UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

_____________________________________________________________________________



ý☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2018~~2019



¨☐	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: 001-38054

Schneider National, Inc.

(Exact Name of Registrant as Specified in Its Charter)



Wisconsin		39-1258315
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

3101 South Packerland Drive
Green Bay	Wisconsin	54313
(Address of Registrant’s Principal Executive Offices)		(Zip Code)

~~(920)~~ (920) 592-2000

(Registrant’s Telephone Number, Including Area Code)

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



Title of each class	Trading Symbol	Name of each exchange on which registered
Class B common stock, no par value	SNDR	New York Stock Exchange

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.

Yesý☒ No ¨☐

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

Yesý☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	¨☐

Non-accelerated filer	ý☐ (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 ý☒

As of October ~~26, 2018,~~25, 2019, the registrant had 83,029,500 shares of Class A Common Stock, no par value, outstanding and ~~93,969,268~~94,088,025 shares of Class B Common Stock, no par value, outstanding.

SCHNEIDER NATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended September 30, ~~2018~~2019

TABLE OF CONTENTS



				Page
	Cautionary Note Regarding Forward-Looking Statements			1
PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements			3
	Consolidated Statements of Comprehensive Income (Unaudited)			3
	Consolidated Balance Sheets (Unaudited)			4
	Consolidated Statements of Cash Flows (Unaudited)			5
	Consolidated Statements of Shareholders' Equity (Unaudited)			6
	Notes to Consolidated Financial Statements (Unaudited)			68
			Page
	Note 1	General	68
	Note 2	~~Revenue Recognition~~Leases	78
	Note 3	~~Fair Value~~	11
	~~Note 4~~	~~Investments~~	12
	~~Note 5~~	~~Goodwill and Other Intangible Assets~~	12
	~~Note 6~~	~~Debt and Credit Facilities~~Revenue Recognition	13
	Note 74	~~Lease Receivables~~Fair Value	14
	Note 85	~~Income Taxes~~	14
	~~Note 9~~	~~Common Equity~~Investments	15
	Note 106	~~Share-Based Compensation~~Goodwill and Other Intangible Assets	1516
	Note 117	~~Commitments~~Debt and ~~Contingencies~~Credit Facilities	17
	Note 128	~~Segment Reporting~~Income Taxes	17
	Note 9	Common Equity	18
	Note 10	Share-Based Compensation	18
	Note 11	Commitments and Contingencies	18
	Note 12	Segment Reporting	19
	Note 13	Restructuring Charges	21
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			1922
ITEM 3.	Quantitative and Qualitative Disclosures ~~About~~about Market Risk			3237
ITEM 4.	Controls and Procedures			3237
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings			3338
ITEM 1A.	Risk Factors			3338
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds			3338
ITEM 3.	Defaults Upon Senior Securities			3338
ITEM 4.	Mine Safety Disclosures			3338
ITEM 5.	Other Information			3338
ITEM 6.	Exhibits			3439
Signature				3540

Table of Contents

GLOSSARY OF TERMS



3PL	Provider of outsourced logistics services. In logistics and supply chain management, it means a company’s use of third-party businesses, the 3PL(s), to outsource elements of the company’s distribution, fulfillment, and supply chain management services.
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
CODM	Chief Operating Decision Maker
FASB	Financial Accounting Standards Board
FTFM	First to Final Mile operating segment
GAAP	United States Generally Accepted Accounting Principles
~~IPO~~LIBOR	~~Initial Public Offering~~London InterBank Offered Rate
PSI	Platform Science, Inc.
SEC	United States Securities and Exchange Commission
VTL	Van Truckload operating segment
WSL	Watkins and Shepard Trucking, Inc. and Lodeso, Inc. These businesses were acquired simultaneously in June ~~2016~~2016.

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements, within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of ~~1995, which are intended to come within the safe harbor protection provided by such Act.~~1995. These forward-looking statements reflect ~~our~~the Company's current expectations, beliefs, plans, or forecasts with respect to, among other things, future events and financial performance and trends in ~~our~~the business and industry. ~~Forward-looking statements are often characterized by~~The words ~~or phrases such as~~ “may,” “will,” “could,” “should,” “would,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” ~~“target,”~~ “prospects,” ~~“potential” and~~“potential,” “budget,” “forecast,” “continue,” “predict,” “seek,” “objective,” “goal,” “guidance,” “outlook,” “effort,” “target,” and ~~other~~similar words, expressions, terms, and phrases among others, generally identify forward-looking statements, which speak only as of ~~similar meaning.~~the date the statements were made. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks, and uncertainties. ~~We caution readers~~Readers are cautioned that a forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement.

Risks, uncertainties, and other factors that could cause ~~actual results to differ,~~ or contribute to actual results differing materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following:

Economic and business risks inherent in the truckload and transportation industry, including competitive pressures pertaining to pricing, capacity, and service;

Our ability to manage and implement effectively our growth and diversification strategies and cost saving initiatives;

Our dependence on our reputation and the Schneider brand and the potential for adverse publicity, damage to our reputation, and the loss of brand equity;

Risks related to demand for our service offerings;

Risks associated with the loss of a significant customer or customers;

Capital investments that fail to match customer demand or for which we cannot obtain adequate funding;

Fluctuations in the price or availability of fuel, the volume and terms of diesel fuel purchase commitments, and our ability to recover fuel costs through our fuel surcharge programs;

Our ability to attract and retain qualified drivers ~~including~~and owner-operators;

Our ~~use of~~reliance on owner-operators to provide a portion of our truck fleet;

Our dependence on railroads in the operation of our intermodal business;

Service instability from third-party capacity providers used by our logistics brokerage business;

Changes in the outsourcing practices of our third-party logistics customers;

Difficulty in obtaining material, equipment, goods, and services from our vendors and suppliers;

~~Our ability to recruit, develop, and retain our key associates;~~

~~Labor relations;~~

Variability in insurance and claims expenses and the risks of insuring claims through our captive insurance company;

The impact of laws and regulations that apply to our business, including those that relate to the environment, taxes, employees, owner-operators, and our captive insurance company; changes to those laws and regulations; and the increased costs of compliance with existing or future federal, state, and local regulations;

Political, economic, and other risks from cross-border operations and operations in multiple countries;

Risks associated with financial, credit, and equity markets, including our ability to service indebtedness and fund capital expenditures and strategic initiatives;

Negative seasonal patterns generally experienced in the trucking industry during traditionally slower shipping periods and winter months;

Risks associated with severe weather and similar events;

Significant systems disruptions, including those caused by cybersecurity events;

The potential that we will not successfully identify, negotiate, consummate, or integrate acquisitions;

Exposure to claims and lawsuits in the ordinary course of ~~our~~ business;

Our ability to adapt to new technologies and new participants in the truckload and transportation industry; and

Table of Contents

Those risks and uncertainties discussed in Part I, Item 1A, “Risk Factors,” of our most recently filed Annual Report on Form 10-K, as such may be amended or supplemented in Part II, Item 1A, “Risk Factors,” of this report or other Quarterly Reports on Form 10-Q filed after such Annual Report on Form 10-K, as well as those discussed in our consolidated financial statements, related notes, and the other information appearing elsewhere in this report and our other filings with the SEC.

~~We do not intend,~~The Company disclaims any intention and ~~undertake~~undertakes no obligation, to update or revise any of ~~our~~its forward-looking statements after the date of this report to reflect actual results or future events or ~~circumstances.~~circumstances whether as a result of new information, future events or otherwise, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SCHNEIDER NATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in millions, except per share data)

Three Months Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
OPERATING REVENUES $ 1,280.1
$ 1,110.8
$ 3,655.4
$ 3,192.4
OPERATING EXPENSES:
Purchased transportation 521.1
403.9
1,431.8
1,158.7
Salaries, wages, and benefits 317.2
307.4
943.2
910.0
Fuel and fuel taxes 87.4
76.3
260.3
220.7
Depreciation and amortization 73.3
70.5
216.9
207.0
Operating supplies and expenses 123.5
135.3
364.2
369.2
Insurance and related expenses 24.1
22.2
69.4
64.3
Other general expenses, net 35.6
31.1
112.4
75.9
Total operating expenses 1,182.2
1,046.7
3,398.2
3,005.8
INCOME FROM OPERATIONS 97.9
64.1
257.2
186.6
OTHER EXPENSE (INCOME):
Interest expense—net 2.7
3.6
10.1
13.7
Other income—net (0.1 ) (0.2 ) (1.0 ) (0.3 )
Total other expense—net 2.6
3.4
9.1
13.4
INCOME BEFORE INCOME TAXES 95.3
60.7
248.1
173.2
PROVISION FOR INCOME TAXES 24.6
23.8
64.0
67.2
NET INCOME $ 70.7
$ 36.9
$ 184.1
$ 106.0

OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments (0.9 ) (0.1 ) (0.8 ) (0.7 )
Unrealized gain (loss) on marketable securities—net of tax —
0.1
(0.3 ) 0.2
Total other comprehensive loss (0.9 ) —
(1.1 ) (0.5 )
COMPREHENSIVE INCOME $ 69.8
$ 36.9
$ 183.0
$ 105.5

Weighted average common shares outstanding 177.0
176.9
177.0
169.2
Basic earnings per share $ 0.40
$ 0.21
$ 1.04
$ 0.63
Weighted average diluted shares outstanding 177.2
177.0
177.2
169.3
Diluted earnings per share $ 0.40
$ 0.21
$ 1.04
$ 0.63
Dividends per share of common stock $ 0.06
$ 0.05
$ 0.18
$ 0.15



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Operating revenues	$	1,183.9		$	1,280.1		$	3,590.7		$	3,655.4
Operating expenses:
Purchased transportation	511.7			521.1			1,488.8			1,431.8
Salaries, wages, and benefits	257.3			317.2			856.6			943.2
Fuel and fuel taxes	70.6			87.4			221.6			260.3
Depreciation and amortization	74.1			73.3			222.4			216.9
Operating supplies and expenses	139.1			123.5			418.3			364.2
Insurance and related expenses	24.4			24.1			78.0			69.4
Other general expenses	27.3			35.6			90.3			112.4
Goodwill impairment charge	—			—			34.6			—
Restructuring charges	50.4			—			50.4			—
Total operating expenses	1,154.9			1,182.2			3,461.0			3,398.2
Income from operations	29.0			97.9			129.7			257.2
Other expenses (income):
Interest income	(2.0		)	(1.5		)	(6.6		)	(2.9		)
Interest expense	3.8			4.2			13.1			13.0
Other expenses (income)—net	0.5			(0.1		)	1.2			(1.0		)
Total other expense	2.3			2.6			7.7			9.1
Income before income taxes	26.7			95.3			122.0			248.1
Provision for income taxes	7.0			24.6			30.9			64.0
Net income	19.7			70.7			91.1			184.1
Other comprehensive income (loss):
Foreign currency translation adjustments	(0.3		)	(0.9		)	(0.2		)	(0.8		)
Unrealized income (loss) on marketable securities—net of tax	—			—			0.7			(0.3		)
Total other comprehensive income (loss)	(0.3		)	(0.9		)	0.5			(1.1		)
Comprehensive income	$	19.4		$	69.8		$	91.6		$	183.0

Weighted average common shares outstanding	177.1			177.0			177.1			177.0
Basic earnings per share	$	0.11		$	0.40		$	0.51		$	1.04

Weighted average diluted shares outstanding	177.3			177.2			177.3			177.2
Diluted earnings per share	$	0.11		$	0.40		$	0.51		$	1.04

See notes to consolidated financial statements (unaudited).

Table of Contents

SCHNEIDER NATIONAL, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except share data)


	September 30, 2018			December 31, 2017		September 30,			December 31,
ASSETS
CURRENT ASSETS:
						2019			2018
Assets
Current Assets:
Cash and cash equivalents	$	359.8		$	238.5	$	437.1		$	378.7
Marketable securities	45.0			41.6		47.4			51.3
Trade accounts receivable—net of allowance of $6.6 and $5.2, respectively	588.7			527.9
Trade accounts receivable—net of allowance of $8.5 million and $6.8 million, respectively						498.8			593.1
Other receivables	20.1			22.4		160.2			31.8
Current portion of lease receivables—net of allowance of $0.5 and $1.7, respectively	130.5			104.9
Current portion of lease receivables—net of allowance of $0.6 million and $0.5 million, respectively						125.5			129.1
Inventories	60.9			83.1		57.7			60.8
Prepaid expenses and other current assets	96.6			75.6		200.9			79.5
Total current assets	1,301.6			1,094.0		1,527.6			1,324.3
NONCURRENT ASSETS:
Noncurrent Assets:
Property and equipment:
Transportation equipment	2,885.4			2,770.1		2,814.1			2,900.2
Land, buildings, and improvements	175.2			183.8		189.5			177.2
Other property and equipment	157.2			175.7		161.9			157.6
Total property and equipment	3,217.8			3,129.6		3,165.5			3,235.0
Accumulated depreciation	1,300.2			1,271.5		1,270.7			1,312.8
Net property and equipment	1,917.6			1,858.1		1,894.8			1,922.2
Lease receivables	130.7			138.9		126.3			133.2
Capitalized software and other noncurrent assets	79.8			74.7		155.0			82.6
Goodwill	164.2			164.8		127.3			162.2
Total noncurrent assets	2,292.3			2,236.5		2,303.4			2,300.2
TOTAL ASSETS	$	3,593.9		$	3,330.5
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Total Assets						$	3,831.0		$	3,624.5
Liabilities and Shareholders' Equity
Current Liabilities:
Trade accounts payable	$	293.0		$	230.4	$	239.8		$	226.0
Accrued salaries and wages	85.0			85.8
Accrued salaries, wages, and benefits						60.2			94.8
Claims accruals—current	64.4			48.3		192.0			58.3
Current maturities of debt and capital lease obligations	10.1			19.1
Current maturities of debt and finance lease obligations						101.5			51.7
Dividends payable	10.7			8.8		10.9			10.6
Other current liabilities	93.8			69.6		94.0			81.2
Total current liabilities	557.0			462.0		698.4			522.6
NONCURRENT LIABILITIES:
Long-term debt and capital lease obligations	412.5			420.6
Noncurrent Liabilities:
Long-term debt and finance lease obligations						304.6			359.6
Claims accruals—noncurrent	98.6			102.5		103.6			113.3
Deferred income taxes	423.3			386.6		446.5			450.6
Other	49.3			68.6
Other noncurrent liabilities						85.7			46.1
Total noncurrent liabilities	983.7			978.3		940.4			969.6
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY
Total Liabilities						1,638.8			1,492.2
Commitments and Contingencies (Note 11)
Shareholders' Equity:
Class A common shares, no par value, 250,000,000 shares authorized, 83,029,500 shares issued and outstanding	—			—		—			—
Class B common shares, no par value, 750,000,000 shares authorized, 94,607,116 and 93,850,011 shares issued, and 93,967,681 and 93,850,011 shares outstanding, respectively	—			—
Class B common shares, no par value, 750,000,000 shares authorized, 94,834,653 and 94,593,588 shares issued, and 94,085,005 and 93,969,268 shares outstanding, respectively						—			—
Additional paid-in capital	1,539.3			1,534.6		1,544.5			1,544.0
Retained earnings	515.0			355.6		648.2			589.3
Accumulated other comprehensive income	(1.1		)	—
Total shareholders' equity	2,053.2			1,890.2
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	3,593.9		$	3,330.5
Accumulated other comprehensive loss						(0.5		)	(1.0		)
Total Shareholders' Equity						2,192.2			2,132.3
Total Liabilities and Shareholders' Equity						$	3,831.0		$	3,624.5

See notes to consolidated financial statements (unaudited).

Table of Contents

SCHNEIDER NATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)



	Nine Months Ended September 30,
	2019			2018
Operating Activities:
Net income	$	91.1		$	184.1
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	222.4			216.9
Goodwill impairment	34.6			—
Gains on sales of property and equipment	(2.6		)	(4.5		)
Impairment on assets held for sale	11.8			0.3
Proceeds from lease receipts	59.6			—
Deferred income taxes	(4.3		)	34.4
Long-term incentive and share-based compensation expense	3.4			15.3
Non-cash restructuring charges	43.3			—
Other noncash items	2.9			(3.1		)
Changes in operating assets and liabilities:
Receivables	82.2			(67.3		)
Other assets	(31.1		)	(15.9		)
Payables	0.3			35.6
Claims reserves and other receivables—net	(1.1		)	13.7
Other liabilities	(42.2		)	0.6
Net cash provided by operating activities	470.3			410.1
Investing Activities:
Purchases of transportation equipment	(308.6		)	(268.1		)
Purchases of other property and equipment	(42.8		)	(22.3		)
Proceeds from sale of property and equipment	38.8			74.6
Proceeds from lease receipts	—			56.2
Proceeds from sale of off-lease inventory	15.0			—
Purchases of lease equipment	(62.7		)	(58.4		)
Sales of marketable securities	13.2			3.9
Purchases of marketable securities	(8.5		)	(8.0		)
Net cash used in investing activities	(355.6		)	(222.1		)
Financing Activities:
Payments of debt and finance lease obligations	(5.7		)	(17.3		)
Payments of deferred consideration related to acquisition	(18.7		)	(19.3		)
Dividends paid	(31.9		)	(30.1		)
Net cash used in financing activities	(56.3		)	(66.7		)
Net increase in cash and cash equivalents	58.4			121.3
Cash and Cash Equivalents:
Beginning of period	378.7			238.5
End of period	$	437.1		$	359.8
Additional Cash Flow Information:
Noncash investing and financing activity:
Equipment purchases in accounts payable	$	15.5		$	36.5
Dividends declared but not yet paid	10.9			10.7
Ownership interest in Platform Science, Inc.	—			2.5
Cash paid during the period for:
Interest	12.4			13.2
Income taxes—net of refunds	42.6			25.5

See notes to consolidated financial statements (unaudited).

