What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-23 compared with 2021-02-24 · 89 added, 100 removed, 174 unchanged (52% of the section changed)

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Our primary revenue focus is to increase density, which is shipment and tonnage growth within our existing infrastructure.

Increases in density allow us to maximize our asset utilization and labor productivity, which we measure over many different functional areas of our operations including linehaul load factor, P&D stops per hour, P&D shipments per hour, platform pounds handled per hour and platform shipments per hour.

Increases in density allow us to maximize our asset utilization and labor productivity, which we measure over many different functional areas of our operations including linehaul load factor, pickup and delivery (“P&D”) stops per hour, P&D shipments per hour, platform pounds handled per hour and platform shipments per hour.

In addition to our focus on density and operating efficiencies, it is critical for us to obtain an appropriate yield, which is measured as revenue per hundredweight, on the shipments we handle to offset our cost inflation and support our ongoing investments in capacity and technology.

We regularly monitor the components of our pricing, including base freight rates, accessorial charges and fuel surcharges.

The fuel surcharge is generally designed to offset fluctuations in the cost of our

petroleum-based products and is indexed to diesel fuel prices published by the DOE , which reset each week.

The fuel surcharge is generally designed to offset fluctuations in the cost of our petroleum-based products and is indexed to diesel fuel prices published by the U.S.

Department of Energy , which reset each week.

We believe our yield management process focused on individual account profitability, and ongoing improvements in operating efficiencies, are both key components of our ability to produce profitable growth.

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Operating income

Interest expense (income), net

Interest expense, net

Other expense, net

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Average length of haul (miles)

Despite the difficult operating conditions created by the COVID-19 pandemic, our financial results for 2020 include Company records for profitability and diluted earnings per share.

While our annual revenue decreased slightly as a result of a decrease in our volumes, our LTL revenue per hundredweight increased as we maintained our price discipline throughout the year.

The increase in

our yields along with the increase in productivity allowed us to improve our variable operating costs as a percent of revenue.

We also improved our overhead costs as a percent of revenue due to our control over discretionary spending during the year.

These factors contributed to the 270 basis point improvement in our operating ratio resulting in a new Company record of 77.4% for the year.

As a result, our net income and diluted earnings per share increased 9.3% and 11.4%, respectively, in 2020 as compared to 2019.

Revenue decreased $94.0 million, or 2.3%, in 2020 compared to 2019.

This decline reflects a decrease in LTL tons and a slight decline in our LTL revenue per hundredweight when compared with 2019.

The decrease in LTL tons in 2020 was primarily attributable to a decline in shipments that was partially offset by an increase in our LTL weight per shipment.

The decrease in LTL shipments was driven by the impact of a slowdown in the domestic economy associated with the COVID-19 pandemic, primarily during the second quarter of 2020.

LTL revenue per hundredweight decreased 0.1% in 2020 compared to 2019.

Our LTL revenue and yield were negatively impacted by a decrease in fuel surcharges that resulted from a significant decline in the average price of diesel fuel for the comparable periods.

The slight decrease in LTL revenue per hundredweight also includes the adverse impact of the increase in our LTL weight per shipment on this metric.

Excluding fuel surcharges, LTL revenue per hundredweight increased 2.5% in 2020 compared to 2019 as a result of the ongoing commitment to our yield management strategy, which is supported by our best-in-class service to customers.

As a percent of revenue, fuel surcharges decreased to 10.5% in 2020 as compared to 12.7% in 2019.

Our financial results for 2021 reflect the highest annual revenue and profitability in our Company’s history.

We believe the increase in our annual revenue to $5.3 billion in 2021 was driven by the consistent execution of our long-term strategy of providing superior service to customers at a fair price, while continuing to invest in capacity and technology to support the increased customer demand for our services.

Our revenue growth reflects higher shipment volumes and further improvements in our yield, both of which were supported by the strength of the domestic economy.

The increased freight density in our service center network and improvement in our yield, combined with improved operating efficiencies, led to the 390 basis-point improvement in our operating ratio to 73.5%

for 2021 as compared to 2020.

