SAIA, INC. Forward-Looking Statements
The 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 Annual Report on Form 10-K, 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 Annual Report on Form 10-K 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; • inflationary increases in operating expenses and corresponding reductions of profitability; • 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 aresult 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, availability and resale value of real property and revenue equipment;
• supply chain disruption and delays on new equipment delivery; • 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 ourcustomers 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;
• usual employee turnover from changes to compensation and benefits or
market factors;
• increased costs of healthcare benefits;
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• damage to our reputation from adverse publicity, including from the use
of or impact from social media;
• 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
judgments 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 and
licensing compliance for drivers, engine emissions, the Compliance,
Safety, Accountability (CSA) initiative, regulations of the Food and
Drug Administration and Homeland 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;
• provisions in our governing documents and Delaware law that may have
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 SEC filings.
These factors and risks are described in Part I, Item 1A. "Risk Factors" of this Annual Report on Form 10-K.
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-K. 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. We are continuing to monitor the progression of the COVID-19 pandemic, further government response, and development of treatments and vaccines and their potential effect on our short-term and long-term financial results and liquidity. These events could have an impact in future periods on certain estimates used in the preparation of our 2021 financial results. Local, state and national governments have designated transportation as an essential service. The Company has made a variety of efforts to ensure the ongoing availability ofSaia 's transportation services, while instituting actions and policies to help keep employees and customers safe, including 32 -------------------------------------------------------------------------------- limiting physical contact, implementing enhanced cleaning and hygiene protocols atSaia facilities and implementing remote work arrangements, where possible and appropriate. 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 "Financial Condition, Liquidity and Capital Resources" below, the Company has in place a revolving credit facility with up to$300 million in availability, plus an accordion feature that provides for an additional$100 million in availability, subject to certain conditions and lender commitments, in addition to its cash flow from operations. 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.
Overview.
The Company's operating revenue increased by 25.6 percent in 2021 compared to 2020. The increase resulted primarily from pricing actions, including a 5.9 percent general rate increase taken onJanuary 18, 2021 , for customers subject to general rate increases, in addition to increased volumes, terminal expansion and improvements in mix of business. Consolidated operating income was$335.1 million for 2021 compared to$180.3 million in 2020. The increase in 2021 operating income resulted primarily from pricing actions, partially offset by salary and wage increases, higher fuel costs, and higher purchase transportation costs.
The Company generated
The Company is party to a credit agreement with its banking group that provides for a$300 million revolver with a term endingFebruary 2024 . The 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 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. See Note 2 of the accompanying audited Consolidated Financial Statements for more information on the credit agreement. The Company had$23.5 million of net cash used in financing activities during 2021 compared to$65.3 million of net cash used in financing activities during 2020. The Company had zero change in net borrowings (net of repayments) under its revolving credit facility during 2021 compared to net repayments of$45.9 million in 2020 and made scheduled principal payments for finance lease obligations of$20.6 million during 2021. Outstanding letters of credit were$31.1 million and the cash and cash equivalents balance was$106.6 million as ofDecember 31, 2021 . The Company had$270.7 million in remaining availability under its revolving credit facility and$50.4 million in obligations under finance leases atDecember 31, 2021 . The Company was in compliance with the debt covenants under its debt agreements atDecember 31, 2021 . See "Financial Condition" for a more complete discussion of these agreements.