Table of Contents

SCHNEIDER NATIONAL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

(in millions, except per share data)

Nine Months Ended September 30,
2018 2017
OPERATING ACTIVITIES:
Net income $ 184.1
$ 106.0
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 216.9
207.0
Gains on sales of property and equipment (4.2 ) (6.4 )
Deferred income taxes 34.4
48.8
WSL contingent consideration adjustment —
(13.2 )
Long-term incentive compensation expense 15.3
15.3
Other noncash items (3.1 ) (0.5 )
Changes in operating assets and liabilities:
Receivables (65.7 ) (39.0 )
Other assets (15.9 ) (9.5 )
Payables 35.6
22.1
Other liabilities 12.7
(14.9 )
Net cash provided by operating activities 410.1
315.7
INVESTING ACTIVITIES:
Purchases of transportation equipment (268.1 ) (274.1 )
Purchases of other property and equipment (22.3 ) (27.3 )
Proceeds from sale of property and equipment 74.6
51.8
Proceeds from lease receipts and sale of off-lease inventory 56.2
42.4
Purchases of lease equipment (58.4 ) (89.8 )
Sales of marketable securities 3.9
8.4
Purchases of marketable securities (8.0 ) —
Advance funding of dividends to transfer agent —
(6.7 )
Net cash used in investing activities (222.1 ) (295.3 )
FINANCING ACTIVITIES:
Payments under revolving credit agreements —
(135.0 )
Payments of debt and capital lease obligations (17.3 ) (118.5 )
Payments of deferred consideration related to acquisition (19.3 ) (19.4 )
Proceeds from IPO, net of issuance costs —
340.6
Dividends paid (30.1 ) (16.6 )
Redemptions of redeemable common shares —
(0.1 )
Net cash provided by (used in) financing activities (66.7 ) 51.0
NET INCREASE IN CASH AND CASH EQUIVALENTS 121.3
71.4

CASH AND CASH EQUIVALENTS:
Beginning of period 238.5
130.8
End of period $ 359.8
$ 202.2
ADDITIONAL CASH FLOW INFORMATION:
Noncash investing and financing activity:
Equipment purchases in accounts payable $ 36.5
$ 57.4
Dividends declared but not yet paid 10.7
8.8
Ownership interest in Platform Science, Inc. 2.5
—
Cash paid (refunded) during the period for:
Interest $ 13.2
$ 16.6
Income taxes—net of refunds 25.5
(10.4 )



	Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
	Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance—December 31, 2017	$	—	$	1,534.6		$	355.6		$	—		$	1,890.2
Net income	—		—			47.6			—			47.6
Other comprehensive loss	—		—			—			(0.6		)	(0.6		)
Share-based compensation expense	—		2.0			—			—			2.0
Dividends declared at $0.06 per share of Class A and Class B common shares	—		—			(10.7		)	—			(10.7		)
Share issuances	—		0.2			—			—			0.2
Shares withheld for employee taxes	—		(1.8		)	—			—			(1.8		)
Cumulative-effect adjustment of ASU 2014-09 adoption	—		—			7.3			—			7.3
Other	—		0.2			—			—			0.2
Balance—March 31, 2018	—		1,535.2			399.8			(0.6		)	1,934.4
Net income	—		—			65.8			—			65.8
Other comprehensive gain	—		—			—			0.4			0.4
Share-based compensation expense	—		2.1			—			—			2.1
Dividends declared at $0.06 per share of Class A and Class B common shares	—		—			(10.5		)	—			(10.5		)
Share issuances	—		0.3			—			—			0.3
Shares withheld for employee taxes	—		(0.1		)	—			—			(0.1		)
Exercise of employee stock options	—		0.2			—			—			0.2
Other	—		(0.1		)	—			—			(0.1		)
Balance—June 30, 2018	—		1,537.6			455.1			(0.2		)	1,992.5
Net income	—		—			70.7			—			70.7
Other comprehensive loss	—		—			—			(0.9		)	(0.9		)
Share-based compensation expense	—		2.1			—			—			2.1
Dividends declared at $0.06 per share of Class A and Class B common shares	—		—			(10.8		)	—			(10.8		)
Shares withheld for employee taxes	—		(0.4		)	—			—			(0.4		)
Balance—September 30, 2018	$	—	$	1,539.3		$	515.0		$	(1.1	)	$	2,053.2

Table of Contents

SCHNEIDER NATIONAL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

(in millions, except per share data)



	Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
	Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance—December 31, 2018	$	—	$	1,544.0		$	589.3		$	(1.0	)	$	2,132.3
Net income	—		—			36.9			—			36.9
Other comprehensive gain	—		—			—			0.7			0.7
Share-based compensation expense	—		2.0			—			—			2.0
Dividends declared at $0.06 per share of Class A and Class B common shares	—		—			(10.7		)	—			(10.7		)
Shares withheld for employee taxes	—		(1.2		)	—			—			(1.2		)
Balance—March 31, 2019	—		1,544.8			615.5			(0.3		)	2,160.0
Net income	—		—			34.5			—			34.5
Other comprehensive gain	—		—			—			0.1			0.1
Share-based compensation expense	—		1.6			—			—			1.6
Dividends declared at $0.06 per share of Class A and Class B common shares	—		—			(11.0		)	—			(11.0		)
Share issuances	—		0.2			—			—			0.2
Balance—June 30, 2019	—		1,546.6			639.0			(0.2		)	2,185.4
Net income	—		—			19.7			—			19.7
Other comprehensive loss	—		—			—			(0.3		)	(0.3		)
Share-based compensation expense	—		(2.2		)	—			—			(2.2		)
Dividends declared at $0.06 per share of Class A and Class B common shares	—		—			(10.5		)	—			(10.5		)
Share issuances	—		0.1			—			—			0.1
Balance—September 30, 2019	$	—	$	1,544.5		$	648.2		$	(0.5	)	$	2,192.2

See notes to consolidated financial statements (unaudited).

Table of Contents

SCHNEIDER NATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, ~~2018~~2019

1. GENERAL

Description of Business

In this report, when we refer to “the Company,” “us,” “we,” “our,” “ours,” or ~~“ours,~~“Schneider,” we are referring to Schneider National, Inc. and its subsidiaries. We are a leading transportation services organization headquartered in Green Bay, Wisconsin. We provide a broad portfolio of premier truckload, intermodal, and logistics solutions and operate one of the largest trucking fleets in North America.

Our IPO of shares of Class B Common Stock was completed in early April 2017, and additional shares were sold in May 2017 under an option granted to the underwriters. In connection with the offering, we sold a total of 20,145,000 shares of Class B common stock at $19 per share and received proceeds of $382.7 million. Expenses related to the offering totaled approximately $42.1 million, resulting in net proceeds of $340.6 million.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP and the rules and regulations of the SEC applicable to quarterly reports on Form 10-Q. Therefore, these consolidated financial statements and footnotes do not include all disclosures required by GAAP for annual financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. Financial results for an interim period are not necessarily indicative of the results for a full year.

All intercompany transactions have been eliminated in consolidation.

In the opinion of management, these statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of our financial results for the interim periods presented.

Accounting Standards Issued but Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with the existing capitalization requirements for implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for us as of January 1, 2020 with early adoption permitted. We are currently evaluating the impact the adoption of this ASU will have on our consolidated financial ~~statements.~~statements and do not believe the impact will be material. We expect to adopt this standard on a prospective basis.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Requirements, which removes, modifies, and adds certain disclosure requirements for fair value measurements. These changes include removing the disclosure requirements related to the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and adding disclosure requirements about the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements. Additionally, the amendments remove the phrase “at a minimum” from the codification clarifying that materiality should be considered when evaluating disclosure requirements. ASU 2018-13 is effective for us January 1, 2020 with early adoption permitted. We ~~are currently evaluating the impact~~do not believe the adoption of this ASU will have a material impact on our ~~consolidated financial statements~~disclosures and ~~do not believe the impact will be material.~~

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income,~~ which discusses the reclassification of certain tax effects from accumulated other comprehensive income. The guidance requires companies to disclose a description of their accounting policy for releasing income tax effects from accumulated other comprehensive income and whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act, along with information about other income tax effects that are reclassified. ASU 2018-02 is effective for us January 1, 2019 with early adoption permitted. We plan to early adopt this ~~ASU~~standard during the fourth quarter of ~~2018 and expect the reclassification of stranded income tax effects to have an immaterial impact on our consolidated financial statements.~~2019.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires companies to use a forward-looking, expected loss model to estimate credit losses on various types of financial assets and net investments in leases. It also requires additional ~~disclosure~~disclosures related to credit quality of trade and other receivables, including information related to management’s estimate of credit allowances. In November 2018, this was further updated with the issuance of ASU 2018-19, which excludes receivables from operating leases from the scope. ASU 2016-13 is effective for us January 1, 2020. We ~~currently cannot reasonably estimate~~expect the ~~impact the adoption of this ASU~~standard will have an impact on our available-for-sale debt securities, net investment in leases, contract assets, trade accounts receivable, and reinsurance receivables. Based on our initial assessment, we do not believe the standard will have a material impact on our consolidated financial ~~statements.~~statements, however we are still assessing the financial impacts.

~~Table of Contents~~

2. LEASES

~~In February 2016, the FASB issued~~We adopted ASU 2016-02, Leases, which~~amended authoritative guidance on leases and~~ is codified in ASC ~~842. The amended guidance requires lessees to recognize most leases on their balance sheets~~842, as ~~right-of-use assets along with corresponding lease liabilities. The new standard also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty~~ of ~~cash flows arising from leases. This guidance is effective for us~~ January 1, 2019 ~~with early adoption permitted. In July 2018,~~using the ~~FASB issued additional~~optional transition method. The FASB’s authoritative guidance ~~providing~~provided companies with the option to apply this ASU to new and existing leases within the scope of the guidance as of the beginning of the period of adoption. We ~~plan to elect~~elected this transition method of applying the new lease

Table of Contents

standard and ~~will recognize~~have recognized right-of-use assets and lease liabilities ~~and any cumulative-effect adjustments to the opening balance of retained earnings~~ as of January 1, 2019. Prior period amounts ~~will~~were not be adjusted and will continue to be reported under the accounting standards in effect for those periods. ~~Upon adoption~~

Adoption of the new standard resulted in the initial recording of right-of-use lease assets and related lease liabilities of $80.6 million and $85.2 million, respectively. As of September 30, 2019, right-of-use lease assets and related lease liabilities were $73.5 million and $80.9 million, respectively. Operating lease right-of-use assets and operating lease liabilities are recognized based on ~~January 1, 2019,~~the present value of the future lease payments over the term. Schneider's incremental borrowing rates are used as the discount rates for leases and are determined based on U. S. Treasury rates plus an applicable margin to arrive at all-in rates. Schneider uses multiple discount rates based on lease terms and other economic factors. The operating lease right-of-use asset also includes accrued lease expense resulting from the straight-line accounting under prior accounting methods, which is now being amortized over the remaining life of the lease.

In addition, we ~~expect to elect~~elected the package of practical expedients provided under the guidance. The practical expedient package applies to leases that commenced prior to adoption of the new standard and permits companies not to reassess whether existing or expired contracts are or contain a lease, the lease classification, and any initial direct costs for any existing leases. We ~~have created~~also elected the practical expedient related to land easements, allowing us to carry forward the accounting treatment of our existing agreements for land easements, none of which were material as of January 1, 2019.

As lessee

We lease real estate, transportation equipment, and office equipment under operating and finance leases. Our real estate operating leases include operating centers, distribution warehouses, offices, and drop yards. Our finance leases relate almost entirely to transportation equipment. A majority of our leases include an option to extend the lease, and a ~~cross-functional implementation team whose efforts~~small number of our leases include an option to ~~date consist of identifying~~early terminate the ~~Company's~~ lease, ~~population, selecting~~which may include a termination payment. If we are reasonably certain to exercise an option to extend a lease, ~~software that~~the extension period is included as part of the right-of-use asset and lease liability.

For our real estate leases, we have elected to apply the recognition requirement to leases of twelve months or less, therefore, an operating lease right-of-use asset and liability will ~~assist~~be recognized for all these leases. For our equipment leases, we have elected to not apply the recognition requirements to leases of twelve months or less. These leases will be expensed on a straight-line basis and no operating lease right-of-use asset or liability will be recorded.

We have also elected to not separate the different components within the contract for our leases; therefore, all fixed costs associated with the ~~reporting~~lease are included in the right-of-use asset and ~~disclosure requirements~~the operating lease liability. This often relates to the requirement for us to pay a proportionate share of real estate taxes, insurance, common area maintenance, and other operating costs in addition to a base or fixed rent. Some of our leases have variable payment amounts, and the variable portions of those payments are excluded from the right-of-use asset and the lease liability.

At the inception of our contracts we determine if the contract is or contains a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

A small number of our leased real estate assets contains subleases. The lease income related to subleases is shown in the lease cost table below.

Certain equipment leases contain residual value guarantees. These are guarantees made to the lessor that the value of the underlying asset returned to the lessor at the end of the lease will be at least a specified amount.

None of our leases contain restrictions or covenants that restrict us from incurring other financial obligations.

Table of Contents

The following table presents our net lease costs for the three and nine months ended September 30, 2019:



	Financial Statement Classification	Three Months Ended September 30,			Nine Months Ended September 30,
(in millions)	Financial Statement Classification	2019			2019
Operating lease cost
Operating lease cost	Operating supplies and expenses	$	8.7		$	26.5
Short-term lease cost⁽¹⁾	Operating supplies and expenses	2.0			5.5
Finance lease cost
Amortization of right-of-use assets	Depreciation and amortization	0.9			2.5
Interest on lease liabilities	Interest expense	—			0.2
Variable lease cost	Operating supplies and expenses	0.7			2.1
Sublease income	Operating revenues	(1.5		)	(4.1		)
Total net lease cost		$	10.8		$	32.7

(1) Includes short-term lease costs for leases twelve months or less, including those with a duration of one month or less.

As of September 30, 2019, remaining lease terms and discount rates under ~~the standard,~~operating and ~~abstracting~~finance leases were as follows:



	September 30, 2019
Weighted-average remaining lease term
Operating leases	4.4 years
Finance leases	0.3 years

Weighted-average discount rate
Operating leases	4.2	%
Finance leases	4.7	%

Other information related to our leases is as follows:



	Nine Months Ended September 30,
(in millions)	2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	26.7
Operating cash flows from finance leases	0.2
Financing cash flows from finance leases	2.0

Right-of-use assets obtained in exchange for new lease liabilities
Operating leases	$	20.6
Finance leases	—

Operating lease right-of-use assets, current operating lease liabilities, and ~~validating our~~noncurrent operating lease ~~information. As we continue to evaluate this standard, we anticipate it will have a material impact on our~~liabilities are included in capitalized software and other noncurrent assets, other current liabilities, and other noncurrent liabilities, respectively, in the consolidated balance ~~sheets due~~sheet as of September 30, 2019.

Table of Contents

At September 30, 2019, future lease payments under operating and finance leases were as follows:



(in millions)	Operating Leases			Finance Leases
Remaining 2019	$	8.5		$	4.9
2020	27.2			0.4
2021	17.1			—
2022	11.1			—
2023	8.8			—
2024 and thereafter	15.9			—
Total	88.6			5.3
Amount representing interest	(7.7		)	—
Present value of lease payments	80.9			5.3
Current maturities	(27.1		)	(5.3		)
Long-term lease obligations	$	53.8		$	—

For certain of our real estate leases, there are options contained within the lease agreement to extend beyond the ~~capitalization of~~initial lease term. The Company recognizes options as right-of-use assets and lease liabilities ~~associated~~when deemed reasonably certain to be exercised. Future operating lease payments at September 30, 2019 include $10.6 million related to options to extend lease terms that we are reasonably certain to exercise. Options related to our FTFM service offering that were previously considered reasonably certain to be exercised have been removed from the future operating lease payments at September 30, 2019.

Under ASC 840, future minimum lease payments as of December 31, 2018 were as follows:



(in millions)	Operating Leases		Capital Leases
2019	$	35.8	$	6.9
2020	25.7		0.2
2021	14.9		—
2022	8.4		—
2023	6.8		—
2024 and thereafter	12.7		—
Total	$	104.3	7.1
Amount representing interest			(0.2		)
Present value of minimum lease payments			6.9
Current maturities			(6.7		)
Long-term capital lease obligations			$	0.2

As of September 30, 2019, we had additional leases that had not yet commenced of $3.5 million. These leases will commence during the remainder of 2019 and have lease terms of four months to five years.

The consolidated balance sheets include right-of-use assets acquired under finance leases as components of property and equipment as of September 30, 2019 and January 1, 2019, as follows:



(in millions)	September 30, 2019			January 1, 2019
Transportation equipment	$	19.9		$	19.9
Real property	0.8			0.8
Other property	1.5			0.6
Accumulated amortization	(13.1		)	(11.2		)
Total	$	9.1		$	10.1

Transportation equipment is being amortized to the estimated residual value by the end of the lease. Real and other property under finance leases are being amortized to a zero net book value over the initial lease term.

Table of Contents

As lessor

We finance various types of transportation-related equipment for independent third parties under lease contracts which are generally for one year to five years and are accounted for as sales-type leases with ~~our current operating~~fully guaranteed residual values. At the inception of the contracts, we determine if the contract is or contains a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

With the adoption of ASC 842, all leases infor which we are the ~~lessee.~~lessor meet the definition of sales-type leases. In addition, as required under ASC 842, all cash flows from lease receipts are classified as operating activities on the consolidated statement of cash flows beginning January 1, 2019. We dopreviously presented all cash flows from lease receipts as investing activities.

As of September 30, 2019 and January 1, 2019, the investment in lease receivables was as follows:



	September 30, 2019			January 1, 2019
Future minimum payments to be received on leases	$	146.9		$	140.0
Guaranteed residual lease values	138.2			151.0
Total minimum lease payments to be received	285.1			291.0
Unearned income	(33.3		)	(28.7		)
Net investment in leases	251.8			262.3

Current maturities of lease receivables	126.1			129.6
Less—allowance for doubtful accounts	(0.6		)	(0.5		)
Current portion of lease receivables—net of allowance	125.5			129.1

Lease receivables—noncurrent	$	126.3		$	133.2

The amounts to be received on lease receivables as of September 30, 2019 were as follows:



(in millions)	September 30, 2019
Remaining 2019	$	35.8
2020	142.8
2021	75.7
2022	30.6
2023	0.2
2024 and thereafter	—
Total undiscounted lease cash flows	285.1
Amount representing interest	(33.3		)
Present value of lease receivables	251.8
Current lease receivables, net of allowance	(125.5		)
Long-term lease receivable	$	126.3

Leases are generally placed on nonaccrual status (nonaccrual of interest and other fees) when a payment becomes 90 days past due or upon receipt of notification of bankruptcy, upon the death of a customer, or in other instances in which management concludes collectability is not ~~believe it will have a material impact on our~~reasonably assured. The accrual of interest and other fees is resumed when all payments are less than 60 days past due. At September 30, 2019, there were $0.3 million of lease payments greater than 90 days past due. The terms of the lease agreements generally give us the ability to take possession of the underlying asset in the event of default. We may incur credit losses in excess of recorded allowances if the full amount of any anticipated proceeds from the sale or re-lease of the asset supporting the third party’s financial obligation is not realized. Repossession and estimated reconditioning costs are recorded in the consolidated statements of comprehensive income ~~or cash flows. Leasing activities in which we are the lessor~~ in the ~~transaction are~~period incurred.

Our lease payments primarily include base rentals and guaranteed residual values. In addition, we also ~~subject~~collect one-time administrative fees and heavy vehicle use tax on our leases. We have elected to ~~ASC 842.~~ not separate the different components within the contract as the administrative fees were not material for the three and nine months ended September 30, 2019. We have also

Table of Contents

elected to exclude all taxes assessed by a governmental authority from the consideration (e.g., heavy vehicle use tax). All of our leases require fixed payments, therefore we have no variable payment provisions.

Our ~~evaluation~~leases contain an option for the lessee to return, extend, or purchase the equipment at the end of the ~~impact~~lease term for the guaranteed contract residual amount. This is estimated to approximate the fair value of ~~this standard~~the equipment. Equipment is leased under sales-type leases where the lessees guarantee the residual value of the equipment. The table below provides additional information on our ~~lessor activity is ongoing, however from a lessor perspective, we do not believe the standard will have a material impact~~sales-type leases.



