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 June 30, 20182019
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)
Nevada88-0320154
(State or other jurisdiction of incorporation(I.R.S. Employer Identification No.)
or organization) 
  
400 Birmingham Hwy. 
Chattanooga, TN37419
(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 classTrading Symbol(s)Name of each exchange on which registered
$0.01 Par Value Class A common stockCVTIThe 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 and posted on its corporate Web site, if any, 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   [   ] (Do not check if a smaller reporting company)Smaller reporting company [   ]
 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 (August 7, 2018)8, 2019).
Class A Common Stock, $.01 par value: 15,993,16416,108,270 shares
Class B Common Stock, $.01 par value: 2,350,000 shares
Page 1
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PART I
FINANCIAL INFORMATION
  
Page
Number
Item 1.Financial Statements 
   
 
Condensed Consolidated Balance Sheets as of June 30, 20182019 and December 31, 20172018 (unaudited)
3
   
 
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 20182019 and 20172018 (unaudited)
4
   
 
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 20182019 and 20172018 (unaudited)
5
   
 
Condensed Consolidated StatementStatements of Stockholders' Equity for the three and six months ended June 30, 2019 and 2018 (unaudited)
6
   
 
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 20182019 and 20172018 (unaudited)
7
   
 
Notes to Condensed Consolidated Financial Statements (unaudited)
8
   
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
2117
   
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
3729
   
Item 4.
Controls and Procedures
38
30
 
PART II
OTHER INFORMATION
  
Page
Number
   
Item 1.
Legal Proceedings
3931
   
Item 1A.
Risk Factors
3931
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
3931
   
Item 3.
Defaults Upon Senior Securities
3931
   
Item 4.
Mine Safety Disclosures
3931
   
Item 5.
Other Information
4031
   
Item 6.
Exhibits
4132

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PART I          FINANCIAL INFORMATION
PART IFINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS
ITEM 1.FINANCIAL STATEMENTS
COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

  June 30, 2019  December 31, 2018 
  (unaudited)  (unaudited) 
ASSETS
      
Current assets:      
Cash and cash equivalents $28,823  $23,127 
Accounts receivable, net of allowance of $1,856 in 2019 and $1,985 in 2018  158,367   151,093 
Drivers' advances and other receivables, net of allowance of $648 in 2019 and $626 in 2018  12,166   16,675 
Inventory and supplies  4,142   4,067 
Prepaid expenses  15,022   11,579 
Assets held for sale  4,372   2,559 
Income taxes receivable  1,788   1,109 
Other short-term assets  934   1,435 
Total current assets  225,614   211,644 
         
Property and equipment, at cost  723,263   638,770 
Less: accumulated depreciation and amortization  (212,060)  (188,175)
Net property and equipment  511,203   450,595 
         
Goodwill  42,518   41,598 
Other intangibles, net  31,077   32,538 
Other assets, net  41,117   37,149 
         
Total assets $851,529  $773,524 
LIABILITIES AND STOCKHOLDERS' EQUITY
        
Current liabilities:        
Checks outstanding in excess of bank balances $1,610  $1,857 
Accounts payable  24,754   22,101 
Accrued expenses  29,513   49,503 
Current maturities of long-term debt  37,794   28,710 
Current portion of finance lease obligations  6,797   5,374 
Current portion of operating lease obligations  14,117   - 
Current portion of insurance and claims accrual  18,084   19,787 
Total current liabilities  132,669   127,332 
         
Long-term debt  208,848   166,635 
Long-term portion of finance lease obligations  30,820   35,119 
Long-term portion of operating lease obligations  24,921   - 
Insurance and claims accrual  18,811   22,193 
Deferred income taxes  80,920   77,467 
Other long-term liabilities  2,855   1,636 
Total liabilities  499,844   430,382 
Commitments and contingent liabilities  -   - 
Stockholders' equity:        
Class A common stock, $.01 par value; 40,000,000 shares authorized; 16,096,235 shares issued and outstanding as of June 30, 2019; and 20,000,000 shares authorized; 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  141,337   142,177 
Accumulated other comprehensive (loss) income  (918)  204 
Retained earnings  211,070   200,566 
Total stockholders' equity  351,685   343,142 
Total liabilities and stockholders' equity $851,529  $773,524 
COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 
 
ASSETS
 
June 30,
2018
(unaudited)
  
December 31, 2017
(unaudited)
 
Current assets:      
Cash and cash equivalents $122,146  $15,356 
Accounts receivable, net of allowance of $1,538 in 2018 and $1,460 in 2017  103,053   104,153 
Drivers' advances and other receivables, net of allowance of $628 in 2018 and $496 in 2017  12,804   15,062 
Inventory and supplies  4,313   4,232 
Prepaid expenses  13,268   8,699 
Assets held for sale  3,225   1,444 
Income taxes receivable  5,099   11,551 
Other short-term assets  2,165   1,817 
Total current assets  266,073   162,314 
         
Property and equipment, at cost  614,381   650,988 
Less: accumulated depreciation and amortization  (177,803)  (186,916)
Net property and equipment  436,578   464,072 
         
Other assets, net  27,175   23,282 
Total assets $729,826  $649,668 
         
LIABILITIES AND STOCKHOLDERS' EQUITY
        
Current liabilities:        
Accounts payable $12,295  $11,857 
Accrued expenses  29,420   26,520 
Current maturities of long-term debt  32,450   24,596 
Current portion of capital lease obligations  4,863   2,962 
Current portion of insurance and claims accrual  14,594   15,042 
Other short-term liabilities  -   243 
Total current liabilities  93,622   81,220 
         
Long-term debt  196,038   164,465 
Long-term portion of capital lease obligations  35,160   21,777 
Insurance and claims accrual  19,492   21,836 
Deferred income taxes  70,552   63,344 
Other long-term liabilities  1,411   1,825 
Total liabilities  416,275   354,467 
Commitments and contingent liabilities  -   - 
Stockholders' equity:        
Class A common stock, $.01 par value; 20,000,000 shares authorized; 15,993,164 shares issued and outstanding as of June 30, 2018 and 15,979,703 shares issued and outstanding as of December 31, 2017  171   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  139,362   137,242 
Accumulated other comprehensive income  1,544   293 
Retained earnings  172,450   157,471 
Total stockholders' equity  313,551   295,201 
Total liabilities and stockholders' equity $729,826  $649,668 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 20182019 AND 20172018
(In thousands, except per share data)

 
Three months ended
June 30,
(unaudited)
  
Six months ended
June 30,
(unaudited)
  
Three months ended June 30,
(unaudited)
  
Six months ended June 30,
(unaudited)
 
 2018  2017  2018  2017  2019  2018  2019  2018 
Revenue:            
Revenues            
Freight revenue $170,635  $145,586  $321,097  $285,712  $194,917  $170,635  $390,679  $321,097 
Fuel surcharge revenue  25,683   18,740   48,787   37,358   24,381   25,683   47,800   48,787 
Total revenue $196,318  $164,326  $369,884  $323,070  $219,298  $196,318  $438,479  $369,884 
                                
Operating expenses:                                
Salaries, wages, and related expenses  64,633   58,584   125,253   117,908   75,781   64,633   155,284   125,253 
Fuel expense  29,209   24,911   56,390   50,313   29,215   29,209   57,047   56,390 
Operations and maintenance  12,595   12,044   24,325   24,457   14,898   12,595   30,072   24,325 
Revenue equipment rentals and purchased transportation  37,388   28,987   68,079   54,358   47,169   37,388   95,839   68,079 
Operating taxes and licenses  2,613   2,097   5,273   4,832   3,365   2,613   6,549   5,273 
Insurance and claims  9,908   7,914   18,593   16,632   10,472   9,908   21,707   18,593 
Communications and utilities  1,666   1,706   3,406   3,334   1,760   1,666   3,478   3,406 
General supplies and expenses  6,423   3,462   10,562   7,190   7,284   6,423   14,015   10,562 
Depreciation and amortization, including gains and losses on disposition of property and equipment  17,818   20,659   37,513   39,775   20,510   17,818   40,218   37,513 
Total operating expenses  182,253   160,364   349,394   318,799   210,454   182,253   424,209   349,394 
Operating income  14,065   3,962   20,490   4,271   8,844   14,065   14,270   20,490 
Interest expense, net  1,941   1,961   3,900   4,041   2,683   1,941   5,129   3,900 
Income from equity method investment  (1,775)  (800)  (3,265)  (1,825)  (2,375)  (1,775)  (5,410)  (3,265)
Income before income taxes  13,899   2,801   19,855   2,055   8,536   13,899   14,551   19,855 
Income tax expense  3,928   1,253   5,467   545   2,465   3,928   4,047   5,467 
Net income $9,971  $1,548  $14,388  $1,510  $6,071  $9,971  $10,504  $14,388 
                                
Income per share:                                
Basic and diluted net income per share $0.54  $0.08  $0.78  $0.08 
Basic and diluted income per share $0.33  $0.54  $0.57  $0.78 
Basic weighted average shares outstanding  18,337   18,281   18,334   18,269   18,438   18,337   18,410   18,334 
Diluted weighted average shares outstanding  18,441   18,359   18,424   18,347   18,606   18,441   18,570   18,424 

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

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COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 20182019 AND 20172018
(In thousands)

  
Three months ended June 30,
(unaudited)
  
Six months ended June 30,
(unaudited)
 
  2019  2018  2019  2018 
             
Net income $6,071  $9,971  $10,504  $14,388 
                 
Other comprehensive (loss) income:                
                 
Unrealized (loss) gain on effective portion of cash flow hedges, net of tax of $262 and $425 in 2019 and ($357) and ($650) in 2018, respectively  (692)  943   (1,124)  1,712 
                 
Reclassification of cash flow hedge (gains) into statement of operations, net of tax of $3 and $7 in 2019 and $137 and $175 in 2018, respectively  (9)  (363)  (19)  (461)
                 
Unrealized holding gain on investments classified as available-for-sale  11   -   21   - 
Total other comprehensive (loss) income  (690)  580   (1,122)  1,251 
                 
Comprehensive income $5,381  $10,551  $9,382  $15,639 
  
Three months ended
June 30,
(unaudited)
  
Six months ended
June 30,
(unaudited)
 
  2018  2017  2018  2017 
             
Net income $9,971  $1,548  $14,388  $1,510 
                 
Other comprehensive income (loss):                
                 
Unrealized gain (loss) on effective portion of cash flow hedges, net of tax of $357 and $650 in 2018 and $723 and $1,846 in 2017, respectively  943   (1,156)  1,712   (2,949)
                 
Reclassification of cash flow hedges (gain) loss into statement of operations, net of tax of $137 and $175  in 2018 and $613 and $1,122 in 2017, respectively  (363)  978   (461)  1,792 
                 
Total other comprehensive income (loss)  580   (178)  1,251   (1,157)
                 
Comprehensive income $10,551  $1,370  $15,639  $353 

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

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COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Unaudited and in thousands)

  For the Three and Six Months Ended June 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 
 For the Three and Six Months Ended June 30, 2018 
          Accumulated       
    Additional  
Accumulated
Other
     Total        Additional  Other     Total 
 Common Stock  
Paid-In
Capital
  
Comprehensive
Income
  
Retained
Earnings
  
Stockholders'
Equity
  Common Stock  Paid-In  Comprehensive  Retained  Stockholders' 
Class A  Class B  Class A  Class B  Capital  (Loss)  Earnings  Equity 
                                    
Balances at December 31, 2017 $171  $24  $137,242  $293  $157,471  $295,201  $171  $24  $137,242  $293  $157,471  $295,201 
                        
Net income  -   -   -   -   14,388   14,388   -   -   -   -   4,417   4,417 
                        
Effect of adoption of ASU 2014-09  -   -   -   -   591   591   -   -   -   -   591   591 
                        
Other comprehensive income  -   -   -   1,251   -   1,251   -   -   -   671   -   671 
                        
Stock-based employee compensation expense  -   -   1,763   -   -   1,763   -   -   826   -   -   826 
                        
Issuance of restricted shares  -   -   357   -   -   357 
                        
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 reversal  -   -   937   -   -   937 
Issuance of restricted shares, net  -   -   375   -   -   375 
Balances at June 30, 2018 $171  $24  $139,362  $1,544  $172,450  $313,551  $171  $24  $139,362  $1,544  $172,450  $313,551 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 20182019 AND 20172018
(In thousands)

  
Six months ended June 30,
(unaudited)
 
  2019  2018 
Cash flows from operating activities:      
Net income $10,504  $14,388 
Adjustments to reconcile net income to net cash provided by operating activities:        
(Reversal of losses on) provision for accounts receivable  (32)  113 
Reversal of gain on sales to equity method investee  (7)  (171)
Depreciation and amortization  40,426   36,829 
Amortization of deferred financing fees  73   73 
Deferred income tax expense  3,221   6,495 
Income tax benefit arising from restricted share vesting and stock options exercised  668   4 
Stock-based compensation (reversal) expense  (171)  2,138 
Income from equity method investment  (5,410)  (3,265)
(Gain) Loss on disposition of property and equipment  (1,386)  684 
Return on investment in available-for-sale securities  (7)  - 
Changes in operating assets and liabilities:        
Receivables and advances  164   11,821 
Prepaid expenses and other assets  (2,971)  (5,238)
Inventory and supplies  (75)  (81)
Insurance and claims accrual  (4,255)  (2,793)
Operating leases  (17)  - 
Accounts payable and accrued expenses  (17,128)  1,635 
Net cash flows provided by operating activities  23,597   62,632 
         
Cash flows from investing activities:        
Purchase of available-for-sale securities  (1,780)  - 
Acquisition of property and equipment  (79,125)  (31,771)
Proceeds from disposition of property and equipment  15,569   38,127 
Net cash flows (used) provided by investing activities  (65,336)  6,356 
         
Cash flows from financing activities:        
Change in checks outstanding in excess of bank balances  (247)  - 
Proceeds from issuance of notes payable  57,555   78,832 
Repayments of notes payable  (19,733)  (30,455)
Repayments of finance lease obligations  (2,876)  (1,534)
Proceeds under revolving credit facility  843,398   755,886 
Repayments under revolving credit facility  (829,995)  (764,892)
Payment of minimum tax withholdings on stock compensation  (667)  (18)
Debt refinancing costs  -   (17)
Net cash flows provided by financing activities  47,435   37,802 
         
