UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20212022
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: 001-38054
Schneider National, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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| Wisconsin | | | | | | 39-1258315 |
| (State of Incorporation) | | | | | | (IRS Employer Identification No.) |
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| | 3101 South Packerland Drive | | |
| | Green Bay | Wisconsin | 54313 | | |
| | (Address of Registrant’s Principal Executive Offices and Zip Code) | | |
(920) 592-2000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading symbol | | Name of each exchange on which registered |
| Class B common stock, no par value | | SNDR | | New York Stock Exchange |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
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| Non-accelerated filer | | ☐ (Do not check if a smaller reporting company) | | Smaller reporting company | | ☐ |
| | | |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 ☐ No ☒
As of July 23, 2021,22, 2022, the registrant had 83,029,500 shares of Class A common stock, no par value, outstanding and 94,624,69194,980,485 shares of Class B common stock, no par value, outstanding.
SCHNEIDER NATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended June 30, 20212022
TABLE OF CONTENTS
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| ITEM 1. | | | |
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| Note 1 | | | |
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| Note 3 | | | |
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| Note 65 | | | |
| Note 76 | | | |
| Note 8 | | | |
| Note 97 | | | |
| Note 10 | | | |
| Note 118 | | | |
| Note 9 | | | |
| Note 10 | | | |
| Note 11 | | | |
| Note 12 | | | |
| Note 13 | | | |
| ITEM 2. | | | |
| ITEM 3. | | | |
| ITEM 4. | | | |
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| ITEM 1. | | | |
| ITEM 1A. | | | |
| ITEM 2. | | | |
| ITEM 3. | | | |
| ITEM 4. | | | |
| ITEM 5. | | | |
| ITEM 6. | | | |
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GLOSSARY OF TERMS
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| 3PL | Provider of outsourced logistics services. In logistics and supply chain management, it means a company’s use of third-party businesses, the 3PL(s), to outsource elements of the company’s distribution, fulfillment, and supply chain management services. |
| ASC | Accounting Standards Codification |
| ASU | Accounting Standards Update |
CARESBNSF | Coronavirus Aid, Relief, and Economic SecurityBurlington Northern Santa Fe Railway Company |
| Board | Board of Directors |
| ChemDirect | Fortem Invenio, Inc. |
| CODM | Chief Operating Decision Maker |
| COVID-19 | Coronavirus disease 2019, including its variants |
| deBoer | deBoer Transportation, Inc. |
FTFMDEP | First to Final Mile operating segmentSchneider National, Inc. Deferred Equity Plan |
| FASB | Financial Accounting Standards Board |
| GAAP | United States Generally Accepted Accounting Principles |
IRSILWU | International Longshore and Warehouse Union |
| IPO | Internal Revenue ServiceInitial Public Offering |
| KPI | Key Performance Indicator |
| LIBOR | London InterBank Offered Rate |
| MLS | Midwest Logistics Systems, Ltd. and affiliated entities holding assets comprising substantially all of its business. |
| MLSI | Mastery Logistics Systems, Inc. |
| NASDAQ | National Association of Securities Dealers Automated Quotations |
| PSI | Platform Science, Inc. |
SaaS | Software as a Service |
| SEC | United States Securities and Exchange Commission |
| TuSimple | TuSimple Holdings, Inc. (formerly TuSimple (Cayman) Limited) |
| UP | Union Pacific Railroad Company |
| U.S. | United States |
| WSL | Watkins and Shepard Trucking, Inc. and Lodeso, Inc. These businesses were acquired simultaneously in June 2016. |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the Company’s current expectations, beliefs, plans, or forecasts with respect to, among other things, future events and financial performance and trends in the business and industry. The words “may,” “will,” “could,” “should,” “would,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “prospects,” “potential,” “budget,” “forecast,” “continue,” “predict,” “seek,” “objective,” “goal,” “guidance,” “outlook,” “effort,” “target,” and similar words, expressions, terms, and phrases among others, generally identify forward-looking statements, which speak only as of the date the statements were made. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks, and uncertainties. Readers are cautioned that a forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement.
The risks, uncertainties, and other factors that could cause or contribute to actual results differing materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following:
•Our accelerating inflation, both in the U.S. and globally; our ability to successfully manage the demand, supply, and operational challenges and disruptions (including the impact of reduced freight volumes) associated with the COVID-19 pandemic and the associated responses of federal, state, and local governments and businesses;
•Economic economic and business risks inherent in the truckload and transportation industry, including inflation and competitive pressures pertaining to pricing, capacity, and service;
•Our our ability to effectively manage tight truck capacity brought about by driver shortages and successfully execute our yield management strategies;
•Our our ability to maintain key customer and supply arrangements (including dedicated arrangements) and to manage disruption of our business due to factors outside of our control, such as natural disasters, acts of war or terrorism, disease outbreaks, or pandemics;
•Volatility volatility in the market valuation of our investments in strategic partners and technologies;
•Our our ability to manage and effectively implement our growth and diversification strategies and cost saving initiatives;
•Our our dependence on our reputation and the Schneider brand and the potential for adverse publicity, damage to our reputation, and the loss of brand equity;
•Risks risks related to demand for our service offerings;
•Risks risks associated with the loss of a significant customer or customers;
•Capital capital investments that fail to match customer demand or for which we cannot obtain adequate funding;
•Fluctuations fluctuations in the price or availability of fuel, the volume and terms of diesel fuel purchase agreements, and our ability to recover fuel costs through our fuel surcharge programs;
•Ourprograms, and potential changes in customer preferences (e.g. truckload vs. intermodal services) driven by diesel fuel prices; our ability to attract and retain qualified drivers and owner-operators;
•Our our reliance on owner-operators to provide a portion of our truck fleet;
•Our our dependence on railroads in the operation of our intermodal business;
•Service our ability to successfully transition from BNSF to UP as our primary intermodal rail service provider by January 2023; potential port congestion or interruptions that may result from contract negotiations between the ILWU and west coast port owners; potential volatility in the value of our investments in strategic partners, especially as it relates to our investment in TuSimple; service instability, availability, and/or increased costs from third-party capacity providers used by our business;
•Changes changes in the outsourcing practices of our third-party logistics customers;
•Difficulty difficulty in obtaining material, equipment, goods, and services from our vendors and suppliers;
•Variability variability in insurance and claims expenses and the risks of insuring claims through our captive insurance company;
•The the impact of laws and regulations that apply to our business, including those that relate to the environment, taxes, associates, owner-operators, and our captive insurance company; changes to those laws and regulations; and the increased costs of compliance with existing or future federal, state, and local regulations;
•Political, political, economic, and other risks from cross-border operations and operations in multiple countries;
•Risks risks associated with financial, credit, and equity markets, including our ability to service indebtedness and fund capital expenditures and strategic initiatives;
•Negative negative seasonal patterns generally experienced in the trucking industry during traditionally slower shipping periods and winter months;
•Risks risks associated with severe weather and similar events;
•Significant significant systems disruptions, including those caused by cybersecurity events;
•Exposureevents and firmware defects; exposure to claims and lawsuits in the ordinary course of business;
•Our our ability to adapt to new technologies and new participants in the truckload and transportation industry; and
•Those those risks and uncertainties discussed in (1) our most recently filed Annual Report on Form 10-K in (a) Part I, Item 1A. “Risk Factors,” (b) Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and (c) Part II, Item 8. “Financial Statements and Supplementary Data: Note 14, Commitments and Contingencies;Contingencies,” (2) this Quarterly Report on Form 10-Q in (a) Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”Operations” and (b) Part I, Item 1. “Financial Statements: Note 11,12, Commitments and Contingencies,” and (c) Part II, Item 1A. “Risk Factors;” and (3) other factors discussed in filings with the SEC by the Company.
The Company undertakes no obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this Report.
WHERE TO FIND MORE INFORMATION
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information that the Company files electronically with the SEC. These documents are also available to the public from commercial document retrieval services and at the “Investors” section of our website at www.investors.schneider.com.www.schneider.com. Information disclosed or available on our website shall not be deemed incorporated into, or to be a part of, this Report.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHNEIDER NATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in millions, except per share data)
| | | | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| Operating revenues | Operating revenues | $ | 1,360.8 | | | $ | 1,032.8 | | | $ | 2,589.4 | | | $ | 2,151.9 | | Operating revenues | $ | 1,746.9 | | | $ | 1,360.8 | | | $ | 3,367.4 | | | $ | 2,589.4 | |
| Operating expenses: | Operating expenses: | | | | | | | | Operating expenses: | | | | | | | |
| Purchased transportation | Purchased transportation | 649.6 | | | 437.1 | | | 1,208.1 | | | 916.7 | | Purchased transportation | 778.9 | | | 649.6 | | | 1,519.0 | | | 1,208.1 | |
| Salaries, wages, and benefits | Salaries, wages, and benefits | 275.6 | | | 247.8 | | | 542.7 | | | 512.2 | | Salaries, wages, and benefits | 340.9 | | | 275.6 | | | 678.4 | | | 542.7 | |
| Fuel and fuel taxes | Fuel and fuel taxes | 70.0 | | | 42.1 | | | 133.8 | | | 103.0 | | Fuel and fuel taxes | 147.3 | | | 70.0 | | | 257.5 | | | 133.8 | |
| Depreciation and amortization | Depreciation and amortization | 73.2 | | | 72.3 | | | 146.3 | | | 142.1 | | Depreciation and amortization | 86.3 | | | 73.2 | | | 170.1 | | | 146.3 | |
| Operating supplies and expenses | 117.2 | | | 119.1 | | | 253.3 | | | 251.1 | | |
| Operating supplies and expenses—net | | Operating supplies and expenses—net | 152.8 | | | 117.2 | | | 242.3 | | | 253.3 | |
| Insurance and related expenses | Insurance and related expenses | 17.0 | | | 28.3 | | | 41.4 | | | 57.5 | | Insurance and related expenses | 25.1 | | | 17.0 | | | 51.5 | | | 41.4 | |
| Other general expenses | Other general expenses | 32.4 | | | 22.5 | | | 61.8 | | | 52.0 | | Other general expenses | 39.0 | | | 32.4 | | | 136.9 | | | 61.8 | |
| | Restructuring—net | 0 | | | 0.2 | | | 0 | | | (1.0) | | |
| | Total operating expenses | Total operating expenses | 1,235.0 | | | 969.4 | | | 2,387.4 | | | 2,033.6 | | Total operating expenses | 1,570.3 | | | 1,235.0 | | | 3,055.7 | | | 2,387.4 | |
| Income from operations | Income from operations | 125.8 | | | 63.4 | | | 202.0 | | | 118.3 | | Income from operations | 176.6 | | | 125.8 | | | 311.7 | | | 202.0 | |
| Other expenses (income): | Other expenses (income): | | | | | | | | Other expenses (income): | | | | | | | |
| Interest income | Interest income | (0.4) | | | (0.5) | | | (1.2) | | | (2.3) | | Interest income | (0.3) | | | (0.4) | | | (0.7) | | | (1.2) | |
| Interest expense | Interest expense | 3.0 | | | 3.3 | | | 6.4 | | | 7.1 | | Interest expense | 2.2 | | | 3.0 | | | 5.0 | | | 6.4 | |
| Other income—net | (19.6) | | | (2.1) | | | (18.8) | | | (7.5) | | |
| Total other expenses (income) | (17.0) | | | 0.7 | | | (13.6) | | | (2.7) | | |
| Other expenses (income)—net | | Other expenses (income)—net | 2.1 | | | (19.6) | | | 11.3 | | | (18.8) | |
| Total other expenses (income)—net | | Total other expenses (income)—net | 4.0 | | | (17.0) | | | 15.6 | | | (13.6) | |
| Income before income taxes | Income before income taxes | 142.8 | | | 62.7 | | | 215.6 | | | 121.0 | | Income before income taxes | 172.6 | | | 142.8 | | | 296.1 | | | 215.6 | |
| Provision for income taxes | Provision for income taxes | 36.3 | | | 16.2 | | | 54.3 | | | 30.7 | | Provision for income taxes | 42.8 | | | 36.3 | | | 74.2 | | | 54.3 | |
| Net income | Net income | 106.5 | | | 46.5 | | | 161.3 | | | 90.3 | | Net income | 129.8 | | | 106.5 | | | 221.9 | | | 161.3 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
| Foreign currency translation gain (loss) | 0.3 | | | 0.1 | | | 0.2 | | | (0.7) | | |
| Foreign currency translation adjustment—net | | Foreign currency translation adjustment—net | — | | | 0.3 | | | 0.1 | | | 0.2 | |
| Net unrealized gain (loss) on marketable securities—net of tax | Net unrealized gain (loss) on marketable securities—net of tax | 0.2 | | | 0.5 | | | (0.4) | | | 0.2 | | Net unrealized gain (loss) on marketable securities—net of tax | (1.0) | | | 0.2 | | | (2.6) | | | (0.4) | |
| Total other comprehensive income (loss) | 0.5 | | | 0.6 | | | (0.2) | | | (0.5) | | |
| Total other comprehensive income (loss)—net | | Total other comprehensive income (loss)—net | (1.0) | | | 0.5 | | | (2.5) | | | (0.2) | |
| Comprehensive income | Comprehensive income | $ | 107.0 | | | $ | 47.1 | | | $ | 161.1 | | | $ | 89.8 | | Comprehensive income | $ | 128.8 | | | $ | 107.0 | | | $ | 219.4 | | | $ | 161.1 | |
| | Weighted average shares outstanding | Weighted average shares outstanding | 177.6 | | | 177.2 | | | 177.5 | | | 177.2 | | Weighted average shares outstanding | 178.0 | | | 177.6 | | | 177.8 | | | 177.5 | |
| Basic earnings per share | Basic earnings per share | $ | 0.60 | | | $ | 0.26 | | | $ | 0.91 | | | $ | 0.51 | | Basic earnings per share | $ | 0.73 | | | $ | 0.60 | | | $ | 1.25 | | | $ | 0.91 | |
| | Weighted average diluted shares outstanding | Weighted average diluted shares outstanding | 177.9 | | | 177.5 | | | 177.8 | | | 177.4 | | Weighted average diluted shares outstanding | 178.5 | | | 177.9 | | | 178.5 | | | 177.8 | |
| Diluted earnings per share | Diluted earnings per share | $ | 0.60 | | | $ | 0.26 | | | $ | 0.91 | | | $ | 0.51 | | Diluted earnings per share | $ | 0.73 | | | $ | 0.60 | | | $ | 1.24 | | | $ | 0.91 | |
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except share data)
| | | | | | | | | | | |
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| June 30, | | December 31, |
| 2022 | | 2021 |
| Assets | | | |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 331.0 | | | $ | 244.8 | |
| Marketable securities | 46.4 | | | 49.3 | |
Trade accounts receivable—net of allowance of $10.4 million and $5.2 million, respectively | 770.6 | | | 705.4 | |
| Other receivables | 42.7 | | | 35.9 | |
Current portion of lease receivables—net of allowance of $1.4 million and $1.1 million, respectively | 110.6 | | | 110.6 | |
| Inventories | 32.8 | | | 27.4 | |
| Prepaid expenses and other current assets | 118.4 | | | 75.1 | |
| Total current assets | 1,452.5 | | | 1,248.5 | |
| Noncurrent Assets: | | | |
| Property and equipment: | | | |
| Transportation equipment | 3,244.3 | | | 3,056.2 | |
| Land, buildings, and improvements | 211.4 | | | 215.7 | |
| Other property and equipment | 176.8 | | | 175.1 | |
| Total property and equipment | 3,632.5 | | | 3,447.0 | |
| Less accumulated depreciation | 1,509.1 | | | 1,396.0 | |
| Net property and equipment | 2,123.4 | | | 2,051.0 | |
| Lease receivables | 166.5 | | | 160.1 | |
| Internal use software and other noncurrent assets | 246.5 | | | 237.2 | |
| Goodwill | 233.2 | | | 240.5 | |
| Total noncurrent assets | 2,769.6 | | | 2,688.8 | |
| Total Assets | $ | 4,222.1 | | | $ | 3,937.3 | |
| Liabilities and Shareholders’ Equity | | | |
| Current Liabilities: | | | |
| Trade accounts payable | $ | 400.6 | | | $ | 331.7 | |
| Accrued salaries, wages, and benefits | 74.4 | | | 104.5 | |
| Claims accruals—current | 77.4 | | | 83.9 | |
| Current maturities of debt and finance lease obligations | 2.0 | | | 61.4 | |
| | | |
| Other current liabilities | 171.7 | | | 108.7 | |
| Total current liabilities | 726.1 | | | 690.2 | |
| Noncurrent Liabilities: | | | |
| Long-term debt and finance lease obligations | 209.8 | | | 208.9 | |
| Claims accruals—noncurrent | 93.5 | | | 88.5 | |
| Deferred income taxes | 500.0 | | | 451.0 | |
| Other noncurrent liabilities | 68.9 | | | 74.9 | |
| Total noncurrent liabilities | 872.2 | | | 823.3 | |
| Total Liabilities | 1,598.3 | | | 1,513.5 | |
| Commitments and Contingencies (Note 12) | | | |
| Shareholders’ Equity: | | | |
| Preferred shares, no par value, 50,000,000 shares authorized, no shares issued or outstanding | — | | | — | |
| Class A common shares, no par value, 250,000,000 shares authorized, 83,029,500 shares issued and outstanding | — | | | — | |
| Class B common shares, no par value, 750,000,000 shares authorized, 95,641,103 and 95,701,868 shares issued, and 94,978,340 and 94,626,740 shares outstanding, respectively | — | | | — | |
| Additional paid-in capital | 1,575.7 | | | 1,566.0 | |
| Retained earnings | 1,050.6 | | | 857.8 | |
| Accumulated other comprehensive loss | (2.5) | | | — | |
| Total Shareholders’ Equity | 2,623.8 | | | 2,423.8 | |
| Total Liabilities and Shareholders’ Equity | $ | 4,222.1 | | | $ | 3,937.3 | |
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