	Three Months Ended September 30,			Nine Months Ended September 30,
(in millions)	2019			2019
Revenue	$	50.9		$	159.8
Cost of goods sold	(46.8		)	(144.0		)
Operating profit	$	4.1		$	15.8

Interest income on lease receivable	$	7.0		$	20.4
Initial direct cost incurred	—			—

The amounts to be received on ~~our consolidated balance sheets, statements~~lease receivables as of ~~comprehensive income, or cash flows.~~December 31, 2018 under ASC 840 were as follows:



(in millions)	December 31, 2018
2019	$	149.0
2020	112.7
2021	29.0
2022	0.3
2023	—
2024 and thereafter	—
Total	$	291.0

2.3. REVENUE RECOGNITION

~~We implemented ASU 2014-09,~~ ~~Revenue from Contracts with Customers,~~ ~~which is codified as ASC 606 as of January 1, 2018 and replaces ASC 605,~~ ~~Revenue Recognition.~~ We used the modified retrospective approach for adoption, which required us to record the cumulative effect of the transition through retained earnings as of January 1, 2018. Retained earnings increased by $7.3 million upon adoption. The adjustment related only to contracts that were not completed as of January 1, 2018. The following table shows the amount by which financial statement lines were affected by the adoption of the new standard. The changes relate to the recognition of transportation revenue over time rather than at delivery, as explained below under the Transportation heading.Disaggregated Revenues

Three Months Ended September 30, 2018
Financial Statement Line Item (in millions)
Under ASC 605 Adjustment As Reported
Consolidated Statement of Comprehensive Income
Operating revenues $ 1,273.1
$ 7.0
$ 1,280.1
Purchased transportation 517.3
3.8
521.1
Salaries, wages, and benefits 318.2
(1.0 ) 317.2
Total operating expenses 1,179.4
2.8
1,182.2
Income from operations 93.7
4.2
97.9
Provision for income taxes 23.4
1.2
24.6
Net income 67.7
3.0
70.7
Comprehensive income 66.8
3.0
69.8

~~Table of Contents~~

Nine Months Ended September 30, 2018
Financial Statement Line Item (in millions)
Under ASC 605 Adjustment As Reported
Consolidated Statement of Comprehensive Income
Operating revenues $ 3,642.9
$ 12.5
$ 3,655.4
Purchased transportation 1,424.2
7.6
1,431.8
Salaries, wages, and benefits 943.0
0.2
943.2
Total operating expenses 3,390.4
7.8
3,398.2
Income from operations 252.5
4.7
257.2
Provision for income taxes 62.7
1.3
64.0
Net income 180.7
3.4
184.1
Comprehensive income 179.6
3.4
183.0

September 30, 2018
Financial Statement Line Item (in millions)
Under ASC 605 Adjustment As Reported
Consolidated Balance Sheet
Prepaid expenses and other current assets $ 64.9
$ 31.7
$ 96.6
Total current assets 1,269.9
31.7
1,301.6
Total assets 3,562.2
31.7
3,593.9
Other current liabilities 75.2
18.6
93.8
Total current liabilities 538.4
18.6
557.0
Deferred income taxes 420.9
2.4
423.3
Total noncurrent liabilities 981.3
2.4
983.7
Retained earnings 504.3
10.7
515.0
Total shareholders' equity 2,042.5
10.7
2,053.2
Total liabilities and shareholders' equity 3,562.2
31.7
3,593.9

Nine Months Ended September 30, 2018
Financial Statement Line Item (in millions)
Under ASC 605 Adjustment As Reported
Consolidated Statement of Cash Flows
Operating Cash Flows
        Net income $ 180.7
$ 3.4
$ 184.1
        Change in: Other assets (3.6 ) (12.3 ) (15.9 )
        Change in: Payables 34.3
1.3
35.6
        Change in: Other liabilities 5.1
7.6
12.7

ASC 606 requires us to look at revenue from customers at a contract level to determine the appropriate accounting. As defined by the new standard, a “contract” can range from an individual order to a multi-year agreement with a customer, depending on the specific arrangement. The majority of our revenues are related to transportation and have similar characteristics. The following table ~~breaks down~~summarizes our revenues by type of service, and each type of service is further described below.



	Three Months Ended September 30,				Nine Months Ended September 30,
Disaggregated Revenues (in millions)	2019		2018		2019		2018
Transportation	$	1,093.9	$	1,175.0	$	3,297.7	$	3,362.9
Logistics management	32.3		57.7		120.1		163.7
Other	57.7		47.4		172.9		128.8
Total operating revenues	$	1,183.9	$	1,280.1	$	3,590.7	$	3,655.4

Three Months Ended September 30, Nine Months Ended September 30,
Disaggregated Revenues (in millions)
2018 2017 2018 2017
Transportation $ 1,175.0
$ 1,005.7
$ 3,362.9
$ 2,921.0
Logistics management 57.7
55.8
163.7
160.6
Other 47.4
49.3
128.8
110.8
Total operating revenues $ 1,280.1
$ 1,110.8
$ 3,655.4
$ 3,192.4

~~Table of Contents~~

Transportation

Transportation revenues relate to the Truckload and Intermodal reportable segments, as well as to our ~~Brokerage~~brokerage business, which is included in the Logistics reportable segment.

In the Transportation portfolio, our service obligation to customers is satisfied over time. We do not believe there is a significant impact on the nature, amount, timing, and uncertainty of revenue or cash flows based on the mode of transportation. The economic factors that impact our transportation revenue are generally consistent across these modes given the relatively ~~short term~~short-term nature of each contract. For the majority of our transportation business, the “contract with a customer” is identified as an individual order under a negotiated agreement. Some consideration is variable in that a final transaction price is uncertain and is susceptible to factors outside of Schneider's influence, such as the weather or the accumulation of accessorial charges. Pricing information is supplied by ~~the~~ rate schedules that accompany negotiated contracts.

~~Transportation orders are short-term in nature and generally have terms~~

Table of significantly less than one year. They do not include significant financing components. A small portion of revenues in our transportation business relate to fixed payments in our Truckload segment. These payments are due regardless of volumes, and in these arrangements, the master agreement rather than the individual order may be considered the “contract.” See the Remaining Performance Obligations table below for more information on fixed payments.Contents

Prior to the adoption of ASC 606, we recognized revenue from transportation services when we completed our obligation to the customer, upon delivery. In accordance with the new standard, we now recognize revenue over the period transportation services are provided to the customer, including service performed as of the end of the reporting period for loads currently in transit, in order to recognize the value that is transferred to a customer over the course of the transportation service.

We determine revenue in transit using the input method, under which revenue is recognized based on time lapsed from the departure date (start of transportation services) to the arrival date (completion of transportation services). Measurement of revenue in transit requires the application of significant judgment. We calculate the estimated percentage of an order's transit time that is complete at period end, and we apply that percentage of completion to the order's estimated revenue. Revenue recognized in the period ended September 30, 2018 includes amounts related to orders that were partially completed (in transit) in prior periods.

In certain transportation arrangements, an unrelated party contributes a specified service to our customer. For example, we contract with third-party carriers to perform transportation services on behalf of our customers in our Brokerage business, and we use third-party rail carriers in our Intermodal segment. In situations that include the contributions of third parties, we act as principal in the arrangement, and, accordingly, we recognize gross revenues from these transactions.

Logistics Management

Logistics Management revenues relate to our Supply Chain Management and Import/Export Services operating segments, both of which are included in our Logistics reportable segment. Within this portfolio, the key service we provide to the customer is management of freight shipping and/or storage.

The “contracts” in our Logistics Management portfolio are the negotiated agreements, which contain both fixed and variable components. The variability of revenues is driven by volumes and transactions, which are known as of an invoice date. See the Remaining Performance Obligations table below for additional information. Supply Chain Management and Import/Export Services contracts typically have terms that extend beyond one year, and they do not include financing components.

Prior to the adoption of ASC 606, we recognized revenue under these contracts over time, based on pricing terms within the arrangements. Our recognition model will remain the same under the new standard, as we have elected to use the right to invoice practical expedient, which reflects the fact that a customer obtains the benefit associated with logistics services as they are provided (output method).

In our Supply Chain Management business, we subcontract third parties to perform a portion of the services. We are responsible for ensuring the services are performed and that they are acceptable to the customer, and we are, therefore, considered to be the principal in these arrangements.

~~Table of Contents~~

Other

Other revenues relate to activities that are out of scope for purposes of ASC 606, including our leasing and captive insurance businesses.

Quantitative Disclosure

The following table provides information related to transactions and expected timing of revenue recognition related to performance obligations that are fixed in nature and relate to contracts with terms greater than one ~~year.~~year as of date shown:



Remaining Performance Obligations (in millions)	September 30, 2019
Expected to be recognized within one year
Transportation	$	10.5
Logistics Management	8.6
Expected to be recognized after one year
Transportation	1.3
Logistics Management	6.9
Total	$	27.3

Remaining Performance Obligations (in millions)
September 30, 2018
Expected to be recognized within one year
Transportation $ 8.9
Logistics Management 24.3
Expected to be recognized after one year
Transportation 1.4
Logistics Management 5.0
Total $ 39.6

This disclosure does not include revenue related to performance obligations that are part of a contract whose original expected duration is one year or less. In addition, this disclosure does not include expected consideration related to performance obligations for which the Company elects to recognize revenue in the amount it has a right to invoice (e.g., usage-based pricing terms).

The following table provides information related to contract balances associated with our contracts with customers as of the dates shown.



Contract Balances (in millions)	September 30, 2019		December 31, 2018
Other current assets - Contract assets	$	25.8	$	21.7
Other current liabilities - Contract liabilities	—		—

Contract Balances (in millions)
September 30, 2018 January 1, 2018
Other current assets - Contract assets $ 34.8
$ 22.2
Other current liabilities - Contract liabilities —
—

We generally receive payment within 40 days of completion of performance obligations. Contract assets in the table above relate to revenue ~~in transit~~in-transit at the end of the reporting period. Contract liabilities relate to amounts that customers paid in advance of the associated service.

For certain of our contracts, we incur upfront costs to fulfill the master agreement, including driver recruiting and equipment relocation, that are capitalized and amortized over the master contract term, which has been deemed to be the period of benefit. These costs usually relate to dedicated transportation arrangements. The following table presents the amounts capitalized for contract fulfillment costs as of the dates shown.

(in millions) September 30, 2018 December 31, 2017
Capitalized contract fulfillment costs $ 6.1
$ 3.7

~~Amortization of capitalized contract fulfillment costs was as shown:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2018 2017 2018 2017
Amortization of contract fulfillment costs $ 0.7
$ 0.4
$ 2.1
$ 1.5

~~Table of Contents~~

~~Practical Expedients~~

We elected to use the following practical expedients that are available under ASC 606: (i) not to adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised service to a customer and when the customer pays for that service will be one year or less; (ii) to apply the new revenue standard to a portfolio of contracts (or performance obligations) with similar characteristics, as we reasonably expect that the effects on the consolidated financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts (or performance obligations) within that portfolio; and (iii) to recognize revenue in the Logistics Management portfolio in the amount of consideration to which we have a right to invoice, that corresponds directly with the value to the customer of the service completed to date.

3.4. FAIR VALUE

Fair value focuses on the estimated price that would be received to sell an asset or paid to transfer a liability, which is referred to as the exit price. Inputs to valuation techniques used to measure fair value fall into three broad levels (Levels 1, 2, and 3) as follows:

Level 1—Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that we have the ability to access at the measurement date.

Level 2—Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities.

Level 3—Unobservable inputs reflecting the reporting entity’s estimates of the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

Table of Contents

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. All marketable securities were valued based on quoted prices for similar assets in active markets or quoted prices for identical or similar assets in markets that are not active (Level 2 in the fair value hierarchy). We measure our marketable securities on a recurring, monthly basis. See Note 4, 5, Investments, for information on the fair value of our marketable securities.

In connection with the June 1, 2016 acquisition of WSL, a contingent payment arrangement based on the achievement of specified earnings targets iswas in place for three consecutive 12-month periods after the closing, with the aggregate payment total not to exceed $40.0 million. NoNaN payments ~~have been~~were made ~~through September~~under the agreement which expired June 30, ~~2018. The fair value~~2019, and the balance as of ~~the contingent consideration at September 30, 2018 and~~ December 31, ~~2017~~2018 was zero. ~~The valuation was based on Level 3 inputs.~~

Our ownership interest in ~~Platform Science, Inc.~~PSI discussed in Note 4, 5, Investments, was valued based on Level 3 inputs.

There were no0 transfers between levels for the periods ~~discussed.~~shown.

Fair Value of Other Financial Instruments

The recorded value of cash, trade accounts receivable, lease receivables, and trade accounts payable approximates fair value.

The table below presents the carrying value of our debt portfolio along with the fair value of a fixed-rate debt portfolio with similar terms and maturities, which is based on borrowing rates available to us in the applicable year. This valuation used Level 2 inputs.



	September 30, 2019				December 31, 2018
(in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Fixed-rate debt portfolio	$	401.3	$	408.9	$	405.0	$	398.4

September 30, 2018 December 31, 2017
(in millions) Carrying Value Fair Value Carrying Value Fair Value
Debt portfolio $ 415.4
$ 405.2
$ 429.8
$ 432.4

~~Table of Contents~~

4.5. INVESTMENTS

Marketable Securities

Our marketable securities are classified as available for sale and carried at fair value in current assets on the consolidated balance sheets. ~~Any unrealized gains and losses, net of tax, are included as a component of accumulated other comprehensive income.~~ Our portfolio of securities has maturities ranging from 23 to 7581 months. While our intent is to hold our securities to maturity, sudden changes in the market or to our liquidity needs may cause us to sell certain securities in advance of their maturity date.

Any unrealized gains and losses, net of tax, are included as a component of accumulated other comprehensive loss on the consolidated balance sheets, unless we determine that an unrealized loss is other-than-temporary. If we determine that an unrealized loss is other-than-temporary, we recognize the loss in earnings. We did not have any other-than-temporary impairments for either of the periods ended September 30, 2019 and 2018. Cost basis is determined using the specific identification method.

The following table presents the values of our marketable securities as of the dates shown:



	September 30, 2019				December 31, 2018
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Zero coupon bonds	$	2.0	$	2.0	$	3.9	$	3.9
U.S. treasury and government agencies	19.0		19.0		20.0		19.8
Asset-backed securities	0.1		0.1		0.1		0.1
Corporate debt securities	14.1		14.5		15.1		15.0
State and municipal bonds	11.6		11.8		12.5		12.5
Total marketable securities	$	46.8	$	47.4	$	51.6	$	51.3

September 30, 2018 December 31, 2017
(in millions)
Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value
Zero coupon bonds $ 3.9
$ 3.9
$ 3.8
$ 3.9
U.S. treasury and government agencies 18.0
17.7
6.0
6.0
Asset-backed securities 0.1
0.1
0.3
0.3
Corporate debt securities 11.1
11.0
9.1
9.2
State and municipal bonds 12.6
12.3
22.7
22.2
Total marketable securities $ 45.7
$ 45.0
$ 41.9
$ 41.6

Gross realized ~~and unrealized~~ gains and losses on ~~sales of~~ marketable securities were not material for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018. Gross unrealized gains and losses on marketable securities were not material for the periods ended September 30, 2019, and December 31, 2018.

Table of Contents

Ownership Interest in Platform Science, Inc.

In 2018, we ~~received~~acquired a 30% ownership interest in ~~Platform Science, Inc.~~PSI in exchange for ~~our contribution of~~granting PSI a non-exclusive license ~~for~~to our proprietary telematics mobile software that was developed to enable driver productivity and ensure regulatory compliance. Our ownership interest in ~~Platform Science, Inc.~~PSI is being accounted for under ASC 321, Investments - Equity Securities and is recorded at fair value in other noncurrent assets on the consolidated balance ~~sheet.~~sheets. The fair value of the ownership interest as of December 31, 2018 was ~~initially~~ determined to be ~~$2.5~~$3.5 million through an independent ~~valuation and is being accounted for under ASC 321,~~ ~~Investments - Equity Securities.~~ valuation. As of September 30, ~~2018~~,2019, there have been no transactions that ~~have triggered an indicator~~would indicate that the value of our ownership interest in ~~Platform Science, Inc. has~~PSI changed.

5.6. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of the purchase price of our acquisitions over the fair value of the identifiable net assets acquired. Changes in the carrying amount of goodwill were as follows:



(in millions)	Truckload			Logistics		Other			Total
Balance at December 31, 2018	$	138.2		$	14.2	$	9.8		$	162.2
Goodwill impairment charge	(34.6		)	—		—			(34.6		)
Foreign currency translation	—			—		(0.3		)	(0.3		)
Balance at September 30, 2019	$	103.6		$	14.2	$	9.5		$	127.3

(in millions) Truckload Logistics Other Total
Balance at December 31, 2017 $ 138.2
$ 14.2
$ 12.4
$ 164.8
Foreign currency translation —
—
(0.6 ) (0.6 )
Balance at September 30, 2018 $ 138.2
$ 14.2
$ 11.8
$ 164.2

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we had accumulated goodwill impairment charges of ~~$6.0 million.~~$42.6 million and $8.0 million, respectively.

~~During~~Goodwill is tested for impairment at least annually using both the discounted cash flow method and the guideline public company method in calculating the fair values of our reporting units. Key inputs used in the discounted cash flow approach include growth rates for sales and operating profit, perpetuity growth assumptions, and discount rates. As interest rates rise, the calculated fair values of our reporting units will decrease, which could impact the results of our goodwill impairment tests.

A triggering event occurred during the second quarter of ~~2018, we reorganized the structure of the operating segments within the Truckload reportable segment to include~~2019 as results from our FTFM ~~as a separate operating segment and integrated the remaining Dedicated activities into the VTL operating segment. Each Truckload operating segment was determined~~reporting unit continued to be ~~its own reporting unit due~~less than projected, despite sustained investments and operational changes designed to ~~the level at which financial information is available and management's review~~improve efficiencies. Because of that information. As a result of the reorganization, goodwill within the Truckload reportable segment, which was previously attributable to the Dedicated reporting unit, was reallocated to the VTL and FTFM reporting units on a relative fair value basis. After the reallocation of goodwill,this triggering event, an impairment test was performed for ~~these~~the FTFM reporting ~~units, and it~~unit. As a result of the testing performed, an impairment loss of $34.6 million was ~~determined that goodwill was not impaired as each~~recorded for our FTFM reporting unit ~~had an estimated fair value in excess~~as the discounted cash flows expected to be generated by this reporting unit were not sufficient to recover its carrying value. This represents all of ~~its respective carrying amount.~~the goodwill related to the FTFM reporting unit.

~~Table of Contents~~

The identifiable intangible assets other than goodwill listed below are included in capitalized software and other noncurrent assets on the consolidated balance sheets.


	September 30, 2018						December 31, 2017
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Balance at September 30, 2019
Customer lists	$	10.5	$	3.2	$	7.3	$	10.5	$	2.5	$	8.0	$	1.1	$	1.1	$	—
Trade names	1.4		1.1		0.3		1.4		0.7		0.7
Trade name													—		—		—
Total intangible assets	$	11.9	$	4.3	$	7.6	$	11.9	$	3.2	$	8.7	1.1		1.1		—

Balance at December 31, 2018
Customer lists													10.5		3.5		7.0
Trade name													1.4		1.2		0.2
Total intangible assets													$	11.9	$	4.7	$	7.2

As part of the shutdown of our FTFM service offering in the third quarter of 2019, we wrote-off the gross carrying amount of the customer lists and trade name obtained through the WSL acquisition. An impairment charge of $6.5 million was recorded for the unamortized value of the customer lists in the three months ended September 30, 2019. The impairment charge is included in the consolidated statements of comprehensive income within restructuring charges. Refer to Note 13, Restructuring Charges, for additional details.

Table of Contents

Amortization expense for intangible assets was ~~$0.3~~$0.1 million and ~~$0.4~~$0.3 million for the three months ended September 30, 2019 and September 30, 2018, respectively, and ~~2017, respectively,~~$0.7 million and $1.1 million for ~~each of~~ the nine months ended September 30, 2019 and 2018, ~~and 2017.~~respectively. Accumulated amortization in the table above includes foreign currency translation related to a customer list.

~~Estimated future amortization expense related to intangible assets is as follows (in millions):~~

Remaining 2018 $ 0.3
2019 1.1
2020 1.0
2021 1.0
2022 1.0
2023 and thereafter 3.2
$ 7.6

6.7. DEBT AND CREDIT FACILITIES

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, debt included the following:



(in millions)	September 30, 2019			December 31, 2018
Unsecured senior notes: principal payable at maturities ranging from 2019 through 2025; interest payable in semiannual installments through the same timeframe; weighted-average interest rate of 3.36% for both 2019 and 2018	$	400.0		$	400.0
Equipment financing notes: principal and interest payable in monthly installments through 2019; weighted average interest rate of 3.98% and 3.72% for 2019 and 2018, respectively	1.3			5.0
Total principal outstanding	401.3			405.0
Current maturities	(96.2		)	(45.0		)
Debt issuance costs	(0.5		)	(0.6		)
Long-term debt	$	304.6		$	359.4

(in millions) September 30,
2018 December 31,
2017
Unsecured senior notes: principal payable at maturities ranging from 2019 through 2025; interest payable in semiannual installments through the same timeframe; weighted-average interest rate of 3.36% for both 2018 and 2017 $ 400.0
$ 400.0
Equipment financing notes: principal and interest payable in monthly installments through 2023; weighted average interest rate of 3.79% and 3.76% for 2018 and 2017, respectively 15.4
29.8
Total principal outstanding 415.4
429.8
Current maturities (7.3 ) (15.2 )
Debt issuance costs (0.7 ) (0.9 )
Long-term debt $ 407.4
$ 413.7

~~On August 6, 2018, we entered into a $250.0 million~~Our Credit Agreement (the “2018 Credit Facility”) ~~among us, the lenders party thereto (the “Lenders”) and JPMorgan Chase Bank, N.A., as administrative agent, and terminated our prior~~provides borrowing capacity of $250.0 million ~~Credit Agreement dated February 18, 2011 (as amended). The 2018 Credit Facility is a revolving credit facility that matures on August 6, 2023~~ and allows us to request an increase in total commitment by up to $150.0 million, for a total potential commitment of $400.0 ~~million.~~million through August 2023. The ~~2018 Credit Facility~~agreement also provides a sublimit of $100.0 million to be used for the issuance of letters of credit. The applicable interest rate under the 2018 Credit Facility is based on the Prime Rate, the Federal Funds Rate, or the London InterBank Offered Rate (LIBOR), depending upon the type of borrowing, plus an applicable margin based on our consolidated net debt coverage ratio as of the end of each fiscal quarter. We had no outstanding borrowings under ~~these agreements~~this agreement as of September 30, ~~2018~~2019 or December 31, ~~2017.~~2018. Standby letters of credit under ~~these agreements~~this agreement amounted to $3.9 million at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018 and were primarily related to the requirements of certain of our real estate leases.

~~Table of Contents~~

~~On September 5, 2018, we entered into~~We also have a ~~Joinder and Amendment No. 2 to our Amended and Restated~~ Receivables Purchase Agreement (the “2018 Receivables Purchase Agreement”) ~~relating to our $200.0 million secured accounts receivable facility. The 2018 Receivables Purchase Agreement has a scheduled maturity date of September 3, 2021,~~that allows us to borrow funds against qualifying trade receivables at rates based on one-month LIBOR up to $200.0 million and provides for the issuance of standby letters of ~~credit.~~credit through September 2021. We had no outstanding borrowings under this facility at September 30, ~~2018~~2019 or December 31, ~~2017.~~2018. At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, standby letters of credit under this agreement amounted to ~~$62.8~~$70.3 million and ~~$63.8~~$65.3 million, respectively, and were primarily related to the requirements of certain of our insurance obligations.

~~7. LEASE RECEIVABLES~~

We finance various types of transportation-related equipment for independent third parties. The transactions are generally for one to five years and are accounted for as sales-type or direct financing leases. As of September 30, 2018 and December 31, 2017, the investment in lease receivables was as follows:

(in millions) September 30, 2018 December 31, 2017
Future minimum payments to be received on leases $ 141.5
$ 141.2
Guaranteed residual lease values 148.7
130.7
Total minimum lease payments to be received 290.2
271.9
Unearned income (29.0 ) (28.1 )
Net investment in leases 261.2
243.8

Current maturities of lease receivables 131.0
106.6
Less—allowance for doubtful accounts (0.5 ) (1.7 )
Current portion of lease receivables—net of allowance 130.5
104.9

Lease receivables—noncurrent $ 130.7
$ 138.9

8. INCOME TAXES

Our effective income tax rate was ~~25.8%~~26.2% and ~~39.2%~~25.8% for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~25.8%~~25.3% and ~~38.8%~~25.8% for the nine months ended September 30, 2019 and 2018, ~~and 2017,~~ respectively. ~~The decrease in the rates was due to the enactment of the Tax Cuts and Jobs Act in December 2017.~~ In determining the quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, and best estimate of nontaxable and nondeductible items of income and expense.

In accordance with SEC Staff Accounting Bulletin No. 118, the amounts recorded in the fourth quarter of 2017 related to the Tax Cuts and Jobs Act represent reasonable estimates based on our analysis to date and are considered to be provisional and subject to revision during 2018. Due to the complex nature of the enacted tax law changes, and their application, certain amounts related to our 2017 tax provision recorded in the financial statements as a result of the Tax Legislation are to be considered "provisional" and subject to revision, as we await additional guidance from income tax authorities. No changes were made to the estimated impacts in the first three quarters of 2018.

1417

Table of Contents

9. COMMON EQUITY

Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018:



	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share data)	2019		2018		2019		2018
Numerator:
Net income available to common shareholders	$	19.7	$	70.7	$	91.1	$	184.1

Denominator:
Weighted average common shares outstanding	177.1		177.0		177.1		177.0
Effect of dilutive restricted share units	0.2		0.2		0.2		0.2
Weighted average diluted common shares outstanding	177.3		177.2		177.3		177.2

Basic earnings per common share	$	0.11	$	0.40	$	0.51	$	1.04
Diluted earnings per common share	0.11		0.40		0.51		1.04

Three Months Ended September 30, Nine Months Ended September 30,
(in millions, except per share data) 2018 2017 2018 2017
Numerator:
    Net income available to common shareholders $ 70.7
$ 36.9
$ 184.1
$ 106.0

Denominator:
    Weighted average common shares issued and outstanding 177.0
176.9
177.0
169.2
    Effect of dilutive restricted share units 0.2
0.1
0.2
0.1
    Weighted average diluted common shares issued and outstanding 177.2
177.0
177.2
169.3

Basic earnings per common share $ 0.40
$ 0.21
$ 1.04
$ 0.63
Diluted earnings per common share $ 0.40
$ 0.21
$ 1.04
$ 0.63

The calculation of diluted earnings per share for the three and nine months ended September 30, ~~2018~~2019 excluded an immaterial amount of share-based compensation awards that had an anti-dilutive effect.

Subsequent Event - Dividends Declared

In October of ~~2018,~~2019, our Board of Directors declared a quarterly cash dividend for the fourth fiscal quarter of ~~2018~~2019 in the amount of $0.06 per share to holders of our Class A and Class B common stock. The dividend is payable to shareholders of record at the close of business on December ~~14, 2018,~~13, 2019 and is expected to be paid on January ~~7, 2019.~~9, 2020.

10. SHARE-BASED COMPENSATION

We grant various equity-based awards relating to Class B Common Stock under our 2017 Omnibus Incentive Plan (“the Plan”). These awards consist of the following: restricted shares, restricted stock units (“RSUs”), performance-based restricted shares (“Performance Shares”), performance-based restricted stock units (“PSUs”), and non-qualified stock options.

~~The following table summarizes~~During the ~~components~~three months ended September 30, 2019, we recognized a net benefit of $2.4 million for our share based compensation plans due to the reduction in the anticipated payout of performance-based awards. There was no share-based compensation ~~program expense:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2018 2017 2018 2017
Restricted Shares and RSUs $ 0.8
$ 0.4
$ 2.4
$ 1.0
Pre-IPO Restricted Shares 0.2
0.5
0.8
1.6
Performance Shares and PSUs 0.8
0.6
2.0
1.3
Nonqualified Stock Options 0.3
0.2
1.1
0.4
Share-based compensation expense $ 2.1
$ 1.7
$ 6.3
$ 4.3
Related tax benefit $ 0.5
$ 0.7
$ 1.6
$ 1.7

expense for the nine months ended September 30, 2019. Share-based compensation expense was $2.1 million and $6.3 million for the three and nine months ended September 30, 2018, respectively. We recognize share-based compensation expense over the awards' vesting period. As of September 30, ~~2018,~~2019, we had ~~$13.7~~$11.3 million of pre-tax unrecognized compensation cost related to outstanding share-based compensation awards ~~that is~~ expected to be recognized over a weighted-average period of ~~2.6~~2.7 years.

~~Table~~The Black-Scholes valuation model is used by the Company to determine the grant date fair value of ~~Contents~~

~~Restricted Shares and RSUs~~

~~Under~~option awards. The Company uses its stock price on the ~~Plan,~~grant date as the ~~majority of~~fair value assigned to the restricted shares, RSUs, performance shares, and RSUs granted in 2017 and 2018 vest ratably over a four-year period, with the first 25% of the grant vesting approximately one year after the date of grant, subject to continued employment through the vesting date or retirement eligibility. Dividend equivalents equal to dividends paid on our common shares during the vesting period are tracked and accumulated for each restricted share and RSU. The dividend equivalents are forfeitable and are distributed to participants in cash consistent with the date the awards vest.

A small portion of the restricted shares relate to a one-time 2018 grant, which vests 50% after a five-year period, with the remaining 50% vesting after a six-year period after the grant date, subject to continued employment through the vesting date. Dividend equivalents equal to dividends paid on our common shares during the vesting period are tracked and accumulated for each restricted share. The dividend equivalents are distributed to participants in cash consistent with the date the awards vest.

Restricted Shares and RSUs Number of Awards Weighted Average Grant Date Fair Value Per Unit
Unvested at December 31, 2017 240,016
$ 19.00
Granted 229,272
26.82
Vested (74,795 ) 19.00
Forfeited (14,370 ) 20.21
Unvested at September 30, 2018 380,123
$ 23.67

Prior to our IPO, we granted restricted shares of Class B Common Stock. Shares included in the pre-IPO restricted share grants vest ratably over a three-year period. Cash dividends are not paid on the unvested pre-IPO restricted shares, nor do they accumulate during the vesting period.

Pre-IPO Restricted Shares Number of Awards Weighted Average Grant Date Fair Value
Unvested at December 31, 2017 152,199
$ 19.00
Granted —
—
Vested (101,643 ) 19.00
Forfeited (5,084 ) 19.00
Unvested at September 30, 2018 45,472
$ 19.00

~~Performance Shares and PSUs~~

PSUs. Performance shares and PSUs ~~include a three-year performance period with vesting~~are earned based on attainment of threshold performance of ~~earnings and~~ return on capital ~~targets. These awards cliff-vest at the end of the three-year performance period, subject to continued employment through the vesting date~~and earnings or retirement eligibility, and payout ranges from 0%-200% for PSUs and from 0%-100% for performance shares. Dividend equivalents equal to dividends paid on our common shares during the vesting period are tracked and accumulated for each award. The dividend equivalents are forfeitable and are distributed to participants in cash consistent with the date the awards vest.net income targets.

Performance Shares and PSUs Number of Awards Weighted Average Grant Date Fair Value
Unvested at December 31, 2017 391,541
$ 19.00
Granted 303,228
26.78
Vested —
—
Forfeited (45,113 ) 19.00
Unvested at September 30, 2018 649,656
$ 22.63

~~Table of Contents~~

~~Nonqualified Stock Options~~

The options granted under the Plan have an exercise price equal to the fair market value of the underlying stock at the date of grant and vest ratably over a four-year period, with the first 25% of the grant becoming exercisable approximately one year after the date of grant. The options expire ten years from the date of grant.

Nonqualified Stock Options Number of Awards Weighted Average Grant Date Fair Value
Unvested at December 31, 2017 229,620
$ 6.37
Granted 173,024
8.96
Vested (8,410 ) 6.37
Forfeited (25,230 ) 6.37
Unvested at September 30, 2018 369,004
$ 7.59

~~Assumptions used in calculating the Black-Scholes value of options granted during 2018 were as follows:~~

Weighted-average Black-Scholes value $ 8.96
Black-Scholes Assumptions:
Expected term 6.25 years
Expected volatility 32.2 %
Expected dividend yield 0.9 %
Risk-free interest rate 2.8 %

11. COMMITMENTS AND CONTINGENCIES

In the ordinary course of conducting our business we become involved in certain legal matters and investigations ~~on a number of matters,~~ including liability claims, taxes other than income taxes, contract disputes, employment, and other litigation matters. We accrue for anticipated costs to ~~defend and~~ resolve matters that are probable and estimable. We believe the outcomes of these matters will not have a material impact on our business or our consolidated financial statements.

Table of Contents

We record liabilities for claims accruals based on our best estimate of expected losses. The primary claims arising for the Company consist of accident-related claims for personal injury, collision, and comprehensive compensation, in addition to workers' compensation and cargo liability claims. We maintain insurance with licensed insurance carriers above the amounts in which we self-insure. We review our accruals periodically to ensure that the aggregate amounts of our accruals are appropriate at any period after consideration of available insurance coverage. Although it is possible that our claims accruals will change based on future developments, we do not believe these changes will be material to our results of operations considering our insurance coverage and other factors.

At September 30, ~~2018,~~2019, our firm commitments to purchase transportation equipment totaled approximately ~~$131.6~~$278.1 million.

~~WSL Acquisition~~

The purchase and sale agreement related to our June 2016 acquisition of WSL included guaranteed payments of $20.0 million to the former owners of WSL on each of the first three anniversary dates of the closing. The liability recorded was discounted between one percent and three percent, based on credit-adjusted discount rates. The initial payment in the amount of $19.7 million, including calculated interest based on the discounted amount recorded, was made in June 2017 and reflected an adjustment for a working capital true-up. The second payment in the amount of $20.0 million was made in June 2018. The present value of the remaining payment was $18.7 million at September 30, 2018, which is recorded in other current liabilities on the consolidated balance sheet.

The representative of the former owners of WSL has ~~claimed~~filed a lawsuit in the Delaware Court of Chancery which alleges that we have not fulfilled certain obligations under the purchase and sale agreement relating to the post-closing operations of the business, ~~amongst other matters,~~ and ~~that,~~ as a result, the former owners claim they are entitled to an ~~accelerated~~additional payment of ~~the~~$40.0 million. For additional information on this contingent ~~amount described in~~payment see Note 3, 4, Fair Value~~, without regard to whether the specified earnings targets are met.~~. A trial date has been set for April 2020. We believe ~~this claim is meritless and have filed an action in the Delaware Court of Chancery seeking a declaratory judgment~~ that we have ~~complied with~~strong defenses to this claim. A judgment by the Court against us could have a material adverse effect on our ~~obligations under the agreement and that no accelerated payment is owed.~~results of operations.

~~Table of Contents~~

12. SEGMENT REPORTING

We have ~~three~~3 reportable segments – Truckload, Intermodal, and Logistics – which are based primarily on the services each segment provides.

As of December 31, ~~2017,~~2018, our operating segments within the Truckload reportable segment were VTL, ~~Dedicated,~~FTFM, and Bulk. ~~During~~On July 29, 2019 the ~~second quarter~~Board of ~~2018, we reorganized~~Directors approved a structured shutdown of our FTFM service offering, which was included within our FTFM operating segment. Once the ~~structure~~shutdown of the FTFM service offering is complete, there will be two operating segments within the Truckload reportable segment, ~~separating FTFM into its own operating segment~~VTL and moving the remaining business that was previously under the Dedicated operating segment into the VTL operating segment. The Truckload reportable segment now consists of three operating segments (VTL, FTFM, and Bulk) that are aggregated because they have similar economic characteristics and meet the other aggregation criteria described in the accounting guidance for segment reporting.Bulk.

The ~~chief operating decision maker (CODM)~~CODM reviews revenues for each operating segment without the inclusion of fuel surcharge revenues. For segment purposes, any fuel surcharge revenues earned are recorded as a reduction of the segment’s fuel expenses. ~~For all operating segments except FTFM, revenue is recognized upon delivery, and in-transit revenue is not reflected in segment results.~~ Income from operations at a segment level reflects the measures presented to the CODM for each segment.

Separate balance sheets are not prepared by segment, and, as a result, assets are not separately identifiable by segment. All transactions between reporting segments are eliminated in consolidation.

The following tables summarize our segment information. Intersegment revenues were immaterial for all segments, with the exception of Other, which includes revenues from insurance premiums charged to other segments for workers’ compensation, auto, and other types of insurance. Intersegment revenues included in Other revenues below were ~~$20.7~~$20.8 million and ~~$20.5~~$20.7 million for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$62.0~~$66.8 million and ~~$57.9~~$62.0 million for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively.


