10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-24960

COVENANT TRANSPORTATION GROUP, INC.

(Exact name of registrant as specified in its charter)

Nevada	88-0320154
(State or other jurisdiction of incorporation	(I.R.S. Employer Identification No.)
or organization)
400 Birmingham Hwy.
Chattanooga, TN	37419
(Address of principal executive offices)	(Zip Code)

423-821-1212

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
$0.01 Par Value Class A common stock	CVTI	The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [   ]

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  [   ]	Accelerated filer [X]
Non-accelerated filer   [   ]	Smaller reporting company [X]
	Emerging growth company [   ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ] No [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (November 6, 2019).

Class A Common Stock, $.01 par value: 16,111,902 shares

Class B Common Stock, $.01 par value: 2,350,000 shares

Page 1

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
		Page Number
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (unaudited)	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018 (unaudited)	5
	Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2019 and 2018 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4.	Controls and Procedures	30
PART II OTHER INFORMATION
		Page Number
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33

Page 2

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	September 30, 2019			December 31, 2018
	(unaudited)			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	39,795		$	23,127
Accounts receivable, net of allowance of $1,889 in 2019 and $1,985 in 2018		167,440			151,093
Drivers' advances and other receivables, net of allowance of $678 in 2019 and $626 in 2018		11,415			16,675
Inventory and supplies		4,178			4,067
Prepaid expenses		12,882			11,579
Assets held for sale		6,930			2,559
Income taxes receivable		2,400			1,109
Other short-term assets		1,028			1,435
Total current assets		246,068			211,644
Property and equipment, at cost		748,291			638,770
Less: accumulated depreciation and amortization		(207,606	)		(188,175	)
Net property and equipment		540,685			450,595
Goodwill		42,518			41,598
Other intangibles, net		30,346			32,538
Other assets, net		41,990			37,149
Total assets	$	901,607		$	773,524
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks outstanding in excess of bank balances	$	1,193		$	1,857
Accounts payable		26,762			22,101
Accrued expenses		30,344			49,503
Current maturities of long-term debt		47,810			28,710
Current portion of finance lease obligations		7,164			5,374
Current portion of operating lease obligations		17,875			-
Current portion of insurance and claims accrual		21,692			19,787
Total current liabilities		152,840			127,332
Long-term debt		229,716			166,635
Long-term portion of finance lease obligations		29,097			35,119
Long-term portion of operating lease obligations		36,916			-
Insurance and claims accrual		19,996			22,193
Deferred income taxes		81,439			77,467
Other long-term liabilities		3,169			1,636
Total liabilities		553,173			430,382
Commitments and contingent liabilities		-			-
Stockholders' equity:
Class A common stock, $.01 par value; 40,000,000 shares authorized; 16,111,902 shares issued and outstanding as of September 30, 2019; 20,000,000 shares authorized and 16,015,708 shares issued and outstanding as of December 31, 2018		172			171
Class B common stock, $.01 par value; 5,000,000 shares authorized; 2,350,000 shares issued and outstanding		24			24
Additional paid-in-capital		141,840			142,177
Accumulated other comprehensive (loss) income		(1,483	)		204
Retained earnings		207,881			200,566
Total stockholders' equity		348,434			343,142
Total liabilities and stockholders' equity	$	901,607		$	773,524

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 3

COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(In thousands, except per share data)

	Three months ended September 30, (unaudited)						Nine months ended September 30, (unaudited)
	2019			2018			2019			2018
Revenues
Freight revenue	$	199,832		$	214,623		$	590,511		$	535,721
Fuel surcharge revenue		23,082			28,680			70,882			77,466
Total revenue	$	222,914		$	243,303		$	661,393		$	613,187
Operating expenses:
Salaries, wages, and related expenses		84,093			86,249			239,376			211,621
Fuel expense		28,812			33,428			85,859			89,817
Operations and maintenance		14,742			16,457			44,814			40,783
Revenue equipment rentals and purchased transportation		50,428			47,445			146,267			115,525
Operating taxes and licenses		3,170			3,377			9,719			8,649
Insurance and claims		14,051			12,675			35,758			31,269
Communications and utilities		1,791			1,810			5,269			5,216
General supplies and expenses		7,685			6,391			21,701			16,833
Depreciation and amortization, including gains and losses on disposition of property and equipment		20,073			19,290			60,291			56,803
Total operating expenses		224,845			227,122			649,054			576,516
Operating (loss) income		(1,931	)		16,181			12,339			36,671
Interest expense, net		2,992			2,460			8,121			6,360
Income from equity method investment		(2,138	)		(2,142	)		(7,548	)		(5,407	)
(Loss) income before income taxes		(2,785	)		15,863			11,766			35,718
Income tax expense		404			4,249			4,451			9,716
Net (loss) income	$	(3,189	)	$	11,614		$	7,315		$	26,002
Net (loss) income per share:
Basic net (loss) income per share	$	(0.17	)	$	0.63		$	0.40		$	1.42
Diluted net (loss) income per share		(0.17	)		0.63			0.39			1.41
Basic weighted average shares outstanding		18,458			18,343			18,426			18,337
Diluted weighted average shares outstanding		18,719			18,497			18,620			18,448

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 4

COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(In thousands)

	Three months ended September 30, (unaudited)						Nine months ended September 30, (unaudited)
	2019			2018			2019			2018
Net (loss) income	$	(3,189	)	$	11,614		$	7,315		$	26,002
Other comprehensive (loss) income:
Unrealized (loss) gain on effective portion of cash flow hedges, net of tax of $226 and $652 in 2019 and $133 and $782 in 2018, respectively		(596	)		352			(1,720	)		2,065
Reclassification of cash flow hedge loss (gain) into statement of operations, net of tax of $2 and $5 in 2019 and $155 and $330 in 2018, respectively		5			(406	)		(14	)		(868	)
Unrealized holding gain (loss) on investments classified as available-for-sale		26			(3	)		47			(3	)
Total other comprehensive (loss) income		(565	)		(57	)		(1,687	)		1,194
Comprehensive (loss) income	$	(3,754	)	$	11,557		$	5,628		$	27,196

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 5

COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Unaudited and in thousands)

	For the Three and Nine Months Ended September 30, 2019
								Accumulated
					Additional			Other						Total
	Common Stock				Paid-In			Comprehensive			Retained			Stockholders'
	Class A		Class B		Capital			(Loss)			Earnings			Equity
Balances at December 31, 2018	$	171	$	24	$	142,177		$	204		$	200,566		$	343,142
Net income		-		-		-			-			4,433			4,433
Other comprehensive income		-		-		-			(432	)		-			(432	)
Stock-based employee compensation expense		-		-		1,262			-			-			1,262
Issuance of restricted shares, net		1		-		(669	)		-			-			(668	)
Balances at March 31, 2019	$	172	$	24	$	142,770		$	(228	)	$	204,999		$	347,737
Net income		-		-		-			-			6,071			6,071
Other comprehensive loss		-		-		-			(690	)		-			(690	)
Stock-based employee compensation expense reversal		-		-		(1,433	)		-			-			(1,433	)
Issuance of restricted shares, net		-		-		-			-			-			-
Balances at June 30, 2019	$	172	$	24	$	141,337		$	(918	)	$	211,070		$	351,685
Net loss		-		-		-			-			(3,189	)		(3,189	)
Other comprehensive loss		-		-		-			(565	)		-			(565	)
Stock-based employee compensation expense		-		-		597			-			-			597
Issuance of restricted shares, net		-		-		(94	)		-			-			(94	)
Balances at September 30, 2019	$	172	$	24	$	141,840		$	(1,483	)	$	207,881		$	348,434

	For the Three and Nine Months Ended September 30, 2018
								Accumulated
					Additional			Other					Total
	Common Stock				Paid-In			Comprehensive			Retained		Stockholders'
	Class A		Class B		Capital			(Loss)			Earnings		Equity
Balances at December 31, 2017	$	171	$	24	$	137,242		$	293		$	157,471	$	295,201
Net income		-		-		-			-			4,417		4,417
Effect of adoption of ASU 2014-09		-		-		-			-			591		591
Other comprehensive income		-		-		-			671			-		671
Stock-based employee compensation expense		-		-		826			-			-		826
Issuance of restricted shares, net		-		-		(18	)		-			-		(18	)
Balances at March 31, 2018	$	171	$	24	$	138,050		$	964		$	162,479	$	301,688
Net income		-		-		-			-			9,971		9,971
Other comprehensive loss		-		-		-			580			-		580
Stock-based employee compensation expense		-		-		937			-			-		937
Issuance of restricted shares, net		-		-		375			-			-		375
Balances at June 30, 2018	$	171	$	24	$	139,362		$	1,544		$	172,450	$	313,551
Net income		-		-		-			-			11,614		11,614
Other comprehensive loss		-		-		-			(57	)		-		(57	)
Stock-based employee compensation expense		-		-		1,105			-			-		1,105
Issuance of restricted shares, net		-		-		(63	)		-			-		(63	)
Balances at September 30, 2018	$	171	$	24	$	140,404		$	1,487		$	184,064	$	326,150

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 6

COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(In thousands)

	Nine months ended September 30, (unaudited)
	2019			2018
Cash flows from operating activities:
Net income	$	7,315		$	26,002
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for accounts receivable		13			168
Reversal of gain on sales to equity method investee		(7	)		(185	)
Depreciation and amortization		61,250			56,370
Amortization of deferred financing fees		110			111
Deferred income tax expense		4,632			9,172
Income tax benefit arising from restricted share vesting and stock options exercised		4			19
Stock-based compensation expense		426			3,243
Income from equity method investment		(7,548	)		(5,407	)
Return on investment in affiliated company		1,225			-
(Gain) loss on disposition of property and equipment		(2,137	)		433
Return on investment in available-for-sale securities		(4	)		(6	)
Changes in operating assets and liabilities:
Receivables and advances		(9,099	)		(4,717	)
Prepaid expenses and other assets		(977	)		(2,763	)
Inventory and supplies		(111	)		(102	)
Insurance and claims accrual		539			1,553
Operating lease right-of-use asset amortization/accretion		333			-
Accounts payable and accrued expenses		(16,162	)		17,723
Net cash flows provided by operating activities		39,803			101,614
Cash flows from investing activities:
Acquisition of Landair Holdings, Inc., net of cash acquired		-			(106,060	)
Purchase of available-for-sale securities		(1,380	)		(1,496	)
Acquisition of property and equipment		(129,403	)		(44,528	)
Proceeds from disposition of property and equipment		31,235			49,302
Net cash flows used by investing activities		(99,548	)		(102,782	)
Cash flows from financing activities:
Change in checks outstanding in excess of bank balances		(664	)		605
Proceeds from issuance of notes payable		102,796			83,746
Repayments of notes payable		(30,538	)		(73,376	)
Repayments of finance lease obligations		(4,232	)		(2,608	)
Proceeds under revolving credit facility		1,257,755			1,153,310
Repayments under revolving credit facility		(1,247,942	)		(1,156,162	)
Payment of minimum tax withholdings on stock compensation		(762	)		(81	)
Debt refinancing costs		-			(10	)
Net cash flows provided by financing activities		76,413			5,424
Net change in cash and cash equivalents		16,668			4,256
Cash and cash equivalents at beginning of period		23,127			15,356
Cash and cash equivalents at end of period	$	39,795		$	19,612

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 7

COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements include the accounts of Covenant Transportation Group, Inc., a Nevada holding company, and its wholly owned subsidiaries. References in this report to "we," "us," "our," the "Company," and similar expressions refer to Covenant Transportation Group, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Act of 1933. In preparing financial statements, it is necessary for management to make assumptions and estimates affecting the amounts reported in the condensed consolidated financial statements and related notes. These estimates and assumptions are developed based upon all information available. Actual results could differ from estimated amounts. In the opinion of management, the accompanying financial statements include all adjustments that are necessary for a fair presentation of the results for the interim periods presented, such adjustments being of a normal recurring nature.

Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The December 31, 2018, condensed consolidated balance sheet was derived from our audited balance sheet as of that date. Our operating results are subject to seasonal trends when measured on a quarterly basis; therefore operating results for the three months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2018. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year.

Recent Accounting Pronouncements

Accounting Standards adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, which establishes Topic 842 to replace Topic 840 regarding accounting for leases. Topic 842 requires lessees to recognize a right-of-use asset and a lease liability for most leases on the balance sheet. Leases that were previously described as capital leases are now called finance leases, and operating leases with a term of at least twelve months are now required to be recorded on the balance sheet. We adopted this standard on January 1, 2019 using the modified retrospective approach.

In July 2018, FASB issued ASU 2018-11, which provides an optional transition method allowing application of Topic 842 as of the adoption date and recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, with no restatement of comparative prior periods. We have adopted the standard using this optional transition method.

Within Topic 842, FASB has provided a number of practical expedients for applying the new lease standard in relation to leases that commenced prior to the standard's effective date. We have elected the package of practical expedients which allowed us, among other things, to carry forward the operating and capital lease classifications from Topic 840 to the new operating and finance lease classifications under Topic 842.

The adoption of this ASU resulted in the initial recognition of operating lease assets of $40.1 million and liabilities totaling approximately $41.0 million, comprised of $15.3 million of current operating lease obligations and $25.7 million of long-term operating lease obligations.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation. Depreciation for book purposes is determined using the straight-line method over the estimated useful lives of the assets, while depreciation for tax purposes is generally recorded using an accelerated method. Depreciation of revenue equipment is our largest item of depreciation. We have historically depreciated new tractors (excluding day cabs) over five years to salvage values of approximately 15% of their cost.  We generally depreciate new trailers over seven years for refrigerated trailers and ten years for dry van trailers to salvage values of approximately 25% of their cost. We annually review the reasonableness of our estimates regarding useful lives and salvage values of our revenue equipment and other long-lived assets based upon, among other things, our experience with similar assets, conditions in the used revenue equipment market, and prevailing industry practice. Changes in the useful life or salvage value estimates, or fluctuations in market values that are not reflected in our estimates, could have a material effect on our results of operations. Gains and losses on the disposal of revenue equipment are included in depreciation expense in the consolidated statements of operations.

Page 8

Leases

At the commencement date of a new lease agreement with contractual terms longer than twelve months, we recognize a right-of-use asset and a lease liability and categorize the lease as either finance or operating. Certain lease agreements have lease and nonlease components, and we have elected to account for these components separately.

Right-of-use assets and lease liabilities are initially recorded based on the present value of lease payments over the term of the lease. When the rate implicit in the lease is readily determinable, this rate is used for calculating the present value of remaining lease payments; otherwise, our incremental borrowing rate is used. Right-of-use assets also include prepaid lease expenses and initial direct costs of executing the leases, which are reduced by landlord incentives. Options to extend or terminate a lease agreement are included in or excluded from the lease term, respectively, when those options are reasonably certain to be exercised. Right-of-use assets are tested for impairment in the same manner as long-lived assets.

Right-of-use assets are included in net property and equipment. For finance leases, right-of-use assets are amortized on a straight-line basis over the shorter of the expected useful life or the lease term, and the carrying amount of the lease liability is adjusted to reflect interest expense, which is recorded in interest expense, net. Operating lease right-of-use assets are amortized over the lease term on a straight-line basis, and the lease liability is measured at the present value of the remaining lease payments. Variable lease payments not included in the lease liability for mileage charges on leased revenue equipment are expensed as incurred. Operating lease costs are recognized on a straight-line basis over the term of the lease within operating expenses.

Note 2. (Loss) Income Per Share

Basic (loss) income per share excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted (loss) income per share reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in our earnings. There were approximately 261,000 anti-dilutive shares for the three months ended September 30, 2019. There were no outstanding stock options at September 30, 2019. Income per share is the same for both Class A and Class B shares.

The following table sets forth, for the periods indicated, the calculation of net (loss) income per share included in the condensed consolidated statements of operations:

(in thousands except per share data)	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019			2018		2019		2018
Numerator:
Net (loss) income	$	(3,189	)	$	11,614	$	7,315	$	26,002
Denominator:
Denominator for basic (loss) income per share – weighted-average shares		18,458			18,343		18,426		18,337
Effect of dilutive securities:
Equivalent shares issuable upon conversion of unvested restricted shares		261			154		194		111
Denominator for diluted (loss) income per share adjusted weighted-average shares and assumed conversions		18,719			18,497		18,620		18,448
Net (loss) income per share:
Basic net (loss) income per share	$	(0.17	)	$	0.63	$	0.40	$	1.42
Diluted net (loss) income per share	$	(0.17	)	$	0.63	$	0.39	$	1.41

Page 9

Note 3. Segment Information

We have two reportable segments, Truckload, which is comprised of our truckload services, and Managed Freight, which provides freight brokerage and logistics services.

The Truckload segment consists of four service offerings that are aggregated because they have similar economic characteristics and meet the aggregation criteria.  The four service offerings that comprise our Truckload segment are as follows: (i) Expedited, provided primarily by Covenant Transport, our historical flagship operation; (ii) Dedicated, provided by all of our operating fleets; (iii) Refrigerated, provided primarily through our Southern Refrigerated Transport, Inc. ("SRT") subsidiary; and (iv) over-the-road ("OTR"), provided primarily by our Landair Transport, Inc. subsidiary.

In addition, our Managed Freight segment has service offerings ancillary to our Truckload services, including: freight brokerage, transportation management services ("TMS"), and shuttle and switching services. These service offerings are aggregated due to similar margins and customers. Also included within Managed Freight are our warehousing and accounts receivable factoring businesses, neither of which meets the quantitative or qualitative reporting thresholds individually or in the aggregate.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies in our 2018 Annual Report on Form 10-K. Substantially all intersegment sales prices are market based. We evaluate performance based on operating income of the respective business units.

The following table summarizes our revenue by our two reportable segments, Truckload and Managed Freight, disaggregated to the operating fleet level as used by our chief operating decision maker in making decisions regarding allocation of resources and assets, organized first by reportable segment (i.e. Truckload and Managed Freight) and then by operating fleet for the three and nine months ended September 30, 2019 and 2018:

(in thousands)	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Total Revenues:
Truckload Segment:
Expedited	$	68,306	$	84,202	$	197,557	$	250,553
Dedicated		82,692		74,493		243,436		164,966
Refrigerated		19,368		33,672		68,107		102,107
OTR		4,592		4,686		13,926		4,686
Truckload Revenues		174,958		197,053		523,026		522,312
Managed Freight Segment:
Brokerage		24,016		26,159		68,601		68,741
TMS		9,323		6,991		27,124		6,991
Shuttle & Switching		3,693		3,451		10,990		3,451
Warehouse		8,469		8,258		25,091		8,258
Factoring		2,455		1,391		6,561		3,434
Managed Freight Revenues		47,956		46,250		138,367		90,875
Total	$	222,914	$	243,303	$	661,393	$	613,187

Note 4. Income Taxes

Income tax expense in both 2019 and 2018 varies from the amount computed by applying the federal corporate income tax rates of 21% to income before income taxes, primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences, the most significant of which is the effect of the per diem pay structure for drivers.  Drivers who meet the requirements to receive per diem receive non-taxable per diem pay in lieu of a portion of their taxable wages.  This per diem program increases our drivers' net pay per mile, after taxes, while decreasing gross pay, before taxes.  As a result, salaries, wages, and related expenses are slightly lower and our effective income tax rate is higher than the statutory rate.  Generally, as pre-tax income increases, the impact of the driver per diem program on our effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pre-tax income, while in periods where earnings are at or near breakeven the impact of the per diem program on our effective tax rate is significant.  Due to the partially nondeductible effect of per diem pay, our tax rate will fluctuate in future periods based on fluctuations in earnings.

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Our liability recorded for uncertain tax positions as of September 30, 2019 has decreased by $0.8 million since December 31, 2018 as the result of the settlement of our uncertain tax position and the reversal of any interest accrued.

The net deferred tax liability of $81.4 million primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially off-set by net operating loss carryovers and insurance claims that have been reserved but not paid. The carrying value of our deferred tax assets assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits.  If these estimates and related assumptions change in the future, we may be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense.  On a periodic basis, we assess the need for adjustment of the valuation allowance.  Based on forecasted taxable income resulting from the reversal of deferred tax liabilities, primarily generated by accelerated depreciation for tax purposes in prior periods, and tax planning strategies available to us, a valuation allowance has been established at September 30, 2019, for $0.1 million related to certain state net operating loss carry-forwards.  If these estimates and related assumptions change in the future, we may be required to modify our valuation allowance against the carrying value of the deferred tax assets.