CONSOLIDATED BALANCE SHEETSSTATEMENTS OF CASH FLOWS (Unaudited)
(in millions, except share data)millions)
| | | | | | | | | | | |
| | | |
| June 30, | | December 31, |
| 2021 | | 2020 |
| Assets | | | |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 490.5 | | | $ | 395.5 | |
| Marketable securities | 49.1 | | | 47.1 | |
Trade accounts receivable—net of allowance of $4.1 million and $3.7 million, respectively | 598.3 | | | 537.7 | |
| Other receivables | 29.6 | | | 20.8 | |
Current portion of lease receivables—net of allowance of $0.8 million and $0.8 million, respectively | 101.6 | | | 96.8 | |
| Inventories | 22.4 | | | 44.9 | |
| Prepaid expenses and other current assets | 106.8 | | | 77.9 | |
| Total current assets | 1,398.3 | | | 1,220.7 | |
| Noncurrent Assets: | | | |
| Property and equipment: | | | |
| Transportation equipment | 2,896.2 | | | 2,880.2 | |
| Land, buildings, and improvements | 203.0 | | | 202.3 | |
| Other property and equipment | 167.7 | | | 166.8 | |
| Total property and equipment | 3,266.9 | | | 3,249.3 | |
| Less accumulated depreciation | 1,414.0 | | | 1,417.4 | |
| Net property and equipment | 1,852.9 | | | 1,831.9 | |
| Lease receivables | 153.5 | | | 131.3 | |
| Capitalized software and other noncurrent assets | 234.8 | | | 204.2 | |
| Goodwill | 128.3 | | | 128.1 | |
| Total noncurrent assets | 2,369.5 | | | 2,295.5 | |
| Total Assets | $ | 3,767.8 | | | $ | 3,516.2 | |
| Liabilities and Shareholders’ Equity | | | |
| Current Liabilities: | | | |
| Trade accounts payable | $ | 337.2 | | | $ | 245.7 | |
| Accrued salaries, wages, and benefits | 106.2 | | | 110.7 | |
| Claims accruals—current | 67.7 | | | 36.4 | |
| Current maturities of debt and finance lease obligations | 100.7 | | | 40.4 | |
| | | |
| Other current liabilities | 107.7 | | | 101.4 | |
| Total current liabilities | 719.5 | | | 534.6 | |
| Noncurrent Liabilities: | | | |
| Long-term debt and finance lease obligations | 207.1 | | | 266.4 | |
| Claims accruals—noncurrent | 97.1 | | | 129.9 | |
| Deferred income taxes | 469.5 | | | 450.4 | |
| Other noncurrent liabilities | 76.2 | | | 79.4 | |
| Total noncurrent liabilities | 849.9 | | | 926.1 | |
| Total Liabilities | 1,569.4 | | | 1,460.7 | |
| Commitments and Contingencies (Note 11) | | | |
| Shareholders’ Equity: | | | |
| Class A common shares, 0 par value, 250,000,000 shares authorized, 83,029,500 shares issued and outstanding | 0 | | | 0 | |
| Class B common shares, 0 par value, 750,000,000 shares authorized, 95,697,730 and 95,159,635 shares issued, and 94,622,602 and 94,311,653 shares outstanding, respectively | 0 | | | 0 | |
| Additional paid-in capital | 1,559.1 | | | 1,552.2 | |
| Retained earnings | 638.7 | | | 502.5 | |
| Accumulated other comprehensive income | 0.6 | | | 0.8 | |
| Total Shareholders’ Equity | 2,198.4 | | | 2,055.5 | |
| Total Liabilities and Shareholders’ Equity | $ | 3,767.8 | | | $ | 3,516.2 | |
| | | | | | | | | | | |
| | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| Operating Activities: | | | |
| Net income | $ | 221.9 | | | $ | 161.3 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 170.1 | | | 146.3 | |
| Gains on sales of property and equipment—net | (63.8) | | | (16.0) | |
| Proceeds from lease receipts | 41.3 | | | 35.3 | |
| Deferred income taxes | 42.0 | | | 19.3 | |
| Long-term incentive and share-based compensation expense | 8.8 | | | 8.2 | |
| Losses (gains) on investments in equity securities—net | 10.1 | | | (20.2) | |
| | | |
| Other noncash items | (13.4) | | | 1.6 | |
| Changes in operating assets and liabilities: | | | |
| Receivables | (74.5) | | | (61.7) | |
| Other assets | (58.2) | | | (50.6) | |
| Payables | 35.4 | | | 40.7 | |
| Claims reserves and other receivables—net | 3.7 | | | (1.0) | |
| Other liabilities | 30.3 | | | (8.2) | |
| Net cash provided by operating activities | 353.7 | | | 255.0 | |
| Investing Activities: | | | |
| Purchases of transportation equipment | (159.0) | | | (153.6) | |
| Purchases of other property and equipment | (22.0) | | | (22.5) | |
| Proceeds from sale of property and equipment | 71.0 | | | 76.6 | |
| Proceeds from sale of off-lease inventory | 12.8 | | | 9.1 | |
| Purchases of lease equipment | (50.4) | | | (36.5) | |
| Proceeds from marketable securities | 4.2 | | | 8.6 | |
| Purchases of marketable securities | (4.6) | | | (11.6) | |
| Investments in equity securities | (4.1) | | | (5.0) | |
| Acquisition of businesses, net of cash acquired | (28.2) | | | — | |
| Net cash used in investing activities | (180.3) | | | (134.9) | |
| Financing Activities: | | | |
| Payments of debt and finance lease obligations | (60.8) | | | (0.3) | |
| Dividends paid | (27.2) | | | (24.8) | |
| Other financing activities | 0.8 | | | — | |
| Net cash used in financing activities | (87.2) | | | (25.1) | |
| Net increase in cash and cash equivalents | 86.2 | | | 95.0 | |
| Cash and Cash Equivalents: | | | |
| Beginning of period | 244.8 | | | 395.5 | |
| End of period | $ | 331.0 | | | $ | 490.5 | |
| Additional Cash Flow Information: | | | |
| Noncash investing and financing activity: | | | |
| Transportation and lease equipment purchases in accounts payable | $ | 45.7 | | | $ | 51.5 | |
| Dividends declared but not yet paid | 16.0 | | | 13.9 | |
| Cash paid during the period for: | | | |
| Interest | 5.1 | | | 5.8 | |
| Income taxes—net of refunds | 31.1 | | | 39.5 | |
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
| | | | | | | | | | | |
| | | |
| Six Months Ended
June 30, |
| 2021 | | 2020 |
| Operating Activities: | | | |
| Net income | $ | 161.3 | | | $ | 90.3 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 146.3 | | | 142.1 | |
| (Gains) losses on sales of property and equipment—net | (16.0) | | | 3.8 | |
| | | |
| Proceeds from lease receipts | 35.3 | | | 35.7 | |
| Deferred income taxes | 19.3 | | | 2.8 | |
| Long-term incentive and share-based compensation expense | 8.2 | | | 3.4 | |
| Gains on investment in equity securities | (20.2) | | | (8.8) | |
| Noncash restructuring—net | 0 | | | (0.8) | |
| Other noncash items | 1.6 | | | 5.7 | |
| Changes in operating assets and liabilities: | | | |
| Receivables | (61.7) | | | 34.7 | |
| Other assets | (50.6) | | | (36.5) | |
| Payables | 40.7 | | | 12.1 | |
| Claims reserves and other receivables—net | (1.0) | | | 8.6 | |
| Other liabilities | (8.2) | | | 26.7 | |
| Net cash provided by operating activities | 255.0 | | | 319.8 | |
| Investing Activities: | | | |
| Purchases of transportation equipment | (153.6) | | | (83.3) | |
| Purchases of other property and equipment | (22.5) | | | (25.0) | |
| Proceeds from sale of property and equipment | 76.6 | | | 29.6 | |
| Proceeds from sale of off-lease inventory | 9.1 | | | 9.0 | |
| Purchases of lease equipment | (36.5) | | | (41.7) | |
| Proceeds from marketable securities | 8.6 | | | 10.2 | |
| Purchases of marketable securities | (11.6) | | | (8.9) | |
| Investment in equity securities | (5.0) | | | 0 | |
| Net cash used in investing activities | (134.9) | | | (110.1) | |
| Financing Activities: | | | |
| Payments of debt and finance lease obligations | (0.3) | | | (25.3) | |
| Dividends paid | (24.8) | | | (22.2) | |
| Net cash used in financing activities | (25.1) | | | (47.5) | |
| Net increase in cash and cash equivalents | 95.0 | | | 162.2 | |
| Cash and Cash Equivalents: | | | |
| Beginning of period | 395.5 | | | 551.6 | |
| End of period | $ | 490.5 | | | $ | 713.8 | |
| Additional Cash Flow Information: | | | |
| Noncash investing and financing activity: | | | |
| Equipment and inventory purchases in accounts payable | $ | 51.5 | | | $ | 20.9 | |
| Dividends declared but not yet paid | 13.9 | | | 11.8 | |
| Cash paid during the period for: | | | |
| Interest | 5.8 | | | 6.6 | |
| Income taxes—net of refunds | 39.5 | | | 2.6 | |
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
(in millions, except per share data)
| | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Total | |
| Balance—December 31, 2019 | | $ | 0 | | | $ | 1,542.7 | | | $ | 693.6 | | | $ | 0.1 | | | $ | 2,236.4 | | |
| Net income | | 0 | | | 0 | | | 43.8 | | | 0 | | | 43.8 | | |
| Other comprehensive loss | | 0 | | | 0 | | | 0 | | | (1.1) | | | (1.1) | | |
| Share-based compensation expense | | 0 | | | 1.9 | | | 0 | | | 0 | | | 1.9 | | |
| Dividends declared at $0.065 per share of Class A and Class B common shares | | 0 | | | 0 | | | (11.7) | | | 0 | | | (11.7) | | |
| Share issuances | | 0 | | | 0.1 | | | 0 | | | 0 | | | 0.1 | | |
| Shares withheld for employee taxes | | 0 | | | (0.9) | | | 0 | | | 0 | | | (0.9) | | |
| Balance—March 31, 2020 | | 0 | | | 1,543.8 | | | 725.7 | | | (1.0) | | | 2,268.5 | | |
| Net income | | 0 | | | 0 | | | 46.5 | | | 0 | | | 46.5 | | |
| Other comprehensive income | | 0 | | | 0 | | | 0 | | | 0.6 | | | 0.6 | | |
| Share-based compensation expense | | 0 | | | 1.1 | | | 0 | | | 0 | | | 1.1 | | |
| Dividends declared at $0.065 per share of Class A and Class B common shares | | 0 | | | 0 | | | (11.4) | | | 0 | | | (11.4) | | |
| Share issuances | | 0 | | | 0.1 | | | 0 | | | 0 | | | 0.1 | | |
| Exercise of employee stock options | | 0 | | | 0.4 | | | 0 | | | 0 | | | 0.4 | | |
| Balance—June 30, 2020 | | $ | 0 | | | $ | 1,545.4 | | | $ | 760.8 | | | $ | (0.4) | | | $ | 2,305.8 | | |
| | | | | | | | | | | | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total |
| Balance—December 31, 2020 | Balance—December 31, 2020 | | $ | 0 | | | $ | 1,552.2 | | | $ | 502.5 | | | $ | 0.8 | | | $ | 2,055.5 | | Balance—December 31, 2020 | | $ | — | | | $ | 1,552.2 | | | $ | 502.5 | | | $ | 0.8 | | | $ | 2,055.5 | |
| Net income | Net income | | 0 | | | 0 | | | 54.8 | | | 0 | | | 54.8 | | Net income | | — | | | — | | | 54.8 | | | — | | | 54.8 | |
| Other comprehensive loss | Other comprehensive loss | | 0 | | | 0 | | | 0 | | | (0.7) | | | (0.7) | | Other comprehensive loss | | — | | | — | | | — | | | (0.7) | | | (0.7) | |
| Share-based compensation expense | Share-based compensation expense | | 0 | | | 4.5 | | | 0 | | | 0 | | | 4.5 | | Share-based compensation expense | | — | | | 4.5 | | | — | | | — | | | 4.5 | |
| Dividends declared at $0.07 per share of Class A and Class B common shares | Dividends declared at $0.07 per share of Class A and Class B common shares | | 0 | | | 0 | | | (12.6) | | | 0 | | | (12.6) | | Dividends declared at $0.07 per share of Class A and Class B common shares | | — | | | — | | | (12.6) | | | — | | | (12.6) | |
| Share issuances | Share issuances | | 0 | | | 0.1 | | | 0 | | | 0 | | | 0.1 | | Share issuances | | — | | | 0.1 | | | — | | | — | | | 0.1 | |
| Exercise of employee stock options | Exercise of employee stock options | | 0 | | | 0.7 | | | 0 | | | 0 | | | 0.7 | | Exercise of employee stock options | | — | | | 0.7 | | | — | | | — | | | 0.7 | |
| Shares withheld for employee taxes | Shares withheld for employee taxes | | 0 | | | (2.4) | | | 0 | | | 0 | | | (2.4) | | Shares withheld for employee taxes | | — | | | (2.4) | | | — | | | — | | | (2.4) | |
| Balance—March 31, 2021 | Balance—March 31, 2021 | | 0 | | | 1,555.1 | | | 544.7 | | | 0.1 | | | 2,099.9 | | Balance—March 31, 2021 | | — | | | 1,555.1 | | | 544.7 | | | 0.1 | | | 2,099.9 | |
| Net income | Net income | | 0 | | | 0 | | | 106.5 | | | 0 | | | 106.5 | | Net income | | — | | | — | | | 106.5 | | | — | | | 106.5 | |
| Other comprehensive income | Other comprehensive income | | 0 | | | 0 | | | 0 | | | 0.5 | | | 0.5 | | Other comprehensive income | | — | | | — | | | — | | | 0.5 | | | 0.5 | |
| Share-based compensation expense | Share-based compensation expense | | 0 | | | 3.3 | | | 0 | | | 0 | | | 3.3 | | Share-based compensation expense | | — | | | 3.3 | | | — | | | — | | | 3.3 | |
| Dividends declared at $0.07 per share of Class A and Class B common shares | Dividends declared at $0.07 per share of Class A and Class B common shares | | 0 | | | 0 | | | (12.5) | | | 0 | | | (12.5) | | Dividends declared at $0.07 per share of Class A and Class B common shares | | — | | | — | | | (12.5) | | | — | | | (12.5) | |
| Share issuances | Share issuances | | 0 | | | 0.7 | | | 0 | | | 0 | | | 0.7 | | Share issuances | | — | | | 0.7 | | | — | | | — | | | 0.7 | |
| | Balance—June 30, 2021 | | Balance—June 30, 2021 | | $ | — | | | $ | 1,559.1 | | | $ | 638.7 | | | $ | 0.6 | | | $ | 2,198.4 | |
| | Balance—June 30, 2021 | | $ | 0 | | | $ | 1,559.1 | | | $ | 638.7 | | | $ | 0.6 | | | $ | 2,198.4 | | |
| | | | Balance—December 31, 2021 | | Balance—December 31, 2021 | | $ | — | | | $ | 1,566.0 | | | $ | 857.8 | | | $ | — | | | $ | 2,423.8 | |
| Net income | | Net income | | — | | | — | | | 92.1 | | | — | | | 92.1 | |
| Other comprehensive loss | | Other comprehensive loss | | — | | | — | | | — | | | (1.5) | | | (1.5) | |
| Share-based compensation expense | | Share-based compensation expense | | — | | | 5.4 | | | — | | | — | | | 5.4 | |
| Dividends declared at $0.08 per share of Class A and Class B common shares | | Dividends declared at $0.08 per share of Class A and Class B common shares | | — | | | — | | | (14.9) | | | — | | | (14.9) | |
| Share issuances | | Share issuances | | — | | | 0.1 | | | — | | | — | | | 0.1 | |
| Exercise of employee stock options | | Exercise of employee stock options | | — | | | 2.3 | | | — | | | — | | | 2.3 | |
| Shares withheld for employee taxes | | Shares withheld for employee taxes | | — | | | (2.4) | | | — | | | — | | | (2.4) | |
| Balance—March 31, 2022 | | Balance—March 31, 2022 | | — | | | 1,571.4 | | | 935.0 | | | (1.5) | | | 2,504.9 | |
| Net income | | Net income | | — | | | — | | | 129.8 | | | — | | | 129.8 | |
| Other comprehensive loss | | Other comprehensive loss | | — | | | — | | | — | | | (1.0) | | | (1.0) | |
| Share-based compensation expense | | Share-based compensation expense | | — | | | 3.4 | | | — | | | — | | | 3.4 | |
| Dividends declared at $0.08 per share of Class A and Class B common shares | | Dividends declared at $0.08 per share of Class A and Class B common shares | | — | | | — | | | (14.2) | | | — | | | (14.2) | |
| | Exercise of employee stock options | | Exercise of employee stock options | | — | | | 0.9 | | | — | | | — | | | 0.9 | |
| | Balance—June 30, 2022 | | Balance—June 30, 2022 | | $ | — | | | $ | 1,575.7 | | | $ | 1,050.6 | | | $ | (2.5) | | | $ | 2,623.8 | |
|
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
Nature of Operations
WeSchneider National, Inc. and its subsidiaries (together “Schneider,” the “Company,” “we,” “us,” or “our”) are one ofamong the largest providers of surface transportation and logistics solutions in North America. Schneider National, Inc. isWe offer a publicly held holding companymultimodal portfolio of services and possess an array of capabilities and resources that through its wholly owned subsidiaries, provides safe, reliable,leverage artificial intelligence, data science, and analytics to provide innovative solutions that coordinate the movement of customer products timely, safely, and effectively. The Company offers truckload, intermodal, and logistics services to a diverse group of customerscustomer base throughout the continental United States, Canada, and Mexico. Unless otherwise indicated by the context, “we,” “us,” “our,” “ours,” the “Company,” and “Schneider” referMexico, thus adding value to Schneider National, Inc. and its consolidated subsidiaries.their supply chains.
Principles of Consolidation and Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in conformity with GAAP and the rules and regulations of the SEC applicable to quarterly reports on Form 10-Q. Therefore, these consolidated financial statements and footnotes do not include all disclosures required by GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. Financial results for an interim period are not necessarily indicative of the results for a full year. All intercompany transactions have been eliminated in consolidation.
In the opinion of management, these statements reflect all adjustments (consisting only of normal, recurring adjustments) necessary for the fair presentation of our financial results for the interim periods presented.
Property and Equipment
Gains and losses on property and equipment are recognized at the time of sale or disposition and are classified in operating supplies and expenses—net on the consolidated statements of comprehensive income. For the three months ended June 30, 2022 and 2021, we recognized $2.9 million and $14.1 million of net gains on the sale of property and equipment, respectively, and for the six months ended June 30, 2022 and 2021, we recognized $63.8 million and $16.0 million of net gains on the sale of property and equipment, respectively. Net gains during the six months ended June 30, 2022 were primarily related to the sale of the Company’s Canadian facility.
Accounting Standards Recently Adopted
We adoptedIn November 2021, the FASB issued ASU 2019-12,2021-10, SimplifyingGovernment Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This standard requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy (for example, International Financial Reporting Standards guidance in International Accounting Standards 20 or guidance on contributions for not-for-profit entities in ASC 958-605), including information about the Accountingnature and significant terms and conditions of the transaction, as well as the amounts and specific financial statement line items affected by the transaction. ASU 2021-10 is effective for Income Taxes, which reduces complexity in accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740 and clarifying and amending existing guidance to improve consistent application among reporting entities, as of January 1, 2021. We used the modified retrospective or prospective approach, which was based on the specific amendment implemented, when adopting this standard.us beginning with our December 31, 2022 financial statements. The adoption of this standard did not have a material impact on our consolidated financial statements or related disclosures.
2. ACQUISITIONS
deBoer Transportation, Inc.
We entered into a Securities Purchase Agreement, dated June 7, 2022, to acquire 100% of the outstanding equity of deBoer, a regional, dedicated carrier headquartered in Blenker, WI. The acquisition provided Schneider the opportunity to expand our tractor and trailer fleet primarily within our dedicated and Power Only operations, as well as our company driver capacity. The Company is in the process of transitioning equipment and employees from deBoer to Schneider, and upon completion, deBoer operations will cease.
