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Description of Business and Summary of Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

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 97% of its revenue historically derived from transporting LTL shipments for customers. In addition to the core LTL services provided in 41 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.

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 2018

In May 2014, the FASB issued Accounting Standards Update (“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 replaced most existing revenue recognition guidance in U.S. generally accepted accounting principles when it became effective for the Company on January 1, 2018. In-depth reviews of contracts were completed and changes to processes and internal controls to meet the standard’s reporting and disclosure requirements were implemented. The Company adopted the standard using the full retrospective transition method.

As a result of the adoption of this standard, the Company changed the presentation of its non-asset truckload business from net revenue to gross revenue and changed the method of recognizing that revenue from upon commencement of the services to over the transit time of the freight as it moves from origin to destination.

The Company has consistently applied the accounting policies to all periods presented in these condensed consolidated financial statements. The below tables reflect the effect of the adoption of this standard on the previously reported financial data.

Condensed Consolidated Balance Sheet impact:

	As of December 31, 2017								As of December 31, 2016
		As adjusted		As originally reported		Effect of change			As adjusted		As originally reported		Effect of change
	(in thousands)
Accounts receivable		$	170,278	$	170,610	$	(332	)	$	134,926	$	135,083	$	(157	)
Total current assets			203,249		203,581		(332	)		166,322		166,479		(157	)
Total assets			967,315		967,647		(332	)		800,213		800,370		(157	)
Accounts payable			57,438		57,717		(279	)		45,018		45,149		(131	)
Total current liabilities			166,926		167,205		(279	)		144,813		144,944		(131	)
Retained earnings			339,500		339,553		(53	)		248,371		248,397		(26	)
Total stockholders’ equity			582,494		582,547		(53	)		483,052		483,078		(26	)
Total liabilities and stockholders’ equity			967,315		967,647		(332	)		800,213		800,370		(157	)

Condensed Consolidated Statement of Operations Impact:

	For the quarter ended December 31, 2017							For the year ended December 31, 2017
		As adjusted		As originally reported		Effect of change			As adjusted		As originally reported		Effect of change
	(in thousands, except per share data)
Operating revenue		$	360,196	$	353,251	$	6,945		$	1,404,703	$	1,378,510	$	26,193
Purchased transportation			28,185		21,270		6,915			107,702		81,482		26,220
Total operating expenses			337,268		330,353		6,915			1,309,993		1,283,773		26,220
Operating income			22,928		22,898		30			94,710		94,737		(27	)
Net income			47,789		47,759		30			91,129		91,156		(27	)
Basic Earnings Per Share			1.87		1.87		—			3.57		3.57		—
Diluted Earnings Per Share			1.82		1.82		—			3.49		3.49		—

	For the year ended December 31, 2016
		As adjusted		As originally reported		Effect of change
	(in thousands, except per share data)
Operating revenue		$	1,250,391	$	1,218,481	$	31,910
Purchased transportation			88,239		56,329		31,910
Total operating expenses			1,171,255		1,139,345		31,910
Operating income			79,136		79,136		—
Net income			48,024		48,024		—
Basic Earnings Per Share			1.92		1.92		—
Diluted Earnings Per Share			1.87		1.87		—

Condensed Consolidated Statement of Cash Flows impact:

	For the year ended December 31, 2017										For the year ended December 31, 2016
		As adjusted			As originally reported			Effect of change				As adjusted		As originally reported		Effect of change
	(in thousands)
Net income		$	91,129		$	91,156		$	(27	)		$	48,024	$	48,024	$	—
Changes in operating assets and liabilities, net			(7,143	)		(7,170	)		27				2,592		2,592		—
Net cash provided by operating activities			157,846			157,846			—				146,426		146,426		—
Net decrease in cash and cash equivalents			3,181			3,181			—				1,415		1,415		—

Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard is effective for the Company on January 1, 2019, with early adoption permitted. The Company will adopt the new standard on its effective date. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company will adopt the new standard on January 1, 2019 and use the effective date as its date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. The Company intends to elect the ‘package of practical expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to it.

The Company expects that this standard will have a material effect on its consolidated financial statements. While the Company continues to assess all of the effects of adoption, it currently believes the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on its consolidated balance sheet for its real estate operating leases and (2) providing significant new disclosures about its leasing activities. The Company does not expect a significant change in its leasing activities between now and the first financial statements issued with adoption.

On adoption, the Company currently expects to recognize additional operating liabilities of approximately $70 to $80 million, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments for existing operating leases.

The new standard also provides practical expedients for an entity’s ongoing accounting. The Company currently intends to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also currently intends to elect the practical expedient to not separate lease and non-lease components for all of its leases other than leases of real estate.

