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1. GENERAL
Description of Business
In this report, when we refer to “the Company,” “us,” “we,” “our,” or “ours,” we are referring to Schneider National, Inc. and its subsidiaries. We are a leading transportation services organization headquartered in Green Bay, Wisconsin. We provide a broad portfolio of premier truckload, intermodal, and logistics solutions and operate one of the largest trucking fleets in North America.
Our initial public offering of shares of Class B Common Stock was completed in April 2017, and additional shares were sold in May 2017 under an option granted to the underwriters. In connection with the offering, we sold a total of 20,145,000 shares of common stock at $19 per share and received proceeds of $382,755. Expenses related to the offering totaled approximately $42,485, resulting in net proceeds of $340,270. The financial statement effects of the IPO and related exercise of the additional allotment is not reflected in these interim financial statements for the period ended March 31, 2017.
Basis of Presentation
The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with GAAP and the rules and regulations of the SEC applicable to quarterly reports on Form 10-Q. Therefore, these financial statements and footnotes do not include all disclosures required by GAAP for annual financial statements. These financial statements should be read in conjunction with the Consolidated Financial Statements and related notes included in our Prospectus. Financial results for an interim period are not necessarily indicative of the results for a full year.
All intercompany transactions have been eliminated in consolidation.
In the opinion of management, these statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of our financial results for the interim periods presented.
Accounting Standards Issued But Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. As amended, the new revenue recognition standard will be effective for us beginning with the reporting period ending March 31, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. We have begun reviewing and assessing our contracts with customers in accordance with the guidance in the ASU. Based on our analysis to date, we do not expect the adoption of this ASU to have a material impact on our consolidated financial position, results of operations, and cash flows. We are still evaluating the transition method choices and the disclosure requirements of this standard.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This update was issued to enhance the reporting model for financial instruments regarding certain aspects of recognition, measurement, presentation, and disclosure. These provisions are effective for us beginning with the reporting period ending March 31, 2018. The standard is to be applied using a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption. We currently cannot reasonably estimate the impact that the adoption of this ASU will have on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize in the consolidated balance sheets assets and liabilities for leases with lease terms of more than 12 months. Consistent with current accounting principles, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current accounting principles, which require only capital leases to be recognized in the consolidated balance sheets, the new ASU will require both types of leases to be recognized in the consolidated balance sheets. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that companies may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. The transition guidance also provides specific guidance for sale and leaseback transactions, build-to-suit leases, leveraged leases, and amounts previously recognized in accordance with the business combinations guidance for leases. The new standard is effective for us beginning with the reporting period ending March 31, 2018, with early adoption permitted. We currently cannot reasonably estimate the impact that the adoption of this ASU will have on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires companies to use a forward-looking, expected loss model to estimate credit losses on various types of financial assets and net investments in leases. It also requires additional disclosure related to credit quality of trade and other receivables, including information related to management’s estimate of credit allowances. This guidance is effective for us beginning with the reporting period ending March 31, 2021. We currently cannot reasonably estimate the impact that the adoption of this ASU will have on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively if retrospective application would be impracticable. The provisions of this update are effective for us beginning with the reporting period ending March 31, 2018. We currently cannot reasonably estimate the impact that the adoption of this ASU will have on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment testing process. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the new standard, a goodwill impairment loss is measured as the excess of the carrying value of a reporting unit over its fair value. The provisions of this update will be effective for our goodwill impairment test in 2020. We currently cannot reasonably estimate the impact that the adoption of this ASU will have on our consolidated financial statements.
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2. ACQUISITION
On June 1, 2016, we acquired 100% of the shares of WST, for $150,420 in cash and future payments. The acquisition of WST included the simultaneous purchase of Lodeso. These two companies bring together final-mile delivery, claims-free handling, and an innovative technology platform. They provide LTL, truckload, and logistics services for difficult to handle goods, such as furniture and floor coverings, across North America. They use proprietary technology to handle supply chain complexities within the national home delivery industry. We acquired WST and Lodeso because they create integrated first-to-final-mile-delivery capabilities, which reduce supply chain complexities for omnichannel retailers and manufacturers.
The acquisition was accounted for as a purchase in accordance with FASB ASC Topic 805, Business Combinations. Assets acquired and liabilities assumed were recorded in the Truckload segment at their fair values as of the acquisition date. The fair values of identifiable intangible assets, which were primarily customer relationships and trade names, were based on valuations using the income approach. The excess of the purchase price over the estimated fair values of tangible assets, identifiable intangible assets, and assumed liabilities was recorded as goodwill. The goodwill is attributable to expected synergies and expected growth opportunities. We believe that 100% of the goodwill will be deductible for United States income tax purposes. No adjustments were made to the estimated fair values of the assets acquired and liabilities assumed during the three months ended March 31, 2017.
Recognized amounts of identifiable assets acquired and liabilities assumed |
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Cash |
$ | 1,318 | ||
Receivables |
16,156 | |||
Inventories |
480 | |||
Prepaid expenses and other current assets |
4,392 | |||
Property and equipment |
81,844 | |||
Capitalized software and other noncurrent assets |
5,807 | |||
Intangible assets |
10,900 | |||
Goodwill |
138,168 | |||
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Total assets acquired |
259,065 | |||
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Payables assumed |
7,807 | |||
Accrued liabilities assumed |
5,289 | |||
Current maturities of debt and capital lease obligations assumed |
47,692 | |||
Debt and capital lease obligations assumed |
46,211 | |||
Other noncurrent liabilities assumed |
1,646 | |||
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Fair value of total consideration transferred |
$ | 150,420 | ||
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In addition to the cash paid at closing, a guaranteed payment arrangement requires us to pay the former owners of WST $20,000 on each of the next three anniversary dates of the closing. This amount is discounted between one percent and three percent, based on credit-adjusted discount rates, for a total present value amount of $57,713 at the closing date.
A contingent payment arrangement requires us to make earnout payments based on the achievement of specified earnings targets on each of the next three anniversary dates of the closing, with the aggregate payment total not to exceed $40,000.
The following unaudited pro forma condensed combined financial information presents our results as if we had acquired WST and Lodeso on January 1, 2016.
Three Months Ended March 31, 2016 |
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Pro forma net sales |
$ | 971,375 | ||
Pro forma net income |
$ | 26,988 | ||
Basic earnings per share as reported |
$ | 0.18 | ||
Pro forma basic earnings per share |
$ | 0.17 | ||
Diluted earnings per share as reported |
$ | 0.18 | ||
Pro forma diluted earnings per share |
$ | 0.17 |
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3. FAIR VALUE
Fair value focuses on the estimated price that would be received to sell an asset or paid to transfer a liability, which is referred to as the exit price. Inputs to valuation techniques used to measure fair value fall into three broad levels (Levels 1, 2, and 3) as follows:
Level 1—Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that we have the ability to access at the measurement date.
Level 2—Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities.
Level 3—Unobservable inputs reflecting the reporting entity’s estimates of the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
All marketable securities were valued based on quoted prices for similar assets in active markets or quoted prices for identical or similar assets in markets that are not active (Level 2 in the fair value hierarchy). We measure our marketable securities on a recurring, monthly basis.
The fair value of the contingent consideration related to the 2016 acquisition of WST was $13,500 at March 31, 2017. This valuation was based on significant inputs that are not observable in the market, which are referred to as Level 3 inputs. Key assumptions include a probability-adjusted level of EBITDA estimated using the Monte Carlo simulation method.
There were no transfers between levels for the periods shown.
Fair Value of Other Financial Instruments
The recorded value of cash, receivables, and payables approximate fair value.
Based on borrowing rates available to us in the applicable year, a fixed-rate debt portfolio with similar terms and maturities would have had a fair value of approximately $592,084 and $683,923 as of March 31, 2017 and December 31, 2016, respectively.
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4. MARKETABLE SECURITIES
Our marketable securities have maturities ranging from six to 30 months, but our intent is not to hold them longer than one year. They are classified as available for sale and carried at fair value in current assets on the condensed consolidated balance sheets. Any unrealized gains and losses, net of tax, are included as a component of accumulated other comprehensive income (loss).
The following table presents the values of our marketable securities as of the dates shown.
March 31, 2017 | December 31, 2016 | |||||||||||||||
Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value |
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Zero coupon bonds |
$ | 3,787 | $ | 3,827 | $ | 3,768 | $ | 3,811 | ||||||||
U.S. treasury and government agencies |
8,037 | 8,032 | 8,048 | 8,042 | ||||||||||||
Asset-backed securities |
287 | 280 | 409 | 399 | ||||||||||||
Corporate debt securities |
13,362 | 13,519 | 14,415 | 14,541 | ||||||||||||
State and political subdivisions |
24,065 | 23,747 | 26,192 | 25,696 | ||||||||||||
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Total marketable securities |
$ | 49,538 | $ | 49,405 | $ | 52,832 | $ | 52,489 | ||||||||
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Gross realized and unrealized gains and losses on sales of marketable securities were not material for the three months ended March 31, 2017 and 2016.
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5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price of our acquisitions over the fair value of the identifiable net assets acquired. Changes in the carrying amount of goodwill were as follows.
Truckload | Logistics | Other | Total | |||||||||||||
Balance at December 31, 2016 |
$ | 138,168 | $ | 14,173 | $ | 11,694 | $ | 164,035 | ||||||||
Foreign currency translation |
— | — | 115 | 115 | ||||||||||||
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Balance at March 31, 2017 |
$ | 138,168 | $ | 14,173 | $ | 11,809 | $ | 164,150 | ||||||||
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The identifiable intangible assets other than goodwill listed below are included in other noncurrent assets on the condensed consolidated balance sheets.
March 31, 2017 | December 31, 2016 | |||||||||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||
Customer lists |
$ | 10,500 | $ | 1,708 | $ | 8,792 | $ | 10,500 | $ | 1,445 | $ | 9,055 | ||||||||||||
Trade names |
1,400 | 389 | 1,011 | 1,400 | 272 | 1,128 | ||||||||||||||||||
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Total intangible assets |
$ | 11,900 | $ | 2,097 | $ | 9,803 | $ | 11,900 | $ | 1,717 | $ | 10,183 | ||||||||||||
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Amortization expense for intangible assets was $382 and $29 for the three months ended March 31, 2017 and 2016, respectively. Accumulated amortization in the table above includes foreign currency translation related to a customer list.
Estimated future amortization expense related to intangible assets is as follows.
Remaining 2017 |
$ | 1,146 | ||
2018 |
1,416 | |||
2019 |
1,145 | |||
2020 |
950 | |||
2021 |
950 | |||
2022 and thereafter |
4,196 | |||
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$ | 9,803 | |||
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6. DEBT AND CREDIT FACILITIES
As of March 31, 2017 and December 31, 2016, debt included the following:
March 2017 |
December 2016 |
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Unsecured senior notes: principal payable at maturity; interest payable in quarterly or semiannual installments through 2024; weighted-average interest rate of 3.66% for 2017 and 2016 |
$ | 500,000 | $ | 500,000 | ||||
Equipment financing notes: principal and interest payable in monthly installments through 2023; weighted average interest rate of 3.78% and 3.82% for 2017 and 2016, respectively |
40,474 | 49,296 | ||||||
Secured credit facility: collateralized by certain trade receivables; interest rates of 1.85% and 1.68% for 2017 and 2016, respectively |
50,000 | 135,000 | ||||||
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Total principal outstanding |
590,474 | 684,296 | ||||||
Current maturities |
(166,684 | ) | (254,398 | ) | ||||
Debt issuance costs |
(1,025 | ) | (1,091 | ) | ||||
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Long-term debt |
$ | 422,765 | $ | 428,807 | ||||
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As of March 31, 2017, we were in compliance with all covenants and financial ratios under the credit agreement and the indentures governing the senior notes.
We used $100 million of the proceeds from our IPO to repay our 4.83% unsecured senior notes that matured on May 7, 2017.
We had no outstanding borrowings under our revolving credit agreement as of March 31, 2017 or December 31, 2016. Standby letters of credit under this agreement amounted to $4,100 at both March 31, 2017, and December 31, 2016, and were primarily related to the requirements of certain of our real estate leases.
We have a secured credit facility that allows us to borrow up to $200,000 against qualifying trade receivables at rates based on the 30-day LIBOR. At March 31, 2017, we had $50,000 outstanding under this agreement, which we repaid on April 8, 2017 with proceeds from our IPO. At March 31, 2017 and December 31, 2016, standby letters of credit under this agreement amounted to $60,011 and $60,085, respectively, and were primarily related to the requirements of certain of our insurance obligations.
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7. LEASE RECEIVABLES
We finance various types of transportation-related equipment for independent third parties. The transactions are generally for one to five years and are accounted for as sales-type or direct financing leases. As of March 31, 2017 and December 31, 2016, the investment in lease receivables was as follows:
March 2017 | December 2016 | |||||||
Future minimum payments to be received on leases |
$ | 133,876 | $ | 137,339 | ||||
Guaranteed residual lease values |
116,485 | 124,487 | ||||||
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Total minimum lease payments to be received |
250,361 | 261,826 | ||||||
Unearned income |
(27,333 | ) | (29,494 | ) | ||||
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Net investment in leases |
223,028 | 232,332 | ||||||
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Current maturities of lease receivables |
94,282 | 101,247 | ||||||
Less—allowance for doubtful accounts |
(1,489 | ) | (1,036 | ) | ||||
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Current portion of lease receivables—net of allowance |
92,793 | 100,211 | ||||||
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Lease receivables—noncurrent |
$ | 130,235 | $ | 132,121 | ||||
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8. INCOME TAXES
Our effective income tax rate was 40.5% and 40.0% for the three months ended March 31, 2017, and 2016, respectively. In determining the quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, best estimate of nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits.
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9. COMMON EQUITY
Prior to our IPO in April 2017, our Class A and Class B common stock was considered redeemable under GAAP because of certain repurchase rights granted to our shareholders pursuant to the Schneider National, Inc. Employee Stock Purchase Plan and certain agreements governing ownership of our common stock held by existing shareholders, including members of the Schneider family and their family trusts. As a result, all vested Class A and Class B common shares were recorded as temporary equity (redeemable common shares) on the consolidated balance sheets at their redemption value as of the balance sheet dates. Accumulated earnings on the consolidated balance sheets were adjusted for the changes during the period in the current redemption value of vested Class A and Class B redeemable common shares. Restricted shares that were not yet vested and held for more than 180 days as of the reporting date were classified as liabilities at their redemption values taking into consideration the portion of the requisite service that had been provided as of the reporting date.
All share redemption provisions were removed effective with the initial public offering of Class B common shares in April 2017. Therefore, all Class A and Class B common shares were reclassified from temporary equity to permanent equity as of April 2017.
Earnings Per Share
As disclosed in Note 1, General, our initial public offering of shares of Class B Common Stock was effective in April 2017. In connection with the offering, we sold additional shares of common stock. The calculations of basic and diluted earnings per share for the periods shown below do not include additional shares sold or share-based awards granted after March 31, 2017.
(in thousands, except per share data) |
Three Months Ended March 31, 2017 |
Three Months Ended March 31, 2016 |
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Basic earnings per common share: |
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Net income available to common shareholders |
$ | 22,569 | $ | 28,139 | ||||
Weighted average common shares issued and outstanding |
156,419 | 155,704 | ||||||
Basic earnings per common share |
$ | 0.14 | $ | 0.18 | ||||
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Diluted earnings per common share: |
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Net income applicable to diluted earnings per common share |
$ | 22,569 | $ | 28,139 | ||||
Dilutive potential common shares: |
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Restricted share units |
381 | 109 | ||||||
Dilutive potential common shares |
381 | 109 | ||||||
Total diluted average common shares issued and outstanding |
156,800 | 155,813 | ||||||
Diluted earnings per common share |
$ | 0.14 | $ | 0.18 |
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11. COMMITMENTS AND CONTINGENCIES
In the ordinary course of conducting our business, we become involved in certain legal matters and investigations on a number of matters, including liability claims, taxes other than income taxes, contract disputes, employment, and other litigation matters. We accrue for anticipated costs to defend and resolve matters that are probable and estimable. We believe the outcomes of these matters will not have a material impact on our business or our financial statements.
At March 31, 2017, our firm commitments to purchase transportation equipment totaled approximately $195,092.
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12. SEGMENT REPORTING
We have three reportable segments – Truckload, Intermodal, and Logistics – which are based primarily on the services each segment provides.
The Truckload reportable segment consists of three operating segments (Van Truckload, Specialty Dedicated, and Bulk) that are aggregated because they have similar economic characteristics and meet the other aggregation criteria described in the accounting guidance for segment reporting. Van Truckload delivers truckload quantities over irregular routes using dry van trailers. Specialty Dedicated is similar except that it involves recurring routes between the same locations for which specified trucks are dedicated to the route using specialty trailers. Bulk transports key inputs to the manufacturing process such as specialty chemicals using specialty trailers.
The Intermodal reportable segment provides rail intermodal and drayage services to our customers. Company-owned containers and generally Company-owned dray tractors are used to provide these transportation services.
The Logistics reportable segment consists of three operating segments (Brokerage, Supply Chain Management, and Import/Export Services) that are aggregated because they have similar economic characteristics and meet the other aggregation criteria described in the accounting guidance for segment reporting. In the Logistics segment, we provide additional sources of truck capacity, manage transportation-systems analysis requirements for individual customers, and provide trans-loading and warehousing services.
We generate other revenues from a captive insurance business and from a leasing business which are operated by wholly-owned subsidiaries. We also have operations in Asia that meet the definition of an operating segment. None of these operations meets the quantitative reporting thresholds. As a result, these operations are grouped in “Other” in the tables below. We have also included in “Other” revenues and expenses that are incidental to our activities and are not attributable to any of the reportable segments.
Separate balance sheets are not prepared by segment and, as a result, assets are not separately identifiable by segment. All transactions between reporting segments are eliminated in consolidation.
The chief operating decision maker reviews revenue for each segment without the inclusion of fuel surcharge revenue. For segment purposes, any fuel surcharge revenues earned are recorded as a reduction of the segment’s fuel expenses. Income from operations at a segment level reflects the measures presented to the chief operating decision maker for each segment.
The following tables summarize our segment information. Intersegment revenues were immaterial for all segments, with the exception of Other, which included revenues from insurance premiums charged to other segments for workers’ compensation, auto, and other types of insurance. Intersegment revenues included in Other revenues below were $16,873 for the three months ended March 31, 2017, and $14,197 for the three months ended March 31, 2016.
Three Months Ended March 31, 2017 | ||||||||||||||||||||||||||||
Truckload | Intermodal | Logistics | Other | Fuel Surcharge |
Intersegment Eliminations |
Total | ||||||||||||||||||||||
Operating revenues |
522,110 | 181,090 | 183,904 | 50,283 | 90,250 | (21,198 | ) | 1,006,439 | ||||||||||||||||||||
Income from operations |
38,520 | 6,634 | 5,183 | (6,787 | ) | — | — | 43,550 | ||||||||||||||||||||
Depreciation and amortization expense |
50,413 | 8,026 | 99 | 9,332 | — | — | 67,870 |
Three Months Ended March 31, 2016 | ||||||||||||||||||||||||||||
Truckload | Intermodal | Logistics | Other | Fuel Surcharge |
Intersegment Eliminations |
Total | ||||||||||||||||||||||
Operating revenues |
490,725 | 184,825 | 166,750 | 49,549 | 56,154 | (19,900 | ) | 928,103 | ||||||||||||||||||||
Income from operations |
42,188 | 7,089 | 5,177 | (2,421 | ) | — | — | 52,033 | ||||||||||||||||||||
Depreciation and amortization expense |
43,783 | 9,239 | 98 | 10,775 | — | — | 63,895 |
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Description of Business
In this report, when we refer to “the Company,” “us,” “we,” “our,” or “ours,” we are referring to Schneider National, Inc. and its subsidiaries. We are a leading transportation services organization headquartered in Green Bay, Wisconsin. We provide a broad portfolio of premier truckload, intermodal, and logistics solutions and operate one of the largest trucking fleets in North America.
Our initial public offering of shares of Class B Common Stock was completed in April 2017, and additional shares were sold in May 2017 under an option granted to the underwriters. In connection with the offering, we sold a total of 20,145,000 shares of common stock at $19 per share and received proceeds of $382,755. Expenses related to the offering totaled approximately $42,485, resulting in net proceeds of $340,270. The financial statement effects of the IPO and related exercise of the additional allotment is not reflected in these interim financial statements for the period ended March 31, 2017.
Basis of Presentation
The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with GAAP and the rules and regulations of the SEC applicable to quarterly reports on Form 10-Q. Therefore, these financial statements and footnotes do not include all disclosures required by GAAP for annual financial statements. These financial statements should be read in conjunction with the Consolidated Financial Statements and related notes included in our Prospectus. Financial results for an interim period are not necessarily indicative of the results for a full year.
All intercompany transactions have been eliminated in consolidation.
In the opinion of management, these statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of our financial results for the interim periods presented.
Accounting Standards Issued But Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. As amended, the new revenue recognition standard will be effective for us beginning with the reporting period ending March 31, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. We have begun reviewing and assessing our contracts with customers in accordance with the guidance in the ASU. Based on our analysis to date, we do not expect the adoption of this ASU to have a material impact on our consolidated financial position, results of operations, and cash flows. We are still evaluating the transition method choices and the disclosure requirements of this standard.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This update was issued to enhance the reporting model for financial instruments regarding certain aspects of recognition, measurement, presentation, and disclosure. These provisions are effective for us beginning with the reporting period ending March 31, 2018. The standard is to be applied using a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption. We currently cannot reasonably estimate the impact that the adoption of this ASU will have on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize in the consolidated balance sheets assets and liabilities for leases with lease terms of more than 12 months. Consistent with current accounting principles, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current accounting principles, which require only capital leases to be recognized in the consolidated balance sheets, the new ASU will require both types of leases to be recognized in the consolidated balance sheets. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that companies may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. The transition guidance also provides specific guidance for sale and leaseback transactions, build-to-suit leases, leveraged leases, and amounts previously recognized in accordance with the business combinations guidance for leases. The new standard is effective for us beginning with the reporting period ending March 31, 2018, with early adoption permitted. We currently cannot reasonably estimate the impact that the adoption of this ASU will have on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires companies to use a forward-looking, expected loss model to estimate credit losses on various types of financial assets and net investments in leases. It also requires additional disclosure related to credit quality of trade and other receivables, including information related to management’s estimate of credit allowances. This guidance is effective for us beginning with the reporting period ending March 31, 2021. We currently cannot reasonably estimate the impact that the adoption of this ASU will have on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively if retrospective application would be impracticable. The provisions of this update are effective for us beginning with the reporting period ending March 31, 2018. We currently cannot reasonably estimate the impact that the adoption of this ASU will have on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment testing process. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the new standard, a goodwill impairment loss is measured as the excess of the carrying value of a reporting unit over its fair value. The provisions of this update will be effective for our goodwill impairment test in 2020. We currently cannot reasonably estimate the impact that the adoption of this ASU will have on our consolidated financial statements.
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The following unaudited pro forma condensed combined financial information presents our results as if we had acquired WST and Lodeso on January 1, 2016.
