Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
1. Description of Business and Summary of Accounting Policies
Description of Business
Saia, Inc. and its subsidiaries (Saia or the Company) are headquartered in Johns Creek, Georgia. Saia is a leading, less-than-truckload (“LTL”) motor carrier with more than 97% of its revenue historically derived from transporting LTL shipments for customers. In addition to the core LTL services provided in 41 states, the Company also offers customers a wide range of other value-added services, including non-asset truckload, expedited and logistics services across the 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.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Saia, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.
Use of Estimates
Management makes estimates and assumptions when preparing the consolidated financial statements in conformity with U.S. generally accepted accounting principles. These estimates and assumptions affect the amounts reported in the consolidated financial statements and footnotes. Actual results could differ from those estimates.
Accounting Pronouncements Adopted in 2018
In May 2014, the FASB issued Accounting Standards Update (“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 replaced most existing revenue recognition guidance in U.S. generally accepted accounting principles when it became effective for the Company on January 1, 2018. In-depth reviews of contracts were completed and changes to processes and internal controls to meet the standard’s reporting and disclosure requirements were implemented. The Company adopted the standard using the full retrospective transition method.
As a result of the adoption of this standard, the Company changed the presentation of its non-asset truckload business from net revenue to gross revenue and changed the method of recognizing that revenue from upon commencement of the services to over the transit time of the freight as it moves from origin to destination.
The Company has consistently applied the accounting policies to all periods presented in these condensed consolidated financial statements. The below tables reflect the effect of the adoption of this standard on the previously reported financial data.
45
Condensed Consolidated Balance Sheet impact:
|
As of December 31, 2017
|
|
|
As of December 31, 2016
|
|
|
As adjusted
|
|
|
As originally reported
|
|
|
Effect of change
|
|
|
|
|
As adjusted
|
|
|
As originally reported
|
|
|
Effect of change
|
|
|
|
(in thousands)
|
Accounts receivable
|
|
$
|
170,278
|
|
|
$
|
170,610
|
|
|
$
|
(332
|
)
|
|
|
|
$
|
134,926
|
|
|
$
|
135,083
|
|
|
$
|
(157
|
)
|
|
Total current assets
|
|
|
203,249
|
|
|
|
203,581
|
|
|
|
(332
|
)
|
|
|
|
|
166,322
|
|
|
|
166,479
|
|
|
|
(157
|
)
|
|
Total assets
|
|
|
967,315
|
|
|
|
967,647
|
|
|
|
(332
|
)
|
|
|
|
|
800,213
|
|
|
|
800,370
|
|
|
|
(157
|
)
|
|
Accounts payable
|
|
|
57,438
|
|
|
|
57,717
|
|
|
|
(279
|
)
|
|
|
|
|
45,018
|
|
|
|
45,149
|
|
|
|
(131
|
)
|
|
Total current liabilities
|
|
|
166,926
|
|
|
|
167,205
|
|
|
|
(279
|
)
|
|
|
|
|
144,813
|
|
|
|
144,944
|
|
|
|
(131
|
)
|
|
Retained earnings
|
|
|
339,500
|
|
|
|
339,553
|
|
|
|
(53
|
)
|
|
|
|
|
248,371
|
|
|
|
248,397
|
|
|
|
(26
|
)
|
|
Total stockholders’ equity
|
|
|
582,494
|
|
|
|
582,547
|
|
|
|
(53
|
)
|
|
|
|
|
483,052
|
|
|
|
483,078
|
|
|
|
(26
|
)
|
|
Total liabilities and stockholders’ equity
|
|
|
967,315
|
|
|
|
967,647
|
|
|
|
(332
|
)
|
|
|
|
|
800,213
|
|
|
|
800,370
|
|
|
|
(157
|
)
|
|
Condensed Consolidated Statement of Operations Impact:
|
For the quarter ended December 31, 2017
|
|
For the year ended December 31, 2017
|
|
|
As adjusted
|
|
|
As originally reported
|
|
|
Effect of change
|
|
|
|
|
As adjusted
|
|
|
As originally reported
|
|
|
Effect of change
|
|
|
|
(in thousands, except per share data)
|
Operating revenue
|
|
$
|
360,196
|
|
|
$
|
353,251
|
|
|
$
|
6,945
|
|
|
|
|
$
|
1,404,703
|
|
|
$
|
1,378,510
|
|
|
$
|
26,193
|
|
|
Purchased transportation
|
|
|
28,185
|
|
|
|
21,270
|
|
|
|
6,915
|
|
|
|
|
|
107,702
|
|
|
|
81,482
|
|
|
|
26,220
|
|
|
Total operating expenses
|
|
|
337,268
|
|
|
|
330,353
|
|
|
|
6,915
|
|
|
|
|
|
1,309,993
|
|
|
|
1,283,773
|
|
|
|
26,220
|
|
|
Operating income
|
|
|
22,928
|
|
|
|
22,898
|
|
|
|
30
|
|
|
|
|
|
94,710
|
|
|
|
94,737
|
|
|
|
(27
|
)
|
|
Net income
|
|
|
47,789
|
|
|
|
47,759
|
|
|
|
30
|
|
|
|
|
|
91,129
|
|
|
|
91,156
|
|
|
|
(27
|
)
|
|
Basic Earnings Per Share
|
|
|
1.87
|
|
|
|
1.87
|
|
|
|
—
|
|
|
|
|
|
3.57
|
|
|
|
3.57
|
|
|
|
—
|
|
|
Diluted Earnings Per Share
|
|
|
1.82
|
|
|
|
1.82
|
|
|
|
—
|
|
|
|
|
|
3.49
|
|
|
|
3.49
|
|
|
|
—
|
|
|
|
For the year ended December 31, 2016
|
|
|
As adjusted
|
|
|
As originally reported
|
|
|
Effect of change
|
|
|
|
(in thousands, except per share data)
|
|
|
Operating revenue
|
|
$
|
1,250,391
|
|
|
$
|
1,218,481
|
|
|
$
|
31,910
|
|
|
Purchased transportation
|
|
|
88,239
|
|
|
|
56,329
|
|
|
|
31,910
|
|
|
Total operating expenses
|
|
|
1,171,255
|
|
|
|
1,139,345
|
|
|
|
31,910
|
|
|
Operating income
|
|
|
79,136
|
|
|
|
79,136
|
|
|
|
—
|
|
|
Net income
|
|
|
48,024
|
|
|
|
48,024
|
|
|
|
—
|
|
|
Basic Earnings Per Share
|
|
|
1.92
|
|
|
|
1.92
|
|
|
|
—
|
|
|
Diluted Earnings Per Share
|
|
|
1.87
|
|
|
|
1.87
|
|
|
|
—
|
|
|
46
Condensed Consolidated Statement of Cash Flows impact:
|
For the year ended December 31, 2017
|
|
For the year ended December 31, 2016
|
|
|
As adjusted
|
|
|
As originally reported
|
|
|
Effect of change
|
|
|
|
|
As adjusted
|
|
|
As originally reported
|
|
|
Effect of change
|
|
|
|
(in thousands)
|
Net income
|
|
$
|
91,129
|
|
|
$
|
91,156
|
|
|
$
|
(27
|
)
|
|
|
|
$
|
48,024
|
|
|
$
|
48,024