The aggregate purchase price of the acquisition was approximately $34.6 million inclusive of certain cash and net working capital adjustments, and the assets acquired consisted primarily of rolling stock. The acquisition was accounted for under the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized on the consolidated
balance sheets at their fair values as of the acquisition date. The fair values of consideration transferred and net assets acquired were determined using Level 3 inputs, and the excess of the purchase price over the estimated fair value of the net assets resulted in $7.7 million of goodwill being recorded within the Truckload reportable segment. Certain amounts recorded in connection with the acquisition are still considered preliminary as we continue to gather the necessary information to finalize our fair value estimates and provisional amounts.
Acquisition-related costs, which consisted of fees incurred for advisory, legal, and accounting services, were $0.2 million and were included in other general expenses in the Company’s consolidated statements of comprehensive income for the three and six months ended June 30, 2022.
Operating results for deBoer are included in our consolidated results of operations from the acquisition date. Pro forma information for this acquisition is not provided as it did not have a material impact on the Company’s consolidated operating results.
Midwest Logistics Systems, Ltd.
We entered into a Securities Purchase Agreement, dated December 31, 2021, to acquire 100% of the outstanding equity of MLS, a dedicated trucking company based in Celina, OH, and certain affiliated entities holding assets comprising substantially all of MLS’s business. MLS is a premier dedicated carrier in the central U.S. that we believe complements our growing dedicated operations.
The aggregate purchase price of the acquisition was approximately $268.8 million inclusive of $5.7 million in net working capital and other post-acquisition adjustments received in the second quarter of 2022 and a deferred payment of $3.2 million made in January 2022. Proceeds from the total purchase consideration were used to settle $26.9 million of MLS’s outstanding debt as of the acquisition date.
The acquisition of MLS was accounted for under the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized on the consolidated balance sheets at their fair values as of the acquisition date. These inputs represent Level 3 measurements in the fair value hierarchy and required significant judgments and estimates at the time of valuation. Fair value estimates of acquired property and equipment were based on an independent appraisal, giving consideration to the highest and best use of the assets. Key assumptions used in the transportation equipment appraisals were based on the market approach, while key assumptions used in the land, buildings and improvements, and other property and equipment appraisals were based on a combination of the income (direct capitalization) and sales comparison approaches, as appropriate.
The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed was recorded as goodwill within the Truckload reportable segment. The goodwill is attributable to expected synergies and growth opportunities within our dedicated business and is expected to be deductible for tax purposes.
Acquisition-related costs, which consisted of fees incurred for advisory, legal, and accounting services, were $1.9 million and were included in other general expenses in the Company’s consolidated statements of comprehensive income for the year ended December 31, 2021.
The following table summarizes the preliminary purchase price allocation for MLS, including any adjustments during the measurement period.
| | | | | | | | | | | | | | | | | | | | |
Recognized amounts of identifiable assets acquired and liabilities assumed (in millions) | | December 31, 2021
Opening Balance Sheet | | Adjustments | | Adjusted December 31, 2021 Opening Balance Sheet |
| Cash and cash equivalents | | $ | — | | | $ | 1.7 | | | $ | 1.7 | |
| Trade accounts receivable—net of allowance | | 18.6 | | | (5.9) | | | 12.7 | |
| Other receivables | | 0.9 | | | 1.5 | | | 2.4 | |
| Prepaid expenses and other current assets | | 1.6 | | | — | | | 1.6 | |
| Net property and equipment | | 148.9 | | | (0.8) | | | 148.1 | |
| Internal use software and other noncurrent assets | | — | | | 11.7 | | | 11.7 | |
| Goodwill | | 122.7 | | | (15.0) | | | 107.7 | |
| Total assets acquired | | 292.7 | | | (6.8) | | | 285.9 | |
| | | | | | |
| Trade accounts payable | | 1.8 | | | 1.6 | | | 3.4 | |
| Accrued salaries, wages, and benefits | | 1.7 | | | 0.9 | | | 2.6 | |
| Claims accruals—current | | 7.5 | | | — | | | 7.5 | |
| Other current liabilities | | 7.2 | | | (3.9) | | | 3.3 | |
| Other noncurrent liabilities | | — | | | 0.3 | | | 0.3 | |
| Total liabilities assumed | | 18.2 | | | (1.1) | | | 17.1 | |
| | | | | | |
| Net assets acquired | | $ | 274.5 | | | $ | (5.7) | | | $ | 268.8 | |
The above adjustments made during the measurement period were primarily related to working capital, property and equipment, leases, and intangible assets. The fair values of identifiable intangible assets, including customer relationships and trademarks, were based on valuations using income-based approaches. No material statement of comprehensive income effects were identified with these adjustments. During the measurement period, which is up to one year from the acquisition date, we may continue to adjust provisional amounts that were recognized at the acquisition date to reflect new information about facts and circumstances that existed as of the acquisition date.
Combined unaudited pro forma operating revenues of the Company and MLS would have been approximately $1,414.0 million, and $2,694.0 million, during the three and six months ended June 30, 2021, respectively, and our earnings for the same periods would not have been materially different.
3. LEASES
As Lessee
We lease real estate and equipment under operating and finance leases. Our real estate operating leases include operating centers, distribution warehouses, offices, and drop yards. Our non-real estate operating leases and finance leases include transportation, office, yard, and warehouse equipment, in addition to truck washes. The majority of our leases include an option to extend the lease, and a small number include an option to terminate the lease early, which may include a termination payment.
Additional information related to our leases is as follows:
| | | Six Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | (in millions) | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities | Cash paid for amounts included in the measurement of lease liabilities | | | | | Cash paid for amounts included in the measurement of lease liabilities | | | | |
| Operating cash flows for operating leases | Operating cash flows for operating leases | | $ | 15.3 | | | $ | 17.3 | | Operating cash flows for operating leases | | $ | 16.4 | | | $ | 15.3 | |
| | Operating cash flows for finance leases | | Operating cash flows for finance leases | | 0.1 | | | — | |
| Financing cash flows for finance leases | Financing cash flows for finance leases | | 0.3 | | | 0.3 | | Financing cash flows for finance leases | | 0.8 | | | 0.3 | |
| | Right-of-use assets obtained in exchange for new lease liabilities | Right-of-use assets obtained in exchange for new lease liabilities | | Right-of-use assets obtained in exchange for new lease liabilities | |
| Operating leases | Operating leases | | $ | 19.5 | | | $ | 21.6 | | Operating leases | | $ | 9.7 | | | $ | 19.5 | |
| Finance leases | Finance leases | | 1.2 | | | 0.7 | | Finance leases | | 2.3 | | | 1.2 | |
7As of June 30, 2022, we had signed leases that had not yet commenced totaling $9.0 million. These leases will commence during the remainder of 2022 or the beginning of 2023 and have lease terms of two to six years.
As Lessor
We finance various types of transportation-related equipment for independent third parties under lease contracts, which are generally for one to three years and are accounted for as sales-type leases with fully guaranteed residual values. Our leases contain an option for the lessee to return, extend, or purchase the equipment at the end of the lease term for the guaranteed contract residual amount. This contract residual amount is estimated to approximate the fair value of the equipment. Lease payments primarily include base rentals and guaranteed residual values.
As of June 30, 20212022 and December 31, 2020,2021, investments in lease receivables were as follows:
| | (in millions) | (in millions) | | June 30, 2021 | | December 31, 2020 | (in millions) | | June 30, 2022 | | December 31, 2021 |
| Future minimum payments to be received on leases | Future minimum payments to be received on leases | | $ | 184.1 | | | $ | 159.0 | | Future minimum payments to be received on leases | | $ | 199.5 | | | $ | 193.9 | |
| Guaranteed residual lease values | Guaranteed residual lease values | | 115.9 | | | 107.6 | | Guaranteed residual lease values | | 126.8 | | | 123.3 | |
| Total minimum lease payments to be received | Total minimum lease payments to be received | | 300.0 | | | 266.6 | | Total minimum lease payments to be received | | 326.3 | | | 317.2 | |
| Unearned income | Unearned income | | (44.9) | | | (38.5) | | Unearned income | | (49.2) | | | (46.5) | |
| Net investment in leases | Net investment in leases | | $ | 255.1 | | | $ | 228.1 | | Net investment in leases | | $ | 277.1 | | | $ | 270.7 | |
Prior to entering a lease contract, we assess the credit quality of the potential lessee using credit checks and other relevant factors, ensuring that the inherent credit risk is consistent with our existing lease portfolio. Given our leases have fully guaranteed residual values and we can take possession of the transportation-related equipment in the event of default, we do not categorize net investment in leases by different credit quality indicators upon origination. We monitor our lease portfolio weekly by tracking amounts past due, days past due, and outstanding maintenance account balances, including runningperforming subsequent credit checks as needed. Our net investment in leases with any portion past due as of June 30, 20212022 was $37.4$41.5 million, which includes both current and future lease payments.
Lease payments are generally due on a weekly basis and are classified as past due when the weekly payment is not received by its due date. As of June 30, 2021,2022, our lease payments past due were $2.7$3.6 million.
The table below provides additional information on our sales-type leases. Revenue and cost of goods sold are recorded in operating revenues and operating supplies and expensesexpenses—net in the consolidated statements of comprehensive income, respectively.
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenue | Revenue | | $ | 53.8 | | | $ | 44.7 | | | $ | 112.6 | | | $ | 99.4 | | Revenue | | $ | 50.8 | | | $ | 53.8 | | | $ | 93.1 | | | $ | 112.6 | |
| Cost of goods sold | Cost of goods sold | | (46.7) | | | (40.8) | | | (97.1) | | | (89.7) | | Cost of goods sold | | (41.5) | | | (46.7) | | | (77.5) | | | (97.1) | |
| Operating profit | Operating profit | | $ | 7.1 | | | $ | 3.9 | | | $ | 15.5 | | | $ | 9.7 | | Operating profit | | $ | 9.3 | | | $ | 7.1 | | | $ | 15.6 | | | $ | 15.5 | |
| | Interest income on lease receivable | Interest income on lease receivable | | $ | 7.8 | | | $ | 6.7 | | | $ | 15.1 | | | $ | 13.2 | | Interest income on lease receivable | | $ | 9.2 | | | $ | 7.8 | | | $ | 17.9 | | | $ | 15.1 | |
|
3.4. REVENUE RECOGNITION
Disaggregated Revenues
The majority of our revenues are related to transportation and have similar characteristics. MLS and deBoer revenues since the acquisition dates are included within Transportation revenues, consistent with the remainder of our Truckload segment. The following table summarizes our revenues by type of service.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
Disaggregated Revenues (in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| Transportation | | $ | 1,255.5 | | | $ | 951.1 | | | $ | 2,374.1 | | | $ | 1,979.4 | |
| Logistics Management | | 46.8 | | | 29.8 | | | 93.3 | | | 60.9 | |
| Other | | 58.5 | | | 51.9 | | | 122.0 | | | 111.6 | |
| Total operating revenues | | $ | 1,360.8 | | | $ | 1,032.8 | | | $ | 2,589.4 | | | $ | 2,151.9 | |
8 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
Disaggregated Revenues (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Transportation | | $ | 1,612.9 | | | $ | 1,255.5 | | | $ | 3,112.1 | | | $ | 2,374.1 | |
| Logistics Management | | 78.9 | | | 46.8 | | | 154.6 | | | 93.3 | |
| Other | | 55.1 | | | 58.5 | | | 100.7 | | | 122.0 | |
| Total operating revenues | | $ | 1,746.9 | | | $ | 1,360.8 | | | $ | 3,367.4 | | | $ | 2,589.4 | |
Quantitative Disclosure
The following table provides information related to transactions and expected timing of revenue recognition for performance obligations that are fixed in nature and relate to contracts with terms greater than one year as of the date shown.
| | | | | | | | |
Remaining Performance Obligations (in millions) | | June 30, 20212022 |
| Expected to be recognized within one year | | |
| Transportation | | $ | 15.317.0 | |
| Logistics Management | | 11.113.2 | |
| Expected to be recognized after one year | | |
| Transportation | | 43.433.2 | |
| Logistics Management | | 11.6 | |
| Total | | $ | 81.475.0 | |
This disclosure does not include revenue related to performance obligations that are part of a contract with an original expected duration of one year or less, nor does it include expected consideration related to performance obligations for which the Company elects to recognize revenue in the amount it has a right to invoice (e.g., usage-based pricing terms).
The following table provides information related to contract balances associated with our contracts with customers as of the dates shown.
| | | | | | | | | | | | | | |
Contract Balances (in millions) | | June 30, 2021 | | December 31, 2020 |
| Other current assets - Contract assets | | $ | 32.4 | | | $ | 21.5 | |
| Other current liabilities - Contract liabilities | | 0.6 | | | 0.7 | |
| | | | | | | | | | | | | | |
Contract Balances (in millions) | | June 30, 2022 | | December 31, 2021 |
| Other current assets—Contract assets | | $ | 43.5 | | | $ | 33.8 | |
| Other current liabilities—Contract liabilities | | 2.9 | | | 3.2 | |
We generally receive payment within 40 days of completion of performance obligations. Contract assets in the table above relate to revenue in transit at the end of the reporting period. Contract liabilities relate to amounts that customers paid in advance of the associated service.services.
Non-monetary Consideration
Occasionally we provide freight movements to customers in exchange for non-monetary services. The fair value of non-monetary consideration on these freight movements is included in operating revenues on the consolidated statements of comprehensive income and consists primarily of transportation equipment. The amount of operating revenues recorded for these services was $6.8 million and $13.3 million during the three and six months ended June 30, 2022, respectively. There was no revenue recorded in the three or six months ended June 30, 2021 for freight movements in exchange for non-monetary consideration.
4.5. FAIR VALUE
Fair value is the estimated price that would be received to sell an asset or paid to transfer a liability. Inputs to valuation techniques used to measure fair value fall into three broad levels (Levels 1, 2, and 3) as follows:
Level 1—Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that we have the ability to access at the measurement date.
Level 2—Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities.
Level 3—Unobservable inputs reflecting the reporting entity’s estimates of the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The table below sets forth the Company’s financial assets that are measured at fair value on a recurring, monthly basis in accordance with ASC 820.
| | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value |
| (in millions) | | Level in Fair
Value Hierarchy | | June 30, 2021 | | December 31, 2020 |
Equity investment in TuSimple (1) | | 1 | | $ | 25.2 | | | $ | 0 | |
Marketable securities (2) | | 2 | | 49.1 | | | 47.1 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value |
| (in millions) | | Level in Fair
Value Hierarchy | | June 30, 2022 | | December 31, 2021 |
Equity investment in TuSimple (1) | | 1 | | $ | 2.6 | | | $ | 12.7 | |
Marketable securities (2) | | 2 | | 46.4 | | | 49.3 | |
(1)Our equity investment in TuSimple is classified as Level 1 in the fair value hierarchy as shares of TuSimple’s Class A common stock are traded on the NASDAQ. See Note 5,6, Investments, for additional information.
(2)Marketable securities are classified as Level 2 in the fair value hierarchy as they are valued based on quoted prices for similar assets in active markets or quoted prices for identical or similar assets in markets that are not active. See Note 5,6, Investments, for additional information.
The fair value of the Company’s debt was $321.1$203.5 million and $316.9$276.7 million as of June 30, 20212022 and December 31, 2020,2021, respectively. The carrying value of the Company’s debt was $305.0$205.0 million and $265.0 million as of June 30, 20212022 and December 31, 2020.2021, respectively. The fair value of our debt was calculated using a fixed rate debt portfolio with similar terms and maturities, which is based on the borrowing rates available to us in the applicable year.period. This valuation used Level 2 inputs.
The recorded values of cash, trade accounts receivable, lease receivables, and trade accounts payable approximate fair values.
Our ownership interests in PSIAs part of the MLS and MLSI discussed in Note 5, Investments, do not have readily determinabledeBoer acquisitions, certain assets acquired and liabilities assumed were recorded at their fair values and were accounted for using the measurement alternative in ASC 321-10-35-2 as of June 30, 2021.the acquisition date. Refer to Note 2, Acquisitions, for further details.
6. INVESTMENTS
Marketable Securities
Our marketable securities are classified as available-for-sale and carried at fair value in current assets on the consolidated balance sheets. While our intent is to hold our securities to maturity, sudden changes in the market or our liquidity needs may cause us to sell certain securities in advance of their maturity date.
Any unrealized gains and losses, net of tax, are included as a component of accumulated other comprehensive income on the consolidated balance sheets, unless we determine that the amortized cost basis is not recoverable. If we determine that the amortized cost basis of the impaired security is not recoverable, we recognize the credit loss by increasing the allowance for those losses. We did 0tnot have an allowance for credit losses on our marketable securities as of June 30, 20212022 or December 31, 2020.2021. Cost basis is determined using the specific identification method.
The following table presents the maturities and values of our marketable securities as of the dates shown.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2021 | | December 31, 2020 |
| (in millions, except maturities in months) | | Maturities | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| U.S. treasury and government agencies | | 29 to 116 | | $ | 16.9 | | | $ | 16.8 | | | $ | 12.6 | | | $ | 12.7 | |
| | | | | | | | | | |
| Corporate debt securities | | 2 to 75 | | 21.3 | | | 21.7 | | | 21.4 | | | 22.2 | |
| State and municipal bonds | | 4 to 57 | | 10.3 | | | 10.6 | | | 11.9 | | | 12.2 | |
| | | | | | | | | | |
| Total marketable securities | | | | $ | 48.5 | | | $ | 49.1 | | | $ | 45.9 | | | $ | 47.1 | |
Excluded from the amortized cost basis disclosures above is the accrued interest on our investments in marketable securities. As of June 30, 2021 and December 31, 2020, accrued interest receivable associated with our investments in marketable securities was not material and included within other receivables on the consolidated balance sheets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2022 | | December 31, 2021 |
| (in millions, except maturities in months) | | Maturities | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| U.S. treasury and government agencies | | 17 to 104 | | $ | 20.0 | | | $ | 18.1 | | | $ | 19.9 | | | $ | 19.6 | |
| | | | | | | | | | |
| Corporate debt securities | | 5 to 63 | | 17.0 | | | 16.1 | | | 20.3 | | | 20.4 | |
| State and municipal bonds | | 7 to 160 | | 12.6 | | | 12.2 | | | 9.1 | | | 9.3 | |
| | | | | | | | | | |
| Total marketable securities | | | | $ | 49.6 | | | $ | 46.4 | | | $ | 49.3 | | | $ | 49.3 | |
Equity Investments without Readily Determinable Fair Values
Platform Science, Inc.