Note 5. Debt and Lease Obligations

Current and long-term debt and lease obligations consisted of the following at September 30, 2019 and December 31, 2018:

(in thousands)	September 30, 2019						December 31, 2018
	Current			Long-Term			Current			Long-Term
Borrowings under Credit Facility	$	-		$	13,724		$	-		$	3,911
Revenue equipment installment notes; weighted average interest rate of 3.8% at September 30, 2019, and 3.7% at December 31, 2018, due in monthly installments with final maturities at various dates ranging from October 2019 to July 2023, secured by related revenue equipment		46,876			193,089			27,809			139,115
Real estate notes; interest rate of 3.8% at September 30, 2019 and 4.1% at December 31, 2018 due in monthly installments with a fixed maturity at August 2035, secured by related real estate		1,081			22,947			1,048			23,763
Deferred loan costs		(147	)		(44	)		(147	)		(154	)
Total debt		47,810			229,716			28,710			166,635
Principal portion of finance lease obligations, secured by related revenue equipment		7,164			29,097			5,374			35,119
Principal portion of operating lease obligations, secured by related revenue equipment		17,875			36,916			-			-
Total debt and lease obligations	$	72,849		$	295,729		$	34,084		$	201,754

We and substantially all of our subsidiaries are parties to the Credit Facility with Bank of America, N.A., as agent (the "Agent") and JPMorgan Chase Bank, N.A. (together with the Agent, the "Lenders"). The Credit Facility is a $95.0 million revolving credit facility, with an uncommitted accordion feature that, so long as no event of default exists, allows us to request an increase in the revolving credit facility of up to $50.0 million subject to Lender acceptance of the additional funding commitment.  The Credit Facility includes, within our $95.0 million revolving credit facility, a letter of credit sub facility in an aggregate amount of $95.0 million and a swing line sub facility in an aggregate amount equal to the greater of $10.0 million or 10% of the Lenders' aggregate commitments under the Credit Facility from time-to-time. The Credit Facility matures in September 2021.

Borrowings under the Credit Facility are classified as either "base rate loans" or "LIBOR loans." Base rate loans accrue interest at a base rate equal to the greater of the Agent’s prime rate, the federal funds rate plus 0.5%, or LIBOR plus 1.0%, plus an applicable margin ranging from 0.5% to 1.0%; while LIBOR loans accrue interest at LIBOR, plus an applicable margin ranging from 1.5% to 2.0%. The applicable rates are adjusted quarterly based on average pricing availability. The unused line fee is the product of 0.25% times the average daily amount by which the Lenders' aggregate revolving commitments under the Credit Facility exceed the outstanding principal amount of revolver loans and the aggregate undrawn amount of all outstanding letters of credit issued under the Credit Facility.  The obligations under the Credit Facility are guaranteed by us and secured by a pledge of substantially all of our assets, with the notable exclusion of any real estate or revenue equipment pledged under other financing agreements, including revenue equipment installment notes and capital leases.

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Borrowings under the Credit Facility are subject to a borrowing base limited to the lesser of (A) $95.0 million, minus the sum of the stated amount of all outstanding letters of credit; or (B) the sum of (i) 85% of eligible accounts receivable, plus (ii) the lesser of (a) 85% of the appraised net orderly liquidation value of eligible revenue equipment, (b) 95% of the net book value of eligible revenue equipment, or (c) 35% of the Lenders' aggregate revolving commitments under the Credit Facility, plus (iii) the lesser of (a) $25.0 million or (b) 75% of the appraised fair market value of eligible real estate, as reduced by a periodic amortization amount.  We had $13.7 million of borrowings outstanding under the Credit Facility as of September 30, 2019, undrawn letters of credit outstanding of approximately $35.2 million, and available borrowing capacity of $46.0 million. The interest rate on outstanding borrowings as of September 30, 2019, was 5.8% on $13.7 million of base rate loans and there were no outstanding LIBOR loans. Based on availability as of September 30, 2019 and 2018, there was no fixed charge coverage requirement.

The Credit Facility includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the Credit Facility may be accelerated, and the Lenders' commitments may be terminated.  If an event of default occurs under the Credit Facility and the Lenders cause, or have the ability to cause, all of the outstanding debt obligations under the Credit Facility to become due and payable, this could result in a default under other debt instruments that contain acceleration or cross-default provisions. The Credit Facility contains certain restrictions and covenants relating to, among other things, debt, dividends, liens, acquisitions and dispositions outside of the ordinary course of business, and affiliate transactions. Failure to comply with the covenants and restrictions set forth in the Credit Facility could result in an event of default.

Pricing for the revenue equipment installment notes is quoted by the respective financial affiliates of our primary revenue equipment suppliers and other lenders at the funding of each group of equipment acquired and include fixed annual rates for new equipment under retail installment contracts. The notes included in the funding are due in monthly installments with final maturities at various dates ranging from October 2019 to July 2023. The notes contain certain requirements regarding payment, insuring of collateral, and other matters, but do not have any financial or other material covenants or events of default except certain notes totaling $212.5 million are cross-defaulted with the Credit Facility. Additional borrowings from the financial affiliates of our primary revenue equipment suppliers and other lenders are expected to be available to fund new tractors expected to be delivered in 2020, while any other property and equipment purchases, including trailers, are expected to be funded with a combination of available cash, notes, operating leases, capital leases, and/or from the Credit Facility.

In August 2015, we financed a portion of the purchase of our corporate headquarters, a maintenance facility, and certain surrounding property in Chattanooga, Tennessee by entering into a $28.0 million variable rate note with a third party lender. Concurrently with entering into the note, we entered into an interest rate swap to effectively fix the related interest rate to 4.2%.

Note 6. Stock-Based Compensation

Our 2006 Omnibus Incentive Plan, as amended (the "Incentive Plan") governs the issuance of equity awards and other incentive compensation to management and members of the board of directors. On May 8, 2019, the stockholders, upon recommendation of the board of directors, approved the First Amendment (the “First Amendment”) to the Third Amended and Restated Incentive Plan. The First Amendment (i) increases the number of shares of Class A common stock available for issuance under the Incentive Plan by an additional 750,000 shares, (ii) implements additional changes designed to comply with certain shareholder advisory group guidelines and best practices, (iii) makes technical updates related to Section 162(m) of the Internal Revenue Code in light of the 2017 Tax Cuts and Jobs Act, (iv) re-sets the term of the Incentive Plan to expire with respect to the ability to grant new awards on March 31, 2029, and (v) makes such other miscellaneous, administrative and conforming changes as were necessary.

The Incentive Plan permits annual awards of shares of our Class A common stock to executives, other key employees, consultants, non-employee directors, and eligible participants under various types of options, restricted stock awards, or other equity instruments. As of September 30, 2019, there were 439,370 remaining of the 2,300,000 shares available for award under the Incentive Plan. No participant in the Incentive Plan may receive awards of any type of equity instruments in any calendar year that relates to more than 200,000 shares of our Class A common stock. No awards may be made under the Incentive Plan after March 31, 2023. To the extent available, we have issued treasury stock to satisfy all share-based incentive plans.

Included in salaries, wages, and related expenses within the condensed consolidated statements of operations is the recognition of approximately $0.6 million and $1.1 million stock-based compensation expense for the three months ended September 30, 2019 and 2018, respectively, and the recognition of less than $0.1 million and approximately $2.9 million for the nine months ended September 30, 2019 and 2018, respectively. All stock compensation expense recorded in 2019 and 2018 relates to restricted shares, as no unvested options were outstanding during these periods. An additional $0.4 million of stock-based compensation was recorded in general supplies and expenses in the condensed consolidated statements of operations for each of the three- and nine-month periods ended September 30, 2019 and 2018, respectively, as this amount relates to the issuance of restricted stock to non-employee directors.

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The Incentive Plan allows participants to pay the federal and state minimum statutory tax withholding requirements related to awards that vest or allows participants to deliver to us shares of Class A common stock having a fair market value equal to the minimum amount of such required withholding taxes. To satisfy withholding requirements for shares that vested through September 30, 2019, certain participants elected to forfeit receipt of an aggregate of 35,735 shares of Class A common stock at a weighted average per share price of $21.33 based on the closing price of our Class A common stock on the dates the shares vested in 2019, in lieu of the federal and state minimum statutory tax withholding requirements. We remitted $0.8 million to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements.

Note 7. Commitments and Contingencies

From time-to-time, we are a party to ordinary, routine litigation arising in the ordinary course of business, most of which involves claims for personal injury and property damage incurred in connection with the transportation of freight.

Our subsidiary Covenant Transport, Inc. (“Covenant Transport”) is a defendant in a lawsuit filed on November 9, 2018, in the Superior Court of Los Angeles County, California.  The lawsuit was filed on behalf of Richard Tabizon (a California resident and former driver) who is seeking to have the lawsuit certified as a class action.  The complaint asserts that the time period covered by the lawsuit is from October 31, 2014 to the present and alleges claims for failure to properly pay for rest breaks, failure to provide accurate itemized wage statements and/or reimbursement of business related expenses, unlawful deduction of wages, failure to pay proper minimum wage and overtime wages, failure to provide all wages due at termination, and other related wage and hour claims under the California Labor Code.  Since the original filing date, the case has been removed from the Los Angeles Superior Court to the U.S. District Court in the Central District of California and subsequently the case was transferred to the U.S. District Court in the Eastern District of Tennessee where the case is now pending. We do not currently have enough information to make a reasonable estimate as to the likelihood, or amount of a loss, or a range of reasonably possible losses as a result of this claim, as such there have been no related accruals recorded as of September 30, 2019.    

Also, in February, 2019, Covenant Transport was named in a separate (but related) lawsuit filed in the Superior Court of Los Angeles County, California requesting civil penalties under the California Private Attorneys’ General Act for the same underlying wage and hour claims at issue in the putative class action case noted above. On August 1, 2019, the Los Angeles Superior Court entered an order staying the action pending completion of the earlier-filed action that is pending in the United States District Court for the Eastern District of Tennessee. We do not currently have enough information to make a reasonable estimate as to the likelihood, or amount of a loss, or a range of reasonably possible losses as a result of this claim, as such there have been no related accruals recorded as of September 30, 2019.

We maintain insurance to cover liabilities arising from the transportation of freight for amounts in excess of certain self-insured retentions. In management's opinion, our potential exposure under pending legal proceedings is adequately provided for in the accompanying condensed consolidated financial statements.

Based on our present knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of open claims and pending litigation, taking into account existing reserves, is not likely to have a materially adverse effect on our consolidated financial statements.

We had $35.2 million and $36.3 million of outstanding and undrawn letters of credit as of September 30, 2019 and December 31, 2018, respectively. The letters of credit are maintained primarily to support our insurance programs.

Note 8. Leases

We finance a portion of our revenue equipment, office and terminal properties, computer and office equipment, and other equipment using leases. A number of these leases include one or more options to renew or extend the agreements beyond the expiration date or to terminate the agreement prior to the lease expiration date, and such options are included in or excluded from the lease term, respectively, when those options are reasonably certain to be exercised. Our lease obligations do not typically include residual value guarantees or material restrictive covenants. A summary of our lease obligations at September 30, 2019 are as follows:

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(dollars in thousands)	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Finance lease cost:
Amortization of right-of-use assets	$	1,406	$	4,225
Interest on lease liabilities		210		644
Operating lease cost		6,167		17,824
Total lease cost	$	7,783	$	22,693
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases		1,146		3,589
Operating cash flows from operating leases		6,167		17,824
Financing cash flows from finance leases		210		644
Right-of-use assets obtained in exchange for new operating lease liabilities		20,096		26,421
Weighted-average remaining lease term—finance leases			3.0 years
Weighted-average remaining lease term—operating leases			3.5 years
Weighted-average discount rate—finance leases				3.0	%
Weighted-average discount rate—operating leases				5.0	%

Right-of-use assets of $53.4 million for operating leases and $35.3 million for finance leases are included in net property and equipment in our Condensed Consolidated Balance Sheets. Operating lease right-of-use asset amortization is included in revenue equipment rentals and purchased transportation, communication and utilities, and general supplies and expenses, depending on the underlying asset.

Our future minimum lease payments as of September 30, 2019, summarized as follows by lease category:

(in thousands)	Operating			Finance
2019 (1)	$	5,381		$	8,151
2020		19,075			8,074
2021		15,281			9,960
2022		13,050			11,245
2023		4,835			362
Thereafter		2,431			1,119
Total minimum lease payments	$	60,053		$	38,911
Less: amount representing interest		(5,260	)		(2,650	)
Present value of minimum lease payments	$	54,793		$	36,261
Less: current portion		(17,875	)		(7,164	)
Lease obligations, long-term	$	36,918		$	29,097

(1) Excludes the nine months ended September 30, 2019

Note 9. Equity Method Investment

We own a minority investment in Transport Enterprise Leasing, LLC ("TEL"). TEL is a tractor and trailer equipment leasing company and used equipment reseller. We have not guaranteed any of TEL's debt and have no obligation to provide funding, services, or assets. In May 2016, the operating agreement with TEL was amended to, among other things, remove the previously agreed to fixed date purchase options. TEL’s majority owners are generally restricted from transferring their interests in TEL, other than to certain permitted transferees, without our consent. We sold no and $0.1 million tractors or trailers to TEL during the nine-months ended September 30, 2019 and 2018, respectively, and we received $7.1 million and $5.9 million, respectively, for providing various maintenance services, certain back-office functions, and for miscellaneous equipment. We recognized a net reversal of previously deferred gains totaling less than $0.1 million and $0.2 million for the nine-months ended September 30, 2019 and 2018, respectively, representing 49% of the gains on units sold to TEL less any gains previously deferred and recognized when the equipment was subsequently sold to a third party.  Deferred gains, totaling $0.2 million at September 30, 2019, are being carried as a reduction in our investment in TEL.  At September 30, 2019 and December 31, 2018, we had accounts receivable from TEL of $1.2 million and $5.1 million, respectively, related to cash disbursements made pursuant to our performance of certain back-office and maintenance functions on TEL’s behalf.

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We have accounted for our investment in TEL using the equity method of accounting, and thus our financial results include our proportionate share of TEL's 2019 net income through September 30, 2019, or $7.5 million. We received an equity distribution from TEL of $1.2 million during the nine-months ended September 30, 2019 and none for the same 2018 period.  Our investment in TEL, totaling $32.4 million and $26.1 million, at September 30, 2019 and December 31, 2018, respectively, is included in other assets in the accompanying condensed consolidated balance sheets.

See TEL's summarized financial information below:

(in thousands)	As of September 30, 2019		As of December 31, 2018
Total Assets	$	388,116	$	299,864
Total Liabilities		331,219		254,919
Total Equity	$	56,897	$	44,945

	Three Months Ended					Nine Months Ended
		September 30,					September 30,
			2019		2018			2019		2018
Revenue		$	30,709	$	25,437		$	82,683	$	74,152
Cost of Sales			6,302		6,568			17,213		23,738
Operating Expenses			16,634		12,493			42,775		34,322
Operating Income			7,773		6,376			22,695		16,092
Net Income		$	4,585	$	4,369		$	14,452	$	10,850

Note 10. Goodwill and Other Assets

On July 3, 2018, we acquired 100% of the outstanding stock of Landair Holdings, Inc., a Tennessee corporation (“Landair”). Landair is a dedicated and for-hire truckload carrier, as well as a supplier of transportation management, warehousing and logistics inventory management services. Landair’s results have been included in the consolidated financial statements since the date of acquisition. Landair’s trucking operations’ results are reported within our Truckload segment, while Landair’s logistics operations’ results are reported within our Managed Freight segment.

The allocation of the purchase price has been subject to change based on finalization of the valuation of long-lived and intangible assets and self-insurance reserves, as well as our ongoing evaluation of Landair's accounting principles for consistency with ours. The assignment of goodwill and intangible assets to our reportable segments was completed as of June 30, 2019. A summary of the changes in carrying amount of goodwill is as follows:

(in thousands)
Balance at December 31, 2018	$	41,598
Post-acquisition goodwill adjustments		920
Balance at September 30, 2019	$	42,518

A summary of other intangible assets as of September 30, 2019 and December 31, 2018 is as follows:

(in thousands)	September 30, 2019
	Gross intangible assets		Accumulated amortization			Net intangible assets		Remaining life (months)
Trade name	$	4,400	$	(367	)	$	4,033		165
Non-Compete agreement		1,400		(350	)		1,050		45
Customer relationships		28,200		(2,937	)		25,263		129
Total	$	34,000	$	(3,654	)	$	30,346

	December 31, 2018
	Gross intangible assets		Accumulated amortization			Net intangible assets		Remaining life (months)
Trade name	$	4,400	$	(147	)	$	4,253		174
Non-Compete agreement		1,400		(140	)		1,260		54
Customer relationships		28,200		(1,175	)		27,025		138
Total	$	34,000	$	(1,462	)	$	32,538

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The above intangible assets have a weighted average remaining life of  131 months as September 30, 2019. The expected amortization of these assets for the next five successive years is as follows:

	(in thousands)
2019	$	731
2020		2,923
2021		2,923
2022		2,923
2023		2,783
Thereafter		18,063

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ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The condensed consolidated financial statements include the accounts of Covenant Transportation Group, Inc., a Nevada holding company, and its wholly owned subsidiaries. References in this report to "we," "us," "our," the "Company," and similar expressions refer to Covenant Transportation Group, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

This report contains certain statements that may be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995, as amended.  All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of earnings, revenues, or other financial items; any statement of plans, strategies, and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; and any statements of belief and any statements of assumptions underlying any of the foregoing.  In this Form 10-Q, statements relating to future reclassification of losses arising from derivative instruments and the performance of counterparties to such instruments, future impact of accounting standards, future results at SRT, future third party transportation provider expenses, future tax rates, expenses, and deductions, expected freight demand and volumes and trucking industry conditions, potential results of a default and testing of our fixed charge covenant under the Credit Facility or other debt agreements, expected sources of working capital and liquidity (including our mix of debt, capital leases, and operating leases as means of financing revenue equipment), expected capital expenditures, allocations, and requirement, future customer relationships, expected debt reduction, future driver market conditions, expected cash flows, expected operating income and earnings per share improvements, future investments in and growth of our segments and services, future trucking capacity, future rates and prices, future utilization, future depreciation and amortization, future salaries, wages, and related expenses, including driver compensation and management bonuses, expected net fuel costs, strategies for managing fuel costs, the effectiveness and impact of, and cash flows relating to, our fuel hedging contracts and fuel surcharge programs, future fluctuations in operations and maintenance expenses, expected effects and mix of our solo and team operations, future fleet size, management, and upgrades, the market value of used equipment, including equipment subject to operating or capital leases relative to our payment obligations under such operating leases (including residual value guarantees and the proceeds from the sale thereof), future effects of the Landair acquisition, our internal control remediation plan, the anticipated impact of our investment in TEL, and anticipated levels of and fluctuations relating to insurance, claims, and litigation expenses, among others, are forward-looking statements.  Forward-looking statements may be identified by the use of terms or phrases such as "believe," "may," "could," "expects," "estimates," "projects," "anticipates," "plans," "intends," and similar terms and phrases.  Such statements are based on currently available operating, financial, and competitive information.  Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Item 1A. Risk Factors," set forth in our Form 10-K for the year ended December 31, 2018.  Readers should review and consider the factors discussed in "Item 1A. Risk Factors," set forth in our Form 10-K for the year ended December 31, 2018, along with various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.

All such forward-looking statements speak only as of the date of this Form 10-Q. You are cautioned not to place undue reliance on such forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in the events, conditions, or circumstances on which any such statement is based.