|
|
|
$
|
—
|
|
|
Changes in operating assets and liabilities, net
|
|
|
(7,143
|
)
|
|
|
(7,170
|
)
|
|
|
27
|
|
|
|
|
|
2,592
|
|
|
|
2,592
|
|
|
|
—
|
|
|
Net cash provided by operating activities
|
|
|
157,846
|
|
|
|
157,846
|
|
|
|
—
|
|
|
|
|
|
146,426
|
|
|
|
146,426
|
|
|
|
—
|
|
|
Net decrease in cash and cash equivalents
|
|
|
3,181
|
|
|
|
3,181
|
|
|
|
—
|
|
|
|
|
|
1,415
|
|
|
|
1,415
|
|
|
|
—
|
|
|
Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB established
Topic 842, Leases
, by issuing ASU No. 2016-02, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01,
Land Easement Practical Expedient for Transition to Topic 842
; ASU No. 2018-10,
Codification Improvements to Topic 842, Leases
; and ASU No. 2018-11,
Targeted Improvements
. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The new standard is effective for the Company on January 1, 2019, with early adoption permitted. The Company will adopt the new standard on its effective date. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company will adopt the new standard on January 1, 2019 and use the effective date as its date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.
The new standard provides a number of optional practical expedients in transition. The Company intends to elect the ‘package of practical expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to it.
The Company expects that this standard will have a material effect on its consolidated financial statements. While the Company continues to assess all of the effects of adoption, it currently believes the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on its consolidated balance sheet for its real estate operating leases and (2) providing significant new disclosures about its leasing activities. The Company does not expect a significant change in its leasing activities between now and the first financial statements issued with adoption.
On adoption, the Company currently expects to recognize additional operating liabilities of approximately $70 to $80 million, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments for existing operating leases.
47
The new standard also provides practical expedients for an entity’s ongoing accountin
g. The Company currently in
tends
to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilit
ies for existing short-term leases of those assets in transition. Th
e Company also currently intends
to elect the practical expedient to not separate lease and non-lease components for all of its leases other than leases of real estate.
Summary of Accounting Policies
Major accounting policies and practices used in the preparation of the accompanying consolidated financial statements not covered in other notes to the consolidated financial statements are as follows:
Cash and Cash Equivalents and Checks Outstanding:
Cash and cash equivalents in excess of current operating requirements are invested in short-term interest bearing instruments purchased with original maturities of three months or less and are stated at cost, which approximates market. Checks outstanding in excess of cash on deposit are classified in accounts payable on the accompanying consolidated balance sheets and in operating activities in the accompanying consolidated statements of cash flows.
Parts, fuel and operating supplies:
Parts, fuel and operating supplies are carried at average cost and included in other current assets.
Property and Equipment Including Repairs and Maintenance:
Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on the following service lives:
|
|
|
|
Years
|
Structures
|
|
|
|
20 to 25
|
Tractors
|
|
|
|
6 to 10
|
Trailers
|
|
|
|
10 to 14
|
Other revenue equipment
|
|
|
|
7 to 14
|
Technology equipment and software
|
|
|
|
3 to 5
|
Other
|
|
|
|
3 to 10
|
At December 31, property and equipment consisted of the following (in thousands):
|
|
2018
|
|
|
2017
|
|
Land
|
|
$
|
100,157
|
|
|
$
|
81,487
|
|
Structures
|
|
|
321,283
|
|
|
|
268,723
|
|
Tractors
|
|
|
476,875
|
|
|
|
398,652
|
|
Trailers
|
|
|
354,490
|
|
|
|
305,540
|
|
Other revenue equipment
|
|
|
83,571
|
|
|
|
77,691
|
|
Technology equipment and software
|
|
|
110,954
|
|
|
|
93,754
|
|
Other
|
|
|
74,011
|
|
|
|
64,147
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, at cost
|
|
$
|
1,521,341
|
|
|
$
|
1,289,994
|
|
Maintenance and repairs are charged to operations while replacements and improvements that extend the asset’s life are capitalized. The Company’s investment in technology equipment and software consists primarily of systems to support customer service, maintenance and freight management. Depreciation was $100.8 million, $85.7 million and $74.5 million for the years ended December 31, 2018, 2017 and 2016, respectively. Depreciation and amortization expense includes amortization of assets under capital lease. At December 31, 2018, trailers acquired under capital leases had a gross carrying value of $132.5 million and accumulated depreciation of $21.6 million. At December 31, 2017, trailers acquired under capital leases had a gross carrying value of $106.3 million and accumulated depreciation of $13.3 million.
48
Computer Software Developed or Obtained for Internal Use:
The Company capitalizes certain costs associated with developing or obtaining internal-use software. Capitalizable costs include external direct costs of materials and services utilized in developing or obtaining the software and payroll and payroll-re
lated costs for employees directly associated with the development of the project. For the years ended December 31,
2018
,
2017
, and
2016
, the Company capitalized $
1.1
million, $
2.1
million, and $
1.6
million, respectively, of primarily payroll-related costs
.