In 2018,The Company’s strategic equity investments without readily determinable fair values include PSI, a provider of telematics and fleet management tools, MLSI, a transportation technology development company, and ChemDirect, a business to business digital marketplace for the Company made a strategic decision to invest in PSI and acquired an ownership interest in exchange for granting them a non-exclusive license to our proprietary telematics mobile software that was developed to enable enhanced driver productivity and ensure regulatory compliance. Our ownership interest ischemical industry. These investments are being accounted for under ASC 321, Investments - Equity Securities, using the measurement alternative. In the threealternative, and six months endedtheir combined values as of June 30, 2020,2022 and December 31, 2021 were $40.2 million and $36.2 million, respectively. If the Company recognized pre-tax gainsidentifies observable price changes for identical or similar securities of $2.7 million and $8.8 million, respectively, on its investment in PSI within other income on the consolidated statementssame issuer, the equity security is measured at fair value as of comprehensive income. As of December 31, 2020, the value of our ownership interest was $12.3 million, and our non-controlling ownership percentage was 12.6%. NaN events havedate the observable transaction occurred in the three and six months ended June 30, 2021 that would indicate that the value of our investment in PSI has changed.using Level 3 inputs.
Mastery Logistics Systems, Inc.
In 2020, the Company entered into a strategic partnership with MLSI, a transportation technology development company. Schneider and MLSI are collaborating to develop a Transportation Management System using MLSI’s SaaS technology which Schneider has also agreed to license. This investment is being accounted for under ASC 321, Investments - Equity Securities, using the measurement alternative. The value of our ownership interest as of December 31, 2020 was $10.0 million, and our non-controlling ownership percentage was 10.1%. In the three and six months ended June 30, 2021, 0 events have occurred that would indicate that2022, our cumulative upward adjustments were $26.2 million. The following table summarizes the value of our investment in MLSI has changed.activity related to these equity investments during the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Investment in equity securities | | $ | — | | | $ | — | | | $ | 4.0 | | | $ | — | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Equity Investments with Readily Determinable Fair Values
TuSimple Holdings, Inc.
On January 12,In 2021, the Company purchased a $5.0 million non-controlling interest in TuSimple, a global self-driving technology company. Upon completion of its initial public offeringIPO in April 2021, our investment in TuSimple was converted into Class A common shares and is now being accounted for under ASC 321, Investments - Equity Securities, with subsequent changes. In the three and six months ended June 30, 2022, the Company recognized pre-tax losses of $1.8 million and $10.1 million on its investment in share price recorded in other income on the consolidated statements of comprehensive income.TuSimple, respectively. In the three and six months ended June 30, 2021, the Company recognized a pre-tax gainsgain of $20.2 million on its investment in TuSimple.million. See Note 4,5, Fair Value, for additional information on the fair value of our investment in TuSimple.
All of our equity investments are included in other noncurrent assets on the consolidated balance sheets.sheets with subsequent gains or losses recognized within other expenses (income)—net on the consolidated statements of comprehensive income.
Subsequent Event
On July 1, 2022, the Company invested an additional $20.0 million in MLSI in exchange for preferred stock.
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price of acquisitions over the fair value of the identifiable net assets acquired. The following table shows changes to our goodwill balances by segment during the period ended June 30, 2021.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Truckload | | Logistics | | Other | | Total |
| Balance at December 31, 2020 | | $ | 103.6 | | | $ | 14.2 | | | $ | 10.3 | | | $ | 128.1 | |
| | | | | | | | |
| Foreign currency translation gain | | 0 | | | 0 | | | 0.2 | | | 0.2 | |
| Balance at June 30, 2021 | | $ | 103.6 | | | $ | 14.2 | | | $ | 10.5 | | | $ | 128.3 | |
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Truckload | | Logistics | | Total |
| Balance at December 31, 2021 | | $ | 226.3 | | | $ | 14.2 | | | $ | 240.5 | |
| Acquisition (see Note 2) | | 7.7 | | | — | | | 7.7 | |
| Acquisition adjustments (see Note 2) | | (15.0) | | | — | | | (15.0) | |
| | | | | | |
| Balance at June 30, 2022 | | $ | 219.0 | | | $ | 14.2 | | | $ | 233.2 | |
During the three months ended June 30, 2022, we recorded goodwill in conjunction with the acquisition of deBoer, and during the three and six months ended June 30, 2022, we made measurement period adjustments related to the acquisition of MLS, both of which were recorded within the Truckload segment. Refer to Note 2, Acquisitions, for further details.
At June 30, 20212022 and December 31, 2020,2021, we had accumulated goodwill impairment charges of $42.6 million.$53.2 million, which consisted of $34.6 million and $18.6 million in our Truckload segment and Other, respectively.
The identifiable finite lived intangible assets other than goodwill listed below are included in internal use software and other noncurrent assets on the consolidated balance sheets and relate to the acquisition of MLS. Our customer relationships and trademarks are amortized over a weighted-average amortization period of ten years. Refer to Note 2, Acquisitions, for further details.
| | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| (in millions) | | Gross
Carrying
Amount | | Accumulated Amortization | | Net
Carrying
Amount |
| Customer relationships | | $ | 3.2 | | | $ | 0.2 | | | $ | 3.0 | |
| Trademarks | | 6.8 | | | 0.3 | | | 6.5 | |
| Total intangible assets | | $ | 10.0 | | | $ | 0.5 | | | $ | 9.5 | |
Amortization expense for intangible assets was $0.5 million for the three and six months ended June 30, 2022.
Estimated future amortization expense related to intangible assets is as follows:
| | | | | | | | |
| (in millions) | | |
| Remaining 2022 | | $ | 0.5 | |
| 2023 | | 1.0 | |
| 2024 | | 1.0 | |
| 2025 | | 1.0 | |
| 2026 | | 1.0 | |
| 2027 and thereafter | | 5.0 | |
| Total | | $ | 9.5 | |
7.8. DEBT AND CREDIT FACILITIES
As of June 30, 20212022 and December 31, 2020,2021, debt included the following:
| | (in millions) | (in millions) | | June 30, 2021 | | December 31, 2020 | (in millions) | | June 30, 2022 | | December 31, 2021 |
| Unsecured senior notes: principal maturities ranging from 2021 through 2025; interest payable in semiannual installments through the same timeframe; weighted average interest rate of 3.61% and 3.64% for 2021 and 2020, respectively | | $ | 305.0 | | | $ | 305.0 | | |
| Unsecured senior notes: principal maturities ranging from 2023 through 2025; interest payable in semiannual installments through the same timeframe; weighted average interest rate of 3.91% and 3.61% for 2022 and 2021, respectively | | Unsecured senior notes: principal maturities ranging from 2023 through 2025; interest payable in semiannual installments through the same timeframe; weighted average interest rate of 3.91% and 3.61% for 2022 and 2021, respectively | | $ | 205.0 | | | $ | 265.0 | |
| | Current maturities | Current maturities | | (100.0) | | | (40.0) | | Current maturities | | — | | | (60.0) | |
| Debt issuance costs | | (0.1) | | | (0.2) | | |
| | Long-term debt | Long-term debt | | $ | 204.9 | | | $ | 264.8 | | Long-term debt | | $ | 205.0 | | | $ | 205.0 | |
Our Credit Agreement (the “2018 Credit Facility”) provides borrowing capacity of $250.0 million and allows us to request an increase in total commitment up to $150.0 million, for a total potential commitment of $400.0 million through August 2023. The agreement also provides a sublimit of $100.0 million to be used for the issuance of letters of credit. We had 0no outstanding borrowings under this agreement as of June 30, 20212022 or December 31, 2020.2021. Standby letters of credit under this agreement amounted to $3.9 million at June 30, 20212022 and December 31, 20202021 and were primarily related to the requirements of certain of our real estate leases.
WeWe also have a Receivables Purchase Agreement (the “2018“2021 Receivables Purchase Agreement”) that, which allows us to borrow funds against qualifying trade receivables at rates based on one-month LIBOR up to $200.0$150.0 million and provides for the issuance of standby letters of credit through September 2021.July 2024. We had 0no outstanding borrowings under this facility at June 30, 20212022 or December 31, 2020.2021. At June 30, 20212022 and December 31, 2020,2021, standby letters of credit under this agreement amounted to $73.3 million and $70.3 million, respectively, and were primarily related to the requirements of certain of our insurance obligations. The Company plans to renew the 2018 Receivables Purchase Agreement prior to its expiration date.
8.9. INCOME TAXES
Our effective income tax rate was 25.4%24.8% and 25.8%25.4% for the three months ended June 30, 20212022 and 2020,2021, respectively, and 25.2%25.1% and 25.4%25.2% for the six months ended June 30, 20212022 and 2020,2021, respectively. In determining the quarterly provision for income taxes, we use an estimated annual effective tax rate adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, and best estimates of nontaxable and nondeductible items of income and expense.
On March 27, 2020, President Trump signed the CARES Act into U.S. federal law aimed at providing emergency assistance and health care for individuals, families, and businesses affected by COVID-19 and generally supporting the U.S. economy. The CARES Act included a provision for the deferment of the employer portion of social security taxes through December 31, 2020, among other things, of which the Company took advantage. We anticipate paying the deferred employer social security taxes in 2021 which were $30.7 million at both June 30, 2021 and December 31, 2020.
On December 27, 2020, the Consolidated Appropriations Act 2021 was signed into law which includes certain business tax provisions. The Company does not expect this act to have a material impact on our effective tax rate or income tax expense for the year ended December 31, 2021.items.
9.10. COMMON EQUITY
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2022 and 2021, and 2020.respectively.
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions, except per share data) | (in millions, except per share data) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions, except per share data) | | 2022 | | 2021 | | 2022 | | 2021 |
| Numerator: | Numerator: | | | | | | | | | Numerator: | | | | | | | | |
| Net income available to common shareholders | Net income available to common shareholders | | $ | 106.5 | | | $ | 46.5 | | | $ | 161.3 | | | $ | 90.3 | | Net income available to common shareholders | | $ | 129.8 | | | $ | 106.5 | | | $ | 221.9 | | | $ | 161.3 | |
| | Denominator: | Denominator: | | Denominator: | |
| Weighted average common shares outstanding | Weighted average common shares outstanding | | 177.6 | | | 177.2 | | | 177.5 | | | 177.2 | | Weighted average common shares outstanding | | 178.0 | | | 177.6 | | | 177.8 | | | 177.5 | |
| Dilutive effect of share-based awards and options outstanding | Dilutive effect of share-based awards and options outstanding | | 0.3 | | | 0.2 | | | 0.3 | | | 0.2 | | Dilutive effect of share-based awards and options outstanding | | 0.5 | | | 0.3 | | | 0.7 | | | 0.3 | |
Weighted average diluted common shares outstanding (1) | Weighted average diluted common shares outstanding (1) | | 177.9 | | | 177.5 | | | 177.8 | | | 177.4 | | Weighted average diluted common shares outstanding (1) | | 178.5 | | | 177.9 | | | 178.5 | | | 177.8 | |
| | Basic earnings per common share | Basic earnings per common share | | $ | 0.60 | | | $ | 0.26 | | | $ | 0.91 | | | $ | 0.51 | | Basic earnings per common share | | $ | 0.73 | | | $ | 0.60 | | | $ | 1.25 | | | $ | 0.91 | |
| Diluted earnings per common share | Diluted earnings per common share | | 0.60 | | | 0.26 | | | 0.91 | | | 0.51 | | Diluted earnings per common share | | 0.73 | | | 0.60 | | | 1.24 | | | 0.91 | |
(1)Weighted average diluted common shares outstanding may not sum due to rounding.
The calculation of diluted earnings per share excluded 0.6 million share-based awards and options that had an anti-dilutive effect for the three and six months ended June 30, 2022 and 0.6 million share-based awards and options that had an anti-dilutive effect for the three and six months ended June 30, 2021, and 2020 excluded an immaterial number of share-based awards and options that had an anti-dilutive effect.respectively.
Subsequent Event - Dividends Declared
In July of 2021,2022, the Board of Directors declared a quarterly cash dividend for the third fiscal quarter of 20212022 in the amount of $0.07$0.08 per share to holders of our Class A and Class B common stock. The dividend is payable to shareholders of record at the close of business on September 10, 20219, 2022 and will be paid on October 8, 2021.10, 2022.
10.11. SHARE-BASED COMPENSATION
We grant various equity-based awards relating to Class B common stock to employees under our 2017 Omnibus Incentive Plan (“the Plan”). These awards consisthave historically consisted of restricted shares, restricted stock units (“RSUs”), performance-based restricted shares (“performance shares”), performance-based restricted stock units (“PSUs”), and non-qualified stock options. Performance shares and PSUs granted prior to 2021 are earned based on attainment of threshold performance of earnings and return on capital targets. Beginning with grants in 2021, in addition to achievement of earnings and return on capital targets, a multiplier will beis applied to performance share and PSU achievement based on relative total shareholder return (“rTSR”) against peers over the performance period.
Share-based compensation expense was $2.9$3.0 million and $0.8$2.9 million for the three months ended June 30, 20212022 and 2020,2021, respectively, and $7.1$8.1 million and $2.5$7.1 million for the six months ended June 30, 20212022 and 2020,2021, respectively. We recognize share-based compensation expense over the awards’ vesting period. As of June 30, 2021,2022, we had $25.2$29.6 million of pre-tax unrecognized compensation cost related to outstanding share-based compensation awards expected to be recognized over a weighted average period of 2.42.3 years.
11.12. COMMITMENTS AND CONTINGENCIES
In the ordinary course of conducting our business, we become involved in certain legal matters and investigations including liability claims, taxes other than income taxes, contract disputes, employment, and other litigation matters. We accrue for anticipated costs to resolve matters that are probable and estimable. We believe the outcomes of these matters will not have a material impact on our business or our consolidated financial statements.
We record liabilities for claims against the Company based on our best estimate of expected losses. The primary claims arising for the Company through its trucking, intermodal, and logistics operations consist of accident-related claims for personal injury, collision, and comprehensive compensation, in addition to workers’ compensation, property damage, cargo, and wage and benefit claims. We maintain excess liability insurance with licensed insurance carriers for liability in excess of amounts we self-insure, which serves to largely offset the Company’s liability associated with these claims, with the exception of wage and benefit claims for which we self-insure. We review our accruals periodically to ensure that the aggregate amounts of our accruals are appropriate at any period after consideration of available insurance coverage. Although we expect that our claims accruals will continue to vary based on future developments, assuming that we are able to continue to obtain and maintain excess liability insurance coverage for such claims, we do not anticipate that such accruals will, in any period, materially impact our results of operations.operating results.
At June 30, 2021,2022, our firm commitments to purchase transportation equipment totaled $415.2$417.2 million.
AIn March of 2022, the Company recorded a $5.2 million charge as a result of an adverse audit assessment by a state jurisdiction over the applicability of sales tax for prior periods on rolling stock equipment used within that state. The charge is included within operating supplies and expenses—net on the consolidated statements of comprehensive income for the six months ended June 30, 2022. The Company filed a request for appeal of the audit assessment with the state jurisdiction.
As previously disclosed, a representative of the former owners of WSL has filed a lawsuit in the Delaware Court of Chancery which primarily allegesalleging that we havedid not fulfilledfulfill certain obligations under the purchase and sale agreement related to the post-closing operations of the business, and as a result,claiming that the former owners claim they areof WSL were entitled to damages including an additional payment of $40.0 million under an earn-out arrangement which was a componentarrangement. On April 25, 2022, the Delaware Superior Court entered judgment in favor of the purchase priceformer owners of WSL, awarding $40.0 million in compensatory damages, plus prejudgment interest and the transaction. The Delaware Court of Chancery conducted a remote trial in January 2021. We believe that we have strong defenses to this claim. A judgment by the Court against us in this matter could have a material adverse effect on our results of operations.
In 2020,former owners’ attorneys’ fees, and the Company recorded $12.8an estimated total charge of $59.0 million in its results of expense and paid $13.7 millionoperations as a result of an adverse tax ruling in a disputeMarch 31, 2022. The Company has since settled with the IRS over the applicabilityformer owners of excise taxes on certain tractors refurbished during tax years 2011 through 2013 and no longer in service. In December 2020, the Company filed an appealWSL for a total of $57.0 million, which is currently pending withincluded within other current liabilities in the U.S. Courtconsolidated balance sheets as of AppealsJune 30, 2022. Other general expenses on the consolidated statements of comprehensive income for the Seventh Circuit.three and six months ended June 30, 2022 include a benefit of $2.0 million and expense of $57.0 million, respectively.
12.13. SEGMENT REPORTING
We have 3 reportable segments – Truckload, Intermodal, and Logistics – which are based primarily on the services each segment provides.
As of December 31, 2021, our operating segments within the Truckload reportable segment were VTL and Bulk. The operating results of MLS, a standalone operating segment, have been aggregated into the Truckload reportable segment as it shares similar economic characteristics with our other Truckload operating segments and meets the other aggregation criteria described
in ASC 280. As of June 7, 2022, the operating results of deBoer are also included within the Truckload reportable segment. VTL delivers truckload quantities over irregular routes and customer freight with dedicated contracts using dry van and specialty trailers. Bulk transports key inputs to manufacturing processes, such as specialty chemicals, using specialty trailers. MLS provides dedicated truckload services focusing primarily on freight with consistent routes.
The CODM reviews revenuerevenues for each segment without the inclusion of fuel surcharge revenue.revenues. For segment purposes, any fuel surcharge revenues earned are recorded as a reduction of the segment’s fuel expenses. Income from operations at the segment level reflects the measure presented to the CODM for each segment.
Separate balance sheets are not prepared by segment, and as a result, assets are not separately identifiable by segment. All transactions between reportable segments are eliminated in consolidation.
Substantially all of our revenues and assets were generated or located within the U.S.
