1. Description of Business and Summary of Accounting Policies

Description of Business

Saia, Inc. and its subsidiaries (Saia or the Company) are headquartered in Johns Creek, Georgia. Saia is a leading, less-than-truckload (“LTL”) motor carrier with more than 99% of its revenue historically derived from transporting LTL shipments for customers. In addition to the core LTL services provided in 39 states, the Company also offers customers a wide range of other value-added services, including non-asset truckload, expedited and logistics services across the United States through its wholly-owned subsidiaries.

The Chief Operating Decision Maker is the Chief Executive Officer who manages the business, regularly reviews financial information and allocates resources. The Company has one operating segment.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Saia, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Use of Estimates

Management makes estimates and assumptions when preparing the consolidated financial statements in conformity with U.S. generally accepted accounting principles. These estimates and assumptions affect the amounts reported in the consolidated financial statements and footnotes. Actual results could differ from those estimates.

Accounting Pronouncements Adopted in 2017

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The Company adopted this new standard effective January 1, 2017. As a result of adoption, $1.7 million of excess tax benefits related to share-based payments was recorded as an offset to income tax expense in 2017, as opposed to additional paid-in capital, and the windfall tax benefit was removed from the Company’s diluted shares calculation. The Company classified the $1.7 million of excess tax benefits related to share-based payments as operating activities, instead of financing activities, on the Consolidated Statement of Cash Flows for 2017. The Company elected to continue to use an estimated forfeiture rate for recording stock compensation expense and continues to withhold taxes at the minimum statutory rates. The Company classified $1.2 million in shares withheld for taxes as financing activities in 2017. Additionally, the Company reclassified $0.7 million and $3.1 million in shares withheld for taxes from operating activities to financing activities in 2016 and 2015, respectively. The Company had no other items requiring retrospective treatment under the pronouncement.

Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services. The ASU will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles when it becomes effective for the Company on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. Under the new standard, accessorial fees, such as after-hours pickup or delivery fees, that are directly related to freight revenue will continue to be non-distinct services and, thus, be recognized in the same manner as the freight transportation services provided. The Company has completed its evaluation of its revenue streams and contracts subject to the standard and will adopt the new standard retrospectively. The Company will change its presentation of its non-asset truckload business from net revenue to gross revenue. As a result, operating revenue and purchased transportation expense will be retroactively increased by $25.8 million, $30.9 million and $30.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. Additionally, revenue related to the Company’s non-asset truckload business will be recognized on a percentage-of-completion basis as opposed to upon commencement of the services under the current policy, which will result in a $0.2 million decrease, $0.1 million increase and $0.2 million decrease in operating revenue and a $0.1 million decrease, $0.1 million increase and $0.2 million decrease in purchased transportation for the years ended December 31, 2017, 2016 and 2015, respectively. The Company will include expanded disclosures as prescribed under ASU 2014-09 in its 2018 consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), a leasing standard for both lessees and lessors. Under its core principle, a lessee will recognize lease assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. Lessor accounting remains largely consistent with existing U.S. generally accepted accounting principles. The new standard is effective for the Company on January 1, 2019. Early adoption is permitted. The standard requires the use of a modified retrospective transition method. The Company is evaluating the effect that ASU No. 2016-02 will have on its consolidated financial statements and related disclosures. While the Company has adopted a timeline for implementation and has selected a system to facilitate the adoption of the new standard, the Company has not yet completed its review of existing agreements using the new definition of a lease. Based on the Company’s current analysis, it believes the most significant changes relate to the recognition of lease assets and liabilities on its consolidated balance sheet.

Summary of Accounting Policies

Major accounting policies and practices used in the preparation of the accompanying consolidated financial statements not covered in other notes to the consolidated financial statements are as follows:

Cash and Cash Equivalents and Checks Outstanding: Cash and cash equivalents in excess of current operating requirements are invested in short-term interest bearing instruments purchased with original maturities of three months or less and are stated at cost, which approximates market. Checks outstanding in excess of cash on deposit are classified in accounts payable on the accompanying consolidated balance sheets and in operating activities in the accompanying consolidated statements of cash flows.

Parts, fuel and operating supplies: Parts, fuel and operating supplies are carried at average cost and included in other current assets.

Property and Equipment Including Repairs and Maintenance: Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on the following service lives:

				Years
Structures				20 to 25
Tractors				6 to 10
Trailers				10 to 14
Other revenue equipment				7 to 14
Technology equipment and software				3 to 5
Other				3 to 10

At December 31, property and equipment consisted of the following (in thousands):

	2017		2016
Land	$	81,487	$	69,115
Structures		268,723		196,843
Tractors		398,652		350,737
Trailers		305,540		279,393
Other revenue equipment*		77,691		70,113
Technology equipment and software		93,754		80,342
Other*		64,147		55,403

Total property and equipment, at cost	$	1,289,994	$	1,101,946

* Certain reclassifications have been made to the 2016 categories above to conform to current year presentation.