As a result, net income and earnings per diluted share increased by 53.8% and 56.5%, respectively, in 2021 as compared to 2020.

Revenue increased $1.24 billion, or 30.9%, in 2021 compared to 2020, due to increases in both our LTL tonnage and LTL revenue per hundredweight.

The increase in tonnage resulted from higher LTL shipment volumes that were partially offset by a decrease in LTL weight per shipment.

Our LTL weight per shipment declined due primarily to our continuing efforts to reduce the number of heavy-weighted and larger, harder-to-handle types of shipments in our network.

We believe the increase in LTL shipments was driven by higher customer demand for our superior service, coupled with our available network capacity and the strength of the U.S.

domestic economy.

Our LTL revenue per hundredweight increased 13.1% in 2021 compared to 2020.

We believe the increase in LTL revenue per hundredweight was driven by the success of our long-term pricing strategy as well as changes in mix of our freight.

The increase also reflects the positive impact of a decline in weight per shipment and an increase in average length of haul on this metric.

Excluding fuel surcharges, LTL revenue per hundredweight increased 8.8% in 2021 compared to 2020.

January 2022 Update

Revenue per day increased 25.7% in January 2022 compared to the same month last year.

LTL tons per day increased 11.9%, due primarily to a 7.0% increase in LTL shipments per day and a 4.6% increase in LTL weight per shipment.

LTL tons per day increased 7.7%, due primarily to a 10.2% increase in LTL shipments per day that was offset by a 2.2% decrease in LTL weight per shipment.

LTL revenue per hundredweight increased 16.8% as compared to the same month last year.

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Operating Costs and Other Expenses

Salaries, wages and benefits decreased $68.6 million, or 3.2%, in 2020 as compared to 2019, due to a $21.2 million decrease in the costs attributable to salaries and wages and a $47.4 million decrease in benefits costs.

The decrease in salaries and wages was due to a decrease in the average number of active full-time employees and improvements in productivity.

These decreases were partially offset by the impact of annual wage increases provided to our employees at the beginning of both September of 2019 and 2020 and two special bonuses provided to eligible employees during 2020 in recognition of their outstanding service to our customers during the COVID-19 pandemic.

Our average number of active full-time employees decreased 1,530, or 7.4%, as compared to 2019 as we aligned our headcount with shipment volume trends.

Our productive labor costs, which include wages for drivers, platform employees, and fleet technicians, increased slightly as a percent of revenue to 27.8% in 2020 as compared to 27.6% in 2019.

While our productive labor costs as a percentage of revenue were negatively impacted by the deleveraging effect of lower fuel surcharges, we increased the efficiency of our operations with improvements in our linehaul laden load average, P&D shipments and stops per hour and platform pounds and shipments per hour as compared to 2019.

Our other salaries and wages as a percent of revenue also increased slightly to 10.4% in 2020 as compared to 10.2% in 2019.

Employee benefit costs decreased $47.4 million in 2020 as compared to 2019, due primarily to a reduction in expense related to our phantom stock plans, which were amended in the fourth quarter of 2019 to allow the awards to be settled in stock and limit our ongoing benefits expense in future periods.

Our employee benefit costs were also lower due to a reduction in group health and dental and workers’ compensation resulting from a decrease in employee headcount and fewer claims per employee during 2020.

As a result of these expense reductions, our employee benefit costs as a percent of salaries and wages decreased to 33.8% in 2020 from 36.4% in 2019.

We believe our active full-time employee count will increase as we continue to hire employees to balance our workforce with growing demand and shipment trends.

Although we intend to hire additional employees in 2021 to further increase the capacity of our workforce, we expect to continue to purchase supplemental transportation until the capacity of our team can fully support our anticipated growth.

Operating supplies and expenses decreased $99.7 million, or 21.1%, in 2020 as compared to 2019, due primarily to a decrease in our costs for diesel fuel used in our vehicles.

Our diesel fuel costs, excluding fuel taxes, represents the largest component of operating supplies and expenses, and can vary based on both the average price per gallon and consumption.

