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An initial FERC investigation that found “abnormalities” during Winter Storm Uri in February 2021 may have been caused by natural gas market manipulation, Chairman Richard Glick said Thursday.
The Federal Energy Regulatory Commission is unable to investigate some aspects of the possible illegal activity because Texas’ main power grid, the Electric Reliability Council of Texas (ERCOT), operates 90% of the state and operates independently, Chairman Richard Glick said in Houston. He spoke at S&P Global’s 40th annual CERAWeek.
However, networks in other states, which did not have power outages during the killing freeze, reported potential manipulation by Texas power generators, Glick told the public.
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“We are investigating potential allegations of manipulation that may have occurred in jurisdictional electricity markets, and we have found anomalies,” he said. “These are under further investigation.”
Loss of power from natural gas electric generators in Texas made up most of the outages identified by FERC during an extreme cold investigation. The joint investigation with the North American Electric Reliability Corp. (NERC) determined that gas generators accounted for 58% of all unplanned outages, derates, or start failures.
Probing a potential manipulation, however, will take time, Glick said. Regulators will act, however, if there was illegal activity.
“One thing I’ve tried to make clear during my presidency is that if wrongdoing happens, or if wrongdoing is alleged to happen, we’re going to go after it, and it certainly will in this situation,” said Glick. “It just takes a while to sift through all the evidence.”
The extreme weather event resulted in the largest manually controlled load shedding event in US history, according to FERC and NERC. During winter storm Uri, ERCOT ordered a total of 20,000 MW of power outages to prevent a complete grid collapse. More than 4.5 million people in Texas lost power, some for up to four days.
Uri “is a great example…of why you need a resilient power grid,” Glick said. “Most of the blackouts have happened in Texas. They didn’t happen in some of the surrounding states where they had similar weather conditions in Louisiana, Kansas, Oklahoma… And those states had minor outages. But as we’ve seen in Texas, we’ve seen multi-day outages. And a lot of it, we lost businesses, hundreds of millions of dollars.
“But worse, hundreds of people died in the United States of America. People died because they had no access to electricity. We have to do something about it. And the problem is that we know that across the country the weather is different across the country, but everywhere, whether it’s out West, with dry conditions and wildfires or hurricanes or tornadoes or obviously extremely cold weather.
The nation must “act to make the grid more resilient,” Glick said, or “we’re going to see similar situations… What happened in Texas during winter storm Uri. And part of it was extremely cold, and a lot of power plants froze in. They weren’t weatherproof enough.
However, in other areas, “they haven’t lost as much power as Texas. And the reason they didn’t is because they were connected to the rest of the network. They actually had access to transmission so they could bring in electricity. For example, in the PJM interconnect, the network operator “did a great job of…sending the excess power it had” into neighboring networks to prevent massive outages.
“Texas because it’s its own grid, and I know it’s very Texas, and the people of Texas don’t want to be regulated by FERC. But we really have to find a way to make the grid Part of that is adding more transmission capacity so people can bring power when they need it in extreme conditions.
Some have said a problem in Texas is the lack of communication between ERCOT and customers, Glick said.
ERCOT leaders “did not necessarily have a plan and strategy to ensure that natural gas producing areas had access to electricity. So whether it was a generating facility or a processing facility, they were often losing power as well and they weren’t able to supply natural gas to the generating facilities , which only made the situation worse.
At the conference, Glick also discussed recent policy changes at FERC, which require natural gas infrastructure proposals to be climate tested.
Gas pipelines and liquefied natural gas (LNG) export projects are subject to scrutiny and potential permit delays due to the reviews, which are the first in 30 years.
Since some recent gas pipeline and LNG approvals have been blocked by federal courts, the policy statements would guide FERC in how future infrastructure is approved. A draft Greenhouse Gas (GHG) Policy is included to provide “legal durability” to FERC decisions.
Critics say the revisions will cripple needed infrastructure plans. Glick told the public that FERC had no choice but to comply with the courts.
“Whether we’re just figuring out whether a project is needed or not,” Glick said, “we need to consider whether it’s actually a growing area that will need more gas consumption. . But…by its nature, in that if you’re going to use the pipeline more often because it’s a growing area…the emissions are going to be higher…
“You are balancing those emissions and the climate change impact, against the benefits of the project, to meet the growing energy needs of a region.”
Ironically, on Friday, a day after Glick shared his views on the reviews, the United States Court of Appeals for the District of Columbia (DC) returned a certificate that had been issued by FERC in 2020 for a 2.1 mile loopback and compressor upgrade project. by Tennessee Gas Pipeline Co. LLC.
The project, which includes the retirement of two less efficient compressors, would provide additional firm delivery of 72,400 TND to Columbia Gas of Massachusetts and Holyoke Gas and Electric.
Environmental groups had fought the project based on a lack of emissions data. The court found that FERC needed an environmental assessment for the project to comply with the National Environmental Policy Act.
Glick said Thursday he has met with nearly a dozen pipeline executives so far regarding FERC’s revised guidelines. The leaders, he said, “expressed great concern about some of the uncertainties they suggest we have raised in these policy statements.”
Noting that he spoke only for himself, Glick said: “I think we need to at least address some of those uncertainties, provide a bit more certainty as to what we mean by some of the provisions in total…
“There is still work to be done and there is always work to be done because the proof will be in the pudding. When we actually look at these…permit applications for LNG facilities or pipelines. That’s when we’ll see how we implement them.
FERC also faces other challenges, including reviewing the national grid to ensure its reliability, Glick said. The nation also needs “more transmission, potentially to reduce congestion, to…give consumers access to more economic power.” In addition, interconnection issues are under consideration.
“We have a ton of new electric generation, in many cases because the developers want to bring the generation online, but it takes years and years and years, study after study. And we examine it in a very fragmentary way. So, we are trying to figure out how to speed up the process and at the same time build a long-term transport network, reduce the time for the new generation to connect to the network? »
Many state policies “encourage” wind, solar and storage construction, Glick noted. “Obviously, utilities are also looking to go green. And they can’t because we can’t bring these projects to the interconnection.
The FERC chief said it was “very difficult to explain to people around the world how our utility systems are regulated because we have state, federal and regional enemies. It’s very difficult. Cities get involved.
The East Coast is a story in itself, with “the massive amount of offshore wind being developed. There are people who are now talking about doing it in California, here and in the Gulf of Mexico, for example.
“But the biggest weakness is that it takes a lot of investment and infrastructure to access these facilities in order to interconnect them to the grid. And that’s something that FERC is also looking at in our rulemaking process.
FERC wants to “break down barriers,” Glick said. He expects the Commission to soon publish “several regulatory proposals addressing some of these issues, including interconnector reform, and in particular interconnection as it relates to offshore wind…
“And then hopefully by the end of the year, early next year, we’ll be able to implement the final rules and look at removing barriers to new technology.”
FERC’s job is not to promote technologies, Glick said. However, “we are supposed to break down barriers to technology. Often these market rules that have been written across the country were written long before some of these technologies, such as wind, solar, and hybrid technology, etc., were economically efficient.
FRANKFURT/BRUSSELS, March 8 (Reuters) – Russia has warned it may close its main Nord Stream gas pipeline to Germany after Berlin suspended approval for a second line across the Baltic Sea in response to the Russian invasion of Ukraine. Read more
Russian Deputy Prime Minister Alexander Novak’s comment reflects escalating tensions that have already driven gas prices in Europe to record highs.
Russia is Germany’s biggest supplier, supplying Europe’s biggest economy with just under a third of its gas.
Here are key details about the German gas sector.
GAS IMPORTS
Germany imported 142 billion cubic meters (bcm) of gas in 2021, down 6.4% from 2020, according to foreign trade statistics office BAFA, which does not identify the origin of the imports .
Domestic gas consumption was 100 billion cubic meters in 2021, utilities industry group BDEW said.
Russian piped gas led imports in December at 32% of supply, followed by Norway at 20% and the Netherlands at 12%, according to data from the Independent Commodity Intelligence Services (ICIS).
STORAGE AND DOMESTIC PRODUCTION
In December, storage supplied 22% of its needs, ICIS analysis showed.
Germany has 24 billion cubic meters of underground storage, which is a quarter of Germany’s annual gas consumption.
A fifth of that is represented by Rehden owned by storage company Astora, itself owned by Russian gas producer Gazprom.
The storage is currently only 30% full, according to data from Gas Infrastructure Europe.
Domestic gas production peaked in the 1990s and now covers only 5% of annual consumption.
WHY DOES GERMANY NEED GAS?
Gas combustion accounted for 15.3% of German electricity production last year, according to BDEW.
The loss of a large portion of gas imports could necessitate a short-term increase in coal-fired generation or electricity imports from neighbors.
The situation is more serious in domestic heating, where gas heats half of Germany’s 41.5 million homes.
In the manufacturing industry, sectors such as ceramics cannot produce without fuel.
GERMANY’S OTHER RUSSIAN ENERGY LINKS
Germany and Russia have had a strong energy partnership for decades.
Some 34% of German crude oil came from Russia in 2021, according to BAFA data.
Some 53% of the coal received by German power producers and steelmakers came from Russia last year, according to coal group VDKi.
FUTURE NEEDS
Germany’s gas needs are expected to decrease in the future as the government seeks to reduce greenhouse gas emissions. Gas heating will be phased out over the long term in favor of heat pumps and other alternatives.
In power generation, however, gas use is expected to increase during a transition period as Germany gradually moves away from nuclear and then coal.
And the government warned in February that the need to reduce dependence on Russian gas due to the Ukraine crisis could slow those disposal plans. Read more
Future consumption will also depend on the speed of deployment of renewable energy in Germany and the possibility of exploiting low-emission hydrogen produced from renewable sources such as wind and solar to replace fossil gas.
ALTERNATE IMPORT SOURCES
Germany has presented plans for an LNG terminal, which, according to the Ministry of Economy, would have an annual capacity of 8 billion m3 and would be completed as quickly as possible.
Germany does not have domestic LNG infrastructure, but the Dutch Gate landing terminal, with a processing capacity of 12 billion cubic meters, supplies customers in western Germany.
Supply for the new terminal could also come from the United States, Qatar or elsewhere.
In January, Europe imported a record nearly 11 billion m3 of LNG, nearly half of which came from the United States.
Reporting by Vera Eckert and Kate Abnett; edited by Alexander Smith and Jason Neely
Our standards: The Thomson Reuters Trust Principles.
This Management's Discussion and Analysis of Financial Condition and Results of Operations generally discusses our 2021 and 2020 results and year-to-year comparisons between 2021 and 2020. Discussions of our 2019 results and year-to-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , which was filed with theSecurities and Exchange Commission onFebruary 24, 2021 .
