SAIA INC 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and our 2020 audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Those consolidated financial statements include additional information about our significant accounting policies, practices and the transactions that underlie our financial results. Forward-Looking Statements The Securities and Exchange Commission (the SEC) encourages companies to disclose forward-looking information so that investors can better understand the future prospects of a company and make informed investment decisions. This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations,” contains these types of statements, which are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “may,” “plan,” “predict,” “believe,” “should” and similar words or expressions are intended to identify forward-looking statements. Investors should not place undue reliance on forward-looking statements, and the Company undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements reflect the present expectation of future events of our management as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors, risks, uncertainties and assumptions that could cause actual results to differ materially from those described in any forward-looking statements. These factors, risks, uncertainties and assumptions include, but are not limited to, the following: • general economic conditions including downturns or inflationary periods in the business cycle; • operation within a highly competitive industry and the adverse impact from downward pricing pressures, including in connection with fuel surcharges, and other factors; • industry-wide external factors largely out of our control; • cost and availability of qualified drivers, purchased transportation and fuel; • claims expenses and other expense volatility, including for personal injury, cargo loss and damage, workers’ compensation, employment and group health plan claims; • cost and availability of insurance coverage, including the possibility the Company may be required to pay additional premiums, assume additional liability under its auto liability policy or be unable to obtain insurance coverage; • failure to successfully execute the strategy to expand our service geography; • costs and liabilities from the disruption in or failure of our technology or equipment essential to our operations, including as a result of cyber incidents, security breaches, malware or ransomware attacks; • failure to keep pace with technological developments; • labor relations, including the adverse impact should a portion of our workforce become unionized; • cost and availability of real property and revenue equipment; • capacity and highway infrastructure constraints; • risks arising from international business operations and relationships; • seasonal factors, harsh weather and disasters caused by climate change; • economic declines in the geographic regions or industries in which our customers operate; • the creditworthiness of our customers and their ability to pay for services; • our need for capital and uncertainty of the credit markets; • the possibility of defaults under our debt agreements (including violation of financial covenants); • failure to operate and grow acquired businesses in a manner that support the value allocated to acquired businesses; • dependence on key employees; • increased costs of healthcare benefits; • damage to our reputation from adverse publicity, including from the use of or impact from social media; • failure to make future acquisitions or to achieve acquisition synergies; 12 • the effect of litigation and class action lawsuits arising from the operation of our business, including the possibility of claims or judgements in excess of our insurance coverages or that result in increases in the cost of insurance coverage or that preclude us from obtaining adequate insurance coverage in the future; • the potential of higher corporate taxes and new regulations, including with respect to climate change, employment and labor law, healthcare and securities regulation; • the effect of governmental regulations, including hours of service for drivers, engine emissions, the Compliance, Safety, Accountability (CSA) initiative, regulations of the Food and Drug Administration and Homeland Security, and healthcare and environmental regulations; • unforeseen costs from new and existing data privacy laws; • changes in accounting and financial standards or practices; • widespread outbreak of an illness or any other communicable disease, including the COVID-19 pandemic, or any other health crisis or business disruptions that may arise from the COVID-19 pandemic in the future; • increasing investor and customer sensitivity to social and sustainability issues, including climate change; • anti-terrorism measures and terrorist events; • provisions in our governing documents and Delaware law that may have anti-takeover effects; • issuances of equity that would dilute stock ownership; and • other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s SEC filings. These factors and risks are described in Part II, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as updated by Part II, Item 1A. of this Quarterly Report on Form 10-Q. As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this Form 10-Q. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by applicable law. Executive Overview The Company’s business is highly correlated to non-service sectors of the general economy. The Company’s strategy is to improve profitability by increasing yield while also increasing volumes to build density in existing geography and to pursue geographic expansion to promote profitable growth and improve our customer value proposition over time. The Company’s business is labor intensive, capital intensive and service sensitive. The Company looks for opportunities to improve safety, cost effectiveness and asset utilization (primarily tractors and trailers). Pricing initiatives have had a positive impact on yield and profitability. The Company continues to execute targeted sales and marketing programs along with initiatives to align costs with volumes and improve customer satisfaction. Technology continues to be an important investment that is improving customer experience, operational efficiencies and Company image. COVID-19 In March 2020, the World Health Organization categorized Coronavirus Disease 2019 (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. We are considered an essential and critical business by the U.S. Department of Homeland Security’s Cyber and Infrastructure Security Agency (CISA) and in some areas continue to operate under state of emergency and shelter in place orders issued in various jurisdictions across the country. Management has made a variety of efforts seeking to ensure the ongoing availability of Saia’s transportation services, while instituting actions and policies to help safeguard employees and customers from COVID-19, including limiting physical employee and customer contact, implementing enhanced cleaning and hygiene protocols at Saia’s facilities, and instituting telecommuting where possible. Through the date of this filing, the Company has not experienced significant disruptions in the Company’s LTL network operations as a result of the COVID-19 pandemic. Beginning in the latter part of the first quarter of 2020, we experienced lower demand for our transportation services along with increased costs and other challenges related to COVID-19 that adversely affected our business. We believe we have significant liquidity available to continue business operations in the event of future disruptions from the COVID-19 pandemic. As discussed in the “Financial Condition” section below, the Company has a revolving credit facility (including a $100 million accordion feature that 13 is available, subject to certain conditions and lender commitments) and other sources of borrowing in place that provides liquidity of up to $300 million in addition to its regular cash inflows from operations. The Company was in compliance with the debt covenants under its debt agreements at March 31, 2021 . The situation surrounding COVID-19 remains fluid and there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, we are unable to predict the extent to which the pandemic and related impacts could impact our business operations, financial condition, results of operations, liquidity and cash flows . First Quarter Overview The Company’s operating revenue increased by 8.4 percent in the first quarter of 2021 compared to the same period in 2020. The increase resulted primarily from increases in revenue per shipment and tonnage. Consolidated operating income was $48.7 million for the first quarter of 2021 compared to $38.8 million for the first quarter of 2020. In the first quarter of 2021, LTL shipments were up 2.6 percent per workday and LTL tonnage was up 5.3 percent per workday compared to the prior year quarter. Diluted earnings per share were $1.40 in the first quarter of 2021, compared to diluted earnings per share of $1.06 in the prior year quarter. The operating ratio (operating expenses divided by operating revenue) was 89.9 percent in the first quarter of 2021 compared to 91.3 percent in the first quarter of 2020. The improved operating ratio compared to prior year is due to the Company’s continued focus on pricing initiatives, cost control and operational efficiencies. The Company generated $61.0 million in net cash provided by operating activities in the first three months of 2021 compared with $51.3 million in the same period last year. The increase is primarily due to increased profitability compared to the same period last year. The Company’s net cash used in investing activities was $25.4 million during the first three months of 2021 compared to $102.7 million in the first three months of 2020, primarily as a result of decreased capital expenditures for revenue equipment and real estate in the first three months of 2021 caused by COVID-19 related manufacturing delays for revenue equipment. The Company’s net cash used in financing activities was $7.6 million in the first three