profitability more volatile.

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Our business and results of operations have been and will be, and our financial condition may be, impacted by the outbreak of COVID-19 or other similar outbreaks, and such impact could be materially adverse, during the pandemic or after the pandemic subsides.

The global spread of COVID-19 has created, and any other outbreaks of similar contagious diseases or other adverse public health developments could create, significant volatility, uncertainty and economic disruption.

The global spread of COVID-19, including its variants, has created, and any other outbreaks of similar contagious diseases or other adverse public health developments could create, significant volatility, uncertainty and economic disruption.

We have experienced an increase in absences among our driver and non-driver personnel due to the outbreak of COVID-19.

Further, our operations, particularly in areas of increased COVID-19 infections could be disrupted.

Our operations, particularly in areas of increased COVID-19 infections could be disrupted.

Furthermore, government vaccine, testing, and mask mandates could increase our turnover and make recruiting more difficult, particularly among our driver personnel.

"Other Regulation" in Part I, Item 1 of this Annual Report, discusses in detail COVID-19 vaccination, testing, and mask mandates.

Negative financial results, operational disruptions, driver and non-driver absences, uncertainties in the market, and a tightening of credit markets, caused by COVID-19, other similar outbreaks, or a recession, could have a material adverse effect on our liquidity, reduce credit options available to us, and adversely impact our ability to effectively meet our short- and long-term obligations.

The COVID-19 outbreak has caused uncertainty in the economy.

Risks related to an economic slowdown or recession are described in our risk factor titled "Our business is subject to economic, credit, business, and regulatory factors affecting the truckload industry that are largely beyond our control, any of which could have a materially adverse effect on our results of operations."

Risks related to an economic slowdown or recession are described in our risk factor titled "Our business is subject to economic, credit, business, and regulatory factors that are largely beyond our control, any of which could have a materially adverse effect on our results of operations."

Developments related to COVID-19 have been unpredictable and the extent to which further developments could impact our operations, financial condition, liquidity, results of operations, and cash flows is highly uncertain.

Such developments may include the duration of the virus, the distribution and availability of vaccines, the severity of the disease, and the actions that may be taken by various governmental authorities and other third parties in response to the pandemic.

Such developments may include the duration of the virus, the distribution and availability of vaccines, vaccine hesitancy, the severity of the disease, and the actions that may be taken by various governmental authorities and other third parties in response to the pandemic.

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Nevertheless, we could be deemed responsible for clean-up costs.

In addition, tractors and trailers used in our truckload operations are affected by laws and regulations related to air emissions and fuel efficiency.

In addition, tractors and trailers used in our full truckload and LTL operations are affected by laws and regulations related to air emissions and fuel efficiency.

"Environmental Regulation" in Part I, Item 1 of this Annual Report, provides a discussion of the environmental laws and regulations applicable to our business and operations.

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Developments in labor and employment law and any unionizing efforts by employees could have a materially adverse effect on our results of operations.

Although our only collective bargaining agreement exists at our Mexican subsidiary, Trans-Mex, we always face the risk that our employees will try to unionize.

If we entered into a collective bargaining agreement with our domestic employees, the terms could materially adversely affect our costs, efficiency, and ability to generate acceptable returns on the affected operations.

If we entered into a collective bargaining agreement with our domestic employees, it could have a material adverse effect on our business, customer retention, financial condition, results of operations, and liquidity, and could cause significant disruption of, or inefficiencies in, our operations, because:

• restrictive work rules could hamper our ability to improve or sustain operating efficiency or could impair our service reputation and limit our ability to provide certain services;

• a strike or work stoppage could negatively impact our profitability and could damage customer and employee relationships;

• shippers may limit their use of unionized companies because of the threat of strikes and other work stoppages;

• unionization of any of our operations could lead to pressure on our LTL and full truckload employees to unionize;

• collective agreements could result in material increases in wages and benefits;

• an election and bargaining process could divert management’s time and attention from our overall objectives and impose significant expenses.

If the independent contractors we contract with were ever re-classified as employees, the magnitude of this risk would increase.

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Tax and other regulatory authorities, as well as independent contractors themselves, have increasingly asserted that independent contractors in the trucking industry are employees rather than independent contractors.

Carriers such

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as us that operate or have operated lease-purchase programs have been more susceptible to lawsuits seeking to reclassify independent contractors that have engaged in such programs.

Carriers such as us that operate or have operated lease-purchase programs have been more susceptible to lawsuits seeking to reclassify independent contractors that have engaged in such programs.

If the independent contractors we engage were determined to be our employees, we would incur additional exposure under federal and state tax, workers' compensation, unemployment benefits, labor, employment, insurance, discrimination, and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.

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These lawsuits have resulted, and may result in the future, in the payment of substantial settlements or damages and increases of our insurance costs.

