10-Q 1 knx-3312019x10q.htm 10-Q Document
 
 
 
 
 
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 March 31, 2019
or
o    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: 001-35007
___________________________________________________________________________________________________________________
knightswiftlogo2018newa08.jpg
___________________________________________________________________________________________________________________________________
 Knight-Swift Transportation Holdings Inc.
(Exact name of registrant as specified in its charter)
___________________________________________________________________________________________________________________
Delaware
 
20-5589597
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
20002 North 19th Avenue
Phoenix, Arizona 85027
(Address of principal executive offices and zip code)
(602) 269-2000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock $0.01 Par Value
 
KNX
 
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.    Yes  ý    No  o
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  o
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
 
ý
  
Accelerated filer
 
o
 
 
Non-accelerated filer
 
o 
  
Smaller reporting company
 
o
 
 
 
 
 
 
Emerging growth company
 
o
 
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.    o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No  ý 
There were 173,118,775 shares of the registrant's common stock outstanding as of April 30, 2019.
 
 
 
 
 


KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.

QUARTERLY REPORT ON FORM 10-Q
 
GLOSSARY OF TERMS
The following glossary provides definitions for certain acronyms and terms used in this Quarterly Report on Form 10-Q. These acronyms and terms are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document.
 
Term
 
Definition
Knight-Swift/the Company/Management/We/Us/Our
 
Unless otherwise indicated or the context otherwise requires, these terms represent Knight-Swift Transportation Holdings Inc. and its subsidiaries.
2017 Merger
 
The September 8, 2017 merger of Knight and Swift, pursuant to which we became Knight-Swift Transportation Holdings Inc.
2017 Debt Agreement
 
The Company's Credit Agreement, entered into on September 29, 2017, consisting of the Revolver and Term Loan, which are defined below.
2018 RSA
 
Fourth Amendment to the Amended and Restated Receivables Sales Agreement, entered into on July 11, 2018 by Swift Receivables Company II, LLC with unrelated financial entities.
Abilene
 
Abilene Motor Express, Inc. and its related entities
Abilene Acquisition
 
See description of the Abilene Acquisition included in Notes 1 and 4 of the footnotes to the condensed consolidated financial statements, within Part I, Item 1 of this Quarterly Report.
Annual Report
 
Annual Report on Form 10-K
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
Board
 
Knight-Swift's Board of Directors
EPS
 
Earnings Per Share
FASB
 
Financial Accounting Standards Board
FLSA
 
Fair Labor Standards Act
GAAP
 
United States Generally Accepted Accounting Principles
Knight
 
Unless otherwise indicated or the context otherwise requires, this term represents Knight Transportation, Inc. and its subsidiaries prior to the 2017 Merger
Quarterly Report
 
Quarterly Report on Form 10-Q
Revolver
 
Revolving line of credit under the 2017 Debt Agreement
SEC
 
United States Securities and Exchange Commission
Swift
 
Unless otherwise indicated or the context otherwise requires, this term represents Swift Transportation Company and its subsidiaries prior to the 2017 Merger.
Term Loan
 
The Company's term loan under the 2017 Debt Agreement
TRP
 
Transportation Resource Partners
US
 
The United States of America

3

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.

PART I FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets (Unaudited)
 
March 31, 2019
 
December 31, 2018
 
(In thousands, except per share data)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
60,215

 
$
82,486

Cash and cash equivalents – restricted
50,689

 
46,888

Restricted investments, held-to-maturity, amortized cost
11,640

 
17,413

Trade receivables, net of allowance for doubtful accounts of $17,872 and $16,355, respectively ¹
555,930

 
616,830

Prepaid expenses
74,707

 
67,011

Assets held for sale
32,332

 
39,955

Income tax receivable
1,399

 
6,943

Other current assets
26,550

 
29,706

Total current assets
813,462

 
907,232

Gross property and equipment
3,377,112

 
3,305,944

Less: accumulated depreciation and amortization
(753,389
)
 
(693,107
)
Property and equipment, net
2,623,723

 
2,612,837

Operating lease right-of-use assets
252,900

 
—

Goodwill
2,919,222

 
2,919,176

Intangible assets, net
1,410,227

 
1,420,919

Other long-term assets
61,608

 
51,721

Total assets
$
8,081,142

 
$
7,911,885

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
158,646

 
$
117,883

Accrued payroll and purchased transportation
118,063

 
126,464

Accrued liabilities
167,813

 
151,500

Claims accruals – current portion
155,394

 
160,044

Finance lease liabilities and long-term debt – current portion
52,893

 
58,672

Operating lease liabilities – current portion
109,158

 
—

Total current liabilities
761,967

 
614,563

Revolving line of credit
60,000

 
195,000

Long-term debt – less current portion
364,649

 
364,590

Finance lease liabilities – less current portion
68,215

 
71,248

Operating lease liabilities – less current portion
151,634

 
—

Accounts receivable securitization
174,645

 
239,606

Claims accruals – less current portion
207,417

 
201,327

Deferred tax liabilities
730,516

 
739,538

Other long-term liabilities
17,476

 
23,294

Total liabilities
2,536,519

 
2,449,166

Commitments and contingencies (Notes 11 and 12)


 


Stockholders’ equity:
 
 
 
Preferred stock, par value $0.01 per share; 10,000 shares authorized; none issued
—

 
—

Common stock, par value $0.01 per share; 500,000 shares authorized; 173,066 and 172,844 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively.
1,730

 
1,728

Additional paid-in capital
4,248,188

 
4,242,369

Retained earnings
1,292,838

 
1,216,852

Total Knight-Swift stockholders' equity
5,542,756

 
5,460,949

Noncontrolling interest
1,867

 
1,770

Total stockholders’ equity
5,544,623

 
5,462,719

Total liabilities and stockholders’ equity
$
8,081,142

 
$
7,911,885

__________
1
Includes in-transit revenue balances of $20.1 million and $15.6 million as of March 31, 2019 and December 31, 2018, respectively.
See accompanying notes to condensed consolidated financial statements (unaudited).

4

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


Condensed Consolidated Income Statements (Unaudited)
 
Quarter Ended March 31,
 
2019
 
2018
 
(In thousands, except per share data)
Revenue:
 
 
 
Revenue, excluding fuel surcharge
$
1,078,138

 
$
1,124,172

Fuel surcharge
126,397

 
146,960

Total revenue
1,204,535

 
1,271,132

Operating expenses:
 
 
 
Salaries, wages, and benefits
363,855

 
361,673

Fuel
138,439

 
144,816

Operations and maintenance
79,760

 
85,020

Insurance and claims
50,136

 
59,148

Operating taxes and licenses
21,803

 
23,150

Communications
5,083

 
5,292

Depreciation and amortization of property and equipment
100,937

 
93,863

Amortization of intangibles
10,693

 
10,509

Rental expense
35,545

 
52,875

Purchased transportation
269,349

 
324,283

Miscellaneous operating expenses
12,636

 
16,759

Total operating expenses
1,088,236

 
1,177,388

Operating income
116,299

 
93,744

Other (expenses) income:
 
 
 
Interest income
1,016

 
572

Interest expense
(7,348
)
 
(6,764
)
Other income, net
6,139

 
2,155

Other (expenses) income, net
(193
)
 
(4,037
)
Income before income taxes
116,106

 
89,707

Income tax expense
27,923

 
18,975

Net income
88,183

 
70,732

Net income attributable to noncontrolling interest
(245
)
 
(368
)
Net income attributable to Knight-Swift
$
87,938

 
$
70,364

 
 
 
 
Earnings per share:
 
 
 
Basic
$
0.51

 
$
0.39

Diluted
$
0.51

 
$
0.39

 
 
 
 
Dividends declared per share:
$
0.06

 
$
0.06

 
 
 
 
Weighted average shares outstanding:
 
 
 
Basic
172,971

 
178,160

Diluted
173,608

 
179,241


See accompanying notes to the condensed consolidated financial statements (unaudited).

5

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
 
Common Stock
 
Additional
Paid-in Capital
 
Retained Earnings
 
Total Knight-Swift Stockholders' Equity
 
Noncontrolling Interest
 
Total
Stockholders’ Equity
 
Shares
 
Par Value
 
 
 
 
 
 
(In thousands, except per share data)
Balances – December 31, 2018
172,844

 
$
1,728

 
$
4,242,369

 
$
1,216,852

 
$
5,460,949

 
$
1,770

 
$
5,462,719

Common stock issued to employees
198

 
2

 
2,373

 


 
2,375

 


 
2,375

Common stock issued under employee stock purchase plan
24

 
—

 
566

 


 
566

 


 
566

Shares withheld – restricted stock unit settlement


 


 


 
(1,514
)
 
(1,514
)
 


 
(1,514
)
Employee stock-based compensation expense


 


 
2,880

 


 
2,880

 


 
2,880

Cash dividends paid and dividends accrued ($0.06 per share)


 


 


 
(10,438
)
 
(10,438
)
 


 
(10,438
)
Net income attributable to Knight-Swift


 


 


 
87,938

 
87,938

 


 
87,938

Distribution to noncontrolling interest


 


 


 


 


 
(148
)
 
(148
)
Net income attributable to noncontrolling interest


 


 


 


 


 
245

 
245

Balances – March 31, 2019
173,066

 
$
1,730

 
$
4,248,188

 
$
1,292,838

 
$
5,542,756

 
$
1,867

 
$
5,544,623



Balances – December 31, 2017
177,998

 
$
1,780

 
$
4,219,214

 
$
1,016,738

 
$
5,237,732

 
$
2,638

 
$
5,240,370

Common stock issued to employees
285

 
3

 
4,087

 
 
 
4,090

 
 
 
4,090

Common stock issued under employee stock purchase plan
9

 
—

 
371

 
 
 
371

 
 
 
371

Shares withheld – restricted stock unit settlement
 
 
 
 
 
 
(2,118
)
 
(2,118
)
 
 
 
(2,118
)
Employee stock-based compensation expense
 
 
 
 
1,989

 
 
 
1,989

 
 
 
1,989

Cash dividends paid and dividends accrued ($0.06 per share)
 
 
 
 
 
 
(10,742
)
 
(10,742
)
 
 
 
(10,742
)
Net income attributable to Knight-Swift
 
 
 
 
 
 
70,364

 
70,364

 
 
 
70,364

Distribution to noncontrolling interest
 
 
 
 
 
 
 
 
 
 
(801
)
 
(801
)
Net income attributable to noncontrolling interest
 
 
 
 
 
 
 
 
 
 
368

 
368

Net cumulative-effect adjustment from adopting ASC Topic 606
 
 
 
 
 
 
5,301

 
5,301

 
 
 
5,301

Balances – March 31, 2018
178,292

 
$
1,783

 
$
4,225,661

 
$
1,079,543

 
$
5,306,987

 
$
2,205

 
$
5,309,192

See accompanying notes to condensed consolidated financial statements (unaudited).


6

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Quarter Ended March 31,
 
2019
 
2018
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income
$
88,183

 
$
70,732

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of property, equipment, and intangibles
111,630

 
104,372

Gain on sale of property and equipment
(11,786
)
 
(7,096
)
Deferred income taxes
(9,603
)
 
(10,323
)
Non-cash lease expense
27,626

 
—

Other adjustments to reconcile net income to net cash provided by operating activities
(2,762
)
 
(352
)
Increase (decrease) in cash resulting from changes in:
 
 
 
Trade receivables
62,362

 
22,285

Income tax receivable
5,544

 
28,273

Accounts payable
(1,811
)
 
(12,182
)
Accrued liabilities and claims accrual
14,250

 
16,145

Operating lease liabilities
(27,403
)
 
—

Other assets and liabilities
(12,778
)
 
(2,990
)
Net cash provided by operating activities
243,452

 
208,864

Cash flows from investing activities:
 
 
 
Proceeds from maturities of held-to-maturity investments
8,315

 
5,532

Purchases of held-to-maturity investments
(2,571
)
 
(5,422
)
Proceeds from sale of property and equipment, including assets held for sale
56,661

 
49,423

Purchases of property and equipment
(105,780
)
 
(56,466
)
Expenditures on assets held for sale
(4,271
)
 
(6,474
)
Net cash, restricted cash, and equivalents invested in acquisition
—

 
(101,569
)
Other cash flows from investing activities
2,925

 
4,325

Net cash used in investing activities
(44,721
)
 
(110,651
)
Cash flows from financing activities:
 
 
 
Repayment of long-term debt and finance leases
(8,391
)
 
(9,084
)
Repayments on revolving line of credit, net
(135,000
)
 
(70,000
)
Borrowings under accounts receivable securitization
25,000

 
—

Repayment of accounts receivable securitization
(90,000
)
 
(25,000
)
Proceeds from common stock issued
2,941

 
4,461

Dividends paid
(10,672
)
 
(10,983
)
Other cash flows from financing activities
(1,662
)
 
(2,919
)
Net cash used in financing activities
(217,784
)
 
(113,525
)
Net decrease in cash, restricted cash, and equivalents
(19,053
)
 
(15,312
)
Cash, restricted cash, and equivalents at beginning of period
130,976

 
151,733

Cash, restricted cash, and equivalents at end of period
$
111,923

 
$
136,421

See accompanying notes to condensed consolidated financial statements (unaudited).

7

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows (Unaudited) — Continued



 
Quarter Ended March 31,
 
2019
 
2018
 
(In thousands)
Supplemental disclosures of cash flow information:
 
 
 
Cash paid (received) during the period for:
 
 
 
Interest
$
7,679

 
$
6,531

Income taxes
(124
)
 
(1,154
)
Non-cash investing and financing transactions:
 
 
 
Equipment acquired included in accounts payable
$
53,572

 
$
6,604

Financing provided to independent contractors for equipment sold
2,221

 
1,106

Transfers from property and equipment to assets held for sale
26,155

 
22,404

Right-of-use assets obtained in exchange for new operating lease liabilities
7,883

 
—


Reconciliation of Cash, Restricted Cash, and Equivalents:
March 31,
2019
 
December 31,
2018
 
March 31,
2018
 
December 31,
2017
 
(In thousands)
Condensed Consolidated Balance Sheets
 
 
 
 
 
 
 
Cash and cash equivalents
$
60,215

 
$
82,486

 
$
79,184

 
$
76,649

Cash and cash equivalents – restricted ¹
50,689

 
46,888

 
55,616

 
73,657

Other long-term assets ¹
1,019

 
1,602

 
1,621

 
1,427

Condensed Consolidated Statements of Cash Flows
 
 
 
 
 
 
 
Cash, restricted cash, and equivalents
$
111,923

 
$
130,976

 
$
136,421

 
$
151,733

 
 
 
 
 
 
 
 
________
1
Reflects cash and cash equivalents that are primarily restricted for claims payments.
See accompanying notes to condensed consolidated financial statements (unaudited).

8

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


Notes to Condensed Consolidated Financial Statements (Unaudited)
 
Note 1 — Introduction and Basis of Presentation
Certain acronyms and terms used throughout this Quarterly Report are specific to the Company, commonly used in the trucking industry, or are otherwise frequently used throughout this document. Definitions for these acronyms and terms are provided in the "Glossary of Terms," available in the front of this document.
Description of Business
Knight-Swift is a transportation solutions provider, headquartered in Phoenix, Arizona. During the first quarter of 2019, we operated an average of 18,934 tractors (comprised of 16,208 company tractors and 2,726 independent contractor tractors) and 58,934 trailers within our Trucking segment. Additionally, we operated an average of 693 tractors and 9,866 containers in our Intermodal segment. The Company's three reportable segments are Trucking, Logistics, and Intermodal.
Segment Realignment
During the first quarter of 2019, the Company reorganized its reportable segments to reflect management’s revised reporting structure. Under this revised reporting structure, the Company's three reportable segments, are as follows:
•
The Trucking segment now includes the results of the previously-reported Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated segments.
•
The Logistics segment now includes the results of the Knight brokerage and Swift logistics businesses which were previously included within the Knight Logistics and Swift non-reportable segments, respectively.
•
The Intermodal segment now includes the results of the previously-reported Swift Intermodal segment and the results of the Knight intermodal business, which was previously included in the Knight Logistics segment.
The non-reportable segments continue to include support services that Swift's subsidiaries provide to customers and independent contractors (including repair and maintenance shop services, equipment leasing, and insurance), as well as certain legal settlements and accruals, amortization of intangibles related to the 2017 Merger and certain other corporate expenses. Additionally, the non-reportable segments now include Knight's equipment leasing and warranty services to independent contractors and trailer parts manufacturing, which were previously reported within the Knight Logistics segment.
Abilene Acquisition
On March 16, 2018, the Company acquired all of the issued and outstanding equity interests of Abilene. Abilene's trucking and logistics businesses are included under the respective segments. Please refer to Note 4 for more information about the Abilene Acquisition.
Basis of Presentation
The condensed consolidated financial statements and footnotes included in this Quarterly Report should be read in conjunction with the consolidated financial statements and footnotes included in Knight-Swift's 2018 Annual Report. The condensed consolidated financial statements in this Quarterly Report include the accounts of Knight-Swift Transportation Holdings Inc. and its subsidiaries. In management's opinion, these condensed consolidated financial statements were prepared in accordance with GAAP and include all adjustments necessary (consisting of normal recurring adjustments) for the fair statement of the periods presented.
With respect to transactional/durational data, references to years pertain to calendar years. Similarly, references to quarters pertain to calendar quarters.
Note regarding comparability — The reported results do not include the results of operations of Abilene and its subsidiaries on and prior to its acquisition by the Company on March 16, 2018 in accordance with the accounting treatment applicable to the transaction.

