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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations generally discusses our 2020 and 2019 results and year-to-year comparisons between 2020 and 2019. Discussions of our 2018 results and year-to-year comparisons between 2019 and 2018 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the Securities and Exchange Commission on February 26, 2020.

Overview

We are one of the largest North American less-than-truckload (“LTL”) motor carriers. We provide regional, inter-regional and national LTL services through a single integrated, union-free organization. Our service offerings, which include expedited transportation, are provided through an expansive network of service centers located throughout the continental United States. Through strategic alliances, we also provide LTL services throughout North America. In addition to our core LTL services, we offer a range of value-added services including container drayage, truckload brokerage and supply chain consulting. More than 98% 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 volumes and LTL revenue per hundredweight. While LTL revenue per hundredweight is a yield measurement, it is also a commonly-used indicator for general pricing trends in the LTL industry. This yield metric is not a true measure of price, however, as it can be influenced by many other factors, such as changes in fuel surcharges, weight per shipment and length of haul. As a result, changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates. LTL revenue per hundredweight and the key factors that can impact this metric are described in more detail below:

	•	LTL Revenue Per Hundredweight - Our LTL transportation services are generally priced based on weight, commodity, and distance. 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 more accurate representation of the underlying changes in our yields by matching total billed revenue with the corresponding weight of those shipments.

	•	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.

	•	LTL Revenue Per Shipment - This measurement is primarily determined by the three metrics listed above and is used in conjunction with the number of LTL shipments we receive to evaluate LTL revenue.

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. 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. 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.

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 competition.

We regularly 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:

		2020				2019
Revenue from operations			100.0	%			100.0	%
Operating expenses:
Salaries, wages and benefits			51.2				51.7
Operating supplies and expenses			9.3				11.5
General supplies and expenses			2.7				3.0
Operating taxes and licenses			2.9				2.8
Insurance and claims			1.1				1.3
Communication and utilities			0.8				0.7
Depreciation and amortization			6.5				6.2
Purchased transportation			2.4				2.2
Miscellaneous expenses, net			0.5				0.7
Total operating expenses			77.4				80.1
Operating income			22.6				19.9
Interest expense (income), net			0.1				(0.2	)
Other expense, net			0.1				0.0
Income before income taxes			22.4				20.1
Provision for income taxes			5.6				5.1
Net income			16.8	%			15.0	%

Key financial and operating metrics for 2020 and 2019 are presented below:

		2020				2019				Change				% Change
Work days			254				253				1.0				0.4
Revenue (in thousands)		$	4,015,129			$	4,109,111			$	(93,982	)			(2.3	)
Operating ratio			77.4	%			80.1	%
Net income (in thousands)		$	672,682			$	615,518			$	57,164				9.3
Diluted earnings per share		$	5.68			$	5.10			$	0.58				11.4
LTL tons (in thousands)			8,770				8,964				(194	)			(2.2	)
LTL shipments (in thousands)			10,869				11,491				(622	)			(5.4	)
LTL weight per shipment (lbs.)			1,614				1,560				54				3.5
LTL revenue per hundredweight		$	22.62			$	22.64			$	(0.02	)			(0.1	)
LTL revenue per shipment		$	364.94			$	353.18			$	11.76				3.3
LTL revenue per intercity mile		$	6.42			$	6.30			$	0.12				1.9
LTL intercity miles (in thousands)			617,805				644,287				(26,482	)			(4.1	)
Average length of haul (miles)			925				917				8				0.9

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

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.

January 2021 Update

Revenue per day increased 14.6% in January 2021 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 revenue per hundredweight increased 2.2% as compared to the same month last year. LTL revenue per hundredweight, excluding fuel surcharges, increased 4.1% as compared to the same month last year.

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. 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.

Our effective tax rate in 2020 was 25.4% as compared to 25.3% in 2019. Our effective tax rate generally exceeds the federal statutory rate 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)		2020				2019
Cash and cash equivalents at beginning of year		$	403,571			$	190,282
Cash flows provided by (used in):
Operating activities			933,024				983,888
Investing activities			(551,663	)			(473,639	)
Financing activities			(383,502	)			(296,960	)
(Decrease) increase in cash and cash equivalents			(2,141	)			213,289
Cash and cash equivalents at end of year		$	401,430			$	403,571

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.”

