UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 20172022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 0-49983
Saia, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
| 48-1229851 |
(State of incorporation) |
| (I.R.S. Employer Identification No.) |
11465 Johns Creek Parkway, Suite 400 |
|
|
Johns Creek, GA |
| 30097 |
(Address of principal executive offices) |
| (Zip Code) |
(770) (770) 232-5067
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $.001 per share | SAIA | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer
| ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the numberThere were 26,411,736 shares of sharesCommon Stock outstanding of each of the issuer's classes of common stock, as of the latest practicable date.at July 25, 2022.
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1
SAIA, INC. AND SUBSIDIARIES
INDEX
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ITEM 1: |
| 3 | |
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| Condensed Consolidated Balance Sheets |
| 3 |
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| 4 | |
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| 5 | ||
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ITEM 2: | Management's Discussion and Analysis of Financial Condition and Results of Operations |
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ITEM 3: |
| 18 | |
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ITEM 4: |
| 19 | |
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ITEM 1: |
| 20 | |
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ITEM 1A: |
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ITEM 2: |
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ITEM 3: |
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ITEM 4: |
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ITEM 5: |
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ITEM 6: |
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PART I. FINANCIAL INFORMATION
Saia, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||||
Assets |
| (in thousands, except share and per share data) |
|
| (in thousands, except share and per share data) |
| ||||||||||
Current Assets: |
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Cash and cash equivalents |
| $ | 81 |
|
| $ | 1,539 |
|
| $ | 137,871 |
|
| $ | 106,588 |
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Accounts receivable, net |
|
| 172,119 |
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|
| 135,083 |
|
|
| 357,052 |
|
|
| 276,755 |
|
Income tax receivable |
|
| 9,412 |
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|
| 0 |
| ||||||||
Prepaid expenses and other |
|
| 28,399 |
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|
| 29,857 |
|
|
| 32,041 |
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|
| 32,912 |
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Total current assets |
|
| 200,599 |
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| 166,479 |
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|
| 536,376 |
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|
| 416,255 |
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Property and Equipment, at cost |
|
| 1,260,856 |
|
|
| 1,101,946 |
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|
| 2,277,527 |
|
|
| 2,144,528 |
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Less-accumulated depreciation |
|
| 538,065 |
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| 497,827 |
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Less: accumulated depreciation |
|
| 924,628 |
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|
| 864,074 |
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Net property and equipment |
|
| 722,791 |
|
|
| 604,119 |
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|
| 1,352,899 |
|
|
| 1,280,454 |
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Operating Lease Right-of-Use Assets |
|
| 105,376 |
|
|
| 107,781 |
| ||||||||
Goodwill and Identifiable Intangibles, net |
|
| 24,368 |
|
|
| 25,398 |
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|
| 18,576 |
|
|
| 19,157 |
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Other Noncurrent Assets |
|
| 4,961 |
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|
| 4,374 |
|
|
| 34,628 |
|
|
| 21,603 |
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Total assets |
| $ | 952,719 |
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| $ | 800,370 |
|
| $ | 2,047,855 |
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| $ | 1,845,250 |
|
Liabilities and Stockholders’ Equity |
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Current Liabilities: |
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Accounts payable |
| $ | 63,742 |
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| $ | 45,149 |
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| $ | 145,298 |
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| $ | 114,010 |
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Wages, vacation and employees’ benefits |
|
| 44,140 |
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|
| 31,700 |
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|
| 78,945 |
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| 73,109 |
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Claims and insurance accruals |
|
| 37,704 |
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| 33,047 |
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| 49,222 |
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| 54,717 |
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Other current liabilities |
|
| 20,841 |
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| 18,286 |
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|
| 25,594 |
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|
| 38,551 |
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Current portion of long-term debt |
|
| 17,072 |
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| 16,762 |
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| 17,935 |
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| 19,396 |
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Current portion of operating lease liability |
|
| 22,155 |
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| 21,565 |
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Total current liabilities |
|
| 183,499 |
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| 144,944 |
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| 339,149 |
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| 321,348 |
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Other Liabilities: |
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Long-term debt, less current portion |
|
| 110,161 |
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| 57,042 |
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| 21,360 |
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| 31,008 |
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Operating lease liability, less current portion |
|
| 85,522 |
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| 88,409 |
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Deferred income taxes |
|
| 90,064 |
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| 80,199 |
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| 123,229 |
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| 124,137 |
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Claims, insurance and other |
|
| 37,242 |
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| 35,107 |
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| 74,833 |
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| 60,015 |
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Total other liabilities |
|
| 237,467 |
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| 172,348 |
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| 304,944 |
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| 303,569 |
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Commitments and Contingencies |
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Stockholders’ Equity: |
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Preferred stock, $0.001 par value, 50,000 shares authorized, none issued and outstanding |
|
| — |
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| — |
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Common stock, $0.001 par value, 50,000,000 shares authorized, 25,490,381 and 25,322,701 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively |
|
| 25 |
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| 25 |
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Preferred stock, $0.001 par value, 50,000 shares authorized, |
|
| 0 |
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| 0 |
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Common stock, $0.001 par value, 100,000,000 shares authorized, |
|
| 26 |
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| 26 |
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Additional paid-in-capital |
|
| 243,382 |
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| 237,846 |
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| 271,395 |
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| 274,633 |
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Deferred compensation trust, 170,900 and 166,807 shares of common stock at cost at September 30, 2017 and December 31, 2016, respectively |
|
| (3,448 | ) |
|
| (3,190 | ) | ||||||||
Deferred compensation trust, 83,197 and 94,627 shares of common |
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| (6,103 | ) |
|
| (4,101 | ) | ||||||||
Retained earnings |
|
| 291,794 |
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| 248,397 |
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| 1,138,444 |
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| 949,775 |
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Total stockholders’ equity |
|
| 531,753 |
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| 483,078 |
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| 1,403,762 |
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| 1,220,333 |
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Total liabilities and stockholders’ equity |
| $ | 952,719 |
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| $ | 800,370 |
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| $ | 2,047,855 |
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| $ | 1,845,250 |
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See accompanying notes to condensed consolidated financial statements.
3
Condensed Consolidated Statements of Operations
For the quarters and ninesix months ended SeptemberJune 30, 20172022 and 20162021
(unaudited)
|
| Third Quarter |
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| Nine Months |
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| Second Quarter |
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| Six Months |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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| (in thousands, except per share data) |
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| (in thousands, except per share data) |
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Operating Revenue |
| $ | 350,062 |
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| $ | 316,442 |
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| $ | 1,025,259 |
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| $ | 918,258 |
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| $ | 745,554 |
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| $ | 571,333 |
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| $ | 1,406,770 |
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| $ | 1,055,407 |
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Operating Expenses: |
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Salaries, wages and employees’ benefits |
|
| 194,920 |
|
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| 178,687 |
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|
| 572,211 |
|
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| 524,877 |
| ||||||||||||||||
Salaries, wages and employees' benefits |
|
| 295,052 |
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| 268,786 |
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| 584,515 |
|
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| 513,223 |
| ||||||||||||||||
Purchased transportation |
|
| 23,074 |
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|
| 15,657 |
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|
| 60,212 |
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|
| 42,439 |
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|
| 91,819 |
|
|
| 62,481 |
|
|
| 170,067 |
|
|
| 107,512 |
|
Fuel, operating expenses and supplies |
|
| 66,679 |
|
|
| 59,345 |
|
|
| 196,761 |
|
|
| 172,411 |
|
|
| 145,530 |
|
|
| 90,664 |
|
|
| 268,301 |
|
|
| 175,565 |
|
Operating taxes and licenses |
|
| 10,631 |
|
|
| 10,061 |
|
|
| 32,088 |
|
|
| 30,227 |
|
|
| 15,979 |
|
|
| 14,559 |
|
|
| 32,552 |
|
|
| 28,897 |
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Claims and insurance |
|
| 8,535 |
|
|
| 9,988 |
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|
| 28,010 |
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|
| 28,949 |
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|
| 14,216 |
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|
| 17,328 |
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|
| 24,952 |
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|
| 28,808 |
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Depreciation and amortization |
|
| 22,338 |
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|
| 19,927 |
|
|
| 64,607 |
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|
| 56,910 |
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|
| 36,944 |
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|
| 34,659 |
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|
| 76,896 |
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|
| 70,031 |
|
Loss (gain) from property disposals, net |
|
| (717 | ) |