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Changes to trade regulation, quotas, duties or tariffs, caused by the changing US and geopolitical environments or otherwise, may increase our costs and adversely affect our business.

The approach of President Biden’s administration to tariffs and other trade regulations is uncertain.

The imposition of additional tariffs or quotas or changes to certain trade agreements, could, among other things, increase the costs of the materials used by our suppliers to produce new revenue equipment or increase the price of fuel.

Such cost increases for our revenue equipment suppliers would likely be passed on to us, and to the extent fuel prices increase, we may not be able to fully recover such increases through rate increases or our fuel surcharge program, either of which could have an adverse effect on our business.

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Increasing attention on environmental, social, and governance (ESG) matters may have a negative impact on our business, impose additional costs on us, and expose us to additional risks.

Companies are facing increasing attention from stakeholders relating to ESG matters, including environmental stewardship, social responsibility, and diversity and inclusion.

Organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters.

Such ratings are used by some investors to inform their investment and voting decisions.

Unfavorable ESG ratings may lead to negative investor sentiment toward the Company, which could have a negative impact on our stock price.

We recently published our Sustainability Report.

This report reflects our current initiatives and is not a guarantee that we will be able to achieve them.

Our ability to successfully execute these initiatives and accurately report our progress presents numerous operational, financial, legal, reputational and other risks, many of which are outside our control, and all of which could have a material negative impact on our business.

Additionally, the implementation of these initiatives imposes additional costs on us.

If our ESG initiatives fail to satisfy our stakeholders, then our reputation, our ability to attract or retain employees, and our attractiveness as an investment and business partner could be negatively impacted.

Similarly, our failure, or perceived failure, to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to government enforcement actions and private litigation.

Financial Risk

We have significant ongoing capital requirements that could affect our profitability if our capital investments do not match customer demand for invested resources, we are unable to generate sufficient cash from operations, or we are unable to obtain financing on favorable terms.

Our truckload operations are capital intensive, and our policy of operating newer equipment requires us to expend significant amounts on capital annually.

If anticipated demand differs materially from actual usage, our capital intensive truckload operations may have too many or too few assets.

Our full truckload and LTL operations are capital intensive, and our policy of operating newer equipment requires us to expend significant amounts on capital annually.

If anticipated demand differs materially from actual usage, our capital intensive full truckload and LTL operations may have too many or too few assets.

The expansion of our operations to LTL has increased and will continue to increase our capital requirements for real estate associated with LTL operations.

During periods of decreased customer demand, our asset utilization may suffer, and we may be forced to sell equipment on the open market or turn in equipment under certain equipment leases in order to right-size our fleet.

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Declines in consumer confidence, decreases in domestic spending, economic contractions, rating agency actions, and other trends in the credit market may impair our future ability to secure financing on satisfactory terms, or at all.

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In the future, we may need to obtain additional financing that may not be available or, if it is available, may result in a reduction in the percentage ownership of our then-existing stockholders.

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• potential noncompliance with financial covenants, borrowing conditions, and other debt obligations (where applicable);

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• lack of financing for working capital, capital expenditures, product development, debt service requirements, and general corporate or other purposes;

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We have goodwill and indefinite-lived intangible assets on our balance sheet.

Given our history of acquisitions and growth objectives, our goodwill and intangible assets could grow.

We periodically evaluate our goodwill and indefinite-lived intangible assets for impairment.

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If these events occur, our profitability and financial condition will suffer.

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If our investments in entities are not successful or decrease in market value, we may be required to write off or lose the value of a portion or all of our investments, which could have a materially adverse effect on our results of operations.

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If the financial position of any such entity declines, we could be required to write down all or part of our investment in that entity, which could have a materially adverse effect on our results of operations.

Changes in taxation could lead to an increase of our tax exposure and could affect the Company’s financial results.

President Biden has provided some informal guidance on what federal tax law changes he supports, such as an increase in the corporate tax rate from its current top rate of 21%.

If an increase in the corporate tax rate is passed by Congress and signed into law, it could have a materially adverse effect on our financial results and financial position.

At December 31, 2021, the Company has a deferred tax liability of $874.9 million.

The amount of deferred tax liability is determined by using the enacted tax rates in effect for the year in which differences between the financial statement and tax basis of assets and liabilities are expected to reverse.

Accordingly, our net current tax liability has been determined based on the currently enacted rate of 21%.

If the current rate were increased due to legislation, it would have an immediate revaluation of our deferred tax assets and liabilities in the year of enactment.

For example, an increase in the tax rate from 21% to 26% would result in the immediate increase in our net deferred tax liability of approximately $174.4 million, with a corresponding increase to income tax expense in the year of enactment to reflect the revaluation.

UNRESOLVED STAFF COMMENTS

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors