What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-18 compared with 2021-02-19 · 150 added, 180 removed, 288 unchanged (53% of the section changed)

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Recent Developments

COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the President of the U.S.

in March 2020.

Schneider continues to monitor the impact of COVID-19 and take steps to mitigate risks posed by the virus.

The impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, the efforts of governments at the national, state, and local levels to manage the outbreak, the impact of the pandemic and governmental actions on our customers, and the timing and rollout of approved vaccines to combat the spread of COVID-19, which are uncertain and not fully predictable.

The Company provides an essential service to its customers and has taken additional measures to keep our associates safe and to minimize unnecessary risk of exposure to COVID-19, including precautions for our associates and owner-operators who work in the field.

We have also implemented work from home policies where appropriate and imposed travel limitations on employees.

The Company implemented and continues to maintain physical and cyber-security measures to ensure our systems remain functional in order to serve our operational needs with a remote workforce and ensure uninterrupted service to our customers.

The Company’s operational and financial performance was impacted by a decrease in demand primarily during the second quarter of 2020 resulting, in part, from government imposed stay-at-home orders and the related closure of certain customers as a result of COVID-19.

We believe the largest impacts from COVID-19 were experienced in the second quarter of 2020.

Freight demand began to normalize during the third quarter, and we did not experience significant negative operational or financial impacts from COVID-19.

While we are unable to predict with any certainty the impact COVID-19 may have on our operational and financial performance, we do not anticipate significant future impacts.

We implemented cost reduction efforts to help mitigate the impact reduced revenues had, and may continue to have, on our income from operations.

While we worked diligently to manage costs throughout the organization, we incurred additional expenses related to the safe onboarding of company drivers, the purchase of personal protective equipment, emergency sick leave benefits, and additional cleaning services.

We will continue to incur these added costs for the duration of the pandemic in order to ensure the safety of our associates, owner-operators, and customers.

We continue to actively monitor the situation and take further actions that alter our business operations as may be required by federal, state, or local governmental authorities, or that we determine are in the best interests of our associates, customers, and shareholders.

In this time of uncertainty resulting from COVID-19, we are continuing to serve our customers while taking precautions to provide a safe work environment for our associates, owner-operators, and customers.

On December 31, 2021, the Company completed the 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.

Because the acquisition closed on December 31, 2021 , MLS did not have an impact on our consolidated results of operations for the year ended December 31, 2021.

MLS financial results will be reported in dedicated operations as part of our Truckload segment beginning in the first quarter of 2022.

Refer to Note 2, Acquisition, for additional details.

Schneider continues to monitor the COVID-19 pandemic and take steps to mitigate the potential risks it poses.

The health and safety of our associates and owner operators remains our top priority, and we have taken additional precautions to minimize the unnecessary risk of exposure to COVID-19.

We have implemented additional safety measures and flexible work arrangements, placed travel limitations on associates where appropriate, and taken physical and cybersecurity measures to ensure our systems are capable of serving our operational needs while providing uninterrupted service to our customers.

COVID-19 has led to labor shortages for Schneider and many of its suppliers and customers.

The labor shortages have contributed to supply chain disruptions and delays in the delivery of products and materials.

We continue to work with our suppliers to understand delivery timelines and challenges, and plan for delays that may impact our operations.

Many of the products we purchase, as well as our labor and certain other operating costs, have experienced price increases driven by supply chain constraints and other inflationary impacts.

We have been successful in finding alternatives where available and in exercising contractual rights as appropriate to limit the overall impact on our results.

Our efforts will continue, and we will take further actions as may be required by federal, state, or local governmental authorities, or that we determine are in the best interests of our associates, customers, and stakeholders.

Additional information concerning the impact COVID-19 may have to our future business and results of operations is provided in Part I, Item 1A “Risk Factors”.

Our goals are to grow revenue and profitability, drive strong and consistent return on capital, and increase stakeholder value resiliently through economic cycles.

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We believe our broad portfolio of services, with different asset intensities, and our North American footprint allow for supply chain alternatives which enable new and existing customer growth.

We also plan to drive revenue growth by increasing our marketing to customers that seek to outsource their transportation services.

Our growth decisions are based on our “Value Triangle,” which represents profitable growth while balancing the needs of our customers, our associates, and our shareholders.

Our integrated technology platform serves as an instrumental factor which drives profitability as it enables real-time, data-driven decision support science on every load/order and assists our associates to proactively manage our services across our network.

We also plan to drive revenue growth by increasing

our marketing to customers that seek to outsource their transportation services.

Our growth decisions are based on our “Value Triangle,” which represents profitable growth while balancing the needs of our customers, associates, and shareholders.

Our integrated technology platform serves as an instrumental factor which drives profitability as it enables real-time, data-driven decision support science on every load/order and assists our associates in proactively managing our services across our network.

Together with our highly incentivized and proactive sales organization, we believe that our platform will continue to provide better service and foster organic growth in each of our reportable segments.

Expand capabilities in the specialty equipment freight market and continue growing our asset-light and non-asset businesses

We believe that our specialty freight capabilities position us to grow in the specialty equipment market, which has higher barriers to entry, potentially higher margins, and lasting customer relationships.

Expand capabilities in the specialty equipment and dedicated freight markets and continue growing our asset-light and non-asset businesses

We believe that our specialty freight capabilities position us to grow in the specialty equipment and dedicated markets, which have higher barriers to entry, potentially higher margins, and lasting customer relationships.

The complexity and time-sensitivity of the loads often require increased collaboration with, and greater understanding of, our customers’ business needs and processes.

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As such, there are few carriers that have comparable network scale and capabilities in the specialty equipment market, which we believe will allow us to grow profitably in that business.

