e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTER ENDED SEPTEMBER 30, 2006
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM to
Commission file number: 0-49983
SAIA, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State of incorporation)
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48-1229851
(I.R.S. Employer
Identification No.) |
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11465 Johns Creek Parkway, Suite 400
Duluth, GA
(Address of principal
executive offices)
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30097
(Zip Code) |
(770) 232-5067
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate
by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes
þ No
o
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act.) Yes o No o
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Common Stock
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Outstanding Shares at October 26, 2006 |
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Common Stock, par value $.001 per share
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14,761,072 |
SAIA, INC.
(formerly SCS Transportation, Inc.)
INDEX
2
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Saia, Inc.
(formerly SCS Transportation, Inc. and Subsidiaries)
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
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September 30, |
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December 31, |
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2006 |
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2005 |
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Assets |
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Current Assets: |
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Cash and cash equivalents |
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$ |
47,816 |
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$ |
16,865 |
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Accounts receivable |
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95,002 |
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85,074 |
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Prepaid expenses and other |
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27,409 |
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22,233 |
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Current assets of discontinued operations |
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4,606 |
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50,073 |
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Total current assets |
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174,833 |
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174,245 |
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Property and Equipment, at cost |
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483,137 |
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427,019 |
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Less-accumulated depreciation |
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197,097 |
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180,385 |
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Net property and equipment |
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286,040 |
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246,634 |
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Goodwill, net |
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30,530 |
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30,530 |
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Other Intangibles, net |
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1,214 |
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1,664 |
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Other Noncurrent Assets |
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969 |
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1,225 |
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Long-term Assets of Discontinued Operations, net |
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100,443 |
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Total assets |
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$ |
493,586 |
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$ |
554,741 |
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Liabilities and Shareholders Equity |
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Current Liabilities: |
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Accounts payable and checks outstanding |
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$ |
37,602 |
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$ |
43,487 |
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Wages, vacations and employees benefits |
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44,211 |
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37,915 |
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Other current liabilities |
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36,134 |
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26,797 |
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Current portion of long-term debt |
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8,856 |
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5,000 |
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Current liabilities of discontinued operations |
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225 |
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23,388 |
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Total current liabilities |
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127,028 |
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136,587 |
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Other Liabilities: |
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Long-term debt |
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103,610 |
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109,913 |
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Deferred income taxes |
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42,366 |
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40,949 |
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Claims, insurance and other |
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13,670 |
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14,041 |
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Long-term liabilities of discontinued operations |
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24,859 |
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Total other liabilities |
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159,646 |
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189,762 |
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Commitments and Contingencies |
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Shareholders Equity: |
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Preferred stock, $0.001 par value, 50,000 shares authorized,
none issued and outstanding |
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Common stock, $0.001 par value, 50,000,000 shares authorized,
14,761,072 and 14,480,438 shares issued and outstanding at
September 30, 2006 and December 31, 2005, respectively |
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15 |
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14 |
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Additional paid-in-capital |
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199,084 |
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194,398 |
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Deferred compensation trust, 96,237 and 87,597 shares of
common stock at cost at September 30, 2006 and
December 31, 2005, respectively |
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(1,607 |
) |
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(1,322 |
) |
Retained earnings |
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9,420 |
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35,302 |
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Total shareholders equity |
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206,912 |
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228,392 |
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Total liabilities and shareholders equity |
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$ |
493,586 |
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$ |
554,741 |
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See accompanying notes to condensed consolidated financial statements.
3
Saia, Inc.
(formerly SCS Transportation, Inc. and Subsidiaries)
Condensed Consolidated Statements of Operations
For the quarter and nine months ended September 30, 2006 and 2005
(in thousands, except per share data)
(unaudited)
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Third Quarter |
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Nine Months |
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2006 |
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2005 |
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2006 |
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2005 |
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Operating Revenue |
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$ |
226,118 |
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$ |
198,811 |
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$ |
655,577 |
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$ |
551,600 |
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Operating Expenses: |
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Salaries, wages and employees benefits |
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122,421 |
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107,993 |
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352,988 |
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303,544 |
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Purchased transportation |
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18,461 |
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17,206 |
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53,569 |
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43,940 |
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Fuel, operating expenses and supplies |
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48,997 |
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41,315 |
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142,660 |
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111,695 |
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Operating taxes and licenses |
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6,860 |
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6,527 |
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21,512 |
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19,259 |
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Claims and insurance |
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7,652 |
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5,730 |
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20,751 |
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19,964 |
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Depreciation and amortization |
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8,260 |
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7,469 |
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23,689 |
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21,524 |
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Operating (gains) and losses |
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(857 |
) |
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(89 |
) |
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(1,181 |
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(525 |
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Restructuring charges, net |
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369 |
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2,049 |
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Total operating expenses |
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212,163 |
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186,151 |
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616,037 |
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519,401 |
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Operating Income |
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13,955 |
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12,660 |
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39,540 |
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32,199 |
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Nonoperating Expenses: |
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Interest expense |
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2,241 |
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2,389 |
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7,142 |
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7,239 |
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Other, net |
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(569 |
) |
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(104 |
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(782 |
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(51 |
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Nonoperating expenses, net |
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1,672 |
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2,285 |
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6,360 |
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7,188 |
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Income Before Income Taxes |
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12,283 |
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10,375 |
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33,180 |
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25,011 |
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Income Tax Provision |
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4,602 |
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4,047 |
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12,616 |
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9,958 |
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Income from Continuing Operations |
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7,681 |
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6,328 |
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20,564 |
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15,053 |
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Income (Loss) from Discontinued Operations |
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2 |
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655 |
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(46,447 |
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1,691 |
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Net Income (Loss) |
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$ |
7,683 |
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$ |
6,983 |
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$ |
(25,883 |
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$ |
16,744 |
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Average common shares outstanding basic |
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14,612 |
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14,499 |
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14,557 |
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14,815 |
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Average common shares outstanding diluted |
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14,906 |
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14,828 |
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14,874 |
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15,158 |
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Basic Earnings Per Share-Continuing Operations |
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$ |
0.53 |
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$ |
0.44 |
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$ |
1.41 |
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$ |
1.02 |
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Diluted Earnings Per Share-Continuing Operations |
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$ |
0.52 |
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$ |
0.43 |
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$ |
1.38 |
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$ |
0.99 |
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Basic Earnings (Loss) Per Share-Discontinued Operations |
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$ |
0.04 |
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$ |
(3.19 |
) |
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$ |
0.11 |
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Diluted Earnings (Loss) Per Share-Discontinued Operations |
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$ |
0.04 |
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$ |
(3.12 |
) |
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$ |
0.11 |
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Basic Earnings (Loss) Per Share |
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$ |
0.53 |
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$ |
0.48 |
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$ |
(1.78 |
) |
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$ |
1.13 |
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Diluted Earnings (Loss) Per Share |
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$ |
0.52 |
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$ |
0.47 |
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$ |
(1.74 |
) |
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$ |
1.10 |
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See accompanying notes to condensed consolidated financial statements.
4
Saia, Inc.
(formerly SCS Transportation, Inc. and Subsidiaries)
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2006 and 2005
(in thousands)
(unaudited)
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Nine Months |
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2006 |
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2005 |
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Operating Activities: |
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Net cash from operating activitiescontinuing operations |
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$ |
45,386 |
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$ |
35,486 |
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Net cash from operating activitiesdiscontinued operations |
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16,268 |
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13,245 |
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Net cash from operating activities |
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61,654 |
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|
48,731 |
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Investing Activities: |
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Acquisition of property and equipment |
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(69,829 |
) |
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(29,878 |
) |
Proceeds from disposal of property and equipment |
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1,959 |
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|
1,112 |
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Proceeds from sale of subsidiary |
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41,200 |
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Net investment in discontinued operations |
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(5,359 |
) |
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(13,681 |
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Net cash used in investing activities |
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(32,029 |
) |
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(42,447 |
) |
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Financing Activities: |
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Repayment of long-term debt |
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(2,500 |
) |
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(8,002 |
) |
Borrowing of long-term debt |
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10,886 |
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Repurchase of common stock |
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(12,721 |
) |
Proceeds from stock option exercises |
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3,826 |
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|
547 |
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Net cash provided by (used in) financing activities |
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1,326 |
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(9,290 |
) |
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Net Increase (Decrease) in Cash and Cash Equivalents |
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30,951 |
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(3,006 |
) |
Cash and cash equivalents, beginning of period |
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|
16,865 |
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|
6,949 |
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Cash and cash equivalents, end of period |
|
$ |
47,816 |
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$ |
3,943 |
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Supplemental Cash Flow Information: |
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Income taxes paid, net |
|
$ |
1,890 |
|
|
$ |
9,661 |
|
Interest paid |
|
|
6,813 |
|
|
|
7,011 |
|
See accompanying notes to condensed consolidated financial statements.
5
Saia, Inc.
(formerly SCS Transportation, Inc. and Subsidiaries)
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of
Saia, Inc. (formerly SCS Transportation, Inc.) and its wholly owned regional transportation
subsidiary, Saia Motor Freight Line, Inc. (together the Company or Saia). As described in Note 6,
on June 30, 2006, the Company completed the sale of the outstanding common stock of Jevic
Transportation, Inc. (Jevic) and accordingly, the financial position and results of operations of
Jevic have been reflected as discontinued operations.
The condensed consolidated financial statements have been prepared by the Company, without audit by
independent registered public accountants. In the opinion of management, all normal recurring
adjustments necessary for a fair statement of the financial position, results of operations and
cash flows for the interim periods included herein have been made. Certain information and note
disclosures normally included in financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted from these statements. These interim
financial statements of the Company have been prepared in accordance with U.S. generally accepted
accounting principles for interim financial information, the instructions to Quarterly Report on
Form 10-Q and Rule 10-01 of Regulation S-X. The accompanying condensed consolidated financial
statements should be read in conjunction with the Companys Annual Report on Form 10-K for the year
ended December 31, 2005. Operating results for the quarter and nine-months ended September 30,
2006, are not necessarily indicative of the results of operations that may be expected for the year
ended December 31, 2006.
Organization
The Company provides regional and interregional less-than-truckload (LTL) services and selected
national LTL, truckload (TL) and time-definite services across the United States through its wholly
owned subsidiary, Saia Motor Freight Line, Inc. (Saia Motor Freight).
Restructuring Costs
Net restructuring charges totaling $0.4 million and $2.1 million were expensed in the quarter and
nine months ended September 30, 2006, respectively. The restructuring charges for the nine-months
consisted of $2.2 million in employee severance and $0.1 million in relocation expenses offset by a
$0.2 million reduction in the estimated payout under long-term incentive plans, associated with the
Companys consolidation and relocation of corporate headquarters to Duluth, Georgia. The Company
anticipates additional restructuring charges of approximately $0.5 million in the fourth quarter of
2006, primarily severance and stay incentives through this transition period. At September 30,
2006, total accrued restructuring costs were $2.0 million. These costs are anticipated to be fully
paid by June 30, 2007.
New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income Taxes, which defines the threshold for recognizing
the benefits of tax-return positions in the financial statements as more-likely-than-not to be
sustained by the taxing authority. FIN 48 also prescribes a method for computing the tax benefit
of such tax positions to be recognized in the financial statements. In addition, FIN 48 provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition. The Company is currently assessing the impacts of adoption of FIN 48 on
its results of operations and its financial position and will be required to adopt FIN 48 as of
January 1, 2007. There are no other new accounting pronouncements pending adoption as of September
30, 2006,
6
which the Company believes would have a significant impact on its consolidated financial position
or results of operations.
In September 2006, the Securities and Exchange Commission (SEC) staff issued Staff Accounting
Bulletin No. 108 (SAB 108), Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements. Traditionally, there have been two
widely-recognized methods for quantifying the effects of financial statement misstatements: the
roll-over method and the iron-curtain method. The roll-over method focuses primarily on the
impact of a misstatement on the income statement, including the reversing effect of prior year
misstatements. The iron-curtain method focuses primarily on the effect of correcting the
period-end balance sheet with less emphasis on the reversing effects of prior year errors on the
income statement. In SAB 108, the SEC staff established an approach that is referred to as a dual
approach because it now requires quantification of errors under both the iron-curtain and the
roll-over methods. SAB 108 is effective for the Company for the year ending December 31, 2006.
The adoption of SAB 108 is not expected to have any effect on the current or prior year financial
statements.
Reclassifications
Certain reclassifications have been made to the prior period consolidated financial statements and
these related notes to conform with the current presentation, specifically related to the cash flow
presentation of stock option exercises and to reflect discontinued operations. See Note 6 for
additional details of the discontinued operations reclassifications.
(2) Computation of Earnings Per Share
The calculation of basic earnings per common share and diluted earnings per common share was as
follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
Nine Months |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
7,681 |
|
|
$ |
6,328 |
|
|
$ |
20,564 |
|
|
$ |
15,053 |
|
Income (loss) from discontinued operations, net |
|
|
2 |
|
|
|
655 |
|
|
|
(46,447 |
) |
|
|
1,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
7,683 |
|
|
$ |
6,983 |
|
|
$ |
(25,883 |
) |
|
$ |
16,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share
weighted average common shares |
|
|
14,612 |
|
|
|
14,499 |
|
|
|
14,557 |
|
|
|
14,815 |
|
Effect of dilutive stock options |
|
|
265 |
|
|
|
311 |
|
|
|
293 |
|
|
|
332 |
|
Effect of other common stock equivalents |
|
|
29 |
|
|
|
18 |
|
|
|
24 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted earnings per share
adjusted weighted average common shares |
|
|
14,906 |
|
|
|
14,828 |
|
|
|
14,874 |
|
|
|
15,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share Continuing Operations |
|
$ |
0.53 |
|
|
$ |
0.44 |
|
|
$ |
1.41 |
|
|
$ |
1.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Share Discontinued Operations |
|
|
|
|
|
|
0.04 |
|
|
|
(3.19 |
) |
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Share |
|
$ |
0.53 |
|
|
$ |
0.48 |
|
|
$ |
(1.78 |
) |
|
$ |
1.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share Continuing Operations |
|
$ |
0.52 |
|
|
$ |
0.43 |
|
|
$ |
1.38 |
|
|
$ |
0.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share Discontinued Operations |
|
|
|
|
|
|
0.04 |
|
|
|
(3.12 |
) |
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share |
|
$ |
0.52 |
|
|
$ |
0.47 |
|
|
$ |
(1.74 |
) |
|
$ |
1.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
(3) Business Segment Information
The Company has one operating subsidiary (Saia Motor Freight) that is a reportable segment. The
segment is managed separately from the holding company because it requires different operating,
technology and marketing strategies. The Company evaluates financial performance of the segment
primarily on its operating income and return on capital. The business segment information has been
reclassified to reflect Jevic as discontinued operations for all periods presented.
The accounting policies are the same as those described in the summary of significant accounting
policies in the Companys Annual Report on Form 10-K for the year ended December 31, 2005. In
addition to management, the holding company performs treasury and cash management, investor
relations, legal, internal audit, income tax and financial reporting functions as well as
maintaining long-term incentive plans and incurring certain other public company costs on behalf of
the operating subsidiary. Such costs were $3.6 million and $1.7 million in the quarters ended
September 30, 2006 and 2005, respectively and $10.1 million and $5.5 million for the nine months
ended September 30, 2006 and 2005, respectively. Management fees and other corporate services are
charged to the segment based on direct benefit received or allocated indirect benefit. The
operating income amounts shown under corporate and eliminations in the table below reflect the
holding company costs incurred in excess of the allocations to the operating company, including
restructuring costs of $0.4 million and $2.1 million, which were expensed in the quarter and nine
months ended September 30, 2006, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
Saia Motor |
|
and |
|
|
|
|
Freight |
|
Eliminations |
|
Consolidated |
As of September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assetscontinuing operations |
|
$ |
439,310 |
|
|
$ |
49,670 |
|
|
$ |
488,980 |
|
As of December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assetscontinuing operations |
|
$ |
389,076 |
|
|
$ |
15,149 |
|
|
$ |
404,225 |
|
Quarter ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
$ |
226,118 |
|
|
$ |
|
|
|
$ |
226,118 |
|
Operating income (loss) |
|
|
16,888 |
|
|
|
(2,933 |
) |
|
|
13,955 |
|
Quarter ended September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
$ |
198,811 |
|
|
$ |
|
|
|
$ |
198,811 |
|
Operating income (loss) |
|
|
13,406 |
|
|
|
(746 |
) |
|
|
12,660 |
|
Nine-months ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
$ |
655,577 |
|
|
$ |
|
|
|
$ |
655,577 |
|
Operating income (loss) |
|
|
48,464 |
|
|
|
(8,924 |
) |
|
|
39,540 |
|
Nine-months ended September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
$ |
551,600 |
|
|
$ |
|
|
|
$ |
551,600 |
|
Operating income (loss) |
|
|
34,876 |
|
|
|
(2,677 |
) |
|
|
32,199 |
|
(4) Commitments and Contingencies
The Company is subject to legal proceedings that arise in the ordinary course of its business. In
the opinion of management, the aggregate liability, if any, with respect to these actions will not
materially adversely affect our financial position, results of operations or cash flows.
(5) Stock-Based Compensation
For all stock option grants prior to January 1, 2003, stock-based compensation to employees is
accounted for based on the intrinsic value method under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees and related interpretations, including Financial
Accounting Standards Board (FASB) Interpretation No. 44, Accounting for Certain Transactions
involving Stock Compensation.
Effective January 1, 2003, the Company adopted the fair value method of recording stock option
expense under FASB Statement No. 123, Accounting for Stock-Based Compensation as amended by FASB
Statement No. 148,
8
Accounting for Stock-Based Compensation Transition and Disclosure, an amendment of FASB Statement
No. 123 (Statement 123). Under Statement 123, the Company recognized stock option expense
prospectively for all stock option awards granted after January 1, 2003. Stock option grants after
January 1, 2003 are expensed over the vesting period based on the fair value at the date the
options are granted using the straight-line method.
Effective January 1, 2006, the Company adopted FASB Statement No. 123 (revised 2004), Share-Based
Payments (Statement 123(R)). Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the
approach in Statement 123(R) is similar to the approach described in Statement 123.
The Company adopted Statement 123(R) using the modified prospective method, one of two permitted
methods. Under the modified prospective method, compensation cost is recognized beginning with
the effective date (a) based on the requirements of Statement 123(R) for all share-based payments
granted after the effective date and (b) based on the requirements of Statement 123 for all awards
granted to employees prior to the effective date of Statement 123(R) that remain unvested on the
effective date. Although Statement 123(R) must be applied not only to new awards but to previously
granted awards that are not fully vested on the effective date, because the Company previously
adopted Statement 123 and all options granted prior to the adoption of Statement 123 are currently
fully vested, there was no additional compensation costs to be recognized for previously granted
awards.
The Company adopted the fair-value-based method of accounting for share-based payments effective
January 1, 2003 using the prospective method described in FASB Statement No. 148. The Company uses
the Black-Scholes-Merton formula to estimate the fair value of stock options granted to employees
and will to continue to use this acceptable option valuation model under Statement 123(R).
Statement 123(R) also requires 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 reduces net operating cash flows and increases net financing cash flows. For the nine
months ended September 30, 2006, cash flows from financing activities were increased by $2.4
million for such excess tax deductions that would have been shown in operating cash flows in
periods prior to the adoption of Statement 123(R).
At September 30, 2006, the Company has reserved and remaining outstanding stock option grants for
474,646 shares of its common stock to certain management personnel of the Company and its operating
subsidiaries under the 2002 Substitute Stock Option Plan. As a result of the Spin-off of the
Company from Yellow Corporation, on October 1, 2002, all Yellow stock options (Old Yellow Options)
issued and outstanding to employees of the Company were replaced with Company stock options (New
Company Options) with an intrinsic value identical to the value of the Old Yellow Options being
replaced. The number of New Company Options and their exercise price was determined based on the
relationship of the Company stock price immediately after the Spin-off and the Yellow stock price
immediately prior to the Spin-off. The New Company Options expire ten years from the date the Old
Yellow Options were originally issued by Yellow. The New Company Options were fully vested at
December 31, 2004.
The shareholders of the Company approved the Amended and Restated 2003 Omnibus Incentive Plan (the
2003 Omnibus Plan) to allow the Company the ability to attract and retain outstanding executive,
managerial, supervisory or professional employees and non-employee directors. The Company has
reserved 424,000 shares of its common stock under the 2003 Omnibus Plan. The 2003 Omnibus Plan
provides for the grant or award of stock options; stock appreciation rights; restricted and
unrestricted stock; and cash performance unit awards. Stock option awards to employees are granted
with an exercise price equal to the market price of the Companys stock at the date of grant; those
stock option awards have cliff vesting at the end of three years of continuous service and have a
seven year contractual term. In addition, the 2003 Omnibus Plan provides for the grant of shares
of common stock to non-employee directors in lieu of at least 50 percent (and up to 100 percent) of
annual cash retainers, except that the Compensation Committee of the Board has discretion to cause
the Company to pay entirely in cash the nonexecutive chairs retainer. The 2003 Omnibus Plan also
provides for an annual grant to each non-employee director of no more than 3,000 shares. These
share awards generally vest immediately.
Shares issued to non-employee directors in lieu of annual cash retainers were 1,479 and zero for
the nine months ended September 30, 2006 and 2005. Non-employee directors were also issued 11,153
and 14,871 units equivalent to shares in the Companys common stock under the Directors Deferred
Fee Plan during the nine months ended September 30, 2006 and 2005, respectively. The non-employee
director stock options issued under the 2003 Omnibus Plan expire ten years from the date of grant;
are exercisable six months after the date of grant; and have an exercise price equal to the fair
market value of the Companys common stock on the date of grant. At September 30, 2006 and
December 31, 2005, 235,669 and 290,901 shares, respectively, remain reserved and available under
the
9
provisions of the 2003 Omnibus Plan. The Company has a policy of issuing new shares to satisfy
stock option exercises or other awards issued under the 2003 Omnibus Plan and the 2002 Substitute
Stock Option Plan.
The nine months ended September 30, 2006 and 2005 had stock option compensation expense of less
than $0.2 million, 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
September 30, 2006 there is unrecognized compensation expense of $0.5 million related to unvested
stock options, which is expected to be recognized over a period of 2.1 years. The Company
currently estimates forfeitures of approximately 25% for the options issued during 2005 and 2006
directly as a result of the sale of Jevic and has reflected this estimate in the determination of
stock option compensation expense.
The following table summarizes the activity of stock options for the nine months ended September
30, 2006 for both employees and non-employee directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
|
|
|
|
average |
|
|
Contractual |
|
|
Value |
|
|
|
Options |
|
|
exercise price |
|
|
Life (years) |
|
|
(000s) |
|
Outstanding at December 31, 2005 |
|
|
740,704 |
|
|
$ |
6.56 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
74,120 |
|
|
|
27.38 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(279,155 |
) |
|
|
5.20 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(31,520 |
) |
|
|
24.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006 |
|
|
504,149 |
|
|
$ |
9.24 |
|
|
|
4.1 |
|
|
$ |
11,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2006 |
|
|
416,789 |
|
|
$ |
5.80 |
|
|
|
3.8 |
|
|
$ |
11,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the nine months ended September 30, 2006 and
2005 was $6.2 million and $1.6 million, respectively. The weighted-average grant-date fair value
of options granted during the nine months ended September 30, 2006 and 2005 was $8.97 and $7.08,
respectively.
The following table summarizes the weighted average assumptions used in valuing options for the
nine months ended September 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
Risk free interest rate |
|
|
4.46 |
% |
|
|
3.92 |
% |
Expected life in years |
|
|
3 |
|
|
|
3 |
|
Expected volatility |
|
|
41.10 |
% |
|
|
40.75 |
% |
Dividend rate |
|
|
|
|
|
|
|
|
The following table summarizes the status of the Companys unvested options as of September 30,
2006 and changes during the nine months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
|
Options |
|
|
grant-date fair value |
|
Unvested at December 31, 2005 |
|
|
44,760 |
|
|
$ |
7.07 |
|
Granted |
|
|
74,120 |
|
|
|
8.97 |
|
Forfeited |
|
|
(31,520 |
) |
|
|
8.09 |
|
|
|
|
|
|
|
|
Unvested at September 30, 2006 |
|
|
87,360 |
|
|
$ |
8.31 |
|
|
|
|
|
|
|
|
(6) Discontinued Operations
On June 30, 2006, the Company completed the sale of all of the outstanding stock of Jevic, its
hybrid LTL and TL trucking carrier business, which was previously a reportable segment. The Board
of Directors of the Company completed an evaluation of strategic alternatives to enhance
shareholder value. The Board concluded that Jevic, which had not achieved acceptable levels of
profitability for several years, was not core to the long-term direction of the Company and the
sale of Jevic was in the best interests of the Companys shareholders.
The sale of Jevic was to an affiliate of Sun Capital Partners, Inc., a private investment firm,
pursuant to a Stock Purchase Agreement dated June 30, 2006, in a cash transaction of $42.2 million
less a working capital adjustment of
10
$0.9 million. The Company and Jevic finalized the working
capital adjustment in the third quarter and in accordance with the terms of the agreement the
Company was owed $0.1 million which has been received during the fourth quarter of 2006.
Transaction fees and expenses are estimated to be approximately $1.3 million. In addition, the
transaction was structured as an asset sale for tax purposes under Section 338(h)(10) of the
Internal Revenue Code resulting in an estimated $11.2 million income tax benefit from the
transaction. The Company recorded a loss on the sale of Jevic of $43.8 million or $2.94 per share,
net of income tax benefits.
The Company remains a guarantor under its indemnity agreement with certain insurance underwriters
with respect to Jevics workers compensation, bodily injury and property damage and general
liability claims that were estimated to be approximately $15.3 million at the transaction date. In
connection with the transaction, the Company received collateral in the form of a $15.3 million
letter of credit from Jevics third party bank for Jevics obligations under the indemnity
agreement. In addition, the Company agreed to maintain approximately $1.0 million of surety bonds
outstanding at the transaction date. The buyer agreed to use its reasonable best efforts to affect
a release of the Company from this obligation or otherwise replace these surety bonds. We do not
anticipate future obligations or liabilities in addition to those already recorded in our financial
statements related to this transaction.
Prior to the transaction date, Saia Motor Freight acted as a cartage agent for Jevic in certain
geographies and provided transportation services. Saia Motor Freights revenue from Jevic for
these services was $0.9 million for the quarter ended September 30, 2005. Saia Motor Freights
revenue from Jevic for the nine months ended September 30, 2006 and 2005 were $3.1 million and $2.4
million, respectively. Saia Motor Freight has continued to provide cartage services to Jevic
subsequent to the transaction date. Pursuant to the Stock Purchase Agreement, the Company and its
subsidiary have agreed to provide certain transitional administrative services to Jevic for
approximately one year at the Companys incremental cost of providing such services. The amount of
these services is not believed to be material.