The following tables summarize our segment information. Inter-segment revenues were immaterial for all segments, with the exception of Other, which included revenues from insurance premiums charged to other segments for workers’ compensation, auto, and other types of insurance. Inter-segment revenues included in Other revenues below were $12.1$14.9 million and $22.5$12.1 million for the three months ended June 30, 20212022 and 2020,2021, respectively, and $30.2$34.4 million and $47.2$30.2 million for the six months ended June 30, 20212022, and 2020,2021 respectively.
| | Revenues by Segment | Revenues by Segment | | Three Months Ended
June 30, | | Six Months Ended
June 30, | Revenues by Segment | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Truckload | Truckload | | $ | 475.2 | | | $ | 451.1 | | | $ | 926.9 | | | $ | 920.5 | | Truckload | | $ | 571.6 | | | $ | 475.2 | | | $ | 1,120.0 | | | $ | 926.9 | |
| Intermodal | Intermodal | | 274.0 | | | 219.0 | | | 529.8 | | | 457.0 | | Intermodal | | 335.1 | | | 274.0 | | | 637.2 | | | 529.8 | |
| Logistics | Logistics | | 430.7 | | | 230.9 | | | 786.6 | | | 470.5 | | Logistics | | 521.3 | | | 430.7 | | | 1,067.0 | | | 786.6 | |
| Other | Other | | 88.5 | | | 89.8 | | | 186.9 | | | 189.2 | | Other | | 91.6 | | | 88.5 | | | 176.9 | | | 186.9 | |
| Fuel surcharge | Fuel surcharge | | 110.2 | | | 68.7 | | | 200.4 | | | 171.7 | | Fuel surcharge | | 249.0 | | | 110.2 | | | 415.0 | | | 200.4 | |
| Inter-segment eliminations | Inter-segment eliminations | | (17.8) | | | (26.7) | | | (41.2) | | | (57.0) | | Inter-segment eliminations | | (21.7) | | | (17.8) | | | (48.7) | | | (41.2) | |
| Operating revenues | Operating revenues | | $ | 1,360.8 | | | $ | 1,032.8 | | | $ | 2,589.4 | | | $ | 2,151.9 | | Operating revenues | | $ | 1,746.9 | | | $ | 1,360.8 | | | $ | 3,367.4 | | | $ | 2,589.4 | |
| | Income from Operations by Segment | | Three Months Ended
June 30, | | Six Months Ended
June 30, | |
| Income (Loss) from Operations by Segment | | Income (Loss) from Operations by Segment | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Truckload | Truckload | | $ | 73.6 | | | $ | 40.5 | | | $ | 111.9 | | | $ | 77.1 | | Truckload | | $ | 80.7 | | | $ | 73.6 | | | $ | 200.1 | | | $ | 111.9 | |
| Intermodal | Intermodal | | 34.9 | | | 11.0 | | | 54.9 | | | 27.3 | | Intermodal | | 42.3 | | | 34.9 | | | 81.2 | | | 54.9 | |
| Logistics | Logistics | | 17.0 | | | 8.2 | | | 32.9 | | | 12.4 | | Logistics | | 47.3 | | | 17.0 | | | 89.2 | | | 32.9 | |
| Other | Other | | 0.3 | | | 3.7 | | | 2.3 | | | 1.5 | | Other | | 6.3 | | | 0.3 | | | (58.8) | | | 2.3 | |
| Income from operations | Income from operations | | $ | 125.8 | | | $ | 63.4 | | | $ | 202.0 | | | $ | 118.3 | | Income from operations | | $ | 176.6 | | | $ | 125.8 | | | $ | 311.7 | | | $ | 202.0 | |
| | Depreciation and Amortization by Segment | Depreciation and Amortization by Segment | | Three Months Ended
June 30, | | Six Months Ended
June 30, | Depreciation and Amortization by Segment | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Truckload | Truckload | | $ | 52.4 | | | $ | 52.5 | | | $ | 105.0 | | | $ | 103.5 | | Truckload | | $ | 63.7 | | | $ | 52.4 | | | $ | 120.8 | | | $ | 105.0 | |
| Intermodal | Intermodal | | 11.6 | | | 11.7 | | | 23.1 | | | 22.5 | | Intermodal | | 14.1 | | | 11.6 | | | 27.8 | | | 23.1 | |
| Logistics | Logistics | | 0.1 | | | 0 | | | 0.1 | | | 0 | | Logistics | | 0.1 | | | 0.1 | | | 0.1 | | | 0.1 | |
| Other | Other | | 9.1 | | | 8.1 | | | 18.1 | | | 16.1 | | Other | | 8.4 | | | 9.1 | | | 21.4 | | | 18.1 | |
| Depreciation and amortization | Depreciation and amortization | | $ | 73.2 | | | $ | 72.3 | | | $ | 146.3 | | | $ | 142.1 | | Depreciation and amortization | | $ | 86.3 | | | $ | 73.2 | | | $ | 170.1 | | | $ | 146.3 | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes and our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
INTRODUCTION
Company Overview
We are a transportation and logistics services company providing a broad portfolio of truckload, intermodal, and logistics solutions and operating one of the largest for-hire trucking fleets in North America. Our diversified portfolio of complementary service offerings combines truckload services with intermodal and logistics offerings, enablingenables us to serve the varied needs of our customers’ varied transportation needs. Our broad portfolio of servicescustomers and provides us with a greater opportunity to allocate capital in a manner designed to maximize returns across all market cycles and economic conditions. We continually monitor our performance and market conditions to ensure appropriate allocation of capital and resources to grow our businesses while optimizing returns across reportable segments. Our strong balance sheet, enables us to carry out an acquisition strategy that strengthens our overall portfolio. We are positioned to leverage our scalable platform, and experienced operations team to acquireare supportive of our acquisition strategy which includes acquiring high-quality businesses that meet our disciplined selection criteria to enhance our service offerings and broaden our customer base.
Our truckload services consist of freight transported and delivered by our company-employed drivers in company trucks and by owner-operators. These services are executed through either dedicatednetwork or networkdedicated contracts and include standard long-haul and regional shipping services primarily using dry van, bulk, temperature-controlled, and flat-bed equipment, as well as cross dock and customized solutions for high-value and time-sensitive loads with coverage throughout North America.
Our intermodal serviceservices consists of door-to-door container on flat car (“COFC”) service through a combination of rail and dray transportation, in association with our rail carrier partners.providers. Our intermodal servicebusiness uses company-owned containers, chassis, and trucks with primarily company dray drivers, augmented by third-party dray capacity.
Our logistics services consist of freight brokerage (including Power Only which leverages our nationwide trailer pools to match capacity with customer demand), supply chain (including 3PL), warehousing, and import/export services. Our logistics business provides value-added services using both our assets and third-party capacity, augmented by our trailing assets, to manage and move our customers’ freight.
Our success depends on our ability to balance our transportation network and efficiently and effectively manage our resources in the delivery of truckload, intermodal, and logistics services to our customers. Resource requirements vary with customer demand, which may be subject to seasonal or general economic conditions. We believe that our ability to properly select freight and adapt to changes in customer transportation needs allows us to efficiently deploy resources and make capital investments in trucks, trailers, containers, and chassis or obtain qualified third-party capacity at a reasonable price for our logistics segment. prices.
Consistent with the transportation industry, our business is seasonal across each of our segments, which generally translates to our reported revenues being the lowest in the first quarter and highest in the fourth quarter. Operating expenses tend to be higher in the winter months, primarily due to colder weather, which causes higher maintenance expense and higher fuel consumption from increased idle time.
Recent Developments
COVID-19Acquisitions
COVID-19 was declared a pandemic by the World Health Organization in March 2020. In response to the pandemic,On December 31, 2021, the Company has taken steps to mitigatecompleted the potential risks it poses.acquisition of MLS, a privately held truckload carrier based in Celina, OH. MLS is a dedicated carrier that primarily serves the central U.S. and complements our growing dedicated operations. In 2022, MLS financial results are reported in dedicated operations as part of our Truckload segment.
We have taken additional measuresOn June 7, 2022, the Company completed the acquisition of deBoer, which provided us the opportunity to keepexpand our associates safecompany driver capacity, as well as our tractor and minimize unnecessary risk of exposure to COVID-19 including taking precautions for our associatestrailer fleet primarily within dedicated and owner-operators, implementing work from home policies, and imposing travel limitations on employees where appropriate as we’ve continued to provide an essential service. Associates who worked remotely during the pandemic are being transitioned to a primarily on-premise work environment, and physical and cyber-security measures implemented to ensure our systems are capable of serving our operational needs and providing uninterrupted service to our customers remain in place.
Schneider continues to monitor the situation and will take further actions as may be required by federal, state, or local governmental authorities, or that we determine arePower Only operations. The Company is in the best interestsprocess of transitioning equipment and employees from deBoer to Schneider. Upon completion, deBoer operations will cease.
Refer to Note 2, Acquisitions, for additional details on our associates, customers, and shareholders.recent acquisitions.
Adverse Legal Judgment
On April 25, 2022, in connection with the litigation with the former owners of WSL, the Delaware Superior Court entered judgment in favor of the former owners, awarding $40.0 million in compensatory damages plus interest and attorneys’ fees, and the Company included an estimated total charge of $59.0 million in its results of operations as of March 31, 2022. In May of 2022, the parties re-evaluated their positions including the risks and benefits of a potential appeal of the Delaware Superior Court's judgment, and a final settlement was reached in the amount of $57.0 million. This final settlement has been recognized in our results of operations for the period ended June 30, 2022, and payment was made in July of 2022. Refer to Note 12, Commitments and Contingencies, for additional details.
RESULTS OF OPERATIONS
Non-GAAP Financial Measures
In this section of our report, we present the following non-GAAP financial measures: (1) revenues (excluding fuel surcharge), (2) adjusted income from operations, (3) adjusted operating ratio, and (4) adjusted net income. We also provide reconciliations of these measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Management believes the use of each of these non-GAAP measures assists investors in understanding our business by (1) removing the impact of items from our operating results that, in our opinion, do not reflect our core operating performance, (2) providing investors with the same information our management uses internally to assess our core operating performance, and (3) presenting comparable financial results between periods. In addition, in the case of revenues (excluding fuel surcharge), we believe the measure is useful to investors because it isolates volume, price, and cost changes directly related to industry demand and the way we operate our business from the external factor of fluctuating fuel prices and the programs we have in place to manage fuel pricesuch fluctuations. Fuel-related costs and their impact on our industry are important to our results of operations, but they are often independent of other, more relevant factors affecting our results of operations and our industry.
Although we believe these non-GAAP measures are useful to investors, they have limitations as analytical tools and may not be comparable to similar measures disclosed by other companies. You should not consider the non-GAAP measures in this report in isolation or as substitutes for, or alternatives to, analysis of our results as reported under GAAP. The exclusion of unusual or infrequent items or other adjustments reflected in the non-GAAP measures should not be construed as an inference that our future results will not be affected by unusual or infrequent items or by other items similar to such adjustments. Our management compensates for these limitations by relying primarily on our GAAP results in addition to using the non-GAAP measures.
Enterprise Summary
The following table includes key GAAP and non-GAAP financial measures for the consolidated enterprise. Adjustments to arrive at non-GAAP measures are made at the enterprise level, with the exception of fuel surcharge revenues, which are not included in segment revenues.
| | | | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions, except ratios) | (in millions, except ratios) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions, except ratios) | | 2022 | | 2021 | | 2022 | | 2021 |
| Operating revenues | Operating revenues | | $ | 1,360.8 | | | $ | 1,032.8 | | | $ | 2,589.4 | | | $ | 2,151.9 | | Operating revenues | | $ | 1,746.9 | | | $ | 1,360.8 | | | $ | 3,367.4 | | | $ | 2,589.4 | |
Revenues (excluding fuel surcharge) (1) | Revenues (excluding fuel surcharge) (1) | | 1,250.6 | | | 964.1 | | | 2,389.0 | | | 1,980.2 | | Revenues (excluding fuel surcharge) (1) | | 1,497.9 | | | 1,250.6 | | | 2,952.4 | | | 2,389.0 | |
| Income from operations | Income from operations | | 125.8 | | | 63.4 | | | 202.0 | | | 118.3 | | Income from operations | | 176.6 | | | 125.8 | | | 311.7 | | | 202.0 | |
Adjusted income from operations (2) | Adjusted income from operations (2) | | 125.8 | | | 63.6 | | | 202.0 | | | 117.3 | | Adjusted income from operations (2) | | 174.8 | | | 125.8 | | | 323.2 | | | 202.0 | |
| Operating ratio | Operating ratio | | 90.8 | % | | 93.9 | % | | 92.2 | % | | 94.5 | % | Operating ratio | | 89.9 | % | | 90.8 | % | | 90.7 | % | | 92.2 | % |
Adjusted operating ratio (3) | Adjusted operating ratio (3) | | 89.9 | % | | 93.4 | % | | 91.5 | % | | 94.1 | % | Adjusted operating ratio (3) | | 88.3 | % | | 89.9 | % | | 89.1 | % | | 91.5 | % |
| Net income | Net income | | $ | 106.5 | | | $ | 46.5 | | | $ | 161.3 | | | $ | 90.3 | | Net income | | $ | 129.8 | | | $ | 106.5 | | | $ | 221.9 | | | $ | 161.3 | |
Adjusted net income (4) | Adjusted net income (4) | | 106.5 | | | 46.7 | | | 161.3 | | | 89.6 | | Adjusted net income (4) | | 128.4 | | | 106.5 | | | 230.5 | | | 161.3 | |
(1)We define “revenues (excluding fuel surcharge)” as operating revenues less fuel surcharge revenues, which are excluded from revenues at the segment level. Included below is a reconciliation of operating revenues, the most closely comparable GAAP financial measure, to revenues (excluding fuel surcharge).
(2)We define “adjusted income from operations” as income from operations, adjusted to exclude material items that do not reflect our core operating performance. Included below is a reconciliation of income from operations, which is the most
directly comparable GAAP measure, to adjusted income from operations. Excluded items for the periods shown are explained in the table and notes below.
(3)We define “adjusted operating ratio” as operating expenses, adjusted to exclude material items that do not reflect our core operating performance, divided by revenues (excluding fuel surcharge). Included below is a reconciliation of operating ratio, which is the most directly comparable GAAP measure, to adjusted operating ratio. Excluded items for the periods shown are explained below under our explanation of “adjusted income from operations.”
(4)We define “adjusted net income” as net income, adjusted to exclude material items that do not reflect our core operating performance. Included below is a reconciliation of net income, which is the most directly comparable GAAP measure, to adjusted net income. Excluded items for the periods shown are explained below under our explanation of “adjusted income from operations.”
Revenues (excluding fuel surcharge)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Operating revenues | | $ | 1,746.9 | | | $ | 1,360.8 | | | $ | 3,367.4 | | | $ | 2,589.4 | |
| Less: Fuel surcharge revenues | | 249.0 | | | 110.2 | | | 415.0 | | | 200.4 | |
| Revenues (excluding fuel surcharge) | | $ | 1,497.9 | | | $ | 1,250.6 | | | $ | 2,952.4 | | | $ | 2,389.0 | |
Adjusted income from operations
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Income from operations | | $ | 176.6 | | | $ | 125.8 | | | $ | 311.7 | | | $ | 202.0 | |
Litigation and audit assessments (1) (2) | | (2.0) | | | — | | | 62.2 | | | — | |
Acquisition-related costs (3) | | 0.2 | | | — | | | 0.2 | | | — | |
| | | | | | | | |
| | | | | | | | |
Property gain—net (4) | | — | | | — | | | (50.9) | | | — | |
| Adjusted income from operations | | $ | 174.8 | | | $ | 125.8 | | | $ | 323.2 | | | $ | 202.0 | |
(1)Includes $5.2 million in charges related to an adverse audit assessment for prior period state sales tax on rolling stock equipment used within that state for the six months ended June 30, 2022. There were no similar charges for the three months ended June 30, 2022.
(2)Includes a benefit of $2.0 million and a charge of $57.0 million for an adverse settlement related to a lawsuit with former owners of WSL, inclusive of prejudgment interest and the former owners’ attorneys’ fees, for the three and six months ended June 30, 2022, respectively. Refer to Note 12, Commitments and Contingencies, for additional details.
(3)Advisory, legal, and accounting costs related to the acquisition of deBoer. Refer to Note 2, Acquisitions, for additional details.
(4)Net gain on the sale of our Canadian facility due to a change in approach to servicing Canada.
Revenues (excluding fuel surcharge)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| Operating revenues | | $ | 1,360.8 | | | $ | 1,032.8 | | | $ | 2,589.4 | | | $ | 2,151.9 | |
| Less: Fuel surcharge revenues | | 110.2 | | | 68.7 | | | 200.4 | | | 171.7 | |
| Revenues (excluding fuel surcharge) | | $ | 1,250.6 | | | $ | 964.1 | | | $ | 2,389.0 | | | $ | 1,980.2 | |
Adjusted income from operations
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| Income from operations | | $ | 125.8 | | | $ | 63.4 | | | $ | 202.0 | | | $ | 118.3 | |
| | | | | | | | |
| | | | | | | | |
Restructuring—net (1) | | — | | | 0.2 | | | — | | | (1.0) | |
| Adjusted income from operations | | $ | 125.8 | | | $ | 63.6 | | | $ | 202.0 | | | $ | 117.3 | |
(1)Activity associated with the shutdown of the FTFM service offering.
Adjusted operating ratio
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions, except ratios) | (in millions, except ratios) | | 2021 | | 2020 | | 2021 | | 2020 | | (in millions, except ratios) | | 2022 | | 2021 | | 2022 | | 2021 |
| Total operating expenses | Total operating expenses | | $ | 1,235.0 | | | $ | 969.4 | | | $ | 2,387.4 | | | $ | 2,033.6 | | | Total operating expenses | | $ | 1,570.3 | | | $ | 1,235.0 | | | $ | 3,055.7 | | | $ | 2,387.4 | |
| Divide by: Operating revenues | Divide by: Operating revenues | | 1,360.8 | | | 1,032.8 | | | 2,589.4 | | | 2,151.9 | | | Divide by: Operating revenues | | 1,746.9 | | | 1,360.8 | | | 3,367.4 | | | 2,589.4 | |
| Operating ratio | Operating ratio | | 90.8 | % | | 93.9 | % | | 92.2 | % | | 94.5 | % | | Operating ratio | | 89.9 | % | | 90.8 | % | | 90.7 | % | | 92.2 | % |
| | Total operating expenses | Total operating expenses | | $ | 1,235.0 | | | $ | 969.4 | | | $ | 2,387.4 | | | $ | 2,033.6 | | | Total operating expenses | | $ | 1,570.3 | | | $ | 1,235.0 | | | $ | 3,055.7 | | | $ | 2,387.4 | |
| Adjusted for: | Adjusted for: | | | Adjusted for: | |
| Fuel surcharge revenues | Fuel surcharge revenues | | (110.2) | | | (68.7) | | | (200.4) | | | (171.7) | | | Fuel surcharge revenues | | (249.0) | | | (110.2) | | | (415.0) | | | (200.4) | |
| Litigation and audit assessments | | Litigation and audit assessments | | 2.0 | | | — | | | (62.2) | | | — | |
| Acquisition-related costs | | Acquisition-related costs | | (0.2) | | | — | | | (0.2) | | | — | |
| | Restructuring—net | | — | | | (0.2) | | | — | | | 1.0 | | | |
| Property gain—net | | Property gain—net | | — | | | — | | | 50.9 | | | — | |
| Adjusted total operating expenses | Adjusted total operating expenses | | $ | 1,124.8 | | | $ | 900.5 | | | $ | 2,187.0 | | | $ | 1,862.9 | | | Adjusted total operating expenses | | $ | 1,323.1 | | | $ | 1,124.8 | | | $ | 2,629.2 | | | $ | 2,187.0 | |
| | Operating revenues | Operating revenues | | $ | 1,360.8 | | | $ | 1,032.8 | | | $ | 2,589.4 | | | $ | 2,151.9 | | | Operating revenues | | $ | 1,746.9 | | | $ | 1,360.8 | | | $ | 3,367.4 | | | $ | 2,589.4 | |
| Less: Fuel surcharge revenues | Less: Fuel surcharge revenues | | 110.2 | | | 68.7 | | | 200.4 | | | 171.7 | | | Less: Fuel surcharge revenues | | 249.0 | | | 110.2 | | | 415.0 | | | 200.4 | |
| Revenues (excluding fuel surcharge) | Revenues (excluding fuel surcharge) | | $ | 1,250.6 | | | $ | 964.1 | | | $ | 2,389.0 | | | $ | 1,980.2 | | | Revenues (excluding fuel surcharge) | | $ | 1,497.9 | | | $ | 1,250.6 | | | $ | 2,952.4 | | | $ | 2,389.0 | |
| | Adjusted operating ratio | Adjusted operating ratio | | 89.9 | % | | 93.4 | % | | 91.5 | % | | 94.1 | % | | Adjusted operating ratio | | 88.3 | % | | 89.9 | % | | 89.1 | % | | 91.5 | % |
Adjusted net income
| | | | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net income | Net income | | $ | 106.5 | | | $ | 46.5 | | | $ | 161.3 | | | $ | 90.3 | | Net income | | $ | 129.8 | | | $ | 106.5 | | | $ | 221.9 | | | $ | 161.3 | |
| Litigation and audit assessments | | Litigation and audit assessments | | (2.0) | | | — | | | 62.2 | | | — | |
| Acquisition-related costs | | Acquisition-related costs | | 0.2 | | | — | | | 0.2 | | | — | |
| | Restructuring—net | | — | | | 0.2 | | | — | | | (1.0) | | |
| | Property gain—net | | Property gain—net | | — | | | — | | | (50.9) | | | — | |
Income tax effect of non-GAAP adjustments (1) | Income tax effect of non-GAAP adjustments (1) | | — | | | — | | | — | | | 0.3 | | Income tax effect of non-GAAP adjustments (1) | | 0.4 | | | — | | | (2.9) | | | — | |
| Adjusted net income | Adjusted net income | | $ | 106.5 | | | $ | 46.7 | | | $ | 161.3 | | | $ | 89.6 | | Adjusted net income | | $ | 128.4 | | | $ | 106.5 | | | $ | 230.5 | | | $ | 161.3 | |
(1)Our estimated tax rate on non-GAAP items is determined annually using the applicable consolidated federal and state effective tax rate, modified to remove the impact of tax credits and adjustments that are not applicable to the specific items. Due to differences in the tax treatment of items excluded from non-GAAP income, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP items may differ from our GAAP tax rate and from our actual tax liabilities.