Executive Overview

The freight environment third quarter was much weaker than the 2018 quarter, as excess industry-wide trucking capacity and weak shipping demand combined to pressure both freight rates and volumes.  In addition, new and incumbent freight brokers placed additional pressure on the irregular route truckload market by competing for market share based on what we view as unsustainable pricing. In general, our dedicated Truckload and Managed Freight operations were profitable and exhibited moderate year-over-year market volatility.   Our irregular route expedited and refrigerated truckload operations exhibited significant volatility and swung to being unprofitable for the quarter, with the largest factors being lower rate per mile and combined insurance and capital cost increases versus the prior year quarter.

The main positives in the third quarter were 1) consistent demand and profitability from our Landair dedicated and managed freight businesses in a difficult freight economy, 2) steady earnings contributed from our investment in Transport Enterprise Leasing, and 3) increasing our percentage of operating trucks with automatic transmissions to over 95%. The main negatives in the quarter were 1) the operating margin declines of our expedited and solo refrigerated service offerings, 2) an approximate 9.5% year-over-year decrease in average freight revenue per truck for our Truckload segment, 3) increased Truckload operating costs on a per mile basis, most notably from unfavorable group health, workers’ compensation and casualty insurance expense, net fuel costs, and capital costs, and 4) the $34.3 million quarterly increase in our total net indebtedness primarily related to the delay of proceeds from disposals of used revenue equipment to adequately offset the expenditures for a large portion of our annual new tractor deliveries during the quarter.

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Additional items of note for the third quarter of 2019 include the following:

● Total revenue of $222.9 million, a decrease of 8.4% compared with the third quarter of 2018, and freight revenue of $199.8 million (which excludes revenue from fuel surcharges), a decrease of 6.9% compared with the third quarter of 2018;

● Operating loss of $1.9 million, compared with operating income of $16.2 million in the third quarter of 2018;

● Net loss of $3.2 million, or $0.17 per basic and diluted share, compared with net income of $11.6 million , or $0.63 per basic and diluted share, in the third quarter of 2018;

● With available borrowing capacity of $46.0 million under our Credit Facility at September 30, 2019, we do not expect to be required to test our fixed charge covenant in the foreseeable future;

● Our Managed Freight segment’s total revenue increased to $48.0 million in the 2019 quarter from $46.3 million in the 2018 quarter and operating income decreased to $3.7 million in the 2019 quarter from $4.2 million in the 2018 quarter;  

● Our equity investment in TEL provided $2.1 million of pre-tax earnings in the third quarter of both 2019 and 2018;

● Since December 31, 2018, total indebtedness, net of cash and including operating lease liabilities, increased by $74.3 million to $328.8 million; and 

● Stockholders' equity and tangible book value at September 30, 2019, were $348.4 million and $275.6 million, respectively.

For the fourth quarter of 2019, we expect to remain an important provider in our customers’ peak season supply chains.  However, given the current imbalance of capacity and demand, we expect pricing and volume levels to remain subdued compared with the last several holiday peak seasons. Our focus will be on identifying opportunities to improve the performance of our one-way truckload service offerings and adding more predictable long-term contracts in our dedicated truckload, transportation management and warehousing service offerings.

In addition to operating ratio, we use "adjusted operating ratio" as a key measure of profitability. Adjusted operating ratio is not a substitute for operating ratio measured in accordance with GAAP. There are limitations to using non-GAAP financial measures. Adjusted operating ratio means operating expenses, net of fuel surcharge revenue, expressed as a percentage of revenue, excluding fuel surcharge revenue. We believe the use of adjusted operating ratio allows us to more effectively compare periods, while excluding the potentially volatile effect of changes in fuel prices. Our Board and management focus on our adjusted operating ratio as an indicator of our performance from period to period. We believe our presentation of adjusted operating ratio is useful because it provides investors and securities analysts the same information that we use internally to assess our core operating performance. Although we believe that adjusted operating ratio improves comparability in analyzing our period-to-period performance, it could limit comparability to other companies in our industry, if those companies define adjusted operating ratio differently. Because of these limitations, adjusted operating ratio should not be considered a measure of income generated by our business or discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by primarily relying on GAAP results and using non-GAAP financial measures on a supplemental basis. 

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Operating Ratio

	Three Months Ended September 30,												Nine Months Ended September 30,
GAAP Operating Ratio:	2019			OR %			2018			OR %			2019			OR %			2018			OR %
Total revenue	$	222,914					$	243,303					$	661,393					$	613,187
Total operating expenses		224,845			100.9	%		227,122			93.3	%		649,054			98.1	%		576,516			94.0	%
Operating (loss) income	$	(1,931	)				$	16,181					$	12,339					$	36,671
Adjusted Operating Ratio:		2019		Adj. OR %				2018		Adj. OR %				2019		Adj. OR %				2018		Adj. OR %
Total revenue	$	224,914					$	243,303					$	661,393					$	613,187
Fuel surcharge revenue:		(23,082	)					(28,680	)					(70,882	)					(77,466	)
Freight revenue (total revenue, excluding fuel surcharge)		199,832						214,623						590,511						535,721
Total operating expenses		224,845						227,122						649,054						576,516
Adjusted for:
Fuel surcharge revenue		(23,082	)					(28,680	)					(70,882	)					(77,466	)
Amortization of intangibles		(731	)					(731	)					(2,192	)					(731	)
Adjusted operating expenses		201,032			100.6	%		197,711			92.1	%		575,980			97.5	%		498,319			93.0	%
Adjusted operating (loss) income	$	(1,200	)				$	16,912					$	14,531					$	37,402

Revenue and Expenses

We focus on targeted markets throughout the United States where we believe our service standards can provide a competitive advantage. We are a major carrier for transportation companies such as parcel freight forwarders, less-than-truckload carriers, and third party logistics providers that require a high level of service to support their businesses, as well as for traditional truckload customers such as manufacturers, retailers, and food and beverage shippers. Our four service offerings within the Truckload segment are primarily truckload based and as such we generally dedicate an entire trailer to one customer from origin to destination. We also generate revenue through providing ancillary services, including freight brokerage and logistics services, warehousing, and accounts receivable factoring.

We have two reportable segments, our truckload services ("Truckload") and freight brokerage, transportation management services, and shuttle and switching services (“Managed Freight”).

The Truckload segment consists of four service offerings that are aggregated because they have similar economic characteristics and meet the aggregation criteria.  The four service offerings that comprise our Truckload segment are as follows: (i) Expedited; (ii) Dedicated; (iii) Temperature-Controlled; and (iv) OTR.

In our Truckload segment, we primarily generate revenue by transporting freight for our customers. Generally, we are paid a predetermined rate per mile for our truckload services. We enhance our truckload revenue by charging for tractor and trailer detention, loading and unloading activities, and other specialized services, as well as through the collection of fuel surcharges to mitigate the impact of increases in the cost of fuel. The main factors that could affect our Truckload revenue are the revenue per mile we receive from our customers, the percentage of miles for which we are compensated, and the number of shipments and miles we generate. These factors relate, among other things, to the general level of economic activity in the United States, inventory levels, specific customer demand, the level of capacity in the trucking industry, and driver availability.

Our Truckload segment also derives revenue from fuel surcharges, loading and unloading activities, equipment detention, and other accessorial services.  We measure revenue before fuel surcharges, or "freight revenue," because we believe that fuel surcharges tend to be a volatile source of revenue.  We believe the exclusion of fuel surcharges affords a more consistent basis for comparing the results of operations from period-to-period.  Nonetheless, freight revenue represents a non-GAAP financial measure.  Accordingly, undue reliance should not be placed on the discussion of freight revenue, and discussions of freight revenue should be considered in combination with discussions of total revenue.  For each expense item discussed below, we have provided a table setting forth the relevant expense first as a percentage of total revenue, and then as a percentage of freight revenue.

The main expenses that impact the profitability of our Truckload segment are the variable costs of transporting freight for our customers.  These costs include fuel expenses, driver-related expenses, such as wages, benefits, training, and recruitment, and purchased transportation expenses, which primarily include compensating independent contractors.  Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, self-insured retention versus insurance premiums, fleet age, efficiency, and other factors.  Our main fixed costs include rentals and depreciation of long-term assets, such as revenue equipment and terminal facilities, and the compensation of non-driver personnel.

Our main measures of profitability are operating ratio and adjusted operating ratio, which we define as operating expenses, net of fuel surcharge revenue, divided by total revenue, less fuel surcharge revenue (or freight revenue) and amortization of intangibles. See page 22 for the uses and limitations associated with adjusted operating ratio.

We operate tractors driven by a single driver and also tractors assigned to two-person driver teams.  Our single driver tractors generally operate in shorter lengths-of-haul, generate fewer miles per tractor, and experience more non-revenue miles, but the lower productive miles are expected to be offset by generally higher revenue per loaded mile and the reduced employee expense of compensating only one driver.  In contrast, our two-person driver tractors generally operate in longer lengths-of-haul, generate greater miles per tractor, and experience fewer non-revenue miles, but we typically receive lower revenue per loaded mile and incur higher employee expenses of compensating both drivers.  We expect operating statistics and expenses to shift with the mix of single and team operations.

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Managed Freight is comprised primarily of freight brokerage, transportation management services ("TMS"), and shuttle and switching services. These service offerings are aggregated due to similar margins and customers. Also included within Managed Freight are our warehousing and accounts receivable factoring businesses, neither of which meets the quantitative or qualitative reporting thresholds individually or in the aggregate. but only accounted for $25.1million and $6.6 million of our revenue, respectively, during the nine months ended September 30, 2019.

Revenue Equipment

At September 30, 2019, we operated 3,004 tractors and 6,822 trailers. Of such tractors, 1,878 were owned, 812 were financed under operating leases, and 314 were provided by independent contractors, who provide and drive their own tractors.  Of such trailers, 5,203 were owned and 1,619 were financed under finance type leases.  We finance a small portion of our tractor fleet and larger portion of our trailer fleet with operating leases, which generally run for a period of three to five years for tractors and five to seven years for trailers.  At September 30, 2019, our fleet had an average tractor age of 2.0 years and an average trailer age of 4.1 years.

Independent contractors provide a tractor and a driver and are responsible for all operating expenses in exchange for a fixed payment per mile.  We do not have the capital outlay of purchasing or leasing the tractor.  The payments to independent contractors and the financing of equipment under operating leases are recorded in revenue equipment rentals and purchased transportation.  Expenses associated with owned equipment, such as interest and depreciation, and expenses associated with employee drivers, including driver compensation, fuel, and other expenses, are not incurred with respect to independent contractors.  Obtaining equipment from independent contractors and under operating leases effectively shifts financing expenses from interest to "above the line" operating expenses, and as such, we evaluate our efficiency using net income margin as well as operating ratio.

RESULTS OF CONSOLIDATED OPERATIONS

COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018

The following tables set forth the percentage relationship of certain items to total revenue and freight revenue (total revenue less fuel surcharge revenue) for the periods indicated, where applicable (dollars in thousands):

Revenue

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenue:
Freight revenue		$	199,832		$	214,623		$	590,511		$	535,721
Fuel surcharge revenue			23,082			28,680			70,882			77,466
Total revenue		$	222,914		$	243,303		$	661,393		$	613,187

For the quarter ended September 30, 2019, total revenue decreased approximately $20.4 million, or 8.4%, to $222.9 million from $243.3 million in the 2018 quarter. Freight revenue decreased approximately $14.8 million, or 6.9%, to $199.8 million for the quarter ended September 30, 2019, from $214.6 million in the 2018 quarter, while fuel surcharge revenue decreased $5.6 million quarter-over-quarter. The decrease in freight revenue resulted from a $16.5 million decrease in freight revenue from our Truckload segment and a $1.7 million increase in freight revenue from our Managed Freight segment.

The $16.5 million decrease in Truckload revenue relates to a 9.5% decrease in average freight revenue per tractor per week from the 2018 quarter.  The decrease in average freight revenue per tractor per week for the quarter ended September 30, 2019 is the result of a 10.9 cents per mile (or 5.5%) decrease in average rate per total mile and a 4.2% decrease in average miles per unit compared to the 2018 quarter.  Team-driven trucks decreased to an average of 829 teams in the third quarter of 2019, a decrease of approximately 5.9% from the average of 881 teams in the third quarter of 2018.

For the nine-month period ended September 30, 2019, total revenue increased $48.2 million, or 7.9% to $661.4 million from $613.2 million in the 2018 period.  Freight revenue increased $54.8 million, or 10.2%, to $590.5 million for the nine months ended September 30, 2019, from $535.7 million  in the 2018 period, while fuel surcharge revenue decreased $6.6 million period-over-period. The increase in freight revenue resulted from a $47.0 million increase in freight revenue from our Managed Freight segment, as well as a $7.8 million increase in freight revenue from our Truckload segment.

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The  $7.8 million  increase in Truckload freight revenue relates to a 344, or 12.5%, increase in average number of units compared to the 2018 period, partially offset by a 9.6%  decrease in average freight revenue per tractor per week from the 2018 period.  The decrease in average freight revenue per tractor per week for the nine months ended September 30, 2019 is the result of a 9.1% decrease in average miles per unit and a 0.8 cent per mile decrease in average rate per total mile.  Team driven units decreased approximately 4.4% to an average of 845 teams for the nine-month period ended September 30, 2019 compared to an average of 884 teams during the same 2018 period.

Managed Freight total revenue increased  $1.7 million comparing the 2019 and 2018 quarters, and $47.5 million comparing the 2019 period and 2018 period, primarily as a result of growth in Landair’s contribution to combined Managed Freight operations compared with 2018. Additionally, our brokerage subsidiary contributed $1.6 million more revenue for the nine months ended September 30, 2019 compared to the same 2018 period.

For comparison purposes in the discussion below, we use total revenue and freight revenue (total revenue less fuel surcharge revenue) when discussing changes as a percentage of revenue. As it relates to the comparison of expenses to freight revenue, we believe removing fuel surcharge revenue, which is sometimes a volatile source of revenue, affords a more consistent basis for comparing the results of operations from period-to-period. Nonetheless, freight revenue represents a non-GAAP financial measure. Accordingly, undue reliance should not be placed on the discussion of freight revenue, and discussions of freight revenue should be considered in combination with discussions of total revenue. For each expense item discussed below, we have provided a table setting forth the relevant expense first as a percentage of total revenue, and then as a percentage of freight revenue.

Salaries, wages, and related expenses

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2019				2018				2019				2018
Salaries, wages, and related expenses		$	84,093			$	86,249			$	239,376			$	211,621
% of total revenue			37.7	%			35.4	%			36.2	%			34.5	%
% of freight revenue			42.1	%			40.2	%			40.5	%			39.5	%

Salaries, wages, and related expenses decreased approximately $2.2 million, or 2.5%, for the three months ended September 30, 2019, compared with the same quarter in 2018. As a percentage of total revenue, salaries, wages, and related expenses increased to 37.7% of total revenue for the three months ended September 30, 2019, from 35.4% in the same quarter in 2018. As a percentage of freight revenue, salaries, wages, and related expenses increased to 42.1% of freight revenue for the three months ended September 30, 2019, from 40.2% in the same quarter in 2018.  The decrease of $2.2 million is the result of reduced non-driver wages related to lower variable incentive compensation mostly offset by increases in driver wages, workers' compensation insurance, and group health insurance for the three months ended September 30, 2019. 

For the nine months ended September 30, 2019, salaries, wages, and related expenses increased approximately $27.8 million, or 13.1%, compared with the same period in 2018.  As a percentage of total revenue, salaries, wages, and related expenses increased to 36.2% of total revenue for the nine months ended September 30, 2019, from 34.5% for the nine months ended September 30, 2018.  As a percentage of freight revenue, salaries, wages, and related expenses increased to 40.5% of freight revenue for the nine months ended September 30, 2019, from 39.5% in the same period in 2018. These increases are primarily due to increased headcount from the 2018 Landair acquisition, driver and non-driver pay increases since the first quarter of 2018, and increases in workers' compensation insurance and group health insurance compared to the nine months ended September 30, 2018.

When compared to periods prior to the Landair acquisition, we expect salaries, wages and related expenses will be higher as a result of the increased headcount resulting from the Landair acquisition. We believe salaries, wages, and related expenses will increase going forward as a result of a tight driver market, which continues to offer significant challenges, wage inflation, higher healthcare costs, and, in certain periods, increased incentive compensation due to better performance. In particular, we expect driver pay to increase as we look to reduce the number of unseated tractors in our fleet in a tight market for drivers. Additionally, as freight market rates continue to increase, we would expect to, as we have historically, pass a portion of those rate increases on to our professional drivers. Salaries, wages, and related expenses will fluctuate to some extent based on the percentage of revenue generated by independent contractors and our Managed Freight segment, for which payments are reflected in the purchased transportation line item.

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Fuel expense

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2019				2018				2019				2018
Fuel expense		$	28,812			$	33,428			$	85,859			$	89,817
% of total revenue			12.9	%			13.7	%			13.0	%			14.6	%
% of freight revenue			14.4	%			15.6	%			14.5	%			16.8	%

Total fuel expense decreased $4.6 million to $28.8 million for the three months ended September 30, 2019, compared with $33.4 million the same quarter in 2018. As a percentage of total revenue, total fuel expense decreased to 12.9% of total revenue for the three months ended September 30, 2019, from 13.7% in the same quarter in 2018. As a percentage of freight revenue, total fuel expense decreased to 14.4% of freight revenue for the three months ended September 30, 2019, as compared to 15.6% for the 2018 quarter. 

For the nine months ended September 30, 2019, total fuel expense decreased approximately $4.0 million, or 4.4%, compared with the same period in 2018.  As a percentage of total revenue, total fuel expense decreased 1.7% to 13.0% of total revenue for the nine months ended September 30, 2019, from 14.6% in the 2018 period.  As a percentage of freight revenue, total fuel expense decreased to 14.5% of freight revenue from 16.8% for the nine months ended September 30, 2019, compared to the 2018 period. 

We receive a fuel surcharge on our loaded miles from most shippers; however, this does not cover the entire increase in fuel prices for several reasons, including the following: surcharges cover only loaded miles we operate; surcharges do not cover miles driven out-of-route by our drivers; and surcharges typically do not cover refrigeration unit fuel usage or fuel burned by tractors while idling. Moreover, most of our business relating to shipments obtained from freight brokers does not carry a fuel surcharge. Finally, fuel surcharges vary in the percentage of reimbursement offered, and not all surcharges fully compensate for fuel price increases even on loaded miles.

The rate of fuel price changes also can have an impact on results. Most fuel surcharges are based on the average fuel price as published by the Department of Energy ("DOE") for the week prior to the shipment, meaning we typically bill customers in the current week based on the previous week's applicable index. Therefore, in times of increasing fuel prices, we do not recover as much as we are currently paying for fuel. In periods of declining prices, the opposite is true. Fuel prices as measured by the DOE decreased $0.21 per gallon in the third quarter of 2019 compared with the same quarter in 2018, and decreased $0.12 per gallon for the nine months ended September 30, 2019 compared to the same period in 2018.

To measure the effectiveness of our fuel surcharge program, we subtract fuel surcharge revenue (other than the fuel surcharge revenue we reimburse to independent contractors and other third parties which is included in purchased transportation) from our fuel expense.  The result is referred to as net fuel expense.  Our net fuel expense as a percentage of freight revenue is affected by the cost of diesel fuel net of fuel surcharge revenue, the percentage of miles driven by company tractors, our fuel economy, our percentage of deadhead miles, for which we do not receive material fuel surcharge revenues, and the net impact of fuel hedging gains and losses.  Net fuel expense is shown below:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Total fuel surcharge	$	23,082		$	28,680		$	70,882		$	77,466
Less: Fuel surcharge revenue reimbursed to independent contractors and other third parties		2,898			3,388			8,878			9,214
Company fuel surcharge revenue	$	20,184		$	25,292		$	62,004		$	68,252
Total fuel expense	$	28,812		$	33,428		$	85,859		$	89,817
Less: Company fuel surcharge revenue		20,184			25,292			62,004			68,252
Net fuel expense	$	8,628		$	8,136		$	23,855		$	21,565
% of freight revenue		4.3	%		3.8	%		4.0	%		4.0	%

Net fuel expense decreased $0.5 million, or 6.0%, and $2.3 million, or 10.6% for the quarter and nine months ended September 30, 2019, as compared to the same 2018 periods. As a percentage of freight revenue, net fuel expense increased to 4.3% from 3.8% for the quarter ended September 30, 2019 and remained even at 4.0% for the nine months ended September 30, 2019, as compared to the 2018 period. The change in net fuel expense is primarily due to a lack of the favorable fuel hedging activity that was present in the 2018 periods, partially offset by lower fuel prices in 2019.  We have not had any fuel hedges in place since December 2018.