Our intermodal product offering continues to identify opportunities to profitably grow services and compete in the intermodal marketplace.

We believe that opportunities identified within our intermodal product offering allow us to profitably grow services and compete in the intermodal marketplace.

As an asset-based provider, we have more control over our equipment to include containers and chassis, perform most of our own drays, and have strong contractual rail relationships.

We believe our integrated technology platform will enable us to enjoy certain benefits of complete end-to-end control, including increased pick–up and delivery predictability, better visibility, and the ability to source and retain capacity.

We believe our integrated technology platform will enable us to experience certain benefits of complete end-to-end control, including increased pick–up and delivery predictability, better visibility, and the ability to source and retain capacity.

Freight brokerage, which is a significant part of our Logistics segment, is a business that is expected to be a driver of growth into the future.

As shippers increasingly consolidate their business with fewer freight brokers, we are well-positioned to become one of their select providers due to our customer service, innovative technology, and an established dense network of qualified third-party carriers.

As shippers increasingly consolidate their business with fewer freight brokers, we continue to be well-positioned due to our customer service, innovative technology, and an established, dense network of qualified third-party carriers and access to trailer network.

We believe shippers see the value of working with providers like us that have scale, capacity, and lane density.

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We believe the implementation of simple and intuitive customer interfaces will also enable a stronger connection with our customers through increased interaction and an enhanced user experience.

Through our investment in MLSI, in which we are collaborating to develop a Transportation Management System using MLSI’s SaaS technology, we aim to further complement our technology platform and enable enhanced decision making, resource allocation, and visibility with our supply chain partners.

Our Schneider FreightPower® online marketplace, for example, digitally connects the benefits of Quest with the strength of our trailer network and carrier relationships to service our customers.

Additionally, through our investment in MLSI, with which we are collaborating to develop a Transportation Management System using MLSI’s SaaS technology, we aim to further complement our technology platform and enable enhanced decision making, resource allocation, and visibility with our supply chain partners.

We expect additional margin improvement as we continue to leverage data analytics within our integrated technology platform.

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For example, we can efficiently move our equipment between services and regions when we see opportunities to maximize our return on capital.

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.

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.

Furthermore, our strong balance sheet enables us to carry out an acquisition strategy that strengthens our overall portfolio.

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attract, develop, engage, and retain the best talent in the industry.

We strive for a high-performance culture with operational excellence that seeks individuals who are passionate about our business and fit our culture and to foster a collaborative environment which promotes diversity, equality, and inclusion.

We strive for a high-performance culture with operational excellence that seeks individuals who are passionate about our business and fit our culture, and fosters a collaborative environment which promotes diversity, equality, and inclusion.

We value the direct relationship we have with our associates, and we intend to continue working together to provide professional growth and a quality work environment without third-party representation.

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We invest in the well-being of our associates through our commitment to ensure a differentiated driver experience and efforts to improve the quality of drivers’ touchpoints.

We provide mandatory physical check-ups which cover sleep apnea and hair follicle, in addition to urine-based, drug testing, among other things.

We provide mandatory physical check-ups which cover sleep apnea and hair follicle or urine-based drug testing, among other things.

We believe that investing in the health of our associates helps maintain a high-quality driver base.

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A discussion regarding our financial condition and results of operations for fiscal 2021 compared to fiscal 2020 is presented below.

A discussion regarding our financial condition and results of operations for fiscal 2019 compared to fiscal 2018 can be found under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on the Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on February 19, 2020 and is available on the SEC’s website at www.sec.gov, as well as our Investor Relations website at www.schneider.com.

A discussion regarding our financial condition and results of operations for fiscal 2020 compared to fiscal 2019 can be found under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on the Form 10-K for the fiscal year ended December 31, 2020, which was filed with the SEC on February 19, 2021 and is available on the SEC’s website at www.sec.gov, as well as the “Investors” section of our website at www.schneider.com.

Non-GAAP Financial Measures

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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 price 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.

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Litigation (1)

Acquisition-related costs (2)

Goodwill impairment (3)

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Adjusted income from operations $ 532.7 $ 300.5

(1) Contested prior period federal excise taxes, including court awarded costs and interest, as a result of an adverse tax ruling in 2020 related to an IRS dispute over the applicability of excise taxes on certain tractors refurbished during tax years 2011 through 2013 and no longer in service.

(1) In 2020, we recorded expense for prior period federal excise taxes, including court awarded costs and interest, as a result of an adverse tax ruling which we disputed.

In 2021, after a favorable ruling in the U.S.

Court of Appeals, we recorded a recovery of such taxes and interest upon confirmation from the IRS of the refund amount.

Refer to Note 14, Commitments and Contingencies , for more information.

(2) Goodwill impairment charge recorded for our FTFM reporting unit during 2019.

(2) Advisory, legal, and accounting costs related to the December 31, 2021 acquisition of MLS.

Refer to Note 2, Acquisition , for additional details.

(3) Goodwill impairment charge recorded for our Asia reporting unit in the fourth quarter of 2021.

Refer to Note 6, Goodwill, for more information.

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Litigation 13.5 (12.8)

Acquisition-related costs (1.9) —

Goodwill impairment (10.6) —

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Litigation (13.5) 12.8

Acquisition-related costs 1.9 —

Goodwill impairment 10.6 —

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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.

The Asia goodwill impairment in 2021 was not subject to taxes.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Enterprise Results Summary

Enterprise net income increased $64.7 million, approximately 44%, in the year ended December 31, 2020 compared to 2019, primarily due to a $78.9 million increase in income from operations and an $8.8 million gain on our ownership interest in PSI.