months of 2021 compared to $98.1 million net cash provided by financing activities during the same period last year. This change was primarily due to reduced net borrowings after the Company’s revolver balance was paid in full in the fourth quarter of 2020 and decreased investing activities during the first three months of 2021 . The Company had no outstanding borrowings under its revolving credit agreement, outstanding letters of credit of $30.6 million and a cash and cash equivalents balance of $53.3 million at March 31, 2021. The Company also had $66.0 million in obligations under finance leases at March 31, 2021. At March 31, 2021, the Company had $271.2 million in availability under the revolving credit facility, subject to the Company’s satisfaction of existing debt covenants. The revolving credit facility also has an accordion feature that allows for an additional $100 million availability, subject to certain conditions and availability of lender commitments. The Company was in compliance with the debt covenants under its revolving credit agreement at March 31, 2021. General The following Management’s Discussion and Analysis describes the principal factors affecting the results of operations, liquidity and capital resources, as well as the critical accounting policies of Saia, Inc. and its wholly-owned subsidiaries (together, the Company or Saia). Saia is a transportation company headquartered in Johns Creek, Georgia that provides less-than-truckload (LTL) services through a single integrated organization. While historically more than 97 percent of its revenue has been derived from transporting LTL shipments across 44 states, the Company also offers customers a wide range of other value-added services, including non-asset truckload, expedited and logistics services across North America. Our business is highly correlated to non-service sectors of the general economy. Our business also is impacted by a number of other factors as discussed under “Forward Looking Statements” and Part II, Item 1A. “Risk Factors.” The key factors that affect our operating results are the volumes of shipments transported through our network, as measured by our average daily shipments and tonnage; the prices we obtain for our services, as measured by revenue per hundredweight (a measure of yield) and revenue per shipment; our ability to manage our cost structure for capital expenditures and operating expenses such as salaries, wages and benefits; purchased transportation; claims and insurance expense; fuel and maintenance; and our ability to match operating costs to shifting volume levels. 14 Results of Operations Saia, Inc. and Subsidiaries Selected Results of Operations and Operating Statistics For the quarters ended March 31, 2021 and 2020 (unaudited) Percent Variance 2021 2020 '21 v. '20 (in thousands, except ratios, workdays and revenue per hundredweight) Operating Revenue $ 484,074 $ 446,396 8.4 % Operating Expenses: Salaries, wages and employees’ benefits 244,437 238,645 2.4 Purchased transportation 45,031 30,059 49.8 Depreciation and amortization 35,372 32,590 8.5 Fuel and other operating expenses 110,520 106,326 3.9 Operating Income 48,714 38,776 25.6 Operating Ratio 89.9 % 91.3 % 1.5 Nonoperating Expense 721 1,949 (63.0 ) Working Capital (as of March 31, 2021 and 2020) 41,057 56,861 Cash Flows provided by Operating Activities (year to date) 60,971 51,267 Net Acquisitions of Property and Equipment (year to date) 25,388 102,676 Saia Motor Freight Operating Statistics: Workdays 63 64 (1.6 ) LTL Tonnage 1,247 1,203 3.7 LTL Shipments 1,826 1,809 0.9 LTL Revenue per hundredweight $ 19.18 $ 18.16 5.6 Quarter ended March 31, 2021 compared to quarter ended March 31, 2020 Revenue and volume Consolidated revenue for the quarter ended March 31, 2021 increased 8.4 percent to $484.1 million primarily as a result of increased revenue per shipment and tonnage. Saia’s LTL revenue per hundredweight (a measure of yield) increased 5.6 percent to $19.18 per hundredweight for the first quarter of 2021 as a result of changes in business mix. For the first quarter of 2021, Saia’s LTL tonnage was up 5.3 percent per workday to 1.2 million tons, and LTL shipments increased 2.6 percent per workday to 1.8 million shipments. For the first quarter of 2021, approximately 75 to 80 percent of Saia’s operating revenue was subject to specific customer price negotiations that occur throughout the year. The remaining 20 to 25 percent of operating revenue was subject to a general rate increase which is based on market conditions. For these customers subject to a general rate increase, on January 18, 2021 and February 3, 2020, Saia implemented 5.9 percent general rate increases. Competitive factors, customer turnover and mix changes, impact the extent to which customer rate increases are retained over time. Operating revenue includes fuel surcharge revenue from the Company’s fuel surcharge program. That program is designed to reduce the Company’s exposure to fluctuations in fuel prices by adjusting total freight charges to account for changes in the price of fuel. The