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We expect to continue managing our idle time and tractor speeds, investing in more fuel-efficient tractors to improve our miles per gallon, locking in fuel hedges when deemed appropriate, and partnering with customers to adjust fuel surcharge programs that are inadequate to recover a fair portion of fuel costs. Going forward, our net fuel expense is expected to fluctuate as a percentage of revenue based on factors such as diesel fuel prices, percentage recovered from fuel surcharge programs, percentage of uncompensated miles, percentage of revenue generated by team-driven tractors (which tend to generate higher miles and lower revenue per mile, thus proportionately more fuel cost as a percentage of revenue), percentage of revenue generated by refrigerated operation (which uses diesel fuel for refrigeration, but usually does not recover fuel surcharges on refrigeration fuel), percentage of revenue generated from independent contractors, and the success of fuel efficiency initiatives.

Given recent historical lows, we would expect diesel fuel prices to increase over the next few years. However, we expect to continue to experience improved fuel economy as we upgrade our tractor fleet, and while our fuel surcharge recovery has remained relatively flat, the possibility of further improvement exists if efforts to grow our dedicated business are successful.

Operations and maintenance

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2019				2018				2019				2018
Operations and maintenance		$	14,742			$	16,457			$	44,814			$	40,783
% of total revenue			6.6	%			6.8	%			6.8	%			6.7	%
% of freight revenue			7.4	%			7.7	%			7.6	%			7.6	%

Operations and maintenance decreased approximately $1.7 million, or 10.4% and increased $4.0 million, or 9.9%, for the quarter and nine months ended September 30, 2019, respectively, compared with the same periods in 2018. As a percentage of total revenue, operations and maintenance decreased to 6.6% and increased to 6.8% of total revenue for the quarter and nine months ended September 30, 2019, respectively, from 6.8% and 6.7% in the same periods in 2018. As a percentage of freight revenue, operations and maintenance decreased to 7.4% and 7.6% of freight revenue for the quarter and nine months ended September 30, 2019, respectively, from 7.7% and 7.6% in the same periods in 2018. The change in operations and maintenance for the three months ended September 30, 2019, is primarily related to the timing of the trade cycle for our tractors as compared to the same 2018 quarter.  For the nine months ended September 30, 2019, the increase is primarily the result of the acquisition of Landair and its respective higher average age of tractor and trailer equipment.

Going forward, we believe this category will fluctuate based on several factors, including expected upgrades to Landair’s fleet, our continued ability to maintain a relatively young fleet in our other operating companies, accident severity and frequency, weather, and the reliability of new and untested revenue equipment models.

Revenue equipment rentals and purchased transportation

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2019				2018				2019				2018
Revenue equipment rentals and purchased transportation		$	50,428			$	47,445			$	146,267			$	115,525
% of total revenue			22.6	%			19.5	%			22.1	%			18.8	%
% of freight revenue			25.2	%			22.1	%			24.8	%			21.6	%

Revenue equipment rentals and purchased transportation increased approximately $3.0 million, or 6.3%, for the three months ended September 30, 2019, compared with the same quarter in 2018. As a percentage of total revenue, revenue equipment rentals and purchased transportation increased to 22.6% of total revenue for the three months ended September 30, 2019, from 19.5% in the same quarter in 2018. As a percentage of freight revenue, revenue equipment rentals and purchased transportation increased to 25.2% of freight revenue for the three months ended September 30, 2019, from 22.1% in the same quarter in 2018.

For the nine months ended September 30, 2019, revenue equipment rentals and purchased transportation increased approximately $30.7 million, or 26.6%, compared with the same period in 2018.  As a percentage of total revenue, revenue equipment rentals and purchased transportation increased to 22.1% of total revenue for the nine months ended September 30, 2019, from 18.8% in the same period in 2018.  As a percentage of freight revenue, revenue equipment rentals and purchased transportation increased to 24.8% of freight revenue for the nine months ended September 30, 2019, from 21.6% in the same period in 2018. 

These increases were primarily the result of a more competitive market for sourcing third party capacity in our existing Managed Freight segment.  Additionally, for the nine months ended September 30, 2019, the acquisition of Landair's managed freight business added to overall purchased transportation cost but is less reliant on purchased transportation to generate revenue, compared to our existing brokerage and logistics services. Further, the percentage of the total miles run by independent contractors increased from 11.9% and 11.8% for the three and nine months ended September 30, 2018, respectively, to 12.4% and 12.7% for the same 2019 periods.

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We expect revenue equipment rentals to decrease as a percentage of our total equipment during the fourth quarter of 2019 as a result of the timing of our trade cycle and for 2020 we anticipate our revenue equipment rentals to approximate 2019 levels.

We expect purchased transportation to increase as we seek to grow our Managed Freight segment. In addition, if fuel prices increase, it would result in a further increase in what we pay third party carriers and independent contractors. However, this expense category will fluctuate with the number and percentage of loads hauled by independent contractors, loads handled by Managed Freight, and tractors, trailers, and other assets financed with operating leases. In addition, factors such as the cost to obtain third party transportation services and the amount of fuel surcharge revenue passed through to the third party carriers and independent contractors will affect this expense category. If industry-wide trucking capacity were to tighten in relation to freight demand, we may need to increase the amounts we pay to third party transportation providers and independent contractors, which could increase this expense category on an absolute basis and as a percentage of freight revenue absent an offsetting increase in revenue. We continue to actively recruit independent contractors and, if we are successful, we would expect this line item to increase as a percentage of revenue.

Operating taxes and licenses 

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2019				2018				2019				2018
Operating taxes and licenses		$	3,170			$	3,377			$	9,719			$	8,649
% of total revenue			1.4	%			1.4	%			1.5	%			1.4	%
% of freight revenue			1.6	%			1.6	%			1.6	%			1.6	%

For the periods presented, the changes in operating taxes and licenses were not significant as either a percentage of total revenue or freight revenue.

Insurance and claims

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2019				2018				2019				2018
Insurance and claims		$	14,051			$	12,675			$	35,758			$	31,269
% of total revenue			6.3	%			5.2	%			5.4	%			5.1	%
% of freight revenue			7.0	%			5.9	%			6.1	%			5.8	%

Insurance and claims, consisting primarily of premiums and deductible amounts for liability, physical damage, and cargo damage insurance and claims, increased approximately $1.4 million, or 10.9%  for the three months ended September 30, 2019 compared with the same quarter in 2018. As a percentage of total revenue, insurance and claims increased to 6.3% of total revenue for the  three months ended September 30, 2019, from 5.2% in the same quarter in 2018. As a percentage of freight revenue, insurance and claims increased to 7.0% of freight revenue for the three months ended September 30, 2019, from 5.9% in the same quarter in 2018. Insurance and claims per mile cost increased to 16.7 cents per mile in the third quarter of 2019 compared to 14.5 cents per mile in the third quarter of 2018. These increases are due to an increase in frequency of incidents and an increase in overall cost per claim.

For the nine months ended September 30, 2019, insurance and claims increased approximately $4.5 million, or 14.4%, compared with the same period in 2018.  As a percentage of total revenue, insurance and claims increased to 5.4% of total revenue for the nine months ended September 30, 2019 from 5.1% in the same 2018 period. As a percentage of freight revenue, insurance and claims increased to 6.1% of freight revenue for the nine months ended September 30, 2019, compared to 5.8% for the same period in 2018. Insurance and claims cost per mile increased to 14.3 cents per mile in the nine months ended September 30, 2019 from 13.0 cents per mile in the same 2018 period. The per mile increase is primarily the result of inflation in overall expected cost per claim, development on prior period claims during the nine months ended September 30, 2019, and increased frequency of incidents compared to the same 2018 period. 

Our auto liability (personal injury and property damage), cargo, and general liability insurance programs include significant self-insured retention amounts. We are also self-insured for physical damage to our equipment. Because of these significant self-insured exposures, insurance and claims expense may fluctuate significantly from period-to-period. Any increase in frequency or severity of claims, or any increases to then-existing reserves, could adversely affect our financial condition and results of operations. We periodically evaluate strategies to efficiently reduce our insurance and claims expense. The auto liability policy contains a feature whereby we are able to retroactively obtain a partial refund of the premium in exchange for taking on the liability for incidents that occurred during the period and releasing the insurers. This is referred to as "commuting" the policy or "policy commutation." In several past periods we have commuted the policy, which has lowered our insurance and claims expense. We intend to evaluate our ability to commute the current policy and any such commutation could significantly impact insurance and claims expense. Our prior auto liability policy that ran from October 1, 2014 through March 31, 2018, included a commutation provision if we were to commute the policy for the entire 42 months. Based on claims paid to date the policy premium release refund could range from zero to $4.9 million, depending on actual claims settlements in the future. Effective April 2018, we entered into new auto liability policies with a three-year term. The policy includes a limit for a single loss of $9.0 million, an aggregate of $18.0 million for each policy year, and a $30.0 million aggregate for the 36 month term ended March 31, 2021. The policy includes a policy release premium refund or commutation option of up to $14.0 million, less any future amounts paid on claims by the insurer. A decision with respect to commutation of the policy could be made before April 1, 2021. Management cannot predict whether or not future claims or the development of existing claims will justify a commutation of either policy period, and accordingly, no related amounts were recorded at September 30, 2019.

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Communications and utilities

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2019				2018				2019				2018
Communications and utilities		$	1,791			$	1,810			$	5,269			$	5,216
% of total revenue			0.8	%			0.7	%			0.8	%			0.9	%
% of freight revenue			0.9	%			0.8	%			0.9	%			1.0	%

For the periods presented, the changes in communications and utilities were not significant as either a percentage of total revenue or freight revenue.

General supplies and expenses

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2019				2018				2019				2018
General supplies and expenses		$	7,685			$	6,391			$	21,701			$	16,833
% of total revenue			3.4	%			2.6	%			3.3	%			2.7	%
% of freight revenue			3.8	%			3.0	%			3.7	%			3.1	%

General supplies and expenses increased approximately $1.3 million, or 20.2%, for the three months ended September 30, 2019, compared with the same quarter in 2018.  As a percentage of total revenue, general supplies and expenses increased to 3.4% of total revenue for the three months ended September 30, 2019, compared to 2.6% for the same quarter in 2018.  As a percentage of freight revenue, general supplies and expenses increased to 3.8% of freight revenue for the three months ended September 30, 2019, from 3.0% in the same quarter in 2018.

For the nine months ended September 30, 2019, general supplies and expenses increased  $4.9 million, or 28.9%, compared with the same period in 2018.  As a percentage of total revenue, general supplies and expenses increased to 3.3% of total revenue for the nine months ended September 30, 2019, from 2.7% in the same period in 2018.  As a percentage of freight revenue, general supplies and expenses increased to 3.7% of freight revenue for the nine months ended September 30, 2019, from 3.1% in the same period in 2018.

The increases for the quarter ended September 30, 2019 primarily relate to investments made in strategic planning and the process improvement review within the Company. The increases for the  nine months ended September 30, 2019 primarily relate to the additional general supplies and expenses of Landair as a result of the acquisition of Landair in the third quarter of 2018, partially offset by increased legal and professional expenses incurred during the second quarter of 2018 related to that acquisition.  Landair contributed $5.8 million to general supplies and expenses for the nine months ended September 30, 2019 compared to $2.1 million for the three and nine-months ended September 30, 2018.  For the fourth quarter of 2019, we expect the changes in general supplies and expenses versus prior year periods to approximate those of the third quarter as we continue to invest in additional process review and improvement initiatives.  Thereafter, we expect the changes to moderate compared to prior year periods.

Depreciation and amortization, including gains and losses on disposition of property and equipment

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2019				2018				2019				2018
Depreciation and amortization, including gains and losses on disposition of property and equipment		$	20,073			$	19,290			$	60,291			$	56,803
% of total revenue			9.0	%			7.9	%			9.1	%			9.3	%
% of freight revenue			10.0	%			9.0	%			10.2	%			10.6	%

Depreciation and amortization, including gains and losses on disposition of property and equipment ("depreciation and amortization"), consists primarily of depreciation of tractors, trailers, and other capital assets offset or increased, as applicable, by gains or losses on dispositions of capital assets, as well as amortization of intangible assets.  Depreciation and amortization increased by $0.8 million, or 4.1%, for the three months ended September 30, 2019, compared with the same quarter in 2018. As a percentage of total revenue, depreciation and amortization increased to 9.0% of total revenue for the three months ended September 30, 2019, from 7.9% in the same quarter in 2018.  As a percentage of freight revenue, depreciation and amortization increased to 10.0% of freight revenue for the three months ended September 30, 2019, from 9.0% in the same quarter in 2018.

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For the nine months ended September 30, 2019, depreciation and amortization increased approximately $3.5 million, or  6.1%, compared with the same period in 2018. As a percentage of total revenue, depreciation and amortization decreased to 9.1% of total revenue for the nine months ended September 30, 2019 from 9.3% in the same period in 2018.  As a percentage of freight revenue, depreciation and amortization decreased to 10.2% of freight revenue for the nine months ended September 30, 2019 from 10.6% in the same period in 2018.

Excluding gains and losses, depreciation increased $1.3 million and $3.4 million to $20.1 million and $59.1 million for the quarter and nine months ended September 30, 2019, respectively, compared to $18.8 million and $55.6 million in the same 2018 periods. Gains on the sale of property and equipment were $0.8 million and $1.0 million in the three and nine months ended September 30, 2019, respectively, compared to gains of $0.3 million  and losses of $0.4 million in the same 2018 periods. Amortization of intangible assets were $0.7 million and $2.2 million for the three and nine months ended September 30, 2019, respectively, compared to $0.7 million in the 2018 periods, due to the Landair acquisition.

We expect depreciation and amortization, including amortization of intangible assets, to remain relatively consistent going forward. However, if the used tractor market were to decline, we could have to adjust residual values and increase depreciation or experience increased losses on sale.

Interest expense, net

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2019				2018				2019				2018
Interest expense, net		$	2,992			$	2,460			$	8,121			$	6,360
% of total revenue			1.3	%			1.0	%			1.2	%			1.0	%
% of freight revenue			1.5	%			1.1	%			1.4	%			1.2	%

Interest expense, net increased approximately $0.5 million, or 21.6%, for the three months ended September 30, 2019 compared with the same quarter in 2018.  As a percentage of total revenue, interest expense, net increased to 1.3% of total revenue for the three months ended September 30, 2019 compared to 1.0% for the same quarter in 2018.  As a percentage of freight revenue, interest expense, net increased to 1.5% of freight revenue for the three months ended September 30, 2019, from 1.1% in the same quarter in 2018.  These increases are primarily the result of an increase in our balance sheet debt and capital leases of $78.0 million to $313.8 million as of the three months ended September 30, 2019 from $235.8 million as of the same quarter in 2018, as well as an increase in our weighted average interest rate for the same period.

For the nine months ended September 30, 2019, the changes in interest expense, net were not significant as either a percentage of total revenue or freight revenue.

This line item will fluctuate based on our decision with respect to purchasing revenue equipment with balance sheet debt versus operating leases as well as our ability to continue to generate profitable results and reduce our leverage.

Income from equity method investment

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Income from equity method investment		$	2,138		$	2,142		$	7,548		$	5,407

We have accounted for our investment in TEL using the equity method of accounting and thus our financial results include our proportionate share of TEL's net income. For the three months ended September 30, 2019 our income from equity method investment remained consistent at $2.1 million, while it increased $2.1 million for the nine months ended September 30, 2019 . The increase in TEL's contributions to our results for the nine months ended September 30, 2019 is primarily due to growth in TEL’s lease offerings compared to the same 2018 periods. We expect the impact on our earnings resulting from our investment in TEL to improve year-over-year, based on the fixed nature of lease revenue and expenses and the growth experienced during 2018 and 2019.

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Income tax expense

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2019				2018				2019				2018
Income tax expense		$	404			$	4,249			$	4,451			$	9,716
% of total revenue			0.2	%			1.7	%			0.7	%			1.6	%
% of freight revenue			0.2	%			2.0	%			0.8	%			1.8	%

Income tax expense decreased approximately $3.8 million, or 90.5%, for the three months ended September 30, 2019, compared with the same quarter in 2018.  As a percentage of total revenue, income tax expense  decreased to 0.2% of total revenue for the three months ended September 30, 2019, from 1.7% in the same quarter in 2018.  As a percentage of freight revenue, income tax expense decreased to 0.2% of freight revenue for the three months ended September 30, 2019, from 2.0% in the same quarter in 2018.

For the nine months ended September 30, 2019, income tax expense decreased approximately $5.3 million, or 54.2%, compared with the same period in 2018.  As a percentage of total revenue, income tax expense decreased to 0.7% of total revenue for the nine months ended September 30, 2019, from 1.6% in the same period in 2018.  As a percentage of freight revenue, income tax expense decreased to 0.8% of freight revenue for the nine months ended September 30, 2019, from 1.8% in the same period in 2018.

These decreases were primarily related to the $18.6 million and $24.0 million decreases in the pre-tax income in the three- and nine-month periods ended September 30, 2019, respectively, compared to the same 2018 periods, resulting from the decline in operating income as discussed above, partially offset by the contribution from TEL’s earnings noted above.

The effective tax rate is different from the expected combined tax rate due primarily to permanent differences related to our per diem pay structure for drivers. Due to the partial nondeductible effect of the per diem payments, our tax rate will fluctuate in future periods as income fluctuates. We are currently estimating our 2019 effective income tax rate to be approximately 30.6%.

RESULTS OF SEGMENT OPERATIONS

We have two reportable segments, truckload services, which we refer to as Truckload, and Managed Freight. Our Managed Freight segment has service offerings ancillary to our Truckload services, including: freight brokerage service provided both directly and through freight brokerage agents, who are paid a commission for the freight they provide, transportation management services, and shuttle and switching services. These service offerings are aggregated due to similar margins and customers. Also included within Managed Freight are our warehousing and accounts receivable factoring businesses, neither of which meets the quantitative or qualitative reporting thresholds individually or in the aggregate, but only account for $25.1 million and $6.6 million of our 2019 revenue, respectively.

COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018

The following table summarizes financial and operating data by reportable segment:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in thousands)	2019			2018		2019		2018
Revenues:
Truckload	$	174,958		$	197,053	$	523,026	$	522,312
Managed Freight		47,956			46,250		138,367		90,875
Total	$	222,914		$	243,303	$	661,393	$	613,187
Operating (Loss) Income:
Truckload	$	(5,618	)	$	11,960	$	839	$	29,055
Managed Freight		3,687			4,221		11,500		7,616
Total	$	(1,931	)	$	16,181	$	12,339	$	36,671

For the 2019 quarter, Truckload total revenue decreased $22.1 million due to a $16.5 million decrease in freight revenue, as well as a $5.7 million decrease in fuel surcharge revenue. The decrease in Truckload freight revenue relates to a 9.5% decrease in average freight revenue per tractor per week from the 2018 quarter.  The decrease in average freight revenue per tractor per week for the quarter ended September 30, 2019 is the result of a 10.9 cents per mile (or 5.5%) decrease in average rate per total mile and a 4.2% decrease in average miles per unit compared to the 2018 quarter.  Team-driven trucks decreased to an average of 829 teams in the third quarter of 2019, a decrease of approximately 5.9% from the average of 881 teams in the third quarter of 2018.

For the nine-month period ended September 30, 2019, Truckload total revenue increased $0.7 million due to a $7.8 million increase in freight revenue, partially offset by a $7.0 million decrease in fuel surcharge revenue  period-over-period. The increase in Truckload freight revenue relates to a 344, or 12.5%, increase in average number of units compared to the 2018 period, partially offset by a 9.6% decrease in average freight revenue per tractor per week from the 2018 period.  The decrease in average freight revenue per tractor per week for the nine months ended September 30, 2019 is the result of a 9.1% decrease in average miles per unit and a 0.8 cent per mile decrease in average rate per total mile.  Team driven units decreased approximately 4.4% to an average of 845 teams for the nine-month period ended September 30, 2019 compared to an average of 884 teams during the same 2018 period.

