SAIA, INC. This Management's Discussion and Analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and our 2020 audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 . Those consolidated financial statements include additional information about our significant accounting policies, practices and the transactions that underlie our financial results. Forward-Looking StatementsThe Securities and Exchange Commission (theSEC ) 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, 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;
• operation within a highly competitive industry and the adverse impact from
downward pricing pressures, including in connection with fuel surcharges,
and other factors;
• industry-wide external factors largely out of our control;
• cost and availability of qualified drivers, dock workers and other
employees, purchased transportation and fuel;
• claims expenses and other expense volatility, including for personal injury,
cargo loss and damage, workers' compensation, employment and group health
plan claims;
• cost and availability of insurance coverage, including the possibility the
Company may be required to pay additional premiums, assume additional
liability under its auto liability policy or be unable to obtain insurance
coverage;
• failure to successfully execute the strategy to expand our service geography;
• 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;
• failure to keep pace with technological developments;
• labor relations, including the adverse impact should a portion of our
workforce become unionized;
• cost and availability of real property and revenue equipment;
• capacity and highway infrastructure constraints;
• risks arising from international business operations and relationships;
• seasonal factors, harsh weather and disasters caused by climate change;
• economic declines in the geographic regions or industries in which our
customers operate;
• the creditworthiness of our customers and their ability to pay for services;
• our need for capital and uncertainty of the credit markets;
• the possibility of defaults under our debt agreements (including violation
of financial covenants);
• failure to operate and grow acquired businesses in a manner that support the
value allocated to acquired businesses;
• dependence on key employees;
• increased costs of healthcare benefits;
• damage to our reputation from adverse publicity, including from the use of
or impact from social media;
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• failure to make future acquisitions or to achieve acquisition synergies;
• the effect of litigation and class action lawsuits arising from the
operation of our business, including the possibility of claims or judgements
in excess of our insurance coverages or that result in increases in the cost
of insurance coverage or that preclude us from obtaining adequate insurance
coverage in the future;
• the potential of higher corporate taxes and new regulations, including with
respect to climate change, employment and labor law, healthcare and
securities regulation;
• the effect of governmental regulations, including hours of service for
drivers, engine emissions, the Compliance, Safety, Accountability (CSA)
initiative, regulations of the
Security, and healthcare and environmental regulations;
• unforeseen costs from new and existing data privacy laws;
• changes in accounting and financial standards or practices;
• widespread outbreak of an illness or any other communicable disease,
including the COVID-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;
• increasing investor and customer sensitivity to social and sustainability
issues, including climate change;
• anti-terrorism measures and terrorist events;
• provisions in our governing documents and
anti-takeover effects;
• issuances of equity that would dilute stock ownership; and
• other financial, operational and legal risks and uncertainties detailed from
time to time in the Company's
These factors and risks are described in Part II, Item 1A. "Risk Factors" of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 , 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, 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 pursue geographic expansion to promote profitable growth and improve our 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 and asset 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 improving customer experience, operational efficiencies and Company image. COVID-19 InMarch 2020 , theWorld Health Organization categorized Coronavirus Disease 2019 ("COVID-19") as a pandemic, and the President ofthe United States declared the COVID-19 outbreak a national emergency. We are considered an essential and critical business by theU.S. Department of Homeland Security's Cyber and Infrastructure Security Agency (CISA) and will continue to operate under state of emergency and shelter in place orders issued in various jurisdictions across the country. Management has made a variety of efforts seeking to ensure the ongoing availability ofSaia 's transportation services, while instituting actions and policies to help safeguard employees and customers from COVID-19, including limiting physical employee and customer contact, implementing enhanced cleaning and hygiene protocols atSaia 's facilities, and instituting telecommuting as appropriate.President Biden has issued a directive toOSHA to develop an Emergency Temporary Standard requiring all employers of 100 or more employees to ensure that their workforce is vaccinated or subject to weekly COVID-19 testing. This standard, or comparable state or local requirements, could adversely affect 14 -------------------------------------------------------------------------------- our ability to hire and retain employees which could lead to service disruptions and higher costs. Through the date of this filing, the Company has not experienced significant disruptions in the Company's LTL network operations as a result of the COVID-19 pandemic. Beginning in the latter part of the first quarter of 2020 and through the second quarter of 2020, we experienced lower demand for our transportation services along with increased costs and other challenges related to COVID-19 that adversely affected our business. We believe we have significant liquidity available to continue business operations in the event of future disruptions from the COVID-19 pandemic. As discussed in the "Financial Condition" section below, the Company has a revolving credit facility (including a$100 million accordion feature that is available, subject to certain conditions and lender commitments) and other sources of borrowing in place that provides liquidity of up to$300 million in addition to its regular cash inflows from operations. The Company was in compliance with the debt covenants under its debt agreements atSeptember 30, 2021 . The situation surrounding COVID-19 remains fluid and there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, we are unable to predict the extent to which the pandemic and related impacts could impact our business operations, financial condition, results of operations, liquidity and cash flows.
