Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a leading, less-than-truckload (“LTL”), union-free motor carrier providing regional, inter-regional and national LTL services, which include ground and air expedited transportation and consumer household pickup and delivery through a single integrated organization. In addition to our core LTL services, we offer a broad range of value-added services including international freight forwarding, container drayage, truckload brokerage, supply chain consulting and warehousing. More than 95% of our revenue has historically been derived from transporting LTL shipments for our customers, whose demand for our services is generally tied to industrial production and the overall health of the U.S. domestic economy.

In analyzing the components of our revenue, we monitor changes and trends in our LTL services using the following key metrics, which exclude certain transportation and logistics services where pricing is generally not determined by weight, commodity or distance:

•

LTL Revenue Per Hundredweight – This measurement reflects the application of our pricing policies to the services we provide, which are influenced by competitive market conditions and our growth objectives. Generally, freight is rated by a class system, which is established by the National Motor Freight Traffic Association, Inc. Light, bulky freight typically has a higher class and is priced at higher revenue per hundredweight than dense, heavy freight. Fuel surcharges, accessorial charges, revenue adjustments and revenue for undelivered freight are included in this measurement. Revenue for undelivered freight is deferred for financial statement purposes in accordance with our revenue recognition policy; however, we believe including it in our revenue per hundredweight metrics results in a better indicator of changes in our yields by matching total billed revenue with the corresponding weight of those shipments.

Revenue per hundredweight is a commonly-used indicator of pricing trends, but this metric can be influenced by other factors, such as changes in fuel surcharges, weight per shipment, length of haul and the class, or mix, of our freight. As a result, changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates.

•

LTL Weight Per Shipment – Fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers, as well as changes in the number of units included in a shipment. Generally, increases in weight per shipment indicate higher demand for our customers' products and overall increased economic activity. Changes in weight per shipment generally have an inverse effect on our revenue per hundredweight, as an increase in weight per shipment will typically cause a decrease in revenue per hundredweight.

•

Average Length of Haul – We consider lengths of haul less than 500 miles to be regional traffic, lengths of haul between 500 miles and 1,000 miles to be inter-regional traffic, and lengths of haul in excess of 1,000 miles to be national traffic. This metric is used to analyze our tonnage and pricing trends for shipments with similar characteristics, and also allows for comparison with other transportation providers serving specific markets. By analyzing this metric, we can determine the success and growth potential of our service products in these markets. Changes in length of haul generally have a direct effect on our revenue per hundredweight, as an increase in length of haul will typically cause an increase in revenue per hundredweight.

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, 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 on the shipments we handle. We manage our yields by focusing on individual account profitability. We believe yield management and improvements in efficiency are key components in our ability to produce profitable growth.

Our primary cost elements are direct wages and benefits associated with the movement of freight, fuel and other operating supplies and expenses, and depreciation of our equipment fleet and service center facilities. We gauge our overall success in managing costs by monitoring our operating ratio, a measure of profitability calculated by dividing total operating expenses by revenue, which also allows for industry-wide comparisons with our competition.

Results of Operations

The following table sets forth, for the years indicated, expenses and other items as a percentage of revenue from operations:

		2014			2013			2012
Revenue from operations		100.0	%		100.0	%		100.0	%
Operating expenses:
Salaries, wages and benefits		49.6			50.1			50.0
Operating supplies and expenses		15.5			16.5			17.7
General supplies and expenses		3.0			3.0			2.8
Operating taxes and licenses		3.0			3.1			3.2
Insurance and claims		1.3			1.3			1.4
Communication and utilities		0.9			1.0			0.9
Depreciation and amortization		5.3			5.4			5.2
Purchased transportation		4.6			4.5			4.4
Building and office equipment rents		0.4			0.5			0.6
Miscellaneous expenses, net		0.6			0.1			0.4
Total operating expenses		84.2			85.5			86.6
Operating income		15.8			14.5			13.4
Interest expense, net (1)		0.2			0.4			0.6
Other expense, net		0.1			—			—
Income before income taxes		15.5			14.1			12.8
Provision for income taxes		5.9			5.3			4.9
Net income		9.6	%		8.8	%		7.9	%

(1)	For the purpose of this table, interest expense is presented net of interest income.

