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Note 1 - Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2018
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, 2017, condensed consolidated balance sheet was derived from our audited balance sheet as of that date. The Company’s operating results are subject to seasonal trends when measured on a quarterly basis; therefore operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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, 2017. 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 May 2014 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2014 - 09, which supersedes virtually all existing revenue guidance. The new standard introduces a five -step model to determine when and how revenue is recognized. The premise of the new model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires enhanced disclosures regarding the nature, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The new standard became effective for us for our annual and interim reporting periods beginning January 1, 2018. The guidance permits the use of either a full retrospective or modified retrospective adoption approach with a cumulative effect adjustment recorded in either scenario as necessary upon transition. As permitted by the guidance, we elected the modified retrospective approach and thus recognized the cumulative effect of adoption of $0.6 million, net of tax, as a positive adjustment to retained earnings in the first quarter of 2018 as a result of the initial recording of in process revenue and associated direct expenses. Based on our review of our customer shipping arrangements and the related guidance, we have concluded that we will recognize revenue from loads proportionally as the transportation service is performed based on the percentage of miles completed as of the period end, as opposed to recognizing revenue upon the completion of the load, which was our historic practice. Revenue will be recognized on a gross basis at amounts charged to our customers because we control and are primarily responsible for the fulfillment of the promised service. Our recognition of revenue under the new standard approximates our recognition of revenue under the prior standard, as there will generally be a consistent amount of freight in process at the beginning and end of the period; however, seasonality and the day on which the period ends may cause minor differences. The following tables summarize the impacts of adopting ASU 606 on the Company’s consolidated condensed financial statements for the three and nine months ended September 30, 2018.
|  | Three Months Ended September 30, 2018 |
Financial Statement Line Item (in thousands) |  | As reported |  |  | Adjustments |  |  | Balances without adoption of Topic 606 |
Consolidated Balance Sheet |
Accounts receivable, net of allowances |  | $ | 134,957 |  |  | $ | (1,276 | ) |  | $ | 133,681 |
Total assets |  |  | 747,482 |  |  |  | (1,276 | ) |  |  | 746,206 |
Accrued expenses |  |  | 47,797 |  |  |  | (236 | ) |  |  | 47,561 |
Deferred income taxes |  |  | 73,347 |  |  |  | (286 | ) |  |  | 73,061 |
Total liabilities |  |  | 421,332 |  |  |  | (522 | ) |  |  | 420,810 |
Retained earnings |  |  | 184,064 |  |  |  | (754 | ) |  |  | 183,310 |
Total stockholders’ equity |  |  | 326,150 |  |  |  | (754 | ) |  |  | 325,396 |
Total liabilities and stockholders’ equity |  |  | 747,482 |  |  |  | (1,276 | ) |  |  | 746,206 |
Consolidated Statement of Operations |
Freight revenue |  |  | 214,623 |  |  |  | 49 |  |  |  | 214,672 |
Total revenue |  |  | 243,303 |  |  |  | 49 |  |  |  | 243,352 |
Salaries, wages and related expenses |  |  | 86,249 |  |  |  | (1 | ) |  |  | 86,248 |
Revenue equipment rentals and purchased transportation |  |  | 47,445 |  |  |  | (95 | ) |  |  | 47,350 |
Total operating expenses |  |  | 227,122 |  |  |  | (96 | ) |  |  | 227,026 |
Income tax expense |  |  | 4,249 |  |  |  | 40 |  |  |  | 4,289 |
Net income |  |  | 11,614 |  |  |  | 105 |  |  |  | 11,719 |
Consolidated Statement of Comprehensive Income |
Net income |  |  | 11,614 |  |  |  | 105 |  |  |  | 11,719 |
Comprehensive income |  |  | 11,558 |  |  |  | 105 |  |  |  | 11,663 |
Consolidated Statement of Cash Flows |
Operating Cash Flows |  |  |  |  |  |  |  |  |  |  |  |
Net income |  |  | 11,614 |  |  |  | 105 |  |  |  | 11,719 |
Deferred income tax expense |  |  | 2,676 |  |  |  | 40 |  |  |  | 2,716 |
Change in: Receivables and advances |  |  | (16,537 | ) |  |  | (49 | ) |  |  | (16,586 | )
Change in: Accounts payable and accrued expenses |  |  | 16,087 |  |  |  | (96 | ) |  |  | 15,991 |
Net cash flows provided by operating activities |  |  | 38,981 |  |  |  | - |  |  |  | 38,981 |
|  | Nine Months Ended September 30, 2018 |
Financial Statement Line Item (in thousands) |  | As reported |  |  | Adjustments |  |  | Balances without adoption of Topic 606 |
Consolidated Balance Sheet |
Accounts receivable, net of allowances |  | $ | 134,957 |  |  | $ | (1,276 | ) |  | $ | 133,681 |