|
| 133 |
|
|
| (469 | ) |
|
| 496 |
|
|
| 21 |
|
|
| (69 | ) |
|
| 45 |
|
|
| (268 | ) |
Total operating expenses |
|
| 325,460 |
|
|
| 293,798 |
|
|
| 953,420 |
|
|
| 856,309 |
|
|
| 599,561 |
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|
| 488,408 |
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|
| 1,157,328 |
|
|
| 923,768 |
|
Operating Income |
|
| 24,602 |
|
|
| 22,644 |
|
|
| 71,839 |
|
|
| 61,949 |
|
|
| 145,993 |
|
|
| 82,925 |
|
|
| 249,442 |
|
|
| 131,639 |
|
Nonoperating Expenses (Income): |
|
|
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Interest expense |
|
| 1,313 |
|
|
| 1,183 |
|
|
| 3,762 |
|
|
| 3,410 |
|
|
| 668 |
|
|
| 834 |
|
|
| 1,360 |
|
|
| 1,686 |
|
Other, net |
|
| (131 | ) |
|
| (104 | ) |
|
| 57 |
|
|
| (147 | ) |
|
| 769 |
|
|
| (430 | ) |
|
| 1,004 |
|
|
| (561 | ) |
Nonoperating expenses, net |
|
| 1,182 |
|
|
| 1,079 |
|
|
| 3,819 |
|
|
| 3,263 |
|
|
| 1,437 |
|
|
| 404 |
|
|
| 2,364 |
|
|
| 1,125 |
|
Income Before Income Taxes |
|
| 23,420 |
|
|
| 21,565 |
|
|
| 68,020 |
|
|
| 58,686 |
|
|
| 144,556 |
|
|
| 82,521 |
|
|
| 247,078 |
|
|
| 130,514 |
|
Income Tax Provision |
|
| 9,013 |
|
|
| 7,739 |
|
|
| 24,623 |
|
|
| 21,010 |
|
|
| 35,311 |
|
|
| 20,047 |
|
|
| 58,409 |
|
|
| 30,749 |
|
Net Income |
| $ | 14,407 |
|
| $ | 13,826 |
|
| $ | 43,397 |
|
| $ | 37,676 |
|
| $ | 109,245 |
|
| $ | 62,474 |
|
| $ | 188,669 |
|
| $ | 99,765 |
|
|
|
|
|
|
|
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|
|
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|
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Weighted average common shares outstanding – basic |
|
| 25,527 |
|
|
| 25,038 |
|
|
| 25,494 |
|
|
| 25,022 |
|
|
| 26,507 |
|
|
| 26,332 |
|
|
| 26,489 |
|
|
| 26,309 |
|
Weighted average common shares outstanding – diluted |
|
| 26,113 |
|
|
| 25,658 |
|
|
| 26,050 |
|
|
| 25,625 |
|
|
| 26,665 |
|
|
| 26,704 |
|
|
| 26,662 |
|
|
| 26,687 |
|
|
|
|
|
|
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Basic Earnings Per Share |
| $ | 0.56 |
|
| $ | 0.55 |
|
| $ | 1.70 |
|
| $ | 1.51 |
|
| $ | 4.12 |
|
| $ | 2.37 |
|
| $ | 7.12 |
|
| $ | 3.79 |
|
Diluted Earnings Per Share |
| $ | 0.55 |
|
| $ | 0.54 |
|
| $ | 1.67 |
|
| $ | 1.47 |
|
| $ | 4.10 |
|
| $ | 2.34 |
|
| $ | 7.08 |
|
| $ | 3.74 |
|
See accompanying notes to condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash FlowsStockholders’ Equity
For the ninequarters and six months ended SeptemberJune 30, 20172022 and 20162021
(unaudited)
|
| Nine Months |
| |||||
|
| 2017 |
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| 2016 As Adjusted (Note 1) |
| ||
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| (in thousands) |
| |||||
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 43,397 |
|
| $ | 37,676 |
|
Noncash items included in net income: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 64,607 |
|
|
| 56,910 |
|
Other, net |
|
| 18,812 |
|
|
| 8,908 |
|
Changes in operating assets and liabilities, net |
|
| 921 |
|
|
| 14,815 |
|
Net cash provided by operating activities |
|
| 127,737 |
|
|
| 118,309 |
|
Investing Activities: |
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
| (155,676 | ) |
|
| (108,871 | ) |
Proceeds from disposal of property and equipment |
|
| 3,090 |
|
|
| 1,046 |
|
Net cash used in investing activities |
|
| (152,586 | ) |
|
| (107,825 | ) |
Financing Activities: |
|
|
|
|
|
|
|
|
Repayment of revolving credit agreement |
|
| (159,102 | ) |
|
| (143,298 | ) |
Borrowing of revolving credit agreement |
|
| 193,601 |
|
|
| 143,263 |
|
Proceeds from stock option exercises |
|
| 2,531 |
|
|
| 248 |
|
Shares withheld for taxes |
|
| (1,249 | ) |
|
| (650 | ) |
Repayment of senior notes |
|
| (3,571 | ) |
|
| (3,571 | ) |
Repayment of capital leases |
|
| (8,819 | ) |
|
| (5,811 | ) |
Net cash provided by (used in) financing activities |
|
| 23,391 |
|
|
| (9,819 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| (1,458 | ) |
|
| 665 |
|
Cash and cash equivalents, beginning of period |
|
| 1,539 |
|
|
| 124 |
|
Cash and cash equivalents, end of period |
| $ | 81 |
|
| $ | 789 |
|
|
|
|
|
|
|
|
|
|
Non Cash Investing Activities |
|
|
|
|
|
|
|
|
Equipment financed with capital leases |
| $ | 31,320 |
|
| $ | 34,683 |
|
|
| Common Shares |
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Deferred Compensation Trust |
|
| Retained Earnings |
|
| Total |
| ||||||
|
| (in thousands, except share data) |
| |||||||||||||||||||||
Balance at December 31, 2021 |
|
| 26,336,589 |
|
| $ | 26 |
|
| $ | 274,633 |
|
| $ | (4,101 | ) |
| $ | 949,775 |
|
| $ | 1,220,333 |
|
Stock compensation, including options and long-term incentives |
|
| — |
|
|
| — |
|
|
| 2,056 |
|
|
| — |
|
|
| — |
|
|
| 2,056 |
|
Exercise of stock options, less shares withheld for taxes |
|
| 10,992 |
|
|
| — |
|
|
| 907 |
|
|
| — |
|
|
| — |
|
|
| 907 |
|
Shares issued for long-term incentive awards, net of shares withheld for taxes |
|
| 60,821 |
|
|
| — |
|
|
| (11,230 | ) |
|
| — |
|
|
| — |
|
|
| (11,230 | ) |
Purchase of shares by Deferred Compensation Trust |
|
| — |
|
|
| — |
|
|
| 2,445 |
|
|
| (2,445 | ) |
|
| — |
|
|
| — |
|
Sale of shares by Deferred Compensation Trust |
|
| — |
|
|
| — |
|
|
| (1,066 | ) |
|
| 1,066 |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 79,424 |
|
|
| 79,424 |
|
Balance at March 31, 2022 |
|
| 26,408,402 |
|
| $ | 26 |
|
| $ | 267,745 |
|
| $ | (5,480 | ) |
| $ | 1,029,199 |
|
| $ | 1,291,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock compensation, including options and long-term incentives |
|
| — |
|
|
| — |
|
|
| 1,756 |
|
|
| — |
|
|
| — |
|
|
| 1,756 |
|
Director deferred share activity |
|
| 2,327 |
|
|
| — |
|
|
| 1,170 |
|
|
| — |
|
|
| — |
|
|
| 1,170 |
|
Exercise of stock options, less shares withheld for taxes |
|
| 1,007 |
|
|
| — |
|
|
| 101 |
|
|
| — |
|
|
| — |
|
|
| 101 |
|
Shares issued for long-term incentive awards, net of shares withheld for taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Purchase of shares by Deferred Compensation Trust |
|
| — |
|
|
| — |
|
|
| 631 |
|
|
| (631 | ) |
|
| — |
|
|
| — |
|
Sale of shares by Deferred Compensation Trust |
|
| — |
|
|
| — |
|
|
| (8 | ) |
|
| 8 |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 109,245 |
|
|
| 109,245 |
|
Balance at June 30, 2022 |
|
| 26,411,736 |
|
| $ | 26 |
|
| $ | 271,395 |
|
| $ | (6,103 | ) |
| $ | 1,138,444 |
|
| $ | 1,403,762 |
|
|
| Common Shares |
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Deferred Compensation Trust |
|
| Retained Earnings |
|
| Total |
| ||||||
|
| (in thousands, except share data) |
| |||||||||||||||||||||
Balance at December 31, 2020 |
|
| 26,236,570 |
|
| $ | 26 |
|
| $ | 267,666 |
|
| $ | (2,944 | ) |
| $ | 696,540 |
|
| $ | 961,288 |
|
Stock compensation, including options and long-term incentives |
|
| — |
|
|
| — |
|
|
| 1,711 |
|
|
| — |
|
|
| — |
|
|
| 1,711 |
|
Exercise of stock options, less shares withheld for taxes |
|
| 46,741 |
|
|
| — |
|
|
| 3,678 |
|
|
| — |
|
|
| — |
|
|
| 3,678 |
|
Shares issued for long-term incentive awards, net of shares withheld for taxes |
|
| 50,381 |
|
|
| — |
|
|
| (6,350 | ) |
|
| — |
|
|
| — |
|
|
| (6,350 | ) |
Purchase of shares by Deferred Compensation Trust |
|
| — |
|
|
| — |
|
|
| 742 |
|
|
| (742 | ) |
|
| — |
|
|
| — |
|
Sale of shares by Deferred Compensation Trust |
|
| — |
|
|
| — |
|
|
| (17 | ) |
|
| 17 |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37,291 |
|
|
| 37,291 |
|
Balance at March 31, 2021 |
|
| 26,333,692 |
|
| $ | 26 |
|
| $ | 267,430 |
|
| $ | (3,669 | ) |
| $ | 733,831 |
|
| $ | 997,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock compensation, including options and long-term incentives |
|
| — |
|
|
| — |
|
|
| 1,810 |
|
|
| — |
|
|
| — |
|
|
| 1,810 |
|
Director deferred share activity |
|
| 1,404 |
|
|
| — |
|
|
| 1,256 |
|
|
| — |
|
|
| — |
|
|
| 1,256 |
|
Exercise of stock options, less shares withheld for taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued for long-term incentive awards, net of shares withheld for taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Purchase of shares by Deferred Compensation Trust |
|
| — |
|
|
| — |
|
|
| 112 |
|
|
| (112 | ) |
|
| — |
|
|
| — |
|
Sale of shares by Deferred Compensation Trust |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 62,474 |
|
|
| 62,474 |
|
Balance at June 30, 2021 |
|
| 26,335,096 |
|
| $ | 26 |
|
| $ | 270,608 |
|
| $ | (3,781 | ) |
| $ | 796,305 |
|
| $ | 1,063,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
Saia, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2022 and 2021
(unaudited)
|
| Six Months |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Operating Activities: |
|
|
|
|
|
| ||
Net income |
| $ | 188,669 |
|
| $ | 99,765 |
|
Noncash items included in net income: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 76,896 |
|
|
| 70,031 |
|
Deferred income taxes |
|
| (907 | ) |
|
| 3,183 |
|
Other, net |
|
| 3,862 |
|
|
| 5,640 |
|
Changes in operating assets and liabilities, net |
|
| (60,615 | ) |
|
| (38,479 | ) |
Net cash provided by operating activities |
|
| 207,905 |
|
|
| 140,140 |
|
Investing Activities: |
|
|
|
|
|
| ||
Acquisition of property and equipment |
|
| (156,351 | ) |
|
| (100,202 | ) |
Proceeds from disposal of property and equipment |
|
| 1,060 |
|
|
| 236 |
|
Net cash used in investing activities |
|
| (155,291 | ) |
|
| (99,966 | ) |
Financing Activities: |
|
|
|
|
|
| ||
Repayments of revolving credit agreement |
|
| (1,000 | ) |
|
| (27,614 | ) |
Borrowings of revolving credit agreement |
|
| 1,000 |
|
|
| 27,614 |
|
Proceeds from stock option exercises |
|
| 1,008 |
|
|
| 3,678 |
|
Shares withheld for taxes |
|
| (11,230 | ) |
|
| (6,350 | ) |
Repayment of finance leases |
|
| (11,109 | ) |
|
| (9,950 | ) |
Net cash used in financing activities |
|
| (21,331 | ) |
|
| (12,622 | ) |
Net Increase in Cash and Cash Equivalents |
|
| 31,283 |
|
|
| 27,552 |
|
Cash and Cash Equivalents, beginning of period |
|
| 106,588 |
|
|
| 25,308 |
|
Cash and Cash Equivalents, end of period |
| $ | 137,871 |
|
| $ | 52,860 |
|
See accompanying notes to condensed consolidated financial statements.
6
Saia, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Saia, Inc. and its wholly-owned subsidiaries (together, the Company or Saia). All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.
The condensed consolidated financial statements have been prepared by the Company without audit by the independent registered public accounting firm. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, stockholders’ equity and cash flows for the interim periods included herein have been made. These interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information, the instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted from these statements. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2021. Operating results for the quarter and ninesix months ended SeptemberJune 30, 20172022 are not necessarily indicative of the results of operations that may be expected for the year ended December 31, 2017.2022.
Business
Business
The Company provides regional and interregionalnational less-than-truckload (LTL) services across 38 states through a single integrated organization. While more than 9997 percent of its revenue historically has been derived from transporting LTL shipments across 45 states, the Company also offers customers a wide range of other value-added services, including non-asset truckload, expedited and logistics services throughoutacross North America. The Company’s customer base is diversified across numerous industries.
Revenue Recognition
Accounting Pronouncements AdoptedThe Company’s revenues are derived primarily from the transportation of freight as it satisfies performance obligations that arise from contracts with its customers. The Company’s performance obligations arise when it receives a bill of lading (“BOL”) to transport a customer's commodities at negotiated prices contained in 2017either a transportation services agreement or a publicly disclosed tariff rate. Once a BOL is received and accepted, a legally-enforceable contract is formed whereby the parties are committed to perform and the rights of the parties, shipping terms and conditions, and payment terms have been identified. A customer may submit many BOLs for transportation services at various times throughout a service agreement term but each shipment represents a distinct service that is a separately identified performance obligation.
In March 2016,The typical transit time to complete a shipment is from one to five days. Billing for transportation services normally occurs after completion of the service and payment is generally due within 30 days after the invoice date. The Company recognizes revenue related to the Company’s LTL, non-asset truckload and expedited services over the transit time of the shipment as it moves from origin to destination. Revenue for services is recognized based on transit status at the end of each reporting period.
Key estimates included in the recognition and measurement of revenue and related accounts receivable are as follows:
The portion of the gross invoice related to interline transportation services that involve the services of another party, such as another LTL service provider, is not recorded in the Company’s revenues. Revenue from logistics services is recognized as the services are provided.
7
Remaining performance obligations represent the transaction price allocated to future periods for freight services started but not completed at the reporting date. These amounts include the unearned portion of billed and unbilled amounts for freight shipments in transit that the Company expects to recognize as revenue in the period subsequent to the reporting date, which is generally less than one week. The Company has elected to apply the optional exemption in accordance with the Financial Accounting Standards Board (“FASB”) issued Accounting Standards UpdateCodification (“ASU”ASC”) No. 2016-09, ImprovementsTopic 606, Revenue from Contracts with Customers, as it relates to Employee Share-Based Payment Accounting. Theadditional quantitative disclosures pertaining to remaining performance obligations.