Our average cost per gallon of diesel fuel decreased 31.8% in 2020 as compared to 2019.

In addition, our gallons consumed decreased 4.5% in 2020 as compared to 2019 due to a decrease in miles driven.

Salaries, wages, and benefits increased $414.1 million, or 20.2%, in 2021 as compared to 2020, due to a $272.0 million increase in the costs attributable to salaries and wages and a $142.1 million increase in employee benefit costs.

The increase in salaries and wages was due primarily to increases in the average number of active full-time employees and increases in our employees’ wage rates.

Our average number of active full-time employees increased 3,034, or 15.9%, during 2021 as compared to 2020.

We believe our full-time employee headcount will continue to increase as we hire employees to balance our workforce with ongoing growth in customer demand and shipment trends.

Our employees’ salaries and wages also increased as a result of the annual wage increases provided to our employees in September 2021, as well as higher performance-based compensation.

Our productive labor costs, which include wages for drivers, platform employees, and fleet technicians, improved as a percent of revenue to 25.1% in 2021 compared to 27.8% in 2020.

This improvement includes the impact of increases in our linehaul laden load average and P&D shipments per hour as we increased density across our network, as well as declines in our platform shipments per hour as we trained our new employees.

Our other salaries and wages as a percent of revenue also decreased to 9.3% in 2021 as compared to 10.4% in 2020.

The increase in the costs attributable to employee benefits of $142.1 million, or 27.4%, includes the impact of the increase in the number of full-time employees eligible for our benefits.

Our employee benefit costs also increased due to additional holiday pay benefits provided in 2021 and increases in certain retirement benefit plan costs directly linked to our net income.

In addition, our group health and dental costs increased due to increases in costs per claim, as well as higher claim volumes per covered employee.

As a result of these cost increases, our employee benefit costs as a percent of salaries and wages increased to 36.6% in 2021 from 33.8% in 2020.

Operating supplies and expenses increased $194.2 million, or 52.0%, in 2021 as compared to 2020, due primarily to an increase in our costs for diesel fuel.

The cost of diesel fuel, excluding fuel taxes, represents the largest component of operating supplies and expenses, and can vary based on both the average price per gallon and consumption.

The increase in our diesel fuel costs was primarily due to a 60.3% increase in our average cost per gallon of diesel fuel during 2021.

In addition, our gallons consumed increased 13.5% in 2021 as compared to 2020 due to an increase in miles driven.

We do not use diesel fuel hedging instruments;

therefore, our costs are subject to

market price fluctuations.

Other operating supplies and expenses improved as a percent of revenue between the periods compared as we efficiently maintained our fleet and managed our other variable operating expenses.

General supplies and expenses decreased $13.7 million, or 11.0%, in 2020 as compared to 2019, due primarily to lower advertising and marketing costs as we controlled our discretionary spending.

We also benefited from lower travel-related expenses, due to travel restrictions imposed during the COVID-19 pandemic.

While we will continue our discipline in controlling discretionary spending in 2021, we anticipate that certain costs that were reduced in 2020 will be restored in future periods.

Depreciation and amortization increased $7.6 million, or 3.0%, in 2020 as compared to 2019.

While our 2020 capital expenditure plan was lower than in 2019, particularly with respect to revenue equipment and real estate, we believe depreciation expense will continue to increase in future periods as we maintain our focus on expanding capacity to support our anticipated growth and long-term strategic initiatives.

therefore, our costs are subject to market price fluctuations.

Our other operating supplies and expenses remained relatively consistent as a percent of revenue between the periods compared.

Depreciation and amortization costs were relatively consistent in 2021 as compared to 2020.

While our capital expenditures were significantly higher in 2021 compared to 2020, our 2021 depreciation and amortization costs were impacted by our planned reduction in capital expenditures for revenue equipment in 2020 as we balanced our fleet with volumes, as well as delays in receipt of certain revenue equipment included in our 2021 capital expenditure plan.

We believe depreciation costs will increase in future periods as we execute our 2022 capital expenditure plan.