Claims and Insurance Accruals:
Claims and insurance accruals, both current and long-term, reflect the estimated cost of claims for workers’ compensation (discounted to present value), cargo loss and damage, and bodily injury and property damage not covered by insurance. These costs are included in claims and insurance expense, except for workers’ compensation, which is included in employees’ benefits expense. The liabilities are included in claims and insurance reserves based on estimates of claims incurred. Liabilities for unsettled claims and claims incurred but not yet reported are actuarially determined with respect to workers’ compensation claims and with respect to all other liabilities, estimated based on management’s evaluation of the nature and severity of individual claims and past experience. For workers’ compensation, the amount of the discount at December 31, 2018 and December 31, 2017 was $5.0 million and $3.5 million, respectively.
Risk retention amounts per occurrence during the three years ended December 31, 2018, were as follows:
Workers’ compensation
|
|
|
|
$
|
1,000,000
|
|
Bodily injury and property damage
|
|
|
|
|
2,000,000
|
|
Employee medical and hospitalization
|
|
|
|
|
400,000
|
|
Cargo loss and damage
|
|
|
|
|
250,000
|
|
Effective March 1, 2018, the Company entered into a new auto liability policy with a three-year term. The risk retention amount per occurrence remains at $2.0 million under the new policy. The policy includes a limit for a single loss of $8.0 million, an aggregate loss limit of $24.0 million for each policy year, and a $48.0 million aggregate loss limit for the 36-month term ended March 1, 2021. The policy includes a returnable premium of up to $5.2 million, to be adjusted by the insurer for changes in claims, and a provision to extend the term of the policy for one additional 12-month period, if management and the insurer mutually agree to commute the policy for the first 12 months of the policy term. A decision with respect to commutation of the first 12 months of the policy cannot be made before March 1, 2019. The policy also includes a returnable premium of up to $15.6 million, to be adjusted by the insurer for changes in claims, if management and the insurer mutually agree to commute the policy for the entire 36 months. A decision with respect to commutation of the entire policy cannot be made before August 30, 2021, unless both the Company and the insurance carrier agree to a commutation prior to the end of the policy term. Additionally, the Company may be required to pay an additional premium of up to $11.0 million if paid losses are greater than $15.6 million over the three-year policy period. Based on 2018 claims experience, no such additional premium was accrued at December 31, 2018. As of December 31, 2018, no portion of the policy was eligible for commutation, and insufficient claims experience is available to determine the likelihood of future commutations. As such, no related amounts have been recorded at December 31, 2018.
Income Taxes:
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. As required by FASB Accounting Standards Codification (“ASC”) 740,
Income Taxes
, the Company follows this guidance which defines the threshold for recognizing the benefits of tax-filing positions in the financial statements as “more-likely-than-not” to be sustained by the tax authority. ASC 740 also prescribes a method for computing the tax benefit of such tax positions to be recognized in the financial statements. In addition, it provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
49
Revenue Recognition:
The Company’s revenues are derived primarily from the transportation of freight as it satisfies performance obligations that arise from
contracts with its customers
. The Company’s performance obligations arise when it receives a bill of lading (“BOL”) to
transport a customer's commodities at negotiated prices contained in either a transportation services agreement or a publicly disclosed tariff rate. Once a BOL is received, a legally-enforceable contract is formed whereby the parties are committed to perf
orm and the rights of the parties, shipping terms and conditions, and payment terms have been identified. A customer may submit many BOLs for transportation services at various times throughout a service agreement term but each shipment represents a distin
ct service that is a separately identified performance obligation.
The average transit time to complete a shipment is between 1 to 5 days. Payments for transportation services are normally billed after completion of the service and are generally due within 30 days after the invoice date. The Company recognizes revenue related to the Company’s LTL, non-asset truckload and expedited services over the transit time of the shipment as it moves from origin to destination. Revenue for services started but not completed at the reporting date is allocated based on the relative transit time in each reporting period, with the portion allocated for services subsequent to the reporting date considered remaining performance obligations.
Key estimates included in the recognition and measurement of revenue and related accounts receivable are as follows:
|
•
|
Revenue associated with shipments in transit is recognized ratably over transit time and is based on average cycle times to move shipments from their origin to their final destination or interchange; and
|
|
•
|
Adjustments to revenue for billing adjustments and collectability.
|
Revenue related to interline transportation services that involve the services of another party, such as another LTL service provider, is reported on a net basis. The portion of the gross amount billed to customers that is remitted by the Company to another party is not reflected as revenue. Revenue from logistics services is recognized as the services are provided.
Remaining performance obligations represent the transaction price allocated to future reporting periods for freight services started but not completed at the reporting date. This includes the unearned portion of billed and unbilled amounts for cancellable freight shipments in transit that the Company expects to recognize as revenue in the period subsequent to the reporting date, which is on average less than one week. The Company has elected to apply the optional exemption in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) 606 as it pertains to additional quantitative disclosures pertaining to remaining performance obligations.
Stock-Based Compensation:
The Company accounts for its employee stock-based compensation awards in accordance with ASC 718,
Compensation-Stock Compensation
. ASC 718 requires that all employee stock-based compensation is recognized as an expense in the financial statements and that for equity-classified awards such expenses are measured at the grant date fair value of the award.
Stock options are accounted for in accordance with ASC 718 with the expense amortized over the three-year vesting period using a Black-Scholes-Merton model to estimate the fair value of stock options granted to employees.
Restricted stock is accounted for in accordance with ASC 718 with the expense amortized over a three to five year vesting period using the intrinsic valuation method to estimate the fair value of restricted stock awards granted to employees.
Stock-based Performance Unit Awards are accounted for in accordance with ASC 718 with the expense amortized over the three-year vesting period using a Monte Carlo model to estimate fair value at the date the awards are granted.
50
Credit Risk:
The Company routinely grants credit to its
customers. The risk of significant loss in trade receivables is substantially mitigated by the Company’s credit evaluation process, short collection terms, low revenue per transaction and services performed for a large number of customers with no single cu
stomer representing more than 5.0 percent of consolidated operating revenue. Allowances for potential credit losses are based on historical loss experience, current economic environment, expected trends and customer specific factors.
