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What changed in HEARTLAND EXPRESS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HEARTLAND EXPRESS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+408 added−391 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-01)

Top changes in HEARTLAND EXPRESS INC's 2023 10-K

408 paragraphs added · 391 removed · 313 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

127 edited+47 added−48 removed108 unchanged
Biggest changeThese awards include: • FedEx Express Core Carrier of the Year (12 years in a row) • FedEx Express Platinum Service Level Award (99.98% On-Time Delivery) • Home Depot Carrier of the Year (CFI) • United Sugars Carrier of the Year • Schneider Logistics Carrier of the Year • Transplace National Truckload Carrier of the Year • DHL Truckload Carrier of the Year During 2022, we were also recognized with the following environmental, operational, safety, and community service awards: • Newsweek's "America's Most Trustworthy Companies" (#18-Transport, Logistics, and Packaging) • Top Company for Women to Work for in Transportation (CFI) • Logistics Management Quest for Quality Award (18 out of the last 20 years) • Commercial Carrier Journal Top 250 Award • Wreaths Across America Honor Fleet These awards are hard-earned and are a direct reflection upon our outstanding group of employees and our focus on excellence in all areas of our business.
Biggest changeThese awards include: • FedEx Express National Carrier of the Year (12 years in a row) • FedEx Express Platinum Award (99.98% On-Time Delivery) • Lowe’s One-Way Outbound Carrier of the Year • United Sugar Producers & Refiners Carrier of the Year • Mark Anthony Carrier of the Year • PepsiCo Transportation WHD West Division Carrier of the Year • PepsiCo Transportation WHD Central Region Carrier of the Year - Foods • DHL/Tempur Pedic Carrier of the Year • Uber Freight Carrier of the Year • Henkel Carrier Base Logistics Award – Asset Excellence During 2023, we were also recognized with the following environmental, operational, safety, and community service awards: • Smartway – High Performer Award • Logistics Management Quest for Quality Award (our 19th award in 21 years) • CFI Driver Zach Yeakley TCA’s Highway Angel of the Year • CFI Driver Endrea Davisson – Women in Trucking Association – 2023 Top Women to Watch in Transportation • Wreaths Across America Honor Fleet (our 9th year) • Pepsi Co “Rolling Remembrance” Participant These awards are hard-earned and are a direct reflection upon our outstanding group of employees and our focus on excellence in all areas of our business.
We, together with our subsidiaries, historically have been a short-to-medium haul truckload carrier with approximately 99.9% of our operating revenue was derived from shipments within the United States with the remainder being Canada and no operations in Mexico. With the acquisition of CFI on August 31, 2022, we significantly expanded our scale and our transportation services.
We, together with our subsidiaries, historically have been a short-to-medium haul truckload carrier and approximately 99.9% of our operating revenue was derived from shipments within the United States with the remainder being Canada and no operations in Mexico. With the acquisition of CFI on August 31, 2022, we significantly expanded our scale and our transportation services.
This technology allows for efficient communication with our drivers regarding freight and safety (e.g. weather shutdowns), as well as fueling decisions, and provides the ability to manage the needs of our customers based on real-time information on load status.
This technology allows for efficient real-time communication with our drivers regarding freight and safety (e.g. weather shutdowns), as well as fueling decisions, and provides the ability to manage the needs of our customers based on real-time information on load status.
These effects, combined with the uncertainty as to the operating results that will be produced by the newly designed diesel engines and the residual values of these vehicles, could increase our costs or otherwise adversely affect our business or operations.
These effects, combined with the uncertainty as to the operating results that will be produced by the newly designed diesel engines and the residual values of these vehicles, could increase our costs or otherwise adversely affect our business or operations.
In particular, the Inflation Reduction Act shifts timing for certain tax payments, imposes an excise tax on certain corporate stock buybacks, and creates a 15% corporate alternative minimum tax, which is generally applicable to corporations that reported over $1 billion in profits in each of the three proceeding tax years.
In particular, the Inflation Reduction Act shifts timing for certain tax payments, imposes an excise tax on certain corporate stock buybacks, and creates a 15 15% corporate alternative minimum tax, which is generally applicable to corporations that reported over $1 billion in profits in each of the three proceeding tax years.
On August 31, 2022, Heartland Express, Inc. of Iowa acquired CFI's non-dedicated U.S. dry van and temperature-controlled truckload business located in Joplin, Missouri, and certain Mexican entities (collectively, "CFI 1 Logistica") operations located in Mexico. We, together with our subsidiaries, are a short, medium, and long-haul truckload carrier and transportation services provider.
On August 31, 2022, Heartland Express, Inc. of Iowa acquired CFI's non-dedicated U.S. dry van and temperature-controlled truckload business located in Joplin, Missouri, and certain Mexican entities (collectively "CFI Logistica") operations located in Mexico. We, together with our subsidiaries, are a short, medium, and long-haul truckload carrier and transportation services provider.
Under the ABC Test, a worker is presumed to be an employee, and the burden to demonstrate their independent contractor status is on the hiring company through satisfying all three of the following criteria: • the worker is free from control and direction in the performance of services; and 12 • the worker is performing work outside the usual course of business of the hiring company; and • the worker is customarily engaged in an independently established trade, occupation, or business.
Under the ABC Test, a worker is presumed to be an employee, and the burden to demonstrate their independent contractor status is on the hiring company through satisfying all three of the following criteria: • the worker is free from control and direction in the performance of services; and • the worker is performing work outside the usual course of business of the hiring company; and • the worker is customarily engaged in an independently established trade, occupation, or business.
We currently have a 8 satisfactory DOT safety rating under this method, for each of our respective DOT authorities, which is the highest available rating under the current safety rating scale. If we received a conditional or unsatisfactory DOT safety rating, it could adversely affect our business, as some of our existing customer contracts require a satisfactory DOT safety rating.
We currently have a satisfactory DOT safety rating under this method, for each of our respective DOT authorities, which is the highest available rating under the current safety rating scale. If we received a conditional or unsatisfactory DOT safety rating, it could adversely affect our business, as some of our existing customer contracts require a satisfactory DOT safety rating.
In seeking these customers, we have positioned our business as a provider of premium service at 3 compensatory rates, rather than competing solely on the basis of price. We believe our reputation for quality service, reliable equipment, and equipment availability makes us a core carrier for many of our customers.
In seeking these customers, we have positioned our business as a provider of premium service at compensatory rates, rather than competing solely on the basis of price. We believe our reputation for quality service, reliable equipment, and equipment availability makes us a core carrier for many of our customers.
Our headquarters is located in North Liberty, Iowa, in a lower-cost environment with ready access to a skilled, educated, and industrious workforce. Our other terminals are located near major shipping corridors nationwide, affording proximity to customer locations, driver domiciles, and distribution centers.
Our corporate headquarters is located in North Liberty, Iowa, in a lower-cost environment with ready access to a skilled, educated, and industrious workforce. Our other terminals are located near major shipping corridors nationwide, affording proximity to customer locations, driver domiciles, and distribution centers.
These ten acquisitions have enabled us to solidify our position within existing regions, expand into new operating regions, expand service offerings to address longer length of haul needs from customers, pursue new customer relationships in new markets, as well as expand business relationships with current customers in new markets.
These ten acquisitions have enabled us to solidify our position within existing regions, expand into new operating regions, expand service offerings to address longer length of haul needs from customers, and pursue new customer relationships in new markets, as well as expand business relationships with current customers in new markets.
Our driver pay package generally includes weekly base pay minimums for mileage based drivers, future pay increases based on years of continued service with us, increased rates for 5 accident-free miles of operation, detention pay, and other pay programs to assist drivers with unproductive time.
Our driver pay package generally includes weekly base pay minimums for mileage based drivers, future pay increases based on years of continued service with us, increased rates for accident-free miles of operation, detention pay, and other pay programs to assist drivers with unproductive time.
Management believes that building lane density in our primary traffic lanes will minimize empty miles and enhance driver “home time.” We target customers with multiple, time-sensitive shipments, including those utilizing “just-in-time” manufacturing and inventory management.
Management believes that building lane density in our primary traffic lanes will minimize empty miles and enhance driver “home time.” 3 We target customers with multiple, time-sensitive shipments, including those utilizing “just-in-time” manufacturing and inventory management.
Although there has been some increased movement of drivers between companies in our industry, the issue of decreasing amount of qualified CDL drivers in our industry continues. We continually explore new strategies to attract and retain qualified drivers with changes in market conditions and demands.
Although there has been some increased movement of drivers between companies in our industry, the issue of a decreasing amount of qualified CDL drivers in our industry continues. We continually explore new strategies to attract and retain qualified drivers with changes in market conditions and demands.
This program, known as the Safe Driver Apprenticeship Pilot Program, is open to 18 to 20-year-old drivers who already hold intrastate commercial driver's licenses and sets a strict training regimen for participating drivers and carriers to comply with.
This program, known as the Safe Driver Apprenticeship Pilot Program (“SDAP”), is open to 18 to 20-year-old drivers who already hold intrastate commercial driver's licenses and sets a strict training regimen for participating drivers and carriers to comply with.
CARB has also recently announced intentions to adopt regulations ensuring that 100% of tractors operating in California are operating with battery or fuel cell-electric engines in the future. Whether these regulations will ultimately be adopted remains unclear.
CARB has also recently announced its intentions to adopt regulations ensuring that 100% of tractors operating in California are operating with battery or fuel cell-electric engines in the future. Whether these regulations will ultimately be adopted remains unclear.
Further, CFI has partnered with training facilities as a source of driver trainees, but does not operate a driver training school program. We are not a party to a collective bargaining agreement. We believe that we have good relationships with our employees.
Further, CFI has partnered with training facilities as a source of driver trainees, but does not operate a driver training school program. 5 We are not a party to a collective bargaining agreement. We believe that we have good relationships with our employees.
In December 2016, the FMCSA issued a final rule establishing a national clearinghouse for drug and alcohol testing results and requiring motor carriers and medical review officers to provide records of violations by commercial drivers of FMCSA drug and alcohol testing requirements.
In December 2016, the FMCSA issued a final rule establishing a national clearinghouse for drug and alcohol testing results and requiring motor carriers and medical review officers to provide records of violations by commercial drivers of FMCSA drug 9 and alcohol testing requirements.
In addition, in February 2014, President Obama announced that his administration would begin developing the next phase of tighter fuel efficiency and greenhouse gas standards for medium-and heavy-duty tractors and trailers (the "Phase 2 Standards").
In 13 addition, in February 2014, President Obama announced that his administration would begin developing the next phase of tighter fuel efficiency and greenhouse gas standards for medium-and heavy-duty tractors and trailers (the "Phase 2 Standards").
Information on our website is not incorporated by reference into this Annual Report. You may also access and read our filings with the SEC without charge through the SEC's website at www.sec.gov.
Information on our website is not incorporated by reference into this Annual Report. You may also access and read our filings with the SEC without charge through the SEC's website at www.sec.gov. 16
Serving the short-to-medium haul market permits us to use primarily single rather than team drivers and dispatch most loads directly from origin to destination without an intermediate equipment change other than for driver scheduling purposes. During 2022, approximately 70% of our loads were less than 500 miles in length of haul.
Serving the short-to-medium haul market permits us to use primarily single rather than team drivers and dispatch most loads directly from origin to destination without an intermediate equipment change other than for driver scheduling purposes. During 2023, approximately 70% of our loads were less than 500 miles in length of haul.
It remains unclear whether the SHIP IT Act will ultimately become law, however, and what changes it may undergo prior finalization. 15 Given COVID-19’s considerable effect on our nation and industry, the FMCSA previously issued and/or extended various temporary responsive measures in response to COVID-19 pandemic.
It remains unclear whether the SHIP IT Act will ultimately become law, however, and what changes it may undergo prior finalization. Given COVID-19’s considerable effect on our nation and industry, the FMCSA previously issued and/or extended various temporary measures in response to the COVID-19 pandemic.
We have historically operated the majority of our tractors while under warranty to minimize repair and maintenance cost and reduce service interruptions caused by breakdowns. The average age of our trailer fleet was 6.3 years at December 31, 2022 compared to 3.4 years at December 31, 2021.
We have historically operated the majority of our tractors while under warranty to minimize repair and maintenance cost and reduce service interruptions caused by breakdowns. The average age of our trailer fleet was 6.4 years at December 31, 2023 compared to 6.3 years at December 31, 2022.
Independent contractors own their own tractors and are responsible for all associated expenses, including financing costs, fuel, maintenance, insurance, and highway use taxes. For the years ended December 31, 2022 and 2021, independent contractors accounted for approximately 2.7% and 0.7% of our total miles, respectively. The increase in independent contractor miles is due to the CFI acquisition.
Independent contractors own their own tractors and are responsible for all associated expenses, including financing costs, fuel, maintenance, insurance, and highway use taxes. For the years ended December 31, 2023 and 2022, independent contractors accounted for approximately 5.0% and 2.7% of our total miles, respectively. The increase in independent contractor miles is due to the CFI acquisition.
However, as additional tools, protective equipment, policies, practices, and medicines have been developed in response to COVID-19, in October 2022, the FMCSA ended the hours of service waiver previously issued with respect to certain types of shipments, such as, livestock, medical supplies, vaccines, groceries, and diesel fuel.
However, as additional tools, protective equipment, policies, practices, and medicines have been developed in response to COVID-19, in October 2022, the FMCSA ended the HOS waiver previously issued with respect to certain types of shipments, such as, livestock, medical supplies, vaccines, groceries, and diesel fuel.
However, any future vaccination, testing or mask mandates that are allowed to go into effect, could, among other things, (i) cause our unvaccinated employees to go to smaller employers, if such employers are not subject to future mandates, or leave us or the trucking industry, especially our unvaccinated drivers, (ii) result in logistical issues, increased expenses, and operational issues from arranging for weekly tests of our unvaccinated employees, especially our unvaccinated drivers, (iii) result in increased costs for recruiting and retention of drivers, as well as the cost of weekly testing, and (iv) result in decreased revenue if we are unable to recruit and retain drivers.
Any similar future outbreak or vaccination, testing or mask mandates that are allowed to go into effect, could, among other things, (i) cause our unvaccinated employees to go to smaller employers, if such employers are not subject to future mandates, or leave us or the trucking industry, especially our unvaccinated drivers, (ii) result in logistical issues, increased expenses, and operational issues from arranging for weekly tests of our unvaccinated employees, especially our unvaccinated drivers, (iii) result in increased costs for recruitment and retention of drivers, as well as the cost of weekly testing, and (iv) result in decreased revenue if we are unable to recruit and retain drivers.
Motor carriers interested in participating must complete an application for participation and submit monthly data on an apprentice’s driver activity, safety outcomes, and additional supporting information. The Safe Driver Pilot Apprenticeship Program is limited to 3,000 driver-apprentices at any given time, with new driver-apprentices allowed into the program to replace those that leave or age out.
Motor carriers interested in participating must complete an application for participation and submit monthly data on an apprentice’s driver activity, safety outcomes, and additional supporting information. The SDAP is limited to 3,000 driver-apprentices at any given time, with new driver-apprentices allowed into the program to replace those that leave or age out.
Competition for qualified drivers continued to be challenging in 2022 and is expected to be a challenge going forward due to the decreasing numbers of qualified drivers in our industry.
Competition for qualified drivers continued to be challenging in 2023 and is expected to be a challenge going forward due to the decreasing numbers of qualified drivers in our industry.
The Company’s (or its subsidiaries', as applicable) new tractor purchases in 2022 complied with the emission and fuel consumption reductions required by the Phase 2 Standards.
The Company’s (or its subsidiaries', as applicable) new tractor purchases in 2023 complied with the emission and fuel consumption reductions required by the Phase 2 Standards.
The FMCSA’s decision has been appealed by labor groups and multiple lawsuits have been filed in federal courts seeking to overturn the decision. In January 2021, the Ninth Circuit Court of Appeals upheld the FMCSA's determination that federal law does preempt California's meal and rest break laws, as applied to drivers of property-carrying commercial motor vehicles.
The FMCSA’s decision has been appealed by labor groups and multiple lawsuits have been filed in federal courts seeking to overturn the decision. In January 2021, the Ninth Circuit Court of Appeals upheld the FMCSA's determination that federal law does preempt California's meal and rest break laws, as applied to drivers of property-carrying CMVs.
In February 2023, the FMCSA issued a supplemental Notice of Proposed Rulemaking requesting additional information on automated driving systems (“ADS”) and seeking comment on regulatory approaches that would enable it to obtain relevant safety information and the current and anticipated size of the population of carriers operating ADS-equipped commercial motor vehicles.
In February 2023, the FMCSA issued a supplemental notice of proposed rulemaking requesting additional information on automated driving systems (“ADS”) and seeking comment on regulatory approaches that would enable it to obtain relevant safety information and the current and anticipated size of the population of carriers operating ADS-equipped CMVs.
We believe that our driver compensation and benefits package is consistently among the best in the industry. We are committed to investing in our drivers and compensating them for safety as both are key to our operational and financial performance.
We believe that our driver compensation package, compared to others in our industry, is consistently among the best in the industry. We are committed to investing in our drivers and compensating them for safety as both are key to our operational and financial performance.