Three Months Ended March 31, 2016 |
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Pro forma net sales |
$ | 971,375 | ||
Pro forma net income |
$ | 26,988 | ||
Basic earnings per share as reported |
$ | 0.18 | ||
Pro forma basic earnings per share |
$ | 0.17 | ||
Diluted earnings per share as reported |
$ | 0.18 | ||
Pro forma diluted earnings per share |
$ | 0.17 |
Recognized amounts of identifiable assets acquired and liabilities assumed |
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Cash |
$ | 1,318 | ||
Receivables |
16,156 | |||
Inventories |
480 | |||
Prepaid expenses and other current assets |
4,392 | |||
Property and equipment |
81,844 | |||
Capitalized software and other noncurrent assets |
5,807 | |||
Intangible assets |
10,900 | |||
Goodwill |
138,168 | |||
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Total assets acquired |
259,065 | |||
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Payables assumed |
7,807 | |||
Accrued liabilities assumed |
5,289 | |||
Current maturities of debt and capital lease obligations assumed |
47,692 | |||
Debt and capital lease obligations assumed |
46,211 | |||
Other noncurrent liabilities assumed |
1,646 | |||
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Fair value of total consideration transferred |
$ | 150,420 | ||
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The following table presents the values of our marketable securities as of the dates shown.
March 31, 2017 | December 31, 2016 | |||||||||||||||
Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value |
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Zero coupon bonds |
$ | 3,787 | $ | 3,827 | $ | 3,768 | $ | 3,811 | ||||||||
U.S. treasury and government agencies |
8,037 | 8,032 | 8,048 | 8,042 | ||||||||||||
Asset-backed securities |
287 | 280 | 409 | 399 | ||||||||||||
Corporate debt securities |
13,362 | 13,519 | 14,415 | 14,541 | ||||||||||||
State and political subdivisions |
24,065 | 23,747 | 26,192 | 25,696 | ||||||||||||
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Total marketable securities |
$ | 49,538 | $ | 49,405 | $ | 52,832 | $ | 52,489 | ||||||||
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Changes in the carrying amount of goodwill were as follows.
Truckload | Logistics | Other | Total | |||||||||||||
Balance at December 31, 2016 |
$ | 138,168 | $ | 14,173 | $ | 11,694 | $ | 164,035 | ||||||||
Foreign currency translation |
— | — | 115 | 115 | ||||||||||||
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Balance at March 31, 2017 |
$ | 138,168 | $ | 14,173 | $ | 11,809 | $ | 164,150 | ||||||||
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The identifiable intangible assets other than goodwill listed below are included in other noncurrent assets on the condensed consolidated balance sheets.
March 31, 2017 | December 31, 2016 | |||||||||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||
Customer lists |
$ | 10,500 | $ | 1,708 | $ | 8,792 | $ | 10,500 | $ | 1,445 | $ | 9,055 | ||||||||||||
Trade names |
1,400 | 389 | 1,011 | 1,400 | 272 | 1,128 | ||||||||||||||||||
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Total intangible assets |
$ | 11,900 | $ | 2,097 | $ | 9,803 | $ | 11,900 | $ | 1,717 | $ | 10,183 | ||||||||||||
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Estimated future amortization expense related to intangible assets is as follows.