9

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



Changes in Presentation
The Company's changes in presentation were attributed to impacts from adopting accounting pronouncements (refer to Note 2) and simplifying the presentation of the condensed consolidated statements of cash flows by reclassifying immaterial line items into other line items. Accordingly, the amounts presented in the Company's first quarter 2018 condensed consolidated statement of cash flows were reclassified to align with the presentation in this first quarter 2019 Quarterly Report as follows:
•
"Transportation Resource Partners impairment," "Income from investment in Transportation Resource Partners," "Reduction of allowance for doubtful accounts and notes receivable," "Stock-based compensation expense," and "Amortization of debt issuance costs, and other" were reclassified to "Other adjustments to reconcile net income to net cash provided by operating activities."
•
Changes in "Other current assets," "Prepaid expenses," and "Other long-term assets" were reclassified to "Other assets and liabilities."
•
"Proceeds from notes receivable," "Payments received on equipment sales receivables," "Return of Investment from Transportation Resource Partners," and "Cash proceeds from Transportation Resource Partners" were reclassified to "Other cash flows from investing activities."
•
"Share withholding for taxes due on equity awards" and "Cash distribution to noncontrolling interest holder" were reclassified to "Other cash flows from financing activities."
•
"Repayments on Knight Revolver, net" and "Repayments on Revolver, net" were reclassified to "Borrowings on revolving lines of credit, net."
Seasonality
In the transportation industry, results of operations generally follow a seasonal pattern. Freight volumes in the first quarter are typically lower due to less consumer demand, customers reducing shipments following the holiday season, and inclement weather. At the same time, operating expenses generally increase, and tractor productivity of the Company's fleet, independent contractors, and third-party carriers decreases during the winter months due to decreased fuel efficiency, increased cold weather-related equipment maintenance and repairs, and increased insurance claims and costs attributed to higher accident frequency from harsh weather. These factors typically lead to lower operating profitability, as compared to other parts of the year. Additionally, beginning in the latter half of the third quarter and continuing into the fourth quarter, the Company typically experiences surges pertaining to holiday shopping trends toward delivery of gifts purchased over the Internet, as well as the length of the holiday season (consumer shopping days between Thanksgiving and Christmas).

10

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



 
Note 2 — Recently Adopted Accounting Pronouncements
Leases (ASC Topic 842): ASU 2016-02 — Leases
Note: Required annual disclosures regarding ASC Topic 842 are included in Note 7.
Summary of the Standard — In February 2016, the FASB issued ASU 2016-02, which established the new ASC Topic 842, Leases, standard. The new standard requires lessees to recognize assets and liabilities arising from both operating and financing leases on the balance sheet. Lessor accounting for leases is largely unaffected. For public business entities, the new standard was effective for fiscal years beginning after December 15, 2018. Companies may apply the amendments in ASU 2016-02 using a modified retrospective approach with an adjustment to retained earnings as of either the beginning of the current year ("ASC Topic 840 Comparative Approach") or the beginning of the earliest period presented ("ASC Topic 842 Comparative Approach").
Adoption Method and Approach — The Company adopted ASC Topic 842 on January 1, 2019 by applying the ASC Topic 840 Comparative Approach, resulting in the recognition of right-of-use assets and lease liabilities related to its operating leases. Comparative information related to periods prior to January 1, 2019 continues to be reported under the legacy guidance in ASC Topic 840.
Practical Expedients — As permitted under ASU 2016-02 (and related ASUs), management elected to apply the package of practical expedients:
•
Lease Identification — An entity need not reassess whether any expired or existing contracts are or contain leases.
•
Lease Classification — An entity need not reassess the lease classification for any expired or existing leases (for example, all existing leases that were classified as operating leases in accordance with ASC Topic 840 are now classified as operating leases, and all existing leases that were classified as capital leases in accordance with ASC Topic 840 are now classified as finance leases).
•
Initial Direct Costs — An entity need not reassess initial direct costs for any existing leases.
Adoption Date Impact — The required disclosures regarding the adoption date impact of ASC Topic 842 on the condensed consolidated balance sheet are presented below.
 
December 31,
2018
 
Opening Balance Adjustments
 
January 1,
2019
 
(in thousands)
Assets
 
 
 
 
 
Prepaid expenses 2
$
67,011

 
$
(948
)
 
$
66,063

Operating lease right-of-use assets 1
—

 
280,527

 
280,527

Other long-term assets 2
51,721

 
(1
)
 
51,720

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Accounts payable 2
$
117,883

 
$
(437
)
 
$
117,446

Accrued liabilities 2
151,500

 
(4,168
)
 
147,332

Operating lease liabilities – current portion 1
—

 
119,963

 
119,963

Operating lease liabilities – less current portion 1
—

 
168,232

 
168,232

Deferred tax liabilities 3
739,538

 
—

 
739,538

Other long-term liabilities 2
23,294

 
(4,012
)
 
19,282

1
These new line items on the condensed consolidated balance sheets represent the capitalization of the Company's operating leases as lessee.
2
The effect of adopting ASC Topic 842 reflects certain reclassifications to adjust the right-of-use assets.
3
Amounts are reflective of deferred tax impacts from capitalizing the Company's operating leases.

11

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



Current Period Impact of Adoption — The required quantitative disclosures regarding the current period impact of adopting ASC Topic 842 on the condensed consolidated balance sheet are presented below.
 
March 31, 2019
 
As Reported under ASC Topic 842
 
If Reported Under ASC Topic 840
 
Effect of Change to ASC Topic 842
 
(in thousands)
Assets
 
 
 
 
 
Prepaid expenses 2
$
74,707

 
$
75,452

 
$
(745
)
Operating lease right-of-use assets 1
252,900

 
—

 
252,900

Other long-term assets 2
61,608

 
61,609

 
(1
)
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Accounts payable 2
$
158,646

 
$
159,736

 
$
(1,090
)
Accrued liabilities 2
167,813

 
169,816

 
(2,003
)
Operating lease liabilities – current portion 1
109,158

 
—

 
109,158

Operating lease liabilities – less current portion 1
151,634

 
—

 
151,634

Deferred tax liabilities 3
730,516

 
732,505

 
(1,989
)
Other long-term liabilities 2
17,476

 
21,032

 
(3,556
)
1
Refer to tabular footnote (1) under "Adoption Date Impact" above.
2
Refer to tabular footnote (2) under "Adoption Date Impact" above.
3
Refer to tabular footnote (3) under "Adoption Date Impact" above.
ASU 2018-13: Fair Value Measurement (Topic 820): Disclosure Framework – Change to the Disclosure Requirements for Fair Value Measurement
Summary of the Standard — The amendments in this ASU modify several disclosure requirements under Topic 820. 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.
Current Period Impact of Adoption — The Company will exclude immaterial disclosures regarding fair value measurements from its Quarterly Reports and Annual Reports, beginning in this Quarterly Report for the first quarter of 2019.
Other ASUs
There were various other ASUs that became effective during the quarter ended March 31, 2019, which did not have a material impact on the Company's results of operations, financial position, cash flows, or disclosures.

12

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



 
Note 3 — Recently Issued Accounting Pronouncements
Date Issued
 
Reference
 
Description
 
Adoption Date and Method
 
Financial Statement Impact
March 2019
 
2019-01: Leases (Topic 842) – Codification Improvements 1
 
The amendments address certain issues related to the implementation of ASC Topic 842, including; determining the fair value of the underlying asset by lessors that are not manufacturers or dealers, presentation on the statement of cash flows for sales type and direct financing leases, and transition disclosures related to ASC Topic 250. The transition disclosures related to ASC Topic 250 clarify that entities are not required to disclose the impacts of adopting ASC Topic 842 on net income or related per share amounts in both interim and annual reporting periods. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019.
 
January 2019, Adoption method varies by amendment
 
The Company will not disclose the impacts of adopting ASC Topic 842 on net income or related per share amounts.
March 2019
 
2019-04: Codification Improvements to Topic 326, Financial Instruments —Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments 2
 
The amendments address certain issues related to the implementation of ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments update the treatment of credit losses for accrued interest receivables and related recoveries, remove the prohibition of using projections of future interest rate environments when using a discounted cash flow method to measure expected credit losses, as well as outline other targeted improvements that clarify language and intent, better define scope and improve cross references, among others. The amendments in the ASU are effective for fiscal years beginning after December 15, 2019 and early adoption is permitted.
 
January 2020, Adoption method varies by amendment
 
Currently under evaluation, but not expected to be material
1
Adopted during the first quarter of 2019.
2
Not yet adopted.
 
Note 4 — Abilene Acquisition
On March 16, 2018, the Company purchased 100.0% of the equity interests of Abilene. Abilene is a diversified truckload carrier located in Richmond, Virginia operating throughout the US and Canada.
The total consideration of $103.3 million consisted of $80.5 million in cash consideration to the sellers, plus $22.8 million for debt payoffs. The Company funded the Abilene Acquisition through cash-on-hand and borrowing on the Revolver on the date of the transaction. At closing, $7.0 million of the purchase price was placed in escrow to secure the sellers' indemnification obligations and an additional $4.5 million of the purchase price was placed in escrow in respect of certain tax obligations of the sellers.
The equity purchase agreement included an election under the Internal Revenue Code Section 338(h)(10). Accordingly, the book and tax basis of the acquired assets and liabilities are the same as of the purchase date. The equity purchase agreement contains customary representations, warranties, covenants, and indemnification provisions.
The results of the acquired business have been included in the condensed consolidated financial statements since the date of acquisition and represent 2.0% of consolidated total revenue, and 3.0% of consolidated net income attributable to Knight-Swift for the quarter ended March 31, 2019. The acquired business also represented 1.6% of consolidated total assets as of March 31, 2019.

13

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



The goodwill recognized represents expected synergies from combining the operations of Abilene with the Company, including enhanced service offerings and sharing best practices in terms of driver recruiting and retention, as well as other intangible assets that did not meet the criteria for separate recognition. The goodwill is expected to be deductible for tax purposes.
The purchase price was allocated based on estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The purchase price allocation was open for adjustments through the end of the measurement period, which closed one year from the March 16, 2018 acquisition date. The following table summarizes the fair value of the consideration transferred as of the acquisition date, including any adjustments during the measurement period:
 
March 16, 2018 Opening Balance Sheet as Reported at March 31, 2018
 
Adjustments
 
Adjusted
March 16, 2018 Opening Balance Sheet as Reported at March 31, 2019
 
(in thousands)
Fair value of the consideration transferred
$
103,223

 
$
124

 
$
103,347

 
 
 
 
 
 
Cash
1,654

 
—

 
1,654

Trade receivables
11,745

 
1,265

 
13,010

Other assets
7,785

 
842

 
8,627

Property and equipment
41,403

 
(41
)
 
41,362

Identifiable intangible assets ¹
23,000

 
(400
)
 
22,600

Total assets
85,587

 
1,666

 
87,253

 
 
 
 
 
 
Accounts payable
1,959

 
1,577

 
3,536

Accrued liabilities
2,419

 
4,942

 
7,361

Claims accruals
230

 
179

 
409

Total liabilities
4,608

 
6,698

 
11,306

 
 
 
 
 
 
Goodwill
$
22,244

 
$
5,156

 
$
27,400

 
 
 
 
 
 
1
Includes a $17.9 million customer relationship and a $4.7 million trade name.
The above adjustments were related to the completion of an independent valuation of certain acquired intangible assets, the identification of liabilities associated with capital expenditures incurred prior to the acquisition, adjustments for Abilene’s adoption of ASC Topic 606, adjustments to equipment losses and claims incurred prior to the acquisition, and the associated deferred tax asset impact of these adjustments. No material income statement effects were identified with these adjustments.
The following unaudited pro forma information combines the historical operations of Knight-Swift and Abilene giving effect to the Abilene Acquisition and related transactions as if they had been consummated on January 1, 2018, the beginning of the comparative periods presented.
 
Quarter Ended March 31,
 
2018
 
(in thousands, except per share data)
Total revenue
$
1,290,813

Net income attributable to Knight-Swift
70,890

Earnings per share – diluted
0.40

 
 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



The unaudited pro forma condensed combined financial information has been presented for comparative purposes only and includes certain adjustments such as recognition of assets acquired at estimated fair values and related depreciation and amortization, elimination of transaction costs incurred by Knight-Swift and Abilene during the periods presented that were directly related to the Abilene Acquisition and related income tax effects. As a result of the Abilene Acquisition, the Company incurred certain acquisition-related expenses totaling $0.2 million during the quarter ended March 31, 2018. The acquisition-related expenses that the Company incurred from the Abilene Acquisition are eliminated from presentation of the unaudited pro forma net income presented above.
The unaudited pro forma condensed combined financial information does not purport to represent the actual results of operations that Knight-Swift and Abilene would have achieved had the companies been combined during the periods presented in the unaudited pro forma condensed combined financial statements and is not intended to project the future results of operations that the combined company may achieve after the identified transactions. The unaudited pro forma condensed combined financial information does not reflect any cost savings that may be realized as a result of the Abilene Acquisition and also does not reflect any restructuring or integration-related costs to achieve those potential cost savings.
 
Note 5 — Restricted Investments, Held-to-Maturity
The following tables present the cost or amortized cost, gross unrealized gains and temporary losses, and estimated fair value of the Company's restricted investments, held-to-maturity:
 
March 31, 2019
 
 
 
Gross Unrealized
 
 
 
Cost or Amortized
Cost
 
Gains
 
Temporary
Losses
 
Estimated Fair Value
 
(In thousands)
US corporate securities
$
11,540

 
$
2

 
$
(4
)
 
$
11,538

Municipal bonds
100

 
—

 
—

 
100

Restricted investments, held-to-maturity
$
11,640

 
$
2

 
$
(4
)
 
$
11,638

 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
Gross Unrealized
 
 
 
Cost or Amortized
Cost
 
Gains
 
Temporary
Losses
 
Estimated Fair Value
 
(In thousands)
US corporate securities
$
15,296

 
$
1

 
$
(16
)
 
$
15,281

Municipal bonds
1,082

 
—

 
—

 
1,082

Negotiable certificate of deposits
1,035

 
—

 
—

 
1,035

Restricted investments, held-to-maturity
$
17,413

 
$
1

 
$
(16
)
 
$
17,398

 
 
 
 
 
 
 
 
As of March 31, 2019, the contractual maturities of the restricted investments, held-to-maturity, were one year or less. There were 12 securities and 20 securities that were in an unrealized loss position for less than twelve months as of March 31, 2019 and December 31, 2018, respectively. The Company did not recognize any impairment losses during the quarters ended March 31, 2019 or 2018, respectively.
Refer to Note 17 for additional information regarding fair value measurements of the Company's investments.