Overview
We are one of the largest North American less-than-truckload ("LTL") motor carriers. We provide regional, inter-regional and national LTL services through a single integrated, union-free organization. Our service offerings, which include expedited transportation, are provided through an expansive network of service centers located throughout the continentalUnited States . Through strategic alliances, we also provide LTL services throughoutNorth America . In addition to our core LTL services, we offer a range of value-added services including container drayage, truckload brokerage and supply chain consulting. More than 98% of our revenue has historically been derived from transporting LTL shipments for our customers, whose demand for our services is generally tied to industrial production and the overall health of theU.S. domestic economy. In analyzing the components of our revenue, we monitor changes and trends in our LTL volumes and LTL revenue per hundredweight. While LTL revenue per hundredweight is a yield measurement, it is also a commonly-used indicator for general pricing trends in the LTL industry. This yield metric is not a true measure of price, however, as it can be influenced by many other factors, such as changes in fuel surcharges, weight per shipment and length of haul. As a result, changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates. LTL revenue per hundredweight and the key factors that can impact this metric are described in more detail below:
• LTL revenue per quintal – Our LTL transport services are
price generally based on weight, product and distance. This
the measure reflects the application of our pricing policies to
the services we provide, which are influenced by competitive market conditions
and our growth objectives. Generally, freight is rated by a class system,
which is established by the
Inc. Light and bulky cargo usually has a higher class and its price is
revenue per quintal higher than dense and heavy freight. Fuel
surcharges, ancillary charges, revenue adjustments and revenue for
undelivered freight is included in this measurement. Income for
undelivered freight is reported for financial statement purposes in
in accordance with our revenue recognition policy; however, we believe
including it in our measures of revenue per quintal results in greater
accurate representation of the underlying changes in our returns in
match the total revenues invoiced with the corresponding weight of those
shipments.
• LTL Weight Per Shipment – Fluctuations in weight per shipment may indicate
changes in the composition of the freight we receive from our customers, as well as
changes in the number of units included in a shipment. Generally,
increases in weight per shipment indicate higher demand for our customers
products and increased economic activity overall. Weight changes by
shipping may also be influenced by changes between LTL and other modes of transportation.
transportation, such as truckload and intermodal, in response to capacity,
service and price issues. Weight fluctuations per shipment in general
have an opposite effect on our turnover per quintal, such as a decrease in
weight per shipment will typically cause an increase in revenue per hundredweight.
• Average transport length: we consider transport lengths less than 500 miles
be regional traffic, haul lengths between 500 miles and 1,000 miles
be inter-regional traffic and haul lengths greater than 1,000 miles
be domestic traffic. This metric is used to analyze our tonnage and
price trends for shipments with similar characteristics, and also allows
for purposes of comparison with other transportation providers serving
markets. By analyzing this metric, we can determine success and growth
potential of our service products in these markets. The length changes of
transport generally have a direct effect on our turnover per quintal, because
an increase in trip length will generally lead to an increase in revenue
per quintal.
• LTL revenue per shipment – This metric is primarily determined by the
three measurements listed above and is used in conjunction with the number of
LTL shipments we receive to assess LTL revenue.
Our primary revenue focus is to increase density, which is shipment and tonnage growth within our existing infrastructure. Increases in density allow us to maximize our asset utilization and labor productivity, which we measure over many different functional areas of our operations including linehaul load factor, pickup and delivery ("P&D") stops per hour, P&D shipments per hour, platform pounds handled per hour and platform shipments per hour. In addition to our focus on density and operating efficiencies, it is critical for us to obtain an appropriate yield, which is measured as revenue per hundredweight, on the shipments we handle to offset our cost inflation and support our ongoing investments in capacity and technology. We regularly monitor the components of our pricing, including base freight rates, accessorial charges and fuel surcharges. The fuel surcharge is generally designed to offset fluctuations in the cost of our petroleum-based products and is indexed to diesel fuel prices published by theU.S. 20
--------------------------------------------------------------------------------Department of Energy , which reset each week. We believe our yield management process focused on individual account profitability, and ongoing improvements in operating efficiencies, are both key components of our ability to produce profitable growth. Our primary cost elements are direct wages and benefits associated with the movement of freight, operating supplies and expenses, which include diesel fuel, and depreciation of our equipment fleet and service center facilities. We gauge our overall success in managing costs by monitoring our operating ratio, a measure of profitability calculated by dividing total operating expenses by revenue, which also allows for industry-wide comparisons with our competition. We regularly upgrade our technological capabilities to improve our customer service and lower our operating costs. Our technology provides our customers with visibility of their shipments throughout our network, increases the productivity of our workforce, and provides key metrics that we use to monitor and enhance our processes. Results of Operations
The following table shows, for the years indicated, expenses and other items as a percentage of operating revenue:
2021 2020 Revenue from operations 100.0 % 100.0 % Operating expenses: Salaries, wages and benefits 47.0 51.2 Operating supplies and expenses 10.8 9.3 General supplies and expenses 2.6 2.7 Operating taxes and licenses 2.5 2.9 Insurance and claims 1.0 1.1 Communication and utilities 0.7 0.8 Depreciation and amortization 4.9 6.5 Purchased transportation 3.5 2.4 Miscellaneous expenses, net 0.5 0.5 Total operating expenses 73.5 77.4 Operating income 26.5 22.6 Interest expense, net 0.0 0.1 Other expense, net 0.1 0.1 Income before income taxes 26.4 22.4 Provision for income taxes 6.7 5.6 Net income 19.7 % 16.8 %
The main financial and operational indicators for 2021 and 2020 are presented below:
2021 2020 Change % Change Work days 252 254 (2 ) (0.8 ) Revenue (in thousands)$ 5,256,328 $ 4,015,129 $ 1,241,199 30.9 Operating ratio 73.5 % 77.4 % Net income (in thousands)$ 1,034,375 $ 672,682 $ 361,693 53.8 Diluted earnings per share$ 8.89 $ 5.68 $ 3.21 56.5 LTL tons (in thousands) 10,119 8,770 1,34915.4 LTL shipments (in thousands) 12,880 10,869 2,01118.5 LTL weight per shipment (lbs.) 1,571 1,614 (43 )(2.7 ) LTL revenue per hundredweight$ 25.59 $ 22.62 $ 2.97 13.1 LTL revenue per shipment$ 402.01 $ 364.94 $ 37.07 10.2 LTL revenue per intercity mile$ 7.32 $ 6.42 $ 0.90 14.0 LTL intercity miles (in thousands) 707,611 617,805 89,806 14.5 Average length of haul (miles) 935 925 10 1.1 Our financial results for 2021 reflect the highest annual revenue and profitability in our Company's history. We believe the increase in our annual revenue to$5.3 billion in 2021 was driven by the consistent execution of our long-term strategy of providing superior service to customers at a fair price, while continuing to invest in capacity and technology to support the increased customer demand for our services. Our revenue growth reflects higher shipment volumes and further improvements in our yield, both of which were supported by the strength of the domestic economy. The increased freight density in our service center network and improvement in our yield, combined with improved operating efficiencies, led to the 390 basis-point improvement in our operating ratio to 73.5% 21
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for 2021 compared to 2020. As a result, net earnings and diluted earnings per share increased by 53.8% and 56.5%, respectively, in 2021 compared to 2020.
Income
Revenue increased$1.24 billion , or 30.9%, in 2021 compared to 2020, due to increases in both our LTL tonnage and LTL revenue per hundredweight. The increase in tonnage resulted from higher LTL shipment volumes that were partially offset by a decrease in LTL weight per shipment. Our LTL weight per shipment declined due primarily to our continuing efforts to reduce the number of heavy-weighted and larger, harder-to-handle types of shipments in our network. We believe the increase in LTL shipments was driven by higher customer demand for our superior service, coupled with our available network capacity and the strength of theU.S. domestic economy. Our LTL revenue per hundredweight increased 13.1% in 2021 compared to 2020. We believe the increase in LTL revenue per hundredweight was driven by the success of our long-term pricing strategy as well as changes in mix of our freight. The increase also reflects the positive impact of a decline in weight per shipment and an increase in average length of haul on this metric. Excluding fuel surcharges, LTL revenue per hundredweight increased 8.8% in 2021 compared to 2020.January 2022 Update Revenue per day increased 25.7% inJanuary 2022 compared to the same month last year. LTL tons per day increased 7.7%, due primarily to a 10.2% increase in LTL shipments per day that was offset by a 2.2% decrease in LTL weight per shipment. LTL revenue per hundredweight increased 16.8% as compared to the same month last year. LTL revenue per hundredweight, excluding fuel surcharges, increased 11.0% as compared to the same month last year.
Operating costs and other expenses
Salaries, wages, and benefits increased$414.1 million , or 20.2%, in 2021 as compared to 2020, due to a$272.0 million increase in the costs attributable to salaries and wages and a$142.1 million increase in employee benefit costs. The increase in salaries and wages was due primarily to increases in the average number of active full-time employees and increases in our employees' wage rates. Our average number of active full-time employees increased 3,034, or 15.9%, during 2021 as compared to 2020. We believe our full-time employee headcount will continue to increase as we hire employees to balance our workforce with ongoing growth in customer demand and shipment trends. Our employees' salaries and wages also increased as a result of the annual wage increases provided to our employees inSeptember 2021 , as well as higher performance-based compensation. Our productive labor costs, which include wages for drivers, platform employees, and fleet technicians, improved as a percent of revenue to 25.1% in 2021 compared to 27.8% in 2020. This improvement includes the impact of increases in our linehaul laden load average and P&D shipments per hour as we increased density across our network, as well as declines in our platform shipments per hour as we trained our new employees. Our other salaries and wages as a percent of revenue also decreased to 9.3% in 2021 as compared to 10.4% in 2020. The increase in the costs attributable to employee benefits of$142.1 million , or 27.4%, includes the impact of the increase in the number of full-time employees eligible for our benefits. Our employee benefit costs also increased due to additional holiday pay benefits provided in 2021 and increases in certain retirement benefit plan costs directly linked to our net income. In addition, our group health and dental costs increased due to increases in costs per claim, as well as higher claim volumes per covered employee. As a result of these cost increases, our employee benefit costs as a percent of salaries and wages increased to 36.6% in 2021 from 33.8% in 2020. Operating supplies and expenses increased$194.2 million , or 52.0%, in 2021 as compared to 2020, due primarily to an increase in our costs for diesel fuel. The cost of diesel fuel, excluding fuel taxes, represents the largest component of operating supplies and expenses, and can vary based on both the average price per gallon and consumption. The increase in our diesel fuel costs was primarily due to a 60.3% increase in our average cost per gallon of diesel fuel during 2021. In addition, our gallons consumed increased 13.5% in 2021 as compared to 2020 due to an increase in miles driven. We do not use diesel fuel hedging instruments; therefore, our costs are subject to market price fluctuations. Our other operating supplies and expenses remained relatively consistent as a percent of revenue between the periods compared. Depreciation and amortization costs were relatively consistent in 2021 as compared to 2020. While our capital expenditures were significantly higher in 2021 compared to 2020, our 2021 depreciation and amortization costs were impacted by our planned reduction in capital expenditures for revenue equipment in 2020 as we balanced our fleet with volumes, as well as delays in receipt of certain revenue equipment included in our 2021 capital expenditure plan. We believe depreciation costs will increase in future periods as we execute our 2022 capital expenditure plan. While our investments in real estate, equipment, and technology can increase our costs in the short-term, we believe these investments are necessary to support our continued long-term growth and strategic initiatives. 22 -------------------------------------------------------------------------------- Purchased transportation expense increased$87.8 million , or 89.7%, in 2021 as compared to 2020, due primarily to an increase in our use of third-party transportation providers to supplement our workforce and equipment as demand for our services increased. We expect to continue to purchase supplemental transportation services until the capacity of our team and fleet can fully support our anticipated growth.
Our effective tax rate in 2021 was 25.5% compared to 25.4% in 2020. Our effective tax rate generally exceeds the federal statutory rate due to the impact of state taxes and, to a lesser extent , certain other non-deductible items.
Cash and capital resources
A summary of our cash flows is shown below:
(In thousands) 2021 2020 Cash and cash equivalents at beginning of year$ 401,430 $ 403,571 Cash flows provided by (used in): Operating activities 1,212,606 933,024 Investing activities (455,288 ) (551,663 ) Financing activities (696,184 ) (383,502 ) Increase (decrease) in cash and cash equivalents 61,134 (2,141 ) Cash and cash equivalents at end of year$ 462,564 $
401 430
The increase in our cash flows provided by operating activities during 2021 as compared to 2020 was impacted by an increase in our income before income taxes of$487.1 million , which was partially offset by an increase in income taxes paid of$86.3 million and fluctuations in certain working capital accounts. The decrease in our cash flows used in investing activities during 2021 as compared to 2020 was due primarily to proceeds from the maturities of our short-term investments in excess of purchases, partially offset by increases in real estate and equipment purchases under our capital expenditure plan for 2021 as compared to 2020. Changes in our capital expenditure plans are more fully described below in "Capital Expenditures". The increase in our cash flows used in financing activities during 2021 as compared to 2020 was due primarily to increases in share repurchases and cash dividends paid to shareholders. These increases were partially offset by reductions in proceeds from debt issuances and scheduled principal payments during 2021 as compared to 2020. Our return of capital to shareholders is more fully described below under "Stock Repurchase Program" and "Dividends to Shareholders". We have five primary sources of available liquidity: cash flows from operations, our existing cash and cash equivalents, short-term investments, available borrowings under our second amended and restated credit agreement withWells Fargo Bank, National Association serving as administrative agent for the lenders, which we entered into onNovember 21, 2019 (the "Credit Agreement"), and our Note Purchase and Private Shelf Agreement withPGIM, Inc. ("Prudential") and certain affiliates and managed accounts of Prudential, which we entered into onMay 4, 2020 (the "Note Agreement"). Our Credit Agreement and the Note Agreement are described in more detail below under "Financing Arrangements". We believe we also have sufficient access to debt and equity markets to provide other sources of liquidity, if needed.
Capital expenditure
The table below shows our net capital expenditures for property, plant and equipment, including those obtained through non-cash transactions, for the years ended
December 31, (In thousands) 2021 2020 Land and structures$ 252,155 $ 181,221 Tractors 130,772 17,518 Trailers 140,595 2,151 Technology 17,139 11,925
Other equipment and assets 25,450 12,266 Less: Proceeds from sales (19,548 ) (3,690 ) Total
$ 546,563 $ 221,391 Our capital expenditures vary based upon the projected increase in the number and size of our service center facilities necessary to support our plan for long-term growth, our planned tractor and trailer replacement cycle, and forecasted tonnage and shipment growth. Expenditures for land and structures can be dependent upon the availability of land in the geographic areas where we are 23 -------------------------------------------------------------------------------- looking to expand. We historically spend 10% - 15% of our revenue on capital expenditures each year. Our 2020 capital expenditures were lower than normal, particularly with respect to revenue equipment and real estate, due to economic uncertainty as a result of the COVID-19 pandemic. We expect to continue to maintain a high level of capital expenditures in order to support our long-term plan for market share growth. We currently estimate capital expenditures will be approximately$825 million for the year endingDecember 31, 2022 . Approximately$300 million is allocated for the purchase of service center facilities, construction of new service center facilities or expansion of existing service center facilities, subject to the availability of suitable real estate and the timing of construction projects; approximately$485 million is allocated for the purchase of tractors and trailers; and approximately$40 million is allocated for investments in technology and other assets. We expect to fund these capital expenditures primarily through cash flows from operations, our existing cash and cash equivalents, short-term investments and, if needed, borrowings available under our Credit Agreement or Note Agreement. We believe our current sources of liquidity will be sufficient to satisfy our expected capital expenditures for the next twelve months and in the longer term.
Share buyback program
OnMay 1, 2020 , we announced that our Board of Directors had approved a two-year stock repurchase program authorizing us to repurchase up to an aggregate of$700.0 million of our outstanding common stock (the "2020 Repurchase Program"). The 2020 Repurchase Program became effective upon the termination of our$350.0 million repurchase program onMay 29, 2020 . OnJuly 28, 2021 , we announced that our Board of Directors had approved a new stock repurchase program authorizing us to repurchase up to an aggregate of$2.0 billion of our outstanding common stock (the "2021 Repurchase Program"). The 2021 Repurchase Program, which does not have an expiration date, began after the completion of the 2020 Repurchase Program. Under our repurchase programs, we may repurchase shares from time to time in open market purchases or through privately negotiated transactions. Shares of our common stock repurchased under our repurchase programs are canceled at the time of repurchase and are classified as authorized but unissued shares of our common stock.
AT
Dividends to shareholders
OnFebruary 21, 2020 , we announced that our Board of Directors approved a three-for-two split of our common stock for shareholders of record as of the close of business on the record date ofMarch 10, 2020 . OnMarch 24, 2020 , those shareholders received one additional share of common stock for every two shares owned. In lieu of fractional shares, shareholders received a cash payment based on the average of the high and low sales prices of our common stock on the record date.
All references in this report to dividend amounts have been retroactively restated to reflect this stock split.
Our Board of Directors also declared quarterly cash dividends that totaled$0.80 per share for the year endedDecember 31, 2021 and quarterly cash dividends that totaled$0.60 per share for the year endedDecember 31, 2020 .
Funding agreements
Note Agreement
The Note Agreement, which is uncommitted and subject to Prudential's sole discretion, provides for the issuance of senior promissory notes with an aggregate principal amount of up to$350.0 million throughMay 4, 2023 . Pursuant to the Note Agreement, we issued$100.0 million aggregate principal amount of senior promissory notes (the "Series B Notes") onMay 4, 2020 . Borrowing availability under the Note Agreement is reduced by the outstanding amount of the existing Series B Notes, and all other senior promissory notes issued pursuant to the Note Agreement. The Series B Notes bear an annual interest rate of 3.10% and mature onMay 4, 2027 , unless prepaid. Principal payments are required annually beginning onMay 4, 2023 in equal installments of$20.0 million throughMay 4, 2027 . The Series B Notes are senior unsecured obligations and rank pari passu with borrowings under our Credit Agreement or other senior promissory notes issued pursuant to the Note Agreement. 24
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credit agreement
The Credit Agreement provides for a five-year,$250.0 million senior unsecured revolving line of credit and a$150.0 million accordion feature, which if fully exercised and approved, would expand the total borrowing capacity up to an aggregate of$400.0 million . Of the$250.0 million line of credit commitments under the Credit Agreement, up to$100.0 million may be used for letters of credit. At our option, borrowings under the Credit Agreement bear interest at either: (i) LIBOR (including applicable successor provisions) plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 1.000% to 1.375%; or (ii) a Base Rate, as defined in the Credit Agreement, plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 0.000% to 0.375%. Letter of credit fees equal to the applicable margin for LIBOR loans are charged quarterly in arrears on the daily average aggregate stated amount of all letters of credit outstanding during the quarter. Commitment fees ranging from 0.100% to 0.175% (based upon the ratio of net debt-to-total capitalization) are charged quarterly in arrears on the aggregate unutilized portion of the Credit Agreement.
For the periods covered by the credit agreement, the applicable margin on LIBOR loans and letter of credit fees was 1.000% and the commitment fees were 0.100%.
The outstandings and the borrowing capacity available under the Credit Agreement are presented below:
December 31, (In thousands) 2021 2020 Facility limit$ 250,000 $ 250,000 Line of credit borrowings - -
Outstanding letters of credit (39,169 ) (42,134 ) Available borrowing capacity
General debt provisions
The Credit Agreement and Note Agreement contain customary covenants, including financial covenants that require us to observe a maximum ratio of debt to total capital and a minimum fixed charge coverage ratio. The Credit Agreement and Note Agreement also include a provision limiting our ability to make restricted payments, including dividends and payments for share repurchases, unless, among other conditions, no defaults or events of default are ongoing (or would be caused by such restricted payment). We were in compliance with all covenants in our outstanding debt instruments for the period endedDecember 31, 2021 . We do not anticipate financial performance that would cause us to violate any such covenants in the future, and we believe the combination of our existing Credit Agreement and Note Agreement along with our additional borrowing capacity will be sufficient to meet foreseeable seasonal and long-term capital needs. The interest rate is fixed on the Note Agreement. Therefore, short-term exposure to fluctuations in interest rates is limited to our Credit Agreement. We do not currently use interest rate derivative instruments to manage exposure to interest rate changes.
Contractual obligations
The following table summarizes our significant contractual obligations as ofDecember 31, 2021 : Payments due by period Contractual Obligations (1) Less than More than (In thousands) Total 1 year 1-3 years 3-5 years 5 years Series B Notes$ 110,354 $ 3,100 $ 44,762 $ 42,281 $ 20,211 Operating lease obligations (2) 121,248 16,909 29,130 21,746 53,463 Purchase obligations and Other 120,344 104,589 15,755 - - Total$ 351,946 $ 124,598 $ 89,647 $ 64,027 $ 73,674
(1) Contractual obligations include principal and interest on our Series B Notes;
operating leases consisting mainly of property and automobile leases;
and purchase obligations relating to non-cancellable purchase orders for (i)
equipment scheduled for delivery in 2022, and (ii) information technology
The agreements. Please refer to the information regarding interest rates and
balance on our revolving credit facility in this section above and also in
Note 2 of the notes to the financial statements included in section 8 of this
report.
(2) Rents include lease extensions of which it is reasonably certain
exercised. 25
--------------------------------------------------------------------------------
Critical accounting policies
In preparing our financial statements, we apply the following significant accounting policies which we believe affect our judgments and estimates of the amounts recognized in certain assets, liabilities, income and expenses. These critical accounting policies, which are those that have, or are reasonably likely to have, a material effect on our financial condition or results of operations, are described in more detail in note 1 of the notes to the financial statements included in point 8 of this report. .
Revenue recognition
Our revenue is generated from providing transportation and related services to customers in accordance with the bill of lading ("BOL") contract, our general tariff provisions and contractual agreements. Generally, our performance obligations begin when we receive a BOL from a customer and are satisfied when we complete the delivery of a shipment and related services. We recognize revenue for our performance obligations under our customer contracts over time, as our customers receive the benefits of our services in accordance with Accounting Standards Update ("ASU") 2014-09. With respect to services not completed at the end of a reporting period, we use a percentage of completion method to allocate the appropriate revenue to each separate reporting period. Under this method, we develop a factor for each uncompleted shipment by dividing the actual number of days in transit at the end of a reporting period by that shipment's standard delivery time schedule. This factor is applied to the total revenue for that shipment and revenue is allocated between reporting periods accordingly. A hypothetical change of 10% in our percentage of completion estimate would not have a material effect on our recorded revenue.
Insurance claims and provisions
Claims and insurance accruals reflect the estimated cost of various claims, including those related to bodily injury/property damage ("BIPD") and workers' compensation. All related costs associated with BIPD claims are charged to insurance and claims expense, and all related costs associated with workers' compensation claims are charged to employee benefits expense. Insurers providing excess coverage above a company's self-insured retention or deductible levels typically adjust their premiums to cover insured losses and for other market factors. As a result, we periodically evaluate our self-insured retention and deductible levels to determine the most cost-efficient balance between our exposure and excess coverage. In establishing accruals for claims and expenses, we evaluate and monitor each claim individually, and we use factors such as historical claims development experience, known trends and third-party actuarial estimates to determine the appropriate reserves for potential liabilities. We believe the assumptions and methods used to estimate these liabilities are reasonable; however, any changes in the severity or number of reported claims, significant changes in medical costs and regulatory changes affecting the administration of our plans could significantly impact the determination of appropriate reserves in future periods. Our accrued liability for insurance, BIPD claims, and workers' compensation claims totaled$126.4 million and$120.6 million atDecember 31, 2021 and 2020, respectively. Claims and insurance accruals are discussed further in Note 1 of the Notes to the Financial Statements included in Item 8 of this report. Property and Equipment Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated economic lives. We use historical experience, certain assumptions and estimates in determining the economic life of each asset. When indicators of impairment exist, we review property and equipment for impairment due to changes in operational and market conditions, and we adjust the carrying value and economic life of any impaired asset as appropriate. Estimated economic lives for structures are 7 to 30 years, revenue equipment is 4 to 15 years, other equipment is 2 to 20 years, and leasehold improvements are the lesser of the economic life of the leasehold improvement or the remaining life of the lease. The use of different assumptions, estimates or significant changes in the resale market for our equipment could result in material changes in the carrying value and related depreciation of our assets. Depreciation expense in 2021 totaled$259.9 million . A hypothetical change of 1% in the estimated useful lives of all depreciable assets would not have a material impact on our financial results.
Inflation
Most of our expenses are affected by inflation, which typically results in increased operating costs. In response to fluctuations in the cost of petroleum products, particularly diesel fuel, we generally include a fuel surcharge in our tariffs and contractual agreements. The fuel surcharge is designed to offset the cost of diesel fuel above a base price and fluctuates as diesel fuel prices change from the base, which is generally indexed to theDOE's published fuel prices that reset each week. Volatility in the price of diesel fuel, independent of inflation, has impacted our business, as described in this report. However, we do not believe inflation has had a material effect on our results of operations for any of the past three years. 26 --------------------------------------------------------------------------------
Related Party Transactions Family RelationshipsJohn R. Congdon , Jr., a member of our Board of Directors, is the cousin ofDavid S. Congdon , Executive Chairman of our Board of Directors. Our employment agreement withDavid S. Congdon is incorporated by reference as an exhibit to this Annual Report on Form 10-K. We regularly disclose the amount of compensation that we pay to these individuals, as well as the compensation paid to any of their family members employed by us that from time to time may require disclosure, in the proxy statement for our Annual Meeting of Shareholders.
Audit Committee Approval
The Audit Committee of our Board of Directors reviews and approves all related party transactions in accordance with our Related Party Transactions Policy.
© Edgar Online, source
As more and more of our world becomes digital, the tangible impacts and externalities of our daily lives become increasingly abstract. But at the end of the day, as easy as it is to forget, the internet is not made up of ones and zeros flying through the atmosphere, but of wires running across the ocean floor. The cloud is not, as its name suggests, an ethereal, untouchable floating non-entity, but increasingly huge clusters of servers in data centers around the world. And all that analog infrastructure has a tangible – and in some cases severe – environmental impact.
Data centers are among the worst culprits, consuming 10 to 50 times more energy per unit floor area than a standard commercial office building. According to the US Office of Energy Efficiency and Renewable Energy, data centers collectively account for approximately 2% of energy consumption for the entire United States. “As the use of information technology in our country increases, the energy consumption of data centers and servers is also expected to increase,” the government agency said. reports.
The data has come under increasing scrutiny in recent years as the sector’s energy footprint grows at the risk of undermining efforts to reduce greenhouse gas emissions in the context of increasingly desperate calls to mitigate climate change. But some scientists hope that the data sector will not be the last straw, but rather the saving grace of the climate.
One of the emerging ideas in the growing and rapidly evolving energy storage industry is the concept of “information stacks”. The idea is relatively simple: information batteries would “perform certain calculations in advance when energy is cheap, such as when the sun is shining or the wind is blowing, and cache the results for later.” according to a researcher. explanation by Ars Technica. The beauty of this concept is that it would require no additional infrastructure or specialized hardware, and would allow data centers to replace up to 30% of their current energy consumption with surplus renewable energy that would otherwise have been wasted. .
“Information farms are designed to work with existing data centers,” researchers Jennifer Switzer and Barath Raghavan wrote in a recent scientific article describing the concept. “Very limited processing power is reserved for the IB [information battery] manager, which manages the scheduling of real-time compute and bake tasks. A cluster of machines or VMs is designated for baking. The IB cache, which stores the results of these precalculations, is kept locally for fast retrieval. No additional infrastructure is required.
Batteries are just one in a litany of budding ideas for potential energy storage solutions. Renewable resources such as solar and wind power are variable, meaning their output rises and falls with weather and time of day, unlike fossil fuels which can provide constant, controlled energy to the network on demand. This means that in a 100% renewable energy landscape, sometimes supply will far exceed demand, and at other times demand will skyrocket when the wind is not blowing and the sun has set. Energy storage is therefore vital to make a green energy transition viable and reliable.
The problem is that, until now, the energy storage sector has largely depended on lithium-ion batteries, which can only hold energy for a limited number of hours and require earth metals to manufacture. rare non-renewable. Now, The race is on to deliver the most reliable, efficient and cost-effective long-term energy storage solution, and the innovative solutions on offer run the gamut from high concept green hydrogen diagrams to ideas as simple as relying on pulleys and gravity. “Information stacks” are one of the most unconventional ideas in the field today, but they could have huge potential to appeal to Silicon Valley and tech-savvy angel investors.
By Haley Zaremba for Oilprice.com
More reading on Oilprice.com:
TAIPEI, February 15, 2022 /PRNewswire/ — Infortrend® Technology, Inc. (TWSE: 2495), the industry’s leading enterprise storage provider, enables online school learning and data backup with EonStor GS enterprise unified storage. The solution provides stable and uninterrupted services to multiple users in highly concurrent access time during online classes, as well as guarantees to meet long-term storage needs for massive volumes of digital learning materials.
Many educational institutions have now moved to a distance learning model. This has allowed learning to continue despite the ongoing disruptions, but on the other hand, it has put a significant strain on IT infrastructures, forcing institutions to invest in appropriate on-premises storage. To provide normal e-learning operation, storage solutions must meet performance requirements during periods of remote and concurrent access for multiple users, scale capacity on demand, and provide secure backup of data. for the rapid increase in the amount and type of files.
EonStor GS unified storage offers a complete solution for school e-learning application enabling educational institutions to provide high-quality educational services to online learners. The high sequential bandwidth of 11 GB/s meets the high demands of concurrent data access and ensures that all students can get uninterrupted and fast access to all types of course content simultaneously. A single GS supports up to 896 hard drives and offers a capacity of over 14PB. As the amount of course materials and online courses increases, GS can be expanded horizontally up to 4 nodes, allowing a linear expansion of performance and capacity. To fully protect e-learning materials, GS supports both local and remote data backup functions.
“EonStor GS provides a smooth user experience for multiple concurrent accesses in the e-learning application. It provides the scalability and flexibility required to manage and access large volumes of data contributing to education providers and students “, said Frank Leesenior director of product planning.
Learn more about EonStor GS
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Infortrend (TWSE: 2495) has been developing and manufacturing storage solutions since 1993. With an emphasis on in-house design, testing and manufacturing, Infortrend storage delivers performance and scalability with the latest standards, user-friendly data, personal follow-up, sales support and unparalleled value. For more information, please visit www.infortrend.com
Infortrend® and EonStor® are trademarks or registered trademarks of Infortrend Technology, Inc.; Other trademarks are the property of their respective owners.
SOURCE Infortrend Technology
Global microwave transmission equipment market (Before-After Covid-19) Size Analysis and Forecast to 2029: The global Microwave Transmission Equipment Market research report on Microwave Transmission Equipment Market is the product of a brief review and in-depth analysis of realistic data collected from the Global Microwave Transmission Equipment Market 2021. The data was collected based on manufacturing drifts of microwave transmission equipment and service and goods related demands.
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Owing to the increase in partnership activities of major players in the Microwave Transmission Equipment industry over the projected period, North America accounted for the $xxx million share in the market for microwave transmission equipment in 2021
Main microwave transmission equipment Key players included in this research: LM Ericsson Telefon, Huawei Technologies, NEC, Aviat Networks, Alcatel-Lucent, DragonWave, Intracom Telecom, Ceragon Networks
Main types and Applications Present in Microwave Transmission Equipment Market as follows:
[Segments]
A perfect example of the latest developments and revolutionary strategic changes enables our clients to improve their decision-making skills. Ultimately, it helps to work with perfect business solutions and execute innovative implementations. the Global Microwave Transmission Equipment Market 2020-2029 The report highlights the latest trends, growth, new opportunities and latent tricks.
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In addition to microwave transmission equipment statistics, most of the data obtained is presented in graphical form. The global Microwave Transmission Equipment market study shows in detail the operation of the major players, manufacturers and distributors in the market. The study also describes the restrictions and factors influencing the global demand for Global microwave transmission equipment market.
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Year-over-year growth for 2021 is estimated at XX% and incremental market growth is expected to be $xxx million.
LM Ericsson Telefon, Huawei Technologies, NEC, Aviat Networks, Alcatel-Lucent, DragonWave, Intracom Telecom, Ceragon Networks
The demand for ASW capacity building is one of the major factors driving the microwave transmission equipment market.
North America region will contribute XX% of microwave transmission equipment market share
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This helps to understand the overall market and to recognize the growth opportunities in the global Microwave Transmission Equipment Market. The report also includes a detailed profile and information of all the major Microwave Transmission Equipment Market players currently active in the global Microwave Transmission Equipment Market. Companies covered in the report can be assessed on the basis of their latest developments, financial and business overview, product portfolio, key trends in the Microwave Transmission Equipment marketcompanies’ long-term and short-term business strategies in order to remain competitive in the Microwave Transmission Equipment market.