Claims and Insurance Accruals
Effective March 1, 2018, the Company adopted thisentered into a new standard effective Januaryautomobile liability insurance policy with a three-year term. Generally, the Company is responsible for the risk retention amount per occurrence of $2.0 million under the policy. Thereafter, the policy provides insurance coverage for a single loss of $8.0 million, an aggregate loss limit of $24.0 million for each policy year, and a $48.0 million aggregate loss limit for the 36-month term originally ended March 1, 2017.2021. Under the policy, the Company could elect to commute the policy with respect to the first 12 months of the policy term and concurrently extend the policy for an additional one-year period if paid losses in the first 12 months of the policy were less than $5.2 million. In August 2019, the Company elected to commute the policy for such period. As a result, the Company received a return of adoption, $1.3$5.2 million of excess tax benefits relatedthe premium paid (the maximum return premium available), based on the amount of claims paid and the insurer was released from all liability in connection with claims occurring in such 12-month period. The Company is now self-insured for the first $10.0 million per occurrence with respect to share-based paymentssuch 12-month period and the policy was recordedextended for one additional year to March 1, 2022. The Company recognized the remaining $0.3 million of the return premium as an offset to income taxa reduction in insurance premium expense in the first nine monthsquarter of 2017,2022. Effective March 1, 2022, the policy term was extended for one additional year to March 1, 2023. As of June 30, 2022, the Company is required to pay additional amounts of up $11.5 million if losses paid by the insurer are greater than $18.4 million over the four-year policy period ending March 1, 2023. Previously, the Company was required to pay additional amounts of up to $11.0 million if losses paid by the insurer were greater than $17.5 million over the three year period ending March 1, 2022. Based on claims occurring since March 1, 2019, 0 such additional amount was accrued as opposedof June 30, 2022. Commencing on August 30, 2023, the Company may elect to additional paid-in capital,commute the policy with respect to the insurer’s entire liability under the policy in which case the Company would be entitled to a return of a portion of the premium paid, up to $18.4 million, based on the amount of claims paid and the windfall tax benefit was removedinsurer would be released from all liability under the Company’s diluted shares calculation. Thepolicy ending March 1, 2023. As a result, if the Company classifiedelects to commute the $1.3policy as to the entire policy term, the Company would be self-insured for $10.0 million per occurrence for the five years ended March 1, 2023.
Effective March 1, 2022, the Company entered into an additional automobile liability insurance policy with a three-year term that is applicable when an occurrence exceeds $10.0 million. Thereafter, the policy provides insurance coverage for a single loss of excess tax benefits relatedan additional $5.0 million, an aggregate loss limit of $10.0 million for each policy year, and a $20.0 million aggregate loss limit for the three-year term ending March 1, 2025. Under the policy, the Company may elect to share-based payments as operating activities, insteadcommute the policy for the three year term if losses incurred are less than $1.4 million and the Company does not elect to renew the policy. In the event the Company elects to commute the policy for such period, it will be entitled to a return of financing activities,a portion of the premium paid, up to $1.1 million, based on the Condensed Consolidated Statementamount of Cash Flowsclaims paid and the insurer will be released from all liability in connection with such period. As a result, if the Company elects to commute the policy as to such period, the Company will be self-insured for the first nine months of 2017. The Company elected$10.0 million to continue to use an estimated forfeiture rate for recording stock compensation expense and to withhold taxes at the minimum statutory rates. The Company classified $1.2$15.0 million in shares withheld for taxes as financing activitiesloss layer per occurrence for the first nine months of 2017.three years ended March 1, 2025. The election to commute the policy can not be made before June 1, 2024 and must be made prior to December 1, 2025, unless the insurer agrees to extend such date. Additionally, the Company reclassified $0.7is required to pay additional amounts of up to $7.5 million in shares withheld for taxes from operating activities to financing activities forif losses paid by the first nine months of 2016. The Company had no other items requiring retrospective treatment underinsurer are greater than $1.4 million over the pronouncement.
Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services. The ASU will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles when it becomes effective. In July 2015, the FASB updated ASU No. 2014-09 to defer the effective date by one year. The new standard is effective for the Companythree-year policy period ending March 1, 2025. Based on Januaryclaims occurring since March 1, 2018,2022, 0 such additional amounts were accrued at which point the Company plans to adopt this standard. The standard permits the use of either the retrospective or cumulative effect transition method. Under the new standard, accessorial fees, such after hours pickup or delivery, that are directly related to freight revenue will continue to be non-distinct services and, thus, be recognized in the same manner as the freight transportation services provided. The Company will change its presentation of its non-asset truckload business from net revenue to gross revenue, and the revenue will be recognized on a percentage-of-completion basis going forward as opposed to upon commencement of the services under the current policy. While the Company has completed its evaluation of its revenue streams and contracts subject to the standard and will adopt the new standard retrospectively, the Company has not yet quantified the impact of the standard.June 30, 2022.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), a leasing standard for both lessees and lessors. Under its core principle, a lessee will recognize lease assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. Lessor accounting remains largely consistent with existing U.S. generally accepted accounting principles. The new standard
8
is effective for the Company on January 1, 2019. Early adoption is permitted. The standard requires the use of a modified retrospective transition method. The Company is evaluating the effect that ASU No. 2016-02 will have on its consolidated financial statements and related disclosures. While the Company has not completed its evaluation of the effect of the standard on its ongoing financial reporting, it believes the most significant changes relate to the recognition of lease assets and liabilities on its consolidated balance sheet.
(2) Computation of Earnings Per Share
The calculation of basic earnings per common share and diluted earnings per common share was as follows (in thousands, except per share amounts):
|
| Third Quarter |
|
| Nine Months |
|
| Second Quarter |
|
| Six Months |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income |
| $ | 14,407 |
|
| $ | 13,826 |
|
| $ | 43,397 |
|
| $ | 37,676 |
|
| $ | 109,245 |
|
| $ | 62,474 |
|
| $ | 188,669 |
|
| $ | 99,765 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Denominator for basic earnings per share–weighted average common shares |
|
| 25,527 |
|
|
| 25,038 |
|
|
| 25,494 |
|
|
| 25,022 |
|
|
| 26,507 |
|
|
| 26,332 |
|
|
| 26,489 |
|
|
| 26,309 |
|
Effect of dilutive stock options |
|
| 152 |
|
|
| 52 |
|
|
| 124 |
|
|
| 46 |
| ||||||||||||||||
Effect of other common stock equivalents |
|
| 434 |
|
|
| 568 |
|
|
| 432 |
|
|
| 557 |
| ||||||||||||||||
Dilutive effect of share-based awards |
|
| 158 |
|
|
| 372 |
|
|
| 173 |
|
|
| 378 |
| ||||||||||||||||
Denominator for diluted earnings per share–adjusted weighted average common shares |
|
| 26,113 |
|
|
| 25,658 |
|
|
| 26,050 |
|
|
| 25,625 |
|
|
| 26,665 |
|
|
| 26,704 |
|
|
| 26,662 |
|
|
| 26,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Basic Earnings Per Share |
| $ | 0.56 |
|
| $ | 0.55 |
|
| $ | 1.70 |
|
| $ | 1.51 |
|
| $ | 4.12 |
|
| $ | 2.37 |
|
| $ | 7.12 |
|
| $ | 3.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Diluted Earnings Per Share |
| $ | 0.55 |
|
| $ | 0.54 |
|
| $ | 1.67 |
|
| $ | 1.47 |
|
| $ | 4.10 |
|
| $ | 2.34 |
|
| $ | 7.08 |
|
| $ | 3.74 |
|
For the quarter and nine months ended SeptemberJune 30, 2017,2022, options and restricted stock for 63,10438,437 shares of common stock were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive. For the six months ended June 30, 2022, options and restricted stock for 22,493 shares of common stock were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive. For the quarter and ninesix months ended SeptemberJune 30, 2016,2021 options and restricted stock for 402,770 and 516,31219,250 shares of common stock respectively, were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive.
(3) Commitments and Contingencies
The Company pays its pro rata share of the cost of letters of credit outstanding for certain workers’ compensation claims incurred prior to March 1, 2000 that Saia’s former parent maintains for insurance programs. The Company’s pro rata share of these outstanding letters of credit was $1.8$1.8 million at SeptemberJune 30, 2017.2022.
The Company is subject to legal proceedings that arise in the ordinary course of its business. Management believes that adequate provisions for the resolution of all contingencies, claims and pending litigation have been made for probable and estimable losses and that the ultimate outcome of these actions will not have a material adverse effect on its financial condition but could have a material adverse effect on the results of operations in a given quarter or annual period.
(4) Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximated fair value as of SeptemberJune 30, 20172022 and December 31, 2016,2021, because of the relatively short maturity of these instruments. Based on the borrowing rates currently available to the Company for debt with similar terms and remaining maturities, the estimated fair value of total debt at SeptemberJune 30, 20172022 and December 31, 20162021 was $126.9$39.3 million and $77.6$50.8 million, respectively, based upon levels one andlevel two in the fair value hierarchy. The carrying value of the debt was $127.2$39.3 million and $73.8$50.4 million at SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively.
(5) Debt and Financing Arrangements
At SeptemberJune 30, 20172022 and December 31, 2016,2021, debt consisted of the following (in thousands):
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||||
Credit Agreement with Banks, described below |
| $ | 34,499 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Senior Notes under a Master Shelf Agreement, described below |
|
| 3,571 |
|
|
| 7,143 |
| ||||||||
Capital Leases, described below |
|
| 89,163 |
|
|
| 66,661 |
| ||||||||
Finance Leases, described below |
|
| 39,295 |
|
|
| 50,404 |
| ||||||||
Total debt |
|
| 127,233 |
|
|
| 73,804 |
|
|
| 39,295 |
|
|
| 50,404 |
|
Less: current portion of long-term debt |
|
| 17,072 |
|
|
| 16,762 |
|
|
| 17,935 |
|
|
| 19,396 |
|
Long-term debt, less current portion |
| $ | 110,161 |
|
| $ | 57,042 |
|
| $ | 21,360 |
|
| $ | 31,008 |
|
On March 6, 2015, theThe Company’s liquidity needs arise primarily from capital investment in new equipment, land and structures, information technology and letters of credit required under insurance programs, as well as funding working capital requirements.
9
The Company entered into the Fifthis party to a revolving credit agreement with a group of banks to fund capital investments, letters of credit and working capital needs.
Credit Agreement
The Company is a party to a Sixth Amended and Restated Credit Agreement with its banking group (as amended, the Restated(the Amended Credit Agreement), which provides up to a $300 million revolving line of credit through February 2024. The amendment increased the amount of the revolver from $200 million to $250 million and extended the term until March 2020. The amendment also reduced the interest rate pricing grid and eliminated both the borrowing base and the minimum tangible net worth covenant. On the same date, the Company also entered into the Second Amended and Restated Master Shelf Agreement with its long term note holders (as amended, the Restated Master Shelf Agreement) that made changes to this agreement to conform with certain changes in the Restated Credit Agreement.
Restated Credit Agreement
The Restated Credit Agreement is a revolving credit facility for up to $250 million expiring in March 2020. The Restated Credit Agreement also has an accordion feature that allows for an additional $75$100 million availability, subject to certain conditions and availability of lender approval.commitments. The RestatedAmended Credit Agreement provides for aLIBOR rate margin range from 112.5100 basis points to 225200 basis points, base rate margins from minus 12.550 basis points to plus 50 basis points, an unused portion fee from 2017.5 basis points to 30 basis points and letter of credit fees from 112.5100 basis points to 225200 basis points, in each case based on the Company’s leverage ratio.
Under the RestatedAmended Credit Agreement, the Company must maintain certain financial covenants including a minimum fixed chargedebt service coverage ratio set at 1.25 to 1.00 and a maximum leverage ratio among others.set at 3.25 to 1.00. The RestatedAmended Credit Agreement also provides for a pledge by the Company of certain land and structures, certain tractors, trailersaccounts receivable and other personal propertyassets to secure indebtedness under this agreement. The Amended Credit Agreement contains certain customary representations and accounts receivable, as defined inwarranties, affirmative and negative covenants and provisions relating to events of default. Under the RestatedAmended Credit Agreement.Agreement, if an event of default occurs, the banks will be entitled to take various actions, including the acceleration of amounts due.
At SeptemberJune 30, 2017,2022, the Company had borrowings of $34.5 million and outstanding letters of credit of $33.9 million under the Restated Credit Agreement. At December 31, 2016, the Company had no0 outstanding borrowings and outstanding letters of credit of $39.4$31.2 million under the RestatedAmended Credit Agreement. At December 31, 2021, the Company had 0 outstanding borrowings and outstanding letters of credit of $29.3 million under the Amended Credit Agreement. The available portion of the RestatedAmended Credit Agreement may be used for general corporate purposes, including future capital expenditures, working capital and letter of credit requirements as needed.
Restated Master Shelf AgreementFinance Leases
In 2002, the Company issued $100 million in Senior Notes under a $125 million (amended to $150 million in April 2005) Master Shelf Agreement with Prudential Investment Management, Inc. and certain of its affiliates. The Company issued an additional $25 million in Senior Notes on November 30, 2007 and $25 million in Senior Notes on January 31, 2008 under the same Master Shelf Agreement.