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 ofSaia, Inc. and its wholly-owned subsidiaries (together, the Company orSaia ). This discussion should be read in conjunction with the accompanying audited consolidated financial statements which include additional information about our significant accounting policies, practices and the transactions that underlie our financial results. 33 --------------------------------------------------------------------------------Saia is a transportation company headquartered inJohns Creek ,Georgia that provides less-than-truckload (LTL) services through a single integrated organization. While more than 97% of its revenue is derived from transporting LTL shipments across 45 states, the Company also offers customers a wide range of other value-added services, including non-asset truckload, expedited and logistics services acrossthe United States . The Chief Operating Decision Maker is the Chief Executive Officer who manages the business, regularly reviews financial information and allocates resources. The Company has one operating segment. 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 I, 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. 34
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Results of Operations
Saia, Inc. and Subsidiaries Selected Results of Operations and Operating Statistics For the years ended December 31, 2021, 2020 and 2019 (in thousands, except ratios and revenue per hundredweight) Percent Variance 2021 2020 2019 '21 v. '20 '20 v. '19 Operating Revenue$ 2,288,704 $ 1,822,366 $ 1,786,735 25.6 % 2.0 % Operating Expenses: Salaries, wages and employees' benefits 1,063,703 963,260 947,911 10.4 1.6 Purchased transportation 249,710 141,369 129,980 76.6 8.8 Depreciation and amortization 141,700 134,655 119,135 5.2 13.0 Fuel and other operating expenses 498,450 402,761 437,123 23.8 (7.9 ) Operating Income 335,141 180,321 152,586 85.9 18.2 Operating Ratio 85.4 % 90.1 % 91.5 % (4.7 ) (1.4 ) Non-operating Expense 2,368 4,043 5,934 (41.4 ) (31.9 ) Working Capital (as of December 31, 2021, 2020 and 2019) 94,907 (4,058 ) (8,867 ) (2,438.8 ) (54.2 ) Net Acquisitions of Property and Equipment 277,348 218,817 281,031 26.7 (22.1 )Saia LTL Freight Operating Statistics: LTL Tonnage 5,401 4,842 4,820 11.50.5 LTL Shipments 7,730 7,371 7,409 4.9(0.5 ) LTL Revenue per hundredweight$ 20.68 $ 18.33 $ 18.05 12.81.6 LTL Revenue per shipment$ 289.00 $ 240.86 $ 234.81 20.02.6 LTL Pounds/shipment 1,397 1,314 1,301 6.31.0 LTL Length of haul 913 879 840 3.9 4.6
Year ended
Revenue and volume
Consolidated revenue increased 25.6 percent to$2.3 billion primarily as a result of pricing actions, increased volumes, terminal expansion and improvements in mix of business. The economic environment over the past few years permitted the Company to implement measured pricing actions to improve yield. As a result of these increased rates, along with increased length of haul,Saia 's LTL revenue per hundredweight (a measure of yield) increased 12.8 percent to$20.68 per hundredweight for 2021.Saia 's LTL tonnage also increased 12.4 percent per workday while LTL shipments increased 5.7 percent per workday for 2021. Overall LTL revenue per shipment increased 20.0 percent in 2021 due to the yield improvements discussed above. Additionally, LTL weight per shipment increased 6.3 percent during 2021. For 2021 and 2020, approximately 75 to 80 percent ofSaia 's operating revenue was subject to specific customer price adjustment 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 customers subject to general rate increases,Saia implemented a 5.9 percent general rate increase onJanuary 18, 2021 . Competitive factors, customer turnover and mix changes, among other things, impact the extent to which customer rate increases are retained over time. 35 -------------------------------------------------------------------------------- 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 generally based on the average national price for diesel fuel and is reset weekly. Fuel surcharges 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 increases in base rates instead of increases in fuel surcharges or vice versa. Fuel surcharge revenue increased to 14.0 percent of operating revenue for the year endedDecember 31, 2021 compared to 11.1 percent for the year endedDecember 31, 2020 primarily as a result of increases in the cost of fuel.
Operating expenses and margin
Consolidated operating income was$335.1 million in 2021 compared to$180.3 million in 2020. In summary, the operations were favorably impacted in 2021 by higher revenue per shipment and volumes, which were partially offset by salary and wage increases, higher fuel costs and higher purchase transportation costs. The 2021 operating ratio (operating expenses divided by operating revenue) improved to 85.4 percent as compared to 90.1 percent in 2020. Salaries, wages and employees' benefits expense increased$100.4 million in 2021 compared to 2020 largely due to increased head count compared to prior year. Additionally, inJanuary 2021 andAugust 2021 the Company implemented salary and wage increases of approximately 3.5 percent and 4.7 percent, respectively, while significant growth led to higher overall compensation levels. Purchased transportation expense increased$108.3 million in 2021 compared to 2020 primarily due to increasing demand, capacity constraints in the internal network and higher rates for purchased miles during 2021. Depreciation and amortization expense increased$7.0 million in 2021 compared to 2020 primarily due to revenue equipment, real estate and technology investments in 2021. Fuel and other operating expenses increased by$95.7 million . This increase is driven primarily by an increase in fuel, operating expenses and supplies of$82.7 million , largely due to increased fuel costs from volume and price per gallon increases during the year. In addition, claims and insurance expense in 2021 was$11.6 million higher than 2020 largely due to increased insurance premiums in 2021 along with increased accident severity. The Company can experience volatility in accident expense as a result of its self-insurance structure which provides for retention amounts ranging from$2 million to$10 million per occurrence.