15

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



 
Note 6 — Assets Held for Sale
The Company expects to sell its assets held for sale, which consist of revenue equipment, within the next twelve months. Revenue equipment held for sale totaled $32.3 million and $40.0 million as of March 31, 2019 and December 31, 2018, respectively. Net gains on disposals, including disposals of property and equipment classified as assets held for sale, reported in "Miscellaneous operating expenses" in the condensed consolidated income statements, were $11.8 million and $7.1 million for the quarters ended March 31, 2019 and 2018, respectively.
The Company did not recognize any impairment losses related to assets held for sale during the quarters ended March 31, 2019 or 2018, respectively.
 
Note 7 — Leases
March 31, 2019 (ASC Topic 842 Disclosures)
Lessee Disclosures for Lease Accounting under ASC Topic 842
Accounting Policy — Management evaluates the Company’s leases based on the underlying asset groups. The assets currently underlying the Company’s leases include revenue equipment (primarily tractors and trailers), real estate (primarily buildings, office space, land, and drop yards), as well as technology and other equipment that supports business operations. Management’s significant assumptions and judgments include the determination of the discount rate (discussed below), as well as the determination of whether a contract contains a lease (specifically with respect to whether the Company's drop yard contracts contain identified assets).
•
Lease Term — The Company’s leases generally have lease terms corresponding to the useful lives of the underlying assets. Revenue equipment leases have fixed payment terms based on the passage of time, which is typically three to five years for tractors and five to seven years for trailers. Certain finance leases for revenue equipment contain renewal or fixed price purchase options. Real estate leases, excluding drop yards, generally have varying lease terms between five and fifteen years and may include renewal options. Drop yards include month-to-month leases, as well as leases with varying lease terms generally ranging from two to five years.
Options to renew or purchase the underlying assets are considered in the determination of the right-of-use asset and lease liability once reasonably certain of exercise.
•
Portfolio Approach — The Company typically leases its revenue equipment under master lease agreements, which contain general terms, conditions, definitions, representations, warranties and other general language, while the specific contract provisions are contained within the various individual lease schedules that fall under a master lease agreement. Each individual leased asset within a lease schedule is similar in nature (i.e. all tractors or all trailers) and has identical contract provisions to all of the other individual leased assets within the same lease schedule (such as the contract provisions discussed above). Management has elected to apply the portfolio approach to its revenue equipment leases, as accounting for its revenue equipment under the portfolio approach would not be materially different from separately accounting for each individual underlying asset as a lease. Each individual real estate and other lease is accounted for at the individual asset level.
•
Nonlease components — Management has elected to combine its nonlease components (such as fixed charges for common area maintenance, real estate taxes, utilities, and insurance) with lease components for each class of underlying asset, as applicable, as the nonlease components in the Company’s lease contracts typically are not material. These nonlease components are usually present within the Company’s real estate leases. The Company’s assets are generally insured by umbrella policies, in which the premiums change from one policy period to the next, making them variable in nature. Accordingly, these insurance costs are excluded from the Company’s calculation of right-of-use assets and corresponding lease liabilities.

16

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



•
Short-term lease exemption — Management has elected to apply the short-term lease exemption to all asset groups. Accordingly, leases with terms of twelve months or less are not capitalized and continue to be expensed on a straight-line basis over the term of the lease. This primarily affects the Company’s drop yards and corresponding temporary structures on those drop yards. To a lesser extent, certain short-term leases for revenue equipment, technology, and other assets are affected.
•
Discount rate — The Company uses the rate implicit in the lease, when readily determinable. Otherwise the Company’s incremental borrowing rate is applied. Due to the unique structure of the Company’s revenue equipment leases, management believes that the rate implicit in the lease is readily determinable for such leases and the implicit rate is used. The Company’s use of the implicit rate (rather than the incremental borrowing rate) for its revenue equipment leases does not materially change the Company’s financial position or financial results either by financial statement caption or in total. The implicit interest rate is not readily determinable for the Company’s real estate and other leases. As such, management applies the Company’s incremental borrowing rate, which is defined by GAAP as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company's incremental borrowing rate is based on the results of an independent third-party valuation.
•
Residual values — The Company's finance leases are typically structured with balloon payments at the end of the lease term equal to the residual value the Company is contracted to receive from certain equipment manufacturers upon sale or trade back to the manufacturers. If the Company does not receive proceeds of the contracted residual value from the manufacturer, the Company is still obligated to make the balloon payment at the end of the lease term.
In connection with certain revenue equipment operating leases, the Company issues residual value guarantees, which provide that if the Company does not purchase the leased equipment from the lessor at the end of the lease term, then the Company is liable to the lessor for an amount equal to the shortage (if any) between the proceeds from the sale of the equipment and an agreed value. To the extent management believes any manufacturer will refuse or be unable to meet its obligation, the Company recognizes additional rental expense to the extent the fair market value at the lease termination is expected to be less than the obligation to the lessor. Proceeds from the sale of equipment under the Company’s operating leases generally exceed the payment obligation on substantially all operating leases. Although the Company typically owes certain amounts to its lessors at the end of its revenue equipment leases, the Company’s equipment manufacturers have corresponding guarantees back to the Company as to the buyback value of the units.
Lease Cost — The components of the Company's lease cost were as follows:
 
Quarter Ended March 31, 2019
 
(in thousands)
Operating lease cost
$
34,818

Short-term lease cost ¹
817

Sublease income
(90
)
Rental expense
35,545

 
 
Finance lease cost:


Amortization of property and equipment
8,333

Interest expense
927

Total finance lease cost
9,260

 
 
Total operating and finance lease cost
$
44,805

 
 
1
Short-term lease cost includes month-to-month and variable lease costs.

17

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED




Lease Liability Calculation Assumptions — The assumptions underlying the calculation of the Company's right-of-use assets and lease liabilities are disclosed below.
 
March 31, 2019
 
Operating
 
Finance
Revenue equipment leases
 
 
 
Weighted average remaining lease term
2.7 years

 
2.0 years

Weighted average discount rate
2.2
%
 
3.0
%
 
 
 
 
Real estate and other leases
 
 
 
Weighted average remaining lease term
12.5 years

 
1.6 years

Weighted average discount rate
3.9
%
 
2.0
%
 
 
 
 
Maturity Analysis of Lease Liabilities (as Lessee) — Future minimum lease payments for all noncancelable leases were:
 
March 31, 2019
 
Operating
 
Finance
 
(In thousands)
Remainder of 2019
$
90,487

 
$
51,968

2020
81,819

 
15,842

2021
44,956

 
30,845

2022
27,107

 
18,528

2023
13,783

 
1,347

Thereafter
26,251

 
9,572

Future minimum lease payments
284,403

 
128,102

Less: amounts representing interest
(23,611
)
 
(6,994
)
Present value of minimum lease payments
260,792

 
121,108

Less: current portion
(109,158
)
 
(52,893
)
Lease liabilities, less current portion
$
151,634

 
$
68,215

 
 
 
 
Supplemental Cash Flow Lease Disclosures — The following table sets forth cash paid for amounts included in the measurement of lease liabilities:
 
Quarter Ended March 31, 2019
 
(in thousands)
Operating cash flows from operating leases
$
36,400

Operating cash flows from finance leases
926

Financing cash flows from finance leases
8,391

 
 
Refer to Note 15 for information regarding the leasing transactions between the Company and related parties.


18

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED




Lessor Disclosures for Lease Accounting under ASC Topic 842
The Company's wholly-owned financing subsidiaries lease revenue equipment to the Company's independent contractors under operating leases, which generally have terms between three and four years, and include renewal and purchase options. These leases also include variable charges associated with miles driven in excess of the stipulated allowable miles in the contract, which are accounted for separately and presented in the table below. Lease classification is determined based on minimum rental receipts per the agreement, including residual value guarantees, when applicable, as well as receivables due to the Company upon default or cross-default. When independent contractors default on their leases, the Company typically re-leases the equipment to other independent contractors. As such, future lease receipts reflect original leases and re-leases.
Revenue equipment represents a majority of the Company's owned assets underlying the Company's leases as lessor. As of March 31, 2019, the gross carrying value of such revenue equipment underlying these leases was $96.8 million and accumulated amortization was $29.5 million. Depreciation is calculated on a straight-line basis down to the residual value, as applicable, over the estimated useful life of the equipment. During the quarter ended March 31, 2019, the Company incurred $3.8 million of depreciation expense for these assets.
Additionally, the Company periodically leases out real estate for use by third parties, some of which are subleases. These leases have varying terms, and may include renewal options.
Management’s significant assumptions and judgments include the determination of the amount the Company expects to derive from the underlying asset at the end of the lease term, as well as whether a contract contains a lease.
Lease Revenue and Rental Income — The components of the Company's lease revenue are included in "Revenue, excluding fuel surcharge" and the Company's rental income is included in "Other income, net" in the condensed consolidated income statements. These amounts are disclosed in the table below.
 
Quarter Ended March 31, 2019
 
(in thousands)
Operating lease revenue
$
12,957

Variable lease revenue
511

Total lease revenue 1
$
13,468

 
 
Rental income 2
$
2,441

 
 
1
Primarily represents operating revenue earned by the Company's financing subsidiaries for leasing equipment to third-party independent contractors.
2
Represents non-operating income earned from leasing real estate to third parties.
Maturity Analysis of Lease Receivables (as Lessor) — Future minimum lease receivables for all noncancelable leases were:
 
March 31, 2019
 
(In thousands)
Remainder of 2019
$
41,091

2020
39,735

2021
25,321

2022
9,900

2023
1,118

Thereafter
1,761

Future minimum lease receivables
$
118,926

 
 
Refer to Note 15 for information regarding the leasing transactions between the Company and related parties.

19

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED




December 31, 2018 (ASC Topic 840 Disclosures)
Note: The ASC Topic 840 Comparative Approach for adopting ASC Topic 842 requires companies to provide disclosures for all periods that continue to be in accordance with ASC Topic 840. Refer to Note 2 for more information regarding the Company's adoption methods and impact of adoption for ASC Topic 842.
The Company finances a portion of its revenue equipment under capital and operating leases and certain terminals under operating leases.
Capital Leases (as Lessee) — The Company's capital leases are typically structured with balloon payments at the end of the lease term equal to the residual value the Company is contracted to receive from certain equipment manufacturers upon sale or trade back to the manufacturers. If the Company does not receive proceeds of the contracted residual value from the manufacturer, the Company is still obligated to make the balloon payment at the end of the lease term. Certain leases contain renewal or fixed price purchase options. The present value of obligations under capital leases is included under "Capital lease obligations and long-term debt – current portion" and "Capital lease obligations – less current portion" in the condensed consolidated balance sheets. As of December 31, 2018, the leases were collateralized by revenue equipment with a cost of $154.3 million and accumulated amortization of $34.2 million. Amortization of the equipment under capital leases is included in "Depreciation and amortization of property and equipment" in the Company's condensed consolidated income statements.
Operating Leases (as Lessee) — Operating leases generally include tractors, trailers, chassis, and facilities. Substantially all lease agreements for revenue equipment have fixed payment terms based on the passage of time. The tractor lease agreements generally stipulate maximum miles and provide for mileage penalties for excess miles. These leases generally run for a period of three to five years for tractors and five to seven years for trailers.
Operating and Capital Leases (as Lessee) — Annual future minimum lease payments for all noncancelable leases were:
 
December 31, 2018
 
Operating
 
Capital
 
(In thousands)
2019
$
123,380

 
$
61,285

2020
79,088

 
15,843

2021
42,441

 
30,845

2022
24,693

 
18,528

2023
11,728

 
1,347

Thereafter
25,403

 
9,572

Future minimum lease payments
$
306,733

 
$
137,420

Less: amounts representing interest
 
 
(7,921
)
Present value of minimum lease payments
 
 
129,499

Less: current portion
 
 
(58,251
)
Capital lease obligations – less current portion
 
 
$
71,248

 
 
 
 


20

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED




Operating Leases (as Lessor) — The Company's wholly-owned financing subsidiaries lease revenue equipment to the Company's independent contractors under operating leases. Additionally, the Company periodically leases out facilities for use by third-parties. Annual future minimum lease payments receivable under operating leases for the periods noted below were:
 
December 31, 2018
 
(In thousands)
2019
$
54,080

2020
37,694

2021
22,991

2022
8,343

2023
13

Thereafter
—

Future minimum lease payments receivable
$
123,121

 
 
Lease classification is determined based on minimum rental payments per the agreement, including residual value guarantees, when applicable, as well as receivables due to the Company upon default or cross-default. When independent contractors default on their leases, the Company typically re-leases the equipment to other independent contractors. As such, future minimum lease payments reflect original leases and re-leases.
 
Note 8 — Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill were as follows:
 
(In thousands)
Goodwill, balance at December 31, 2018
$
2,919,176

Amortization relating to deferred tax assets
(2
)
Abilene Acquisition ¹
48

Goodwill, balance at March 31, 2019
$
2,919,222

 
 
1
The goodwill associated with the Abilene Acquisition was allocated to the Trucking segment and was adjusted for equipment losses and claims incurred prior to the acquisition.
There were no goodwill impairments recorded during the quarter ended March 31, 2019 or 2018.

21

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



Other Intangible Assets
Other intangible asset balances were as follows:
 
March 31,
2019
 
December 31,
2018
 
(In thousands)
Customer relationships and non-compete:
 
 
 
Gross carrying amount
$
838,100

 
$
838,100

Accumulated amortization
(67,773
)
 
(57,081
)
Customer relationships and non-compete, net
$
770,327

 
$
781,019

Trade names:
 
 
 
Gross carrying amount
639,900

 
639,900

Intangible assets, net
$
1,410,227

 
$
1,420,919

 
 
 
 
As of March 31, 2019, management anticipates that the composition and amount of amortization associated with intangible assets will be $32.1 million for the remainder of 2019, $42.7 million for each of the years 2020 through 2021, $42.6 million in 2022, and $42.3 million in 2023. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, impairment of intangible assets, accelerated amortization of intangible assets, and other events.
 
Note 9 — Income Taxes
Effective Tax Rate — The quarter-to-date March 31, 2019 and March 31, 2018 effective tax rates were 24.0% and 21.2%, respectively. The Company recognized discrete items relating to the partial release of its reserve for uncertain tax positions and stock compensation deductions during the quarter ended March 31, 2019. The Company also recognized discrete items relating to stock compensation deductions and a favorable audit settlement of nondeductible penalties during the quarter ended March 31, 2018.
Valuation Allowance — The Company has not established a valuation allowance as it has been determined that, based upon available evidence, a valuation allowance is not required. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. All other deferred tax assets are expected to be realized and utilized by continued profitability in future periods.
Unrecognized Tax Benefits — During the quarter ended March 31, 2019, the Company reduced its reserve by $0.8 million for uncertain tax positions relating to various state tax items. Management believes it is reasonably possible that a decrease of up to $2.7 million in unrecognized tax benefits relating to Federal credits and deductions may be necessary within the next twelve months.
Interest and Penalties — Accrued interest and penalties related to unrecognized tax benefits as of March 31, 2019 and December 31, 2018 were approximately $1.0 million and $1.4 million, respectively.
Tax Examinations — Certain of the Company's subsidiaries are currently under examination by various state and federal jurisdictions for tax years ranging from 2011 through 2017. At the completion of these examinations, management does not expect any adjustments that would have a material impact on the Company's effective tax rate. Years subsequent to 2013 remain subject to examination.