Cash and Cash Equivalents and Checks Outstanding

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: 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 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):

	2018		2017
Land	$	100,157	$	81,487
Structures		321,283		268,723
Tractors		476,875		398,652
Trailers		354,490		305,540
Other revenue equipment		83,571		77,691
Technology equipment and software		110,954		93,754
Other		74,011		64,147

Total property and equipment, at cost	$	1,521,341	$	1,289,994

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 $100.8 million, $85.7 million and $74.5 million for the years ended December 31, 2018, 2017 and 2016, respectively. Depreciation and amortization expense includes amortization of assets under capital lease. At December 31, 2018, trailers acquired under capital leases had a gross carrying value of $132.5 million and accumulated depreciation of $21.6 million. 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.

Computer Software Developed or Obtained for Internal Use

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, 2018, 2017, and 2016, the Company capitalized $1.1 million, $2.1 million, and $1.6 million, respectively, of primarily payroll-related costs.

Claims and Insurance Accruals

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 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. For workers’ compensation, the amount of the discount at December 31, 2018 and December 31, 2017 was $5.0 million and $3.5 million, respectively.

Risk retention amounts per occurrence during the three years ended December 31, 2018, 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

Effective March 1, 2018, the Company entered into a new auto liability policy with a three-year term. The risk retention amount per occurrence remains at $2.0 million under the new policy. The policy includes a limit for a single loss of $8.0 million, an aggregate loss limit of $24.0 million for each policy year, and a $48.0 million aggregate loss limit for the 36-month term ended March 1, 2021. The policy includes a returnable premium of up to $5.2 million, to be adjusted by the insurer for changes in claims, and a provision to extend the term of the policy for one additional 12-month period, if management and the insurer mutually agree to commute the policy for the first 12 months of the policy term. A decision with respect to commutation of the first 12 months of the policy cannot be made before March 1, 2019. The policy also includes a returnable premium of up to $15.6 million, to be adjusted by the insurer for changes in claims, if management and the insurer mutually agree to commute the policy for the entire 36 months. A decision with respect to commutation of the entire policy cannot be made before August 30, 2021, unless both the Company and the insurance carrier agree to a commutation prior to the end of the policy term. Additionally, the Company may be required to pay an additional premium of up to $11.0 million if paid losses are greater than $15.6 million over the three-year policy period. Based on 2018 claims experience, no such additional premium was accrued at December 31, 2018. As of December 31, 2018, no portion of the policy was eligible for commutation, and insufficient claims experience is available to determine the likelihood of future commutations. As such, no related amounts have been recorded at December 31, 2018.

Income Taxes

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 Recognition: The Company’s revenues are derived primarily from the transportation of freight as it satisfies performance obligations that arise from contracts with its customers. The Company’s performance obligations arise when it receives a bill of lading (“BOL”) to transport a customer's commodities at negotiated prices contained in either a transportation services agreement or a publicly disclosed tariff rate. Once a BOL is received, a legally-enforceable contract is formed whereby the parties are committed to perform and the rights of the parties, shipping terms and conditions, and payment terms have been identified. A customer may submit many BOLs for transportation services at various times throughout a service agreement term but each shipment represents a distinct service that is a separately identified performance obligation.

The average transit time to complete a shipment is between 1 to 5 days. Payments for transportation services are normally billed after completion of the service and are generally due within 30 days after the invoice date. The Company recognizes revenue related to the Company’s LTL, non-asset truckload and expedited services over the transit time of the shipment as it moves from origin to destination. Revenue for services started but not completed at the reporting date is allocated based on the relative transit time in each reporting period, with the portion allocated for services subsequent to the reporting date considered remaining performance obligations.

Key estimates included in the recognition and measurement of revenue and related accounts receivable are as follows:

•

Revenue associated with shipments in transit is recognized ratably over transit time and is based on average cycle times to move shipments from their origin to their final destination or interchange; and

•

Adjustments to revenue for billing adjustments and collectability.

Revenue related to interline transportation services that involve the services of another party, such as another LTL service provider, is reported on a net basis. The portion of the gross amount billed to customers that is remitted by the Company to another party is not reflected as revenue. Revenue from logistics services is recognized as the services are provided.

Remaining performance obligations represent the transaction price allocated to future reporting periods for freight services started but not completed at the reporting date. This includes the unearned portion of billed and unbilled amounts for cancellable freight shipments in transit that the Company expects to recognize as revenue in the period subsequent to the reporting date, which is on average less than one week. The Company has elected to apply the optional exemption in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) 606 as it pertains to additional quantitative disclosures pertaining to remaining performance obligations.

Stock-Based Compensation

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-Scholes-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

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

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

Advertising: The costs of advertising are expensed as incurred. Advertising costs charged to expense were $3.9 million, $2.2 million, and $1.2 million in 2018, 2017 and 2016, 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, 2018 and 2017, because of the relatively short maturity of these instruments. See Note 2 for fair value disclosures related to long-term debt.