Net change in cash and cash equivalents  5,696   106,790 
         
Cash and cash equivalents at beginning of period  23,127   15,356 
Cash and cash equivalents at end of period $28,823  $122,146 
  
Six months ended June 30,
(unaudited)
 
  2018  2017 
Cash flows from operating activities:      
Net income $14,388  $1,510 
Adjustments to reconcile net income to net cash provided by operating activities:        
Provision for losses on accounts receivable  113   177 
Reversal of gain on sales to equity method investee  (171)  (95)
Depreciation and amortization  36,829   37,268 
Amortization of deferred financing fees  73   136 
Deferred income tax expense  6,495   1,102 
Income tax benefit arising from restricted share vesting  4   84 
Stock-based compensation expense  2,138   604 
Equity in income of affiliate  (3,265)  (1,825)
Return on investment in affiliated company  -   1,960 
Loss on disposition of property and equipment  684   2,507 
Changes in operating assets and liabilities:        
Receivables and advances  11,821   6,264 
Prepaid expenses and other assets  (5,238)  (456)
Inventory and supplies  (81)  19 
Insurance and claims accrual  (2,793)  3,222 
Accounts payable and accrued expenses  1,635   (6,167)
Net cash flows provided by operating activities  62,632   46,310 
         
Cash flows from investing activities:        
Acquisition of property and equipment  (31,771)  (50,177)
Proceeds from disposition of property and equipment  38,127   26,060 
Net cash flows provided by (used in) investing activities  6,356   (24,117)
         
Cash flows from financing activities:        
Change in checks outstanding in excess of bank balances  -   3,328 
Proceeds from issuance of notes payable  78,832   54,749 
Repayments of  notes payable  (30,455)  (54,977)
Repayments of capital lease obligations  (1,534)  (6,044)
Proceeds under revolving credit facility  755,886   585,729 
Repayments under revolving credit facility  (764,892)  (593,834)
Payment of minimum tax withholdings on stock compensation  (18)  (203)
Debt refinancing costs  (17)  - 
Net cash provided by (used in) financing activities  37,802   (11,252)
         
Net change in cash and cash equivalents  106,790   10,941 
         
Cash and cash equivalents at beginning of period  15,356   7,750 
         
Cash and cash equivalents at end of period $122,146  $18,691 
         
Supplemental disclosure of cash flow information:        
Cash paid during the year for:        
Equipment purchased under capital leases $16,820  $5,786 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.Significant Accounting Policies
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, 2017,2018, condensed consolidated balance sheet was derived from our audited balance sheet as of that date. The Company’sOur operating results are subject to seasonal trends when measured on a quarterly basis; therefore operating results for the three and six months ended June 30, 20182019 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, 2017.2018. 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 May 2014February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU"(“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.
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The following tables summarize the impacts of adopting ASU 606 on the Company’s consolidated condensed financial statements for the three and six months ended June 30, 2018.
  Three Months Ended June 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 $103,053  $(1,325) $101,728 
     Total assets  729,826   (1,325)  728,501 
     Accrued expenses  29,420   (140)  29,280 
     Deferred income taxes  70,552   (326)  70,226 
     Total liabilities  416,275   (466)  415,809 
     Retained earnings  172,450   (859)  171,591 
     Total stockholders’ equity  313,551   (859)  312,692 
     Total liabilities and stockholders’ equity  729,826   (1,325)  728,501 
Consolidated Statement of Operations 
     Freight revenue  170,635   (34)  170,601 
     Total revenue  196,318   (34)  196,284 
     Salaries, wages and related expenses  64,633   (1)  64,632 
     Revenue equipment rentals and purchased transportation  37,388   60   37,448 
     Total operating expenses  182,253   59   182,312 
     Income tax expense  3,928   (25)  3,903 
     Net income  9,971   (68)  9,903 
Consolidated Statement of Comprehensive Income 
     Net income  9,971   (68)  9,903 
     Comprehensive income  10,551   (68)  10,483 
Consolidated Statement of Cash Flows 
Operating Cash Flows            
     Net income  9,971   (68)  9,903 
     Deferred income tax expense  4,805   (25)  4,780 
     Change in: Receivables and advances  (1,174)  34   (1,140)
     Change in: Accounts payable and accrued expenses  5,881   59   5,940 
     Net cash flows provided by operating activities  25,936   -   25,936 
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  Six Months Ended June 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 $103,053  $(1,325) $101,728 
     Total assets  729,826   (1,325)  728,501 
     Accrued expenses  29,420   (140)  29,280 
     Deferred income taxes  70,552   (326)  70,226 
     Total liabilities  416,275   (466)  415,809 
     Retained earnings  172,450   (859)  171,591 
     Total stockholders’ equity  313,551   (859)  312,692 
     Total liabilities and stockholders’ equity  729,826   (1,325)  728,501 
Consolidated Statement of Operations 
     Freight revenue  321,097   (315)  320,782 
     Total revenue  369,884   (315)  369,569 
     Salaries, wages and related expenses  125,253   14   125,267 
     Revenue equipment rentals and purchased transportation  68,079   41   68,120 
     Total operating expenses  349,394   55   349,449 
     Income tax expense  5,467   (101)  5,366 
     Net income  14,388   (269)  14,119 
Consolidated Statement of Comprehensive Income 
     Net income  14,388   (269)  14,119 
     Comprehensive income  15,639   (269)  15,370 
Consolidated Statement of Cash Flows 
Operating Cash Flows            
     Net income  14,388   (269)  14,119 
     Deferred income tax expense  6,495   (101)  6,394 
     Change in: Receivables and advances  11,821   315   12,136 
     Change in: Accounts payable and accrued expenses  1,635   55   1,690 
     Net cash flows provided by operating activities  62,632   -   62,632 

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 three operating fleets that are aggregated because they have similar economic characteristics and meet the aggregation criteria.  The three 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; and (iii) Star Transportation, Inc., which provides regional solo-driver and dedicated services, primarily in the southeastern United States.

Managed Freight is comprised primarily of freight brokerage and logistics services. Also included in Managed Freight is our accounts receivable factoring business, which does not meet the aggregation criteria, but only accounts for $2.0 million of our 2018 revenue.

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 six months ended June 30, 2018:
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(in thousands) 
Three Months ended
June 30,
  
Six Months ended
June 30,
 
  2018  2017  2018  2017 
Total Revenues:            
Truckload: Covenant Transport $105,648  $89,444  $201,361  $177,287 
Truckload: SRT  45,594   41,823   86,297   82,523 
Truckload: Star Transportation  19,469   16,364   37,601   33,446 
Managed Freight  25,607   16,695   44,625   29,814 
                 
Total $196,318  $164,326  $369,884  $323,070 

Accounting Standards not yet adopted

In February 2016, FASB issued ASU 2016-02, which establishes Topic 842 to replace Topic 840 regarding accounting for leases. Topic 842 requires lessees to recognize a right-to-useright-of-use asset and a lease obligationliability for all leases.  Lesseesmost leases on the balance sheet. Leases that were previously described as capital leases are permitted to make an accounting policy election to not recognize an assetnow called finance leases, and liability foroperating leases with a term of at least twelve months or less.  Lessor accounting underare now required to be recorded on the newbalance sheet. We adopted this 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 beginningon January 1, 2019 including interim periods within that reporting period and requires ausing the modified retrospective approach.
In July 2018, FASB issued ASU 2018-11, which provides an optional transition approach.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 are currently evaluatinghave adopted the impactsstandard 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 standard will have onASU resulted in the consolidated financial statements.initial recognition of operating lease assets of $40.1 million and liabilities totaling $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.

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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.Income Per Share

Basic 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 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 no anti-dilutive shares for the three andor six months ended June 30, 2018.2019. There were no outstanding stock options at June 30, 2018.2019. Income per share is the same for both Class A and Class B shares.

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

(in thousands except per share data) Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2019  2018  2019  2018 
Numerator:            
Net income $6,071  $9,971  $10,504  $14,388 
Denominator:                
Denominator for basic income per share – weighted-average shares  18,438   18,337   18,410   18,334 
Effect of dilutive securities:                
Equivalent shares issuable upon conversion of unvested restricted shares  168   104   160   90 
Denominator for diluted income per share adjusted weighted-average shares and assumed conversions  18,606   18,441   18,570   18,424 
                 
Net income per share:                
Basic and diluted income per share $0.33  $0.54  $0.57  $0.78 
(in thousands except per share data) 
Three Months ended
June 30,
  
Six Months ended
June 30,
 
  2018  2017  2018  2017 
Numerator:            
Net income $9,971  $1,548  $14,388  $1,510 
Denominator:                
Denominator for basic earnings per share – weighted-average shares  18,337   18,281   18,334   18,269 
Effect of dilutive securities:                
Equivalent shares issuable upon conversion of unvested restricted stock  104   78   90   78 
Denominator for diluted earnings per share – adjusted weighted-average shares and assumed conversions  18,441   18,359   18,424   18,347 
                 
Basic and diluted income per share: $0.54  $0.08  $0.78  $0.08 

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Note 3.Segment Information

We have two reportable segments, Truckload, which is comprised of our truckload services, or Truckload and Managed Freight, which provides freight brokerage and logistics services. Our
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 consists of several operating segments, whichsegment 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. Included inAlso included within Managed Freight isare our warehousing and accounts receivable factoring business,businesses, neither of which does not meetmeets the aggregation criteria, but only accounts for $2.0 million of our  revenue duringquantitative or qualitative reporting thresholds individually or in the six months ended June 30, 2018.aggregate.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies in our 20172018 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 segment informationrevenue by our two reportable segments, Truckload and Managed Freight, disaggregated to the operating fleet level as used by our chief operating decision maker of the Company in making decisions regarding allocation of resources etc., as of and assets, organized first by reportable segment (i.e. Truckload and Managed Freight) and then by operating fleet for the three and six months ended June 30, 2019 and 2018:

(in thousands)
 
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Total Revenues:            
Truckload $170,711  $147,631  $325,259  $293,256 
Managed Freight  25,607   16,695   44,625   29,814 
                 
Total $196,318  $164,326  $369,884  $323,070 
                 
Operating Income:                
Truckload $11,734  $2,377  $17,095  $1,239 
Managed Freight  2,331   1,585   3,395   3,032 
                 
Total $14,065  $3,962  $20,490  $4,271 

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(in thousands) Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2019  2018  2019  2018 
Total Revenues:            
             
Truckload Segment:            
Expedited $66,529  $85,589  $129,251  $166,351 
Dedicated  80,973   35,028   160,745   68,435 
Refrigerated  23,134   -   48,739   - 
OTR  4,772   50,094   9,334   90,473 
Truckload Revenues  175,408   170,711   348,069   325,259 
                 
Managed Freight Segment:                
Brokerage  20,277   24,489   44,583   42,582 
TMS  9,431   -   17,801   - 
Shuttle & Switching  3,562   -   7,298   - 
Warehouse  8,362   -   16,622   - 
Factoring  2,258   1,118   4,106   2,043 
Managed Freight Revenues  43,890   25,607   90,410   44,625 
                 
Total $219,298  $196,318  $438,479  $369,884 
 
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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% and 35% in 2018 and 2017, respectively, 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 and elect to receive per diem generally 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 or loss 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, or loss, 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 June 30, 20182019 has decreasedincreased by less than $0.1 million for accrued interest since December 31, 2017.2018.

The net deferred tax liability of $70.6$80.9 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 June 30, 2018,2019, 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.

Provisional Amounts in the Effective Rate

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017.  We are applying the Securities and Exchange Commission’s guidance in Staff Accounting Bulletin No. 118 when accounting for the enactment-date effects of the Act.  At June 30, 2018, we have not completed our accounting for all of the tax effects of the Act; however, as described below, we have made a reasonable estimate of the effects.  During the three and six months ended June 30, 2018, we recognized no adjustments to the provisional amounts recorded at December 31, 2017.  We will continue to make and refine our calculations as additional analysis is completed.  Our estimates may also be affected as we gain a more thorough understanding of the tax law on a federal and state basis.

Deferred tax assets and liabilities:  We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%.  We also analyzed the future deductibility of restricted stock awards for executives and computed the effects of a net operating loss carryback to benefit the loss at 35% in prior years.  We recorded a provisional benefit amount of $40.1 million as of December 31, 2017 related to the remeasurement of certain deferred tax balances.  For the three and six months ended June 30, 2018, we have made no change to our analysis.  We are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.  The provisional amount is also subject to change based on how states conform to the Act, as that information is not readily available for many states at this time.

Note 5.  Fair Value of Financial Instruments

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accordingly, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. The fair value of the hedge derivative liability was determined based on quotes from the counterparty which were verified by comparing them to the exchange on which the related futures are traded, adjusted for counterparty credit risk. The fair value of our interest rate swap agreements is determined using the market-standard methodology of netting the discounted future fixed-cash payments and the discounted expected variable-cash receipts. The variable-cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. These analyses reflect the contractual terms of the swap, including the period to maturity, and use observable market-based inputs, including interest rate curves and implied volatilities. The fair value calculation also includes an amount for risk of non-performance of our counterparties using "significant unobservable inputs" such as estimates of current credit spreads to evaluate the likelihood of default, which we have determined to be insignificant to the overall fair value of our interest rate swap agreements.  A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

●Note 5.Level 1. Observable inputs such as quoted prices in active markets;
●Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;Debt and
●Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Lease Obligations
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Derivatives Measured at Fair Value on a Recurring Basis

(in thousands)   
Hedge derivatives 
June 30,
2018
  
December 31, 2017(1)
 
Net Fair Value of Derivatives $2,129  $393 
Quoted Prices in Active Markets (Level 1)  -   - 
Significant Other Observable Inputs (Level 2) $2,129  $393 
Significant Unobservable Inputs (Level 3)  -   - 

(1)Includes derivative liabilities of $487 at December 31, 2017.

Our financial instruments consist primarily of cash and cash equivalents, certificates of deposit, accounts receivable, commodity contracts, accounts payable, debt, and interest rate swaps. The carrying amount of cash and cash equivalents, certificates of deposit, accounts receivable, accounts payable, and current debt approximates their fair value because of the short-term maturity of these instruments.  Included in accounts receivable is $38.3 million and $31.9 million of factoring receivables at June 30, 2018 and December 31, 2017, respectively, net of a $0.3 million and $0.2 million allowance for bad debt for each respective date. We advance approximately 85% to 95% of each receivable factored and retain the remainder as collateral for collection issues that might arise.  The retained amounts are returned to the clients after the related receivable has been collected, net of accrued interest. At June 30, 2018 and December 31, 2017, the retained amounts related to factored receivables totaled $0.7 million and $0.6 million, respectively, and were included in accounts payable in the condensed consolidated balance sheets.  Our clients are smaller trucking companies that factor their receivables to us for a fee to facilitate faster cash flow.  We evaluate each client's customer base under predefined criteria.  The carrying value of the factored receivables approximates the fair value, as the receivables are generally repaid directly to us by the client's customer within 30-40 days due to the combination of the short-term nature of the financing transaction and the underlying quality of the receivables.