Our mobile communication systems also allow us to obtain information regarding equipment for better planning and efficient maintenance time as well as information regarding driver performance and efficiency. As of December 31, 2022 the average age of our tractor fleet was 2.0 years compared to 1.4 years at December 31, 2021.
Our mobile communication systems also allow us to obtain information regarding equipment for better planning and efficient maintenance time as well as information regarding driver performance and efficiency. As of December 31, 2023 the average age of our tractor fleet was 2.2 years compared to 2.0 years at December 31, 2022.
Although to date these response measures have largely been enacted in order to assist industry participants in operating under adverse circumstances, any further responsive measures or the lapsing of temporary measures previously enacted, remain unclear and could have a negative impact on our operations. In November 2021 the U.S.
Although to date these response measures have largely been enacted in order to assist industry participants in operating under adverse circumstances, any further responsive measures or the lapsing of temporary measures previously enacted, remain unclear and could have a negative impact on our operations.
For high priority fleets who meet the applicable thresholds, compliance can be achieved by either (i) ensuring that all new vehicles added to the fleet be zero emission, and removing older vehicles once their statutory useful life is reached, or (ii) meeting certain fleet composition requirements (e.g., percentage of zero 14 emission vehicles in the fleet) by certain dates, with the percentage of zero emission vehicles increasing over time, and resulting in 100% zero emission fleets by 2042 (or earlier for certain classes of vehicles).
For high priority fleets who meet the applicable thresholds, compliance 14 can be achieved by either (a) ensuring that all new vehicles added to the fleet be zero emission, and commencing in 2025, removing older vehicles once their statutory useful life is reached, or (b) meeting certain fleet composition requirements (e.g., percentage of zero emission vehicles in the fleet) by certain dates, with the percentage of zero emission vehicles increasing over time, and resulting in 100% zero emission fleets by 2042 (or earlier for certain classes of vehicles).
However, driver availability began to change late in 2022 and to date in 2023, as a result of the changing freight and economic environments and we believe certain drivers have moved from smaller less financially stable carriers to more financially stable carriers and from independent contractors to company drivers.
However, driver availability began to change late in 2022 and into 2023, as a result of the declining freight and economic environments and we believe certain drivers have moved from smaller less financially stable carriers to more financially stable carriers and from independent contractors to company drivers.
Among other changes, the proposal would allow brokers or freight forwarders to meet regulatory requirements to have “assets readily available” by maintaining trusts that meet certain criteria, including that they can be liquidated within seven calendar days of an event that triggers a payment from the trust.
Among other changes, the rule allows brokers or freight forwarders to meet regulatory requirements to have “assets readily available” by maintaining trusts that meet certain criteria, including that they can be liquidated within seven calendar days of an event that triggers a payment from the trust.
In addition to past organic growth through the development of our regional operating areas, we have completed ten acquisitions since 1986 with the most recent and our fifth acquisition within the last nine years, CFI, occurring on August 31, 2022 following the acquisition of Smith Transport on May 31, 2022.
In addition to past organic growth through the development of our regional operating areas, we have completed ten acquisitions since 1986 with the most recent and our fifth acquisition since 2013, CFI, occurring on August 31, 2022 following the acquisition of Smith Transport on May 31, 2022.
Based on this feedback and other concerns raised by industry stakeholders, in March 2017, the FMCSA withdrew the Notice of Proposed Rulemaking related to the new safety rating system. In its notice of withdrawal, the FMCSA noted that a new rulemaking related to a similar process may be initiated in the future.
Based on feedback and other concerns raised by industry stakeholders during the public comment period in March 2017, the FMCSA withdrew the notice of proposed rulemaking related to the new safety rating system. In its notice of withdrawal, the FMCSA noted that a similar process may be initiated in the future.
The increase in employees as of December 31, 2022 was predominantly due to the acquisitions of Smith Transport and CFI in May and August, respectively. We also contracted with independent contractors to provide and operate tractors which provides us additional revenue equipment capacity, although not material to our operations.
The increase in average employees during the year ended December 31, 2023 was predominantly due to the acquisitions of Smith Transport and CFI in May and August 2022, respectively. We also contracted with independent contractors to provide and operate tractors which provides us additional revenue equipment capacity, although not material to our operations.
We continue to provide nationwide asset-based dry van truckload service for major shippers from across the U.S. and now including cross border freight to and from Mexico and our consolidated average length of haul has increased to approximately 500 miles.
We continue to provide nationwide asset-based dry van truckload service for major shippers from across the U.S. and now including cross border freight to and from Mexico and our consolidated average length of haul is approximately 400 miles.
The CPDP expands the types of eligible crashes, modify the Safety Measurement System to exclude crashes with not preventable determinations from the prioritization algorithm and note the not preventable determinations in the Pre-Employment Screening Program.
The CPDP expands the types of eligible crashes, modify the SMS to exclude crashes with not preventable determinations from the prioritization algorithm, and note the not preventable determinations in the Pre-Employment Screening Program.
Pursuant to a new rule finalized by the FMCSA, beginning in November 2024, states will be required to query the Clearinghouse when issuing, renewing, transferring, or upgrading a commercial driver's license and must revoke a driver's commercial driving privileges if such driver is prohibited from driving a motor vehicle for one or more drug or alcohol violations.
Beginning November 2024, states will be required to query the Clearinghouse when issuing, renewing, transferring, or upgrading a commercial driver's license and must revoke a driver's commercial driving privileges if such driver is prohibited from driving a motor vehicle for one or more drug or alcohol violations.
At December 31, 2022, all of our operating tractor fleet was equipped with event recorders and accident avoidance technology. All over-the-road tractors are equipped with mobile communication systems that comply with the latest ELD regulations. These units are the base communication with our drivers.
At December 31, 2023, all of our operating tractor fleet was equipped with event recorders and accident avoidance technology. All over-the-road tractors are equipped with mobile communication systems that comply with the latest electronic log device regulations. These units are the base communication with our drivers.
The proposal also stipulates that “available financial security” falls below $75,000 when there is a drawdown on the broker or freight forwarder’s surety bond or trust fund. Adoption of these changes could negatively impact our business by increasing our compliance obligations, operating costs, and related expenses.
The rule also stipulates that “available financial security” falls below $75,000 when there is a drawdown on the broker or freight forwarder’s surety bond or trust fund. Implementation and compliance with these changes may negatively impact our business by increasing our compliance obligations, operating costs, and related expenses.
Our primary customers include retailers, manufacturers and parcel carriers. Our 25, 10, and 5 largest customers accounted for approximately 61%, 41%, and 27% of our operating revenues, respectively, in 2022. Further diversification of customers was the result of the Smith Transport and CFI acquisitions in 2022.
Our primary customers include retailers, manufacturers and parcel carriers. Our 25, 10, and 5 largest customers accounted for approximately 56%, 36%, and 22% of our operating revenues, respectively, in 2023. Further diversification of customers was the result of the Smith Transport and CFI acquisitions in 2022.
Historically, we have paid cash for the acquisition of new revenue equipment. These strategies allow us the flexibility to buy and sell tractors (and trailers) opportunistically to capitalize on new and used equipment markets, size our fleet to the volume of attractive freight, and manage cash tax expense.
These strategies allow us the flexibility to buy and sell tractors (and trailers) opportunistically to capitalize on new and used equipment markets, size our fleet to the volume of attractive freight, and manage cash tax expense.
CARB is also in the process of considering and finalizing what is known as the Advanced Clean Fleets (“ACF”) regulation, also aimed at transitioning to zero emission vehicles beginning in 2024. ACF is a purchase requirement for medium and heavy-duty fleets to adopt an increasing percentage of zero emission trucks, designed to complement the sell-side obligations of ACT.
In 2023, CARB finalized what is known as the Advanced Clean Fleets (“ACF”) regulation, also aimed at transitioning to zero emission vehicles, which became effective in January 2024. ACF is a purchase requirement for medium and heavy-duty fleets to adopt an increasing percentage of zero emission trucks, designed to complement the sell-side obligations of ACT.
In early 2022, freight demand was initially strong, following an extended period of freight demand at peak levels that began in mid 2020 and continued throughout 2021 and into 2022. Freight demand began to soften in the back half of 2022.
We operate in a cyclical industry. In early 2022, freight demand was initially strong, following an extended period of freight demand at peak levels that began in mid 2020 and continued throughout 2021 and into 2022. Freight demand began to soften in the back half of 2022 and continued to degrade throughout all of 2023.
We expect freight demand to remain challenged at lower demand levels in at least the first half of 2023 based upon the freight demand experienced in January and February of 2023 and expected normal seasonal trends.
We expect freight demand to remain challenged at lower demand levels in at least the first half of 2024 based upon the freight demand experienced in January and February of 2024.
Other rules have been recently proposed or made final by the FMCSA, including: (i) a rule requiring the use of speed limiting devices on heavy duty tractors to restrict maximum speeds, which was proposed in 2016, and (ii) a rule setting forth minimum driver training standards for new drivers applying for commercial driver’s licenses for the first time and to experienced drivers upgrading their licenses or seeking certain endorsements, including a hazardous materials endorsement, known as the Entry-Level Driver Training regulations (the "ELDT Regulations"), which was made final in December 2016, with an initial compliance date in February 2020.
Other rules have been proposed or made final by the FMCSA, including a rule setting forth minimum driver training standards for new drivers applying for commercial driver’s licenses for the first time and to experienced drivers upgrading their licenses or seeking certain endorsements, including a hazardous materials endorsement, known as the Entry-Level Driver Training regulations (the "ELDT Regulations"), which was made final in December 2016, with an initial compliance date in February 2020.
Among other impacts, ACT could affect the cost and/or supply of traditional diesel tractors. It has also led to similar legislation in other states, with Oregon, Washington, New York, New Jersey, and Massachusetts already adopting ACT, and a number of other states either considering adoption of ACT or affirmatively conducting a preliminary rulemaking process to that effect.
Among other impacts, ACT could affect the cost and/or supply of traditional diesel tractors. It has also led to similar legislation in several states and a number of other states either considering adoption of ACT or affirmatively conducting a preliminary rulemaking process to that effect.
Motor carriers are required to query the clearinghouse to ensure drivers and driver applicants do not have violations of federal drug and alcohol testing regulations that prohibit them from operating commercial motor vehicles. The final rule became effective in January 2017, with a compliance date in January 2020.
Motor carriers are required to query the clearinghouse to ensure drivers and driver applicants do not have violations of federal drug and alcohol testing regulations that prohibit them from operating CMVs. The final rule became effective in 2017, with an initial compliance date of January 2020 and certain compliance dates extended until January 2023.
One of our core operating goals is to maintain a modern fleet of tractor and trailer equipment. The overall performance and reliability of tractor equipment typically has increased with each new model year of tractors that we have acquired in the last 5 years. By maintaining late model year tractors, a low average age, we experience better operating performance.
The overall performance and reliability of tractor equipment typically has increased with each new model year of tractors that we have acquired in the last 5 years. By maintaining late model year tractors, a low average age, we experience better operating performance.
During the year ended December 31, 2022, we employed an average of approximately 4,710 people compared to approximately 3,180 people during the year ended December 31, 2021. As of the end of February 2023 we employed approximately 6,500 employees.
During the year ended December 31, 2023, we employed an average of approximately 6,320 people compared to approximately 4,710 people during the year ended December 31, 2022. As of the end of February 2024 we employed approximately 6,040 employees.
We also invest a significant amount of capital in our terminal facilities as we strive to offer our driver employees up to date and convenient amenities throughout our terminal network across the country while they are away from home. Revenue Equipment Our industry is very capital intensive as it relates to tractors and trailers.
We also invest a significant amount of capital in our terminal facilities as we strive to offer our driver employees up to date and convenient amenities throughout our terminal network across the country while they are away from home.
Department of Energy (“DOE”) average price of fuel increased 51.8% in 2022 compared to 2021, which had a corresponding negative impact on our net fuel cost, before the impacts of improved fleet efficiency, for the year ended December 31, 2022 compared to 2021.
Department of Energy (“DOE”) average price of fuel decreased 15.5% in 2023 compared to 2022, which had a corresponding positive impact on our net fuel cost, before the impacts of improved fleet efficiency, for the year ended December 31, 2023 compared to 2022.
In addition, we continue to evaluate and explore different driving options and offerings for our existing and potential new drivers across our unique mix of driver offerings at Heartland Express, Millis Transfer, Smith Transport, and CFI. The trucking industry has been faced with a qualified driver shortage.
In addition, we continue to evaluate and explore different driving options and offerings for our existing and potential new drivers across our unique mix of driver offerings at Heartland Express, Millis Transfer, Smith Transport, and CFI.
Thus, even though the trailer provisions of the Phase 2 Standards were removed, we will still need to ensure the majority of our fleet is compliant with the California Phase 2 standards, which may result in increased equipment costs and could adversely affect our operating results and profitability.
Thus, even though the trailer provisions of the Phase 2 Standards were removed, we must still ensure the majority of our fleet is compliant with the California Phase 2 standards, which may adversely affect our operating results and profitability.
The proposed ACF regulations, generally set to begin in January 2024, apply to three categories of fleet operators: (1) high priority fleets who meet certain thresholds of trucks or revenue (including fleets that operate 50 or more trucks, or generate $50 million or more in gross annual revenue), (2) drayage fleets, and (3) state and local government public fleets.
The ACF regulations apply to three categories of fleet operators: (i) high priority fleets who meet certain thresholds of trucks or revenue (including fleets that operate 50 or more trucks, or generate $50 million or more in gross annual revenue), (ii) drayage fleets, and (iii) state and local government public fleets.
Additionally, increasing efforts to control emissions of greenhouse gases may have an adverse effect on us. We maintain a young fleet age of tractors to ensure we are using the most up-to-date technology deployed by manufacturers to reduce emissions.
Additionally, increasing efforts to control emissions of greenhouse gases may have an adverse effect on us. We aim to maintain a young fleet age of tractors to ensure we are utilizing technological advancements deployed by manufacturers to reduce emissions.
Over the thirty-six years from 1986 to 2022, we have grown our revenues to $968.0 million from $21.6 million and our net income has increased to $133.6 million from $3.0 million. For the five year period 2018 through 2022 we had the highest net income, $429.3 million, and highest revenue, $3.4 billion, of any previous five year period.
Over the thirty-seven years from 1986 to 2023, we have grown our revenues to $1.2 billion from $21.6 million. For the five year period 2019 through 2023 we had the second highest net income, $371.4 million ($429.3 million in 2018 through 2022), and highest revenue, $4.0 billion, of any previous five year period.
In September 2020, the Department of Health and Human Services (“DHHS”) announced proposed mandatory guidelines to allow employers to drug test truck drivers and other federal workers for pre-employment and random testing using hair specimens.
It is expected that the effects from the rule may further impair the pool of available drivers. In September 2020, the Department of Health and Human Services (“DHHS”) announced proposed mandatory guidelines to allow employers to drug test truck drivers and other federal workers for pre-employment and random testing using hair specimens.
It otherwise remains unclear how the IIJA will be implemented into and effect our industry in the long-term. The IIJA may result in increased compliance and implementation related expenses, which could have a negative impact on our operations. In January 2023, the Safer Highways and Increased Performance for Interstate Trucking Act (the “SHIP IT Act”) was introduced into the U.S.
The IIJA may result in increased compliance and implementation related expenses, which could have a negative impact on our operations. In January 2023, the Safer Highways and Increased Performance for Interstate Trucking Act (the “SHIP IT Act”) was introduced into the U.S. House of Representatives.
Fuel consumed by empty and out-of-route miles and by truck engine idling time is not recoverable and therefore any increases or decreases in fuel costs related to empty and out-of-route miles and idling time will directly impact our operating results. During March 2022 DOE average fuel prices increased to over $5.00 per gallon.
Fuel consumed by empty and out-of-route miles and by truck engine idling time is not recoverable and therefore any increases or decreases in fuel costs related to empty and out-of-route miles and idling time will directly impact our operating results.
Any future changes to HOS rules could materially and adversely affect our operations and profitability. There are two methods of evaluating the safety and fitness of carriers. The first method is the application of a safety rating that is based on an onsite investigation and affects a carrier’s ability to operate in interstate commerce.
There are two methods of evaluating the safety and fitness of carriers. The first method is the application of a safety rating that is based on an onsite investigation and affects a carrier’s ability to operate in interstate commerce.
Under CSA, these scores were initially made available to the public in five of the seven categories. However, pursuant to the FAST Act which was signed into law in December 2015, the FMCSA was required to remove from public view the previously available CSA scores while it reviews the reliability of the scoring system.
However, pursuant to the Fixing America's Surface Transportation Act (the "FAST Act"), which was signed into law in December 2015, the FMCSA was required to remove from public view the previously available CSA scores while it reviews the reliability of the scoring system.
The industry is highly competitive based primarily upon freight rates, qualified drivers, service, and equipment availability. We specialize in time-sensitive shipments, including "just-in-time" and similar types of freight. We provide premium service at compensatory rates, rather than competing solely on the basis of price. We operate in a cyclical industry.
Logistics providers, railroads, less-than-truckload carriers, and private fleets provide additional competition but to a lesser extent. The industry is highly competitive based primarily upon freight rates, qualified drivers, service, and equipment availability. We specialize in time-sensitive shipments, including "just-in-time" and similar types of freight. We provide premium service at compensatory rates, rather than competing solely on the basis of price.