Company’s fuel surcharge is based on the average national price for diesel fuel and is reset weekly. Fuel surcharges have remained in effect for several years, are widely accepted in the industry and are a significant component of revenue and pricing. Fuel surcharges are an integral part of customer contract negotiations but represent only one portion of overall customer price negotiations as customers may negotiate increases in base rates instead of increases in fuel surcharges or vice versa. Fuel surcharge revenue as a percentage of operating revenue increased to 12.9 percent for the quarter ended March 31, 2021 compared to 12.8 percent for the quarter ended March 31, 2020, as a result of an increase in the cost of fuel. 15 Operating expenses and margin Consolidated operating income was $48.7 million in the first quarter of 2021 compared to $38.8 million in the prior year quarter. Overall, the operations were favorably impacted in the first quarter of 2021 by pricing actions and 5.3 percent higher tonnage per day, combined with continued focus on cost controls and operational efficiencies. The first quarter of 2021 operating ratio (operating expenses divided by operating revenue) was 89.9 percent compared to 91.3 percent for the same period in 2020. Salaries, wages and benefits increased $5.8 million in the first quarter of 2021 compared to the first quarter of 2020 due to a salary and wage increase of approximately 3.5 percent for all of its employees and an increase in performance based compensation as profitability improved from a year ago. Fuel, operating expenses and supplies increased $2.0 million in the first quarter of 2021 compared to the prior year quarter largely due to increases in fuel expense during the quarter, partially offset by a decrease in travel expense compared to the prior year. During the first quarter of 2021, claims and insurance expense was $1.1 million higher than the first quarter of 2020 primarily due to higher cost of insurance. Purchased transportation increased $15.0 million in the first quarter of 2021 compared to the first quarter of 2020 primarily due to surges in demand and capacity constraints in the internal network during the first quarter of 2021. Other Substantially all non-operating expenses represent interest expense. Interest expense in the first quarter of 2021 was lower than the first quarter of 2020 due to decreased borrowings in the first quarter of 2021. The effective tax rate was 22.3 percent and 23.7 percent for the quarters ended March 31, 2021 and 2020, respectively. The decrease in the first quarter tax rate in 2021 is primarily a result of increased excess tax benefits related to stock compensation activity. Net income was $37.3 million, or $1.40 per diluted share, in the first quarter of 2021 compared to net income of $28.1 million, or $1.06 per diluted share, in the first quarter of 2020. Working capital/capital expenditures Working capital at March 31, 2021 was $41.1 million, which decreased from working capital at March 31, 2020 of $56.9 million. Current assets at March 31, 2021 increased by $42.4 million as compared to March 31, 2020 and includes an increase in accounts receivable of $32.0 million, and an increase of cash and cash equivalents of $6.4 million. Current liabilities increased by $58.2 million at March 31, 2021 compared to March 31, 2020 largely due to an increase in accounts payable, and claims and insurance liabilities. Cash flows provided by operating activities were $61.0 million for the three months ended March 31, 2021 versus $51.3 million for the three months ended March 31, 2020. The increase is primarily due to increased profitability compared to the same period last year. For the three months ended March 31, 2021, net cash used in investing activities was $25.4 million versus $102.7 million in the same period last year, a $77.3 million decrease. This decrease for the three months ended resulted primarily from decreased capital expenditures caused by COVID-19 related manufacturing delays for revenue equipment. The Company currently expects that net capital expenditures in 2021 will be approximately $275 million. For the three months ended March 31, 2021, net cash used in financing activities was $7.6 million compared to $98.1 million net cash provided by financing activities during the same period last year, as a result of reduced net borrowings after the Company’s revolver balance was paid in full in the fourth quarter of 2020 and decreased investing activities during the first three months of 2021. Outlook Our business remains highly correlated to non-service sectors of the general economy and competitive pricing pressures, as well as the success of Company-specific improvement initiatives. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the pandemic’s impact on our operations, financial performance and financial condition, as well as its impact on our ability to successfully execute our business strategies and initiatives, remains uncertain and difficult to predict. We are continuing initiatives to increase yield, reduce costs and improve productivity while 16 also focusing on providing top quality service and improving safety performance. On January 18, 2021 and February 3 , 20 20 , Saia implemented a 5.9 percent general rate increase for customers comprising approximately 20 to 25 percen t of Saia’s operating revenue. If the Company continues to build market share, including through its geographic expansion, it expects numerous operating leverage cost benefits. Conversely, throughout the duration of the COVID-19 pandemic and the period of economic disruption, the Company plans to match resources and capacity to shifting volume levels to lessen any unfavorable operating leverage. Additionally, the Company’s renewal of insurance policies effective March 1, 2021 resulted in $3.3 million of anticipated cost increases for 2021 compared to 2020. The success of cost improvement initiatives is impacted by the cost and availability of drivers and purchased transportation, fuel, self-insurance claims and insurance expense, regulatory changes, successful expansion of our service geography throughout the United States, the COVID-19 pandemic and other factors discussed under “Forward-Looking Statements” and Part II, Item 1A. “Risk Factors.” See “Forward-Looking Statements” and Part II, Item 1A. “Risk Factors” for a more complete discussion of potential risks and uncertainties that could materially affect our future performance. Financial Condition The Company’s liquidity needs arise primarily from capital investment in new equipment, land and structures, information technology and letters of credit required under insurance programs, as well as funding working capital requirements. Credit Agreement On February 5, 2019, the Company entered into the Sixth Amended and Restated Credit Agreement with its banking group (as amended, the Amended Credit Agreement). The amendment increased the amount of the revolver from $250 million to $300 million and extended the term until February 2024. The Amended Credit Agreement also has an accordion feature that allows for an additional $100 million availability, subject to certain conditions and availability of lender commitments. The amendment reduced the interest rate pricing. The Amended Credit Agreement provides for a LIBOR rate margin range from 100 basis points to 200 basis points, base rate margins from minus 50 basis points to plus 50 basis points, an unused portion fee from 17.5 basis points to 30 basis points and letter of credit fees from 100 basis points to 200 basis points, in each case based on the Company’s leverage ratio. Under the Amended Credit Agreement, the Company must maintain a minimum debt service coverage ratio set at 1.25 to 1.00 and a maximum leverage ratio set at 3.25 to 1.00. The Amended Credit Agreement provides for a pledge by the Company of certain land and structures, accounts receivable and other assets to secure indebtedness under this agreement. The Amended Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants and provisions relating to events of default. Under the Amended Credit Agreement, if an event of default occurs, the banks will be entitled to take various actions, including the acceleration of amounts due . At March 31, 2021, the Company had no outstanding borrowings and outstanding letters of credit of $28.8 million under the Amended Credit Agreement. At December 31, 2020, the Company had no outstanding borrowings and outstanding letters of credit of $27.2 million under the Amended Credit Agreement. The available portion of the Amended Credit Agreement may be used for general corporate purposes, including capital expenditures, working capital and letter of credit requirements as needed. Finance Leases The Company is obligated under finance leases with seven-year original terms covering revenue equipment. Total liabilities recognized under finance leases were $66.0 million and $71.0 million as of March 31, 2021 and December 31, 2020, respectively. Amortization of assets held under the finance leases is included in depreciation and amortization expense. The weighted average interest rates for the finance leases at both March 31, 2021 and December 31, 2020 were 3.5 percent, respectively. 17 Other The Company has historically generated cash flows from operations to fund a large portion of its capital expenditure requirements. Cash flows from operating activities were $309.1 million for the year ended December 31, 2020, while net cash used in investing activities was $218.8 million. Cash flows provided by operating activities were $61.0 million for the three months ended March 31, 2021, $9.7 million higher than the first three months of the prior year. The increase is primarily due to increased profitability compared to the prior year. The timing of capital expenditures can largely be managed around the seasonal working capital requirements of the Company. The Company believes it has significant sources of capital to meet short-term liquidity needs through its operating cash flows and availability under the Amended Credit Agreement. At March 31, 2021, the Company had $271.2 