Interest rates that are currently available to us for issuance of long-term debt with similar terms and remaining maturities are used to estimate the fair value of our long-term debt, which primarily consists of revenue equipment installment notes.  The fair value of our revenue equipment installment notes approximated the carrying value at June 30, 2018, as the weighted average interest rate on these notes approximates the market rate for similar debt. Borrowings under our revolving Credit Facility (as defined herein) approximate fair value due to the variable interest rate on that facility.  Additionally, commodity contracts, which are accounted for as hedge derivatives, as discussed in Note 6, are valued based on the forward rate of the specific indices upon which the contract is being settled and adjusted for counterparty credit risk using available market information and valuation methodologies. The fair value of our interest rate swap agreements is determined using the market-standard methodology of netting the discounted future fixed-cash payments and the discounted expected variable-cash receipts. The variable-cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. These analyses reflect the contractual terms of the swap, including the period to maturity and use observable market-based inputs, including interest rate curves and implied volatilities. The fair value calculation also includes an amount for risk of non-performance of our counterparties using "significant unobservable inputs" such as estimates of current credit spreads to evaluate the likelihood of default, which we have determined to be insignificant to the overall fair value of our interest rate swap agreements.
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Note 6.    Derivative Instruments

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 periodically enter into various derivative instruments, including forward futures swap contracts.  Specifically, we enter into hedging contracts with respect to ultra-low sulfur diesel ("ULSD"). Under these contracts, we pay a fixed rate per gallon of ULSD and receive 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. We do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes.

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 as described in Note 7. 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 interest rate swaps, which were designated to hedge against the variability in future interest rate payments associated with the purchase of certain trailers.  Because the critical terms of the swaps 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 June 30, 2018, of approximately $0.9 million, is included in other short and long-term assets in the condensed consolidated balance sheet and is included in accumulated other comprehensive income, net of tax. Additionally, $0.1 million was reclassified from accumulated other comprehensive income into our results of operations as additional interest expense for the three months ended June 30, 2018, related to changes in interest rates during such period. Based on the amounts in accumulated other comprehensive income as of June 30, 2018, we expect to reclassify gains of approximately $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.

We recognize all derivative instruments at fair value on our condensed consolidated balance sheets.  Our derivative instruments are designated as cash flow hedges, thus the gain or loss on the derivatives is reported as a component of accumulated other comprehensive income and will be reclassified into earnings in the same period during which the hedged transaction affects earnings.  The change in fair value of the hedge offsets the change in fair value of the hedged item.

At June 30, 2018, we had fuel hedge contracts on approximately 3.8 million gallons for the remainder of 2018, or approximately 16.9% of our projected remaining 2018 fuel requirements.

The fair value of the fuel hedge contracts that were in effect at June 30, 2018, of approximately $1.3 million is included in other short-term assets in the consolidated balance sheet and is included in accumulated other comprehensive income, net of tax.  Changes in the fair values of these instruments can vary dramatically based on changes in the underlying commodity prices. For example, during the second quarter in 2018, market "spot" prices for ULSD peaked at a high of approximately $2.25 per gallon and hit a low price of approximately $1.92 per gallon. During the same 2017 quarter, market "spot" prices ranged from a high of $1.62 per gallon to a low of $1.33 per gallon. Market price changes can be driven by factors such as supply and demand, inventory levels, weather events, refinery capacity, political agendas, the value of the U.S. dollar, geopolitical events, and general economic conditions, among other items.
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Additionally, $0.5 million and $0.7 million were reclassified from accumulated other comprehensive income into our results of operations as a reduction to fuel expense for the three and six months ended June 30, 2018, respectively, related to gains on contracts that expired.  Based on the amounts in accumulated other comprehensive income as of June 30, 2018, and the expected timing of the purchases of the diesel hedged, we expect to reclassify gains of approximately $0.9 million, net of tax, on derivative instruments from accumulated other comprehensive income into our results of operations during the next twelve months due to actual diesel fuel purchases.  The amounts actually realized will be dependent on the fair values as of the date of settlement.

We perform both a prospective and retrospective assessment of the effectiveness of our fuel hedge contracts at inception and quarterly, including assessing the possibility of counterparty default.  If we determine that a derivative is no longer expected to be highly effective, we discontinue hedge accounting prospectively and recognize subsequent changes in the fair value of the hedge in earnings.  As a result of our effectiveness assessment at inception and at June 30, 2018, we believe our hedge contracts have been and will continue to be highly effective in offsetting changes in cash flows attributable to the hedged risk.

Outstanding financial derivative instruments expose us to credit loss in the event of nonperformance by the counterparties to the agreements. We do not expect any of the counterparties to fail to meet their obligations.  Our credit exposure related to these financial instruments is represented by the fair value of contracts reported as assets.  To manage credit risk, we review each counterparty's audited financial statements, credit ratings, and obtain references as we deem necessary.

Note 7.   Debt

Current and long-term debt and lease obligations consisted of the following at June 30, 20182019 and December 31, 2017:2018:

(in thousands) June 30, 2019  December 31, 2018 
  Current  Long-Term  Current  Long-Term 
Borrowings under Credit Facility $-  $17,314  $-  $3,911 
Revenue equipment installment notes; weighted average interest rate of 3.8% at June 30, 2019, and 3.7% at December 31, 2018, due in monthly installments with final maturities at various dates ranging from July 2019 to July 2023, secured by related revenue equipment  36,871   168,392   27,809   139,115 
                 
Real estate notes; interest rate of 4.2% at June 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  1,070   23,222   1,048   23,763 
Deferred loan costs  (147)  (80)  (147)  (154)
Total debt  37,794   208,848   28,710   166,635 
Principal portion of finance lease obligations, secured by related revenue equipment  6,797   30,820   5,374   35,119 
Principal portion of operating lease obligations, secured by related revenue equipment  14,117   24,921   -   - 
Total debt and lease obligations $58,708  $264,589  $34,084  $201,754 
(in thousands) June 30, 2018  December 31, 2017 
  Current  Long-Term  Current  Long-Term 
Borrowings under Credit Facility $-  $-  $-  $- 
Revenue equipment installment notes with finance companies; weighted average interest rate of 3.6% and 3.3% at June 30, 2018 and December 31, 2017, respectively, due in monthly installments with final maturities at various dates ranging from July 2018 to July 2023, secured by related revenue equipment  31,579   171,973   23,732   130,946 
Real estate note; interest rate of 3.7% and 3.1% at June 30, 2018 and December 31, 2017, respectively, due in monthly installments with a fixed maturity at August 2035, secured by related real estate  1,019   24,299   1,004   24,810 
Deferred loan costs  (148)  (234)  (140)  (298)
Total debt  32,450   196,038   24,596   164,465 
Principal portion of capital lease obligations, secured by related revenue equipment  4,863   35,160   2,962   21,777 
Total debt and capital lease obligations $37,313  $231,198  $27,558  $186,242 

We and substantially all of our subsidiaries are parties to a Third Amended and Restatedthe Credit Facility (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.
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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'sAgent’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.  AsWe had $17.3 million of borrowings outstanding under the Credit Facility as of June 30, 2018, there were2019, undrawn letters of credit outstanding of approximately $36.8$34.8 million, and available borrowing capacity of $42.9 million. The interest rate on outstanding borrowings as of June 30, 2019, was $56.46.0% on $17.3 million of base rate loans and there were no outstanding borrowings under the Credit Facility.LIBOR loans. Based on availability as of June 30, 20182019 and December 31, 2017,2018, 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.

Capital lease obligations are utilized to finance a portion of our revenue equipment and are entered into with certain finance companies who are not parties to our Credit Facility.  The leases in effect at June 30, 2018 terminate in July 2018 through September 2023 and contain guarantees of the residual value of the related equipment by us. As such, the residual guarantees are included in the related debt balance as a balloon payment at the end of the related term as well as included in the future minimum capital lease payments. These lease agreements require us to pay personal property taxes, maintenance, and operating expenses.

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 July 20182019 to JulySeptember 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 $169.7$176.7 million are cross-defaulted with the Credit Facility. Additionally, the abovementioned fuel hedge contracts totaling $1.2 million at June 30, 2018, 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 for the remainder of 2018,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.
Page 17In 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 6.Stock-Based Compensation
Note 8.    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. In February 2013,On May 8, 2019, the Compensation Committee re-approved, subject to stockholder re-approval, the material termsstockholders, upon recommendation of the performance-based goalsboard 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 so thatby an additional 750,000 shares, (ii) implements additional changes designed to comply with certain incentive awards granted thereunder would continueshareholder advisory group guidelines and best practices, (iii) makes technical updates related to qualify as exempt "performance-based compensation" underSection 162(m) of the Internal Revenue Code Section 162(m).  Our stockholders re-approved the material termsin light of the performance-based goals under2017 Tax Cuts and Jobs Act, (iv) re-sets the term of the Incentive Plan at our 2013 Annual Meeting heldto expire with respect to the ability to grant new awards on May 29, 2013.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. AtAs of  June 30, 2018, 96,6652019, there were 780,747 remaining of the abovementioned 1,550,0002,300,000 shares were 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-yearcalendar 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 $0.9the reversal of $1.8 million and $0.2the recognition of approximately $0.9 million of stock-based compensation expense for the three months ended June 30, 2019 and 2018, respectively and 2017,the reversal of $0.5 million and recognition of $1.8 million and $0.4 million of stock-based compensation expense for the six months ended June 30, 20182019 and 2017,2018, respectively. All stock compensation expense recorded in 20182019 and 20172018 relates to restricted shares, givenas no unvested options were grantedoutstanding during these periods. An additional $0.4 million and $0.3 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 six-month periods ended June 30, 20182019 and 2017,2018, 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 June 30, 2018,2019, certain participants elected to forfeit receipt of an aggregate of 65529,390 shares of Class A common stock at a weighted average per share price of $27.16$22.71 based on the closing price of our Class A common stock on the dates the shares vested in 2018,2019, in lieu of the federal and state minimum statutory tax withholding requirements. We remitted less than $0.1$0.7 million to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements.

Note 9.    Equity Method Investment
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 June 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 June 30, 2019. 
We ownmaintain 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 minority investmentmaterially adverse effect on our consolidated financial statements.
We had $34.8 million and $36.3 million of outstanding and undrawn letters of credit as of June 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 Transport Enterprise Leasing, LLC ("TEL"). TELor 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 June 30, 2019 are as follows:
(dollars in thousands) Three months Ended  Six Months Ended 
  June 30, 2019  June 30, 2019 
Finance lease cost:      
Amortization of right-of-use assets $ 1,408  $ 2,819 
Interest on lease liabilities  206   433 
Operating lease cost  5,475   11,657 
Total lease cost $7,089  $14,909 
         
Other information        
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows from finance leases  1,297   2,443 
Operating cash flows from operating leases  5,475   11,657 
Financing cash flows from finance leases  206   433 
Right-of-use assets obtained in exchange for new operating lease liabilities  3,089   6,325 
Weighted-average remaining lease term—finance leases     3.4 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      4.4%
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Right-of-use assets of $38.0 million for operating leases and $55.1 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 a tractorincluded in revenue equipment rentals and trailer equipment leasing companypurchased transportation, communication and used equipment reseller. We have not guaranteed anyutilities, and general supplies and expenses, depending on the underlying asset.
Our future minimum lease payments as 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 less than $0.1 million andJune 30, 2019, including approximately $0.1 million of tractors or trailers to TEL during the six-months ended June 30, 2018 and 2017, respectively and we received $3.9 million and $2.2 million respectively,operating lease payments for providing various maintenance services, certain back-office functions, and for miscellaneous equipment.  We recognizedwhich a net reversal of previously deferred gains totaling approximately $0.2 million and $0.1 million forlease has been executed, but not yet commenced, summarized as follows by lease category:
(in thousands) Operating  Finance 
2019 (1) $8,319  $7,830 
2020  13,505   7,702 
2021  9,711   7,997 
2022  7,476   9,441 
2023  1,018   6,364 
Thereafter  2,431   1,209 
Total minimum lease payments  42,460   40,543 
Less: amount representing interest  (3,310)  (2,926)
Present value of minimum lease payments  39,150   37,617 
Less: current portion  (14,117)  (6,797)
Lease obligations, long-term $25,033  $30,820 
(1) Excludes the six months ended June 30, 2018 and 2017, 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 June 30, 2018, are being carried as a reduction in our investment in TEL.  At June 30, 2018 and December 31, 2017, we had accounts receivable from TEL of $5.1 million and $8.6 million, respectively, related to cash disbursements made pursuant to our performance of certain back-office and maintenance functions on TEL’s behalf.2019

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 2018 net income through June 30, 2018, or $3.3 million. Our investment in TEL, totaling $23.6 million and $20.1 million at June 30, 2018 and December 31, 2017, respectively, is included in other assets in the accompanying condensed consolidated balance sheets.
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See TEL’s summarized financial information below:

(in thousands) 
As of
June 30,
2018
  As of December 31, 2017 
Current Assets $21,298  $19,660 
Non-current Assets  221,673   183,905 
Current Liabilities  13,060   53,981 
Non-current Liabilities  190,981   117,135 
Total Equity $38,930  $32,449 

  
For the three months ended
June 30, 2018
  
For the three months ended
June 30, 2017
  
For the six
months ended
June 30, 2018
  
For the six
months ended
June 30, 2017
 
Revenue $23,574  $23,712  $48,715  $46,245 
Operating Expenses  18,374   20,516   38,999   40,314 
Operating Income  5,200   3,196   9,716   5,931 
Net Income $3,464  $2,023  $6,482  $3,689 

Note 9.Equity Method Investment
Note 10.  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.