Impairment of Long-Lived Assets:
As required by ASC 360,
Property, Plant, and Equipment
, long-lived assets, such as property, plant and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as deemed necessary.
The Company has adopted ASU 2011-08,
Testing Goodwill for Impairment
. In accordance with ASC 350,
Intangibles – Goodwill and Other
, the Company first performs a qualitative assessment to determine whether it is necessary to perform the two-step goodwill impairment test required by the standard. The Company is not required to estimate the fair value of a reporting unit unless the Company determines, based on qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.
Advertising:
The costs of advertising are expensed as incurred. Advertising costs charged to expense were $3.9 million, $2.2 million, and $1.2 million in 2018, 2017 and 2016, respectively.
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 December 31, 2018 and 2017, because of the relatively short maturity of these instruments. See Note 2 for fair value disclosures related to long-term debt.
2. Debt and Financing Arrangements
At December 31, debt consisted of the following (in thousands):
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Credit Agreement with Banks, described below
|
|
$
|
20,000
|
|
|
$
|
43,000
|
|
Capital Leases, described below
|
|
|
102,859
|
|
|
|
89,916
|
|
Total debt
|
|
|
122,859
|
|
|
|
132,916
|
|
Less: current portion of long-term debt
|
|
|
18,082
|
|
|
|
14,083
|
|
Long-term debt, less current portion
|
|
$
|
104,777
|
|
|
$
|
118,833
|
|
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 Existing 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.
51
Credit Agreement
The Existing Credit Agreement is a revolving credit facility for up to $250 million expiring in March 2020. The Existing Credit Agreement also has an accordion feature that allows for an additional $75 million in availability, subject to bank approval. The Existing 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 Existing Credit Agreement, the Company must maintain certain financial covenants including a minimum fixed charge coverage ratio and a maximum leverage ratio. The Existing 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.
At December 31, 2018, the Company had borrowings of $20.0 million and outstanding letters of credit of $27.7 million under the Existing Credit Agreement. At December 31, 2017, the Company had $43.0 million of outstanding borrowings and outstanding letters of credit of $33.9 million under the Existing Credit Agreement. The available portion of the Existing Credit Agreement may be used for general corporate purposes, including capital expenditures, working capital and letter of credit requirements as needed.
On February 5, 2019, the Company entered into the Sixth Amended and Restated Credit Agreement with its banking group (as amended, the Amended Credit Agreement). The amendment increased the amount of the revolver from $250 million to $300 million and extended the term until February 2024. The Amended Credit Agreement also has an accordion feature that allows for an additional $100 million availability, subject to bank approval. The amendment reduced the interest rate pricing grid. The Amended Credit Agreement provides for a
LIBOR rate margin range from 100 basis points to 200 basis points, base rate margins from minus 50 basis points to plus 50 basis points, an unused portion fee from 17.5 basis points to 30 basis points and letter of credit fees from 100 basis points to 200 basis points in each case based on the Company’s leverage ratio. Under the Amended Credit Agreement, the Company must maintain a minimum debt service coverage ratio set at 1.25 to 1.00 and a maximum leverage ratio set at 3.25 to 1.00. The Amended Credit Agreement provides for a pledge by the Company of certain land and structures, accounts receivable and other assets to secure indebtedness under this agreement. The Amended Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants and provisions relating to events of default. Under the Amended Credit Agreement, if an event of default occurs, the banks will be entitled to take various actions, including the acceleration of amounts due.
Capital Leases
The Company is obligated under capital leases with seven year terms which include obligations covering revenue equipment totaling $102.9 million and $89.9 million as of December 31, 2018 and 2017, 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 December 31, 2018 and 2017 is 3.41% and 3.07%, respectively.
Other
The Company paid cash for interest of $5.2 million, $4.8 million, and $4.1 million for the years ended December 31, 2018, 2017 and 2016, respectively.
The estimated fair value of total debt at December 31, 2018 and 2017 is $122.0 million and $132.3 million, respectively. The carrying amount of debt related to the revolving credit facility approximated fair value as of December 31, 2018 and 2017 due to the existence of variable interest rates, which approximate market rates. The fair value of the capital leases is based on current market interest rates for similar types of financial instruments which reflect Level 2 inputs.
52
Principal Maturities of Long-Term Debt
The principal maturities of long-term debt, including interest on capital leases, for the next five years (in thousands) are as follows:
|
|
Amount
|
|
2019
|
|
$
|
21,311
|
|
2020
|
|
|
41,311
|
|
2021
|
|
|
21,837
|
|
2022
|
|
|
19,947
|
|
2023
|
|
|
14,522
|
|
Thereafter
|
|
|
14,356
|
|
Total
|
|
|
133,284
|
|
Less: Amounts Representing Interest on Capital Leases
|
|
|
10,425
|
|
Total
|
|
$
|
122,859
|
|
3. Commitments, Contingencies and Uncertainties
The Company leases certain service facilities and equipment. Rent expense was $23.2 million, $21.1 million, and $18.1 million for the years ended December 31, 2018, 2017 and 2016, respectively.
At December 31, 2018, the Company was committed under non-cancellable operating lease agreements requiring minimum annual rentals payable as follows (in thousands):
|
|
Amount
|
|
2019
|
|
$
|
21,285
|
|
2020
|
|
|
16,978
|
|
2021
|
|
|
14,159
|
|
2022
|
|
|
11,482
|
|
2023
|
|
|
8,215
|
|
Thereafter
|
|
|
22,531
|
|
Total
|
|
$
|
94,650
|
|
Management expects that in the normal course of business, leases will be renewed or replaced as they expire.
Capital expenditures committed were $25.6 million at December 31, 2018. As of December 31, 2018 and 2017, the Company had $22.0 million and $11.2 million, respectively, of capital expenditures in accounts payable.
Other.
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 December 31, 2018 and 2017.
The Company is subject to legal proceedings that arise in the ordinary course of its business. Management believes that adequate provisions for 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 its results of operations in a given quarter or annual period.