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Our Truckload operating income was $17.6 million and $28.2 million lower for the 2019 quarter and nine months ended September 30, 2019 than for the same 2018 periods, due to an increase in operating costs per mile, net of fuel surcharge revenue, primarily related to the abovementioned increases in workers' compensation insurance, group health insurance, insurance and claims expense, and purchased transportation. These increases were partially offset by increases in revenue.

Managed Freight revenue increased $1.7 million quarter-over-quarter and $47.5 million for the nine months ended September 30, 2019, primarily as a result of growth in Landair’s contribution to combined Managed Freight operations compared with 2018.   Additionally, our brokerage subsidiary contributed $1.6 million more revenue for the nine months ended September 30, 2019 compared to the same 2018 period.

LIQUIDITY AND CAPITAL RESOURCES

Our business requires significant capital investments over the short-term and the long-term. Recently, we have financed our capital requirements with borrowings under our Credit Facility, cash flows from operations, long-term operating leases, finance leases, secured installment notes with finance companies, and proceeds from the sale of our used revenue equipment. Going forward, we expect revenue equipment acquisitions through purchases and capital leases to increase as a percentage of our fleet as we decrease our use of operating leases. Further, we expect to increase our capital allocation toward dedicated, transportation management services, and other managed freight solutions to become the go-to partner for our customers’ most critical transportation and logistics needs. We had working capital (total current assets less total current liabilities) of $93.2 million and $84.3 million at September 30, 2019 and December 31, 2018, respectively. Our working capital on any particular day can vary significantly due to the timing of collections and cash disbursements. Based on our expected financial condition, net capital expenditures, results of operations, related net cash flows, installment notes, and other sources of financing, we believe our working capital and sources of liquidity will be adequate to meet our current and projected needs and we do not expect to experience material liquidity constraints in the foreseeable future.

We expect borrowings from the financial affiliates of our primary revenue equipment suppliers to be available to fund most new tractors expected to be delivered in 2019, while any other property and equipment purchases, including trailers, are expected to be funded with a combination of notes, operating leases, finance leases, and/or from the Credit Facility. With a relatively young average fleet age at September 30, 2019, we believe we have flexibility to manage our fleet, and we plan to regularly evaluate our tractor replacement cycle, new tractor purchase requirements, and purchase options. If we are successful in our attempts to grow our independent contractor fleet, our capital requirements would be reduced.

As of September 30, 2019 and December 31, 2018, we had $368.6 million and $235.8 million in long-term debt and lease obligations, respectively, consisting of the following:

● $13.7 million and $3.9 million in outstanding borrowings under the Credit Facility, respectively;

● $240.0 million and $166.9 million in revenue equipment installment notes, respectively;

● $24.0 million and $24.8 million in real estate notes, respectively;

● $0.2 million and $0.3 million in deferred loan costs (which reduce long-term debt) , respectively;

● $36.3 million and $40.5 million of the principal portion of financing lease obligations, respectively; and

● $54.8 million and $0 of the operating lease obligations, respectively.

The increase in our revenue equipment installment notes was primarily due to the purchase of new company tractors through installment notes in the first nine months of 2019. The increase in operating lease obligations was primarily due to our adoption of Topic 842, Leases.

As of September 30, 2019, we had undrawn letters of credit outstanding of approximately $35.2 million and available borrowing capacity of $46.0 million under the Credit Facility. Fluctuations in the outstanding balance and related availability under our Credit Facility are driven primarily by cash flows from operations and the timing and nature of property and equipment additions that are not funded through notes payable, as well as the nature and timing of collection of accounts receivable, payments of accrued expenses, and receipt of proceeds from disposals of property and equipment. Refer to Note 5, “Debt” of the accompanying consolidated financial statements for further information about material debt agreements.

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Cash Flows

Net cash flows provided by operating activities decreased $61.8 million for the nine-month period ended September 30, 2019 compared with the same 2018 period, primarily due to the timing and amount of payments on our accrued expenses and trade accounts in the 2019 period compared to the same 2018 period, as well as net income of $7.3 million for the nine-month period ended September 30, 2019 compared with $26.0 million for the same 2018 period.

Net cash flows used by investing activities was $99.5 million for the nine months ended September 30, 2019, compared to $102.8 million in the same 2018 period. The change in net cash flows used by investing activities was primarily the result of the timing of our trade cycle whereby we took delivery of approximately 1,211 new company tractors and disposed of approximately 486 used tractors in the 2019 period compared to delivery and disposal of approximately 525 and 611 tractors, respectively in the same 2018 period.

Net cash flows provided by financing activities was approximately $76.4 million for the nine-months ended  September 30, 2019, compared to $5.4 million in the same 2018 period. The change in net cash flows provided by financing activities was primarily a function of net proceeds from our notes payable and Credit Facility of $82.1 million in 2019 compared to $7.5 million in the same 2018 period as a result of more new company tractors purchased and fewer disposed tractors, as discussed above, compared to the same 2018 period, partially offset by additional borrowings in the 2018 period in anticipation of funding the July 2018 acquisition of Landair.

Going forward, our cash flows may fluctuate depending on capital expenditures, future stock repurchases, strategic investments or divestitures, and the extent of future income tax obligations and refunds.

CONTRACTUAL OBLIGATIONS

During the three and nine months ended September 30, 2019 , there were no material changes in our commitments or contractual liabilities.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES 

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make decisions based upon estimates, assumptions, and factors we consider as relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of our estimates and assumptions. Accordingly, actual results could differ from those anticipated. There have been no material changes to our most critical accounting policies and estimates during the three and nine months ended September 30, 2019, compared to those disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our 2018 Annual Report on Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We experience various market risks, including changes in interest rates and fuel prices. We do not enter into derivatives or other financial instruments for trading or speculative purposes, or when there are no underlying related exposures. Because our operations are mostly confined to the United States, we are not subject to a material amount of foreign currency risk.

COMMODITY PRICE RISK

We engage in activities that expose us to market risks, including the effects of changes in fuel prices and in interest rates. Financial exposures are evaluated as an integral part of our risk management program, which seeks, from time-to-time, to reduce the potentially adverse effects that the volatility of fuel markets and interest rate risk may have on operating results.

In an effort to seek to reduce the variability of the ultimate cash flows associated with fluctuations in diesel fuel prices, we have periodically entered into various derivative instruments, including forward futures swap contracts. We have historically entered into hedging contracts with respect to ultra low sulfur diesel ("ULSD"). Under these contracts, we paid a fixed rate per gallon of ULSD and received the monthly average price of Gulf Coast ULSD. The retrospective and prospective regression analyses provided that changes in the prices of diesel fuel and ULSD were deemed to be highly effective based on the relevant authoritative guidance. At September 30, 2019, there are no remaining fuel hedge contracts. We do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes.

 
A one dollar increase in the price of diesel per gallon would decrease our net income by $1.5 million. This sensitivity analysis considers that we expect to purchase approximately 11.7 million gallons of diesel during the remainder of 2019, with an assumed fuel surcharge recovery rate of 82.6% of the cost (which was our fuel surcharge recovery rate during the nine months ended September 30, 2019).

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INTEREST RATE RISK

In August 2015, we entered into an interest rate swap agreement with a notional amount of $28.0 million, which was designated as a hedge against the variability in future interest payments due on the debt associated with the purchase of our corporate headquarters. The terms of the swap agreement effectively convert the variable rate interest payments on this note to a fixed rate of 4.2% through maturity on August 1, 2035. In 2016 and 2017, we also entered into several other interest rate swaps, which were designated to hedge against the variability in future interest rate payments due on rent associated with the purchase of certain trailers. Because the critical terms of the swap and hedged items coincide, in accordance with the requirements of ASC 815, the change in the fair value of the derivative is expected to exactly offset changes in the expected cash flows due to fluctuations in the LIBOR rate over the term of the debt instrument, and therefore no ongoing assessment of effectiveness is required. The fair value of all interest rate swap agreements that were in effect at September 30, 2019 and December 31, 2018 of less than $0.1 million and $0.3 million, respectively, are included in other short and long-term assets and other short and long-term liabilities, as appropriate based upon each swap agreement's position, in the condensed consolidated balance sheet and is included in accumulated other comprehensive income, net of tax. Additionally, less than $0.1 million was reclassified from accumulated other comprehensive income into our results of operations as additional interest expense for the three and nine months ended September 30, 2019, respectively, related to changes in interest rates during such periods. Based on the amounts in accumulated other comprehensive income as of September 30, 2019, we expect to reclassify losses of less than $0.1 million, net of tax, on derivative instruments from accumulated other comprehensive income into our results of operations during the next twelve months due to changes in interest rates. The amounts actually realized will depend on the fair values as of the date of settlement.

Our market risk is also affected by changes in interest rates. Historically, we have used a combination of fixed-rate and variable-rate obligations to manage our interest rate exposure. Fixed-rate obligations expose us to the risk that interest rates might fall. Variable-rate obligations expose us to the risk that interest rates might rise. Of our total $368.6 million of debt and operating and finance leases, we had $45.7 million of variable rate debt outstanding at September 30, 2019, including our Credit Facility, a real-estate note and certain equipment notes, of which the real-estate note of $24.0 million was hedged with the interest rate swap agreement at 4.2% and certain of our equipment notes totaling $8.0 million were hedged to provide a weighted average interest rate of 2.9%. The interest rates applicable to these agreements are based on either the prime rate or LIBOR. Our earnings would be affected by changes in these short-term interest rates. Risk can be quantified by measuring the financial impact of a near-term adverse increase in short-term interest rates. At our September 30, 2019 level of borrowing, a 1% increase in our applicable rate would reduce annual net income by less than $0.1 million. Our remaining debt is fixed rate debt, and therefore changes in market interest rates do not directly impact our interest expense.

ITEM 4.     CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to us and our consolidated subsidiaries is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 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 due to a material weakness in our internal control over financial reporting described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, our disclosure controls and procedures were not effective as of September 30, 2019.

Notwithstanding the identified material weakness, management believes the consolidated financial statements included in this Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. generally accepted accounting principles.

Remediation

Management has been implementing and continues to implement measures designed to address remediation of the control deficiencies that contributed to the material weakness, such that these controls are designed, implemented, and operating effectively. In accordance with our remediation plan, we have and will continue to (i) develop a training program addressing ITGCs and policies, including educating control owners concerning the principles and requirements of each control, with a focus on those related to change-management over IT systems impacting financial reporting; (ii) implement controls to address and maintain documentation of completeness and accuracy of system generated information used to support the operation of the controls; (iii) develop enhanced change-management intake procedures and controls related to changes in IT systems; (iv) implement an IT management review and testing plan to monitor ITGCs with a specific focus on systems supporting our financial reporting processes; and (v) enhance monthly reporting on the remediation measures to the Audit Committee of our Board of Directors.

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As of September 30, 2019, we have taken substantial action to implement our remediation plan. We have developed a training program to address ITGCs and related policies. Management has implemented controls to address system generated information, which includes additional testing of financially significant reports and interfaces before any related changes are made to the underlying systems, reports, or data. To address intake procedures, we have added additional procedures to identify changes that could impact systems, data or reports that are financially significant. We have key personnel reviewing information technology management review and testing plans to monitor ITGCs. Finally, management has enhanced reporting to the Audit Committee of our Board of Directors through ongoing review of the Company’s remediation efforts with Audit Committee members during the nine months in fiscal 2019. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We are engaged in the testing of these controls.

Changes in Internal Control Over Financial Reporting

Other than the remediation process described above, the implementation of controls that may materially affect internal controls related to Landair, and the implementation of controls related to our adoption of Topic 842, Leases, there have been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure procedures and controls or our internal controls will prevent all errors or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met.  Further, the design of an internal controls system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Due to the inherent limitations in all internal controls systems, no evaluation of controls can provide absolute assurance that all our controls issues and instances of fraud, if any, have been detected. 

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time-to-time, we are a party to ordinary, routine litigation arising in the ordinary course of business, most of which involves claims for personal injury and/or property damage incurred in connection with the transportation of freight.

Our subsidiary Covenant Transport, Inc. (“Covenant Transport”) is a defendant in a lawsuit filed on November 9, 2018, in the Superior Court of Los Angeles County, California.  The lawsuit was filed on behalf of Richard Tabizon (a California resident and former driver) who is seeking to have the lawsuit certified as a class action.  The complaint asserts that the time period covered by the lawsuit is from October 31, 2014 to the present and alleges claims for failure to properly pay for rest breaks, failure to provide accurate itemized wage statements and/or reimbursement of business related expenses, unlawful deduction of wages, failure to pay proper minimum wage and overtime wages, failure to provide all wages due at termination, and other related wage and hour claims under the California Labor Code.  Since the original filing date, the case has been removed from the Los Angeles Superior Court to the U.S. District Court in the Central District of California and subsequently the case was transferred to the U.S. District Court in the Eastern District of Tennessee where the case is now pending. We do not currently have enough information to make a reasonable estimate as to the likelihood, or amount of a loss, or a range of reasonably possible losses as a result of this claim, as such there have been no related accruals recorded as of September 30, 2019.    

Also, in February, 2019, Covenant Transport was named in a separate (but related) lawsuit filed in the Superior Court of Los Angeles County, California requesting civil penalties under the California Private Attorneys’ General Act for the same underlying wage and hour claims at issue in the putative class action case noted above. On August 1, 2019, the Los Angeles Superior Court entered an order staying the action pending completion of the earlier-filed action that is pending in the United States District Court for the Eastern District of Tennessee. We do not currently have enough information to make a reasonable estimate as to the likelihood, or amount of a loss, or a range of reasonably possible losses as a result of this claim, as such there have been no related accruals recorded as of September 30, 2019.

We maintain insurance to cover liabilities arising from the transportation of freight for amounts in excess of certain self-insured retentions. In management's opinion, our potential exposure under pending legal proceedings is adequately provided for in the accompanying condensed consolidated financial statements.

Based on our present knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of open claims and pending litigation, taking into account existing reserves, is not likely to have a materially adverse effect on our condensed consolidated financial statements.

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ITEM 1A. RISK FACTORS

While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be present.  Our Form 10-K for the year ended December 31, 2018, in the section entitled "Item 1A. Risk Factors," describes some of the risks and uncertainties associated with our business.  These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarter ended September 30, 2019, we did not engage in unregistered sales of securities or any other transactions required to be reported under this Item 2 of Part II on Form 10-Q.

The payment of cash dividends is currently limited by our financing arrangements, including certain covenants under our Credit Facility.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

Page 32

ITEM 6.       EXHIBITS

Exhibit Number	Reference	Description
3.1	(1)	Second Amended and Restated Articles of Incorporation
3.2	(2)	Third Amended and Restated Bylaws
4.1	(1)	Second Amended and Restated Articles of Incorporation
4.2	(2)	Third Amended and Restated Bylaws
31.1	#	Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by David R. Parker, the Company's Principal Executive Officer
31.2	#	Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Richard B. Cribbs, the Company's Principal Financial Officer
32.1	##	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by David R. Parker, the Company's Chief Executive Officer
32.2	##	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Richard B. Cribbs, the Company's Chief Financial Officer
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
References:
(1)	Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 10-Q, filed May 10, 2019.
(2)	Incorporated by reference to Exhibit 3.2 to the Company's Report on Form 8-K, filed March 14, 2019.
#	Filed herewith.
##	Furnished herewith.

Page 33

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COVENANT TRANSPORTATION GROUP, INC.
Date: November 8, 2019	By:	/s/ Richard B. Cribbs
		Richard B. Cribbs
		Executive Vice President and Chief Financial Officer in his capacity as such and as a duly authorized officer on behalf of the issuer

Page 34

EX-31.1

Exhibit 31.1

I, David R. Parker, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Covenant Transportation Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2019	/s/ David R. Parker
	David R. Parker
	Principal Executive Officer

Back to Form 10-Q

EX-31.2

Exhibit 31.2

I, Richard B. Cribbs, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Covenant Transportation Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2019	/s/ Richard B. Cribbs
	Richard B. Cribbs Principal Financial Officer

Back to Form 10-Q

EX-32.1

 Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Covenant Transportation Group, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David R. Parker, Chief Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify, that to the best of my knowledge:

(1)     The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 8, 2019	/s/ David R. Parker
	David R. Parker
	Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Covenant Transportation Group, Inc. and will be retained by Covenant Transportation Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Back to Form 10-Q

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Covenant Transportation Group, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard B. Cribbs, Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify, that to the best of my knowledge:

(1)     The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:   November 8, 2019	/s/Richard B. Cribbs
	Richard B. Cribbs
	Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Covenant Transportation Group, Inc. and will be retained by Covenant Transportation Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Back to Form 10-Q

XML

Note 8 - Leases (Details Textual) $ in Millions	Sep. 30, 2019 USD ($)
Operating Lease, Right-of-Use Asset	$ 53.4
Finance Lease, Right-of-Use Asset	$ 35.3

XML

Note 5 - Debt and Lease Obligations - Current and Long-term Debt (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Borrowings under Credit Facility, current
Borrowings under Credit Facility, noncurrent	13,724	3,911
Debt, current	47,810	28,710
Debt, noncurrent	229,716	166,635
Deferred loan costs, current	(147)	(147)
Deferred loan costs, noncurrent	(44)	(154)
Principal portion of finance lease obligations, secured by related revenue equipment, current	7,164	5,374
Principal portion of finance lease obligations, secured by related revenue equipment, noncurrent	29,097	35,119
Operating Lease, Liability, Current	17,875
Operating Lease, Liability, Noncurrent	36,916
Total debt and lease obligations, current	72,849	34,084
Total debt and lease obligations, noncurrent	295,729	201,754
Revenue Equipment Installment Notes [Member]
Debt, current	46,876	27,809
Debt, noncurrent	193,089	139,115
Real Estate Note [Member]
Debt, current	1,081	1,048
Debt, noncurrent	$ 22,947	$ 23,763

XML

Note 2 - (Loss) Income Per Share

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

Note 2. (Loss) Income   Per Share

Basic (loss) income per share excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted (loss) income per share reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in our earnings. There were approximately

261,000

anti-dilutive shares for the 

three

or

nine

months ended

September 30, 2019

. There were

no

outstanding stock options at

September 30, 2019

. Income per share is the same for both Class A and Class B shares.

The following table sets forth, for the periods indicated, the calculation of net (loss) income per share included in the condensed consolidated statements of operations:

(in thousands except per share data)	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019			2018		2019		2018
Numerator:
Net (loss) income	$	(3,189	)	$	11,614	$	7,315	$	26,002
Denominator:
Denominator for basic (loss) income per share – weighted-average shares		18,458			18,343		18,426		18,337
Effect of dilutive securities:
Equivalent shares issuable upon conversion of unvested restricted shares		261			154		194		111
Denominator for diluted (loss) income per share adjusted weighted-average shares and assumed conversions		18,719			18,497		18,620		18,448
Net (loss) income per share:
Basic net (loss) income per share	$	(0.17	)	$	0.63	$	0.40	$	1.42
Diluted net (loss) income per share	$	(0.17	)	$	0.63	$	0.39	$	1.41

XML

Note 6 - Stock-based Compensation

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Note 6. Stock -Based Compensation

Our

2006

Omnibus Incentive Plan, as amended (the "Incentive Plan") governs the issuance of equity awards and other incentive compensation to management and members of the board of directors. On

May 8, 2019,

the stockholders, upon recommendation of the board of directors, approved the First Amendment (the “First Amendment”) to the Third Amended and Restated Incentive Plan. The First Amendment (i) increases the number of shares of Class A common stock available for issuance under the Incentive Plan by an additional

750,000

shares, (ii) implements additional changes designed to comply with certain shareholder advisory group guidelines and best practices, (iii) makes technical updates related to Section

162

(m) of the Internal Revenue Code in light of the

2017

Tax Cuts and Jobs Act, (iv) re-sets the term of the Incentive Plan to expire with respect to the ability to grant new awards on

March 31, 2029,

and (v) makes such other miscellaneous, administrative and conforming changes as were necessary.