Total assets |  |  | 747,482 |  |  |  | (1,276 | ) |  |  | 746,206 |
Accrued expenses |  |  | 47,797 |  |  |  | (236 | ) |  |  | 47,561 |
Deferred income taxes |  |  | 73,347 |  |  |  | (286 | ) |  |  | 73,061 |
Total liabilities |  |  | 421,332 |  |  |  | (522 | ) |  |  | 420,810 |
Retained earnings |  |  | 184,064 |  |  |  | (754 | ) |  |  | 183,310 |
Total stockholders’ equity |  |  | 326,150 |  |  |  | (754 | ) |  |  | 325,396 |
Total liabilities and stockholders’ equity |  |  | 747,482 |  |  |  | (1,276 | ) |  |  | 746,206 |
Consolidated Statement of Operations |
Freight revenue |  |  | 535,721 |  |  |  | (266 | ) |  |  | 535,455 |
Total revenue |  |  | 613,187 |  |  |  | (266 | ) |  |  | 612,921 |
Salaries, wages and related expenses |  |  | 211,621 |  |  |  | 13 |  |  |  | 211,634 |
Revenue equipment rentals and purchased transportation |  |  | 115,525 |  |  |  | (54 | ) |  |  | 115,471 |
Total operating expenses |  |  | 576,516 |  |  |  | (41 | ) |  |  | 576,475 |
Income tax expense |  |  | 9,716 |  |  |  | (62 | ) |  |  | 9,654 |
Net income |  |  | 26,002 |  |  |  | (164 | ) |  |  | 25,838 |
Consolidated Statement of Comprehensive Income |
Net income |  |  | 26,002 |  |  |  | (163 | ) |  |  | 25,838 |
Comprehensive income |  |  | 27,196 |  |  |  | (163 | ) |  |  | 27,032 |
Consolidated Statement of Cash Flows |
Operating Cash Flows |  |  |  |  |  |  |  |  |  |  |  |
Net income |  |  | 26,002 |  |  |  | (163 | ) |  |  | 25,838 |
Deferred income tax expense |  |  | 9,172 |  |  |  | (62 | ) |  |  | 9,110 |
Change in: Receivables and advances |  |  | (4,717 | ) |  |  | 266 |  |  |  | (4,451 | )
Change in: Accounts payable and accrued expenses |  |  | 17,723 |  |  |  | (41 | ) |  |  | 17,682 |
Net cash flows provided by operating activities |  |  | 101,613 |  |  |  | - |  |  |  | 101,612 |
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 operating fleets that are aggregated because they have similar economic characteristics and meet the aggregation criteria. The four operating fleets that comprise our Truckload segment are as follows: (i) Covenant Transport, our historical flagship operation, which provides expedited long haul, dedicated, temperature-controlled, and regional solo-driver service; (ii) SRT, which provides primarily long-haul, regional, and dedicated service; (iii) Star Transportation, Inc., which provides regional solo-driver and dedicated services, primarily in the southeastern United States; and (iv) Landair's trucking operations, which provides primarily dedicated service. Managed Freight is comprised primarily of freight brokerage, logistics, and transportation management services. Included in Managed Freight are our accounts receivable factoring and warehousing businesses, which do not meet the aggregation criteria, but only accounted for $3.4 million and $11.7 million of our revenue, respectively, during the nine months ended September 30, 2018. The following table summarizes our revenue by reportable segment by operating fleet, as used by our chief operating decision maker of the Company in making decisions regarding allocation of resources, etc., for the three and nine months ended September 30, 2018:
(in thousands) |  | Three Months ended September 30, |  |  | Nine Months ended September 30, |
|  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Total Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Truckload: Covenant Transport |  | $ | 108,223 |  |  | $ | 95,100 |  |  | $ | 309,583 |  |  | $ | 272,387 |
Truckload: SRT |  |  | 47,866 |  |  |  | 41,382 |  |  |  | 134,163 |  |  |  | 123,905 |
Truckload: Star Transportation |  |  | 19,887 |  |  |  | 16,584 |  |  |  | 57,489 |  |  |  | 50,030 |
Truckload: Landair |  |  | 21,077 |  |  |  | - |  |  |  | 21,077 |  |  |  | - |
Managed Freight |  |  | 46,250 |  |  |  | 25,565 |  |  |  | 90,875 |  |  |  | 55,379 |
Total |  | $ | 243,303 |  |  | $ | 178,631 |  |  | $ | 613,187 |  |  | $ | 501,701 |
Accounting Standards not yet adopted In February 2016, FASB issued ASU 2016 - 02, which requires lessees to recognize a right-to-use asset and a lease obligation for all leases. Lessees are permitted to make an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less. Lessor accounting under the new standard is substantially unchanged. Additional qualitative and quantitative disclosures, including significant judgments made by management, will be required. This new standard will become effective for us in our annual reporting period beginning January 1, 2019, including interim periods within that reporting period and requires a modified retrospective transition approach. We have engaged a third party to assist with our implementation of the standard and are currently evaluating the impacts the adoption of this standard will have on the consolidated financial statements. 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.

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- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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