Third Quarter Overview
The Company's operating revenue increased by 28.0 percent in the third quarter of 2021 compared to the same period in 2020. The increase resulted primarily from increases in revenue per shipment and tonnage. Consolidated operating income was$106.1 million for the third quarter of 2021 compared to$55.2 million for the third quarter of 2020. In the third quarter of 2021, LTL shipments were up 2.3 percent per workday and LTL tonnage was up 11.0 percent per workday compared to the prior year quarter. Diluted earnings per share were$2.98 in the third quarter of 2021, compared to diluted earnings per share of$1.56 in the prior year quarter. The operating ratio (operating expenses divided by operating revenue) was 82.8 percent in the third quarter of 2021 compared to 88.5 percent in the third quarter of 2020. The improved operating ratio compared to prior year is due to the Company's continued focus on pricing initiatives, cost control and operating efficiencies. Additionally, a real estate gain drove 70 basis points of the improvement in the operating ratio. The Company generated$267.7 million in net cash provided by operating activities in the first nine months of 2021 compared with$239.0 million in the same period last year. The increase is primarily due to increased profitability partially offset by a change in working capital, largely increases in accounts receivable and cash and cash equivalents, compared to prior year. The Company's net cash used in investing activities was$148.9 million during the first nine months of 2021 compared to$197.5 million in the first nine months of 2020, primarily as a result of decreased capital expenditures for revenue equipment in the first nine months of 2021 caused by COVID-19 related manufacturing delays for revenue equipment. The Company's net cash used in financing activities was$18.7 million in the first nine months of 2021 compared to$16.2 million net cash used in financing activities during the same period last year. This change was primarily due to equity based compensation shares withheld for taxes as well as repayment of finance leases during the first nine months of 2021. The Company had no outstanding borrowings under its revolving credit agreement, outstanding letters of credit of$31.1 million and a cash and cash equivalents balance of$121.7 million atSeptember 30, 2021 . The Company also had$55.2 million in obligations under finance leases atSeptember 30, 2021 . AtSeptember 30, 2021 , the Company had$270.7 million in availability under the revolving credit facility, subject to the Company's satisfaction of existing debt covenants. 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 revolving credit agreement atSeptember 30, 2021 .
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 ofSaia, Inc. and its wholly-owned subsidiaries (together, the Company orSaia ).Saia is a transportation company headquartered inJohns Creek ,Georgia that provides national less-than-truckload (LTL) services through a single integrated organization. While more than 97 percent of revenue is derived from transporting LTL shipments across 44 states, the Company also offers customers a wide range of other value-added services, including non-asset truckload, expedited and logistics services acrossNorth America . Our business is highly correlated to non-service sectors of the general economy. Our 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 15
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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.
Results of Operations
Saia, Inc. and Subsidiaries
Selected Results of Operations and Operating Statistics
For the quarters ended September 30, 2021 and 2020
(unaudited)
Percent
Variance
'21 v.