These items were partially offset by an increase in income taxes related to higher taxable income.

Enterprise net income increased $193.7 million, approximately 91%, in the year ended December 31, 2021 compared to 2020, primarily due to a $247.0 million increase in income from operations, partially offset by the corresponding increase in income taxes.

In addition, net income in 2021 and 2020 included pre-tax equity investment net gains of $21.6 million and $8.8 million, respectively.

Adjusted net income increased $185.2 million, approximately 83%.

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Enterprise Revenues

Enterprise operating revenues decreased $194.2 million, approximately 4%, in the year ended December 31, 2020 compared to 2019.

Factors contributing to the decrease were as follows:

• a $225.8 million decrease in Truckload segment revenues (excluding fuel surcharge) resulting from an overall reduction in Truckload volume driven by driver capacity constraints and COVID-19 market impacts, as well as the shutdown of our FTFM service offering in August 2019 which generated $78.1 million of revenues in 2019;

• a $147.7 million decrease in fuel surcharge revenues resulting from a 16% decline in average diesel price per gallon in the U.S.

as reported by the Department of Energy, a decline in Truckload and Intermodal volumes, and a $13.2 million reduction related to the FTFM shutdown;

• a $33.1 million decrease in our Intermodal segment revenues (excluding fuel surcharge) driven by a decrease in volume due primarily to COVID-19 impacts and rail fluidity network disruptions, as well as shorter length of haul and freight mix.

The above factors were partially offset by a $194.5 million increase in Logistics segment revenues (excluding fuel surcharge) primarily related to volume growth and improved revenue per order within our brokerage business.

Enterprise revenues (excluding fuel surcharge) decreased $46.5 million, approximately 1%.

Enterprise operating revenues increased $1,055.9 million, approximately 23%, in the year ended December 31, 2021 compared to 2020.

Factors contributing to the increase were as follows:

• a $679.4 million increase in Logistics segment revenues (excluding fuel surcharge) due to an increase in revenue per order and volume growth;

• a $168.4 million increase in Intermodal segment revenues (excluding fuel surcharge) driven by improvement in revenue per order and an increase in orders despite network fluidity constraints;

• a $126.5 million increase in fuel surcharge revenues resulting from an increase in fuel prices in 2021 compared to 2020 (for example, based on information reported by the U.S.

Department of Energy, the average diesel price per gallon in the U.S.

increased by 27% between such periods) and an increase in Intermodal volumes, partially offset by a decrease in Truckload volumes;

• an $83.9 million increase in Truckload segment revenues (excluding fuel surcharge) driven by improved revenue per truck per week, partially offset by lower volumes due to driver capacity constraints.

Enterprise revenues (excluding fuel surcharge) increased $929.4 million, approximately 22%.

Enterprise Income from Operations and Operating Ratio

Enterprise income from operations increased $78.9 million, approximately 38%, in the year ended December 31, 2020 compared to 2019, primarily due to $131.7 million of favorability resulting from the FTFM shutdown in 2019, including net restructuring, goodwill impairment charges, and FTFM’s $34.4 million loss from operations.

Cost savings resulting from auto insurance favorability and lower healthcare costs also contributed to the increase in income from operations.

Those increases were partially offset by a reduction in Truckload and Intermodal freight volumes primarily due to driver capacity constraints resulting, in part, from COVID-19 and rail driven market disruptions, a $31.8 million increase in performance-based incentive compensation, and $12.8 million of costs related to an adverse excise tax ruling in 2020.

Adjusted income from operations decreased $5.6 million, approximately 2%.

Enterprise operating ratio improved on a GAAP basis but weakened on an adjusted basis compared to the same period of 2019.

Our operating ratio can be negatively impacted when our lower margin, less asset-focused Logistics segment grows faster than our higher margin, capital-intensive Truckload segment.

Enterprise income from operations increased $247.0 million, approximately 86%, in the year ended December 31, 2021 compared to 2020, primarily due to increases in revenue per truck per week in Truckload, revenue per order in Intermodal, and net revenue per order in Logistics largely driven by strong freight market conditions and effective network and revenue management.

A $70.6 million improvement in equipment dispositions and a $26.3 million favorable change related to a 2020 adverse tax ruling that was overturned in 2021 also contributed to improved income from operations.

The above factors were partially offset by an increase in driver costs resulting from additional costs incurred to attract and retain drivers, a reduction in Truckload freight volumes due to industry-wide capacity constraints, and higher rail costs.

Adjusted income from operations increased $232.2 million, approximately 77%.

Enterprise operating ratio improved on both a GAAP and adjusted basis when compared to the same period of 2020.

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 $1.4 million, year over year, primarily due to an increase in third party carrier costs within our Logistics segment driven by brokerage volume growth and higher purchased transportation per order.

This increase was partially offset by a decrease in Truckload and Intermodal volumes and reduced owner-operator costs within Truckload resulting from business mix.

The FTFM shutdown also resulted in a $24.7 million reduction in purchased transportation.

• Salaries, wages, and benefits decreased $59.5 million, or 5%, year over year, largely due to a benefit of approximately $75.0 million associated with the FTFM shutdown and insourcing of warehouse management operations by an import/export customer in 2019 and reduced healthcare costs primarily due to fewer claims and plan participants in 2020.

While we expect to see continued favorability in our healthcare costs in 2021, we don’t anticipate favorability at the same levels.

Favorability in driver pay due to lower headcount, along with other headcount reductions across the organization, further contributed to the decrease in salaries, wages, and benefits.

These decreases were partially offset by a $31.8 million increase in performance-based incentive compensation.