million in availability under the Amended Credit Agreement, subject to the Company’s satisfaction of existing debt covenants. The Company was in compliance with its debt covenants at March 31, 2021. Future operating cash flows are primarily dependent upon the Company’s profitability and its ability to manage its working capital requirements, primarily accounts receivable, accounts payable and wage and benefit accruals. Effective March 1, 2018, the Company entered into a new automobile liability insurance policy with a three-year term. Generally, the Company is responsible for the risk retention amount per occurrence of $2.0 million under the policy. Thereafter, the policy provides insurance coverage for a single loss of $8.0 million, an aggregate loss limit of $24.0 million for each policy year, and a $48.0 million aggregate loss limit for the 36-month term originally ended March 1, 2021. Under the policy, the Company may elect to commute the policy with respect to the first 12 months of the policy term and concurrently extend the policy for an additional one-year period if paid losses in the first 12 months of the policy are less than $5.2 million. In August 2019, the Company elected to commute the policy for such period. As a result, the Company received a return of $5.2 million of the premium paid (the maximum return premium available), based on the amount of claims paid and the insurer was released from all liability in connection with claims occurring in such 12-month period. The Company is now self-insured for the first $10 million per occurrence with respect to such 12-month period and the policy has been extended for one additional year to March 1, 2022. As a result of the return premium and policy extension, the Company recognized a $0.5 million reduction in insurance premium expense in the first quarter of 2021. The Company will continue to recognize the remainder of the return premium as a reduction in insurance premium expense ratably over the remainder of the policy period now ending March 1, 2022. Additionally, the Company is required to pay an additional premium of up to $11.0 million if losses paid by the insurer are greater than $15.6 million over the three-year policy period ending March 1, 2022. Based on claims occurring since March 1, 2019, no such additional premium was accrued at March 31, 2021 . Commencing on August 30, 2022, the Company may elect to commute the policy with respect to the insurer’s entire liability under the policy in which case the Company would be entitled to a return of a portion of the premium paid, up to $15.6 million, based on the amount of claims paid and the insurer would be released from all liability under the policy ending March 1, 2022. As a result, if the Company elects to commute the policy as to the entire policy term, the Company would be self-insured for $10 million per occurrence for the four years ended March 1, 2022. Net capital expenditures pertain primarily to investments in tractors and trailers and other revenue equipment, information technology, land and structures. Projected capital expenditures for 2021 are expected to be approximately $275 million. This would represent a increase from 2020 net capital expenditures of $219 million for property and equipment, inclusive of equipment acquired using finance leases, information technology, and land and structures. Projected 2021 capital expenditures include a normal replacement cycle of revenue equipment and technology investment for our operations. Net capital expenditures were $25.4 million in the first three months of 2021. Approximately $171.8 million of the 2021 remaining capital budget was committed as of March 31, 2021. In addition to the principal amounts disclosed in the tables below, the Company has interest obligations of approximately $3.2 million for the remainder of 2021 and decreasing for each year thereafter based on borrowings and commitments outstanding at March 31, 2021. Contractual Obligations The following tables set forth a summary of our contractual cash obligations and other commercial commitments as of March 31, 2021 (in millions): Payments due by year 2021 2022 2023 2024 2025 Thereafter Total Contractual cash obligations: Long-term debt obligations: Revolving line of credit (1) $ — $ — $ — $ — $ — $ — $ — Leases: Finance Leases (1) 17.2 21.0 15.4 10.6 5.4 0.9 70.5 Operating leases (2) 20.6 24.8 21.0 17.7 13.4 36.7 134.2 Purchase obligations (3) 173.1 — — — — — 173.1 Total contractual obligations $ 210.9 $ 45.8 $ 36.4 $ 28.3 $ 18.8 $ 37.6 $ 377.8 18 (1) See Note 5 to the accompanying condensed consolidated financial statements in this Current Report on Form 10-Q. The contractual finance lease obligation payments included in this table include both the principal and interest components. (2) Subsequent to March 31, 2021 , the Company committed to an additional lease estimated to commence in 2023 of approximately $ 57 million with a lease term of 15 years. (3) Includes commitments of $171.8 million for capital expenditures. Amount of commitment expiration by year 2021 2022 2023 2024 