Three Months Ended June 30, 20212022 Compared to Three Months Ended June 30, 20202021
Enterprise Results Summary
Enterprise net income increased $60.0$23.3 million, approximately 129%22%, in the second quarter of 20212022 compared to the same quarter in 2020,2021, primarily due to a $62.4$50.8 million increase in income from operations, partially offset by the corresponding increase in income taxes. In addition, the second quarterthree months ended June 30, 2022 included a pre-tax equity investment loss of 2021 included$1.8 million compared to a $20.2 million pre-tax gain on our ownership interest in TuSimple compared to a $2.7 million pre-tax gain on our ownership interest in PSI induring the second quarter of 2020.three months ended June 30, 2021.
Adjusted net income increased $59.8$21.9 million, approximately 128%21%.
Components of Enterprise Net Income
Enterprise Revenues
Enterprise operating revenues increased $328.0$386.1 million, approximately 32%28%, in the second quarter of 20212022 compared to the same quarter in 2020.2021.
Factors contributing to the increase were as follows:
•a $199.8 million increase in Logistics segment revenues (excluding fuel surcharge) due to an increase in revenue per order and volume growth;
•a $55.0 million increase in Intermodal segment revenues (excluding fuel surcharge) due to an improvement in revenue per order and an increase in orders despite network fluidity constraints;
•a $41.5$138.8 million increase in fuel surcharge revenues resulting from an increase inincreased fuel prices in the second quarter of 20212022 compared to the same quarter in 2020 (for example, based on information reported by2021, as well as fuel surcharge revenues from the U.S. Departmentacquisition of Energy, the average diesel price per gallon in the U.S. increased by 31% between such periods) and an increase in Intermodal volumes, partially offset by a decrease in Truckload volumes; andMLS;
•a $24.1$96.4 million increase in Truckload segment revenues (excluding fuel surcharge) resulting from improved revenue per truck per week, the addition of revenues (excluding fuel surcharge) from the acquisition of MLS, and incremental dedicated volumes, partially offset by lower network volumes due to driver capacity constraints.constraints and reduced network productivity;
•a $90.6 million increase in Logistics segment revenues (excluding fuel surcharge) driven by increased revenue per order, volume growth within our brokerage business (including our Power Only offering), and incremental port dray revenues largely resulting from continued port congestion and supply chain constraints; and
•a $61.1 million increase in Intermodal segment revenues (excluding fuel surcharge) due to improvement in revenue per order and an increase in orders despite continued network fluidity challenges.
Enterprise revenues (excluding fuel surcharge) increased $286.5$247.3 million, approximately 30%20%.
Enterprise Income from Operations and Operating Ratio
Enterprise income from operations increased $62.4$50.8 million, approximately 98%40%, in the second quarter of 20212022 compared to the same quarter in 2020,2021, primarily due to an increase in net revenue per order in Logistics, revenue per truck per week in Truckload, and revenue per order in Intermodal; as well as favorability in equipment dispositions and insurance costs. Increases in revenue per truck per week in Truckload, and revenue per order in Intermodal, resulted from favorable 2021and net revenue per order in Logistics driven by strong freight market conditions comparedand effective network and revenue management. Our dedicated Truckload volumes grew due to the unfavorable impactsacquisition of COVID-19MLS and new business start-ups, while our brokerage business experienced a 12% increase in order volume driven by leveraging our Schneider FreightPower® digital platform and the prior year.continued expansion of our Power Only offering. The above factors were partially offset by an increase in driverdriver-related costs resulting from costs incurred to attract and a reductionretain drivers and an increase in Truckload freight volumes due to driver capacity constraints.company drivers, higher rail purchased transportation costs within Intermodal, and fewer equipment sales resulting in lower gains.
Adjusted income from operations increased $62.2$49.0 million, approximately 98%39%.
Enterprise operating ratio improved on both a GAAP and adjusted basis when compared to the second quarter of 2020.2021. Among other factors, our operating ratio can be negatively impacted by changes in portfolio mix when our higher operating ratio, less asset-focused Logistics segment grows faster than our lower operating ratio, capital-intensive Truckload segment.
Enterprise Operating Expenses
Key operating expense fluctuations are described below.
•Purchased transportation increased $212.5$129.3 million, or 49%20%, quarter over quarter, primarily due to increasedresulting from higher rail purchased transportation and third party carrier costs withindriven by increases in Intermodal rail cost per mile and Logistics attributable to higher purchased transportation per order and volume growth, and, within Intermodal, higher rail purchased transportation resulting from an increase in both rail orders and costs.respectively.
•Salaries, wages, and benefits increased $27.8$65.3 million, or 11%24%, quarter over quarter, primarilylargely due to an increase in Logistics salaries and wages,higher driver pay within Truckload and performance-based incentive compensation. The increase in Logistics salaries and wages was primarily due to an increase in sales commissions and headcount, while the increase in driver pay was largely the result ofIntermodal resulting from pay increases and actions to mitigateaddress driver capacity constraints.
•Fuel and fuel taxes for company trucks increased $27.9$77.3 million, or 66%110%, quarter over quarter, driven primarily by an increase in cost per gallon.gallon, as well as additional fuel expense recorded related to the acquisition of MLS. A significant portion of fuel costs are recovered through our fuel surcharge programs.
•Depreciation and amortization increased $13.1 million, or 18%, quarter over quarter, mainly due to the acquisition of MLS, which accounted for approximately half of the increase. The remaining increase was driven by additional depreciation expense incurred as a result of truck and container growth within Truckload and Intermodal, respectively.
•Operating supplies and expenses decreased $1.9expenses—net increased $35.6 million, or 2%30%, quarter over quarter, largely due to a resultdecrease in gains on sales of a $15.1 million favorable change inproperty and equipment dispositions driven by a strong useddue to fewer equipment market and the strength of our nationwide maintenance network in facilitating equipment sales. Favorability in equipment dispositions was partially offset bygains, an increase in equipment rental expense due to port congestion and higher customer dwell time, higher maintenance costs due to inflationary cost of goods sold as a result of increased lease activity by our leasing business,pressures, and additional rail storage expenses caused by network fluidity constraints.challenges and increased container count. These factors were partially offset by lower cost of goods sold in our leasing business due to a reduction in lease activity.
•Insurance and related expenses decreased $11.3increased $8.1 million, or 40%48%, quarter over quarter, primarily due to favorabilityunfavorability in auto liability resulting from a decreaserelating to favorable claims frequency and severity in the prior year. The remaining increase can be attributed to increased claims severityfrequency in the current year and frequency.insurance premium costs for MLS.
•Other general expenses increased $9.9$6.6 million, or 44%20%, quarter over quarter, primarily due to higher driver onboarding costs resulting from aincreased costs to attract and retain drivers due to constrained driver pool compared to favorable driver turnoverindustry-wide capacity levels and the hiring of additional company drivers in 2020 during the pandemic. The remaining increase was largely related to costs associated with software development and professional services.2022.
Total Other Expenses (Income)
Total other incomeexpenses increased $17.7$21.0 million, approximately 124%, in the second quarter of 20212022 compared to the same quarter in 2020, mainly resulting from2021. This change was driven by a $1.8 million pre-tax loss on our equity investments in the second quarter of 2022 compared to a $20.2 million pre-tax gain on our ownership interest in TuSimple in the second quarter of 2021 compared to a $2.7 million pre-tax gain on our ownership interest in PSI in the second quarter of 2020.2021. See Note 5,6, Investments, for more information on our investments in TuSimple and PSI.equity investments.
Income Tax Expense
Our provision for income taxes increased $20.1$6.5 million, approximately 124%18%, in the second quarter of 20212022 compared to the same quarter in 20202021, primarily due to higher taxable income. The effective income tax rate was 25.4%24.8% for the three months ended June 30, 20212022 compared to 25.8%25.4% for the same quarter last year. Our provision for income taxes may fluctuate in future periods to the extent there are changes to tax laws and regulations.
Revenues and Income from Operations by Segment
The following tables summarize revenues and income from operations by segment.
| | | Three Months Ended
June 30, | | Three Months Ended
June 30, |
Revenues by Segment (in millions) | Revenues by Segment (in millions) | | 2021 | | 2020 | Revenues by Segment (in millions) | | 2022 | | 2021 |
| Truckload | Truckload | | $ | 475.2 | | | $ | 451.1 | | Truckload | | $ | 571.6 | | | $ | 475.2 | |
| Intermodal | Intermodal | | 274.0 | | | 219.0 | | Intermodal | | 335.1 | | | 274.0 | |
| Logistics | Logistics | | 430.7 | | | 230.9 | | Logistics | | 521.3 | | | 430.7 | |
| Other | Other | | 88.5 | | | 89.8 | | Other | | 91.6 | | | 88.5 | |
| Fuel surcharge | Fuel surcharge | | 110.2 | | | 68.7 | | Fuel surcharge | | 249.0 | | | 110.2 | |
| Inter-segment eliminations | Inter-segment eliminations | | (17.8) | | | (26.7) | | Inter-segment eliminations | | (21.7) | | | (17.8) | |
| Operating revenues | Operating revenues | | $ | 1,360.8 | | | $ | 1,032.8 | | Operating revenues | | $ | 1,746.9 | | | $ | 1,360.8 | |
| | | Three Months Ended
June 30, | | Three Months Ended
June 30, |
Income from Operations by Segment (in millions) | Income from Operations by Segment (in millions) | | 2021 | | 2020 | Income from Operations by Segment (in millions) | | 2022 | | 2021 |
| Truckload | Truckload | | $ | 73.6 | | | $ | 40.5 | | Truckload | | $ | 80.7 | | | $ | 73.6 | |
| Intermodal | Intermodal | | 34.9 | | | 11.0 | | Intermodal | | 42.3 | | | 34.9 | |
| Logistics | Logistics | | 17.0 | | | 8.2 | | Logistics | | 47.3 | | | 17.0 | |
| Other | Other | | 0.3 | | | 3.7 | | Other | | 6.3 | | | 0.3 | |
| Income from operations | Income from operations | | 125.8 | | | 63.4 | | Income from operations | | 176.6 | | | 125.8 | |
| Adjustments: | Adjustments: | | Adjustments: | |
| Litigation and audit assessments | | Litigation and audit assessments | | (2.0) | | | — | |
| | Restructuring—net | | — | | | 0.2 | | |
| Acquisition-related costs | | Acquisition-related costs | | 0.2 | | | — | |
| | Adjusted income from operations | Adjusted income from operations | | $ | 125.8 | | | $ | 63.6 | | Adjusted income from operations | | $ | 174.8 | | | $ | 125.8 | |
We monitor and analyze a number of KPIs in order to manage our business and evaluate our financial and operating performance. Below are our KPIs by segment.
Truckload
The following table presents the KPIs for our Truckload segment KPIs for the periods indicated, consistent with how revenues and expenses are reported internally for segment purposes. Descriptions of the two operations that make up our Truckload segment are as follows:
•Dedicated - Transportation services with equipment devoted to customers under long-term contracts.
•Network - Transportation services of one-way shipments.
| | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, |
| | | 2021 | | 2020 |
| Dedicated | | | | |
Revenues (excluding fuel surcharge) (1) | | $ | 198.5 | | | $ | 172.2 | |
Average trucks (2) (3) | | 4,156 | | | 3,891 | |
Revenue per truck per week (4) | | $ | 3,719 | | | $ | 3,448 | |
| Network | | | | |
Revenues (excluding fuel surcharge) (1) | | $ | 276.8 | | | $ | 279.3 | |
Average trucks (2) (3) | | 5,131 | | | 6,350 | |
Revenue per truck per week (4) | | $ | 4,201 | | | $ | 3,426 | |
| Total Truckload | | | | |
Revenues (excluding fuel surcharge) (5) | | $ | 475.2 | | | $ | 451.1 | |
Average trucks (2) (3) | | 9,287 | | | 10,241 | |
Revenue per truck per week (4) | | $ | 3,985 | | | $ | 3,434 | |
Average company trucks (3) | | 6,930 | | | 7,366 | |
Average owner-operator trucks (3) | | 2,357 | | | 2,875 | |
Trailers (6) | | 36,519 | | | 36,141 | |
Operating ratio (7) | | 84.5 | % | | 91.0 | % |
Beginning in 2022, MLS impacts are included within dedicated operations below.
| | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, |
| | | 2022 | | 2021 |
| Dedicated | | | | |
Revenues (excluding fuel surcharge) (1) (8) | | $ | 305.3 | | | $ | 198.5 | |
Average trucks (2) (3) (8) | | 6,004 | | | 4,156 | |
Revenue per truck per week (4) (8) | | $ | 3,962 | | | $ | 3,719 | |
| Network | | | | |
Revenues (excluding fuel surcharge) (1) (8) | | $ | 264.6 | | | $ | 276.8 | |
Average trucks (2) (3) (8) | | 4,462 | | | 5,131 | |
Revenue per truck per week (4) (8) | | $ | 4,619 | | | $ | 4,201 | |
| Total Truckload | | | | |
Revenues (excluding fuel surcharge) (5) | | $ | 571.6 | | | $ | 475.2 | |
Average trucks (2) (3) (8) | | 10,466 | | | 9,287 | |
Revenue per truck per week (4) (8) | | $ | 4,242 | | | $ | 3,985 | |
Average company trucks (3) (8) | | 8,477 | | | 6,930 | |
Average owner-operator trucks (3) (8) | | 1,989 | | | 2,357 | |
Trailers (6) (8) | | 41,236 | | | 36,519 | |
Operating ratio (7) | | 85.9 | % | | 84.5 | % |
(1)Revenues (excluding fuel surcharge), in millions, exclude revenue in transit.
(2)Includes company and owner-operator trucks.
(3)Calculated based on beginning and end of month counts and represents the average number of trucks available to haul freight over the specified timeframe.
(4)Calculated excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes, using weighted workdays.
(5)Revenues (excluding fuel surcharge), in millions, include revenue in transit at the operating segment level and, therefore does not sum with amounts presented above.
(6)Includes entire fleet of owned trailers, including trailers with leasing arrangements between Truckload and Logistics.
(7)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
(8)Excludes the impact of our acquisition of deBoer on June 7, 2022.
Truckload revenues (excluding fuel surcharge) increased $24.1$96.4 million, approximately 5%20%, in the second quarter of 20212022 compared to the same quarter in 2020.2021. The increase was primarily due to an improvement in price, partially offset by an 8% decline in volume. Revenue per truck per week increased $551, or 16%, quarter over quarter, as athe result of a 16%22% increase in rate per loaded mile, driven by higher spotachieved in support of inflationary operating costs and contracted rates. Volumeongoing challenges with longer dwell times at customer locations, and a 7% increase in volume. Dedicated volumes grew due to the acquisition of MLS and new business start-ups, while network volumes decreased mainly due to continued driver capacity constraints within our network business, partially offset by growth within our dedicated business.constraints. Dedicated average trucks grew approximately 1,800 units quarter over quarter, to approximately 6,000, further supporting increased volumes. Network average trucks declined nearly 700 units, to approximately 4,500.
Truckload income from operations increased $33.1$7.1 million, approximately 82%10%, in the second quarter of 20212022 compared to the same quarter in 2020, primarily due2021. Factors contributing to spot market opportunitiesthe increase in income from operations include favorable pricing conditions and contract renewals, in addition to a $13.5 million favorable change in equipment dispositions and a reduction in auto liability costs.network management, as well as increased volume within dedicated bolstered by the acquisition of MLS. These items were partially offset by the earnings impact of reduced volume, noted above, andnetwork volumes, an increase in driver-related costs.
Intermodal
The following table presents the KPIs for our Intermodal segment for the periods indicated.
| | | | | Three Months Ended
June 30, | | | Three Months Ended
June 30, |
| | | | 2021 | | 2020 | | | 2022 | | 2021 |
Orders (1) | Orders (1) | | 113,894 | | | 98,362 | | Orders (1) | | 119,563 | | | 113,894 | |
| Containers | Containers | | 22,179 | | | 21,172 | | Containers | | 28,381 | | | 22,179 | |
Trucks (2) | Trucks (2) | | 1,729 | | | 1,508 | | Trucks (2) | | 1,590 | | | 1,729 | |
Revenue per order (3) | Revenue per order (3) | | $ | 2,399 | | | $ | 2,145 | | Revenue per order (3) | | $ | 2,788 | | | $ | 2,399 | |
Operating ratio (4) | Operating ratio (4) | | 87.3 | % | | 95.0 | % | Operating ratio (4) | | 87.4 | % | | 87.3 | % |
(1)Based on delivered rail orders.
(2)Includes company and owner-operator trucks at the end of the period.
(3)Calculated using rail revenues excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes.
(4)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Intermodal revenues (excluding fuel surcharge) increased $55.0$61.1 million, approximately 25%22%, in the second quarter of 20212022 compared to the same quarter in 2020. The increase was2021, primarily due to a $254,$389, or 12%16%, improvement in revenue per order and a 5% increase in orders. Intermodal also grew its container count by 6,202, or 28%, quarter over quarter, which helped drive the increase in order count despite continued fluidity challenges resulting mainly from favorable customer rate renewalssupply chain constraints. Strong market conditions favorably impacted revenue per order and premium opportunities,allowed for improvements in price, which were partially offset by growth in the East, which has a shorter length of haul. Also contributing to the increase in revenues was a 16% increase in orders driven by favorable market demand conditions, despite capacity constraints and supply chain inefficiencies.