Other
Substantially all non-operating expenses represent interest expense. Interest expense in 2021 was$2.0 million less than 2020 due to decreased average borrowings in 2021. The effective income tax rate was 23.9 percent and 21.5 percent for the years endedDecember 31, 2021 and 2020, respectively. The effective income tax rates for 2020 and 2021 include the impact of the tax credits enacted inDecember 2019 for alternative fuel usage, resulting in an increase in earnings per share of$0.04 in both 2021 and 2020. See Note 10 to the Company's audited Consolidated Financial Statements, included herein, for an analysis of the income tax provision, impacts of the alternative fuel tax credits and the effective tax rate.
Working capital/capital expenditures
Working capital atDecember 31, 2021 was$94.9 million which increased from working capital atDecember 31, 2020 of negative$4.1 million . This increase is primarily due to an increase in cash and cash equivalents and accounts receivable, partially offset by increases in volume driven accounts payable. Cash flows from operating activities were$382.6 million for 2021 versus$309.1 million for 2020 largely driven by increased profitability. For 2021, net cash used in investing activities was$277.8 million versus$218.8 million in 2020 primarily due to increased capital expenditures for real estate, technology and revenue equipment during 2021. Net cash used in financing activities was$23.5 million in 2021 versus$65.3 million in 2020 primarily driven by a decrease in the net borrowings (net of repayments) under our revolving credit facility of$45.9 million from 2021 compared to 2020. 36 --------------------------------------------------------------------------------
Year ended
Revenue and volume
Consolidated revenue increased 2.0 percent to$1.8 billion primarily as a result of pricing actions and terminal expansion, partially offset by a decrease in fuel surcharge revenue as a result of lower fuel prices. The economic environment permitted the Company to implement measured pricing actions to improve yield. As a result of these increased rates, along with increased length of haul,Saia 's LTL revenue per hundredweight (a measure of yield) increased 1.6 percent to$18.33 per hundredweight for 2020.Saia 's LTL tonnage also increased 0.1 percent per workday in 2020 while LTL shipments decreased 0.9 percent per workday for 2020, as a result of lower volumes in the first half of 2020. Overall LTL revenue per shipment increased 2.6 percent in 2020 due to the yield improvements discussed above. Additionally, LTL weight per shipment increased 1.0 percent during 2020. For 2020 and 2019, approximately 75 to 80 percent ofSaia 's operating revenue was subject to specific customer price adjustment 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 customers subject to general rate increases,Saia implemented a 5.9 percent general rate increase onFebruary 3, 2020 . Competitive factors, customer turnover and mix changes, among other things, 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 generally based on the average national price for diesel fuel and is reset weekly. Fuel surcharges 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 increases in base rates instead of increases in fuel surcharges or vice versa. Fuel surcharge revenue decreased to 11.1 percent of operating revenue for the year endedDecember 31, 2020 compared to 13.0 percent for the year endedDecember 31, 2019 primarily as a result of decreases in the cost of fuel.
Operating expenses and margin
Consolidated operating income was
Salaries, wages and benefits expense increased$15.3 million in 2020 compared to 2019 largely due to an overall increase in paid time off, a result of an additional five days awarded to all hourly employees in dealing with the impacts of COVID-19, and higher healthcare benefit costs. Fuel, operating expenses and supplies decreased$40.8 million during 2020 compared to 2019 largely due to decreased fuel costs, in addition to a reduction of other operating expenses and supplies, partially attributable to the recalibration of our cost structure as volumes slowed in the first half of 2020. Claims and insurance expense in 2020 was$6.7 million higher than 2019 largely due to increased insurance premiums in 2020 along with increased accident severity, particularly in the first half of 2020. The Company can experience volatility in accident expense as a result of its self-insurance structure which provides for retention amounts ranging from$2 million to$10 million per occurrence. Depreciation expense increased$15.5 million in 2020 compared to 2019 primarily due to revenue equipment, real estate and technology investments in 2020. Purchased transportation expense increased$11.4 million in 2020 compared to 2019 primarily due to increased surges in demand in the latter half of 2020 and capacity constraints in the internal network.