	Three Months Ended September 30,						Nine Months Ended September 30,
Revenues by Segment (in millions)	2018			2017			2018			2017
Revenues by Segment													Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)													2019			2018			2019			2018
Truckload	$	565.0		$	551.7		$	1,685.0		$	1,616.8		$	515.6		$	566.9		$	1,582.3		$	1,685.0
Intermodal	252.1			196.0			681.0			571.4			249.2			254.4			746.6			688.0
Logistics	268.7			209.1			739.2			584.7			236.1			271.8			707.0			743.7
Total revenues of reportable segments	1,085.8			956.8			3,105.2			2,772.9
Other	91.2			85.4			248.5			214.5			94.3			83.9			290.0			237.0
Fuel surcharge	134.9			93.9			385.8			276.8			114.2			134.9			350.2			385.8
Inter-segment eliminations	(31.8		)	(25.3		)	(84.1		)	(71.8		)	(25.5		)	(31.8		)	(85.4		)	(84.1		)
Operating revenues	$	1,280.1		$	1,110.8		$	3,655.4		$	3,192.4		$	1,183.9		$	1,280.1		$	3,590.7		$	3,655.4

Table of Contents


	Three Months Ended September 30,					Nine Months Ended September 30,
Income (Loss) from Operations by Segment (in millions)	2018			2017		2018			2017
Income (Loss) from Operations by Segment											Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)											2019			2018			2019		2018
Truckload(1)	$	53.1		$	41.1	$	162.8		$	132.9	$	(12.5	)	$	54.4		$	18.6	$	162.2
Intermodal	36.1			12.2		88.7			30.0		25.1			36.1			75.5		90.7
Logistics	12.5			9.1		30.4			20.8		9.9			13.0			29.4		31.2
Other	(3.8		)	1.7		(24.7		)	2.9		6.5			(5.6		)	6.2		(26.9		)
Income from operations	97.9			64.1		257.2			186.6		$	29.0		$	97.9		$	129.7	$	257.2
Other expense—net	2.6			3.4		9.1			13.4
Income before income taxes	$	95.3		$	60.7	$	248.1		$	173.2

(1) Included within Truckload (loss) income from operations for the three and nine months ended September 30, 2019 were $50.4 million of restructuring charges associated with the shutdown of the FTFM service offering and an $11.5 million impairment on assets held for sale related to an agreement the Company signed in the third quarter of 2019 to sell tractors in the fourth quarter. The impairment on assets held for sale was recorded within operating supplies and expenses in the consolidated statements of comprehensive income. An additional $34.6 million goodwill impairment charge related to the FTFM reporting unit was recorded within Truckload income from operations for the nine months ended September 30, 2019.



Depreciation and Amortization Expense by Segment	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2019		2018		2019		2018
Truckload	$	53.2	$	52.6	$	161.5	$	157.3
Intermodal	11.3		10.3		33.2		29.0
Logistics	0.2		0.1		0.5		0.3
Other	9.4		10.3		27.2		30.3
Depreciation and amortization expense	$	74.1	$	73.3	$	222.4	$	216.9

Three Months Ended September 30, Nine Months Ended September 30,
Depreciation and Amortization Expense by Segment (in millions)
2018 2017 2018 2017
Truckload $ 52.6
$ 51.7
$ 157.3
$ 152.7
Intermodal 10.3
8.8
29.0
25.3
Logistics 0.1
0.1
0.3
0.3
Other 10.3
9.9
30.3
28.7
Depreciation and amortization expense $ 73.3
$ 70.5
$ 216.9
$ 207.0
Substantially all of our revenues and assets were generated or located within the United States.

In 2019, we began recognizing in-transit revenues and related expenses at the reporting segment level for all operating segments to better align revenues and costs within our reporting segments. Prior to 2019, revenues at the operating segment level reflected revenue recognized upon delivery, and in-transit revenue was recorded within Other, except for FTFM. For consistency, we have restated the 2018 revenue and income (loss) from operations by segment in the tables above to reflect this new measure of revenue and segment profit. The tables below reflect the impact of this change by reporting segment on revenues (excluding fuel surcharge) and income (loss) from operations.



Increase (Decrease) in Revenues (excluding fuel surcharge) by Segment	Three Months Ended September 30,			Nine Months Ended September 30,
(in millions)	2018			2018
Truckload	$	1.9		$	—
Intermodal	2.3			7.0
Logistics	3.1			4.5
Other	(7.3		)	(11.5		)
Total	$	—		$	—



Increase (Decrease) in Income (Loss) from Operations by Segment	Three Months Ended September 30,			Nine Months Ended September 30,
(in millions)	2018			2018
Truckload	$	1.3		$	(0.6	)
Intermodal	—			2.0
Logistics	0.5			0.8
Other	(1.8		)	(2.2		)
Total	$	—		$	—

Table of Contents

13. RESTRUCTURING CHARGES

On July 29, 2019 the Company’s Board of Directors approved a structured shutdown of its FTFM service offering within its Truckload reporting segment which was substantially complete as of August 31, 2019. As part of the shutdown, $50.4 million of restructuring charges were incurred during the third quarter of 2019. Combined with anticipated future shutdown costs, the Company will be at the lower end of its estimated range of $50.0 million to $75.0 million. All of the restructuring charges were recorded within our Truckload reporting segment. Pre-tax losses of our FTFM service offering were $8.9 million and $9.7 million for the three months ended September 30, 2019 and 2018, respectively and $34.2 million and $19.3 million for the nine months ended September 30, 2019 and 2018, respectively.

The costs associated with the shutdown are presented separately on the consolidated statements of comprehensive income within restructuring charges and are summarized in the following table for the three and nine months ended September 30, 2019:



(in millions)	September 30, 2019
Impairment charges	$	35.7
Receivables write-down	7.6
Other costs	7.1
Total restructuring charges	$	50.4

As part of our assessment of impairment charges during the quarter ended September 30, 2019, we recorded at fair value $50.6 million of transportation equipment using market data and $13.6 million of right-of-use lease assets using discounted cash flow analyses. As a result of the above, we utilized level 3 inputs in calculating the fair value. These assets, less the cost to sell, are recorded within prepaid expenses and other current assets and other noncurrent assets, respectively, on the consolidated balance sheets as of September 30, 2019.

As of December 31, 2018 and September 30, 2019, FTFM restructuring liabilities are classified as current liabilities on the consolidated balance sheets and balances are as follows:



(in millions)	Restructuring Liabilities
Balance at December 31, 2018	$	—
Restructuring charges	7.1
Cash payments	(5.2		)
Balance at September 30, 2019	$	1.9

The required criteria, as defined by ASC 360, Property, Plant and Equipment, was satisfied as part of the shutdown of our FTFM service offering for reclassification of related transportation equipment into assets held for sale. The following table presents information on assets held for sale as of December 31, 2018 and September 30, 2019 within our Truckload segment. As of September 30, 2019, $50.6 million of the assets held for sale balance relates to the shutdown of our FTFM service offering. Assets held for sale, net of impairment, are included in prepaid expenses and other current assets in the consolidated balance sheets.



(in millions)	September 30, 2019		December 31, 2018
Truckload	$	119.2	$	19.5

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes and our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

INTRODUCTION

We are a leading transportation and logistics services company providing a broad portfolio of premier truckload, intermodal, and logistics solutions and operating one of the largest for-hire trucking fleets in North America. Our highly flexible and balanced business combines asset-based truckload services with asset-light intermodal and non-asset logistics offerings, enabling us to serve our customers’ diverse transportation needs. Our broad portfolio of services provides us with a greater opportunity to allocate ~~growth~~ capital within our portfolio of services in a manner designed to maximize returns ~~throughout the seasonal~~across all market cycles and economic ~~business cycles. For example, we can efficiently move~~conditions. We continually monitor our ~~equipment between services~~performance and ~~regions when we see opportunities~~market conditions to ~~enhance~~ensure appropriate allocation of capital and resources to grow our ~~return on capital.~~businesses and to optimize returns across reportable segments. Our ~~Quest~~strong balance sheet enables us to carry out an acquisition strategy that strengthens our overall portfolio. We are positioned to leverage our scalable platform ~~serves as an instrumental factor in driving profitable growth from both new~~ and ~~existing customers as it enables real-time, data-driven decision support~~experienced operations team to acquire high-quality businesses that meet our disciplined selection criteria to broaden our service offerings and ~~business analysis of every load/order, assisting our associates in proactively serving~~ customer ~~needs while maximizing productivity of our drivers, assets, and related third-party providers.~~base.

Our truckload services include standard long-haul and regional shipping services ~~final mile “white glove” delivery,~~primarily using dry van equipment, bulk, temperature-controlled, and customized solutions for high-value, ~~and~~ time-sensitive loads. These services are executed through either for-hire or dedicated ~~contracts throughout North America.~~contracts. FTFM residential and retail store delivery services were also provided into the third quarter of 2019, when that service offering was shut down.

Our intermodal service consists of door-to-door container on flat car service by a combination of rail and over-the-road transportation, in association with our rail carrier partners. Our intermodal service ~~offers~~uses company-owned containers, chassis, and trucks, using primarily company dray drivers to offer vast coverage throughout North America, including ~~cross-border freight utilizing company containers and trucks.~~cross border.

Our logistics offerings consist of non-asset freight brokerage services, supply chain services (including 3PL), and import/export services. Our logistics business typically provides value-added services using third-party capacity, augmented by our assets, to manage and move our customers’ freight.

Our success depends on our ability to balance our transportation network and efficiently and effectively manage our resources in the delivery of truckload, intermodal, and logistics services to our customers. Resource requirements vary with customer demand, which may be subject to seasonal or general economic conditions. We believe that our ability to properly select freight and adapt to changes in customer transportation needs allows us to efficiently deploy resources and make capital investments in trucks, trailers, containers, and chassis, or obtain qualified third-party capacity at a reasonable price for our logistics segment.

Consistent with the transportation industry, our results of operations generally show a seasonal pattern. The strongest volumes are typically in the late third and fourth quarters. Operating expenses tend to be higher in the winter months primarily due to colder weather, which causes higher maintenance expense and higher fuel consumption from increased idle time.

~~Table of Contents~~

RESULTS OF OPERATIONS

Non-GAAP Financial Measures

In this section of our report, we present the following non-GAAP financial measures: (1) revenues (excluding fuel surcharge), (2) adjusted income from operations, (3) adjusted operating ratio, and (4) adjusted net income. We also provide reconciliations of these measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.

Management believes the use of each of these non-GAAP measures assists investors in understanding our business by (a) removing the impact of items from our operating results that, in our opinion, do not reflect our core operating performance, (b) providing investors with the same information our management uses internally to assess our core operating performance, and (c) presenting comparable financial results between periods.

In addition, in the case of revenues (excluding fuel surcharge), we believe the measure is useful to investors because it isolates volume, price, and cost changes directly related to industry demand and the way we operate our business from the external factor of fluctuating fuel prices and the programs we have in place to manage fuel price fluctuations. Fuel-related costs and their impact on our industry are important to our results of operations, but they are often independent of other, more relevant factors affecting our results of operations and our industry.

Table of Contents

Although we believe these non-GAAP measures are useful to investors, they have limitations as analytical tools and may not be comparable to similar measures disclosed by other companies. You should not consider the non-GAAP measures in this report in isolation or as substitutes for, or alternatives to, analysis of our results as reported under GAAP. The exclusion of unusual or ~~non-recurring~~infrequent items or other adjustments reflected in the non-GAAP measures should not be construed as an inference that our future results will not be affected by unusual or ~~non-recurring~~infrequent items or by other items similar to such adjustments. Our management compensates for these limitations by relying primarily on our GAAP results in addition to using the non-GAAP measures.

Enterprise Summary

The following table includes key GAAP and non-GAAP financial measures for the consolidated enterprise. Adjustments to arrive at non-GAAP measures are made at the enterprise level, with the exception of fuel surcharge revenues, which are ~~excluded from~~not included in segment revenues.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in millions, except ratios)	2018			2017			2018			2017			2019			2018			2019			2018
Operating revenues	$	1,280.1		$	1,110.8		$	3,655.4		$	3,192.4		$	1,183.9		$	1,280.1		$	3,590.7		$	3,655.4
Revenues (excluding fuel surcharge) ⁽¹⁾	1,145.2			1,016.9			3,269.6			2,915.6			1,069.7			1,145.2			3,240.5			3,269.6
Income from operations	97.9			64.1			257.2			186.6			29.0			97.9			129.7			257.2
Adjusted income from operations ⁽²⁾	97.9			69.2			263.0			181.7			79.4			97.9			214.7			263.0
Operating ratio	92.4		%	94.2		%	93.0		%	94.2		%	97.6		%	92.4		%	96.4		%	93.0		%
Adjusted operating ratio ⁽³⁾	91.5		%	93.2		%	92.0		%	93.8		%	92.6		%	91.5		%	93.4		%	92.0		%
Net income	$	70.7		$	36.9		$	184.1		$	106.0		$	19.7		$	70.7		$	91.1		$	184.1
Adjusted net income ⁽⁴⁾	70.7			40.0			188.4			103.0			57.2			70.7			154.4			188.4


(1)	~~Non-GAAP Measure: Revenues~~We define “revenues (excluding fuel surcharge)” as operating revenues less fuel surcharge revenues, which are excluded from revenues at the segment level. Included below is a reconciliation of operating revenues, the most closely comparable GAAP financial measure, to revenues (excluding fuel surcharge).

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2018 2017 2018 2017
Operating revenues $ 1,280.1
$ 1,110.8
$ 3,655.4
$ 3,192.4
Less: Fuel surcharge revenues 134.9
93.9
385.8
276.8
Revenues (excluding fuel surcharge) $ 1,145.2
$ 1,016.9
$ 3,269.6
$ 2,915.6

~~Table of Contents~~


(2)	~~Non-GAAP Measure: Adjusted~~We define “adjusted income from ~~operations~~

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2018 2017 2018 2017
Income from operations $ 97.9
$ 64.1
$ 257.2
$ 186.6
Duplicate chassis costs ^(a)
—
5.4
—
8.3
WSL contingent consideration adjustment ^(b)
—
(0.3 ) —
(13.2 )
Litigation ^(c)
—
—
5.8
—
Adjusted income from operations $ 97.9
$ 69.2
$ 263.0
$ 181.7

~~(a)~~

~~As of December 31, 2017, we completed our migration to an owned chassis model, which required the replacement of rented chassis with owned chassis. Accordingly, we adjusted our~~operations” as income from operations, adjusted to exclude material items that do not reflect our core operating performance. Included below is a reconciliation of income from operations, which is the most directly comparable GAAP measure, to adjusted income from operations. Excluded items for ~~rental costs related to idle chassis as rental units were replaced.~~the periods shown are explained in the table and notes below.

~~(b)~~(3)

~~In 2017, we recorded fair value adjustments~~We define “adjusted operating ratio” as operating expenses, adjusted to exclude material items that do not reflect our core operating performance, divided by revenues (excluding fuel surcharge). Included below is a reconciliation of operating ratio, which is the ~~contingent consideration related~~most directly comparable GAAP measure, to adjusted operating ratio. Excluded items for the ~~acquisition~~periods shown are explained below under our explanation of ~~WSL. See Note 3,~~ ~~Fair Value, for more information.~~

“adjusted income from operations.”


~~(c)~~(4)	We define “adjusted net income” as net income, adjusted to exclude material items that do not reflect our core operating performance. Included below is a reconciliation of net income, which is the most directly comparable GAAP measure, to adjusted net income. Excluded items for the periods shown are explained below under our explanation of “adjusted income from operations.”

Revenues (excluding fuel surcharge)



	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2019		2018		2019		2018
Operating revenues	$	1,183.9	$	1,280.1	$	3,590.7	$	3,655.4
Less: Fuel surcharge revenues	114.2		134.9		350.2		385.8
Revenues (excluding fuel surcharge)	$	1,069.7	$	1,145.2	$	3,240.5	$	3,269.6

Table of Contents

Adjusted income from operations



	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2019		2018		2019		2018
Income from operations	$	29.0	$	97.9	$	129.7	$	257.2
Litigation ⁽¹⁾	—		—		—		5.8
Goodwill impairment ⁽²⁾	—		—		34.6		—
Restructuring charges ⁽³⁾	50.4		—		50.4		—
Adjusted income from operations	$	79.4	$	97.9	$	214.7	$	263.0


(1)	Costs associated with the settlement of a lawsuit that challenged Washington State labor law ~~compliance.~~compliance during 2018.


(2)	A full impairment of FTFM's goodwill was recorded in the second quarter of 2019.


(3)	~~Non-GAAP Measure: Adjusted operating ratio~~ Costs associated with the shutdown of the FTFM service offering. Refer to Note 13, Restructuring Charges, for additional details.

Adjusted operating ratio


													Three Months Ended September 30,						Nine Months Ended September 30,
(in millions, except ratios)	Three Months Ended September 30,						Nine Months Ended September 30,						2019			2018			2019			2018
	2018			2017			2018			2017
Total operating expenses	$	1,182.2		$	1,046.7		$	3,398.2		$	3,005.8		$	1,154.9		$	1,182.2		$	3,461.0		$	3,398.2
Divide by: Operating revenues	1,280.1			1,110.8			3,655.4			3,192.4			1,183.9			1,280.1			3,590.7			3,655.4
Operating ratio	92.4		%	94.2		%	93.0		%	94.2		%	97.6		%	92.4		%	96.4		%	93.0		%

Total operating expenses													$	1,154.9		$	1,182.2		$	3,461.0		$	3,398.2
Adjusted for:
Fuel surcharge revenues													(114.2		)	(134.9		)	(350.2		)	(385.8		)
Litigation													—			—			—			(5.8		)
Goodwill impairment													—			—			(34.6		)	—
Restructuring charges													(50.4		)	—			(50.4		)	—
Adjusted total operating expenses													$	990.3		$	1,047.3		$	3,025.8		$	3,006.6

Operating revenues	$	1,280.1		$	1,110.8		$	3,655.4		$	3,192.4		$	1,183.9		$	1,280.1		$	3,590.7		$	3,655.4
Less: Fuel surcharge revenues	134.9			93.9			385.8			276.8			114.2			134.9			350.2			385.8
Revenues (excluding fuel surcharge)	$	1,145.2		$	1,016.9		$	3,269.6		$	2,915.6		$	1,069.7		$	1,145.2		$	3,240.5		$	3,269.6

Total operating expenses	$	1,182.2		$	1,046.7		$	3,398.2		$	3,005.8

Adjusted for:
Fuel surcharge revenues	(134.9		)	(93.9		)	(385.8		)	(276.8		)
Duplicate chassis costs	—			(5.4		)	—			(8.3		)
WSL contingent consideration adjustment	—			0.3			—			13.2
Litigation	—			—			(5.8		)	—
Adjusted total operating expense	$	1,047.3		$	947.7		$	3,006.6		$	2,733.9
	.
Adjusted operating ratio	91.5		%	93.2		%	92.0		%	93.8		%	92.6		%	91.5		%	93.4		%	92.0		%

Adjusted net income



	Three Months Ended September 30,					Nine Months Ended September 30,
(in millions)	2019			2018		2019			2018
Net income	$	19.7		$	70.7	$	91.1		$	184.1
Litigation	—			—		—			5.8
Goodwill impairment	—			—		34.6			—
Restructuring charges	50.4			—		50.4			—
Income tax effect of non-GAAP adjustments⁽¹⁾	(12.9		)	—		(21.7		)	(1.5		)
Adjusted net income	$	57.2		$	70.7	$	154.4		$	188.4


~~(4)~~(1)	~~Non-GAAP Measure: Adjusted net income~~Tax impacts are calculated using the applicable consolidated federal and state effective tax rate, modified to remove the impact of discrete tax adjustments.

