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EX-31.1 - EX-31.1 - SAIA INCsaia-ex311_8.htm

 

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 SEPTEMBER 30, 2017

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) 232-5067

(Registrant’s telephone number, including area code)

 

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

(Do not check if a smaller reporting company)

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 number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

Common Stock

 

Outstanding Shares at October 27, 2017

Common Stock, par value $.001 per share

 

25,490,381

 

 

 


 

SAIA, INC. AND SUBSIDIARIES

INDEX

 

 

 

 

PAGE

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

ITEM 1:

Financial Statements

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets September 30, 2017 and December 31, 2016

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Quarters and Nine Months ended September 30, 2017 and 2016

 

4

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2017 and 2016

 

5

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

 

ITEM 2:

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

10

 

 

 

 

ITEM 3:

Quantitative and Qualitative Disclosures About Market Risk

 

18

 

 

 

 

ITEM 4:

Controls and Procedures

 

19

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

ITEM 1:

Legal Proceedings

 

20

 

 

 

 

ITEM 1A:

Risk Factors

 

20

 

 

 

 

ITEM 2:

Unregistered Sales of Equity Securities and Use of Proceeds

 

20

 

 

 

 

ITEM 3:

Defaults Upon Senior Securities

 

20

 

 

 

 

ITEM 4:

Mine Safety Disclosures

 

20

 

 

 

 

ITEM 5:

Other Information

 

20

 

 

 

 

ITEM 6:

Exhibits

 

21

 

 

 

 

Signature

 

22

 

 

 

 

 

2


 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

Saia, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(unaudited)

 

 

 

September 30, 2017

 

 

December 31, 2016

 

Assets

 

(in thousands, except share and per share data)

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

81

 

 

$

1,539

 

Accounts receivable, net

 

 

172,119

 

 

 

135,083

 

Prepaid expenses and other

 

 

28,399

 

 

 

29,857

 

Total current assets

 

 

200,599

 

 

 

166,479

 

Property and Equipment, at cost

 

 

1,260,856

 

 

 

1,101,946

 

Less-accumulated depreciation

 

 

538,065

 

 

 

497,827

 

Net property and equipment

 

 

722,791

 

 

 

604,119

 

Goodwill and Identifiable Intangibles, net

 

 

24,368

 

 

 

25,398

 

Other Noncurrent Assets

 

 

4,961

 

 

 

4,374

 

Total assets

 

$

952,719

 

 

$

800,370

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

63,742

 

 

$

45,149

 

Wages, vacation and employees’ benefits

 

 

44,140

 

 

 

31,700

 

Claims and insurance accruals

 

 

37,704

 

 

 

33,047

 

Other current liabilities

 

 

20,841

 

 

 

18,286

 

Current portion of long-term debt

 

 

17,072

 

 

 

16,762

 

Total current liabilities

 

 

183,499

 

 

 

144,944

 

Other Liabilities:

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

110,161

 

 

 

57,042

 

Deferred income taxes

 

 

90,064

 

 

 

80,199

 

Claims, insurance and other

 

 

37,242

 

 

 

35,107

 

Total other liabilities

 

 

237,467

 

 

 

172,348

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 50,000 shares authorized,

     none issued and outstanding

 

 

 

 

 

 

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

 

 

 

25

 

Additional paid-in-capital

 

 

243,382

 

 

 

237,846

 

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

)

Retained earnings

 

 

291,794

 

 

 

248,397

 

Total stockholders’ equity

 

 

531,753

 

 

 

483,078

 

Total liabilities and stockholders’ equity

 

$

952,719

 

 

$

800,370

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

3


 

Saia, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

For the quarters and nine months ended September 30, 2017 and 2016

(unaudited)

 

 

 

Third Quarter

 

 

Nine Months

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(in thousands, except per share data)

 

Operating Revenue

 

$

350,062

 

 

$

316,442

 

 

$

1,025,259

 

 

$

918,258

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and employees’ benefits

 

 

194,920

 

 

 

178,687

 

 

 

572,211

 

 

 

524,877

 

Purchased transportation

 

 

23,074

 

 

 

15,657

 

 

 

60,212

 

 

 

42,439

 

Fuel, operating expenses and supplies

 

 

66,679

 

 

 

59,345

 

 

 

196,761

 

 

 

172,411

 