53
4. Goodwill and Other
Intangible Assets
The changes in gross carrying amounts of goodwill are as follows (in thousands):
|
|
|
|
|
|
|
|
Goodwill
|
|
December 31, 2016
|
|
|
|
|
|
|
|
$
|
12,105
|
|
Goodwill acquired
|
|
|
|
|
|
|
|
|
—
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
12,105
|
|
Goodwill acquired
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
$
|
12,105
|
|
The Company assesses goodwill for impairment on an annual basis in the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired.
The Company reviews other intangible assets, including customer relationships and non-compete agreements, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of long-lived assets is measured by a comparison of the carrying amount of the asset group to the future undiscounted net cash flows expected to be generated by those assets. If such assets are considered to be impaired, the impairment charge recognized is the amount by which the carrying amounts of the assets exceeds the fair value of the assets.
The gross amounts and accumulated amortization of identifiable intangible assets are as follows (in thousands):
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Gross Amount
|
|
|
Accumulated Amortization
|
|
|
Gross Amount
|
|
|
Accumulated Amortization
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships (useful life of 6-15 years)
|
|
$
|
19,000
|
|
|
$
|
9,566
|
|
|
$
|
19,000
|
|
|
$
|
8,502
|
|
Covenants not-to-compete (useful life of 4-6 years)
|
|
|
4,425
|
|
|
|
4,408
|
|
|
|
4,425
|
|
|
|
4,209
|
|
Trademarks (useful life of 15 years)
|
|
|
1,500
|
|
|
|
392
|
|
|
|
1,500
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,925
|
|
|
$
|
14,366
|
|
|
$
|
24,925
|
|
|
$
|
13,003
|
|
Amortization expense for intangible assets was $1.4 million, $1.4 million and $1.7 million for 2018, 2017 and 2016, respectively. Estimated amortization expense for the five succeeding years follows (in thousands):
|
|
|
|
|
|
|
|
Amount
|
|
2019
|
|
|
|
|
|
|
|
$
|
1,180
|
|
2020
|
|
|
|
|
|
|
|
|
1,163
|
|
2021
|
|
|
|
|
|
|
|
|
1,163
|
|
2022
|
|
|
|
|
|
|
|
|
1,008
|
|
2023
|
|
|
|
|
|
|
|
|
853
|
|
54
5. Computation of Earnings Per Share
The calculation of basic earnings per common share and diluted earnings per common share is as follows (in thousands except per share amounts):
|
|
For The Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
104,981
|
|
|
$
|
91,129
|
|
|
$
|
48,024
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share–weighted
average common shares
|
|
|
25,762
|
|
|
|
25,518
|
|
|
|
25,038
|
|
Effect of dilutive stock options and restricted stock
|
|
|
160
|
|
|
|
142
|
|
|
|
51
|
|
Effect of other common stock equivalents
|
|
|
369
|
|
|
|
426
|
|
|
|
591
|
|
Denominator for diluted earnings per share–adjusted
weighted average common shares
|
|
|
26,291
|
|
|
|
26,086
|
|
|
|
25,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
|
$
|
4.08
|
|
|
$
|
3.57
|
|
|
$
|
1.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
$
|
3.99
|
|
|
$
|
3.49
|
|
|
$
|
1.87
|
|
In 2018 and 2017, options and restricted stock for 45,150 and 61,364 shares of common stock, respectively, were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive.
6. Stockholders’ Equity
Deferred Compensation Trust
The Saia Executive Capital Accumulation Plan (the Capital Accumulation Plan) allows plan participants to make an irrevocable election to invest in the Company’s common stock. Upon distribution, the funds invested in the Company’s common stock will be paid out in Company stock rather than cash.
The following table summarizes the shares of the Company’s common stock that were purchased and sold by the Company’s Rabbi Trust, which holds the investments for the Capital Accumulation Plan:
|
|
For The Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Shares of common stock purchased
|
|
|
10,390
|
|
|
|
8,220
|
|
|
|
11,530
|
|
Aggregate purchase price of shares purchased
|
|
$
|
700,234
|
|
|
$
|
390,542
|
|
|
$
|
291,349
|
|
Shares of common stock sold
|
|
|
37,086
|
|
|
|
4,717
|
|
|
|
10,694
|
|
Aggregate sale price of shares sold
|
|
$
|
2,777,630
|
|
|
$
|
271,417
|
|
|
$
|
322,928
|
|
Since the Capital Accumulation Plan provides for the obligation to be settled only in Company stock, the deferred compensation obligation is classified as an equity instrument with no adjustments to operating results based on changes in fair value.
Directors’ Deferred Compensation
Under the Company’s Directors’ Deferred Fee Plan, non-employee directors may defer all or a portion of their annual fees and retainers which are otherwise payable. Such deferrals are converted into units equivalent to the value of the Company’s stock. Upon the director’s termination, death or disability, accumulated deferrals are distributed in the form of Company common stock. The Company has 240,000 and 228,423 shares reserved for issuance under the Directors’ Deferred Fee Plan at December 31, 2018 and 2017, respectively. The shares reserved for issuance under the Directors’ Deferred Fee Plan are treated as common stock in computing basic earnings per share.
55
7. Stock-Based Compensation
Prior to the adoption of FASB ASU 2016-09 in 2017, ASC 718 required the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow. This requirement reduced net operating cash flows and increased net financing cash flows for 2016. For the year ended December 31, 2016, the associated cash flows from financing activities were $0.5 million. For the years ended December 31, 2018 and 2017, the associated cash flows from operating activities were $0.6 million, and $1.7 million, respectively.
The stockholders of the Company approved the 2018 Omnibus Incentive Plan (the 2018 Omnibus Plan), the Second Amended and Restated 2011 Omnibus Incentive Plan (the 2011 Omnibus Plan) and Amended and Restated 2003 Omnibus Incentive Plan (the 2003 Omnibus Plan) to allow the Company to issue equity based compensation to help attract and retain executive, managerial, supervisory or professional employees and non-employee directors. The 2018 Omnibus Plan has 1,100,000 shares of common stock reserved. The 2011 Omnibus Plan had a total of 2,350,000 shares of common stock reserved. Following stockholder approval of the 2018 Omnibus Plan, no additional awards have been made under the 2011 Omnibus Plan. The Company had reserved 1,236,000 shares of its common stock under the 2003 Omnibus Plan. Following stockholder approval of the 2011 Omnibus Plan, no additional grants have been made under the 2003 Omnibus Plan.