The November 2007 issuance of $25 million Senior Notes has a fixed interest rate of 6.14 percent. The January 2008 issuance of $25 million Senior Notes has a fixed interest rate of 6.17 percent. Payments due for both $25 million issuances were interest only until June 30, 2011 and at that time semi-annual principal payments began with the final payments due January 1, 2018. Under the terms of the Senior Notes, the Company must maintain certain financial covenants including a minimum fixed charge coverage ratio and a maximum leverage ratio, among others. The Senior Notes also provide for a pledge by the Company of certain land and structures, certain tractors, trailers and other personal property and accounts receivable, as defined in the Senior Notes. At September 30, 2017 and December 31, 2016, the Company had $3.6 million and $7.1 million, respectively, in Senior Notes outstanding.
Capital Leases
The Company is obligated under capitalfinance leases with seven yearseven-year original terms covering revenue equipment totaling $89.2equipment. Total liabilities recognized under finance leases were $39.3 million and $66.7$50.4 million as of SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively. Amortization of assets held under the capitalfinance leases is included in depreciation and amortization expense. As of June 30, 2022 and December 31, 2021, approximately $73.8 million and $85.1 million of finance leased assets, net of depreciation, were included in Property and Equipment, respectively. The weighted average interest raterates for the capitalfinance leases at SeptemberJune 30, 20172022 and December 31, 2016 is 3.042021 were 3.6 percent and 2.823.6 percent, respectively.
Principal Maturities of Long-Term Debt
TheThe principal maturities of long-term debt, instrumentsincluding interest on finance leases, for the next five years (in thousands) are as follows (in thousands):follows:
|
| Amount |
| |
2022 |
| $ | 9,022 |
|
2023 |
|
| 15,409 |
|
2024 |
|
| 10,606 |
|
2025 |
|
| 5,453 |
|
2026 |
|
| 919 |
|
Thereafter |
|
| 0 |
|
Total |
|
| 41,409 |
|
Less: Amounts Representing Interest on Finance Leases |
|
| 2,114 |
|
Total |
| $ | 39,295 |
|
|
| Amount |
| |
2017 |
| $ | 7,578 |
|
2018 |
|
| 16,029 |
|
2019 |
|
| 16,029 |
|
2020 |
|
| 50,529 |
|
2021 |
|
| 16,607 |
|
Thereafter |
|
| 29,270 |
|
Total |
|
| 136,042 |
|
Less: Amounts Representing Interest on Capital Leases |
|
| 8,809 |
|
Total |
| $ | 127,233 |
|
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and our 20162021 audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2021. Those consolidated financial statements include additional information about our significant accounting policies, practices and the transactions that underlie our financial results.
Forward-Looking Statements
The Securities and Exchange Commission (the SEC) encourages companies to disclose forward-looking information so that investors can better understand the future prospects of a company and make informed investment decisions. This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations,” contains these types of statements, which are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “may,” “plan,” “predict,” “believe,” “should” and similar words or expressions are intended to identify forward-looking statements. Investors should not place undue reliance on forward-looking statements, and the Company undertakes no obligation to publicly update or revise any forward-looking statements.statements, except as otherwise required by applicable law. All forward-looking statements reflect the present expectation of future events of our management as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors, risks, uncertainties and assumptions that could cause actual results to differ materially from those described in any forward-looking statements. These factors, risks, uncertainties and assumptions include, but are not limited to, the following:
general economic conditions including downturns or inflationary periods in the business cycle;
effectiveness of Company-specific performance improvement initiatives,operation within a highly competitive industry and the adverse impact from downward pricing pressures, including management of the cost structure to match shifts in customer volume levels;
the creditworthinessindustry-wide external factors largely out of our customerscontrol;
failure to achieve acquisition synergies;
costs and liabilities from the disruption in or failure of our technology or equipment essential to our operations, including as a result of cyber incidents, security breaches, malware or ransomware attacks;
supply chain disruption and delays on new equipment delivery;
competitive initiativesthe creditworthiness of our customers and pricing pressures, including in connection with fuel surcharge;
loss of significant customers;
the Company’sour need for capital and uncertainty of the credit markets;
the possibility of defaults under the Company’sour debt agreements, (includingincluding violation of financial covenants);
possible issuance11
integration risks;
failure to make future acquisitions or to achieve acquisition synergies;
costthe potential of higher corporate taxes and availabilitynew regulations, including with respect to climate change, employment and labor law, healthcare and securities regulation;
governmental regulations, including but not limited to Hourshours of Service,service and licensing compliance for drivers, engine emissions, the Compliance, Safety, Accountability (CSA) initiative, compliance with legislation requiring companies to evaluate their internal control over financial reporting,regulations of the Food and Drug Administration and Homeland Security, and healthcare and environmental regulations and the FDA;
unforeseen costs from new and existing data privacy laws;
dependence on key employees;
inclement weather;
labor relations,an illness or any other communicable disease, including the adverse impact should a portionCOVID-19 pandemic, or any other health crisis or business disruptions and higher costs that may arise from the COVID-19 pandemic in the future, including governmental regulations requiring that employees be vaccinated or be tested regularly for COVID-19 before reporting to work;
terrorism risks;
self-insurance claims and other expense volatility;
cost and availability of insurance coverage;
increased costs of healthcare benefits and administration, including as a result of healthcare legislation;
cyber security risk;
failure to successfully execute the strategy to expand the Company’s service geography into the Northeastern United States; and
other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s SEC filings.
These factors and risks are described in Part II,I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2021, as updated by Part II, Item 1A. of this Quarterly Report on Form 10-Q.
As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this Form 10-Q. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.otherwise, except as otherwise required by applicable law.
Executive Overview
The Company’s business is highly correlated to non-service sectors of the general economy. The Company’s strategy is to improve profitability by increasing yield while also increasing volumes to build density in existing geography and to expandpursue geographic expansion to promote profitable growth and improve our service geography into the Northeastern United States.customer value proposition over time. The Company’s business is labor intensive, capital intensive and service sensitive. The Company looks for opportunities to improve safety, cost effectiveness safety and asset utilization.utilization (primarily tractors and trailers). Pricing initiatives have had a positive impact on yield and profitability. The Company continues to execute targeted sales and marketing programs along with initiatives to align costs with volumes and improve customer satisfaction. Technology continues to be an important investment that is facilitatingimproving customer experience, operational efficiencies and customer service.Company image.
Second Quarter Overview
The Company’s operating revenue increased by 10.630.5 percent in the thirdsecond quarter of 20172022 compared to the same period in 2016.2021. The increase resulted primarily from increased shipments, tonnage,increases in revenue per shipment, fuel surchargessurcharge revenue and pricing actions, including a 4.9 percent general rate increase taken July 17, 2017, partially offset by the timing of the 4th of July holiday, impacts of named hurricanes Harvey and Irma and one less workday in the quarter. Expansion into the Northeastern United States and the new Canadian marketing partnership duringtonnage.
Consolidated operating income was $146.0 million for the second quarter of 2017 were contributing factors in the increased shipments and tonnage.
Consolidated operating income was $24.62022 compared to $82.9 million for the thirdsecond quarter of 20172021. In the second quarter of 2022, LTL shipments were up 1.8 percent per workday and LTL tonnage was up 2.8 percent per workday compared to $22.6 million for the third quarter of 2016. In the third quarter of 2017, LTL shipments and tonnage per workday were up 3.1 percent and 3.6 percent, respectively, versus the prior year quarter. Diluted earnings per share were $0.55$4.10 in the thirdsecond quarter of 2017,2022, compared to diluted earnings per share of $0.54$2.34 in the prior year quarter. The operating ratio (operating expenses divided by operating revenue) was 93.080.4 percent in the thirdsecond quarter of 20172022 compared to 92.885.5 percent in the thirdsecond quarter of 2016.2021. The improved operating ratio compared to prior year is due to the Company’s continued focus on pricing initiatives, cost control and operating efficiencies in addition to the impact of our fuel surcharge program.
12
The Company had $127.7generated $207.9 million in net cash provided by operating activities in the first ninesix months of 20172022 compared with $118.3$140.1 million in the same period last year. The increase is primarily due to increased profitability partially offset by a change in working capital, primarily driven by increases in operating income and depreciation and amortization expense and a $1.3 million excess tax benefit from share-based payments for the nine months ended September 30, 2017 as a result of the adoption of the Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2016-09.accounts receivable compared to prior year. The Company hadCompany’s net cash used in investing activities of $152.6was $155.3 million during the first ninesix months of 20172022 compared to $107.8$100.0 million in the first ninesix months of 2016,2021, primarily as a result of higherincreased capital expenditures for revenue equipment andrelated to real estate acquisitions in the first ninesix months of 2017.2022. The Company’s net cash provided by financing activities was $23.4 million in the first nine months of 2017 compared to $9.8 million net cash used in financing activities was $21.3 million in the first six months of 2022 compared to $12.6 million during the same period last year,year. This change was primarily due to increased borrowingequity based compensation shares withheld for taxes as well as decreased proceeds from stock option exercises during the first six months of 2022, compared to fund capital expenditures.the first six months of 2021. The Company had $34.5 million inno outstanding borrowings under its revolving credit agreement, total outstanding letters of credit of $35.7$33.0 million and a cash and cash equivalents balance of $0.1$137.9 million at SeptemberJune 30, 2017.2022. The Company also had $3.6 million outstanding in Senior Notes and $89.2$39.3 million in obligations under capitalfinance leases at SeptemberJune 30, 2017.2022. At June 30, 2022, the Company had $268.8 million in availability under the revolving credit facility. The revolving credit facility also has an accordion feature that allows for an additional $100 million availability, subject to certain conditions and availability of lender commitments. The Company was in compliance with the debt covenants under its debt agreementsrevolving credit agreement at SeptemberJune 30, 2017.2022.
General
The following Management’s Discussion and Analysis describes the principal factors affecting the results of operations, liquidity and capital resources, as well as the critical accounting policies and estimates of Saia, Inc. and its wholly-owned subsidiaries (together, the Company or Saia).
Saia is a transportation company headquartered in Johns Creek, Georgia that provides regional and interregionalnational less-than-truckload (LTL) services across 38 states through a single integrated organization. While more than 9997 percent of its revenue is historically has
been derived from transporting LTL shipments across 45 states, the Company also offers customers a wide range of other value-added services, including non-asset truckload, expedited and logistics services throughoutacross North America.
Our business is highly correlated to non-service sectors of the general economy. ItOur business also is impacted by a number of other factors as discussed under “Forward Looking Statements” and Part II, Item 1A. “Risk Factors.” The key factors that affect our operating results are the volumes of shipments transported through our network, as measured by our average daily shipments and tonnage; the prices we obtain for our services, as measured by revenue per hundredweight (a measure of yield) and revenue per shipment; our ability to manage our cost structure for capital expenditures and operating expenses such as salaries, wages and benefits; purchased transportation; claims and insurance expense; fuel and maintenance; and our ability to match operating costs to shifting volume levels.