Operating taxes and licenses

 

 

10,631

 

 

 

10,061

 

 

 

32,088

 

 

 

30,227

 

Claims and insurance

 

 

8,535

 

 

 

9,988

 

 

 

28,010

 

 

 

28,949

 

Depreciation and amortization

 

 

22,338

 

 

 

19,927

 

 

 

64,607

 

 

 

56,910

 

Loss (gain) from property disposals, net

 

 

(717

)

 

 

133

 

 

 

(469

)

 

 

496

 

Total operating expenses

 

 

325,460

 

 

 

293,798

 

 

 

953,420

 

 

 

856,309

 

Operating Income

 

 

24,602

 

 

 

22,644

 

 

 

71,839

 

 

 

61,949

 

Nonoperating Expenses (Income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

1,313

 

 

 

1,183

 

 

 

3,762

 

 

 

3,410

 

Other, net

 

 

(131

)

 

 

(104

)

 

 

57

 

 

 

(147

)

Nonoperating expenses, net

 

 

1,182

 

 

 

1,079

 

 

 

3,819

 

 

 

3,263

 

Income Before Income Taxes

 

 

23,420

 

 

 

21,565

 

 

 

68,020

 

 

 

58,686

 

Income Tax Provision

 

 

9,013

 

 

 

7,739

 

 

 

24,623

 

 

 

21,010

 

Net Income

 

$

14,407

 

 

$

13,826

 

 

$

43,397

 

 

$

37,676

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – basic

 

 

25,527

 

 

 

25,038

 

 

 

25,494

 

 

 

25,022

 

Weighted average common shares outstanding – diluted

 

 

26,113

 

 

 

25,658

 

 

 

26,050

 

 

 

25,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Share

 

$

0.56

 

 

$

0.55

 

 

$

1.70

 

 

$

1.51

 

Diluted Earnings Per Share

 

$

0.55

 

 

$

0.54

 

 

$

1.67

 

 

$

1.47

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

4


 

Saia, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 30, 2017 and 2016

(unaudited)

 

 

 

Nine Months

 

 

 

2017

 

 

2016 As Adjusted

(Note 1)

 

 

 

(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

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


 

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 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.  Operating results for the quarter and nine months ended September 30, 2017 are not necessarily indicative of the results of operations that may be expected for the year ended December 31, 2017.

Business

The Company provides regional and interregional less-than-truckload (LTL) services across 38 states through a single integrated organization. While more than 99 percent of its revenue historically has been derived from transporting LTL shipments, the Company also offers customers a wide range of other value-added services, including non-asset truckload, expedited and logistics services throughout North America.

Accounting Pronouncements Adopted in 2017

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 Statement 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 retrospectively, 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

6


 

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

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

14,407

 

 

$

13,826

 

 

$

43,397

 

 

$

37,676

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic  earnings per share–weighted

     average common shares

 

 

25,527

 

 

 

25,038

 

 

 

25,494

 

 

 

25,022

 

Effect of dilutive stock options

 

 

152

 

 

 

52

 

 

 

124

 

 

 

46

 

Effect of other common stock equivalents

 

 

434

 

 

 

568

 

 

 

432

 

 

 

557

 

Denominator for diluted earnings per share–adjusted

     weighted average common shares

 

 

26,113

 

 

 

25,658

 

 

 

26,050

 

 

 

25,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Share

 

$

0.56

 

 

$

0.55

 

 

$

1.70

 

 

$

1.51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share

 

$

0.55

 

 

$

0.54

 

 

$

1.67

 

 

$

1.47

 

 

For the quarter and nine months ended September 30, 2017, options and restricted stock for 63,104 shares of common stock were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive.  For the quarter and nine months ended September 30, 2016, options and restricted stock for 402,770 and 516,312 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 million at September 30, 2017.

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 September 30, 2017 and December 31, 2016, 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 September 30, 2017 and December 31, 2016 was $126.9 million and $77.6 million, respectively, based upon levels one and two in the fair value hierarchy.  The carrying value of the debt was $127.2 million and $73.8 million at September 30, 2017 and December 31, 2016, respectively.

