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 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 can also be influenced by shifts between LTL and other modes of transportation, such as truckload and intermodal, in response to capacity, service and pricing issues. Fluctuations in weight per shipment generally have an inverse effect on our revenue per hundredweight, as a decrease in weight per shipment will typically cause an increase 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, operating supplies and expenses, which include diesel fuel, 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 competitors.

We continually upgrade our technological capabilities to improve our customer service and lower our operating costs. Our technology provides our customers with visibility of their shipments throughout our network, increases the productivity of our workforce and provides key metrics that we use to monitor and enhance our processes.

Results of Operations

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

		2015			2014			2013
Revenue from operations		100.0	%		100.0	%		100.0	%
Operating expenses:
Salaries, wages and benefits		52.8			49.6			50.1
Operating supplies and expenses		11.9			15.5			16.5
General supplies and expenses		3.0			3.0			3.0
Operating taxes and licenses		3.1			3.0			3.1
Insurance and claims		1.3			1.3			1.3
Communication and utilities		0.9			0.9			1.0
Depreciation and amortization		5.6			5.3			5.4
Purchased transportation		3.9			4.6			4.5
Building and office equipment rents		0.3			0.4			0.5
Miscellaneous expenses, net		0.4			0.6			0.1
Total operating expenses		83.2			84.2			85.5
Operating income		16.8			15.8			14.5
Interest expense, net (1)		0.2			0.2			0.4
Other expense, net		0.1			0.1			—
Income before income taxes		16.5			15.5			14.1
Provision for income taxes		6.2			5.9			5.3
Net income		10.3	%		9.6	%		8.8	%

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

2015 Compared to 2014

Key financial and operating metrics for 2015 and 2014 are presented below:

		2015				2014				Change				% Change
Work days		254				254				—				—
Revenue (in thousands)		$	2,972,442			$	2,787,897			$	184,545			6.6
Operating ratio		83.2		%		84.2		%
Net income (in thousands)		$	304,690			$	267,514			$	37,176			13.9
Diluted earnings per share		$	3.57			$	3.10			$	0.47			15.2
LTL tons (in thousands)		7,938				7,391				547				7.4
LTL shipments (in thousands)		10,129				9,073				1,056				11.6
LTL weight per shipment (lbs.)		1,567				1,629				(62		)		(3.8	)
LTL revenue per hundredweight		$	18.23			$	18.33			$	(0.10	)		(0.5	)
LTL revenue per shipment		$	285.67			$	298.65			$	(12.98	)		(4.3	)
LTL revenue per intercity mile		5.11				5.38				(0.27		)		(5.0	)
LTL intercity miles (in thousands)		566,210				503,923				62,287				12.4
Average length of haul (miles)		928				928				—				—

In 2015, we produced revenue growth of 6.6%, increased net income by 13.9% and increased diluted earnings per diluted share by 15.2%. These results were achieved during a period of general softening in the domestic economic environment. We believe our revenue growth was primarily driven by an increase in tonnage attributable to winning additional market share, as our new and existing customers increasingly respond to the value of our premium service. Our tonnage growth resulted from an increase in shipments, which was partially offset by the decline in weight per shipment. We believe our long-term strategy of providing industry-leading service continues to drive our market share growth, while also allowing us to remain committed to our disciplined yield management process.

Our tonnage growth during 2015 led to increased density within our freight movement operations and service center network. The additional freight density and our focus on operational efficiency led to productivity improvements in both of our platform and P&D operations. These improvements, when combined with our disciplined yield management process, generated a 100 basis-point improvement in our operating ratio in 2015, which represents the sixth consecutive year that our operating ratio has improved at least 100 basis points. As a result, our net income and earnings per diluted share in 2015 were $304.7 million and $3.57, respectively.

Revenue

Our revenue in 2015 increased $184.5 million, or 6.6% as compared to 2014. LTL tonnage increased 7.4% primarily due to the 11.6% increase in LTL shipments, although our tonnage growth was affected by a 3.8% decrease in weight per shipment. We attribute the decline in weight per shipment in 2015 to softening economic conditions and changes in the mix of our freight.