2025 Thereafter Total Other commercial commitments: Available line of credit (1) $ — $ — $ — $ — $ 271.2 $ — $ 271.2 Letters of credit — 30.6 — — — — 30.6 Surety bonds 17.4 41.9 8.9 — — — 68.2 Total commercial commitments $ 17.4 $ 72.5 $ 8.9 $ — $ 271.2 $ — $ 370.0 (1) Subject to the satisfaction of existing debt covenants. The Company has accrued approximately $1.2 million for uncertain tax positions and $0.1 million for interest and penalties related to the uncertain tax positions as of March 31, 2021. The Company cannot reasonably estimate the timing of cash settlements with respective taxing authorities beyond one year and accordingly has not included the amounts within the above contractual cash obligations and other commercial commitment tables. At March 31, 2021, the Company has accrued $91.9 million for claims and insurance liabilities. The Company cannot reasonably estimate the timing of cash settlements with respective adverse parties beyond one year and accordingly has not included the amounts within the above contractual cash obligations and other commercial commitment tables. Critical Accounting Policies and Estimates The Company makes estimates and assumptions in preparing the condensed consolidated financial statements that affect reported amounts and disclosures therein. In the opinion of management, the accounting policies that generally have the most significant impact on the financial position and results of operations of the Company include: • Claims and Insurance Accruals . As described in more detail in the Notes to Consolidated Financial Statements contained in Form 10-K for the year ended December 31, 2020, the the Company has self-insured retention limits generally ranging from $250,000 to $1 million per occurrence for medical, workers’ compensation, casualty and cargo claims and from $2 million to $10 million for auto liability. The liabilities are estimated in part based on historical experience, third-party actuarial analysis with respect to workers’ compensation claims, demographics, nature and severity, and other assumptions. The claims liabilities are included in claims and insurance reserves based on claims incurred with liabilities for unsettled claims and claims incurred but not yet reported being actuarially determined with respect to workers’ compensation claims and, with respect to all other liabilities, estimated based on management’s evaluation of the nature and severity of individual claims and historical experience. However, these estimated accruals could be significantly affected if the actual costs of the Company differ from these assumptions. A significant number of these claims typically take several years to develop and even longer to ultimately settle. These estimates tend to be reasonably accurate over time; however, assumptions regarding severity of claims, medical cost inflation, as well as specific case facts can create short-term volatility in estimates . • Revenue Recognition and Related Allowances . Revenue is recognized over the transit time of the shipment as it moves from origin to destination while expenses are recognized as incurred. In addition, estimates included in the recognition of revenue and accounts receivable include estimates of shipments in transit and estimates of future adjustments to revenue and accounts receivable for billing adjustments and collectability. Revenue is recognized in a systematic process whereby estimates of shipments in transit are based upon actual shipments picked up, day of delivery and current rates charged to customers. Since the cycle for pickup and delivery of shipments is generally 1-5 days, typically less than 5 percent of a total month’s revenue is in transit at the end of any month. Estimates for credit losses and billing adjustments are based upon historical experience of credit losses, adjustments processed and trends of collections. Billing adjustments are primarily made for discounts and billing corrections. These estimates are continuously evaluated and updated; however, changes in economic conditions, pricing arrangements and other factors can significantly impact these estimates. • Depreciation and Capitalization of Assets . Under the Company’s accounting policy for property and equipment, management establishes appropriate depreciable lives and salvage values for the Company’s revenue equipment (tractors and trailers) based on their estimated useful lives and estimated residual values to be received when the equipment is sold or traded in. These estimates 19 are routinely evaluated and updated when circumstances warrant. However, actual useful lives and residual values could differ from these assumptions based on market conditions and other factors, thereby impacting the estimated amount or timing of depreciation expense . These accounting policies and others are described in further detail in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the consolidated financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the consolidated financial statements. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.