The accompanying condensed consolidated statements of operations for all periods presented have
been presented to classify Jevics operations as discontinued operations. Selected condensed
consolidated statement of operations data for the Companys discontinued operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
Nine Months |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenue from discontinued operations |
|
$ |
|
|
|
$ |
85,727 |
|
|
$ |
165,215 |
|
|
$ |
258,111 |
|
Pre-tax income (loss) from discontinued operations |
|
|
(342 |
) |
|
|
1,249 |
|
|
|
(3,913 |
) |
|
|
3,225 |
|
Pre-tax gain (loss) on disposal of discontinued operations |
|
|
1,482 |
|
|
|
|
|
|
|
(54,973 |
) |
|
|
|
|
Income tax (provision) benefit |
|
|
(1,138 |
) |
|
|
(594 |
) |
|
|
12,439 |
|
|
|
(1,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
2 |
|
|
$ |
655 |
|
|
$ |
(46,447 |
) |
|
$ |
1,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
A summary of the assets and liabilities from discontinued operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Accounts receivable, net |
|
$ |
|
|
|
$ |
41,750 |
|
Other current assets |
|
|
4,606 |
|
|
|
6,196 |
|
Deferred income taxes |
|
|
|
|
|
|
2,127 |
|
Property and equipment, net |
|
|
|
|
|
|
98,899 |
|
Other noncurrent assets |
|
|
|
|
|
|
1,544 |
|
|
|
|
|
|
|
|
Total assets from discontinued operations |
|
$ |
4,606 |
|
|
$ |
150,516 |
|
|
|
|
|
|
|
|
|
|
Accounts payable and checks outstanding |
|
$ |
|
|
|
$ |
11,454 |
|
Wages, vacations and employees benefits |
|
|
|
|
|
|
5,575 |
|
Claims and insurance accruals |
|
|
|
|
|
|
14,071 |
|
Other current liabilities |
|
|
225 |
|
|
|
34 |
|
Deferred income taxes |
|
|
|
|
|
|
17,113 |
|
|
|
|
|
|
|
|
Total liabilities from discontinued operations |
|
$ |
225 |
|
|
$ |
48,247 |
|
Assets of discontinued operations at September 30, 2006 reflect a $4.2 million income tax
receivable that is expected to be used to offset estimated tax payments in the fourth quarter of
2006 and other current assets of $0.4 million expected to be received in the fourth quarter of
2006. Liabilities of discontinued operations at September 30, 2006 reflect the remaining accrued
transaction fees that are estimated to be paid in the fourth quarter of 2006. The Company had
historically allocated a management fee to Jevic for corporate level costs including treasury,
accounting, legal, accounting, tax, internal audit and other holding company functions. This
management fee has not been charged to discontinued operations as the Company continues to incur a
majority of these expenses. Discontinued operations have been allocated the direct costs incurred
by the Company for Jevic participants in the cash based long-term incentive plan under the Amended
and Restated 2003 SCST Omnibus Incentive Plan. These costs were $0.3 million and $0.5 million for
the quarter and nine months ended September 30, 2006, respectively, and less than $0.1 million
benefit and less than $0.1 million expense for the quarter and nine months ended September 30,
2005, respectively. The Company did not allocate interest expense to discontinued operations, as
no third party borrowings were assumed by the buyer or retired in connection with the transaction
and the Company has no immediate plans to pay down corporate level debt with the transaction
proceeds. In addition, the income tax expense (benefit) was allocated to discontinued operations
by calculating an appropriate effective tax rate for the discontinued operations based on the
permanent differences of Jevic for each of the respective periods.
Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
Executive Overview
On June 30, 2006, the Company completed the sale of the outstanding stock of Jevic Transportation,
Inc. (Jevic), its hybrid LTL and TL carrier business, to an affiliate of Sun Capital Partners,
Inc., a private investment firm. The transaction includes net cash proceeds of $41.3 million and
$11.2 million in future income tax benefits from structuring the transaction as an asset sale for
tax purposes. Jevic has been reflected as a discontinued operation in the Companys financial
statements for all periods presented. Holding company management fees have been charged to
continuing operations, in accordance with U.S. generally accepted accounting principles.
Additionally, no interest charges have been allocated to discontinued operations and income taxes
have been allocated between continuing and discontinued operations based on estimated separate
company effective tax rates. In connection with the sale of Jevic, the Company recorded a non-cash
after-tax charge of approximately $43.8 million, or $2.94 per share in the nine months ended
September 30, 2006. In addition, the Company recorded as discontinued operations, a loss from the
operations of Jevic for the nine months ended September 30, 2006 of $2.7 million or $0.18 per
share.
The Companys business is highly correlated to the general economy and, in particular, industrial
production. The Companys priorities are focused on increasing volume within existing geographies
while managing both the mix and yield of business to achieve increased profitability. The
Companys business is labor intensive, capital intensive and service sensitive. The Company looks
for opportunities to improve cost effectiveness, safety and asset utilization (primarily tractors
and trailers). Technology is important to supporting both customer service and
12
operating
management. The Company grew operating revenue by 14 percent in the third quarter of 2006 over the
third quarter of 2005. Revenue growth was primarily attributable to improvement in yield (revenue
per hundred weight), including the effects of higher fuel surcharges, and growth in
less-than-truckload (LTL) tonnage.
Consolidated operating income was $14.0 million for the third quarter of 2006, an increase of 10
percent from $12.7 million recorded in the prior-year quarter. The Company recorded a pre-tax
charge of $1.9 million for equity-based compensation as a result of the significant stock price
increase during the quarter. In addition, the Company recorded a pre-tax charge of $0.4 million
related to the consolidation and relocation of the Companys corporate headquarters to Duluth,
Georgia. Earnings per share from continuing operations were $0.52 per share, an increase of 21
percent over the prior year quarter. Third quarter 2006 operating income improvement was led by
LTL tonnage increases, LTL yield improvement and effective cost management. The consolidated
operating ratio (operating expenses divided by operating revenue) increased 20 basis points to 93.8
percent in the third quarter of 2006 compared to 93.6 percent in the third quarter of 2005. The
third quarter of the year is generally strong due to seasonally higher volumes; however the Company
did not see as much of a seasonal peak in the third quarter of 2006.
The Company generated $45.4 million in cash from operating activities of continuing operations
through the first nine months of the year versus generating $35.5 million in the prior-year period.
Cash flows from operating activities of discontinued operations were $16.3 million for the nine
months ended September 30, 2006 versus $13.2 million for the nine months ended September 30, 2005.
The Company had net cash used in investing activities from continuing operations of $67.9 million
during the first nine months of 2006 for the purchase of property and equipment. The Company had
proceeds from the sale of Jevic of $41.2 million and net investment in discontinued operation for
the first nine months of 2006 of $5.4 million. The Companys cash from financing activities during
the first nine months of 2006 included proceeds from stock option exercises of $3.8 million more
than offsetting a $2.5 million principal payment on long-term debt. The Company had no borrowings
on its credit agreement and a cash balance of $47.8 million as of September 30, 2006.
General
The following managements discussion and analysis describes the principal factors affecting the
results of operations, liquidity and capital resources, as well as the critical accounting policies
of Saia, Inc., formerly SCS Transportation, Inc. (also referred to as Saia and the Company).
This discussion should be read in conjunction with the accompanying unaudited condensed
consolidated financial statements and our 2005 audited consolidated financial statements included
in the Companys Annual Report on Form 10-K for the year ended December 31, 2005. Those financial
statements include additional information about our significant accounting policies, practices and
the transactions that underlie our financial results.
The Company is an asset-based transportation company providing regional and interregional LTL
services and selected national LTL, truckload (TL) and time-definite service solutions to a broad
base of customers across the United States. Our operating subsidiary is Saia Motor Freight Line,
Inc. (Saia Motor Freight), based in Duluth, Georgia.
Our business is highly correlated to the general economy and, in particular, industrial production.
It also is impacted by a number of other factors as detailed in the Forward Looking Statements
section of this Form 10-Q. 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 (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.
The Company measures yield both including and excluding fuel surcharge. Fuel surcharges have
remained in effect for several years and have become an increasingly significant component of
revenue and pricing. Fuel surcharges are a more integral part of annual customer contract
renewals, blurring the distinction between base price increases and recoveries under the fuel
surcharge program.
13
Results of Operations
Saia, Inc.