We believe that our driver compensation and benefits package is consistently among the best in the industry. We are committed to investing in our drivers and compensating them for safety as both are key to our operational and financial performance.
We believe that our driver compensation and benefits package is consistently among the best in the industry. We are committed to investing in our drivers and compensating them for safety as both are key to our operational and financial performance. Currently over 10% of our driver employees, individually, have achieved 1.0 million safe miles.
Organic growth has become increasingly difficult for traditional over-the-road truckload carriers given a shortage of qualified drivers in the industry and availability of revenue equipment assets. We have completed two recent strategic acquisitions to combat these industry challenges.
We continue to focus on providing quality service to targeted customers with a high density of freight in our regional operating areas. Organic growth has become increasingly difficult for traditional over-the-road truckload carriers given a shortage of qualified drivers in the industry and availability of revenue equipment assets. We have completed two recent strategic acquisitions to combat these industry challenges.
The Notice of Proposed Rulemaking considers regulatory modifications in five areas: (i) assets readily available, (ii) immediate suspension of broker/freight forwarder operating authority, (iii) surety or trust responsibilities, (iv) enforcement authority, and (v) entities eligible to serve as BMC-85 trustees.
The final rule, which became effective in January 2024, modified regulations in five areas: (i) assets readily available, (ii) immediate suspension of broker/freight forwarder operating authority, (iii) surety or trust responsibilities, (iv) enforcement authority, and (v) entities eligible to serve as BMC-85 trustees.
Some states have put initiatives in place to increase their revenues from items such as unemployment, workers' compensation, and income taxes, and a reclassification of independent contractor drivers as employees would help states with these initiatives.
Some states have put initiatives in place to increase their revenues from items such as unemployment, workers' compensation, and income taxes, and a reclassification of independent contractor drivers as employees would help states with these initiatives. 12 Recently, courts in certain states have issued decisions that could result in a greater likelihood that independent contractors would be judicially classified as employees in such states.
The most recent example being the Protecting the Rights to Organize ("PRO") Act, which was passed by the U.S. House of Representatives and received by the Senate in March 2021 and remains with the Senate's Committee on Health, Education, Labor, and Pensions.
The Protecting the Rights to Organize ("PRO") Act was passed by the U.S. House of Representatives and received by the Senate in March 2021, which was further sent to the Senate's Committee on Health, Education, Labor, and Pensions. In 2023, a substantially similar bill was introduced to the U.S.
It would also allow for truck parking expansion at commercial truck stops and travel plazas. Industry groups are generally in favor of the bill, as a lack of available parking has negatively impacted the industry as a whole, including the Company and its subsidiaries.
Industry groups are generally in favor of the bill, as a lack of available parking has negatively impacted the industry as a whole, including the Company and its subsidiaries.
Further, we have continued to get more creative in providing better pay, benefits, equipment, and facilities for our drivers. Our comprehensive driver compensation and benefits program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance.
Our comprehensive driver compensation and benefits program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance.
The primary risks associated with our business include cargo loss and physical damage, personal injury, property damage, and workers’ compensation claims. We self-insure a portion of the exposure related to all of the aforementioned risks. Insurance coverage, including self-insurance retention levels, is evaluated on an annual basis. We actively participate in the settlement of each claim incurred.
We self-insure a portion of the exposure related to all of the aforementioned risks. Insurance coverage, including self-insurance retention levels, is evaluated on an annual basis. We actively participate in the settlement of each claim incurred. We act as a self-insurer for auto liability, defined as including property damage, personal injury, or cargo.
Carriers are grouped by category with other carriers that have a similar number of safety events (e.g., crashes, inspections, or violations) and carriers are ranked and assigned a rating percentile to prioritize them for interventions if they are above a certain threshold. Generally, these scores do not have a direct impact on a carrier’s safety rating.
The data is organized into seven categories (such categories are known as the “BASICs”). Carriers are grouped by category with other carriers that have a similar number of safety events (e.g., crashes, inspections, or violations) and carriers are ranked and assigned a rating percentile to prioritize them for interventions if they are above a certain threshold.
In order to attract and retain experienced drivers who understand the importance of customer service, we have sought to solidify our position as an industry leader in driver compensation in our operating markets and for the services we provide. We have increased wages and enhanced the compensation for our drivers multiple times in the last three years.
In order to attract and retain experienced drivers who understand the importance of customer service, we have sought to solidify our position as an industry leader in driver compensation in our operating markets and for the services we provide. We have continued to get more creative in providing better pay, benefits, equipment, and facilities for our drivers.
Revenue can also be affected by bad weather, holidays, and the number of business days that occur during a given period, since revenue is directly related to available working days of shippers.
Our tractor productivity decreases during the winter season because inclement weather impedes operations, and some shippers reduce their shipments after the winter holiday season. Revenue can also be affected by bad weather, holidays, and the number of business 4 days that occur during a given period, since revenue is directly related to available working days of shippers.
Changes to such HOS rules can negatively impact our productivity and affect our operations and profitability by reducing the number of hours per day or week our drivers may operate and/or disrupting our network.
The DOT, through the Federal Motor Carrier Safety Administration (“FMCSA”), imposes safety and fitness regulations on us and our drivers, including rules that restrict driver HOS. Changes to such HOS rules can negatively impact our productivity and affect our operations and profitability by reducing the number of hours per day or week our drivers may operate and/or disrupting our network.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFollowing the acquisition, CFI continues to provide certain services to the seller and the seller continues to provide certain services to CFI until such services can be transferred to the applicable party and our inability to provide or receive such transition services could cause disruptions to our employees, drivers, business, and integration; • prior to the acquisition, our management team had limited experience with temperature-controlled freight and brokerage operations and no experience with Mexican operations and therefore may be challenged in managing the temperature-controlled freight, brokerage operations, and Mexican operations, particularly if there were a loss of the CFI management team; • potential adverse reactions or changes to business relationships, including with customers, employees, drivers, and vendors, resulting from the completion of the acquisition; • increased risk of significant deficiencies or material weaknesses in internal controls over financial reporting related to CFI’s internal controls; • the potential loss of professional drivers of CFI or our historical operations due to differences in pay, policies or culture, or other factors, or an increase in costs of recruiting and retaining professional drivers; • the challenges and unanticipated costs associated with integrating complex organizations, systems, operating procedures, information technology, compliance programs, technology, networks, and other assets; • the inability to successfully combine our respective businesses in a manner and on a timeline that permits us to achieve the cost savings and other anticipated benefits from the acquisition; • the challenges associated with known and unknown legal or financial liabilities associated with the acquisition, for which there is no escrow or representation and warranty insurance under the purchase agreement; • the difficulties in retaining key management and other key employees; and • the challenge of managing the expanded operations of a larger and more complex company.
Biggest changeThe acquisition of CFI involves numerous ongoing risks, including: • management’s attention may be diverted from other areas of the Company, especially given the size of CFI and the complexity of integrating CFI into the Company; • prior to the acquisition, our management team had limited experience with temperature-controlled freight and brokerage operations and no experience with Mexican operations and therefore may be challenged in managing the temperature-controlled freight, brokerage operations, and Mexican operations, particularly if there were a loss of the CFI management team; • increased risk of significant deficiencies or material weaknesses in internal controls over financial reporting related to CFI’s internal controls; • the potential loss of professional drivers of CFI or our historical operations due to differences in pay, policies or culture, or other factors, or an increase in costs of recruiting and retaining professional drivers; • the challenges and unanticipated costs associated with integrating complex organizations, systems, operating procedures, information technology, compliance programs, technology, networks, and other assets; • the inability to successfully combine our respective businesses in a manner and on a timeline that permits us to achieve the cost savings and other anticipated benefits from the acquisition; • the challenges associated with known and unknown legal or financial liabilities associated with the acquisition, for which there is no escrow or representation and warranty insurance under the purchase agreement; 21 • the difficulties in retaining and integrating key management and other key employees; and • the challenge of managing the expanded operations of a larger and more complex company.
These factors include the following: • we compete with many other truckload carriers of varying sizes and, to a lesser extent, with less-than-truckload carriers, railroads, intermodal companies, and other transportation and logistics companies, many of which have access to more equipment and greater capital resources than we do; • many of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase freight rates or to maintain or expand our business or may require us to reduce our freight rates in order to maintain business and keep our equipment productive; • some of our customers are other transportation companies or also operate their own private trucking fleets, and they may decide to transport more of their own freight; • we may increase the size of our fleet during periods of high freight demand during which our competitors also increase their capacity, and we may experience losses in greater amounts than such competitors during subsequent cycles of softened freight demand if we are required to dispose of assets at a loss to match reduced customer demand; • a significant portion of our business is in the retail industry, which continues to undergo a shift away from the traditional brick and mortar model towards e-commerce, and this shift could impact the manner in which our customers source or utilize our services; • many customers reduce the number of carriers they use by selecting so-called "core carriers" as approved service providers or by engaging dedicated providers, and we may not be selected; • the trend toward consolidation in the trucking industry may create large carriers with greater financial resources and other competitive advantages relating to their size, and we may have difficulty competing with these larger carriers; • the market for qualified drivers is increasingly competitive, and our inability to attract and retain drivers could reduce our equipment utilization or cause us to increase compensation to our drivers, both of which would adversely affect our profitability; 18 • advances in technology may require us to increase investments in order to remain competitive, and our customers may not be willing to accept higher freight rates to cover the cost of these investments; • competition from freight logistics and freight brokerage companies may adversely affect our customer relationships and freight rates; and • the Heartland, Millis Transfer, Smith Transport, and CFI brand names are valuable assets that are subject to the risk of adverse publicity (whether or not justified) which could result in the loss of value attributable to our brand and reduced demand for our services.
These factors include the following: • we compete with many other truckload carriers of varying sizes and, to a lesser extent, with less-than-truckload carriers, railroads, intermodal companies, and other transportation and logistics companies, many of which have access to more equipment and greater capital resources than we do; 18 • many of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase freight rates or to maintain or expand our business or may require us to reduce our freight rates in order to maintain business and keep our equipment productive; • some of our customers are other transportation companies or also operate their own private trucking fleets, and they may decide to transport more of their own freight; • we may increase the size of our fleet during periods of high freight demand during which our competitors also increase their capacity, and we may experience losses in greater amounts than such competitors during subsequent cycles of softened freight demand if we are required to dispose of assets at a loss to match reduced customer demand; • a significant portion of our business is in the retail industry, which continues to undergo a shift away from the traditional brick and mortar model towards e-commerce, and this shift could impact the manner in which our customers source or utilize our services; • many customers reduce the number of carriers they use by selecting so-called "core carriers" as approved service providers or by engaging dedicated providers, and we may not be selected; • the trend toward consolidation in the trucking industry may create large carriers with greater financial resources and other competitive advantages relating to their size, and we may have difficulty competing with these larger carriers; • the market for qualified drivers is increasingly competitive, and our inability to attract and retain drivers could reduce our equipment utilization or cause us to increase compensation to our drivers, both of which would adversely affect our profitability; • advances in technology may require us to increase investments in order to remain competitive, and our customers may not be willing to accept higher freight rates to cover the cost of these investments; • competition from freight logistics and freight brokerage companies may adversely affect our customer relationships and freight rates; and • the Heartland, Millis Transfer, Smith Transport, and CFI brand names are valuable assets that are subject to the risk of adverse publicity (whether or not justified) which could result in the loss of value attributable to our brand and reduced demand for our services.
Our current indebtedness, as well as any future indebtedness, could, among other things: • require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing our ability to use our cash flow to fund capital expenditures and working capital and other general operational requirements; • expose us to the risk of increased interest rates relating to any of our indebtedness at variable rates; • limit our flexibility to plan for and react to changes in our business and/or changing market conditions; • place us at a competitive disadvantage relative to some of our competitors that have less, or less restrictive, debt than us; • limit our ability to pursue acquisitions or cause us to make non-strategic divestitures; and • increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates or a downturn in our business or the economy.
Our current indebtedness, as well as any future indebtedness, could, among other things: • require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing our ability to use our cash flow to fund capital expenditures and working capital and other general operational requirements; • expose us to the risk of increased interest rates relating to any of our indebtedness at variable rates; • limit our flexibility to plan for and react to changes in our business and/or changing market conditions; 28 • place us at a competitive disadvantage relative to some of our competitors that have less, or less restrictive, debt than us; • limit our ability to pursue acquisitions or cause us to make non-strategic divestitures; and • increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates or a downturn in our business or the economy.
If any of our critical information systems fail or become otherwise unavailable, whether as a result of a system upgrade project or otherwise, we would have to perform the functions manually, which could temporarily impact our ability to manage our fleet efficiently, to respond to customers’ requests effectively, to maintain billing and other records reliably, and to bill for services and prepare financial statements accurately or in a timely manner.
If any of our critical information systems fail or become otherwise unavailable, whether as a result of a system upgrade project or otherwise, we would have to perform the functions manually, which could temporarily impact our ability to dispatch and manage our fleet efficiently, to respond to customers’ requests effectively, to maintain billing and other records reliably, and to bill for services and prepare financial statements accurately or in a timely manner.
If any claim is not covered by an insurance policy, exceeds our coverage, or falls outside the aggregate coverage limit, we would bear the excess or uncovered amount, in addition to our other self-insured amounts. Insurance carriers that provide excess insurance coverage to us currently and for past claim years have encountered financial issues.
If any claim is not covered by an insurance policy, exceeds our coverage, or falls outside the aggregate coverage limit, we would bear the excess or uncovered amount, in addition to our other self-insured amounts. Certain insurance carriers that provide excess insurance coverage to us currently and for past claim years have encountered financial issues.
In this event, we could be required to replace the volumes elsewhere at uncertain rates and volumes, suffer reduced equipment utilization, or reduce the size of our fleet. In addition, the size and market concentration of some of our customers may allow them to exert increased pressure on the prices, margins and non-monetary terms of our contracts.
In this event, we could be required to replace the 20 volumes elsewhere at uncertain rates and volumes, suffer reduced equipment utilization, or reduce the size of our fleet. In addition, the size and market concentration of some of our customers may allow them to exert increased pressure on the prices, margins and non-monetary terms of our contracts.
Prices have increased and may continue to increase, due to, among other reasons, (i) increases in commodity prices, (ii) government regulations applicable to newly manufactured tractors, trailers, and diesel engines, and (iii) the pricing discretion of equipment manufacturers. In addition, we have recently equipped our tractors with safety, aerodynamic, and other options that increase the price of new equipment.
Prices have increased and may continue to increase, due to, among other reasons, (i) increases in commodity prices, (ii) government regulations applicable to newly manufactured tractors, trailers, and diesel engines, and (iii) the pricing discretion of equipment manufacturers. In addition, we have equipped our tractors with safety, aerodynamic, and other options that increase the price of new equipment.
The amount of deferred tax liability is determined by using the enacted tax rates in effect for the year in which differences between the financial statement and tax basis of assets and liabilities are expected to reverse. Accordingly, our net current tax liability has been determined based on the currently enacted rate of 21%.
The amount of deferred tax liability is determined by using the enacted tax rates in effect for the year in which differences between the financial statement and tax basis of assets and 30 liabilities are expected to reverse. Accordingly, our net current tax liability has been determined based on the currently enacted rate of 21%.
Like many truckload carriers, we experience substantial difficulty in attracting and retaining sufficient numbers of qualified drivers which includes to a lesser extent, our engagement of independent contractors. Independent contractors currently 19 represent a small portion of our fleet. The truckload industry is subject to a shortage of qualified drivers.
Like many truckload carriers, we experience substantial difficulty in attracting and retaining sufficient numbers of qualified drivers which includes to a lesser extent, our engagement of independent contractors. Independent contractors currently represent a small portion of our fleet. The truckload industry is subject to a shortage of qualified drivers.
We self-insure for a portion of our claims, which could increase the volatility of, and decrease the amount of, our earnings, and could have a materially adverse effect on our results of operations. See Note 8 of the consolidated financial statements for more information regarding our self-insured retention amounts.
We self-insure for a 24 portion of our claims, which could increase the volatility of, and decrease the amount of, our earnings, and could have a materially adverse effect on our results of operations. See Note 8 of the consolidated financial statements for more information regarding our self-insured retention amounts.
As a result, we expect to continue to pay increased prices for equipment and incur additional expenses for the foreseeable future. In addition, reduced equipment efficiency may result from new engines designed to reduce emissions, thereby increasing our operating expenses.
As a result, we expect to continue to pay increased prices for equipment and incur additional expenses for the foreseeable 29 future. In addition, reduced equipment efficiency may result from new engines designed to reduce emissions, thereby increasing our operating expenses.
We may also suffer from natural disasters and weather-related events, 23 such as tornadoes, hurricanes, blizzards, ice storms, floods, and fires, which may increase in frequency and severity due to climate change, as well as other man-made disasters.
We may also suffer from natural disasters and weather-related events, such as tornadoes, hurricanes, blizzards, ice storms, floods, and fires, which may increase in frequency and severity due to climate change, as well as other man-made disasters.
In recent years there have been several insurance carriers that have exited the excess reinsurance market. Insurance carriers have recently raised premiums and collateral requirements for many businesses, including trucking companies. This trend is expected to continue.