Regions & Countries Mentioned In The Microwave Transmission Equipment Market Report:
• microwave transmission equipment industry North America: United States, Canada and Mexico.
• microwave transmission equipment industry South and Central America: Argentina, Chile and Brazil.
• microwave transmission equipment industry Middle East and Africa: Saudi Arabia, United Arab Emirates, Turkey, Egypt and South Africa.
• microwave transmission equipment industry Europe: UK, France, Italy, Germany, Spain and Russia.
• microwave transmission equipment industry Asia Pacific: India, China, Japan, South Korea, Indonesia, Singapore and Australia.
The Microwave Transmission Equipment report analyzes various critical restraints, such as item price, production capacity, profit and loss statistics, and transportation and delivery channels that influence the global market. It also includes the examination of significant elements such as Microwave Transmission Equipment market demands, product trends and developments, various organizations, and effect processes in the global market.
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FloatMe, a San Antonio tech startup that provides cash advances to workers on their next paycheck, said it raised $16.2 million from investors in its most recent fundraising round.
Overall, the startup has raised $49.1 million in funding since June 2019, including $25 million in debt funding, according to Crunchbase, which tracks investments in tech companies. FloatMe’s new investors include Iowa-based Active Capital and ManchesterStory.
“We’ve been under the radar,” FloatMe co-founder and president Joshua Sanchez said. “The funding is validation that we have grown significantly and allows us to expand.”
However, he declined to say how many customers use the app.
FloatMe, with 60 employees and an office in downtown Soledad Street, is part of a wave of online and mobile cash advance companies gaining traction during the coronavirus pandemic. They compete with payday lenders who sell high-interest loans to largely low-wage workers, a disproportionate share of whom are black and Hispanic.
FloatMe’s service is similar to financial technology, or fintech, offerings from companies such as Moneylion, Earnin and Dave.
Like its biggest rivals, FloatMe says it offers customers payday cash advances, not loans.
Customers pay a monthly fee of $1.99 and can request small advances – no more than $50 – which they repay when their next paychecks hit their bank accounts.
The startup’s terms of service state that users must be US citizens at least 18 years old and have a cell phone and email address. To create an account, customers authorize the company to access their bank account balance and transaction history.
They must also prove that they have received at least $200 in electronic payroll deposits three times before they can apply for advances.
Once approved, users can receive their advances through an automated transfer from the clearinghouse to their bank accounts in one to three business days. Or they can pay $4 for an “instant” money deposit within eight hours.
Fees for faster access to cash advances have caught the attention of industry watchdogs. Many workers who apply for cash advances are in financial straits and need money fast.
“This type of fee would be voluntary, but really adds up for consumers,” said Yasmin Farahi, senior policy adviser at the Center for Responsible Lending, a North Carolina-based nonprofit policy and research group.
FloatMe users can also receive offers from third-party companies for money management services or products — if they choose, according to the startup.
According to the terms of service: “In all cases, you will need to register to receive these offers from partners, and FloatMe may receive compensation from these partners for referring you to them. FloatMe is not responsible for the products and services offered by these partners.
The federal Consumer Financial Protection Bureau describes a payday loan as “a short-term, high-cost loan, typically $500 or less, that is usually due on your next paycheck.” Loans are available in storefronts and online.
If borrowers do not repay their loans on time or at all, lenders can withdraw money from their bank accounts, sometimes resulting in overdraft fees. Payday lenders also sometimes send collection agencies after delinquent borrowers.
Payday loans have long been a big business in Texas.
The Center for Responsible Lending analyzed average annual percentage rates, or APRs, for a $300 loan with 14-day repayment periods in each state. Data shows Texans can pay up to 664% APR — the highest in the nation — because the state has no interest rate caps to protect borrowers.
“Payday loans are marketed as a quick financial fix, but they’re actually a long-term debt trap,” Farahi said. “People will take out a loan thinking it’s a one-time loan to deal with a short-term crisis. But with all the fees and costs, they end up having to take out another loan and another loan.
Like his peers, Sanchez says FloatMe is not a payday lender.
“FloatMe is all about transparency,” he said. “We charge members $1.99 per month to access our personal finance management tools, overdraft alerts and other budget management features. Members can access the floats without having to pay the $1.99. There is no credit check. There is no interest and no hidden fees.
“We do not collect or store sensitive information (personal information),” Sanchez said. “We work with a third party to simply connect a member’s bank account. We do not sell any user data.
The company’s website says it uses Plaid, a California-based financial services company, to connect to customers’ bank accounts.
Sanchez said he had his own bad experience with a payday lender.
Five years ago, he was driving in San Antonio when a VIA Metropolitan Transit bus veered into his lane and rammed his vehicle.
The Incarnate World University graduate had car insurance but couldn’t wait for payment to fix his car – he needed it to get to work. At the time, he was among the 67% of millennials without a credit card. So he dipped into his savings to pay for repairs to the vehicle, leaving him short of cash before his next paycheck.
He didn’t want to ask his mother for money, so he turned to a payday lender for a $200 loan – and quickly fell behind on his payments.
“I have to understand that paying on time is important,” he said. “The way lenders generate their income is by betting that people can’t prepay and get into a habitual cycle of having to pay interest. The sad thing is that the majority of people cannot afford a sudden recovery.
Later that year, Sanchez pitched the idea for FloatMe during a startup challenge at Geekdom, a coworking space in downtown San Antonio, and won $13,000.
FloatMe’s terms of service say it doesn’t charge late fees or penalties, and it won’t go to a collection agency to track down customers for payment.
“If a member doesn’t repay a float, we don’t seek recourse,” Sanchez added. “Our only response is not to allow the member to take another float.”
Still, consumer advocates remain wary of cash advance companies because they aren’t regulated like payday lenders.
“A lot of them try to say they’re not loans, but we think they’re loans and should be regulated by consumer protection laws and state loan laws.” , Farahi said. “Obviously in Texas these laws aren’t strict on user caps, but we’re concerned that they’re trying to get exclusions from state and federal lending laws saying that it it’s not about loans. And really, a lot of them are payday loans in some other form.
eric.killelea@express-news.net
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements herein are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, these statements can be identified by the use of words such as "aim," "anticipate," "believe," "continue," "could," "estimate," "expect," "feel," "forecast," "intend," "may," "outlook," "plan," "potential," "project," "seek," "should," "will," "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements include statements relating to trends in or expectations relating to the effects of our existing and any future initiatives, strategies and plans, as well as trends in or expectations regarding our financial results and long-term growth model and drivers, the anticipated timing and effects of recovery of our business, the conversion of several market operations to fully licensed models, our plans for streamlining our operations, including store openings, closures and changes in store formats and models, expanding our licensing to Nestlé of our consumer packaged goods and Foodservice businesses and its effects on our Channel Development segment results, tax rates, business opportunities and expansion, strategic acquisitions, our future relationship withStarbucks Coffee Korea Co., Ltd. , expenses, dividends, share repurchases, commodity costs and our mitigation strategies, liquidity, cash flow from operations, use of cash and cash requirements, investments, borrowing capacity and use of proceeds, continuing compliance with our covenants under our credit facilities and commercial paper program, repatriation of cash to theU.S. , the likelihood of the issuance of additional debt and the applicable interest rate, the continuing impact of the COVID-19 pandemic on our financial results, future availability of governmental subsidies for COVID-19 or other public health events, the expected effects of new accounting pronouncements and the estimated impact of changes inU.S. tax law, including on tax rates, investments funded by these changes and potential outcomes and effects of legal proceedings. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to: further spread of COVID-19 and related disruptions to our business; regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions; the potential for a resurgence of COVID-19 infections and the circulation of novel variants of COVID-19 in a given geographic region after it has hit its "peak"; fluctuations inU.S. and international economies and currencies; our ability to preserve, grow and leverage our brands; the ability of our business partners and third-party providers to fulfill their responsibilities and commitments; potential negative effects of incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling; potential negative effects of material breaches of our information technology systems to the extent we experience a material breach; material failures of our information technology systems; costs associated with, and the successful execution of, the Company's initiatives and plans, including the successful expansion of ourGlobal Coffee Alliance with Nestlé; our ability to obtain financing on acceptable terms; the acceptance of the Company's products by our customers, evolving consumer preferences and tastes and changes in consumer spending behavior; partner investments, changes in the availability and cost of labor including any union organizing efforts and our responses to such efforts; significant increased logistics costs; inflationary pressures; the impact of competition; inherent risks of operating a global business; the prices and availability of coffee, dairy and other raw materials; the effect of legal proceedings; the effects of changes in tax laws and related guidance and regulations that may be implemented and other risks detailed in our filings with theSEC , including in Part I Item IA "Risk Factors" in the 10-K. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q and the audited consolidated financial statements and notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), contained in the 10-K filed with theSEC onNovember 19, 2021 . Introduction and OverviewStarbucks is the premier coffee roaster and retailer of specialty coffee with operations in 84 markets around the world. As ofJanuary 2, 2022 ,Starbucks had over 34,300 company-operated and licensed stores, an increase of 4% from the prior year. Additionally, we sell a variety of consumer-packaged goods, primarily through theGlobal Coffee Alliance established with Nestlé and other partnerships and joint ventures. During the quarter endedJanuary 2, 2022 , our global comparable store sales grew 13%, demonstrating powerful momentum beyond recovery from the significant adverse impacts from the pandemic in the prior year period. We have three reportable operating segments: 1)North America , which is inclusive of theU.S. andCanada , 2) International, which is inclusive ofChina ,Japan ,Asia Pacific ,Europe ,Middle East ,Africa ,Latin America and theCaribbean ; and 3) Channel 27 -------------------------------------------------------------------------------- Table of Contents Development. Non-reportable operating segments such as Evolution Fresh and unallocated corporate expenses are reported within Corporate and Other. We believe our financial results and long-term growth model will continue to be driven by new store openings, comparable store sales growth and operating margin management, underpinned by disciplined capital allocation. We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies. Throughout this MD&A, we commonly discuss the following key operating metrics: •New store openings and store count •Comparable store sales growth •Operating margin Comparable store sales growth represents the percentage change in sales in one period from the same prior year period for company-operated stores open for 13 months or longer and exclude the impact of foreign currency translation. We analyze comparable store sales growth on a constant currency basis as this helps identify underlying business trends, without distortion from the effects of currency movements. Stores that are temporarily closed or operating at reduced hours due to the COVID-19 pandemic remain in comparable store sales while stores identified for permanent closure have been removed. Additionally, we monitor our two-year comparable sales metric based on a multiplicative basis(1) to better analyze our performance due to the adverse impacts from the pandemic. Our fiscal year ends on the Sunday closest toSeptember 30 . Our fiscal 2022 year includes 52 weeks while our fiscal 2021 year included 53 weeks. All references to store counts, including data for new store openings, are reported net of store closures, unless otherwise noted.Starbucks results for the first quarter of fiscal 2022 demonstrate the overall strength and resilience of our brand. Consolidated net revenues increased 19% to$8.1 billion in the first quarter of fiscal 2022 compared to$6.7 billion in the first quarter of fiscal 2021, primarily driven by strength in ourU.S. business attributable to strong holiday performance, partially offset by continued COVID-19 related disruptions in certainNorth America and International markets. Consolidated operating margin expanded 110 basis points from the prior year to 14.6%, primarily due to sales leverage from business recovery, pricing inNorth America and lower restructuring costs, partially offset by investments in store partner wages and benefits as well as inflation. For theNorth America segment, comparable store sales increased 18% for the first quarter of fiscal 2022 compared to a decline of 6% in the first quarter of fiscal 2021. Comparable store sales for our U.S. market increased 18% for the first quarter of fiscal 2022 compared to a decline of 5% in the first quarter of fiscal 2021. The U.S. market also had a 12% increase in two-year comparable store sales, despite modified store operations related to the COVID-19 pandemic, which have been ongoing, whether intermittently or concentrated, since the COVID-19 pandemic began, The segment also experienced higher than anticipated costs, primarily related to enhancements in retail store partner wages, increased supply chain costs due to inflationary pressures and increased spend on new partner training and support costs to address labor market conditions. For the International segment, comparable store sales declined 3%, inclusive of a 3% adverse impact from lapping the prior-year value-added tax benefit. Comparable store sales for ourChina market declined 14% for the first quarter of fiscal 2022, inclusive of a 4% adverse impact from lapping the prior-year value-added tax benefit. OurChina market continued to experience pandemic-related restrictions that significantly impacted customer mobility during the quarter, while our other International markets were not as severely impacted. Net revenues for our Channel Development segment increased$46 million , or 12%, when compared with the first quarter of fiscal 2021. This was largely due to higher product sales to and royalty revenue from theGlobal Coffee Alliance and growth in our international ready-to-drink business. Absent significant COVID-19 relapses or global economic disruptions, and based on the current trend of our retail business operations and our focused efforts to expand contactless customer experiences, enhance digital capabilities and drive beverage innovation, we are confident in the strength of our brand and the durability of our long-term growth model. However, our business is experiencing, and expects to continue to experience, operating margin pressures such as accelerated inflation, increased spend due to labor market conditions and extended COVID-19 related pay and benefits for our partners. We believe we have plans to effectively mitigate these pressures, such as improving retail store operations and potential adjustments to pricing. However, if our mitigation plans are not effective, these pressures and other factors could have an adverse impact on our business. (1)Two-year comparable store sales metric is calculated as ((1 + % change in comparable store sales in FY21) * (1 + % change in comparable store sales in FY22)) - 1. Two-year comparable store sales for theU.S. of 12% = ((1 + (-5%)) * (1 + 18%)) - 1. 28 -------------------------------------------------------------------------------- Table of Contents Results of Operations (in millions) Revenues Quarter Ended Jan 2, Dec 27, $ % 2022 2020 Change Change Company-operated stores$ 6,722.4 $ 5,726.5 $ 995.9 17.4 % Licensed stores 850.8 613.8 237.0 38.6 Other 477.2 409.1 68.1 16.6 Total net revenues$ 8,050.4 $ 6,749.4 $ 1,301.0 19.3 % For the quarter endedJanuary 2, 2022 compared with the quarter endedDecember 27, 2020 Total net revenues for the first quarter of fiscal 2022 increased$1.3 billion , primarily due to higher revenues from company-operated stores ($1.0 billion ). The growth of company-operated stores revenue was driven by a 13% increase in comparable store sales ($719 million ), attributable to a 10% increase in comparable transactions and a 3% increase in average ticket. Also contributing to the increase were incremental revenues from 664 net new Starbucks® company-operated stores, or a 4% increase, over the past 12 months ($254 million ). Licensed stores revenue increased$237 million also contributed to the increase in total net revenues, driven by higher product and equipment sales to and royalty revenues from our licensees ($206 million ) and the conversion of ourKorea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($39 million ). Other revenues increased$68 million , primarily due to higher product sales and royalty revenue in theGlobal Coffee Alliance and growth in our international ready-to-drink business. Operating Expenses Quarter Ended Jan 2, Dec 27, $ Jan 2, Dec 27, 2022 2020 Change 2022 2020 As a % of Total Net Revenues Product and distribution costs$ 2,526.9 $ 2,049.1 $ 477.8 31.4 % 30.4 % Store operating expenses 3,400.0 2,867.3 532.7 42.2 42.5 Other operating expenses 101.7 91.8 9.9 1.3 1.4 Depreciation and amortization expenses 366.0 366.1 (0.1) 4.5 5.4 General and administrative expenses 525.8 472.1 53.7 6.5 7.0 Restructuring and impairments (7.5) 72.2 (79.7) (0.1) 1.1 Total operating expenses 6,912.9 5,918.6 994.3 85.9 % 87.7 % Income from equity investees 40.3 82.7 (42.4) 0.5 1.2 Operating income$ 1,177.8 $ 913.5 $ 264.3 14.6 % 13.5 % Store operating expenses as a % of company-operated stores 50.6 % 50.1 %
income
For the quarter endedJanuary 2, 2022 compared with the quarter endedDecember 27, 2020 Product and distribution costs as a percentage of total net revenues increased 100 basis points for the first quarter of fiscal 2022, primarily due to supply chain costs due to inflationary pressures (approximately 180 basis points) and product mix changes (approximately 40 basis points), partially offset by pricing inNorth America (approximately 150 basis points). Store operating expenses as a percentage of total net revenues decreased 30 basis points for the first quarter of fiscal 2022. Store operating expenses as a percentage of company-operated stores revenue increased 50 basis points, primarily due to enhancements in retail store partner wages and benefits (approximately 180 basis points) and increased spend on new partner training and support costs to address labor market conditions (approximately 110 basis points), partially offset by sales leverage from business recovery. Depreciation and amortization expenses as a percentage of total net revenues decreased 90 basis points, primarily due to sales leverage. 29 -------------------------------------------------------------------------------- Table of Contents General and administrative expenses increased$54 million , primarily due to incremental investments in technology ($29 million ) and increased partner wages and benefits ($19 million ), partially offset by lower performance-based compensation ($8 million ). Restructuring and impairment expenses decreased$80 million , primarily due to lapping ourNorth America store portfolio optimization in the prior year, specifically lower asset impairment charges ($41 million ) and accelerated lease right-of-use asset amortization costs ($39 million ). Income from equity investees decreased$42 million , primarily due to the conversion of ourKorea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($27 million ) and lower income from ourNorth American Coffee Partnership joint venture ($17 million ). The combination of these changes resulted in an overall increase in operating margin of 110 basis points for the first quarter of fiscal 2022. Other Income and Expenses Quarter Ended Jan 2, Dec 27, $ Jan 2, Dec 27, 2022 2020 Change 2022 2020 As a % of Total Net Revenues Operating income$ 1,177.8 $ 913.5 $ 264.3 14.6 % 13.5 % Interest income and other, net (0.1) 15.5 (15.6) - 0.2 Interest expense (115.3) (120.7) 5.4 (1.4) (1.8) Earnings before income taxes 1,062.4 808.3 254.1 13.2 12.0 Income tax expense 246.3 186.1 60.2 3.1 2.8 Net earnings including noncontrolling interests 816.1 622.2 193.9 10.1 9.2 Net earnings attributable to noncontrolling interests 0.2 - 0.2 - - Net earnings attributable to Starbucks$ 815.9 $ 622.2 $ 193.7 10.1 % 9.2 % Effective tax rate including noncontrolling interests 23.2 % 23.0 % For the quarter endedJanuary 2, 2022 compared with the quarter endedDecember 27, 2020 Interest income and other, net decreased$16 million , primarily due to higher net losses from certain investments. Interest expense decreased$5 million , primarily due to lower debt balances attributed to repayments of short-term and current portion of long-term debt balances. Segment Information Results of operations by segment (in millions): 30 -------------------------------------------------------------------------------- Table of Contents North America (1) Quarter Ended Jan 2, Dec 27, $ Jan 2, Dec 27, 2022 2020 Change 2022 2020 As a % of North America Total Net Revenues Net revenues: Company-operated stores$ 5,214.1 $ 4,284.8 $ 929.3 91.0 % 91.6 % Licensed stores 515.9 388.6 127.3 9.0 8.3 Other 2.3 2.2 0.1 - - Total net revenues 5,732.3 4,675.6 1,056.7 100.0 100.0 Product and distribution costs 1,629.4 1,260.6 368.8 28.4 27.0 Store operating expenses 2,702.4 2,238.8 463.6 47.1 47.9 Other operating expenses 48.2 41.5 6.7 0.8 0.9 Depreciation and amortization expenses 200.0 188.9 11.1 3.5 4.0 General and administrative expenses 76.7 70.8 5.9 1.3 1.5 Restructuring and impairments (7.5) 72.2 (79.7) (0.1) 1.5 Total operating expenses 4,649.2 3,872.8 776.4 81.1 82.8 Operating income$ 1,083.1 $ 802.8 $ 280.3 18.9 % 17.2 %
Store operating expenses as % of corporate store revenue
51.8 % 52.2 % (1)North America licensed stores revenue, total net revenues, product and distribution costs, other operating expenses, total operating expenses and operating income for the quarter endedDecember 27, 2020 , have been restated to conform with current period presentation. For the quarter endedJanuary 2, 2022 compared with the quarter endedDecember 27, 2020 RevenuesNorth America total net revenues for the first quarter of fiscal 2022 increased$1.1 billion , or 23%, primarily due to an 18% increase in comparable store sales ($762 million ) driven by a 12% increase in transactions and a 6% increase in average ticket. Also contributing to these increases were the performance of new stores compared to the closure of underperforming stores in prior year including stores related to our restructuring plan ($140 million ) and higher product and equipment sales to and royalty revenues from our licensees ($130 million ) primarily due to business recovery from the COVID-19 pandemic. Operating MarginNorth America operating income for the first quarter of fiscal 2022 increased 35% to$1.1 billion , compared to$803 million in the first quarter of fiscal 2021. Operating margin increased 170 basis points to 18.9%, primarily due to sales leverage from business recovery. Also contributing to the margin improvement was pricing (approximately 210 basis points), lower restructuring expenses (approximately 170 basis points), sourcing savings (approximately 70 basis points) and benefits from the closure of lower-performing stores (approximately 70 basis points). These increases were partially offset by higher supply chain costs due to inflationary pressures (approximately 240 basis points), enhancements in retail store partner wages and benefits (approximately 190 basis points) and increased spend on new partner training and support costs to address labor market conditions (approximately 130 basis points). 31 -------------------------------------------------------------------------------- Table of Contents International (1) Quarter Ended Jan 2, Dec 27, $ Jan 2, Dec 27, 2022 2020 Change 2022 2020 As a % of International Total Net Revenues Net revenues: Company-operated stores$ 1,508.3 $ 1,441.7 $ 66.6 80.4 % 85.7 % Licensed stores 334.9 225.2 109.7 17.9 13.4 Other 32.7 15.0 17.7 1.7 0.9 Total net revenues 1,875.9 1,681.9 194.0 100.0 100.0 Product and distribution costs 615.8 536.0 79.8 32.8 31.9 Store operating expenses 697.6 628.5 69.1 37.2 37.4 Other operating expenses 39.2 35.6 3.6 2.1 2.1 Depreciation and amortization expenses 133.1 140.0 (6.9) 7.1 8.3 General and administrative expenses 91.3 85.1 6.2 4.9 5.1 Total operating expenses 1,577.0 1,425.2 151.8 84.1 84.7 Income from equity investees 0.7 26.3 (25.6) - 1.6 Operating income$ 299.6 $ 283.0 $ 16.6 16.0 % 16.8 %