• Fuel and fuel taxes decreased $85.3 million, or 29%, year over year, driven by a decrease in cost per gallon, less company driver miles within our Truckload segment, and a $10.6 million reduction in fuel and fuel taxes attributable to the FTFM shutdown.

• Purchased transportation increased $659.9 million, or 33%, year over year, primarily resulting from increased third party carrier costs due to higher purchased transportation costs per order and volume growth within Logistics, as well as higher rail purchased transportation resulting from an increase in both rail costs and orders in Intermodal.

• Salaries, wages, and benefits increased $103.0 million, or 10%, year over year, driven by increases in Truckload and Intermodal driver pay, Logistics salaries and wages, performance-based incentive compensation, and healthcare costs.

The increases in driver pay were largely the result of pay increases and actions to address driver capacity constraints, while the increase in Logistics salaries and wages was primarily due to an increase in headcount and sales commissions.

Healthcare costs increased 17% when compared to the prior year mainly resulting from an increase in the severity and frequency of claims in 2021.

• Fuel and fuel taxes increased $77.0 million, or 38%, year over year, driven primarily by an increase in cost per gallon, partially offset by a decrease in company driver miles resulting from industry-wide capacity constraints.

A significant portion of fuel costs are recovered through our fuel surcharge programs.

• Depreciation and amortization decreased $2.4 million, or 1%, year over year, driven by the FTFM shutdown, partially offset by an increase in trailer and telematics depreciation expense within the Truckload segment.

• Operating supplies and expenses increased $2.8 million, or 1%, year over year, driven by $12.8 million of costs for an adverse tax ruling related to a dispute with the IRS over the applicability of excise taxes on certain tractors refurbished during tax years 2011 through 2013 and no longer in service, a $9.5 million unfavorable change from equipment dispositions, and an $8.5 million increase in cost of goods sold from an increase in equipment sales by our leasing business.

These increases were partially offset by a $10.0 million decrease in impairment of held for sale assets, a $9.7 million decrease in facility, utility, and other costs primarily due to temporary facility closures associated with COVID-19, reduced volumes, the FTFM shutdown, and various other cost savings initiatives, a $4.0 million reduction in temporary worker pay due to insourcing by one of our import/export customers, and reductions in a variety of other operating-related expenses that were individually immaterial.

• Insurance and related expenses decreased $23.5 million, or 21%, year over year, predominately due to favorability in auto liability despite an increase in insurance premiums.

Improvements in equipment technology, combined with a reduction in company driver miles and less traffic congestion resulting from COVID-19, led to a decrease in claim severity.

We anticipate that we will continue to see favorability in claims severity driven by technology improvements, however not at the same levels as 2020.

• Other general expenses decreased $9.3 million, or 8%, year over year, as a result of reduced travel expenses and general supplies resulting from Company enforced travel restrictions related to COVID-19 and cost savings initiatives, as well as a decline in driver recruiting and training costs due to lower company driver turnover and fewer hires.

Additional costs were incurred in the driver recruiting and training space to safely onboard new drivers during COVID-19;

however, these costs were more than offset by savings from lower company driver turnover and fewer inexperienced hires.

• Goodwill impairment charges decreased $34.6 million year over year, due to the FTFM goodwill impairment charge of $34.6 million in 2019.

• Restructuring—net was $62.7 million favorable year over year, due to higher initial costs in 2019 related to impairment charges, receivable write-downs, and other costs related to the FTFM shutdown.

Restructuring activity in 2020 was insignificant.

Refer to Note 16, Restructuring , for additional details.

Total Oth er Expenses

Other expenses decreased $5.9 million, approximately 61%, in the year ended December 31, 2020 compared to 2019, primarily from an $8.8 million pre-tax gain recognized on our ownership interest in PSI and a $3.0 million decrease in interest expense primarily a result of lower outstanding debt balances year over year.

See Note 5, Investments , for more information on PSI.

These items were partially offset by a $5.2 million decrease in interest income attributed to a decline in interest rates.

• Depreciation and amortization increased $5.7 million, or 2%, year over year, primarily driven by an increase in internal use software amortization.

• Operating supplies and expenses decreased $70.6 million, or 13%, year over year, a result of a $70.1 million favorable

change in equipment dispositions driven by a strong used equipment market and the strength of our nationwide maintenance network in facilitating equipment sales, a $26.3 million favorable change related to a $12.8 million adverse tax ruling in 2020 and its reversal (plus interest) in 2021, and a decrease in cost of goods sold in our leasing business as a result of reduced lease activity.

These factors were partially offset by an increase in equipment rental expense due to port congestion and higher customer dwell times, additional rail storage expenses caused by network fluidity constraints, and an increase in a variety of other operating-related areas that were individually immaterial.

• Insurance and related expenses decreased $3.7 million, or 4%, year over year, primarily due to favorability in auto liability resulting from a decrease in claims severity and frequency.

• Other general expenses increased $28.0 million, or 26%, year over year, primarily due to higher driver onboarding costs as the costs to attract and retain drivers increased as a result of constrained industry-wide capacity levels, which we expect to continue into 2022, compared to favorable driver turnover in 2020 during the onset of the COVID-19 pandemic.

The remaining increase is attributable to increased software development and professional services costs, including $1.9 million of acquisition-related costs associated with the acquisition of MLS in 2021.

• Goodwill impairment charges increased $10.6 million year over year, due to the full impairment recorded for our Asia reporting unit in 2021.

Total Other Expenses (Income)

Total other income increased $12.1 million in the year ended December 31, 2021 compared to 2020, primarily due to a $12.8 million increase in pre-tax equity investment net gains as we recorded a pre-tax net gain of $21.6 million in 2021 compared to an $8.8 million pre-tax gain in 2020.