2014 Compared to 2013

Key financial and operating metrics for 2014 and 2013 are presented below:

		2014				2013				Change				% Change
Work days		254				254				—				—
Revenue (in thousands)		$	2,787,897			$	2,337,648			$	450,249			19.3
Operating ratio		84.2		%		85.5		%
Net income (in thousands)		$	267,514			$	206,113			$	61,401			29.8
Diluted earnings per share		$	3.10			$	2.39			$	0.71			29.7
LTL tons (in thousands)		7,391				6,325				1,066				16.9
LTL shipments (in thousands)		9,073				7,942				1,131				14.2
LTL weight per shipment (lbs.)		1,629				1,593				36				2.3
LTL revenue per hundredweight		$	18.33			$	17.95			$	0.38			2.1
LTL revenue per shipment		$	298.65			$	285.85			$	12.80			4.5
LTL revenue per intercity mile		5.38				5.28				0.10				1.9
LTL intercity miles (in thousands)		503,923				429,709				74,214				17.3
Average length of haul (miles)		928				936				(8		)		(0.9	)

Our 2014 financial results reflect strong increases in revenue, net income and earnings per diluted share. Our revenue increased 19.3% to $2.79 billion and our operating ratio improved by 130 basis points to 84.2%, which represents the fifth consecutive year that our operating ratio has improved by more than 100 basis points. As a result, our net income increased 29.8% from the prior-year period to $267.5 million in 2014.

Our revenue growth was driven by a 16.9% increase in LTL tons combined with a 2.1% increase in revenue per hundredweight. Our tonnage growth is primarily the result of market share gains from new and existing customers that desire the value of superior service at a fair and equitable price. This growth increased density throughout our operations, which contributed to our improved profitability for the year. Our growth has required continuous and significant investments in our service center network, equipment, technology and employees. As a result, our capital expenditures were $367.7 million in 2014 and we expect our capital expenditures to be even higher in 2015. In addition, we added 2,370 full-time employees in 2014, which included an increase in our total number of drivers of 1,253, or 16.8%. We believe these investments provided the additional capacity to meet existing demand, and positions us well for anticipated future growth.

Revenue

Our revenue increased $450.2 million, or 19.3% during 2014, which was a result of increases in both LTL tonnage and yield. LTL tonnage increased 16.9% primarily due to the 14.2% increase in LTL shipments and a 2.3% increase in weight per shipment. We believe that our tonnage growth in 2014 was primarily due to further market share gains from our existing customers, the addition of new customers and the general improvement in the domestic economy.

LTL revenue per hundredweight increased 2.1% to $18.33 in 2014, despite declines in fuel surcharge rates, the decrease in length of haul and the increase in weight per shipment, each of which generally has the effect of lowering this metric. LTL revenue per hundredweight, excluding fuel surcharges, increased 2.8% in 2014 as compared to 2013. We believe the increase in revenue per hundredweight reflects our disciplined yield management process and, a favorable pricing environment that has resulted from general capacity constraints in the LTL industry.

Our fuel surcharges are designed to offset fluctuations in the cost of petroleum-based products and are one of the many components included in the overall negotiated price we charge for our services. Fuel surcharge revenue decreased to 15.5% of revenue in 2014 from 16.1% in 2013, primarily due to a decrease in the average price per gallon for diesel fuel for those comparative periods. Most of our tariffs and contracts provide for a fuel surcharge that is generally indexed to the U. S. Department of Energy's ("DOE") published diesel fuel prices that reset each week. Fluctuations in fuel surcharges between the periods are primarily the result of changes in the underlying price of diesel fuel. We regularly monitor the components of our pricing, including base freight rates and fuel surcharges. We also address any individual account profitability issues with our customers as part of our effort to minimize the negative impact on our profitability that would likely result from a rapid and significant change in any of our operating expenses.