While our investments in real estate, equipment, and technology can increase our costs in the short-term, we believe these investments are necessary to support our continued long-term growth and strategic initiatives.

Purchased transportation expense increased $87.8 million, or 89.7%, in 2021 as compared to 2020, due primarily to an increase in our use of third-party transportation providers to supplement our workforce and equipment as demand for our services increased.

We expect to continue to purchase supplemental transportation services until the capacity of our team and fleet can fully support our anticipated growth.

Our effective tax rate in 2021 was 25.5% as compared to 25.4% in 2020.

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Financing activities

(Decrease) increase in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at end of year

The change in our cash flows provided by operating activities during 2020 as compared to 2019 was impacted by an increase in our income taxes paid of $109.2 million and fluctuations in certain working capital accounts, which were partially offset by an increase in net income.

The changes in cash flows used in investing activities during 2020 as compared to 2019 was primarily due to purchases of short-term investments in 2020, partially offset by a reduction in capital expenditures as compared to 2019.

Changes in our capital expenditures are more fully described below in “Capital Expenditures.”

The changes in cash flows used in financing activities for all periods were due primarily to fluctuations in capital returned to shareholders and fluctuations in our long-term debt.

Our financing arrangements are more fully described below under “Financing Agreements.” Our return of capital to shareholders is more fully described below under “Stock Repurchase Program” and “Dividends to Shareholders.”

The increase in our cash flows provided by operating activities during 2021 as compared to 2020 was impacted by an increase in our income before income taxes of $487.1 million, which was partially offset by an increase in income taxes paid of $86.3 million and fluctuations in certain working capital accounts.

The decrease in our cash flows used in investing activities during 2021 as compared to 2020 was due primarily to proceeds from the maturities of our short-term investments in excess of purchases, partially offset by increases in real estate and equipment purchases under our capital expenditure plan for 2021 as compared to 2020.

Changes in our capital expenditure plans are more fully described below in “ Capital Expenditures ”.

The increase in our cash flows used in financing activities during 2021 as compared to 2020 was due primarily to increases in share repurchases and cash dividends paid to shareholders.

These increases were partially offset by reductions in proceeds from debt issuances and scheduled principal payments during 2021 as compared to 2020.

Our return of capital to shareholders is more fully described below under “ Stock Repurchase Program ” and “ Dividends to Shareholders ”.

We have five primary sources of available liquidity:

cash flows from operations, our existing cash and cash equivalents, short-term investments, available borrowings under our second amended and restated credit agreement (the “Credit Agreement”), and our Note Purchase and Private Shelf Agreement (the “Note Agreement”).

Our Credit Agreement and the Note Agreement are described in more detail below under “Financing Arrangements.” We believe we also have sufficient access to debt and equity markets to provide other sources of liquidity, if needed .

While the ongoing COVID-19 pandemic creates some uncertainty for the domestic economy, we believe our current sources of liquidity will be sufficient to satisfy our planned capital expenditures and working capital needs.

cash flows from operations, our existing cash and cash equivalents, short-term investments, available borrowings under our second amended and restated credit agreement with Wells Fargo Bank, National Association serving as administrative agent for the lenders, which we entered into on November 21, 2019 (the “Credit Agreement”), and our Note Purchase and Private Shelf Agreement with PGIM, Inc.

(“Prudential”) and certain affiliates and managed accounts of Prudential, which we entered into on May 4, 2020 (the “Note Agreement”).

Our Credit Agreement and the Note Agreement are described in more detail below under “ Financing Arrangements ”.

We believe we also have sufficient access to debt and equity markets to provide other sources of liquidity, if needed.

Capital Expenditures

The table below sets forth our net capital expenditures for property and equipment for the years ended December 31, 2020 and 2019:

Year Ended December 31,

The table below sets forth our net capital expenditures for property and equipment, including those obtained through noncash transactions, for the years ended December 31, 2021 and 2020:

(In thousands)

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Proceeds from sales

Our capital expenditures vary based upon the projected increase in the number and size of our service center facilities to support our plan for long-term growth, our planned tractor and trailer replacement cycle and forecasted tonnage and shipment growth.