We maintain insuranceown 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 cover liabilities arisingprovide 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 transportationsix-months ended June 30, 2019 and 2018, respectively, and we received $4.6 million and $3.9 million, respectively, for providing various maintenance services, certain back-office functions, and for miscellaneous equipment. We recognized a net reversal of freightpreviously deferred gains totaling less than $0.1 million and $0.2 million for amountsthe six-months ended June 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 June 30, 2019, are being carried as a reduction in excessour investment in TEL.  At June 30, 2019 and December 31, 2018, we had accounts receivable from TEL of $5.6 million and $5.1 million, respectively, related to cash disbursements made pursuant to our performance of certain self-insured retentions. In management's opinion,back-office and maintenance functions on TEL’s behalf.
We have accounted for our potential exposure under pending legal proceedingsinvestment in TEL using the equity method of accounting, and thus our financial results include our proportionate share of TEL's 2019 net income through June 30, 2019, or $5.4 million. Our investment in TEL, totaling $31.5 million and $26.1 million, at June 30, 2019 and December 31, 2018, respectively, is adequately provided forincluded in other assets in the accompanying condensed consolidated financial statements.

On May 8, 2017, the U.S. District Court for the Southern District of Ohio issued a pre-trial decision against our Southern Refrigerated Transport, Inc. ("SRT") subsidiary relating to a cargo claim incurred in 2008. The court had previously ruled in favor of the plaintiff in 2014, and the prior decision was reversed in part by the Sixth Circuit Court of Appeals and remanded for further proceedings in 2015.  As a result of this decision, we increased the reserve in respect of this case by $0.9 million in the first quarter of 2017 in order to accrue additional legal fees and pre-judgment interest since the time of the previously noted appeal.  We are appealing the District Court’s decision on damages to the Sixth Circuit. Oral arguments are set for August 1, 2018.

Our SRT subsidiary is a defendant in a lawsuit filed on December 16, 2016 in the Superior Court of San Bernardino County, California.  The lawsuit was filed on behalf of David Bass (a California resident and former driver), who is seeking to have the lawsuit certified as a class action case wherein he alleges violation of multiple California wage and hour statutes over a four year period of time, including failure to pay wages for all hours worked, failure to provide meal periods and paid rest breaks, failure to pay for rest and recovery periods, failure to reimburse certain business expenses, failure to pay vested vacation, unlawful deduction of wages, failure to timely pay final wages, failure to provide accurate itemized wage statements, and unfair and unlawful competition as well as various state claims.  The case was removed from state court in February, 2017 to the U.S. District Court in the Central District of California, and subsequently, SRT moved the District Court to transfer venue of the case to the U.S. District Court sitting in the Western District of Arkansas.  The motion to transfer was approved by the California District Court in July, 2017, and the case will now be heard in the U.S. District court in the Western District of Arkansas.

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.balance sheets.
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See TEL's summarized financial information below:
We had $36.8 million and $32.9 million of outstanding and undrawn letters of credit as of June 30, 2018 and December 31, 2017, respectively. The letters of credit are maintained primarily to support our insurance programs.
(in thousands) 
As of
June 30,
  
As of
December 31,
 
  2019  2018 
Current Assets $26,400  $25,877 
Non-current Assets  320,129   273,987 
Current Liabilities  15,802   78,530 
Non-current Liabilities  275,901   176,389 
Total Equity $54,826  $44,945 

 Three Months Ended Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
Revenue $24,505  $23,574  $51,988  $48,715 
Operating Expenses  17,052   18,374   37,052   38,999 
Operating Income  7,453   5,200   14,936   9,716 
Net Income $4,792  $3,464  $9,881  $6,482 
Note 11.  Other comprehensive income (loss) ("OCI")
Note 10.Goodwill and Other Assets

OCI is comprised of net income and other adjustments, including changes in the fair value of certain derivative financial instruments qualifying as cash flow hedges.

The following table summarizes the change in the components of our OCI balance for the periods presented (in thousands; presented net of tax):

Details about OCI Components Amount Reclassified from OCI for the three months ended June 30, 2018  Amount Reclassified from OCI for the six months ended June 30, 2018 Affected Line Item in the Statement of Operations
Losses on cash flow hedges         
Commodity derivative contracts $(533) $(732)Fuel expense
   146   201 Income tax benefit
  $(387) $(531)Net of tax
             
Interest rate swap contract $33  $96 Interest expense
   (9)  (26)Income tax benefit
  $24  $70 Net of tax

Note 12.  Subsequent Event

On July 3, 2018, we acquired 100% of the Company completed the acquisitionoutstanding stock of Landair Holdings, Inc., a Tennessee corporation (“Landair”) of Greeneville, Tennessee, the holding company for Landair Transport, Inc. and Landair Logistics, Inc.. Landair is a leading provider of dedicated and for-hire truckload services,carrier, as well as 3PLa supplier of transportation management, warehousing, and logistics inventory management services.

Under Landair’s results have been included in the terms of the agreement, the Company purchased 100% of Landair’s outstanding stock in exchange for approximately $83.0 million in cash. At closing, Landair also had approximately $15.5 million of debt which the Company has refinanced. The acquisition was funded by cash on hand of approximately $45.5 million accumulated from positive operating cash flowsconsolidated financial statements since the enddate of February 2018 and approximately $53.0 million of previously unencumbered used revenue equipment financing.  Landair Transport’sacquisition. Landair’s trucking operations’ results will beare reported within our Truckload segment, while Landair Logistics’Landair’s logistics operations’ results will beare reported within our Managed Freight segment.
The initial accounting forallocation of the Landair acquisition is incompletepurchase price has been subject to change based on finalization of the valuation of long-lived and as such pro-forma financials will be filed at a later date.

Landair operates approximately 430 tractorsintangible assets and 900 trailers,self-insurance reserves, as well as managing 12 distribution facilities covering approximately 1.8 million square feetour ongoing evaluation of warehouse space. Landair generated approximately $121 millionLandair's accounting principles for consistency with ours. The assignment of goodwill and intangible assets to our reportable segments has been completed as of June 30, 2019.  A summary of the changes in carrying amount of total revenue for the year endedgoodwill is as follows:
(in thousands)   
    
Balance at December 31, 2018 $41,598 
Post-acquisition goodwill adjustments  920 
Balance at June 30, 2019 $42,518 
A summary of other intangible assets as of June 30, 2019 and December 31, 2017. Approximately $60 million of Landair’s fiscal 2017 total revenue related to dedicated truckload operations, $41 million related to managed freight services, and the remaining $20 million related to one-way truckload operations.2018 is as follows:
(in thousands) June 30, 2019 
  Gross intangible assets  Accumulated amortization  Net intangible assets  Remaining life (months) 
Trade name $ 4,400  $ (293) $4,107   168 
Non-Compete agreement  1,400   (280)  1,120   48 
Customer relationships  28,200   (2,350)  25,850   132 
Total $ 34,000  $(2,923) $31,077     
  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 145 months. The expected amortization of these assets for the next five successive years is as follows:
  (in thousands) 
2019 $1,462 
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 gainslosses arising from derivative instruments and the performance of counterparties to such instruments, future impact of new accounting standards, future results of 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 requirements, future customer relationships, future use of dedicated contracts,  future mix of team versus solo drivers, 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 management,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 Transport Enterprise Leasing, LLC, the anticipated impact of our acquisition of Landair,TEL, and anticipated levels of and fluctuations relating to insurance, claims, and litigation expenses, including with respect to the 2008 cargo claim and the California wage and hour claim, 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, 2017.2018.  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, 2017,2018, 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

With continued economic growth in the U.S. we are encouraged by the year-over-year improvement in our operating marginsOur financial results for the second quarter illustrate the reason for our strategy of 2018. becoming more embedded in our customers’ supply chains.  Our dedicated contract operations in our Star and Landair subsidiaries, along with our managed freight and factoring businesses, and our investment in TEL, performed quite well. On the other hand, our less contracted expedited and solo refrigerated operations suffered from over-supply in relation to demand and a late-developing produce season.  We intend to continue to pursue a more predictable and consistently profitable business model as we allocate assets across our operations.
The main positives in the second quarter were 1) significant improvement in the operating profitabilityincome at our Covenant TransportManaged Freight segment, including successful integration of Landair’s warehousing and SRT operating fleets within our Truckload segment,transportation management service offerings, 2) a 14.2% increase in average freight revenue per tractor versus the same quarter of 2017, 3) generating an additional $30.8 million of cash to deploy towards the Landair acquisition, as well as utilizing previously unencumbered revenue equipment to fund the balance, which resulted in low-cost financing and is expected to increase our future earnings, cash flows, and revolver availability on a post-transaction basis, 4) improved year-over-year earnings contributed from our investment in Transport Enterprise Leasing, and 5)3) consistent demand and profitability from our tangible book value per basic share increased 31.8% to $17.09 from $12.97 a year ago.growing dedicated businesses at Landair and Star. The main negativenegatives in the quarter waswere 1) the operating margin declines of our expedited and solo refrigerated service offerings, 2) an approximate 10.6% decrease in average freight revenue per truck for our Truckload segment, excluding Landair’s truckload operations versus the second quarter of 2018, and 3) increased Truckload operating costs on a per mile basis, including unfavorable employeeprimarily from increased professional driver wages, and casualtygroup health insurance, claims costs as well as Landair acquisition-related expenses, partially offset by lower net fuel costs and improved net depreciationoperations and maintenance expense.
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Additional items of note for the second quarter of 20182019 include the following:

●Total revenue of $196.3$219.3 million, an increase of 19.5%11.7% compared with the second quarter of 20172018, and freight revenue of $194.9 million (which excludes revenue from fuel surcharges) of $170.6 million,, an increase of 17.2%14.2% compared with the second quarter of 2017;2018;
  
●Operating income of $14.1$8.8 million, an operating ratio of 92.8%, and an adjusted operating ratio of 91.8%, compared with operating income of $4.0$14.1 million an operating ratio of 97.6%, and an adjusted operating ratio of 97.3% in the second quarter of 2017;2018;
  
●Net income of $10.0$6.1 million, or $0.54$0.33 per basic and diluted share, compared with net income of $1.5$10.0 million , or $0.08$0.54 per basic and diluted share, in the second quarter of 2017;2018;
  
●With available borrowing capacity of $56.4$42.9 million under our Credit Facility as ofat June 30, 2018,2019, 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 by 53.4% to $43.9 million in the 2019 quarter from $25.6 million compared to $16.7 million forin the second2018 quarter of 2017, and their operating income increased to $3.7 million in the 2019 quarter from $2.3 million compared toin the 2017 quarter at $1.6 million;2018 quarter;  
  
●Our equity investment in TEL provided $1.8$2.4 million of pre-tax earnings compared to $0.8$1.8 million in the second quarter of 2017;2018;
  
●Since December 31, 2017, aggregate lease-adjusted2018, total indebtedness, (which includes the present value of off-balance sheet lease obligations), net of cash decreasedand including operating lease liabilities, increased by $56.3$39.9 million to $163.9$294.5 million; and
  
●Stockholders’Stockholders' equity and tangible book value at June 30, 20182019, were $313.6$351.7 million or $17.09and $278.1 million (or $15.08 per basic share.share), respectively.

We expect the overall balance of business conditions to remain favorable throughFor the second half of 2018 and into 2019.  Freight demand has been, and remains, exceptionally strong across2019, our business units, and indications from our holiday peak season customers indicate robust expectations for the fourth quarter.  From a capacity perspective, attracting and retaining highly qualified, over the road professional truck drivers remains our largest challenge.  Low unemployment, alternative careers, and an aging driver population are creating an increasingly competitive environment. The market for used tractors and trailers is expected to generate moderate gainsfocus will be on our dispositions of equipment over the remainder of the year.  In this environment, we continue to work actively with our customersidentifying opportunities to improve driver compensation, efficiency,the performance of our one-way truckload service offerings and working conditions while providing a high level ofadding profitable contract logistics service and generating acceptable financial returns.  We intend to continue to allocate our assets where the returns are justified and use our managed freight units to supplement our internal capacity.

Our acquisition of Landair was alignedcustomers with our stated 2018 strategic initiative of becoming closer to our customers. Along with the acquisition, we have increased our capital allocation to organically growmore predictable long-term contracts in our dedicated truckload, 3PL,transportation management and other managed freight solutions. Immediately subsequent to the Landair transaction in early July, the percentage of our truckload fleet operating under dedicated contracts was approximately 1,400 tractors, representing 46% of our fleet. This compares to a year ago when only approximately 650 of our tractors, or 25% of our fleet, operated under dedicated contracts. We believe the dedicated contract fleet provides a stronger partnership with our customers as we integrate deeper into their supply chains, offers more consistent and seasonally-manageable freight volumes, reduces earnings volatility of the cyclical nature of the freight economy, and provides a favorable drivers’ experience for professional drivers who desire greater consistency.warehousing service offerings.

From an earnings perspective, we expect our consolidated operating ratio for the third quarter to be similar to our consolidated operating ratio for the second quarter, but with the addition of revenue from Landair’s operations. For the fourth quarter, we expect to remain a major participant in the holiday peak shipping season and anticipate our consolidated operating ratio and consolidated earnings per diluted share to improve compared with the fourth quarter of 2017.  However, due to changes in team versus solo-driver mix, dedicated versus irregular route capacity availability, and managed freight capacity, as well as the need to complete purchase accounting entries relating to the Landair transaction, we are not offering more specific earnings guidance. In addition, our prior comments about expectations for the second half of 2018, including percentage rate improvements versus prior periods, are superseded.
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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.