In recent years there have been several insurance carriers that have exited the excess reinsurance market. Insurance carriers have raised premiums and collateral requirements for many businesses, including trucking companies. This trend is expected to continue.
Even if we are able to integrate CFI’s operations into our operations, we may not realize the full benefits of the cost savings, synergies, revenue enhancements, or other benefits that we may have expected at the time of acquisition.
Even if we are able to successfully integrate CFI’s operations into our operations, we may not realize the full benefits of the cost savings, synergies, revenue enhancements, or other benefits that we may have expected at the time of acquisition.
Some of the principal risks during such times are as follows: • we may experience a reduction in overall freight levels, which may impair our asset utilization; • certain of our customers may face credit issues and could experience cash flow problems that may lead to payment delays, increased credit risk, bankruptcies and other financial hardships that could result in even lower freight demand and may require us to increase our allowance for doubtful accounts; • freight patterns may change as supply chains are redesigned, resulting in an imbalance between our capacity and our customers’ freight demand; • customers may solicit bids for freight from multiple trucking companies or select competitors that offer lower rates from among existing choices in an attempt to lower their costs and we might be forced to lower our rates or lose freight; • we may be forced to accept freight from freight brokers, where freight rates are typically lower, or may be forced to incur more non-revenue miles to obtain loads; and • the resale value of our equipment may decline, which could negatively impact our earnings and cash flows.
Some of the principal risks during such times are as follows: • we may experience a reduction in overall freight levels, which may impair our asset utilization; • certain of our customers may face credit issues and could experience cash flow problems that may lead to payment delays, increased credit risk, bankruptcies and other financial hardships that could result in even lower freight demand and may require us to increase our allowance for credit losses; 17 • freight patterns may change as supply chains are redesigned, resulting in an imbalance between our capacity and our customers’ freight demand; • customers may solicit bids for freight from multiple trucking companies or select competitors that offer lower rates from among existing choices in an attempt to lower their costs and we might be forced to lower our rates or lose freight; • we may be forced to accept freight from freight brokers, where freight rates are typically lower, or may be forced to incur more non-revenue miles to obtain loads; and • the resale value of our equipment may decline, which could negatively impact our earnings and cash flows.
Revenue can also be affected by bad weather, holidays, and the number of business days that occur during a given period, since revenue is directly related to available working days of shippers. At the same time, operating expenses increase and fuel efficiency declines because of engine idling, while harsh weather creates higher accident frequency, increased claims, and more equipment repairs.
Revenue can also be affected by bad weather, holidays, and the number of business days that occur during a given period, since revenue is directly related to available working days of shippers. At the same time, operating expenses increase and fuel efficiency decline because of engine idling, while harsh weather creates higher accident frequency, increased claims, and more equipment repairs.
Federal legislators have introduced legislation in the past to make it easier for tax and other authorities to reclassify independent contractor drivers as employees, including legislation to increase the recordkeeping requirements for those that 24 engage independent contractor drivers and to heighten the penalties of companies who misclassify their employees and are found to have violated employees' overtime and/or wage requirements.
Federal legislators have introduced legislation in the past to make it easier for tax and other authorities to reclassify independent contractor drivers as employees, including legislation to increase the recordkeeping requirements for those that 25 engage independent contractor drivers and to heighten the penalties of companies who misclassify their employees and are found to have violated employees' overtime and/or wage requirements.
Although we do not have any direct operations in Russia, Belarus, or Ukraine, we may be affected by the broader consequences of the Russia and Ukraine conflict or expansion of such conflict to other areas or countries or similar conflicts elsewhere, such as, increased inflation, supply chain issues, including access to parts for our revenue equipment, embargoes, geopolitical shift, access to diesel fuel, higher energy prices, potential retaliatory action by the Russian or other governments, including cyber-attacks, and the extent of the conflict’s effect on the global economy.
Although we do not have any direct operations in Russia, Belarus, Ukraine, or the Middle East, we may be affected by the broader consequences of conflicts in Ukraine or the Middle East or expansion of such conflicts to other areas or countries or similar conflicts elsewhere, such as, increased inflation, supply chain issues, including access to parts for our revenue equipment, embargoes, geopolitical shift, access to diesel fuel, higher energy prices, potential retaliatory action by the Russian or other governments, including cyber-attacks, and the extent of the conflict’s effect on the global economy.
Such shortage is exacerbated during periods of economic expansion, in which alternative employment opportunities, such as those in the construction and manufacturing industries, are more plentiful and freight demand increases. Furthermore, capacity at driving schools may be limited by future outbreaks of COVID-19 or other similar outbreaks.
Such shortage is exacerbated during periods of economic expansion, in which alternative employment opportunities, such as those in the construction and manufacturing industries, are more plentiful and freight demand increases. Furthermore, capacity at driving schools may be limited by future outbreaks of COVID-19 or other similar contagious diseases.
If we succeed in consummating future acquisitions, our business, financial condition and results of operations, may be materially adversely affected because: • some of the acquired businesses may not achieve anticipated revenue, earnings, or cash flows; • we may assume liabilities that were not disclosed to us or otherwise exceed our estimates; • we may be unable to integrate acquired businesses successfully, or at all, and realize anticipated economic, operational and other benefits in a timely manner, which could result in substantial costs and delays or other operational, technical, or financial problems; • acquisitions could disrupt our ongoing business, distract our management, and divert our resources; • we may experience difficulties operating in markets in which we have had no or only limited direct experience; • we may incur transaction costs and acquisition-related integration costs; • we could lose customers, employees, and drivers of any acquired company; • we may experience potential future impairment charges, write-offs, write-downs, or restructuring charges; and • we may issue dilutive equity securities, incur indebtedness, and/or incur large one-time expenses.
If we succeed in consummating future acquisitions, our business, financial condition and results of operations, may be materially adversely affected because: • some of the acquired businesses may not achieve anticipated revenue, earnings, or cash flows; • we may assume liabilities that were not disclosed to us or otherwise exceed our estimates; • we may be unable to integrate acquired businesses successfully, or at all, and realize anticipated economic, operational and other benefits in a timely manner, which could result in substantial costs and delays or other operational, technical, or financial problems; • acquisitions could disrupt our ongoing business, distract our management, and divert our resources; • we may experience an increase in our customer concentration; • we may experience difficulties operating in markets in which we have had no or only limited direct experience; 19 • we may incur transaction costs and acquisition-related integration costs; • we could lose customers, employees, and drivers of any acquired company; • we may experience potential future impairment charges, write-offs, write-downs, or restructuring charges; and • we may issue dilutive equity securities, incur indebtedness, and/or incur large one-time expenses.
If any of our motor carriers were to receive a conditional or unsatisfactory DOT safety rating, it could materially adversely affect our business, financial condition, and results of operations as customer contracts may require a satisfactory DOT safety rating, and a conditional or unsatisfactory rating could materially adversely affect or restrict our operations. 25 Furthermore, any changes to the DOT safety rating could make it more difficult for us to receive a satisfactory rating.
If any of our motor carriers were to receive a conditional or unsatisfactory DOT safety rating, it could materially adversely affect our business, financial condition, and results of operations as customer contracts may require a satisfactory DOT safety rating, and a conditional or unsatisfactory rating could materially adversely affect or restrict our operations. 26 Furthermore, any changes to the DOT safety rating could make it more difficult for us to receive a satisfactory rating.
Our business could be harmed if we are unable to continue to obtain an adequate supply of new tractors and trailers for these or other reasons, and the future use of autonomous tractors could increase the price of new tractors and decrease the value of used, non-autonomous tractors.
Our business could be harmed if we are unable to continue to obtain an adequate supply of new tractors and trailers for these or other reasons, and the future use of autonomous tractors and alternative fuel could increase the price of new tractors and decrease the value of used, non-autonomous tractors.
Seasonality and the impact of weather and other catastrophic events affect our operations and profitability. Weather and other seasonal events could adversely affect our operating results. Our tractor productivity decreases during the winter season because inclement weather impedes operations, and some shippers reduce their shipments after the winter holiday season.
Seasonality and the impact of weather and climate change and other catastrophic events affect our operations and profitability. Weather and other seasonal events could adversely affect our operating results. Our tractor productivity decreases during the winter season because inclement weather impedes operations, and some shippers reduce their shipments after the winter holiday season.
Regulatory requirements, including those related to safety ratings, ELDs and HOS changes, drug and alcohol testing national database, government imposed measures related to future outbreaks of COVID-19 or other similar outbreaks, an improved economy, and aging of the driver workforce, could further reduce the pool of eligible drivers or force us to increase driver compensation to attract and retain drivers.
Regulatory requirements, including those related to safety ratings, ELDs and HOS changes, drug and alcohol testing national database, government imposed measures related to future outbreaks of COVID-19 or other contagious diseases, an improved economy, and aging of the driver workforce, could further reduce the pool of eligible drivers or force us to increase driver compensation to attract and retain drivers.
We believe that some of the most significant of these factors are economic changes that affect supply and demand in transportation markets, such as: • recessionary economic cycles, which are characterized by weak demand and downward pressure on freight rates; • downturns in customers’ business cycles, including as a result of declines in consumer spending; 16 • changes in customers’ inventory levels and practices, including shrinking product/package size, and in the availability of funding for their working capital; • excess tractor and trailer capacity in the trucking industry in comparison with shipping demand; • changes in the way our customers choose to source or utilize our services; • the rate of unemployment and availability of and compensation for alternative jobs for truck drivers, which may exacerbate driver shortages and increase driver compensation costs; • the availability and price of new revenue equipment and/or declines in the resale value of used revenue equipment; • the impact of the COVID-19 pandemic; • activity in key economic indicators such as manufacturing of automobiles and durable goods, and housing construction; • supply chain disruptions due to weather, pandemics, congestion, strikes, work stoppages, or work slowdowns at our facilities, or at a customer, port, border crossing, or other shipping related facilities; • increases in interest rates, inflation, fuel taxes, insurance, tolls, and license and registration fees; and • rising costs of healthcare.
We believe that some of the most significant of these factors are economic changes that affect supply and demand in transportation markets, such as: • recessionary economic cycles, which are characterized by weak demand and downward pressure on freight rates; • downturns in customers’ business cycles, including as a result of declines in consumer spending; • changes in customers’ inventory levels and practices, including shrinking product/package size, and in the availability of funding for their working capital; • excess tractor and trailer capacity in the trucking industry in comparison with shipping demand; • changes in the way our customers choose to source or utilize our services; • the rate of unemployment and availability of and compensation for alternative jobs for truck drivers, which may exacerbate driver shortages and increase driver compensation costs; • the availability and price of new revenue equipment and/or declines in the resale value of used revenue equipment; • the impact of the public health crises, epidemics, pandemics or similar events, such as COVID-19; • activity in key economic indicators such as manufacturing of automobiles and durable goods, and housing construction; • supply chain disruptions due to weather, pandemics, congestion, strikes, work stoppages, or work slowdowns at our facilities, or at a customer, port, border crossing, or other shipping related facilities, including related reductions in demand; • increases in interest rates, inflation, fuel taxes, insurance, tolls, and license and registration fees; and • rising costs of healthcare.
A decrease in vendor output may have a materially adverse effect on our ability to purchase a quantity of new revenue equipment that is sufficient to sustain our desired growth rate and to maintain a late-model fleet.
A decrease in vendor output may have a materially adverse effect on our ability to purchase or take possession of a quantity of new revenue equipment that is sufficient to sustain our desired growth rate and to maintain a late-model fleet.
Despite the existence of contractual arrangements with our customers, certain of our customers may nonetheless engage in competitive bidding processes that could negatively impact our contractual relationship. In addition, certain of our major customers may increasingly use their own truckload and delivery fleets, which would reduce our freight volumes.
Despite the existence of contractual arrangements with our customers, certain of our customers may nonetheless engage in competitive bidding processes that could negatively impact our contractual relationship. In addition, certain of our major customers may increasingly use their own truckload and delivery fleets, which would reduce our freight volumes and increase competition for qualified drivers.
In addition, events outside our control, such as deterioration of U.S. transportation infrastructure and reduced investment in such infrastructure, further developments in the COVID-19 outbreak, strikes or other work stoppages at our facilities or at customer, vendor, port, border or other shipping locations, armed conflicts, including the conflict in Ukraine, terrorist attacks, efforts to combat terrorism, military action against a foreign state or group located in a foreign state or heightened security requirements could lead to wear, tear and damage to our equipment, lack of availability of new equipment, driver dissatisfaction, reduced economic demand and freight volumes, reduced availability of credit, increased prices for fuel, or temporary closing of the shipping locations or U.S. borders.
In addition, events outside our control, such as deterioration of U.S. transportation infrastructure and reduced investment in such infrastructure, public health crises, epidemics, pandemics or similar events, such as COVID-19 outbreak, strikes or other work stoppages at our facilities or at customer, vendor, port, border or other shipping locations, armed conflicts, including conflicts in Ukraine and the Middle East, terrorist attacks, efforts to combat terrorism, military action against a foreign state or group located in a foreign state or heightened security requirements could lead to wear, tear and damage to our equipment, lack of availability of new equipment, driver dissatisfaction, reduced economic demand and freight volumes, reduced availability of credit, increased prices for fuel, or temporary closing of the shipping locations or U.S. borders.
We operate in a highly regulated industry, and changes in existing regulations or violations of existing or future regulations could have a materially adverse effect on our operations and profitability. We, our drivers, and our equipment are regulated by the DOT, the EPA, the DHS, and other agencies in the states in which we operate.
We operate in a highly regulated industry, and changes in existing regulations or violations of existing or future regulations could have a materially adverse effect on our operations and profitability. We, our drivers, and our equipment are regulated by the DOT, the EPA, the DHS and other agencies in the U.S. and Mexico.
If an increase in the corporate tax rate is passed by Congress and signed into law, it could have a materially adverse effect on our financial results and financial position. At December 31, 2022, the Company had a total deferred income tax liability of $207.5 million.
If an increase in the corporate tax rate is passed by Congress and signed into law, it could have a materially adverse effect on our financial results and financial position. At December 31, 2023, the Company had a total deferred income tax liability of $189.1 million.
Such cost increases for our revenue equipment suppliers would likely be passed on to us, and to the extent fuel prices increase, we may not be able to fully recover such increases through rate increases or our fuel surcharge program, either of which could have a material adverse effect on our business.
Such cost increases for our revenue equipment suppliers would likely be passed on to us, and to the extent fuel prices increase, we may not be able to fully recover such increases through rate increases or our fuel surcharge program, either of which could have a material adverse effect on our business. 27 Litigation may adversely affect our business, financial condition, and results of operations.
Alternatively, we could decide, or be forced, to operate our equipment longer, which could negatively impact maintenance and repairs expense, customer service, and driver satisfaction. If there is a deterioration of resale prices, it could have a material adverse effect on 28 our business, financial condition, and results of operations.
Alternatively, we could decide, or be forced, to operate our equipment longer, which could negatively impact maintenance and repairs expense, customer service, and driver satisfaction. If there is a deterioration of resale prices, it could have a material adverse effect on our business, financial condition, and results of operations. In 2022 and 2023, we experienced a softened used equipment market.
Some tractor and trailer manufacturers are still experiencing shortages of certain component parts and supplies, including semiconductor chips, forcing such manufacturers to curtail or suspend their production. This could lead to a lower supply of tractors and trailers, higher prices, and lengthened trade cycles.
Some tractor and trailer manufacturers have recently experienced periodic shortages of certain component parts and supplies, including semiconductor chips, forcing such manufacturers to curtail or suspend their production. This could lead to a lower supply of tractors and trailers, higher prices, and lengthened trade cycles.
If we are unable to retain our key employees or find, develop and retain a core group of managers, our business, financial condition, and results of operations could be materially adversely affected. We are highly dependent upon the services of several executive officers and key management employees.
We do not currently use AI in any material capacity. 23 If we are unable to retain our key employees or find, develop and retain a core group of managers, our business, financial condition, and results of operations could be materially adversely affected. We are highly dependent upon the services of several executive officers and key management employees.
Such events may lead not only to increases in fuel prices, but also to fuel shortages and disruptions in the fuel supply chain. In 2022, certain regions of the United States experienced short-term shortages of diesel fuel. Fuel also is subject to regional pricing differences and is often more expensive in certain areas where we operate.
Such events may lead not only to increases in fuel prices, but also to fuel shortages and disruptions in the fuel supply chain. Fuel also is subject to regional pricing differences and is often more expensive in certain areas where we operate.
The conflict between Russia and Ukraine, expansion of such conflict to other areas or countries or similar conflicts could adversely impact our business and financial results.
The conflicts in Ukraine and the Middle East, expansion of such conflicts to other areas or countries or similar conflicts could adversely impact our business and financial results.
These disruptions and difficulties, if they occur, may cause us to fail to realize the cost savings, synergies, revenue enhancements, and other benefits that we expect to result from integrating CFI and may cause material adverse short- and long-term effects on our operating results, financial condition, and liquidity.
These disruptions and difficulties may cause us to fail to realize the cost savings, synergies, revenue enhancements, and other benefits that we expect to result from integrating CFI and may cause material adverse short- and long-term effects on our operating results, financial condition, and liquidity. During 2023, we experienced difficulties in controlling costs and improving profitability at CFI.