13
Results of Operations
Saia, Inc. and Subsidiaries
Selected Results of Operations and Operating Statistics
For the quarters ended SeptemberJune 30, 20172022 and 20162021
(unaudited)
|
|
|
|
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
| ||||||
|
|
|
|
|
|
|
|
|
| Variance |
|
|
|
|
|
|
| Variance |
|
| ||||||
|
| 2017 |
|
| 2016 |
|
| '17 v. '16 |
|
|
| 2022 |
|
| 2021 |
|
| '22 v. '21 |
|
| ||||||
|
| (in thousands, except ratios and revenue per hundredweight) |
| (in thousands, except ratios, workdays, revenue per hundredweight, revenue per shipment and length of haul) | ||||||||||||||||||||||
Operating Revenue |
| $ | 350,062 |
|
| $ | 316,442 |
|
|
| 10.6 |
| % |
| $ | 745,554 |
|
| $ | 571,333 |
|
|
| 30.5 |
| % |
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Salaries, wages and employees’ benefits |
|
| 194,920 |
|
|
| 178,687 |
|
|
| 9.1 |
|
|
|
| 295,052 |
|
|
| 268,786 |
|
|
| 9.8 |
|
|
Purchased transportation |
|
| 23,074 |
|
|
| 15,657 |
|
|
| 47.4 |
|
|
|
| 91,819 |
|
|
| 62,481 |
|
|
| 47.0 |
|
|
Depreciation and amortization |
|
| 22,338 |
|
|
| 19,927 |
|
|
| 12.1 |
|
|
|
| 36,944 |
|
|
| 34,659 |
|
|
| 6.6 |
|
|
Fuel and other operating expenses |
|
| 85,128 |
|
|
| 79,527 |
|
|
| 7.0 |
|
|
|
| 175,746 |
|
|
| 122,482 |
|
|
| 43.5 |
|
|
Operating Income |
|
| 24,602 |
|
|
| 22,644 |
|
|
| 8.6 |
|
|
|
| 145,993 |
|
|
| 82,925 |
|
|
| 76.1 |
|
|
Operating Ratio |
|
| 93.0 | % |
|
| 92.8 | % |
|
| (0.2 | ) |
|
|
| 80.4 | % |
|
| 85.5 | % |
|
|
|
| |
Nonoperating Expense |
|
| 1,182 |
|
|
| 1,079 |
|
|
| 9.5 |
|
|
|
| 1,437 |
|
|
| 404 |
|
|
| 255.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Working Capital (as of September 30, 2017 and 2016) |
|
| 17,100 |
|
|
| 13,001 |
|
|
|
|
|
| |||||||||||||
Cash Flows provided by Operations (year to date)(1) |
|
| 127,737 |
|
|
| 118,309 |
|
|
|
|
|
| |||||||||||||
Working Capital (as of June 30, 2022 and 2021) |
|
| 197,227 |
|
|
| 68,986 |
|
|
|
|
| ||||||||||||||
Cash Flows provided by Operating Activities (year to date) |
|
| 207,905 |
|
|
| 140,140 |
|
|
|
| |||||||||||||||
Net Acquisitions of Property and Equipment (year to date) |
|
| 152,586 |
|
|
| 107,825 |
|
|
|
|
|
|
|
| 155,291 |
|
|
| 99,966 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Saia Motor Freight Operating Statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Workdays |
|
| 64 |
|
|
| 64 |
|
|
| - |
|
| |||||||||||||
LTL Tonnage |
|
| 931 |
|
|
| 913 |
|
|
| 2.0 |
|
|
|
| 1,446 |
|
|
| 1,406 |
|
|
| 2.8 |
|
|
LTL Shipments |
|
| 1,662 |
|
|
| 1,638 |
|
|
| 1.5 |
|
|
|
| 2,048 |
|
|
| 2,012 |
|
|
| 1.8 |
|
|
LTL Revenue per hundredweight |
| $ | 17.36 |
|
| $ | 16.08 |
|
|
| 8.0 |
|
|
| $ | 25.05 |
|
| $ | 19.84 |
|
|
| 26.3 |
|
|
LTL Revenue per shipment |
| $ | 353.75 |
|
| $ | 277.24 |
|
|
| 27.6 |
|
| |||||||||||||
LTL Pounds per shipment |
|
| 1,412 |
|
|
| 1,397 |
|
|
| 1.1 |
|
| |||||||||||||
LTL Length of haul |
|
| 910 |
|
|
| 911 |
|
|
| (0.1 | ) |
|
|
|
Quarter and ninesix months ended SeptemberJune 30, 20172022 compared to Quarterquarter and ninesix months ended SeptemberJune 30, 20162021
Revenue and volume
Consolidated revenue for the quarter ended SeptemberJune 30, 20172022 increased 10.630.5 percent to $350.1$745.6 million primarily as a result of increased tonnage, shipments,revenue per shipment, fuel surchargessurcharge revenue and pricing actions, partially offset by the timing of the 4th of July holiday, impacts of hurricanes and one less workday in the quarter. Expansion into the Northeastern United States and the new Canadian marketing partnership duringtonnage. Saia’s LTL revenue per shipment increased 27.6 percent to $353.75 per shipment for the second quarter of 2017 were contributing factors in the increased shipments and tonnage in the third quarter of 2017. Saia’s LTL revenue per hundredweight (a measure of yield) increased 8.0 percent to $17.36 per hundredweight for the third quarter of 20172022 as a result of increased rateschanges in business mix and fuel surcharges.pricing actions. Our service initiatives, including our network expansion, continue to allow us to support our improved pricing. For the thirdsecond quarter of 2017,2022, Saia’s LTL tonnage increased 3.6was up 2.8 percent per workday to 0.91.4 million tons, and LTL shipments increased 3.11.8 percent per workday to 1.72.0 million shipments. ApproximatelyOur organic network expansion is also positively impacting customer experience, as well as volume and tonnage growth. For the second quarter of 2022, approximately 75 to 80 percent of Saia’s operating revenue was subject to specific customer price negotiations that occur throughout the year. The remaining 20 to 25 percent of operating revenue was subject to a general rate increase which is based on market conditions. For these customers subject to a general rate increase, on July 17, 2017January 24, 2022 and October 3, 2016,January 18, 2021, Saia implemented a 4.97.5 and 5.9 percent general rate increase.increases, respectively. Competitive factors, customer turnover and mix changes, impact the extent to which customer rate increases are retained over time.
Operating revenue includes fuel surcharge revenue from the Company’s fuel surcharge program. That program, which is designed to reduce the Company’s exposure to fluctuations in fuel prices by adjusting total freight charges to account for changes in the price of fuel.
The Company’s fuel surcharge is based on the average national price for diesel fuel (as estimated by the United States Energy Information Administration) and is typically reset weekly. Fuel surcharges have remained in effect for several years, are widely accepted in the industry and are a significant component of revenue and pricing. Fuel surcharges are an integral part of customer contract negotiations but represent only one portion of overall customer price negotiations, as customers may negotiate increaseincreases in base rates instead of increases in fuel surcharges or vice versa. Saia revised its fuel surcharge program effective January 18, 2016 to better align with its competitors. Fuel surcharge revenue increased to 11.3 percentas a percentage of operating revenue for the quarter ended September 30, 2017 comparedincreased to 10.221.7 percent for the quarter ended SeptemberJune 30, 2016,2022 compared to 14.4 percent for the quarter ended June 30, 2021, as a result of increases in the cost of fuel.
14
For the ninesix months ended SeptemberJune 30, 2017,2022, operating revenues were $1,025.3 million,$1.4 billion, up 11.733.3 percent from $918.3 million$1.1 billion for the ninesix months ended SeptemberJune 30, 2016,2021. This increase is primarily due to increased tonnage,revenue per shipment, fuel surcharge revenue and shipments fuel surcharges and pricing actions, partially offset by one less workday induring the period.first six months of 2022 compared to the comparable period last year. Fuel surcharge revenue increased to 11.2 percentas a percentage of operating revenue for the nine months ended September 30, 2017 comparedincreased to 9.519.4 percent for the ninesix months ended SeptemberJune 30, 2016,2022 compared to 13.7 percent for the six months ended June 30, 2021, as a result of increased fuel prices.increases in the cost of fuel.
Operating expenses and margin
Consolidated operating income was $24.6$146.0 million in the thirdsecond quarter of 20172022 compared to $22.6$82.9 million in the prior year quarter. Overall, the operations were favorably impactedincrease in consolidated operating income was the thirdresult of improved pricing actions, the impact of our fuel surcharge program, increased tonnage and business mix management during the second quarter of 2017 by higher tonnage, shipments, fuel surcharge2022. These actions in 2022, along with continued focus on cost controls and yield, which were offset by salary and wage increases, higher fuel and purchase transportation costs, increased depreciation expense and costs associated with expansion intooperational efficiencies drove improvement during the Northeastern United States.quarter. The thirdsecond quarter of 20172022 operating ratio (operating expenses divided by operating revenue) was 93.080.4 percent compared to 92.885.5 percent for the same period in 2016.2021.
Salaries, wages and employees’ benefits increased $16.2$26.3 million in the thirdsecond quarter of 20172022 compared to the thirdsecond quarter of 2016 largely2021. This change was primarily driven by increased headcount required to support ongoing business growth and network expansion. In addition, in August 2021 the Company implemented a salary and wage increase of approximately 4.7 percent. Purchased transportation increased $29.3 million in the second quarter of 2022 compared to the second quarter of 2021 partially due to higher wages associatedlinehaul capacity expansion to support growth and customer service requirements, combined with the increased headcount in the third quartercost of 2017, a wage increase in July 2017 and higher healthcare benefit costs.this expanded capacity. Fuel, operating expenses and supplies increased $7.3by $54.9 million, in the third quarter of 2017 compared to the prior year quarter largely due to higherincreased diesel fuel costs and volume increases in other operating expenses and supplies, includingrelated terminal growth during the quarter. The increased expenses related to the expansion in the Northeastern United States, partiallycost of this growth is offset by improved fuel efficiency. During the third quarter of 2017, claimscapacity utilization benefits. Claims and insurance expense was $1.5$3.1 million lower than the previous yearsecond quarter of 2021 primarily due to decreased accident frequencylower claims activity. Depreciation and severity along with decreased cargo claims. The Company can experience volatility in accidentamortization expense as a result of its self-insurance structure and $2.0 million retention limits per occurrence. Purchased transportation increased $7.4$2.3 million in the thirdsecond quarter of 20172022 compared to the third quarter of 2016same period in 2021 primarily due to an increase in utilization of purchased transportation carriers to maintain service requirements while supporting increased shipments, tonnagerevenue equipment, real estate and length of haultechnology investments in the third quartersecond half of 2017.2021 and the beginning of 2022.
For the ninesix months ended SeptemberJune 30, 2017,2022, consolidated operating income was $71.8$249.4 million, up 16.089.5 percent compared to $61.9$131.6 million for the ninesix months ended SeptemberJune 30, 2016.2021. This increase was largely due to pricing actions, improved fuel surcharge revenue and increased shipments.
Salaries, wages and benefits increased $47.3$71.3 million during the first ninesix months of 20172022 compared to the same period last year largely due to salary and wage increases that were effective in August of 2021 and increases in overall headcount over the past twelve months. Purchased transportation increased wages associated with increased headcount in$62.6 million for the first ninesix months of 20172022 compared to the same period last year primarily due to higher rates for purchased miles during the first six months of 2022 in addition to linehaul capacity expansion to support growth and a wage increase in July 2017 and higher healthcare benefit costs.customer service requirements. Fuel, operating expenses and supplies increased $24.4$92.7 million during the first ninesix months of 20172022 compared to the same period last year largely due to higher fuel costs resulting from increases in other operating expensesthe price per gallon of diesel and supplies, including increased expenses related tovolume increases during the expansion in the Northeastern United States, partially offset by improved fuel efficiency and lower maintenance costs resulting from a newer fleet and increased internal maintenance asset utilization.first six months of 2022. During the first ninesix months of 2017,2022, claims and insurance expense was $0.9$3.9 million lower than the same period last year primarily due to decreased development on olderlower claims activity. Depreciation and decreased cargo claims. Purchased transportationamortization expense increased $17.8$6.9 million during the first six months of 2022 compared to the first nine months of 2016same period in 2021 primarily due to an increase in utilization of purchased transportation carriers to maintain service requirements while supporting increased shipments, tonnagerevenue equipment, real estate and length of haultechnology investments in the first nine monthssecond half of 2017.2021 and the beginning of 2022.
Other
Substantially all non-operating expenses represent interest expense. Interest expense in the thirdsecond quarter of 20172022 was $0.1 million higherlower than the third quarter of 2016 duesame period in 2021 as the Company continued to increased average borrowings in the third quarter of 2017. Interest expense in the first nine months of 2017 was $0.4 million higher than the first nine months of 2016 due to increased average borrowings in the first nine months of 2017.pay down finance lease obligations.
The effective tax rate was 38.524.4 percent and 35.924.3 percent for the quarters ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The increase in the thirdsecond quarter effective tax rate in 20172022 is primarily a resultdue to the reduction of legislation surroundingavailable tax credits related to alternative fuels compared to the prior year, as alternative fuel tax credits that impacted the third quarter of 2016 buthave not the third quarter of 2017.been enacted for 2022. For the ninesix months ended SeptemberJune 30, 2017,2022 and June 30, 2021, the effective tax rate was 36.2 percentrates were 23.6 percent. For the six months ended June 30, 2022 approximately $71.4 million in cash tax payments were made compared to 35.8 percent for$40.2 million in the ninesix months ended SeptemberJune 30, 2016. The increase in the nine month tax rate in 2017 is primarily a result of legislation surrounding alternative fuel tax credits that impacted the first nine months of 2016 but not the first nine months of 2017, partially offset by excess tax benefits from stock activity recognized as a result of the Company’s adoption of ASU 2016-09 effective January 1, 2017.2021.