Operating Ratio

Operating Ratio ("OR") For Three and Six Months Ended June 30, 2017 and 2018, respectively 
      
 
Three months ended
June 30,
  
Six months ended
June 30,
  Three months ended June 30,  Six months ended June 30, 
GAAP Operating Ratio: 
2018(1)
  OR %  2017  OR %  
2018(1)
  OR %  2017  OR %  2019  OR %  2018  OR %  2019  OR %  2018  OR % 
Total revenue $196,318     $164,326     $369,884     $323,070     $219,298     $196,318     $438,479     $369,884    
Total operating expenses  182,253   92.8%  160,364   97.6%  349,394   94.5%  318,799   98.7%  210,454   96.0 %   182,253   92.8%   424,209   96.7%   349,394   94.5% 
Operating income $14,065      $3,962      $20,490      $4,271      $8,844      $14,065      $14,270      $20,490     
                                                                
Adjusted Operating Ratio:  2018  
Adj.
OR %
   2017  
Adj.
OR %
   2018  
Adj.
OR %
   2017  
Adj.
OR %
   2019  
Adj.
OR %
   2018  
Adj.
OR %
   2019  
Adj.
OR %
   2018  
Adj.
OR %
 
Total revenue $196,318      $164,326      $369,884      $323,070      $219,298      $196,318      $438,479      $369,884     
Less: Fuel surcharge revenue:  25,683       18,740       48,787       37,358     
Revenue (excluding fuel surcharge revenue)  170,635       145,586       321,097       385,712     
Fuel surcharge revenue  (24,381)       (25,683)       (47,800)       (48,787)     
Freight revenue (total revenue, excluding fuel surcharge)  194,917       170,635       390,679       321,097     
                                                                
Total operating expenses  182,253       160,364       349,394       318,799       210,454       182,253       424,209       349,394     
Less: Fuel surcharge revenue  25,683       18,740       48,787       37,358     
Total operating expenses (net of fuel surcharge revenue)  156,570   91.8%  141,624   97.3%  300,607   93.6%  281,441   98.5%
Operating income $14,065      $3,962      $20,490      $4,271     
Adjusted for:                                
Fuel surcharge revenue  (24,381)       (25,683)       (47,800)       (48,787)     
Amortization of intangibles  (731)        -        (1,462)        -     
Adjusted operating expenses��  185,342   95.1%   156,570   91.8%   374,947   93.6%   300,607   93.6% 
Adjusted operating income $9,575      $14,065      $15,732      $20,490     
   
(1) Includes impact of adoption of ASU 2014-09. See Note 1. for the related impact to total revenue and operating expenses. 

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

The Truckload segment at June 30, 2018 consistedconsists of three operating fleetsfour service offerings that are aggregated because they have similar economic characteristics and meet the aggregation criteria.  The three operating fleetsfour service offerings that comprise our Truckload segment are as follows: (i) Covenant Transport, our historical flagship operation, which provides expedited long haul, dedicated, temperature-controlled,Expedited; (ii) Dedicated; (iii) Temperature-Controlled; and regional solo-driver service; (ii) SRT, which provides primarily long-haul, regional, and dedicated service; and (iii) Star Transportation, Inc., which provides regional solo-driver and dedicated services, primarily in the southeastern United States.(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(or freight revenue.revenue) and amortization of intangibles. See page 2422 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.

In addition, our Managed Freight segment hasis comprised primarily of freight brokerage, transportation management services ("TMS"), and shuttle and switching services. These service offerings ancillary to our Truckload services, including: freight brokerage service directly and through freight brokerage agents, who are paid a commission for the freight they provide.  The operations consist of several operating segments, which are aggregated due to similar margins and customers. IncludedAlso included within Managed Freight isare our accountwarehousing and accounts receivable factoring business,businesses, neither of which does not meetmeets the aggregation criteria,quantitative or qualitative reporting thresholds individually or in the aggregate. but only accountsaccounted for $2.0$16.6 million and $4.1 million of our revenue, forrespectively, during the six months ended June 30, 2018.2019.
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Revenue Equipment

At June 30, 2018,2019, we operated 2,6323,103 tractors and 6,3406,921 trailers. Of such tractors, 2,1222,213 were owned, 234562 were financed under operating leases, and 276328 were provided by independent contractors, who provide and drive their own tractors.  Of such trailers, 4,7725,305 were owned, 7641 was financed under an operating lease, and 1,615 were financed under operating leases, and 1,140 were financed under capitalfinance type leases.  We finance a small portion of our tractor fleet and larger portion of our trailer fleet with off-balance sheet operating leases,. These leases which generally run for a period of three to five years for tractors and five to seven years for trailers.  At June 30, 2018,2019, our fleet had an average tractor age of 2.12.2 years and an average trailer age of 3.34.1 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 SIX MONTHS ENDED JUNE 30, 20182019 TO THREE AND SIX MONTHS ENDED JUNE 30, 20172018

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 Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
Revenue:            
Freight revenue $194,917  $170,635  $390,679  $321,097 
Fuel surcharge revenue  24,381   25,683   47,800   48,787 
Total revenue $219,298  $196,318  $438,479  $369,884 
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Revenue:            
Freight revenue $170,635  $145,586  $321,097  $285,712 
Fuel surcharge revenue  25,683   18,740   48,787   37,358 
Total revenue $196,318  $164,326  $369,884  $323,070 

For the quarter ended June 30, 2018,2019, total revenue increased $32.0approximately $23.0 million, or 19.5%11.7%, to $196.3$219.3 million from $164.3$196.3 million in the 20172018 quarter. Freight revenue increased $25.0approximately $24.3 million, or 17.2%14.2%, to $170.6$194.9 million for the quarter ended June 30, 2018,2019, from $145.6$170.6 million in the 20172018 quarter, while fuel surcharge revenue increased $7.0decreased $1.3 million quarter-over-quarter. The increase in freight revenue resulted from a $16.1an $18.3 million increase in freight revenues from our Truckload segment, as well as an $8.9 million increase in revenuesrevenue from our Managed Freight segment. and a $6.2 million increase in freight revenue from our Truckload segment.

The $16.1$6.2 million increase in Truckload freight revenue relates to a 14.2%486 (or 18.7%) average tractor increase, offset by a 12.2% decrease in average freight revenue per tractor per week partially offset by a $3.3from the 2018 quarter. Landair contributed $20.6 million of freight revenue to consolidated Truckload operations for the quarter ended June 30, 2019, and the July 2018 acquisition was primarily responsible for the increase in average tractors. The decrease in intermodal revenues in the 2018 quarter as compared to the 2017 quarter, as we effectively discontinued this consistently unprofitable service offering within our solo refrigerated business unit during December 2017.  Averageaverage freight revenue per totaltractor per week for the quarter ended June 30, 2019 is the result of an 11.3%  decrease in average miles per unit, and a 1.8 cents per mile increased by 23.9 cents(or 1.0%) decrease in average rate per total mile compared to the 2017 quarter2018 quarter. Landair’s shorter average length of haul and averagededicated contract, solo-driven truck operations generally produce higher revenue per loaded mile and fewer miles per tractorunit than our other truckload business units. Team-driven trucks decreased by 0.4%.  The decline in our utilization is primarily a resultto an average of the 5.6% decrease842 teams in the percentagesecond quarter of our fleet comprised2019, a decrease of team-driven tractors and a lowerapproximately 4.1% from the average seated tractor percentage.of 878 teams in the second quarter of 2018.

For the six-month period ended June 30, 2018,2019, total revenue increased $46.8$68.6 million, or 14.5%18.5%, to $369.9$438.5 million from $323.1$369.9 million in the 20172018 period.  Freight revenue increased $35.4$69.6 million, or 12.6%21.7%, to $321.1$390.7 million for the six months ended June 30, 2018,2019, from $285.7$321.1 million in the 20172018 period, while fuel surcharge revenue increased $11.4decreased $1.0 million period-over-period. The increase in freight revenue resulted from a $20.6$45.5 million increase in freight revenues from our Truckload segment, as well as a $14.8 million increase in revenue from our Managed Freight segment,. primarily from our Landair acquisition, as well as a $24.1 million increase in freight revenue from our Truckload segment.

The $20.6$24.1 million increase in Truckload freight revenue relates to a 12.2%523 (or 20.2%) average tractor increase, offset by 9.6% decrease in average freight revenue per tractor resultingper week from the 2019 period.  Landair contributed $40.5 million of freight revenue to the consolidated Truckload operations for the six months ended June 30, 2019 and the July 2018 acquisition was primarily responsible for the increase in average tractors.  The decrease in average freight revenue per tractor per week for the six months ended June 30, 2019 is the result of an 11.9% decrease in average miles per unit partially offset by a 4.8 cents per mile increase in average rate per total mile of 19.7 cents, partially offset by a $6.5 million decrease in freight revenue from the aforementioned discontinuation of our intermodal service offering, compared to the same 2017 period.mile.  Team driven units decreased approximately 12.1%3.7% to an average of 886853 for the six-month period ended June 30, 20182019 compared to an average of 1,008886 teams during the same 20172018 period.
Managed Freight total revenue increased  $18.3 million comparing the 2019 and 2018 quarters, and $45.8 million comparing the 2019 period and 2018 period, primarily as a result of Landair’s contribution of $21.4 million and $41.7 million, respectively, to combined Managed Freight operations, partially offset by a $4.2 million reduction in revenue from our brokerage subsidiary in the 2019 quarter, compared with 2018. Additionally, our brokerage subsidiary contributed $2.0 million more revenue for the six months ended June 30, 2019 compared to the same 2018 period.
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Managed Freight revenue increased $8.9 million quarter-over-quarter and $14.8 million for the six-month period, as a result of growth with existing customers compared with the same 2017 periods, as well as increased overflow freight from our Truckload services.

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 Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
Salaries, wages, and related expenses $75,781  $64,633  $155,284  $125,253 
% of total revenue  34.6%  32.9%  35.4%  33.9%
% of freight revenue  38.9%  37.9%  39.7%  39.0%
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Salaries, wages, and related expenses $64,633  $58,584  $125,253  $117,908 
% of total revenue  32.9%  35.7%  33.9%  36.5%
% of freight revenue  37.9%  40.2%  39.0%  41.3%

Salaries, wages, and related expenses increased approximately $6.0$11.1 million, or 10.3%17.2%, for the three months ended June 30, 2018,2019, compared with the same quarter in 2017.2018. As a percentage of total revenue, salaries, wages, and related expenses decreasedincreased to 32.9%34.6% of total revenue for the three months ended June 30, 2018,2019, from 35.7%32.9% in the same quarter in 2017.2018. As a percentage of freight revenue, salaries, wages, and related expenses decreasedincreased to 37.9%38.9% of freight revenue for the three months ended June 30, 2018,2019, from 40.2%37.9% in the same quarter in 2017.2018.

For the six months ended June 30, 2018,2019, salaries, wages, and related expenses increased approximately $7.3$30.0 million, or 6.2%24.0%, compared with the same period in 2017.2018.  As a percentage of total revenue, salaries, wages, and related expenses decreasedincreased to 33.9%35.4% of total revenue for the six months ended June 30, 2018,2019, from 36.5%33.9% for the six months ended June 30, 2017.2018.  As a percentage of freight revenue, salaries, wages, and related expenses decreasedincreased to 39.0%39.7% of freight revenue for the six months ended June 30, 2018,2019, from 41.3%39.0% in the same period in 2017.2018.

The percentage decreases inThese increases are primarily due to increased headcount from the Landair acquisition, as well as driver and non-driver pay increases since the first quarter of 2018.
When compared to periods prior to the Landair acquisition, we expect salaries, wages and related expenses for both the quarter and six-month period are primarily thewill be higher as a result of a lower percentage of our fleet comprised of team-driven tractors, partially offset by driver and non-driver pay increases beginning in the second quarter of 2017.  Additionally, workers’ compensation decreased 0.8 cents per mile and 0.5 cents per mile, respectively compared toincreased headcount resulting from the same 2017 periods.

Going forward, weLandair 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 maintain or 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.
Fuel expense
 Three Months Ended Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
Fuel expense $29,215  $29,209  $57,047  $56,390 
% of total revenue  13.3%  14.9%  13.0%  15.2%
% of freight revenue  15.0%  17.1%  14.6%  17.6%
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FuelTotal fuel expense remained relatively even at $29.2 million  for the three months ended June 30, 2019, compared with the same quarter in 2018. As a percentage of total revenue, total fuel expense decreased to 13.3% of total revenue for the three months ended June 30, 2019, from 14.9% in the same quarter in 2018. As a percentage of freight revenue, total fuel expense decreased to 15.0% of freight revenue for the three months ended June 30, 2019, as compared to 17.1% for the 2018 quarter. 

  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Total fuel expense $29,209  $24,911  $56,390  $50,313 
% of total revenue  14.9%  15.2%  15.2%  15.6%
For the six months ended June 30, 2019, total fuel expense increased approximately $0.7 million, or 1.4%, compared with the same period in 2018.  As a percentage of total revenue, total fuel expense decreased to 13.0% of total revenue for the six months ended June 30, 2019, from 15.2% in the 2018 period.  As a percentage of freight revenue, total fuel expense decreased to 14.6% of freight revenue from 17.6% for the six months ended June 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. Ultra-low-sulfur dieselFuel prices as measured by the DOE averaged approximately $0.65 per gallon and $0.54 per gallon higher, respectively, forremained relatively flat in the second quarter and six-month period ended June 30, 2018of 2019 compared with the same 2017 quarter in 2018, at $3.12 per gallon and period.

Additionally, $0.5 million and $0.7 million, respectively, were reclassifieddecreased to $3.07 from accumulated other comprehensive income into our results of operations as a reduction to fuel expense$3.18 for the three and six months ended June 30, 2019 and 2018 related to gains on fuel hedge contracts that expired. At June 30, 2018, all the fuel hedge contracts were deemed to be effective and thus continue to qualify as cash flow hedges. respectively.
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
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Total fuel surcharge $25,683  $18,740  $48,787  $37,358 
Less: Fuel surcharge revenue reimbursed to independent contractors and other third parties  3,231   1,822   5,826   3,584 
Company fuel surcharge revenue $22,452  $16,918  $42,961  $33,774 
Total fuel expense $29,209  $24,911  $56,390  $50,313 
Less: Company fuel surcharge revenue  22,452   16,918   42,961   33,774 
Net fuel expense $6,757  $7,993  $13,429  $16,539 
% of freight revenue  4.0%  5.5%  4.2%  5.8%

Total fuel expense increased approximately $4.3 million, or 17.3%, for the three months ended June 30, 2018, compared with the same quarter in 2017.  As a percentage of total revenue, total fuel expense decreased to 14.9% of total revenue for the three months ended June 30, 2018, from 15.2% in the same quarter in 2017. As a percentage of freight revenue, total fuel expense remained flat at 17.1% of freight revenue for the three months ended June 30, 2018, compared to the same quarter in 2017.