 

 

7


 

(5) Debt and Financing Arrangements

At September 30, 2017 and December 31, 2016, debt consisted of the following (in thousands):

 

 

 

September 30, 2017

 

 

December 31, 2016

 

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

 

Total debt

 

 

127,233

 

 

 

73,804

 

Less: current portion of long-term debt

 

 

17,072

 

 

 

16,762

 

Long-term debt, less current portion

 

$

110,161

 

 

$

57,042

 

 

On March 6, 2015, the Company entered into the Fifth Amended and Restated Credit Agreement with its banking group (as amended, the Restated Credit Agreement).  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 million availability, subject to lender approval.  The Restated Credit Agreement provides for a LIBOR rate margin range from 112.5 basis points to 225 basis points, base rate margins from minus 12.5 basis points to plus 50 basis points, an unused portion fee from 20 basis points to 30 basis points and letter of credit fees from 112.5 basis points to 225 basis points, in each case based on the Company’s leverage ratio.

Under the Restated Credit Agreement, the Company must maintain certain financial covenants including a minimum fixed charge coverage ratio and a maximum leverage ratio, among others.  The Restated Credit Agreement also provides 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 Restated Credit Agreement.

At September 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, the Company had no outstanding borrowings and outstanding letters of credit of $39.4 million under the Restated Credit Agreement.  The available portion of the Restated 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 Agreement

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 capital leases with seven year terms covering revenue equipment totaling $89.2 million and $66.7 million as of September 30, 2017 and December 31, 2016, respectively.  Amortization of assets held under the capital leases is included in depreciation and amortization expense.  The weighted average interest rate for the capital leases at September 30, 2017 and December 31, 2016 is 3.04 percent and 2.82 percent, respectively.

8


 

Principal Maturities of Long-Term Debt

The principal maturities of long-term debt instruments are as follows (in thousands):

 

 

 

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

 

 

9


 

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 2016 audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.  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.  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 in the business cycle;

 

effectiveness of Company-specific performance improvement initiatives, including management of the cost structure to match shifts in customer volume levels;

 

the creditworthiness of our customers and their ability to pay for services;

 

failure to achieve acquisition synergies;

 

failure to operate and grow acquired businesses in a manner that supports the value allocated to these acquired businesses, including their goodwill;

 

economic declines in the geographic regions or industries in which our customers operate;

 

competitive initiatives and pricing pressures, including in connection with fuel surcharge;

 

loss of significant customers;

 

the Company’s need for capital and uncertainty of the credit markets;

 

the possibility of defaults under the Company’s debt agreements (including violation of financial covenants);

 

possible issuance of equity which would dilute stock ownership;

 

integration risks;

 

the effect of litigation including class action lawsuits;

 

cost and availability of qualified drivers, fuel, purchased transportation, real property, revenue equipment and other assets;

 

governmental regulations, including but not limited to Hours of Service, engine emissions, the Compliance, Safety, Accountability (CSA) initiative, compliance with legislation requiring companies to evaluate their internal control over financial reporting, Homeland Security, environmental regulations and the FDA;

 

changes in interpretation of accounting principles;

 

dependence on key employees;

 

inclement weather;

 

labor relations, including the adverse impact should a portion of the Company’s workforce become unionized;

 

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;

10


 

 

social media risk;

 

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, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, 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.

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 expand our service geography into the Northeastern United States.  The Company’s business is labor intensive, capital intensive and service sensitive.  The Company looks for opportunities to improve cost effectiveness, safety and asset utilization.  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 facilitating operational efficiencies and customer service.

The Company’s operating revenue increased by 10.6 percent in the third quarter of 2017 compared to the same period in 2016.  The increase resulted primarily from increased shipments, tonnage, fuel surcharges 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 during the second quarter of 2017 were contributing factors in the increased shipments and tonnage.

Consolidated operating income was $24.6 million for the third quarter of 2017 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 in the third quarter of 2017, compared to diluted earnings per share of $0.54 in the prior year quarter. The operating ratio (operating expenses divided by operating revenue) was 93.0 percent in the third quarter of 2017 compared to 92.8 percent in the third quarter of 2016.