Expenditures for land and structures can be dependent upon the availability of land in the geographic areas where we are looking to expand.

Our capital expenditures vary based upon the projected increase in the number and size of our service center facilities necessary to support our plan for long-term growth, our planned tractor and trailer replacement cycle, and forecasted tonnage and shipment growth.

Expenditures for land and structures can be dependent upon the availability of land in the geographic areas where we are

looking to expand.

We historically spend 10% - 15% of our revenue on capital expenditures each year.

Our 2020 capital expenditures were lower than normal , particularly with respect to revenue equipment and real estate , due to economic uncertainty as a result of the COVID-19 pandemic.

We expect to continue to maintain a high level of capital expenditures in order to support our long-term plan for market share growth .

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We expect to fund these capital expenditures primarily through cash flows from operations, our existing cash and cash equivalents, short-term investments and, if needed, borrowings available under our Credit Agreement or Note Agreement.

We believe our current sources of liquidity will be sufficient to satisfy our expected capital expenditures.

We believe our current sources of liquidity will be sufficient to satisfy our expected capital expenditures for the next twelve months and in the longer term.

Stock Repurchase Program

On May 1, 2020, we announced that our Board of Directors had approved a new two-year stock repurchase program authorizing us to repurchase up to an aggregate of $700.0 million of our outstanding common stock (the “2020 Repurchase Program”).

The 2020 Repurchase Program became effective upon the termination of our $350.0 million repurchase program on May 29, 2020, as of which date $21.5 million remained authorized under the prior program.

Under the 2020 Repurchase Program, we may repurchase shares from time to time in open market purchases or through privately negotiated transactions.

On May 1, 2020, we announced that our Board of Directors had approved a two-year stock repurchase program authorizing us to repurchase up to an aggregate of $700.0 million of our outstanding common stock (the “2020 Repurchase Program”).

The 2020 Repurchase Program became effective upon the termination of our $350.0 million repurchase program on May 29, 2020.

On July 28, 2021, we announced that our Board of Directors had approved a new stock repurchase program authorizing us to repurchase up to an aggregate of $2.0 billion of our outstanding common stock (the “2021 Repurchase Program”).

The 2021 Repurchase Program, which does not have an expiration date, began after the completion of the 2020 Repurchase Program.

Under our repurchase programs, we may repurchase shares from time to time in open market purchases or through privately negotiated transactions.

Shares of our common stock repurchased under our repurchase programs are canceled at the time of repurchase and are classified as authorized but unissued shares of our common stock.

During the years ended December 31, 2020 and 2019, we repurchased 2,507,885 and 2,403 ,336 shares of our common stock under our repurchase programs for an aggregate of $364.1 million and $241.0 million, respectively.

As of December 31, 2020, we had $555.2 million remaining authorized under the 2020 Repurchase Program.

At December 31, 2021, our stock repurchase programs had $2.02 billion remaining available, including $62.5 million that was deferred until final settlement occurred on our accelerated share repurchase agreement in January 2022.

Following final settlement, there is $1.96 billion remaining available and uncommitted.

Dividends to Shareholders

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All references in this report to dividend amounts have been restated retroactively to reflect this stock split.

Split-adjusted quarterly per-share metrics may not recalculate precisely due to rounding.

Our Board of Directors also declared quarterly cash dividends that totaled $0.80 per share for the year ended December 31, 2021 and quarterly cash dividends that totaled $0.60 per share for the year ended December 31, 2020.

Financing Agreements

Senior Note Agreements

We had an unsecured senior note agreement with a principal amount outstanding of $45.0 million at December 31, 2019 (the “Senior Note”).

The agreement for the Senior Note called for a scheduled principal payment of $45.0 million, with an interest rate of 4.79%, on January 3, 2021, which was paid in the fourth quarter of 2020.

On May 4, 2020, we entered into the Note Agreement with PGIM, Inc.