The Incentive Plan permits annual awards of shares of our Class A common stock to executives, other key employees, consultants, non-employee directors, and eligible participants under various types of options, restricted stock awards, or other equity instruments. As of 

September 30, 2019

, there were 

439,370

 remaining of the 

2,300,000

shares available for award under the Incentive Plan.

No

participant in the Incentive Plan

may

receive awards of any type of equity instruments in any calendar year that relates to more than

200,000

shares of our Class A common stock.

No

awards

may

be made under the Incentive Plan after

March 31, 2023.

To the extent available, we have issued treasury stock to satisfy all share-based incentive plans.

Included in salaries, wages, and related expenses within the condensed consolidated statements of operations is the recognition of approximately  

$0.6

million

 and 

$1.1

million

stock-based compensation expense for the 

three

months ended

September 30, 2019

and

2018

, respectively and 

less than

$0.1

million

 and approximately 

$2.9

million

 for the 

nine

months ended

September 30, 2019

and

2018

, respectively. All stock compensation expense recorded in 

2019

and 

2018

relates to restricted shares, as

no

unvested options were outstanding during these periods. An additional 

$0.4

million

of stock-based compensation was recorded in general supplies and expenses in the condensed consolidated statements of operations for each of the

three

- and 

nine

-month periods ended 

September 30, 2019

and 

2018

, respectively, as this amount relates to the issuance of restricted stock to non-employee directors.

The Incentive Plan allows participants to pay the federal and state minimum statutory tax withholding requirements related to awards that vest or allows participants to deliver to us shares of Class A common stock having a fair market value equal to the minimum amount of such required withholding taxes. To satisfy withholding requirements for shares that vested through

September 30, 2019

, certain participants elected to forfeit receipt of an aggregate of 

35,735

shares of Class A common stock at a weighted average per share price of 

$21.33

 based on the closing price of our Class A common stock on the dates the shares vested in

2019

, in lieu of the federal and state minimum statutory tax withholding requirements. We remitted 

$0.8

million

to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements.

XML

Note 10 - Goodwill and Other Assets

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

Note 10. Goodwill and Other Assets

 

On

July 3, 2018,

we acquired

100%

of the outstanding stock of Landair Holdings, Inc., a Tennessee corporation (“Landair”). Landair is a dedicated and for-hire truckload carrier, as well as a supplier of transportation management, warehousing and logistics inventory management services. Landair’s results have been included in the consolidated financial statements since the date of acquisition. Landair’s trucking operations’ results are reported within our Truckload segment, while Landair’s logistics operations’ results are reported within our Managed Freight segment.

The allocation of the purchase price has been subject to change based on finalization of the valuation of long-lived and intangible assets and self-insurance reserves, as well as our ongoing evaluation of Landair's accounting principles for consistency with ours. The assignment of goodwill and intangible assets to our reportable segments was completed as of

June 30, 2019.

A summary of the changes in carrying amount of goodwill is as follows:

(in thousands)
Balance at December 31, 2018	$	41,598
Post-acquisition goodwill adjustments		920
Balance at September 30, 2019	$	42,518

A summary of other intangible assets as of 

September 30, 2019

and 

December 31, 2018

is as follows:

(in thousands)	September 30, 2019
	Gross intangible assets		Accumulated amortization			Net intangible assets		Remaining life (months)
Trade name	$	4,400	$	(367	)	$	4,033		165
Non-Compete agreement		1,400		(350	)		1,050		45
Customer relationships		28,200		(2,937	)		25,263		129
Total	$	34,000	$	(3,654	)	$	30,346

	December 31, 2018
	Gross intangible assets		Accumulated amortization			Net intangible assets		Remaining life (months)
Trade name	$	4,400	$	(147	)	$	4,253		174
Non-Compete agreement		1,400		(140	)		1,260		54
Customer relationships		28,200		(1,175	)		27,025		138
Total	$	34,000	$	(1,462	)	$	32,538

The above intangible assets have a weighted average remaining life of  

131

 months as 

September 30, 2019

. The expected amortization of these assets for the next

five

successive years is as follows:

	(in thousands)
2019	$	731
2020		2,923
2021		2,923
2022		2,923
2023		2,783
Thereafter		18,063

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenues
Revenue	$ 222,914	$ 243,303	$ 661,393	$ 613,187
Operating expenses:
Salaries, wages, and related expenses	84,093	86,249	239,376	211,621
Fuel expense	28,812	33,428	85,859	89,817
Operations and maintenance	14,742	16,457	44,814	40,783
Revenue equipment rentals and purchased transportation	50,428	47,445	146,267	115,525
Operating taxes and licenses	3,170	3,377	9,719	8,649
Insurance and claims	14,051	12,675	35,758	31,269
Communications and utilities	1,791	1,810	5,269	5,216
General supplies and expenses	7,685	6,391	21,701	16,833
Depreciation and amortization, including gains and losses on disposition of property and equipment	20,073	19,290	60,291	56,803
Total operating expenses	224,845	227,122	649,054	576,516
Operating (loss) income	(1,931)	16,181	12,339	36,671
Interest expense, net	2,992	2,460	8,121	6,360
Income from equity method investment	(2,138)	(2,142)	(7,548)	(5,407)
(Loss) income before income taxes	(2,785)	15,863	11,766	35,718
Income tax expense	404	4,249	4,451	9,716
Net (loss) income	$ (3,189)	$ 11,614	$ 7,315	$ 26,002
Net (loss) income per share:
Basic net (loss) income per share (in dollars per share)	$ (0.17)	$ 0.63	$ 0.40	$ 1.42
Diluted net (loss) income per share (in dollars per share)	$ (0.17)	$ 0.63	$ 0.39	$ 1.41
Basic weighted average shares outstanding (in shares)	18,458	18,343	18,426	18,337
Diluted weighted average shares outstanding (in shares)	18,719	18,497	18,620	18,448
Cargo and Freight [Member]
Revenues
Revenue	$ 199,832	$ 214,623	$ 590,511	$ 535,721
Fuel Surcharge [Member]
Revenues
Revenue	$ 23,082	$ 28,680	$ 70,882	$ 77,466

XML

Note 10 - Goodwill and Other Assets (Details Textual)	9 Months Ended
	Sep. 30, 2019	Jul. 03, 2018
Finite-Lived Intangible Asset, Useful Life	10 years 330 days
Landair Holdings Inc [Member]
Business Acquisition, Percentage of Voting Interests Acquired		100.00%

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities:
Net income	$ 7,315	$ 26,002
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for accounts receivable	13	168
Reversal of gain on sales to equity method investee	(7)	(185)
Depreciation and amortization	61,250	56,370
Amortization of deferred financing fees	110	111
Deferred income tax expense	4,632	9,172
Income tax benefit arising from restricted share vesting and stock options exercised	4	19
Stock-based compensation expense	426	3,243
Income from equity method investment	(7,548)	(5,407)
Return on investment in affiliated company	1,225
(Gain) loss on disposition of property and equipment	(2,137)	433
Return on investment in available-for-sale securities	(4)	(6)
Changes in operating assets and liabilities:
Receivables and advances	(9,098)	(4,717)
Prepaid expenses and other assets	(977)	(2,763)
Inventory and supplies	(111)	(102)
Insurance and claims accrual	539	1,553
Operating lease right-of-use asset amortization/accretion	333
Accounts payable and accrued expenses	(16,162)	17,723
Net cash flows provided by operating activities	39,803	101,614
Cash flows from investing activities:
Acquisition of Landair Holdings, Inc., net of cash acquired		(106,060)
Purchase of available-for-sale securities	(1,380)	(1,496)
Acquisition of property and equipment	(129,403)	(44,528)
Proceeds from disposition of property and equipment	31,235	49,302
Net cash flows used by investing activities	(99,548)	(102,782)
Cash flows from financing activities:
Change in checks outstanding in excess of bank balances	(664)	605
Proceeds from issuance of notes payable	102,796	83,746
Repayments of notes payable	(30,538)	(73,376)
Repayments of finance lease obligations	(4,232)	(2,608)
Proceeds under revolving credit facility	1,257,755	1,153,310
Repayments under revolving credit facility	(1,247,942)	(1,156,162)
Payment of minimum tax withholdings on stock compensation	(762)	(81)
Debt refinancing costs		(10)
Net cash flows provided by financing activities	76,413	5,424
Net change in cash and cash equivalents	16,668	4,256
Cash and cash equivalents at beginning of period	23,127	15,356
Cash and cash equivalents at end of period	$ 39,795	$ 19,612

XML

Note 5 - Debt and Lease Obligations (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Debt [Table Text Block]

(in thousands)	September 30, 2019						December 31, 2018
	Current			Long-Term			Current			Long-Term
Borrowings under Credit Facility	$	-		$	13,724		$	-		$	3,911
Revenue equipment installment notes; weighted average interest rate of 3.8% at September 30, 2019, and 3.7% at December 31, 2018, due in monthly installments with final maturities at various dates ranging from October 2019 to July 2023, secured by related revenue equipment		46,876			193,089			27,809			139,115
Real estate notes; interest rate of 3.8% at September 30, 2019 and 4.1% at December 31, 2018 due in monthly installments with a fixed maturity at August 2035, secured by related real estate		1,081			22,947			1,048			23,763
Deferred loan costs		(147	)		(44	)		(147	)		(154	)
Total debt		47,810			229,716			28,710			166,635
Principal portion of finance lease obligations, secured by related revenue equipment		7,164			29,097			5,374			35,119
Principal portion of operating lease obligations, secured by related revenue equipment		17,875			36,916			-			-
Total debt and lease obligations	$	72,849		$	295,729		$	34,084		$	201,754

XML

Note 1 - Significant Accounting Policies (Details Textual) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Jan. 01, 2019	Dec. 31, 2018
Operating Lease, Right-of-Use Asset	$ 53,400
Operating Lease, Liability, Total	54,793
Operating Lease, Liability, Current	17,875
Operating Lease, Liability, Noncurrent	$ 36,916
Tractors [Member]
Property, Plant and Equipment, Useful Life	5 years
Property, Plant and Equipment, Salvage Value, Percentage	15.00%
Refrigerated Trailers [Member]
Property, Plant and Equipment, Useful Life	7 years
Dry Van Trailers [Member]
Property, Plant and Equipment, Useful Life	10 years
Property, Plant and Equipment, Salvage Value, Percentage	25.00%
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset		$ 40,100
Operating Lease, Liability, Total		41,000
Operating Lease, Liability, Current		15,300
Operating Lease, Liability, Noncurrent		$ 25,700

XML

Note 1 - Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Significant Accounting Policies [Text Block]

Note 1. Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements include the accounts of Covenant Transportation Group, Inc., a Nevada holding company, and its wholly owned subsidiaries. References in this report to "we," "us," "our," the "Company," and similar expressions refer to Covenant Transportation Group, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form

10

-Q and Article

10

of Regulation S-

X

promulgated under the Securities Act of

1933.

In preparing financial statements, it is necessary for management to make assumptions and estimates affecting the amounts reported in the condensed consolidated financial statements and related notes. These estimates and assumptions are developed based upon all information available. Actual results could differ from estimated amounts. In the opinion of management, the accompanying financial statements include all adjustments that are necessary for a fair presentation of the results for the interim periods presented, such adjustments being of a normal recurring nature.

Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The

December 31, 2018

, condensed consolidated balance sheet was derived from our audited balance sheet as of that date. Our operating results are subject to seasonal trends when measured on a quarterly basis; therefore operating results for the 

three

months ended

September 30, 2019

 are

not

necessarily indicative of the results that

may

be expected for the year ending 

December 31,

 

2019.

These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Form

10

-K for the year ended

December 31, 2018

. Results of operations in interim periods are

not

necessarily indicative of results to be expected for a full year.

Recent Accounting Pronouncements

Accounting Standards adopted

In

February 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016

-

02,

which establishes Topic

842

to replace Topic

840

regarding accounting for leases. Topic

842

requires lessees to recognize a right-of-use asset and a lease liability for most leases on the balance sheet. Leases that were previously described as capital leases are now called finance leases, and operating leases with a term of at least

twelve

months are now required to be recorded on the balance sheet. We adopted this standard on

January 1, 2019

using the modified retrospective approach.

In

July 2018,

FASB issued ASU

2018

-

11,

which provides an optional transition method allowing application of Topic

842

as of the adoption date and recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, with

no

restatement of comparative prior periods. We have adopted the standard using this optional transition method.

Within Topic

842,

FASB has provided a number of practical expedients for applying the new lease standard in relation to leases that commenced prior to the standard's effective date. We have elected the package of practical expedients which allowed us, among other things, to carry forward the operating and capital lease classifications from Topic

840

to the new operating and finance lease classifications under Topic

842.

The adoption of this ASU resulted in the initial recognition of operating lease assets of

$40.1

million and liabilities totaling approximately

$41.0

 million, comprised of

$15.3

million of current operating lease liabilities and

$25.7

million of long-term operating lease obligations.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation. Depreciation for book purposes is determined using the straight-line method over the estimated useful lives of the assets, while depreciation for tax purposes is generally recorded using an accelerated method. Depreciation of revenue equipment is our largest item of depreciation. We have historically depreciated new tractors (excluding day cabs) over

five

years to salvage values of approximately

15%

of their cost.  We generally depreciate new trailers over

seven

years for refrigerated trailers and

ten

years for dry van trailers to salvage values of approximately

25%

of their cost. We annually review the reasonableness of our estimates regarding useful lives and salvage values of our revenue equipment and other long-lived assets based upon, among other things, our experience with similar assets, conditions in the used revenue equipment market, and prevailing industry practice. Changes in the useful life or salvage value estimates, or fluctuations in market values that are

not

reflected in our estimates, could have a material effect on our results of operations. Gains and losses on the disposal of revenue equipment are included in depreciation expense in the consolidated statements of operations.

Leases

At the commencement date of a new lease agreement with contractual terms longer than

twelve

months, we recognize a right-of-use asset and a lease liability and categorize the lease as either finance or operating. Certain lease agreements have lease and nonlease components, and we have elected to account for these components separately.

Right-of-use assets and lease liabilities are initially recorded based on the present value of lease payments over the term of the lease. When the rate implicit in the lease is readily determinable, this rate is used for calculating the present value of remaining lease payments; otherwise, our incremental borrowing rate is used. Right-of-use assets also include prepaid lease expenses and initial direct costs of executing the leases, which are reduced by landlord incentives. Options to extend or terminate a lease agreement are included in or excluded from the lease term, respectively, when those options are reasonably certain to be exercised. Right-of-use assets are tested for impairment in the same manner as long-lived assets.

Right-of-use assets are included in net property and equipment. For finance leases, right-of-use assets are amortized on a straight-line basis over the shorter of the expected useful life or the lease term, and the carrying amount of the lease liability is adjusted to reflect interest expense, which is recorded in interest expense, net. Operating lease right-of-use assets are amortized over the lease term on a straight-line basis, and the lease liability is measured at the present value of the remaining lease payments. Variable lease payments

not

included in the lease liability for mileage charges on leased revenue equipment are expensed as incurred. Operating lease costs are recognized on a straight-line basis over the term of the lease within operating expenses.

XML

Note 10 - Goodwill and Other Assets - Expected Future Amortization (Details) $ in Thousands	Sep. 30, 2019 USD ($)
2019	$ 731
2020	2,923
2021	2,923
2022	2,923
2023	2,783
Thereafter	$ 18,063

XML

Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net (loss) income	$ (3,189)	$ 11,614	$ 7,315	$ 26,002
Other comprehensive (loss) income:
Unrealized (loss) gain on effective portion of cash flow hedges, net of tax of $226 and $652 in 2019 and $133 and $782 in 2018, respectively	(596)	352	(1,720)	2,065
Reclassification of cash flow hedge loss (gain) into statement of operations, net of tax of $2 and $5 in 2019 and $155 and $330 in 2018, respectively	5	(406)	(14)	(868)
Unrealized holding gain (loss) on investments classified as available-for-sale	26	(3)	47	(3)
Total other comprehensive (loss) income	(565)	(57)	(1,687)	1,194
Comprehensive (loss) income	$ (3,754)	$ 11,557	$ 5,628	$ 27,196

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 06, 2019
Document Information [Line Items]
Entity Registrant Name	COVENANT TRANSPORTATION GROUP INC
Entity Central Index Key	0000928658
Trading Symbol	cvti
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false
Title of 12(b) Security	$0.01 Par Value Class A common stock
Common Class B [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		2,350,000
Common Class A [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		16,111,902

XML

Note 9 - Equity Method Investment - TEL's Summarized Financial Information - Income Statement (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenue	$ 30,709	$ 25,437	$ 82,683	$ 74,152
Cost of Sales	6,302	6,568	17,213	23,738
Operating Expenses	16,634	12,493	42,775	34,322
Operating Income	7,773	6,376	22,695	16,092
Net Income	$ 4,585	$ 4,369	$ 14,452	$ 10,850

XML

Note 8 - Leases (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Lease, Cost [Table Text Block]

(dollars in thousands)	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Finance lease cost:
Amortization of right-of-use assets	$	1,406	$	4,225
Interest on lease liabilities		210		644
Operating lease cost		6,167		17,824
Total lease cost	$	7,783	$	22,693
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases		1,146		3,589
Operating cash flows from operating leases		6,167		17,824
Financing cash flows from finance leases		210		644
Right-of-use assets obtained in exchange for new operating lease liabilities		20,096		26,421
Weighted-average remaining lease term—finance leases				3.0 years
Weighted-average remaining lease term—operating leases				3.5 years
Weighted-average discount rate—finance leases				3.0	%
Weighted-average discount rate—operating leases				5.0	%

Lessee, Lease Liability, Maturity [Table Text Block]

(in thousands)	Operating			Finance
2019 (1)	$	5,381		$	8,151
2020		19,075			8,074
2021		15,281			9,960
2022		13,050			11,245
2023		4,835			362
Thereafter		2,431			1,119
Total minimum lease payments	$	60,053		$	38,911
Less: amount representing interest		(5,260	)		(2,650	)
Present value of minimum lease payments	$	54,793		$	36,261
Less: current portion		(17,875	)		(7,164	)
Lease obligations, long-term	$	36,918		$	29,097

XML

Note 2 - (Loss) Income Per Share (Details Textual) - shares	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019	Dec. 31, 2018
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	261,000	0
Share-based Payment Arrangement, Option, Exercise Price Range, Shares Outstanding, Ending Balance	0	0	0

XML

Note 7 - Commitments and Contingencies (Details Textual) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Letters of Credit Outstanding, Amount	$ 35,200	$ 36,300

XML

Note 5 - Debt and Lease Obligations (Details Textual) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Aug. 31, 2015
Line of Credit Facility, Maximum Borrowing Capacity	$ 95,000
Line of Credit Facility, Maximum Increase in Borrowing Capacity	$ 50,000
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage	0.25%
Percent of Eligible Accounts Receivable	85.00%
Percent of Appraised Net Orderly Liquidation, Value of Eligible Revenue Equipment	85.00%
Percent of Net Book Value of Eligible Revenue Equipment	95.00%
Line of Credit Facility, Availability as Percentage of Revolver Commitment	35.00%
Line of Credit Facility, Revolver Commitment, Amount	$ 25,000
Percent of Appraised Fair Market Value of Eligible Real Estate	75.00%
Long-term Line of Credit, Total	$ 13,700
Letters of Credit Outstanding, Amount	35,200		$ 36,300
Line of Credit Facility, Remaining Borrowing Capacity	46,000
Fixed Charge Coverage Requirement	0	$ 0
Debt, Secured with a Cross Default Feature	$ 212,500
Interest Rate Swap [Member]
Derivative, Fixed Interest Rate				4.20%
Variable Rate Note [Member]
Debt Instrument, Face Amount				$ 28,000
Federal Funds Rate [Member] | Base Rate Loans [Member]
Debt Instrument, Basis Spread on Variable Rate	0.50%
London Interbank Offered Rate (LIBOR) [Member] | Base Rate Loans [Member]
Debt Instrument, Basis Spread on Variable Rate	1.00%
Applicable Margin [Member] | Base Rate Loans [Member] | Minimum [Member]
Debt Instrument, Basis Spread on Variable Rate	0.50%
Applicable Margin [Member] | Base Rate Loans [Member] | Maximum [Member]
Debt Instrument, Basis Spread on Variable Rate	1.00%
Applicable Margin [Member] | LIBOR [Member] | Minimum [Member]
Debt Instrument, Basis Spread on Variable Rate	1.50%
Applicable Margin [Member] | LIBOR [Member] | Maximum [Member]
Debt Instrument, Basis Spread on Variable Rate	2.00%
Letter of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 95,000		$ 95,000
Swing Line Sub Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 10,000
Percent of Aggregate Commitments under Credit Facility	10.00%
Revolving Credit Facility [Member] | Base Rate Loans [Member]
Long-term Line of Credit, Total	$ 13,700
Debt Instrument, Interest Rate, Stated Percentage	5.80%
Revolving Credit Facility [Member] | LIBOR Loans [Member]
Long-term Line of Credit, Total	$ 0

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The condensed consolidated financial statements include the accounts of Covenant Transportation Group, Inc., a Nevada holding company, and its wholly owned subsidiaries. References in this report to "we," "us," "our," the "Company," and similar expressions refer to Covenant Transportation Group, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form

10

-Q and Article

10

of Regulation S-

X

promulgated under the Securities Act of

1933.