As a result, our insurance and claims expense could likely increase if we have a similar experience at renewal, or we could find it necessary to raise our self-insured retention or decrease our aggregate coverage limits when our policies are renewed or replaced. At our policy renewal in April 2020, we reduced our excess insurance coverage.
As a result, our insurance and claims expense could likely increase if we have a similar experience at renewal, or we could find it necessary to raise our self-insured retention or decrease our aggregate coverage limits when our policies are renewed or replaced. In April 2023, we renewed our primary auto liability insurance with a three year program.
Moreover, resource requirements vary based on customer demand, which may be subject to seasonal or general economic conditions. During periods of decreased customer demand, our asset utilization may suffer, and we may be forced to sell equipment on the open market or turn in equipment under certain equipment leases, if any, in order to right size our fleet.
During periods of decreased customer demand, our asset utilization may suffer, and we may be forced to sell equipment on the open market or turn in equipment under certain equipment leases, if any, in order to right size our fleet.
Our business results in a substantial number of claims and litigation related to workers’ compensation, auto liability, general liability, cargo and property damage claims, personal injuries, and employment issues as well as employees’ health insurance.
Our future insurance and claims expense might exceed historical levels, which could reduce our earnings. Our business results in a substantial number of claims and litigation related to workers’ compensation, auto liability, general liability, cargo and property damage claims, personal injuries, and employment issues as well as employees’ health insurance.
We have significant indebtedness following our acquisition of CFI and Smith Transport. Our indebtedness may fluctuate from time to time in the future for various reasons, including fluctuations in results of operations, capital expenditures, and potential acquisitions.
Our indebtedness may fluctuate from time to time in the future for various reasons, including fluctuations in results of operations, capital expenditures, and potential acquisitions.
Similarly, our failure, or perceived failure, to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to government enforcement actions and private litigation FINANCIAL RISKS Our existing and future indebtedness could limit our flexibility in operating our business or adversely affect our business and our liquidity position.
Similarly, our failure, or perceived failure, to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to government enforcement actions and private litigation.
Such events or enhanced security measures in connection with such events could impair our operating efficiency and productivity and result in higher operating costs. 17 Our growth may not continue at historical rates, if at all, and any decrease in revenues or profits may impair our ability to implement our business strategy, which could have a materially adverse effect on our results of operations.
Our growth may not continue at historical rates, if at all, and any decrease in revenues or profits may impair our ability to implement our business strategy, which could have a materially adverse effect on our results of operations.
Companies are facing increasing attention from stakeholders relating to ESG matters, including environmental stewardship, social responsibility, and diversity and inclusion. Organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions.
Organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions.
There can be no assurance that our business will grow in a similar fashion in the future, or at all, or that we can effectively adapt our management, administrative, and operational systems to respond to any future growth.
There can be no assurance that our business will grow in the future, or at all, or that we can effectively adapt our management, administrative, and operational systems to respond to any future growth. Further, there can be no assurance that we will be able to successfully implement cost controls and improve our operating ratio.
Further, despite our efforts to meet such demands, we may fail to do so, which may result in lost future business opportunities with such customers, which could have a materially adverse effect on our operations.
Further, despite our efforts to meet such demands, we may fail to do so, which may result in lost future business opportunities with such customers, which could have a materially adverse effect on our operations. Demands during the fourth quarter may be muted during soft freight environments, like we experienced in the last two years.
Additionally, these synergies could be delayed and may not be achieved. The integration could result in significant unexpected costs. Transaction costs and integration costs related to the acquisition of CFI could adversely affect our results of operations in the period in which such charges are recorded.
Although we anticipate achieving synergies in connection with the acquisition of CFI, we also expect to incur costs to implement such cost savings measures. Additionally, these synergies could be delayed and may not be achieved. Integration costs related to the acquisition of CFI could adversely affect our results of operations in the period in which such charges are recorded.
These third-party providers may seek other freight opportunities and may require increased compensation in times of improved freight demand or tight truckload capacity.
This reliance could also cause delays in reporting certain events, including recognizing revenue and claims. These third-party providers may seek other freight opportunities and may require increased compensation in times of improved freight demand or tight truckload capacity.
These regional operations require the commitment of additional personnel and revenue equipment, as well as management resources, for future development and establishing terminals and operations in new markets could require more time, resources or a more substantial financial commitment than anticipated. Should the growth in our regional operations stagnate or decline, the results of our operations could be adversely affected.
We have established terminals throughout the contiguous U.S. in order to serve markets in various regions. These regional operations require the commitment of additional personnel and revenue equipment, as well as management resources, for future development and establishing terminals and operations in new markets could require more time, resources or a more substantial financial commitment than anticipated.
Changes to trade regulation, quotas, duties, or tariffs, caused by the changing U.S. and geopolitical environments or otherwise, may increase our costs and materially adversely affect our business.
"Environmental Regulation" in Part I, Item 1 of this Annual Report, provides a discussion of the environmental laws and regulations applicable to our business and operations. Changes to trade regulation, quotas, duties, or tariffs, caused by the changing U.S. and geopolitical environments or otherwise, may increase our costs and materially adversely affect our business.
We have seen a slight softening of the used equipment market recently. We could determine that our goodwill and other intangible assets are impaired, thus recognizing a related loss. As of December 31, 2022, we had goodwill of $320.7 million and other intangible assets of $103.7 million. We evaluate our goodwill and other intangible assets for impairment.
We could determine that our goodwill and other intangible assets are impaired, thus recognizing a related loss. As of December 31, 2023, we had goodwill of $322.6 million and other intangible assets of $98.5 million. We evaluate our goodwill and other intangible assets for impairment.
In addition, the Credit Facilities contain usual and customary financial covenants, including (i) a maximum net leverage ratio of 2.75 to 1.00, measured quarterly on a trailing twelve-month basis, and (ii) a minimum interest coverage ratio of 3.00 to 1.00, measured quarterly on a trailing twelve-month basis. 27 Our profitability may be materially adversely impacted if our capital investments do not match customer demand or if there is a decline in the availability of funding sources for these investments.
In addition, the Credit Facilities contain usual and customary financial covenants, including (i) a maximum net leverage ratio of 2.75 to 1.00, measured quarterly on a trailing twelve-month basis, and (ii) a minimum interest coverage ratio of 3.00 to 1.00, measured quarterly on a trailing twelve-month basis.
For further discussion of the DOT safety rating system, please see “Regulation” under “Item 1. Business.” Compliance with various environmental laws and regulations may increase our costs of operations and non-compliance with such laws and regulations could result in substantial fines or penalties.
Compliance with various environmental laws and regulations may increase our costs of operations and non-compliance with such laws and regulations could result in substantial fines or penalties.
We expect to pay for projected capital expenditures with cash flows from operations, proceeds from sales of equipment being replaced, and with proceeds of borrowings if necessary.
Our historical policy of operating newer equipment requires us to expend significant amounts annually to maintain a newer average age for our fleet of revenue equipment. We expect to pay for projected capital expenditures with cash flows from operations, proceeds from sales of equipment being replaced, and with proceeds of borrowings if necessary.
Our ability to secure sufficient equipment or other transportation services may be affected by many risks beyond our control, including equipment shortages increased equipment prices, interruptions in service due to labor disputes, driver shortages, changes in regulations impacting transportation, and changes in transportation rates. 22 We depend on the proper functioning and availability of our management information and communication systems and other technology assets (and the data contained therein) and a system failure or unavailability, including those caused by cybersecurity breaches, or an inability to effectively upgrade such systems and assets could cause a significant disruption to our business and have a materially adverse effect on our results of operations.
We depend on the proper functioning and availability of our management information and communication systems and other technology assets (and the data contained therein) and a system failure or unavailability, including those caused by cybersecurity breaches internally or with third parties, or an inability to effectively upgrade such systems and assets, including operating system integration of acquired companies, could cause a significant disruption to our business and have a materially adverse effect on our results of operations.
We depend on third-party providers for our brokerage services, and service instability from these providers could increase our operating costs and reduce our ability to offer such services, which could adversely affect our revenue, results of operations, and customer relationships. Our brokerage operations are dependent upon the services of third-party capacity providers, including other truckload carriers.
Our results of operations would be negatively affected to the extent we cannot recover higher fuel costs or fail to improve our fuel price protection through our fuel surcharge programs. 22 We depend on third-party providers for our brokerage services, and service instability from these providers could increase our operating costs and reduce our ability to offer such services, which could adversely affect our revenue, results of operations, and customer relationships.
Historically, we have experienced significant growth in revenue and profits, although there have been times, particularly after acquisitions, when our revenue and/or profitability decreased.
Historically, we have experienced significant growth in revenue and profits, although there have been times, particularly after acquisitions, when our revenue and/or profitability decreased. While our acquisitions of CFI and Smith Transport during 2022 resulted in revenue growth in 2023, other metrics such as operating ratio were impaired.
If the current rate were increased due to legislation, it would have an immediate revaluation of our deferred tax assets and liabilities in the year of enactment. COVID-19 RISKS We could be negatively impacted by the COVID-19 pandemic or other similar outbreaks.
If the current rate were increased due to legislation, it would have an immediate revaluation of our deferred tax assets and liabilities in the year of enactment. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
However, certain of these contracts contain cancellation clauses, including our “evergreen” contracts, which automatically renew for one year terms but that can be terminated more easily. There is no assurance any of our customers, including those with longer term contracts, will continue to utilize our services, renew our existing contracts, or continue at the same volume levels.
However, certain of these contracts contain cancellation clauses, including our “evergreen” contracts, which automatically renew for one year terms but that can be terminated more easily.
Our operations require significant capital investments. The amount and timing of such investments depend on various factors, including anticipated freight demand and the price and availability of assets. If anticipated demand differs materially from actual usage, we may have too many or too few assets.
Our profitability may be materially adversely impacted if our capital investments do not match customer demand or if there is a decline in the availability of funding sources for these investments. Our operations require significant capital investments. The amount and timing of such investments depend on various factors, including anticipated freight demand and the price and availability of assets.
For this business, we do not own or control the transportation assets that deliver our customers' freight, and we do not employ the people directly involved in delivering the freight. This reliance could also cause delays in reporting certain events, including recognizing revenue and claims.
Our brokerage operations are dependent upon the services of third-party capacity providers, including other truckload carriers. For this business, we do not own or control the transportation assets that deliver our customers' freight, and we do not employ the people directly involved in delivering the freight.
Litigation may adversely affect our business, financial condition, and results of operations. Our business is subject to the risk of litigation by employees, independent contractors, customers, vendors, government agencies, stockholders, and other parties through private actions, class actions, administrative proceedings, regulatory actions, and other processes.
Our business is subject to the risk of litigation by employees, independent contractors, customers, vendors, government agencies, stockholders, and other parties through private actions, class actions, administrative proceedings, regulatory actions, and other processes related to personal injury, labor and employment, property damage, cargo claims, safety and contract compliance, environmental liability, and other matters, and we have been subject to litigation regarding these matters in the past.
COMPLIANCE RISKS We self-insure for a significant portion of our claims exposure, which could significantly increase the volatility of, and decrease the amount of, our earnings. Our future insurance and claims expense might exceed historical levels, which could reduce our earnings.
If any of these were to occur, our operations, financial condition, liquidity, results of operations, and cash flows could be adversely impacted. COMPLIANCE RISKS We self-insure for a significant portion of our claims exposure, which could significantly increase the volatility of, and decrease the amount of, our earnings.
There is no assurance that our fuel surcharge programs can be maintained indefinitely or will be sufficiently effective. Our results of operations would be negatively affected to the extent we cannot recover higher fuel costs or fail to improve our fuel price protection through our fuel surcharge programs.
There is no assurance that our fuel surcharge programs can be maintained indefinitely or will be sufficiently effective.
Also, the cost savings and other benefits from this acquisition may be offset by unexpected costs incurred in integrating CFI, increases in other expenses, or problems in the business unrelated to this acquisition. 21 In addition, CFI’s Mexican operations subject us to general international business risks, including: • foreign currency fluctuation; • changes in Mexico's economic strength; • difficulties in enforcing contractual obligations and intellectual property rights; • burdens of complying with a wide variety of international and US export, import, business procurement, transparency, and corruption laws, including the US Foreign Corrupt Practices Act; • changes in trade agreements and US-Mexico relations; • theft or vandalism of our revenue equipment; and • social, political, and economic instability If fuel prices increase significantly, our results of operations could be adversely affected.
In addition, CFI’s Mexican operations subject us to general international business risks, including: • foreign currency fluctuation; • changes in Mexico's economic strength; • difficulties in enforcing contractual obligations and intellectual property rights; • burdens of complying with a wide variety of international and U.S. export, import, business procurement, transparency, and corruption laws, including the U.S.
These lawsuits have resulted, and may result in the future, in the payment of substantial settlements or damages and rising risk of higher insurance costs. 26 Increasing attention on environmental, social and governance (“ESG”) matters may have a negative impact on our business, impose additional costs on us, and expose us to additional risks.
Increasing attention on environmental, social and governance (“ESG”) matters may have a negative impact on our business, impose additional costs on us, and expose us to additional risks. Companies are facing increasing attention from stakeholders relating to ESG matters, including environmental stewardship, social responsibility, and diversity and inclusion.
Given the nature and size of CFI, as well as the structure of the acquisition as a carveout from the seller, the acquisition of CFI presents the following risks. 20 Although we anticipate achieving synergies in connection with the acquisition of CFI, we also expect to incur costs to implement such cost savings measures.
The acquisition of CFI is the largest acquisition we have made in our history. Given the nature and size of CFI, as well as the structure of the acquisition as a carveout from the seller, the acquisition of CFI presents the following risks. We are still in the process of integrating CFI into our operations.
In addition, we may be subject, and have been subject in the past, to litigation resulting from trucking accidents. The number and severity of litigation claims may be worsened by distracted driving by both truck drivers and other motorists.
The number and severity of litigation claims may be worsened by various factors, including, among others, weather and distracted driving by both truck drivers and other motorists. These legal proceedings have resulted, and may result in the future, in the payment of substantial settlements or damages and increases in our insurance costs.
Our ability to select profitable freight and adapt to changes in customer transportation requirements is important to efficiently deploy resources and make capital investments in tractors and trailers. Our historical policy of operating newer equipment requires us to expend significant amounts annually to maintain a newer average age for our fleet of revenue equipment.
Our ability to select profitable freight and adapt to changes in customer transportation requirements is important to efficiently deploy resources and make capital investments in tractors and trailers. Volatility in equity markets could also impair our financial position in general terms and our ability to effectively capitalize on potential merger and acquisition opportunities.
Removed
Further, there can be no assurance that our operating margins will not be adversely affected by future changes in and expansion of our business or by changes in economic conditions. We have established terminals throughout the contiguous U.S. in order to serve markets in various regions.
Added
Such events or enhanced security measures in connection with such events could impair our operating efficiency and productivity and result in higher operating costs.
Removed
The acquisition of CFI is the largest acquisition we have made in our history.
Added
Should the growth in our regional operations stagnate or decline, the results of our operations could be adversely affected.
Removed
The acquisition of CFI involves numerous risks, including: • management’s attention may be diverted from other areas of the Company, especially given the size of CFI and the complexity of integrating CFI into the Company; • many services, including certain aspects of benefits, payroll, human resources, and information technology, were shared among CFI and other divisions of the seller.
Added
There is no assurance any of our customers, including those with longer term contracts, will continue to utilize our services, renew our existing contracts, maintain their current rates (including customary rate increases), or continue at the same volume levels.
Removed
Recently, the duration of this increased period of demand in the fourth quarter has shortened, with certain customers requiring the same volume of shipments over a more condensed timeframe, resulting in increased stress and demand on our network, people, and systems.
Added
Also, the cost savings and other benefits from this acquisition may be offset by unexpected costs incurred in integrating CFI, increases in other expenses, or problems in the business unrelated to this acquisition.
Removed
If this trend continues, it could make satisfying our customers and maintaining the quality of our service during the fourth quarter increasingly difficult.
Added
Foreign Corrupt Practices Act; • changes in trade agreements and U.S.-Mexico relations; • theft or vandalism of our revenue equipment; and • social, political, and economic instability If fuel prices increase significantly, our results of operations could be adversely affected. Our operations are dependent upon fuel.
Removed
We have experienced an increase in absences or terminations among our driver and non-driver personnel due to the outbreak of COVID-19, including its variants, which have disrupted our operations. Furthermore, government vaccine, testing, and mask mandates could increase our turnover and make recruiting more difficult, particularly among our driver personnel.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table provides information regarding our terminal facilities with shop and maintenance, fueling services or other significant operations: Company Location Office Shop Fuel Owned or Leased Albany, Georgia No Yes No Owned Alvarado, Texas Yes Yes Yes Owned Atlanta, Georgia Yes Yes Yes Owned Black River Falls, Wisconsin Yes Yes No Owned Boise, Idaho Yes Yes No Owned Canonsburg, Pennsylvania Yes No Yes Leased Carlisle, Pennsylvania Yes Yes Yes Owned Cartersville, Georgia Yes Yes Yes Owned Carthage, Missouri Yes Yes No Leased Chester, Virginia Yes Yes Yes Owned Columbus, Ohio Yes Yes Yes Owned Eden, North Carolina Yes Yes No Owned Frederick, Colorado Yes Yes Yes Owned Jacksonville, Florida Yes Yes Yes Owned Joplin, Missouri Yes Yes Yes Owned Kingsport, Tennessee Yes Yes Yes Owned Laredo, Texas Yes Yes Yes Owned Lathrop, California Yes Yes Yes Owned Medford, Oregon Yes Yes Yes Owned Mt.