(formerly SCS Transportation, Inc. and Subsidiaries)
Selected Results of Continuing Operations and Operating Statistics
For the quarters ended September 30, 2006 and 2005
(in thousands, except ratios and revenue per hundredweight)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
2006 |
|
2005 |
|
06 v. 05 |
Operating Revenue |
|
$ |
226,118 |
|
|
$ |
198,811 |
|
|
|
13.7 |
% |
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employees benefits |
|
|
122,421 |
|
|
|
107,993 |
|
|
|
13.4 |
|
Purchased transportation |
|
|
18,461 |
|
|
|
17,206 |
|
|
|
7.3 |
|
Depreciation and amortization |
|
|
8,260 |
|
|
|
7,469 |
|
|
|
10.6 |
|
Fuel and other operating expenses |
|
|
63,021 |
|
|
|
53,483 |
|
|
|
17.8 |
|
Operating Income |
|
|
13,955 |
|
|
|
12,660 |
|
|
|
10.2 |
|
Operating Ratio |
|
|
93.8 |
% |
|
|
93.6 |
% |
|
|
0.2 |
|
Nonoperating Expense |
|
|
1,672 |
|
|
|
2,285 |
|
|
|
(26.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital |
|
|
47,805 |
|
|
|
47,233 |
|
|
|
1.2 |
|
Cash Flow from Continuing Operations (year to date) |
|
|
45,386 |
|
|
|
35,486 |
|
|
|
27.9 |
|
Net Acquisitions of Property and Equipment (year to date) |
|
|
67,870 |
|
|
|
28,766 |
|
|
|
135.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saia Motor Freight Operating Statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
LTL Tonnage |
|
|
867 |
|
|
|
821 |
|
|
|
5.7 |
|
Total Tonnage |
|
|
1,042 |
|
|
|
991 |
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL Shipments |
|
|
1,559 |
|
|
|
1,477 |
|
|
|
5.6 |
|
Total Shipments |
|
|
1,583 |
|
|
|
1,500 |
|
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL Revenue per hundredweight |
|
|
12.09 |
|
|
|
11.22 |
|
|
|
7.7 |
|
LTL Revenue per hundredweight excluding fuel surcharge |
|
|
10.40 |
|
|
|
9.97 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue per hundredweight |
|
|
10.85 |
|
|
|
10.05 |
|
|
|
8.0 |
|
Total Revenue per hundredweight excluding fuel surcharge |
|
|
9.43 |
|
|
|
9.00 |
|
|
|
4.8 |
|
Quarter and nine-months ended September 30, 2006 vs. quarter and nine-months ended September 30,
2005
Continuing Operations
Revenue and volume
Consolidated revenue increased 13.7 percent to $226.1 million in the third quarter of 2006 on one
less workday from both tonnage increases and revenue per hundredweight (yield) improvement. While
pricing remains competitive, results included improved quarter-over-quarter yields of 8.0 percent.
Fuel surcharge revenue, which was 13.1 percent of total revenue in the third quarter of 2006
compared to 10.5 percent of total revenue in the third quarter of 2005, is intended to mitigate the
Companys exposure to rising diesel prices.
Operating revenue excluding fuel surcharge was $196.5 million in the third quarter of 2006, up 10.4
percent from $178.0 million in the third quarter of 2005. Saia Motor Freights growth occurred
across all regions. During the
third quarter, the Company saw slower growth in tonnage and a reduction in weight per shipment
especially compared to the second quarter of 2006. LTL revenue per hundredweight increased 7.7
percent to $12.09 per hundredweight for the third quarter of 2006. LTL tonnage was up 5.7 percent
to 0.9 million tons and LTL shipments were up 5.6 percent to 1.6 million shipments. Management
believes that Saia Motor Freight continues to grow volume and increase yields through high quality
service for its customers, growth in value added services, like Xtreme Guarantee and industry
consolidation. Approximately 70 percent of Saia Motor Freights revenue is subject
14
to individual
customer price adjustment negotiations that occur intermittently throughout the year. The
remaining 30 percent of revenue is subject to the annual general rate increase. On April 3, 2006,
Saia Motor Freight implemented a 5.9 percent general rate increase for customers comprising this 30
percent of revenue compared to a 5.9 percent general rate increase on May 2, 2005. Competitive
factors, customer turnover and mix changes impact the extent to which customer rate increases are
retained over time.
For the nine-months ended September 30, 2006 operating revenues were $655.6 million up 18.9 percent
from $551.6 million for the nine-months ended June 30, 2005 due to increased tonnage and higher
yield including significant increases in fuel surcharge revenues. Fuel surcharge revenues
increased to 12.1 percent of revenue for the 2006 nine-month period compared to 9.1 percent for the
prior year period. Management believes the increase, exclusive of fuel surcharges, is primarily a
result of increased market share, momentum from the 2004 acquisition of Clark Bros. and industry
consolidation in Saia Motor Freights markets.
Operating expenses and margin
Consolidated operating income increased 10.2 percent to $14.0 million in the third quarter of 2006.
The current quarter results include $1.9 million of equity-based compensation expense as a result
of the significant stock price increase during the quarter compared to a $0.5 million benefit in
the prior year quarter. Additionally, current quarter results include restructuring costs of $0.4
million due to the consolidation and relocation of the Companys corporate headquarters to Duluth,
Georgia. We anticipate an additional $0.5 million to be incurred in the fourth quarter of this
year due to the consolidation and relocation. These restructuring charges are largely for
severance benefits and stay incentives through the transition period. Equity-based compensation
and restructuring charges totaled approximately $0.09 per share in the third quarter of 2006
compared to a $0.02 per share benefit in the third quarter of 2005. Quarter-over-quarter price and
volume increases were partially offset by cost increases in wages, health care, workers
compensation and claims expense. The third quarter 2006 operating ratio (operating expenses
divided by operating revenue) was 93.8 compared to 93.6 for the third quarter of 2005. Higher fuel
prices, in conjunction with volume changes, caused $6.4 million of the increase in fuel and
operating expenses and supplies. Increased revenues from the fuel surcharge program offset fuel
price increases. Purchased transportation expenses increased 7.3 percent reflecting both increased
utilization driven by volume increases and increased cost per mile largely driven by both capacity
constraints and fuel price increases.
For the nine-months ended September 30, 2006, operating income was $39.5 million with an operating
ratio of 94.0 compared to operating income of $32.2 million with an operating ratio of 94.2 for the
nine-months ended September 30, 2005. The nine-months ended September 30, 2006 include $3.9
million in equity-based compensation charges and $2.1 million in restructuring costs as well as
$0.5 million of costs related to the resolution of a proxy matter and fees associated with the
strategic evaluation process that concluded in the second quarter. The benefits of year-over-year
volume gains and effective cost management were partially offset by increases in salaries, wages
and benefits and purchased transportation costs.
Saia Motor Freight had operating income of $16.9 million in the third quarter of 2006 up 26.0
percent from $13.4 million in the third quarter of 2005. The operating ratio at Saia Motor Freight
improved 80 basis points to 92.5 in the current quarter compared to 93.3 in the third quarter of
2005. Saia Motor Freight improved quarter-over-quarter operating income through increased tonnage
and prices and overall cost effectiveness. Decreased purchased transportation as a percent of
revenue was partially offset by increased wage and benefit expense. Saia Motor Freights annual
wage rate increases averaged 2.7 percent and were effective August 1, 2006. During the third
quarter of 2005, Saia Motor Freight experienced two hurricanes that caused property damage and
disrupted operations. Saia Motor Freight reached a settlement in the third quarter of 2006 on its
insurance claims related to the hurricanes in the third quarter of 2005; the remaining insurance
recovery was recognized upon finalizing this negotiated settlement for the remaining claims. An
additional net benefit of $1.1 million was recognized in connection with these claims during the
third quarter of 2006. The benefit from the insurance claim settlement was offset by the adverse
development of prior years casualty claims during the third quarter of 2006.
For the nine-months ended September 30, 2006, Saia Motor Freight had operating income of $48.5
million and an operating ratio of 92.6 compared to operating income of $34.9 million and an
operating ratio of 93.7 for the nine-months ended September 30, 2005. Operating income improvement
at Saia Motor Freight for the nine-month period
ended September 30, 2006 was driven by price and volume gains, effective cost management, partially
offset by increased wage and benefit costs as well as higher purchased transportation costs and
cargo claim costs.
Net holding company operating expenses for the third quarter of 2006 were $2.9 million in excess of
costs allocated to Saia Motor Freight compared to $0.7 million in excess of costs allocated in the
third quarter of 2005. Third-quarter 2006 results include $1.9 million in equity-based
compensation charges as a result of the Companys increased stock price relative to peers versus a
benefit of $0.5 million in the prior year quarter. The Companys
15
long-term incentive plans
expense is a function of the Companys stock price performance versus a peer group and the deferred
compensation plans expense is tied to changes in the Companys stock price. Additionally, the net
holding company operating expenses for the third quarter also reflect $0.4 million in restructuring
costs associated with the Companys consolidation and relocation of its corporate headquarters to
Duluth, Georgia.
For the nine-months ended September 30, 2006, net holding company operating expenses were $8.9
million versus $2.7 million for the first nine months of 2005. Higher holding company costs in
2006 resulted from equity-based compensation charges $4.3 million higher than the prior year
period, $2.1 million in restructuring costs, and $0.5 million in costs related to the resolution of
a proxy matter and fees associated with the strategic evaluation process concluded in the second
quarter of 2006. The Company has historically allocated a management fee to Jevic for corporate
level costs including treasury, accounting, legal, accounting, tax, internal audit and other
holding company functions. This management fee has not been charged to discontinued operations as
the Company continues to incur a majority of these expenses. Discontinued operations have been
allocated the direct costs incurred by the Company for Jevic Transportation, Inc. participants in
the cash based long-term incentive plan under the Amended and Restated 2003 SCST Omnibus Incentive
Plan. This was an expense of $0.3 million and $0.5 million for the three and nine months ended
September 30, 2006 and a benefit of $0.1 million and an expense of $0.1 million for the three and
nine months ended September 30, 2005, respectively.
Other
Substantially all non-operating expenses represent interest expense and the decrease in net
non-operating expenses is a result of the larger cash balance from the proceeds from the sale of
Jevic. The Company did not allocate interest expense to discontinued operations as no third party
borrowings were assumed by the buyer or retired in connection with the transaction and the Company
has no immediate plans to pay down corporate level debt with the transaction proceeds. The
consolidated effective tax rate was 38.0 percent for the nine-months ended September 30, 2006
compared to 39.8 percent for the nine months ended September 30, 2005. The decrease in the
effective tax rate is primarily a result of a $0.7 million tax credit recognized in the nine months
of 2006 and higher pre-tax income in the current period versus the prior period. The notes to the
2005 audited consolidated financial statements included in the Form 10-K for the year ended
December 31, 2005 provide an analysis of the annual income tax provision and the effective tax
rate.
