e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
OR
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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
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48-1229851 |
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| (State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.) |
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11465 Johns Creek Parkway, Suite 400
Duluth, Georgia
(Address of Principal Executive Offices)
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30097
(Zip Code) |
(770) 232-5067
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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Title of each class
Common Stock, par value $.001 per share
Preferred Stock Purchase Rights
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Names of each exchange on which registered
The Nasdaq National Market
The Nasdaq National Market |
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark whether the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act. Yes o No þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. 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 a shell company (as defined in Rule 12b-2 of the
Act). Yes o Noþ
As of June 30, 2006 the aggregate market value of the registrant’s common stock held by
non-affiliates of the registrant was $396,490,446 based on the last reported sales price of the
common stock as reported on the National Association of Securities Dealers Automated Quotation
System National Market System. The number of shares of Common Stock outstandingas of February 21, 2007 was 14,323,072.
Documents Incorporated by Reference
Portions of the definitive Proxy Statement to be filed within 120 days of December 31, 2006,
pursuant to Regulation 14A under the Securities Exchange Act of 1934 for the Annual Meeting of
Stockholders to be held April 19, 2007 have been incorporated by reference into Part III of this
Form 10-K.
PART I.
Overview
Saia, Inc. (Saia or the Company) is a leading asset-based trucking transportation company that
provides a variety of trucking transportation and supply chain solutions to a broad range of
industries, including the retail, chemical and manufacturing industries.
We were organized in 2000 as a wholly owned subsidiary of Yellow Corporation, now known as YRC
Worldwide, (Yellow) to better manage its regional transportation business. We became an
independent public company on September 30, 2002 as a result of a 100 percent tax-free distribution
of shares to Yellow shareholders (the Spin-off). Each Yellow shareholder received one share of
Saia stock for every two shares of Yellow stock held as of the September 3, 2002 record date. As a
result of the Spin-off, Yellow does not own any shares of our capital stock.
On June 30, 2006, the Company completed the sale of the outstanding stock of Jevic Transportation,
Inc. (Jevic), its hybrid less-than-truckload (LTL) and truckload (TL) carrier business to, a
private investment firm. The transaction included net cash proceeds of $41.3 million and $11.2
million in income tax benefits from structuring the transaction as an asset sale for tax purposes.
Jevic has been reflected as a discontinued operation in the Company’s financial statements for all
periods presented.
We are now a single segment company with one operating subsidiary, Saia Motor Freight Line LLC.
(Saia Motor Freight). We serve a wide variety of customers by offering regional and interregional
LTL services and selected national LTL and guarantee expedited services. None of our approximately
8,400 employees is represented by a union. In 2006 from continuing operations, Saia generated
revenue of $875 million and operating income of $50.0 million. In 2005 from continuing operations,
Saia generated revenue of $754 million and operating income of $50.4 million. Information
regarding revenues and operating income of Saia are contained in the notes to our audited
consolidated financial statements contained in this annual report.
Saia Motor Freight Line LLC.
Founded in 1924, Saia Motor Freight is a leading multi-regional LTL carrier that serves 34 states
in the South, Southwest, Midwest, Pacific Northwest and the West. Saia Motor Freight specializes
in offering its customers a range of regional and interregional LTL services including
time-definite and expedited options. Saia Motor Freight primarily provides its customers with
solutions for shipments between 100 and 10,000 pounds, but also provides selected guaranteed,
expedited and truckload service.
Saia Motor Freight has invested substantially in technology, training and business processes to
enhance its ability to monitor and manage customer service, operations and profitability. These
data capabilities enable Saia Motor Freight to provide its trademarked Customer Service Indicators®
program, allowing customers to monitor service performance on a wide array of attributes.
Customers can access the information via the Internet (www.saia.com) to help manage their
shipments. The Customer Service Indicators® (CSI’s) measure the following: on-time pickup;
on-time delivery; claim free shipments; claims settled within 30 days; proof of delivery request
turnaround; and invoicing accuracy. The CSI’s provide both Saia Motor Freight and the customer
with a report card of overall service levels.
As of December 31, 2006, Saia Motor Freight operated a network comprised of 148 service facilities.
In 2006, the average Saia Motor Freight shipment weighed approximately 1,325 pounds and traveled
an average distance of approximately 620 miles. In March 2001, Saia Motor Freight successfully
integrated its WestEx and Action Express affiliates into its operations and expanded its geographic
reach to 21 states. On February 16, 2004, Saia Motor Freight acquired Clark Bros. Transfer, Inc.
(Clark Bros.), a Midwestern LTL carrier serving eleven states with approximately 600 employees.
The operations of Clark Bros. were successfully integrated into Saia Motor Freight in May 2004
bringing the benefits of Saia Motor Freight transportation service to major Midwestern markets
including Chicago, Minneapolis, St. Louis and Kansas City. On November 18, 2006, Saia Motor
Freight acquired The Connection Company (the Connection), a less-than-truckload carrier serving
four states (Indiana, Kentucky, Michigan, and Ohio) with approximately 700 employees. The
operations of the Connection were integrated into Saia Motor Freight in February 2007. On February
1, 2007, Saia Motor Freight acquired Madison Freight Systems, Inc. (MFS), a less-than-truckload
carrier serving all of Wisconsin and parts of Illinois and Minnesota with approximately 200
employees. The operations of MFS are scheduled to be integrated into the Saia Motor Freight
network in April 2007.
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Industry
According to an American Trucking Associations report, in 2005 the trucking industry accounted for
88 percent of total domestic freight revenue, or $739 billion, and 69 percent of domestic freight
volume. Trucks provide transportation services to virtually every industry operating in the United
States and generally offer higher levels of reliability, shipment integrity and speed than other
surface transportation options.
The trucking industry consists of three segments, including private fleets and two “for-hire”
carrier groups. The private carrier segment generated approximately $280 billion in revenue or 38
percent of total trucking revenue and consists of fleets owned and operated by shippers who move
their own goods. The two “for-hire” groups, TL and LTL, are based on the typical shipment sizes
handled by transportation service companies. TL refers to providers generally transporting
shipments greater than 10,000 pounds and LTL refers to providers generally transporting shipments
less than 10,000 pounds.
Saia is primarily an LTL carrier. The LTL segment accounted for approximately $45 billion of
revenue in 2005, or 6 percent of total trucking revenue, according to the American Trucking
Associations.
LTL transportation providers consolidate numerous orders, generally ranging from 100 to 10,000
pounds, from businesses in different locations. Orders are consolidated at individual locations
within a certain radius from service facilities and then transported from there to the ultimate
destination. As a result, LTL carriers require expansive networks of pickup and delivery
operations around local service facilities and shipments are moved between origin and destination
often through an intermediate distribution or “breakbulk” facility. Depending on the distance
shipped, the LTL segment historically was classified into three subgroups:
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Regional — Average distance is typically less than 500 miles with a focus on one- and
two-day markets. Regional transportation companies can move shipments directly to their
respective destination centers, which increases service reliability and avoids costs
associated with intermediate handling. |
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Interregional — Average distance is usually between 500 and 1,000 miles with a focus on
serving two- and three-day markets. |
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National — Average distance is typically in excess of 1,000 miles with a focus on service
in two- to five-day markets. National providers rely on intermediate shipment handling
through hub and spoke networks, which require numerous satellite service facilities, multiple
distribution facilities, and a relay network. To gain service and cost advantages, they
occasionally ship directly between service facilities, reducing intermediate handling. |
Over the last several years there has been a blurring of the above subgroups as individual
companies are increasingly attempting to serve multiple subgroups. For example, a number of
companies are focusing on serving one and two-day lanes, as well as serving three and more day
markets between adjacent regions. Saia operates as a traditional LTL carrier with a primary focus
on regional and interregional LTL lanes.
The TL segment is the largest portion of the “for-hire” truck transportation market. In 2005 the
TL segment generated approximately $298 billion in revenue or 40 percent of total trucking revenue,
according to the American Trucking Associations. TL carriers primarily transport large shipments
from origin to destination with no intermediate handling. Although a full truckload can weigh over
40,000 pounds, it is common for carriers to haul two or three shipments exceeding 10,000 pounds
each at one time, making multiple delivery stops.
Because TL carriers do not require an expansive network to provide point-to-point service, the
overall cost structure of TL participants is typically lower relative to LTL service providers.
The segment is comprised of several major carriers and numerous small entrepreneurial players. At
the most basic level, a TL company can be started with capital for rolling stock (a tractor and a
trailer), insurance, a driver and little else. As size becomes a factor, capital is needed for
technology infrastructure and some limited facilities. Saia Motor Freight participates in the TL
market as a means to fill empty miles in lanes that are not at capacity.
Capital requirements are significantly different in the traditional LTL segment versus the TL
segment. In the LTL sector, substantial amounts of capital are required for a network of service
facilities, shipment handling equipment and revenue equipment (both for city pick-up, delivery and
linehaul). In addition, investment in effective technology has become increasingly important in
the LTL segment, largely due to the number of transactions and number of customers served on a
daily basis. Saia Motor Freight picks up approximately 24,000 shipments per day, each of which has
a shipper and consignee, and occasionally a third party, all of who need access to information in a
timely manner. More importantly, technology plays a key role in improving customer service,
operations efficiency,
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safety and yield management. Due to the significant infrastructure spending required, the cost
structure is relatively prohibitive to new startup or small entrepreneurial operations. As a
result, the LTL segment is more concentrated than the TL segment, with a few large national
carriers and several large regional carriers.
Business Strategy
Saia has grown over the last decade through a combination of organic growth and the integration or
“tuck-in” of smaller trucking companies. In 2001, Saia integrated WestEx and Action Express,
regional LTL companies which had been acquired by Yellow in 1994 and 1998, respectively. WestEx
operated in California and the Southwest, and Action Express operated in the Pacific Northwest and
Rocky Mountain states. In 2004 Saia acquired and integrated Clark Bros., a Midwestern
less-than-truckload carrier serving eleven states. Saia has successfully integrated these
companies, which had contiguous regional coverage with minimal overlap. In late 2006, Saia
acquired the Connection which operates in Indiana, Kentucky, Michigan and Ohio. Saia integrated
the operations of the Connection during February 2007.
Key elements of our business strategy include:
Continue to focus on operating safely.
Our most valuable resource is our employees. It is a corporate priority to continually emphasize
the importance of safe operations and to reduce both the frequency and severity of injuries and
accidents. This emphasis is not only appropriate to protect our employees and our communities, but
with the continued escalation of commercial insurance and health care costs, is important to
maintain and improve shareholder returns.
Continue focus on delivering best-in-class service.
The foundation of Saia’s growth strategy is consistent delivery of high-quality service.
Commitment to service quality is valued by customers and allows us to gain fair compensation for
our services and positions us to improve market share.
Increase density in existing geographies.
We gain operating leverage by growing volume and density within existing geography. We estimate
the potential incremental profitability on growth in current markets can be 15 percent or even
higher. This improves margins, asset turnover and return on capital. We actively monitor
opportunities to add service facilities where we have sufficient density. We see potential for
future volume growth at Saia from the general economy, industry consolidation, opportunistic
acquisitions, as well as specific sales and marketing initiatives.
Manage yields and business mix.
This strategy involves managing both the pricing process and the mix of customers and segments, in
ways that allow our networks to operate more profitably. While regional pricing remains highly
competitive, it has improved in 2006 and should continue to benefit if industry consolidation
continues and capacity remains tight as management expects.
Continue focus on improving operating efficiencies.
Saia has management initiatives and ongoing establishment of comprehensive operating best practices
focused on continuing to improve operating efficiency. These initiatives help offset a variety of
structural cost increases like casualty insurance, wage rates and health care benefits. We believe
Saia continues to be well positioned to manage costs and asset utilization and we believe we will
continue to see new opportunities for cost savings.
Prepare the organization for future growth.
Our primary focus within organizational development is maintaining sound relationships with our
current employees. We invest in our employees through internal communication, training programs
and providing competitive wages and benefits.
We believe it is also important to invest in the development of human resources, technology
capabilities and strategic real estate that are designed to position our Company for future growth
to meet the increasing demands of the marketplace.
Expand geographic footprint.
We plan to pursue additional geographic expansion at Saia as we believe it promotes profitability
growth and improves our customer value proposition. For example, we believe Saia’s 2004
acquisition of Clark Bros.
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accounted for the some of Saia’s strongest revenue trends, which were shipments into and out of
this new geography.
Management may consider acquisitions from time to time to help expand geographic reach and density
while gaining the business base of the acquired entity. Management believes integration of
acquisitions is a core competency and it has developed a repeatable process from its successful
experience in 2001 in integrating WestEx and Action Express into Saia and in 2004 in integrating
Clark Bros. into Saia. Also during November 2006, Saia acquired the Connection expanding its
footprint into Indiana, Kentucky, Michigan and Ohio and integrated it into Saia’s operations in
February of 2007. On February 1, 2007, Saia acquired MFS to expand its coverage and density in
Wisconsin.
Seasonality
Our revenues are subject to seasonal variations. Customers tend to reduce shipments after the
winter holiday season, and operating expenses tend to be higher as a percent of revenue in the
winter months primarily due to lower capacity utilization and weather effects. Generally, the
first quarter is the weakest while the second and third quarters are the strongest.
Labor
Most LTL companies, including Saia, and virtually all TL companies are not subject to collective
bargaining agreements.
In recent years, due to competition for quality employees, the compensation divide between union
and non-union carriers has closed dramatically. However, there are still significant differences
in benefit costs and work rule flexibility. Benefit costs for union carriers remain significantly
above those paid by non-union carriers, and union carriers may be subject to certain contingent
multi-employer pension liabilities. In addition, non-union carriers have more work rule
flexibility with respect to work schedules, routes and other similar items. Work rule flexibility
is a major consideration in the regional LTL sector, as flexibility is important to meet the
service levels required by customers.
Our employees are not represented by a collective bargaining unit. We believe this provides for
better communications and employee relations, stronger future growth prospects, as well as improved
efficiencies and customer service capabilities.
Competition
Although there is industry consolidation, shippers continue to have a wide range of choices. We
believe that service quality, variety of services offered, geographic coverage, responsiveness and
flexibility are the important competitive differentiators.
Saia focuses primarily on regional and interregional business and operates in a highly competitive
environment against a wide range of transportation service providers. These competitors include a
small number of large, national transportation service providers in the national and two-day
markets and a large number of shorter-haul or regional transportation companies in the two-day and
overnight markets. Saia also competes in and against several modes of transportation, including
LTL, truckload and private fleets. The larger the service area, the greater the barriers to entry
into the LTL trucking segment due to the need for broader geographic coverage and additional
equipment and facility requirements associated with this coverage. The level of technology
applications required and the ability to generate shipment densities that provide adequate labor
and equipment utilization also make larger-scale entry into the market difficult.
Regulation
The trucking industry has been substantially deregulated and rates and services are now largely
free of regulatory controls, although federal and state authorities retain the right to require
compliance with safety and insurance requirements. The trucking industry remains subject to
regulatory and legislative changes that can have a material adverse effect on our operations.
Key areas of regulatory activity include:
Department of Homeland Security.
The trucking industry is working closely with government agencies to define and implement improved
security processes. The Transportation Security Administration continues to focus on trailer
security, driver identification,
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security clearance and border-crossing procedures. These and other safety and security measures
such as rules for transportation of hazardous materials could increase the cost of operations,
reduce the number of qualified drivers and disrupt or impede the timing of our deliveries to
customers.
Department of Transportation.
Within the Department of Transportation, the Federal Motor Carrier Safety Administration (the
“FMCSA”) issued in August 2005, amended rules on motor carrier driver hours of service, which limit
the maximum number of hours a driver may be on duty between mandatory off-duty hours. These
amended rules replaced those vacated by the courts in July 2004. The Company’s operations were
adjusted to comply with these new rules, and base operations were not materially affected.
Revisions to these new rules, as a result of pending or future legal challenges, or any future
requirements for on board recorders, could impact our operations, further tighten the market for
qualified drivers, and put additional upward pressure on driver wages and purchased transportation
costs.
Environmental Protection Agency.
A significant reduction in emissions is scheduled for 2007, which includes both reductions in
sulfur content of diesel fuel and further reductions in engine emissions. These regulations have
the potential to increase the cost of replacing and maintaining trucks, increase fuel costs, reduce
availability of fuel and reduce productivity.
Our motor carrier operations are also subject to environmental laws and regulations, including laws
and regulations dealing with underground fuel storage tanks, the transportation of hazardous
materials and other environmental matters. We maintain bulk fuel storage and fuel islands at
several of our facilities. Our operations involve the risks of fuel spillage or seepage,
environmental damage and hazardous waste disposal, among others. We have established programs
designed to monitor and control environmental risks and to comply with all applicable environmental
regulations. As part of our safety and risk management program, we periodically perform internal
environmental reviews to maintain environmental compliance and avoid environmental risk. We
believe that we are currently in substantial compliance with applicable environmental laws and
regulations and that the cost of compliance has not materially affected results of operations.
Food and Drug Administration.
As transportation providers of foodstuffs, we have had to comply with all rules issued by the Food
and Drug Administration to provide security of food and foodstuffs throughout the supply chain. We
believe that we are currently in substantial compliance with applicable Food and Drug
Administration rules and that the cost of compliance has not materially affected our results of
operations.
Trademarks and Patents
We have registered several service marks and trademarks in the United States Patent and Trademark
office, including Saia Guaranteed Select®, Saia Customer Service Indicators® and Saia Xtreme
Guarantee®. We believe that these service marks and trademarks are important components of our
marketing strategy.
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Executive Officers
Information regarding executive officers of Saia is as follows (included herein pursuant to
Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G (3) of Form 10-K):
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Richard D. O’Dell
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Effective January 1, 2007, President and
Chief Executive Officer, Saia, Inc. having
served as President of Saia, Inc. since
July 2006. Previously, Mr. O’Dell served
as President and Chief Executive Officer,
Saia Motor Freight Line, LLC since November
1999. Mr. O’Dell has been a member of the
Board of Directors of Saia, Inc. since July
2006. |
Anthony D. Albanese
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Senior Vice President of Sales & Operations
of Saia Motor Freight Line, LLC since 1999. |
James A. Darby
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Vice President of Finance and Chief
Financial Officer of Saia, Inc. since
September 2006, having served as Vice
President of Finance & Administration for
Saia Motor Freight Line, LLC since 2000. |
Mark H. Robinson
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Vice President and Chief Information
Officer of Saia, Inc. since August 2005,
having served as Vice President of
Information Technology for Saia Motor
Freight Line, LLC since 1999. |
David J. Letke
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Vice President of Operations — East of
Saia Motor Freight Line, LLC since March
2006, having served as Vice President,
Operations and Planning, Saia, Inc. since
October 2002. Mr. Letke served as a
consultant to the Yellow Regional
Transportation Group from February 2000
through September 2002. |
Officers are elected by, and serve at the discretion of, the Board of Directors. There are no
family relationships between any executive officer and any other executive officer or director of
Saia or of any of its subsidiaries.
Additional Information
Saia has an Internet website that is located at www.saia.com. Saia makes available free of charge
through its Internet website all filings with the Securities and Exchange Commission as soon as
reasonably practicable after making such filings with the Securities and Exchange Commission.
Saia shareholders should be aware of certain risks, including those described below and elsewhere
in this Form 10-K, which could adversely affect the value of their holdings and could cause our
actual results to differ materially from those projected in any forward looking statements.
We are subject to general economic factors that are largely out of our control, any of which could
have a material adverse effect on the results of our operations.
Our business is subject to a number of general economic factors that may have a material adverse
effect on the results of our operations, many of which are largely out of our control. These
include recessionary economic cycles and downturns in customer business cycles, particularly in
market segments and industries, such as retail, manufacturing and chemical, where we have a
significant concentration of customers. Economic conditions may adversely affect the business
levels of our customers, the amount of transportation services they need and their ability to pay
for our services. It is not possible to predict the long-term effects of terrorist attacks and
subsequent events on the economy or on customer confidence in the United States, or the impact, if
any, on our future results of operations.