Biggest changeThe following table provides information regarding our terminal facilities with shop and maintenance, fueling services or other significant operations: Company Location Office Shop Fuel Owned or Leased Albany, Georgia No Yes No Owned Alvarado, Texas Yes Yes Yes Owned Atlanta, Georgia Yes Yes Yes Owned Black River Falls, Wisconsin Yes Yes No Owned Boise, Idaho Yes Yes No Leased Canonsburg, Pennsylvania Yes No Yes Leased Carlisle, Pennsylvania Yes Yes Yes Owned Cartersville, Georgia Yes Yes Yes Owned Chester, Virginia Yes Yes Yes Owned Columbus, Ohio Yes Yes Yes Owned Eden, North Carolina Yes Yes No Owned Frederick, Colorado Yes Yes Yes Owned Jacksonville, Florida Yes Yes Yes Owned Joplin, Missouri Yes Yes Yes Owned Kingsport, Tennessee Yes Yes Yes Owned Laredo, Texas Yes Yes Yes Owned Lathrop, California Yes Yes Yes Leased Medford, Oregon Yes Yes Yes Owned Mt.
ITEM 2. PROPERTIES Our headquarters is located in North Liberty, Iowa which is located on Interstate 380 near the intersection of Interstates 380 and 80. The headquarters is located on 40 acres of land along the Cedar Rapids/Iowa City business corridor and includes a 65,000 square foot office building and a 32,600 square foot shop and maintenance building.
ITEM 2. PROPERTIES Our corporate headquarters is located in North Liberty, Iowa which is located on Interstate 380 near the intersection of Interstates 380 and 80. The headquarters is located on 40 acres of land along the Cedar Rapids/Iowa City business corridor and includes a 65,000 square foot office building and a 32,600 square foot shop and maintenance building.
Juliet, Tennessee Yes Yes Yes Owned North Liberty, Iowa (1) Yes Yes Yes Owned Nuevo Laredo, Mexico Yes No No Owned Olive Branch, Mississippi Yes Yes Yes Owned Phoenix, Arizona Yes Yes Yes Owned Pontoon Beach, Illinois Yes Yes No Owned Rancho Cucamonga, California Yes Yes Yes Leased Richfield, Wisconsin Yes Yes No Owned Ridgeway, Virginia Yes No Yes Owned Roaring Spring, Pennsylvania Yes Yes Yes Owned Sanford, Florida Yes No No Owned Seagoville, Texas Yes Yes Yes Leased Tacoma, Washington Yes Yes Yes Owned Taylor, Michigan Yes No No Owned Trenton, Ohio Yes Yes Yes Owned West Memphis, Arkansas Yes No Yes Owned (1) Corporation headquarters. 31
Juliet, Tennessee Yes Yes Yes Owned North Liberty, Iowa (1) Yes Yes Yes Owned Nuevo Laredo, Mexico Yes No No Owned Phoenix, Arizona Yes Yes Yes Owned Pontoon Beach, Illinois Yes Yes No Owned Rancho Cucamonga, California Yes Yes Yes Leased Richfield, Wisconsin Yes Yes No Owned Ridgeway, Virginia Yes No Yes Owned Roaring Spring, Pennsylvania Yes Yes Yes Owned Sanford, Florida Yes No No Owned Seagoville, Texas Yes Yes Yes Leased Tacoma, Washington Yes Yes Yes Owned Taylor, Michigan Yes No No Owned Trenton, Ohio Yes Yes Yes Owned West Memphis, Arkansas Yes No Yes Owned (1) Corporation headquarters. 33

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe maintain insurance to cover liabilities arising from the transportation of freight for amounts in excess of certain self-insured retentions. ITEM 4. MINE SAFETY DISCLOSURES None. 32 PART II
Biggest changeWe maintain insurance to cover liabilities arising from the transportation of freight for amounts in excess of certain self-insured retentions. ITEM 4. MINE SAFETY DISCLOSURES None. 34 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 32 PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 33 Item 6. [Reserved] 33 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 34 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 45 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 34 PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 35 Item 6. [Reserved] 35 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 36 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 47 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeStock Repurchase We have a stock repurchase program with 6.6 million shares remaining authorized for repurchase as of December 31, 2022. There were no shares repurchased in the open market during the year ended December 31, 2022 and 1.8 million shares repurchased in 2021. Shares repurchased during 2021 were accounted for as treasury stock.
Biggest changeStock Repurchase We have a stock repurchase program with 6.6 million shares remaining authorized for repurchase as of December 31, 2023. There were no shares repurchased in the open market during the years ended December 31, 2023 and 2022.
During 2021 the Company paid a special dividend of $0.50 per share on outstanding shares at the time of the special dividend declaration which was in addition to the regular quarterly dividends declared totaling $0.08 for the year. The special dividend payment amounted to $39.5 million.
During 2021 the Company paid a special dividend of $0.50 per share on outstanding shares at the time of the special dividend declaration which was in addition to the regular quarterly dividends declared totaling $0.08 per share for the year. The special dividend payment amounted to $39.5 million.
However, future payments of cash dividends will depend upon our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by the Board of Directors. During 2022 the Company paid regular quarterly dividends totaling $0.08 the year.
However, future payments of cash dividends will depend upon our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by the Board of Directors. During 2023 and 2022 the Company paid regular quarterly dividends totaling $0.08 per share for the year.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Trading Symbol Our common stock trades on The NASDAQ Global Select Market under the symbol HTLD. As of February 24, 2023, we had 300 stockholders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Trading Symbol Our common stock trades on The NASDAQ Global Select Market under the symbol HTLD. As of February 26, 2024, we had 751 stockholders of record of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFuel increased $95.0 million (95.4%), to $194.6 million for the year ended December 31, 2022 from $99.6 million for the same period of 2021. The increase in fuel was primarily due to more miles driven following our 2022 acquisitions and higher average diesel price per gallon (51.8%) as reported by the DOE.
Biggest changeThe increase in fuel was primarily due to more miles driven following our 2022 acquisitions, partially offset by lower average diesel price per gallon (15.5%) as reported by the DOE. The average DOE diesel fuel prices per gallon for 2023 and 2022 were $4.21 and $4.99, respectively. During March 2022 DOE average fuel prices increased to over $5.00 per gallon.
Outstanding borrowings under the Credit Facilities will accrue interest, at the option of the Borrower, at a per annum rate of (i) for an “ABR Loan”, the alternate base rate (defined as the interest rate per annum equal to the highest of (a) the variable rate of interest announced by the administrative agent as its “prime rate”, (b) 0.50% above the Federal Funds Rate, (c) the Term SOFR for an interest period of one-month plus 1.1%, or (d) 1.00%) plus the applicable margin or (ii) for a “SOFR Loan”, the Term SOFR Rate for an interest period of one, three or six-months as selected by Company plus the applicable margin.
Outstanding borrowings under the Credit Facilities will accrue interest, at the option of the Borrower, at a per annum rate of (i) for an “ABR Loan”, the alternate base rate (defined as the interest rate per annum equal to the highest of (a) the variable rate of 43 interest announced by the administrative agent as its “prime rate”, (b) 0.50% above the Federal Funds Rate, (c) the Term SOFR for an interest period of one-month plus 1.1%, or (d) 1.00%) plus the applicable margin or (ii) for a “SOFR Loan”, the Term SOFR Rate for an interest period of one, three or six-months as selected by Company plus the applicable margin.
For the valuation of long-lived assets we weigh many factors when completing these estimates. We may also engage independent valuation specialists to assist in the fair value calculations. During 2022 we engaged valuation specialists to assist us in determining the fair value of intangible assets, revenue equipment and properties acquired through our acquisitions of Smith 44 Transport and CFI.
For the valuation of long-lived assets we weigh many factors when completing these estimates. We may also engage independent valuation specialists to assist in the fair value calculations. During 2022 we engaged valuation specialists to assist us in determining the fair value of intangible assets, revenue equipment and properties acquired through our acquisitions of Smith Transport and CFI.
Our long-term objectives, which have not changed since we were founded in 1978, are to achieve significant growth, to operate with a low-80s operating ratio (operating expenses as a percentage of operating revenue), and to maintain a debt-free balance sheet. We maintain a disciplined approach to cost controls.
Our long-term objectives, which have not generally changed since we were founded in 1978, are to achieve significant growth, to operate with a low-80s operating ratio (operating expenses as a percentage of operating revenue), and to maintain a debt-free balance sheet. We maintain a disciplined approach to cost controls.
We historically have limited the effects of inflation through increases in freight rates and certain cost control efforts. Over the long term, general economic growth and industry supply and demand conditions have allowed rate increases, although the rate increases received have significantly lagged the increases in tractor prices and related depreciation expense.
We historically have limited the 42 effects of inflation through increases in freight rates and certain cost control efforts. Over the long term, general economic growth and industry supply and demand conditions have allowed rate increases, although the rate increases received have significantly lagged the increases in tractor prices and related depreciation expense.
A change in estimate could impact salaries, wages and benefits (workers compensation) or insurance and claims (auto liability) in the consolidated statements of comprehensive income and insurance accruals in the consolidated balance sheets. We have not had any material changes to our estimate methodology in the past three years.
A change in estimate could impact salaries, wages and benefits (workers compensation) or insurance and claims (auto liability) in the consolidated statements of 46 comprehensive income and insurance accruals in the consolidated balance sheets. We have not had any material changes to our estimate methodology in the past three years.
Our headquarters is located in North Liberty, Iowa, in a lower-cost environment with ready access to a skilled, educated, and industrious workforce. Our other terminals are located near major shipping corridors nationwide, affording proximity to customer locations, driver domiciles, and distribution centers.
Our corporate headquarters is located in North Liberty, Iowa, in a lower-cost environment with ready access to a skilled, educated, and industrious workforce. Our other terminals are located near major shipping corridors nationwide, affording proximity to customer locations, driver domiciles, and distribution centers.
Therefore, our operating income 37 is negatively impacted with increased net fuel costs (fuel expense less fuel surcharge revenue) in a rising fuel environment and is positively impacted in a declining fuel environment. We expect to continue to manage and implement fuel initiative strategies that we believe will effectively manage fuel costs.
Therefore, our operating income is negatively impacted with increased net fuel costs (fuel expense less fuel surcharge revenue) in a rising fuel environment and is positively impacted in a declining fuel environment. We expect to continue to manage and implement fuel initiative strategies that we believe will effectively manage fuel costs.
Adjusted operating ratio as reported in this annual report is based upon operating expenses, net of fuel surcharge revenue, amortization of 35 intangibles, acquisition-related costs, and the gain on sale of terminal property, as a percentage of operating revenue excluding fuel surcharge revenue.
Adjusted operating ratio as reported in this annual report is based upon operating expenses, net of fuel surcharge revenue, amortization of intangibles, acquisition-related costs, and the gain on sale of terminal property, as a percentage of operating revenue excluding fuel surcharge revenue.
The total net amount of accrued interest and penalties for such unrecognized tax benefits was $0.7 million at December 31, 2022, and is included in long-term income taxes payable within the consolidated balance sheet. Income tax expense is increased each period for the accrual of interest on outstanding positions and penalties when the uncertain tax position is initially recorded.
The total net amount of accrued interest and penalties for such unrecognized tax benefits was $0.7 million at December 31, 2023, and is included in long-term income taxes payable within the consolidated balance sheet. Income tax expense is increased each period for the accrual of interest on outstanding positions and penalties when the uncertain tax position is initially recorded.
It is reasonably likely that the ultimate outcome of settling all outstanding claims will be more or less than the estimated claims liability at December 31, 2022. Management believes that the ultimate resolution of these claims will not significantly affect the long-term financial condition of the Company or its ability to fund its continuing operations.
It is reasonably likely that the ultimate outcome of settling all outstanding claims will be more or less than the estimated claims liability at December 31, 2023. Management believes that the ultimate resolution of these claims will not significantly affect the long-term financial condition of the Company or its ability to fund its continuing operations.
We have the ability to limit new equipment purchases given our average age of revenue equipment, particularly our tractor fleet, is in the top tier of our industry. We do not believe that extending our trade cycle in 2023 will significantly increase operations and maintenance expense compared to the rest of the industry.
We have the ability to limit new equipment purchases given our average age of revenue equipment, particularly our tractor fleet, is in the top tier of our industry. We do not believe that extending our trade cycle in 2024 will significantly increase operations and maintenance expense compared to the rest of the industry.
During 2021, increased freight demand, combined with the COVID-19 pandemic, intensified an already challenging qualified driver market. Competition for qualified drivers continued to be challenging in 2022 and is expected to be a challenge going forward due to the decreasing numbers of qualified drivers in our industry.
During 2021, increased freight demand, combined with the COVID-19 pandemic, intensified an already challenging qualified driver market. Competition for qualified drivers continued to be challenging in 2023 and is expected to be a challenge going forward due to the decreasing numbers of qualified drivers in our industry.
During March 2022 the DOE average fuel prices increased to over $5.00 per gallon. The DOE average fuel cost remained above this elevated threshold for the period from March through December 31, 2022, although the DOE weekly average for the last four weeks of December fell below $5.00 per gallon.
During March 2022 the DOE average fuel prices increased to over $5.00 per gallon. The DOE average fuel cost remained above this elevated threshold for the period from March through most of 2022, although the DOE weekly average for the last four weeks of December 2022 fell below $5.00 per gallon.
The acquisitions impacted the change in operating revenues, salaries, wages and benefits, rent and purchased transportation, fuel expense, operations and maintenance, insurance and claims, depreciation and amortization, other operating expenses, and interest expense in 2022 compared to 2021 as further explained below.
The acquisitions impacted the change in operating revenues, salaries, wages and benefits, rent and purchased transportation, fuel expense, operations and maintenance, insurance and claims, depreciation and amortization, other operating expenses, and interest expense in 2022 compared to 2023 as further explained below.
We are highly selective about acquisitions, with our main criteria being (i) safe operations, (ii) high quality professional truck drivers, (iii) fleet profile that is compatible with our philosophy or can be replaced economically, and (iv) freight profile that will allow a path to a low-80s operating ratio upon full integration, application of our cost structure, and freight optimization, including exiting certain loads that fail to meet our operating profile.
We are highly selective about acquisitions, with our main criteria being (i) safe operations, (ii) high quality professional truck drivers, (iii) fleet profile that is compatible with our philosophy or can be replaced economically, and (iv) freight profile that will allow a path to a low-80s operating ratio upon full integration, application of our cost structure, and freight optimization, including exiting certain business that fails to meet our operating profile.
The operating revenues increase was the net result of an increase in loaded miles as a result of more drivers following our 2022 acquisitions along with an increase in the average rate per loaded mile. Fuel surcharge revenues represent fuel costs passed on to customers based on customer specific fuel surcharge recovery rates and billed loaded miles.
The operating revenues increase was the net result of an increase in loaded miles as a result of more drivers following our 2022 acquisitions offset with a decrease in the average rate per loaded mile. Fuel surcharge revenues represent fuel costs passed on to customers based on customer specific fuel surcharge recovery rates and billed loaded miles.
Results of Operations The following table sets forth the percentage relationships of expense items to total operating revenue for the periods indicated: Year Ended December 31, 2022 2021 Operating revenue 100.0 % 100.0 % Operating expenses: Salaries, wages, and benefits 35.8 % 41.2 % Rent and purchased transportation 5.6 0.6 Fuel 20.1 16.4 Operations and maintenance 4.0 3.6 Operating taxes and licenses 1.7 2.3 Insurance and claims 3.6 3.4 Communications and utilities 0.7 0.7 Depreciation and amortization 13.7 17.1 Other operating expenses 5.3 3.5 Gain on disposal of property and equipment (10.0) (6.2) 80.5 % 82.6 % Operating income 19.5 % 17.4 % Interest income 0.1 % 0.1 % Interest expense (0.9) % 0.0 % Income before income taxes 18.7 % 17.5 % Income tax expense 4.9 4.4 Net income 13.8 % 13.1 % Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021 The Company acquired CFI on August 31, 2022 and Smith Transport on May 31, 2022, therefore the operating results of the Company for the year ended December 31, 2022 includes the operating results of CFI and Smith Transport for four month and seven months after acquisition, respectively.
Results of Operations The following table sets forth the percentage relationships of expense items to total operating revenue for the periods indicated: Year Ended December 31, 2023 2022 Operating revenue 100.0 % 100.0 % Operating expenses: Salaries, wages, and benefits 39.3 % 35.8 % Rent and purchased transportation 9.3 5.6 Fuel 17.6 20.1 Operations and maintenance 5.3 4.0 Operating taxes and licenses 1.8 1.7 Insurance and claims 3.7 3.6 Communications and utilities 0.9 0.7 Depreciation and amortization 16.5 13.7 Other operating expenses 5.5 5.3 Gain on disposal of property and equipment (3.4) (10.0) 96.5 % 80.5 % Operating income 3.5 % 19.5 % Interest income 0.1 % 0.1 % Interest expense (2.0) % (0.9) % Income before income taxes 1.6 % 18.7 % Income tax expense 0.4 4.9 Net income 1.2 % 13.8 % Year Ended December 31, 2023 Compared with the Year Ended December 31, 2022 The Company acquired CFI on August 31, 2022 and Smith Transport on May 31, 2022, therefore the operating results of the Company for the year ended December 31, 2022 includes the operating results of CFI and Smith Transport for four months and seven months after acquisition, respectively.