Income from continuing operations was $7.7 million, or $0.52 per diluted share, in the third
quarter of 2006 compared to $7.0 million or $0.47 per diluted share in the third quarter of 2005.
Income from continuing operations was $20.6 million or $1.38 per diluted share in the first nine
months of 2006 compared to $15.1 million, or $0.99 per diluted share, in the first nine months of
2005.
Discontinued Operations
On June 30, 2006, the Company completed the sale of all of the outstanding stock of Jevic
Transportation, Inc., its hybrid less-than-truckload and truckload trucking carrier business to an
affiliate of Sun Capital Partners, Inc., a private investment firm, pursuant to a Stock Purchase
Agreement dated June 30, 2006, in a cash transaction of $42.2 million less a working capital
adjustment of $0.9 million. The Company and Jevic finalized the working capital adjustment and in
accordance with the agreement the Company received $0.1 million during the fourth quarter of 2006.
Transaction fees and expenses are estimated to be approximately $1.3 million. In addition, the
transaction was structured as an asset sale for tax purposes under Section 338(h)(10) of the Code
that resulted in an estimated $11.2 million income tax benefit from the transaction. The Company
utilized approximately $7.0 million of the tax benefit from the transaction in the third quarter
and expects to utilize the remainder during the fourth quarter of 2006. The accompanying
consolidated Statements of Operations for all periods presented have been adjusted to classify
Jevic Transportation, Inc. operations as discontinued operations. The Company recorded a non-cash
after-tax charge on the sale of Jevic Transportation of $43.8 million, net of income tax benefits
or ($2.94) per share. The net change in the loss on disposal in the third quarter is the result of
$1.6 million for refunds of insurance premiums partially offset by an adjustment for tax purposes
to reflect the write-off of net operating loss carryforwards as a result of finalizing tax returns.
The Company also recorded loss from discontinued operations for the quarter and nine months ended
September 30, 2006 of $0.2 million and $2.6 million respectively compared to income from
discontinued operations of $0.7 million and $1.7 million for the quarter and nine months ended
September 30, 2005.
Working capital/capital expenditures
Working capital at September 30, 2006 was $47.8 million, which increased from working capital at
September 30, 2005 of $47.2 million primarily due to the sale of Jevic offset by lower working
capital in 2005 as a result of the stock repurchase program. Cash flows from operating activities
were $61.7 million for the nine-months ended September 30, 2006 vs. $48.7 million for the
nine-months ended September 30, 2005. For the nine-months ended September 30, 2006 cash used in
investing activities was $32.0 million versus $42.4 million in the prior-year nine-
16
month period.
Proceeds from the sale of Jevic of $41.2 million were more than offset by net capital expenditures
from continuing operations of $67.9 million. In addition, the Company had a net investment in
discontinued operations of $5.4 million. The 2006 acquisition of property and equipment includes
investments in real estate and in both additions and replacement of revenue equipment and
technology equipment and software. For the nine-months ended September 30, 2006, cash used in
financing activities was $1.3 million versus cash from financing activities of $9.3 million for the
prior-year nine months. Current year financing activities included $3.8 million in proceeds from
stock option exercises, a $2.5 million repayment of Senior Notes and no borrowings on the revolving
credit facility.
Outlook
Our business remains highly correlated to the success of Company specific improvement initiatives
as well as a variety of external factors, including the general economy. For the balance of 2006
and 2007, we plan to continue to focus on providing top quality service, improving safety
performance and investing in management and infrastructure for future growth and profitability
improvement. Saia Motor Freight continues to evaluate opportunities to grow and further increase
profitability. Given third quarter volume trends and specifically the lack of a typical build-up
of peak season demand, there is present uncertainty as to the extent to which the economy is
softening and/or experiencing a timing delay to a later peak season.
The Company plans to continue to pursue revenue and cost initiatives to improve profitability.
Planned revenue initiatives include, but are not limited to, growing market share in existing
geography and gaining associated density cost benefits; geographic expansion to adjacent states and
positioning for synergy revenue between the old and new territory, targeted marketing initiatives
to grow revenue in more profitable segments, as well as pricing and yield management. The extent of
success of these revenue initiatives is impacted by what proves to be the underlying economic
trends, competitor initiatives and other factors discussed under Risk Factors.
Planned cost management initiatives include, but are not limited to, seeking gains in cost
management, productivity and asset utilization that collectively are designed to offset anticipated
inflationary unit cost increases in salaries and wage rates, healthcare, workers compensation,
fuel and all the other expense categories. If the Company builds market share, there are numerous
operating leverage cost benefits. Conversely should the economy soften from present levels, the
Company plans to attempt to match resources and capacity to shifting volume levels to lessen
unfavorable operating leverage. The success of cost improvement initiatives is also impacted by
the cost and availability of drivers and purchased transportation, fuel, insurance claims,
regulatory changes, successful implementation of profit improvement initiatives and other factors
discussed under Risk Factors.
See Forward-Looking Statements for a more complete discussion of potential risks and
uncertainties that could materially affect our future performance.
New Accounting Pronouncements
See Note 1 to the accompanying condensed consolidated financial statements for further discussion
of recent accounting pronouncements.
17
Financial Condition
The Companys liquidity needs arise primarily from capital investment in new equipment, land and
structures and information technology, letters of credit required under insurance programs, as well
as funding working capital requirements.
The Companys long-term debt at September 30, 2006 includes $97.5 million in Senior Notes, under a
$150 million Master Shelf Agreement with Prudential Investment Management, Inc. and certain of its
affiliates that are unsecured with a fixed interest rate of 7.38 percent. Payments due under the
Senior Notes are semi-annual principal and interest payments, with the final payment due December
2013. Under the terms of the Senior Notes, the Company must maintain several financial covenants
including a maximum ratio of total indebtedness to earnings before interest, taxes, depreciation,
amortization and rent (EBITDAR), a minimum interest coverage ratio and a minimum tangible net
worth, among others. In connection with the sale of Jevic, the Company amended the terms of the
Senior Notes to adjust financial covenants for discontinued operations and provide for up to $25
million of future treasury stock purchases. At September 30, 2006, the Company was in compliance
with these covenants. In addition, the Company has third party borrowings of approximately $14.0
million in subordinated notes and $0.9 million in seller notes.
The Company has also entered into a $50 million (amended November 2004 to $75 million and in
January 2005 to $110 million) Agented Revolving Credit Agreement (the Credit Agreement) with Bank
of Oklahoma, N.A., as agent. The Credit Agreement was amended in January 2005 to increase
availability and the Companys capacity for letters of credit in support of self-insured retentions
for casualty and workers compensation claims and achieve greater flexibility for potential future
acquisitions. The amended $110 million Credit Agreement is unsecured with an interest rate based
on LIBOR or prime at the Companys option, plus an applicable spread, in certain instances, and
matures in January 2008. At September 30, 2006, the Company had no borrowings under the Credit
Agreement, $43.9 million in letters of credit outstanding under the Credit Agreement and
availability of $66.1 million. The available portion of the Credit Agreement may be used for
future capital expenditures, working capital and letter of credit requirements as needed. Under
the terms of the Credit Agreement, the Company must maintain several financial covenants including
a maximum ratio of total indebtedness to EBITDAR, a minimum interest coverage ratio and a minimum
tangible net worth, among others. In connection with the sale of Jevic, the Company amended the
terms of the Credit Agreement to adjust financial covenants for discontinued operations and provide
for up to $25 million of future treasury stock purchases. At September 30, 2006, the Company was
in compliance with these covenants.
At September 30, 2006, the Companys former parent company (Yellow) provided guarantees on behalf
of the Company primarily for open workers compensation claims and casualty claims incurred prior
to March 1, 2000. Under the Master Separation and Distribution Agreement entered into in
connection with the Spin-off, the Company pays Yellows actual cost of any collateral it provides
to insurance underwriters in support of these claims through October 2005 after which time it is
cost plus 100 basis points through October 2007. At September 30, 2006, the portion of collateral
allocated by Yellow to the Company in support of these claims was $2.6 million.
Projected net capital expenditures for 2006 are approximately $90 million including several
strategic real estate opportunities within Saias existing network. This represents an
approximately $57 million increase from 2005 net capital expenditures for property and equipment.
Approximately $12.9 million of the remaining 2006 capital budget was committed at September 30,
2006. Net capital expenditures pertain primarily to replacement of revenue equipment and additional
investments in information technology, land and structures. Projected capital expenditures for
2006 could exceed this level if the Company is successful in executing its geographic expansion
objective.