We are dependent on cost and availability of qualified drivers and purchased transportation.
There is significant competition for qualified drivers within the trucking industry and attracting
and retaining drivers has become more challenging. We may periodically experience shortages of
qualified drivers that could result in us not meeting customer demands, upward pressure on driver
wages, underutilization of our truck fleet and/or use of higher cost purchased transportation,
which could have a material adverse effect on our operating results. There is also significant
competition for quality purchased transportation within the trucking industry. We may periodically
experience shortages of quality purchased transportation that could result in us not meeting
customer demands, which could have a material adverse effect on our operating results.
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We are dependent on cost and availability of fuel.
Fuel is a significant operating expense. We do not hedge against the risk of fuel price increases.
Global political events, federal, state and local regulations, natural disasters and other
external factors could influence the cost and availability of fuel. Increases in fuel prices to
the extent not offset by fuel surcharges or other customer price increases or any fuel shortages or
interruption in the supply or distribution of fuel could have a material adverse effect on
operating results. Historically we have been able to offset significant fuel price increases
through fuel surcharges to our customers, but we cannot be certain that we will be able to do so in
the future. In addition, in recent years, given the significance of fuel surcharges, the
negotiation of customer price increases has become commingled with fuel surcharges and fuel
surcharges have more than offset higher diesel fuel costs. We have experienced cost increases in
other operating costs as a result of increased fuel prices. However, the total impact of higher
energy prices on other non-fuel related expenses is difficult to determine. A rapid and
significant decline in diesel fuel prices would reduce the Company’s revenue and yield until we
made the appropriate adjustments to our pricing strategy.
Limited supply of new revenue equipment and real estate may adversely impact financial results and
cash flows.
Investment in new revenue equipment is a significant part of our annual capital expenditures. We
may have difficulty in purchasing new trucks due to decreased supply and the price of such
equipment may be adversely impacted by future regulations on newly manufactured diesel engines.
The Company’s business model is also dependent on cost and availability of terminal facilities in
key metropolitan areas. Shortages in the availability of real estate or delays in construction due
to difficulties in obtaining permits may require significant additional investment in leasing,
purchasing or building facilities, increase our operating expenses and/or prevent us from
efficiently serving certain markets. In addition, we may not realize sufficient revenues or
profits from our infrastructure investments.
Effectiveness of Company-specific performance improvement initiatives.
Operating performance improvement at Saia is dependent on the implementation and/or the
continuation of various performance improvement initiatives. Profitability at Saia has improved
consistently over the past several years, but our operating margin is still below several
“best-in-class” competitors. There can be no assurance that Saia’s historical performance trend
will be representative of future performance. Failure to achieve performance improvement
initiatives could have a material adverse impact on our operating results.
We operate in a highly regulated and highly taxed industry, and costs of compliance with, or
liability for violation of, existing or future regulations could have a material adverse effect on
our business.
The U.S. Department of Transportation and various state agencies exercise broad powers over our
business, generally governing such activities as authorization to engage in motor carrier
operations, safety and financial reporting. We may also become subject to new or more restrictive
regulations imposed by the Department of Transportation, the Occupational Safety and Health
Administration or other authorities relating to engine exhaust emissions, driver hours of service,
security, ergonomics, as well as other unforeseen matters. Compliance with such regulations could
substantially impair equipment productivity and increase our costs. Various federal and state
authorities impose significant operating taxes on the transportation industry, including fuel
taxes, tolls, excise and other taxes. There can be no assurance such taxes will not substantially
increase or that new forms of operating taxes will not be imposed on the industry.
Within the Department of Transportation, the Federal Motor Carrier Safety Administration (the
FMCSA) issued in August 2005, amended rules on motor carrier driver hours of service, which limit
the maximum number of hours a driver may be on duty between mandatory off-duty hours. These
amended rules replaced those vacated by the courts in July 2004. The Company’s operations were
adjusted to comply with these new rules, and while our base operations were not materially
affected, we did experience deterioration in the cost, availability and reliability of purchased
transportation. Revisions to these new rules, as a result of pending or future legal challenges,
or any future requirements for on-board recorders, could further impact our operations, further
tighten the market for qualified drivers, and put additional pressure on driver wages and purchased
transportation costs.
The Transportation Security Administration continues to focus on trailer security, driver
identification and security clearance, and border crossing procedures. These and other safety and
security measures such as rules for transportation of hazardous materials could increase the cost
of operations, reduce the number of qualified drivers and disrupt or impede the timing of our
deliveries for our customers.
The Environmental Protection Agency has issued regulations that require progressive reductions in
exhaust emissions from diesel engines through 2010. A significant reduction in emissions is
scheduled for 2007, which
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includes both reductions in sulfur content of diesel fuel and further reductions in engine
emissions. These regulations have the potential to increase the cost of replacing and maintaining
trucks, increase fuel costs, reduce availability of fuel and reduce productivity.
We are subject to various environmental laws and regulations, and costs of compliance with, or
liabilities for violations of, existing or future regulations could have a material adverse effect
on our business.
Our operations are subject to environmental laws and regulations dealing with the handling of
hazardous materials, underground fuel storage tanks, and discharge and retention of storm water. We
operate in industrial areas, where truck terminals and other industrial activities are located, and
where groundwater or other forms of environmental contamination may have occurred. Our operations
involve the risks of fuel spillage or seepage, environmental damage, and hazardous waste disposal,
among others. If we are involved in a spill or other accident involving hazardous substances, or if
we are found to be in violation of applicable laws or regulations, it could have a material adverse
effect on our business and operating results. If we fail to comply with applicable environmental
regulations, we could be subject to substantial fines or penalties and to civil and criminal
liability.
We operate in a highly competitive industry, and our business will be adversely impacted if we are
unable to adequately address potential downward pricing pressures and other factors that may
adversely affect our operations and profitability.
Numerous competitive factors could impair our ability to maintain our current profitability. These
factors include the following:
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competition with many other transportation service providers of varying types including
non-asset based logistics and freight brokerage companies, some of which have greater
capital resources than we do or have other competitive advantages; |
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transportation companies periodically reduce their prices to gain business, especially
during times of reduced growth rates in the economy, which may limit our ability to
maintain or increase prices or achieve significant growth in our business; and |
| |
| |
• |
|
advances in technology require increased investments to remain competitive, and our
customers may not be willing to accept higher prices to cover the cost of these
investments. |
The transportation industry is affected by business risks that are largely out of our control, any
of which could have a material adverse effect on the results of our operations.
Businesses operating in the transportation industry are affected by risks that are largely out of
our control, any of which could have a material adverse effect on the results of our operations.
These factors include weather, excess capacity in the transportation industry, interest rates, fuel
taxes, license and registration fees, and insurance premiums. Our results of operations may also be
affected by seasonal factors.
We have significant ongoing cash requirements that could limit our growth and affect profitability
if we are unable to obtain sufficient financing.
Our business is highly capital intensive. Our net capital expenditures from continuing operations
for 2006 were approximately $91 million and we anticipate net capital expenditures in 2007 of
approximately $85 million including $35 million for strategic real estate projects. We depend on
cash flows from operations, borrowings under our credit facilities and operating leases. If we are
unable in the future to raise sufficient capital or borrow sufficient funds to make these
purchases, our growth could be impacted and could potentially result in operating trucks and
trailers for longer periods of time, which could have a material adverse effect on operations.
In addition, under our current unsecured credit facilities, we are subject to certain debt
covenants and prepayment penalties. Those debt covenants limit our ability to pay dividends and
require maintenance of certain maximum leverage, minimum interest coverage and minimum tangible net
worth ratios, among other restrictions, that could limit availability of capital to meet our future
growth.
Our ability to repay or refinance our indebtedness will depend upon our future operating
performance, which will be affected by general economic, financial, competitive, legislative,
regulatory and other factors beyond our control.
Ongoing insurance and claims expenses could significantly reduce and cause volatility to our
earnings.
We are exposed to claims resulting from cargo loss, personal injury, property damage, group health
care and workers’ compensation in amounts ranging from $250,000 to $2.0 million per claim. We also
maintain insurance with licensed insurance companies above these large deductible amounts. If the
number or severity of future claims increases, insurance claim expenses might exceed historical
levels, which could significantly reduce our earnings.
10
Significant increases in insurance premiums could also impact financial results or cause us to
raise our self-insured retentions.
Furthermore, insurance companies as well as certain states require collateral in the form of
letters of credit or surety bonds for the estimated exposure of claims within our self-insured
retentions. Their estimate of our future exposure as well as external market conditions could
influence the amount and cost of additional letters of credit required under our insurance programs
and thereby reduce capital available for future growth.
Employees of Saia are non-union. The ability of Saia to compete would be substantially impaired if
operations were to become unionized.
None of our employees are currently represented by a collective bargaining agreement. Saia has in
the past been the subject of unionization efforts, which have been defeated. While Saia believes
its current relationship with its employees is good, there can be no assurance that further
unionization efforts will not occur in the future. The non-union status of Saia is a critical
factor in its ability to compete in its respective markets.
If we are unable to retain our key employees, our business, financial condition and results of
operation could be adversely impacted.
The future success of our business will continue to depend on our executive officers and certain
other key employees, who with the principal exceptions of Mr. O’Dell and Mr. Albanese do not have
employment agreements. The loss of services of any of our key personnel could have a material
adverse effect on us.
Certain provisions of our governing documents and Delaware law could have anti-takeover effects.
Our Restated Certificate of Incorporation and By-laws contain certain provisions, which may have
the effect of delaying, deferring or preventing a change of control of our company. Such
provisions include, for example, provisions classifying our Board of Directors, a prohibition on
shareholder action by written consent, authorization of the Board of Directors to issue preferred
stock in series, with the terms of each series to be fixed by the Board of Directors, and the
provision of an advance notice procedure for shareholder proposals and nominations to the Board of
Directors. These provisions could diminish the opportunities for a shareholder of Saia to
participate in certain tender offers, including tender offers at prices above the then-current fair
market value, and may also inhibit fluctuations in the market price of our common stock that could
result from takeover attempts. In addition, Saia has a shareholder rights plan that allows the
Board of Directors, without further shareholder approval, to issue common stock and preferred stock
that could have the effect of delaying, deferring or preventing a change of control of our company.
The issuance of common stock and preferred stock could also adversely affect the voting power of
the holders of common stock, including resulting in the loss of voting control to others. We have
no current plans to issue any such common or preferred stock.
We are subject to various warranties, representations and indemnification provisions under the
Stock Purchase Agreement for the sale of Jevic Transportation, Inc.
The Company and its subsidiary are subject to various warranties, representations and
indemnification provisions under the Stock Purchase Agreement. Adverse developments related to
those warranties, representations and indemnification provisions could have a material adverse
effect on us.
We may not realize the anticipated benefits of past or future acquisitions, and integration of
these acquisitions may disrupt our business and management.
We have announced that the acquisitions of The Connection Company and Madison Freight Systems will
be integrated into the operations of Saia Motor Freight during the first quarter of 2007. There
can be no assurance that the integration will be successful. We intend in the future to make
additional acquisitions. We may not realize the anticipated benefits of any future acquisitions.
Each acquisition has numerous risks, including:
| |
• |
|
difficulty in integrating the operations and personnel of the acquired company; |
| |
| |
• |
|
disruption of our ongoing business distraction of our management and employees from
other opportunities and challenges due to integration issues; |
| |
| |
• |
|
inability to achieve the financial and strategic goals for the acquired and combined
businesses; |
| |
| |
• |
|
potential failure of the due diligence processes to identify significant issues with
legal and financial contingencies, among other things. |
In the event that the integrations are not successfully completed there could be a material adverse
effect on us.
11
|
|
|
| Item 1B. |
|
Unresolved Staff Comments |
None.
Saia is headquartered in Duluth, Georgia. At December 31, 2006 Saia owned 47 service facilities
and the Houma, Louisiana general office and leased 101 service facilities, the Duluth, Georgia
corporate office and the Boise, Idaho general office. Although Saia owns only 32 percent of its
service facility locations, these locations account for 45 percent of its door capacity. This
follows the Saia strategy of owning strategically located facilities that are integral to its
operations and leasing service facilities in smaller markets to allow for more flexibility. As of
December 31, 2006, Saia owned all of its 3,392 tractors and 11,317 trailers.
Top 20 Saia Service Facilities by Number of Doors at December 31, 2006
| |
|
|
|
|
|
|
|
|
| Location |
|
Own/Lease |
|
Doors |
| |
Atlanta, GA |
|
Own |
|
|
224 |
|
Dallas, TX |
|
Own |
|
|
174 |
|
Memphis, TN |
|
Own |
|
|
124 |
|
Nashville, TN |
|
Own |
|
|
116 |
|
Houston, TX |
|
Own |
|
|
108 |
|
Charlotte, NC |
|
Own |
|
|
107 |
|
New Orleans, LA |
|
Own |
|
|
86 |
|
Los Angeles, CA |
|
Lease |
|
|
80 |
|
Fontana, CA |
|
Own |
|
|
75 |
|
St. Louis, MO |
|
Lease |
|
|
73 |
|
Chicago, IL |
|
Lease |
|
|
68 |
|
Miami, FL |
|
Own |
|
|
68 |
|
Markham, IL |
|
Lease |
|
|
68 |
|
Indianapolis, IN |
|
Lease |
|
|
68 |
|
Jacksonville, FL |
|
Lease |
|
|
64 |
|
Garland, TX |
|
Lease |
|
|
63 |
|
Toledo, OH |
|
Lease |
|
|
61 |
|
Phoenix, AZ |
|
Own |
|
|
59 |
|
Minneapolis, MN |
|
Lease |
|
|
56 |
|
Oklahoma City, OK |
|
Own |
|
|
55 |
|
Detroit, MI |
|
Lease |
|
|
55 |
|
|
|
|
| Item 3. |
|
Legal Proceedings |
Saia Motor Freight is subject to ordinary-course litigation arising out of personal injury,
property damage, freight and employment claims. None of these current legal actions separately or
in the aggregate are viewed by management to be excessive compared to historical trends, nor are
they expected to have a material adverse effect on our financial condition, results of operations
or cash flows.
|
|
|
| Item 4. |
|
Submission of Matters to a Vote of Security Holders |
There were no matters submitted to a vote of security holders during the fourth quarter of the year
ended December 31, 2006.
12
PART II.
|
|
|
| Item 5. |
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities |
Stock Price Information
Saia’s common stock is listed on the NASDAQ National Market (NASDAQ) under the symbol “SAIA.” The
following table sets forth, for the periods indicated, the high and low sale prices per share for
the common stock as reported on NASDAQ.
| |
|
|
|
|
|
|
|
|
| |
|
Low |
|
High |
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
21.36 |
|
|
$ |
31.53 |
|
Second Quarter |
|
$ |
23.12 |
|
|
$ |
30.75 |
|
Third Quarter |
|
$ |
25.30 |
|
|
$ |
34.04 |
|
Fourth Quarter |
|
$ |
22.80 |
|
|
$ |
36.17 |
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
18.22 |
|
|
$ |
23.74 |
|
Second Quarter |
|
$ |
14.90 |
|
|
$ |
19.75 |
|
Third Quarter |
|
$ |
14.74 |
|
|
$ |
18.59 |
|
Fourth Quarter |
|
$ |
14.70 |
|
|
$ |
22.95 |
|
Stockholders
As of January 31, 2007, there were 1,768 holders of record of our common stock.
Dividends
We have not paid a dividend on our common stock. Any payment of dividends in the future is
dependent upon our financial condition, capital requirements, earnings, cash flow and other
factors.
Dividends are prohibited under our current debt agreements, which have been previously filed with
the Securities and Exchange Commission and are incorporated by reference herein. However, there
are no material restrictions on the ability of our subsidiaries to transfer funds to us in the form
of cash dividends, loans or advances. See Note 4 of the accompanying audited consolidated
financial statements.