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.

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,
(In thousands)		2020				2019
Land and structures		$	181,221			$	250,387
Tractors			17,518				75,418
Trailers			2,151				88,115
Technology			11,925				30,424
Other equipment and assets			12,266				34,981
Less: Proceeds from sales			(3,690	)			(5,686	)
Total		$	221,391			$	473,639

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. 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 $605 million for the year ending December 31, 2021. Approximately $275 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 $290 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, 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.

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. 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.

Dividends to Shareholders

On February 21, 2020, we announced that our Board of Directors approved a three-for-two split of our common stock for shareholders of record as of the close of business on the record date of March 10, 2020. On March 24, 2020, those shareholders received one additional share of common stock for every two shares owned. In lieu of fractional shares, shareholders received a cash payment based on the average of the high and low sales prices of our common stock on the record date.

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 $0.60 per share for the year ended December 31, 2020 and quarterly cash dividends that totaled $0.45 per share for the year ended December 31, 2019.

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. 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. 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. 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.

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. Of the $250.0 million line of credit commitments under the Credit Agreement, up to $100.0 million may be used for letters of credit.

At our option, borrowings under the Credit Agreement bear interest at either: (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%. 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. Commitment fees ranging from 0.100% to 0.175% (based upon the ratio of net debt-to-total capitalization) are charged quarterly in arrears on the aggregate unutilized portion of the Credit Agreement.

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:

		December 31,
(In thousands)		2020				2019
Facility limit		$	250,000			$	250,000
Line of credit borrowings			—				—
Outstanding letters of credit			(42,134	)			(48,915	)
Available borrowing capacity		$	207,866			$	201,085

General Debt Provisions

The Credit Agreement and Note Agreement contain 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. The Credit Agreement and Note Agreement also include 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 are ongoing (or would be caused by such restricted payment). We were in compliance with all covenants in our outstanding debt instruments for the period ended December 31, 2020.

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

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.

Contractual Obligations

The following table summarizes our significant contractual obligations as of December 31, 2020:

		Payments due by period
Contractual Obligations (1)						Less than												More than
(In thousands)		Total				1 year				1-3 years				3-5 years				5 years
Series B Notes		$	113,454			$	3,100			$	25,791			$	43,522			$	41,041
Operating lease obligations (2)			127,836				16,017				26,699				21,330				63,790
Purchase obligations and Other			52,459				27,245				24,266				948				—
Total		$	293,749			$	46,362			$	76,756			$	65,800			$	104,831

(1)

Contractual obligations include principal and interest on our senior notes; operating leases consisting primarily of real estate and automotive leases; and purchase obligations relating to non-cancellable purchase orders for (i) equipment scheduled for delivery in 2021, and (ii) information technology agreements. 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.

(2)	Lease payments include lease extensions that are reasonably certain to be exercised.

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

Our revenue is generated from providing transportation and related services to customers in accordance with the bill of lading (“BOL”) contract, our general tariff provisions and contractual agreements. Generally, our performance obligations begin when we receive a BOL from a customer and are satisfied when we complete the delivery of a shipment and related services. We recognize revenue for our performance obligations under our customer contracts over time, as our customers receive the benefits of our services in accordance with Accounting Standards Update (“ASU”) 2014-09. With respect to 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. 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.

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.

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. 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 any 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 2020. Our employment agreement with David S. Congdon is incorporated by reference as an exhibit to this Annual Report on Form 10-K. We regularly disclose the amount of compensation that we pay to these individuals, as well as the compensation paid to any of their family members employed by us that from time to time may require disclosure, in the proxy statement for our Annual Meeting of Shareholders.

Audit Committee Approval

The Audit Committee of our Board of Directors reviews and approves all related person transactions in accordance with our Related Person Transactions Policy.