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2018 2017 2018 2017
Net income $ 70.7
$ 36.9
$ 184.1
$ 106.0
Duplicate chassis costs —
5.4
—
8.3
WSL contingent consideration adjustment —
(0.3 ) —
(13.2 )
Litigation —
—
5.8
—
Income tax effect of non-GAAP adjustments —
(2.0 ) (1.5 ) 1.9
Adjusted net income $ 70.7
$ 40.0
$ 188.4
$ 103.0

2124

Table of Contents

Three Months Ended September 30, ~~2018~~2019 Compared to Three Months Ended September 30, ~~2017~~2018

Net Income

Net income ~~increased $33.8~~decreased $51.0 million, approximately ~~92%~~72%, in the third quarter of ~~2018~~2019 compared to the same quarter in ~~2017,~~2018, primarily ~~as a result~~due to pretax charges of ~~strong pricing across all three segments, increased volume in our Intermodal and Logistics segments, and~~$50.4 million for restructuring associated with the ~~impact~~shutdown of the ~~income tax rate reduction~~Company's FTFM service offering and an $11.5 million pretax impairment of held for sale assets related to an agreement signed in the third quarter of 2019 to sell tractors in the fourth quarter. In addition, freight volumes declined in 2019 due to ~~the Tax Cuts and Jobs Act enacted in December 2017.~~lower demand. Adjusted net income ~~increased $30.7~~decreased $13.5 million, approximately ~~77%~~19%.

Revenues

Enterprise operating revenues ~~increased $169.3~~decreased $96.2 million, approximately ~~15%~~8%, in the third quarter of ~~2018~~2019 compared to the same quarter in 2017. Increased revenues (excluding fuel surcharge) resulted primarily from strong pricing and volume increases in our Logistics and Intermodal segments, which increased $59.6 million and $56.1 million, respectively, driven by growth in our brokerage business and an industry-wide shortage in driver capacity. Other factors2018.

Factors contributing to the ~~increase in revenues~~decrease were as follows:

a ~~$41.0~~$51.3 million ~~increase in fuel surcharge revenues and a $13.3 million increase~~decrease in our Truckload segment revenues (excluding fuel surcharge) resulting from reduced Truckload volume largely due to lower demand and a decrease of approximately $22.0 million related to the shutdown of the FTFM service offering (which was substantially complete as of the end of August 2019), that will continue for the remainder of 2019;

a $35.7 million decrease in our Logistics segment revenues (excluding fuel surcharge) primarily due to ~~price.~~one of the Company's import/export customers insourcing their warehouse management function in April 2019 combined with lower revenue per order within brokerage due to a compression in rates, partially offset by an 11% increase in brokerage volumes;

a $20.7 million decrease in fuel surcharge revenues primarily related to decreased volumes; and

a $5.2 million decrease in our Intermodal segment revenues (excluding fuel surcharge) due to a decrease in order volume, partially offset by improved revenue per order.

The above factors were partially offset by a $9.6 million increase in revenues from equipment sales by our leasing business under sales-type leases.

Enterprise revenues (excluding fuel surcharge) ~~increased $128.3~~decreased $75.5 million, approximately ~~13%~~7%.

Income from Operations and Operating Ratio

Enterprise income from operations ~~increased $33.8~~decreased $68.9 million, approximately ~~53%~~70%, in the third quarter of ~~2018~~2019 compared to the same quarter in ~~2017,~~2018, primarily due to ~~strong pricing across all segments, combined~~$50.4 million of restructuring charges associated with ~~increased volume~~the shutdown of ~~20%~~the FTFM service offering and ~~11% in our Logistics and Intermodal segments, respectively. The increases~~an $11.5 million impairment of assets held for sale. Lower demand also negatively impacted profitability, but decreases were partially offset by ~~higher driver-related~~reduced performance-based incentive compensation, driver related costs, and ~~a loss of $9.5 million in FTFM.~~other variable costs. Adjusted income from operations ~~increased $28.7~~decreased $18.5 million, approximately ~~41%~~19%.

Enterprise operating ratio ~~improved~~weakened on both a GAAP ~~basis~~ and an adjusted basis. ~~Our~~Among other factors, our operating ratio can be negatively impacted by changes in portfolio mix when our higher operating ratio, less asset-focused Logistics segment grows faster than our lower operating ratio, capital-intensive Truckload segment.

Key operating expense ~~items that impacted our income from operations and operating ratio~~fluctuations are described below.

Purchased transportation costs ~~increased $117.2~~decreased $9.4 million, or ~~29%~~2%, quarter over quarter driven by ~~volume increases of 20% and 11%,~~lower rates in our Logistics segment, a reduction of FTFM costs given the mid-quarter shutdown of the service offering, and a 4% decline in Intermodal ~~segments, respectively. The additional~~order volume. This was partially offset by an increase in various Intermodal third-party costs, including rail, and increased order volume ~~resulted in higher purchased transportation costs for~~of 11% within our Logistics and Intermodal segments of $53.9 million and $45.0 million, respectively. Elevated carrier prices and rail rates also contributed to the rise in purchased transportation costs quarter over quarter due to driver capacity constraints. As a percentage of revenues, purchased transportation costs increased 4% quarter over quarter.brokerage business.

Salaries, wages, and benefits ~~increased $9.8~~decreased $59.9 million, or 3%19%, quarter over quarter, ~~driven by an increase in incentive compensation, higher commissions in our Logistics segment, and increased non-driver associate wages in our FTFM terminal operations primarily~~largely due to the ~~conversion from~~elimination of salaries, wages, and benefits associated with warehouse management operations insourced by an ~~agent~~import/export customer in April 2019, the shutdown of the FTFM service offering, and other cost savings initiatives. We expect to ~~company~~see continued favorability year over year in salaries, wages, and benefits as a result of these changes. Lower performance-based incentive compensation, driver ~~model.~~pay, and Company benefit costs also contributed to the decrease. Salaries, wages, and benefits decreased 3% quarter over quarter on a percentage of revenues basis.

Table of Contents

Fuel and fuel taxes for our company trucks ~~increased $11.1~~decreased $16.8 million, or ~~15%~~19%, quarter over quarter, driven ~~primarily~~ by ~~an increase~~a 5% decrease in ~~the~~company driver miles and a decrease in cost ~~of fuel~~ per gallon. A portion of the decline in company driver miles is attributable to the shutdown of the FTFM service offering. Decreased company driver miles were partially offset by increased owner-operator miles, which do not impact company fuel costs. A significant portion of ~~changes in~~ fuel costs isare recovered through our fuel surcharge programs.

~~Depreciation~~Operating supplies and ~~amortization~~ expenses increased~~$2.8~~ $15.6 million, or 4%13%, quarter over quarter driven by an $11.5 million impairment charge recorded on assets held for sale related to an agreement signed in the third quarter of 2019 to sell tractors in the fourth quarter and growth in equipment sales under sales-type leases by our leasing business resulting in higher cost of goods sold of $10.4 million. Increases in equipment losses and software subscription costs were partially offset by a combined $11.4 million decrease in temporary worker pay due to insourcing by one of our import/export customers in April 2019 and reduced maintenance and parts spend attributable to less company driver miles, cost savings initiatives, and younger age of fleet.

Other general expenses decreased $8.3 million, or 23%, quarter over quarter primarily attributable to trailer depreciation as we replaced trailers to maintain an appropriate age of fleet. Our 2017 conversion from leased to owned chassis in our Intermodal segment also contributed to the increase.

Operating supplies and expenses decreased $11.8 million, or 9%, quarter over quarter. The decrease was mainly due to $9.0 million lower rent expense, primarily due to our conversion from leased to owned chassis, and $2.3 million of higher gains on sales of equipment. We also experienced a decrease in costs of goods sold for our leasing business, which is part of the operating supplies and expense line item, quarter over quarter, as a result of ~~the mix between new~~reduced driver recruiting and ~~used leased units.~~

~~Other general expenses increased $4.5 million, or 14%, quarter over quarter. The primary reason for the increase was additional driver~~ training ~~and recruiting expenses as a result of industry-wide driver capacity shortages.~~costs associated with cost savings initiatives.


•	Restructuring charges increased $50.4 million quarter over quarter due to the recording of impairment charges, write-down of receivables, and other costs associated with the shutdown of the FTFM service offering. Refer to Note 13, Restructuring Charges, for additional details.

~~Table of Contents~~

Segment Contributions to Results of Operations

The following tables summarize revenue and ~~earnings~~income (loss) from operations by ~~segment.~~segment:


							Three Months Ended September 30,
Revenues by Segment (in millions)	Three Months Ended September 30,						2019			2018
	2018			2017
Truckload	$	565.0		$	551.7		$	515.6		$	566.9
Intermodal	252.1			196.0			249.2			254.4
Logistics	268.7			209.1			236.1			271.8
Other	91.2			85.4			94.3			83.9
Fuel surcharge	134.9			93.9			114.2			134.9
Inter-segment eliminations	(31.8		)	(25.3		)	(25.5		)	(31.8		)
Operating revenues	$	1,280.1		$	1,110.8		$	1,183.9		$	1,280.1


							Three Months Ended September 30,
Income (Loss) from Operations by Segment (in millions)	Three Months Ended September 30,						2019			2018
	2018			2017
Truckload	$	53.1		$	41.1		$	(12.5	)	$	54.4
Intermodal	36.1			12.2			25.1			36.1
Logistics	12.5			9.1			9.9			13.0
Other	(3.8		)	1.7			6.5			(5.6		)
Income from operations	97.9			64.1			29.0			97.9
Adjustments:
Duplicate chassis costs	—			5.4
WSL contingent consideration adjustment	—			(0.3		)
Restructuring charges							50.4			—
Adjusted income from operations	$	97.9		$	69.2		$	79.4		$	97.9

2326

Table of Contents

Truckload

The following table presents our key performance indicators for our Truckload segment for the periods indicated, consistent with how revenues and expenses are reported internally for segment purposes. Descriptions of the four quadrants that make up our Truckload segment are as follows:


•	Dedicated standard - Transportation services with equipment devoted to customers under long-term contracts utilizing standard dry van trailing equipment.


•	Dedicated specialty - Transportation services with equipment devoted to customers under long-term contracts utilizing bulk, temperature controlled, flatbed, straight truck, and other specialty equipment.


•	For-hire standard - Transportation services of one-way shipments utilizing standard dry van trailing equipment.


•	For-hire specialty - Transportation services of one-way shipments utilizing bulk, temperature controlled, flatbed, straight truck, and other specialty equipment.


	Three Months Ended September 30,						Three Months Ended September 30,
	2018			2017			2019			2018
Dedicated standard
Revenues (excluding fuel surcharge) ⁽¹⁾	$	81.2		$	73.4		$	82.3		$	81.2
Average trucks ^{(2) (3)}	1,671			1,654			1,807			1,671
Revenue per truck per week ⁽⁴⁾	$	3,792		$	3,458		$	3,515		$	3,792
Dedicated specialty
Revenues (excluding fuel surcharge) ⁽¹⁾	$	95.9		$	110.8		$	93.4		$	95.9
Average trucks ^{(2) (3)}	2,107			2,333			2,100			2,107
Revenue per truck per week ⁽⁴⁾	$	3,551		$	3,700		$	3,433		$	3,551
For-hire standard
Revenues (excluding fuel surcharge) ⁽¹⁾	$	306.3		$	289.7		$	291.4		$	306.3
Average trucks ^{(2) (3)}	6,094			6,345			6,003			6,094
Revenue per truck per week ⁽⁴⁾	$	3,921		$	3,556		$	3,746		$	3,921
For-hire specialty
Revenues (excluding fuel surcharge) ⁽¹⁾	$	81.6		$	77.8		$	48.9		$	81.6
Average trucks ^{(2) (3)}	1,521			1,558			1,009			1,521
Revenue per truck per week ⁽⁴⁾	$	4,180		$	3,882		$	3,746		$	4,180
Total Truckload
Revenues (excluding fuel surcharge) ⁽¹⁾	$	565.0		$	551.7
Revenues (excluding fuel surcharge) ⁽⁶⁾							$	515.6		$	566.9
Average trucks ^{(2) (3)}	11,393			11,890			10,919			11,393
Revenue per truck per week ⁽⁴⁾	$	3,868		$	3,614		$	3,648		$	3,868
Average company trucks ⁽³⁾	8,634			9,119			7,998			8,634
Average owner-operator trucks⁽³⁾	2,759			2,771			2,921			2,759
Trailers	38,026			38,615			35,612			38,026
Operating ratio ⁽⁵⁾	90.6		%	92.6		%	102.4		%	90.4		%


(1)	Revenues (excluding fuel surcharge), in ~~millions.~~millions, exclude revenue in-transit.


(2)	Includes company trucks and owner-operator trucks.


(3)	Calculated based on beginning and end of month counts and represents the average number of trucks available to haul freight over the specified timeframe.


(4)	Calculated excluding fuel surcharge and revenue in-transit, consistent with how revenue is reported internally for segment purposes, using weighted workdays.


(5)	Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge). including revenue in-transit and related expenses at the operating segment level.


(6)	Revenues (excluding fuel surcharge), in millions, include revenue in-transit at the operating segment level, and therefore does not sum with amounts presented above.

Table of Contents

Truckload revenues (excluding fuel surcharge) ~~increased $13.3~~decreased $51.3 million, approximately 2%9%, in the third quarter of ~~2018~~2019 compared to the same quarter in ~~2017, primarily due~~2018. Both volume and price declined quarter over quarter with the decrease in volume having the largest impact. Decreased volume of 9% was the result of lower demand compared to ~~strong contract pricing, partially offset by reduced volume.~~the third quarter of 2018 and the shutdown of our FTFM service offering in the third quarter of 2019. Fewer premium and promotional revenue opportunities contributed to the decline in price. Revenue per truck per week ~~increased $254,~~decreased $220, or 7%6%, quarter over ~~quarter.~~quarter as a result of lower productivity.

Truckload income from operations ~~increased $12.0~~decreased $66.9 million, approximately ~~29%~~123%, in the third quarter of ~~2018~~2019 compared to the same quarter in ~~2017, primarily~~2018 due mainly to ~~contract price improvement~~$50.4 million of restructuring charges related to the shutdown of our FTFM service offering and ~~increased gains on equipment sales,~~an $11.5 million non-cash charge resulting from the impairment of assets held for sale. The decline in Truckload volume noted above also contributed to the decrease in income from operations but was partially offset by ~~higher~~a reduction in driver ~~related~~and maintenance costs due to less company driver miles, cost savings initiatives, and ~~a loss~~younger age of ~~$9.5 million from our FTFM operating segment. FTFM results were impacted by reduced volume, a bankruptcy write-off, and operational inefficiencies.~~fleet compared to the third quarter of 2018.

~~Table of Contents~~

Intermodal

The following table presents our key performance indicators for our Intermodal segment for the periods ~~indicated.~~indicated:


	Three Months Ended September 30,						Three Months Ended September 30,
	2018			2017			2019			2018
Orders(1)	115,936			104,452			110,721			115,936
Containers	21,288			17,557			23,014			21,288
Trucks ⁽¹⁾⁽²⁾	1,482			1,293			1,544			1,482
Revenue per order ⁽²⁾⁽³⁾	$	2,175		$	1,876		$	2,259		$	2,175
Operating ratio ⁽³⁾⁽⁴⁾	85.7		%	93.8		%	89.9		%	85.8		%


(1)	Based on delivered orders.


(2)	Includes company trucks and owner-operator trucks at the end of the period.


~~(2)~~(3)	Calculated excluding fuel surcharge and revenue in-transit, consistent with how revenue is reported internally for segment purposes.


~~(3)~~(4)	Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge). including revenue in-transit and related expenses at the operating segment level.

Intermodal revenues (excluding fuel surcharge) ~~increased $56.1~~decreased $5.2 million, approximately ~~29%~~2%, in the third quarter of ~~2018~~2019 compared to the same quarter in ~~2017. The increase was due to a 16% increase in revenue~~2018. Revenue per order ~~as well as an 11% increase~~increased 4% due in ~~volume, partially due~~part to 2018 contract carry-over, 2019 contract renewals and increased length of haul, but was offset by a decrease in orders of 4%. The decrease in orders was largely the ~~conversion~~result of ~~over-the-road~~lower volumes in the overall domestic intermodal freight ~~driven by the industry-wide shortage of driver capacity. Intermodal added approximately 3,700 containers to its fleet as of third quarter 2018 compared to the same quarter of 2017.~~market.

Intermodal income from operations ~~increased $23.9~~decreased $11.0 million, approximately ~~196%~~30%, in the third quarter of ~~2018~~2019 compared to the same quarter in ~~2017. The main drivers were higher price~~2018 primarily due to reduced volume and ~~volume, as well as reduced costs related to the 2017 conversion from leased to owned chassis.~~increases in purchased transportation costs.

Logistics

The following table presents our key performance ~~indicator~~indicators for our Logistics segment for the periods ~~indicated.~~indicated:

Three Months Ended September 30,
2018 2017
Operating ratio ⁽¹⁾
95.3 % 95.6 %



	Three Months Ended September 30,
	2019		2018
Operating ratio ⁽¹⁾	95.8	%	95.2	%
Brokerage revenues as a percentage of Logistics revenues ⁽²⁾	86.9	%	79.1	%


(1)	Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in-transit and related expenses at the operating segment level.


(2)	Revenues (excluding fuel surcharge), ~~consistent with how~~in millions, including revenue ~~is reported internally for segment purposes.~~in-transit.

Logistics revenues (excluding fuel surcharge) ~~increased $59.6~~decreased $35.7 million, approximately ~~29%~~13%, in the third quarter of ~~2018~~2019 compared to the same quarter in ~~2017,~~2018. This decrease was primarily ~~due to growth~~the result of warehouse management functions being insourced by one of the Company's import/export customers in ~~our~~April 2019. In addition, reduced revenue per order was partially offset by brokerage ~~business, which experienced 20%~~ volume growth ~~and increased revenue per order.~~

~~Logistics income from operations increased $3.4 million, approximately 37%, in the third quarter~~ of ~~2018~~11% compared to the same quarter in ~~2017, primarily due to brokerage volume growth as noted above and effective net revenue management.~~2018.

~~Other~~

~~Our Other segment posted a loss~~

Table of Contents

Logistics income from operations of $3.8 million in the third quarter of 2018, compared to income of $1.7 million the same quarter in 2017. The $5.5 million increased net loss was driven primarily by an increase in incentive compensation.

~~Other Expense (Income)~~

~~Other expense~~ decreased ~~$0.8~~$3.1 million, approximately 24%, in the third quarter of ~~2018~~2019 compared to the same quarter in ~~2017,~~2018, primarily due to ~~increased~~compressed net revenue in brokerage.

Other

Included in Other was income from operations of $6.5 million in the third quarter of 2019, compared to a loss of $5.6 million in the same quarter in 2018. The $12.1 million change was driven by a decrease in performance-based incentive compensation due to a decline in Enterprise results.

Other Income (Expense)

Other expense decreased $0.3 million, approximately 12%, in the third quarter of 2019 compared to the same quarter in 2018 due primarily to a $0.5 million increase in interest ~~income.~~income and a $0.4 million decrease in interest expense partially offset by a $0.6 million decrease in net foreign currency gains.