13
Equity Compensation Plan Information
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Number of |
| |
|
|
|
|
|
|
|
|
|
securities |
| |
|
|
|
|
|
|
|
|
|
remaining available |
| |
|
Number of |
|
|
|
|
|
for future |
| |
|
securities to be |
|
|
|
|
|
issuances under |
| |
|
issued upon |
|
Weighted-average |
|
equity compensation |
| |
|
exercise of |
|
exercise price of |
|
plans (excluding |
| |
|
outstanding |
|
outstanding |
|
securities |
| |
|
options, warrants |
|
options, warrants |
|
reflected in column |
| Plan Category |
|
and rights |
|
and rights |
|
(a)) |
|
|
(a) |
|
(b) |
|
(c) |
Equity compensation plans approved
by security holders |
|
|
497,709 |
|
|
$ |
9.03 |
|
|
|
242,109 |
(1) |
| |
Equity compensation plans not
approved by security holders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
Total |
|
|
497,709 |
|
|
$ |
9.03 |
|
|
|
242,109 |
|
| |
|
|
|
|
|
| (1) |
|
See Note 9 to the audited consolidated financial statements for a description of the equity compensation plan for securities
remaining available for future issuance. No more than 100,000 of the amount remaining available may be issued in the form of restricted
stock under the Amended and Restated SCS Transporation, Inc. 2003 Omnibus Incentive Plan. |
14
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities —
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuer Purchases of Equity Securities |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Maximum Number |
| |
|
|
|
|
|
|
|
|
|
(c) Total Number of |
|
(or Approximate |
| |
|
|
|
|
|
|
|
|
|
Shares (or Units) |
|
Dollar Value) of |
| |
|
|
|
|
|
|
|
|
|
Purchased as Part |
|
Shares (or Units) |
| |
|
(a) Total Number of |
|
(b) Average Price |
|
of Publicly |
|
that May Yet be |
| |
|
Shares (or Units) |
|
Paid per Share (or |
|
Announced Plans or |
|
Purchased under the |
| Period |
|
Purchased |
|
Unit) |
|
Programs |
|
Plans or Programs |
October 1, 2006 through
October 31, 2006 |
|
|
8,100 |
(2) |
|
$ |
26.79 |
(2) |
|
|
75,000 |
(1) |
|
$ |
5,081,049 |
(1) |
November 1, 2006 through
November 30, 2006 |
|
|
1,550 |
(3) |
|
|
26.34 |
(3) |
|
|
189,600 |
(1) |
|
|
25,000,000 |
(1) |
December 1, 2006 through
December 31, 2006 |
|
|
860 |
(4) |
|
|
24.40 |
(4) |
|
|
71,800 |
(1) |
|
|
23,234,574 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
10,510 |
|
|
|
|
|
|
|
336,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Shares purchased as part of publicly announced programs were purchased on the open market in accordance with the Company’s $20,000,000 stock repurchase program
that was announced on May 3, 2005. This program was completed in the fourth quarter of 2006 with purchases totaling the $7,097,296 remaining in the program. The
remaining shares purchased as part of publicly announced programs were purchased on the open market in accordance with the Company’s $25,000,000 stock repurchase
program that was announced on November 27, 2006. The remaining shares purchased by the Company were purchased on the open market by the SCST Executive Capital
Accumulation Plan. 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. |
| |
| (2) |
|
The SCST Executive Capital Accumulation Plan sold 500 shares of Saia stock on the open market at $35.69 per share during the period of October 1, 2006 through
October 31, 2006. |
| |
| (3) |
|
The SCST Executive Capital Accumulation Plan sold no shares of Saia stock on the open market during the period of November 1, 2006 through November 30, 2006. |
| |
| (4) |
|
The SCST Executive Capital Accumulation Plan sold no shares of Saia stock on the open market during the period of December 1, 2006 through December 31, 2006. |
15
|
|
|
| Item 6. |
|
Selected Financial Data |
The following table shows summary consolidated historical financial data of Saia and has been
derived from, and should be read together with, the consolidated financial statements and
accompanying notes and in conjunction with “Management’s Discussion and Analysis of Results of
Operations and Financial Condition”. The summary financial information may not be indicative of
the future performance of Saia.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
| |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
| |
|
(In thousands except per share data and percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue — continuing operations |
|
$ |
874,738 |
|
|
$ |
754,038 |
|
|
$ |
645,374 |
|
|
$ |
520,668 |
|
|
$ |
489,832 |
|
Operating income — continuing operations (1) |
|
|
49,994 |
|
|
|
50,436 |
|
|
|
30,342 |
|
|
|
22,255 |
|
|
|
20,685 |
|
Income from continuing operations |
|
|
25,873 |
|
|
|
25,158 |
|
|
|
13,222 |
|
|
|
7,828 |
|
|
|
9,255 |
|
Income before cumulative effect
of accounting change |
|
|
25,873 |
|
|
|
25,158 |
|
|
|
13,222 |
|
|
|
14,933 |
|
|
|
12,058 |
|
Net income (loss) (2) |
|
|
(20,681 |
) |
|
|
27,459 |
|
|
|
19,259 |
|
|
|
14,933 |
|
|
|
(63,117 |
) |
Diluted earnings per share -
continuing operations (3) |
|
|
1.74 |
|
|
|
1.67 |
|
|
|
0.86 |
|
|
|
0.52 |
|
|
|
0.63 |
|
Diluted earnings per share before
cumulative effect of accounting
change (3) |
|
|
1.74 |
|
|
|
1.67 |
|
|
|
0.86 |
|
|
|
0.99 |
|
|
|
0.82 |
|
Diluted earnings (loss) per share (2)(3) |
|
|
(1.39 |
) |
|
|
1.82 |
|
|
|
1.26 |
|
|
|
0.99 |
|
|
|
(4.30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities |
|
|
76,137 |
|
|
|
83,903 |
|
|
|
55,239 |
|
|
|
58,270 |
|
|
|
50,439 |
|
Net cash used in investing
activities (4) |
|
|
(72,298 |
) |
|
|
(53,701 |
) |
|
|
(79,992 |
) |
|
|
(49,830 |
) |
|
|
(24,792 |
) |
Depreciation and amortization |
|
|
32,550 |
|
|
|
28,849 |
|
|
|
27,898 |
|
|
|
23,986 |
|
|
|
23,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
10,669 |
|
|
|
16,865 |
|
|
|
7,499 |
|
|
|
29,975 |
|
|
|
21,872 |
|
Net property and equipment |
|
|
314,832 |
|
|
|
246,634 |
|
|
|
223,625 |
|
|
|
192,733 |
|
|
|
182,873 |
|
Total assets |
|
|
487,400 |
|
|
|
554,741 |
|
|
|
509,548 |
|
|
|
464,843 |
|
|
|
444,908 |
|
Total debt |
|
|
109,984 |
|
|
|
114,913 |
|
|
|
122,810 |
|
|
|
116,510 |
|
|
|
116,410 |
|
Total shareholders’ equity |
|
|
203,155 |
|
|
|
228,392 |
|
|
|
212,542 |
|
|
|
189,582 |
|
|
|
174,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating ratio (5) |
|
|
94.3 |
% |
|
|
93.3 |
% |
|
|
95.3 |
% |
|
|
95.7 |
% |
|
|
95.8 |
% |
|
|
|
| (1) |
|
Operating expenses in 2006 include restructuring charges of $2.6 million, relating to the
consolidation and relocation of the holding company to Duluth, GA and integration charges of
$1.5 million, relating to the integration of the Connection into Saia. Operating income in
2005 includes a $7.0 million gain from sale of excess real estate. Operating expenses in 2004
include integration charges of $2.1 million relating to the integration of Clark Bros. into
Saia. |
| |
| (2) |
|
Net loss for the year ended December 31, 2002 includes a non-cash charge of $75.2 million
($5.12 per diluted share) recorded as a cumulative effect of change in accounting principle to
reflect the impairment of goodwill at Jevic under new accounting standards adopted January 1,
2002. |
| |
| (3) |
|
Earnings per share amounts for periods presented prior to the Spin-off are based on
14,565,478 shares of common stock outstanding at the September 30, 2002 Spin-off date. |
| |
| (4) |
|
Net cash used in investing activities in 2006 include $17.5 million for the acquisition of
the Connection and proceeds from the sale of Jevic of $41.3 million. Net cash used in
investing activities in 2004 include $23.5 million for the acquisition of Clark Bros. |
16
|
|
|
| (5) |
|
The operating ratio is the calculation of operating expenses divided by operating
revenue. |
|
|
|
| Item 7. |
|
Management’s 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 a private investment firm. The
transaction included 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 Company’s 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 $2.95 per diluted share in the year ended December 31, 2006. In
addition, the Company recorded as discontinued operations, a loss from the operations of Jevic for
the year ended December 31, 2006 of $2.8 million or $0.19 per diluted share. As a result of the
sale of Jevic the Company’s headquarters were consolidated and relocated to Duluth, Georgia.
The Company’s business is highly correlated to the general economy and, in particular, industrial
production. The Company’s priorities are focused on increasing volume within existing geographies
while managing both the mix and yield of business to achieve increased profitability. The
Company’s business is labor intensive, capital intensive and service sensitive. The Company looks
for opportunities to improve cost effectiveness, safety and asset utilization (primarily tractors
and trailers). Technology is important to supporting both customer service and operating
management. The Company grew operating revenue by 16.8 percent in 2006 over 2005. Revenue growth
was primarily attributable to growth in less-than-truckload (LTL) tonnage, improvement in yield
(revenue per hundred weight), including the effects of higher fuel surcharges.
Consolidated operating income from continuing operations was $50.0 million for 2006 compared to
$50.4 million in 2005 which included a pretax $7.0 million real estate gain. The 2006 results
include $1.5 million of pre-tax integration charges due to the acquisition of the Connection
Company in November 2006. In addition, the Company recorded a pre-tax charge of $2.6 million
related to the consolidation and relocation of the Company’s corporate headquarters to Duluth,
Georgia. The Company recorded a pre-tax charge of $3.0 million for equity-based compensation as a
result of the stock price performance during 2006 compared to a charge of $0.6 million in 2005.
Diluted earnings per share from continuing operations were $1.74 per share, an increase of 4
percent over the prior year. The 2006 operating income improvement was led by LTL tonnage
increases, particularly in the first half of 2006, LTL yield improvement and cost management
partially offset by the slowing of the economy in the second half of 2006 seen through a
significantly decreased seasonal peak.
The Company generated $55.6 million in cash from operating activities of continuing operations
versus generating $60.9 million in the prior-year period. Cash flows from operating activities of
discontinued operations were $20.5 million for 2006 versus $23.0 million for 2005. The Company had
net cash used in investing activities from continuing operations of $108.2 million during 2006 for
the purchase of property and equipment and the acquisition of the Connection. The Company had
proceeds from the sale of Jevic of $41.3 million and net investment in discontinued operation of
$5.4 million. Cash used in financing activities during 2006 included $5.0 million in principal
payments on long-term debt and $8.9 million in share repurchases only partially offset by proceeds
from stock option exercises of $3.8 million. The Company had no borrowings on its credit agreement
and a cash balance of $10.7 million as of December 31, 2006.
General
The following management’s discussion and analysis describes the principal factors affecting the
results of operations, liquidity and capital resources, as well as the critical accounting
policies, of Saia, Inc., formerly SCS Transportation, Inc. (also referred to as “Saia” and the
“Company”). This discussion should be read in conjunction with the accompanying audited
consolidated financial statements, which include additional information about our significant
accounting policies, practices and the transactions that underlie our financial results.
The Company is a an asset-based transportation company providing regional and interregional LTL
services and selected national LTL, and guaranteed expedited service solutions to a broad base of
customers across 34 states. Our operating subsidiaries are Saia Motor Freight Line, LLC (Saia
Motor Freight), based in Duluth, Georgia and the
17
Connection Company (the Connection) based in Sydney, Ohio. The Company integrated the operations
of the Connection into Saia Motor Freight in February 2007.
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 and
Risk Factors sections of this Form 10-K. 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 in the LTL industry 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. The fuel surcharge program is intended to reduce
the Company’s exposure to rising diesel prices and other costs affected by increased fuel prices,
such as purchased transportation. However, in recent years, given the significance of fuel
surcharges, the negotiation of customer price increases has become commingled with fuel surcharges
and fuel surcharges have more than offset higher diesel fuel costs. We have experienced cost
increases in other operating costs as a result of increased fuel prices. However, the total impact
of higher energy prices on other non-fuel related expenses is difficult to determine. A rapid and
significant decline in diesel fuel prices would reduce the Company’s revenue and yield until we
made the appropriate adjustments to our pricing strategy.
18
Results of Operations
Saia, Inc. and Subsidiaries
(formerly SCS Transportation, Inc. and Subsidiaries)
Selected Results of Continuing Operations and Operating Statistics
For the years ended December 31, 2006, 2005 and 2004
(in thousands, except ratios and revenue per hundredweight)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Variance |
| |
|
2006 |
|
2005 |
|
2004 |
|
‘06 v. ‘05 |
|
‘05 v. ‘04 |
Operating Revenue |
|
$ |
874,738 |
|
|
$ |
754,038 |
|
|
$ |
645,374 |
|
|
|
16.0 |
% |
|
|
16.8 |
% |
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and
employees’ benefits |
|
|
473,956 |
|
|
|
413,710 |
|
|
|
367,487 |
|
|
|
14.6 |
|
|
|
12.6 |
|
Purchased transportation |
|
|
70,029 |
|
|
|
62,557 |
|
|
|
56,815 |
|
|
|
11.9 |
|
|
|
10.1 |
|
Depreciation and amortization |
|
|
32,550 |
|
|
|
28,849 |
|
|
|
27,898 |
|
|
|
12.8 |
|
|
|
3.4 |
|
Other operating expenses |
|
|
248,209 |
|
|
|
198,486 |
|
|
|
162,832 |
|
|
|
25.1 |
|
|
|
21.9 |
|
Operating Income |
|
|
49,994 |
|
|
|
50,436 |
|
|
|
30,342 |
|
|
|
(0.9 |
) |
|
|
66.2 |
|
Operating Ratio |
|
|
94.3 |
% |
|
|
93.3 |
% |
|
|
95.3 |
% |
|
|
1.0 |
|
|
|
(2.1 |
) |
Nonoperating Expenses |
|
|
8,021 |
|
|
|
9,435 |
|
|
|
9,500 |
|
|
|
(15.0 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital |
|
|
7,043 |
|
|
|
10,973 |
|
|
|
54,066 |
|
|
|
(35.8 |
) |
|
|
(79.7 |
) |
Operating Cash Flow from
Continuing Operations |
|
|
55,643 |
|
|
|
60,910 |
|
|
|
34,001 |
|
|
|
(8.6 |
) |
|
|
79.1 |
|
Net Acquisitions of Property & Equipment |
|
|
90,748 |
|
|
|
33,305 |
|
|
|
41,880 |
|
|
|
172.5 |
|
|
|
(20.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saia Motor Freight Operating Statistics: |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL Tonnage |
|
|
3,460 |
|
|
|
3,144 |
|
|
|
2,909 |
|
|
|
10.1 |
|
|
|
8.1 |
|
Total Tonnage |
|
|
4,150 |
|
|
|
3,802 |
|
|
|
3,526 |
|
|
|
9.2 |
|
|
|
7.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL Shipments |
|
|
6,177 |
|
|
|
5,637 |
|
|
|
5,290 |
|
|
|
9.6 |
|
|
|
6.6 |
|
Total Shipments |
|
|
6,272 |
|
|
|
5,727 |
|
|
|
5,372 |
|
|
|
9.5 |
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL Revenue Per Hundredweight |
|
|
11.73 |
|
|
|
11.10 |
|
|
|
10.28 |
|
|
|
5.7 |
|
|
|
8.0 |
|
(excluding fuel surcharge) |
|
|
10.26 |
|
|
|
9.94 |
|
|
|
9.64 |
|
|
|
3.3 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue Per Hundredweight |
|
|
10.54 |
|
|
|
9.92 |
|
|
|
9.16 |
|
|
|
6.2 |
|
|
|
8.3 |
|
(excluding fuel surcharge) |
|
|
9.30 |
|
|
|
8.95 |
|
|
|
8.63 |
|
|
|
3.9 |
|
|
|
3.7 |
|
Continuing Operations
Year ended December 31, 2006 vs. year ended December 31, 2005
Revenue and volume
Consolidated revenue increased 16.0 percent to $874.7 million as a result of improved pricing and
increased volumes as both shipments and LTL tonnage were up over the prior year along with the $7.2
million of revenue from the acquisition of the Connection in November 2006. We believe volume
gains were attributable to market share gains into and out of Saia’s newer Midwest markets,
continued high quality service, industry consolidation, and company specific initiatives partially
offset by a slowing economy in the third and fourth quarters. Fuel surcharge revenue, which was
11.9 percent of total revenue in 2006, was up from 2005 when fuel surcharge revenue was 9.8 percent
of total revenue. While fuel costs increased during 2006, higher fuel surcharge revenues have more
than offset higher diesel fuel costs. We have experienced cost increases in other operating costs
as a result of increased fuel prices. However, the total impact of higher energy prices on other
non-fuel related expenses is difficult to determine.
Operating revenue excluding fuel surcharge was $771.8 million in 2006, up 13.5 percent from $679.9
million in 2005. Saia Motor Freight’s LTL revenue per hundredweight (a measure of yield) increased
5.7 percent to $11.73 per hundredweight for 2006 and LTL revenue per hundredweight excluding fuel
surcharge increased 3.3 percent. Saia Motor Freight experienced stronger price increases in 2006
over 2005, especially in the first half of 2006.
19
Growth during 2006 was stronger during the first half of 2006 versus the second half of 2006
due to the slowing of the economy. Additionally, pricing remains competitive in regional markets.
Saia Motor Freight LTL tonnage was up 10.1 percent to 3.5 million tons and LTL shipments were up
9.6 percent to 6.2 million shipments. Management believes that Saia Motor Freight continues to
grow volume by providing high quality service for its customers, continued market share gains from
its 2004 Midwest expansion, recent industry consolidation in its market segments, sales initiatives
in specific market segments and our Xtreme Guarantee program. Approximately 70 percent of Saia
Motor Freight’s revenue is subject to individual customer price adjustment negotiations that occur
intermittently throughout the year. The remaining 30 percent of revenue is subject to an 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. Competitive factors, customer
turnover and mix changes, among other things, impact the extent to which customer rate increases
are retained over time.
Operating expenses and margin
Consolidated operating income of $50.0 million in 2006 compared to 50.4 million in 2005, which
included a $7.0 million pre-tax real estate gain. The 2006 results include $1.5 million of pre-tax
integration charges from the acquisition of the Connection in November 2006. In addition, the
Company recorded a pre-tax charge in 2006 of $2.6 million related to the consolidation and
relocation of the Company’s corporate headquarters to Duluth, Georgia. These restructuring charges
are largely for severance benefits and stay incentives through the transition period. The Company
recorded a pre-tax charge of $3.0 million for equity-based compensation as a result of the stock
price performance during 2006. Equity-based compensation and restructuring charges totaled
approximately $0.29 per diluted share in 2006 compared to $0.02 per diluted share in 2005.
Year-over-year price and volume increases were partially offset by cost increases in wages, health
care, workers’ compensation, claims expense and deprecation and maintenance. The 2006 operating
ratio (operating expenses divided by operating revenue) was 94.3 compared to 93.3 for 2005.
However, excluding the restructuring and integration charges from 2006 and the real estate gain
from 2005, the comparative operating ratios would have been 93.8 in 2006 versus 94.2 in 2005.
Higher fuel prices, in conjunction with volume changes, caused $24.3 million of the increase in
fuel, operating expenses and supplies. Increased revenues from the fuel surcharge program offset
fuel price increases. Purchased transportation expenses increased 11.9 percent reflecting both
increased utilization driven by volume increases and increased cost per mile largely driven by both
capacity constraints and fuel price increases.
Saia Motor Freight inclusive of the Connection for the period subsequent to the acquisition had
operating income of $59.6 million in 2006 up 7.9 percent from $55.3 million in 2005. The operating
ratio at Saia Motor Freight decreased 50 basis points to 93.2 in 2006 compared to 92.7 in 2005.
Saia Motor Freight operating income gains through increased tonnage and prices were more than
offset by increases in wage and benefit costs, including workers’ compensation and health care; in
addition to higher depreciation, maintenance and cargo claim costs. Increases in workers’
compensation costs were due to increased frequency of injuries and higher medical costs. Decreased
purchased transportation as a percent of revenue was more than offset by increased wage and benefit
expense. Depreciation and maintenance costs are increasing due to more equipment and increased
miles driven by company drivers instead of purchased transportation. Saia Motor Freight continues
initiatives to manage productivity and control variable costs as monthly volumes fluctuated. Saia
Motor Freight’s 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. In the fourth quarter of 2005, the Company recorded
a partial insurance recovery of $1.0 million for losses attributable to Hurricane Katrina.
Net holding company operating expenses for 2006 were $9.7 million in excess of costs allocated to
Saia Motor Freight compared to $4.9 million in excess of costs allocated in 2005. 2006 annual
results include $3.0 million in equity-based compensation charges as a result of the Company’s
increased stock price relative to its peers versus $0.6 million in the prior year. The Company’s
long-term incentive plans’ expense is a function of the Company’s stock price performance versus a
peer group and the deferred compensation plan’s expense is tied to changes in the Company’s stock
price. Additionally, the net holding company operating expenses for the 2006 also reflect $2.6
million in restructuring costs associated with the Company’s consolidation and relocation of its
corporate headquarters to Duluth, Georgia.
Other
Substantially all the Company’s non-operating expenses represent interest expense. Interest costs
were $9.3 million in 2006 versus $9.8 million in 2005. Average outstanding indebtedness decreased
between 2006 and 2005 while
20
interest rates rose in 2006 on the smaller variable rate portion of the Company’s debt. The
Company’s capital structure consists predominantly of longer-term, fixed rate instruments. The
consolidated effective tax rate was 38.4 percent in 2006 compared to 38.6 percent in 2005. The
2006 effective tax rate included approximately $0.7 million of non-recurring tax credits. The 2005
effective tax rate was lower due to a $0.4 million tax benefit related to the favorable settlement
of various tax issues. The notes to the consolidated financial statements provide an analysis of
the income tax provision and the effective tax rate.
Working capital/capital expenditures
The decrease in working capital is predominantly the result of higher accounts payable at December
31, 2006 due to approximately $4.2 million in property and equipment received late in 2006 and
higher wage and employee benefit accruals along with the funds from the sale of Jevic being used to
purchase the Connection in November 2006 and repurchase shares in the fourth quarter of 2006. The
2006 capital investments for continuing operations were $93.2 million on a gross basis and $90.7
million on a net basis. Net capital expenditures of $90.7 million include approximately $11.3
million investment in real estate and $79.4 million for the purchase of revenue equipment for
growth and replacement units and investment in technology equipment and software.
Year ended December 31, 2005 vs. year ended December 31, 2004
Revenue and volume
Revenue increased 16.8 percent to $754.0 million as a result of improved pricing and increased
volumes as both shipments and LTL tonnage were up significantly at Saia Motor Freight over the
prior year. We believe volume gains were attributable to market share gains into and out of Saia
Motor Freight’s newer Midwest markets, favorable economic conditions across Saia’s network,
industry consolidation and company specific initiatives. Fuel surcharge revenue, which was 9.8
percent of total revenue in 2005, was up significantly from 2004 when fuel surcharge revenue was
5.8 percent of total revenue.