2021 2020 '20
(inthousands, except ratios, workdays,
revenue per hundredweight, revenue per shipment and length
of haul)
Operating Revenue $ 616,216 $ 481,374 28.0 %
Operating Expenses:
Salaries, wages and employees' benefits 277,087 252,092 9.9
Purchased transportation 72,193 40,053 80.2
Depreciation and amortization 35,742 34,224 4.4
Fuel and other operating expenses 125,077 99,789 25.3
Operating Income 106,117 55,216 92.2
Operating Ratio 82.8 % 88.5 % 6.4
Nonoperating Expense 791 783 1.0
Working Capital (as of September 30, 2021 and 2020) 111,988 4,426
Cash Flows provided by Operating Activities (year to date) 267,686
238,961
Net Acquisitions of Property and Equipment (year to date) 148,424
197,510
Saia Motor Freight Operating Statistics:
Workdays 64 64 -
LTL Tonnage 1,402 1,263 11.0
LTL Shipments 2,004 1,959 2.3
LTL Revenue per hundredweight $ 21.36 $ 18.59 14.9
LTL Revenue per shipment $ 299.02 $ 239.60 24.8
LTL Pounds per shipment 1,400 1,289 8.6
LTL Length of haul 915 893 2.5
Quarter and nine months ended
Revenue and volume
Consolidated revenue for the quarter endedSeptember 30, 2021 increased 28.0 percent to$616.2 million primarily as a result of increased revenue per shipment and tonnage.Saia 's LTL revenue per hundredweight (a measure of yield) increased 14.9 percent to$21.36 per hundredweight for the third quarter of 2021 as a result of changes in business mix and pricing actions. For the third quarter of 2021,Saia 's LTL tonnage was up 11.0 percent per workday to 1.4 million tons, and LTL shipments increased 2.3 percent per workday to 2.0 million shipments. For the third quarter of 2021, approximately 75 to 80 percent ofSaia '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, onJanuary 18, 2021 andFebruary 3, 2020 ,Saia implemented 5.9 percent general rate increases. 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 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 and is 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 16 -------------------------------------------------------------------------------- an integral part of customer contract negotiations but represent only one portion of overall customer price negotiations as customers may negotiate increases in base rates instead of increases in fuel surcharges or vice versa. Fuel surcharge revenue as a percentage of operating revenue increased to 13.9 percent for the quarter endedSeptember 30, 2021 compared to 10.4 percent for the quarter endedSeptember 30, 2020 , as a result of increases in the cost of fuel. For the nine months endedSeptember 30, 2021 , operating revenues were$1.7 billion , up 24.2 percent from$1.3 billion for the nine months endedSeptember 30, 2020 . This increase is primarily due to increased revenue per shipment, shipments and tonnage during the first nine months of 2021 compared to the comparable period last year. Fuel surcharge revenue as a percentage of operating revenue increased to 13.8 percent for the nine months endedSeptember 30, 2021 compared to 11.3 percent for the nine months endedSeptember 30, 2020 , as a result of increases in the cost of fuel.
Operating expenses and margin
Consolidated operating income was$106.1 million in the third quarter of 2021 compared to$55.2 million in the prior year quarter. Overall, the increase in consolidated operating income in the third quarter of 2021 compared to the third quarter of 2020 was the result of increased tonnage and improved pricing actions and business mix management during the third quarter 2021. These actions in 2021 combined with the 11.0 percent increase in tonnage per day, along with continued focus on cost controls and operational efficiencies drove improvement during the quarter. The third quarter of 2021 operating ratio (operating expenses divided by operating revenue) was 82.8 percent compared to 88.5 percent for the same period in 2020. Additionally, a real estate gain drove 70 basis points of the improvement in the operating ratio. Salaries, wages and benefits increased$25.0 million in the third quarter of 2021 compared to the third quarter of 2020 due to lower headcount in the third quarter of 2020. Additionally, inJanuary 2021 andAugust 2021 the Company implemented salary and wage increases, while significant growth led to higher overall compensation levels. Fuel, operating expenses and supplies increased$24.7 million in the third quarter of 2021 compared to the prior year quarter largely due to increases in fuel cost due to volume and price per gallon increases during the quarter, in addition to increases in other operating expenses and supplies. During the third quarter of 2021, claims and insurance expense was$3.6 million higher than the third quarter of 2020 primarily due to higher claims activity in addition to an increase in premiums compared to prior year. Purchased transportation increased$32.1 million in the third quarter of 2021 compared to the third quarter of 2020 primarily due to increasing demand, capacity constraints in the internal network and higher rates for purchased miles during the third quarter of 2021. Gain from property disposals increased$3.5 million in the third quarter of 2021 compared to prior year due to the gain on disposal of a previously occupied terminal. This transaction occurred as the result of management's efforts towards expanding door count by replacing a smaller facility with a larger facility better positioned to successfully support the Company's overall strategy. For the nine months endedSeptember 30, 2021 , consolidated operating income was$237.8 million , up 83.4 percent compared to$129.7 million for the nine months endedSeptember 30, 2020 . This increase was due to the overall increase in shipments, tonnage and improved pricing actions and mix management as the company successfully returned service from the distruptive impact of the COVID-19 environment. Salaries, wages