The 2018 Omnibus Plan, the 2011 Omnibus Plan and the 2003 Omnibus Plan provide for the grant or award of stock options; stock appreciation rights; restricted and unrestricted stock; restricted stock units; and Performance Unit Awards. Stock option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant; stock option awards granted to employees under the plans to date are non-qualified stock options, have cliff vesting at the end of three years of continuous service, subject to earlier vesting upon a change of control and certain other events, and have a seven-year contractual term. There are no outstanding stock options held by non-employee directors, and no stock options have been granted to non-employee directors under the 2018 Omnibus Plan or the 2011 Omnibus Plan.
The 2011 Omnibus Plan provided for an annual grant to each non-employee director of no more than 12,000 shares with the exact number of shares granted each year determined by the Compensation Committee of the Board. These share awards vest over three years subject to acceleration of vesting upon leaving the Board (other than for cause) or a change in control. Shares issued to each non-employee director under this provision were 1,363, 1,942, and 3,279 for the years ended December 31, 2018, 2017 and 2016, respectively. Non-employee directors were also issued in lieu of cash compensation in the aggregate 11,577, 15,152 and 23,734 units equivalent to shares in the Company’s common stock under the Directors’ Deferred Fee Plan during the years ended December 31, 2018, 2017 and 2016, respectively.
At December 31, 2018 and 2017, no shares remain reserved and unissued under the provisions of the 2003 Omnibus Plan. At December 31, 2018 and 2017, 637,695 and 756,218 shares, respectively, remain reserved and unissued under the provisions of the 2011 Omnibus Plan, a portion of which are allocated to outstanding Performance Unit Awards, outstanding stock options and restricted stock described below. At December 31, 2018, 1,100,000 shares remain reserved and unissued under the provisions of the 2018 Omnibus Plan. The Company has historically issued new shares to satisfy stock option exercises or other awards issued under the 2018 Omnibus Plan, 2011 Omnibus Plan and 2003 Omnibus Plan.
The years ended December 31, 2018, 2017 and 2016 had stock option and restricted stock compensation expense of $2.1 million, $2.3 million and $2.0 million, respectively, included in salaries, wages and employees’ benefits. The Company recognized a tax benefit consistent with the appropriate tax rates for each of the respective periods. As of December 31, 2018, there is unrecognized compensation expense of $2.8 million related to unvested stock options and restricted stock, which is expected to be recognized over a weighted average period of 1.9 years.
56
The following t
able summarizes stock option activity
for the year ended December 31,
2018
for employ
ees:
|
|
Options
|
|
|
Weighted Average Exercise price
|
|
|
Weighted Average Remaining Contractual Life
(years)
|
|
|
Aggregate Intrinsic Value
(000’s)
|
|
Outstanding at December 31, 2017
|
|
|
335,000
|
|
|
$
|
34.75
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
46,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(105,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(9,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
266,310
|
|
|
$
|
38.93
|
|
|
|
4.6
|
|
|
$
|
5,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2018
|
|
|
8,830
|
|
|
$
|
43.01
|
|
|
|
3.1
|
|
|
$
|
113
|
|
The total intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $3.5 million, $3.5 million, and $2.5 million, respectively. The weighted-average grant-date fair value per share of options granted during the years ended December 31, 2018, 2017 and 2016 was $23.74, $15.49, and $9.99, respectively. The weighted-average grant-date fair value per share of options vested during the years ended December 31, 2018, 2017 and 2016 was $15.41, $12.26, and $12.95, respectively.
The following table summarizes the weighted average assumptions used in valuing options for the years ended December 31, 2018, 2017 and 2016:
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Risk free interest rate
|
|
|
|
|
2.24
|
%
|
|
|
1.89
|
%
|
|
|
1.63
|
%
|
Expected life in years
|
|
|
|
|
4.2
|
|
|
|
4.5
|
|
|
|
4.5
|
|
Expected volatility
|
|
|
|
|
36.31
|
%
|
|
|
36.90
|
%
|
|
|
41.42
|
%
|
Dividend rate
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at the time of grant. The expected life of the options represents the period of time that options granted are expected to be outstanding. Expected volatilities are based on historical volatility of the Company’s stock.
The following table summarizes the status of the Company’s unvested options as of December 31, 2018 and changes during the year ended December 31, 2018:
|
|
|
|
|
|
Options
|
|
|
Weighted Average Grant-date Fair Value
|
|
Unvested at December 31, 2017
|
|
|
|
|
|
|
309,720
|
|
|
$
|
12.38
|
|
Granted
|
|
|
|
|
|
|
46,500
|
|
|
|
23.74
|
|
Vested
|
|
|
|
|
|
|
(89,410
|
)
|
|
|
15.41
|
|
Forfeited
|
|
|
|
|
|
|
(9,330
|
)
|
|
|
13.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2018
|
|
|
|
|
|
|
257,480
|
|
|
$
|
13.36
|
|
The Company granted shares of restricted stock to certain key executives in February 2013, September 2014, May 2015, February 2016 and August 2017. All of these shares of restricted stock awards vest 25% after three years, 25% after four years and the remaining 50% after five years assuming the executive has been in continuous service to the Company since the award date, subject to earlier vesting upon a change in control. Commencing in 2017, the Company began granting shares of restricted stock as part of its long-term incentive plan. These shares of restricted stock cliff vest in three years, subject to earlier vesting upon a change in control. The value of restricted stock is based on the fair market value of the Company’s common stock at the date of grant.