22

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



 
Note 10 — Accounts Receivable Securitization
The 2018 RSA is a secured borrowing that is collateralized by the Company's eligible receivables, for which the Company is the servicing agent. The Company's receivable originator subsidiaries sell, on a revolving basis, undivided interests in all of their eligible accounts receivable to Swift Receivables Company II, LLC who in turn sells a variable percentage ownership in those receivables to the various purchasers. The Company's eligible receivables are included in "Trade receivables, net of allowance for doubtful accounts" in the condensed consolidated balance sheets. As of March 31, 2019, the Company's eligible receivables generally have high credit quality, as determined by the obligor's corporate credit rating.
The 2018 RSA is subject to fees, various affirmative and negative covenants, representations and warranties, and default and termination provisions customary for facilities of this type. The Company was in compliance with these covenants as of March 31, 2019. Collections on the underlying receivables by the Company are held for the benefit of SRCII and the various purchasers and are unavailable to satisfy claims of the Company and its subsidiaries.
The following table summarizes the key terms of the 2018 RSA (dollars in thousands):
 
2018 RSA
Effective date
July 11, 2018

Final maturity date
July 9, 2021

Borrowing capacity

$325,000

Accordion option ¹

$175,000

Unused commitment fee rate ²
20 to 40 basis points

Program fees on outstanding balances ³
one-month LIBOR + 80 to 100 basis points

 
 
1
The accordion option increases the maximum borrowing capacity, subject to participation of the purchasers.
2
The 2018 RSA commitment fee rate is based on the percentage of the maximum borrowing capacity utilized.
3
The 2018 RSA program fee is based on the Company's consolidated total net leverage ratio.
Availability under the 2018 RSA is calculated as follows:
 
March 31,
2019
 
December 31,
2018
 
(In thousands)
Borrowing base, based on eligible receivables
$
280,700

 
$
325,000

Less: outstanding borrowings ¹
(175,000
)
 
(240,000
)
Less: outstanding letters of credit
(70,649
)
 
(70,900
)
Availability under accounts receivable securitization facilities
$
35,051

 
$
14,100

 
 
 
 
1
Outstanding borrowings are included in "Accounts receivable securitization" in the condensed consolidated balance sheets. Interest accrued on the aggregate principal balance at a rate of 3.4% and 3.2% as of March 31, 2019 and December 31, 2018, respectively.
Program fees and unused commitment fees are recorded in "Interest expense" in the condensed consolidated income statements. The Company incurred accounts receivable securitization program fees of $2.0 million and $2.0 million during the quarters ended March 31, 2019 and 2018, respectively.
Refer to Note 17 for information regarding the fair value of the 2018 RSA.

23

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



 
Note 11 — Commitments
Purchase Commitments
As of March 31, 2019, the Company had outstanding commitments to acquire revenue equipment of $593.7 million in 2019 ($539.5 million of which were tractor commitments) and none thereafter. These purchases may be financed through any combination of operating leases, finance leases, debt, proceeds from sales of existing equipment, and cash flows from operations.
As of March 31, 2019, the Company had outstanding purchase commitments to acquire facilities and non-revenue equipment of $7.1 million in the remainder of 2019, $0.6 million in 2020, and none thereafter. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures.
Transportation Resource Partners
Since 2003, Knight has entered into partnership agreements with entities that make privately-negotiated equity investments, including Transportation Resource Partners, Transportation Resource Partners III, LP, TRP Capital Partners, LP, TRP CoInvest Partners, (NTI) I, LP, TRP CoInvest Partners, (QLS) I, LP, and TRP Coinvest Partners, FFR I, LP. In these agreements, Knight committed to invest in return for an ownership percentage. During the first quarter of 2019, Knight entered into and fulfilled a $5.0 million commitment to invest in TRP Coinvest FFR. There were no other material changes related to the TRP commitments during the first quarter of 2019.
 
Note 12 — Contingencies and Legal Proceedings
Legal Proceedings
Information is provided below regarding the nature, status, and contingent loss amounts, if any, associated with the Company's pending legal matters. There are inherent uncertainties in these legal matters, some of which are beyond management's control, making the ultimate outcomes difficult to predict. Moreover, management's views and estimates related to these matters may change in the future, as new events and circumstances arise and the matters continue to develop.
The Company has made accruals with respect to its legal matters where appropriate, which are included in "Accrued liabilities" in the condensed consolidated balance sheets. The Company has recorded an aggregate accrual of approximately $87.9 million, relating to the Company's outstanding legal proceedings as of March 31, 2019.
Based on management's present knowledge of the facts and (in certain cases) advice of outside counsel, management does not believe that loss contingencies arising from pending matters are likely to have a material adverse effect on the Company's overall financial position, operating results, or cash flows after taking into account any existing accruals. However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period.

24

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



EMPLOYEE COMPENSATION AND PAY PRACTICES MATTERS
Washington Overtime Class Actions
The plaintiffs allege one or more of the following, pertaining to Washington state-based driving associates: that Swift 1) failed to pay minimum wages; 2) failed to pay overtime; 3) failed to pay all wages due at established pay periods; 4) failed to provide proper meal and rest periods; 5) failed to provide accurate wage statements; and 6) unlawfully deducted from employee wages. The plaintiffs seek unpaid wages, exemplary damages, interest, other costs, and attorneys' fees.
Plaintiff(s)
 
Defendant(s)
 
Date instituted
 
Court or agency currently pending in
Troy Slack ¹
 
Swift Transportation Company of Arizona, LLC and Swift Transportation Corporation
 
September 9, 2011
 
United States District Court for the Western District of Washington
 
 
 
 
 
 
 
Julie Hedglin ¹
 
Swift Transportation Company of Arizona, LLC and Swift Transportation Corporation
 
January 14, 2016
 
United States District Court for the Western District of Washington
Recent Developments and Current Status
In February 2019, the court granted final approval of the Slack settlement. Additionally, in January 2019, the court granted preliminary approval of the settlement in the Hedglin matter. The likelihood that a loss has been incurred for the Slack and Hedglin matters is probable and estimable, and the loss has accordingly been accrued.
California Wage, Meal, and Rest Class Actions
The plaintiffs generally allege one or more of the following: that the Company 1) failed to pay the California minimum wage; 2) failed to provide proper meal and rest periods; 3) failed to timely pay wages upon separation from employment; 4) failed to pay for all hours worked; 5) failed to pay overtime; 6) failed to properly reimburse work-related expenses; and 7) failed to provide accurate wage statements.
Plaintiff(s)
 
Defendant(s)
 
Date instituted
 
Court or agency currently pending in
John Burnell ¹
 
Swift Transportation Co., Inc
 
March 22, 2010
 
United States District Court for the Central District of California
 
 
 
 
 
 
 
James R. Rudsell ¹
 
Swift Transportation Co. of Arizona, LLC and Swift Transportation Company
 
April 5, 2012
 
United States District Court for the Central District of California
Recent Developments and Current Status
In April 2019, the parties reached settlement of this matter. As such, the likelihood that a loss has been incurred is probable and estimable, and the loss has accordingly been accrued, as of March 31, 2019.
1
Individually and on behalf of all others similarly situated.
INDEPENDENT CONTRACTOR MATTERS
Ninth Circuit Independent Contractor Misclassification Class Action
The putative class alleges that Swift misclassified independent contractors as independent contractors, instead of employees, in violation of the FLSA and various state laws. The lawsuit also raises certain related issues with respect to the lease agreements that certain independent contractors have entered into with Interstate Equipment Leasing, LLC. The putative class seeks unpaid wages, liquidated damages, interest, other costs, and attorneys' fees.
Plaintiff(s)
 
Defendant(s)
 
Date instituted
 
Court or agency currently pending in
Joseph Sheer, Virginia Van Dusen, Jose Motolinia, Vickii Schwalm, Peter Wood ¹
 
Swift Transportation Co., Inc., Interstate Equipment Leasing, Inc., Jerry Moyes, and Chad Killebrew
 
December 22, 2009
 
Unites States District Court of Arizona and Ninth Circuit Court of Appeals
Recent Developments and Current Status
In April 2019, the court granted preliminary approval of the settlement in this matter. Based on the above, the likelihood that a loss has been incurred is probable and estimable, and the loss has accordingly been accrued, as of March 31, 2019.
1
Individually and on behalf of all others similarly situated.

25

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



Self Insurance
The Company is insured against auto liability ("AL") claims under self-insured retention ("SIR") policies. Effective November 1, 2018, all AL claims provide for coverage up to $250.0 million per occurrence. Knight's AL claims have SIRs ranging from $1.0 million to $3.0 million per occurrence depending on the policy period with per occurrence limits of $130.0 million prior to November 1, 2018. Swift AL claims have $250.0 million of coverage per occurrence ($350.0 million aggregated limits through October 31, 2016), subject to a $10.0 million SIR per occurrence.
For the policy periods March 1, 2017 through February 28, 2020, the Knight SIR is $1.0 million with additional responsibility up to $1.6 million per occurrence within its primary limit and applicable aggregate limits. For the policy period March 1, 2016 to March 1, 2017, the Knight SIR was $2.5 million with no additional aggregate limits or deductibles within the primary AL policy. Knight also carries a $2.5 million aggregate deductible for any loss or losses within the excess coverage layer.
The Company is self-insured for workers' compensation coverage. Swift maintains statutory coverage limits, subject to a $5.0 million SIR for each accident or disease. Effective March 1, 2019, Knight maintains statutory coverage limits, subject to a $2.0 million SIR for each accident or disease.  Prior to March 1, 2019, the Knight SIR was $1.0 million per occurrence. Additionally, through Knight, the Company maintains primary and excess coverage for employee medical expenses and hospitalization, with self-insured retention of $0.3 million per claimant. Since January 1, 2015, Swift has been fully insured on its medical benefits, subject to contributed premiums.

 
Note 13 — Share Repurchase Plan
On June 5, 2018, the Company announced that the Board approved the repurchase of up to $250.0 million of the Company's outstanding common stock (the "Knight-Swift Repurchase Plan"). During the quarter ended March 31, 2019, the Company did not purchase any shares of its common stock under the Knight-Swift Repurchase Plan, and as such, $70.7 million in authorized purchases remained as of March 31, 2019.

 
Note 14 — Weighted Average Shares Outstanding
Basic and diluted earnings per share, as presented in the condensed consolidated income statements, are calculated by dividing net income attributable to Knight-Swift by the respective weighted average common shares outstanding during the period.
The following table reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding:
 
Quarter Ended March 31,
 
2019
 
2018
 
(In thousands)
Basic weighted average common shares outstanding
172,971

 
178,160

Dilutive effect of equity awards
637

 
1,081

Diluted weighted average common shares outstanding
173,608

 
179,241

Anti-dilutive shares excluded from diluted earnings per share ¹
997

 
91

1
Shares were excluded from the dilutive-effect calculation because the outstanding awards' exercise prices were greater than the average market price of Knight-Swift's common stock for the periods presented.


26

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



 
Note 15 — Related Party Transactions
The following table presents Knight-Swift's transactions with companies controlled by and/or affiliated with its related parties:
 
Quarter Ended March 31,
 
2019
 
2018
 
Provided by Knight-Swift
 
Received by Knight-Swift
 
Provided by Knight-Swift
 
Received by Knight-Swift
 
(In thousands)

Freight Services:
 
 
 
 
 
 
 
Central Freight Lines ¹
$
3,116

 
$
—

 
$
427

 
$
—

SME Industries ¹
155

 
—

 
249

 
—

Total
$
3,271

 
$
—

 
$
676

 
$
—

Facility and Equipment Leases:
 
 
 
 
 
 
 
Central Freight Lines ¹
$
244

 
$
93

 
$
241

 
$
92

Other Affiliates ¹
4

 
—

 
6

 
—

Total
$
248

 
$
93

 
$
247

 
$
92

Other Services:
 
 
 
 
 
 
 
Updike Distribution and Logistics ²
$
1

 
$
—

 
$
545

 
$
—

Other Affiliates ¹
9

 
662

 
9

 
603

Total
$
10

 
$
662

 
$
554

 
$
603

 
 
 
 
 
 
 
 
1
Entities affiliated with former Board member Jerry Moyes include Central Freight Lines, SME Industries, Compensi Services, and DPF Mobile. Transactions with these entities that are controlled by and/or are otherwise affiliated with Jerry Moyes, include freight services, facility and equipment leases, equipment sales, and other services.
•
Freight Services Provided by Knight-Swift — The Company charges each of these companies for transportation services.
•
Freight Services Received by Knight-Swift — Transportation services received from Central Freight represent less-than-truckload freight services rendered to haul parts and equipment to Company shop locations.
•
Other Services Provided by Knight-Swift — Other services provided by the Company to the identified related parties include equipment sales and miscellaneous services.
•
Other Services Received by Knight-Swift — Consulting fees and certain third-party payroll and employee benefits administration services from the identified related parties are included in other services received by the Company.
In conjunction with Swift's September 8, 2016 announcement that Jerry Moyes would retire from his position as Chief Executive Officer effective December 31, 2016, Swift entered into an agreement with Mr. Moyes to memorialize the terms of his retirement, which was assumed by Knight-Swift. Swift contracted with Mr. Moyes to serve as a non-employee consultant from January 1, 2017 through December 31, 2019, during which time Swift pays Mr. Moyes a monthly consulting fee in cash.
The following is a rollforward of the accrued liability for the consulting fees:
 
(In thousands)
Accrued consulting fees – Jerry Moyes, balance at December 31, 2018 1a
$
2,225

Less: payments
(600
)
Accrued consulting fees – Jerry Moyes, balance at March 31, 2019 1a
$
1,625

 
 
1a
The balance is included in "Accrued liabilities" in the condensed consolidated balance sheet.
2
Knight had an arrangement with Updike Distribution and Logistics, a company that is owned by the father and three brothers of Executive Vice President of Sales and Marketing, James Updike, Jr. The arrangement allowed Updike Distribution and Logistics to purchase fuel from Knight's vendors at cost, plus an administrative fee. The arrangement was discontinued during the second quarter of 2018. Activities in the quarter ended March 31, 2019 pertain to sales of spare parts.

27

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



Receivables and payables pertaining to related party transactions were:
 
March 31, 2019
 
December 31, 2018
 
Receivable
 
Payable
 
Receivable
 
Payable
 
(In thousands)
Central Freight Lines
$
1,825

 
$
—

 
$
254

 
$
—

SME Industries
54

 
—

 
24

 
—

Other Affiliates
—

 
9

 
—

 
20

Total
$
1,879

 
$
9

 
$
278

 
$
20

 
 
 
 
 
 
 
 
 
Note 16 — Information by Segment and Geography
Segment Information
As discussed in Note 1, the Company reorganized its reportable segments during the first quarter of 2019. Accordingly, the Company now has three reportable segments: Trucking, Logistics, and Intermodal, as well as the non-reportable segments, discussed below. Based on how economic factors affect the nature, amount, timing, and uncertainty of revenue or cash flows, the Company disaggregates revenues by reportable segment for the purposes of applying the ASC Topic 606 guidance.
Trucking
The Trucking segment is comprised of irregular route and dedicated dry van, refrigerated, expedited, flatbed, and cross-border operations. Abilene's trucking operations are also included after the March 16, 2018 acquisition date.
Logistics
The Logistics segment is primarily comprised of brokerage and other freight management services. Abilene's logistics operations are also included after the March 16, 2018 acquisition date.
Intermodal
The Intermodal segment includes revenue generated by moving freight over the rail in the Company's containers and other trailing equipment, combined with the Company's revenue for drayage to transport loads between the railheads and customer locations.
Non-reportable
The non-reportable segments include support services provided to the Company's customers and independent contractors (including repair and maintenance shop services, equipment leasing, warranty services, and insurance), trailer parts manufacturing, as well as certain corporate expenses (such as legal settlements and accruals and amortization of intangibles related to the 2017 Merger).
Intersegment Eliminations
Certain operating segments provide transportation and related services for other affiliates outside of their reportable segment. For certain operating segments, such services are billed at cost, and no profit is earned. For the other operating segments, revenues for such services are based on negotiated rates, and are reflected as revenues of the billing segment. These rates are adjusted from time to time, based on market conditions. Such intersegment revenues and expenses are eliminated in Knight-Swift's consolidated results.

28

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



The following tables present the Company's financial information by segment:
 
Quarter Ended March 31,
 
2019
 
2018 (recast)
Revenue:
(In thousands)
Trucking
$
973,245

 
$
1,037,364

Logistics
88,952

 
89,189

Intermodal
116,367

 
110,267

Subtotal
$
1,178,564

 
$
1,236,820

Non-reportable segments
37,764

 
49,691

Intersegment eliminations
(11,793
)
 
(15,379
)
Total revenue
$
1,204,535

 
$
1,271,132

 
 
 
 
 
Quarter Ended March 31,
 
2019
 
2018 (recast)
Operating income (loss):
(In thousands)
Trucking
$
115,175

 
$
100,251

Logistics
7,283

 
3,959

Intermodal
2,361

 
3,948

Subtotal
$
124,819

 
$
108,158

Non-reportable segments
(8,520
)
 
(14,414
)
Operating income
$
116,299

 
$
93,744

 
 
 
 
 
Quarter Ended March 31,
 
2019
 
2018 (recast)
Depreciation and amortization of property and equipment:
(In thousands)
Trucking
$
84,510

 
$
77,059

Logistics
155

 
124

Intermodal
3,360

 
2,773

Subtotal
$
88,025

 
$
79,956

Non-reportable segments
12,912

 
13,907

Depreciation and amortization of property and equipment
$
100,937

 
$
93,863

 
 
 
 
Geographical Information
In the aggregate, total revenue from the Company's foreign operations was less than 5.0% of consolidated total revenue for the quarters ended March 31, 2019 and 2018. Additionally, long-lived assets on the Company's foreign subsidiary balance sheets were less than 5.0% of consolidated total assets as of March 31, 2019 and December 31, 2018.