and benefits increased$75.3 million during the first nine months of 2021 compared to the same period last year largely due to higher wages in the first nine months of 2021. Additionally, inJanuary 2021 andAugust 2021 the Company implemented salary and wage increases, while significant growth led to higher overall compensation levels. Fuel, operating expenses and supplies increased$51.5 million during the first nine months of 2021 compared to the same period last year largely due to increases in fuel cost due to volume and price per gallon increases during the first nine months of 2021, in addition to increases in other operating expenses and supplies. During the first nine months of 2021, claims and insurance expense was$3.7 million higher than the same period last year primarily due to higher premiums, largely offset by decreased claims. Purchased transportation increased$83.2 million for the first nine months of 2021 compared to the same period last year primarily due to increasing demand, capacity constraints in the internal network and higher rates for purchased miles during the first nine months of 2021. Gain from property disposals increased$2.6 million for the first nine months of 2021 compared to prior year due to the gain on disposal of a previously occupied terminal. This transaction occurred as the result of management's efforts towards expanding door count by replacing a smaller facility with a larger facility better positioned to successfully support the Company's overall strategy.
Other
Substantially all non-operating expenses represent interest expense. Interest
expense in the third quarter of 2021 was lower than the same period in 2020 due
to decreased borrowings in the current period as a result of delayed capital
expenditures.
17
-------------------------------------------------------------------------------- The effective tax rate was 24.3 percent and 23.7 percent for the quarters endedSeptember 30, 2021 and 2020, respectively. The increase in the third quarter effective tax rate in 2021 is primarily a result of higher excess tax benefits related to stock compensation activity in the prior year. For the nine months endedSeptember 30, 2021 andSeptember 30, 2020 , the effective tax rates were 23.9 percent and 22.2 percent, respectively. For the nine months endedSeptember 30, 2021 approximately$58.7 million in cash tax payments were made compared to$6.6 million in the nine months endedSeptember 30, 2020 . Net income was$79.7 million , or$2.98 per diluted share, in the third quarter of 2021 compared to net income of$41.5 million , or$1.56 per diluted share, in the third quarter of 2020. Net income was$179.5 million , or$6.72 per diluted share, for the first nine months of 2021 compared to net income of$98.1 million , or$3.69 per diluted share, for the first nine months of 2020.
Working capital/capital expenditures
Working capital at
Current assets atSeptember 30, 2021 increased by$170.5 million as compared toSeptember 30, 2020 and includes an increase in accounts receivable of$69.2 million , and an increase in cash and cash equivalents of$96.2 million . Current liabilities increased by$62.9 million atSeptember 30, 2021 compared toSeptember 30, 2020 largely due to an increase in accounts payable. Cash flows provided by operating activities were$267.7 million for the nine months endedSeptember 30, 2021 versus$239.0 million for the nine months endedSeptember 30, 2020 . The increase is primarily due to increased profitability, partially offset by a change in working capital compared to prior year. For the nine months endedSeptember 30, 2021 , net cash used in investing activities was$148.9 million versus$197.5 million in the same period last year, a$48.6 million decrease. This decrease resulted primarily from decreased capital expenditures caused by COVID-19 related manufacturing delays for revenue equipment. The Company currently expects that net capital expenditures in 2021 will be approximately$275 million . For the nine months endedSeptember 30, 2021 , net cash used in financing activities was$18.7 million compared to$16.2 million net cash used in financing activities during the same period last year, as a result of equity based compensation shares withheld for taxes as well as repayment of finance leases during the first nine months of 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. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the pandemic's impact on our operations, financial performance and financial condition, as well as its impact on our ability to successfully execute our business strategies and initiatives, remains uncertain and difficult to predict. We are continuing initiatives to increase yield, improve business mix, reduce costs and improve productivity while also focusing on providing top quality service and improving safety performance. OnJanuary 18, 2021 andFebruary 3, 2020 ,Saia implemented 5.9 percent general rate increases for customers comprising approximately 20 to 25 percent ofSaia 's operating revenue. The success of cost improvement initiatives is impacted by the cost 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 throughoutthe United States , the COVID-19 pandemic and other factors discussed under "Forward-Looking Statements" and Part II, Item 1A. "Risk Factors." Effectivemid-August 2021 , the Company implemented a market competitive salary and wage increase for all employees, other thanSaia executives. The compensation increase was approximately five percent, and the Company anticipates the impact will be partially offset by productivity and efficiency gains. Additionally, the renewal of the Company's liability insurance policies effectiveMarch 1, 2021 is expected to result in approximately$4.3 million in cost increases for 2021 compared to 2020. 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.