57
The following table summarizes restricted stock activity during the year ended December 31,
2018
:
|
|
|
|
|
|
Shares
|
|
|
Weighted Average Grant-date Fair Value
|
|
Restricted Stock at December 31, 2017
|
|
|
|
|
|
|
57,857
|
|
|
$
|
42.10
|
|
Granted
|
|
|
|
|
|
|
16,562
|
|
|
|
73.35
|
|
Vested
|
|
|
|
|
|
|
(2,896
|
)
|
|
|
47.46
|
|
Forfeited
|
|
|
|
|
|
|
(1,162
|
)
|
|
|
57.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock at December 31, 2018
|
|
|
|
|
|
|
70,361
|
|
|
$
|
48.98
|
|
Performance Unit Awards
Under the 2011 Omnibus Plan, the Compensation Committee of the Board of Directors approved Performance Unit Awards to a group of less than 20 management and executive employees.
The criteria for payout of the awards is based on a comparison over the three-year performance period of these awards of the total shareholder return (TSR) of the Company’s common stock compared to the TSR of the companies in the peer group established by the Compensation Committee. The stock-based awards are accounted for in accordance with ASC 718 with the expense amortized over the three-year vesting period based on the fair value using the Monte Carlo method at the date the awards are granted. Operating results include expense for the Performance Unit Awards of $2.4 million in 2018, $1.9 million in 2017 and $1.6 million in 2016. Shares earned under the Performance Unit Awards are issued in the first quarter of the year following the end of the performance period. There was an issuance of 128,240 shares for the January 2016 - December 2018 performance period in February 2019, 49,188 shares for the January 2015 - December 2017 performance period in February 2018, and 30,893 shares for the January 2014 - December 2016 performance period in February 2017. The issuance of shares related to these awards would range from zero to a maximum of 128,240 shares per year as of December 31, 2018.
8. Employee Benefits
Defined Contribution Plans
The Company sponsors defined contribution plans. The plans principally consist of contributory 401(k) savings plans and noncontributory profit sharing plans. The Company’s contributions to the 401(k) savings plans consist of a matching percentage. The Company match has historically been 50 percent of the first six percent of an eligible employee’s contributions. The Company’s total contributions to the 401(k) savings plans included in continuing operations for the years ended December 31, 2018, 2017 and 2016, were $9.9 million, $8.3 million, and $7.1 million, respectively.
Deferred Compensation Plan
The Capital Accumulation Plan is a nonqualified deferred compensation plan for Saia executives. The Capital Accumulation Plan allows for the plan participants to invest in the Company’s common stock. Elections to invest in the Company’s common stock are irrevocable and upon distribution, the funds invested in the Company’s common stock will be paid out in Company common stock rather than cash. At December 31, 2018 and 2017, the Company’s Rabbi Trust, which holds the investments for the Capital Accumulation Plan, held 143,614 and 170,310 shares of the Company’s common stock, respectively, all of which were purchased on the open market. The shares held by the Capital Accumulation Plan are treated similar to treasury shares and deducted from basic shares outstanding for purposes of calculating basic earnings per share. However, because the distributions are required to be made in Company stock, these shares are added back to basic shares outstanding for the purposes of calculating diluted earnings per share.
58
Annual Incentive Awards
The Company provides annual cash performance incentive awards to certain salaried employees which are based primarily on actual operating results achieved for the year, compared to targeted operating results. Operating results include performance incentives of $19.9 million, $12.2 million, and $5.1 million in 2018, 2017 and 2016, respectively. Cash performance incentive awards for a year are primarily paid in the first quarter of the following year.
Employee Stock Purchase Plan
In January 2003, the Company adopted the Employee Stock Purchase Plan of Saia, Inc. (ESPP) allowing all eligible employees to purchase common stock of the Company at current market prices through payroll deductions of up to 10 percent of annual wages. In 2015, the Company amended the ESPP to allow highly compensated employees as defined by Section 401(a)(17) of the Internal Revenue Code to make payroll deductions of up to 20 percent of annual wages. The custodian uses the funds to purchase the Company’s common stock at current market prices. The custodian purchased 6,840, 8,063, and 20,532 shares in the open market during 2018, 2017 and 2016, respectively.
9. Income Taxes
The Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent, allows for immediate deductibility of certain qualified depreciable assets, other changes in the deductibility of items and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.
The Company recognized a tax benefit amount of $34 million to reflect the estimated impact of the Act, which is included as a component of income tax expense in 2017. No material changes to this estimate were recognized in 2018. The 2017 tax benefit is the result of remeasuring certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, generally 21 percent.
Other
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax liabilities (assets) are comprised of the following at December 31 (in thousands):
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Depreciation
|
|
|
|
|
$
|
115,775
|
|
|
|
$
|
86,506
|
|
Other
|
|
|
|
|
|
2,977
|
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
|
|
|
118,752
|
|
|
|
|
86,599
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
(995
|
)
|
|
|
|
(988
|
)
|
Equity-based compensation
|
|
|
|
|
|
(3,444
|
)
|
|
|
|
(2,607
|
)
|
Employee benefits
|
|
|
|
|
|
(6,139
|
)
|
|
|
|
(5,458
|
)
|
Claims and insurance
|
|
|
|
|
|
(17,176
|
)
|
|
|
|
(16,929
|
)
|
Other
|
|
|
|
|
|
(4,105
|
)
|
|
|
|
(1,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
|
|
|
(31,859
|
)
|
|
|
|
(27,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
|
|
|
$
|
86,893
|
|
|
|
$
|
59,423
|
|
The Company has determined that a valuation allowance was not necessary at December 31, 2018 or 2017 for substantially all deferred tax assets since it is more likely than not they will be realized from future reversals of temporary differences or future taxable income.