Net income was $14.4$109.2 million, or $0.55$4.10 per diluted share, in the thirdsecond quarter of 20172022 compared to net income of $13.8$62.5 million, or $0.54$2.34 per diluted share, in the thirdsecond quarter of 2016.2021. Net income was $43.4$188.7 million, or $1.67$7.08 per diluted share, for the first ninesix months of 20172022 compared to net income of $37.7$99.8 million, or $1.47$3.74 per diluted share, for the first ninesix months of 2016.2021.
Working capital/capital expenditures
Working capital at SeptemberJune 30, 20172022 was $17.1$197.2 million, which increasedan increase from working capital$69.0 million at SeptemberJune 30, 2016 of $13.0 million.2021.
15
Current assets at SeptemberJune 30, 20172022 increased by $34.2$182.5 million as compared to SeptemberJune 30, 20162021 which includes an increase in cash and includescash equivalents of $85.0 million and an increase in accounts receivable of $28.7 million along with an increase in prepaid expenses and other.$95.9 million. Current liabilities increased by $30.1$54.3 million at SeptemberJune 30, 20172022 compared to SeptemberJune 30, 20162021 largely due to increasesan increase in accounts payable accrued wages, vacation and employee benefits and claims and insurance accruals.as a result of increased volumes. Cash flows provided by operating activities were $127.7$207.9 million for the ninesix months ended SeptemberJune 30, 20172022 versus $118.3$140.1 million for the ninesix months ended SeptemberJune 30, 2016.2021. The increase is primarily due to increased profitability, partially offset by a change in working capital compared to the prior year. For the ninesix months ended SeptemberJune 30, 2017,2022, net cash used in investing activities was $152.6$155.3 million versus $107.8compared to $100.0 million in the same period last year, a $44.8$55.3 million increase. This increase resulted primarily from higherincreased capital expenditures for revenue equipmentrelated to real estate acquisitions as the Company continues to expand its footprint and real estate.add density in markets. The Company currently expects that net capital expenditures in 2022 will be in excess of $500 million. For the ninesix months ended SeptemberJune 30, 2017, net cash provided by financing activities was $23.4 million compared to $9.8 million2022, net cash used in financing activities was $21.3 million compared to $12.6 million during the same period last year, as a result of increased borrowingequity based compensation shares withheld for taxes, as well as decreased proceeds from stock option exercises during the first six months of 2022 compared to fund capital expenditures.the same period in 2021.
Outlook
Our business remains highly correlated to non-service sectors of the general economy and competitive pricing pressures, as well as the success of Company-specific improvement initiatives. ThereOur outlook for 2022 is dependent on a number of external factors, including geopolitical developments, inflation, labor availability, fuel prices and supply chain constraints. The potential impact of these factors on our operations, financial performance and financial condition, as well as the impact on our ability to successfully execute our business strategies and initiatives, remains uncertainty asuncertain and difficult to the strength of economic conditions.predict. We are continuing initiatives to increase yield, reduceimprove and enhance customer service in an effort to support our ongoing pricing and business mix optimization, while controlling costs and improveimproving productivity. We focus on providing top quality serviceOn January 24, 2022 and improving safety performance. On July 17, 2017,January 18, 2021, Saia implemented a 4.97.5 and 5.9 percent general rate increase, respectively, for customers comprising approximately 20 to 25 percent of Saia’s operating revenue. The extent of the success of these revenuecost improvement initiatives is impacted by what proves to be the underlying economic trends, competitor initiativescost and availability of drivers, dock workers and other employees and purchased transportation, fuel, self-insurance claims and insurance expense, regulatory changes, successful expansion of our service geography throughout the United States, the COVID-19 pandemic and other factors discussed under “Forward-Looking Statements” and Part II, Item 1A. “Risk Factors.”
Effective July 1, 2017,2022, the Company implemented a market competitive salary and wage increase for all of its employees.employees, other than Saia officers. The cost of the compensation increase is expected to bewas approximately $16 million annually,4.3 percent, and the Company anticipates the impact will be partially offset by continued productivity and efficiency gains.
If the Company builds market share, including through expansion into the Northeastern United States, there are numerous operating leverage cost benefits. Conversely, should the economy soften from present levels, the Company plans to match resources and capacity to shifting volume levels to lessen unfavorable operating leverage. The success of cost improvement initiatives is also impacted by the cost and availability of drivers and purchased transportation, fuel, insurance claims, regulatory changes, successful expansion of our service geography into the Northeastern United States and other factors discussed under “Forward-Looking Statements” and Part II, Item 1A. “Risk Factors.”
See “Forward-Looking Statements” and Part II, Item 1A. “Risk Factors” for a more complete discussion of potential risks and uncertainties that could materially affect our future performance.
Accounting Pronouncements Adopted in 2017
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The Company adopted this new standard effective January 1, 2017. As a result of adoption, $1.3 million of excess tax benefits related to share-based payments was recorded as an offset to income tax expense in the first nine months of 2017, as opposed to additional paid-in capital, and the windfall tax benefit was removed from the Company’s diluted shares calculation. The Company classified the $1.3 million of excess tax benefits related to share-based payments as operating activities, instead of financing activities, on the Condensed Consolidated Statements of Cash Flows for the first nine months of 2017. The Company elected to continue to use an estimated forfeiture rate for recording stock compensation expense and to withhold taxes at the minimum statutory rates. The Company
classified $1.2 million in shares withheld for taxes as financing activities for the first nine months of 2017. Additionally, the Company reclassified $0.7 million in shares withheld for taxes from operating activities to financing activities for the first nine months of 2016. The Company had no other items requiring retrospective treatment under the pronouncement.
Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services. The ASU will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles when it becomes effective. In July 2015, the FASB updated ASU No. 2014-09 to defer the effective date by one year. The new standard is effective for the Company on January 1, 2018, at which point the Company plans to adopt this standard. The standard permits the use of either the retrospective or cumulative effect transition method. Under the new standard, accessorial fees, such after hours pickup or delivery, that are directly related to freight revenue will continue to be non-distinct services and, thus, be recognized in the same manner as the freight transportation services provided. The Company will change its presentation of its non-asset truckload business from net revenue to gross revenue, and the revenue will be recognized on a percentage-of-completion basis going forward as opposed to upon commencement of the services under the current policy. While the Company has completed its evaluation of its revenue streams and contracts subject to the standard and will adopt the new standard restrospectively, the Company has not yet quantified the impact of the standard.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), a leasing standard for both lessees and lessors. Under its core principle, a lessee will recognize lease assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. Lessor accounting remains largely consistent with existing U.S. generally accepted accounting principles. The new standard is effective for the Company on January 1, 2019. Early adoption is permitted. The standard requires the use of a modified retrospective transition method. The Company is evaluating the effect that ASU No. 2016-02 will have on its consolidated financial statements and related disclosures. While the Company has not completed its evaluation of the effect of the standard on its ongoing financial reporting, it believes the most significant changes relate to the recognition of lease assets and liabilities on its consolidated balance sheet.
Financial Condition, Liquidity and Capital Resources
The Company’s liquidity needs arise primarily from capital investment in new equipment, land and structures, information technology and letters of credit required under insurance programs, as well as funding working capital requirements.
The Company is party to a revolving credit agreement (the Restated Credit Agreement) with a group of banks to fund capital investments, letters of credit and working capital needs.
Credit Agreement
The Company is also a party to a long-term note agreement (the Restated Master Shelf Agreement). The Company has pledged certain landSixth Amended and structures, tractors, trailers and other personal property and accounts receivable to secure indebtedness under both agreements.
Restated Credit Agreement
The Restated Credit Agreement is a revolving credit facility forwith its banking group (the Amended Credit Agreement), which provides up to $250a $300 million expiring in March 2020.revolving line of credit through February 2024. The RestatedAmended Credit Agreement also has an accordion feature that allows for an additional $75$100 million availability, subject to certain conditions and availability of lender approval.commitments. The RestatedAmended Credit Agreement provides for aLIBOR rate margin range from 112.5100 basis points to 225200 basis points, base rate margins from minus 12.550 basis points to plus 50 basis points, an unused portion fee from 2017.5 basis points to 30 basis points and letter of credit fees from 112.5100 basis points to 225200 basis points, in each case based on the Company’s leverage ratio.
Under the RestatedAmended Credit Agreement, the Company must maintain certain financial covenants including a minimum fixed chargedebt service coverage ratio set at 1.25 to 1.00 and a maximum leverage ratio among others.set at 3.25 to 1.00. The RestatedAmended Credit Agreement also provides for a pledge by the Company of certain land and structures, certain tractors, trailersaccounts receivable and other personal propertyassets to secure indebtedness under this agreement. The Amended Credit Agreement contains certain customary representations and accounts receivable, as defined inwarranties, affirmative and negative covenants and provisions relating to events of default. Under the RestatedAmended Credit Agreement.Agreement, if an event of default occurs, the banks will be entitled to take various actions, including the acceleration of amounts due.
At SeptemberJune 30, 2017, the Company had borrowings of $34.5 million and outstanding letters of credit of $33.9 million under the Restated Credit Agreement. At December 31, 2016,2022, the Company had no outstanding borrowings and outstanding letters of credit of $39.4$31.2 million under the RestatedAmended Credit Agreement. At December 31, 2021, the Company had no outstanding borrowings and outstanding letters of credit of $29.3
16
million under the Amended Credit Agreement. The available portion of the RestatedAmended Credit Agreement may be used for general corporate purposes, including capital expenditures, working capital and letter of credit requirements as needed.
Restated Master Shelf AgreementFinance Leases
In 2002, the Company issued $100 million in Senior Notes under a $125 million (amended to $150 million in April 2005) Master Shelf Agreement with Prudential Investment Management, Inc. and certain of its affiliates. The Company issued an additional $25
million in Senior Notes on November 30, 2007 and $25 million in Senior Notes on January 31, 2008 under the same Master Shelf Agreement.
The November 2007 issuance of $25 million Senior Notes has a fixed interest rate of 6.14 percent. The January 2008 issuance of $25 million Senior Notes has a fixed interest rate of 6.17 percent. Payments due for both $25 million issuances were interest only until June 30, 2011 and at that time semi-annual principal payments began with the final payments due January 1, 2018. Under the terms of the Senior Notes, the Company must maintain certain financial covenants including a minimum fixed charge coverage ratio and a maximum leverage ratio, among others. The Senior Notes also provide for a pledge by the Company of certain land and structures, certain tractors, trailers and other personal property and accounts receivable, as defined in the Senior Notes. At September 30, 2017 and December 31, 2016, the Company had $3.6 million and $7.1 million, respectively, in Senior Notes outstanding.
Capital Leases
The Company is obligated under capitalfinance leases with seven yearseven-year original terms covering revenue equipment totaling $89.2equipment. Total liabilities recognized under finance leases were $39.3 million and $66.7$50.4 million as of SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively. Amortization of assets held under the capitalfinance leases is included in depreciation and amortization expense. The weighted average interest rates for the capitalfinance leases at SeptemberJune 30, 20172022 and December 31, 2016 are 3.042021 were 3.6 percent and 2.823.6 percent, respectively.
OtherCash Flows and Expenditures
The Company has historically generated cash flows from operations to fund a large portion of its capital expenditure requirements. Cash flows from operating activities were $146.4$382.6 million as adjusted for the adoption of ASU No. 2016-09, for the year ended December 31, 2016,2021, while net cash used in investing activities was $117.7$277.8 million. Cash flows provided by operating activities were $127.7$207.9 million for the ninesix months ended SeptemberJune 30, 2017, $9.42022, $67.8 million higher than the first ninesix months of the prior year. The increase in operating cash flows is primarily due to increased profitability, partially offset by a change in working capital, largely increases in operating income and depreciation and amortization expense and a $1.3 million excess tax benefit from share-based payments foraccounts receivable compared to the nine months ended September 30, 2017 as a result of the adoption of the Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2016-09.prior year. The timing of capital expenditures can largely be managed around the seasonal working capital requirements of the Company. The Company believes it has adequatesignificant sources of capital to meet short-term liquidity needs through its operating cash flows and availability under the RestatedAmended Credit Agreement. At SeptemberJune 30, 2017,2022, the Company had $181.6$268.8 million in availability under the RestatedAmended Credit Agreement, subject to the Company’s satisfaction of existingAgreement. The Company was in compliance with its debt covenants.covenants at June 30, 2022. Future operating cash flows are primarily dependent upon the Company’s profitability and its ability to manage its working capital requirements, primarily accounts receivable, accounts payable and wage and benefit accruals.