Financial Condition
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.
Credit Agreement
OnFebruary 5, 2019 , the Company entered into the Sixth Amended and Restated Credit Agreement with its banking group (as amended, the Amended Credit Agreement). The amendment increased the amount of the revolver from$250 million to$300 million and extended the term untilFebruary 2024 . The Amended Credit Agreement also has an accordion feature that allows for an additional$100 million availability, subject to certain conditions and availability of lender commitments. The amendment reduced the interest rate pricing. The 18 -------------------------------------------------------------------------------- Amended Credit Agreement provides for a LIBOR rate margin range from 100 basis points to 200 basis points, base rate margins from minus 50 basis points to plus 50 basis points, an unused portion fee from 17.5 basis points to 30 basis points and letter of credit fees from 100 basis points to 200 basis points, in each case based on the Company's leverage ratio. Under the Amended Credit Agreement, the Company must maintain a minimum debt service coverage ratio set at 1.25 to 1.00 and a maximum leverage ratio set at 3.25 to 1.00. The Amended Credit Agreement provides for a pledge by the Company of certain land and structures, accounts receivable and other assets to secure indebtedness under this agreement. The Amended Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants and provisions relating to events of default. Under the Amended Credit Agreement, if an event of default occurs, the banks will be entitled to take various actions, including the acceleration of amounts due. AtSeptember 30, 2021 , the Company had no outstanding borrowings and outstanding letters of credit of$29.3 million under the Amended Credit Agreement. AtDecember 31, 2020 , the Company had no outstanding borrowings and outstanding letters of credit of$27.2 million under the Amended Credit Agreement. The available portion of the Amended Credit Agreement may be used for general corporate purposes, including capital expenditures, working capital and letter of credit requirements as needed.
Finance Leases
The Company is obligated under finance leases with seven-year original terms covering revenue equipment. Total liabilities recognized under finance leases were$55.2 million and$71.0 million as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. Amortization of assets held under the finance leases is included in depreciation and amortization expense. The weighted average interest rates for the finance leases at bothSeptember 30, 2021 andDecember 31, 2020 were 3.5 percent. Other 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$309.1 million for the year endedDecember 31, 2020 , while net cash used in investing activities was$218.8 million . Cash flows provided by operating activities were$267.7 million for the nine months endedSeptember 30, 2021 ;$28.7 million higher than the first nine 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 accounts receivable compared to the 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 significant sources of capital to meet short-term liquidity needs through its operating cash flows and availability under the Amended Credit Agreement. AtSeptember 30, 2021 , the Company had$270.7 million in availability under the Amended Credit Agreement, subject to the Company's satisfaction of existing debt covenants. The Company was in compliance with its debt covenants atSeptember 30, 2021 . 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. EffectiveMarch 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 endedMarch 1, 2021 . Under the policy, the Company may 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 are less than$5.2 million . InAugust 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 million per occurrence with respect to such 12-month period and the policy has been extended for one additional year toMarch 1, 2022 . As a result of the return premium and policy extension, the Company recognized a$0.5 million reduction in insurance premium expense in the third quarter of 2021. The Company will continue to recognize the remainder of the return premium as a reduction in insurance premium expense ratably over the remainder of the policy period now endingMarch 1, 2022 . Additionally, the Company is required to pay an additional premium of up to$11.0 million if losses paid by the insurer are greater than$15.6 million over the three-year policy period endingMarch 1, 2022 . Based on claims occurring sinceMarch 1, 2019 , no such additional premium was accrued atSeptember 30, 2021 . Commencing onAugust 30, 2022 , 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$15.6 million , based on the amount of claims paid and the insurer would be released from all liability under the policy endingMarch 1, 2022 . 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 four years endedMarch 1, 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 2021 are expected to be approximately$275 million . This would represent an increase from 2020 net capital expenditures of$219 million for property and equipment, inclusive of equipment acquired using finance leases, information technology, and land and structures. Projected 2021 capital expenditures include a normal replacement cycle of 19
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revenue equipment and technology investment for our operations. Net capital
expenditures were
In addition to the principal amounts disclosed in the tables below, the Company has interest obligations of approximately$2.9 million for the remainder of 2021 and decreasing for each year thereafter based on borrowings and commitments outstanding atSeptember 30, 2021 .