See Note 5, Investments , for more information on our equity investments.

Income Tax Expense

Our provision for income taxes increased $20.1 million, approximately 39% , in the year ended December 31, 2020 compared to 2019, primarily due to higher taxable income.

Our effective income tax rate was 25.2% for the year ended December 31, 2020 compared to 25.8% for 2019.

We anticipate that our ongoing effective tax rate will be 25.2% - 25.7% subject to further changes in tax law.

Our provision for income taxes increased $65.4 million, approximately 92%, in the year ended December 31, 2021 compared to 2020 due to higher taxable income.

Our effective income tax rate was 25.2% for the years ended December 31, 2021 and 2020.

While we anticipate that our ongoing effective tax rate will be 25.0% - 25.5%, 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 revenue and income (loss) from operations by segment.

The following tables summarize revenues and income (loss) from operations by segment.

Year Ended December 31,

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Litigation (13.5) 12.8

Acquisition-related costs 1.9 —

Goodwill impairment 10.6 —

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Adjusted income from operations $ 532.7 $ 300.5

We monitor and analyze a number of KPIs to manage our business and evaluate our financial and operating performance.

Below are our KPIs by segment.

We monitor and analyze a number of KPIs in order to manage our business and evaluate our financial and operating performance.

The following table presents the KPIs for our Truckload segment for the periods indicated, consistent with how revenues and expenses are reported internally for segment purposes.

Prior to 2020, we reported KPIs within our Truckload segment by quadrant.

Going forward, KPIs will be reported for our dedicated and network operations only.

This presentation change does not impact KPIs at the segment level.

The Truckload KPIs below do not contemplate the impacts of our acquisition of MLS on December 31, 2021.

As of December 31, 2021, MLS operated approximately 900 tractors and 3,600 trailers.

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, formerly called for-hire.

• Network - Transportation services of one-way shipment.

Year Ended December 31,

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Average trucks (2) (3)

10,055 11,091

Revenue per truck per week (4)

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(1) Revenues (excluding fuel surcharge), in millions, exclude revenue in transit.

(2) Includes company trucks and owner-operator trucks.

(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.

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(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.

Truckload revenues (excluding fuel surcharge) decreased $225.8 million, approximately 11%, in the year ended December 31, 2020 compared to 2019.

The decrease was primarily attributable to a 6% decline in volume, the shutdown of our FTFM service offering in August 2019 which generated $78.1 million of revenues during 2019, and a 1% reduction in price, defined as rate per loaded mile.

Decreased volume resulted from early 2020 soft market conditions being compounded by the shutdown of non-essential businesses in response to COVID-19 and capacity constraints resulting, in part, from the impacts of COVID-19.

Price decreased year over year due to lower contracted freight rates primarily in the first half of 2020 mostly offset by improved contract and spot rates in the second half of 2020.

Truckload income from operations increased $128.8 million in the year ended December 31, 2020 compared to 2019, mainly due to favorability of $131.7 million resulting from the FTFM shutdown in 2019, including net restructuring, goodwill impairment charges, and FTFM’s $34.4 million loss from operations.

Cost savings in healthcare due to fewer claims and plan participants, and safety due to the number and severity of claims as a result of fewer drivers, less miles driven, and safety technology, also contributed to the increase in income from operations.

These items were partially offset by the unfavorable earnings impact of reduced volume and price noted above, and increased performance-based incentive compensation costs.

Truckload revenues (excluding fuel surcharge) increased $83.9 million, approximately 5%, in the year ended December 31, 2021 compared to 2020, resulting from price improvements being largely offset by a 10% decline in volume.

Revenue per truck per week increased $467, or 13%, year over year, due to a 17% increase in rate per loaded mile driven by higher contract and spot rates in an inflationary market, partially offset by reduced productivity due to network disruptions.

While our dedicated business experienced growth year over year as a result of new business wins, overall Truckload order volumes declined primarily driven by driver capacity constraints within our network business.

Truckload income from operations increased $96.9 million, approximately 52%, in the year ended December 31, 2021 compared to 2020, primarily due to the impact of contract renewals and favorable spot market pricing, in addition to a $58.1 million favorable change in equipment dispositions.

These items were partially offset by an increase in driver-related costs as a result of pay increases and actions taken to attract and retain drivers in response to industry-wide driver capacity constraints, in addition to the earnings impact of reduced volumes, noted above.

The following table presents the KPIs for our Intermodal segment for the periods indicated.

In support of a few key customers, we provide dray-only service utilizing our drivers and chassis.

The length of haul and revenue characteristics of dray-only service are much different than rail.

Prior to 2020, we reported orders and revenue per order inclusive of dray-only activity.

Orders and revenue per order presented below for both 2020 and 2019 exclude dray-only shipments.

Year Ended December 31,

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(1) Based on delivered rail orders.

(2) Includes company trucks and owner-operator trucks at the end of the period.

(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) decreased $33.1 million, approximately 3%, in the year ended December 31, 2020 compared to 2019.

Contributing to the revenue reduction was an $84, or 4%, decrease in revenue per order driven by a decline in length of haul due to a greater mix of freight volumes in the East.

Orders also decreased 1% as a result of COVID-19 induced network demand disruptions in the first half of 2020, rail network fluidity and service issues, and dray capacity constraints, partially offset by growth in the East.

Intermodal income from operations decreased $32.7 million, approximately 30%, in the year ended December 31, 2020 compared to 2019.

Factors affecting revenue discussed above, coupled with incremental driver pay and incentives and higher rail storage costs, drove the decline in income from operations.

Intermodal revenues (excluding fuel surcharge) increased $168.4 million, approximately 17%, in the year ended December 31, 2021 compared to 2020.