Operating Costs and Other Expenses

Salaries, wages and benefits increased $210.5 million, or 18.0% in 2014 due to a $170.4 million increase in the costs for salaries and wages and a $40.1 million increase in benefit costs. The increases in salaries and wages, excluding benefits, are primarily due to the 13.5% increase in the average number of full-time employees over 2013 and the annual wage increases in 2013 and 2014. The increase in employees primarily relates to our productive labor workforce, which was necessary to keep pace with our increased volumes during the year. In addition to the increase in employees, our costs were also impacted by a productivity decline in our platform operations that increased these costs as a percent of revenue. Our aggregate productive labor costs increased to 25.8% of revenue in 2014 as compared to 25.5% in 2013 while our other salaries and wages improved to 11.5% of revenue in 2014 as compared to 11.7% in 2013.

Employee benefit costs increased $40.1 million primarily due to the increase in the number of full-time employees eligible for benefits, which led to higher payroll-related taxes and paid time off benefits. Our employee benefit costs also increased for certain retirement benefit plans directly linked to the improvement in our net income and the share price of our common stock. The cost for our health and dental benefit plans increased over 2013, primarily due to an increase in the total number of eligible employees in the plans. This increase was partially offset by a reduction in the average cost per employee for these benefits in 2014 as compared to 2013. As a result, health and dental benefit expenses decreased as a percent of salaries and wages, which contributed to the overall improvement in total employee benefit costs as a percent of salaries and wages to 32.8% for 2014 from 34.6% for 2013.

Operating supplies and expenses increased $47.5 million in 2014 as compared to 2013, although these costs as a percent of revenue improved to 15.5% of revenue in 2014 from 16.5% in 2013. The cost of diesel fuel, excluding fuel taxes, represents the largest component of operating supplies and expenses, and can vary based on both consumption and average price per gallon. Our total miles in 2014 increased 16.4% as compared to 2013, which compares favorably to our diesel fuel consumption, which increased only 13.0% during the same period. Our consumption trends continued to improve due to certain operational initiatives to increase our average miles per gallon and the increased use of new fuel-efficient equipment. Our cost of diesel fuel, excluding fuel taxes, also benefited from a decrease in our average cost per gallon of 4.3% for 2014 from 2013. We do not use diesel fuel hedging instruments and are therefore subject to market price fluctuations. Other operating supplies and expenses, excluding diesel fuel, remained relatively consistent as a percent of revenue between the periods compared.

Depreciation and amortization expense increased $19.4 million primarily due to the increase in depreciable assets acquired through our 2014 and 2013 capital expenditure plans. As a percent of revenue, our depreciation and amortization expense decreased to 5.3% of revenue in 2014 as compared to 5.4% in 2013. Our capital expenditure plan for 2015 is projected to be higher than 2014, which we expect will result in increased depreciation costs in future periods. While our investments increase costs in the short term, we believe these investments are necessary to support our current demand and long-term growth initiatives.

Purchased transportation expense increased $22.9 million, or 21.5%, in 2014 as compared to 2013. These costs, however, were relatively consistent as a percent of revenue between the periods compared. We primarily utilize purchased transportation services from third-party providers to support our container drayage, truckload brokerage and international freight-forwarding services. To a lesser extent, we also utilize purchased transportation in our LTL operations to maximize the efficient movement of freight.

Miscellaneous expenses, net, increased $15.6 million in 2014 due to changes in our gains and losses recognized on the sale of operating assets, increased consulting costs associated with our ongoing technology enhancement efforts and increased legal costs. Net gains on the sales of operating assets in 2014 were $0.7 million as compared to net gains of $5.7 million in 2013.

Our effective tax rate for 2014 was 38.1% as compared to 37.3% in 2013. Our effective tax rates in 2014 and 2013 were favorably impacted by various tax credits, including credits for the use of alternative fuel in operations. Our effective tax rate generally exceeds the federal statutory rate of 35% due to the impact of state taxes, and to a lesser extent, certain other non-deductible items.

2013 Compared to 2012

Key financial and operating metrics for 2013 and 2012 are presented below:

		2013				2012				Change				% Change
Work days		254				254				—				—
Revenue (in thousands)		$	2,337,648			$	2,134,579			$	203,069			9.5
Operating ratio		85.5		%		86.6		%
Net income (in thousands)		$	206,113			$	169,452			$	36,661			21.6
Diluted earnings per share		$	2.39			$	1.97			$	0.42			21.3
LTL tons (in thousands)		6,325				5,991				334				5.6
LTL shipments (in thousands)		7,942				7,449				493				6.6
LTL weight per shipment (lbs.)		1,593				1,609				(16		)		(1.0	)
LTL revenue per hundredweight		$	17.95			$	17.30			$	0.65			3.8
LTL revenue per shipment		$	285.85			$	278.36			$	7.49			2.7
LTL revenue per intercity mile		$	5.28			$	5.12			$	0.16			3.1
LTL intercity miles (in thousands)		429,709				404,863				24,846				6.1
Average length of haul (miles)		936				941				(5		)		(0.5	)