For the six months ended June 30, 2018, total fuel expense increased approximately $6.1 million, or 12.1%, compared with the same period in 2017.  As a percentage of total revenue, total fuel expense decreased to 15.2% of total revenue for the six months ended June 30, 2018, from 15.6% in the 2017 period.  As a percentage of freight revenue, total fuel expense remained flat at 17.6% of freight revenue for the six months ended June 30, 2018, compared to the 2017 period.
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  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2019  2018  2019  2018 
Total fuel surcharge $24,381  $25,683  $47,800  $48,787 
Less: Fuel surcharge revenue reimbursed to independent contractors and other third parties  3,038   3,231   5,980   5,826 
Company fuel surcharge revenue $21,343  $22,452  $41,820  $42,961 
Total fuel expense $29,215  $29,209  $57,047  $56,390 
Less: Company fuel surcharge revenue  21,343   22,452   41,820   42,961 
Net fuel expense $7,872  $6,757  $15,227  $13,429 
% of freight revenue  4.0%  4.0%  3.9%  4.2%
 
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These changes in total fuel expense for the quarter and six-month period ended June 30, 2018 are primarily due to the changes in the average price per gallon of ultra-low-sulfur diesel as measured by the DOE compared with the same periods in 2017.

Net fuel expense decreased $1.2increased $1.1 million, or 15.5%16.5%, and $3.1$1.8 million, or 18.8%, respectively,13.4% for the quarter and six months ended June 30, 2018,2019, as compared to the same 2017 quarter and period.2018 periods. As a percentage of freight revenue, net fuel expense decreased toremained relatively even at 4.0% and 4.2%, respectively,3.9% for the quarter and six months ended June 30, 2018,2019, as compared to the same 2017 quarter and period.2018 periods. The change in net fuel expense is primarily due to brokering less freight anda lack of the tiered reimbursement structure of certain fuel surcharge agreements, as well as the aforementioned gains onfavorable fuel hedging transactions. The decreases were partially offset by a greater percentage of miles driven by independent contractors, where we pay a rateactivity that reflects then-existingwas present in the 2018 periods.  We have not had any fuel prices and we do not have the natural hedge created by fuel surcharge.hedges in place since December 2018.

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, and gains and losses on fuel hedging contracts.initiatives.

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Given recent historical lows, we would expect diesel fuel prices to increase over the next few years. We are continuing our efforts to increase our ability to recover fuel surcharges under our customer contracts for fuel used in refrigeration units. If these efforts are successful, it could give rise to an increase in fuel surcharges recovered and a corresponding decrease in net fuel expense. Also, due to hedging contracts being locked in at a fixed rate on a portion of the fuel gallonsHowever, we expect to use in 2018,continue to experience improved fuel economy as we expect netupgrade our tractor fleet, and while our fuel expensesurcharge recovery has remained relatively flat, the possibility of further improvement exists if efforts to decline in 2018 if fuel prices remain flat or increase. We do not currently have fuel hedging contracts for periods beyond 2018.grow our dedicated business are successful.

Operations and maintenance

 Three Months Ended Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
Operations and maintenance $14,898  $12,595  $30,072  $24,325 
% of total revenue  6.8%  6.4%  6.9%  6.6%
% of freight revenue  7.6%  7.4%  7.7%  7.6%
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Operations and maintenance $12,595  $12,044  $24,325  $24,457 
% of total revenue  6.4%  7.3%  6.6%  7.6%
% of freight revenue  7.4%  8.3%  7.6%  8.6%

Operations and maintenance increased approximately $0.6$2.3 million, or 4.6%18.3% and $5.7 million, or 23.6%, for the threequarter and six months ended June 30, 2018,2019, compared with the same quarterperiods in 2017.2018. As a percentage of total revenue, operations and maintenance decreasedincreased to 6.4%6.8% and 6.9% of total revenue for the threequarter and six months ended June 30, 2018,2019, from 7.3%6.4% and 6.6% in the same quarterperiods in 2017.2018. As a percentage of freight revenue, operations and maintenance decreasedincreased to 7.4%7.6% and 7.7% of freight revenue for the three months ended June 30, 2018, from 8.3% in the same quarter in 2017.

For theand six months ended June 30, 2018, operations2019, from 7.4% and maintenance decreased $0.1 million, or 0.5%, compared with the same period in 2017.  As a percentage of total revenue, operations and maintenance decreased to 6.6% of total revenue for the six months ended June 30, 2018, from 7.6%in the same periodperiods in 2017.  As a percentage of freight revenue, operations and maintenance decreased to 7.6% of freight revenue for the six months ended June 30, 2018, from 8.6% in the same period in 2017. The changes for the quarter and six-month period2018. These increases were primarily the result of extending the trade cycleacquisition of our tractors in the second halfLandair and its respective higher average age of 2017 that reduced trade preparation costs, partially offset by unloadingtractor and other operational costs associated with our increase in dedicated freight that was added since the first quarter of 2017.trailer equipment.
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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, but is expected to increase in the near term when compared to the first half of 2018.models.

Revenue equipment rentals and purchased transportation

 Three Months Ended Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
Revenue equipment rentals and purchased transportation $47,169  $37,388  $95,839  $68,079 
% of total revenue  21.5%  19.0%  21.9%  18.4%
% of freight revenue  24.2%  21.9%  24.5%  21.2%
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Revenue equipment rentals and purchased transportation $37,388  $28,987  $68,079  $54,358 
% of total revenue  19.0%  17.6%  18.4%  16.8%
% of freight revenue  21.9%  19.9%  21.2%  19.0%

Revenue equipment rentals and purchased transportation increased approximately $8.4$9.8 million, or 29.0%26.2%, for the three months ended June 30, 2018,2019, compared with the same quarter in 2017.2018. As a percentage of total revenue, revenue equipment rentals and purchased transportation increased to 19.0%21.5% of total revenue for the three months ended June 30, 2018,2019, from 17.6%19.0% in the same quarter in 2017.2018. As a percentage of freight revenue, revenue equipment rentals and purchased transportation increased to 21.9%24.2% of freight revenue for the three months ended June 30, 2018,2019, from 19.9%21.9% in the same quarter in 2017.2018.

For the six months ended June 30, 2018,2019, revenue equipment rentals and purchased transportation increased approximately $13.7$27.8 million, or 25.2%40.8%, compared with the same period in 2017.2018.  As a percentage of total revenue, revenue equipment rentals and purchased transportation increased to 18.4%21.9% of total revenue for the six months ended June 30, 2018,2019, from 16.8%18.4% in the same period in 2017.2018.  As a percentage of freight revenue, revenue equipment rentals and purchased transportation increased to 21.2%24.5% of freight revenue for the six months ended June 30, 2018,2019, from 19.0%21.2% in the same period in 2017.2018. 

These increases were primarily the result of the acquisition of Landair's managed freight business, which added to overall purchased transportation cost but is less reliant on purchased transportation to generate revenue, compared to our existing brokerage and logistics services. Additionally, we experienced increases due to a more competitive market for sourcing third-party capacity in our existing Managed Freight segment, primarily in the first quarter of 2019. Further, the percentage of the total miles run by independent contractors increased from 11.0% and 11.9% for the three and six months ended June 30, 2018, were primarilyrespectively, to 12.6% and 12.8% for the result of a more competitive market for sourcing third-party capacity in our Managed Freight segment, as well as an increase in our number of independent contractors, partially offset by the late 2017 discontinuation of our temperature-controlled intermodal service offering. same 2019 periods.
We expect revenue equipment rentals to decrease going forward as a result of our increase in acquisition of revenue equipment through financed purchases or capitalfinance leases rather than operating leases.leases, particularly as we transition Landair from operating leases to owned equipment. As discussed below, this decrease may be partially or fully offset by an increase in purchased transportation, as we expect to continue to grow our Managed Freight segment, as well as a result of reduced capacity.

We expect purchased transportation to increase as we seek to grow our Managed Freight segment. In addition, if fuel prices continue to 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, andloads handled by Managed Freight, the percentage of our fleetand tractors, trailers, and other assets financed with operating leases, andleases. In addition, factors such as the cost to obtain third party transportation services as well asand the amount of fuel surcharge revenue passed through to the third party carriers and independent contractors.contractors will affect this expense category. If industry-wide trucking capacity remains tight, we believewere 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 wouldcould 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. Further, we exited the temperature-controlled intermodal business in the fourth quarter of 2017 in order to focus on our objective to continue improvements at SRT. As a result, we expect purchased transportation costs at SRT to decrease going forward, which could partially offset any increase in consolidated purchased transportation.


Operating taxes and licenses

  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Operating taxes and licenses $2,613  $2,097  $5,273  $4,832 
% of total revenue  1.3%  1.3%  1.4%  1.5%
% of freight revenue  1.5%  1.4%  1.6%  1.7%
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Operating taxes and licenses
 Three Months Ended Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
Operating taxes and licenses $3,365  $2,613  $6,549  $5,273 
% of total revenue  1.5%  1.3%  1.5%  1.4%
% of freight revenue  1.7%  1.5%  1.7%  1.6%
 
For the periods presented, the changechanges in operating taxes and licenses waswere not significant as either a percentage of total revenue or freight revenue.

Insurance and claims

 Three Months Ended Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
Insurance and claims $10,472  $9,908  $21,707  $18,593 
% of total revenue  4.8%  5.0%  5.0%  5.0%
% of freight revenue  5.4%  5.8%  5.6%  5.8%
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Insurance and claims $9,908  $7,914  $18,593  $16,632 
% of total revenue  5.0%  4.8%  5.0%  5.1%
% of freight revenue  5.8%  5.4%  5.8%  5.8%

Insurance and claims, consisting primarily of premiums and deductible amounts for liability, physical damage, and cargo damage insurance and claims, increased approximately $2.0$0.6 million, or 25.2%,5.7%  for the three months ended June 30, 2018,2019 compared with the same quarter in 2017.  As a percentage of total revenue, insurance and claims increased to 5.0% of total revenue for the three months ended June 30, 2018, from 4.8% in the same quarter of 2017.  As a percentage of freight revenue, insurance and claims increased to 5.8% of freight revenue for the three months ended June 30, 2018, from 5.4% in the same quarter in 2017.  Insurance and claims cost per mile increased to 12.6 cents per mile in the second quarter of 2018 from 10.1 cents per mile in the second quarter of 2017.

For the six months ended June 30, 2018, insurance and claims increased approximately $2.0 million, or 11.8%, compared with the same period in 2017.2018. As a percentage of total revenue, insurance and claims decreased to 4.8% of total revenue for the  three months ended June 30, 2019, from 5.0% in the same quarter in 2018. As a percentage of freight revenue, insurance and claims decreased to 5.4% of freight revenue for the three months ended June 30, 2019, from 5.8% in the same quarter in 2018. Insurance and claims per mile cost remained relatively even at 12.4 cents per mile in the second quarter of 2019 compared to 12.6 cents per mile in the second quarter of 2018. 
For the six months ended June 30, 2019, insurance and claims increased approximately $3.1 million, or 16.7%, compared with the same period in 2018.  As a percentage of total revenue, insurance and claims remained flat at 5.0% of total revenue for the six months ended June 30, 2018, from 5.1% in2019 compared to the same period in 2017.2018 period. As a percentage of freight revenue, insurance and claims remained flat at 5.8%decreased slightly to 5.6% of freight revenue for the six months ended June 30, 2018,2019, compared to 5.8% for the same period in 2017.2018. Insurance and claims cost per mile increased to 12.113.1 cents per mile in the six months ended June 30, 20182019 from 10.712.1 cents per mile in the same 20172018 period.

These increases The per mile increase is primarily related to an increase in severitythe result of accidents and adverse development on prior period claims during the first six months ended June 30, 2019, partially offset by decreased frequency of accidents compared to the same 2018 as well as an increase in non-chargeableperiod. Our rate of chargeable accidents per million miles, as measured by the U.S. Department of Transportation, while chargeable accidents remained relatively flatdecreased by 8.0% for the six months ended June 30, 2019 compared to the same 20172018 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 including the policy period from April 1, 2013, through September 30, 2014, commuted in 2015, we have commuted the policy, which has lowered our insurance and claims expense. We intend to evaluate our ability to commute the current policy for the three years ended March 31, 2018 and any such commutation could significantly reduceimpact insurance and claims expense, byexpense. 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 $7.2$4.9 million, depending uponon actual claims settlements in the ultimate resolution of claims during that period.

We have accrued a reserve totaling $6.5 million in connectionfuture. Effective April 2018, we entered into new auto liability policies with a judgment that was rendered against us basedthree-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 a 2008 cargo claim.  We recorded an additional $0.9 million of expense inclaims by the first quarter of 2017 in orderinsurer. A decision with respect to accrue additional legal fees and pre-judgment interest since the time of our previous appeal.  We are currently pursuing a second appeal to the Sixth Circuit Court of Appeals related to the District Court’s decision on damages.  If these further proceedings are resolved favorably to us, any reductioncommutation of the accrualpolicy could reduce insurancebe 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 claims expense in the period in which the claim is resolved. On the other hand, if the proceedings are not resolved favorably, insurance and claims expense may increase as a result of continuing litigation expenses.

Communications and utilities

  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Communications and utilities $1,666  $1,706  $3,406  $3,334 
% of total revenue  0.8%  1.0%  0.9%  1.0%
% of freight revenue  1.0%  1.2%  1.1%  1.2%
accordingly, no related amounts were recorded at June 30, 2019.
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Communications and utilities decreased less than $0.1
 Three Months Ended Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
Communications and utilities $1,760  $1,666  $3,478  $3,406 
% of total revenue  0.8%  0.8%  0.8%  0.9%
% of freight revenue  0.9%  1.0%  0.9%  1.1%
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 Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
General supplies and expenses $7,284  $6,423  $14,015  $10,562 
% of total revenue  3.3%  3.3%  3.2%  2.9%
% of freight revenue  3.7%  3.8%  3.6%  3.3%
General supplies and expenses increased approximately $0.9 million, or 2.3%13.4%,for the three months ended June 30, 2018,2019, compared with the same quarter in 2017.2018.  As a percentage of total revenue, communicationsgeneral supplies and utilities decreased to 0.8%expenses remained flat at  3.3% of total revenue for the three months ended June 30, 2018, from 1.0% in2019, compared to the same quarter in 2017.2018.  As a percentage of freight revenue, communicationsgeneral supplies and utilities decreased to 1.0%expenses remained relatively flat at 3.7% of freight revenue for the three months ended June 30, 2018,2019, from 1.2%3.8% in the same quarter in 2017.

2018.
For the six months ended June 30, 2018, communications2019, general supplies and utilitiesexpenses increased less than $0.1$3.5 million, or 2.2%32.7%, compared with the same period in 2017.  As a percentage of total revenue, communications and utilities decreased to 0.9% of total revenue for the six months ended June 30, 2018, from 1.0% in the same period in 2017.  As a percentage of freight revenue, communications and utilities decreased to 1.1% of freight revenue for the six months ended June 30, 2018, from 1.2% in the same period in 2017.

