SAIA INC - Quarter Report: 2015 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

FOR THE QUARTERLY PERIOD ENDED June 30, 2015

OR

Commission file number: 0-49983

Saia, Inc.

(Exact name of registrant as specified in its charter)

(770) 232-5067

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

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

SAIA, INC. AND SUBSIDIARIES

INDEX

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Item 1. Financial Statements

Saia, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(unaudited)

See accompanying notes to condensed consolidated financial statements.

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Saia, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

For the quarters and six months ended June 30, 2015 and 2014

(unaudited)

See accompanying notes to condensed consolidated financial statements.

4

Saia, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2015 and 2014

(unaudited)

See accompanying notes to condensed consolidated financial statements.

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Saia, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1) Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Saia, Inc. and its wholly-owned subsidiaries (together, the Company or Saia).  All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.

The condensed consolidated financial statements have been prepared by the Company without audit by the independent registered public accounting firm.  In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations and cash flows for the interim periods included herein have been made.  These interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information, the instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X.  Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted from these statements.  The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.  Operating results for the quarter and six months ended are not necessarily indicative of the results of operations that may be expected for the year ended December 31, 2015.

Business

The Company offers customers a wide range of less-than-truckload, non-asset truckload, expedited and logistics services across the United States through its wholly-owned subsidiaries.  Effective February 2, 2015, the Company’s subsidiaries were as follows:  Saia Motor Freight Line, LLC, doing business as Saia LTL Freight; Saia TL Plus, LLC, formerly Robart Transportation, Inc.; Saia Sales, LLC; Saia Logistics Services, LLC, formerly The RL Services Group, LLC; Saia MetroGo, LLC, formed on January 22, 2015 and LinkEx, Inc. acquired on February 2, 2015.

New Accounting Pronouncements

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services.  The ASU will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles when it becomes effective.  In July 2015, the FASB updated ASU No. 2014-09 to defer the effective date by one year.  The new standard is effective for the Company on January 1, 2018.  Early application is permitted for the Company on January 1, 2017.  The standard permits the use of either the retrospective or cumulative effect transition method.  The Company is evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures.  The Company has not yet selected a transition method nor has it completed its evaluation of the effect of the standard on its ongoing financial reporting.

On April 7, 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires entities to classify all debt issuance costs as a deduction from the corresponding liability on the balance sheet.  The new standard is effective for the Company on January 1, 2016 and requires retrospective application.  Early application is permitted.  The Company is evaluating the effect that ASU No. 2015-03 will have on its consolidated financial statements and related disclosures.  The Company has not yet completed its evaluation of the effect of the standard on its ongoing financial reporting.

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(2) Computation of Earnings Per Share

The calculation of basic earnings per common share and diluted earnings per common share was as follows (in thousands, except per share amounts):

For the quarter and six months ended June 30, 2015, options to purchase 125,536 and 117,600 shares, respectively, of common stock of the Company were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive.  For the quarter and six months ended June 30, 2014, options to purchase 114,976 and 92,376 shares, respectively, of common stock of the Company were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive.

(3) Commitments and Contingencies

The Company is subject to legal proceedings that arise in the ordinary course of its business. The Company believes that adequate provisions for the resolution of all contingencies, claims and pending litigation have been made for probable losses and that the ultimate outcome of these actions will not have a material adverse effect on our consolidated financial position but could have a material adverse effect on the results of operations in a quarter or annual period.

(4) Fair Value of Financial Instruments

The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximated fair value as of June 30, 2015 and December 31, 2014 because of the relatively short maturity of these instruments.  Based on the borrowing rates currently available to the Company for debt with similar terms and remaining maturities the estimated fair value of total debt at June 30, 2015 and December 31, 2014 was $109.3 million and $83.7 million, respectively, based upon level two in the fair value hierarchy.  The carrying value of the debt was $108.6 million and $83.0 million at June 30, 2015 and December 31, 2014, respectively.