Maintenance and repairs are charged to operations while replacements and improvements that extend the asset’s life are capitalized. The Company’s investment in technology equipment and software consists primarily of systems to support customer service, maintenance and freight management. Depreciation was $85.7 million, $74.5 million and $63.4 million for the years ended December 31, 2017, 2016 and 2015, respectively. Depreciation and amortization expense includes amortization of assets under capital lease. At December 31, 2017, trailers acquired under capital leases had a gross carrying value of $106.3 million and accumulated depreciation of $13.3 million. At December 31, 2016, trailers acquired under capital leases had a gross carrying value of $72.8 million and accumulated depreciation of $6.8 million.

Computer Software Developed or Obtained for Internal Use: The Company capitalizes certain costs associated with developing or obtaining internal-use software. Capitalizable costs include external direct costs of materials and services utilized in developing or obtaining the software and payroll and payroll-related costs for employees directly associated with the development of the project. For the years ended December 31, 2017, 2016, and 2015, the Company capitalized $2.1 million, $1.6 million, and $2.2 million, respectively, of primarily payroll-related costs.

Claims and Insurance Accruals: Claims and insurance accruals, both current and long-term, reflect the estimated cost of claims for workers’ compensation (discounted to present value), cargo loss and damage, and bodily injury and property damage not covered by insurance. These costs are included in claims and insurance expense, except for workers’ compensation, which is included in employees’ benefits expense. The liabilities for self-funded retention are included in claims and insurance reserves based on estimates of claims incurred. Liabilities for unsettled claims and claims incurred but not yet reported are actuarially determined with respect to workers’ compensation claims and with respect to all other liabilities, estimated based on management’s evaluation of the nature and severity of individual claims and past experience. The former parent of Saia provides letters of credit for claims in certain self-insured states incurred prior to March 1, 2000 (see Note 3 for more information regarding the letters of credit).

Risk retention amounts per occurrence during the three years ended December 31, 2017, were as follows:

Workers’ compensation	$	1,000,000
Bodily injury and property damage		2,000,000
Employee medical and hospitalization		400,000
Cargo loss and damage		250,000

The Company’s insurance accruals are presented net of amounts receivable from insurance companies that provide coverage above the Company’s retention.

Income Taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. As required by FASB Accounting Standards Codification (“ASC”) 740, Income Taxes, the Company follows this guidance which defines the threshold for recognizing the benefits of tax-filing positions in the financial statements as “more-likely-than-not” to be sustained by the tax authority. ASC 740 also prescribes a method for computing the tax benefit of such tax positions to be recognized in the financial statements. In addition, it provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Revenue Recognition: Revenue is recognized on a percentage-of-completion basis for shipments in transit while expenses are recognized as incurred. Non-asset truckload services include some transactions in which the Company acts as an agent. Revenue from these transactions is recorded on a net basis. Net revenue includes billings to customers less third-party charges.

Stock-Based Compensation: The Company accounts for its employee stock-based compensation awards in accordance with ASC 718, Compensation-Stock Compensation. ASC 718 requires that all employee stock-based compensation is recognized as an expense in the financial statements and that for equity-classified awards such expenses are measured at the grant date fair value of the award.

Stock options are accounted for in accordance with ASC 718 with the expense amortized over the three-year vesting period using a Black-Sholes-Merton model to estimate the fair value of stock options granted to employees.

Restricted stock is accounted for in accordance with ASC 718 with the expense amortized over a three to five year vesting period using the intrinsic valuation method to estimate the fair value of restricted stock awards granted to employees.

Stock-based Performance Unit Awards are accounted for in accordance with ASC 718 with the expense amortized over the three-year vesting period using a Monte Carlo model to estimate fair value at the date the awards are granted.

Credit Risk: The Company routinely grants credit to its customers. The risk of significant loss in trade receivables is substantially mitigated by the Company’s credit evaluation process, short collection terms, low revenue per transaction and services performed for a large number of customers with no single customer representing more than 5.0 percent of consolidated operating revenue. Allowances for potential credit losses are based on historical loss experience, current economic environment, expected trends and customer specific factors.

Impairment of Long-Lived Assets: As required by ASC 360, Property, Plant, and Equipment, long-lived assets, such as property, plant and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as deemed necessary.

The Company has adopted ASU 2011-08, Testing Goodwill for Impairment. In accordance with ASC 350, Intangibles – Goodwill and Other, the Company first performs a qualitative assessment to determine whether it is necessary to perform the two-step goodwill impairment test required by the standard. The Company is not required to estimate the fair value of a reporting unit unless the Company determines, based on qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.

Advertising: The costs of advertising are expensed as incurred. Advertising costs charged to expense were $2.2 million, $1.2 million, and $1.7 million in 2017, 2016 and 2015, respectively.

Financial Instruments

The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximated fair value as of December 31, 2017 and 2016, because of the relatively short maturity of these instruments. See Note 2 for fair value disclosures related to long-term debt.