Our financial results for 2013 reflected the continued execution and success of our long-term strategies. We increased our revenue 9.5% in 2013 primarily through increased market share, as we continued to win share by providing a value proposition consisting of superior service at a fair and equitable price. With a focus on yield management and operating efficiencies, we were able to improve our margins, which increased earnings per diluted share 21.3%. As a result, our operating ratio improved 110 basis points to 85.5% in 2013.

Revenue

Our revenue increased $203.1 million, or 9.5% during 2013, which was primarily a result of increases in both LTL tonnage and price. As compared to 2012, tonnage increased 5.6% primarily due to a 6.6% increase in shipments, partially offset by a 1.0% decrease in LTL weight per shipment. Our tonnage growth in 2013 was primarily due to increased market share, as our growth exceeded both the growth rate of the U.S. economy as well as the growth rate for the LTL industry.

LTL revenue per hundredweight increased 3.8% to $17.95 in 2013, which reflected our disciplined yield management process and a stable pricing environment. We believe that revenue per hundredweight is a good indicator of pricing trends; however, we manage our yield by focusing on individual customer profitability due to the influence of various factors on revenue per hundredweight, such as changes in fuel surcharges, weight per shipment, length of haul and mix of freight. The impact of these factors can result in changes to revenue per hundredweight that do not necessarily indicate actual changes in underlying rates.

Our fuel surcharges are designed to offset fluctuations in the cost of petroleum-based products and are one of the many components included in the overall negotiated price we charge for our services. Fuel surcharge revenue decreased to 16.1% of revenue in 2013 from 16.5% in 2012, primarily due to a slight decrease in the average price per gallon for diesel fuel. Most of our tariffs and contracts provide for a fuel surcharge, which is recorded as additional revenue, as diesel fuel prices increase above stated levels. These levels are generally indexed to the DOE’s published fuel prices that reset each week. We regularly monitor the components of our pricing, including base freight rates and fuel surcharges. We also address any individual account profitability issues with our customers as part of our effort to minimize the negative impact on our profitability that would likely result from a rapid and significant change in any of our operating expenses.

Operating Costs and Other Expenses

Salaries, wages and benefits increased $104.2 million, or 9.8% in 2013 due to a $72.2 million increase in the costs for salaries and wages and a $32.0 million increase in benefit costs. Of the total increase in salaries and wages, our direct labor costs for drivers, platform employees and fleet technicians increased $56.8 million, or 10.0% in 2013 as compared to 2012. The increase in the costs for our salaries and wages, excluding benefits, was due primarily to a 7.5% increase in average full-time employees over 2012 and the impact of wage increases provided to employees in September 2012 and 2013. We primarily increased our headcount in 2013 due to our increased volume of shipments as well as to ensure sufficient labor capacity for future revenue growth. We also hired additional drivers in the second half of 2013 to address inefficiencies that resulted from

changes to the FMCSA’s hours-of-service regulations. Although our salaries and wages, excluding benefits, increased during 2013, these costs decreased as a percent of revenue to 37.2% from 37.4% in 2012 as a result of increased efficiencies within our operations. Our platform pounds handled per hour, P&D stops per hour and P&D shipments per hour improved 1.0%, 0.7% and 0.5%, respectively, over the prior-year period.

Employee benefit costs increased $32.0 million as a result of the increase in the number of full-time employees eligible for benefits; however, we also experienced a significant increase in the costs per employee for our group health and dental plans during 2013. Our group health and dental costs increased $14.5 million, or 14.7% in 2013 as compared to 2012, with the majority of the increase occurring in the second half of the year. We experienced significant increases in both the number of claims and the average severity per claim during 2013. We believe there will be additional costs associated with the ongoing implementation of the 2010 Patient Protection and Affordable Care Act, and consequently, we believe our group health and dental costs may continue to increase in future periods. Our employee benefit costs also increased for certain retirement benefit plans directly linked to the improvement in our net income and the share price of our common stock. Employee benefit costs as a percent of salaries and wages increased to 34.6% for 2013 from 33.7% for 2012.