(5) Debt and Financing Arrangements

At June 30, 2015 and December 31, 2014, debt consisted of the following (in thousands):

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On March 6, 2015, the Company entered into the Fifth Amended and Restated Credit Agreement with its banking group (as amended, the Restated Credit Agreement).  The amendment increased the amount of the revolver from $200 million to $250 million and extended the term until March 2020.  The amendment also reduced the interest rate pricing grid, eliminated both the borrowing base and the minimum tangible net worth covenant.  On the same date, the Company also entered into the Second Amended and Restated Master Shelf Agreement with its long term note holders (as amended, the Restated Master Shelf Agreement) that made changes to this agreement to conform with certain changes in the Restated Credit Agreement.

Restated Credit Agreement

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

Under the Restated Credit Agreement, the Company must maintain certain financial covenants including a minimum fixed charge coverage ratio and a maximum leverage ratio, among others.  The Restated Credit Agreement also provides for a pledge by the Company of certain land and structures, certain tractors, trailers and other personal property and accounts receivable, as defined in the Restated Credit Agreement.

At June 30, 2015, the Company had borrowings of $58.0 million and outstanding letters of credit of $44.8 million under the Restated Credit Agreement.  At December 31, 2014, the Company had borrowings of $45.0 million and outstanding letters of credit of $47.3 million under the Restated Credit Agreement.  The available portion of the Restated Credit Agreement may be used for general corporate purposes, including future capital expenditures, working capital and letter of credit requirements as needed.

Restated Master Shelf Agreement

On September 20, 2002, the Company issued $100 million in Senior Notes under a $125 million (amended to $150 million in April 2005) Master Shelf Agreement with Prudential Investment Management, Inc. and certain of its affiliates.  The Company issued another $25 million in Senior Notes on November 30, 2007 and $25 million in Senior Notes on January 31, 2008 under the same Master Shelf Agreement.

The initial $100 million Senior Notes had a fixed interest rate of 7.38 percent.  Payments due under the $100 million Senior Notes were interest only until June 30, 2006 and at that time semi-annual principal payments began with the final payment made in December 2013.  The November 2007 issuance of $25 million Senior Notes has a fixed interest rate of 6.14 percent.  The January 2008 issuance of $25 million Senior Notes has a fixed interest rate of 6.17 percent.  Payments due for both $25 million issuances were interest only until June 30, 2011 and at that time semi-annual principal payments began with the final payments due January 1, 2018.  Under the terms of the Senior Notes, the Company must maintain certain financial covenants including a minimum fixed charge coverage ratio and a maximum leverage ratio, among others.  The Senior Notes also provide for a pledge by the Company of certain land and structures, certain tractors, trailers and other personal property and accounts receivable, as defined in the Senior Notes.

Capital Leases

The Company is obligated under capital leases which include obligations covering revenue equipment totaling $32.8 million with seven year terms.  Amortization of assets held under the capital leases is included in depreciation expense.  The weighted average interest rate for the capital leases at June 30, 2015 is 2.88%.

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

(6) Acquisitions

On February 2, 2015, the Company acquired LinkEx, Inc., an asset-light third party logistics business based in Dallas, Texas.   The Company believes this acquisition is a future growth opportunity for its portfolio of services in the asset-light market. This acquisition fits into the Company’s strategic goal of diversifying Saia’s portfolio of service offerings.  Pursuant to the terms of the purchase agreement, the Company paid a purchase price of up to approximately $25 million, subject, in part, to meeting profit targets.  The accounting for this acquisition is considered preliminary, as we expect to finalize the valuation of identifiable intangible assets and goodwill (both on a book basis and tax basis) during the fourth quarter of 2015.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and our 2014 audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.  Those consolidated financial statements include additional information about our significant accounting policies, practices and the transactions that underlie our financial results.