Income Tax Expense

Our provision for income taxes ~~increased $0.8~~decreased $17.6 million, approximately 3%72%, in the third quarter of ~~2018~~2019 compared to the same quarter in ~~2017~~2018 due to ~~higher~~lower taxable ~~income, offset by a lower income tax rate.~~income. The effective income tax rate was ~~25.8%~~26.2% for the three months ended September 30, ~~2018~~2019 compared to ~~39.2%~~25.8% for the same period last ~~year, driven by the reduction in the income tax rate due to the enactment of the Tax Cuts and Jobs Act in December 2017.~~year.

~~Table of Contents~~

Nine Months Ended September 30, ~~2018~~2019 Compared to Nine Months Ended September 30, ~~2017~~2018

Net Income

Net income ~~increased $78.1~~decreased $93.0 million, approximately ~~74%~~51%, in the nine months ended September 30, ~~2018~~2019 compared to the same period in ~~2017,~~2018, primarily due to pretax restructuring and goodwill impairment charges associated with the FTFM service offering of $50.4 million and $34.6 million, respectively, and an ~~increase~~$11.5 million pretax impairment of held for sale assets. In addition, Truckload freight volume declined in ~~revenue as a result of strong pricing and market demand and the impact of the income tax rate reduction~~2019 due to ~~the Tax Cuts and Jobs Act enacted in December 2017.~~lower demand. Adjusted net income ~~increased $85.4~~decreased $34.0 million, approximately ~~83%~~18%.

Revenues

Enterprise operating revenues ~~increased $463.0~~decreased $64.7 million, approximately ~~15%~~2%, in the nine months ended September 30, ~~2018~~2019 compared to the same period in 2017. Increased revenues (excluding fuel surcharge) resulted from strong pricing and volume increases across the Logistics and Intermodal segments, which increased $154.5 million and $109.6 million, respectively, driven by growth in our brokerage business and an industry-wide shortage in driver capacity. Other factors2018.

Factors contributing to the ~~increase~~decreases in revenues were as follows:

a ~~$109.0~~$102.7 million ~~increase~~decrease in Truckload revenues (excluding fuel surcharge) resulting from reduced Truckload volume due to lower market demand and the shutdown of the FTFM service offering (which was substantially complete as of the end of August 2019), that will continue for the remainder of 2019;

a $35.6 million decrease in fuel surcharge revenues primarily related to decreased Truckload volumes; and

a ~~$68.2~~$36.7 million decrease in Logistics revenues (excluding fuel surcharge) primarily due to one of the Company's import/export customers insourcing their warehouse management function in April 2019 combined with lower revenue per order within brokerage due to a compression in revenue per order, partially offset by a 15% increase in brokerage volumes.

The above factors were partially offset by:

a $58.6 million increase in our ~~Truckload~~Intermodal segment revenues (excluding fuel surcharge), primarily due to ~~price,~~improved revenue per order and an increase in order volume; and

a ~~$16.0~~$48.5 million increase in revenues from equipment sales by our leasing ~~business.~~business under sales-type leases.

Enterprise revenues (excluding fuel surcharge) ~~increased $354.0~~decreased $29.1 million, approximately ~~12%~~1%.

Income from Operations and Operating Ratio

Enterprise income from operations ~~increased $70.6~~decreased $127.5 million, approximately ~~38%~~50%, in the nine months ended September 30, ~~2018~~2019 compared to the same period in ~~2017,~~2018, primarily due to $50.4 million of restructuring charges associated with the shutdown of the FTFM service offering, a $34.6 million FTFM goodwill impairment, and an increase in ~~revenue~~FTFM operating losses, as operating losses exceeded prior year by $14.5 million. Additionally, an $11.5 million impairment of held for sale assets and ~~improved margins across segments. Margin improvement for the Intermodal segment was due in part to an improved cost position from the conversion from leased to owned chassis. These factors~~lower demand negatively impacted profitability but were partially offset by ~~FTFM's loss~~reduced performance-based incentive compensation and Company benefits, driver related costs, and other variable costs.

Table of ~~$20.3 million for the nine months ended September 30, 2018.~~ Contents

Adjusted income from operations ~~increased $81.3~~decreased $48.3 million, approximately ~~45%~~18%.

Enterprise operating ratio ~~improved~~weakened on both a GAAP basis and an adjusted basis. Our operating ratio can be negatively impacted when our higher operating ratio, less asset-focused Logistics segment grows faster than our lower operating ratio, capital-intensive Truckload segment.

Key operating expense ~~items that impacted our income from operations and operating ratio~~fluctuations are described below.

Purchased transportation costs increased $273.1 million, or 24%, period over period. The largest driver of the increase was an increase in brokerage volumes in our Logistics segment, which relies heavily on third-party carriers, resulting in $134.9 million higher purchased transportation costs. Intermodal and Truckload segments' purchased transportation costs also increased $79.9 million and $52.7 million, respectively. Increased carrier prices contributed to the rise in purchased transportation costs across all reportable segments year over year. As a percentage of revenues, purchased transportation costs increased 3% period over period.

~~Salaries, wages, and benefits increased $33.2~~$57.0 million, or 4%, period over ~~period, driven by increased incentive compensation, higher driver pay, higher commissions~~period. An increase in various Intermodal third-party costs, including rail, combined with order volume growth in our Logistics segment of 15% resulted in higher purchased transportation. This was partially offset by a decrease in purchased transportation cost per order within our Logistics segment based on additional carrier capacity in 2019 which led to the compression of carrier rates. The shutdown of the FTFM service offering, which was substantially complete as of August 2019, also contributed to the reduction of purchased transportation.

Salaries, wages, and ~~increased non-driver associate wages in our FTFM terminal operations primarily~~benefits decreased $86.6 million, or 9%, period over period, largely due to the ~~conversion from~~elimination of salaries, wages, and benefits associated with warehouse management operations insourced by an ~~agent~~import/export customer in April 2019, the shutdown of the FTFM service offering, and other cost savings initiatives. We expect to ~~company~~see continued favorability year over year in salaries, wages, and benefits as a result of these changes. Lower performance-based incentive compensation, Company benefit costs, and driver ~~model. As~~pay also contributed to the decrease. Salaries, wages, and benefits decreased 2% period over period on a percentage of revenues ~~salaries, wages, and benefits decreased 3% period over period.~~basis.

Fuel and fuel taxes for our company trucks ~~increased $39.6~~decreased $38.7 million, or ~~18%~~15%, period over period, driven by ~~an increase~~a 7% decrease in ~~the~~company driver miles and a decrease in cost ~~of fuel~~ per gallon. A portion of the decline in company driver miles is attributable to the shutdown of the FTFM service offering. Decreased company driver miles were partially offset by increased owner-operator miles, which do not impact company fuel costs. A significant portion of ~~changes in~~ fuel costs isare recovered through our fuel surcharge programs.

Depreciation and amortization increased ~~$9.9~~$5.5 million, or 5%3%, period over period, primarily ~~driven by increased trailer depreciation, as we replaced trailers~~due to ~~maintain an appropriate~~replacement tractors to achieve a younger age of fleet and prior year's investment in chassis and containers to ~~reduce unbilled miles; and tractor depreciation, as a result of the change in mix of owned versus leased tractors. The 2017 conversion from leased to owned chassis in~~support our Intermodal ~~segment also resulted~~segment. Continuing to invest in ~~increased depreciation.~~replacement tractors is an important part of our strategic plan as it contributes to reduced maintenance and fuel costs and improves the overall driver experience.

Operating supplies and expenses ~~decreased $5.0~~increased $54.1 million, or 1%15%, period over period. The ~~decrease~~increase was ~~primarily~~mainly due to $19.4 million lower rent expense, primarily due to our 2017 conversion from leased to owned chassis, and a $2.9 million reduction in temporary worker pay in our FTFM terminal operations due to the conversion from an agent to company driver model. This was offset by an increase in ~~the amount of~~ equipment ~~sold~~sales under sales-type leases by our leasing business, resulting in higher cost of goods sold ~~which is part~~ of $44.3 million, and an $11.5 million impairment charge recorded on assets held for sale related to an agreement signed in the ~~operating supplies~~third quarter of 2019 to sell tractors in the fourth quarter. Software subscription costs and ~~expense line item, and~~Intermodal rail yard ramp storage expenses also increased compared to 2018. Increases in the above costs were offset by a ~~$2.2~~combined $16.2 million decrease in ~~gains on sales~~temporary worker pay due to insourcing of ~~equipment.~~

~~Table~~one of ~~Contents~~

our import/export customers in April 2019 and reduced maintenance and parts spend attributable to less company driver miles, cost savings initiatives, and younger age of fleet.

Insurance and related expenses increased ~~$5.1~~$8.6 million, or 8%12%, period over ~~period, primarily~~period. The increase was predominately due to ~~increased~~an increase in the severity of auto losses and ~~increased volume of cargo losses.~~related insurance premiums.

Other general expenses ~~increased $36.5~~decreased $22.1 million, or ~~48%~~20%, period over ~~period. The primary increase was due to the reduction~~period as a result of ~~the contingent liability related to the WSL acquisition adjustment of $13.2 million during 2017. There was also $8.9 million higher~~decreased driver recruiting and training costs associated with cost savings initiatives, a $5.8 million ~~increase~~decrease in litigation costs, and ~~an increase~~lower professional service fees of ~~$5.5 million in professional services fees, including additional costs associated with operating as a public company.~~$3.1 million.


•	Restructuring charges increased $50.4 million period over period due to the recording of impairment charges, write-down of receivables, and other costs associated with the shutdown of the FTFM service offering. Refer to Note 13, Restructuring Charges, for additional details.

Table of Contents

Segment Contributions to Results of Operations

The following tables summarize revenue and ~~earnings~~income (loss) from operations by segment:


									Nine Months Ended September 30,
Revenues by Segment (in millions)	Revenues by Segment (in millions)	Nine Months Ended September 30,						Revenues by Segment (in millions)	2019			2018
		2018			2017
Truckload	Truckload	$	1,685.0		$	1,616.8		Truckload	$	1,582.3		$	1,685.0
Intermodal	Intermodal	681.0			571.4			Intermodal	746.6			688.0
Logistics	Logistics	739.2			584.7			Logistics	707.0			743.7
Other	Other	248.5			214.5			Other	290.0			237.0
Fuel surcharge	Fuel surcharge	385.8			276.8			Fuel surcharge	350.2			385.8
Inter-segment eliminations	Inter-segment eliminations	(84.1		)	(71.8		)	Inter-segment eliminations	(85.4		)	(84.1		)
Operating revenues	Operating revenues	$	3,655.4		$	3,192.4		Operating revenues	$	3,590.7		$	3,655.4


									Nine Months Ended September 30,
Income (Loss) from Operations by Segment (in millions)	Income (Loss) from Operations by Segment (in millions)	Nine Months Ended September 30,						Income (Loss) from Operations by Segment (in millions)	2019		2018
		2018			2017
Truckload	Truckload	$	162.8		$	132.9		Truckload	$	18.6	$	162.2
Intermodal	Intermodal	88.7			30.0			Intermodal	75.5		90.7
Logistics	Logistics	30.4			20.8			Logistics	29.4		31.2
Other	Other	(24.7		)	2.9			Other	6.2		(26.9		)
Income from operations	Income from operations	257.2			186.6			Income from operations	129.7		257.2
Adjustments:	Adjustments:							Adjustments:
Duplicate chassis costs		—			8.3
WSL contingent consideration adjustment		—			(13.2		)
Litigation	Litigation	5.8			—			Litigation	—		5.8
Goodwill impairment								Goodwill impairment	34.6		—
Restructuring charges								Restructuring charges	50.4		—
Adjusted income from operations	Adjusted income from operations	$	263.0		$	181.7		Adjusted income from operations	$	214.7	$	263.0

2731

Table of Contents

Truckload

The following table presents our key performance indicators for our ~~truckload~~Truckload segment for the periods indicated, consistent with how revenues and expenses are reported internally for segment ~~purposes:~~purposes. Descriptions of the four quadrants that make up our Truckload segment are as follows:


•	Dedicated standard - Transportation services with equipment devoted to customers under long-term contracts utilizing standard dry van trailing equipment.


•	Dedicated specialty - Transportation services with equipment devoted to customers under long-term contracts utilizing bulk, temperature controlled, flatbed, straight truck, and other specialty equipment.


•	For-hire standard - Transportation services of one-way shipments utilizing standard dry van trailing equipment.


•	For-hire specialty - Transportation services of one-way shipments utilizing bulk, temperature controlled, flatbed, straight truck, and other specialty equipment.


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Dedicated standard
Revenues (excluding fuel surcharge) ⁽¹⁾	$	237.7		$	216.7		$	250.8		$	237.7
Average trucks ^{(2) (3)}	1,637			1,641			1,806			1,637
Revenue per truck per week ⁽⁴⁾	$	3,780		$	3,436		$	3,607		$	3,780
Dedicated specialty
Revenues (excluding fuel surcharge) ⁽¹⁾	$	304.5		$	311.4		$	281.9		$	304.5
Average trucks ^{(2) (3)}	2,279			2,231			2,132			2,279
Revenue per truck per week ⁽⁴⁾	$	3,478		$	3,631		$	3,435		$	3,478
For-hire standard
Revenues (excluding fuel surcharge) ⁽¹⁾	$	901.2		$	853.5		$	859.9		$	901.2
Average trucks ^{(2) (3)}	6,096			6,341			6,079			6,096
Revenue per truck per week ⁽⁴⁾	$	3,848		$	3,502		$	3,674		$	3,848
For-hire specialty
Revenues (excluding fuel surcharge) ⁽¹⁾	$	241.6		$	235.2		$	188.4		$	241.6
Average trucks ^{(2) (3)}	1,551			1,602			1,304			1,551
Revenue per truck per week ⁽⁴⁾	$	4,052		$	3,817		$	3,752		$	4,052
Total Truckload
Revenues (excluding fuel surcharge) ⁽¹⁾	$	1,685.0		$	1,616.8
Revenues (excluding fuel surcharge) ⁽⁶⁾							$	1,582.3		$	1,685.0
Average trucks ^{(2) (3)}	11,563			11,815			11,321			11,563
Revenue per truck per week ⁽⁴⁾	$	3,793		$	3,560		$	3,628		$	3,793
Average company trucks ⁽³⁾	8,833			9,059			8,433			8,833
Average owner-operator trucks⁽³⁾	2,730			2,756			2,888			2,730
Trailers	38,026			38,615			35,612			38,026
Operating ratio ⁽⁵⁾	90.3		%	91.8		%	98.8		%	90.4		%


(1)	Revenues (excluding fuel surcharge), in ~~millions.~~millions, exclude revenue in-transit.


(2)	Includes company trucks and owner-operator trucks.


(3)	Calculated based on beginning and end of month counts and represents the average number of trucks available to haul freight over the specified timeframe.


(4)	Calculated excluding fuel surcharge and revenue in-transit, consistent with how revenue is reported internally for segment purposes, using weighted workdays.


(5)	Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge). including revenue in-transit and related expenses at the operating segment level.


(6)	Revenues (excluding fuel surcharge), in millions, include revenue in-transit at the operating segment level, and therefore does not sum with amounts presented above.

Table of Contents

Truckload revenues (excluding fuel surcharge) ~~increased $68.2~~decreased $102.7 million, approximately 4%6%, in the nine months ended September 30, ~~2018~~2019 compared to the same period in ~~2017, primarily due to strong contract pricing,~~2018. A decline in volume of 8% was partially offset by ~~reduced volume.~~a 2% increase in price. Decreased volume was the result of a decrease in demand which drove lower productivity, as well as the shutdown of our FTFM service offering in the third quarter of 2019. Price increased period over period due to contract carry-over and 2019 rate renewals, despite fewer promotional and premium revenue opportunities. Revenue per truck per week ~~increased $233,~~decreased $165, or 7%4%, ~~year~~period over ~~year.~~period as a result of lower productivity driven primarily by lower freight volumes.

Truckload income from operations ~~increased $29.9~~decreased $143.6 million, approximately ~~22%~~89%, in the nine months ended September 30, ~~2018~~2019 compared to the same period in ~~2017,~~2018. This decrease was primarily due to ~~contract price improvement,~~$50.4 million of restructuring charges related to the shutdown of our FTFM service offering, the $34.6 million FTFM goodwill impairment, an additional $14.5 million in operating losses within FTFM through the third quarter of 2019 compared to the same period in 2018, and the $11.5 million non-cash charge resulting from the impairment of assets held for sale. Lower volumes, as discussed above, also contributed to the decrease but were partially offset by ~~increased~~a reduction in driver and maintenance related ~~costs, a loss of approximately $20.3 million from FTFM, and lower gains on equipment sales. FTFM results were impacted by reduced volume, a bankruptcy write-off, and operational inefficiencies.~~costs.

~~Table of Contents~~

Intermodal

The following table presents our key performance indicators for our ~~intermodal~~Intermodal segment for the periods ~~indicated.~~indicated:


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Orders(1)	329,014			305,074			329,505			329,014
Containers	21,288			17,557			23,014			21,288
Trucks ⁽¹⁾⁽²⁾	1,482			1,293			1,544			1,482
Revenue per order ⁽²⁾⁽³⁾	$	2,070		$	1,873		$	2,258		$	2,070
Operating ratio ⁽³⁾⁽⁴⁾	87.0		%	94.7		%	89.9		%	86.8		%


(1)	Based on delivered orders.


(2)	Includes company trucks and owner-operator trucks at the end of the period.


~~(2)~~(3)	Calculated excluding fuel surcharge and revenue in-transit, consistent with how revenue is reported internally for segment purposes.


~~(3)~~(4)	Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge). including revenue in-transit and related expenses at the operating segment level.

Intermodal revenues (excluding fuel surcharge) increased ~~$109.6~~$58.6 million, approximately ~~19%~~9%, in the nine months ended September 30, ~~2018~~2019 compared to the same period in ~~2017.~~2018. The increase was driven by ~~an 11%~~a 9% increase in revenue per order primarily resulting from 2018 contract carry-over, 2019 contract renewals and ~~8% higher volume. Intermodal added approximately 3,700 containers to its fleet as~~increased length of ~~third quarter 2018 compared to the same quarter of 2017.~~haul, while orders remained flat period over period.

Intermodal income from operations ~~increased $58.7~~decreased $15.2 million, approximately ~~196%~~17%, in the nine months ended September 30, ~~2018~~2019 compared to the same period in ~~2017,~~2018. Revenue growth, due to ~~increased volume and~~the increase in revenue per order noted above, ~~as well as reduced costs due~~was more than offset by higher purchased transportation, equipment depreciation, and rail ramp storage costs. Asset utilization was also unfavorable compared to the ~~2017 conversion from leased to owned chassis.~~same period of 2018.