Operating supplies and expenses increased $6.7 million in 2013 as compared to 2012. These costs as a percent of revenue improved to 16.5% of revenue in 2013 from 17.7% in 2012. This improvement was primarily due to a 100 basis point decrease as a percent of revenue for our cost of diesel fuel, excluding fuel taxes, which is the largest component of operating supplies and expenses, and can vary based on both consumption and average price per gallon. Much of this improvement was due to our diesel fuel consumption increasing only 3.5% as compared to the 6.3% increase in our intercity miles in 2013. Our consumption trends have improved due to a focus on improving our average miles per gallon, which has benefited from certain operational initiatives and the increased use of new fuel-efficient equipment. The average price per gallon of diesel fuel also decreased 2.3% as compared to 2012. We do not use diesel fuel hedging instruments and are therefore subject to market price fluctuations.

General supplies and expenses increased $10.9 million in 2013 primarily due to an overall increase in our marketing activities, which include costs to support our brand and services. Our other general supplies and expenses remained relatively consistent as a percent of revenue.

Depreciation and amortization expense increased to 5.4% of revenue in 2013 as compared to 5.2% in 2012. This increase was primarily due to additional depreciation recorded on the tractors and trailers purchased as part of our 2012 and 2013 capital expenditure plans. Our capital expenditure plan for 2014 was higher than 2013, and we expect depreciation costs to increase in future periods as a result. While our investments can increase costs in the short term, we believe these investments are necessary to support our long-term growth initiatives.

Purchased transportation expense increased $11.9 million in 2013 as compared to 2012. Our purchased transportation expense is primarily related to our use of third-party transportation providers to support our container drayage, truckload brokerage and international freight forwarding operations. Growth in these services has resulted in the increase in our purchased transportation costs for 2013. To a lesser extent, we utilized purchased transportation in our LTL operations, consisting primarily of rail and truckload providers, to maximize the efficient movement of freight between our service centers.

Miscellaneous expenses, net, was impacted primarily by an increase of $5.7 million in gains recognized on the sale of operating assets. Our other miscellaneous expenses remained relatively consistent as a percent of revenue.

Our effective tax rate for 2013 was 37.3% as compared to 38.0% in 2012. Our effective tax rate in 2013 was favorably impacted by various tax credits, including credits for the use of alternative fuel in operations provided by the American Taxpayer Relief Act of 2012. These alternative fuel tax credits expired on December 31, 2013. Our effective tax rate generally exceeds the federal statutory rate of 35% due to the impact of state taxes, and to a lesser extent, certain other non-deductible items.

Liquidity and Capital Resources

A summary of our cash flows is presented below:

(In thousands)		2014				2013				2012
Cash and cash equivalents at beginning of year		$	30,174			$	12,857			$	75,850
Cash flows provided by (used in):
Operating activities		391,674				350,666				328,056
Investing activities		(345,814		)		(284,371		)		(361,175		)
Financing activities		(41,247		)		(48,978		)		(29,874		)
Increase (decrease) in cash and cash equivalents		4,613				17,317				(62,993		)
Cash and cash equivalents at end of year		$	34,787			$	30,174			$	12,857

The changes in our cash flows provided by operating activities for the periods presented above are due primarily to the significant improvement in our net income, which increased $61.4 million in 2014 and $36.7 million in 2013 over the comparable prior-year periods. These increases are more fully described above in “Results of Operations.” Depreciation and amortization expenses also increased $19.4 million in 2014 and $16.3 million in 2013 over the comparable prior-year periods, which was primarily due to the ongoing execution of our capital expenditure plan that is more fully described below. Other changes in our cash flows provided by operating activities are related to various fluctuations within our working capital accounts, which primarily include changes in customer receivables, income taxes and certain accrued liabilities.

The changes in our cash flows used in investing activities are primarily due to fluctuations in our capital expenditure plan each year. The changes in our capital expenditure plan are more fully described below in “Capital Expenditures.”