Forward-Looking Statements

The Securities and Exchange Commission (the SEC) encourages companies to disclose forward-looking information so that investors can better understand the future prospects of a company and make informed investment decisions.  This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations,” contains these types of statements, which are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “may,” “plan,” “predict,” “believe,” “should” and similar words or expressions are intended to identify forward-looking statements.  Investors should not place undue reliance on forward-looking statements, and the Company undertakes no obligation to publicly update or revise any forward-looking statements.  All forward-looking statements reflect the present expectation of future events of our management as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors, risks, uncertainties and assumptions that could cause actual results to differ materially from those described in any forward-looking statements.  These factors, risks, assumptions and uncertainties include, but are not limited to, general economic conditions including downturns in the business cycle; the creditworthiness of our customers and their ability to pay for services; failure to achieve acquisition synergies; competitive initiatives and pricing pressures, including in connection with fuel surcharge; loss of significant customers; the Company’s need for capital and uncertainty of the credit markets; the possibility of defaults under the Company’s debt agreements (including violation of financial covenants); possible issuance of equity which would dilute stock ownership; integration risks;  the effect of litigation including class action lawsuits; cost and availability of qualified drivers, fuel, purchased transportation, real property, revenue equipment and other assets; governmental regulations, including but not limited to Hours of Service, engine emissions, the Compliance, Safety, Accountability (CSA) initiative, compliance with legislation requiring companies to evaluate their internal control over financial reporting, Homeland Security, environmental regulations and the Food and Drug Administation (FDA); changes in interpretation of accounting principles; dependence on key employees; inclement weather; labor relations, including the adverse impact should a portion of the Company’s workforce become unionized; effectiveness of Company-specific performance improvement initiatives; terrorism risks; self-insurance claims and other expense volatility; increased costs as a result of healthcare reform legislation; social media risks; cyber-security risk; and other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s SEC filings.  These factors and risks are described in Part II, Item 1A. “Risk Factors“ of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as updated by Part II, Item 1A. of this Quarterly Report on Form 10-Q.

As a result of these and other factors, no assurance can be given as to our future results and achievements.  Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur.  You should not place undue reliance on the forward-looking statements, which speak only as of the date of this Form 10-Q.  We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Overview

The Company’s business is highly correlated to non-service sectors of the general economy.  The Company’s strategy is to improve profitability by increasing yield while also increasing volumes to build density in existing geography.  The Company’s business is labor intensive, capital intensive and service sensitive.  The Company looks for opportunities to improve cost effectiveness, safety and asset utilization.  Pricing initiatives have had a positive impact on yield and profitability.  The Company continues to execute targeted sales and marketing programs along with initiatives to align costs with volumes and improve customer satisfaction.  Technology continues to be an important investment that is facilitating operational efficiencies and improving Company image.

The Company’s operating revenue decreased by 2.1 percent in the second quarter of 2015 compared to the same period in 2014.  The decrease resulted primarily from a decline in shipments, tonnage and fuel surcharge revenue partially offset by effective yield management.

Consolidated operating income was $31.3 million for the second quarter of 2015 compared to consolidated operating income of $22.7 million for the second quarter of 2014.  In the second quarter of 2015, LTL tonnage per workday was down 6.0 percent versus the prior year quarter.  Diluted earnings per share were $0.75 in the second quarter of 2015, compared to diluted earnings per share of $0.53 in the prior year quarter. The operating ratio (operating expenses divided by operating revenue) was 90.3 percent in the second quarter of 2015. This compares to 93.1 percent in the second quarter of 2014.

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The Company had $67.0 million in cash provided by operating activities through the first six months of 2015 compared with cash provided in the amount of $46.9 million in the prior year period largely due to working capital fluctuations and a significant increase in operating income for the six months ended June 30, 2015.  The Company had net cash used in investing activities of $78.1 million during the first six months of 2015 compared to $66.7 million in the first six months of 2014, which was primarily for the purchase of revenue equipment and the acquisition of LinkEx, Inc.  The Company’s cash provided by financing activities was $10.4 million through the first six months of 2015 compared to $21.4 million in the prior year period. The Company had $58.0 million in borrowings under its revolving credit agreement, outstanding letters of credit of $44.8 million and cash and cash equivalents balance of $3.7 million at June 30, 2015.  The Company was in compliance with the debt covenants under its debt agreements at June 30, 2015.

General

The following Management’s Discussion and Analysis describes the principal factors affecting the results of operations, liquidity and capital resources, as well as the critical accounting policies of Saia, Inc. and Subsidiaries (also referred to as Saia or the Company).

The Company is a transportation company headquartered in Johns Creek, Georgia providing a wide range of less-than-truckload, non-asset truckload, expedited and logistics services across the United States.