LTL revenue per hundredweight decreased 0.5% to $18.23 in 2015, primarily due to declines in our fuel surcharges. LTL revenue per hundredweight, excluding fuel surcharges, increased 5.7% in 2015 as compared to 2014, which includes the positive effect on this metric from a decrease in weight per shipment. We believe the increase in revenue per hundredweight, excluding fuel surcharges, reflects our continued commitment to a disciplined yield management process and a relatively stable pricing environment.

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. 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 10.4% of revenue in 2015 from 15.5% in 2014, primarily due to a decrease in the average price per gallon for diesel fuel for those comparative periods. We regularly monitor the components of our pricing, including base freight rates and fuel surcharges, and our costs at the customer level. We address individual customer profitability issues 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 $188.5 million, or 13.6% in 2015 due to a $143.6 million increase in salaries and wages and a $44.9 million increase in benefit costs. The increase in salaries and wages, excluding benefits, was primarily due to an increase in the average number of full-time employees of 2,063, or 13.5%, over 2014, as well as annual wage increases provided to our employees in September of 2014 and 2015. The increase in full-time employees was necessary to provide capacity for the increase in shipments during the year. We also implemented certain operational initiatives that decreased our reliance on purchased transportation providers and increased our utilization of Company employees and equipment. The additional freight density contributed to a slight improvement in our P&D and platform shipments per hour, which improved 1.1% and 1.8%, respectively from 2014. Our aggregate productive labor costs increased to 27.9% of revenue in 2015 as compared to 25.8% in 2014, while our other salaries and wages increased to 11.9% of revenue in 2015 as compared to 11.5% in 2014.

Employee benefit costs increased $44.9 million, or 13.2% primarily due to an increase in the number of full-time employees eligible for benefits, certain enhancements to paid-time-off benefits and an increase in our workers compensation expense. These increases were partially offset by a reduction in expense for certain retirement benefit plans directly linked to the share price of our common stock. In the fourth quarter of 2015 our group health costs increased and we anticipate this trend to continue into 2016. Employee benefit costs in 2015 were 32.6% of salaries and wages as compared to 32.8% in 2014.

Operating supplies and expenses decreased $78.8 million in 2015 as compared to 2014. The cost of diesel fuel, excluding fuel taxes, represents the largest component of operating supplies and expenses, and can vary based on both average price per gallon and consumption. Our diesel fuel costs decreased primarily due to a 33.7% decrease in our average cost per gallon during 2015 as compared to the prior year. This decrease was partially offset by an increase in fuel consumption of 9.1%, primarily due to an 11.6% increase in linehaul and P&D miles driven. Our fuel consumption benefited from an overall improvement in miles per gallon, which continues to improve as we add newer, more fuel-efficient equipment to our operations. The additional fuel consumption resulted in an increase in fuel taxes, which increased our operating taxes and licenses. 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 expenses increased $18.9 million primarily due to the assets acquired through our 2015 and 2014 capital expenditures. As a percent of revenue, our depreciation and amortization expense increased to 5.6% in 2015 compared to 5.3% in 2014. While our investments in real estate, equipment and technology can increase our costs, we believe these investments are necessary to support our continued growth and strategic initiatives.

Purchased transportation expense decreased $13.0 million, or 10.1% in 2015 as compared to 2014. We primarily utilized purchased transportation services from third-party providers to support our container drayage, international freight-forwarding and truckload brokerage services. We also utilized purchased transportation to perform limited P&D services in our LTL operations. The decrease in purchased transportation was primarily due to operational improvement initiatives to reduce our use of third-party providers for the movement of our customers’ shipments.

Our effective tax rate in 2015 was 37.8% as compared to 38.1% in 2014. Our effective tax rates in 2015 and 2014 were favorably impacted by various tax credits, including credits for the use of alternative fuel in our 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.

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 reflected 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 represented 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 in 2014 was driven by a 16.9% increase in LTL tons combined with a 2.1% increase in revenue per hundredweight. Our tonnage growth was primarily the result of market share gains from new and existing customers that desire the value of superior service at a fair 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 were 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 needed to meet demand, and positioned 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 reflected our disciplined yield management process and a favorable pricing environment that 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 DOE's 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 salaries and wages and a $40.1 million increase in benefit costs. The increases in salaries and wages, excluding benefits, were 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 related 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 driven in 2014 increased 16.4% as compared to 2013, which compared 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% in 2014 as compared to 5.4% in 2013.