(“Prudential”) and certain affiliates and managed accounts of Prudential.

Note Agreement

The Note Agreement, which is uncommitted and subject to Prudential’s sole discretion, provides for the issuance of senior promissory notes with an aggregate principal amount of up to $350.0 million through May 4, 2023.

Pursuant to the Note Agreement, we issued $100.0 million aggregate principal amount of senior promissory notes (the “Series B Notes”), the proceeds of which are available for capital expenditures, share repurchases, dividends, acquisitions, or general corporate purposes.

Pursuant to the Note Agreement, we issued $100.0 million aggregate principal amount of senior promissory notes (the “Series B Notes”) on May 4, 2020.

Borrowing availability under the Note Agreement is reduced by the outstanding amount of the existing Series B Notes, and all other senior promissory notes issued pursuant to the Note Agreement.

The Series B Notes bear interest at 3.10% per annum and mature on May 4, 2027, unless prepaid.

The Series B Notes bear an annual interest rate of 3.10% and mature on May 4, 2027, unless prepaid.

Principal payments are required annually beginning on May 4, 2023 in equal installments of $20.0 million through May 4, 2027.

The Series B Notes are senior unsecured obligations and rank pari passu with our other senior unsecured indebtedness.

The Series B Notes are senior unsecured obligations and rank pari passu with borrowings under our Credit Agreement or other senior promissory notes issued pursuant to the Note Agreement.

Credit Agreement

On November 21, 2019, we entered into our Credit Agreement with Wells Fargo Bank, National Association serving as administrative agent for the lenders.

The Credit Agreement provides for a five-year, $250.0 million senior unsecured revolving line of credit and a $150.0 million accordion feature, which if fully exercised and approved, would expand the total borrowing capacity up to an aggregate of $400.0 million.

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(i) LIBOR (including applicable successor provisions) plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 1.000% to 1.375%;

or (ii) a Base Rate plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 0.000% to 0.375%.

or (ii) a Base Rate, as defined in the Credit Agreement, plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 0.000% to 0.375%.

Letter of credit fees equal to the applicable margin for LIBOR loans are charged quarterly in arrears on the daily average aggregate stated amount of all letters of credit outstanding during the quarter.

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For periods covered under the Credit Agreement, the applicable margin on LIBOR loans and letter of credit fees were 1.000% and commitment fees were 0.100%.

The Credit Agreement replaced our previous five-year, $300.0 million senior unsecured revolving credit agreement dated as of December 15, 2015, as amended on September 9, 2016 (the “Prior Credit Agreement”).

For periods in 2019 covered under the Prior Credit Agreement, the applicable margin on LIBOR loans and letter of credit fees were 1.000% and commitment fees were 0.125%.

The amounts outstanding and available borrowing capacity under the Credit Agreement are presented below:

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We were in compliance with all covenants in our outstanding debt instruments for the period ended December 31, 2021.

We do not anticipate financial performance that would cause us to violate any such covenants in the future, and we believe the combination of our existing Credit Agreement and Note Agreement along with our additional borrowing capacity will be sufficient to meet foreseeable seasonal and long-term capital needs.

The interest rate is fixed on the Note Agreement.

Therefore, short-term exposure to fluctuations in interest rates is limited to our line of credit facility.

Therefore, short-term exposure to fluctuations in interest rates is limited to our Credit Agreement.

We do not currently use interest rate derivative instruments to manage exposure to interest rate changes.

Contractual Obligations

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Purchase obligations and Other

Contractual obligations include principal and interest on our senior notes;

Contractual obligations include principal and interest on our Series B Notes;

operating leases consisting primarily of real estate and automotive leases;

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In preparing our financial statements, we apply the following critical accounting policies that we believe affect our judgments and estimates of amounts recorded in certain assets, liabilities, revenue and expenses.

These critical accounting policies are further described in Note 1 of the Notes to the Financial Statements included in Item 8 of this report.

These critical accounting policies, which are those that have, or are reasonably likely to have, a material impact on our financial condition or results of operations, are further described in Note 1 of the Notes to the Financial Statements included in Item 8 of this report.