Revenue per order increased $318, or 14%, driven primarily by strong market conditions resulting in improvements in price and increased premium opportunities, partially offset by shorter length of haul due to growth in the East which typically has a lower revenue per order.

Orders also increased 4% due to favorable market demand conditions, despite supply chain inefficiencies resulting in extended container dwell times and rail network disruptions.

Intermodal income from operations increased $80.2 million, approximately 107%, in the year ended December 31, 2021 compared to 2020, mainly due to factors impacting revenues discussed above and a $12.1 million favorable change in equipment dispositions, partially offset by the impact of network fluidity and capacity challenges on rail and driver-related costs.

The following table presents the KPI for our Logistics segment for the periods indicated.

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(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 $194.5 million, approximately 21%, in the year ended December 31, 2020 compared to 2019, primarily attributable to an increase in volume, including growth of the Power Only offering, partially offset by one of the Company’s import/export customers insourcing their warehouse management function in April 2019.

Revenue per order within our brokerage business also improved compared to 2019 due to h igher spot mix and rate, along with promotional and project opportunities in the second half of 2020.

Logistics income from operations increased $5.8 million, approximately 16%, in the year ended December 31, 2020 compared to 2019.

This increase was primarily driven by the volume growth noted above in addition to net revenue improvements in our brokerage business due to market strength in the second half of 2020.

Included in Other was a loss from operations of $19.2 million in the year ended December 31, 2020 compared to income from operations of $3.8 million in 2019.

Factors contributing to the change include a $24.3 million increase in performance-based incentive compensation and $12.8 million of costs resulting from an adverse excise tax ruling in 2020.

These items were partially offset by a $6.7 million decrease in loss from operations within our captive insurance business primarily resulting from favorable auto liability despite an increase in premiums and a $5.2 million reduction in healthcare costs mostly due to fewer claims and plan participants.

Logistics revenues (excluding fuel surcharge) increased $679.4 million, approximately 60%, in the year ended December 31, 2021 compared to 2020.

This increase was mainly the result of an increase in revenue per order and 20% volume growth within our brokerage business driven by supportive market conditions, in addition to expansion of our Power Only offering and digital platform.

Logistics income from operations increased $49.3 million, approximately 114%, in the year ended December 31, 2021 compared to 2020, primarily due to net revenue per order improvements within our brokerage business and volume growth, as cited above.

Included in Other was income from operations of $1.4 million in the year ended December 31, 2021 compared to a loss from operations of $19.2 million in 2020.

The fluctuation was primarily driven by a $26.3 million favorable change related to a 2020 adverse tax ruling that was subsequently overturned in 2021 and an increase in income from operations within our leasing business driven by a decrease in cost of goods sold.

These factors were partially offset by an increase in performance-based incentive compensation year over year, in addition to a $10.6 million goodwill impairment charge for our Asia reporting unit in 2021.

LIQUIDITY AND CAPITAL RESOURCES

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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 million accounts receivable facility, for which our available capacity as of December 31, 2020 was $375.8 million.

In addition, we have a $250.0 million revolving credit facility and a $150.0 million accounts receivable facility, for which our combined available capacity as of December 31, 2021 was $325.8 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, or because the COVID-19 crisis lasts longer than anticipated, we anticipate that we will obtain these funds through additional borrowings, equity offerings, or a combination of these potential sources of liquidity.

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.

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$ 270.3 $ 307.0

(1) Debt on our consolidated balance sheets is presented net of deferred financing costs.

(1) Debt on the consolidated balance sheets is presented net of deferred financing costs.

At December 31, 2021, we were in compliance with all financial covenants under our credit agreements and the agreements governing our senior notes.

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Cash provided by operating activities decreased $52.1 million, approximately 8%, during 2021 compared to 2020.

The decrease was driven by a decrease in net income after adjustments for various noncash charges, partially offset by a net increase in cash provided by working capital.

Improvements in cash flows from working capital included payroll taxes deferred under the CARES Act of $30.7 million, which we intend to pay in 2021.

The decrease was the result of an increase in cash used for working capital, partially offset by an increase in net income adjusted for various noncash charges.

Working capital changes decreasing net cash provided by operating activities were driven by an increase in trade accounts receivable, which increased proportionate to revenue growth, and a decrease in other liabilities primarily related to the $30.7 million payment of payroll taxes deferred under the CARES Act during 2021, in comparison to the ending 2020 accrual.

Investing Activities

Cash used in investing activities decreased $31.5 million, approximately 9%, during 2020 compared to 2019.

The decrease in cash used was primarily driven by a $69.8 million decrease in net capital expenditures, partially offset by a $25.8 million increase in purchases of lease equipment and $10.4 million of investments in equity securities.

Cash used in investing activities increased $307.7 million, approximately 97%, during 2021 compared to 2020.

The increase in cash used was primarily driven by the Company’s acquisition of 100% of the outstanding equity of MLS for $271.3 million on December 31, 2021, as well as a $34.0 million increase in net capital expenditures.

Capital Expenditures

The following table sets forth, for the periods indicated, our net capital expenditures.

The following table sets forth our net capital expenditures for the periods indicated.

Year Ended December 31,

(in millions) 2021 2020

Transportation equipment $ 274.8 $ 335.3

Other property and equipment 49.7 61.7

Purchases of transportation equipment $ 399.4 $ 274.8

Purchases of other property and equipment 49.5 49.7

Proceeds from sale of property and equipment (177.8) (87.4)

Net capital expenditures $ 271.1 $ 237.1

Net capital expenditures decreased by $69.8 million in 2020 compared to 2019.