At December 31, 2022, we had a total of $5.7 million in gross unrecognized tax benefits included in long-term income taxes payable in the consolidated balance sheets. Of this amount, $4.5 million represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate as of December 31, 2022.
At December 31, 2023, we had a total of $5.5 million in gross unrecognized tax benefits included in long-term income taxes payable in the consolidated balance sheets. Of this amount, $4.4 million represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate as of December 31, 2023.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this document generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this document generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
The cost increases have also impacted the cost of parts for equipment repairs and maintenance, inclusive of tires. The continued qualified driver shortage experienced by the trucking industry has had the effect of increasing compensation paid to drivers.
Inflation has also impacted the cost of parts for equipment repairs and maintenance, inclusive of tires. The continued qualified driver shortage experienced by the trucking industry has had the effect of increasing compensation paid to drivers.
With the acquisition of CFI on August 31, 2022, we significantly expanded our scale and our transportation services. We continue to provide nationwide asset-based dry van truckload service for major shippers from across the U.S. and now including cross border freight to and from Mexico and our consolidated average length of haul has increased to approximately 500 miles.
With the acquisition of CFI on August 31, 2022, we significantly expanded our scale and our transportation services. We continue to provide nationwide asset-based dry van truckload service for major shippers from across the U.S. and now including cross border freight to and from Mexico and our consolidated average length of haul is approximately 400 miles.
Payments due by period (in millions) Contractual Obligations Total Less than 1 year 1–3 years 3–5 years More than 5 years Purchase obligation (1) $ 108.0 $ 108.0 $ — $ — $ — Obligations for unrecognized tax benefits (2) 6.5 — — — 6.5 $ 114.5 $ 108.0 $ — $ — $ 6.5 (1) Relates mainly to our commitment on revenue equipment purchases, net of estimated sale values of tractor equipment where we have contracted values for used equipment.
Payments due by period (in millions) Contractual Obligations Total Less than 1 year 1–3 years 3–5 years More than 5 years Purchase obligation (1) $ 6.9 $ 6.9 $ — $ — $ — Obligations for unrecognized tax benefits (2) 6.3 — — — 6.3 $ 13.2 $ 6.9 $ — $ — $ 6.3 (1) Relates mainly to our commitment on revenue equipment purchases, net of estimated sale values of tractor equipment where we have contracted values for used equipment.
The Smith Debt has $9.7 million of outstanding principal and is made up of installment notes with a weighted average interest rate of 4.4% at December 31, 2022, due in monthly installments with final maturities at various dates ranging from November 2023 to January 2029, secured by related revenue equipment.
The Smith Debt has $7.7 million of outstanding principal and is made up of installment notes with a weighted average interest rate of 4.4% at December 31, 2023, due in monthly installments with final maturities at various dates ranging from March 2024 to January 2029, secured by related revenue equipment.
However, driver availability began to change late in 2022 and to date in 2023, as a result of the changing freight and economic environments and we believe certain drivers have moved from smaller less financially stable carriers to more financially stable carriers and from independent contractors to company drivers.
However, driver availability began to change late in 2022 and into 2023, as a result of the degrading freight and economic environments and we believe certain drivers have moved from smaller less financially stable carriers to more financially stable carriers and from independent contractors to company drivers.
Our Chief Operating Decision Maker (“CODM”), our CEO, evaluates the operational efficiencies of our transportation services, operating performance and asset allocation on a combined basis based on consolidated operating goals and objectives. We believe the keys to success are maintaining high levels of customer service and safety, which are predicated on the availability of experienced drivers and late-model equipment.
Our CODM, our CEO, evaluates the operational efficiencies of our transportation services, operating performance and asset allocation on a combined basis based on consolidated operating goals and objectives. We believe the keys to success are maintaining high levels of customer service and safety, which are predicated on the availability of experienced drivers and late-model equipment.
Management compensates for these limitations by primarily relying on GAAP results and using non-GAAP financial measures on a supplemental basis. Our cash flow provided by operating activities for the twelve months ended December 31, 2022 was $194.7 million or 20.1% of operating revenues, compared to $123.4 million or 20.3% of operating revenues in 2021.
Management compensates for these limitations by primarily relying on GAAP results and using non-GAAP financial measures on a supplemental basis. Our cash flow provided by operating activities for the twelve months ended December 31, 2023 was $165.3 million or 13.7% of operating revenues, compared to $194.7 million or 20.1% of operating revenues in 2022.
Actual results could differ materially from those discussed. Overview We, together with our subsidiaries, historically have been a short-to-medium haul truckload carrier with approximately 99.9% of our operating revenue was derived from shipments within the United States with the remainder being Canada and no operations in Mexico.
Actual results could differ materially from those discussed. Overview Prior to 2022 we, together with our subsidiaries, historically were a short-to-medium haul truckload carrier where approximately 99.9% of our operating revenue was derived from shipments within the United States with the remainder being Canada and no operations in Mexico.
While we are paying down the debt, we do not currently expect to declare special dividends, repurchase shares of our common stock, or make significant acquisitions, however we will remain flexible to ensure the best deployment of our capital. Operating cash flow for 2022 was $194.7 million compared to $123.4 million for 2021.
While we are paying down the debt, we do not currently expect to declare special dividends, repurchase shares of our common stock, or make significant acquisitions, however we will remain flexible to ensure the best deployment of our capital. Operating cash flow for 2023 was $165.3 million compared to $194.7 million for 2022.
Growth History and Capital Allocation In addition to past organic growth through the development of our regional operating areas, we have completed ten acquisitions since 1986 with the most recent and our fifth acquisition within the last nine years, CFI, occurring on August 31, 2022 36 following the acquisition of Smith Transport on May 31, 2022.
Growth History and Capital Allocation In addition to past organic growth through the development of our regional operating areas, we have completed ten acquisitions since 1986 with the most recent and our fifth acquisition since 2013, CFI, occurring on August 31, 2022 following the acquisition of Smith Transport on May 31, 2022.
At December 31, 2022, the Company’s tractor fleet had an average age of 2.0 years and the Company's trailer fleet had an average age of 6.3 years. The average age of our tractor and trailer fleets was increased by the inclusion of the Smith Transport and CFI equipment obtained through our 2022 acquisitions.
At December 31, 2023, the Company’s tractor fleet had an average age of 2.2 years and the Company's trailer fleet had an average age of 6.4 years. The average age of our 41 tractor and trailer fleets was increased by the inclusion of the Smith Transport and CFI equipment obtained through our 2022 acquisitions.
The CFI acquisition added additional dry van truckload capacity to our core operations and this resulted in increased revenues and increased operating costs after August 31, 2022. Therefore, our financial results for 2022 only include CFI activity from September 1, 2022 to December 31, 2022.
We acquired all the outstanding equity of CFI. The CFI acquisition added additional dry van truckload capacity to our core operations and this resulted in increased revenues and increased operating costs after August 31, 2022. Therefore, our financial results for 2022 only include CFI activity from September 1, 2022 to December 31, 2022.
The DOE average fuel cost remained above this elevated threshold for the period from March through December 31, 2022, although the DOE weekly average for the last four weeks of December fell below $5.00 per gallon.
The DOE average fuel cost remained above this elevated threshold for the period from March through December 31, 2022, although the DOE weekly average for the last four weeks of December 2022 fell below $5.00 per gallon. The trend of fuel prices below the $5.00 per gallon threshold has continued through December 31, 2023.
The Borrower may voluntarily prepay outstanding loans under the Credit Facilities in whole or in part at any time without premium or penalty, subject to payment of customary breakage costs in the case of SOFR rate loans.
The Borrower may voluntarily prepay outstanding loans under the Credit Facilities in whole or in part at any time without premium or penalty, subject to payment of customary breakage costs in the case Secured Overnight Financing Rate (“SOFR”) rate loans.
We posted an 80.5% operating ratio (which represents operating expenses as a percentage of operating revenues) for the year ended December 31, 2022, compared to 82.6% for the same period of 2021, and an 13.8% net margin (which represents net income as a percentage of operating revenues) for 2022, compared to 13.1% in the same period of 2021.
We posted an 96.5% operating ratio (which represents operating expenses as a percentage of operating revenues) for the year ended December 31, 2023, compared to 80.5% for the same period of 2022, and an 1.2% net margin (which represents net income as a percentage of operating revenues) for 2023, compared to 13.8% in the same period of 2022.
We do this by scrutinizing all expenditures, prioritizing expenses that improve our drivers' experience or our customer service, minimizing non-driving personnel through proven technology when the cost of doing so is justified, and operating late-model tractors and trailers with sound warranty coverage and enhanced fuel efficiency. With the two acquisitions of Smith Transport and CFI we now have debt.
We do this by scrutinizing all expenditures, prioritizing expenses that improve our drivers' experience or our customer service, minimizing non-driving personnel through proven technology when the cost of doing so is justified, and operating late-model tractors and trailers with sound warranty coverage and enhanced fuel efficiency.
In 2022, we generated operating revenues of $968.0 million, including fuel surcharges, net income of $133.6 million, and basic net income per share of $1.69 on basic weighted average outstanding shares of 78.9 million.
This compared to operating revenues of $968.0 million, including fuel surcharges, net income of $133.6 million, and basic net income per share of $1.69 on basic weighted average outstanding shares of 78.9 million in 2022.
Fuel Costs After salaries, wages, and benefits, fuel expense was our next highest operating cost in 2022. Containment of fuel cost continues to be one of management's top priorities. Average DOE diesel fuel prices per gallon for 2022 and 2021 were $4.99 and $3.29, respectively. The average price per gallon in 2023, through February 20, 2023, was $4.55.
Fuel Costs After salaries, wages, and benefits, fuel expense was our next highest operating cost in 2023. Containment of fuel cost continues to be one of management's top priorities. Average DOE diesel fuel prices per gallon for 2023 and 2022 were $4.21 and $4.99, respectively. The average price per gallon in 2024, through February 12, 2024, was $3.90.
However, we expect to focus on paying down the debt resulting from our 2022 acquisitions in 2023. For the periods ended December 31, 2022, our operating cash flows as a percentage of operating revenues five-year average was 23.0%, our three-year average was 22.4%, and most recently for 2022 was 20.1%.
However, we expect to focus primarily on paying down the debt resulting from our 2022 acquisitions in 2024. For the periods ended December 31, 2023, our operating cash flows as a percentage of operating revenues five-year average was 20.1%, our three-year average was 17.4%, and most recently for 2023 was 13.7%.
The Term Facility will amortize in quarterly installments beginning in September 2023, at 5% per annum through June 2025 and 10% per annum from September 2025 through June 2027, with the balance due on the date that is five years from the CFI Closing Date.
The Term Facility amortizes in quarterly installments which began in September 2023, at 5% per annum through June 2025 and 10% per annum from September 2025 through June 2027, with the balance due on the date that is five years from the CFI Closing Date.
A reconciliation of the obligations for unrecognized tax benefits is as follows: December 31, 2022 (in thousands) Gross unrecognized tax benefits $ 5,744 Accrued penalties and interest associated with the unrecognized tax benefits (net of benefit of interest deduction) 722 Obligations for unrecognized tax benefits $ 6,466 A number of years may elapse before an uncertain tax position is audited and ultimately settled.
A reconciliation of the obligations for unrecognized tax benefits is as follows: December 31, 2023 (in thousands) Gross unrecognized tax benefits $ 5,522 Accrued penalties and interest associated with the unrecognized tax benefits (net of benefit of interest deduction) 748 Obligations for unrecognized tax benefits $ 6,270 A number of years may elapse before an uncertain tax position is audited and ultimately settled.
We posted an 84.8% non-GAAP adjusted operating ratio (1) (operating expenses as a percentage of operating revenues, net of fuel surcharge) for the year ended December 31, 2022 compared to 79.7% for the same period of 2021. We had total assets of $1.7 billion and total stockholders' equity of $855.5 million at December 31, 2022.
We posted an 95.4% non-GAAP adjusted operating ratio (1) (operating expenses as a percentage of operating revenues, net of fuel surcharge) for the year ended December 31, 2023 compared to 84.8% for the same period of 2022. We had total assets of $1.5 billion and total stockholders' equity of $865.3 million at December 31, 2023.
Rent and purchased transportation increased $50.5 million, to $54.3 million for the year ended December 31, 2022 from $3.8 million for the same period of 2021. The significant increase resulted from the acquisition of CFI which included more purchased transportation utilized throughout their operations, including independent contractors and other third party brokerage relationships.
Rent and purchased transportation increased $58.4 million, to $112.7 million for the year ended December 31, 2023 from $54.3 million for the same period of 2022. The significant increase resulted from the acquisition of CFI which included more purchased transportation utilized throughout their operations, including independent contractors and other third party brokerage relationships.
Other operating expenses increased $30.0 million (140.3%), to $51.4 million, during the year ended December 31, 2022 from $21.4 million in 2021, due mainly to increased variable costs associated with the increase of revenue equipment units in our fleet and miles driven as a result of our 2022 acquisitions.
Other operating expenses increased $15.0 million (29.1%), to $66.4 million, during the year ended December 31, 2023 from $51.4 million in 2022, due mainly to increased variable costs associated with the increase of revenue equipment units in our fleet and miles driven as a result of our 2022 acquisitions.
During the past year there has been an inflation uptick. Significant price increases in original equipment manufacturer revenue equipment has impacted the cost for us to acquire new equipment, while there has been a corresponding inflationary impact to prices offered on the sale of our used equipment.
In recent years there has been an inflation uptick. Significant price increases in original equipment manufacturer revenue equipment has impacted the cost for us to acquire new equipment. While there was a corresponding inflationary impact to prices offered on the sale of our used equipment during prior years, the market for used equipment softened significantly during 2023.
The trend of fuel prices below the $5.00 per gallon threshold has continued in 2023 as the DOE average through February 20, 2023 was $4.55. We are not able to pass through all fuel price increases through fuel surcharge agreements with customers due to tractor idling time, along with empty and out-of-route miles.
The trend of fuel prices below the $5.00 per gallon threshold has continued through 2023 and into 2024. We are not able to pass through all fuel price increases through fuel surcharge agreements with customers due to tractor idling time, along with empty and out-of-route miles.
The remaining Smith Debt of $30.6 million are finance lease obligations with a weighted average interest rate of 3.9% at December 31, 2022, due in monthly installments with final maturities at various dates ranging from July 2023 to April 2026 with the weighted average remaining lease term of 2.3 years.
The remaining Smith Debt of $18.5 million are finance lease obligations with a weighted average interest rate of 3.9% at December 31, 2023, due in monthly installments with final maturities at various dates ranging from October 2024 to April 2026 with the weighted average remaining lease term of 1.7 years.
Management believes we will continue to have significant capital requirements over the long-term, which we expect to fund with current available cash, cash flows provided by operating activities, proceeds from the sale of used equipment and to a lesser extent, available capacity on the Credit Facilities. 42 Contractual Obligations and Commercial Commitments The Company's material cash requirements include the following contractual obligations and commercial commitments at December 31, 2022.
Management believes we will continue to have significant capital requirements over the long-term, which we expect to fund with current available cash, cash flows provided by operating activities, proceeds from the sale of used equipment and to a lesser extent, available capacity on the Credit Facilities.
Historically, except for acquisitions, we have been debt-free, funding revenue equipment purchases with our primary sources of liquidity, cash flow provided by operating activities and proceeds from sales of used equipment.
Liquidity and Capital Resources The growth of our business requires significant investments in new revenue equipment. Historically, except for acquisitions, we have been debt-free, funding revenue equipment purchases with our primary sources of liquidity, cash flow provided by operating activities and proceeds from sales of used equipment.
Based on debt repayments made through February 28, 2023, required minimum payments have been covered through March 31, 2025.
Based on debt repayments made through December 31, 2023, required minimum payments have been covered through March 31, 2027.
Operating taxes and licenses expense increased $2.8 million (20.5%), to $16.4 million during the year ended December 31, 2022 from $13.6 million in 2021, due to an increase in number of revenue equipment units (tractors and trailers) licensed in 2022 as compared to 2021.
Operating taxes and licenses expense increased $5.4 million (33.1%), to $21.8 million during the year ended December 31, 2023 from $16.4 million in 2022, due to an increase in number of revenue equipment units (tractors and trailers) licensed in 2023 as compared to 2022. The increase in number of revenue units licensed is the result of our 2022 acquisitions.
Tractors and trailers are depreciated using the 125% declining balance method for new tractors (excludes assets acquired in an acquisition) and straight-line method, respectively, over the estimated useful life down to an estimated salvage value.
It has been our historical practice to buy new tractor and trailer equipment directly from manufacturers. Tractors and trailers are depreciated using the 125% declining balance method for new tractors (excludes assets acquired in an acquisition) and straight-line method, respectively, over the estimated useful life down to an estimated salvage value.