This expense category should remain relatively consistent from period to period, as it is comprised mostly of fixed costs related to maintaining our infrastructure and is largely unaffected by changes in rates and other variable factors.

General supplies and expenses

  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
General supplies and expenses $6,423  $3,462  $10,562  $7,190 
% of total revenue  3.3%  2.1%  2.9%  2.2%
% of freight revenue  3.8%  2.4%  3.3%  2.5%

General supplies and expenses increased approximately $3.0 million, or 85.5%, for the three months ended June 30, 2018, compared with the same quarter in 2017.2018.  As a percentage of total revenue, general supplies and expenses increased to 3.3%3.2% of total revenue for the threesix months ended June 30, 2018,2019, from 2.1%2.9% in the same quarterperiod in 2017.2018.  As a percentage of freight revenue, general supplies and expenses increased to 3.8% of freight revenue for the three months ended June 30, 2018, from 2.4% in the same quarter in 2017.

For the six months ended June 30, 2018, general supplies and expenses increased approximately $3.4 million, or 46.9%, compared with the same period in 2017.  As a percentage of total revenue, general supplies and expenses increased to 2.9% of total revenue for the six months ended June 30, 2018, from 2.2% in the same period in 2017.  As a percentage of freight revenue, general supplies and expenses increased to 3.3%3.6% of freight revenue for the six months ended June 30, 2018,2019, from 2.5%3.3% in the same period in 2017.

2018.
These increases are primarily comprisedrelate to the acquisition of $1.5Landair, which contributed $2.0 million ofand $3.8 million to general supplies and expenses during the quarter and six months ended June 30, 2019, respectively, partially offset by increased legal and professional expenses incurred induring the second quarter of 2018 related to ourthe acquisition of Landair. We expect the changes in general supplies and expenses versus prior year periods to moderate in the third quarter of 2019 and thereafter, since Landair which closed onwas acquired in July 3, 2018, as well as the write-off of approximately $0.3 million of previously capitalized in-process software investment costs that were deemed to be redundant in connection with the Landair acquisition.2018.

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

 Three Months Ended Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
Depreciation and amortization, including gains and losses on disposition of property and equipment $20,510  $17,818  $40,218  $37,513 
% of total revenue  9.4%  9.1%  9.2%  10.1%
% of freight revenue  10.5%  10.4%  10.3%  11.7%
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Depreciation and amortization $17,818  $20,659  $37,513  $39,775 
% of total revenue  9.1%  12.6%  10.1%  12.3%
% of freight revenue  10.4%  14.2%  11.7%  13.9%

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 decreased approximately $2.8increased by $2.7 million, or 13.8%15.1%, for the three months ended June 30, 2018,2019, compared with the same quarter in 2017.2018. As a percentage of total revenue, depreciation and amortization increased to 9.4% of total revenue for the three months ended June 30, 2019, from 9.1% in the same quarter in 2018.  As a percentage of freight revenue, depreciation and amortization increased to 10.5% of freight revenue for the three months ended June 30, 2019, from 10.4% in the same quarter in 2018.
For the six months ended June 30, 2019, depreciation and amortization increased approximately $2.7 million, or 7.2%, compared with the same period in 2018. As a percentage of total revenue, depreciation and amortization decreased to 9.1%9.2% of total revenue for the threesix months ended June 30, 2018,2019, from 12.6%10.1% in the same quarterperiod in 2017.2018.  As a percentage of freight revenue, depreciation and amortization decreased to 10.4% of freight revenue for the three months ended June 30, 2018, from 14.2% in the same quarter in 2017.
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For the six months ended June 30, 2018, depreciation and amortization decreased approximately $2.3 million, or 5.7%, compared with the same period in 2017. As a percentage of total revenue, depreciation and amortization decreased to 10.1% of total revenue for the six months ended June 30, 2018, from 12.3% in the same period in 2017.  As a percentage of freight revenue, depreciation and amortization decreased to 11.7%10.3% of freight revenue for the six months ended June 30, 2018,2019, from 13.9%11.7% in the same period in 2017.2018

Excluding gains and losses, depreciation decreased approximately $0.4increased $1.6 million and $2.2 million to $19.8 million and $39.0 million for the both the quarter and six-month periodsix months ended June 30, 2018.2019, respectively, compared to $18.2 million and $36.8 million in the same 2018 periods. Gains and losses on the sale of property and equipment totaled $0.4 million of gains and $0.7 million of losses in the quarter and six-month periods ended June 30, 2018, respectively, compared to losses of $2.1were less than $0.1 million and $2.5$0.2 million in the quarter and six-month periodssix months ended June 30, 2017, respectively. 2019, compared to gains of $0.4 million and losses of $0.7 million in the same 2018 periods. Amortization of intangible assets were $0.7 million and $1.5 million for the three and six months ended June 30, 2019, compared to zero in the 2018 periods, due to the Landair acquisition.
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We expect the impact on our earnings from depreciation and amortization, including amortization of intangible assets, to remain relatively evenconsistent 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 Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
Interest expense, net $2,683  $1,941  $5,129  $3,900 
% of total revenue  1.2%  1.0%  1.2%  1.1%
% of freight revenue  1.4%  1.1%  1.3%  1.2%
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Interest expense, net $1,941  $1,961  $3,900  $4,041 
% of total revenue  1.0%  1.2%  1.1%  1.3%
% of freight revenue  1.1%  1.3%  1.2%  1.4%

InterestFor the periods presented, the changes in interest expense, net decreased less than $0.1 million, or 1.0%, for the three months ended June 30, 2018, compared with the same quarter in 2017.  Aswere not significant as either a percentage of total revenue interest expense, net decreased to 1.0% of total revenue for the three months ended June 30, 2018, from 1.2% in the same quarter in 2017.  As a percentage ofor freight revenue, interest expense, net decreased to 1.1% of freight revenue for the three months ended June 30, 2018, from 1.3% in the same quarter in 2017.revenue.

For the six months ended June 30, 2018, interest expense, net increased approximately $0.1 million, or 3.5%, compared with the same period in 2017.  As a percentage of total revenue, interest expense, net decreased to 1.1% of total revenue for the six months ended June 30, 2018, from 1.3% in the same period in 2017.  As a percentage of freight revenue, interest expense, net decreased to 1.2% of freight revenue for the six months ended June 30, 2018, from 1.4% in the same period in 2017.

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. We expect interest expense, net to increase in the second half of 2018 due to increased debt associated with the Landair acquisition.

Income from equity method investment

 Three Months Ended Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
Income from equity method investment $2,375  $1,775  $5,410  $3,265 
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Income from equity method investment $1,775  $800  $3,265  $1,825 

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’sTEL's net income forincome. For the three and six months ended June 30, 2018. The2019, the increase in TEL’sTEL's contributions to our results is primarily due to growth in TEL’s lease offerings, as well as improvements in the used tractor market compared to the same 20172018 periods. We expect the impact on our earnings resulting from our investment in TEL to continue to improve year-over-year, forbased on the remainderfixed nature of 2018.lease revenue and expenses and the growth experienced during 2018 and the first half of 2019.
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Income tax expense

 Three Months Ended Six Months Ended 
 June 30, June 30, 
 2019 2018 2019 2018 
Income tax expense $2,465  $3,928  $4,047  $5,467 
% of total revenue  1.1%  2.0%  0.9%  1.5%
% of freight revenue  1.3%  2.3%  1.0%  1.7%
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Income tax expense $3,928  $1,253  $5,467  $545 
% of total revenue  2.0%  0.8%  1.5%  0.2%
% of freight revenue  2.3%  0.9%  1.7%  0.2%

Income tax expense increaseddecreased approximately $2.7$1.5 million, or 213.5%37.2%, for the three months ended June 30, 2018,2019, compared with the same quarter in 2017.2018.  As a percentage of total revenue, income tax expense increaseddecreased to 2.0%1.1% of total revenue for the three months ended June 30, 2018,2019, from 0.8%2.0% in the same quarter in 2017.2018.  As a percentage of freight revenue, income tax expense increaseddecreased to 2.3%1.3% of freight revenue for the three months ended June 30, 2018,2019, from 0.9%2.3% in the same quarter in 2017.2018.

For the six months ended June 30, 2018,2019, income tax expense increaseddecreased approximately $4.9$1.4 million, or 903.1%26.0%, compared with the same period in 2017.2018.  As a percentage of total revenue, income tax expense increaseddecreased to 1.5%0.9% of total revenue for the six months ended June 30, 2018,2019, from 0.2%1.5% in the same period in 2017.2018.  As a percentage of freight revenue, income tax expense increaseddecreased to 1.7%1.0% of freight revenue for the six months ended June 30, 2018,2019, from 0.2%1.7% in the same period in 2017.2018.

These increasesdecreases were primarily related to the $11.1$5.4 million and $17.8$5.3 million increasesdecreases in the pre-tax income in the three- and six-month periods ended June 30, 2018,2019, respectively, compared to the same 20172018 periods, resulting from the improvementsdecline in operating income andas discussed above, partially offset by the contribution from TEL’s earnings noted above, partially offset by a lower tax rate due to the Tax Cuts and Jobs Act of 2017.above.

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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 20182019 effective income tax rate to be 26.0%approximately 27.6%.

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 $16.6 million and $4.1 million of our 2019 revenue, respectively.
COMPARISON OF THREE AND SIX MONTHS ENDED JUNE 30, 20182019 TO THREE AND SIX MONTHS ENDED JUNE 30, 20172018

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

  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
(in thousands) 2019  2018  2019  2018 
Revenues:            
Truckload $175,408  $170,711  $348,069  $325,259 
Managed Freight  43,890   25,607   90,410   44,625 
Total $219,298  $196,318  $438,479  $369,884 
                 
Operating Income:                
Truckload $5,181  $11,734  $6,457  $17,095 
Managed Freight  3,663   2,331   7,813   3,395 
Total $8,844  $14,065  $14,270  $20,490 
(in thousands) 
Three months ended
June 30,
  
Six months ended
June 30,
 
  2018  2017  2018  2017 
Total Revenues:            
Truckload $170,711  $147,631  $325,259  $293,256 
Managed Freight  25,607   16,695   44,625   29,814 
                 
Total $196,318  $164,326  $369,884  $323,070 
                 
Operating Income:                
Truckload $11,734  $2,377  $17,095  $1,239 
Managed Freight  2,331   1,585   3,395   3,032 
                 
Total $14,065  $3,962  $20,490  $4,271 


For the 2018 quarter Truckload total revenue increased $23.1 million due to a $16.1The $6.2 million increase in freightTruckload revenue as well as a $7.0 million increase in fuel surcharge revenue. The increase in freight revenue primarily relates to a 14.2%486 (or 18.7%) average tractor increase, offset by a 12.2% decrease in average freight revenue per tractor per week from the 20172018 quarter. Landair contributed $20.6 million of freight revenue to consolidated Truckload operations for the quarter partially offset by a $3.3 millionended June 30, 2019, and the July 2018 acquisition was primarily responsible for the increase in average tractors. The decrease in average freight revenue from our temperature-controlled intermodal service, as a result of discontinuing this service offering during December 2017.  The increase in freight revenueper tractor per week for the quarter ended June 30, 2019 is the result of an increase in average freight revenue per total mile of 23.9 cents per mile compared to the 2017 quarter, partially offset by a slight 0.4%11.3% decrease in average miles per tractor.unit, and a 1.8 cents per mile (or 1.0%) decrease in average rate per total mile compared to the 2018 quarter. Landair’s shorter average length of haul and dedicated contract, solo-driven truck operations generally produce higher revenue per loaded mile and fewer miles per unit than our other truckload services. Team-driven trucks decreased to an average of 842 teams in the second quarter of 2019, a decrease of approximately 4.1% from the average of 878 teams in the second quarter of 2018.
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For the six-month period ended June 30, 2019, total revenue increased $68.6 million, or 18.5%, to $438.5 million from $369.9 million in the 2018 period.  Freight revenue increased $69.6 million, or 21.7%, to $390.7 million for the six months ended June 30, 2019, from $321.1 million in the 2018 Truckload totalperiod, while fuel surcharge revenue increased $32.0decreased $1.0 million due toperiod-over-period. The increase in freight revenue resulted from a $20.6$45.8 million increase in revenue from our Managed Freight segment, as well as a $24.1 million increase in freight revenue as well as an $11.4from our Truckload segment.
The $24.1 million increase in fuel surcharge revenue. The increase inTruckload freight revenue primarily relates to a 10.3%523 (or 20.2%) average tractor increase, offset by 9.6% decrease in average freight revenue per tractor per week from the 2017 period,2019 year-to-date period.  Landair contributed $40.5 million of freight revenue to the consolidated Truckload operations for the six months ended June 30, 2019 and the July 2018 acquisition was primarily responsible for the increase in average tractors.  The decrease in average freight revenue per tractor per week for the six months ended June 30, 2019 is the result of an 11.9% decrease in average miles per unit partially offset by a $6.5 million decrease4.8 cents per mile increase in freight revenue from our discontinued refrigerated intermodal service offering.average rate per total mile.  Team driven units decreased approximately 12.1%3.7% to an average of 886853 for the six-month period ended June 30, 20182019 compared to an average of 1,008886 teams during the same 20172018 period.