Operating revenue excluding fuel surcharge was $679.9 million in 2005, up 11.9 percent from $607.8
million in 2004. Saia Motor Freight’s LTL revenue per hundredweight (a measure of yield) increased
8.0 percent to $11.10 per hundredweight for 2005 and LTL revenue per hundredweight excluding fuel
surcharge increased 3.1 percent. Saia Motor Freight experienced stronger price increases in 2005
over 2004, largely due to the continuation of a more favorable pricing environment that began in
the second half of 2004. This pricing environment allowed Saia Motor Freight to achieve better
contract renewal rates with customers than in the 2003 and the first half of 2004. However,
pricing remains competitive in regional markets. Saia Motor Freight LTL tonnage was up 8.1 percent
to 3.1 million tons and LTL shipments were up 6.6 percent to 5.6 million shipments. Management
believes that Saia Motor Freight grew volume by providing high quality service for its customers,
continued market share gains from its 2004 Midwest expansion, recent industry consolidation in Saia
Motor Freight’s market segments, sales initiatives in specific market segments and general economic
growth. Approximately 75 percent of Saia Motor Freight’s revenue is subject to individual customer
price adjustment negotiations that occur intermittently throughout the year. The remaining 25
percent of revenue is subject to an annual general rate increase. On May 2, 2005, Saia Motor
Freight implemented a 5.9 percent general rate increase for customers comprising this 25 percent of
revenue. Competitive factors, customer turnover and mix changes, among other things, impact the
extent to which customer rate increases are retained over time.
Operating expenses and margin
Consolidated 2005 operating income improved significantly to $50.4 million, including a pre-tax
real estate gain of $7.0 million, compared to 2004 operating income of $30.3 million which included
$2.1 million in integration charges at Saia Motor Freight related to the Clark Bros. acquisition.
Exclusive of these items, Saia Motor Freight showed operating income improvement in excess of $10
million, reflecting higher margin contribution on year over year volume increases and yield
improvement partially offset by structural cost increases. The consolidated 2005 operating ratio
(operating expenses divided by operating revenue) was 93.3 compared to 95.3 in 2004. However,
excluding the real estate gain, the consolidated 2005 operating ratio was 94.2. Saia Motor Freight
continued initiatives to manage productivity and control variable costs as monthly volumes
fluctuated. The impact of higher margin and volume increases at Saia Motor Freight were partially
offset by structural cost increases in wage rates, purchased transportation, healthcare costs and
other operating expenses. Higher fuel prices (exclusive of taxes), in conjunction with volume
changes, caused $27.7 million of the increase in operating expenses and supplies. Purchased
transportation costs increased 10.1 percent as decreased utilization was more than offset by
increased costs per mile largely driven by fuel price increases and capacity constraints, including
a tight driver market and impacts of hours of service regulations. Increased revenues from the
fuel surcharge program more than offset the effect of these fuel price increases.
21
Saia Motor Freight had operating income of $55.3 million in 2005, which included a $7.0 million
real estate gain, compared to $35.8 million in 2004 which included a $2.1 million integration
charge. Also during 2005, several hurricanes caused property damage to some of Saia Motor
Freight’s Gulf Coast and Florida terminals and disrupted operations, which adversely impacted their
operating results. In addition to lost revenue due to these storms, service recovery efforts at
Saia Motor Freight resulted in significant incremental wage and other operating and administrative
expense primarily in the third and fourth quarters. In the fourth quarter, the Company recorded a
partial insurance recovery of $1.0 million for losses attributable to Hurricane Katrina. This
amount approximates management’s estimate of actual fourth quarter effects of the hurricanes. The
remaining insurance recovery, which management expects to be in excess of this amount, will be
recognized upon reaching a negotiated settlement for the remaining claims. The operating ratio at
Saia Motor Freight was 92.7 in 2005 compared to 94.4 in 2004. Saia Motor Freight’s operating ratio
was 93.6 excluding the $7.0 million real estate gain in 2005 compared to 94.1 in 2004, excluding
the $2.1 million integration charge. Saia Motor Freight improved its operating income through
yield improvement, increased volume as well as continued strong cost controls. The higher volumes,
improved yields and cost controls allowed Saia Motor Freight to leverage its fixed cost network and
offset higher cargo and bodily injury and property damage claims costs, a general wage increase in
August 2005 and other wage adjustments during the year. As of the fourth quarter 2005, Saia’s wage
rates were approximately 2.8 percent higher than the fourth quarter of 2004.
Net holding company operating expenses in excess of costs allocated to Saia Motor Freight were $4.9
million in 2005 compared to $5.5 million in 2004. Total holding company costs were $9.5 million in
2005 compared to $9.0 million in 2004. Holding company costs in 2005 also include a $0.3 million
increase in other operating expenses. This cost increase was offset by a decrease in equity based
compensation charges which were about $0.9 million lower in 2005 compared to 2004.
Other
Substantially all non-operating expenses represent interest expense. Interest costs were $9.8
million in 2005 versus $9.7 million in 2004. Average outstanding indebtedness did not change
significantly between 2005 and 2004 while interest rates rose in 2005 on the smaller variable rate
portion of the Company’s debt. The Company’s capital structure consists predominantly of
longer-term, fixed rate instruments. The consolidated effective tax rate was 38.6 percent in 2005
compared to 36.6 percent in 2004. The 2005 effective tax rate included approximately $0.4 million
in tax benefit related to prior tax years. The 2004 effective tax rate was lower due to a $0.6
million tax benefit related to the favorable settlement of various tax issues. The notes to the
consolidated financial statements provide an analysis of the income tax provision and the effective
tax rate.
Working capital/capital expenditures
The decrease in working capital is predominantly the result of higher accounts payable at December
31, 2005 due to approximately $8.9 million in trailer purchases delivered late in 2005 and higher
wage and employee benefit accruals that more than offset an increase in accounts receivable. The
increase in accounts receivable reflects the higher revenues (both volume and yield) in December
2005 versus December 2004. The 2005 capital investments were $67.6 million on a gross basis and
$53.7 million on a net basis. Proceeds from the disposition of assets included $8.8 million for
the disposition of a Saia terminal in Jacksonville, Florida with excess capacity. Net capital
expenditures of $53.7 million include approximately $2.1 million investment in real estate and
$51.6 million for replacement of revenue equipment and investment in technology equipment and
software. By subsidiary, Saia net capital expenditures were $34 million consisting of $45 million
in additions and $11 million in dispositions and Jevic net capital expenditures were $20 million,
consisting of $23 million in additions and $3 million in dispositions.
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 totaled 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 the tax
benefit from the transaction in the third and 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 Company also recorded loss from discontinued operations for the year ended
December 31, 2006 of
22
$2.8 million compared to income from discontinued operations of $2.3 million for the year ended
December 31, 2005.
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 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 continues to
evaluate opportunities to grow and further increase profitability. Given the volume trends in the
second half of 2006 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.
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
overlap states to provide full state coverage positioning for synergy revenue between the old and
new territories, 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 consolidated financial statements for further discussion of recent
accounting pronouncements.
Financial Condition
Saia’s 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 Company’s long-term debt at December 31, 2006 includes $95 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 were interest only until June 30, 2006 and at that time semi-annual principal payments
began, with the final payment due December 2013. Under the terms of the Senior Notes, Saia 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. At December 31, 2006, Saia was in compliance
with these covenants. In addition, Saia has third party borrowings of approximately $14.1 million
in subordinated notes and $0.9 million in seller notes.
Saia also has a $110 million Agented Revolving Credit Agreement (the Credit Agreement) with Bank of
Oklahoma, N.A., as agent. The Credit Agreement is unsecured with an interest rate based on LIBOR
or prime at the Company’s option, plus an applicable spread, in certain instances, and matures in
January 2009. At December 31, 2006, Saia had no borrowings under the Credit Agreement, $40.7
million in letters of credit outstanding under the Credit Agreement and availability of $69.3
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, Saia 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. At December 31, 2006, Saia was in compliance with these covenants.
23
At December 31, 2006 Yellow provided guarantees on behalf of Saia 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, Saia pays
Yellow’s 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 December 31, 2006, the portion of collateral allocated by Yellow to Saia in support of these
claims was $2.6 million.
Projected net capital expenditures for 2007 are approximately $85 million including up to $35
million for several strategic real estate opportunities within Saia’s existing network. Including
the capital expenditures for real estate in 2007, this represents an approximately $6 million
decrease from 2006 net capital expenditures for property and equipment. Approximately $40.0
million of the 2007 capital budget was committed at December 31, 2006. Net capital expenditures
pertain primarily to replacement of revenue equipment and additional investments in information
technology, land and structures. Projected capital expenditures for 2007 could exceed this level
if Saia is successful in executing on 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 $76.1 million for the year ended
December 31, 2006, which funded the majority of the $90.7 million of net capital expenditures for
acquisition of property and equipment. Cash flows from operating activities in 2006 decreased $7.8
million primarily as a result of decreased accounts payable and wage and benefit accruals. The
timing of capital expenditures can largely be managed around the seasonal working capital
requirements of the Company. In addition, during 2006, the Company executed $8.9 million in
treasury share repurchases completing a $20 million authorized program and beginning a new $25
million authorized program with $23.2 million remaining under the new $25 million program at
December 31, 2006. The Company also reduced its outstanding indebtedness by $5.0 million during
2006. The Company has adequate sources of capital to meet short-term liquidity needs through its
cash ($10.7 million at December 31, 2006) and availability under its revolving credit facility
($69.3 million at December 31, 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 Company’s
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 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.
Actual net capital expenditures are summarized in the following table (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Land and structures: |
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
$ |
11.8 |
|
|
$ |
11.3 |
|
|
$ |
11.5 |
|
Sales |
|
|
(0.4 |
) |
|
|
(9.5 |
) |
|
|
— |
|
Revenue equipment, net |
|
|
72.5 |
|
|
|
27.5 |
|
|
|
25.9 |
|
Technology and other |
|
|
6.8 |
|
|
|
4.4 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90.7 |
|
|
|
33.7 |
|
|
|
41.9 |
|
Connection acquisition |
|
|
17.5 |
|
|
|
— |
|
|
|
— |
|
Clark Bros. acquisition |
|
|
— |
|
|
|
— |
|
|
|
23.5 |
|
Discontinued operations |
|
|
(35.9 |
) |
|
|
20.0 |
|
|
|
14.6 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
72.3 |
|
|
$ |
53.7 |
|
|
$ |
80.0 |
|
|
|
|
|
|
|
|
|
|
|
In addition to the amounts disclosed in the table above, the Company had an additional $3.5 million
in capital expenditures for revenue equipment that was received but not paid for prior to December
31, 2006.
In accordance with accounting principles generally accepted in the United States, our operating
leases are not recorded in our balance sheet; however, the minimum lease payments related to these
leases are disclosed in the notes to our audited consolidated financial statements included in this
Form 10-K, and in “Contractual Cash Obligations” table below. In addition to the principal amounts
disclosed in the tables below, the Company has estimated interest obligations of approximately $8.1
million for 2007 and decreasing for each year thereafter, based on borrowings outstanding at
December 31, 2006.
24
Contractual Cash Obligations
The following tables set forth a summary of our contractual cash obligations and other commercial
commitments as of December 31, 2006 (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments due by year |
|
| |
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
Thereafter |
|
|
Total |
|
Contractual cash obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line of credit
(1) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Long-term debt (1) |
|
|
11.4 |
|
|
|
12.4 |
|
|
|
18.9 |
|
|
|
18.9 |
|
|
|
18.6 |
|
|
|
29.8 |
|
|
|
110.0 |
|
Operating leases |
|
|
12.0 |
|
|
|
8.2 |
|
|
|
4.4 |
|
|
|
2.4 |
|
|
|
0.9 |
|
|
|
1.7 |
|
|
|
29.6 |
|
Purchase obligations (2) |
|
|
44.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
44.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual
obligations |
|
$ |
67.9 |
|
|
$ |
20.6 |
|
|
$ |
23.3 |
|
|
$ |
21.3 |
|
|
$ |
19.5 |
|
|
$ |
31.5 |
|
|
$ |
184.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
See Note 4 to the accompanying audited consolidated financial statements in this Form
10-K. |
| |
| (2) |
|
Includes commitments of $40.0 million for capital expenditures. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amount of commitment expiration by year |
|
| |
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
Thereafter |
|
|
Total |
|
| |
Other commercial commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available line of credit |
|
$ |
— |
|
|
$ |
69.3 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
69.3 |
|
Letters of credit |
|
|
46.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
46.4 |
|
Surety bonds |
|
|
5.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
commitments |
|
$ |
51.9 |
|
|
$ |
69.3 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
121.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical Accounting Policies and Estimates
Saia 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 Saia 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 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 management’s 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 |
25
| |
|
percent of a total month’s revenue is in transit at
the end of any month. Estimates for credit losses and billing adjustments are based upon
historical experience of credit losses, adjustments processed and trends of collections.
Billing adjustments are primarily made for discounts and billing corrections. These estimates
are continuously evaluated and updated; however, changes in economic conditions, pricing
arrangements and other factors can significantly impact these estimates. |
| • |
|
Depreciation and Capitalization of Assets. Under the Company’s accounting policy
for property and equipment, management establishes appropriate depreciable lives and salvage
values for the Company’s revenue equipment (tractors and trailers) based on their estimated
useful lives and estimated 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 management’s estimates of valuations of other tangible assets. The Company
is still in the process of determining the final allocation of purchase price in connection
with the acquisition of the Connection in November 2006. 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
discussion of adoption of Statement No. 123R in Note 9 to the 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 this Form 10-K.
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 Form 10-K, including those contained in Item 1 and Item 7 “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, future performance and business of Saia. 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-K. 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
26
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 Company’s
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
Company’s SEC filings. These factors and risks are described in Item 1A: Risk Factors of this
Form 10-K.
As a result of these and other factors, no assurance can be given as to our future results and
achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of
future events or circumstances, and those future events or circumstances may not occur. You should
not place undue reliance on the forward-looking statements, which speak only as of the date of this
Form 10-K. We are under no obligation, and we expressly disclaim any obligation, to update or alter
any forward-looking statements, whether as a result of new information, future events or otherwise.
Management’s Report on Internal Control Over Financial Reporting
The management of Saia, Inc. and subsidiaries is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of
the Securities Exchange Act of 1934.
All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2006. In making this assessment the Company’s management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control — Integrated Framework. Based on this assessment, management has
concluded that as of December 31, 2006, the Company’s internal control over financial reporting is
effective based on those criteria.
The Company’s independent registered public accounting firm, KPMG LLP, has issued an audit report
on our assessment of the Company’s internal control over financial reporting, which appears on page
30 of this Form 10-K.
| |
|
|
Richard D. O’Dell
|
|
President and Chief Executive Officer |
|
|
|
James A. Darby
|
|
Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
|
|
| Item 7A. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Saia is exposed to a variety of market risks, including the effects of interest rates and fuel
prices. The detail of Saia’s debt structure is more fully described in the notes to the
consolidated financial statements. To mitigate our risk to rising fuel prices, Saia Motor Freight
has implemented fuel surcharge programs. These programs are 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 Saia to
fuel price volatility is significantly reduced.
The following table provides information about Saia third-party financial instruments as of
December 31, 2006 with comparative information for December 31, 2005. 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 |
|
2005 |
| |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
Thereafter |
|
Total |
|
Fair Value |
|
Total |
|
Fair Value |
Fixed rate debt |
|
$ |
11.4 |
|
|
$ |
11.5 |
|
|
$ |
18.9 |
|
|
$ |
18.9 |
|
|
$ |
18.6 |
|
|
$ |
29.8 |
|
|
$ |
109.1 |
|
|
$ |
111.1 |
|
|
$ |
114.0 |
|
|
$ |
117.1 |
|
Average interest rate |
|
|
7.32 |
% |
|
|
7.33 |
% |
|
|
7.34 |
% |
|
|
7.35 |
% |
|
|
7.23 |
% |
|
|
7.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate debt |
|
$ |
— |
|
|
$ |
0.9 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.9 |
|
|
$ |
0.9 |
|
|
$ |
0.9 |
|
|
$ |
0.9 |
|
Average interest rate |
|
|
— |
|
|
|
7.00 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Item 8. Financial Statements and Supplementary Data
FINANCIAL STATEMENTS
28
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Saia, Inc.:
We have audited the accompanying consolidated balance sheets of Saia, Inc. and subsidiaries as of
December 31, 2006 and 2005, and the related consolidated statements of operations, shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2006.
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Saia, Inc. and subsidiaries as of December 31, 2006
and 2005, and the results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting
principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Saia, Inc.’s internal control over financial reporting
as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated February 16, 2007 expressed an unqualified opinion on management’s assessment of, and
the effective operation of, internal control over financial reporting.
/s/ KPMG LLP
Kansas City, Missouri
February 23, 2007
29
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Saia, Inc.:
We have audited management’s assessment, included in the accompanying Management’s Report on
Internal Control over Financial Reporting, that Saia, Inc. maintained effective internal control
over financial reporting as of December 31, 2006, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Saia Inc.’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on management’s assessment and an
opinion on the effectiveness of the Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management’s assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Saia, Inc. maintained effective internal control over
financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on
criteria established in Internal Control—Integrated Framework issued by COSO. Also, in our
opinion, Saia, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated
Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Saia, Inc. and subsidiaries as of
December 31, 2006 and 2005, and the related consolidated statements of operations, shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2006, and
our report dated February 16, 2007 expressed an unqualified opinion on those consolidated financial
statements.