Our business is highly correlated to non-service sectors of the general economy.  It also is impacted by a number of other factors as discussed under “Forward Looking Statements” and Part II, Item 1A.  “Risk Factors”. The key factors that affect our operating results are the volumes of shipments transported through our network, as measured by our average daily shipments and tonnage; the prices we obtain for our services, as measured by revenue per hundredweight (a measure of yield) and revenue per shipment; our ability to manage our cost structure for capital expenditures and operating expenses such as salaries, wages and benefits; purchased transportation; claims and insurance expense; fuel and maintenance; and our ability to match operating costs to shifting volume levels.

Results of Operations

Saia, Inc. and Subsidiaries

Selected Results of Operations and Operating Statistics

For the quarters ended June 30, 2015 and 2014

(unaudited)

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Quarter and six months ended June 30, 2015 compared to Quarter and six months ended June 30, 2014

Revenue and volume

Consolidated revenue for the quarter ended June 30, 2015 decreased 2.1 percent to $323.5 million primarily as a result of decreased tonnage, shipments and fuel surcharges which were partially offset by effective yield management.  Saia’s LTL revenue per hundredweight (a measure of yield) increased 3.9 percent to $15.42 per hundredweight for the second quarter of 2015 as a result of increased rates partially offset by decreased fuel surcharges.  Saia’s LTL tonnage decreased 6.0 percent to 1.0 million tons.  LTL shipments decreased 2.9 percent to 1.7 million shipments.  Approximately 75 percent of Saia’s operating revenue is subject to specific customer price adjustment negotiations that occur throughout the year.  The remaining 25 percent of operating revenue is subject to an annual general rate increase.  On January 5, 2015, Saia implemented a 4.9 percent general rate increase for customers comprising this 25 percent of operating revenue.  On April 1, 2014, Saia implemented a 4.5 percent general rate increase for customers comprising this 25 percent of operating revenue.  Competitive factors, customer turnover and mix changes, impact the extent to which customer rate increases are retained over time.

Operating revenue includes fuel surcharge revenue from the Company’s fuel surcharge program.  That program is designed to reduce the Company’s exposure to fluctuations in fuel prices by adjusting total freight charges to account for changes in the price of fuel.  The Company’s fuel surcharge is based on the average national price for diesel fuel and is reset weekly.  Fuel surcharges have remained in effect for several years, are widely accepted in the industry and are a significant component of revenue and pricing.  Fuel surcharges represent only one portion of overall competitive price negotiations as customers may negotiate increases in base rates instead of increases in fuel surcharges or vice versa.  Saia revised its fuel surcharge program effective February 2, 2015.  Fuel surcharge revenue decreased to 12.3% of operating revenue for the quarter ended June 30, 2015 compared to 17.0% for the quarter ended June 30, 2014, as a result of lower fuel prices.

For the six months ended June 30, 2015, operating revenues were $616.5 million, down 2.2 percent from $630.1 million for the six months ended June 30, 2014, primarily due to decreased tonnage, shipments and fuel surcharges, partially offset by effective yield management.  Fuel surcharge revenue decreased to 12.4% of operating revenue for the six months ended June 30, 2014 compared to 17.0% for the six months ended June 30, 2014, as a result of lower fuel prices.

Operating expenses and margin

Consolidated operating income was $31.3 million in the second quarter of 2015 compared to operating income of $22.7 million in the prior year quarter.  Overall, the operations were favorably impacted in 2015 by higher yield combined with continued network optimization initiatives and improved safety and cargo claims results.  The second quarter 2015 operating ratio (operating expenses divided by operating revenue) was 90.3 percent compared to 93.1 percent for the same period in 2014.

Salaries, wages and benefits increased $10.3 million in the second quarter of 2015 compared to the prior year period largely due to a 3 percent wage increase in July 2014 and higher wages associated with increased headcount. Fuel, operating expenses and supplies decreased $12.1 million in the second quarter of 2015 compared to the prior year period largely due to lower fuel costs and improved fuel efficiency partially offset by increased costs of other operating expenses and supplies.  During the second quarter of 2015, claims and insurance expense was $7.8 million lower than the previous year quarter primarily due to decreased severity of accident claims during the quarter along with decreased cargo claims. The Company can experience volatility in accident expense as a result of its self-insurance structure and $2.0 million retention limits per occurrence.  Purchased transportation decreased $7.7 million compared to the second quarter of 2014 primarily due to increased utilization of the Company’s drivers and lower utilization of more costly purchased transportation.