Effective March 1, 2018, the Company entered into a new automobile liability insurance policy with a three-year term. Generally, the Company is responsible for the risk retention amount per occurrence of $2.0 million under the policy. Thereafter, the policy provides insurance coverage for a single loss of $8.0 million, an aggregate loss limit of $24.0 million for each policy year, and a $48.0 million aggregate loss limit for the 36-month term originally ended March 1, 2021. Under the policy, the Company could elect to commute the policy with respect to the first 12 months of the policy term and concurrently extend the policy for an additional one-year period if paid losses in the first 12 months of the policy were less than $5.2 million. In August 2019, the Company elected to commute the policy for such period. As a result, the Company received a return of $5.2 million of the premium paid (the maximum return premium available), based on the amount of claims paid and the insurer was released from all liability in connection with claims occurring in such 12-month period. The Company is now self-insured for the first $10.0 million per occurrence with respect to such 12-month period and the policy was extended for one additional year to March 1, 2022. The Company recognized the remaining $0.3 million of the return premium as a reduction in complianceinsurance premium expense in the first quarter of 2022. Effective March 1, 2022, the policy term was extended for one additional year to March 1, 2023. As of June 30, 2022, the Company is required to pay additional amounts of up $11.5 million if losses paid by the insurer are greater than $18.4 million over the four-year policy period ending March 1, 2023. Previously, the Company was required to pay additional amounts of up to $11.0 million if losses paid by the insurer were greater than $17.5 million over the three year period ending March 1, 2022. Based on claims occurring since March 1, 2019, no such additional amount was accrued as of June 30, 2022. Commencing on August 30, 2023, the Company may elect to commute the policy with its debt covenantsrespect to the insurer’s entire liability under the policy in which case the Company would be entitled to a return of a portion of the premium paid, up to $18.4 million, based on the amount of claims paid and the insurer would be released from all liability under the policy ending March 1, 2023. As a result, if the Company elects to commute the policy as to the entire policy term, the Company would be self-insured for $10.0 million per occurrence for the five years ended March 1, 2023.
Effective March 1, 2022, the Company entered into an additional automobile liability insurance policy with a three-year term that is applicable when an occurrence exceeds $10.0 million. Thereafter, the policy provides insurance coverage for a single loss of an additional $5.0 million, an aggregate loss limit of $10.0 million for each policy year, and a $20.0 million aggregate loss limit for the three-year term ending March 1, 2025. Under the policy, the Company may elect to commute the policy for the three year term if losses incurred are less than $1.4 million and the Company does not elect to renew the policy. In the event the Company elects to commute the policy for such period, it will be entitled to a return of a portion of the premium paid, up to $1.1 million, based on the amount of claims paid and the insurer will be released from all liability in connection with such period. As a result, if the Company elects to commute the policy as to such period, the Company will be self-insured for the $10.0 million to $15.0 million loss layer per occurrence for the three years ended March 1, 2025. The election to commute the policy can not be made before June 1, 2024 and must be made prior to December 1, 2025, unless the insurer agrees to extend such date. Additionally, the Company is required to pay additional amounts of up to $7.5 million if losses paid by the insurer are greater than $1.4 million over the three-year policy period ending March 1, 2025. Based on claims occurring since March 1, 2022, no such additional amounts were accrued at SeptemberJune 30, 2017.2022.
Net capital expenditures pertain primarily to investments in tractors and trailers and other revenue equipment, information technology, land and structures. Projected net capital expenditures for 20172022 are approximately $230expected to be in excess of $500 million, inclusive of equipment acquired using capital leases. Thiswhich represents an approximately $78 million increase
17
from 20162021 net capital expenditures of $152 million for property and equipment, inclusive of equipment acquired using capital leases.$277.3 million. Projected 20172022 capital expenditures include a normal annual levelreplacement cycle of revenue equipment replacement and continued investment in technology for our current operations, in addition to investments in land and structures, revenue equipment and technology to facilitateinvestment for our geographic expansion intooperations. Net capital expenditures were $155.3 million in the Northeastern United States.first six months of 2022. Approximately $18.3$206.3 million of the 20172022 remaining capital budget was committed as of SeptemberJune 30, 2017. Net capital expenditures were $183.92022.
Contractual Obligations
Contractual obligations for the Company are comprised of lease agreements, purchase obligations and long-term debt obligations related to any outstanding balance under the Company’s revolving line of credit. Total contractual obligations for operating leases at June 30, 2022 totaled $119.6 million, including operating leases with original maturities of less than one year, which are not recorded in the first nine months of 2017, inclusive of equipment acquired using capital leases.
Inour consolidated balance sheet in accordance with U.S. generally accepted accounting principles, our operating leasesprinciples. Additionally, in April 2021, the Company committed to an additional terminal lease estimated to commence in 2023 of approximately $57 million with a lease term of 15 years with annual rent ranging from $3.1 million to $4.6 million. Annual rental payments under this lease are not recorded in our condensed consolidated balance sheet; however, the future minimum lease payments are included in the “Contractual Obligations” table below. Seecontractual obligations for operating leases at June 30, 2022. Contractual obligations in the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 for additional information. In addition to theform of finance leases were $41.4 million at June 30, 2022, which includes both principal amounts disclosed in the tables below, the Company hasand $2.3 million of interest obligations of approximately $1.2 million for the remainder of 2017 and decreasing for each year thereafter based on borrowings and commitments outstanding at SeptemberJune 30, 2017.
Contractual Obligations2022. See Note 5 to the accompanying condensed consolidated financial statements in this Current Report on Form 10-Q. Purchase obligations at June 30, 2022 were $208.8 million, including commitments of $206.3 million for capital expenditures. As of June 30, 2022, the revolving line of credit had no outstanding principal balance.
The following tables set forth a summary of our contractual cash obligations and otherOther commercial commitments as of Septemberthe Company typically include letters of credit and surety bonds required for collateral towards insurance agreements and the outstanding available line of credit. As of June 30, 2017 (in millions):2022 the Company had total outstanding letters of credit of $33.0 million and $74.1 million in surety bonds. Additionally, the Company had $268.8 million available under its revolving credit facility, subject to existing debt covenants at June 30, 2022.
|
| Payments due by year |
| |||||||||||||||||||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| Thereafter |
|
| Total |
| |||||||
Contractual cash obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line of credit (1) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 34.5 |
|
| $ | — |
|
| $ | — |
|
| $ | 34.5 |
|
Long-term debt (1) |
|
| 3.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.6 |
|
Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Leases (1) |
|
| 4.0 |
|
|
| 16.0 |
|
|
| 16.0 |
|
|
| 16.0 |
|
|
| 16.6 |
|
|
| 29.4 |
|
|
| 98.0 |
|
Operating leases |
|
| 4.6 |
|
|
| 17.6 |
|
|
| 14.8 |
|
|
| 11.6 |
|
|
| 9.4 |
|
|
| 33.2 |
|
|
| 91.2 |
|
Purchase obligations (2) |
|
| 19.1 |
|
|
| 9.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28.9 |
|
Total contractual obligations |
| $ | 31.3 |
|
| $ | 43.4 |
|
| $ | 30.8 |
|
| $ | 62.1 |
|
| $ | 26.0 |
|
| $ | 62.6 |
|
| $ | 256.2 |
|
|
|
|
|
|
| Amount of commitment expiration by year |
| |||||||||||||||||||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
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| Thereafter |
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| Total |
| |||||||
Other commercial commitments: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available line of credit (1) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 181.6 |
|
| $ | — |
|
| $ | — |
|
| $ | 181.6 |
|
Letters of credit |
|
| — |
|
|
| 35.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 35.7 |
|
Surety bonds |
|
| 0.4 |
|
|
| 37.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37.5 |
|
Total commercial commitments |
| $ | 0.4 |
|
| $ | 72.8 |
|
| $ | — |
|
| $ | 181.6 |
|
| $ | — |
|
| $ | — |
|
| $ | 254.8 |
|
|
|
The Company has accrued approximately $1.0$3.8 million for uncertain tax positions and $0.1$0.4 million for interest and penalties related to the uncertain tax positions as of SeptemberJune 30, 2017. The Company cannot reasonably estimate the timing of cash settlement with respective taxing authorities beyond one year and accordingly has not included the amounts within the above contractual cash obligations and other commercial commitment tables.
2022. At SeptemberJune 30, 2017,2022, the Company has $73.5accrued $112.7 million infor claims and insurance and other liabilities. The Company cannot reasonably estimate the timing of cash settlement with respective adverse parties beyond one year and accordingly has not included the amounts within the above contractual cash obligations and other commercial commitment tables.
Critical Accounting Policies and Estimates
The Company makes estimates and assumptions in preparingThere have been no significant changes to the condensed consolidated financial statements that affect reported amounts and disclosures therein. In the opinion of management, the accounting policies that generally have the most significant impact on the financial position and results of operationsapplication of the Company include:
Claims and Insurance Accruals. The Company has self-insured retention limits generally ranging from $250,000 to $2 million per claim for medical, workers’ compensation, auto liability, casualty and cargo claims. The liabilities associated with the risk retained by the Company are estimated in part based on historical experience, third-party actuarial analysis with respect to workers’ compensation claims, demographics, nature and severity, past experience and other assumptions. The liabilities for self-funded retention are included in claims and insurance reserves based on claims incurred with liabilities for unsettled claims and claims incurred but not yet reported being actuarially determined with respect to workers’ compensation claims and with respect to all other liabilities, estimated based on management’s evaluation of the nature and severity of individual claims and historical experience. However, these estimated accruals could be significantly affected if the actual costs of the Company differ from these assumptions. A significant number of these claims typically take several years to develop and even longer to ultimately settle. These estimates tend to be reasonably accurate over time; however, assumptions regarding severity of claims, medical cost inflation, as well as specific case facts can create short-term volatility in estimates.
|
Depreciation and Capitalization of Assets. Under the Company’s accounting policy for property and equipment, management establishes appropriate depreciable lives and salvage values for the Company’s revenue equipment (tractors and trailers) based on their estimated useful lives and estimated fair values to be received when the equipment is sold or traded in. These estimates are routinely evaluated and updated when circumstances warrant. However, actual depreciation and salvage values could differ from these assumptions based on market conditions and other factors.
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Accounting for Income Taxes. Significant management judgment is required to determine (i) the provision for income taxes, (ii) whether deferred income taxes will be realized in full or in part and (iii) the liability for unrecognized tax benefits related to uncertain tax positions. Income tax expense is equal to the current year’s liability for income taxes and a provision for deferred income taxes. Deferred tax assets and liabilities are recorded for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. When it is more likely that all or some portion of specific deferred income tax assets will not be realized, a valuation allowance must be established for the amount of deferred income tax assets that are determined not to be realizable. A valuation allowance for deferred income tax assets has not been deemed necessary due to our profitable operations. Accordingly, if facts or financial circumstances change and consequently impact the likelihood of realizing the deferred income tax assets, we would need to apply management’s judgment to determine the amount of valuation allowance required in any given period.
Thesecritical accounting policies and others are describedestimates contained in further detail inour Form 10-K at December 31, 2021. The reader should refer to the notesNotes to our audited consolidated financial statements includedConsolidated Financial Statements in the Company’sour 2021 Annual Report on Form 10-K for the year ended December 31, 2016.
The preparationa full disclosure of financial statements in accordance with U.S. generally accepted accounting principles requires management to adoptall critical accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the consolidated financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the consolidated financial statements. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.estimates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to a variety of market risks including the effects of interest rates and fuel prices. The detail of the Company’s debt structure is more fully described in the notesNotes to the consolidated financial statementsConsolidated Financial Statements set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2021. To help mitigate our risk to rising fuel prices, the Company has implemented a fuel surcharge program. This program is well established within the industry and customer acceptance of fuel surcharges remains high. Since the amount of fuel surcharge is based on average national fueldiesel prices (as estimated by the United States Energy Information Administration) and is typically reset weekly, exposure of the Company to fuel price volatility is significantly reduced. However, the fuel surcharge may not fully offset fuel price fluctuations during periods of rapid increases or decreases in the price of fuel and is also subject to overall competitive pricing negotiations.