The decrease was driven by a $60.5 million decrease in expenditures for transportation equipment resulting mainly from decreased tractor purchases due to reduced manufacturer capacity in the beginning of 2020 due to COVID-19, a $12.0 million decrease in purchases of other property and equipment, and a $2.7 million decrease in proceeds from the sale of property and equipment.

Net capital expenditures increased $34.0 million in 2021 compared to 2020.

The increase was driven by a $124.6 million increase in purchases of transportation equipment mainly due to replacement capital and to reduce the age of our tractor fleet, partially offset by a $90.4 million increase in proceeds from the sale of property and equipment primarily resulting from higher proceeds per unit and increased tractor and trailer sales.

The higher proceeds per unit in 2021 were driven by the current supply and demand environment, and we expect to see this trend persist as long as there are shortages in the supply chain.

We currently anticipate net capital expenditures in 2022 to be approximately $450.0 million.

Financing Activities

Cash used in financing activities increased by $342.4 million during 2020 compared to 2019.

The main drivers of the increase in cash used were an increase in dividend payments of $357.5 million primarily the result of the 2020 special dividend of $2.00 per share, and the $25.0 million and $30.0 million repayments of private placement notes in March and September of 2020, respectively;

partially offset by the $40.0 million repayment of private placement notes in November 2019 and the final guaranteed payment associated with the 2016 WSL acquisition in 2019.

Cash used in financing activities decreased $365.2 million, approximately 80%, during 2021 compared to 2020.

The main drivers of the decrease in cash used were a $350.4 million decrease in dividend payments primarily the result of the 2020 special dividend of $2.00 per share, and the $25.0 million and $30.0 million repayments of private placement notes in March and September of 2020, respectively;

partially offset by the $40.0 million repayment of private placement notes in November 2021.

Other Considerations That Could Affect Our Results, Liquidity, and Capital Resources

Despite disruptions in the financial markets due to COVID-19, we have been able to fund our liquidity needs to date.

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 within other expense (income)—net on the consolidated statements of comprehensive income.

In the year ended December 31, 2021, the Company recognized a pre-tax net gain of $7.7 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.

While the ongoing COVID-19 pandemic creates potential liquidity risks, 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 $294.1 million and $325.8 million of unused credit capacity as of December 31, 2021.

Our outstanding debt as of the end of 2020 was $307.0

million, of which $40.4 million is short-term in nature.

Our outstanding debt at the end of 2021 was $270.3 million, of which $61.4 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.

Driver Capacity and Wage Cost

Our professional driver workforce is one of our most valuable assets.

Recruiting and retaining sufficient numbers of qualified drivers is challenging in an increasingly competitive driver market and has a significant impact on our operating costs and ability to serve our customers.

Changes in the demographic composition of the workforce, alternative employment opportunities that become available in the economy, and individual driver’s desire to be home more frequently can affect availability of drivers and increase the wages our drivers require.

Off-Balance Sheet Arrangements

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Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2020.

Payments Due by Period

(in millions) Total Amounts Committed 2021 2022-2023 2024-2025 After 2025 Other

Long-term debt (1)

$ 338.4 $ 50.8 $ 145.9 $ 141.7 $ — $ —

Purchase obligations (2)

161.9 161.9 — — — —

Finance lease obligations (1)

2.1 0.5 1.0 0.5 0.1 —

Operating lease obligations (1)

80.7 25.8 31.9 17.6 5.4 —

Deferred payroll taxes (3)

30.7 30.7 — — — —

Unrecognized tax benefits (4)

4.3 — — — — 4.3

Total $ 618.1 $ 269.7 $ 178.8 $ 159.8 $ 5.5 $ 4.3

(1) Includes principal and interest obligations.

(2) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms.

Our purchase obligations relate to transportation equipment.

(3) Represents employer social security taxes deferred under the CARES Act and expected to be paid in 2021.

(4) This amount is shown in the other column because the year of settlement cannot be reasonably estimated.

See Note 9, Income Taxes , for additional information.

As of December 31, 2021, we had contractual obligations related to our long-term debt of $265.0 million and $22.6 million for principal borrowings and interest, respectively, which become due through 2025.

See Note 7, Debt and Credit Facilities , for additional information regarding our debt obligations.

We also have contractual obligations for finance and operating leases and purchase commitments related to agreements to purchase transportation equipment.

See Note 8, Leases , and Note 14, Commitments and Contingencies , respectively, for additional information regarding our lease and purchase commitment obligations.

CRITICAL ACCOUNTING ESTIMATES

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Reserves are established based on estimated or expected losses for claims.

The primary claims arising for the Company consist of accident-related claims for personal injury, collision, and comprehensive compensation, in addition to workers’ compensation and cargo liability.

We maintain self-insurance levels for these various areas of risk and have established reserves to cover these self-insured liabilities.

We maintain self-insurance levels for these various areas of risk and have established reserves to cover self-insured liabilities.

The amounts of self-insurance change from time to time based on measurement dates, policy expiration dates, policy exhaustion, and claim type.

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We have significant exposure to fluctuations in the number and severity of claims.

If there is an increase in the frequency and/or severity of claims, or we are required to accrue or pay additional amounts if the claims prove to be more severe than originally assessed, or any of the claims would exceed the limits of our insurance coverage, our profitability would be adversely affected.

If there is an increase in the frequency and/or severity of claims, we are required to accrue or pay additional amounts if the claims prove to be more severe than originally assessed or exceed the limits of our insurance coverage, and our profitability would be adversely affected.

In addition to estimates within our self-insured retention, we also must make judgments concerning our coverage limits.

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The ultimate cost of a claim is developed over time as additional information regarding the nature, timing, and extent of damages claimed becomes available.