/s/ KPMG LLP
Kansas City, Missouri
February 23 2007
30
Saia, Inc. and Subsidiaries
(formerly SCS Transportation, Inc. and Subsidiaries)
Consolidated Balance Sheets
December 31, 2006 and 2005
(in thousands, except share data)
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
Assets |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
10,669 |
|
|
$ |
16,865 |
|
Accounts receivable, less allowance of $3,912 and $3,260
in 2006 and 2005, respectively |
|
|
95,779 |
|
|
|
85,074 |
|
Prepaid expenses |
|
|
9,251 |
|
|
|
6,275 |
|
Deferred income taxes |
|
|
11,781 |
|
|
|
10,380 |
|
Other current assets |
|
|
6,204 |
|
|
|
5,578 |
|
Current assets of discontinued operations |
|
|
— |
|
|
|
50,073 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
133,684 |
|
|
|
174,245 |
|
Property and Equipment, at cost |
|
|
518,052 |
|
|
|
427,019 |
|
Less-accumulated depreciation |
|
|
203,220 |
|
|
|
180,385 |
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
314,832 |
|
|
|
246,634 |
|
Goodwill, net |
|
|
36,406 |
|
|
|
30,530 |
|
Other Identifiable Intangibles, net |
|
|
1,096 |
|
|
|
1,664 |
|
Other Noncurrent Assets |
|
|
1,382 |
|
|
|
1,225 |
|
Long-term Assets of Discontinued Operations |
|
|
— |
|
|
|
100,443 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
487,400 |
|
|
$ |
554,741 |
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Checks outstanding |
|
$ |
9,098 |
|
|
$ |
15,357 |
|
Accounts payable |
|
|
30,291 |
|
|
|
28,130 |
|
Wages, vacations and employees’ benefits |
|
|
45,752 |
|
|
|
37,915 |
|
Claims and insurance accruals |
|
|
15,856 |
|
|
|
11,501 |
|
Accrued liabilities |
|
|
14,171 |
|
|
|
15,296 |
|
Current portion of long-term debt |
|
|
11,356 |
|
|
|
5,000 |
|
Current liabilities of discontinued operations |
|
|
117 |
|
|
|
23,388 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
126,641 |
|
|
|
136,587 |
|
Other Liabilities: |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
98,628 |
|
|
|
109,913 |
|
Deferred income taxes |
|
|
45,259 |
|
|
|
40,949 |
|
Claims, insurance and other |
|
|
13,717 |
|
|
|
14,041 |
|
Long-term liabilities of discontinued operations |
|
|
— |
|
|
|
24,859 |
|
|
|
|
|
|
|
|
Total other liabilities |
|
|
157,604 |
|
|
|
189,762 |
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
Shareholders’ Equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 50,000 shares authorized,
none issued and outstanding |
|
|
— |
|
|
|
— |
|
Common stock, $0.001 par value, 50,000,000 shares authorized,
14,761,072 and 14,480,438 shares issued and outstanding
in 2006 and 2005, respectively |
|
|
15 |
|
|
|
14 |
|
Additional paid-in-capital |
|
|
199,257 |
|
|
|
194,398 |
|
Treasury stock, 336,400 and zero shares at cost in 2006 and
2005, respectively |
|
|
(8,861 |
) |
|
|
— |
|
Deferred compensation trust, 106,247 and 87,597 shares of
common stock at cost in 2006 and 2005, respectively |
|
|
(1,877 |
) |
|
|
(1,322 |
) |
Retained earnings |
|
|
14,621 |
|
|
|
35,302 |
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
203,155 |
|
|
|
228,392 |
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity |
|
$ |
487,400 |
|
|
$ |
554,741 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
31
Saia, Inc. and Subsidiaries
(formerly SCS Transportation, Inc. and Subsidiaries)
Consolidated Statements of Operations
For the years ended December 31, 2006, 2005 and 2004
(in thousands, except share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenue |
|
$ |
874,738 |
|
|
$ |
754,038 |
|
|
$ |
645,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employees’ benefits |
|
|
473,956 |
|
|
|
413,710 |
|
|
|
367,487 |
|
Purchased transportation |
|
|
70,029 |
|
|
|
62,557 |
|
|
|
56,815 |
|
Fuel, operating expenses and supplies |
|
|
188,606 |
|
|
|
155,207 |
|
|
|
119,236 |
|
Operating taxes and licenses |
|
|
28,853 |
|
|
|
25,857 |
|
|
|
22,682 |
|
Claims and insurance |
|
|
28,089 |
|
|
|
24,987 |
|
|
|
19,854 |
|
Depreciation and amortization |
|
|
32,550 |
|
|
|
28,849 |
|
|
|
27,898 |
|
Operating gains, net |
|
|
(1,416 |
) |
|
|
(7,565 |
) |
|
|
(994 |
) |
Restructuring charges |
|
|
2,587 |
|
|
|
— |
|
|
|
— |
|
Integration charges |
|
|
1,490 |
|
|
|
— |
|
|
|
2,054 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
824,744 |
|
|
|
703,602 |
|
|
|
615,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
49,994 |
|
|
|
50,436 |
|
|
|
30,342 |
|
Nonoperating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
9,288 |
|
|
|
9,773 |
|
|
|
9,735 |
|
Interest income |
|
|
(970 |
) |
|
|
(341 |
) |
|
|
(118 |
) |
Other, net |
|
|
(297 |
) |
|
|
3 |
|
|
|
(117 |
) |
|
|
|
|
|
|
|
|
|
|
Nonoperating expenses, net |
|
|
8,021 |
|
|
|
9,435 |
|
|
|
9,500 |
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes |
|
|
41,973 |
|
|
|
41,001 |
|
|
|
20,842 |
|
Income Tax Provision |
|
|
16,100 |
|
|
|
15,843 |
|
|
|
7,620 |
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
25,873 |
|
|
|
25,158 |
|
|
|
13,222 |
|
Discontinued Operations, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on operations |
|
|
(2,760 |
) |
|
|
2,301 |
|
|
|
6,037 |
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal |
|
|
(43,794 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
(20,681 |
) |
|
$ |
27,459 |
|
|
$ |
19,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — basic |
|
|
14,536 |
|
|
|
14,707 |
|
|
|
14,858 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — diluted |
|
|
14,841 |
|
|
|
15,048 |
|
|
|
15,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share — continuing operations |
|
$ |
1.78 |
|
|
$ |
1.71 |
|
|
$ |
0.89 |
|
Basic Earnings (Loss) Per Share — discontinued operations |
|
|
(3.20 |
) |
|
|
0.16 |
|
|
|
0.41 |
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Share |
|
$ |
(1.42 |
) |
|
$ |
1.87 |
|
|
$ |
1.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share — continuing operations |
|
$ |
1.74 |
|
|
$ |
1.67 |
|
|
$ |
0.86 |
|
Diluted Earnings (Loss) Per Share — discontinued operations |
|
|
(3.14 |
) |
|
|
0.15 |
|
|
|
0.39 |
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share |
|
$ |
(1.39 |
) |
|
$ |
1.82 |
|
|
$ |
1.26 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
32
Saia, Inc. and Subsidiaries
(formerly SCS Transportation, Inc. and Subsidiaries)
Consolidated Statements of Shareholders’ Equity
For the years ended December 31, 2006, 2005 and 2004
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Additional |
|
|
|
|
|
|
Deferred |
|
|
Retained |
|
|
|
|
| |
|
Common |
|
|
Paid-in |
|
|
Treasury |
|
|
Compensation |
|
|
Earnings |
|
|
|
|
| |
|
Stock |
|
|
Capital |
|
|
Stock |
|
|
Trust |
|
|
(Deficit) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003 |
|
$ |
15 |
|
|
$ |
201,743 |
|
|
|
— |
|
|
$ |
(760 |
) |
|
$ |
(11,416 |
) |
|
$ |
189,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for director compensation |
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
Stock compensation for director options |
|
|
— |
|
|
|
153 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
153 |
|
Exercise of stock options, including
tax benefits of $2,084 |
|
|
— |
|
|
|
3,811 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,811 |
|
Purchase of shares by deferred
compensation trust |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(446 |
) |
|
|
— |
|
|
|
(446 |
) |
Sale of shares by deferred
compensation trust |
|
|
— |
|
|
|
68 |
|
|
|
— |
|
|
|
90 |
|
|
|
— |
|
|
|
158 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19,259 |
|
|
|
19,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
|
15 |
|
|
|
205,800 |
|
|
|
— |
|
|
|
(1,116 |
) |
|
|
7,843 |
|
|
|
212,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation for options |
|
|
— |
|
|
|
122 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
122 |
|
Repurchase of shares outstanding |
|
|
— |
|
|
|
— |
|
|
|
(12,903 |
) |
|
|
— |
|
|
|
— |
|
|
|
(12,903 |
) |
Retire treasury shares |
|
|
(1 |
) |
|
|
(12,902 |
) |
|
|
12,903 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercise of stock options, including
tax benefits of $729 |
|
|
— |
|
|
|
1,348 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,348 |
|
Purchase of shares by deferred
compensation trust |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(399 |
) |
|
|
— |
|
|
|
(399 |
) |
Sale of shares by deferred
compensation trust |
|
|
— |
|
|
|
30 |
|
|
|
— |
|
|
|
193 |
|
|
|
— |
|
|
|
223 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27,459 |
|
|
|
27,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
14 |
|
|
|
194,398 |
|
|
|
— |
|
|
|
(1,322 |
) |
|
|
35,302 |
|
|
|
228,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation for options |
|
|
— |
|
|
|
313 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
313 |
|
Shares issued for director compensation |
|
|
— |
|
|
|
39 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
39 |
|
Director deferred shares for annual
deferral elections |
|
|
— |
|
|
|
604 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
604 |
|
Repurchase of shares outstanding |
|
|
— |
|
|
|
— |
|
|
|
(8,861 |
) |
|
|
— |
|
|
|
— |
|
|
|
(8,861 |
) |
Exercise of stock options, including
tax benefits of $2,373 |
|
|
1 |
|
|
|
3,825 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,826 |
|
Purchase of shares by deferred
compensation trust |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(612 |
) |
|
|
— |
|
|
|
(612 |
) |
Sale of shares by deferred
compensation trust |
|
|
— |
|
|
|
78 |
|
|
|
— |
|
|
|
57 |
|
|
|
— |
|
|
|
135 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20,681 |
) |
|
|
(20,681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
$ |
15 |
|
|
$ |
199,257 |
|
|
$ |
(8,861 |
) |
|
$ |
(1,877 |
) |
|
$ |
14,621 |
|
|
$ |
203,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
33
Saia, Inc. and Subsidiaries
(formerly SCS Transportation, Inc. and Subsidiaries)
Consolidated Statements of Cash Flows
For the years ended December 31, 2006, 2005 and 2004
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(20,681 |
) |
|
$ |
27,459 |
|
|
$ |
19,259 |
|
Noncash items included in net income: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
32,550 |
|
|
|
28,849 |
|
|
|
27,898 |
|
Loss (income) on discontinued operations |
|
|
46,554 |
|
|
|
(2,301 |
) |
|
|
(6,037 |
) |
Provision for doubtful accounts |
|
|
1,815 |
|
|
|
1,951 |
|
|
|
1,184 |
|
Deferred income taxes |
|
|
1,560 |
|
|
|
248 |
|
|
|
11,253 |
|
Gain from property disposals, net |
|
|
(1,416 |
) |
|
|
(7,565 |
) |
|
|
(994 |
) |
Stock-based compensation |
|
|
641 |
|
|
|
122 |
|
|
|
178 |
|
Changes in assets and liabilities, net: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(4,262 |
) |
|
|
(17,138 |
) |
|
|
(7,660 |
) |
Accounts payable and checks outstanding |
|
|
(2,307 |
) |
|
|
9,625 |
|
|
|
1,740 |
|
Other working capital items |
|
|
3,019 |
|
|
|
19,526 |
|
|
|
(11,054 |
) |
Claims, insurance and other |
|
|
(325 |
) |
|
|
1,185 |
|
|
|
(1,332 |
) |
Other, net |
|
|
(1,505 |
) |
|
|
(1,051 |
) |
|
|
(434 |
) |
Net investment in discontinued operations |
|
|
20,494 |
|
|
|
22,993 |
|
|
|
21,238 |
|
|
|
|
|
|
|
|
|
|
|
| |
Net cash from operating activities |
|
|
76,137 |
|
|
|
83,903 |
|
|
|
55,239 |
|
| |
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
|
(93,235 |
) |
|
|
(44,007 |
) |
|
|
(44,150 |
) |
Proceeds from disposal of property and equipment |
|
|
2,487 |
|
|
|
10,702 |
|
|
|
2,270 |
|
Acquisition of business, net of cash received |
|
|
(17,496 |
) |
|
|
— |
|
|
|
(23,549 |
) |
Proceeds from sale of subsidiary |
|
|
41,305 |
|
|
|
— |
|
|
|
— |
|
Net investment in discontinued operations |
|
|
(5,359 |
) |
|
|
(20,396 |
) |
|
|
(14,563 |
) |
|
|
|
|
|
|
|
|
|
|
| |
Net cash used in investing activities |
|
|
(72,298 |
) |
|
|
(53,701 |
) |
|
|
(79,992 |
) |
| |
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt |
|
|
(5,000 |
) |
|
|
(8,002 |
) |
|
|
— |
|
Proceeds on stock option exercises (including
excess tax benefits in 2006) |
|
|
3,826 |
|
|
|
619 |
|
|
|
1,727 |
|
Repurchase of shares outstanding |
|
|
(8,861 |
) |
|
|
(12,903 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
| |
Net cash provided by (used in) financing activities |
|
|
(10,035 |
) |
|
|
(20,286 |
) |
|
|
1,727 |
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
(6,196 |
) |
|
|
9,916 |
|
|
|
(23,026 |
) |
Cash and cash equivalents, beginning of year |
|
|
16,865 |
|
|
|
6,949 |
|
|
|
29,975 |
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents, end of year |
|
$ |
10,669 |
|
|
$ |
16,865 |
|
|
$ |
6,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of note to seller in acquisition |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,200 |
|
Retire treasury shares |
|
|
— |
|
|
|
12,903 |
|
|
|
— |
|
| |
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net |
|
|
2,427 |
|
|
|
12,236 |
|
|
|
9,745 |
|
Interest paid |
|
|
10,964 |
|
|
|
7,937 |
|
|
|
9,533 |
|
See accompanying notes to consolidated financial statements.
34
Saia, Inc. and Subsidiaries
(formerly SCS Transportation, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
1. Description of Business and Summary of Accounting Policies
Description of Business
Saia, Inc. (Saia or the Company) (formerly SCS Transportation, Inc.), headquartered in Duluth,
Georgia, is a leading transportation company providing regional and interregional less than
truckload (LTL) services and selected national LTL and time-definite services across the United
States through its wholly owned subsidiary, Saia Motor Freight Line, Inc. (Saia Motor Freight).
Saia Motor Freight provides delivery in 30 states across the South, Southwest, West, Midwest and
Pacific Northwest United States. In addition, on November 18, 2006, Saia acquired The Connection
Company (the Connection) which provides delivery in four additional states in the Midwest (See Note
2). In total, the Company now serves 34 states and employs approximately 8,400 employees.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its
subsidiaries, all of which are wholly owned. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements. As described in Note
14, 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 for all periods presented. The consolidated
financial statements include the financial position and results of operations of Clark Bros.
Transfer, Inc. (Clark Bros.) since its acquisition date of February 16, 2004 and the Connection
since its acquisition date of November 18, 2006. The Company merged Clark Bros. into Saia and
integrated operations in May 2004. (See Note 2).
Use of Estimates
Management makes estimates and assumptions when preparing the consolidated financial statements in
conformity with accounting principles generally accepted in the United States. These estimates and
assumptions affect the amounts reported in the consolidated financial statements and footnotes.
Actual results could differ from those estimates.
Summary of accounting policies
Major accounting policies and practices used in the preparation of the accompanying consolidated
financial statements not covered in other notes to the consolidated financial statements are as
follows:
Cash Equivalents: Cash equivalents in excess of current operating requirements are invested in
short-term interest bearing instruments purchased with original maturities of three months or less
and are stated at cost, which approximates market.
Inventories: fuel and operating supplies: Inventories are carried at average cost and included in
other current assets. To mitigate the Company’s risk to rising fuel prices, the Company’s
operating subsidiaries each have implemented fuel surcharge programs and considered effects of
these fuel surcharge programs in customer pricing negotiations. Since the amount of fuel surcharge
billed to customers is based on average national diesel fuel prices and is reset weekly, exposure
of Saia to fuel price volatility is significantly reduced.
Property and Equipment Including Repairs and Maintenance: Property and equipment are carried at
cost less accumulated depreciation. Depreciation is computed using the straight-line method based
on the following service lives:
| |
|
|
|
|
| |
|
Years |
| |
Structures |
|
|
20 to 25 |
|
Tractors |
|
|
8 to 10 |
|
Trailers |
|
|
10 to 14 |
|
Other revenue equipment |
|
|
10 to 14 |
|
Technology equipment and software |
|
|
3 to 5 |
|
Other |
|
|
3 to 10 |
|
35
At December 31, property and equipment consisted of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
| |
Land |
|
$ |
27,376 |
|
|
$ |
27,118 |
|
Structures |
|
|
85,244 |
|
|
|
72,314 |
|
Tractors |
|
|
162,777 |
|
|
|
134,921 |
|
Trailers |
|
|
151,457 |
|
|
|
120,632 |
|
Other revenue equipment |
|
|
34,052 |
|
|
|
23,114 |
|
Technology equipment and software |
|
|
27,941 |
|
|
|
24,373 |
|
Other |
|
|
29,205 |
|
|
|
24,547 |
|
|
|
|
|
|
|
|
| |
Total property and equipment, at cost |
|
$ |
518,052 |
|
|
$ |
427,019 |
|
|
|
|
|
|
|
|
Maintenance and repairs are charged to operations; replacements and improvements that extend
the asset’s life are capitalized. The Company’s investment in technology equipment and software
consists primarily of systems to support customer service and freight management.
Goodwill: Goodwill is recognized for the excess of the purchase price over the fair value of
tangible and identifiable intangible net assets of businesses acquired. In accordance with
Financial Accounting Standards Board (FASB) Statement No. 142, Goodwill and Other Intangible Assets
goodwill is not amortized and is reviewed at least annually for impairment based on fair value.
Accumulated amortization of goodwill was $7.4 million at December 31, 2006 and 2005. See also Note
6.
Computer Software Developed or Obtained for Internal Use: The Company capitalizes certain costs
associated with developing or obtaining internal-use software. Capitalizable costs include
external direct costs of materials and services utilized in developing or obtaining the software
and payroll and payroll-related costs for employees directly
associated with the development of the project. For the years ended December 31, 2006, 2005 and
2004, the Company capitalized in continuing operations $1.1 million, $0.8 million, and $0.9
million, respectively, of primarily payroll-related costs.
Claims and Insurance Accruals: Claims and insurance accruals, both current and long-term, reflect
the estimated cost of claims for workers’ compensation (discounted to present value), cargo loss
and damage, and bodily injury and property damage not covered by insurance. These costs are
included in claims and insurance expense, except for workers’ compensation, which is included in
employees’ benefits expense. The liabilities 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 management’s evaluation of the
nature and severity of individual claims and past experience. The former Parent provides
guarantees for claims in certain self-insured states that arose prior to the Spin-off date (See
Note 3).
Risk retention amounts per occurrence during the three years ended December 31, 2006, were as
follows:
| |
|
|
|
|
Workers’ compensation |
|
$ |
1,000,000 |
|
Bodily injury and property damage |
|
|
1,000,000 to 2,000,000 |
|
Employee medical and hospitalization |
|
|
250,000 to 300,000 |
|
Cargo loss and damage |
|
|
250,000 |
|
For 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 bodily injury and
property damage liability program. The retention increased to $2,000,000 per claim beginning in
March 2004.
Revenue Recognition: Revenue is recognized on a percentage-of-completion basis for shipments in
transit while expenses are recognized as incurred.
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.
36
Accordingly, no stock-based compensation expense related to stock option awards was recorded
prior to January 1, 2003 for at-the-money stock option awards.
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, 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 also 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(R)
were fully vested on the effective date, there was no additional compensation expense was
recognized for previously granted awards.
The following table illustrates the effect on net income and earnings per share during the years
ended December 31, 2006, 2005 and 2004 if the Company had applied the fair value recognition
provisions of FASB Statement No. 123 Accounting for Stock-Based Compensation for all stock option
grants prior to January 1, 2003, the date the Company adopted FASB Statement No. 123 (in thousands,
except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), as reported |
|
$ |
(20,681 |
) |
|
$ |
27,459 |
|
|
$ |
19,259 |
|
Add: Stock-based compensation expense included in
reported net income, net of tax |
|
|
188 |
|
|
|
77 |
|
|
|
95 |
|
Deduct: Total stock-based compensation expense
determined using fair value based method for
all awards, net of tax |
|
|
(188 |
) |
|
|
(77 |
) |
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) |
|
$ |
(20,681 |
) |
|
$ |
27,459 |
|
|
$ |
19,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
As reported — Basic earnings (loss) per share |
|
$ |
(1.42 |
) |
|
$ |
1.87 |
|
|
$ |
1.30 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma — Basic earnings (loss) per share |
|
$ |
(1.42 |
) |
|
$ |
1.87 |
|
|
$ |
1.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported — Diluted earnings (loss) per share |
|
$ |
(1.39 |
) |
|
$ |
1.82 |
|
|
$ |
1.26 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma — Diluted earnings (loss) per share |
|
$ |
(1.39 |
) |
|
$ |
1.82 |
|
|
$ |
1.25 |
|
|
|
|
|
|
|
|
|
|
|
Credit Risk: The Company routinely grants credit to its customers. The risk of significant loss
in trade receivables is substantially mitigated by the Company’s credit evaluation process, short
collection terms, low revenue per transaction and services performed for a large number of
customers with no single customer representing more than 4.0 percent of consolidated revenue.
Allowances for potential credit losses are based on historical experience, current economic
environment, expected trends and customer specific factors.