29

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



 
Note 17 — Fair Value Measurement
ASC Topic 820, Fair Value Measurements and Disclosures, requires that the Company disclose estimated fair values for its financial instruments. The estimated fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for the asset or liability. Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Changes in assumptions could significantly affect these estimates. Because the fair value is estimated as of March 31, 2019 and December 31, 2018, the amounts that will actually be realized or paid at settlement or maturity of the instruments in the future could be significantly different.
The estimated fair values of the Company's financial instruments as of March 31, 2019 and December 31, 2018 represent management's best estimates of the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. The estimated fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the estimated fair value measurement reflects management's own judgments about the assumptions that market participants would use in pricing the asset or liability. These judgments are developed by the Company based on the best information available under the circumstances.
The following summary presents a description of the methods and assumptions used to estimate the fair value of each class of financial instrument.
Restricted Investments, Held-to-Maturity — The estimated fair value of the Company's restricted investments, held-to-maturity, is based on quoted prices in active markets that are readily and regularly obtainable. See Note 5 for additional disclosures regarding restricted investments, held-to-maturity.
Transportation Resource Partners — The estimated fair value of the Company's investments with Transportation Resource Partners are privately negotiated equity investments.The carrying amount of these investments approximates the fair value.
Debt Instruments and Leases — For notes payable under the Revolver and the Term Loan, fair value approximates the carrying value due to the variable interest rate. The carrying value of the 2018 RSA approximates fair value, as the underlying receivables are short-term in nature and only eligible receivables (such as those with high credit ratings) are qualified to secure the borrowed amounts. For finance and operating leases, the carrying value approximates the fair value, as the Company's finance and operating leases are structured to amortize in a manner similar to the depreciation of the underlying assets.
Other — Cash and cash equivalents, restricted cash, net accounts receivable, income tax refund receivable, and accounts payable represent financial instruments for which the carrying amount approximates fair value, as they are short-term in nature. These instruments are accordingly excluded from the disclosures below. All remaining balance sheet amounts excluded from the below are not considered financial instruments, subject to this disclosure.

30

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



The following table presents the carrying amounts and estimated fair values of the Company's major categories of financial assets and liabilities: 
 
March 31, 2019
 
December 31, 2018
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
 
(In thousands)
Financial Assets:
 
 
 
 
 
 
 
Restricted investments, held-to-maturity ¹
$
11,640

 
$
11,638

 
$
17,413

 
$
17,398

Transportation Resource Partner Investments ²
30,139

 
30,139

 
20,646

 
20,646

 
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
Term Loan, due October 2020 ³
$
364,649

 
$
365,000

 
$
364,590

 
$
365,000

2018 RSA, due July 2021 4
174,645

 
175,000

 
239,606

 
240,000

Revolver, due October 2022
60,000

 
60,000

 
195,000

 
195,000

 
 
 
 
 
 
 
 
1
Refer to Note 5 for discussion about the differences between the carrying amounts and estimated fair values of the Company's restricted investments, held-to-maturity.
2
The investments are included in "Other long-term assets" on the condensed consolidated balance sheets.
3
The carrying amount of the Term Loan is included in "Long-term debt, less current portion," and is net of $0.4 million in deferred loan costs as of March 31, 2019 and December 31, 2018.
4
The carrying amount of the 2018 RSA is included in "Accounts receivable securitization," and is net of $0.4 million in deferred loan costs as of March 31, 2019 and December 31, 2018.
Recurring Fair Value Measurements — As of March 31, 2019 and December 31, 2018, there were no major categories of assets or liabilities on the condensed consolidated balance sheets estimated at fair value that were measured on a recurring basis.
Nonrecurring Fair Value Measurements (Assets) — As of March 31, 2019, the Company had no major categories of assets estimated at fair value that were measured on a nonrecurring basis. The following table depicts the level in the fair value hierarchy of the inputs used to estimate fair value of assets measured on a nonrecurring basis as of December 31, 2018:
 
 
 
Fair Value Measurements at Reporting Date Using:
 
 
 
Estimated
Fair Value
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Total Losses
 
(In thousands)
As of December 31, 2018
 
 
 
 
 
 
 
 
 
Software ¹
$
—

 
$
—

 
$
—

 
$
—

 
$
(550
)
Equipment ²
2,800

 
—

 
2,800

 

 
(2,248
)
 
 
 
 
 
 
 
 
 
 
1
During the fourth quarter of 2018, the Company incurred impairment charges related to replaced software systems of $0.6 million.
2
During the fourth quarter of 2018, the Company identified a potential impairment when performing a cost analysis related to the operation of the Company's airplane. Once a potential impairment was identified, the Company performed a valuation using a market approach primarily based upon recent sales history of similar aircraft and industry publications (Level 2 inputs). The Company determined that the asset was impaired and incurred related charges of $2.2 million, which were allocated between the Trucking and Logistics segments based on each segment’s use of the asset.
Nonrecurring Fair Value Measurements (Liabilities) — As of March 31, 2019 and December 31, 2018, the Company had no major categories of liabilities estimated at fair value that were measured on a nonrecurring basis.

31

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains certain statements that may be considered "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Section 27A of the Securities Act of 1933, as amended. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation:
•
any projections of or guidance regarding earnings, earnings per share, revenues, cash flows, dividends, capital expenditures, or other financial items,
•
any statement of plans, strategies, and objectives of management for future operations,
•
any statements concerning proposed acquisition plans, new services or developments,
•
any statements regarding future economic conditions or performance, and
•
any statements of belief and any statements of assumptions underlying any of the foregoing. 
In this Quarterly Report, forward-looking statements include statements we make concerning:
•
the ability of our infrastructure to support future growth, whether we grow organically or through potential acquisitions,
•
the future impact of the 2017 Merger and the Abilene Acquisition, including achievement of anticipated synergies,
•
the flexibility of our model to adapt to market conditions,
•
our ability to recruit and retain qualified driving associates,
•
future safety performance,
•
future performance of our segments or businesses,
•
our ability to gain market share,
•
our ability and desire to expand our brokerage and intermodal operations,
•
future equipment prices, our equipment purchasing or leasing plans, and our equipment turnover (including expected tractor trade-ins),
•
our ability to sublease equipment to independent contractors,
•
the impact of pending legal proceedings,
•
the expected freight environment, including freight demand and volumes,
•
economic conditions and growth, including future inflation, consumer spending, supply chain conditions, and US Gross Domestic Product ("GDP") changes,
•
our ability to obtain favorable pricing terms from vendors and suppliers,
•
expected liquidity and methods for achieving sufficient liquidity,
•
future fuel prices and the expected impact of fuel efficiency initiatives,
•
future expenses and our ability to control costs,
•
future operating profitability,
•
future third-party service provider relationships and availability,
•
future contracted pay rates with independent contractors and compensation arrangements with driving associates,

32
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


•
our expected need or desire to incur indebtedness,
•
future capital expenditures and expected sources of liquidity, capital allocation, capital structure, capital requirements, and growth strategies and opportunities,
•
expected capital expenditures,
•
future mix of owned versus leased revenue equipment,
•
future asset utilization,
•
future return on capital,
•
future share repurchases and dividends,
•
future tax rates,
•
future trucking industry capacity and balance between industry demand and capacity,
•
future rates,
•
future depreciation and amortization,
•
expected tractor and trailer fleet age,
•
future investment in and deployment of new or updated technology,
•
political conditions and regulations, including trade regulation, quotas, duties, or tariffs, and any future changes to the foregoing,
•
future purchased transportation expense, and
•
others.
Such statements may be identified by their use of terms or phrases such as "believe," "may," "could," "expects," "estimates," "projects," "anticipates," "plans," "intends," "hopes," "strategy," "objective," "continue," and similar terms and phrases.  Forward-looking statements are based on currently available operating, financial, and competitive information.  Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to materially differ from those set forth in, contemplated by, or underlying the forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A "Risk Factors" in our 2018 Annual Report, and various disclosures in our press releases, stockholder reports, and other filings with the SEC.
All such forward-looking statements speak only as of the date of this Quarterly Report.  You are cautioned not to place undue reliance on such forward-looking statements.  We expressly disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein, to reflect any change in our expectations with regard thereto, or any change in the events, conditions, or circumstances on which any such statement is based.
Reference to Glossary of Terms
Certain acronyms and terms used throughout this Quarterly Report are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document. Definitions for these acronyms and terms are provided in the "Glossary of Terms," available in the front of this document.
Reference to Annual Report
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements (unaudited) and footnotes included in this Quarterly Report, as well as the consolidated financial statements and footnotes included in our 2018 Annual Report.

33
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


Executive Summary
Company Overview
Knight-Swift Transportation Holdings Inc. is North America's largest truckload carrier and a provider of transportation solutions, headquartered in Phoenix, Arizona. The Company provides multiple truckload transportation, intermodal, and logistics services using a nationwide network of business units and terminals in the US and Mexico to serve customers throughout North America. In addition to its truckload services, Knight-Swift also contracts with third-party capacity providers to provide a broad range of shipping solutions to its customers while creating quality driving jobs for our driving associates and successful business opportunities for independent contractors. Our three reportable segments are Trucking, Logistics, and Intermodal. Additionally, we have various non-reportable segments. Refer to Note 1 and Note 16 in Part I, Item 1 of this Quarterly Report for descriptions of our segments.
Our objective is to operate our business with industry-leading margins and growth while providing safe, high-quality, cost-effective solutions for our customers.
Revenue
•
Our trucking services include irregular route and dedicated dry van, refrigerated, expedited, flatbed, and cross-border transportation of various products, goods, and materials for our diverse customer base. We primarily generate revenue by transporting freight for our customers through our Trucking segment.
•
Our brokerage and intermodal operations provide a multitude of shipping solutions, including additional sources of truckload capacity and alternative transportation modes, by utilizing our vast network of third-party capacity providers and rail providers, as well as certain logistics and freight management services. Revenue in our brokerage and intermodal operations is generated through our Logistics and Intermodal segments.
•
Our non-reportable segments include support services provided to our customers and independent contractors (including repair and maintenance shop services, equipment leasing, warranty services, and insurance), trailer parts manufacturing, as well as certain corporate expenses (such as legal settlements and accruals and amortization of intangibles related to the 2017 Merger).
•
In addition to the revenues earned from our customers for the trucking and non-trucking services discussed above, we also earn fuel surcharge revenue from our customers through our fuel surcharge program, which serves to recover a majority of our fuel costs. This applies only to loaded miles and typically does not offset non-paid empty miles, idle time, and out-of-route miles driven. Fuel surcharge programs involve a computation based on the change in national or regional fuel prices. These programs may update as often as weekly, but typically require a specified minimum change in fuel cost to prompt a change in fuel surcharge revenue. Therefore, many of these programs have a time lag between when fuel costs change and when the change is reflected in fuel surcharge revenue for our Trucking segment.
Expenses — Our most significant expenses vary with miles traveled and include fuel, driving associate-related expenses (such as wages and benefits), and services purchased from independent contractors and other transportation providers (such as railroads, drayage providers, and other trucking companies). Maintenance and tire expenses, as well as the cost of insurance and claims generally vary with the miles we travel, but also have a controllable component based on safety improvements, fleet age, efficiency, and other factors. Our primary fixed costs are depreciation and lease expense for revenue equipment and terminals, amortization of intangible assets, interest expense, and non-driver employee compensation.
Operating Statistics — We measure our consolidated and segment results through certain operating statistics, which are discussed under "Results of Operations — Segments — Operating Statistics," below. Our results are affected by various economic, industry, operational, regulatory, and other factors, which are discussed in detail in "Part I, Item 1A. Risk Factors," in our 2018 Annual Report as well as in various disclosures in our press releases, stockholder reports, and other filings with the SEC.

34
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


Financial Overview
 
Quarter Ended March 31,
 
2019
 
2018
GAAP financial data:
(Dollars in thousands, except per share data)
Total revenue
$
1,204,535

 
$
1,271,132

Revenue, excluding fuel surcharge
$
1,078,138

 
$
1,124,172

Net income attributable to Knight-Swift
$
87,938

 
$
70,364

Diluted EPS
$
0.51

 
$
0.39

Operating Ratio
90.3
%
 
92.6
%
 
 
 
 
Non-GAAP financial data:
 
 
 
Adjusted Net Income Attributable to Knight-Swift ¹
$
96,181

 
$
78,511

Adjusted EPS ¹
$
0.55

 
$
0.44

Adjusted Operating Ratio ¹ (2018 – recast)
88.4
%
 
90.9
%
 
 
 
 
Revenue equipment:
 
 
 
Average tractors ²
18,934

 
19,650

Average trailers ³ (2018 – recast)
58,934

 
65,336

Average containers
9,866

 
9,121

1
Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio are non-GAAP financial measures and should not be considered alternatives, or superior to, the most directly comparable GAAP financial measures. However, management believes that presentation of these non-GAAP financial measures provides useful information to investors regarding the Company's results of operations. Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio are reconciled to the most directly comparable GAAP financial measures under "Non-GAAP Financial Measures," below.
2
Reflects operational tractors within the Trucking segment, including company tractors and tractors owned by independent contractors. Our tractor fleet had a weighted average age of 2.1 years and 2.6 years for the quarters ended March 31, 2019 and 2018, respectively.
3
Our trailer fleet had a weighted average age of 7.2 and 7.4 years for the quarters ended March 31, 2019 and 2018, respectively.
Recent Consolidated Results of Operations and Quarter-End Financial Condition
Trends and Outlook — The freight market experienced a return of balance during the first quarter of 2019, following a strong year for the market in 2018. As a result of strong market fundamentals in 2018, capacity increased in the market as tractor orders were at record levels and trucking employment began to grow. The supply expansion in 2018 is already showing signs of rationalization as truck orders have declined significantly, trucking employment numbers are slowing, and the used equipment market has begun to soften. We expect these trends to continue during the remainder of 2019. Freight volumes exhibited typical seasonal declines in the industry and were negatively affected by exporters hastening product shipments in the prior year to avoid tariffs, both of which loosened trucking capacity and tempered pricing in the first quarter of 2019. Freight volumes may be affected in the remainder of 2019 by a potential surplus of inventories in the US supply chain.
Driver sourcing continues to be a headwind for the trucking industry, as, among other market factors, the national unemployment rate remained low, ending the first quarter of 2019 at 3.8%. Additionally, increased competition for driving academy graduates and experienced hires, as well as increased safety regulations continued to hamper driver sourcing efforts throughout the industry.