Our Truckload operating income forwas $6.6 million and $10.6 million lower in the three2019 quarter and six months ended June 30, 2018 was $9.4 million and $15.9 million higher2019 than in the same 20172018 periods,, respectively, due to the abovementioned increases in revenue, partially offset by an increase in operating costs per mile, net of fuel surcharge revenue, primarily related to increasedthe abovementioned increases in salaries and driver compensation as well as increased insurance and claims costpurchased transportation. These increases were partially offset by increases in revenue.
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Managed Freight total revenue and operating income increased $8.9 million and $0.7$18.3 million quarter-over-quarter respectively, and increased $14.8$45.8 million and $0.4 million period-over-period, respectively.  The revenue increases arefor the six-month period ended June 30, 2019, primarily as a result of growth with existing customers, while operating income isLandair’s contribution of $21.4 million  and $41.7 million, respectively, to combined Managed Freight operations, partially offset by a $4.2 million reduction in freight revenue from our brokerage subsidiary in the 2019 quarter, compared with 2018. Additionally, our brokerage subsidiary contributed $2.0 million more competitive marketrevenue for sourcing third-party capacity, which increased our costs.the six months ended June 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, capitalfinance 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, 3PL,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 $172.5$92.9 million and $81.1$84.3 million at June 30, 20182019 and December 31, 2017,2018, 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 capital expenditures,cash flows, installment notes, and other sources of financing, and net cash flows during the next twelve months, 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 2018,2019, while any other property and equipment purchases, including trailers, are expected to be funded with a combination of notes, operating leases, capitalfinance leases, and/or from the Credit Facility. With a relatively young average fleet age at June 30, 2018,2019, 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 owner operatorindependent contractor fleet, our capital requirements would be reduced. As of June 30, 2018, there were2019, we had $17.3 million of borrowings outstanding, undrawn letters of credit outstanding of approximately $36.8$34.8 million, and available borrowing capacity was $56.4of $42.9 million and there were no outstanding borrowings under the Credit Facility Our intra-period borrowings on the Credit Facility ranged from zero to approximately $21.6 million during the first six months of 2018.Facility. Fluctuations in the outstanding balance and related availability on theunder 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. As a resultUnless we decide to make any strategic investments during the year, we anticipate paying off an aggregate of approximately $40.0 to $60.0 million of financing and lease liabilities, comprised of both on and off balance sheet obligations, during 2019. Refer to Note 5, “Debt” of the Landair acquisition, our working capital subsequent to June 30, 2018 was reduced by approximately $45.5 million as the result of using cash on hand to fund a portion of the purchase. We also borrowed approximately $53.0 million to fund the remainder of the purchase price, and while we have experienced and expect favorable cash flows from operations, when compared to 2017, we expect our leverage at December 31, 2018 to approximate December 31, 2017.accompanying consolidated financial statements for further information about material debt agreements.

Cash Flows

Net cash flows provided by operating activities increased $16.3decreased $39.0 million infor the six-month period ended June 30, 2018 than in2019 compared with the 2017same 2018 period, primarily due to an increase in net income of $12.9 million, a corresponding increase in deferred income tax expense, fluctuations in cash flows from accounts payable and accrued expenses, as well as fluctuations in receivables and driver advances, resulting from a strong freight economy and increased fuel cost and related surcharges.  These increases were partially offset by an increase in insurance and claims accruals due to an increase in accident severity during 2018 compared to same 2017 period.  The fluctuations in cash flows from accounts payable and accrued expenses primarily related tothe timing and amount of payments on our accrued expenses and trade accounts in the 20182019 period compared to the 2017same 2018 period, as well as transaction coststhe reduction of receivables related to reduced total revenue in our acquisitionTruckload segment partially offset by the receivables for Landair as a result of Landair.the July 2018 acquisition. These decreases were partially offset by the growth of receivables purchased by our factoring division.
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Net cash flows providedused by investing activities was $65.3 million for the six months ended June 30, 2019, compared to $6.4 million of proceeds in the same 2018 period, compared to net cash flows used in investing activities of $24.1 million in the 2017 period. The change in net cash flows used inby investing activities was primarily the result of the timing of our trade cycle whereby we took delivery of approximately 394726 new company tractors and disposed of approximately 465304 used tractors in the 2019 period compared to delivery and disposal of 305approximately 394 and 252465 tractors, respectively in the same 2017 period. The trade cycle timing is partially the result of an improved used tractor market and new equipment not being delivered as fast in 2018 as 2017, due to an increase in demand for new tractors.

period.
Net cash flows provided by financing activities was approximately $47.4 million for the six-months ended  June 30, 2019, compared to $37.8 million in the same 2018 period, compared to net cash flows used in financing activities of $11.3 million in the 2017 period. The change in net cash flows used inprovided by financing activities was primarily a function of net proceeds from our notes payable and Credit Facility of $51.2 million in 2019 compared to $39.4 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 prior to June 30,in the 2018 to partially fundperiod in anticipation of funding the LandairJuly 2018 acquisition.

of Landair.
Going forward, our cash flow may fluctuate depending on capital expenditures, the resolution of the 2008 cargo claim, future stock repurchases, strategic investments or divestitures, and the extent of future income tax obligations and refunds.

Material Debt Agreements

We and substantially all of our subsidiaries are parties to a Third Amended and Restated Credit Facility (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.  As of June 30, 2018, there were undrawn letters of credit outstanding of approximately $36.8 million, available borrowing capacity was $56.4 million, and there were no outstanding borrowings under the Credit Facility. Based on availability as of June 30, 2018 and December 31, 2017, 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.
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Capital lease obligations are utilized to finance a portion of our revenue equipment and are entered into with certain finance companies who are not parties to our Credit Facility.  The leases in effect at June 30, 2018 terminate in July 2018 through September 2023 and contain guarantees of the residual value of the related equipment by us. As such, the residual guarantees are included in the related debt balance as a balloon payment at the end of the related term as well as included in the future minimum capital lease payments. These lease agreements require us to pay personal property taxes, maintenance, and operating expenses. As of June 30, 2018, our total capital lease obligations were $40.0 million, compared to $24.7 million as of December 31, 2017. The increase included financing previously unencumbered equipment to fund a portion of the Landair acquisition.

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 July 2018 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 $169.7 million are cross-defaulted with the Credit Facility. Our revenue equipment installment notes totaled $203.6 million as of June 30, 2018, compared to $154.7 million as of December 31, 2017. The increase was primarily used to finance the Landair acquisition. Additionally, the abovementioned fuel hedge contracts totaling $1.3 million at June 30, 2018, 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 for the remainder of 2018, 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.

OFF-BALANCE SHEET ARRANGEMENTS

Operating leases have been an important source of financing for our revenue equipment and certain real estate.  At June 30, 2018, we had financed 234 tractors and 764 trailers under operating leases.  Vehicles held under operating leases are not carried on our condensed consolidated balance sheets, and operating lease payments in respect of such vehicles are reflected in our condensed consolidated statements of operations in the line item "Revenue equipment rentals and purchased transportation."  Our revenue equipment rental expense was approximately $2.9 million in the second quarters of both 2018 and 2017. The total value of remaining payments under operating leases as of June 30, 2018 was approximately $14.1 million. In connection with various operating leases, we issued residual value guarantees, which provide that if we do not purchase the leased equipment from the lessor at the end of the lease term, we are liable to the lessor for an amount equal to the shortage (if any) between the proceeds from the sale of the equipment and an agreed value.  The undiscounted value of the residual guarantees was approximately $4.0 million at June 30, 2018. The residual guarantees at June 30, 2018 expire between August 2018 and February 2019.  The discounted present value of the total remaining lease payments and residual value guarantees were approximately $17.5 million as of June 30, 2018.  We expect our residual guarantees to approximate the market value at the end of the lease term. We believe that proceeds from the sale of equipment under operating leases would exceed the payment obligation on substantially all operating leases.

CONTRACTUAL OBLIGATIONS

During the three and six months ended June 30, 2018,2019, there were no material changes in our commitments or contractual liabilities, excluding the aforementioned increase in debt and capital leases used to partially finance the Landair acquisition. See Note 7 for additional information.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 six months ended June 30, 2018,2019, compared to those disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our 20172018 Annual Report on Form 10-K, other than the adoption of ASU 2014-09, as discussed in Note 1.10-K.
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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 enterentered into various derivative instruments, including forward futures swap contracts. Specifically, we enterWe have historically entered into hedging contracts with respect to ultra-lowultra low sulfur diesel ("ULSD"). Under these contracts, we paypaid a fixed rate per gallon of ULSD and receivereceived 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 June 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 or decrease in the price of diesel per gallon would have an approximately $0.4 million impact todecrease our net income due to our fuel surcharge recovery and existing fuel hedge contracts.by $2.8 million. This sensitivity analysis considers that we expect to purchase approximately 22.323.3 million gallons of diesel during the remainder of 2018, on which we recover approximately 85.4%2019, with an assumed fuel surcharge recovery rate of  83.5% of the cost (which was our fuel surcharge recovery rate during the year-to-date periodsix-months ended June 30, 2018)2019). Assuming our fuel surcharge recovery is consistent during the remainder of 2018, this leaves 3.3 million gallons that are not covered by the natural hedge created by our fuel surcharges.  Because we have hedged a portion of our fuel, we will not realize the impact of changes in fuel prices to the same extent as we would have had we not entered into our hedge contracts.

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 as described in Note 7.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 swapsswap 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 June 30, 2019 and December 31, 2018 of approximately $0.9$1.3 million isand $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 six months ended June 30, 2018,2019, respectively, related to changes in interest rates during such period.periods. Based on the amounts in accumulated other comprehensive income as of June 30, 2018,2019, we expect to reclassify gainslosses of approximatelyless 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.

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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 $268.5$323.3 million of debt and capitaloperating and finance leases, we had $34.5$49.8 million of variable rate debt outstanding at June 30, 2018,2019, including our Credit Facility, a real-estate note and certain equipment notes, of which the real-estate note of $25.3$24.3 million was hedged with the interest rate swap agreement at 4.2% and certain of our equipment notes totaling $9.2$8.2 million were hedged to provide a weighted average interest rate of 2.9%2.0%. The interest rates applicable to these agreements are based on either the prime rate or LIBOR. Due to ourOur earnings would be affected by changes in these short-term interest rate swaps, atrates. Risk can be quantified by measuring the financial impact of a near-term adverse increase in short-term interest rates. At our June 30, 20182019 level of borrowing, a 1% increase in our applicable rate would not affectreduce annual net income.income by approximately $0.1 million. Our remaining debt is fixed rate debt, and therefore changes in market interest rates do not directly impact our interest expense.
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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.

We implemented ASU 2014-09, Revenue from ContractsAs of the end of the period covered by this report, we carried out an evaluation, under the supervision and with Customers, on January 1, 2018 with no major changes inthe participation of our internal controls over financial reporting related to our revenue recognition process.

Based on their evaluation as of June 30, 2018, ourmanagement, including the Chief Executive Officer and Chief Financial Officer, have concluded thatof 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) are effective at a reasonable assurance level to ensure. Based upon that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to our management, includingevaluation, 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 appropriate,of June 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 allow timely decisions regarding required disclosure. There wereimplement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, 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.
As of June 30, 2019, we have taken substantial action to implement our remediation plan. We have started developing 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 by reviewing the Company’s remediation efforts with Audit Committee members during each of the six months in fiscal 2019. We believe that these actions will remediate the material weakness. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal 2019.
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 period covered by this reportthree months ended June 30, 2019 that have materially affected, or that are reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.

We have confidence in our internal controls and procedures.  Nevertheless, ourPage 30
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.
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PART IIOTHER INFORMATION
TABLE OF CONTENTS
ITEM 1.
LEGAL PROCEEDINGS

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 June 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 June 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 consolidated financial statements.

On May 8, 2017, the U.S. District Court for the Southern District of Ohio issued a pre-trial decision against our SRT subsidiary relating to a cargo claim incurred in 2008. The court had previously ruled in favor of the plaintiff in 2014, and the prior decision was reversed in part by the Sixth Circuit Court of Appeals and remanded for further proceedings in 2015.  As a result of this decision, we increased the reserve in respect of this case by $0.9 million in the first quarter of 2017 in order to accrue additional legal fees and pre-judgment interest since the time of the previously noted appeal.  We are appealing the District Court’s decision on damages to the Sixth Circuit. Oral arguments are set for August 1, 2018.

Our SRT subsidiary is a defendant in a lawsuit filed on December 16, 2016 in the Superior Court of San Bernardino County, California.  The lawsuit was filed on behalf of David Bass (a California resident and former driver), who is seeking to have the lawsuit certified as a class action case wherein he alleges violation of multiple California wage and hour statutes over a four year period of time, including failure to pay wages for all hours worked, failure to provide meal periods and paid rest breaks, failure to pay for rest and recovery periods, failure to reimburse certain business expenses, failure to pay vested vacation, unlawful deduction of wages, failure to timely pay final wages, failure to provide accurate itemized wage statements, unfair and unlawful competition, as well as various state claims.  The case was removed from state court in February, 2017 to the U.S. District Court in the Central District of California, and subsequently, SRT moved the District Court to transfer venue of the case to the U.S. District Court sitting in the Western District of Arkansas.  The motion to transfer was approved by the California District Court in July, 2017, and the case will now be heard in the U.S. District court in the Western District of Arkansas.

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.

ITEM 1A.RISK FACTORS
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, 2017,2018, 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
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarter ended June 30, 2018,2019, 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
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.MINE SAFETY DISCLOSURES
ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.
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ITEM 5.
TABLE OF CONTENTS

ITEM 5.OTHER INFORMATION
 
Not applicable.
 
ITEM 6.       EXHIBITS

ITEM 6.
EXHIBITS
 
Exhibit
Number
 
Reference
 
Description
 
Reference
 
Description
3.1
(1)Amended and Restated Articles of Incorporation(1)Second Amended and Restated Articles of Incorporation
3.2
(2)Second Amended and Restated Bylaws(2)Third Amended and Restated Bylaws
4.1
(1)Amended and Restated Articles of Incorporation(1)Second Amended and Restated Articles of Incorporation
4.2
(2)Second Amended and Restated Bylaws(2)Third Amended and Restated Bylaws
10.1
#Fifteenth Amendment to Third Amended and Restated Credit Agreement, dated effective as of June 19, 2018, among Covenant Transportation Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, LLC, Southern Refrigerated Transport, Inc., Covenant Transport Solutions, LLC, Star Transportation, Inc., Covenant Logistics, Inc., Driven Analytic Solutions, LLC, Transport Management Services, LLC, Bank of America, N.A., and JPMorgan Chase Bank, N.A.(3)First Amendment to the Covenant Transportation Group, Inc. Third Amended and Restated 2006 Omnibus Incentive Plan
10.2
#Form of Restricted Stock Award Notice under the Third Amended and Restated 2006 Omnibus Incentive Plan, as amended
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#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#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##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##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 XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 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.
(1)(2)Incorporated by reference to Exhibit 99.2 to the Company's Report on Form 8-K, filed May 29, 2007.Incorporated by reference to Exhibit 3.2 to the Company's Report on Form 8-K, filed March 14, 2019.
(2)(3)Incorporated by reference to Exhibit 3.2 to the Company's Form 10-Q, filed May 13, 2011.Incorporated by reference to Appendix A to the Company's Definitive Proxy Statement filed with the SEC on April 8, 2019 in connection with the 2019 Annual Meeting of Stockholders
#Filed herewith.Filed herewith.
##Furnished herewith.Furnished herewith.
 
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: August 8, 20189, 2019By:/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

 
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