59
The income tax provision (benefit) for continuing operations consists of the following (in thousands):
|
|
2018
|
|
|
|
2017
|
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
1,650
|
|
|
|
$
|
17,637
|
|
|
|
$
|
12,127
|
|
State
|
|
|
1,732
|
|
|
|
|
1,761
|
|
|
|
|
1,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision
|
|
|
3,382
|
|
|
|
|
19,398
|
|
|
|
|
14,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
27,114
|
|
|
|
|
(21,221
|
)
|
|
|
|
12,599
|
|
State
|
|
|
356
|
|
|
|
|
445
|
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax provision
|
|
|
27,470
|
|
|
|
|
(20,776
|
)
|
|
|
|
12,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
30,852
|
|
|
|
$
|
(1,378
|
)
|
|
|
$
|
26,895
|
|
A reconciliation between income taxes at the federal statutory rate (21 or 35 percent) and the effective income tax provision is as follows (in thousands):
|
|
2018
|
|
|
|
2017
|
|
|
|
2016
|
|
Provision at federal statutory rate
|
|
$
|
28,525
|
|
|
|
$
|
31,422
|
|
|
|
$
|
26,222
|
|
State income taxes, net
|
|
|
4,468
|
|
|
|
|
2,545
|
|
|
|
|
2,418
|
|
Tax Cuts and Jobs Act benefit
|
|
|
—
|
|
|
|
|
(33,910
|
)
|
|
|
|
—
|
|
Nondeductible business expenses (benefits)
|
|
|
(49
|
)
|
|
|
|
(913
|
)
|
|
|
|
462
|
|
Tax credits
|
|
|
(1,659
|
)
|
|
|
|
(190
|
)
|
|
|
|
(1,278
|
)
|
Other, net
|
|
|
(433
|
)
|
|
|
|
(332
|
)
|
|
|
|
(929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
30,852
|
|
|
|
$
|
(1,378
|
)
|
|
|
$
|
26,895
|
|
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. For the U.S. federal jurisdiction, tax years 2015 - 2018 remain open to examination. The expiration of the statute of limitations related to the various state income tax returns that the Company files varies by state. In general, tax years 2009-2018 remain open to examination by the various state and local jurisdictions. However, a state could challenge certain tax positions back to the 2005 tax year.
A reconciliation of the beginning and ending total amounts of gross unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Gross unrecognized tax benefits at beginning of year
|
|
|
|
|
$
|
1,093
|
|
|
|
$
|
1,280
|
|
Gross decreases in tax positions for prior years
|
|
|
|
|
|
(341
|
)
|
|
|
|
(7
|
)
|
Gross increases in tax positions for current year
|
|
|
|
|
|
319
|
|
|
|
|
171
|
|
Settlements
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Lapse of statute of limitations
|
|
|
|
|
|
(202
|
)
|
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits at end of year
|
|
|
|
|
$
|
869
|
|
|
|
$
|
1,093
|
|
The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. During the years ended December 31, 2018 and 2017, the Company did not record any interest related to unrecognized tax benefits. During the year ended December 31, 2016, the Company recorded interest related to unrecognized tax benefits of approximately $0.1 million. The Company had approximately $0.1 million and $0.1 million of accrued interest and penalties at December 31, 2018 and 2017, respectively. The total amount of unrecognized tax benefits, which is recorded within claims, insurance and other liabilities on the consolidated balance sheets, that would affect the Company’s effective tax rate if recognized is $0.9 million and $1.1 million as of December 31, 2018 and 2017, respectively. The Company paid cash for income taxes of $1.9 million, $17.0 million, and $5.4 million in 2018, 2017 and 2016, respectively.
60
The
Company does not anticipate total unrecognized tax benefits will significantly change during the next twelve months due to the settlements of audits and the expiration of statutes of limitations.
In 2017, the Company recognized a $34 million benefit related to the impact of the Act described above and a $1.7 million benefit related to excess tax benefits from stock activity recognized as a result of the Company’s adoption of ASU 2016-09 effective January 1, 2017.
As a result of legislation enacted in the fourth quarter of 2015, the Company recognized tax credits for alternative fuel usage of approximately $1.0 million in 2016.
In February 2018, US federal tax law changes were enacted that reinstated the tax credits for alternative fuel usage for 2017. The Company recognized the tax credits of approximately $1.0 million in 2018.
10. Summary of Quarterly Operating Results (unaudited)
(Amounts in thousands, except per share data)
Three months ended, 2018
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
Operating revenue
|
|
$
|
392,805
|
|
|
$
|
428,732
|
|
|
$
|
425,562
|
|
|
$
|
406,750
|
|
Operating income
|
|
|
27,579
|
|
|
|
41,565
|
|
|
|
38,697
|
|
|
|
33,336
|
|
Net income
|
|
|
21,125
|
|
|
|
30,281
|
|
|
|
28,195
|
|
|
|
25,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.82
|
|
|
$
|
1.18
|
|
|
$
|
1.09
|
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.80
|
|
|
$
|
1.15
|
|
|
$
|
1.07
|
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended, 2017
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
Operating revenue
|
|
$
|
323,090
|
|
|
$
|
364,404
|
|
|
$
|
357,010
|
|
|
$
|
360,196
|
|
Operating income
|
|
|
17,527
|
|
|
|
29,686
|
|
|
|
24,568
|
|
|
|
22,928
|
|
Net income
|
|
|
11,395
|
|
|
|
17,571
|
|
|
|
14,373
|
|
|
|
47,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.45
|
|
|
$
|
0.69
|
|
|
$
|
0.56
|
|
|
$
|
1.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.44
|
|
|
$
|
0.68
|
|
|
$
|
0.55
|
|
|
$
|
1.82
|
|
11. Valuation and Qualifying Accounts
For the Years Ended December 31, 2018, 2017 and 2016
(in thousands)
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
Charged to costs and expenses
|
|
|
Charged to other accounts
|
|
|
Deductions(1)
|
|
|
Balance, end of period
|
|
Year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset account – Allowance for uncollectible accounts
|
|
$
|
3,991
|
|
|
$
|
1,978
|
|
|
$
|
—
|
|
|
$
|
(1,941
|
)
|
|
$
|
4,028
|
|
Year ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset account – Allowance for uncollectible accounts
|
|
|
3,222
|
|
|
|
2,634
|
|
|
|
—
|
|
|
|
(1,865
|
)
|
|
|
3,991
|
|
Year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset account – Allowance for uncollectible accounts
|
|
|
3,451
|
|
|
|
1,475
|
|
|
|
—
|
|
|
|
(1,704
|
)
|
|
|
3,222
|
|
(1)
|
Primarily uncollectible accounts written off — net of recoveries.
|
61