35
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


The US economy grew at a moderate pace during the first quarter of 2019, as indicated by an expected annualized growth rate of 3.2%. Third-party forecasts note that the US gross domestic product will continue to grow throughout the remainder of the year, but at a slower pace than in 2018. The first quarter 2019 US employment cost index rose 2.8% and 0.7% on a year-over-year and sequential basis, respectively. The tight US labor market is expected to continue to remain inflationary, likely prompting employers to raise employee pay rates and improve benefits throughout the remainder of 2019.
Our consolidated operations continued to show progress during the first quarter of 2019, generating a 24.1% increase in operating income despite a 5.2% decrease in total revenue, as compared to the first quarter of 2018. Our Trucking segment, which includes our irregular route, dedicated, and refrigerated operations, improved its Adjusted Operating Ratio to 86.7% in the first quarter of 2019 from 88.9% in the first quarter of 2018, and sequentially increased the average tractor count to 18,934 during the first quarter of 2019. An improvement in Adjusted Operating Ratio in the Logistics segment to a 91.6% in the first quarter of 2019 from a 95.4% in the first quarter of 2018 was supported by solid margin performance, as we navigated the soft freight market utilizing our proprietary technology and market intelligence tools. Results within the Intermodal segment were negatively affected by weather, service, and capacity issues, giving rise to an Adjusted Operating Ratio of 98.0% in the first quarter of 2019, as compared to 96.4% in the first quarter of 2018.
Overall, we are pleased that our ability to deploy assets effectively in a less robust market, together with enterprise-wide efforts to improve our drivers' experience and safety, and a relentless focus on cost control, delivered strong first quarter results for our stockholders. We continue to see opportunities in our trucking segments to improve yields, increase revenue per tractor, and enhance our ability to source and retain drivers without compromising our commitment to improve safety. In this environment, we will continue to monitor the markets in order to evaluate acquisition candidates, share repurchase opportunities, and other opportunities that create value for our stockholders and further advance our long-term strategies.
Note: The reported results do not include the results of operations of Abilene on and prior to its acquisition by the Company on March 16, 2018 in accordance with the accounting treatment applicable to the transaction.
Comparison Between the Quarters Ended March 31, 2019 and 2018 — The $17.6 million increase in net income attributable to Knight-Swift to $87.9 million during the quarter ended March 31, 2019 from $70.4 million during the same period last year includes the following:
•
Contributor — $22.6 million increase in operating income, primarily due to the Trucking and Logistics segments' results, which are discussed within "Results of Operations — Segments," below. This increase was driven by our ability to deploy assets effectively in a less robust market, together with enterprise-wide efforts to improve our drivers' experience and safety, our brokerage gross margin, and a relentless focus on cost control.
•
Contributor — $4.0 million increase in "Other income, net" related to income generated from our various investments in Transportation Resource Partners.
•
Offset — $8.9 million increase in income tax expense primarily due to an increase in earnings and a decrease in stock compensation deductions recognized as discrete items in the first quarter of 2019 as compared to the first quarter of 2018. These factors resulted in an effective tax rate of 24.0% and 21.2% for the first quarter of 2019 and 2018, respectively.
See additional discussion of our operating results within "Results of Operations — Consolidated Operating and Other Expenses" below.
Liquidity and Capital — During the quarter ended March 31, 2019, we generated $243.5 million in cash flows from operations, used $49.1 million for capital expenditures (net of equipment sales proceeds), significantly reduced our operating lease liabilities, and returned $10.7 million to our stockholders in the form of quarterly dividends. We ended the quarter with $60.2 million in unrestricted cash and cash equivalents, a $60.0 million balance on the Revolver, $365.0 million in face value of long-term debt, and $5.5 billion of stockholders' equity. See discussion under "Liquidity and Capital Resources" and "Off-Balance Sheet Arrangements" for additional information.

36
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


Results of Operations — Segments
During the first quarter of 2019, the Company reorganized its reportable segments. Accordingly, the Company now has three reportable segments: Trucking, Logistics, and Intermodal, as well as certain non-reportable segments. Refer to Notes 1 and 16 to the condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report for descriptions of the operations of these reportable segments.
Consolidating Tables for Total Revenue and Operating Income
 
Quarter Ended March 31,
 
2019
 
2018 (recast)
Revenue:
(In thousands)
Trucking
$
973,245

 
$
1,037,364

Logistics
88,952

 
89,189

Intermodal
116,367

 
110,267

Subtotal
$
1,178,564

 
$
1,236,820

Non-reportable segments
37,764

 
49,691

Intersegment eliminations
(11,793
)
 
(15,379
)
Total revenue
$
1,204,535

 
$
1,271,132

 
 
 
 

 
Quarter Ended March 31,
 
2019
 
2018 (recast)
Operating income (loss):
(In thousands)
Trucking
$
115,175

 
$
100,251

Logistics
7,283

 
3,959

Intermodal
2,361

 
3,948

Subtotal
$
124,819

 
$
108,158

Non-reportable segments
(8,520
)
 
(14,414
)
Operating income
$
116,299

 
$
93,744

 
 
 
 

37
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


Operating Statistics
Our chief operating decision makers monitor the GAAP results of our reportable segments, as supplemented by certain non-GAAP information. Refer to "Non-GAAP Financial Measures" below for more details. Additionally, we use a number of primary indicators to monitor our revenue and expense performance and efficiency.
Average Revenue per Tractor — This operating statistic is used to measure productivity within our Trucking segment and represents the average revenue per tractor based on revenue, excluding trucking fuel surcharge for the period.
Average Revenue per Load — This operating statistic is used within our Logistics and Intermodal segments and represents the average revenue per load based on revenue for the period.
Average Length of Haul — This represents the average of our miles with loaded trailer cargo and is used within our Trucking segment.
Non-paid Empty Miles Percentage — Our Trucking segment monitors this operating statistic, which represents the percentage of our miles without trailer cargo.
Average Tractors — We use this measure for our Trucking and Intermodal segments. This operating statistic represents the average tractors in operation during the period.
Average Trailers — This represents the average trailers in operation during the period and is monitored within our Trucking segment.
Total Miles per Tractor — Our Trucking segment monitors this operating statistic, which represents the average number of total miles (including loaded and empty miles) a tractor travels during the period.
Average Containers — Our Intermodal segment uses this measure to monitor the average number of containers in operation during the period.
Gross Margin Percentage – Brokerage Only — This measure is used in our brokerage business within the Logistics segment and represents brokerage gross margin (revenue, excluding intersegment transactions, less purchased transportation expense) as a percentage of brokerage revenue, excluding intersegment transactions.
GAAP Operating Ratio and Adjusted Operating Ratio — Operating Ratio is widely used in our industry as an assessment of management's effectiveness in controlling all categories of operating expenses. We consider these ratios as important measures of our operating profitability for each of our reportable segments. GAAP Operating Ratio is operating expenses as a percentage of total revenue, or the inverse of operating margin, and produces an indication of operating efficiency. Consolidated and segment Adjusted Operating Ratios are reconciled to their corresponding GAAP Operating Ratios under "Non-GAAP Financial Measures," below.


38
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


Segment Review
Trucking Segment
We generate revenue in the Trucking segment primarily through dry van, refrigerated, flat-bed, and cross-border service offerings. Generally, we are paid a predetermined rate per mile or per load for our trucking services. Additional revenues are generated by charging for tractor and trailer detention, loading and unloading activities, dedicated services, and other specialized services, as well as through the collection of fuel surcharge revenue to mitigate the impact of increases in the cost of fuel. The main factors that affect the revenue generated by our Trucking segment are rate per mile from our customers, the percentage of miles for which we are compensated, and the number of loaded miles we generate with our equipment.
The most significant expenses in the Trucking segment are primarily variable and include fuel and fuel taxes, driving associate-related expenses (such as wages, benefits, training, and recruitment), and costs associated with independent contractors primarily included in "Purchased transportation" in the condensed consolidated income statements. Maintenance expense (which includes costs for replacement tires for our revenue equipment) and insurance and claims expenses have both fixed and variable components. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency, and other factors. The main fixed costs in the Trucking segment are depreciation and rent expenses from leasing and acquiring revenue equipment and terminals, as well as compensating our non-driver employees.
 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018 (recast)
 
 
(Dollars in thousands, except per tractor data)
 
Total revenue
$
973,245

 
$
1,037,364

 
(6.2
 %)
Revenue, excluding trucking fuel surcharge and intersegment transactions
$
865,630

 
$
908,254

 
(4.7
 %)
GAAP: Operating income
$
115,175

 
$
100,251

 
14.9
 %
Non-GAAP: Adjusted Operating Income ³
$
115,524

 
$
100,416

 
15.0
 %
Average revenue per tractor ¹
$
45,718

 
$
46,222

 
(1.1
 %)
GAAP: Operating Ratio ¹
88.2
%
 
90.3
%
 
(210
 bps)
Non-GAAP: Adjusting Operating Ratio ¹ ³
86.7
%
 
88.9
%
 
(220
 bps)
Non-paid empty miles percentage ¹
12.9
%
 
12.3
%
 
60
 bps
Average length of haul (miles) ¹
429

 
422

 
1.7
 %
Total miles per tractor ¹
22,523

 
24,681

 
(8.7
 %)
Average tractors in operation during period ¹ ²
18,934

 
19,650

 
(3.6
 %)
Average trailers in operation during period ¹
58,934

 
65,336

 
(9.8
 %)
1
Defined under "Operating Statistics," above.
2
Includes 16,208 and 15,729 average company-owned tractors for the first quarter of 2019 and 2018, respectively.
3
Refer to "Non-GAAP Financial Measures" below.
Comparison Between the Quarters Ended March 31, 2019 and 2018 — The Trucking segment's total revenue and revenue, excluding trucking fuel surcharge and intersegment transactions, decreased $64.1 million and $42.6 million, respectively. Our revenue per loaded mile, excluding fuel surcharge and intersegment transactions, increased 9.4% compared to the first quarter of 2018. This was partially offset by an 8.7% decrease in miles per tractor and a 3.6% decrease in average tractor count, compared to the first quarter of 2018.
Operating Ratio and Adjusted Operating Ratio improved by 210 and 220 basis points, respectively, resulting in a 14.9% improvement in operating income and a 15.0% improvement in Adjusted Operating Income. Our focus in our Trucking segment remains on developing our freight network, improving the productivity of our assets and controlling costs in areas where we have experienced higher than normal inflation, such as maintenance, driving associate pay, and professional fees.

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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


Logistics Segment
The Logistics segment is less asset-intensive than the Trucking segment and is dependent upon capable non-driver employees, modern and effective information technology, and third-party capacity providers. Logistics revenue is primarily generated by its brokerage operations and freight management services provided to our customers. We generate additional revenue by offering specialized logistics solutions (including, but not limited to, origin management, surge volume, disaster relief, special projects, and other logistic needs). Logistics revenue is mainly affected by the rates we obtain from customers, the freight volumes we ship through third-party capacity providers, and our ability to secure third-party capacity providers to transport customer freight.
The most significant expense in the Logistics segment is the (primarily) variable cost of purchased transportation that we pay to third-party capacity providers, included in "Purchased transportation" in the condensed consolidated income statements. Variability in this expense depends on truckload capacity, availability of third-party capacity providers, rates charged to customers, current freight demand, and customer shipping needs. Fixed Logistics operating expenses primarily include non-driver employee compensation and benefits recorded in "Salaries, wages, and benefits" and depreciation and amortization expense recorded in "Depreciation and amortization of property and equipment" in the condensed consolidated income statements.
 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018 (recast)
 
 
(Dollars in thousands, except per load data)
 
Total revenue
$
88,952

 
$
89,189

 
(0.3
 %)
Revenue, excluding intersegment transactions
$
87,191

 
$
86,051

 
1.3
 %
Operating income
$
7,283

 
$
3,959

 
84.0
 %
Revenue per load – Brokerage only ¹
$
1,432

 
$
1,627

 
(12.0
 %)
Gross margin percentage – Brokerage only ¹
17.8
%
 
13.1
%
 
470
 bps
GAAP: Operating Ratio ¹
91.8
%
 
95.6
%
 
(380
 bps)
Non-GAAP: Adjusted Operating Ratio ¹ ²
91.6
%
 
95.4
%
 
(380
 bps)
1
Defined under "Operating Statistics," above.
2
Refer to "Non-GAAP Financial Measures" below.
Comparison Between the Quarters Ended March 31, 2019 and 2018 — Total revenues decreased by 0.3%, and revenue, excluding intersegment transactions increased by 1.3%, while operating income improved by 84.0%. The improvement in operating income was driven by a 470 basis point improvement in brokerage gross margin to 17.8% in the first quarter of 2019 from 13.1% in the first quarter of 2018. Brokerage revenue, excluding intersegment transactions, increased by 6.2% from the first quarter of 2018 to the first quarter of 2019. Using our proprietary technology and market intelligence tools, we navigated the softer freight market by delivering a 20.7% increase in load volumes, which was partially offset by a 12.0% decrease in revenue per load.
Our efforts contributed to a 380 basis point improvement in both Operating Ratio and Adjusted Operating Ratio. We plan to continue to invest in Logistics service offerings, which we expect will continue to improve our return on capital compared with asset-based operations.

40
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


Intermodal Segment
The Intermodal segment complements our regional operating model, allows us to better serve customers in longer haul lanes, and reduces our investment in fixed assets. Through the Intermodal segment, we generate revenue by moving freight over the rail in our containers and other trailing equipment, combined with revenue for drayage to transport loads between railheads and customer locations. The most significant expense in the Intermodal segment is the cost of purchased transportation that we pay to third-party capacity providers (including rail providers), which is primarily variable and included in "Purchased transportation" in the condensed consolidated income statements. Purchased transportation varies as it relates to rail capacity, freight demand, and customer shipping needs. The main fixed costs in the Intermodal segment are depreciation of our containers and chassis, as well as non-driver employee compensation and benefits.
 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018 (recast)
 
 
(Dollars in thousands, except per load data)
 
Total revenue
$
116,367

 
$
110,267

 
5.5
 %
Revenue, excluding intersegment transactions
$
115,677

 
$
110,130

 
5.0
 %
Operating income
$
2,361

 
$
3,948

 
(40.2
 %)
Average revenue per load ¹
$
2,456

 
$
2,203

 
11.5
 %
GAAP: Operating Ratio ¹
98.0
%
 
96.4
%
 
160
 bps
Non-GAAP: Adjusting Operating Ratio ³
98.0
%
 
96.4
%
 
160
 bps
Load Count
47,109

 
49,997

 
(5.8
 %)
Average tractors in operation during period ¹ ²
693

 
580

 
19.5
 %
Average containers in operation during period ¹
9,866

 
9,121

 
8.2
 %
1
Defined under "Operating Statistics," above.
2
Includes 613 and 488 company-owned tractors for the first quarter 2019 and 2018, respectively.
3
Refer to "Non-GAAP Financial Measures" below.
Comparison Between the Quarters Ended March 31, 2019 and 2018 — Total revenue and revenue, excluding intersegment transactions increased by 5.5% and 5.0%, respectively. This was driven by an increase in average revenue per load of 11.5%, while load counts decreased by 5.8%. Our results were negatively affected by inclement weather impacting rail lanes and slower rail transit times. Additionally, we added container capacity to facilitate our growth plan within this segment, which increased our driver costs and our fixed costs. These factors contributed to an Operating Ratio and Adjusted Operating Ratio of 98.0%, compared to the first quarter of 2018. We are expecting sequential improvements in our Intermodal segment in the remainder of 2019, as we anticipate fewer weather challenges, higher load counts, and continued strength in our revenue per load.
Non-reportable Segments
 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018 (recast)
 
 
(Dollars in thousands)
 
Total revenue
$
37,764

 
$
49,691

 
(24.0
 %)
Operating loss
$
(8,520
)
 
$
(14,414
)
 
(40.9
 %)
Comparison Between the Quarters Ended March 31, 2019 and 2018 — The change in operating loss in our non-reportable segments was primarily driven by improved profitability related to our leasing activities with independent contractors. Additional factors leading to this change are discussed within "Results of Operations — Consolidated Operating and Other Expenses" below.

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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


Results of Operations — Consolidated Operating and Other Expenses
Consolidated Operating Expenses
The following tables present certain operating expenses from our condensed consolidated income statements, including each operating expense as a percentage of total revenue and as a percentage of revenue, excluding fuel surcharge. Fuel surcharge revenue can be volatile and is primarily dependent upon the cost of fuel, rather than operating expenses unrelated to fuel. Therefore, we believe that revenue, excluding fuel surcharge is a better measure for analyzing many of our expenses and operating metrics.
Note: The reported results do not include the results of operations of Abilene on and prior to its acquisition by the Company on March 16, 2018 in accordance with the accounting treatment applicable to the transaction.
 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
 
(Dollars in thousands)
 
Salaries, wages, and benefits
$
363,855

 
$
361,673

 
0.6
 %
% of total revenue
30.2
%
 
28.5
%
 
170
 bps
% of revenue, excluding fuel surcharge
33.7
%
 
32.2
%
 
150
 bps
Salaries, wages, and benefits expense is primarily affected by the total number of miles driven by company driving associates, the rate per mile we pay our company driving associates, and employee benefits, including healthcare, workers' compensation, and other benefits. To a lesser extent, non-driver employee headcount, compensation, and benefits affect this expense. Driving associate wages represent the largest component of salaries, wages, and benefits expense.
Several ongoing market factors have reduced the pool of available driving associates, contributing to a challenging driver sourcing market, which we believe will continue. Having a sufficient number of qualified driving associates is our biggest headwind, although we continue to seek ways to attract and retain qualified driving associates, including heavily investing in our recruiting efforts, our driving academies, and technology and terminals that improve the experience of driving associates. As a result of the tight market for qualified driving associates, we granted pay increases to our driving associates over the last twelve months, as supported by increases in customer rates. We expect driving associate pay to remain inflationary, which could result in additional driving associate pay increases in the future.
•
Comparison Between the Quarters Ended March 31, 2019 and 2018 — The $2.2 million increase in consolidated salaries, wages, and benefits includes a $6.6 million increase in expense from Abilene's results for the full quarter ended March 31, 2019, compared to the portion of the quarter ended March 31, 2018 following the Abilene Acquisition. Our company driving associates currently comprise a larger portion of our total driver population, as compared to prior periods. Additionally, increases in company driving associate pay rates over the last twelve months contributed to the increase in this expense. This was partially offset by decreases attributed to fewer miles driven by company driving associates and lower workers' compensation expense due to improved frequency and severity of our claims experience.