Revenue Recognition

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This factor is applied to the total revenue for that shipment and revenue is allocated between reporting periods accordingly.

Payment terms vary by customer and are short-term in nature.

Allowances for Uncollectible Accounts and Revenue Adjustments

We maintain an allowance for uncollectible accounts for estimated losses resulting from the failure of our customers to make required payments.

We estimate this allowance by analyzing the aging of our customer receivables, our historical loss experience and other trends and factors affecting the credit risk of our customers, including anticipated changes to future performance.

We determine customer receivables to be past due when payment has not been received by the invoice due date.

Write-offs occur when we determine an account to be uncollectible and could differ from our allowance estimate as a result of factors such as changes in the overall economic environment or risks surrounding our customers.

Additional allowances may be required if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments.

We periodically review the underlying assumptions in our estimate of the allowance for uncollectible accounts to ensure that the allowance reflects the most recent trends and factors.

We also maintain an allowance for estimated revenue adjustments resulting from future billing corrections, customer allowances, money-back service guarantees and other miscellaneous revenue adjustments.

These revenue adjustments are recorded in our revenue from operations.

We use historical experience, trends and current information to update and evaluate these estimates.

A hypothetical change of 10% in our percentage of completion estimate would not have a material effect on our recorded revenue.

Claims and Insurance Accruals

Claims and insurance accruals reflect the estimated cost of claims for cargo loss and damage, Bodily Injury/Property Damage (“BIPD”), workers’ compensation, group health and dental.

The related costs are charged to insurance and claims expense except for workers’ compensation, group health and dental, which are charged to employee benefits expense.

Claims and insurance accruals reflect the estimated cost of various claims, including those related to bodily injury/property damage (“BIPD”) and workers’ compensation.

All related costs associated with BIPD claims are charged to insurance and claims expense, and all related costs associated with workers’ compensation claims are charged to employee benefits expense.

Insurers providing excess coverage above a company’s self-insured retention or deductible levels typically adjust their premiums to cover insured losses and for other market factors.

As a result, we periodically evaluate our self-insured retention and deductible levels to determine the most cost-efficient balance between our exposure and excess coverage.

In establishing accruals for claims and expenses, we evaluate and monitor each claim individually, and we use factors such as historical claims development experience, known trends and third-party estimates to determine the appropriate reserves for potential liability.

In establishing accruals for claims and expenses, we evaluate and monitor each claim individually, and we use factors such as historical claims development experience, known trends and third-party actuarial estimates to determine the appropriate reserves for potential liabilities.

We believe the assumptions and methods used to estimate these liabilities are reasonable;

however, any changes in the severity of previously-reported claims, significant changes in medical costs and regulatory changes affecting the administration of our plans could significantly impact the determination of appropriate reserves in future periods.

however, any changes in the severity or number of reported claims, significant changes in medical costs and regulatory changes affecting the administration of our plans could significantly impact the determination of appropriate reserves in future periods.

Our accrued liability for insurance, BIPD claims, and workers’ compensation claims totaled $126.4 million and $120.6 million at December 31, 2021 and 2020, respectively.

Claims and insurance accruals are discussed further in Note 1 of the Notes to the Financial Statements included in Item 8 of this report.

Property and Equipment

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The use of different assumptions, estimates or significant changes in the resale market for our equipment could result in material changes in the carrying value and related depreciation of our assets.

Depreciation expense in 2021 totaled $259.9 million.

A hypothetical change of 1% in the estimated useful lives of all depreciable assets would not have a material impact on our financial results.

Most of our expenses are affected by inflation, which typically results in increased operating costs.

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Family Relationships

Each of Earl E.

Congdon, David S.

Congdon and John R.

are related to one another and served in various management positions and/or on our Board of Directors during 2020.

Congdon, Jr., a member of our Board of Directors, is the cousin of David S.

Congdon, Executive Chairman of our Board of Directors.

Our employment agreement with David S.

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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 7. Management’s Discussion and Analysis