In preparing financial statements, it is necessary for management to make assumptions and estimates affecting the amounts reported in the condensed consolidated financial statements and related notes. These estimates and assumptions are developed based upon all information available. Actual results could differ from estimated amounts. In the opinion of management, the accompanying financial statements include all adjustments that are necessary for a fair presentation of the results for the interim periods presented, such adjustments being of a normal recurring nature.

Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The

December 31, 2018

, condensed consolidated balance sheet was derived from our audited balance sheet as of that date. Our operating results are subject to seasonal trends when measured on a quarterly basis; therefore operating results for the 

three

months ended

September 30, 2019

 are

not

necessarily indicative of the results that

may

be expected for the year ending 

December 31,

 

2019.

These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Form

10

-K for the year ended

December 31, 2018

. Results of operations in interim periods are

not

necessarily indicative of results to be expected for a full year.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

Accounting Standards adopted

In

February 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016

-

02,

which establishes Topic

842

to replace Topic

840

regarding accounting for leases. Topic

842

requires lessees to recognize a right-of-use asset and a lease liability for most leases on the balance sheet. Leases that were previously described as capital leases are now called finance leases, and operating leases with a term of at least

twelve

months are now required to be recorded on the balance sheet. We adopted this standard on

January 1, 2019

using the modified retrospective approach.

In

July 2018,

FASB issued ASU

2018

-

11,

which provides an optional transition method allowing application of Topic

842

as of the adoption date and recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, with

no

restatement of comparative prior periods. We have adopted the standard using this optional transition method.

Within Topic

842,

FASB has provided a number of practical expedients for applying the new lease standard in relation to leases that commenced prior to the standard's effective date. We have elected the package of practical expedients which allowed us, among other things, to carry forward the operating and capital lease classifications from Topic

840

to the new operating and finance lease classifications under Topic

842.

The adoption of this ASU resulted in the initial recognition of operating lease assets of

$40.1

million and liabilities totaling approximately

$41.0

 million, comprised of

$15.3

million of current operating lease liabilities and

$25.7

million of long-term operating lease obligations.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation. Depreciation for book purposes is determined using the straight-line method over the estimated useful lives of the assets, while depreciation for tax purposes is generally recorded using an accelerated method. Depreciation of revenue equipment is our largest item of depreciation. We have historically depreciated new tractors (excluding day cabs) over

five

years to salvage values of approximately

15%

of their cost.  We generally depreciate new trailers over

seven

years for refrigerated trailers and

ten

years for dry van trailers to salvage values of approximately

25%

of their cost. We annually review the reasonableness of our estimates regarding useful lives and salvage values of our revenue equipment and other long-lived assets based upon, among other things, our experience with similar assets, conditions in the used revenue equipment market, and prevailing industry practice. Changes in the useful life or salvage value estimates, or fluctuations in market values that are

not

reflected in our estimates, could have a material effect on our results of operations. Gains and losses on the disposal of revenue equipment are included in depreciation expense in the consolidated statements of operations.

Lessee, Leases [Policy Text Block]

Leases

At the commencement date of a new lease agreement with contractual terms longer than

twelve

months, we recognize a right-of-use asset and a lease liability and categorize the lease as either finance or operating. Certain lease agreements have lease and nonlease components, and we have elected to account for these components separately.

Right-of-use assets and lease liabilities are initially recorded based on the present value of lease payments over the term of the lease. When the rate implicit in the lease is readily determinable, this rate is used for calculating the present value of remaining lease payments; otherwise, our incremental borrowing rate is used. Right-of-use assets also include prepaid lease expenses and initial direct costs of executing the leases, which are reduced by landlord incentives. Options to extend or terminate a lease agreement are included in or excluded from the lease term, respectively, when those options are reasonably certain to be exercised. Right-of-use assets are tested for impairment in the same manner as long-lived assets.

Right-of-use assets are included in net property and equipment. For finance leases, right-of-use assets are amortized on a straight-line basis over the shorter of the expected useful life or the lease term, and the carrying amount of the lease liability is adjusted to reflect interest expense, which is recorded in interest expense, net. Operating lease right-of-use assets are amortized over the lease term on a straight-line basis, and the lease liability is measured at the present value of the remaining lease payments. Variable lease payments

not

included in the lease liability for mileage charges on leased revenue equipment are expensed as incurred. Operating lease costs are recognized on a straight-line basis over the term of the lease within operating expenses.

XML

Note 3 - Segment Information

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note 3. Segment Information

We have

two

reportable segments, Truckload, which is comprised of our truckload services, and Managed Freight, which provides freight brokerage and logistics services.

The Truckload segment consists of

four

service offerings that are aggregated because they have similar economic characteristics and meet the aggregation criteria.  The

four

service offerings that comprise our Truckload segment are as follows: (i) Expedited, provided primarily by Covenant Transport, our historical flagship operation; (ii) Dedicated, provided by all of our operating fleets; (iii) Refrigerated, provided primarily through our Southern Refrigerated Transport, Inc. ("SRT") subsidiary; and (iv) over-the-road ("OTR"), provided primarily by our Landair Transport, Inc. subsidiary.

In addition, our Managed Freight segment has service offerings ancillary to our Truckload services, including: freight brokerage, transportation management services ("TMS"), and shuttle and switching services. These service offerings are aggregated due to similar margins and customers. Also included within Managed Freight are our warehousing and accounts receivable factoring businesses, neither of which meets the quantitative or qualitative reporting thresholds individually or in the aggregate.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies in our 

2018

Annual Report on Form

10

-K. Substantially all intersegment sales prices are market based. We evaluate performance based on operating income of the respective business units.

The following table summarizes our revenue by our

two

reportable segments, Truckload and Managed Freight, disaggregated to the operating fleet level as used by our chief operating decision maker in making decisions regarding allocation of resources and assets, organized

first

by reportable segment (i.e. Truckload and Managed Freight) and then by operating fleet for the

three

and

nine

months ended

September 30, 2019

 and 

2018

:

(in thousands)	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Total Revenues:
Truckload Segment:
Expedited	$	68,306	$	84,202	$	197,557	$	250,553
Dedicated		82,692		74,493		243,436		164,966
Refrigerated		19,368		33,672		68,107		102,107
OTR		4,592		4,686		13,926		4,686
Truckload Revenues		174,958		197,053		523,026		522,312
Managed Freight Segment:
Brokerage		24,016		26,159		68,601		68,741
TMS		9,323		6,991		27,124		6,991
Shuttle & Switching		3,693		3,451		10,990		3,451
Warehouse		8,469		8,258		25,091		8,258
Factoring		2,455		1,391		6,561		3,434
Managed Freight Revenues		47,956		46,250		138,367		90,875
Total	$	222,914	$	243,303	$	661,393	$	613,187

XML

Note 7 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note 7. Commitments and Contingencies

From time-to-time, we are a party to ordinary, routine litigation arising in the ordinary course of business, most of which involves claims for personal injury and property damage incurred in connection with the transportation of freight.

Our subsidiary Covenant Transport, Inc. (“Covenant Transport”) is a defendant in a lawsuit filed on

November 9, 2018,

in the Superior Court of Los Angeles County, California.  The lawsuit was filed on behalf of Richard Tabizon (a California resident and former driver) who is seeking to have the lawsuit certified as a class action.  The complaint asserts that the time period covered by the lawsuit is from

October 31, 2014

to the present and alleges claims for failure to properly pay for rest breaks, failure to provide accurate itemized wage statements and/or reimbursement of business related expenses, unlawful deduction of wages, failure to pay proper minimum wage and overtime wages, failure to provide all wages due at termination, and other related wage and hour claims under the California Labor Code.  Since the original filing date, the case has been removed from the Los Angeles Superior Court to the U.S. District Court in the Central District of California and subsequently the case was transferred to the U.S. District Court in the Eastern District of Tennessee where the case is now pending. We do

not

currently have enough information to make a reasonable estimate as to the likelihood, or amount of a loss, or a range of reasonably possible losses as a result of this claim, as such there have been

no

related accruals recorded as of

September 30, 2019.    

Also, in

February, 2019,

Covenant Transport was named in a separate (but related) lawsuit filed in the Superior Court of Los Angeles County, California requesting civil penalties under the California Private Attorneys’ General Act for the same underlying wage and hour claims at issue in the putative class action case noted above. On

August 1, 2019,

the Los Angeles Superior Court entered an order staying the action pending completion of the earlier-filed action that is pending in the United States District Court for the Eastern District of Tennessee. We do

not

currently have enough information to make a reasonable estimate as to the likelihood, or amount of a loss, or a range of reasonably possible losses as a result of this claim, as such there have been

no

related accruals recorded as of

September 30, 2019.

We maintain insurance to cover liabilities arising from the transportation of freight for amounts in excess of certain self-insured retentions. In management's opinion, our potential exposure under pending legal proceedings is adequately provided for in the accompanying condensed consolidated financial statements.

Based on our present knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of open claims and pending litigation, taking into account existing reserves, is

not

likely to have a materially adverse effect on our consolidated financial statements.

We had

$35.2

million

 and 

$36.3

million

of outstanding and undrawn letters of credit as of

September 30, 2019

 and

December 31, 2018

, respectively. The letters of credit are maintained primarily to support our insurance programs.

XML

Note 10 - Goodwill and Other Assets - Schedule of Goodwill (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Balance	$ 41,598
Post-acquisition goodwill adjustments	920
Balance	$ 42,518

XML

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member] Common Class A [Member]	Common Stock [Member] Common Class B [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member]	Total
Balance at Dec. 31, 2017	$ 171	$ 24	$ 137,242	$ 293	$ 157,471	$ 295,201
Net (loss) income					4,417	4,417
Other comprehensive income (loss)				671		671
Stock-based employee compensation expense			826			826
Issuance of restricted shares, net			(18)			(18)
Effect of adoption of ASU 2014-09					591	591
Balance at Mar. 31, 2018	171	24	138,050	964	162,479	301,688
Balance at Dec. 31, 2017	171	24	137,242	293	157,471	295,201
Net (loss) income						26,002
Other comprehensive income (loss)						1,194
Balance at Sep. 30, 2018	171	24	140,404	1,487	184,064	326,150
Balance at Mar. 31, 2018	171	24	138,050	964	162,479	301,688
Net (loss) income					9,971	9,971
Other comprehensive income (loss)				580		580
Issuance of restricted shares, net			375			375
Stock-based employee compensation expense reversal			937			937
Balance at Jun. 30, 2018	171	24	139,362	1,544	172,450	313,551
Net (loss) income					11,614	11,614
Other comprehensive income (loss)				(57)		(57)
Issuance of restricted shares, net			(63)			(63)
Stock-based employee compensation expense reversal			1,105			1,105
Balance at Sep. 30, 2018	171	24	140,404	1,487	184,064	326,150
Balance at Dec. 31, 2018	171	24	142,177	204	200,566	343,142
Net (loss) income					4,433	4,433
Other comprehensive income (loss)				(432)		(432)
Stock-based employee compensation expense			1,262			1,262
Issuance of restricted shares, net	1		(669)			(668)
Balance at Mar. 31, 2019	172	24	142,770	(228)	204,999	347,737
Balance at Dec. 31, 2018	171	24	142,177	204	200,566	343,142
Net (loss) income						7,315
Other comprehensive income (loss)						(1,687)
Balance at Sep. 30, 2019	172	24	141,840	(1,483)	207,881	348,434
Balance at Mar. 31, 2019	172	24	142,770	(228)	204,999	347,737
Net (loss) income					6,071	6,071
Other comprehensive income (loss)				(690)		(690)
Issuance of restricted shares, net
Stock-based employee compensation expense reversal			(1,433)			(1,433)
Balance at Jun. 30, 2019	172	24	141,337	(918)	211,070	351,685
Net (loss) income					(3,189)	(3,189)
Other comprehensive income (loss)				(565)		(565)
Stock-based employee compensation expense			597			597
Issuance of restricted shares, net			(94)			(94)
Balance at Sep. 30, 2019	$ 172	$ 24	$ 141,840	$ (1,483)	$ 207,881	$ 348,434

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Accounts receivable allowance	$ 1,889	$ 1,985
Driver's advances and other receivables, allowance	$ 678	$ 626
Common Class A [Member]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	40,000,000	20,000,000
Common stock, shares issued (in shares)	16,111,902	16,015,708
Common stock, shares outstanding (in shares)	16,111,902	16,015,708
Common Class B [Member]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	5,000,000	5,000,000
Common stock, shares issued (in shares)	2,350,000	2,350,000
Common stock, shares outstanding (in shares)	2,350,000	2,350,000

XML

Note 9 - Equity Method Investment (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Proceeds from Sale of Property, Plant, and Equipment, Total			$ 31,235	$ 49,302
Reversal of Deferred Gains of Sale of Property			(7)	(185)
Income (Loss) from Equity Method Investments, Total	$ 2,138	$ 2,142	7,548	5,407
Transport Enterprise Leasing LLC [Member]
Proceeds from Sale of Property, Plant, and Equipment, Total			0	100
Revenue from Related Parties			7,100	5,900
Reversal of Deferred Gains of Sale of Property			$ 100	$ 200
Equity Method Investment, Ownership Percentage	49.00%	49.00%	49.00%	49.00%
Due from Related Parties, Total	$ 1,200		$ 1,200		$ 5,100
Income (Loss) from Equity Method Investments, Total			7,500
Proceeds from Equity Method Investment, Distribution			1,200	$ 0
Equity Method Investments	32,400		32,400		$ 26,100
Transport Enterprise Leasing LLC [Member] | Reduction in TEL Investment [Member]
Deferred Gain on Sale of Property	$ 200		$ 200

XML

Note 3 - Segment Information (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Disaggregation of Revenue [Table Text Block]

(in thousands)	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Total Revenues:
Truckload Segment:
Expedited	$	68,306	$	84,202	$	197,557	$	250,553
Dedicated		82,692		74,493		243,436		164,966
Refrigerated		19,368		33,672		68,107		102,107
OTR		4,592		4,686		13,926		4,686
Truckload Revenues		174,958		197,053		523,026		522,312
Managed Freight Segment:
Brokerage		24,016		26,159		68,601		68,741
TMS		9,323		6,991		27,124		6,991
Shuttle & Switching		3,693		3,451		10,990		3,451
Warehouse		8,469		8,258		25,091		8,258
Factoring		2,455		1,391		6,561		3,434
Managed Freight Revenues		47,956		46,250		138,367		90,875
Total	$	222,914	$	243,303	$	661,393	$	613,187

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Note 10 - Goodwill and Other Assets (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Goodwill [Table Text Block]

(in thousands)
Balance at December 31, 2018	$	41,598
Post-acquisition goodwill adjustments		920
Balance at September 30, 2019	$	42,518

Schedule of Finite-Lived Intangible Assets [Table Text Block]

(in thousands)	September 30, 2019
	Gross intangible assets		Accumulated amortization			Net intangible assets		Remaining life (months)
Trade name	$	4,400	$	(367	)	$	4,033		165
Non-Compete agreement		1,400		(350	)		1,050		45
Customer relationships		28,200		(2,937	)		25,263		129
Total	$	34,000	$	(3,654	)	$	30,346

	December 31, 2018
	Gross intangible assets		Accumulated amortization			Net intangible assets		Remaining life (months)
Trade name	$	4,400	$	(147	)	$	4,253		174
Non-Compete agreement		1,400		(140	)		1,260		54
Customer relationships		28,200		(1,175	)		27,025		138
Total	$	34,000	$	(1,462	)	$	32,538

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

	(in thousands)
2019	$	731
2020		2,923
2021		2,923
2022		2,923
2023		2,783
Thereafter		18,063

XML

Note 3 - Segment Information (Details Textual)	9 Months Ended
	Sep. 30, 2019
Number of Reportable Segments	2
Number of Asset-based Operating Fleets Aggregated in a Segment	4

XML

Note 5 - Debt and Lease Obligations

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Debt Disclosure [Text Block]

Note 5. Debt and Lease Obligations

Current and long-term debt and lease obligations consisted of the following at 

September 30, 2019

and

December 31, 2018

:

(in thousands)	September 30, 2019						December 31, 2018
	Current			Long-Term			Current			Long-Term
Borrowings under Credit Facility	$	-		$	13,724		$	-		$	3,911
Revenue equipment installment notes; weighted average interest rate of 3.8% at September 30, 2019, and 3.7% at December 31, 2018, due in monthly installments with final maturities at various dates ranging from October 2019 to July 2023, secured by related revenue equipment		46,876			193,089			27,809			139,115
Real estate notes; interest rate of 3.8% at September 30, 2019 and 4.1% at December 31, 2018 due in monthly installments with a fixed maturity at August 2035, secured by related real estate		1,081			22,947			1,048			23,763
Deferred loan costs		(147	)		(44	)		(147	)		(154	)
Total debt		47,810			229,716			28,710			166,635
Principal portion of finance lease obligations, secured by related revenue equipment		7,164			29,097			5,374			35,119
Principal portion of operating lease obligations, secured by related revenue equipment		17,875			36,916			-			-
Total debt and lease obligations	$	72,849		$	295,729		$	34,084		$	201,754

We and substantially all of our subsidiaries are parties to the Credit Facility with Bank of America, N.A., as agent (the "Agent") and JPMorgan Chase Bank, N.A. (together with the Agent, the "Lenders"). The Credit Facility is a

$95.0

million revolving credit facility, with an uncommitted accordion feature that, so long as

no

event of default exists, allows us to request an increase in the revolving credit facility of up to

$50.0

million subject to Lender acceptance of the additional funding commitment.  The Credit Facility includes, within our

$95.0

million revolving credit facility, a letter of credit sub facility in an aggregate amount of

$95.0

million and a swing line sub facility in an aggregate amount equal to the greater of

$10.0

million or

10%

of the Lenders' aggregate commitments under the Credit Facility from time-to-time. The Credit Facility matures in

September 2021.

Borrowings under the Credit Facility are classified as either "base rate loans" or "LIBOR loans." Base rate loans accrue interest at a base rate equal to the greater of the Agent’s prime rate, the federal funds rate plus

0.5%,

or LIBOR plus

1.0%,

plus an applicable margin ranging from

0.5%

to

1.0%;

while LIBOR loans accrue interest at LIBOR, plus an applicable margin ranging from

1.5%

to

2.0%.

The applicable rates are adjusted quarterly based on average pricing availability. The unused line fee is the product of

0.25%

times the average daily amount by which the Lenders' aggregate revolving commitments under the Credit Facility exceed the outstanding principal amount of revolver loans and the aggregate undrawn amount of all outstanding letters of credit issued under the Credit Facility.  The obligations under the Credit Facility are guaranteed by us and secured by a pledge of substantially all of our assets, with the notable exclusion of any real estate or revenue equipment pledged under other financing agreements, including revenue equipment installment notes and capital leases.