The Company has historically generated cash flows from operations that have funded its capital
expenditure requirements. Cash flows from operations were $83.4 million for the year ended
December 31, 2005, which were $29.7 million more than 2005 net capital expenditures for acquisition
of property and equipment. Cash flows from operations were $61.7 million for the nine months ended
September 30, 2006 which funded the majority of the $73.2 million of total net capital expenditures
for the first nine months of 2006. Cash flows from operating activities for the nine months ended
September 30, 2006 were $12.0 million higher than the prior year period. The timing of capital
expenditures can largely be managed around the seasonal working capital requirements of the
Company. The Company has adequate sources of capital to meet short-term liquidity needs through
its cash ($47.8 million at September 30, 2006) and availability under its revolving credit facility
($66.1 million at September 30, 2006). In addition to these sources of liquidity, the Company has
$50 million under its long-term debt facilities, which is available to fund other longer-term
strategic investments. Future operating cash flows are primarily dependent upon the Companys
profitability and its ability to manage its working capital requirements, primarily accounts
receivable, accounts payable and wage and benefit accruals. The Company has the ability to adjust
its capital expenditures in the event of a shortfall in anticipated operating cash flows. The
Company believes its current capital
18
structure and availability under its borrowing facilities along with anticipated cash flows from
future operations will be sufficient to fund planned replacements of revenue equipment and
investments in technology. Additional sources of capital may be needed to fund future long-term
strategic growth initiatives.
In accordance with U.S. generally accepted accounting principles, our operating leases are not
recorded in our balance sheet; however, the future minimum lease payments are included in the
Contractual Cash Obligations table below. See the notes to our audited consolidated financial
statements included in Form 10-K for the year ended December 31, 2005 for additional information.
In addition to the principal amounts disclosed in the tables below, the Company has interest
obligations of approximately $8.3 million for 2006 and decreasing for each year thereafter, based
on borrowings outstanding at September 30, 2006.
Contractual Cash Obligations
The following tables set forth a summary of our contractual cash obligations and other commercial
commitments as of September 30, 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by year |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Thereafter |
|
|
Total |
|
Contractual cash obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line of credit (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Long-term debt (1) |
|
|
2.5 |
|
|
|
11.4 |
|
|
|
12.4 |
|
|
|
18.9 |
|
|
|
18.9 |
|
|
|
48.4 |
|
|
|
112.5 |
|
Operating leases |
|
|
2.9 |
|
|
|
10.3 |
|
|
|
6.9 |
|
|
|
3.5 |
|
|
|
1.8 |
|
|
|
0.9 |
|
|
|
26.3 |
|
Purchase obligations (2) |
|
|
18.0 |
|
|
|
25.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual
obligations |
|
$ |
23.4 |
|
|
$ |
47.2 |
|
|
$ |
19.3 |
|
|
$ |
22.4 |
|
|
$ |
20.7 |
|
|
$ |
49.3 |
|
|
$ |
182.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 4 to the audited consolidated financial statements in Form 10-K for the year
ended December 31, 2005. |
|
(2) |
|
Includes commitments of $38.4 million for capital expenditures. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of commitment expiration by year |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Thereafter |
|
|
Total |
|
Other commercial commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available line of credit |
|
$ |
|
|
|
$ |
|
|
|
$ |
66.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
66.1 |
|
Letters of credit |
|
|
0.2 |
|
|
|
46.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.4 |
|
Surety bonds |
|
|
0.1 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
commitments |
|
$ |
0.3 |
|
|
$ |
51.6 |
|
|
$ |
66.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
118.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company remains a guarantor under its indemnity agreement with certain insurance
underwriters with respect to Jevics workers compensation, bodily injury and property damage and
general liability claims that were estimated to be approximately $15.3 million at the June 30, 2006
transaction date. In connection with the transaction, Jevic provided collateral in the form of a
$15.3 million letter of credit with a third party bank in favor of the Company. In addition, the
Company agreed to maintain approximately $1.0 million of surety bonds outstanding at the
transaction date. The buyer agreed to use its reasonable best efforts to affect a release of the
Company from this obligation or otherwise replace these surety bonds. We do not anticipate future
obligations or liabilities in addition to those already recorded in our financial statements
related to this transaction.
19
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. The Company has self-insured
retention limits generally ranging from $250,000 to $2,000,000 per
claim for medical, workers compensation, auto liability, casualty
and cargo claims. For only the policy year March 2003 through
February 2004, the Company has an aggregate exposure limited to an
additional $2,000,000 above its $1,000,000 per claim deductible
under its auto liability program. The liabilities associated with
the risk retained by the Company are estimated in part based on
historical experience, third-party actuarial analysis,
demographics, nature and severity, past experience and other
assumptions. The liabilities for self-funded retention are
included in claims and insurance reserves based on claims
incurred, with liabilities for unsettled claims and claims
incurred but not yet reported being actuarially determined with
respect to workers compensation claims and with respect to all
other liabilities, estimated based on managements evaluation of
the nature and severity of individual claims and historical
experience. However, these estimated accruals could be
significantly affected if the actual costs of the Company differ
from these assumptions. A significant number of these claims
typically take several years to develop and even longer to
ultimately settle. These estimates tend to be reasonably accurate
over time; however, assumptions regarding severity of claims,
medical cost inflation, as well as specific case facts can create
short-term volatility in estimates. |
|
|
Revenue Recognition and Related Allowances. Revenue is recognized
on a percentage-of-completion basis for shipments in transit while
expenses are recognized as incurred. In addition, estimates
included in the recognition of revenue and accounts receivable
include estimates of shipments in transit and estimates of future
adjustments to revenue and accounts receivable for billing
adjustments and collectibility. |
|
|
|
Revenue is recognized in a systematic process whereby estimates of shipments in transit are
based upon actual shipments picked up, scheduled day of delivery and current trend in average
rates charged to customers. Since the cycle for pick up and delivery of shipments is
generally 1-3 days, typically less than 5 percent of a total months revenue is in transit at
the end of any month. Estimates for credit losses and billing adjustments are based upon
historical experience of credit losses, adjustments processed and trends of collections.
Billing adjustments are primarily made for discounts and billing corrections. These estimates
are continuously evaluated and updated; however, changes in economic conditions, pricing
arrangements and other factors can significantly impact these estimates. |
|
|
Depreciation and Capitalization of Assets. Under the Companys
accounting policy for property and equipment, management
establishes appropriate depreciable lives and salvage values for
the Companys revenue equipment (tractors and trailers) based on
their estimated useful lives and estimated fair values to be
received when the equipment is sold or traded in. These estimates
are routinely evaluated and updated when circumstances warrant.
However, actual depreciation and salvage values could differ from
these assumptions based on market conditions and other factors. |
|
|
Recovery of Goodwill. In connection with its acquisition of Clark
Bros. in 2004, the Company allocated purchase price based on
independent appraisals of intangible assets and real property and
managements estimates of valuations of other tangible assets.
Annually, the Company assesses goodwill impairment by applying a
fair value based test. This fair value based test involves
assumptions regarding the long-term future performance of the
Company, fair value of the assets and liabilities of the Company,
cost of capital rates and other assumptions. However, actual
recovery of remaining goodwill could differ from these assumptions
based on market conditions and other factors. In the event
remaining goodwill is determined to be impaired a charge to
earnings would be required. |
|
|
Equity-based Incentive Compensation. The Company maintains
long-term incentive compensation arrangements in the form of stock
options and cash-based awards. The criteria for the cash-based
awards are total shareholder return versus a peer group of
companies over a three year performance period. The Company
accrues for cash-based award expenses based on performance
criteria from the beginning of the performance period through the
reporting date. This results in the potential for significant
adjustments from period to period that cannot be predicted. The
Company accounts for stock options in accordance with Financial
Accounting Standards Board Statement No. 123R with option expense
amortized over the three year vesting period based on the
Black-Scholes-Merton fair value at the date the options are
granted. See |
20
|
|
discussion of adoption of Statement No. 123R in Note 5 to the condensed consolidated financial
statements contained herein. |
These accounting policies, and others, are described in further detail in the notes to our audited
consolidated financial statements included in the Companys Form 10-K for the year ended December
31, 2005.
The preparation of financial statements in accordance with accounting principles generally accepted
in the United States requires management to adopt accounting policies and make significant
judgments and estimates to develop amounts reflected and disclosed in the 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 financial statements.
However, even under optimal circumstances, estimates routinely require adjustment based on changing
circumstances and the receipt of new or better information.
Forward-Looking Statements
Certain statements in this Report, including those contained in Results of Operations, Outlook
and Financial Condition are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to the financial condition, results of
operations, plans, objectives, and effects of the Jevic sale, future performance and business of
the Company. Words such as anticipate, estimate, expect, project, intend, may, plan,
predict, believe, seek and similar words or expressions are intended to identify
forward-looking statements. We use such forward-looking statements regarding our future financial
condition and results of operations and our business operations in this Form 10-Q. Investors
should not place undue reliance on such forward-looking statements, and the Company undertakes no
obligation to publicly update or revise any forward-looking statements. All forward-looking
statements reflect the present expectation of future events of our management 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 the forward-looking statements. These factors and
risks include, but are not limited to, general economic conditions; indemnification obligations
associated with the sale of Jevic; cost and availability of qualified drivers, fuel, purchased
transportation, property, revenue equipment and other operating assets; governmental regulations,
including but not limited to Hours of Service, engine emissions, compliance with recent legislation
requiring companies to evaluate their internal control over financial reporting and Homeland
Security; dependence on key employees; inclement weather; labor relations; integration risks;
effectiveness of company-specific performance improvement initiatives; competitive initiatives and
pricing pressures; terrorism risks; self-insurance claims, equity-based compensation and other
expense volatility; the Companys determination from time to time whether to purchase any shares
under the repurchase program; and other financial, operational and legal risks and uncertainties
detailed from time to time in the Companys SEC filings. These factors and risks are described in
Item 1A: Risk Factors of the Companys annual report on Form 10-K for December 31, 2005, as
updated by Item 1A of the Form 10-Q.