Other
Substantially all non-operating expenses represent interest expense. Interest expense in 2020 was$1.5 million less than 2019 due to decreased average borrowings resulting from the$62.2 million decrease in investing activities in 2020. The effective income tax rate was 21.5 percent and 22.5 percent for the years endedDecember 31, 2020 and 2019, respectively. The 2019 and 2020 effective income tax rates include the impact of the tax credits enacted inDecember 2019 for alternative fuel usage, resulting in an increase in earnings per share of$0.04 and$0.07 for 2020 37 --------------------------------------------------------------------------------
and 2019, respectively. See Note 10 to the Company's audited Consolidated Financial Statements, included herein, for an analysis of the income tax provision, impacts of the alternative fuel tax credits and the effective tax rate.
Working capital/capital expenditures
Working capital atDecember 31, 2020 was negative$4.1 million which increased from working capital atDecember 31, 2019 of negative$8.9 million . This increase is primarily due to an increase in cash and cash equivalents and accounts receivable, partially offset by increases in accrued taxes and claims and insurance accruals. Cash flows from operating activities were$309.1 million for 2020 versus$272.9 million for 2019 largely driven by increased profitability. For 2020, net cash used in investing activities was$218.8 million versus$281.0 million in 2019 primarily due to lower capital expenditures for real estate, technology and revenue equipment during 2020 due to management's decision to reduce expenditures in light of uncertainty associated with COVID-19. Net cash used in financing activities was$65.3 million in 2020 versus$6.2 million in net cash provided by financing activities in 2019 primarily driven by a decrease in the net borrowings (net of repayments) under our revolving credit facility of$71.9 million from 2020 compared to 2019.
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, including the impact of inflation. We are continuing initiatives to increase revenue per shipment, reduce costs and improve productivity. We focus on providing top quality service and improving safety performance. Planned revenue initiatives include, but are not limited to, building density in our current geography, targeted marketing initiatives to grow revenue in more profitable areas, further expanding our service geography, as well as pricing and yield management. OnJanuary 24, 2022 andJanuary 18, 2021 Saia implemented 7.5 and 5.9 percent general rate increases, respectively, for customers comprising approximately 20 to 25 percent ofSaia 's operating revenue. The extent of success of this revenue initiative is impacted by what proves to be the underlying economic trends, competitor initiatives and other factors discussed under "Forward-Looking Statements" and Part I, Item 1A., "Risk Factors." EffectiveJanuary 2021 andAugust 2021 , the Company implemented salary and wage increases of approximately 3.5 percent and 4.7 percent, respectively, for all of its employees. The total cost of the compensation increases is expected to be approximately$60.9 million annually, and the Company anticipates the impact will be partially offset by productivity and efficiency gains. If the Company builds market share, including through its geographic expansion, it expects there to be 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, dock workers and personnel, and purchased transportation, fuel, insurance claims, cost and availability of insurance, regulatory changes, successful expansion of our service geography and other factors, including inflation discussed under "Forward-Looking Statements" and Part I, Item 1A., "Risk Factors."
See "Forward-Looking Statements" and Part I, Item 1A., "Risk Factors," for a more complete discussion of potential risks and uncertainties that could materially affect our future performance.
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--------------------------------------------------------------------------------Accounting Pronouncements Adopted in 2021
In 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This standard became effective for interim and annual reporting periods beginning afterDecember 15, 2020 . The Company adopted the standard effectiveJanuary 1, 2021 and upon adoption this standard did not have a material impact on its consolidated financial statements or related disclosures.
Financial Condition, Liquidity and Capital Resources
The Company's liquidity needs arise primarily from capital investment in new equipment, land and structures, information technology and letters of credit required under insurance programs, as well as funding working capital requirements. The Company is party to a revolving credit agreement with a group of banks to fund capital investments, letters of credit and working capital needs. The Company has pledged certain land and structures, accounts receivable and other assets to secure indebtedness under this agreement.