Impairment of Long-Lived Assets: If facts and circumstances indicate that the carrying value of
identifiable intangibles subject to amortization and long-lived assets may be impaired, the Company
would perform an evaluation of recoverability. If an evaluation were required, the Company would
compare the estimated future undiscounted cash flows associated with the asset to the asset’s
carrying amount to determine if a write-down is required based on fair value.
37
Advertising: The costs of advertising are expensed as incurred. Advertising costs charged to
expense for continuing operations were $1.0 million, $0.8 million and $0.5 million in 2006, 2005
and 2004, respectively.
Restructuring Costs
Net restructuring charges totaling $2.6 million were expensed in the year ended December 31, 2006.
The restructuring charges for the year consisted of $2.5 million in employee severance and stay
bonuses and $0.3 million in relocation expenses offset by a $0.2 million reduction in the estimated
payout under long-term incentive plans, associated with the Company’s consolidation and relocation
of corporate headquarters to Duluth, Georgia. At December 31, 2006, total accrued restructuring
costs were $2.4 million. These costs are anticipated to be fully paid by July 2007.
Business Interruption Insurance Recoveries
During 2005, several hurricanes caused property damage to some of Saia’s Gulf Coast and Florida
terminals and disrupted operations, which adversely impacted their operating results. In addition
to lost revenue caused by these storms, service recovery efforts at Saia resulted in significant
incremental wage and other operating and administrative expense primarily in the third and fourth
quarters. In the fourth quarter of 2005, the Company recorded an insurance recovery of $1.0
million for certain costs attributable to Hurricane Katrina, net of the related deductible. During
the third quarter of 2006, the Company recovered an additional $1.1 million as a result of reaching
a settlement with the insurance company. The insurance recovery was primarily reflected as a
reduction of salaries, wages & employee benefits, operating expenses & supplies and property gains
& losses.
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 finalizing its assessment of the impacts of the adoption
of FIN 48 on its results of operations and its financial position and believes that the impact will
not be significant to either its results of operations or its financial position. The Company will
be required to adopt FIN 48 as of January 1, 2007.
There are no other new accounting pronouncements pending adoption as of December 31, 2006, which
the Company believes would have a significant impact on its consolidated financial position or
results of operations.
2. Acquisitions
On February 16, 2004, the Company acquired all of the outstanding common stock of Clark Bros., a
Midwestern less-than-truckload carrier operating in eleven states with revenue of approximately $66
million in fiscal year 2003. Clark Bros. was merged and its operations integrated into Saia in May
2004, bringing the benefits of Saia transportation service to major Midwestern markets including
Chicago, Minneapolis, St. Louis and Kansas City. The results of operations of Clark Bros. are
included in the consolidated results of the Company since the mid-February acquisition date. The
total consideration of $30.8 million included $21.7 million for the purchase of all outstanding
Clark Bros. equity, the repayment of $6.0 million of existing Clark Bros. debt and approximately
$3.1 million in consideration to structure the transaction as an asset sale for tax purposes. The
transaction was financed from cash balances, existing revolving credit capacity, and a $6.2 million
seller note payable in 2008 with a variable rate of interest, adjusted semi-annually, to prime less
1.25% reset semiannually in February and August (7.0% at December 31, 2006). The Company has the right of set off against amounts payable under the seller
note payable for any claim arising out of the Clark Bros. Transfer, Inc. Employee Stock Ownership
Trust. During 2005, a $5.3 million advance payment on the seller note was made reflecting the
Company’s right of offset for settlement of a claim arising out of the Clark Bros. Transfer, Inc.
Employee Stock Ownership Trust. Additionally, as a result of this claim settlement, $0.3 million
was refunded by the seller based on the terms of the purchase agreement resulting in a reduction in
goodwill during 2005.
38
The purchase price of Clark Bros. has been allocated based on independent appraisals and
management’s estimates
as follows (in thousands):
| |
|
|
|
|
Accounts receivable |
|
$ |
7,384 |
|
Other current assets |
|
|
1,964 |
|
Property & equipment |
|
|
14,323 |
|
Acquired intangible assets: |
|
|
|
|
Covenants not-to-compete (useful life of 4
years) |
|
|
750 |
|
Customer relationships (useful life of 6 years) |
|
|
1,700 |
|
Goodwill |
|
|
16,045 |
|
Current liabilities |
|
|
(11,373 |
) |
|
|
|
|
| |
Total allocation of purchase price at December 31, 2004 |
|
$ |
30,793 |
|
|
|
|
|
| |
Goodwill adjustment (described above) |
|
|
(311 |
) |
|
|
|
|
Adjusted purchase price |
|
$ |
30,482 |
|
|
|
|
|
The total amount of purchase price allocated to goodwill is expected to be deductible for tax
purposes.
Integration charges totaling $2.1 million were expensed in the year ended December 31, 2004. These
integration charges consist of employee retention and stay bonuses, communications, re-logoing the
fleet of Clark Bros., technology integration and other miscellaneous items. In addition, at the
date of acquisition, the Company accrued and capitalized approximately $1.1 million in exit costs
as part of the purchase allocation for employee severance and lease costs associated with the
elimination of duplicate facilities. At December 31, 2004, total remaining accrued exit costs were
$0.4 million with changes during the year related to payments of these liabilities. The remaining
accrued exit costs were fully paid during 2005.
The following unaudited pro forma financial information reflects the consolidated results of
operations of Saia, Inc. as if the acquisition of Clark Bros. had taken place on January 1, 2004.
The year ended December 31, 2004 includes $2.1 million of integration charges that were not
included in the year ended December 31, 2003. In addition to the historical results of Clark
Bros., the pro forma information includes primarily adjustments for interest expense on estimated
incremental acquisition debt and estimated amortization of acquired identifiable intangible assets.
The pro forma financial information is not necessarily indicative of the results of operations as
it would have been had the transaction been effected on the assumed date.
| |
|
|
|
|
| |
|
Year Ended |
| |
|
December 31, 2004 |
| |
Pro forma revenue |
|
$ |
990,366 |
|
Pro forma net income |
|
|
19,000 |
|
Pro forma diluted earnings per share |
|
|
1.24 |
|
On November 18, 2006, the Company acquired all of the outstanding common stock of The Connection
Company (the Connection), a Midwestern less-than-truckload carrier operating in four states with
revenue of approximately $70 million in fiscal year 2005. The Connection is expected to be merged
and its operations integrated into Saia Motor Freight in February 2007, bringing the benefits of
our transportation service to major Midwestern markets including Cincinnati, Cleveland, Columbus,
Detroit, Indianapolis, Louisville and Toledo. The results of operations
of the Connection are included in the consolidated results of the Company since the mid-November
acquisition date. The total consideration of $17.5 million includes $10.5 million for the purchase
of all outstanding equity of the Connection and the repayment of $7.0 million of existing debt of
the Connection. The transaction was financed from cash balances. In the preliminary allocation of
the purchase price, the Company recorded approximately $5.9 million of purchase price in excess of
net tangible assets; however, the Company has not yet completed the allocation of this intangible
between goodwill and other identifiable intangible assets. Management does not believe the
amortization of identifiable intangibles would be material to its 2006 fourth quarter financial
results or this pro forma disclosure. Any purchase price in excess of net tangible assets
allocated to goodwill will not be deductible for tax purposes.
39
The purchase price of the Connection has been preliminarily allocated based on management’s
preliminary estimates as follows (in thousands):
| |
|
|
|
|
Accounts receivable |
|
$ |
8,259 |
|
Other current assets |
|
|
552 |
|
Property & equipment |
|
|
11,039 |
|
Goodwill |
|
|
5,876 |
|
Other assets |
|
|
465 |
|
Current liabilities |
|
|
(6,985 |
) |
Long-term liabilities |
|
|
(1,710 |
) |
|
|
|
|
| |
Total allocation of purchase price at December 31, 2006 |
|
$ |
17,496 |
|
|
|
|
|
Integration charges totaling $1.5 million were expensed in the year ended December 31, 2006. These
integration charges consist of employee retention and stay bonuses, communications, re-logoing the
fleet of the Connection, technology integration and other miscellaneous items.
The following unaudited pro forma financial information reflects the consolidated results of
operations of Saia, Inc. as if the acquisition of the Connection had taken place on January 1,
2005. The year ended December 31, 2006 includes $1.5 million of integration charges that were not
included in the year ended December 31, 2005. The pro forma financial information is not
necessarily indicative of the results of operations as it would have been had the transaction been
effected on the assumed date. When the Connection is integrated in 2007 increased wage and benefit
costs will be incurred. Due to these costs the Connection is not expected to be accretive in 2007.
| |
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
Year Ended |
| |
|
December 31, 2006 |
|
December 31, 2005 |
|
|
|
|
|
|
|
|
|
Pro forma revenue |
|
$ |
941,403 |
|
|
$ |
820,614 |
|
Pro forma net income (loss) |
|
|
(19,882 |
) |
|
|
27,842 |
|
Pro forma diluted earnings (loss) per share |
|
|
(1.34 |
) |
|
|
1.85 |
|
3. Related-Party Transactions
On September 30, 2002, Yellow Corporation (Yellow or former Parent) completed the spin-off of its
100 percent interest in the Company to Yellow shareholders (the Spin-off) in a tax-free
distribution under Section 355 of the Internal Revenue Code. Subsequent to the Spin-off the former
Parent continues to provide guarantees for certain pre-Spin-off workers’ compensation and casualty
claims for which the Company is allocated its pro rata share of letters of credit and bonds, which
the former Parent must maintain for these insurance programs. The former Parent allocated $2.6
million of letters of credit and surety bonds at both December 31, 2006 and December 31, 2005, in
connection with the Company’s insurance programs for which the Company pays quarterly the former
Parent’s cost through October 1, 2004 and cost plus 100 basis points thereafter through 2007. The
former Parent also provided guarantees of approximately $1.3 million and $2.4 million for service
facility leases at December 31, 2006 and 2005, respectively.
40
4. Debt and Financing Arrangements
At December 31, debt consisted of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Credit agreement with Banks, described below |
|
$ |
— |
|
|
$ |
— |
|
Senior Notes under a Master Shelf Agreement,
described below |
|
|
95,000 |
|
|
|
100,000 |
|
Subordinated debentures, interest rate of 7.0%,
semi-annual installment payments due from 2005 to 2011 |
|
|
14,051 |
|
|
|
13,980 |
|
Note to seller as described in Note 2 |
|
|
933 |
|
|
|
933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
|
109,984 |
|
|
|
114,913 |
|
|
|
|
|
|
|
|
|
|
Current maturities |
|
|
11,356 |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
98,628 |
|
|
$ |
109,913 |
|
|
|
|
|
|
|
|
On September 20, 2002, Saia issued $100 million in Senior Notes under a $125 million (amended to
$150 million in April 2005) Master Shelf Agreement with Prudential Investment Management, Inc. and
certain of its affiliates and entered into a $50 million (amended November 2003 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 $100 million Senior Notes are unsecured and have a fixed interest rate of 7.38 percent.
Payments due under the Senior Notes were interest only until June 30, 2006 and at that time
semi-annual principal payments began with the final payment due December 2013. Under the terms of
the Senior Notes, Saia must maintain certain 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. At December 31,
2006 and 2005, the Company was in compliance with these covenants.
The Credit Agreement is unsecured with an interest rate based on LIBOR or prime at the Company’s
option, plus an applicable spread, in certain instances, and was to mature in September 2006. On
January 31, 2005, the Company amended and restated the Credit Agreement to increase the facility to
$110 million and extended the maturity to January 2008 and removed a requirement that limited
availability under the Credit Agreement to Saia’s qualified receivables. On January 31, 2007, the
Company amended the Credit Agreement to extend the maturity January 2009. At December 31, 2006,
the Company had no borrowings under the Credit Agreement, $40.7 million in letters of credit
outstanding under the Credit Agreement and remaining availability of $69.3 million. At December
31, 2005, the Company had no borrowings under the Credit Agreement, $39.9 million in letters of
credit outstanding under the Credit Agreement and remaining availability of $70.1 million. Under
the terms of the Credit Agreement, the Company must maintain certain financial covenants including
a maximum ratio of total indebtedness to EBITDAR, a minimum interest coverage ratio and a minimum
tangible net worth, among others. At December 31, 2006 and 2005, the Company was in compliance
with these covenants.
Based on the borrowing rates currently available to the Company for debt with similar terms and
remaining maturities, the estimated fair value of total debt at December 31, 2006 and 2005 is
$112.0 million and $132.4 million, respectively.
The principal maturities of long-term debt for the next five years (in thousands) are as follows:
| |
|
|
|
|
| |
|
Amount |
| |
2007 |
|
$ |
11,356 |
|
2008 |
|
|
12,371 |
|
2009 |
|
|
18,938 |
|
2010 |
|
|
18,938 |
|
2011 |
|
|
18,625 |
|
Thereafter |
|
|
29,756 |
|
5. Commitments, Contingencies and Uncertainties
The Company leases certain service facilities and equipment. Rent expense from continuing
operations was $12.4 million, $11.2 million and $10.8 million for the years ended December 31,
2006, 2005 and 2004, respectively.
41
At December 31, 2006, the Company was committed under noncancellable lease agreements requiring
minimum annual rentals payable as follows (in thousands):
| |
|
|
|
|
| |
|
Amount |
|
|
|
|
|
2007 |
|
$ |
12,059 |
|
2008 |
|
|
8,230 |
|
2009 |
|
|
4,390 |
|
2010 |
|
|
2,360 |
|
2011 |
|
|
896 |
|
Thereafter |
|
|
1,708 |
|
Management expects that in the normal course of business leases will be renewed or replaced as they
expire.
Capital expenditures of approximately $40.0 million were committed at December 31, 2006. As of
December 31, 2006 and 2005, the Company had $3.5 million and $8.9 million of capital expenditures
in accounts payable as non-cash operating activities, respectively.
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
have a material adverse affect on our financial position, results of operations or cash flows.
6. Goodwill and Other Intangible Assets
The Company assesses at least annually, as required by FASB Statement No. 142, Goodwill and Other
Intangible Assets, goodwill impairment by applying a fair value based test. Goodwill is not
subject to amortization.
All goodwill is recorded at Saia Motor Freight with goodwill balances and adjustments as follows
(in thousands):
| |
|
|
|
|
| |
|
Goodwill |
|
|
|
|
|
|
December 31, 2003 |
|
$ |
14,796 |
|
Goodwill Acquired (Note 2) |
|
|
16,045 |
|
|
|
|
|
|
|
|
|
|
December 31, 2004 |
|
|
30,841 |
|
Purchase adjustment (Note 2) |
|
|
(311 |
) |
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
30,530 |
|
Goodwill Acquired (Note 2) |
|
|
5,876 |
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
$ |
36,406 |
|
|
|
|
|
All identifiable intangible assets are recorded at Saia Motor Freight. The gross amounts and
accumulated amortization of identifiable intangible assets at Saia Motor Freight are as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2006 |
|
|
December 31, 2005 |
|
| |
|
Gross |
|
|
Accumulated |
|
|
Gross |
|
|
Accumulated |
|
| |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
1,700 |
|
|
$ |
815 |
|
|
$ |
1,700 |
|
|
$ |
531 |
|
Covenants not-to-compete |
|
|
2,713 |
|
|
|
2,502 |
|
|
|
2,713 |
|
|
|
2,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,413 |
|
|
$ |
3,317 |
|
|
$ |
4,413 |
|
|
$ |
2,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Amortization expense for intangible assets other than goodwill was $0.6 million for 2006, $0.7
million for 2005 and $0.7 million for 2004. Estimated amortization expense for the five succeeding
years follows (in thousands):
| |
|
|
|
|
| |
|
Amount |
|
|
|
|
|
2007 |
|
$ |
471 |
|
2008 |
|
|
307 |
|
2009 |
|
|
283 |
|
2010 |
|
|
35 |
|
2011 |
|
|
— |
|
7. 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):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
25,873 |
|
|
$ |
25,158 |
|
|
$ |
13,222 |
|
Income (loss) from discontinued operations, net |
|
|
(46,554 |
) |
|
|
2,301 |
|
|
|
6,037 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(20,681 |
) |
|
$ |
27,459 |
|
|
$ |
19,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share—
weighted average common shares |
|
|
14,536 |
|
|
|
14,707 |
|
|
|
14,858 |
|
Effect of dilutive stock options |
|
|
279 |
|
|
|
328 |
|
|
|
452 |
|
Effect of other common stock equivalents |
|
|
26 |
|
|
|
13 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share—
adjusted weighted average common shares |
|
|
14,841 |
|
|
|
15,048 |
|
|
|
15,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share — Continuing Operations |
|
$ |
1.78 |
|
|
$ |
1.71 |
|
|
$ |
0.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Share — Discontinued Operations |
|
|
(3.20 |
) |
|
|
0.16 |
|
|
|
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Share |
|
$ |
(1.42 |
) |
|
$ |
1.87 |
|
|
$ |
1.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share — Continuing Operations |
|
$ |
1.74 |
|
|
$ |
1.67 |
|
|
$ |
0.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share — Discontinued Operations |
|
|
(3.14 |
) |
|
|
0.15 |
|
|
|
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share |
|
$ |
(1.39 |
) |
|
$ |
1.82 |
|
|
$ |
1.26 |
|
|
|
|
|
|
|
|
|
|
|
8. Shareholders’ Equity
Series A Junior Participating Preferred Stock
As of December 31, 2006 and 2005, the Company has 5,000 shares of preferred stock that are
designated “Series A Junior Participating Preferred Stock” and are reserved for issuance upon
exercise of the preferred stock rights under the rights agreement described below. Series A Junior
Participating Preferred Stock is nonredeemable and subordinate to any other series of the Company’s
preferred stock, unless otherwise provided for in the terms of the preferred stock; has a
preferential dividend in an amount equal to 10,000 times any dividend declared on each share of
common stock; has 10,000 votes per share, voting together with the Company’s common stock; and in
the event of liquidation, entitles its holder to receive a preferred liquidation payment equal to
the greater of $10,000 or 10,000 times the payment made per share of common stock. As of December 31, 2006 and 2005, none of these
shares have been issued.
Preferred Stock Rights
Each issued and outstanding share of common stock has associated with it one right to purchase
shares of Saia, Inc. Series A Junior Participating Preferred Stock, no par value, pursuant to a
Rights Agreement dated September 30, 2002 between the Company and Mellon Investor Services LLC. The
Company will issue one right to purchase one
43
one-ten-thousandth share of its Series A Junior Participating Preferred Stock as a dividend on
each share of common stock. The rights initially are attached to and trade with the shares of
common stock. Value attributable to these rights, if any, is reflected in the market price of the
common stock. The rights are not currently exercisable, but could become exercisable if certain
events occur, including the acquisition of 15 percent or more of the outstanding common stock of
the Company by an acquiring person in a non-permitted transaction. Under certain conditions, the
rights will entitle holders, other than an acquirer in a non-permitted transaction, to purchase
shares of common stock with a market value of two times the exercise price of the right. The
rights will expire in 2012 unless extended.
Deferred Compensation Trust
On March 6, 2003, the SCST Executive Capital Accumulation Plan (the Capital Accumulation Plan) was
amended to allow for the plan participants to invest in the Company’s common stock.
The following table summarizes the shares of the Company’s common stock that were purchased and
sold by the Company’s Rabbi Trust, which holds the investments for the Capital Accumulation Plan:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
| |
|
2006 |
|
2005 |
|
2004 |
| |
Shares of common stock purchased |
|
|
24,260 |
|
|
|
23,580 |
|
|
|
20,570 |
|
Aggregate purchase price of shares
purchased |
|
$ |
612,000 |
|
|
$ |
399,000 |
|
|
$ |
446,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock sold |
|
|
5,610 |
|
|
|
12,930 |
|
|
|
7,240 |
|
Aggregate sale price of shares sold |
|
$ |
135,000 |
|
|
$ |
223,000 |
|
|
$ |
158,000 |
|
The Rabbi Trust shares are recorded by the Company in a manner similar to treasury stock at cost
until either a change in investment election by a plan participant or a participant’s withdrawal
from the Capital Accumulation Plan. Changes in the fair value of the obligations to participants
for shares held in the Rabbi Trust are recorded in net income and $0.1 million, ($0.1 million) and
$0.4 million of (benefit)/expense was included in the 2006, 2005 and 2004 operating results,
respectively.