The following table provides information about the Company’s third-party financial instruments as of SeptemberJune 30, 2017.2022. The table presents principal cash flows (in millions) and related weighted average interest rates by contractual maturity dates. The fair value of the variable and fixed rate debt (in millions) was estimated based upon levels one andlevel two in the fair value hierarchy, respectively.hierarchy. The fair value of the Senior Notes is based on undiscounted cash flows at market interest rates for similar issuances of private debt. The fair value of capitalfinance leases is based on current market interest rates for similar types of financial instruments.
|
| Expected maturity date |
|
| 2017 |
|
| Expected maturity date |
|
| 2022 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| Thereafter |
|
| Total |
|
|
| Fair Value |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| Thereafter |
|
| Total |
|
| Fair Value |
| |||||||||||||||||
Fixed rate debt |
| $ | 6.9 |
|
| $ | 13.6 |
|
| $ | 14.0 |
|
| $ | 14.4 |
|
| $ | 15.5 |
|
| $ | 28.3 |
|
| $ | 92.7 |
| $ | 92.4 |
|
| $ | 8.4 |
|
| $ | 14.5 |
|
| $ | 10.2 |
|
| $ | 5.3 |
|
| $ | 0.9 |
|
| $ | - |
|
| $ | 39.3 |
|
| $ | 39.3 |
| |||
Average interest rate |
|
| 3.2 | % |
|
| 3.0 | % |
|
| 3.0 | % |
|
| 3.0 | % |
|
| 3.0 | % |
|
| 3.0 | % |
|
|
|
|
|
|
|
| 3.6 | % |
|
| 3.6 | % |
|
| 3.6 | % |
|
| 3.6 | % |
|
| 3.6 | % |
|
| - |
|
|
|
|
|
| |||||||
Variable rate debt |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 34.5 |
|
| $ | — |
|
| $ | — |
|
| $ | 34.5 |
| $ | 34.5 |
| |||||||||||||||||||||||||||||||||||
Average interest rate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.5 | % |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
18
Item 4. Controls and Procedures
Quarterly Controls Evaluation and Related CEO and CFO Certifications
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company conducted an evaluation of the effectiveness of the design and operation of its “disclosure controls and procedures” (Disclosure Controls). The Disclosure Controls evaluation was performed under the supervision and with the participation of management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO).
Based upon the controls evaluation, the Company’s CEO and CFO have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s Disclosure Controls are effective to ensure that information the Company is required to disclose in reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
During the period covered by this Quarterly Report on Form 10-Q, there were no changes in internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q are certifications of the CEO and the CFO, which are required in accordance with Rule 13a-14 of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications.
Definition of Disclosure Controls
Disclosure Controls are controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported timely. Disclosure Controls are also designed to ensure that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. The Company’s Disclosure Controls include components of its internal control over financial reporting which consists of control processes designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles.
Limitations on the Effectiveness of Controls
The Company’s management, including the CEO and CFO, does not expect that its Disclosure Controls or its internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
19
PART II. OTHEROTHER INFORMATION
Item 1. Legal Proceedings — For a description of all material pending legal proceedings, see Note 3 “Commitments and Contingencies” of the accompanying unaudited condensed consolidated financial statements.
Item 1A. Risk Factors—Risk Factors are described in Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 20162021, as updated by the risk factor set forth below. Other than the risk factor set forth below, which revises, among other things, the duration, layers, thresholds and applicable amounts payable under the Company’s automobile liability insurance, there have been no other material changes.changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The risk factor below replaces in its entirety the risk factor found under “Business and Operational Risks” originally filed with the same title.
Ongoing insurance and claims expenses could significantly reduce and cause volatility in our earnings.
We are regularly subject to claims resulting from personal injury, cargo loss, property damage, group healthcare and workers’ compensation claims. The Company has self-insured retention limits generally ranging from $250,000 to $1 million per occurrence for medical, workers’ compensation, casualty and cargo claims and from $2 million to $10 million for auto liability. We also maintain insurance with licensed insurance companies above these self-insured retention limits. In recent years the trucking business has experienced significant increases in the cost of liability insurance, in the size of jury verdicts in personal injury cases arising from trucking accidents and in the cost of settling such claims. If the number or severity of future claims continues to increase, claim expenses might exceed historical levels or could exceed the amounts of our insurance coverage or the amount of our reserves for self-insured claims, which would adversely affect our financial condition, results of operations, liquidity and cash flows.
The Company is dependent on a limited number of third party insurance companies to provide insurance coverage in excess of its self-insured retention amounts. Recently, several insurance companies have completely stopped offering coverage to trucking companies or have significantly reduced the amount of coverage they offer or have significantly raised premiums as a result of increases in the severity of automobile liability claims and sharply higher costs of settlements and verdicts. To the extent that the third party insurance companies propose increases to their premiums for coverage of commercial trucking claims, the Company may decide to pay such increased premiums or increase its financial exposure on an aggregate or per occurrence basis, including by increasing the amount of its self-insured retention or reducing the amount of total coverage. This trend could adversely affect our ability to obtain suitable insurance coverage, could significantly increase our cost for obtaining such coverage, or could subject us to significant liabilities for which no insurance coverage is in place, which would adversely affect our financial condition, results of operations, liquidity and cash flows. Additionally, as the number of third party insurance companies willing to provide insurance coverage to trucking companies decreases, the risk of failure of one of these companies increases. In the event of the failure of one of the insurance companies, the Company may be faced with a situation where the insurance company may not be able to fund a catastrophic loss.
Our self-insured retention limits can make our insurance and claims expense higher and/or more volatile. We accrue for the costs of the uninsured portion of pending claims based on the nature and severity of individual claims and historical claims development trends. Estimating the number and severity of claims, as well as related judgment or settlement amounts is inherently difficult. This, along with legal expenses associated with claims, incurred but not reported claims, and other uncertainties can cause unfavorable differences between actual self-insurance costs and our reserve estimates.
Generally, the Company is responsible for the risk retention amount per occurrence of $2.0 million under its automobile liability insurance policy. Thereafter, the policy provides insurance coverage for a single occurrence of $8.0 million, an aggregate loss limit of $24.0 million for each policy year, and a $48.0 million aggregate loss limit for the 36-month term originally ended March 1, 2021. The automobile liability insurance policy contains a provision under which we have the option, on a retroactive basis, to assume responsibility for the entire cost of covered claims during certain periods in exchange for a refund of a portion of the premiums we paid for the policy. This is referred to as “commuting” the policy. In August 2019, the Company elected to commute the policy for the period from March 1, 2018 to February 28, 2019. As a result of commuting the policy for that 12-month period, the Company is now self-insured for the first $10.0 million per occurrence with respect to such 12-month period and the policy was extended for one additional year to March 1, 2022. Effective March 1, 2022, the policy term was extended for one additional year to March 1, 2023. As of June 30, 2022, the Company is required to pay additional amounts of up $11.5 million if losses paid by the insurer are greater than $18.4 million over the four-year policy period ending March 1, 2023. Previously, the Company was required to pay additional amounts of up to $11.0 million if losses paid by the insurer were greater than $17.5 million over the three year period ending March 1, 2022. Commencing on August 30, 2023, the Company may elect to commute the policy with respect to the insurer’s entire liability under the policy in which case the Company would be entitled to a return of a portion of the premium paid, up to $18.4 million, based on the amount of claims paid and the insurer would be released from all liability under the policy ending March 1, 2023. As a result, if the Company elects to commute the policy as to the entire policy term, the Company would be self-insured for $10 million per occurrence for the five years ended March 1, 2022.
20
Effective March 1, 2022, the Company entered into an additional automobile liability insurance policy with a three-year term that is applicable when an occurrence exceeds $10.0 million. Thereafter, the policy provides insurance coverage for a single loss of an additional $5.0million, an aggregate loss limit of $10.0 million for each policy year, and a $20.0 million aggregate loss limit for the three-year term ending March 1, 2025. Under the policy, the Company may elect to commute the policy for the three year term if losses incurred are less than $1.4 million and the Company does not elect to renew the policy. In the event the Company elects to commute the policy for such period, it will be entitled to a return of a portion of the premium paid, up to $1.1 million, based on the amount of claims paid and the insurer will be released from all liability in connection with such period. As a result, if the Company elects to commute the policy as to such period, the Company will be self-insured for the $10.0 million to $15.0 million loss layer per occurrence for the three years ended March 1, 2025. The election whether to commute the policy cannot be made before June 1, 2024 and must be made prior to December 1, 2025, unless the insurer agrees to extend such date. Additionally, the Company is required to pay additional amounts of up to $7.5 million if losses paid by the insurer are greater than $1.4 million over the three-year policy period ending March 1, 2025.
To the extent the Company incurs one or more significant claims not covered by insurance, either because the claims are within our self-insured layer or because they exceed our total insurance coverage, our financial condition, results of operation, and liquidity could be materially and adversely affected.
Furthermore, insurance companies, as well as certain states, require collateral in the form of letters of credit or surety bonds for the estimated exposure of claims within our self-insured retentions. Their estimates of our future exposure as well as external market conditions could influence the amount and costs of additional letters of credit required under our insurance programs and thereby reduce capital available for future growth or adversely affect our financial condition, results of operations, liquidity and cash flows. In addition, insurance companies are increasingly encouraging or requiring trucking companies to increase the level of technology and safety measures used in their fleet, which could increase the costs of our fleet in order to obtain acceptable coverage or avoid rate hikes.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds —
Issuer Purchases of Equity Securities |
| ||||||||||||||||||
Period |
| (a) Total Number of Shares (or Units) Purchased (1) |
|
|
| (b) Average Price Paid per Share (or Unit) |
|
|
| (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
|
|
| (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may Yet be Purchased under the Plans or Programs |
| ||||
July 1, 2017 through |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2017 |
|
| — |
| (2) |
| $ | — |
| (2) |
|
| — |
|
|
| $ | — |
|
August 1, 2017 through |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2017 |
|
| — |
| (3) |
| $ | — |
| (3) |
|
| — |
|
|
|
| — |
|
September 1, 2017 through |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
|
| — |
| (4) |
| $ | — |
| (4) |
|
| — |
|
|
|
| — |
|
Total |
|
| — |
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
Issuer Purchases of Equity Securities |
| ||||||||||||||||||
Period |
| (a) Total |
|
|
| (b) Average |
|
|
| (c) Total Number |
|
|
| (d) Maximum |
| ||||
April 1, 2022 through |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
April 30, 2022 |
|
| 940 |
| (2) |
| $ | 216.70 |
| (2) |
|
| — |
|
|
| $ | — |
|
May 1, 2022 through |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
May 31, 2022 |
|
| 1,710 |
| (3) |
| $ | 199.35 |
| (3) |
|
| — |
|
|
|
| — |
|
June 1, 2022 through |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
June 30, 2022 |
|
| 490 |
| (4) |
| $ | 176.24 |
| (4) |
|
| — |
|
|
|
| — |
|
Total |
|
| 3,140 |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
(1) | Shares purchased by the Saia, Inc. Executive Capital Accumulation Plan were open market purchases. For more information on the Saia, Inc. Executive Capital Accumulation Plan, see the Registration Statement on Form S-8 (No. 333-155805) filed on December 1, 2008. |
|
(2) | The Saia, Inc. Executive Capital Accumulation Plan had no sales of Saia stock during the period of |
|
(3) | The Saia, Inc. Executive Capital Accumulation Plan had no sales of Saia stock during the period of May 1, 2022 through May 31, 2022. | |
(4) | The Saia, Inc. Executive Capital Accumulation Plan sold |
|
|
|
Item 3. Defaults Upon Senior Securities—None
Item 4. Mine Safety Disclosures—None
Item 5. Other Information—None
21
Item 6. Exhibits
Exhibit |
|
|
Number |
| Description of Exhibit |
|
|
|
3.1 |
| |
3.2 | ||
|
|
|
|
| |
3.4 | ||
3.5 | ||
|
|
|
|
| |
|
|
|
31.1 |
| Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13a-15(e). |
|
|
|
31.2 |
| Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-15(e). |
|
|
|
32.1 |
| |
|
|
|
32.2 |
| |
|
|
|
101 |
| The following financial information from Saia, Inc.’s Quarterly Report on Form 10-Q for the quarter ended |
104 | The cover page from Saia’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL (included as Exhibit 101). |
22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| SAIA, INC. | |
|
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Date: |
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|
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|
|
|
|
|
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| Executive Vice President and Chief Financial Officer |
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23
22