Remaining 2017 |
$ | 1,146 | ||
2018 |
1,416 | |||
2019 |
1,145 | |||
2020 |
950 | |||
2021 |
950 | |||
2022 and thereafter |
4,196 | |||
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$ | 9,803 | |||
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As of March 31, 2017 and December 31, 2016, debt included the following:
March 2017 |
December 2016 |
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Unsecured senior notes: principal payable at maturity; interest payable in quarterly or semiannual installments through 2024; weighted-average interest rate of 3.66% for 2017 and 2016 |
$ | 500,000 | $ | 500,000 | ||||
Equipment financing notes: principal and interest payable in monthly installments through 2023; weighted average interest rate of 3.78% and 3.82% for 2017 and 2016, respectively |
40,474 | 49,296 | ||||||
Secured credit facility: collateralized by certain trade receivables; interest rates of 1.85% and 1.68% for 2017 and 2016, respectively |
50,000 | 135,000 | ||||||
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Total principal outstanding |
590,474 | 684,296 | ||||||
Current maturities |
(166,684 | ) | (254,398 | ) | ||||
Debt issuance costs |
(1,025 | ) | (1,091 | ) | ||||
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Long-term debt |
$ | 422,765 | $ | 428,807 | ||||
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As of March 31, 2017 and December 31, 2016, the investment in lease receivables was as follows:
March 2017 | December 2016 | |||||||
Future minimum payments to be received on leases |
$ | 133,876 | $ | 137,339 | ||||
Guaranteed residual lease values |
116,485 | 124,487 | ||||||
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Total minimum lease payments to be received |
250,361 | 261,826 | ||||||
Unearned income |
(27,333 | ) | (29,494 | ) | ||||
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Net investment in leases |
223,028 | 232,332 | ||||||
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Current maturities of lease receivables |
94,282 | 101,247 | ||||||
Less—allowance for doubtful accounts |
(1,489 | ) | (1,036 | ) | ||||
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Current portion of lease receivables—net of allowance |
92,793 | 100,211 | ||||||
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Lease receivables—noncurrent |
$ | 130,235 | $ | 132,121 | ||||
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The calculations of basic and diluted earnings per share for the periods shown below do not include additional shares sold or share-based awards granted after March 31, 2017.
(in thousands, except per share data) |
Three Months Ended March 31, 2017 |
Three Months Ended March 31, 2016 |
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Basic earnings per common share: |
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Net income available to common shareholders |
$ | 22,569 | $ | 28,139 | ||||
Weighted average common shares issued and outstanding |
156,419 | 155,704 | ||||||
Basic earnings per common share |
$ | 0.14 | $ | 0.18 | ||||
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Diluted earnings per common share: |
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Net income applicable to diluted earnings per common share |
$ | 22,569 | $ | 28,139 | ||||
Dilutive potential common shares: |
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Restricted share units |
381 | 109 | ||||||
Dilutive potential common shares |
381 | 109 | ||||||
Total diluted average common shares issued and outstanding |
156,800 | 155,813 | ||||||
Diluted earnings per common share |
$ | 0.14 | $ | 0.18 |
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The following tables summarize our segment information. Intersegment revenues were immaterial for all segments, with the exception of Other, which included revenues from insurance premiums charged to other segments for workers’ compensation, auto, and other types of insurance. Intersegment revenues included in Other revenues below were $16,873 for the three months ended March 31, 2017, and $14,197 for the three months ended March 31, 2016.
Three Months Ended March 31, 2017 | ||||||||||||||||||||||||||||
Truckload | Intermodal | Logistics | Other | Fuel Surcharge |
Intersegment Eliminations |
Total | ||||||||||||||||||||||
Operating revenues |
522,110 | 181,090 | 183,904 | 50,283 | 90,250 | (21,198 | ) | 1,006,439 | ||||||||||||||||||||
Income from operations |
38,520 | 6,634 | 5,183 | (6,787 | ) | — | — | 43,550 | ||||||||||||||||||||
Depreciation and amortization expense |
50,413 | 8,026 | 99 | 9,332 | — | — | 67,870 |
Three Months Ended March 31, 2016 | ||||||||||||||||||||||||||||
Truckload | Intermodal | Logistics | Other | Fuel Surcharge |
Intersegment Eliminations |
Total | ||||||||||||||||||||||
Operating revenues |
490,725 | 184,825 | 166,750 | 49,549 | 56,154 | (19,900 | ) | 928,103 | ||||||||||||||||||||
Income from operations |
42,188 | 7,089 | 5,177 | (2,421 | ) | — | — | 52,033 | ||||||||||||||||||||
Depreciation and amortization expense |
43,783 | 9,239 | 98 | 10,775 | — | — | 63,895 |
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