Store operating expenses as % of corporate store revenue
46.3 % 43.6 % (1)International licensed stores revenue, total net revenues, product and distribution costs, other operating expenses, general and administrative expenses, total operating expenses and operating income for the quarter endedDecember 27, 2020 , have been restated to conform with current period presentation. For the quarter endedJanuary 2, 2022 compared with the quarter endedDecember 27, 2020 Revenues International total net revenues for the first quarter of fiscal 2022 increased$194 million , or 12%, primarily due to 774 net newStarbucks company-operated store openings, or a 12% increase over the past 12 months ($113 million ). Additionally, there were higher product and equipment sales to and royalty revenues from our licensees ($76 million ) primarily due to lapping the impact of the COVID-19 pandemic in the prior year. Also contributing to the increase was the conversion of ourKorea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($39 million ). These increases were partially offset by a 3% decline in comparable store sales ($43 million ), driven by a 5% decrease in average ticket, partially offset by a 2% increase in transactions, as well as unfavorable foreign currency translation ($17 million ). Operating Margin International operating income for the first quarter of fiscal 2022 increased 6% to$300 million , compared to$283 million in the first quarter of fiscal 2021. Operating margin decreased 80 basis points to 16.0%, primarily due to investments and growth in retail store partner wages and benefits (approximately 150 basis points), strategic investments, largely inChina (approximately 110 basis points) and product mix changes (approximately 90 basis points). These decreases were partially offset by sales leverage outside ofChina driven by lapping the more severe impact of the COVID-19 pandemic in the prior year. 32 --------------------------------------------------------------------------------
Table of Contents Channel Development Quarter Ended Jan 2, Dec 27, $ Jan 2, Dec 27, 2022 2020 Change 2022 2020 As a % of Channel Development Total Net Revenues Net revenues$ 417.1 $ 371.4 $ 45.7 Product and distribution costs 258.8 233.5 25.3 62.0 % 62.9 % Other operating expenses 11.4 11.1 0.3 2.7 3.0 Depreciation and amortization expenses - 0.2 (0.2) - 0.1 General and administrative expenses 3.3 2.2 1.1 0.8 0.6 Total operating expenses 273.5 247.0 26.5 65.6 66.5 Income from equity investees 39.6 56.4 (16.8) 9.5 15.2 Operating income$ 183.2 $ 180.8 $ 2.4 43.9 % 48.7 % For the quarter endedJanuary 2, 2022 compared with the quarter endedDecember 27, 2020 Revenues Channel Development total net revenues for the first quarter of fiscal 2022 increased$46 million , or 12%, primarily due to higherGlobal Coffee Alliance product sales and royalty revenue ($31 million ) and volume growth in our ready-to-drink businesses ($16 million ). Operating Margin Channel Development operating income for the first quarter of fiscal 2022 increased 1% to$183 million , compared to$181 million in the first quarter of fiscal 2021. Operating margin decreased 480 basis points to 43.9%, primarily due to a decline in ourNorth American Coffee Partnership joint venture income due to supply chain constraints and inflationary pressures as well as a business mix shift. Corporate and Other (1) Quarter Ended Jan 2, Dec 27, $ % 2022 2020 Change Change Net revenues: Other$ 25.1 $ 20.5 $ 4.6 22.4 % Total net revenues 25.1 20.5 4.6 22.4 Product and distribution costs 22.9 19.0
3.9 20.5
Other operating expenses 2.9 3.6 (0.7) (19.4) Depreciation and amortization expenses 32.9 37.0 (4.1) (11.1) General and administrative expenses 354.5 314.0 40.5 12.9 Total operating expenses 413.2 373.6 39.6 10.6 Operating loss$ (388.1) $ (353.1) $ (35.0) 9.9 % (1)Corporate and other general and administrative expenses, total operating expenses and operating loss for the fiscal year endedDecember 27, 2020 , have been restated to conform with current period presentation. Corporate and Other primarily consists of our unallocated corporate expenses, as well as Evolution Fresh. Unallocated corporate expenses include corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments. For the quarter endedJanuary 2, 2022 compared with the quarter endedDecember 27, 2020 Corporate and Other operating loss increased to$388 million for the first quarter of fiscal 2022, or 10%, compared to$353 million for the first quarter of fiscal 2021. This increase was primarily driven by incremental investments in technology ($22 million ) and increased partner wages and benefits ($9 million ). 33 -------------------------------------------------------------------------------- Table of Contents Quarterly Store Data Our store data for the periods presented is as follows: Net stores
opened/(closed) and transferred during the period
Quarter Ended Stores open as of Jan 2, Dec 27, Jan 2, Dec 27, 2022 2020 2022 2020North America Company-operated stores 39 (80) 9,900 10,029 Licensed stores 23 30 6,988 6,861Total North America (1) 62 (50) 16,888 16,890 International Company-operated stores 213 185 7,485 6,713 Licensed stores 209 143 9,944 9,335Total International (1) 422 328 17,429 16,048Total Company 484 278 34,317 32,938 (1)North America and International licensed stores as ofDecember 27, 2020 , have been recast as a result of our fiscal 2021 operating segment reporting structure realignment. Financial Condition, Liquidity and Capital Resources Investment Overview Our cash and investments totaled$4.4 billion as ofJanuary 2, 2022 and$6.9 billion as ofOctober 3, 2021 . We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, make acquisitions and return cash to shareholders through common stock cash dividend payments and share repurchases. Our investment portfolio primarily includes highly liquid available-for-sale securities, including corporate debt securities, government treasury securities (foreign and domestic) and commercial paper. As ofJanuary 2, 2022 , approximately$3.0 billion of cash was held in foreign subsidiaries. Borrowing Capacity Revolving Credit Facility Our$3 billion unsecured five-year revolving credit facility (the "2021 credit facility"), of which$150 million may be used for issuances of letters of credit, is currently set to mature onSeptember 16, 2026 . The 2021 credit facility is available for working capital, capital expenditures and other corporate purposes, including acquisitions and share repurchases. We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional$1.0 billion . Borrowings under the 2021 credit facility will bear interest at a variable rate based on LIBOR, and, forU.S. dollar-denominated loans under certain circumstances, a Base Rate (as defined in the 2021 credit facility), in each case plus an applicable margin. The applicable margin is based on the Company's long-term credit ratings assigned by the Moody's andStandard & Poor's rating agencies. The 2021 credit facility contains alternative interest rate provisions specifying rate calculations to be used at such time LIBOR ceases to be available as a benchmark due to reference rate reform. The "Base Rate" is the highest of (i) the Federal Funds Rate (as defined in the 2021 credit facility) plus 0.025%, (ii)Bank of America's prime rate and (iii) the Eurocurrency Rate (as defined in the 2021 credit facility) plus 1.025%. The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses. As ofJanuary 2, 2022 , we were in compliance with all applicable covenants. No amounts were outstanding under our 2021 credit facility as ofJanuary 2, 2022 orOctober 3, 2021 . Commercial Paper Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$3.0 billion , with individual maturities that may vary but not exceed 397 days from the date of issue. Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under the 2021 credit facility discussed above. The proceeds from borrowings under our commercial paper program may be used for working capital needs, capital expenditures and other corporate purposes, including, but not limited to, business expansion, payment of cash dividends on our common stock and share repurchases. As ofJanuary 2, 2022 , we had$200.0 million 34 -------------------------------------------------------------------------------- Table of Contents borrowings outstanding under our commercial paper program. Our total contractual borrowing capacity for general corporate purposes was$2.8 billion as of the end of our first quarter of fiscal 2022. Credit facilities inJapan Additionally, we hold Japanese yen-denominated credit facilities for the use of ourJapan subsidiary. These are available for working capital needs and capital expenditures within our Japanese market. •A ¥5 billion, or$43.4 million , credit facility is currently set to mature onDecember 31, 2022 . Borrowings under such credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.400%. •A ¥10 billion, or$86.9 million , credit facility is currently set to mature onMarch 26, 2022 . Borrowings under such credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.350%. As ofJanuary 2, 2022 , we had no borrowings outstanding under these Japanese yen-denominated credit facilities. See Note 7, Debt, to the consolidated financial statements included in Item 1 of Part I of this 10-Q for details of the components of our long-term debt. Our ability to incur new liens and conduct sale and leaseback transactions on certain material properties is subject to compliance with terms of the indentures under which the long-term notes were issued. As ofJanuary 2, 2022 , we were in compliance with all applicable covenants. Use of Cash We expect to use our available cash and investments, including, but not limited to, additional potential future borrowings under the credit facilities, commercial paper program and the issuance of debt to support and invest in our core businesses, including investing in new ways to serve our customers and supporting our store partners, repaying maturing debts, as well as returning cash to shareholders through common stock cash dividend payments and discretionary share repurchases and investing in new business opportunities related to our core and developing businesses. Furthermore, we may use our available cash resources to make proportionate capital contributions to our investees. We may also seek strategic acquisitions to leverage existing capabilities and further build our business in support of our "Growth at Scale" agenda. Acquisitions may include increasing our ownership interests in our investees. Any decisions to increase such ownership interests will be driven by valuation and fit with our ownership strategy. We believe that net future cash flows generated from operations and existing cash and investments both domestically and internationally combined with our ability to leverage our balance sheet through the issuance of debt will be sufficient to finance capital requirements for our core businesses as well as shareholder distributions for the foreseeable future. Significant new joint ventures, acquisitions and/or other new business opportunities may require additional outside funding. We have borrowed funds and continue to believe we have the ability to do so at reasonable interest rates; however, additional borrowings would result in increased interest expense in the future. In this regard, we may incur additional debt, within targeted levels, as part of our plans to fund our capital programs, including cash returns to shareholders through future dividends and discretionary share repurchases. If necessary, we may pursue additional sources of financing, including both short-term and long-term borrowings and debt issuances. We regularly review our cash positions and our determination of indefinite reinvestment of foreign earnings. In the event we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes andU.S. state income taxes, which could be material. We do not anticipate the need for repatriated funds to theU.S. to satisfy domestic liquidity needs. During the first quarter of fiscal 2022, our Board of Directors approved a quarterly cash dividend to shareholders of$0.49 per share to be paid onFebruary 25, 2022 to shareholders of record as of the close of business onFebruary 11, 2022 . During the first quarter of fiscal 2022, we resumed our share repurchase program which was temporarily suspended inMarch 2020 . During the quarter endedJanuary 2, 2022 , we repurchased 31.1 million shares of common stock for$3.5 billion . As ofJanuary 2, 2022 , 17.8 million shares remained available for repurchase under current authorizations. Other than normal operating expenses, cash requirements for the remainder of fiscal 2022 are expected to consist primarily of capital expenditures for investments in our new and existing stores and our supply chain and corporate facilities. Total capital