Logistics

The following table presents our key performance ~~indicator~~indicators for our ~~logistics~~Logistics segment for the periods ~~indicated.~~indicated:

Nine Months Ended September 30,
2018 2017
Operating ratio ⁽¹⁾
95.9 % 96.4 %



	Nine Months Ended September 30,
	2019		2018
Operating ratio ⁽¹⁾	95.8	%	95.8	%
Brokerage revenues as a percentage of Logistics revenues ⁽²⁾	83.6	%	78.3	%


(1)	Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in-transit and related expenses at the operating segment level.


(2)	Revenues (excluding fuel surcharge), ~~consistent with how~~in millions, including revenue ~~is reported internally for segment purposes.~~in-transit.

Logistics revenues (excluding fuel surcharge) ~~increased $154.5~~decreased $36.7 million, approximately ~~26%~~5%, in the nine months ended September 30, ~~2018~~2019 compared to the same period in ~~2017,~~2018, primarily due to ~~growth~~one of the Company's import/export customers

Table of Contents

insourcing their warehouse management function in ~~our brokerage business. Brokerage volumes increased 17% in the nine months ended September 30, 2018 over the same period in 2017 combined with increased~~April 2019. In addition, reduced revenue per ~~order.~~order was partially offset by brokerage volume growth of 15%.

Logistics income from operations ~~increased $9.6~~decreased $1.8 million, approximately ~~46%~~6%, in the nine months ended September 30, ~~2018~~2019 compared to the same period in ~~2017,~~2018, primarily due to ~~the brokerage volume growth as noted above and effective~~compressed net revenue ~~management.~~in brokerage and reduced volumes within our import/export business.

Other

Our Other segment ~~posted a loss~~recorded income from operations of ~~$24.7~~$6.2 million in the nine months ended September 30, ~~2018,~~2019, compared to ~~income~~a loss of ~~$2.9~~$26.9 million in the same period in ~~2017. The $27.6 million decrease was driven by the period-over-period impact of the $13.2 million adjustment of~~2018. Factors contributing to increased income include a ~~contingent liability from the WSL acquisition~~reduction in ~~2017. Other factors included an increase in~~performance-based incentive compensation, the $5.8 million settlement of a lawsuit that challenged Washington State labor law compliance in 2018, and ~~professional services fees, including incremental costs associated with operating as~~ a ~~public company.~~$4.6 million increase in income from operations from our leasing business driven by increased lease activity.

Other Expense (Income)

Other expense decreased ~~$4.3~~$1.4 million, approximately ~~32%~~15%, in the nine months ended September 30, ~~2018~~2019 compared to the same period in ~~2017,~~2018, primarily from a ~~$3.6~~$3.7 million increase in interest income and a $0.3 million decrease in net ~~interest expense due to lower debt levels and increased interest income and~~foreign currency losses, partially offset by the 2018 recognition of a $2.5 million pre-tax gain related to our ownership interest in ~~Platform Science, Inc.~~PSI and a $0.1 million increase in interest expense. See Note 4, 5, Investments,, for more information on ~~Platform Science. These items were partially offset by a $1.8 million increase in net foreign currency losses.~~PSI.

~~Table of Contents~~

Income Tax Expense

Our provision for income taxes decreased ~~$3.2~~$33.1 million, approximately 5%52%, in the nine months ended September 30, ~~2018~~2019 compared to the same period in ~~2017~~2018 due to ~~higher~~lower taxable ~~income, offset by a lower tax rate.~~income. The effective income tax rate was ~~25.8%~~25.3% for the nine months ended September 30, ~~2018~~2019 compared to ~~38.8%~~25.8% for the same period last ~~year, due to the reduction in the income tax rate due to the enactment of the Tax Cuts and Jobs Act in December 2017.~~year.

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Our primary uses of cash are working capital requirements, capital expenditures, dividend payments, and debt service requirements. Additionally, ~~from time to time,~~ we may use cash for acquisitions and other investing and financing activities. Working capital is required principally to ensure we are able to run the business and have sufficient funds to satisfy maturing short-term debt and ~~upcoming~~ operational expenses. Our capital expenditures consist primarily of transportation equipment and information ~~technology assets.~~technology.

Historically, our primary source of liquidity has been cash flow from operations. In addition, we have a ~~$250~~$250.0 million revolving credit facility and a ~~$200~~$200.0 million accounts receivable facility. We anticipate that cash generated from operations, together with amounts available under our credit facilities, will be sufficient to meet our requirements for the foreseeable future. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that these funds will be obtained through ~~the incurrence of~~ additional indebtedness, additional equity offerings, or a combination of these potential sources of funds. ~~We intend to issue additional common shares under our shareholder-approved equity compensation plans to satisfy awards granted under those plans.~~ Our ability to fund future operating expenses and capital expenditures, ~~and~~as well as our ability to meet future debt service obligations or refinance our indebtedness will depend on our future operating performance, which will be affected by general economic, financial, and other factors beyond our control.

The following table presents our cash and debt outstanding as of the dates ~~shown.~~shown:


(in millions)	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Cash and cash equivalents	$	359.8	$	238.5	$	437.1	$	378.7
Marketable securities	45.0		41.6		47.4		51.3
Total cash, cash equivalents, and marketable securities	$	404.8	$	280.1	$	484.5	$	430.0

Debt:
Senior notes	400.0		400.0		$	400.0	$	400.0
Equipment financing	15.4		29.8		1.3		5.0
Capital leases	7.9		10.8
Finance leases					5.3		6.9
Total debt ⁽¹⁾	$	423.3	$	440.6	$	406.6	$	411.9


(1)	Debt on our consolidated balance sheets is presented net of deferred financing costs.

Debt

At September 30, ~~2018,~~2019, we were in compliance with all financial covenants and financial ratios under our credit agreements and the indentures governing our senior notes. See Note 6, 7, Debt and Credit Facilities, for information about our short-term and long-term financing arrangements.

Cash Flows

The following table summarizes, for the periods indicated, the changes to our cash flows provided by (used in) operating, investing, and financing activities.


		Nine Months Ended September 30,							Nine Months Ended September 30,
(in millions)	(in millions)	2018			2017			(in millions)	2019			2018
Net cash provided by operating activities	Net cash provided by operating activities	$	410.1		$	315.7		Net cash provided by operating activities	$	470.3		$	410.1
Net cash used in investing activities	Net cash used in investing activities	$	(222.1	)	$	(295.3	)	Net cash used in investing activities	(355.6		)	(222.1		)
Net cash provided by (used in) financing activities		$	(66.7	)	$	51.0
Net cash used in financing activities								Net cash used in financing activities	(56.3		)	(66.7		)

~~Table of Contents~~

Nine Months Ended September 30, ~~2018~~2019 Compared to Nine Months Ended September 30, ~~2017~~2018

Operating Activities

Cash provided by operating activities increased ~~$94.4~~$60.2 million, approximately ~~30%~~15%, in the first nine months of ~~2018~~2019 compared to the same period in ~~2017,~~2018, driven primarily by the ~~increase~~reclassification of proceeds from lease receipts from investing activities with the adoption of ASC 842 and the net change in working capital balances, partially offset by the decrease in net income as

Table of Contents

adjusted for ~~noncash items~~non-cash items. Non-cash restructuring charges related to the shutdown of the FTFM service offering were $43.3 million in the first nine months of 2019 and ~~a net increase in working capital balances.~~primarily included charges for the impairment of tangible and intangible assets including equipment, customer lists and other customer related assets, and software.

Investing Activities

Cash used in investing activities ~~decreased $73.2~~increased $133.5 million, approximately ~~25%~~60%, in the first nine months of ~~2018~~2019 compared to the same period in ~~2017.~~2018. The ~~decrease~~increase in cash used was driven by ~~lower~~the increase in net capital expenditures ~~as well as increased~~and the reclassification of proceeds from lease receipts to operating activities with the adoption of ASC 842, partially offset by increased sales of ~~equipment and off-lease inventory.~~marketable securities.

Capital Expenditures

The following table sets forth, for the periods indicated, our net capital expenditures.


		Nine Months Ended September 30,							Nine Months Ended September 30,
(in millions)	(in millions)	2018			2017			(in millions)	2019			2018
Transportation equipment	Transportation equipment	$	268.1		$	274.1		Transportation equipment	$	308.6		$	268.1
Other property and equipment	Other property and equipment	22.3			27.3			Other property and equipment	42.8			22.3
Proceeds from sale of property and equipment	Proceeds from sale of property and equipment	(74.6		)	(51.8		)	Proceeds from sale of property and equipment	(38.8		)	(74.6		)
Net capital expenditures	Net capital expenditures	$	215.8		$	249.6		Net capital expenditures	$	312.6		$	215.8

Expenditures for transportation equipment and other property and equipment ~~decreased $6.0~~increased $40.5 million and ~~$5.0~~$20.5 million, respectively, in the first nine months of ~~2018~~2019 compared to the same period in ~~2017.~~2018 driven by increased tractor purchases, land, buildings, and improvements spend, and capitalized IT costs. Proceeds from sale of property and equipment decreased $35.8 million primarily as a result of reduced tractor sales. See Note 11, Commitments and Contingencies, for information on our firm commitments to purchase transportation equipment.

Financing Activities

Cash used in financing activities ~~increased $117.7~~decreased $10.4 million, approximately ~~231%~~16%, in the first nine months of ~~2018~~2019 compared to the same period in ~~2017.~~2018. The main driver of the ~~increase~~decrease in cash used was the ~~period-over-period impact of the $340.6~~$11.6 million ~~of net proceeds from our 2017 IPO~~decrease in payments on debt and ~~the $13.4~~finance lease obligations, partially offset by a $1.8 million increase in dividends paid in ~~2018, partially offset by the impact of repayments of debt in 2017 totaling $236.2 million.~~2019 compared to 2018.

Other Considerations that Could Affect Our Results, Liquidity, ~~and~~or Capital Resources

Driver Capacity and Wage Cost

Our professional driver workforce is one of our most valuable assets. Recruiting and retaining sufficient numbers of qualified drivers is challenging in an increasingly competitive driver market and has a significant impact on our operating costs and ability to serve our customers. Changes in the demographic composition of the workforce, alternative employment opportunities that become available in the economy, and individual drivers’ desire to be home more frequently can affect availability of drivers and increase the wages our drivers require.

Factors that Could Result in a Goodwill Impairment

Goodwill is tested for impairment at least annually using both the discounted cash flow method and the guideline public company method in calculating the fair values of our reporting units. Key inputs used in the discounted cash flow approach include growth rates for sales and operating profit, perpetuity growth assumptions, and discount rates. As interest rates rise, the calculated fair values of our reporting units will decrease, which could impact the results of our goodwill impairment tests.

We will perform our annual evaluation of goodwill for impairment as of October 31, ~~2018,~~2019, with such analysis expected to be finalized during the fourth quarter. As part of our annual process of updating our goodwill impairment evaluation, we will assess the impact of current operating results and our resulting management actions to determine whether they have an impact on the long-term valuation of reporting units and the related recoverability of our goodwill. A triggering event occurred during the second quarter of 2019 that resulted in impairment of all goodwill related to our FTFM reporting unit. See further discussion in Note 6, Goodwill and Other Intangible Assets.

3136

Table of Contents

Off-Balance Sheet Arrangements

We have no arrangements that meet the definition of off-balance sheet arrangements.

Contractual Obligations

See the disclosure under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations” in the Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 for our contractual obligations as of December 31, ~~2017.~~2018. There were no material changes to our contractual obligations during the nine months ended September 30, ~~2018.~~2019.

CRITICAL ACCOUNTING POLICIES

We have reviewed our critical accounting policies and considered whether any new critical accounting estimates or other significant changes to our accounting policies require any additional disclosures. ~~Other than the changes discussed below,~~We have found the disclosures made in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 are still ~~current.~~

~~Goodwill~~

~~As of December 31, 2017,~~current other than goodwill related to our reporting units with goodwill were Dedicated, Import/Export, and Asia. During the quarter ended June 30, 2018, we reorganized the structure of the operating segments within our Truckload reportable segment, separating FTFM ~~into its own operating segment and integrating the remaining Dedicated business into the VTL operating segment. Each Truckload operating segment was determined to be its own~~ reporting unit ~~due to the level at~~ which ~~financial information is available~~has now been fully impaired. See Note 6, Goodwill and management's review of that information. As a result of the reorganization, goodwill previously attributed to the Dedicated reporting unit was reallocated to the VTL and FTFM reporting units on a relative fair value basis. Of the $138.2 million of Dedicated reporting unit goodwill, the VTL and FTFM reporting units were allocated $103.6 million and $34.6 million, respectively.

~~After the reallocation of goodwill, an impairment test was performed~~ Other Intangible Assets for these reporting units, and it was determined that goodwill was not impaired as each reporting unit had an estimated fair value in excess of its respective carrying amount. The fair values of these reporting units exceeded their carrying values by over 25%. In the event that future operating performance of any of our reporting units is below our expectations, or there are changes to forecasted growth rates or our cost of capital, a decline in the fair value of the reporting units could result, and we may be required to record a goodwill impairment charge.additional discussion.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our market risks have not changed significantly from the market risks reported in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter covered by this report, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3237

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

As previously disclosed, in November 2016, we received a Finding and Notice of Violation from the U.S. Environmental Protection Agency (EPA) alleging that, among other matters, certain vehicles we own, hire, or lease failed to comply with certain provisions of the California Air Resources Board Truck and Bus Regulation, in violation of the Clean Air Act. After entering discussions with the EPA, we resolved the allegations during the second quarter of 2018 for an amount of $475,000.

For ~~other~~ information relating to legal proceedings, see Note 11, Commitments and Contingencies, which is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information regarding the purchases of our equity securities made by or on behalf of us or any affiliated purchaser (as defined in Exchange Act Rule 10b-18) during the three months ended September 30, ~~2018:~~2019:

Issuer Purchases of Equity Securities

2018 Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 – July 31 13,391
$ 28.13
—
$ —
August 1 – August 31 —
—
—
—
September 1 – September 30 —
—
—
—
Total * 13,391
28.13
—
$ —

*All shares were surrendered by employees to satisfy tax withholding obligations upon vesting of restricted stock.



2019	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - July 31	—	$	—	—	$	—
August 1 - August 31	—	—		—	—
September 1 - September 30	—	—		—	—
Total	—	$	—	—	$	—

Limitation Upon Payment of Dividends

The 2018 Credit Facility includes covenants limiting our ability to pay dividends or make distributions on our capital stock if a default exists under the 2018 Credit Facility or would be caused by giving effect to such dividend.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

3338

Table of Contents

Item 6. Exhibits



Exhibit Number		Exhibit Description

~~10.1~~		Credit Agreement dated as of August 6, 2018, among Schneider National Leasing, Inc., the guarantors party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated herein by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K (File No. 1-38054) filed on August 8, 2018).

~~10.2~~		Joinder and Amendment No. 2, dated as of September 5, 2018, to Amended and Restated Purchase Agreement dated as of March 31, 2011, as amended as of December 17, 2013, among Schneider Receivables Corporation, as seller, Schneider National, Inc., as the servicer, Wells Fargo Bank, N.A., as administrative agent, and the purchasers party thereto (incorporated herein by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K (File No. 1-38054) filed on September 6, 2018).
31.1*		Certification pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101101.INS		~~Interactive Data File~~XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Labels Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

104*		The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL

* Filed herewith.

** Furnished herewith.

~~+ Constitutes a management contract or compensatory plan or arrangement.~~

3439

Table of Contents

SIGNATURE

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




		SCHNEIDER NATIONAL, INC.

Date:	~~November 2, 2018~~October 31, 2019	/s/ Stephen L. Bruffett
		Stephen L. Bruffett
		Executive Vice President and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

3540



	Three Months Ended September 30, 2018
Financial Statement Line Item (in millions)	Under ASC 605		Adjustment			As Reported
Consolidated Statement of Comprehensive Income
Operating revenues	$	1,273.1	$	7.0		$	1,280.1
Purchased transportation	517.3		3.8			521.1
Salaries, wages, and benefits	318.2		(1.0		)	317.2
Total operating expenses	1,179.4		2.8			1,182.2
Income from operations	93.7		4.2			97.9
Provision for income taxes	23.4		1.2			24.6
Net income	67.7		3.0			70.7
Comprehensive income	66.8		3.0			69.8



	Nine Months Ended September 30, 2018
Financial Statement Line Item (in millions)	Under ASC 605		Adjustment		As Reported
Consolidated Statement of Comprehensive Income
Operating revenues	$	3,642.9	$	12.5	$	3,655.4
Purchased transportation	1,424.2		7.6		1,431.8
Salaries, wages, and benefits	943.0		0.2		943.2
Total operating expenses	3,390.4		7.8		3,398.2
Income from operations	252.5		4.7		257.2
Provision for income taxes	62.7		1.3		64.0
Net income	180.7		3.4		184.1
Comprehensive income	179.6		3.4		183.0



Contract Balances (in millions)	September 30, 2018		January 1, 2018
Other current assets - Contract assets	$	34.8	$	22.2
Other current liabilities - Contract liabilities	—		—



Remaining 2018	$	0.3
2019	1.1
2020	1.0
2021	1.0
2022	1.0
2023 and thereafter	3.2
	$	7.6



(in millions)	September 30, 2018			December 31, 2017
Unsecured senior notes: principal payable at maturities ranging from 2019 through 2025; interest payable in semiannual installments through the same timeframe; weighted-average interest rate of 3.36% for both 2018 and 2017	$	400.0		$	400.0
Equipment financing notes: principal and interest payable in monthly installments through 2023; weighted average interest rate of 3.79% and 3.76% for 2018 and 2017, respectively	15.4			29.8
Total principal outstanding	415.4			429.8
Current maturities	(7.3		)	(15.2		)
Debt issuance costs	(0.7		)	(0.9		)
Long-term debt	$	407.4		$	413.7



Restricted Shares and RSUs	Number of Awards		Weighted Average Grant Date Fair Value Per Unit
Unvested at December 31, 2017	240,016		$	19.00
Granted	229,272		26.82
Vested	(74,795	)	19.00
Forfeited	(14,370	)	20.21
Unvested at September 30, 2018	380,123		$	23.67



Pre-IPO Restricted Shares	Number of Awards		Weighted Average Grant Date Fair Value
Unvested at December 31, 2017	152,199		$	19.00
Granted	—		—
Vested	(101,643	)	19.00
Forfeited	(5,084	)	19.00
Unvested at September 30, 2018	45,472		$	19.00



Performance Shares and PSUs	Number of Awards		Weighted Average Grant Date Fair Value
Unvested at December 31, 2017	391,541		$	19.00
Granted	303,228		26.78
Vested	—		—
Forfeited	(45,113	)	19.00
Unvested at September 30, 2018	649,656		$	22.63



Nonqualified Stock Options	Number of Awards		Weighted Average Grant Date Fair Value
Unvested at December 31, 2017	229,620		$	6.37
Granted	173,024		8.96
Vested	(8,410	)	6.37
Forfeited	(25,230	)	6.37
Unvested at September 30, 2018	369,004		$	7.59



Weighted-average Black-Scholes value	$	8.96
Black-Scholes Assumptions:
Expected term	6.25 years
Expected volatility	32.2		%
Expected dividend yield	0.9		%
Risk-free interest rate	2.8		%