The Company had $127.7 million in net cash provided by operating activities in the first nine months of 2017 compared with $118.3 million in the same period last year.  The increase is primarily due to 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.  The Company had net cash used in investing activities of $152.6 million during the first nine months of 2017 compared to $107.8 million in the first nine months of 2016, primarily as a result of higher capital expenditures for revenue equipment and real estate in the first nine months of 2017.  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 during the same period last year, primarily due to increased borrowing to fund capital expenditures.  The Company had $34.5 million in borrowings under its revolving credit agreement, outstanding letters of credit of $35.7 million and cash and cash equivalents balance of $0.1 million at September 30, 2017.  The Company also had $3.6 million outstanding in Senior Notes and $89.2 million in obligations under capital leases at September 30, 2017.  The Company was in compliance with the debt covenants under its debt agreements at September 30, 2017.

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 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 interregional less-than-truckload (LTL) services across 38 states through a single integrated organization. While more than 99 percent of its revenue historically has

11


 

been derived from transporting LTL shipments, the Company also offers customers a wide range of other value-added services, including non-asset truckload, expedited and logistics services throughout North America.

Our business is highly correlated to non-service sectors of the general economy.  It 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.

Results of Operations

Saia, Inc. and Subsidiaries

Selected Results of Operations and Operating Statistics

For the quarters ended September 30, 2017 and 2016

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Percent

 

 

 

 

 

 

 

 

 

 

 

 

Variance

 

 

 

 

2017

 

 

2016

 

 

'17 v. '16

 

 

 

 

(in thousands, except ratios and revenue per hundredweight)

Operating Revenue

 

$

350,062

 

 

$

316,442

 

 

 

10.6

 

%

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and employees’ benefits

 

 

194,920

 

 

 

178,687

 

 

 

9.1

 

 

Purchased transportation

 

 

23,074

 

 

 

15,657

 

 

 

47.4

 

 

Depreciation and amortization

 

 

22,338

 

 

 

19,927

 

 

 

12.1

 

 

Fuel and other operating expenses

 

 

85,128

 

 

 

79,527

 

 

 

7.0

 

 

Operating Income

 

 

24,602

 

 

 

22,644

 

 

 

8.6

 

 

Operating Ratio

 

 

93.0

%

 

 

92.8

%

 

 

(0.2

)

 

Nonoperating Expense

 

 

1,182

 

 

 

1,079

 

 

 

9.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Net Acquisitions of Property and Equipment (year to date)

 

 

152,586

 

 

 

107,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Saia Motor Freight Operating Statistics:

 

 

 

 

 

 

 

 

 

 

 

 

 

LTL Tonnage

 

 

931

 

 

 

913

 

 

 

2.0

 

 

LTL Shipments

 

 

1,662

 

 

 

1,638

 

 

 

1.5

 

 

LTL Revenue per hundredweight

 

$

17.36

 

 

$

16.08

 

 

 

8.0

 

 

 

 

(1)

Reflects the adoption of the FASB ASU 2016-09. See Accounting Pronouncements Adopted in 2017 below.

Quarter and nine months ended September 30, 2017 compared to Quarter and nine months ended September 30, 2016

Revenue and volume

Consolidated revenue for the quarter ended September 30, 2017 increased 10.6 percent to $350.1 million primarily as a result of increased tonnage, shipments, fuel surcharges 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 during 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 2017 as a result of increased rates and fuel surcharges.  For the third quarter of 2017, Saia’s LTL tonnage increased 3.6 percent per workday to 0.9 million tons, and LTL shipments increased 3.1 percent per workday to 1.7 million shipments.  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, 2017 and October 3, 2016, Saia implemented a 4.9 percent general rate increase.  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.  

12


 

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 an integral part of customer contract negotiations but represent only one portion of overall customer price negotiations as customers may negotiate increase 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 percent of operating revenue for the quarter ended September 30, 2017 compared to 10.2 percent for the quarter ended September 30, 2016, as a result of increases in the cost of fuel.

For the nine months ended September 30, 2017, operating revenues were $1,025.3 million, up 11.7 percent from $918.3 million for the nine months ended September 30, 2016, primarily due to increased tonnage, shipments, fuel surcharges and pricing actions, partially offset by one less workday in the period.  Fuel surcharge revenue increased to 11.2 percent of operating revenue for the nine months ended September 30, 2017 compared to 9.5 percent for the nine months ended September 30, 2016, as a result of increased fuel prices.