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 utilized purchased transportation services from third-party providers in 2014 to support our container drayage, truckload brokerage and international freight-forwarding services. To a lesser extent, we also utilized 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 exceeded 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)		2015				2014				2013
Cash and cash equivalents at beginning of year		$	34,787			$	30,174			$	12,857
Cash flows provided by (used in):
Operating activities		553,880				391,674				350,666
Investing activities		(437,617		)		(345,814		)		(284,371		)
Financing activities		(139,578		)		(41,247		)		(48,978		)
Increase (decrease) in cash and cash equivalents		(23,315		)		4,613				17,317
Cash and cash equivalents at end of year		$	11,472			$	34,787			$	30,174

The change in our cash flows provided by operating activities in 2015 from 2014 was due primarily to fluctuations within our working capital accounts, which include changes in income taxes, customer receivables and certain accrued liabilities. In addition, an increase in our net income and higher depreciation and amortization expenses in 2015 as compared to 2014, as described above in “Results of Operations,” also resulted in increased cash flows provided by operating activities.

The change in our cash flows provided by operating activities in 2014 from 2013 was due primarily to the significant improvement in our net income and higher depreciation and amortization expenses in 2014 as compared to 2013, which is more fully described above in “Results of Operations.” Other changes in our cash flows provided by operating activities are related to various fluctuations within our working capital accounts.

The changes in our cash flows used in investing activities were primarily due to increases 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 used in financing activities were primarily due to repurchases of our common stock, which is more fully described below in "Stock Repurchase Program." In addition, scheduled principal payments under our long-term debt agreements and fluctuations in our senior unsecured revolving line of credit also impacted our cash flows used in financing activities in each of the years compared.

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, 2015, 2014 and 2013:

		Year Ended December 31,
(In thousands)		2015				2014				2013
Land and structures		$	153,460			$	117,487			$	126,424
Tractors		128,911				91,750				59,317
Trailers		114,209				80,853				70,042
Technology		32,044				38,264				15,032
Other equipment and assets		36,987				39,326				31,391
Less: Proceeds from sales		(24,442		)		(21,866		)		(11,235		)
Total		$	441,169			$	345,814			$	290,971

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 and shipment growth. Expenditures for land and structures can be dependent upon the availability of land in the areas we are looking to expand. Our capital expenditures for tractors and trailers were higher in each of 2015 and 2014 as compared to the previous year due to the volume of equipment scheduled for replacement in those years as well as the

equipment needs for anticipated growth. 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 $440 million for the year ending December 31, 2016. Approximately $180 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 $220 million is allocated for the purchase of tractors and trailers; and approximately $40 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.

Stock Repurchase Program

On November 10, 2014, we announced that our Board of Directors had 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. During the twelve months ended December 31, 2015, we repurchased 1,682,419 shares for $114.1 million. During the twelve months ended December 31, 2014, we repurchased 70,620 shares for $5.5 million. As of December 31, 2015, we had repurchased a total of 1,753,039 shares for $119.6 million, and $80.4 million remained authorized under the program.

Financing Agreements

On December 15, 2015, we entered into an amended and restated credit agreement with Wells Fargo Bank, National Association ("Wells Fargo") serving as administrative agent for the lenders (the "2015 Credit Agreement"). The 2015 Credit Agreement provides for a five-year, $250.0 million senior unsecured revolving line of credit. We may also request an increase in the line of credit commitments up to an aggregate of $350.0 million, which may include Term Loan Commitments, in minimum increments of $25.0 million. Of the $250.0 million line of credit commitments, up to $100.0 million may be used for letters of credit and $30.0 million may be used for borrowings under the Wells Fargo Sweep Plus Loan Program (the "Sweep Program"). We utilize the Sweep Program to manage our daily cash needs, as it automatically initiates borrowings to cover overnight cash requirements primarily for working capital needs.