The changes in our cash flows from financing activities consists primarily of scheduled principal payments under our long-term debt agreements and fluctuations in our senior unsecured revolving line of credit. In addition, changes in cash flows from financing activities also includes the effect of repurchases of our common stock, which is more fully described below in "Stock Repurchase Program."

We have three primary sources of available liquidity: cash and cash equivalents, cash flows from operations and available borrowings under our senior unsecured revolving credit agreement, which is described below. We believe we also have sufficient access to debt and equity markets to provide other sources of liquidity.

Capital Expenditures

The table below sets forth our net capital expenditures for property and equipment, including those obtained through capital leases and nonmonetary exchanges, for the years ended December 31, 2014, 2013 and 2012:

		Year Ended December 31,
(In thousands)		2014				2013				2012
Land and structures		$	117,487			$	126,424			$	143,701
Tractors		91,750				59,317				113,257
Trailers		80,853				70,042				83,405
Technology		38,264				15,032				13,950
Other		39,326				31,391				19,974
Less: Proceeds from sales		(21,866		)		(11,235		)		(12,018		)
Total		$	345,814			$	290,971			$	362,269

Our capital expenditure requirements are generally 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 growth. Expenditures for land and structures is dependent upon the availability of land in the areas we are looking to expand. Our capital expenditures for tractors and trailers were higher in 2014 and 2012 due to the volume of equipment scheduled for replacement in those years as well as the equipment needs for anticipated growth in tonnage. We expect to continue to maintain a high level of capital expenditures in order to support our long-term plan for market share growth.

We currently estimate capital expenditures will be approximately $463.3 million for the year ending December 31, 2015. Approximately $164.7 million is allocated for the purchase of service center facilities, construction of new service center facilities or expansion of existing service center facilities, subject to the availability of suitable real estate and the timing of construction projects; approximately $271.8 million is allocated for the purchase of tractors, trailers and other equipment; and approximately $26.8 million is allocated for investments in technology and other assets. We expect to fund these capital expenditures primarily through cash flows from operations, our existing cash and cash equivalents and the use of our senior unsecured revolving credit facility. We believe our current sources of liquidity will be sufficient to satisfy our expected capital expenditures.

We anticipate that there will be additional environmental regulations and legislation resulting from the increased regulatory focus on climate change and greenhouse gas emissions in the United States. At this time, we cannot predict the requirements of any future regulations. However, any limitations on the emission of greenhouse gases or other environmental legislation could increase our future capital expenditures and have an adverse impact on our financial condition, results of operations and liquidity.

Stock Repurchase Program

On November 10, 2014, we announced that our Board of Directors approved a stock repurchase program authorizing us to repurchase up to an aggregate of $200.0 million of our outstanding common stock. We may repurchase shares from time-to-time in open market purchases or through privately negotiated transactions. The program expires on November 6, 2016. Shares of our common stock repurchased by us under the repurchase program are canceled at the time of repurchase and are authorized but unissued shares of our common stock. As of December 31, 2014, we had repurchased 70,620 shares for approximately $5.5 million and had approximately $194.5 million still authorized under the program.

Financing Agreements

We have a five-year, $200.0 million senior unsecured revolving credit facility pursuant to the terms of a second amended and restated credit agreement dated August 10, 2011, as amended on November 7, 2014 (the “Credit Agreement”), with Wells Fargo Bank, National Association (“Wells Fargo”) serving as administrative agent for the lenders. Of the $200.0 million line of credit commitments, $150.0 million may be used for letters of credit and $20.0 million may be used for borrowings under the Wells Fargo Sweep Plus Loan Program. We utilize the sweep program to manage our daily cash needs, as the sweep program automatically initiates borrowings to cover overnight cash requirements up to an aggregate of $20.0 million. In addition, we have the right to request an increase in the line of credit commitments up to a total of $300.0 million in minimum increments of $25.0 million.