Credit Agreement
The Company is party to a credit agreement with its banking group that provides for a$300 million revolver with a term endingFebruary 2024 . The 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 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. See Note 2 of the accompanying audited Consolidated Financial Statements for more information on the credit agreement. AtDecember 31, 2021 , the Company had no borrowings outstanding under its revolving credit line 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 Restated 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 terms covering revenue equipment totaling$50.4 million and$71.0 million as ofDecember 31, 2021 and 2020, respectively. Amortization of assets held under the finance leases is included in depreciation expense. The weighted average interest rates for the finance leases atDecember 31, 2021 and 2020 was 3.55% and 3.48%, respectively.
Cash Flows and Expenditures
The Company has historically generated cash flows from operations to fund a large portion of its capital expenditure requirements. 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 its revolving credit agreement, which was$270.7 million atDecember 31, 2021 , 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 atDecember 31, 2021 . 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 2022 are expected to exceed$500 million , inclusive of equipment acquired using finance leases compared to 2021 net capital expenditures of$277 39 -------------------------------------------------------------------------------- million. Projected 2022 capital expenditures include a normal replacement cycle of revenue equipment and technology investment for our operations. In addition, the Company plans to add revenue equipment and real estate investments to support our growth initiatives.
See "Forward-Looking Statements" and Item 1A., "Risk Factors," for a more complete discussion of potential risks and uncertainties that could materially affect our future performance and financial condition.
Actual net capital expenditures, inclusive of equipment acquired using finance leases, are summarized in the following table (in millions):
Years ended
2021 2020 2019
Land and structures:
Additions $ 124.8 $ 75.0 $ 82.5
Sales (6.0 ) (5.9 ) -
Revenue equipment, net 130.0 131.9 181.0
Technology and other 28.5 17.8 23.7
Total $ 277.3 $ 218.8 $ 287.2
In addition to the amounts disclosed in the table above, the Company had an
additional $24.2 million in capital expenditures for revenue equipment that was
received but not paid for prior to December 31, 2021 . In 2021 and 2020, no
revenue equipment was acquired with finance leases. Included in the 2019 revenue
equipment expenditures are finance leases totaling $6.2 million .
Contractual Obligations
Contractual obligations for the Company are comprised of lease agreements, purchase obligations and long-term debt obligations related to any outstanding balance under the Company's revolving line of credit. Total contractual obligations for operating leases atDecember 31, 2021 and 2020 totaled$126.5 million and$142.7 million . This includes operating leases with original maturities of less than one year, which are not recorded in our consolidated balance sheet in accordance withU.S. generally accepted accounting principles. Contractual obligations in the form of finance leases were$53.3 million and$76.1 million atDecember 31, 2021 and 2020, respectively, which include both principal and interest components. Purchase obligations atDecember 31, 2021 andDecember 31, 2020 were$60.2 million and$23.0 million , respectively. For further information see the Notes to the accompanying audited Consolidated Financial Statements in this Form 10-K. As ofDecember 31, 2021 andDecember 31, 2020 , the revolving line of credit had no outstanding principal balance. Other commercial commitments of the Company typically include necessary letters of credit and surety bonds, required for collateral towards insurance agreements, and the outstanding available line of credit. As ofDecember 31, 2021 the Company had total outstanding letters of credit of$31.1 million and$69.5 million in surety bonds. AtDecember 31, 2020 the Company had total outstanding letters of credit of$29.0 million and$59.9 million in surety bonds. Additionally, the Company had$270.7 million available under its revolving credit facility, subject to existing debt covenants atDecember 31, 2021 . AtDecember 31, 2020 the Company had$272.8 million available under its revolving credit facility, subject to existing debt covenants.
In addition to any principal amounts disclosed, the Company has interest
obligations of approximately
The Company has accrued approximately$1.4 million for uncertain tax positions and accrued interest and penalties of$0.1 million related to the uncertain tax positions as ofDecember 31, 2021 .