The amounts outstanding and remaining borrowing capacity under our revolving credit facilities are presented below:

		December 31,
(In thousands)		2015				2014
Facility limit		$	250,000			$	200,000
Line of credit borrowings		(12,317		)		—
Outstanding letters of credit		(67,719		)		(63,192		)
Available borrowing capacity		$	169,964			$	136,808

At our option, borrowings under the 2015 Credit Agreement bear interest at either: (i) LIBOR plus an applicable margin (based on our ratio of debt-to-total capitalization) that ranges from 1.0% to 1.50%; or (ii) a Base Rate plus an applicable margin (based on our ratio of debt-to-total capitalization) that ranges from 0.0% to 0.5%. Loans under the Sweep Program bear interest at the LIBOR plus applicable margin rate. Letter of credit fees equal to the applicable margin for LIBOR and Base Rate loans are charged quarterly in arrears on the daily average aggregate stated amount of all letters of credit outstanding during the quarter. Commitment fees ranging from 0.125% to 0.2% (based upon the ratio of debt-to-total capitalization) are charged quarterly in arrears on the aggregate unutilized portion of the 2015 Credit Agreement. Wells Fargo, as administrative agent, also receives an annual fee for providing administrative services.

For the periods covered under the 2015 Credit Agreement, the applicable margin and letter of credit fees were 1.0% and commitment fees were 0.125%.

The 2015 Credit Agreement superseded and replaced our previous five-year, $200.0 million senior unsecured revolving credit facility dated August 10, 2011, as amended on November 7, 2014 (the "2011 Credit Agreement"). For periods in 2015 and 2014 under the 2011 Credit Agreement, the applicable margin and letter of credit fees were 1.0%, and commitment fees were 0.175%.

The 2015 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 material domestic subsidiaries of Old Dominion would be required to guarantee payment of all of our obligations under the 2015 Credit Agreement.

The 2015 Credit Agreement also includes a provision limiting our ability to make restricted payments, including dividends and payments for share repurchases, unless, among other conditions, no defaults or events of default under the 2015 Credit Agreement are ongoing (or would be caused by such restricted payment). We did not declare or pay a cash dividend on our common stock in 2015 or 2014, and we have no plans to declare or pay a cash dividend in 2016. Our share repurchases are described above in “Stock Repurchase Program.”

We had two outstanding unsecured senior note agreements with an aggregate amount outstanding of $120.0 million at December 31, 2015. At December 31, 2014, we had three outstanding unsecured senior note agreements with an aggregate amount outstanding of $155.7 million. These notes include scheduled principal payments with maturities that range from 2016 to 2021, of which $25.0 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 4.68% and 4.87% at December 31, 2015 and 2014, respectively.

With the exception of borrowings pursuant to the 2015 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 revolving credit facility. We do not currently use interest rate derivative instruments to manage exposure to interest rate changes.

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, 2015, 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 2015 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, 2015:

		Payments due by period
Contractual Obligations (1)						Less than												More than
(In thousands)		Total				1 year				1-3 years				3-5 years				5 years
Senior Notes		$	137,587			$	29,887			$	57,311			$	4,311			$	46,078
Revolving credit facility		12,317				—				—				12,317				—
Capital lease obligations		1,492				1,492				—				—				—
Operating lease obligations		65,906				13,761				17,176				8,101				26,868
Purchase obligations		57,812				57,812				—				—				—
Total		$	275,114			$	102,952			$	74,487			$	24,729			$	72,946

(1)

Contractual obligations include principal and interest on our senior notes; borrowings under our 2015 Credit Agreement; capital lease obligations for computer equipment; operating leases consisting primarily of real estate leases; and purchase obligations relating to non-cancellable purchase orders for equipment scheduled for delivery in 2016. 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 of the Notes 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. When indicators of impairment exist, 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 2015. Our employment agreements with Earl E. Congdon and David S. Congdon 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 Directors of Leasing. Earl E. Congdon and David S. Congdon currently serve as members of Leasing’s Board of Directors. We have historically collaborated with Leasing for the purchase of certain equipment and fuel. Our collaboration with Leasing for the purchase of fuel ended in the fourth quarter of 2015. We do not believe that the termination of this arrangement, or any other arrangement with Leasing, will have a material adverse impact on our financial results.

We purchased $313,000, $298,000 and $299,000 of maintenance and other services from Leasing in 2015, 2014 and 2013, 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 received $12,000, $17,500 and $18,000 from Leasing for the rental of property in 2015, 2014 and 2013, respectively.

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.