Directors’ Deferred Compensation
In December 2003, the Company adopted the Directors’ Deferred Fee Plan. Under the Directors’
Deferred Fee Plan, non-employee directors may defer all or a portion of their annual fees and
retainers which are otherwise payable in the Company’s common stock. Such deferrals are converted
into units equivalent to the value of the Company’s stock. Upon the directors’ termination, death
or disability, accumulated deferrals are distributed in the form of Company common stock. The
Company has 28,972 and 17,819 shares reserved for issuance under the Directors’ Deferred Fee Plan
at December 31, 2006 and 2005, respectively. The shares reserved for issuance under the Directors’
Deferred Fee Plan are treated as common stock equivalents in computing diluted earnings per share.
Share Repurchase Program
On May 3, 2005, the Company’s Board of Directors authorized the repurchase of up to $20 million of
the Company’s common stock. During the remainder of 2005 the Company repurchased 734,900 shares in
the open market representing $12.9 million of the total authorized $20 million program. The
Company’s Board of Directors authorized the subsequent retirement of the 734,900 shares repurchased
during 2005. At December 31, 2005, $7.1 million remained authorized under the $20 million
repurchase program.
During 2006, the Company repurchased 264,600 shares in the open market representing $7.1 million
and completing the $20 million repurchase program. On November 27, 2006, the Company’s Board of
Directors authorized the repurchase of up to an additional $25 million of the Company’s common
stock. During the remainder of 2006 the Company repurchased 71,800 shares in the open market
representing $1.8 million of the total authorized $25 million program. At December 31, 2006,
336,400 shares of treasury stock were outstanding. Also, $23.2 million remained authorized under
the $25 million repurchase program at December 31, 2006.
9. 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,
44
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 uses the Black-Scholes-Merton formula to estimate the fair value of stock options
granted to employees and will 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 year
ended December 31, 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 December 31, 2006, the Company has reserved and remaining outstanding stock option grants for
374,289 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 Company’s 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 chair’s 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 years ended December 31, 2006 and 2005. Non-employee directors were also issued 11,153 and
14,871 units equivalent to shares in the Company’s common stock under the Directors’ Deferred Fee Plan during the years ended
December 31, 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 Company’s common
stock on the date of grant. At December 31, 2006 and December 31, 2005, 242,109 and 290,901
shares, respectively, remain reserved and available under the 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.
45
The years ended December 31, 2006 and 2005 had stock option compensation expense of $0.3 million
and less than $0.2 million, respectively, included in salaries, wages and employees’ benefits. The
Company recognized a tax benefit consistent with the appropriate tax rates for each of the
respective periods. As of December 31, 2006 there is unrecognized compensation expense of $0.2
million related to unvested stock options, which is expected to be recognized over a weighted
average period of 1.8 years. The Company recorded actual forfeitures of approximately 29% of the
options issued during 2005 and 2006 directly as a result of the sale of Jevic and has adjusted the
stock option compensation expense. The Company does not anticipate any additional forfeitures of
unvested stock options.
The following table summarizes the activity of stock options for the year ended December 31, 2006
for both employees and non-employee directors:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Average |
|
|
Aggregate |
|
| |
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
Intrinsic |
|
| |
|
|
|
|
|
average |
|
|
Contractual |
|
|
Value |
|
| |
|
Options |
|
|
exercise price |
|
|
Life (years) |
|
|
(000's) |
|
Outstanding at December 31, 2005 |
|
|
740,704 |
|
|
$ |
6.56 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
74,120 |
|
|
|
27.38 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(279,155 |
) |
|
|
5.20 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(37,960 |
) |
|
|
24.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006 |
|
|
497,709 |
|
|
$ |
9.03 |
|
|
|
3.7 |
|
|
$ |
7,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2006 |
|
|
442,629 |
|
|
$ |
6.96 |
|
|
|
3.4 |
|
|
$ |
7,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the year ended December 31, 2006 and 2005 was
$6.2 million and $1.9 million, respectively. The weighted-average grant-date fair value of options
granted during the year ended December 31, 2006, 2005 and 2004 was $8.97, $7.08 and $7.67,
respectively. The weighted-average grant-date fair value of shares vested during the years ended
December 31, 2006, 2005 and 2004 was $8.31, $7.24 and $7.67, respectively.
The following table summarizes the weighted average assumptions used in valuing options for the
years ended December 31, 2006 and 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk free interest rate |
|
|
4.46 |
% |
|
|
3.92 |
% |
|
|
4.40 |
% |
Expected life in years |
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
Expected volatility |
|
|
41.10 |
% |
|
|
40.75 |
% |
|
|
42.00 |
% |
Dividend rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
The risk-free rate for periods within the contractual life of the option is based on the U.S.
Treasury yield in effect at the time of grant. The expected life of the options represents the
period of time that options granted are expected to be outstanding. Expected volatilities are
based on historical volatility of the Company’s stock.
The following table summarizes the status of the Company’s unvested options as of December 31, 2006
and changes during the year ended December 31, 2006:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted average |
|
| |
|
Options |
|
|
Grant-date Fair Value |
|
Unvested at December 31, 2005 |
|
|
44,760 |
|
|
$ |
7.07 |
|
Granted |
|
|
74,120 |
|
|
|
8.97 |
|
Vested |
|
|
(25,840 |
) |
|
|
8.31 |
|
Forfeited |
|
|
(37,960 |
) |
|
|
8.13 |
|
|
|
|
|
|
|
|
Unvested at December 31, 2006 |
|
|
55,080 |
|
|
$ |
8.32 |
|
|
|
|
|
|
|
|
10. Employee Benefits
Defined Contribution Plans
The Company sponsors defined contribution plans. The plans principally consist of contributory
401(k) savings plans and noncontributory profit sharing plans. The Company’s contributions to the
401(k) savings plans consist of
46
a fixed matching percentage. The nondiscretionary Company match is 50 percent of the first
six percent of an eligible employee’s contributions. The Company’s total contributions included in
continuing operations for the years ended December 31, 2006, 2005, and 2004, were $5.5 million,
$4.8 million and $4.2 million, respectively.
Deferred Compensation Plan
The SCST Executive Capital Accumulation Plan (the Capital Accumulation Plan) is a nonqualified
deferred compensation plan. The plan participants in the Capital Accumulation Plan are certain
executives within the Company. On March 6, 2003, the Capital Accumulation Plan was amended to
allow for the plan participants to invest in the Company’s common stock. At December 31, 2006 and
2005, the Company’s Rabbi Trust, which holds the investments for the Capital Accumulation Plan,
held 106,247 and 87,597 shares of the Company’s common stock, respectively, all of which were
purchased on the open market. The shares held by the Capital Accumulation Plan are treated similar
to treasury shares and deducted from basic shares outstanding for purposes of calculating earnings
per share.
Annual Incentive Awards
The Company provides annual cash performance incentive awards to salaried and clerical employees,
which are based primarily on actual operating results achieved, compared to targeted operating
results. Operating results from continuing operations include performance incentive accruals of
$8.5 million, $8.9 million and $7.1 million in 2006, 2005 and 2004, respectively. Performance
incentive awards for a year are primarily paid in the first quarter of the following year.
Employee Stock Purchase Plan
In January 2003, the Company adopted the Employee Stock Purchase Plan of Saia, Inc. (ESPP) allowing
all eligible employees to purchase common stock of the Company at current market prices through
payroll deductions of up to 10 percent of annual wages. The custodian uses the funds to purchase
the Company’s common stock at current market prices. The custodian purchased 11,130, 16,922 and
10,919 shares in the open market during 2006, 2005 and 2004, respectively.
Performance Unit Awards
Under the 2003 Omnibus Plan, the Compensation Committee of the Board of Directors approved
performance unit awards to a group of less than 20 management and executive employees. The
performance periods for these awards are 2003 — 2005, 2004 — 2006, 2005 — 2007 and 2006 — 2008,
three years from the date of issuance of these awards. The criteria for payout of the awards is
based on a comparison over three year periods of the total shareholder return (TSR) of the
Company’s common stock compared to the TSR of the companies in the peer group set forth by the
Compensation Committee. The Company accrues amounts for such payments over the performance period
and at each reporting date adjusts the accrual based upon the performance criteria set forth in the
plan through the reporting date. Operating results from continuing operations include accruals for
the performance unit awards of $2.8 million, $0.6 million and $1.0 million in 2006, 2005 and 2004,
respectively. The performance unit awards will be paid in cash in the first quarter of the year
following the end of the performance period.
11. Income Taxes
Deferred income taxes are determined based upon the difference between the book and the tax basis
of the Company’s assets and liabilities. Deferred taxes are provided at the enacted tax rates
expected to be in effect when these differences reverse.
47
Deferred tax liabilities (assets) of continuing operations are comprised of the following at
December 31, (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
54,800 |
|
|
$ |
47,527 |
|
Other |
|
|
3,460 |
|
|
|
1,989 |
|
Revenue |
|
|
2,535 |
|
|
|
1,696 |
|
|
|
|
|
|
|
|
Gross tax liabilities |
|
|
60,795 |
|
|
|
51,212 |
|
Allowance for doubtful accounts |
|
|
(1,381 |
) |
|
|
(1,255 |
) |
Employee benefits |
|
|
(7,985 |
) |
|
|
(6,765 |
) |
Claims and insurance |
|
|
(10,480 |
) |
|
|
(8,907 |
) |
Other |
|
|
(6,301 |
) |
|
|
(2,682 |
) |
Revenue |
|
|
(1,170 |
) |
|
|
(1,034 |
) |
|
|
|
|
|
|
|
Gross tax assets |
|
|
(27,317 |
) |
|
|
(20,643 |
) |
|
|
|
|
|
|
|
Net tax liability |
|
$ |
33,478 |
|
|
$ |
30,569 |
|
|
|
|
|
|
|
|
The Company has determined that a valuation allowance related to deferred tax assets was not
necessary at December 31, 2006. The Company estimates exposure for additional state income tax
liability based on recent state legislative and legal outcomes. The Company had income tax
reserves of approximately $2.7 million and $2.3 million at December 31, 2006 and 2005,
respectively, which are included in current income taxes principally for these state income tax
issues.
The income tax provision for continuing operations consists of the following (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
$ |
12,439 |
|
|
$ |
13,681 |
|
|
|
(1,942 |
) |
State |
|
|
2,101 |
|
|
|
1,914 |
|
|
|
(293 |
) |
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
14,540 |
|
|
|
15,595 |
|
|
|
(2,235 |
) |
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
|
1,418 |
|
|
|
229 |
|
|
|
8,994 |
|
State |
|
|
142 |
|
|
|
19 |
|
|
|
861 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
1,560 |
|
|
|
248 |
|
|
|
9,855 |
|
|
|
|
|
|
|
|
|
|
|
Total provision |
|
$ |
16,100 |
|
|
$ |
15,843 |
|
|
$ |
7,620 |
|
|
|
|
|
|
|
|
|
|
|
A reconciliation between income taxes at the federal statutory rate (35 percent) and the provision
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision at federal statutory rate |
|
$ |
14,691 |
|
|
$ |
14,351 |
|
|
$ |
7,295 |
|
State income taxes, net |
|
|
1,473 |
|
|
|
1,764 |
|
|
|
698 |
|
Nondeductible business expenses |
|
|
489 |
|
|
|
507 |
|
|
|
300 |
|
Favorable resolution of various tax
matters |
|
|
— |
|
|
|
(726 |
) |
|
|
(619 |
) |
Tax credit |
|
|
(772 |
) |
|
|
— |
|
|
|
— |
|
Other, net |
|
|
219 |
|
|
|
(53 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision |
|
$ |
16,100 |
|
|
$ |
15,843 |
|
|
$ |
7,620 |
|
|
|
|
|
|
|
|
|
|
|
12. Business Segments
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.
Accounting policies of the segments are the same as those described in the summary of significant
accounting policies. 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 $11.3 million, $8.5 million and $8.8
million for the years ended December 31, 2006, 2005 and 2004,
48
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, in addition to restructuring costs of $2.6 million, which were expensed in the
year ended December 31, 2006 (See Note 1 Restructuring Costs).
The following table summarizes the Company’s operations by business segment from continuing
operations
(in thousands).
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Saia Motor |
|
Corporate |
|
|
| |
|
Freight |
|
and Other |
|
Consolidated |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
$ |
874,738 |
|
|
$ |
— |
|
|
$ |
874,738 |
|
Operating income |
|
|
59,648 |
|
|
|
(9,654 |
) |
|
|
49,994 |
|
Identifiable assets |
|
|
473,275 |
|
|
|
14,125 |
|
|
|
487,400 |
|
Capital expenditures, net |
|
|
90,729 |
|
|
|
19 |
|
|
|
90,748 |
|
Depreciation and amortization |
|
|
32,511 |
|
|
|
39 |
|
|
|
32,550 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
$ |
754,038 |
|
|
$ |
— |
|
|
$ |
754,038 |
|
Operating income |
|
|
55,294 |
|
|
|
(4,858 |
) |
|
|
50,436 |
|
Identifiable assets |
|
|
389,076 |
|
|
|
15,149 |
|
|
|
404,225 |
|
Capital expenditures, net |
|
|
33,299 |
|
|
|
6 |
|
|
|
33,305 |
|
Depreciation and amortization |
|
|
28,803 |
|
|
|
46 |
|
|
|
28,849 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
$ |
645,374 |
|
|
$ |
— |
|
|
$ |
645,374 |
|
Operating income |
|
|
35,823 |
|
|
|
(5,481 |
) |
|
|
30,342 |
|
Identifiable assets |
|
|
348,443 |
|
|
|
15,474 |
|
|
|
363,917 |
|
Capital expenditures, net |
|
|
41,877 |
|
|
|
3 |
|
|
|
41,880 |
|
Depreciation and amortization |
|
|
27,846 |
|
|
|
52 |
|
|
|
27,898 |
|
| |
13. Summary of Quarterly Operating Results (unaudited)
(Amounts in thousands, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended, 2006 |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
$ |
204,646 |
|
|
$ |
224,814 |
|
|
$ |
226,118 |
|
|
$ |
219,160 |
|
Operating income |
|
|
8,561 |
|
|
|
17,023 |
|
|
|
13,955 |
|
|
|
10,455 |
|
Income from continuing operations |
|
|
3,917 |
|
|
|
8,967 |
|
|
|
7,681 |
|
|
|
5,309 |
|
Discontinued operations |
|
|
(1,546 |
) |
|
|
(44,904 |
) |
|
|
2 |
|
|
|
(107 |
) |
Net income |
|
|
2,371 |
|
|
|
(35,937 |
) |
|
|
7,683 |
|
|
|
5,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share-Continuing Operations |
|
$ |
0.27 |
|
|
$ |
0.61 |
|
|
$ |
0.53 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share-Continuing Operations |
|
$ |
0.26 |
|
|
$ |
0.60 |
|
|
$ |
0.52 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share-Discontinued Operations |
|
$ |
(0.11 |
) |
|
$ |
(3.08 |
) |
|
$ |
— |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share-Discontinued Operations |
|
$ |
(0.10 |
) |
|
$ |
(3.02 |
) |
|
$ |
— |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.16 |
|
|
$ |
(2.47 |
) |
|
$ |
0.53 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.16 |
|
|
$ |
(2.42 |
) |
|
$ |
0.52 |
|
|
$ |
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended, 2005 |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
$ |
166,965 |
|
|
$ |
185,824 |
|
|
$ |
198,811 |
|
|
$ |
202,438 |
|
Operating income |
|
|
8,259 |
|
|
|
11,280 |
|
|
|
12,659 |
|
|
|
18,237 |
|
Income from continuing operations |
|
|
3,450 |
|
|
|
5,275 |
|
|
|
6,327 |
|
|
|
10,105 |
|
Discontinued operations |
|
|
522 |
|
|
|
515 |
|
|
|
655 |
|
|
|
610 |
|
Net income |
|
|
3,972 |
|
|
|
5,790 |
|
|
|
6,982 |
|
|
|
10,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share-Continuing Operations |
|
$ |
0.23 |
|
|
$ |
0.35 |
|
|
$ |
0.44 |
|
|
$ |
0.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share-Continuing Operations |
|
$ |
0.22 |
|
|
$ |
0.35 |
|
|
$ |
0.43 |
|
|
$ |
0.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share-Discontinued Operations |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.05 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share-Discontinued Operations |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.04 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.26 |
|
|
$ |
0.39 |
|
|
$ |
0.48 |
|
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.26 |
|
|
$ |
0.38 |
|
|
$ |
0.47 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. 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 Company’s 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 $0.9 million. The Company and Jevic finalized the working
capital adjustment in the third quarter of 2006 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 Jevic’s 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 Jevic’s third party bank for Jevic’s 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 Freight’s revenue from Jevic prior to
the transaction date for the years ended December 31, 2006 and 2005 were $3.1 million and $3.7
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 Company’s incremental cost of providing such services. The amount of
these services is not believed to be material.
50
The accompanying condensed consolidated statements of operations for all periods presented have
been presented to classify Jevic’s operations as discontinued operations. Selected condensed
consolidated statement of operations data for the Company’s discontinued operations is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenue from discontinued operations |
|
$ |
165,215 |
|
|
$ |
343,993 |
|
|
$ |
336,896 |
|
Pre-tax income (loss) from discontinued operations |
|
|
(4,013 |
) |
|
|
4,387 |
|
|
|
10,569 |
|
Pre-tax gain (loss) on disposal of discontinued
operations |
|
|
(54,973 |
) |
|
|
— |
|
|
|
— |
|
Income tax (provision) benefit |
|
|
12,432 |
|
|
|
(2,086 |
) |
|
|
(4,532 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
(46,554 |
) |
|
$ |
2,301 |
|
|
$ |
6,037 |
|
|
|
|
|
|
|
|
|
|
|
A summary of the assets and liabilities from discontinued operations is as follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
| |
Accounts receivable, net |
|
$ |
— |
|
|
$ |
41,750 |
|
Other current assets |
|
|
— |
|
|
|
6,196 |
|
Deferred income taxes |
|
|
— |
|
|
|
2,127 |
|
Property and equipment, net |
|
|
— |
|
|
|
98,899 |
|
Other noncurrent assets |
|
|
— |
|
|
|
1,544 |
|
|
|
|
|
|
|
|
Total assets from
discontinued
operations |
|
|
— |
|
|
$ |
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 |
|
|
117 |
|
|
|
34 |
|
Deferred income taxes |
|
|
— |
|
|
|
17,113 |
|
|
|
|
|
|
|
|
Total liabilities
from discontinued
operations |
|
$ |
117 |
|
|
$ |
48,247 |
|
Liabilities of discontinued operations at December 31, 2006 reflect the remaining accrued
transaction fees that are estimated to be paid in 2007. 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 $0.6 million, $0.1 million and $0.3 million for the
years ended December 31, 2006, 2005and 2004 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.