At
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--------------------------------------------------------------------------------Critical Accounting Policies and Estimates
The Company makes estimates and assumptions in preparing the 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.
o Description: As described in more detail in the Notes to the audited
Consolidated Financial Statements contained herein, the Company has
self-insured retention limits generally ranging from $250,000 to $1
million per occurrence for medical, workers' compensation, casualty
and cargo claims and from $2 million to $10 million for auto
liability claims.
o Judgments and Uncertainties: The liabilities associated with these
claims are estimated in part based on historical experience,
actuarial analysis with respect to workers' compensation claims,
demographics, nature and severity of the claims, and other
assumptions. Estimates of the liabilities for these claims 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 otherliabilities,
estimated based on management's evaluation of the nature and
severity of individual claims, historical experience and other
assumptions.
o Sensitivity of Estimate to Change: These estimated accruals could be
significantly affected if the actual costs of the Companyfrom these
claims differ from the estimates and assumptions used to establish
the accruals. A significant number of these claims typically take
several years to develop and even longer to ultimately settle. A
change in case reserves will be reflected in the Company's results
of operations on a dollar for dollar basis plus development
factors. These estimates have been reasonably accurate over time;
however, changes to estimates and assumptions regarding severity of
claims, medical cost inflation, as well as, specific case facts can
create short-term volatility in these reserves. In addition a 100
basis point change in our loss development factor would result in
$0.2 million change in the claims liabilities. There have been no
material changes in the development factor for the year ended
December 31, 2021 .
• Revenue Recognition and Related Allowances.
o Description: Revenue is recognized over the transit time of the
shipment as it moves from origin to destination whileexpenses 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 andcollectability.
o Judgments and Uncertainties: 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. 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.
o Sensitivity of Estimate to Change: Since the cycle for pickup and
delivery of shipments is generally 1-5 days, typically less than
five percent of a total month's revenue is in transit at the end of
any month. Estimates included in the recognition of revenue and
accounts receivable 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.
o Description: 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.
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o Judgments and Uncertainties: Selecting the appropriate accounting
method requires management judgment, as there are multiple
acceptable methods that are in accordance with U.S generally
accepted accounting principles (GAAP), includingstraight-line,
declining-balance, and sum-of-the-years' digits. As described in the
Notes to the audited Consolidated Financial Statements contained
herein, the Company depreciates property and equipment on a
straight-line basis over the estimated useful lives of the assets.
The Company believes this method properly spreads the costs over the
useful lives of the assets. Factors affecting estimated useful lives
and residual values of property and equipment may include estimating
loss, damage, obsolescence, and Company policies around maintenance
and asset replacement.
o Sensitivity of Estimate to Change: 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 the audited Consolidated Financial Statements included in this Form 10-K.
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. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to a variety of market risks including the effects of interest rates and fuel prices. The detail of the Company's debt structure is more fully described in the Notes to the audited Consolidated Financial Statements set forth in this Form 10-K for the year endedDecember 31, 2021 . To help mitigate our exposure to rising fuel prices, the Company has implemented a fuel surcharge program. This program is well established within the industry and customer acceptance of fuel surcharges remains high. Since the amount of fuel surcharge is based on average national fuel prices and is reset weekly, exposure of the Company to fuel price volatility is significantly reduced. However, the fuel surcharge may not fully offset fuel price fluctuations during periods of rapid increases or decreases in the price of fuel and is also subject to overall competitive pricing negotiations. The following table provides information about the Company's third-party financial instruments as ofDecember 31, 2021 with comparative information as ofDecember 31, 2020 . The table presents cash flows for principal payments (in millions) and related weighted average interest rates by contractual maturity dates. The fair value of the variable and fixed rate debt (in millions) was estimated based upon levels one and two in the fair value hierarchy, respectively. The fair value of the finance leases is based on current market interest rates for similar types of financial instruments. Expected maturity date 2021 2020 2022 2023 2024 2025 2026 Thereafter Total Fair Value Total Fair Value Fixed rate debt$ 19.5 $ 14.5 $ 10.2 $ 5.3 $ 0.9 $ -$ 50.4 $ 50.8 $ 71.0 $ 71.2 Average interest rate 3.6 % 3.6 % 3.6 % 3.6 % 3.6 % 3.6 % Variable rate debt $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Average interest rate - - - - - - 42
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