Intermodal income from operations increased $23.9$7.4 million, approximately 21%, in the second quarter of 20212022 compared to the same quarter in 2020, driven by2021. This increase was mainly due to the factors affectingimpacting revenue discussed above, partially offset by higher rail andrail-related costs, as well as incremental driver-related costs mainly dueresulting largely from actions taken to network fluidityattract and capacity challenges.retain drivers.
Logistics
The following table presents the KPI for our Logistics segment for the periods indicated.
| | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, |
| | | 2021 | | 2020 |
Operating ratio (1) | | 96.1 | % | | 96.4 | % |
| | | | |
| | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, |
| | | 2022 | | 2021 |
Operating ratio (1) | | 90.9 | % | | 96.1 | % |
| | | | |
(1)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Logistics revenues (excluding fuel surcharge) increased $199.8$90.6 million, approximately 87%21%, in the second quarter of 20212022 compared to the same quarter in 2020,2021. This was primarily driven bydue to an increase in revenue per order and a 12% increase in volume growth of 23% within our brokerage business due to favorable market conditionsboth further leveraging our Schneider FreightPower® digital platform and continued expansion of our digital platform.Power Only offering, in addition to incremental port dray revenues.
Logistics income from operations increased $8.8$30.3 million, approximately 107%178%, in the second quarter of 20212022 compared to the same quarter in 2020. Net2021. Expanded net revenue per order improvements within our brokerage business, and thein addition to volume growth cited above within both brokerage and our port dray business, contributed to the increase in income from operations quarter over quarter.
Other
Other income from operations decreased $3.4 million, approximately 92%, in the second quarter of 2021 compared to the same quarter in 2020. The decrease was primarily driven by an increase in performance-based incentive compensation, partially offset by an increase in income from operations from our leasing business due to increased lease activity quarter over quarter.
Other
Other income from operations increased $6.0 million in the second quarter of 2022 compared to the same quarter in 2021. The increase was primarily driven by higher income from operations in our leasing business, in addition to a decrease in performance-based incentive compensation.
Six Months Ended June 30, 20212022 Compared to Six Months Ended June 30, 20202021
Enterprise Results Summary
Enterprise net income increased $71.0$60.6 million, approximately 79%38%, in the six months ended June 30, 20212022 compared to the same period in 2020,2021, primarily due to an $83.7a $109.7 million increase in income from operations, partially offset by the corresponding increase in income taxes. In addition, the six months ended June 30, 20212022 included a pre-tax equity investment loss of $10.1 million compared to a $20.2 million pre-tax gain on our ownership interest in TuSimple compared to an $8.8 million pre-tax gain on our ownership interest in PSI induring the six months ended June 30, 2020.2021.
Adjusted net income increased $71.7$69.2 million, approximately 80%43%.
Components of Enterprise Net Income
Enterprise Revenues
Enterprise operating revenues increased $437.5$778.0 million, approximately 20%30%, in the six months ended June 30, 20212022 compared to the same period in 2020.2021.
Factors contributing to the increase were as follows:
•a $316.1$280.4 million increase in Logistics segment revenues (excluding fuel surcharge) due to an increase indriven by increased revenue per order, volume growth within our brokerage business (including our Power Only offering), and volume growth;
•a $72.8 million increase in Intermodal segmentincremental port dray revenues (excluding fuel surcharge) due to an improvement in revenue per orderlargely resulting from continued port congestion and an increase in orders despite network fluiditysupply chain constraints;
•a $28.7$214.6 million increase in fuel surcharge revenues resulting from an increase inincreased fuel prices in the first half of 20212022 compared to the same period in 2020 (for example, based on information reported by2021, as well as fuel surcharge revenues from the U.S. Departmentacquisition of Energy, the average diesel price per gallon in the U.S. increased by 13% between such periods) and an increase in Intermodal volumes, partially offset by a decrease in Truckload volumes; andMLS;
•a $6.4$193.1 million increase in Truckload segment revenues (excluding fuel surcharge) resulting from improved revenue per truck per week, the addition of revenues (excluding fuel surcharge) from the acquisition of MLS, and increased dedicated volumes, partially offset by lower network volumes due to driver capacity constraints and first quarter weather conditions.reduced network productivity; and
•a $107.4 million increase in Intermodal segment revenues (excluding fuel surcharge) due to improvement in revenue per order and an increase in orders despite network fluidity constraints.
Enterprise revenues (excluding fuel surcharge) increased $408.8$563.4 million, approximately 21%24%.
Enterprise Income from Operations and Operating Ratio
Enterprise income from operations increased $83.7$109.7 million, approximately 71%54%, in the six months ended June 30, 20212022 compared to the same period in 2020,2021, primarily due to an increase in net revenue per order in Logistics, revenue per truck per week in Truckload, and revenue per order in Intermodal; as well as favorability in equipment dispositions and insurance costs. Increases in revenue per truck per week in Truckload, and revenue per order in Intermodal, resulted from favorable 2021and net revenue per order in Logistics driven by strong freight market conditions comparedand effective network and revenue management. A net gain on sale of $50.9 million in connection with the sale of our Canadian facility due to a change in approach to servicing Canada also contributed to the unfavorable impactsincrease. Our dedicated Truckload volumes grew with the acquisition of COVID-19MLS and new business start-ups, while our brokerage business experienced an 18% increase in order volume driven by leveraging our Schneider FreightPower® digital platform and the prior year.continued expansion of our Power Only offering. The above factors were partially offset by a $57.0 million adverse settlement related to a lawsuit with former owners of WSL, an increase in driverdriver-related costs resulting from costs incurred to attract and a reductionretain drivers and an increase in Truckload freight volumes due to driver capacity constraintscompany drivers, and first quarter weather conditions.higher rail purchased transportation costs within Intermodal.
Adjusted income from operations increased $84.7$121.2 million, approximately 72%60%.
Enterprise operating ratio improved on both a GAAP and adjusted basis when compared to the same period of 2020.2021. Among other factors, our operating ratio can be negatively impacted by changes in portfolio mix when our higher operating ratio, less asset-focused Logistics segment grows faster than our lower operating ratio, capital-intensive Truckload segment.
Enterprise Operating Expenses
Key operating expense fluctuations are described below.
•Purchased transportation costs increased $291.4$310.9 million, or 32%26%, period over period, primarily due toresulting from increased third party carrier costs within Logistics due to volume growth and higher purchased transportation costs per order and volume growth and, in Intermodal,within Logistics, as well as higher rail purchased transportation resulting from an increase in both rail costs and orders and costs. These items were partially offset by reduced owner-operator costs within Truckload primarily resulting from fewer owner-operators.in Intermodal.
•Salaries, wages, and benefits increased $30.5$135.7 million, or 6%25%, period over period, primarilylargely due to an increase in Logistics salaries and wages, performance-based incentive compensation, and driver pay. The increase in Logistics salaries and wages was primarily due to an increase in sales commissions and headcount, while the increase inhigher driver pay was largely the result ofwithin Truckload and Intermodal resulting from pay increases and actions to mitigateaddress driver capacity constraints.constraints and an increase in company drivers. The acquisition of MLS, an increase in headcount across the organization, and incremental healthcare costs contributed to the remaining increase period over period.
•Fuel and fuel taxes for company trucks increased $30.8$123.7 million, or 30%92%, period over period, driven primarily by an increase in cost per gallon.gallon and additional fuel expense recorded related to the acquisition of MLS. A significant portion of fuel costs are recovered through our fuel surcharge programs.
•Depreciation and amortization increased $4.2$23.8 million, or 3%16%, period over period, primarilymainly due to the acquisition of MLS, which accounted for approximately half of the increase. The remaining increase was driven by an increase in amortization related to capitalized software.additional depreciation expense incurred as a result of truck and container growth within Truckload and Intermodal, respectively.
•Operating supplies and expenses increased $2.2expenses—net decreased $11.0 million, or 1%4%, period over period, drivenlargely due to an increase in gains on sales of property and equipment primarily relating to the sale of the Company’s Canadian facility in the first quarter of 2022, offset by fewer equipment sales period over period. Lower cost of goods sold in our leasing business due to a reduction in lease activity also contributed to the decrease in operating supplies and expenses—net period over period. These factors were partially offset by an increase in equipment rental expense due to port congestion as well asand higher customer dwell time, higher maintenance costs due to inflationary cost pressures and the MLS acquisition, a $5.2 million increase in expense related to an adverse audit assessment over the applicability of state sales tax, and additional rail storage and maintenance expenses resulting fromcaused by network fluidity constraintschallenges and poor first quarter weather conditions. Higher cost of goods sold due to an increase in lease activity by our leasing business and immaterial increases in a variety of other operating-related areas also contributed to the increase in operating supplies and expenses period over period. These items were partially offset by favorability of $19.8 million in equipment dispositions due to a strong used equipment market and the strength of our nationwide maintenance network in facilitating equipment sales.increased container count.
•Insurance and related expenses decreased $16.1increased $10.1 million, or 28%24%, period over period, primarily due to favorabilityunfavorability in auto liability resulting from a decreaserelating to favorable claims frequency and severity in the prior year. The remaining increase can be attributed to increased claims severityfrequency in the current year and frequency.insurance premium costs for MLS.
•Other general expenses increased $9.8$75.1 million, or 19%122%, period over period, primarily due to an increase in costs associateda $57.0 million adverse settlement related to a lawsuit with software developmentformer owners of WSL and professional services. The remaining increase is attributable to higher driver onboarding costs resulting from aincreased costs to attract and retain drivers due to constrained driver pool compared to favorable driver turnoverindustry-wide capacity levels and the hiring of additional company drivers in 2020 during the pandemic.2022.
Total Other Expenses (Income)
Total other incomeexpenses increased $10.9$29.2 million, approximately 215%, in the six months ended June 30, 20212022 compared to the same period in 2020,2021, primarily fromdue to a $10.1 million pre-tax loss on our equity investments compared to a $20.2 million pre-tax gain on our ownership interestrecorded for the same period in TuSimple in the six months ended June 30, 2021 compared to an $8.8 million pre-tax gain on our ownership interest in PSI in the six months ended June 30, 2020.2021. See Note 5,6, Investments, for more information on our investments in TuSimple and PSI.equity investments.
Income Tax Expense
Our provision for income taxes increased $23.6$19.9 million, approximately 77%37%, in the six months ended June 30, 20212022 compared to the same period in 20202021 due to higher taxable income. The effective income tax rate was 25.2%25.1% for the six months ended June 30, 20212022 compared to 25.4%25.2% for the same period last year. Our provision for income taxes may fluctuate in future periods to the extent there are changes to tax laws and regulations.
Revenues and Income (Loss) from Operations by Segment
The following tables summarize revenuerevenues and income (loss) from operations by segment.
| | | Six Months Ended
June 30, | | Six Months Ended
June 30, |
Revenues by Segment (in millions) | Revenues by Segment (in millions) | | 2021 | | 2020 | Revenues by Segment (in millions) | | 2022 | | 2021 |
| Truckload | Truckload | | $ | 926.9 | | | $ | 920.5 | | Truckload | | $ | 1,120.0 | | | $ | 926.9 | |
| Intermodal | Intermodal | | 529.8 | | | 457.0 | | Intermodal | | 637.2 | | | 529.8 | |
| Logistics | Logistics | | 786.6 | | | 470.5 | | Logistics | | 1,067.0 | | | 786.6 | |
| Other | Other | | 186.9 | | | 189.2 | | Other | | 176.9 | | | 186.9 | |
| Fuel surcharge | Fuel surcharge | | 200.4 | | | 171.7 | | Fuel surcharge | | 415.0 | | | 200.4 | |
| Inter-segment eliminations | Inter-segment eliminations | | (41.2) | | | (57.0) | | Inter-segment eliminations | | (48.7) | | | (41.2) | |
| Operating revenues | Operating revenues | | $ | 2,589.4 | | | $ | 2,151.9 | | Operating revenues | | $ | 3,367.4 | | | $ | 2,589.4 | |
| | | | | | | | | | | | | | |
| | Six Months Ended
June 30, |
Income (Loss) from Operations by Segment (in millions) | | 2022 | | 2021 |
| Truckload | | $ | 200.1 | | | $ | 111.9 | |
| Intermodal | | 81.2 | | | 54.9 | |
| Logistics | | 89.2 | | | 32.9 | |
| Other | | (58.8) | | | 2.3 | |
| Income from operations | | 311.7 | | | 202.0 | |
| Adjustments: | | | | |
| Litigation and audit assessments | | 62.2 | | | — | |
| Acquisition-related costs | | 0.2 | | | — | |
| | | | |
| | | | |
| Property gain—net | | (50.9) | | | — | |
| Adjusted income from operations | | $ | 323.2 | | | $ | 202.0 | |
| | | | | | | | | | | | | | |
| | Six Months Ended
June 30, |
Income from Operations by Segment (in millions) | | 2021 | | 2020 |
| Truckload | | $ | 111.9 | | | $ | 77.1 | |
| Intermodal | | 54.9 | | | 27.3 | |
| Logistics | | 32.9 | | | 12.4 | |
| Other | | 2.3 | | | 1.5 | |
| Income from operations | | 202.0 | | | 118.3 | |
| Adjustments: | | | | |
| | | | |
| | | | |
| Restructuring—net | | — | | | (1.0) | |
| Adjusted income from operations | | $ | 202.0 | | | $ | 117.3 | |
We monitor and analyze a number of KPIs in order to manage our business and evaluate our financial and operating performance. Below are our KPIs by segment.
Truckload
The following table presents the KPIs for our Truckload segment KPIs for the periods indicated, consistent with how revenues and expenses are reported internally for segment purposes. Descriptions of the two operations that make up our Truckload segment are as follows:
•Dedicated - Transportation services with equipment devoted to customers under long-term contracts.
•Network - Transportation services of one-way shipments.
| | | | | | | | | | | | | | |
| | | Six Months Ended
June 30, |
| | | 2021 | | 2020 |
| Dedicated | | | | |
Revenues (excluding fuel surcharge) (1) | | $ | 383.3 | | | $ | 348.3 | |
Average trucks (2) (3) | | 4,140 | | | 3,898 | |
Revenue per truck per week (4) | | $ | 3,622 | | | $ | 3,475 | |
| Network | | | | |
Revenues (excluding fuel surcharge) (1) | | $ | 541.7 | | | $ | 571.1 | |
Average trucks (2) (3) | | 5,272 | | | 6,325 | |
Revenue per truck per week (4) | | $ | 4,020 | | | $ | 3,511 | |
| Total Truckload | | | | |
Revenues (excluding fuel surcharge) (5) | | $ | 926.9 | | | $ | 920.5 | |
Average trucks (2) (3) | | 9,412 | | | 10,223 | |
Revenue per truck per week (4) | | $ | 3,845 | | | $ | 3,497 | |
Average company trucks (3) | | 6,995 | | | 7,339 | |
Average owner-operator trucks (3) | | 2,417 | | | 2,884 | |
Trailers (6) | | 36,519 | | | 36,141 | |
Operating ratio (7) | | 87.9 | % | | 91.6 | % |
Beginning in 2022, MLS impacts are included within dedicated operations below.
| | | | | | | | | | | | | | |
| | | Six Months Ended
June 30, |
| | | 2022 | | 2021 |
| Dedicated | | | | |
Revenues (excluding fuel surcharge) (1) (8) | | $ | 585.4 | | | $ | 383.3 | |
Average trucks (2) (3) (8) | | 5,860 | | | 4,140 | |
Revenue per truck per week (4) (8) | | $ | 3,915 | | | $ | 3,622 | |
| Network | | | | |
Revenues (excluding fuel surcharge) (1) (8) | | $ | 531.3 | | | $ | 541.7 | |
Average trucks (2) (3) (8) | | 4,530 | | | 5,272 | |
Revenue per truck per week (4) (8) | | $ | 4,596 | | | $ | 4,020 | |
| Total Truckload | | | | |
Revenues (excluding fuel surcharge) (5) | | $ | 1,120.0 | | | $ | 926.9 | |
Average trucks (2) (3) (8) | | 10,390 | | | 9,412 | |
Revenue per truck per week (4) (8) | | $ | 4,212 | | | $ | 3,845 | |
Average company trucks (3) (8) | | 8,353 | | | 6,995 | |
Average owner-operator trucks (3) (8) | | 2,037 | | | 2,417 | |
Trailers (6) (8) | | 41,236 | | | 36,519 | |
Operating ratio (7) | | 82.1 | % | | 87.9 | % |
(1)Revenues (excluding fuel surcharge), in millions, exclude revenue in transit.
(2)Includes company and owner-operator trucks.
(3)Calculated based on beginning and end of month counts and represents the average number of trucks available to haul freight over the specified timeframe.
(4)Calculated excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes, using weighted workdays.
(5)Revenues (excluding fuel surcharge), in millions, include revenue in transit at the operating segment level and, therefore does not sum with amounts presented above.
(6)Includes entire fleet of owned trailers, including trailers with leasing arrangements between Truckload and Logistics.
(7)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
(8)Excludes the impact of our acquisition of deBoer on June 7, 2022.
Truckload revenues (excluding fuel surcharge) increased $193.1 million, approximately 21%, in the six months ended June 30, 2022 compared to the same period in 2021, due to a 25% increase in rate per loaded mile, realized in response to the impacts of inflation on operating costs and ongoing challenges at customer locations resulting in longer dwell times, and a 6% increase in volume. Dedicated volumes grew due to the acquisition of MLS and new business start-ups, while network volumes declined mainly due to continued driver capacity constraints.
Truckload income from operations increased $88.2 million, approximately 79%, in the six months ended June 30, 2022 compared to the same period in 2021. Factors contributing to the increase in income from operations include favorable pricing conditions and network management, a $50.9 million net gain related to the sale of the Company’s Canadian facility, and additional dedicated volumes inclusive of the MLS acquisition. These items were partially offset by lower volumes within network, an increase in driver-related costs resulting largely from pay increases and other actions taken to attract and retain drivers due to constrained industry-wide capacity levels, and fewer equipment sales resulting in lower gains.
Truckload revenues (excluding fuel surcharge) increased $6.4 million, approximately 1%, in the six months ended June 30, 2021 compared to the same period in 2020 as an improvement in price was partially offset by a 10% decline in volume. Revenue per truck per week increased $348, or 10%, period over period, due to a 13% improvement in rate per loaded mile driven by higher spot and contracted rates, partially offset by reduced productivity largely due to weather in the first quarter of 2021. While growth was experienced within our dedicated business, continued driver capacity constraints and weather contributed to the overall reduction in order volumes.
Truckload income from operations increased $34.8 million, approximately 45%, in the six months ended June 30, 2021 compared to the same period in 2020. The increase period over period was primarily due to spot market opportunities and contract renewals, in addition to a $17.3 million favorable change in equipment dispositions and a reduction in auto liability costs, despite the earnings impact of reduced volume noted above.