As a result of these and other factors, no assurance can be given as to our future results and
achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of
future events or circumstances, and those future events or circumstances may not occur. You should
not place undue reliance on the forward-looking statements, which speak only as of the date of this
Report. 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to a variety of market risks, including the effects of interest rates and
fuel prices. The detail of the Companys debt structure is more fully described in the notes to
the consolidated financial statements set forth in the Form 10-K for the year ended December 31,
2005. To help mitigate our risk to rising fuel prices, Saia Motor Freight 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
diesel fuel prices and is reset weekly, exposure of the Company to fuel price volatility is
significantly reduced.
21
The following table provides information about the Companys third-party financial instruments as
of September 30, 2006. The table presents principal cash flows (in millions) and related weighted
average interest rates by contractual maturity dates. The fair value of the fixed rate debt was
estimated based upon the borrowing rates currently available to the Company for debt with similar
terms and remaining maturities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected maturity date |
|
2006 |
|
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
Thereafter |
|
Total |
|
Fair Value |
Fixed rate debt |
|
$ |
2.5 |
|
|
$ |
11.4 |
|
|
$ |
11.4 |
|
|
$ |
18.9 |
|
|
$ |
18.9 |
|
|
$ |
48.4 |
|
|
$ |
111.5 |
|
|
$ |
113.3 |
|
Average interest rate |
|
|
7.38 |
% |
|
|
7.33 |
% |
|
|
7.33 |
% |
|
|
7.34 |
% |
|
|
7.35 |
% |
|
|
7.33 |
% |
|
|
|
|
|
|
|
|
Variable rate debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
0.9 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.9 |
|
|
$ |
0.9 |
|
Average interest rate |
|
|
|
|
|
|
|
|
|
|
7.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 4. Controls and Procedures
Quarterly Controls Evaluation and Related CEO and CFO Certifications
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company conducted an
evaluation of the effectiveness of the design and operation of its disclosure controls and
procedures (Disclosure Controls). The controls evaluation was performed under the supervision and
with the participation of management, including the Companys Chief Executive Officer (CEO) and
Chief Financial Officer (CFO).
Based upon the controls evaluation, the Companys CEO and CFO have concluded that, subject to the
limitations noted below, as of the end of the period covered by this Quarterly Report on Form 10-Q,
the Companys Disclosure Controls were effective to provide reasonable assurance that material
information relating to the Company is made known to management, including the CEO and CFO,
particularly during the period when periodic reports are being prepared.
During the period covered by this Quarterly Report, there were no changes in internal control over
financial reporting that materially affected, or that are reasonably likely to materially affect,
the Companys internal control over financial reporting.
Attached as Exhibits 31.1 and 31.2 to this Quarterly Report are certifications of the CEO and the
CFO, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934 (the
Exchange Act). This Controls and Procedures section includes the information concerning the
controls evaluation referred to in the certifications and it should be read in conjunction with the
certifications.
Definition of Disclosure Controls
Disclosure Controls are controls and procedures designed to ensure that information required to be
disclosed in the Companys reports filed under the Exchange Act is recorded, processed, summarized
and reported timely. Disclosure Controls are also designed to ensure that such information is
accumulated and communicated to the Companys management, including the CEO and CFO, as appropriate
to allow timely decisions regarding required disclosure. The Companys Disclosure Controls include
components of its internal control over financial reporting, which consists of control processes
designed to provide reasonable assurance regarding the reliability of the Companys financial
reporting and the preparation of financial statements in accordance with U.S. generally accepted
accounting principles.
Limitations on the Effectiveness of Controls
The Companys management, including the CEO and CFO, does not expect that its Disclosure Controls
or its internal control over financial reporting will prevent all errors and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the control systems objectives will be met. Further, the design of a control system
must reflect the fact that there are resource constraints and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if
22
any, within the Company have been detected. These inherent limitations include the
realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by collusion of two or
more people, or by management override of the controls. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings None
Item 1A. Risk Factors
Risk Factors are described in Item 1A: Risk Factors of the Companys
annual report on Form 10-K for the year ended December 31, 2005 and there have been no material
changes other than the addition of the following risk factor:
We are subject to a working capital adjustment and to various warranties, representations and
indemnification provisions under the Stock Purchase Agreement for the sale of Jevic Transportation,
Inc.
In connection with the sale of Jevic Transportation, Inc., the consideration received is subject to
a working capital adjustment provision estimated at $1.0 million at June 30, 2006. The working
capital adjustment provision was finalized in October 2006 at $0.9 million. The Company and its
subsidiary are also subject to various warranties, representations and indemnification provisions
under the Stock Purchase Agreement.
23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Maximum |
|
|
|
|
|
|
|
|
|
|
(c) Total Number |
|
Number (or |
|
|
(a) Total |
|
|
|
|
|
of Shares (or |
|
Approximate Dollar |
|
|
Number of |
|
(b) Average |
|
Units) Purchased |
|
Value) of Shares (or |
|
|
Shares (or |
|
Price Paid per |
|
as Part of Publicly |
|
Units) that May Yet |
|
|
Units) |
|
Share (or |
|
Announced Plans |
|
be Purchased under |
Period |
|
Purchased |
|
Unit) |
|
or Programs |
|
the Plans or Programs |
July 1, 2006 through
July 31, 2006 |
|
|
|
(2) |
|
$ |
|
(2) |
|
|
|
(1) |
|
$ |
7,097,296 |
(1) |
August 1, 2006 through
August 31, 2006 |
|
|
1,180 |
(3) |
|
|
28.40 |
(3) |
|
|
|
(1) |
|
|
7,097,296 |
(1) |
September 1, 2006 through
September 30, 2006 |
|
|
|
(4) |
|
|
|
(4) |
|
|
|
(1) |
|
|
7,097,296 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Shares purchased as part of publicly announced programs were purchased
on the open market in accordance with the Companys $20,000,000 stock
repurchase program that was announced on May 3, 2005. Shares
purchased by the SCST Executive Capital Accumulation Plan were open
market purchases. For more information on the SCST Executive Capital
Accumulation Plan see the Registration Statement on Form S-8 (No.
333-103661) filed on March 7, 2003 and the Companys Annual Report on
Form 10-K for the year ended December 31, 2005. There were no
puchases of shares by the Company for the period April 1, 2006 through
September 30, 2006. |
|
(2) |
|
The SCST Executive Capital Accumulation Plan sold no shares of Saia
stock on the open market during the period of July 1, 2006 through
July 31, 2006. |
|
(3) |
|
The SCST Executive Capital Accumulation Plan sold 3,400 shares of Saia
stock on the open market at $31.07 per share during the period of
August 1, 2006 through August 31, 2006. |
|
(4) |
|
The SCST Executive Capital Accumulation Plan sold no shares of Saia
stock on the open market during the period of September 1, 2006
through September 30, 2006. |
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
24
Item 6. Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of Saia, Inc. (incorporated herein
by reference to Exhibit 3.1 of Saia, Inc.s Form 8-K (File No. 0-49983) filed on
July 26, 2006). |
|
|
|
3.2
|
|
Amended and Restated Bylaws of Saia, Inc. (incorporated herein by reference to
Exhibit 3.2 of Saia, Inc.s Form 8-K (File No. 0-49983) filed on July 26, 2006). |
|
|
|
4.1
|
|
Rights Agreement between SCS Transportation, Inc. and Mellon Investor Services LLC
dated as of September 30, 2002 (incorporated herein by reference to Exhibit 4.1 of
SCS Transportation, Inc.s Form 10-Q (File No. 0-49983) for the quarter ended
September 30, 2002). |
|
|
|
31.1
|
|
Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13a-15(e). |
|
|
|
31.2
|
|
Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-15(e).
|
|
|
|
32.1
|
|
Certification of Principal
Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Principal
Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
SAIA, INC. |
|
|
|
|
|
|
|
Date: October 31, 2006
|
|
/s/ James A. Darby
|
|
|
|
|
James A. Darby |
|
|
|
|
Vice President of Finance and |
|
|
|
|
Chief Financial Officer |
|
|
26
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of Saia, Inc. (incorporated herein
by reference to Exhibit 3.1 of Saia, Inc.s Form 8-K (File No. 0-49983) filed on
July 26, 2006). |
|
|
|
3.2
|
|
Amended and Restated Bylaws of Saia, Inc. (incorporated herein by reference to
Exhibit 3.2 of Saia, Inc.s Form 8-K (File No. 0-49983) filed on July 26, 2006). |
|
|
|
4.1
|
|
Rights Agreement between SCS Transportation, Inc. and Mellon Investor Services LLC
dated as of September 30, 2002 (incorporated herein by reference to Exhibit 4.1 of
SCS Transportation, Inc.s Form 10-Q (File No. 0-49983) for the quarter ended
September 30, 2002). |
|
|
|
31.1
|
|
Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13a-15(e). |
|
|
|
31.2
|
|
Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-15(e). |
|
|
|
32.1
|
|
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
E-1