At our option, revolving loans under the facility bear interest at either: (a) the Applicable Margin Percentage for Base Rate Loans plus the higher of Wells Fargo’s prime rate, the federal funds rate plus 0.5% per annum, or the one month LIBOR Rate plus 1.0% per annum; (b) the LIBOR Rate plus the Applicable Margin Percentage for LIBOR Loans; or (c) the LIBOR Market Index Rate (“LIBOR Index Rate”) plus the Applicable Margin Percentage for LIBOR Market Index Loans. The Applicable Margin Percentage is determined by a pricing grid in the Credit Agreement and ranges from 1.0% to 1.875% based upon the ratio of debt to total capitalization. The Applicable Margin Percentage remained at 1.0% during 2014 and ranged from 1.0% to 1.125% during 2013. Revolving loans under the sweep program bear interest at the LIBOR Index Rate.

The Credit Agreement contains customary covenants, including financial covenants that require us to observe a maximum ratio of debt to total capital and a minimum fixed charge coverage ratio. Any future wholly-owned subsidiaries of Old Dominion would be required to guarantee payment of all of our obligations under the facility. The amounts outstanding and remaining borrowing capacity under our revolving credit facilities are presented below:

		December 31,
(In thousands)		2014				2013
Facility limit		$	200,000			$	200,000
Line of credit borrowings		—				—
Outstanding letters of credit		(63,192		)		(57,686		)
Available borrowing capacity		$	136,808			$	142,314

Commitment fees ranging from 0.175% to 0.30% are charged quarterly in arrears on the aggregate unutilized portion of the Credit Agreement based upon the ratio of debt to total capitalization. Letter of credit fees equal to the applicable margin for Adjusted LIBOR Rate loans are charged quarterly in arrears on the daily average aggregate stated amount of all letters of credit

outstanding during the quarter. The commitment fees were 0.175% during 2014 and ranged from 0.175% to 0.2% during 2013. Letter of credit fees were 1.0% during 2014 and ranged from 1.0% to 1.125% during 2013. In addition, the Company will pay to Wells Fargo as issuer of letters of credit (i) a facing fee with respect to each letter of credit in an amount equal to 0.125% of the daily average aggregate Stated Amount thereof, payable quarterly in arrears and calculated on an actual/360-day basis and (ii) such fees and charges customarily charged in connection with the issuance and administration of such letters of credit. Wells Fargo, as administrative agent, also receives an annual administrative fee for providing such services.

We have three outstanding unsecured senior note agreements with an aggregate amount outstanding of $155.7 million at December 31, 2014. These notes call for periodic principal payments with maturities that range from 2015 to 2021, of which $35.7 million is due in the next twelve months. Interest rates on these notes are fixed and range from 4.00% to 5.85%. The effective average interest rate on our outstanding senior note agreements was 4.87% and 4.99% at December 31, 2014 and 2013, respectively.

With the exception of borrowings pursuant to the Credit Agreement, interest rates are fixed on all of our debt instruments. Therefore, short-term exposure to fluctuations in interest rates is limited to our line of credit facility. We do not currently use interest rate derivative instruments to manage exposure to interest rate changes.

Our Credit Agreement limits the amount of restricted payments, including dividends and/or share repurchases, to (i) $40.0 million during the same fiscal quarter or (ii) $200.0 million in the aggregate after November 7, 2014. We did not declare or pay a dividend on our common stock in 2014 or 2013, and we have no plans to declare or pay a dividend in 2015. During the fourth quarter of 2014 we repurchased $5.5 million of our common stock, which represents the full amount repurchased under the program in 2014. Our share repurchases are more fully described above in “Stock Repurchase Program.”

A significant decrease in demand for our services could limit our ability to generate cash flow and affect profitability. Most of our debt agreements have covenants that require stated levels of financial performance, which if not achieved could cause acceleration of the payment schedules. As of December 31, 2014, we were in compliance with these covenants. We do not anticipate a significant decline in business levels or financial performance that would cause us to violate any such covenants in the future, and we believe the combination of our existing Credit Agreement along with our additional borrowing capacity will be sufficient to meet foreseeable seasonal and long-term capital needs.