Contractual Obligations
The following tables set forth a summary of our contractual cash obligations and
other commercial commitments as of
Payments due by year
2021 2022 2023 2024 2025 Thereafter Total
Contractual cash obligations:
Long-term debt obligations:
Revolving line of credit (1) $ - $ - $ - $ - $ - $ - $ -
Leases:
Finance Leases (1) 5.2 21.0 15.4 10.6 5.5 0.9 58.6
Operating leases (2) 7.3 27.6 23.7 20.3 15.8 38.4 133.1
Purchase obligations (3) 76.8 - - - - - 76.8
Total contractual obligations $ 89.3 $ 48.6 $ 39.1 $ 30.9 $ 21.3 $ 39.3 $ 268.5 (1) See Note 5 to the accompanying condensed consolidated financial statements in
this Current Report on Form 10-Q. The contractual finance lease obligation
payments included in this table include both the principal and interest
components.
(2) In
estimated to commence in 2023 of approximately
of 15 years with annual rent ranging from $3.1 million to $4.6 million .
(3) Includes commitments of
Amount of commitment expiration by year
2021 2022 2023 2024 2025 Thereafter Total
Other commercial commitments:
Available line of credit (1) $ - $ - $ - $ 270.7 $ - $ - $ 270.7
Letters of credit - 31.1 - - - - 31.1
Surety bonds 0.4 60.0 8.9 - - - 69.3
Total commercial commitments $ 0.4 $ 91.1 $ 8.9 $ 270.7 $ - $ - $ 371.1 (1) Subject to the satisfaction of existing debt covenants.
The Company has accrued approximately$1.4 million for uncertain tax positions and$0.2 million for interest and penalties related to the uncertain tax positions as ofSeptember 30, 2021 . The Company cannot reasonably estimate the timing of cash settlements 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. AtSeptember 30, 2021 , the Company has accrued$99.8 million for claims and insurance liabilities. The Company cannot reasonably estimate the timing of cash settlements 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 preparing 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 operations of the Company include:
• Claims and Insurance Accruals. As described in more detail in the Notes to
Consolidated Financial Statements contained in Form 10-K for the year ended
ranging from
compensation, casualty and cargo claims and from
for auto liability. The liabilities are estimated in part based on historical
experience, third-party actuarial analysis with respect to
20
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workers' compensation claims, demographics, nature and severity, and other
assumptions. The claims liabilities 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 andseverity 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.
• Revenue Recognition and Related Allowances. Revenue is recognized over the
transit time of the shipment as it moves from origin to destination while
expenses are recognized as incurred. In addition, estimates included in the
recognition of revenue and accounts receivable include estimates of shipments
in transit and estimates of future adjustments to revenue and accounts
receivable for billing adjustments and collectability.
Revenue is recognized in a systematic process whereby estimates of shipments in transit are based upon actual shipments picked up, day of delivery and current rates charged to customers. Since the cycle for pickup and delivery of shipments is generally 1-5 days, typically less than 5 percent of a total month's revenue is in transit at the end of any month. Estimates for credit losses and billing adjustments are based upon historical experience of credit losses, adjustments processed and trends of collections. Billing adjustments are primarily made for discounts and billing corrections. These estimates are continuously evaluated and updated; however, changes in economic conditions, pricing arrangements and other factors can significantly impact these 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
residual values to be received when the equipment is sold or traded in. These
estimates are routinely evaluated and updated when circumstances
warrant. However, actual useful lives and residual values could differ from
these assumptions based on market conditions and other factors, thereby
impacting the estimated amount or timing of depreciation expense.
These accounting policies and others are described in further detail in the
Notes to Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended
The preparation of financial statements in accordance withU.S. generally accepted accounting principles requires management to adopt 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.
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