expenditures for fiscal 2022 are expected to be approximately$2.0 billion . In Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 10-K, we disclosed that we had$33.7 billion of current and long-term material cash requirements as ofOctober 3, 2021 . There have been no 35 -------------------------------------------------------------------------------- Table of Contents material changes to our material cash requirements during the period covered by this 10-Q outside of the normal course of our business. Cash Flows Cash provided by operating activities was$1.9 billion for the first quarter of fiscal 2022, compared to$1.8 billion for the same period in fiscal 2021. The increase was primarily due to higher net earnings, partially offset by lower losses on retirement and impairment of assets and increases in net cash used by changes in operating assets and liabilities. Cash used in investing activities for the first quarter of fiscal 2022 totaled$401 million , compared to cash used in investing activities of$273 million for the same period in fiscal 2021. The change was primarily due to a increase in spend on capital expenditures. Cash used in financing activities for the first quarter of fiscal 2022 totaled$4.0 billion compared to cash used by financing activities of$1.0 billion for the same period in fiscal 2021. The increase was primarily due to resuming our share repurchase program, partially offset by lower repayments of long-term debt. Commodity Prices, Availability and General Risk Conditions Commodity price risk represents our primary market risk, generated by our purchases of green coffee and dairy products, among other items. We purchase, roast and sell high-quality arabica coffee and related products and risk arises from the price volatility of green coffee. In addition to coffee, we also purchase significant amounts of dairy products to support the needs of our company-operated stores. The price and availability of these commodities directly impact our results of operations, and we expect commodity prices, particularly coffee, to impact future results of operations. For additional details, see Product Supply in Item 1 of the 10-K, as well as Risk Factors in Item 1A of the 10-K. Seasonality and Quarterly Results Our business is subject to moderate seasonal fluctuations, of which our fiscal second quarter typically experiences lower revenues and operating income. However, the COVID-19 pandemic may have an impact on consumer behaviors and customer traffic that result in changes in the seasonal fluctuations of our business. Additionally, as our stored value cards are issued to and loaded by customers during the holiday season, we tend to have higher cash flows from operations during the first quarter of the fiscal year. However, since revenues from our stored value cards are recognized upon redemption and not when cash is loaded, the impact of seasonal fluctuations on the consolidated statements of earnings is much less pronounced. As a result of moderate seasonal fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. RECENT ACCOUNTING PRONOUNCEMENTS See Note 1 , Summary of Significant Accounting Policies, to the consolidated financial statements included in Item 1 of Part I of this 10-Q, for a detailed description of recent accounting pronouncements. Item 3.Quantitative and Qualitative Disclosures About Market Risk There has been no material change in the commodity price risk, foreign currency exchange risk, equity security price risk or interest rate risk discussed in Item 7A of the 10-K. Item 4. Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in theSEC's rules and forms. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure. During the first quarter of fiscal 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report (January 2, 2022 ). There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that materially affected or are reasonably likely to materially affect internal control over financial reporting. 36 -------------------------------------------------------------------------------- Table of Contents The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits 31.1 and 31.2 to this 10-Q. 37
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Florida, Miami Beach, Publix, supermarket checkout counter during the Coronavirus pandemic. May 27, 2020. (Photo by: Jeffrey Greenberg/Education Images/Universal Images Group via Getty Images)
Black business owners feel they are bearing the brunt of high rates of inflation, but experts cite the 1980s as an indication that the worst is yet to come for the black community as a whole.
Khari Parker, co-founder of Connie’s Chicken and Waffles in Baltimore, said leGrio there is increased pressure for black-owned businesses to weather rising inflation without signaling to customers that there are challenges.
“We intentionally, you know, struggled internally with the price hike because we want to make sure the customer is getting amazing food and an amazing experience,” Parker explained.
In an era of labor shortages, scarcity of supply and inflated prices, some black businesses have been reluctant to make changes that could impact customer experience out of deep-rooted fears of feeding stereotypes. .
“When we started the company, we said we wanted to dispel any kind of myth that African-American businesses can’t do things as well as any other business,” Parker added.
According to crosstab data from a recently released Goldman Sachs survey, exclusively obtained by leGrio, 60% of Black small business owners raised prices for products or services, compared to 68% of the overall population of business owners.
Additionally, the survey indicates that Black-owned small businesses are more likely to say inflation has had a very negative impact on their financial health.
Census data shows that there are more than two million black-owned businesses in the United States, but other areas that have a high representation of black workers are the public and federal sectors. These divisions of labor are likely to see the long-term negative effects of inflation.
Public and federal sector paychecks are funded by tax revenues, and during periods of high inflation, tax revenues can be affected due to lower consumer spending. Terrence Melvin, president of the Coalition of Black Trade Unionists, warns that a blow to the public sector will create cyclical economic problems for many black households.
“That’s one of the reasons our unemployment rate is going up, because we’re in these vulnerable jobs,” Melvin argued.
After being laid off, Melvin added that former local, state and federal workers in need of government assistance typically turn to the same offices they once worked for resources, only to find that government agencies are now understaffed. This was the case in the 1980s when inflation reached 6.16%.
Black unemployment hit a record high of 21.20 in January 1983 after Paul Volcker, then chairman of the Federal Reserve, raised interest rates in an effort to reduce inflation by shocking the economy with an induced recession.
“The effects of this were felt throughout the 80s,” said Kyle Moore, economist for the Race, Ethnicity and Economics Program at the Economic Policy Institute. “Unemployment has well-documented negative effects on people’s psyches and temperaments.”
Moore sees a connection between the high black unemployment rate of the 1980s and a more notable increase in drug abuse rates during this period.
Moore and Sorrow Chelwa, research director for The New School’s Institute on Race, Power and Political Economy agrees that workers who are able to bargain should demand that their wages be indexed to inflation. They predict this would keep wages in line with inflation and reduce the impact of rising prices on individual consumers.
“It’s not very easy for you to raise your salaries,” Chelwa warned. “Most people, black people, marginalized workers, poor people don’t have that kind of power, to be able to immediately command a wage increase, that allows them to be covered, for inflationary increases.”
Moore and Chelwa believe it is more likely that unionized workers will be able to earn indexed wages. LeGrio request April Verrett, president of the 2015 SEIU California Local, if she was considering negotiating the option. She said leGrio she would be willing to pursue it, but thinks wages alone need to reach a living wage before inflation is factored into the equation.
“We can do all the negotiations and enhanced negotiations and add that, then,” Varrett explained. “But if we don’t have workers leaving where they have a chance of succeeding in this economy, you know, something has to change.”
Dana Peterson, chief economist and head of the center for economics, strategy and finance at the Conference Board has warned that raising wages outside of a contract in the event of an inflation strike could trigger a wage-wage spiral. price.
“A wage price spiral is a very negative thing, because that’s how prices get out of control. And that’s when the [Federal Reserve] should come in and really put the hammer down,” Peterson said.
Black consumers are also being hit hard by inflation. Peterson pointed out that the erosion of purchasing power adds to the challenges of maintaining economic stability during the pandemic.
One area that many experts are keeping tabs on is the housing market. Black home ownership hit its lowest rate since the 1960s last year. Inflation limiting purchasing power and the prospect of rising interest rates are likely to impact efforts to increase black homeownership.
“The unfortunate side of the pandemic that has kind of come and gone now is that during the pandemic we had some of the lowest interest rates that have ever been available in the country,” Brian Young, said the CEO of Home Lending Pal leGrio. “In some cases now those interest rates are going up.”
Home finance experts recommend comparing loan rates and reviewing as many loan offers as possible to combat the market outlook. One tool that has emerged in an effort to achieve indiscriminate lending rates is Home Lending Pal, a digital program that uses blockchain technology to present potential borrowers’ financial information to lenders without disclosing demographic information.
Young is bullish on modest increases in interest rates. He thinks it will provide opportunities for home buyers.
“Right now it’s really a seller’s market, and you’re going to see it turn back into a buyer’s market,” Young added.
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SEOUL, Jan 28 (Reuters) – South Korean chipmaker SK Hynix Inc (000660.KS) said it expects supply chain issues to gradually improve from the second half of the year. and as demand for memory chips increases, after quadrupling the year-over-year increase in operating profit in the fourth quarter.
The world’s second-largest memory chipmaker has joined other tech companies, including biggest rival Samsung Electronics Co Ltd (005930.KS), in slowing chip demand growth associated with ongoing chain issues supply in 2022, when he predicted strong demand for memory chips from data centers and other servers. clients.
“The long-term outlook for high-performance memory products, including server products…is very positive,” SK Hynix said during an earnings briefing on Friday.
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“Demand is increasing due to factors such as the exploration of non-face-to-face infrastructure construction, the spread of AI (artificial intelligence) machine learning, and the emergence of NFTs (non-fungible tokens). ) and metaverse as new apps.”
In NAND flash memory chips that serve the data storage market, SK Hynix last month completed the first phase of its acquisition of Intel Corp’s NAND business. With the acquisition, SK Hynix expects NAND flash sales to double this year compared to last year, it said on Friday. Read more
For DRAM chips that are widely used in data centers and technology devices, SK Hynix said Friday it plans to manage inventory flexibly while focusing on profitability in 2022.
SK Hynix said capital spending in 2022 will increase from 2021’s 13.4 trillion won ($11.12 billion), mainly due to large construction and infrastructure investments, such as the purchase of a future chip factory site in South Korea and a research and development center in the United States. states.
In a regulatory filing released on Friday, it said it would invest about 2.4 trillion won in Wuxi, China, where it has a chip factory, as part of ordinary investments for business operations, with additional investments in production facilities.
Shares of SK Hynix rose 6.6% vs. 1.4% in the broader market (.KS11) after the chipmaker announced a 2022-2024 shareholder return policy that involved raising fixed dividends of 20% and to use approximately 50% of the newly generated free cash flow. for returns to shareholders.
The chipmaker, whose clients include Apple Inc (AAPL.O), reported profit of 4.2 trillion won in October-December, its highest quarterly profit since 2018 and up from 959 billion wons a year earlier.
Revenue soared 55% to a record 12.4 trillion won.
($1 = 1,204.8900 won)
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Reporting by Joyce Lee and Heekyong Yang; Editing by Diane Craft and Christopher Cushing
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