Borrowings under the Credit Facility are subject to a borrowing base limited to the lesser of (A)

$95.0

million, minus the sum of the stated amount of all outstanding letters of credit; or (B) the sum of (i)

85%

of eligible accounts receivable, plus (ii) the lesser of (a)

85%

of the appraised net orderly liquidation value of eligible revenue equipment, (b)

95%

of the net book value of eligible revenue equipment, or (c)

35%

of the Lenders' aggregate revolving commitments under the Credit Facility, plus (iii) the lesser of (a)

$25.0

million or (b)

75%

of the appraised fair market value of eligible real estate, as reduced by a periodic amortization amount.  We had 

$13.7

million

of borrowings outstanding under the Credit Facility as of

September 30, 2019

, undrawn letters of credit outstanding of approximately

$35.2

million

, and available borrowing capacity of

$46.0

million

. The interest rate on outstanding borrowings as of

September 30, 2019

, was 

5.8%

on 

$13.7

million

of base rate loans and there were

no

 outstanding LIBOR loans. Based on availability as of

September 30, 2019

and

2018

, there was

no

fixed charge coverage requirement.

The Credit Facility includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the Credit Facility

may

be accelerated, and the Lenders' commitments

may

be terminated.  If an event of default occurs under the Credit Facility and the Lenders cause, or have the ability to cause, all of the outstanding debt obligations under the Credit Facility to become due and payable, this could result in a default under other debt instruments that contain acceleration or cross-default provisions. The Credit Facility contains certain restrictions and covenants relating to, among other things, debt, dividends, liens, acquisitions and dispositions outside of the ordinary course of business, and affiliate transactions. Failure to comply with the covenants and restrictions set forth in the Credit Facility could result in an event of default.

Pricing for the revenue equipment installment notes is quoted by the respective financial affiliates of our primary revenue equipment suppliers and other lenders at the funding of each group of equipment acquired and include fixed annual rates for new equipment under retail installment contracts. The notes included in the funding are due in monthly installments with final maturities at various dates ranging from 

October 2019

 to

July 2023

.

The notes contain certain requirements regarding payment, insuring of collateral, and other matters, but do

not

have any financial or other material covenants or events of default except certain notes totaling 

$212.5

million

are cross-defaulted with the Credit Facility. Additional borrowings from the financial affiliates of our primary revenue equipment suppliers and other lenders are expected to be available to fund new tractors expected to be delivered in

2020,

while any other property and equipment purchases, including trailers, are expected to be funded with a combination of available cash, notes, operating leases, capital leases, and/or from the Credit Facility.

In

August 2015,

we financed a portion of the purchase of our corporate headquarters, a maintenance facility, and certain surrounding property in Chattanooga, Tennessee by entering into a

$28.0

million variable rate note with a

third

party lender. Concurrently with entering into the note, we entered into an interest rate swap to effectively fix the related interest rate to

4.2%.

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Note 9 - Equity Method Investment

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Equity Method Investment [Text Block]

Note 9. Equity Method Investment

We own a minority investment in Transport Enterprise Leasing, LLC ("TEL"). TEL is a tractor and trailer equipment leasing company and used equipment reseller. We have

not

guaranteed any of TEL's debt and have

no

obligation to provide funding, services, or assets. In

May 2016,

the operating agreement with TEL was amended to, among other things, remove the previously agreed to fixed date purchase options. TEL’s majority owners are generally restricted from transferring their interests in TEL, other than to certain permitted transferees, without our consent. We sold

no

and

$0.1

million

 tractors or trailers to TEL during the

nine

-months ended

September 30, 2019

 and 

2018

, respectively, and we received 

$7.1

million

and

$5.9

million

, respectively, for providing various maintenance services, certain back-office functions, and for miscellaneous equipment. We recognized a net reversal of previously deferred gains totaling

less than

$0.1

million

 and 

$0.2

million

 for the 

nine

-months ended 

September 30, 2019

 and 

2018

, respectively, representing

49%

of the gains on units sold to TEL less any gains previously deferred and recognized when the equipment was subsequently sold to a

third

party.  Deferred gains, totaling 

$0.2

million

 at 

September 30, 2019

, are being carried as a reduction in our investment in TEL.  At 

September 30, 2019

 and 

December 31, 2018

, we had accounts receivable from TEL of 

$1.2

million

 and 

$5.1

million

, respectively, related to cash disbursements made pursuant to our performance of certain back-office and maintenance functions on TEL’s behalf.

We have accounted for our investment in TEL using the equity method of accounting, and thus our financial results include our proportionate share of TEL's

2019

 net income through

September 30, 2019

, or

$7.5

million

. We received an equity distribution from TEL of

$1.2

million during the

nine

-months ended 

September 30, 2019

and

none

for the same

2018

period.  Our investment in TEL, totaling 

$32.4

million

and

$26.1

million

, at

September 30, 2019

and

December 31, 2018

, respectively, is included in other assets in the accompanying condensed consolidated balance sheets.

See TEL's summarized financial information below:

(in thousands)	As of September 30,		As of December 31,
	2019		2018
Total Assets	$	388,116	$	299,864
Total Liabilities		331,219		254,919
Total Equity	$	56,897	$	44,945

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue	$	30,709	$	25,437	$	82,683	$	74,152
Cost of Sales		6,302		6,568		17,213		23,738
Operating Expenses		16,634		12,493		42,775		34,322
Operating Income		7,773		6,376		22,695		16,092
Net Income	$	4,585	$	4,369	$	14,452	$	10,850

XML

Note 8 - Leases - Lease Obligations (Details) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2019 USD ($)
Amortization of right-of-use assets	$ 1,406	$ 4,225
Interest on lease liabilities	210	644
Operating lease cost	6,167	17,824
Total lease cost	7,783	22,693
Operating cash flows from finance leases	1,146	3,589
Operating cash flows from operating leases	6,167	17,824
Financing cash flows from finance leases	210	644
Right-of-use assets obtained in exchange for new operating lease liabilities	$ 20,096	$ 26,421
Weighted-average remaining lease term—finance leases (Year)	3 years	3 years
Weighted-average remaining lease term—operating leases (Year)	3 years 182 days	3 years 182 days
Weighted-average discount rate—finance leases	3.00%	3.00%
Weighted-average discount rate—operating leases	5.00%	5.00%

XML

Note 5 - Debt and Lease Obligations - Current and Long-term Debt (Details) (Parentheticals)	Sep. 30, 2019	Dec. 31, 2018
Revenue Equipment Installment Notes [Member]
Interest rate	3.80%	3.70%
Real Estate Note [Member]
Interest rate	3.80%	4.10%

XML

Note 3 - Segment Information - Segment by Operating Fleet Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenue	$ 222,914	$ 243,303	$ 661,393	$ 613,187
Truckload [Member]
Revenue	174,958	197,053	523,026	522,312
Truckload [Member] | Expedited [Member]
Revenue	68,306	84,202	197,557	250,553
Truckload [Member] | Dedicated [Member]
Revenue	82,692	74,493	243,436	164,966
Truckload [Member] | Refrigerated [Member]
Revenue	19,368	33,672	68,107	102,107
Truckload [Member] | Over the Road [Member]
Revenue	4,592	4,686	13,926	4,686
Managed Freight [Member]
Revenue	47,956	46,250	138,367	90,875
Managed Freight [Member] | Brokerage [Member]
Revenue	24,016	26,159	68,601	68,741
Managed Freight [Member] | Transportation Management Services [Member]
Revenue	9,323	6,991	27,124	6,991
Managed Freight [Member] | Shuttle and Switching [Member]
Revenue	3,693	3,451	10,990	3,451
Managed Freight [Member] | Warehouse [Member]
Revenue	8,469	8,258	25,091	8,258
Managed Freight [Member] | Factoring [Member]
Revenue	$ 2,455	$ 1,391	$ 6,561	$ 3,434

XML

Note 4 - Income Taxes

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 4. Income Taxes

Income tax expense in both

2019

and

2018

varies from the amount computed by applying the federal corporate income tax rates of

21%

to income before income taxes, primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences, the most significant of which is the effect of the per diem pay structure for drivers.  Drivers who meet the requirements to receive per diem receive non-taxable per diem pay in lieu of a portion of their taxable wages.  This per diem program increases our drivers' net pay per mile, after taxes, while decreasing gross pay, before taxes.  As a result, salaries, wages, and related expenses are slightly lower and our effective income tax rate is higher than the statutory rate.  Generally, as pre-tax income increases, the impact of the driver per diem program on our effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pre-tax income, while in periods where earnings are at or near breakeven the impact of the per diem program on our effective tax rate is significant.  Due to the partially nondeductible effect of per diem pay, our tax rate will fluctuate in future periods based on fluctuations in earnings.

Our liability recorded for uncertain tax positions as of 

September 30, 2019

has 

decreased

by

$0.8

million

 since

December 31, 2018

 as the result of the settlement of our uncertain tax position and the reversal of any interest accrued.

The net deferred tax liability of 

$81.4

million

primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially off-set by net operating loss carryovers and insurance claims that have been reserved but

not

paid. The carrying value of our deferred tax assets assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits.  If these estimates and related assumptions change in the future, we

may

be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense.  On a periodic basis, we assess the need for adjustment of the valuation allowance.  Based on forecasted taxable income resulting from the reversal of deferred tax liabilities, primarily generated by accelerated depreciation for tax purposes in prior periods, and tax planning strategies available to us, a valuation allowance has been established at

September 30, 2019

, for

$0.1

million

 related to certain state net operating loss carry-forwards.  If these estimates and related assumptions change in the future, we

may

be required to modify our valuation allowance against the carrying value of the deferred tax assets.

XML

Note 8 - Leases

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

Note 8. Leases

We finance a portion of our revenue equipment, office and terminal properties, computer and office equipment, and other equipment using leases. A number of these leases include

one

or more options to renew or extend the agreements beyond the expiration date or to terminate the agreement prior to the lease expiration date, and such options are included in or excluded from the lease term, respectively, when those options are reasonably certain to be exercised. Our lease obligations do

not

typically include residual value guarantees or material restrictive covenants. A summary of our lease obligations at

September 30, 2019

are as follows:

(dollars in thousands)	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Finance lease cost:
Amortization of right-of-use assets	$	1,406	$	4,225
Interest on lease liabilities		210		644
Operating lease cost		6,167		17,824
Total lease cost	$	7,783	$	22,693
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases		1,146		3,589
Operating cash flows from operating leases		6,167		17,824
Financing cash flows from finance leases		210		644
Right-of-use assets obtained in exchange for new operating lease liabilities		20,096		26,421
Weighted-average remaining lease term—finance leases				3.0 years
Weighted-average remaining lease term—operating leases				3.5 years
Weighted-average discount rate—finance leases				3.0	%
Weighted-average discount rate—operating leases				5.0	%

Right-of-use assets of 

$53.4

million

for operating leases and 

$35.3

million

 for finance leases are included in net property and equipment in our Condensed Consolidated Balance Sheets. Operating lease right-of-use asset amortization is included in revenue equipment rentals and purchased transportation, communication and utilities, and general supplies and expenses, depending on the underlying asset.

Our future minimum lease payments as of

September 30, 2019

, summarized as follows by lease category:

(in thousands)	Operating			Finance
2019 (1)	$	5,381		$	8,151
2020		19,075			8,074
2021		15,281			9,960
2022		13,050			11,245
2023		4,835			362
Thereafter		2,431			1,119
Total minimum lease payments	$	60,053		$	38,911
Less: amount representing interest		(5,260	)		(2,650	)
Present value of minimum lease payments	$	54,793		$	36,261
Less: current portion		(17,875	)		(7,164	)
Lease obligations, long-term	$	36,918		$	29,097

(

1

) Excludes the 

nine

months ended

September 30, 2019

XML

Note 6 - Stock-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		9 Months Ended
	May 08, 2019	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized	750,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant		439,370		439,370
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized		2,300,000		2,300,000
Maximum Number of Shares of Class A Common Stock Awarded to any Participant in the Incentive Plan in any Calendar Year		200,000		200,000
Share-based Payment Arrangement, Option, Exercise Price Range, Shares Outstanding, Ending Balance		0		0		0
Share-based Payment Arrangement, Shares Withheld for Tax Withholding Obligation				35,735
Share-based Compensation Arrangement by Share-based Payment Award, Per Share Weighted Average Price of Shares Purchased		$ 21.33		$ 21.33
Payment, Tax Withholding, Share-based Payment Arrangement				$ 762	$ 81
Salaries Wages And Related Expenses [Member]
Share-based Payment Arrangement, Expense		$ 600	$ 1,100	100	2,900
General Supplies and Expenses [Member]
Share-based Payment Arrangement, Expense		$ 400	$ 400	$ 400	$ 400

XML

Note 4 - Income Taxes (Details Textual) $ in Millions	9 Months Ended
	Sep. 30, 2019 USD ($)
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	21.00%
Unrecognized Tax Benefits, Period Increase (Decrease), Total	$ 0.8
Deferred Tax Liabilities, Net, Total	81.4
Deferred Tax Assets Related to State Net Operating Loss Carry Forwards [Member]
Deferred Tax Assets, Valuation Allowance, Total	$ 0.1

XML

Note 8 - Leases - Future Minimum Lease Payments (Details) - USD ($) $ in Thousands		Sep. 30, 2019	Dec. 31, 2018
2019 (1), Operating	[1]	$ 5,381
2019 (1), Finance	[1]	8,151
2020, Operating		19,075
2020, Finance		8,074
2021, Operating		15,281
2021, Finance		9,960
2022, Operating		13,050
2022, Finance		11,245
2023, Operating		4,835
2023, Finance		362
Thereafter, Operating		2,431
Thereafter, Finance		1,119
Total minimum lease payments, Operating		60,053
Total minimum lease payments, Finance		38,911
Less: amount representing interest, Operating		(5,260)
Less: amount representing interest, Finance		(2,650)
Present value of minimum lease payments, Operating		54,793
Present value of minimum lease payments, Finance		36,261
Less: current portion, Operating		(17,875)
Less: current portion, Finance		(7,164)	(5,374)
Lease obligations, long-term, Operating		36,918
Lease obligations, long-term, Finance		$ 29,097	$ 35,119

[1] Excludes the nine months ended September 30, 2019

XML

Note 10 - Goodwill and Other Assets - Intangible Assets (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Finite-Lived Intangible Assets, Gross	$ 34,000	$ 34,000
Finite-Lived Intangible Assets, Accumulated Amortization	(3,654)	(1,462)
Finite-Lived Intangible Assets, Net	$ 30,346	32,538
Finite-Lived Intangible Asset, Useful Life (Month)	10 years 330 days
Trade Names [Member]
Finite-Lived Intangible Assets, Gross	$ 4,400	4,400
Finite-Lived Intangible Assets, Accumulated Amortization	(367)	(147)
Finite-Lived Intangible Assets, Net	$ 4,033	$ 4,253
Finite-Lived Intangible Asset, Useful Life (Month)	13 years 270 days	14 years 180 days
Noncompete Agreements [Member]
Finite-Lived Intangible Assets, Gross	$ 1,400	$ 1,400
Finite-Lived Intangible Assets, Accumulated Amortization	(350)	(140)
Finite-Lived Intangible Assets, Net	$ 1,050	$ 1,260
Finite-Lived Intangible Asset, Useful Life (Month)	3 years 270 days	4 years 180 days
Customer Relationships [Member]
Finite-Lived Intangible Assets, Gross	$ 28,200	$ 28,200
Finite-Lived Intangible Assets, Accumulated Amortization	(2,937)	(1,175)
Finite-Lived Intangible Assets, Net	$ 25,263	$ 27,025
Finite-Lived Intangible Asset, Useful Life (Month)	10 years 270 days	11 years 180 days

XML

Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) (Parentheticals) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Unrealized (loss) gain on effective portion of cash flow hedges, tax	$ 226	$ 133	$ 652	$ 782
Reclassification of cash flow hedge loss (gain) into statement of operations, tax	$ 2	$ 155	$ 5	$ 330

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 39,795	$ 23,127
Accounts receivable, net of allowance of $1,889 in 2019 and $1,985 in 2018	167,440	151,093
Drivers' advances and other receivables, net of allowance of $678 in 2019 and $626 in 2018	11,415	16,675
Inventory and supplies	4,178	4,067
Prepaid expenses	12,882	11,579
Assets held for sale	6,930	2,559
Income taxes receivable	2,400	1,109
Other short-term assets	1,028	1,435
Total current assets	246,068	211,644
Property and equipment, at cost	748,291	638,770
Less: accumulated depreciation and amortization	(207,606)	(188,175)
Net property and equipment	540,685	450,595
Goodwill	42,518	41,598
Other intangibles, net	30,346	32,538
Other assets, net	41,990	37,149
Total assets	901,607	773,524
Current liabilities:
Checks outstanding in excess of bank balances	1,193	1,857
Accounts payable	26,762	22,101
Accrued expenses	30,344	49,503
Current maturities of long-term debt	47,810	28,710
Current portion of finance lease obligations	7,164	5,374
Current portion of operating lease obligations	17,875
Current portion of insurance and claims accrual	21,692	19,787
Total current liabilities	152,840	127,332
Long-term debt	229,716	166,635
Long-term portion of finance lease obligations	29,097	35,119
Long-term portion of operating lease obligations	36,916
Insurance and claims accrual	19,996	22,193
Deferred income taxes	81,439	77,467
Other long-term liabilities	3,169	1,636
Total liabilities	553,173	430,382
Commitments and contingent liabilities
Stockholders' equity:
Additional paid-in-capital	141,840	142,177
Accumulated other comprehensive (loss) income	(1,483)	204
Retained earnings	207,881	200,566
Total stockholders' equity	348,434	343,142
Total liabilities and stockholders' equity	901,607	773,524
Common Class A [Member]
Stockholders' equity:
Common stock	172	171
Common Class B [Member]
Stockholders' equity:
Common stock	$ 24	$ 24

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Note 9 - Equity Method Investment - TEL's Summarized Financial Information - Balance Sheets (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Total Assets	$ 388,116	$ 299,864
Total Liabilities	331,219	254,919
Total Equity	$ 56,897	$ 44,945

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Note 2 - (Loss) Income Per Share - Calculation of Net Income Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Numerator:
Net (loss) income	$ (3,189)	$ 6,071	$ 4,433	$ 11,614	$ 9,971	$ 4,417	$ 7,315	$ 26,002
Denominator:
Denominator for basic (loss) income per share – weighted-average shares (in shares)	18,458			18,343			18,426	18,337
Effect of dilutive securities:
Equivalent shares issuable upon conversion of unvested restricted shares (in shares)	261			154			194	111
Diluted weighted average shares outstanding (in shares)	18,719			18,497			18,620	18,448
Net (loss) income per share:
Basic net (loss) income per share (in dollars per share)	$ (0.17)			$ 0.63			$ 0.40	$ 1.42
Diluted net (loss) income per share (in dollars per share)	$ (0.17)			$ 0.63			$ 0.39	$ 1.41

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Note 2 - (Loss) Income Per Share (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

(in thousands except per share data)	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019			2018		2019		2018
Numerator:
Net (loss) income	$	(3,189	)	$	11,614	$	7,315	$	26,002
Denominator:
Denominator for basic (loss) income per share – weighted-average shares		18,458			18,343		18,426		18,337
Effect of dilutive securities:
Equivalent shares issuable upon conversion of unvested restricted shares		261			154		194		111
Denominator for diluted (loss) income per share adjusted weighted-average shares and assumed conversions		18,719			18,497		18,620		18,448
Net (loss) income per share:
Basic net (loss) income per share	$	(0.17	)	$	0.63	$	0.40	$	1.42
Diluted net (loss) income per share	$	(0.17	)	$	0.63	$	0.39	$	1.41

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Note 9 - Equity Method Investment (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Equity Method Investments, Balance Sheet [Table Text Block]

(in thousands)	As of September 30,		As of December 31,
	2019		2018
Total Assets	$	388,116	$	299,864
Total Liabilities		331,219		254,919
Total Equity	$	56,897	$	44,945

Equity Method Investments [Table Text Block]

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue	$	30,709	$	25,437	$	82,683	$	74,152
Cost of Sales		6,302		6,568		17,213		23,738
Operating Expenses		16,634		12,493		42,775		34,322
Operating Income		7,773		6,376		22,695		16,092
Net Income	$	4,585	$	4,369	$	14,452	$	10,850