For the six months ended June 30, 2015 operating income was $52.5 million, up 38.3 percent compared to $38.0 million for the six months ended June 30, 2014.

Salaries, wages and benefits increased $17.8 million during the first six months of 2015 compared to the prior year period largely due to a 3 percent wage increase in July 2014 and higher wages associated with increased headcount. Fuel, operating expenses and supplies decreased $24.9 million during the first six months of 2015 compared to the prior year period largely due to lower fuel costs and improved fuel efficiency partially offset by increased costs of other operating expenses and supplies.  During the first six months of 2015, claims and insurance expense was $12.5 million lower than the prior year period primarily due to decreased severity of accident claims during the period along with decreased cargo claims. Purchased transportation decreased $12.0 million compared to the first six months of 2014 primarily due to increased utilization of the Company’s drivers and lower utilization of more costly purchased transportation.

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Other

Substantially all non-operating expenses represent interest expense. Interest expense in second quarter 2015 was lower due to lower interest rates in 2015. The effective tax rate was 36.3 percent and 37.2 percent for the quarter ended June 30, 2015 and June 30, 2014, respectively.  For the six months ended June 30, 2015, the effective tax rate was 36.9 percent compared to 37.7 percent for the six months ended June 30, 2014.

Net income was $19.2 million, or $0.75 per diluted share, in the second quarter of 2015 compared to net income of $13.6 million, or $0.53 per diluted share, in the second quarter of 2014.  Net income was $31.9 million, or $1.25 per diluted share, for the first six months of 2015 compared to net income of $22.1 million, or $0.87 per diluted share, for the first six months of 2014.

Working capital/capital expenditures

Working capital at June 30, 2015 was $45.0 million which increased from working capital at June 30, 2014 of $41.1 million.

Current assets decreased by $0.5 million as compared to June 30, 2014 and include a $2.6 million decrease in accounts receivable.  The decrease in current assets was less than the $4.4 million decrease in current liabilities largely due to a decrease in accounts payable.  Cash flows provided by operating activities were $67.0 million for the six months ended June 30, 2015 versus $46.9 million provided by operating activities for the six months ended June 30, 2014.  For the six months ended June 30, 2015, cash used in investing activities was $78.1 million versus $66.7 million in the prior year period.  The increase in cash used in investing activities is driven by the timing of net capital expenditures for revenue equipment and the acquisition of LinkEx, Inc.  For the six months ended June 30, 2015, net cash provided by financing activities was $10.4 million compared to $21.4 million in the prior year period.

Outlook

Our business remains highly correlated to the general economy and competitive pricing pressures, as well as the success of Company-specific improvement initiatives.  While improved in recent years, there remains uncertainty as to the timing and strength of economic recovery. We are continuing initiatives to increase yield, to reduce costs and improve productivity.  We focus on providing top quality service and improving safety performance.  If significant competitors were to cease operations and their capacity leave the market, current industry conditions could improve.  However, there can be no assurance that any industry consolidation will indeed happen or if such consolidation occurs that it will materially change the industry capacity.  The Company continues to pursue revenue and cost initiatives to improve profitability.  On January 5, 2015, Saia implemented a 4.9 percent general rate increase for customers comprising approximately 25 percent of operating revenue.  Saia revised its fuel surcharge program effective February 2, 2015.  The extent of the success of these revenue initiatives is impacted by what proves to be the underlying economic trends, competitor initiatives and other factors discussed under “Forward-Looking Statements” and Part II, Item 1A. “Risk Factors.”

Effective July 1, 2015, the Company implemented a market competitive salary and wage increase for all of its employees.  The impact of the July 2015 compensation increase is expected to be approximately $20 million annually.  The Company anticipates the impact of the July 2015 compensation increase to be partially offset by further productivity and efficiency gains.  