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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
 
(Dollars in thousands)
 
Fuel
$
138,439

 
$
144,816

 
(4.4
 %)
% of total revenue
11.5
%
 
11.4
%
 
10
 bps
% of revenue, excluding fuel surcharge
12.8
%
 
12.9
%
 
(10
 bps)
Fuel expense consists primarily of diesel fuel expense for our company-owned tractors and fuel taxes. The primary factors affecting our fuel expense are the cost of diesel fuel, the fuel economy of our equipment, and the miles driven by company driving associates.
Our fuel surcharge programs help to offset increases in fuel prices, but apply only to loaded miles and typically do not offset non-paid empty miles, idle time, or out-of-route miles driven.  Typical fuel surcharge programs involve a computation based on the change in national or regional fuel prices.  These programs may update as often as weekly, but typically require a specified minimum change in fuel cost to prompt a change in fuel surcharge revenue for our Trucking segment. Therefore, many of these programs have a time lag between when fuel costs change and when the change is reflected in fuel surcharge revenue.  Due to this time lag, our fuel expense, net of fuel surcharge, negatively impacts our operating income during periods of sharply rising fuel costs and positively impacts our operating income during periods of falling fuel costs. We continue to utilize our fuel efficiency initiatives such as trailer blades, idle-control, managing tractor speeds, updating our fleet with more fuel-efficient engines, managing fuel procurement, and driving associate training programs that we believe contribute to controlling our fuel expense.
•
Comparison Between the Quarters Ended March 31, 2019 and 2018 — The $6.4 million decrease in consolidated fuel expense is primarily due to a reduction in the total miles driven by company driving associates, while fuel prices remained flat at $3.02 per gallon for the quarter ended March 31, 2019, as compared to the quarter ended March 31, 2018.
 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
 
(Dollars in thousands)
 
Operations and maintenance
$
79,760

 
$
85,020

 
(6.2
 %)
% of total revenue
6.6
%
 
6.7
%
 
(10
 bps)
% of revenue, excluding fuel surcharge
7.4
%
 
7.6
%
 
(20
 bps)
Operations and maintenance expense consists of direct operating expenses, equipment maintenance, and tire expense.  Operations and maintenance expenses are affected by the age of our company-owned fleet of tractors and trailers. We expect the driver market to remain competitive throughout 2019, which could increase future driving associate development and recruiting costs and negatively affect our operations and maintenance expense. We expect to continue refreshing our tractor fleet in the coming quarters, and anticipate that maintenance costs will gradually decrease as we reduce the average age of our fleet.
•
Comparison Between the Quarters Ended March 31, 2019 and 2018 — The $5.3 million decrease in consolidated operations and maintenance expense is attributed to lower tractor counts (resulting in fewer miles driven) and newer equipment. As a percentage of revenue, excluding fuel surcharge, the expense remained relatively flat.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
 
(Dollars in thousands)
 
Insurance and claims
$
50,136

 
$
59,148

 
(15.2
 %)
% of total revenue
4.2
%
 
4.7
%
 
(50
 bps)
% of revenue, excluding fuel surcharge
4.7
%
 
5.3
%
 
(60
 bps)
Insurance and claims expense consists of premiums for liability, physical damage, and cargo, and will vary based upon the frequency and severity of claims, as well as our level of self-insurance, and premium expense. In recent years, insurance carriers have raised premiums for many businesses, including transportation companies, and as a result, our insurance and claims expense could increase in the future, or we could raise our self-insured retention when our policies are renewed or replaced. Insurance and claims expense also varies based on the number of miles driven by company driving associates and independent contractors, the frequency and severity of accidents, trends in development factors used in actuarial accruals, and developments in large, prior-year claims. In future periods, Swift's higher self-retention limits may cause our consolidated insurance and claims expense to fluctuate more.
•
Comparison Between the Quarters Ended March 31, 2019 and 2018 — The $9.0 million decrease in consolidated insurance and claims expense is primarily due to the overall improvements in the frequency and severity of our claims experience, as a result of fewer miles traveled and our increased focus on improving our safety standards for our driving associates and independent contractors.
 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
 
(Dollars in thousands)
 
Operating taxes and licenses
$
21,803

 
$
23,150

 
(5.8
 %)
% of total revenue
1.8
%
 
1.8
%
 
—

% of revenue, excluding fuel surcharge
2.0
%
 
2.1
%
 
(10
 bps)
Operating taxes and licenses include state franchise taxes, federal highway use taxes, property taxes, vehicle license and registration fees, fuel and mileage taxes, among others. The expense is impacted by changes in the tax rates and registration fees associated with our tractor fleet and regional operating facilities.
•
Comparison Between the Quarters Ended March 31, 2019 and 2018 — The $1.3 million decrease in consolidated operating taxes and licenses is primarily related to a decrease in tractor counts, resulting in fewer miles driven. As a percentage of revenue, excluding fuel surcharge, operating taxes and licenses remained relatively flat.
 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
 
(Dollars in thousands)
 
Communications
$
5,083

 
$
5,292

 
(3.9
 %)
% of total revenue
0.4
%
 
0.4
%
 
—

% of revenue, excluding fuel surcharge
0.5
%
 
0.5
%
 
—

Communications expense is comprised of costs associated with our tractor and trailer tracking systems, information technology systems, and phone systems.
•
Comparison Between the Quarters Ended March 31, 2019 and 2018 — Consolidated communications expense remained flat as a percentage of revenue, excluding fuel surcharge.

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Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
 
(Dollars in thousands)

 
Depreciation and amortization of property and equipment
$
100,937

 
$
93,863

 
7.5
 %
% of total revenue
8.4
%
 
7.4
%
 
100
 bps
% of revenue, excluding fuel surcharge
9.4
%
 
8.3
%
 
110
 bps
Depreciation relates primarily to our owned tractors, trailers, buildings, ELDs and other communication units, and other similar assets. Changes to this fixed cost are generally attributed to increases or decreases to company-owned equipment, the relative percentage of owned versus leased equipment, and fluctuations in new equipment purchase prices, which have historically been precipitated in part by new or proposed federal and state regulations. Depreciation can also be affected by the cost of used equipment that we sell or trade and the replacement of older used equipment. Management periodically reviews the condition, average age, and reasonableness of estimated useful lives and salvage values of our equipment and considers such factors in light of our experience with similar assets, used equipment market conditions, and prevailing industry practice.
•
Comparison Between the Quarters Ended March 31, 2019 and 2018 — The $7.1 million increase in consolidated depreciation and amortization of property and equipment includes a $2.1 million increase in expense from Abilene's results for the full quarter ended March 31, 2019, compared to the portion of the quarter ended March 31, 2018 following the Abilene Acquisition. The 110 basis point increase in the expense as a percentage of revenue, excluding fuel surcharge, is due to an increase in owned versus leased equipment. We expect consolidated depreciation and amortization of property and equipment to increase both in total and as a percentage of consolidated revenue, excluding fuel surcharge, as we plan to purchase, rather than lease, new equipment in the remainder of 2019.
 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
 
(Dollars in thousands)
 
Amortization of intangibles
$
10,693

 
$
10,509

 
1.8
 %
% of total revenue
0.9
%
 
0.8
%
 
10
 bps
% of revenue, excluding fuel surcharge
1.0
%
 
0.9
%
 
10
 bps
Amortization of intangibles relates to intangible assets identified with the 2017 Merger and the Abilene Acquisition. See Note 4 and Note 8 in Part I, Item 1, of this Quarterly Report for further details regarding the Company's intangible assets. The $0.2 million increase is entirely attributed to amortization of the intangible assets associated with the Abilene Acquisition.
 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
 
(Dollars in thousands)
 
Rental expense
$
35,545

 
$
52,875

 
(32.8
 %)
% of total revenue
3.0
%
 
4.2
%
 
(120
 bps)
% of revenue, excluding fuel surcharge
3.3
%
 
4.7
%
 
(140
 bps)
Rental expense consists primarily of payments for tractors and trailers financed with operating leases. The primary factors affecting the expense are the size of our revenue equipment fleet and the relative percentage of owned versus leased equipment.
•
Comparison Between the Quarters Ended March 31, 2019 and 2018 — The $17.3 million decrease in consolidated rental expense is primarily due to our efforts in decreasing our leasing obligations by increasing our ratio of owned

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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
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versus leased equipment. We expect consolidated rental expense to continue to decrease both in total and as a percentage of consolidated revenue, excluding fuel surcharge, as we plan to purchase, rather than lease, new equipment in the remainder of 2019.
 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
 
(Dollars in thousands)
 
Purchased transportation
$
269,349

 
$
324,283

 
(16.9
 %)
% of total revenue
22.4
%
 
25.5
%
 
(310
 bps)
% of revenue, excluding fuel surcharge
25.0
%
 
28.8
%
 
(380
 bps)
Purchased transportation expense is comprised of payments to independent contractors in our trucking operations, as well as payments to third-party capacity providers related to logistics, freight management, and non-trucking services in our logistics and intermodal businesses.  Purchased transportation is generally affected by capacity in the market as well as changes in fuel prices. As capacity tightens, our payments to third-party capacity providers and to independent contractors tend to increase. Additionally, as fuel prices increase, payments to third-party capacity providers and independent contractors increase.
We expect purchased transportation will increase as a percentage of revenue if we are successful in continuing to grow our logistics and intermodal businesses. The increase could be partially offset if independent contractors exit the market with recent regulatory changes or further increased if we need to pay independent contractors more to stay with us in light of such regulatory changes.
•
Comparison Between the Quarters Ended March 31, 2019 and 2018 — The $54.9 million decrease in consolidated purchased transportation expense is primarily due to a decrease in miles driven by independent contractors, partially offset by third-party carrier activities in our Logistics and Intermodal segments.
 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
 
(Dollars in thousands)
 
Miscellaneous operating expenses
$
12,636

 
$
16,759

 
(24.6
 %)
Miscellaneous operating expenses primarily consist of legal and professional services fees, general and administrative expenses, other costs, as well as net gain on sales of equipment.
•
Comparison Between the Quarters Ended March 31, 2019 and 2018 — The $4.1 million decrease in net consolidated miscellaneous operating expenses is primarily related to a $4.7 million increase in gain on sales of equipment.

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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


Consolidated Other Expenses, net
 
Quarter Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
 
(Dollars in thousands)
 
Interest expense
$
7,348

 
$
6,764

 
8.6
%
Other income, net
(6,139
)
 
(2,155
)
 
184.9
%
Income tax expense
27,923

 
18,975

 
47.2
%
Interest expense — Interest expense is comprised of debt and finance lease interest expense as well as amortization of deferred loan costs. The $0.6 million increase in consolidated interest expense is attributed to a higher interest rate on the Term Loan during the first quarter of 2019 compared to the first quarter of 2018.
Other income, net — Other income, net is primarily comprised of non-operating income and expense that may arise outside of the normal course of business. The $4.0 million increase in consolidated other income, net is attributed to investment income from our various investments in Transportation Resource Partners.
Income tax expense — In addition to the discussion below, Note 9 in Part I, Item 1 of this Quarterly Report provides further analysis related to income taxes.
•
Comparison Between the Quarters Ended March 31, 2019 and 2018 — The $8.9 million consolidated increase in income tax expense was primarily due to an increase in earnings. During the first quarter of 2019, we recognized discrete items related to a reduction in our reserve for uncertain tax positions and stock compensation deductions. During the first quarter of 2018, we also recognized discrete items related to stock compensation deductions, as well as a favorable audit settlement of nondeductible penalties. All of these factors resulted in an effective tax rate of 24.0% and 21.2% for the first quarter of 2019 and 2018, respectively.
Non-GAAP Financial Measures
The terms "Adjusted Net Income Attributable to Knight-Swift," "Adjusted EPS," and "Adjusted Operating Ratio," as we define them, are not presented in accordance with GAAP. These financial measures supplement our GAAP results in evaluating certain aspects of our business. We believe that using these measures improves comparability in analyzing our performance because they remove the impact of items from our operating results that, in our opinion, do not reflect our core operating performance. Management and the Board focus on Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio as key measures of our performance, all of which are reconciled to the most comparable GAAP financial measures and further discussed below. We believe our presentation of these non-GAAP financial measures is useful because it provides investors and securities analysts the same information that we use internally for purposes of assessing our core operating performance.
Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio are not substitutes for their comparable GAAP financial measures, such as net income, cash flows from operating activities, operating income, or other measures prescribed by GAAP. There are limitations to using non-GAAP financial measures. Although we believe that they improve comparability in analyzing our period to period performance, they could limit comparability to other companies in our industry if those companies define these measures differently. Because of these limitations, our non-GAAP financial measures should not be considered measures of income generated by our business or discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by primarily relying on GAAP results and using non-GAAP financial measures on a supplemental basis.
Pursuant to the requirements of Regulation G, the following tables reconcile GAAP consolidated net income attributable to Knight-Swift to non-GAAP consolidated Adjusted Net Income attributable to Knight-Swift, GAAP consolidated earnings per diluted share to non-GAAP consolidated Adjusted EPS, GAAP consolidated Operating Ratio to non-GAAP consolidated Adjusted Operating Ratio, and GAAP reportable segment Operating Ratio to non-GAAP reportable segment Adjusted Operating Ratio.

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Note: The reported results do not include the results of Abilene on and prior to its acquisition by Knight on March 16, 2018 in accordance with the accounting treatment applicable to the transaction.
Non-GAAP Reconciliation:
Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS
 
Quarter Ended March 31,
 
2019
 
2018
 
(In thousands)
GAAP: Net income attributable to Knight-Swift
$
87,938

 
$
70,364

Adjusted for:
 
 
 
Income tax expense attributable to Knight-Swift
27,923

 
18,975

Income before income taxes attributable to Knight-Swift
$
115,861

 
$
89,339

Amortization of intangibles ¹
10,693

 
10,344

Adjusted income before income taxes
126,554

 
99,683

Provision for income tax expense at effective rate
(30,373
)
 
(21,172
)
Non-GAAP: Adjusted Net Income Attributable to Knight-Swift
$
96,181

 
$
78,511

 
 
 
 
Note: Since the numbers reflected in the table below are calculated on a per share basis, they may not foot due to rounding.
 
Quarter Ended March 31,
 
2019
 
2018
GAAP: Earnings per diluted share
$
0.51

 
$
0.39

Adjusted for:
 
 
 
Income tax expense attributable to Knight-Swift
0.16

 
0.11

Income before income taxes attributable to Knight-Swift
0.67

 
0.50

Amortization of intangibles ¹
0.06

 
0.06

Adjusted income before income taxes
0.73

 
0.56

Provision for income tax expense at effective rate
(0.17
)
 
(0.12
)
Non-GAAP: Adjusted EPS
$
0.55

 
$
0.44

 
 
 
 
1
"Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the 2017 Merger, Abilene Acquisition, and historical Knight acquisitions. Refer to Note 4 in Part I, Item 1 of this Quarterly Report for additional details regarding the Abilene Acquisition.