Operating expenses and margin

Consolidated operating income was $24.6 million in the third quarter of 2017 compared to $22.6 million in the prior year quarter.  Overall, the operations were favorably impacted in the third quarter of 2017 by higher tonnage, shipments, fuel surcharge and yield, which were offset by salary and wage increases, higher fuel and purchase transportation costs, increased depreciation expense and costs associated with expansion into the Northeastern United States.  The third quarter of 2017 operating ratio (operating expenses divided by operating revenue) was 93.0 percent compared to 92.8 percent for the same period in 2016.

Salaries, wages and benefits increased $16.2 million in the third quarter of 2017 compared to the third quarter of 2016 largely due to higher wages associated with increased headcount in the third quarter of 2017, a wage increase in July 2017 and higher healthcare benefit costs.  Fuel, operating expenses and supplies increased $7.3 million in the third quarter of 2017 compared to the prior year quarter largely due to higher fuel costs, increases in other operating expenses and supplies, including increased expenses related to the expansion in the Northeastern United States, partially offset by improved fuel efficiency.  During the third quarter of 2017, claims and insurance expense was $1.5 million lower than the previous year quarter primarily due to decreased accident frequency and severity along with decreased cargo claims. The Company can experience volatility in accident expense as a result of its self-insurance structure and $2.0 million retention limits per occurrence.  Purchased transportation increased $7.4 million in the third quarter of 2017 compared to the third quarter of 2016 primarily due to an increase in utilization of purchased transportation carriers to maintain service requirements while supporting increased shipments, tonnage and length of haul in the third quarter of 2017.

For the nine months ended September 30, 2017, consolidated operating income was $71.8 million, up 16.0 percent compared to $61.9 million for the nine months ended September 30, 2016.

Salaries, wages and benefits increased $47.3 million during the first nine months of 2017 compared to the same period last year largely due to increased wages associated with increased headcount in the first nine months of 2017 and a wage increase in July 2017 and higher healthcare benefit costs. Fuel, operating expenses and supplies increased $24.4 million during the first nine months of 2017 compared to the same period last year largely due to higher fuel costs, increases in other operating expenses and supplies, including increased expenses related to 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.  During the first nine months of 2017, claims and insurance expense was $0.9 million lower than the same period last year primarily due to decreased development on older claims and decreased cargo claims. Purchased transportation increased $17.8 million compared to the first nine months of 2016 primarily due to an increase in utilization of purchased transportation carriers to maintain service requirements while supporting increased shipments, tonnage and length of haul in the first nine months of 2017.

Other

Substantially all non-operating expenses represent interest expense. Interest expense in the third quarter of 2017 was $0.1 million higher than the third quarter of 2016 due 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.

13


 

The effective tax rate was 38.5 percent and 35.9 percent for the quarters ended September 30, 2017 and 2016, respectively.  The increase in the third quarter tax rate in 2017 is primarily a result of legislation surrounding alternative fuel tax credits that impacted the third quarter of 2016 but not the third quarter of 2017.  For the nine months ended September 30, 2017, the effective tax rate was 36.2 percent compared to 35.8 percent for the nine months ended September 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.

Net income was $14.4 million, or $0.55 per diluted share, in the third quarter of 2017 compared to net income of $13.8 million, or $0.54 per diluted share, in the third quarter of 2016.  Net income was $43.4 million, or $1.67 per diluted share, for the first nine months of 2017 compared to net income of $37.7 million, or $1.47 per diluted share, for the first nine months of 2016.

Working capital/capital expenditures

Working capital at September 30, 2017 was $17.1 million, which increased from working capital at September 30, 2016 of $13.0 million.

Current assets at September 30, 2017 increased by $34.2 million as compared to September 30, 2016 and includes an increase in accounts receivable of $28.7 million along with an increase in prepaid expenses and other.  Current liabilities increased by $30.1 million at September 30, 2017 compared to September 30, 2016 largely due to increases in accounts payable, accrued wages, vacation and employee benefits and claims and insurance accruals.  Cash flows provided by operating activities were $127.7 million for the nine months ended September 30, 2017 versus $118.3 million for the nine months ended September 30, 2016.  For the nine months ended September 30, 2017, net cash used in investing activities was $152.6 million versus $107.8 million in the same period last year, a $44.8 million increase.  This increase resulted primarily from higher capital expenditures for revenue equipment and real estate.  For the nine months ended September 30, 2017, net cash provided by financing activities was $23.4 million compared to $9.8 million net cash used in financing activities during the same period last year, as a result of increased borrowing to fund capital expenditures.