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 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 “Forward-Looking Statements” and Part II, Item 1A. “Risk Factors.”

See “Forward-Looking Statements” and Part II, Item 1A. “Risk Factors” for a more complete discussion of potential risks and uncertainties that could materially affect our future performance.

New Accounting Pronouncements

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services.  The ASU will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles when it becomes effective.  In July 2015, the FASB updated ASU No. 2014-09 to defer the effective date by one year.  The new standard is effective for the Company on January 1, 2018.  Early application is permitted for the Company on January 1, 2017.  The standard permits the use of either the retrospective or cumulative effect transition method.  The Company is evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures.  The Company has not yet selected a transition method nor has it completed its evaluation of the effect of the standard on its ongoing financial reporting.

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On April 7, 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires entities to classify all debt issuance costs as a deduction from the corresponding liability on the balance sheet.  The new standard is effective for the Company on January 1, 2016 and requires retrospective application.  Early application is permitted.  The Company is evaluating the effect that ASU No. 2015-03 will have on its consolidated financial statements and related disclosures.  The Company has not yet completed its evaluation of the effect of the standard on its ongoing financial reporting.

Financial Condition

The Company’s liquidity needs arise primarily from capital investment in new equipment, land and structures, information technology and letters of credit required under insurance programs, as well as funding working capital requirements.

The Company is party to a revolving credit agreement (the Restated Credit Agreement) with a group of banks to fund capital investments, letters of credit and working capital needs. The facility provides up to $250 million in availability, and expires in March 2020.  The Company is also a party to a long-term note agreement (the Restated Master Shelf Agreement).  The Company has pledged certain real estate and facilities, tractors and trailers, accounts receivable and other assets to secure indebtedness under both agreements.

Restated Credit Agreement

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

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

At June 30, 2015, the Company had borrowings of $58.0 million and outstanding letters of credit of $44.8 million under the Restated Credit Agreement.  At December 31, 2014, the Company had borrowings of $45.0 million and outstanding letters of credit of $47.3 million under the Restated Credit Agreement.  The available portion of the Restated Credit Agreement may be used for general corporate purposes, including future capital expenditures, working capital and letter of credit requirements as needed.

Restated Master Shelf Agreement

On September 20, 2002, the Company issued $100 million in Senior Notes under a $125 million (amended to $150 million in April 2005) Master Shelf Agreement with Prudential Investment Management, Inc. and certain of its affiliates.  The Company issued another $25 million in Senior Notes on November 30, 2007 and $25 million in Senior Notes on January 31, 2008 under the same Master Shelf Agreement.

The initial $100 million Senior Notes had a fixed interest rate of 7.38 percent.  Payments due under the $100 million Senior Notes were interest only until June 30, 2006 and at that time semi-annual principal payments began with the final payment made December 2013.  The November 2007 issuance of $25 million Senior Notes has a fixed interest rate of 6.14 percent.  The January 2008 issuance of $25 million Senior Notes has a fixed interest rate of 6.17 percent.  Payments due for both $25 million issuances were interest only until June 30, 2011 and at that time semi-annual principal payments began with the final payments due January 1, 2018.  Under the terms of the Senior Notes, the Company must maintain certain financial covenants including a minimum fixed charge coverage ratio and a maximum leverage ratio, among others.

Capital Leases

The Company is obligated under capital leases which include obligations covering revenue equipment totaling $32.8 million with seven year terms.  Amortization of assets held under the capital leases is included in depreciation expense.  The weighted average interest rate for the capital leases at June 30, 2015 is 2.88%.

Other

Projected net capital expenditures for 2015 are approximately $125 million. This represents an approximate $13 million increase from 2014 net capital expenditures of $112 million for property and equipment.  Approximately $13.3 million of the 2015 capital budget was committed as of June 30, 2015.  Net capital expenditures pertain primarily to investments in revenue equipment, information technology, land and structures.