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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
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Non-GAAP Reconciliation: Consolidated Adjusted Operating Ratio
 
Quarter Ended March 31,
 
2019
 
2018 (recast)
GAAP Presentation
(Dollars in thousands)
Total revenue
$
1,204,535

 
$
1,271,132

Total operating expenses
(1,088,236
)
 
(1,177,388
)
Operating income
$
116,299

 
$
93,744

Operating Ratio
90.3
%
 
92.6
%
 
 
 
 
Non-GAAP Presentation
 
 
 
Total revenue
$
1,204,535

 
$
1,271,132

Trucking fuel surcharge
(107,579
)
 
(129,091
)
Revenue, excluding trucking fuel surcharge
1,096,956

 
1,142,041

 
 
 
 
Total operating expenses
1,088,236

 
1,177,388

Adjusted for:
 
 
 
Trucking fuel surcharge
(107,579
)
 
(129,091
)
Amortization of intangibles ¹
(10,693
)
 
(10,509
)
Adjusted Operating Expenses
969,964

 
1,037,788

Adjusted Operating Income
$
126,992

 
$
104,253

Adjusted Operating Ratio
88.4
%
 
90.9
%
1
See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 1.
Non-GAAP Reconciliation: Reportable Segment Adjusted Operating Ratio
Trucking Segment
 
Quarter Ended March 31,
 
2019
 
2018 (recast)
GAAP Presentation
(Dollars in thousands)
Total revenue
$
973,245

 
$
1,037,364

Total operating expenses
(858,070
)
 
(937,113
)
Operating income
$
115,175

 
$
100,251

Operating Ratio
88.2
%
 
90.3
%
 
 
 
 
Non-GAAP Presentation
 
 
 
Total revenue
$
973,245

 
$
1,037,364

Trucking fuel surcharge
(107,579
)
 
(129,091
)
Intersegment transactions
(36
)
 
(19
)
Revenue, excluding trucking fuel surcharge and intersegment transactions
865,630

 
908,254

 
 
 
 
Total operating expenses
858,070

 
937,113

Adjusted for:
 
 
 
Trucking fuel surcharge
(107,579
)
 
(129,091
)
Intersegment transactions
(36
)
 
(19
)
Amortization of intangibles ¹
(349
)
 
(165
)
Adjusted Operating Expenses
750,106

 
807,838

Adjusted Operating Income
$
115,524

 
$
100,416

Adjusted Operating Ratio
86.7
%
 
88.9
%
1
"Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the Abilene Acquisition and historical Knight acquisitions. Refer to Note 4 in Part I, Item 1 of this Quarterly Report for additional details regarding the Abilene Acquisition.

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Logistics Segment
 
Quarter Ended March 31,
 
2019
 
2018 (recast)
GAAP Presentation
(Dollars in thousands)
Total revenue
$
88,952

 
$
89,189

Total operating expenses
(81,669
)
 
(85,230
)
Operating income
$
7,283

 
$
3,959

Operating Ratio
91.8
%
 
95.6
%
 
 
 
 
Non-GAAP Presentation
 
 
 
Total revenue
$
88,952

 
$
89,189

Intersegment transactions
(1,761
)
 
(3,138
)
Revenue, excluding intersegment transactions
87,191

 
86,051

 
 
 
 
Total operating expenses
81,669

 
85,230

Adjusted for:
 
 
 
Intersegment transactions
(1,761
)
 
(3,138
)
Adjusted Operating Expenses
79,908

 
82,092

Adjusted Operating Income
$
7,283

 
$
3,959

Adjusted Operating Ratio
91.6
%
 
95.4
%
Intermodal Segment
 
Quarter Ended March 31,
 
2019
 
2018 (recast)
GAAP Presentation
(Dollars in thousands)
Total revenue
$
116,367

 
$
110,267

Total operating expenses
(114,006
)
 
(106,319
)
Operating income
$
2,361

 
$
3,948

Operating Ratio
98.0
%
 
96.4
%
 
 
 
 
Non-GAAP Presentation
 
 
 
Total revenue
$
116,367

 
$
110,267

Intersegment transactions
(690
)
 
(137
)
Revenue, excluding intersegment transactions
115,677

 
110,130

 
 
 
 
Total operating expenses
114,006

 
106,319

Adjusted for:
 
 
 
Intersegment transactions
(690
)
 
(137
)
Adjusted Operating Expenses
113,316

 
106,182

Adjusted Operating Income
$
2,361

 
$
3,948

Adjusted Operating Ratio
98.0
%
 
96.4
%


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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
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Liquidity and Capital Resources
Sources of Liquidity
Our primary sources of liquidity are funds provided by operations and the following:
Source
 
March 31, 2019
 
 
(In thousands)
Cash and cash equivalents, excluding restricted cash
 
$
60,215

Availability under Revolver, due October 2022 ¹
 
706,648

Availability under 2018 RSA, due July 2021 ²
 
35,051

Total unrestricted liquidity
 
$
801,914

Cash and cash equivalents – restricted ³
 
51,708

Restricted investments, held-to-maturity, amortized cost ³
 
11,640

Total liquidity, including restricted cash and restricted investments
 
$
865,262

 
 
 
1
As of March 31, 2019, we had $60.0 million in borrowings under our $800.0 million Revolver. We additionally had $33.4 million in outstanding letters of credit (discussed below), leaving $706.6 million available under the Revolver.
2
Based on eligible receivables at March 31, 2019, our borrowing base for the 2018 RSA was $280.7 million, while outstanding borrowings were $175.0 million. We additionally had $70.6 million in outstanding letters of credit (discussed below), leaving $35.1 million available under the 2018 RSA.
3
Restricted cash and restricted investments are primarily held by our captive insurance companies for claims payments. "Cash and cash equivalents – restricted" consists of $50.7 million, included in "Cash and cash equivalents — restricted" in the condensed consolidated balance sheet and held by Mohave and Red Rock for claims payments. The remaining $1.0 million is included in "Other long-term assets" and is held in escrow accounts to meet statutory requirements.
Uses of Liquidity
Our business requires substantial amounts of cash for operating activities, including salaries and wages paid to our employees, contract payments to independent contractors, insurance and claims payments, tax payments, and others. We also use large amounts of cash and credit for the following activities:
Capital Expenditures — When justified by customer demand, as well as our liquidity and our ability to generate acceptable returns, we make substantial cash capital expenditures to maintain a modern company tractor fleet, refresh our trailer fleet, fund replacement of our revenue equipment fleet, and, to a lesser extent, fund upgrades to our terminals and technology in our logistics service offerings. We expect that net capital expenditures will be in the range of $550.0 million - $575.0 million for the full-year 2019. We believe we have ample flexibility with our trade cycle and purchase agreements to alter our current plans if economic or other conditions warrant.
Over the long-term, we will continue to have significant capital requirements, which may require us to seek additional borrowing, lease financing, or equity capital. The availability of financing or equity capital will depend upon our financial condition and results of operations as well as prevailing market conditions. If such additional borrowing, lease financing, or equity capital is not available at the time we need it, then we may need to borrow more under the Revolver (if not then fully drawn), extend the maturity of then-outstanding debt, rely on alternative financing arrangements, engage in asset sales, limit our fleet size, or operate our revenue equipment for longer periods.
There can be no assurance that we will be able to obtain additional debt under our existing financial arrangements to satisfy our ongoing capital requirements. However, we believe the combination of our expected cash flows, financing available through operating and finance leases, available funds under the 2018 RSA, and availability under the Revolver will be sufficient to fund our expected capital expenditures for at least the next twelve months.

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Principal and Interest Payments — As of March 31, 2019, we had material debt and finance lease obligations of $720.3 million, which are discussed under "Material Debt Agreements," below. Certain cash flows from operations are committed to minimum payments of principal and interest on our debt or lease obligations. Additionally, when our financial position allows, we periodically make voluntary prepayments on our outstanding debt balances.
Letters of Credit — Pursuant to the terms of the 2017 Debt Agreement and the 2018 RSA, our lenders may issue standby letters of credit on our behalf. When we have letters of credit outstanding, the availability under the Revolver or 2018 RSA is reduced accordingly. Standby letters of credit are typically issued for the benefit of regulatory authorities, insurance companies and state departments of insurance for the purpose of satisfying certain collateral requirements, primarily related to our automobile, workers' compensation, and general insurance liabilities.
Share Repurchases — From time to time, and depending on free cash flow availability, debt levels, common stock prices, general economic and market conditions, as well as Board approval, we may repurchase shares of our outstanding common stock. As of March 31, 2019, the Company had $70.7 million remaining under the Knight-Swift Share Repurchase Plan. Additional details are discussed in Note 13 in Part I, Item 1 of this Quarterly Report.
Working Capital
As of March 31, 2019 and December 31, 2018, we had a working capital surplus of $51.5 million and $292.7 million, respectively. The decrease is primarily due to the adoption of ASC Topic 842, Leases, which, among other things, required the recognition of $109.2 million in the current portion of operating lease liabilities on the condensed consolidated balance sheet as of March 31, 2019. Since the Company adopted the ASC Topic 840 Comparative Approach, there was no current portion of lease liabilities recorded on the December 31, 2018 condensed consolidated balance sheet. Additionally, trade receivables decreased $60.9 million, as expected, due to typical seasonality.
Material Debt Agreements
As of March 31, 2019, we had $720.3 million in material debt obligations at the following carrying values:
•
$364.6 million: Term Loan, due October 2020, net of $0.4 million in deferred loan costs
•
$174.6 million: 2018 RSA outstanding borrowings, due July 2021, net of $0.4 million in deferred loan costs
•
$121.1 million: Finance lease obligations
•
$60.0 million: Revolver, due October 2022
As of December 31, 2018, we had $929.1 million in material debt obligations at the following carrying values:
•
$364.6 million: Term Loan, due October 2020, net of $0.4 million in deferred loan costs
•
$239.6 million: 2018 RSA outstanding borrowings, due July 2021, net of $0.4 million in deferred loan costs
•
$129.5 million: Capital lease obligations
•
$195.0 million: Revolver, due October 2022
•
$0.4 million: Other

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Cash Flow Analysis
 
Quarter Ended March 31,
 
Change
 
2019
 
2018
 
 
(In thousands)
 
Net cash provided by operating activities
$
243,452

 
$
208,864

 
$
34,588

Net cash used in investing activities
(44,721
)
 
(110,651
)
 
65,930

Net cash used in financing activities
(217,784
)
 
(113,525
)
 
(104,259
)
Net Cash Provided by Operating Activities
Comparison Between the Quarter Ended March 31, 2019 and 2018 — The $34.6 million increase in net cash provided by operating activities was primarily due to the $22.6 million increase in operating income, due to the factors discussed in "Results of Operations — Segments " and "Results of Operations — Consolidated Operating and Other Expenses," above.
Net Cash Used in Investing Activities
Comparison Between the Quarter Ended March 31, 2019 and 2018 — The $65.9 million decrease in net cash used in investing activities was due to a $101.6 million decrease in net cash used for acquisitions (as the Abilene Acquisition occurred in the first quarter of 2018), partially offset by a $42.1 million increase in capital expenditures, net of disposal proceeds.
Net Cash Used in Financing Activities
Comparison Between the Quarter Ended March 31, 2019 and 2018 — Net cash used in financing activities increased by $104.3 million and was primarily due to net increase in combined repayments of $105.0 million on our Revolver and 2018 RSA.
Contractual Obligations
"Liquidity and Capital Resources," above, includes details regarding changes in our contractual obligations table during the quarter ended March 31, 2019. Aside from these items, there were no material changes to the contractual obligations table, which was included in our 2018 Annual Report.
Off Balance Sheet Arrangements
Information about our off balance sheet arrangements is included in Note 11 of the notes to our condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report, which is incorporated by reference herein. See also "Contractual Obligations," above.

53
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED


Seasonality
Discussion regarding the impact of seasonality on our business is included in Note 1 in the notes to the condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report, incorporated by reference herein.
Inflation
Inflation can have an impact on our operating costs. A prolonged period of inflation could cause interest rates, fuel, wages, and other costs to increase, which would adversely affect our results of operations unless freight rates correspondingly increased. Consistent with trends in the trucking industry overall, we have recently experienced inflationary pressures with respect to driver wages, as compared to prior years.
Recently Issued Accounting Pronouncements
See Part I, Item 1 of this Quarterly Report, which is incorporated herein by reference, for the impact of recently issued accounting pronouncements on the Company's condensed consolidated financial statements, as follows:
•
Note 2 for accounting pronouncements adopted during the quarter ended March 31, 2019.
•
Note 3 for accounting pronouncements issued during the quarter ended March 31, 2019.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We have exposure from variable interest rates, primarily related to our 2017 Debt Agreement and 2018 RSA. These variable interest rates are impacted by changes in short-term interest rates. We primarily manage interest rate exposure through a mix of variable rate debt (weighted average rate of 3.28% as of March 31, 2019) and fixed rate equipment lease financing. Assuming the level of borrowings as of March 31, 2019, a hypothetical one percentage point increase in interest rates would increase our annual interest expense by $6.0 million.
Commodity Price Risk
We have commodity exposure with respect to fuel used in company-owned tractors. Increases in fuel prices would continue to raise our operating costs, even after applying fuel surcharge revenue. Historically, we have been able to recover a majority of fuel price increases from our customers in the form of fuel surcharges. The weekly average diesel price per gallon in the US remained consistent at an average of $3.02 per gallon for the first quarter of 2019 and an average of $3.02 per gallon for the first quarter of 2018. We cannot predict the extent or speed of potential changes in fuel price levels in the future, the degree to which the lag effect of our fuel surcharge programs will impact us as a result of the timing and magnitude of such changes, or the extent to which effective fuel surcharges can be maintained and collected to offset such increases. We generally have not used derivative financial instruments to hedge our fuel price exposure in the past, but continue to evaluate this possibility.


54

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


ITEM 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the Board. Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (2) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, other than the new internal controls relating to our adoption of ASC Topic 842. We base our internal control over financial reporting on the criteria set forth in the 2013 COSO Internal Control: Integrated Framework.
We have confidence in our disclosure controls and procedures and internal control over financial reporting. Nevertheless, our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all errors, misstatements, or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.


55

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


PART II OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
Information about our legal proceedings is included in Note 12 of the notes to our condensed consolidated financial statements, included in Part I, Item 1, of this Quarterly Report for the period ended March 31, 2019, and is incorporated by reference herein. Based on management's present knowledge of the facts and (in certain cases) advice of outside counsel, management does not believe that loss contingencies arising from pending matters are likely to have a material adverse effect on the Company's overall financial position, operating results, or cash flows after taking into account any existing accruals. However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period.
ITEM 1A.
RISK FACTORS
While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be present. Our 2018 Annual Report, in the section of each document entitled "Item 1A. Risk Factors," describes some of the risks and uncertainties associated with our business.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Period
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value that May Yet be Purchased Under the Plans or Programs ¹
January 1, 2019 to January 31, 2019
—

 
$
—

 
—

 
$
70,681,518

February 1, 2019 to February 28, 2019
—

 
$
—

 
—

 
$
70,681,518

March 1, 2019 to March 31, 2019
—

 
$
—

 
—

 
$
70,681,518

Total
—

 
$
—

 
—

 
$
70,681,518

 
 
 
 
 
 
 
 
1
On June 5, 2018, the Company announced that the Board approved the $250.0 million Knight-Swift Repurchase Plan. There is no expiration date associated with this share repurchase authorization.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
None.

56

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


ITEM 6.
EXHIBITS
Exhibit Number
 
Description
  
Page or Method of Filing
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
101.INS
 
XBRL Instance Document
  
Filed herewith
 
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
  
Filed herewith
 
 
 
 
 
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document
  
Filed herewith
 
 
 
 
 
101.LAB
 
XBRL Taxonomy Label Linkbase Document
  
Filed herewith
 
 
 
 
 
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document
  
Filed herewith
 
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Document
  
Filed herewith
 
 
 
 
 
*
Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to supplementally furnish to the SEC a copy of any omitted schedule upon request by the SEC.

57

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
 
 
 
 
 
 
 
 
Date: 
May 8, 2019
 
/s/ David A. Jackson
 
 
 
 
 
David A. Jackson
 
 
 
 
 
Chief Executive Officer and President, in his capacity as
 
 
 
 
 
such and on behalf of the registrant
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Date: 
May 8, 2019
 
/s/ Adam W. Miller
 
 
 
 
 
Adam W. Miller
 
 
 
 
 
Chief Financial Officer, in his capacity as such and on
 
 
 
 
 
behalf of the registrant
 
 
 
 
 
 
 

58