Critical Accounting Policies and Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
Tax years 2013 and forward are subject to audit by state tax authorities depending on the tax code and administrative practice of each state. 45 Critical Accounting Policies and Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
At December 31, 2022, we had $49.5 million in cash and cash equivalents, $382.4 million in outstanding debt, $30.6 million in finance lease liabilities, $21.0 million in operating lease obligations, and $86.1 million available borrowing capacity on the Revolving Facility.
At December 31, 2023, we had $28.1 million in cash and cash equivalents, $281.5 million in outstanding debt, $18.5 million in finance lease liabilities, $17.4 million in operating lease obligations, and $88.0 million available borrowing capacity on the Revolving Facility.
The increase in cash used in investing activities was mainly the result of net cash used of $675.9 million for the acquisition of Smith Transport and CFI partially offset by $14.6 million more of net cash provided by property and equipment in 2022, compared to net purchases of property and equipment in 2021.
The decrease in cash used in investing activities was mainly the result of net cash of $675.9 million used in 2022 for the acquisitions of Smith Transport and CFI, partially offset by $83.5 million more net cash used by property and equipment in 2023, compared to net proceeds for property and equipment in 2022.
Fuel surcharge revenues increased $93.1 million primarily as a result of an increase in average DOE diesel fuel prices of 51.8% during 2022 compared to 2021, as reported by the DOE, along with an increase of miles driven following our 2022 acquisitions.
Fuel surcharge revenues increased $4.6 million primarily as a result of an increase of miles driven following our 2022 acquisitions, offset by a decrease in average DOE diesel fuel prices of 15.5% during 2023 compared to 2022, as reported by the DOE .
The increase in trucking and other revenues was primarily from the acquisitions of Smith Transport and CFI. The increased fuel surcharge revenue was the result of increased miles driven as a result of the acquisitions in addition to a 51.8% increase in average DOE fuel cost in 2022.
The increase in trucking and other revenues was primarily from the acquisitions of Smith Transport and CFI. The increased fuel surcharge revenue was the result of increased miles driven as a result of the acquisitions, partially offset by lower average DOE diesel fuel prices in 2023.
However, continued supply chain issues for tractors, trailers and related parts, general consumer product output and inventory volatility, consumer demand, and disruption in oil and diesel markets all could create additional volatility regarding freight demand during 2023. The trucking industry has been faced with a qualified driver shortage.
However, continued supply chain issues for tractors, trailers and related parts, general consumer product output and inventory volatility, consumer demand, the political landscape, foreign wars, and disruption in oil and diesel markets all could create additional volatility regarding freight demand during 2024.
Operating revenue increased $360.7 million (59.4%), to $968.0 million for the year ended December 31, 2022 from $607.3 million for the year ended December 31, 2021. The increase in revenue was driven by an increase in trucking and other revenues of $267.7 million and an increase in fuel surcharge revenue of $93.1 million.
Operating revenue increased $239.5 million (24.7%), to $1,207.5 million for the year ended December 31, 2023 from $968.0 million for the year ended December 31, 2022. The increase in revenue was driven by an increase in trucking and other 40 revenues of $234.8 million and an increase in fuel surcharge revenue of $4.6 million.
This increase was primarily due to a $32.5 million increase in net income net of non-working capital adjustment items, along with $38.8 million more cash provided by working capital items. Cash flow from operating activities was 20.1% of operating revenues for the year ended December 31, 2022, compared to 20.3% for the same period of 2021.
This $29.4 million decrease was primarily due to a $16.5 million decrease in net income net of non-working capital adjustment items, along with $12.9 million less cash used in working capital items. Cash flow from operating activities was 13.7% of operating revenues for the year ended December 31, 2023, compared to 20.1% for the same period of 2022.
There was an increase in severity and frequency of claims as well as an increase in risk exposure resulting from more miles driven, along with an increase in insurance premiums in 2022 compared to 2021.
There was an increase in volume of claims associated with the increase in risk exposure resulting from more miles driven, along with an increase in insurance premiums in 2023 compared to 2022 as a result of the 2022 acquisitions.
(1) GAAP to Non-GAAP Reconciliation Schedule: Operating revenue, operating revenue excluding fuel surcharge revenue, fuel surcharge revenue, operating income, operating ratio, and adjusted operating ratio reconciliation (a) Twelve Months Ended December 31, 2022 2021 (in thousands) Operating revenue $ 967,996 $ 607,284 Less: Fuel surcharge revenue 169,173 76,116 Operating revenue excluding fuel surcharge revenue 798,823 531,168 Operating expenses 779,638 501,877 Less: Fuel surcharge revenue 169,173 76,116 Less: Amortization of intangibles 3,653 2,390 Less: Acquisition-related costs 2,254 — Less: Gain on sale of a terminal property (73,175) — Adjusted operating expenses 677,733 423,371 Operating income 188,358 105,407 Adjusted operating income $ 121,090 $ 107,797 Operating ratio 80.5 % 82.6 % Adjusted operating ratio 84.8 % 79.7 % (a) Operating revenue excluding fuel surcharge revenue, as reported in this annual report is based upon operating revenue minus fuel surcharge revenue.
(1) GAAP to Non-GAAP Reconciliation Schedule: Operating revenue, operating revenue excluding fuel surcharge revenue, fuel surcharge revenue, operating income, operating ratio, and adjusted operating ratio reconciliation (a) Twelve Months Ended December 31, 2023 2022 (in thousands) Operating revenue $ 1,207,458 $ 967,996 Less: Fuel surcharge revenue 173,817 169,173 Operating revenue excluding fuel surcharge revenue 1,033,641 798,823 Operating expenses 1,165,073 779,638 Less: Fuel surcharge revenue 173,817 169,173 Less: Amortization of intangibles 5,164 3,653 Less: Acquisition-related costs — 2,254 Less: Gain on sale of a terminal property — (73,175) Adjusted operating expenses 986,092 677,733 Operating income 42,385 188,358 Adjusted operating income $ 47,549 $ 121,090 Operating ratio 96.5 % 80.5 % Adjusted operating ratio 95.4 % 84.8 % 37 (a) Operating revenue excluding fuel surcharge revenue, as reported in this annual report is based upon operating revenue minus fuel surcharge revenue.
In order to attract and retain experienced drivers who understand the importance of customer service, we have sought to solidify our position as an industry leader in driver compensation in our operating markets and for the services we provide. We have increased wages and enhanced the compensation for our drivers multiple times in the last three years.
In order to attract and retain experienced drivers who understand the importance of customer service, we have sought to solidify our position as an industry leader in driver compensation in our operating markets and for the services we provide. We have continued to get more creative in providing better pay, benefits, equipment, and facilities for our drivers.
We expect freight demand to remain challenged at lower demand levels in at least the first half of 2023 based upon the freight demand experienced in January and February of 2023 and expected normal seasonal trends.
Freight demand began to soften in the back half of 2022 and continued to degrade throughout all of 2023. We expect freight demand to remain challenged at lower demand levels in at least the first half of 2024 based upon the freight demand experienced in January and February of 2024.
Further, we have continued to get more creative in providing better pay, benefits, equipment, and facilities for our drivers. Our comprehensive driver compensation and benefits program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance.
Our comprehensive driver compensation and benefits program rewards drivers for years of service and safe operating mileage 38 benchmarks, which are critical to our operational and financial performance.
The May 31, 2022 acquisition of Smith Transport included the assumption of $46.8 million of debt and financing lease obligations associated with the fleet of revenue equipment of which $40.3 million was outstanding at December 31, 2022, (the "Smith Debt").
As of December 31, 2023 the weighted average interest rate on outstanding borrowings under the Credit Facilities was 7.1%. The May 31, 2022 acquisition of Smith Transport included the assumption of $46.8 million of debt and financing lease obligations associated with the fleet of revenue equipment of which $26.2 million was outstanding at December 31, 2023, (the "Smith Debt").
Gains on the disposal of property and equipment increased $59.5 million (158.8%), to $96.9 million during the year ended December 31, 2022, from $37.4 million in the same period of 2021.
Gains on the disposal of property and equipment decreased $55.8 million (57.6%), to $41.1 million during the year ended December 31, 2023, from $96.9 million in the same period of 2022.
Recent Developments On May 31, 2022 we completed our fourth acquisition within nine years. We acquired all the outstanding equity of Smith Transport. The Smith Transport acquisition added additional dry van truckload capacity to our core operations and this resulted 34 in increased revenues and increased operating costs after May 31, 2022.
The Smith Transport acquisition added additional dry van truckload capacity to our core operations and this resulted in increased revenues and increased operating costs after May 31, 2022. Therefore, our financial results for 2022 only include Smith Transport activity from June 1, 2022 to December 31, 2022. On August 31, 2022 we completed our fifth acquisition within nine years.
Cash flows provided by financing activities increased $437.4 million in 2022 compared to 2021. The $359.3 million provided by financing activities during 2022 included $447.3 million from the issuance of long-term debt partially offset by $81.5 million of repayments of finance leases and debt and $6.3 million used to pay dividends to our shareholders.
In 2022, $359.3 million was provided by financing activities including $447.3 million proceeds from issuance of long-term debt for the purchase of CFI, offset by $81.5 million used for repayments of finance leases and debt along with $6.3 million to pay dividends.
In early 2022, freight demand was initially strong, following an extended period of freight demand at peak levels that began in mid 2020 and continued throughout 2021 and into 2022. Freight demand began to soften in the back half of 2022.
Unrestricted cash and cash equivalents decreased $21.3 million to $28.1 million. We operate in a cyclical industry. In early 2022, freight demand was initially strong, following an extended period of freight demand at peak levels that began in mid 2020 and continued throughout 2021 and into 2022.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this document 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, 2021.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this document 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, 2022. 36 Recent Developments In 2023, we generated operating revenues of $1.2 billion, including fuel surcharges, net income of $14.8 million, and basic net income per share of $0.19 on basic weighted average outstanding shares of 79.0 million.
These arrangements also may prevent us from receiving the full benefit of any fuel price decreases. Additionally, we are not able to recover fuel surcharge on empty miles, out of route miles, or fuel used in idling. 40 Liquidity and Capital Resources The growth of our business requires significant investments in new revenue equipment.
These arrangements also may prevent us from receiving the full benefit of any fuel price decreases. Additionally, we are not able to recover fuel surcharge on empty miles, out of route miles, or fuel used in idling. Empty miles, out of route miles and idling were all elevated in 2023 as a result of lower freight demand throughout the year.
The interest expense is made up of $7.5 million from the Credit Facilities coinciding with the acquisition of CFI while the remaining $1.1 million is the result of debt and financing leases assumed through the Smith Transport acquisition. Our effective tax rate was 26.2% and 25.2% for the twelve months ended December 31, 2022 and 2021, respectively.
Interest expense increased $15.6 million (182.7%), to $24.2 million during the year December 31, 2023 from $8.6 million in 2022. The interest expense is made up of $22.7 million from the Credit Facilities coinciding with the acquisition of CFI while the remaining $1.5 million is the result of debt and financing leases assumed through the Smith Transport acquisition.
The increase was primarily due to a $73.2 million gain from the sale of a terminal facility, partially offset by a $5.6 million decrease in gains on sales of trailer equipment and a $3.7 million decrease in gains on sales of tractor equipment, with the remaining $4.4 million decrease primarily due to the 2021 sale of a terminal facility.
The decrease was primarily due to a $47.5 million decrease from the sale of a terminal facilities, $6.6 million decrease in gains on sales of trailer equipment and a $1.6 million decrease in gains on sales of tractor equipment.
We have identified certain accounting policies and estimates, described below, that are the most important to the portrayal of our current financial condition and results of operations. 43 The most significant accounting policies and estimates that affect the financial statements include the following: Revenue equipment estimated useful lives and salvage values Over 97% of our total miles comes from company drivers operating the Company's revenue equipment.
The most significant accounting policies and estimates that affect the financial statements include the following: Revenue equipment estimated useful lives and salvage values Over 95% of our total miles comes from company drivers operating the Company's revenue equipment. Management estimates the useful lives of revenue equipment based on estimated period of use for the asset.
We achieved a return on assets of 9.8% and a return on equity of 16.4% over the year ended December 31, 2022, compared to 8.4% and 10.9% respectively, for 2021.
We achieved a return on assets of 0.9% and a return on equity of 1.7% over the year ended December 31, 2023, compared to 9.8% and 16.4% respectively, for 2022. On May 31, 2022 we completed our fourth acquisition within nine years. We acquired all the outstanding equity of Smith Transport.
Cash flows used in investing activities were $663.3 million during 2022, representing an increase in cash used of $660.6 million compared to cash flows used in investing activities of $2.6 million during 2021.
Cash flows used in investing activities were $67.9 million during 2023, representing a decrease in cash used of $595.4 million compared to cash flows used in investing activities of $663.3 million during 2022.
The number of loaded miles is affected by general freight supply and demand trends and the number of tractors. The number of tractors is directly affected by the number of available drivers providing capacity to us. The increase in total miles was a result of the additional capacity acquired.
Operating revenues (the total of trucking and fuel surcharge revenue) are primarily earned based on loaded miles driven in providing truckload services. The number of loaded miles is affected by general freight supply and demand trends and the number of tractors. The number of tractors is directly affected by the number of available drivers providing capacity to us.
In addition, the overall cost to insure our revenue equipment, on a per unit basis, has increased year-over-year due to a lack of insurance capacity across the transportation industry mainly as a result of the current legal environment. We expect that insurance premiums will continue trending upward.
The overall cost to insure revenue equipment, on a per unit basis, has increased in recent years due to a lack of insurance capacity across the transportation industry, mainly as a result of the current legal environment. Certain insurance carriers that provide excess insurance coverage currently and for past claim years have encountered financial issues.
The increase in net cash provided by property and equipment was primarily due to cash received from the sale of a terminal property. We currently anticipate higher net capital expenditures for revenue equipment in 2023 compared to 2022 as a result of the larger fleet size following the acquisitions and efforts to refresh these fleets.
The net cash provided by property and equipment in 2022 was the result of the significant proceeds received from the sale of a terminal property. We currently anticipate less net capital expenditures for revenue equipment in 2024 compared to 2023. Cash flows used in financing activities increased $479.9 million in 2023 compared to 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeInterest rates associated with borrowings under the Credit Facilities are based on the Secured Overnight Financing Rate (“SOFR”) plus a spread based on the Company’s net leverage ratio. Increases in interest rates would currently impact our interest expense given we have outstanding borrowings subject to variable interest rates.
Biggest changeInterest rates associated with borrowings under the Credit Facilities are based on the SOFR plus a spread based on the Company’s net leverage ratio. Increases in interest rates would currently impact our interest expense given we have outstanding borrowings subject to variable interest rates.
We use a significant amount of tires to 45 maintain our revenue equipment. We are not able to pass through 100% of price increases from tire suppliers due to the severity and timing of increases and current rate environment. Historically, we have sought to minimize tire price increases through bulk tire purchases from our suppliers.
We use a significant amount of tires to maintain our revenue equipment. We are not able to pass through 100% of price increases from tire suppliers due to the severity and timing of increases and current rate environment. Historically, we have sought to minimize tire price increases through bulk tire purchases from our suppliers.
An increase of 1.0% in the SOFR rate would drive an increase of $3.8 million in interest expense annually based on our current amount of debt outstanding that is subject to variable interest rates. Commodity Price Risk We are subject to commodity price risk primarily with respect to purchases of fuel and rubber.
An increase of 1.0% in the SOFR rate would 47 drive an increase of $2.8 million in interest expense annually based on our current amount of debt outstanding that is subject to variable interest rates. Commodity Price Risk We are subject to commodity price risk primarily with respect to purchases of fuel and rubber.
Based on our expected tire purchases for 2023, a 10% increase in the price of tires would increase our tire purchase expense by $2.0 million, resulting in a corresponding decrease in income before income taxes.
Based on our tire purchases for 2023, a 10% increase in the price of tires would increase our tire purchase expense by $2.2 million, resulting in a corresponding decrease in income before income taxes.
Based on our actual fuel purchases for 2022, assuming miles driven, fuel surcharges as a percentage of revenue, percentage of unproductive miles, and miles per gallon remained consistent with 2022 amounts, a $1.00 increase in the average price of fuel per gallon, year over year, would decrease our income before income taxes by approximately $9.3 million.
Based on our actual fuel purchases for 2023, assuming miles driven, fuel surcharges as a percentage of revenue, percentage of unproductive miles, and miles per gallon remained consistent with 2023 amounts, a $1.00 increase in the average price of fuel per gallon, year over year, would decrease our income before income taxes by approximately $12.3 million.
Interest Rate Risk We had $382.4 million debt outstanding and $30.6 million in finance lease liabilities at December 31, 2022. Of the total $413.0 million of debt and finance lease liabilities outstanding, $375.0 million is subject to variable interest rates and the remainder is at fixed annual interest rates.
Interest Rate Risk We had $281.5 million debt outstanding and $18.5 million in finance lease liabilities at December 31, 2023. Of the total $300.0 million of debt and finance lease liabilities outstanding, $275.0 million is subject to variable interest rates and the remainder is at fixed annual interest rates.

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