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The Company has historically generated cash flows from operations that have funded its capital expenditure requirements.  Cash flows from operating activities were $102.2 million for the year ended December 31, 2014, while net cash used in investing activities was $94.8 million.  Cash flows provided by operating activities were $67.0 million for the six months ended June 30, 2015; $20.1 million higher than the prior year largely due to both improved profitability and changes in working capital.  The timing of capital expenditures can largely be managed around the seasonal working capital requirements of the Company.  The Company believes it has adequate sources of capital to meet short-term liquidity needs through its operating cash flows and availability under the Restated Credit Agreement, subject to the Company’s satisfaction of existing debt covenants.  Future operating cash flows are primarily dependent upon the Company’s profitability and its ability to manage its working capital requirements, primarily accounts receivable, accounts payable and wage and benefit accruals.  The Company was in compliance with its debt covenants at June 30, 2015.

At June 30, 2015, YRC Worldwide Inc., formerly Yellow Corporation (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 100 percent tax-free distribution of Saia shares to Yellow shareholders in 2002, Saia pays Yellow’s actual cost of any collateral it provides to insurance underwriters in support of these claims at cost plus 125 basis points.  At June 30, 2015, the portion of collateral allocated by Yellow to Saia in support of these claims was $1.8 million.

In accordance with U.S. generally accepted accounting principles, our operating leases are not recorded in our condensed consolidated balance sheet; however, the future minimum lease payments are included in the "Contractual Obligations" table below.  See the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014 for additional information.  In addition to the principal amounts disclosed in the tables below, the Company has interest obligations of approximately $2.1 million for the remainder of 2015 and decreasing for each year thereafter based on borrowings and commitments outstanding at June 30, 2015.

Contractual Obligations

The following tables set forth a summary of our contractual obligations and other commercial commitments as of June 30, 2015 (in millions):

The Company has unrecognized tax benefits of approximately $1.2 million and accrued interest and penalties of $1.0 million related to the unrecognized tax benefits as of June 30, 2015.  The Company cannot reasonably estimate the timing of cash settlement with respective taxing authorities beyond one year and accordingly has not included the amounts within the above contractual cash obligation and other commercial commitment tables.

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Critical Accounting Policies and Estimates

The Company makes estimates and assumptions in preparing the consolidated financial statements that affect reported amounts and disclosures therein.  In the opinion of management, the accounting policies that generally have the most significant impact on the financial position and results of operations of the Company include:

These accounting policies and others are described in further detail in the notes to our audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

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The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the consolidated financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the consolidated financial statements. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to a variety of market risks including the effects of interest rates and fuel prices.  The detail of the Company’s debt structure is more fully described in the notes to the consolidated financial statements set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.  To help mitigate our risk to rising fuel prices, the Company has implemented a fuel surcharge program.  This program is well established within the industry and customer acceptance of fuel surcharges remains high.  Since the amount of fuel surcharge is based on average national fuel prices and is reset weekly, exposure of the Company to fuel price volatility is significantly reduced. However, the fuel surcharge may not fully offset fuel price fluctuations during periods of rapid increases or decreases in the price of fuel and is also subject to overall competitive pricing negotiations.

The following table provides information about the Company’s third-party financial instruments as of June 30, 2015.  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 (in millions) was estimated based upon the borrowing rates currently available to the Company for debt with similar terms and remaining maturities.

Item 4. Controls and Procedures

Quarterly Controls Evaluation and Related CEO and CFO Certifications

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company conducted an evaluation of the effectiveness of the design and operation of its “disclosure controls and procedures” (Disclosure Controls). The Disclosure Controls evaluation was performed 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, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s Disclosure Controls are effective to ensure that information the Company is required to disclose in reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

During the period covered by this Quarterly Report on Form 10-Q, there were no changes in internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q are certifications of the CEO and the CFO, which are required in accordance with Rule 13a-14 of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications.

Definition of Disclosure Controls

Disclosure Controls are controls and procedures designed to ensure that information required to be disclosed in the 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.

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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.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings — For a description of all material pending legal proceedings, see Note 3 “Commitments and Contingencies” of the accompanying condensed consolidated financial statements.

Item 1A. Risk Factors — Risk Factors are described in Item 1A.  “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and there have been no material changes.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds —

Item 3. Defaults Upon Senior Securities—None

Item 4. Mine Safety Disclosures—None

Item 5. Other Information—None

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Item 6. Exhibits

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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EXHIBIT INDEX

E-1