Intermodal
The following table presents the KPIs for our Intermodal segment for the periods indicated.
| | | | | Six Months Ended
June 30, | | | Six Months Ended
June 30, |
| | | | 2021 | | 2020 | | | 2022 | | 2021 |
Orders (1) | Orders (1) | | 222,679 | | | 204,949 | | Orders (1) | | 229,790 | | | 222,679 | |
| Containers | Containers | | 22,179 | | | 21,172 | | Containers | | 28,381 | | | 22,179 | |
Trucks (2) | Trucks (2) | | 1,729 | | | 1,508 | | Trucks (2) | | 1,590 | | | 1,729 | |
Revenue per order (3) | Revenue per order (3) | | $ | 2,351 | | | $ | 2,160 | | Revenue per order (3) | | $ | 2,735 | | | $ | 2,351 | |
Operating ratio (4) | Operating ratio (4) | | 89.6 | % | | 94.0 | % | Operating ratio (4) | | 87.3 | % | | 89.6 | % |
(1)Based on delivered rail orders.
(2)Includes company and owner-operator trucks at the end of the period.
(3)Calculated using rail revenues excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes.
(4)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Intermodal revenues (excluding fuel surcharge) increased $72.8$107.4 million, approximately 16%20%, in the six months ended June 30, 20212022 compared to the same period in 2020.2021. Contributing to the increase was a $191,$384, or 9%16%, improvement in revenue per order driven primarily by customer rate renewals and premium opportunities,strong market conditions partially offset by growth in the East which has a shorter length of haul. Orders also increased 9% due to favorable market demand conditions,haul, and a 3% increase in orders. Intermodal grew its container count by 6,202, or 28%, period over period, which helped drive the increase in order count despite capacity constraints, supply chain inefficiencies, and weather impacts experienced in the first quarter of 2021.fluidity challenges.
Intermodal income from operations increased $27.6$26.3 million, approximately 101%48%, in the six months ended June 30, 20212022 compared to the same period in 2020,2021, mainly the result of factors affecting revenueimpacting revenues discussed above, partially offset by the impact of network fluidityhigher rail-related and capacity challenges on rail and driver-relateddray execution costs.
Logistics
The following table presents the KPI for our Logistics segment for the periods indicated.
| | | | | | | | | | | | | | |
| | | Six Months Ended
June 30, |
| | | 2021 | | 2020 |
Operating ratio (1) | | 95.8 | % | | 97.4 | % |
| | | | | | | | | | | | | | |
| | | Six Months Ended
June 30, |
| | | 2022 | | 2021 |
Operating ratio (1) | | 91.6 | % | | 95.8 | % |
(1)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Logistics revenues (excluding fuel surcharge) increased $316.1$280.4 million, approximately 67%36%, in the six months ended June 30, 20212022 compared to the same period in 2020, primarily resulting from2021. This increase was mainly the result of an increase in revenue per order and 18% volume growth of 17% within our brokerage business due to favorabledriven by supportive market conditions and expansion of our Power Only offering and Schneider FreightPower® digital platform. Also contributing to the increase were additional port dray revenues resulting from continued port congestion and supply chain constraints.
Logistics income from operations increased $20.5$56.3 million, approximately 171%, in the six months ended June 30, 20212022 compared to the same period in 2020,2021, primarily due to net revenue per order improvements within our brokerage business and volume growth within both brokerage and port dray, as cited above.
Other
Included in Other was a loss from operations of $58.8 million in the six months ended June 30, 2022 compared to income of $2.3 million in the same period in 2021. This change was primarily due to a $57.0 million adverse settlement related to a lawsuit with former owners of WSL and $5.2 million of expense related to an adverse audit assessment over the applicability of state sales tax. This was partially offset by an increase in income from operations within our leasing business.
Other
Other income from operations increased $0.8 million, approximately 53%, in the six months ended June 30, 2021, compared to the same period in 2020. The change was primarily driven by an increase in income from operations from our leasing business due to increased lease activity, partially offset by an increase in performance-based incentive compensation period over period.
LIQUIDITY AND CAPITAL RESOURCES
Our primary uses of cash are working capital requirements, capital expenditures, dividend payments, and debt service requirements. Additionally, we may use cash for acquisitions and other investing and financing activities. Working capital is required principally to ensure we are able to run the business and have sufficient funds to satisfy maturing short-term debt and operational expenses. Our capital expenditures consist primarily of transportation equipment and information technology.
Historically, our primary source of liquidity has been cash flow from operations. In addition, we have a $250.0 million revolving credit facility and a $200.0$150.0 million accounts receivable facility, for which our available capacity as of June 30, 20212022 was $375.8$322.8 million. We anticipate that cash generated from operations, together with amounts available under our credit facilities, will be sufficient to meet our requirements for the foreseeable future. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that we will obtain these funds through additional borrowings, equity offerings, or a combination of these potential sources of liquidity. Our ability to fund future operating expenses and capital expenditures, as well as our ability to meet future debt service obligations or refinance our indebtedness, will depend on our future operating performance, which will be affected by general economic, financial, and other factors beyond our control.
The following table presents our cash and cash equivalents, marketable securities, and outstanding debt as of the dates shown.
| | | | | | | | | | | | | | |
| (in millions) | | June 30, 2021 | | December 31, 2020 |
| Cash and cash equivalents | | $ | 490.5 | | | $ | 395.5 | |
| Marketable securities | | 49.1 | | | 47.1 | |
| Total cash, cash equivalents, and marketable securities | | $ | 539.6 | | | $ | 442.6 | |
| | | | |
| Debt: | | | | |
| Senior notes | | $ | 305.0 | | | $ | 305.0 | |
| Finance leases | | 2.9 | | | 2.0 | |
Total debt (1) | | $ | 307.9 | | | $ | 307.0 | |
(1)Debt on the consolidated balance sheets is presented net of deferred financing costs. | | | | | | | | | | | | | | |
| (in millions) | | June 30, 2022 | | December 31, 2021 |
| Cash and cash equivalents | | $ | 331.0 | | | $ | 244.8 | |
| Marketable securities | | 46.4 | | | 49.3 | |
| Total cash, cash equivalents, and marketable securities | | $ | 377.4 | | | $ | 294.1 | |
| | | | |
| Debt: | | | | |
| Senior notes | | $ | 205.0 | | | $ | 265.0 | |
| Finance leases | | 6.8 | | | 5.3 | |
| Total debt | | $ | 211.8 | | | $ | 270.3 | |
Debt
At June 30, 2021,2022, we were in compliance with all financial covenants under our credit agreements and the agreements governing our senior notes. See Note 7,8, Debt and Credit Facilities, for information about our financing arrangements.
Cash Flows
The following table summarizes the changes to our net cash flows provided by (used in) operating, investing, and financing activities for the periods indicated.
| | | | | | | | | | | | | | | | | |
| | | Six Months Ended
June 30, |
| (in millions) | | 2021 | | 2020 |
| Cash provided by operating activities | | $ | 255.0 | | | $ | 319.8 | |
| Cash used in investing activities | | (134.9) | | | (110.1) | |
| Cash used in financing activities | | (25.1) | | | (47.5) | |
| | | | | | | | | | | | | | | | | |
| | | Six Months Ended
June 30, |
| (in millions) | | 2022 | | 2021 |
| Net cash provided by operating activities | | $ | 353.7 | | | $ | 255.0 | |
| Net cash used in investing activities | | (180.3) | | | (134.9) | |
| Net cash used in financing activities | | (87.2) | | | (25.1) | |
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Operating Activities
Net cash provided by operating activities increased $98.7 million, approximately 39%, in the first six months of 2022 compared to the same period in 2021. The increase was a result of an increase in net income adjusted for various noncash charges and an increase in cash provided by working capital. Working capital changes were driven by an increase in other liabilities, primarily the result of a $57.0 million adverse judgment related to a lawsuit with former owners of WSL, partially offset by an increase in trade accounts receivable, which increased proportionately to revenue growth.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
OperatingInvesting Activities
Cash provided by operatingNet cash used in investing activities decreased $64.8increased $45.4 million, approximately 20%34%, in the first six months of 20212022 compared to the same period in 2020. The decrease was driven by an increase in cash used for working capital, partially offset by an increase in net income adjusted for various noncash charges. Working capital changes which decreased net cash provided by operating activities were primarily an increase in trade accounts receivable, which increased proportionate to revenue growth, and a decrease in other liabilities primarily related to the timing of tax payments during the six months ended June 30, 2021 compared to 2020.
Investing Activities
Cash used in investing activities increased $24.8 million, approximately 23%, in the first six months of 2021 compared to the same period in 2020.2021. The increase in cash used was primarily driven by the acquisition of deBoer for $32.5 million, net of cash acquired; higher purchases of lease equipment; and an increase in net capital expenditures.
Net Capital Expenditures
The following table sets forth our net capital expenditures for the periods indicated.
| | | | | Six Months Ended
June 30, | | | Six Months Ended
June 30, |
| (in millions) | (in millions) | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Transportation equipment | | $ | 153.6 | | | $ | 83.3 | | |
| Other property and equipment | | 22.5 | | | 25.0 | | |
| Purchases of transportation equipment | | Purchases of transportation equipment | | $ | 159.0 | | | $ | 153.6 | |
| Purchases of other property and equipment | | Purchases of other property and equipment | | 22.0 | | | 22.5 | |
| Proceeds from sale of property and equipment | Proceeds from sale of property and equipment | | (76.6) | | | (29.6) | | Proceeds from sale of property and equipment | | (71.0) | | | (76.6) | |
| Net capital expenditures | Net capital expenditures | | $ | 99.5 | | | $ | 78.7 | | Net capital expenditures | | $ | 110.0 | | | $ | 99.5 | |
Net capital expenditures increased $20.8$10.5 million in the first six months of 20212022 compared to the same period in 2020.2021. The increase was driven by a $70.3$5.6 million decrease in proceeds from the sale of property and equipment and a $5.4 million increase in purchases of transportation equipment mainly due to replacementgrowth capital and reduced fleet age, partiallyhigher costs for new equipment. The decrease in proceeds is primarily due to fewer equipment sales, offset by a $47.0 million increase in proceeds from the sale of property and equipment primarily resulting from increased tractor and trailer sales and an increaseour Canadian facility in proceeds per unit.the first quarter of 2022.
Financing Activities
CashNet cash used in financing activities decreased $22.4increased $62.1 million, approximately 47%247%, in the first six months of 20212022 compared to the same period in 2020.2021. The main driver of the decreaseincrease in net cash used was the $25.0a $60.0 million repayment of a private placement notesnote in March 2020.of 2022.
Other Considerations that Could Affect Our Results, Liquidity, or Capital Resources
Investment in TuSimple
On January 12, 2021, the Company purchased a $5.0 million non-controlling interest in TuSimple. Upon completion of its initial public offering in April 2021, our investment in TuSimple was converted into Class A common shares and is being accounted for under ASC 321, Investments - Equity Securities, with subsequent changes in share price recorded in other income on the consolidated statements of comprehensive income. In the three and six months ended June 30, 2021, the Company recognized pre-tax gains of $20.2 million on its investment in TuSimple. Due to the volatility of the global markets and the potential for high volatility of public equity prices of technology-related companies, we expect the value of our investment to fluctuate which could materially affect our financial condition and results of operations.
COVID-19
Despite disruptions in the financial markets due to COVID-19, we have been able to fund our liquidity needs to date. We believe we are in a strong liquidity position with a cash, cash equivalents, and marketable securities balance of $539.6 million and $375.8 million of unused credit capacity as of June 30, 2021. Our outstanding debt as of the end of the quarter was $307.9 million, of which $100.7 million is short-term in nature. We are compliant with all financial covenants under our credit agreements and do not anticipate the need to seek additional capital as a result of COVID-19.
Factors that Could Result in a Goodwill Impairment
Goodwill is tested for impairment at least annually using the discounted cash flow guideline public company, and guideline merged and acquiredpublic company methods in calculating the fair values of our reporting units. Key inputs used in the discounted cash flow approach include growth rates for sales and operating profit, perpetuity growth assumptions, and discount rates. As interest rates rise, the calculated fair values of our reporting units will decrease, which could impact the results of our goodwill impairment tests.
We will perform our annual evaluation of goodwill for impairment as of October 31, 2021,2022, with such analysis expected to be finalized during the fourth quarter. As part of our annual process of updating our goodwill impairment evaluation, we will assess the impact of current operating results and our resulting management actions to determine whether they have an impact on the long-term valuation of reporting units and the related recoverability of our goodwill. See further discussion in Note 6, Goodwill.
Off-Balance Sheet Arrangements
As of June 30, 2021,2022, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.
Contractual Obligations
See the disclosure under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 20202021 for our contractual obligations as of December 31, 2020.2021. There were no material changes to our contractual obligations during the six months ended June 30, 2021.2022.
CRITICAL ACCOUNTING ESTIMATES
We have reviewed our critical accounting policies and considered whether new critical accounting estimates or other significant changes to our accounting policies require additional disclosures. We have found that the disclosures made in our Annual Report on Form 10-K for the year ended December 31, 20202021 are still current and that there have been no significant changes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Other than as described below, ourOur market risks have not changed significantly from the market risks discussed in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 as filed with the SEC on February 19, 2021.
Equity Price Risk
Our equity investment in TuSimple is susceptible to market price risk arising from uncertainties in the future market value, and a fluctuation in TuSimple’s share price could have an adverse impact on the fair value of our investment and results of operations. At June 30, 2021 the fair value of our investment in TuSimple was $25.2 million. A hypothetical 10% decrease in TuSimple’s share price would reduce the value of our equity investment by approximately $2.5 million.18, 2022.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this report. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to various lawsuits in the ordinary course of its business. For information relating to legal proceedings, see Note 11,12, Commitments and Contingencies, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There areExcept as set forth below, there have been no material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020, other than the risk described below.
Risks Related to Our Business, Industry, and Strategy2021 (the “2021 Form 10-K”).
The valuationfollowing risk factor replaces in its entirety the risk factor titled “We depend on railroads in the operation of our intermodal business, and therefore, our ability to offer intermodal services could be limited if we experience instability from third parties we use in that business” included in our 2021 Form 10-K. For the avoidance of doubt, only the final paragraph of this risk factor has been modified.
We depend on railroads in the operation of our intermodal business, and therefore, our ability to offer intermodal services could be limited if we experience instability from third parties we use in that business.
Our Intermodal segment utilizes railroads and some third-party drayage carriers to transport freight for our intermodal customers. The majority of these services are provided pursuant to contractual relationships with the railroads. While we have had agreements with all of the Company’s investmentsClass I railroads, our primary contracts are currently with the BNSF and CSX Transportation (“CSX”) freight railroads to provide rail-based freight transportation services in strategic partnerssupport of our intermodal operations. One of our competitors has a preferential contractual arrangement with BNSF, which limits the market share and technologiesrelative profitability of the services we provide through the BNSF. Beginning in 2023, UP will replace BNSF as our primary rail service provider in the western U.S. The transition to UP and away from BNSF will be complete by January 2023. The transition will require cooperation and coordination by Schneider with both BNSF and UP to be successful and to ensure no interruptions in our intermodal service results. Our results of operations could be adversely affected by any extended interruption of our intermodal service offering due to this transition or UP's ability to manage our rail volumes following the transition.
In certain markets and rail corridors, rail service is limited to a few railroads or even a single railroad due to the lack of competition. Our ability to provide intermodal services in certain traffic lanes is likely to be reduced or constricted if any of the Class I railroads were to discontinue service in those lanes or if the overall state of rail service in those lanes were to deteriorate.
Our contracts with the railroads are subject to volatility.periodic renewal, and our intermodal business may be adversely affected by any adverse change in our contract terms with the railroads, our relationships with the railroads, or declines in service and volume levels provided by the railroads.
In addition, a portion of the freight we deliver through both our Intermodal and Truckload segments is imported to the U.S. through ports of call where workers are largely unionized, and which recently have been, subject to COVID-induced congestion, backlogs, and unloading delays. The market valuationILWU is a labor union which primarily represents dock workers on the West Coast of our strategic investments, especiallythe U.S. The ILWU’s current coast wide contract with west coast port owners expired on July 1, 2022. As of the date of this Quarterly Report on Form 10-Q, the ILWU and Pacific Maritime Association (“PMA”), which represents west coast port owners, had not entered into a new contract. In the previous four contract negotiations between the ILWU and port owners dating back to the late 1990s, negotiations went past the July 1 deadline, and in those contract years, work slowdowns or employer lockouts ensued. News reports indicate that the expiration of the contract without an extension removes mechanisms for handling workplace grievances and, as it relatesa result, may increase the likelihood of slowdowns if there are labor disputes at any relevant ports. Although, as of the date of this Quarterly Report on Form 10-Q, news reports indicate that port operations continue as normal while the ILWU and PMA continue to our investment in TuSimple which is publicly traded, may experience substantial price volatility which, when accounted for under GAAP,negotiate; there can be no guarantee that work stoppages, shipping backlogs, port congestion, or other disruptions at any of these ports will not occur. Any such event could have a material adverse affect on the Company’s financial condition and results of operations. Refer to Note 5, Investments, to our consolidated financial statements for informationeffect on our strategic investments. Those investments can be negatively affected by market and economic factors including liquidity, credit deterioration, financial results, interest rate fluctuations, or other factors. As a result, future fluctuations in their value could result in significant losses and could have a material adverse impact on the Company’s financial condition and results of operations.business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company does not have a share repurchase program and did not repurchase any equity securities during the three months ended June 30, 2021.2022.
Limitation Upon Payment of Dividends
The 2018 Credit Facility includes covenants limiting our ability to pay dividends or make distributions on our capital stock if a default exists under the 2018 Credit Facility or would be caused by giving effect to such dividend.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.On July 25, 2022, the Board of the Company approved and adopted the DEP. The DEP is designed to allow a select group of management or highly compensated employees, as selected for participation, to defer the settlement of RSUs and PSUs granted under the Schneider National, Inc. 2017 Omnibus Incentive Plan, as amended, until separation from service, death, disability or until a fixed date occurring between one and ten years from the settlement date of the equity award, as specified by the participant when making a deferral election. The settlement date will be the earlier of death, disability, change in control, separation from service, or the date elected by the participant when making a deferral election.
The above descriptions of the DEP does not purport to be complete and is qualified in its entirety by reference to the DEP itself, a copy of which is attached to this report as Exhibit 10.1, and is incorporated herein in its entirety by reference.
ITEM 6. EXHIBITS
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Exhibit Number | | Exhibit Description |
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| 10.1*+ | | |
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| 31.1* | | |
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| 31.2* | | |
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| 32.1** | | |
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| 32.2** | | |
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| 101.INS* | | XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. |
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| 101.SCH* | | XBRL Taxonomy Extension Schema Document |
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| 101.CAL* | | XBRL Taxonomy Calculation Linkbase Document |
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| 101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB* | | XBRL Taxonomy Extension Labels Linkbase Document |
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| 101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
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| 104* | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021,2022, formatted in Inline XBRL |
* Filed herewith.
** Furnished herewith.
+ Constitutes a management contract or compensatory plan or arrangement.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant, Schneider National, Inc., has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | SCHNEIDER NATIONAL, INC. |
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| Date: | July 29, 202128, 2022 | /s/ Stephen L. Bruffett |
| | Stephen L. Bruffett |
| | Executive Vice President and Chief Financial Officer |
| | (Duly Authorized Officer and Principal Financial Officer) |