51
15. Valuation and Qualifying Accounts
For the Years Ended December 31, 2006, 2005 and 2004
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Col. A |
|
Col. B |
|
Col. C |
|
Col. D |
|
Col. E |
| |
|
|
|
|
|
Additions |
|
|
|
|
|
|
| |
|
|
|
|
|
-1- |
|
-2- |
|
|
|
|
|
|
| |
|
Balance, |
|
Charged to |
|
Charged to |
|
|
|
|
|
Balance, |
| |
|
beginning |
|
costs and |
|
other |
|
Deductions- |
|
end of |
| Description |
|
of period |
|
expenses |
|
accounts |
|
describe (1) |
|
period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset account —
Allowance for uncollectible
accounts |
|
$ |
3,260 |
|
|
|
1,815 |
|
|
|
369 |
(2) |
|
|
(1,532 |
) |
|
$ |
3,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset account —
Allowance for uncollectible
accounts |
|
$ |
2,399 |
|
|
|
1,951 |
|
|
|
— |
|
|
|
(1,090 |
) |
|
$ |
3,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset account —
Allowance for uncollectible
accounts |
|
$ |
2,633 |
|
|
|
1,184 |
|
|
|
116 |
(2) |
|
|
(1,534 |
) |
|
$ |
2,399 |
|
|
|
|
| (1) |
|
Primarily uncollectible accounts written off — net of recoveries. |
| |
| (2) |
|
Reserves acquired with the acquisition of the Connection in 2006 and Clark Bros. in 2004. |
16. Subsequent Events
On February 1, 2007, the Company purchased the stock of Madison Freight System, Inc. for $2.5
million in cash, an LTL carrier operating in the state of Wisconsin and parts of Illinois and
Minnesota.
52
|
|
|
| Item 9. |
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
|
|
|
| Item 9A. |
|
Controls and Procedures |
Annual Controls Evaluation and Related CEO and CFO Certifications
As of the end of the period covered by this Annual Report on Form 10-K, 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 done under the supervision and with
the participation of management, including the Company’s Chief Executive Officer (CEO) and Chief
Financial Officer (CFO).
Based upon the controls evaluation, the Company’s CEO and CFO have concluded that, subject to the
limitations noted below, as of the end of the period covered by this Annual Report on Form 10-K,
the Company’s Disclosure Controls were effective to provide reasonable assurance that material
information relating to the Company and its consolidated subsidiaries is made known to management,
including the CEO and CFO, particularly during the period when the Company’s periodic reports are
being prepared.
During the fourth quarter of 2006, there have been no material changes in internal control over
financial reporting or in other factors that could materially affect internal control over
financial reporting, including any corrective actions with regard to significant deficiencies and
material weaknesses.
Attached as Exhibits 31.1 and 31.2 to this Annual 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. Management’s Report on Internal Control over Financial Reporting is included in
this Form 10-K.
Definition of Disclosure Controls
Disclosure Controls are controls and procedures designed to ensure that information required to be
disclosed in the Company’s 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 Company’s management, including the CEO and CFO, as appropriate
to allow timely decisions regarding required disclosure. The Company’s 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 Company’s financial
reporting and the preparation of financial statements in accordance with U.S. generally accepted
accounting principles.
Limitations on the Effectiveness of Controls
The Company’s 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 system’s 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 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.
|
|
|
| Item 9B. |
|
Other Information |
None.
53
PART III.
|
|
|
| Item 10. |
|
Directors and Executive Officers |
Information required by this Item 10 will be presented in the Company’s definitive proxy statement
for its annual meeting of stockholders, which will be held on April 19, 2007, and is incorporated
herein by reference. Information regarding executive officers of Saia is included above in Part I
of this Form 10-K under the caption “Executive Officers” pursuant to Instruction 3 to Item 401(b)
of Regulation S-K and General Instruction G (3) of Form 10-K.
|
|
|
| Item 11. |
|
Executive Compensation |
Information regarding executive compensation will be presented in the Company’s definitive proxy
statement for its annual meeting of stockholders, which will be held on April 19, 2007, and is
incorporated herein by reference.
|
|
|
| Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters |
Information regarding security ownership of certain beneficial owners and management and related
stockholder matters will be presented in the Company’s definitive proxy statement for its annual
meeting of stockholders, which will be held on April 19, 2007, and is incorporated herein by
reference.
|
|
|
| Item 13. |
|
Certain Relationships and Related Transactions, and Director Independence |
Information regarding certain relationships, related party transactions and director independence
will be presented in the Company’s definitive proxy statement for its annual meeting of
stockholders, which will be held on April 19, 2007, and is incorporated herein by reference.
|
|
|
| Item 14. |
|
Principal Accounting Fees and Services |
Information regarding accounting fees and services will be presented in the Company’s definitive
proxy statement for its annual meeting of stockholders, which will be held on April 19, 2007, and
is incorporated herein by reference.
54
PART IV.
|
|
|
| Item 15. |
|
Exhibits, Financial Statement Schedules |
| |
(a) |
|
1. Financial Statements |
| |
| |
|
|
The consolidated financial statements required by this item are included in Item 8, “Financial
Statements and Supplementary Data” herein. |
| |
| |
|
|
2. Financial Statement Schedules |
| |
| |
|
|
The Schedule II—Valuation and Qualifying Accounts financial statement schedule is included in
Note 15 to the consolidated financial statements contained herein. All other financial
statement schedules have been omitted because they are not applicable. |
| |
| |
|
|
3. Exhibits |
| |
| |
|
|
Exhibits 3.1, 3.2, 4.1, 10.1 through 10.36, 14, 21, 23.1, 31.1, 31.2, 32.1 and 32.2 are being
filed in connection with this Report or incorporated herein by reference. The Exhibit Index
on page E-1 is incorporated herein by reference. |
| |
| |
(b) |
|
Exhibits |
| |
| |
|
|
Exhibits 3.1, 3.2, 4.1, 10.1 through 10.36, 14, 21, 23.1, 31.1, 31.2, 32.1 and 32.2 are being
filed in connection with this Report or incorporated herein by reference. The Exhibit Index
on page E-1 is incorporated herein by reference. |
| |
| |
(c) |
|
Separate Financial Statements |
| |
| |
|
|
None. |
55
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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: February 23, 2007 |
By: |
/s/ James A. Darby
|
|
| |
|
James A. Darby |
|
| |
|
Vice President of Finance and
Chief Financial Officer |
|
| |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant in the capacities and on the dates
indicated.
| |
|
|
|
|
| Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Richard D. O’Dell
Richard D. O’Dell
|
|
President and Chief
Executive Officer, Saia,
Inc.
|
|
February 23, 2007 |
|
|
|
|
|
/s/ James A. Darby
James A. Darby
|
|
Vice President of Finance
and Chief Financial Officer,
Saia, Inc.
(Principal Financial Officer)
|
|
February 23, 2007 |
|
|
|
|
|
/s/ Herbert A. Trucksess, III
Herbert A. Trucksess, III
|
|
Chairman, Saia, Inc.
|
|
February 23, 2007 |
|
|
|
|
|
/s/ Linda J. French
Linda J. French
|
|
Director
|
|
February 23, 2007 |
|
|
|
|
|
/s/ John J. Holland
John J. Holland
|
|
Director
|
|
February 23, 2007 |
|
|
|
|
|
/s/ William F. Martin, Jr.
William F. Martin, Jr.
|
|
Director
|
|
February 23, 2007 |
|
|
|
|
|
/s/ James A. Olson
James A. Olson
|
|
Director
|
|
February 23, 2007 |
|
|
|
|
|
/s/ Bjorn E. Olsson
Bjorn E. Olsson
|
|
Director
|
|
February 23, 2007 |
|
|
|
|
|
/s/ Douglas W. Rockel
Douglas W. Rockel
|
|
Director
|
|
February 23, 2007 |
|
|
|
|
|
/s/ Jeffrey C. Ward
Jeffrey C. Ward
|
|
Director
|
|
February 23, 2007 |
56
EXHIBIT INDEX
| |
|
|
| Exhibit |
|
|
| Number |
|
Description of Exhibit |
3.1
|
|
Restated Certificate of Incorporation of Saia, Inc., as amended (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 By-laws of Saia, Inc., as amended (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 Saia, Inc. and Mellon Investor Services LLC dated as of
September 30, 2002 (incorporated herein by reference to Exhibit 4.1 of Saia, Inc.’s Form
10-Q (File No. 0-49983) for the quarter ended September 30, 2002). |
|
|
|
10.1
|
|
Agented Revolving Credit Agreement dated as of September 20, 2002, among Saia, Inc.
and Bank of Oklahoma, N.A., U.S. Bank National Association, Bank One, NA, and Harris Trust
and Savings Bank, and Bank of Oklahoma, N.A., as agent for the Banks (incorporated herein
by reference to Exhibit 10.1 of Saia, Inc.’s Form 8-K (File No. 0-49983) filed on October
2, 2002). |
|
|
|
10.2
|
|
Amendment One to Agented Revolving Credit Agreement dated as of November 14, 2003,
among Saia, Inc. and Bank of Oklahoma, N.A., U.S. Bank National Association, Bank One, NA,
and Harris Trust and Savings Bank, and Bank of Oklahoma, N.A., as agent for the Banks
(incorporated herein by reference to Exhibit 10.1 of Saia, Inc.’s Form 8-K (File No.
0-49983) filed on November 17, 2003). |
|
|
|
10.3
|
|
Senior Notes Master Shelf Agreement dated as of September 20, 2002 (incorporated
herein by reference to Exhibit 10.2 of Saia, Inc.’s Form 8-K (File No. 0-49983) filed on
October 2, 2002). |
|
|
|
10.4
|
|
Master Separation and Distribution Agreement between Yellow Corporation and Saia,
Inc. (incorporated herein by reference to Exhibit 10.3 of Saia, Inc.’s Form 10-Q (File No.
0-49983) for the quarter ended September 30, 2002). |
|
|
|
10.5
|
|
Tax Indemnification and Allocation Agreement between Yellow Corporation and Saia,
Inc. (incorporated herein by reference to Exhibit 10.4 of Saia, Inc.’s Form 10-Q (File No.
0-49983) for the quarter ended September 30, 2002). |
|
|
|
10.6
|
|
Employment Agreement between Saia, Inc. and Herbert A. Trucksess, III dated as of
November 20, 2002 (incorporated herein by reference to Exhibit 10.5 of Saia, Inc.’s Form
10-K (File No. 0-49983) for the year ended December 31, 2002). |
|
|
|
10.7
|
|
Executive Severance Agreement between Saia, Inc. and Herbert A. Trucksess, III dated
as of September 28, 2002 (incorporated herein by reference to Exhibit 10.8 of Saia, Inc.’s
Form 10-K (File No. 0-49983) for the year ended December 31, 2002). |
|
|
|
10.8
|
|
Form of Executive Severance Agreement dated as of September 28, 2002 entered into
between Saia, Inc. and David J. Letke (incorporated herein by reference to Exhibit 10.9 of
Saia, Inc.’s Form 10-K (File No. 0-49983) for the year ended December 31, 2002). |
|
|
|
10.9
|
|
Amendment to Employment Agreement between Saia, Inc. and Herbert A. Trucksess, III
dated as of December 4, 2003 (incorporated herein by reference to Exhibit 10.11 of Saia,
Inc.’s Form 10-K (File No. 0-49983) for the year ended December 31, 2003). |
|
|
|
10.12
|
|
Stock Purchase Agreement dated February 16, 2004, by and among Saia Motor Freight
Line, Inc. and James D. Clark, Janice A. Clark, Amy L. Hunt, G.J. Deyonge, and Stuart W.
Kutler Trust Under Trust Agreement Dated January 28, 1998 (incorporated herein by
reference to Exhibit 10.12 of Saia, Inc.’s Form 10-K (File No. 0-49983) for the year ended
December 31, 2003). |
|
|
|
10.13
|
|
SCS Transportation, Inc. 2002 Substitute Option Plan |
|
|
|
10.14
|
|
SCS Transportation, Inc. 2003 Omnibus Incentive Plan (incorporated herein by reference to
Exhibit B of Saia, Inc.’s Definitive Proxy Statement on Schedule 14A (File No. 0-49983)
filed on March 14, 2003). |
|
|
|
10.15
|
|
First Amendment to the SCS Transportation, Inc. 2003 Omnibus Incentive Plan
(incorporated herein by reference to Exhibit 10.14 of Saia, Inc.’s Form 10-K (File No.
0-49983) for the year ended December 31, 2003). |
|
|
|
10.16
|
|
SCS Transportation, Inc. Directors’ Deferred Fee Plan as adopted December 11, 2003
(incorporated herein by reference to Exhibit 10.15 of Saia, Inc.’s Form 10-K (File No.
0-49983) for the year ended December 31, 2003). |
|
|
|
10.17
|
|
Restated Agented Revolving Credit Agreement dated as of January 31, 2005, among SCS
Transportation, Inc. and Bank of Oklahoma, N.A., JP Morgan Chase Bank, N.A., U.S. Bank
National Association, Harris Trust and Savings Bank, and LaSalle Bank National Association
and Bank of Oklahoma, N.A., as agent for the Banks and related, Guarantee Agreements,
Promissory Notes and Certificate of the Secretary and |
E-1
| |
|
|
| Exhibit |
|
|
| Number |
|
Description of Exhibit |
|
|
Officer (incorporated herein by reference to Exhibit 10.1 of Saia, Inc.’s Form 8-K (File No.
0-49983) filed on February 4, 2005). |
|
|
|
10.17
|
|
Form of Performance Unit Award Agreement under the SCS Transportation, Inc. 2003 Omnibus
Incentive Plan (incorporated herein by reference to Exhibit 10.1 of Saia Inc.’s Form 8-K
(File No. 0-49983) filed on January 31, 2005). |
|
|
|
10.18
|
|
Form of Nonqualified Stock Option Agreement under the SCS Transportation, Inc. 2003
Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 of Saia Inc.’s
Form 8-K (File No. 0-49983) filed on February 9, 2005). |
|
|
|
10.19
|
|
Amendment No. 1 to the Senior Notes Master Shelf Agreement dated as of April 21, 2005 and
related, Consent, Cover Page and Schedule 6C(2) (incorporated herein by reference to
Exhibit 10.1 of Saia Inc.’s Form 8-K (File No. 0-49983) filed on April 21, 2005). |
|
|
|
10.20
|
|
First Amendment to Restated Agented Revolving Credit Agreement dated as of April 29, 2005,
among SCS Transportation, Inc. and Bank of Oklahoma, N.A., JP Morgan Chase Bank, N.A.,
U.S. Bank National Association, Harris Trust and Savings Bank, and LaSalle Bank National
Association and Bank of Oklahoma, N.A., as agent for the Banks and related Ratifications
(incorporated herein by reference to Exhibit 10.1 of Saia, Inc.’s Form 8-K (File No.
0-49983) filed on April 29, 2005). |
|
|
|
10.21
|
|
Amendment No. 2 to the Senior Notes Master Shelf Agreement dated as of April 29, 2005 and
related, Consent (incorporated herein by reference to Exhibit 10.2 of Saia Inc.’s Form 8-K
(File No. 0-49983) filed on April 29, 2005). |
|
|
|
10.22
|
|
Form of Employee Nonqualified Stock Option Agreement under the SCS Transportation, Inc.
Amended and Restated 2003 Omnibus Incentive Plan (incorporated herein by reference to
Exhibit 10.1 of Saia Inc.’s Form 8-K (File No. 0-49983) filed on January 31, 2006). |
|
|
|
10.23
|
|
Settlement agreement dated March 2, 2006 among Starboard Value & Opportunity Master Fund
Lts. And its affiliates, Jeffrey C. Ward and SCS Transportation, Inc. (incorporated herein
by reference to Exhibit 10.1 of Saia, Inc.’s Form 8-K (File No. 0-49983) filed on March 2,
2006). |
|
|
|
10.24
|
|
Stock Purchase Agreement among Jevic Holding Corp., Saia Motor Freight Line, Inc. and SCS
Transportation, Inc. dated as of June 30, 2006 (incorporated herein by reference to
Exhibit 10.1 of Saia, Inc.’s Form 8-K (File No. 0-49983) filed on July 7, 2006). |
|
|
|
10.25
|
|
Second Amendment to Restated Agented Revolving Credit Agreement dated as of June 30, 2006,
among SCS Transportation, Inc. and Bank of Oklahoma, N.A., JP Morgan Chase Bank, N.A.,
U.S. Bank National Association, Harris Trust and Savings Bank, and LaSalle Bank National
Association and Bank of Oklahoma, N.A., as agent for the Banks and related Ratifications
(incorporated herein by reference to Exhibit 10.2 of Saia, Inc.’s Form 8-K (File No.
0-49983) filed on July 7, 2006). |
|
|
|
10.26
|
|
Amendment No. 3 to the Senior Notes master Shelf Agreement dated as of June 30, 2006 and
related Consent and Partial Release of Guaranty (incorporated herein by reference to
Exhibit 10.3 of Saia, Inc.’s Form 8-K (File No. 0-49983) filed on July 7, 2006). |
|
|
|
10.27
|
|
First Amendment to the SCS Transportation, Inc. 2002 Substitute Option Plan (incorporated
herein by reference to Exhibit 10.4 of Saia, Inc.’s Form 8-K (File No. 0-49983) filed on
July 7, 2006) |
|
|
|
10.28
|
|
Amendment to the SCS Transportation, Inc. 2003 Omnibus Incentive Plan (incorporated herein
by reference to Exhibit 10.1 of Saia, Inc.’s Form 8-K (File No. 0-49983) filed on July 26,
2006) |
|
|
|
10.29
|
|
Executive Severance Agreement between Saia, Inc. and James A. Darby dated as of September
1, 2006 (incorporated herein by reference to Exhibit 10.4 of Saia, Inc.’s Form 8-K (File
No. 0-49983) filed on September 1, 2006). |
|
|
|
10.30
|
|
Employment Agreement between Saia, Inc. and Richard D. O’Dell dated as of October 24, 2006
(incorporated herein by reference to Exhibit 10.1 of Saia, Inc.’s Form 8-K (File No.
0-49983) filed on October 30, 2006). |
|
|
|
10.31
|
|
Amended and Restated Employment Agreement between Saia, Inc. and Anthony D. Albanese dated
as of October 24, 2006 (incorporated herein by reference to Exhibit 10.2 of Saia, Inc.’s
Form 8-K (File No. 0-49983) filed on October 30, 2006). |
|
|
|
10.32
|
|
Amended and Restated Executive Severance Agreement between Saia, Inc. and Richard D.
O’Dell dated as of October 24, 2006 (incorporated herein by reference to Exhibit 10.3 of
Saia, Inc.’s Form 8-K (File No. 0-49983) filed on October 30, 2006). |
|
|
|
10.33
|
|
Amended and Restated Executive Severance Agreement between Saia, Inc. and Anthony D.
Albanese dated as of October 24, 2006 (incorporated herein by reference to Exhibit 10.4 of
Saia, Inc.’s Form 8-K |
E-2
| |
|
|
| Exhibit |
|
|
| Number |
|
Description of Exhibit |
|
|
(File No. 0-49983) filed on October 30, 2006). |
|
|
|
10.34
|
|
Modification of Employment Agreement dated November 20, 2002, as amended, between Saia,
Inc. and Herbert A. Trucksess, III dated as of December 7, 2006 (incorporated herein by
reference to Exhibit 10.1 of Saia, Inc.’s Form 8-K (File No. 0-49983) filed on December
13, 2006). |
|
|
|
10.35
|
|
Form of Indemnification Agreement dated as of December 7, 2006 entered into by Saia, Inc.
and (incorporated by reference to Exhibit 10.2 of Saia, Inc.’s Form 8-K (File No. 0-49983)
filed on December 13, 2006). |
|
|
|
10.36
|
|
Third Amendment to Restated Agented Revolving Credit Agreement dated as of January 31,
2007, among Saia, Inc. and Bank of Oklahoma, N.A., JP Morgan Chase Bank, N.A., U.S. Bank
National Association, Harris N.A., and LaSalle Bank National Association and Bank of
Oklahoma, N.A., as agent for the Banks and related Ratifications. |
|
|
|
14
|
|
Code of Ethics incorporated herein by reference to Exhibit 14 of Saia, Inc.’s Form 10-K
(File No. 0-49983) for the year ended December 31, 2004). |
|
|
|
21
|
|
Subsidiaries of Registrant |
|
|
|
23.1
|
|
Consent of KPMG LLP, Independent Registered Public Accounting Firm. |
|
|
|
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-3