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.  There remains uncertainty as to the strength of economic conditions. We are continuing initiatives to increase yield, reduce costs and improve productivity.  We focus on providing top quality service and improving safety performance.  On July 17, 2017, Saia implemented a 4.9 percent general rate increase for customers comprising approximately 20 to 25 percent of Saia’s operating revenue.  The extent of the success of these revenue initiatives is impacted by what proves to be the underlying economic trends, competitor initiatives and other factors discussed under “Forward-Looking Statements” and Part II, Item 1A. “Risk Factors.”

Effective July 1, 2017, the Company implemented a market competitive salary and wage increase for all of its employees.  The cost of the compensation increase is expected to be approximately $16 million annually, 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

14


 

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

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.  The Company is also a party to a long-term note agreement (the Restated Master Shelf Agreement).  The Company has pledged certain land 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 for up to $250 million expiring in March 2020. The Restated Credit Agreement also has an accordion feature that allows for an additional $75 million availability, subject to lender approval.  The Restated Credit Agreement provides for a LIBOR rate margin range from 112.5 basis points to 225 basis points, base rate margins from minus 12.5 basis points to plus 50 basis points, an unused portion fee from 20 basis points to 30 basis points and letter of credit fees from 112.5 basis points to 225 basis points, in each case based on the Company’s leverage ratio.

Under the Restated Credit Agreement, the Company must maintain certain financial covenants including a minimum fixed charge coverage ratio and a maximum leverage ratio, among others.  The Restated Credit Agreement also provides 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 Restated Credit Agreement.

At September 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, the Company had no outstanding borrowings and outstanding letters of credit of $39.4 million under the Restated Credit Agreement.  The available portion of the Restated Credit Agreement may be used for general corporate purposes, including capital expenditures, working capital and letter of credit requirements as needed.

Restated Master Shelf Agreement

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

15


 

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 capital leases with seven year terms covering revenue equipment totaling $89.2 million and $66.7 million as of September 30, 2017 and December 31, 2016, respectively.  Amortization of assets held under the capital leases is included in depreciation and amortization expense.  The weighted average interest rates for the capital leases at September 30, 2017 and December 31, 2016 are 3.04 percent and 2.82 percent, respectively.

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 $146.4 million, as adjusted for the adoption of ASU No. 2016-09, for the year ended December 31, 2016, while net cash used in investing activities was $117.7 million.  Cash flows provided by operating activities were $127.7 million for the nine months ended September 30, 2017, $9.4 million higher than the first nine months of the prior year. The increase is due to 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.  The timing of capital expenditures can largely be managed around the seasonal working capital requirements of the Company.  The Company believes it has adequate sources of capital to meet short-term liquidity needs through its operating cash flows and availability under the Restated Credit Agreement. At September 30, 2017, the Company had $181.6 million in availability under the Restated Credit Agreement, subject to the Company’s satisfaction of existing debt covenants.  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.  The Company was in compliance with its debt covenants at September 30, 2017.

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 2017 are approximately $230 million, inclusive of equipment acquired using capital leases. This represents an approximately $78 million increase from 2016 net capital expenditures of $152 million for property and equipment, inclusive of equipment acquired using capital leases. Projected 2017 capital expenditures include a normal annual level 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 facilitate our geographic expansion into the Northeastern United States. Approximately $18.3 million of the 2017 remaining capital budget was committed as of September 30, 2017. Net capital expenditures were $183.9 million in the first nine months of 2017, inclusive of equipment acquired using capital leases.

In accordance with U.S. generally accepted accounting principles, our operating leases are not recorded in our condensed consolidated balance sheet; however, the future minimum lease payments are included in the “Contractual Obligations” table below. See 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 the principal amounts disclosed in the tables below, the Company has 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 September 30, 2017.

16


 

Contractual Obligations

The following tables set forth a summary of our contractual cash obligations and other commercial commitments as of September 30, 2017 (in millions):

 

 

 

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

 

 

(1)

See Note 5 to the accompanying condensed consolidated financial statements in this Form 10-Q. The contractual capital lease obligation payments included in this table include both the principal and interest components.  

(2)

Includes commitments of $28.1 million for capital expenditures.

 

 

 

Amount of commitment expiration by year

 

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

Thereafter

 

 

Total

 

Other commercial commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

$

 

 

$