Contractual Obligations

The following table summarizes our significant contractual obligations as of December 31, 2014:

		Payments due by period
Contractual Obligations (1)						Less than												More than
(In thousands)		Total				1 year				1-3 years				3-5 years				5 years
Long-term debt obligations, exclusive of interest		$	155,714			$	35,714			$	25,000			$	50,000			$	45,000
Operating lease obligations		50,782				13,956				17,960				8,195				10,671
Purchase obligations		57,791				57,791				—				—				—
Total		$	264,287			$	107,461			$	42,960			$	58,195			$	55,671

(1)

Contractual obligations include long-term debt consisting of senior notes totaling $155.7 million; operating leases consisting primarily of real estate leases; and purchase obligations relating to non-cancellable purchase orders for equipment scheduled for delivery in 2015. Please refer to the information regarding interest rates and the balance on our revolving credit facility in this section above and also in Note 2 to the Financial Statements included in Item 8 of this report.

Critical Accounting Policies

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.

Revenue Recognition

We recognize revenue based upon when our transportation services have been completed in accordance with the bill of lading contract, our general tariff provisions or contractual agreements with our customers. Generally, this occurs when we complete the delivery of a shipment. For transportation services not completed at the end of a reporting period, we use a percentage of completion method to allocate the appropriate revenue to each separate reporting period. Under this method, we develop a factor for each uncompleted shipment by dividing the actual number of days in transit at the end of a reporting period by that shipment’s standard delivery time schedule. This factor is applied to the total revenue for that shipment and revenue is allocated between reporting periods accordingly.

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. 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.

Claims and Insurance Accruals

Claims and insurance accruals reflect the estimated cost of claims not covered by insurance for cargo loss and 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.

Insurers providing excess coverage above a company's self-insured retention ("SIR") or deductible levels typically adjust their premiums to cover insured losses and for other market factors. As a result, we periodically evaluate our SIR 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. 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.

Property and Equipment

Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated economic lives. We use historical experience, certain assumptions and estimates in determining the economic life of each asset. Periodically, we review property and equipment for impairment due to changes in operational and market conditions, and we adjust the carrying value and economic life of any impaired asset as appropriate.

Estimated economic lives for structures are 7 to 30 years; revenue equipment is 4 to 15 years; other equipment is 2 to 20 years; and leasehold improvements are the lesser of the economic life of the leasehold improvement or the remaining life of the lease. 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.

Inflation

Most of our expenses are affected by inflation, which typically results in increased operating costs. In response to fluctuations in the cost of petroleum products, particularly diesel fuel, we generally include a fuel surcharge in our tariffs and contractual agreements. The fuel surcharge is designed to offset the cost of diesel fuel above a base price and fluctuates as diesel fuel prices change from the base, which is generally indexed to the DOE’s published fuel prices that reset each week. Volatility in the price of diesel fuel, independent of inflation, has impacted our business, as described in this report. However, we do not believe inflation has had a material effect on our results of operations for each of the past three years.

Related Party Transactions

Family Relationships

Each of Earl E. Congdon, David S. Congdon and John R. Congdon, Jr. are related to one another and served in various management positions and/or on our Board of Directors during 2014. We have employment agreements with Earl E. Congdon and David S. Congdon, which are incorporated by reference as exhibits to this report. We regularly disclose the amount of compensation that we pay to these individuals, as well as any of their family members employed by us and whose compensation from time to time may require disclosure, in the proxy statement for our Annual Meeting of Shareholders.

Transactions with Old Dominion Truck Leasing, Inc.

Old Dominion Truck Leasing, Inc. (“Leasing”) is a North Carolina corporation whose voting stock is beneficially owned by members of the Congdon family. Leasing is primarily engaged in the business of leasing tractors, trailers and other vehicles as well as providing contract dedicated fleet services. John R. Congdon, Jr. serves as Chairman of the Board of Leasing. Earl E. Congdon and David S. Congdon currently serve as members of Leasing’s Board of Directors. We collaborate with Leasing for the purchase of certain equipment, although we do not believe this has a material impact on our financial results.

We purchased $298,000, $299,000 and $239,000 of maintenance and other services from Leasing in 2014, 2013 and 2012, respectively. We intend to continue to purchase maintenance and other services from Leasing, provided that Leasing’s prices continue to be favorable to us.

We charged Leasing $17,500, $18,000 and $18,000 for the rental of property in 2014, 2013 and 2012, respectively. No other services were provided to Leasing for the years ended December 31, 2014, 2013 and 2012.

Audit Committee Approval

The Audit Committee of our Board of Directors reviewed and approved all of the related person transactions described above in accordance with our Related Person Transactions Policy.