Property and Equipment

We operate a large fleet of trucks, trailers, containers, chassis, and other equipment in connection with our business and must determine the estimated useful lives and salvage values of our fleet to calculate depreciation.

Property and equipment are stated at cost less accumulated depreciation and depreciated to an estimated salvage value using the straight-line method over the asset’s estimated useful life.

Depreciable lives of revenue equipment range from 3 to 20 years and are based on historical experience, as well as future expectations regarding the period we expect to benefit from the assets, and company policies around maintenance and asset replacement.

Estimates of salvage value at the expected date of sale are based on the expected market values of equipment at the expected time of disposal.

We consider our experience with similar assets, conditions in the used revenue equipment market, and operational information such as average annual miles.

We periodically review the reasonableness of our estimates regarding useful lives and salvage values of our revenue equipment and adjust these assumptions appropriately when warranted.

We review our property and equipment whenever events or circumstances indicate the carrying amount of assets may not be recoverable.

An impairment loss equal to the excess of carrying amount over fair value is recognized when the carrying amount of assets is not recoverable.

Additionally, we reclassify certain revenue equipment to assets held for sale when the applicable criteria are met.

An impairment loss equal to the excess of carrying amount over fair value less estimated costs to sell the asset is recognized if the carrying amount of the held for sale asset is not recoverable.

Fair value is determined using recent sales prices or National Automobile Dealers Association wholesale prices for assets with the same or similar specifications.

As of December 31, 2020 and 2019, we had assets held for sale of $18.8 million and $67.4 million, respectively, of which $1.6 million and $33.4 million related to the shutdown of the FTFM service offering, respectively.

Impairment losses on assets held for sale of $4.7 million and $42.4 million were recorded in 2020 and 2019, respectively.

To expand our business offerings, we have, on occasion, acquired other companies.

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Goodwill is not amortized but is assessed for impairment at least annually and more frequently if a triggering event indicates that impairment may exist.

Our total goodwill balance at December 31, 2020 and 2019 was $128.1 million and $127.5 million, respectively.

Goodwill is evaluated for impairment at the reporting unit level annually, or more frequently if events or circumstances indicate the carrying value is not recoverable.

Our goodwill balance at December 31, 2021 and 2020 was $240.5 million and $128.1 million, respectively.

Goodwill is evaluated for impairment annually at the reporting unit level, or more frequently if events or circumstances indicate the carrying value is not recoverable.

A reporting unit can be a segment or business within a segment.

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When performing a qualitative test, we assess numerous factors to determine whether it is more likely than not that the fair value of our reporting units is less than their respective carrying values.

Examples of qualitative factors that we assess include our share price, our financial performance, market and competitive factors in our industry, and other events specific to our reporting units.

Examples of qualitative factors that are assessed include our share price, financial performance, market and competitive factors in our industry, and other events specific to our reporting units.

If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative impairment test.

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These assumptions could be adversely impacted by certain risks discussed earlier in this document.

During the second quarter of 2019, a triggering event occurred as results from our FTFM reporting unit continued to be less than projected, despite sustained investments and operational changes designed to improve efficiencies.

Because of this triggering event, an impairment test was performed for the FTFM reporting unit.

As a result of the testing performed, an impairment loss of $34.6 million was recorded, as the discounted cash flows expected to be generated by this reporting unit were not sufficient to recover its carrying value.

This represented all of the goodwill related to the FTFM reporting unit.

We completed the required annual goodwill impairment test for all three of our reporting units with goodwill as of October 31, 2020 and concluded that the excess of estimated fair values over carrying values for each reporting unit was more than insignificant.

We completed the required annual goodwill impairment assessment for all three of our reporting units with goodwill as of October 31, 2021.

A qualitative goodwill assessment was performed for our VTL/Dedicated Services reporting unit, and quantitative assessments were performed for our Import/Export and Asia reporting units.

The fair value of the Import/Export reporting unit was significantly in excess of its carrying value, while our Asia reporting unit had a carrying value in excess of its fair value requiring full impairment of its remaining goodwill of $10.6 million.

The long-term earnings growth rate used in the 2021 goodwill valuation decreased from the prior year’s valuation as a result of lower profitability in the terminal period, causing the Asia reporting unit’s carrying value to exceed its fair value at October 31, 2021.

There were no triggering events identified from the date of our assessment through December 31, 2021 that would require an update to our annual impairment test.

If future operating performance of any of our reporting units is below our expectations or there are changes to forecasted growth rates or our cost of capital, a decline in the fair value of the reporting units could result, and we may be required to record a goodwill impairment charge.

If future operating performance of our VTL/Dedicated Services or Import/Export reporting units is below our expectations or there are changes to forecasted growth rates or our cost of capital, a decline in the fair value of the reporting units could result, and we may be required to record a goodwill impairment charge.

See Note 6, Goodwill, for more information.

Additionally, as a result of the Company’s acquisition of MLS on December 31, 2021, $122.7 million of goodwill was recorded representing the excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed.

See Note 2, Acquisition, for more information.

Business Combinations

We record assets acquired and liabilities assumed in a business combination under the purchase method of accounting where consideration is first assigned to identifiable assets and liabilities based on estimated fair values, with any excess recorded as goodwill.

During the measurement period, which is up to one year from the acquisition date, we may adjust provisional amounts that were recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date.

Determining the fair value of assets acquired and liabilities assumed requires significant judgment, including the selection of valuation methodologies such as the income, sales comparison, and market approaches.

For the MLS acquisition, 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.

Our determination of the fair value of these assets involved the use of significant estimates and assumptions including recent selling prices of similar equipment, asset condition, and current and anticipated market trends.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis