What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-25 compared with 2020-02-27 · 663 added, 794 removed, 1177 unchanged (55% of the section changed)

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Index to Consolidated Financial Statements

Consolidated Financial Statements

Consolidated Financial Statements Page

Report of independent registered public accounting firm

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Notes to Consolidated Financial Statements

Introduction and Basis of Presentation

Summary of Significant Accounting Policies

Recently Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements

Merger and Acquisitions

Restricted Investments, Held-to-Maturity

Transportation Resource Partners

Trade Receivables, net

Notes Receivable, net

Assets Held for Sale

Goodwill and Other Intangible Assets

Accrued Payroll and Purchased Transportation and Accrued Liabilities

Claims Accruals

Accounts Receivable Securitization

Debt and Financing

Purchase Commitments

Contingencies and Legal Proceedings

Share Repurchase Plans

Stock-based Compensation

Weighted Average Shares Outstanding

Fair Value Measurement

Related Party Transactions

Information by Segment, Geography, and Customer Concentration

Quarterly Results of Operations (Unaudited)

Note 1 Introduction and Basis of Presentation

Note 2 Summary of Significant Accounting Policies

Note 3 Recently Adopted Accounting Pronouncements

Note 4 Recently Issued Accounting Pronouncements

Note 5 Acquisitions

Note 6 Restricted Investments, Held-to-Maturity

Note 7 Equity Investments

Note 8 Trade Receivables, net

Note 9 Notes Receivable, net

Note 10 Assets Held for Sale

Note 11 Goodwill and Other Intangible Assets

Note 12 Accrued Payroll and Purchased Transportation and Accrued Liabilities

Note 13 Claims Accruals

Note 14 Income Taxes

Note 15 Accounts Receivable Securitization

Note 16 Debt and Financing

Note 17 Leases

Note 18 Purchase Commitments

Note 19 Contingencies and Legal Proceedings

Note 20 Share Repurchase Plans

Note 21 Stock-based Compensation

Note 22 Weighted Average Shares Outstanding

Note 23 Fair Value Measurement

Note 24 Related Party Transactions

Note 25 Information by Segment, Geography, and Customer Concentration

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 25, 2021 expressed an unqualified opinion.

Change in accounting principle

As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update No.

Leases (Topic 842).

Basis for opinion

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Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

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Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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Goodwill impairment assessment

As described further in Notes 2 and 11 to the consolidated financial statements, management evaluates goodwill for impairment on an annual basis as of June 30, or more frequently if impairment indicators exist, at the reporting unit level.

As described further in Notes 2 and 11 to the consolidated financial statements, management evaluates goodwill on an annual basis as of June 30, or more frequently if impairment indicators exist, at the reporting unit level.

Management estimates the fair values of its reporting units using a combination of the income and market approaches.

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Changes in these assumptions could materially affect the determination of the fair value of the reporting units, the amount of any goodwill impairment charge, or both.

We identified the goodwill impairment assessment as a critical audit matter.

The principal consideration for this determination is that management utilized significant judgment when estimating the fair value of the reporting units.

In turn, auditing management’s judgments regarding forecasts of future revenues and operating expenses, and the

discount rates applied, involved a high degree of subjectivity due to the estimation uncertainty of management’s significant judgments.

We identified the goodwill impairment assessment of certain reporting units as a critical audit matter.

The principal consideration for this determination is that management utilized significant judgment when estimating the fair value of these reporting units.

In turn, auditing management’s judgments regarding forecasts of future revenues and operating expenses, and the discount rates applied, involved a high degree of subjectivity due to the estimation uncertainty of management’s significant judgments.

Our audit procedures related to the goodwill impairment assessment included the following, among others:

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The principal consideration for this determination is that management used significant judgment when estimating the fair value of the trade names.

In turn, auditing management’s judgments regarding forecasts of future revenues, the discount rates applied, and the royalty rates, involved a high degree of subjectivity due to the estimation uncertainty of management’s significant judgments.

In turn, auditing management’s judgments regarding forecasts of future revenue, the discount rates applied, and the royalty rates, involved a high degree of subjectivity due to the estimation uncertainty of management’s significant judgments.

Our audit procedures related to the trade names indefinite-lived intangible asset impairment assessment included the following, among others:

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The actual cost to settle self-insured claim liabilities may differ from the Company’s reserve estimates due to legal costs, claims that have been incurred but not reported, and various other uncertainties.

We identified the estimation of auto liability and workers’ compensation claims accruals, subject to certain self-insured retention, as a critical audit matter.

We identified the estimation of Swift’s auto liability and workers’ compensation claims accruals, subject to certain self-insured retention, as a critical audit matter.

Auto liability and workers’ compensation unpaid claim liabilities are determined by projecting the estimated ultimate loss related to a claim, less actual costs paid to date.

These estimates rely on the assumption that historical claim patterns are an accurate representation for future claims that have been incurred but

not completely paid.

The principal considerations for assessing auto liability and workers’ compensation claims as a critical audit matter are the high level of estimation uncertainty related to determining the severity of these types of claims, as well as the inherent subjectivity in management’s judgment in estimating the total costs to settle or dispose of these claims.

These estimates rely on the assumption that historical claim patterns are an accurate representation for future claims that have been incurred but not completely paid.

The principal considerations for assessing auto liability and workers’ compensation claims as a critical audit matter are the high level of estimation uncertainty related to determining the

severity of these types of claims, as well as the inherent subjectivity in management’s judgment in estimating the total costs to settle or dispose of these claims.

Our audit procedures related to the auto liability and workers' compensation claims accrual included the following, among others:

• We tested the effectiveness of controls over auto liability and workers’ compensation claims, including the completeness and accuracy of claim expenses and payments.

We tested management’s process for determining the auto liability and workers’ compensation claims accrual, including evaluating the reasonableness of the methods and assumptions used in estimating the ultimate claim losses with the assistance of an actuarial specialist.

We tested the claims data used in the auto liability and workers' compensation claims accrual calculation by selecting samples of historical claims data and inspecting source documents to test key attributes of the claims data.

Accounting Standards Codification (“ASC”) Topic 842, Leases, adoption

As described further in Note 3 to the Company’s financial statements, the Company adopted ASC Topic 842, Leases, as of January 1, 2019.

The liability is equal to the present value of future lease payments.

The asset is based on the liability, and may be subject to certain adjustments, including initial direct costs and lessor provided incentives.

We identified adoption of ASC Topic 842 as a critical audit matter.

The adoption of ASC Topic 842 is a substantial change in accounting for leases.

The principal consideration for our determination that the adoption of ASC Topic 842 is a critical audit matter is that it requires significant auditor judgment in obtaining sufficient appropriate audit evidence related to management’s determination of the lease liability, ROU asset, and selection of discount rates to be applied to future lease payments.

Our audit procedures related to the adoption of ASC Topic 842 included the following, among others:

We tested the effectiveness of controls relating to the initial adoption of ASC Topic 842.

We evaluated the independent auditor’s report on effectiveness of controls at the Company’s third party lease software vendor, which included testing the effectiveness of the relevant user controls due to the Company’s reliance on the third party software to appropriately calculate the related ROU asset and lease liability.

We verified the completeness of the population of leases that management evaluated as part of the initial adoption.

We inspected a sample of lease contracts, compared the relevant inputs in the lease software to underlying lease documentation, and recalculated the related ROU asset and lease liability.

We assessed the reasonableness of the Company’s discount rates with the assistance of valuation specialists.

• We tested management’s process for determining the auto liability and workers’ compensation accrual, including evaluating the reasonableness of the methods and assumptions used in estimating the ultimate claim losses with the assistance of an actuarial specialist.

• We tested the claims data used in the claims liability calculation by inspecting source documents to test key attributes of the claims data.

/s/ GRANT THORNTON LLP

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Consolidated Balance Sheets

(In thousands, except per share data)

ASSETS (In thousands, except per share data)

Current assets:

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Trade receivables, net of allowance for doubtful accounts of $ 22,093 and $ 18,178 , respectively

578,479 518,547

Contract balance – revenue in transit 14,560 12,696

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Operating lease right-of-use-assets 113,296 169,425

Goodwill 2,922,964 2,918,992

Intangible assets, net 1,389,245 1,379,459

Other long-term assets 126,482 73,108

Total assets $ 8,468,002 $ 8,281,732

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Operating lease liabilities – current portion 47,496 80,101

Accounts receivable securitization – current portion 213,918 —

Total current liabilities 839,708 993,038

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Operating lease liabilities – less current portion 69,852 96,160

Accounts receivable securitization

Accounts receivable securitization – less current portion — 204,762

Claims accruals – less current portion 174,814 196,912

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Consolidated Statements of Comprehensive Income

2020 2019 2018

(In thousands, except per share data)

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Salaries, wages, and benefits 1,483,188 1,474,073 1,495,126

Fuel 416,307 583,123 621,997

Operations and maintenance 275,290 322,188 340,627

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Purchased transportation 936,649 1,035,969 1,318,303

Impairments 5,335 3,486 2,798

Miscellaneous operating expenses 99,488 109,640 61,626

Merger-related costs

Total operating expenses 4,109,425 4,416,512 4,775,023

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Income before income taxes 560,311 413,976 552,038

Income tax expense (benefit)

Income tax expense 149,676 103,798 131,389

Net income 410,635 310,178 420,649

Net income attributable to noncontrolling interest ( 633 ) ( 972 ) ( 1,385 )

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Earnings per share:

Basic $ 2.42 $ 1.80 $ 2.37

Diluted $ 2.40 $ 1.80 $ 2.36

Dividends declared per share:

$ 0.32 $ 0.24 $ 0.24

Weighted average shares outstanding:

Basic 169,711 171,541 177,018

Diluted 170,549 172,142 177,999

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Stockholders' Equity

Additional Paid-in Capital

Retained Earnings

Knight-Swift Stockholders' Equity

Noncontrolling Interest

Total Stockholders' Equity

Common Stock Additional Paid-in Capital Retained Earnings Total

Knight-Swift Stockholders' Equity Noncontrolling Interest Total Stockholders' Equity

Shares Par Value

(In thousands)

Balances, December 31, 2017 177,998 $ 1,780 $ 4,219,214 $ 1,016,738 $ 5,237,732 $ 2,638 $ 5,240,370

2017 Merger reverse split of Swift shares

Common stock issued to employees 670 6 10,944 10,950 10,950

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Common stock issued under employee stock purchase plan 49 1 1,822 1,823 1,823

Company shares repurchased ( 5,892 ) ( 59 ) ( 179,259 ) ( 179,318 ) ( 179,318 )

Shares withheld – restricted stock unit settlement ( 2,550 ) ( 2,550 ) ( 2,550 )

Employee stock-based compensation expense 11,488 11,488 11,488

Cash dividends paid and dividends accrued

Cash dividends paid and dividends accrued ($0.24 per share) ( 42,642 ) ( 42,642 ) ( 42,642 )

Net income attributable to Knight-Swift 419,264 419,264 419,264

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Net income attributable to noncontrolling interest 1,385 1,385

Net acquisition of remaining ownership interest, previously noncontrolling ( 1,873 ) ( 1,873 ) ( 1,873 )

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

Balances, December 31, 2018 172,844 $ 1,728 $ 4,242,369 $ 1,216,852 $ 5,460,949 $ 1,770 $ 5,462,719

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Employee stock-based compensation expense 13,375 13,375 13,375

Cash dividends paid and dividends accrued

Cash dividends paid and dividends accrued ($0.24 per share) ( 41,400 ) ( 41,400 ) ( 41,400 )

Net income attributable to Knight-Swift 309,206 309,206 309,206

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Net income attributable to noncontrolling interest 972 972

Net acquisition of remaining ownership interest, previously noncontrolling

Net cumulative-effect adjustment from adopting ASC Topic 606

Balances, December 31, 2019 170,688 $ 1,707 $ 4,269,043 $ 1,395,465 $ 5,666,215 $ 2,088 $ 5,668,303

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Employee stock-based compensation expense 19,639 19,639 19,639

Cash dividends paid and dividends accrued

Cash dividends paid and dividends accrued ($0.32 per share) ( 54,661 ) ( 54,661 ) ( 54,661 )

Net income attributable to Knight-Swift 410,002 410,002 410,002

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Consolidated Statements of Cash Flows

2020 2019 2018

(In thousands)

Cash flows from operating activities:

Net income $ 410,635 $ 310,178 $ 420,649

Adjustments to reconcile net income to net cash provided by operating activities:

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Gain on sale of property and equipment ( 9,706 ) ( 32,935 ) ( 36,236 )

Impairments 5,335 3,486 2,798

Deferred income taxes 46,214 30,731 62,469

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Expenditures on assets held for sale ( 483 ) ( 16,093 ) ( 30,322 )

Net cash, restricted cash, and equivalents (invested in) acquired from 2017 Merger and other acquisitions

Net cash, restricted cash, and equivalents invested in acquisitions ( 46,811 ) ( 1,885 ) ( 101,693 )

Other cash flows from investing activities ( 42,320 ) ( 4,284 ) 10,085

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Repayment of finance leases and long-term debt ( 148,910 ) ( 115,642 ) ( 46,630 )

Proceeds from long-term debt

Borrowings on revolving lines of credit, net

(Repayments) borrowings on revolving lines of credit, net ( 69,000 ) 84,000 70,000

Borrowings under accounts receivable securitization 61,000 150,000 70,000

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Other cash flows from financing activities ( 13,517 ) ( 2,984 ) ( 5,271 )

Net cash (used in) provided by financing activities

Net increase (decrease) in cash, restricted cash, and equivalents

Net cash used in financing activities ( 443,884 ) ( 184,636 ) ( 255,442 )

Net (decrease) increase in cash, restricted cash, and equivalents ( 4,951 ) 71,252 ( 20,757 )

Cash, restricted cash, and equivalents at beginning of period 202,228 130,976 151,733

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Consolidated Statements of Cash Flows — Continued

2020 2019 2018

(In thousands)

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Cash paid during the period for:

Interest $ 17,396 $ 28,916 $ 28,723

Income taxes 80,006 78,658 16,106

Non-cash investing and financing activities:

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Transfer from property and equipment to assets held for sale 75,292 137,391 133,434

Contingent consideration associated with acquisition 16,200 — —

Right-of-use assets obtained in exchange for new operating lease liabilities 12,406 9,803 —

Right-of-use assets obtained in exchange for new operating lease liabilities through acquisitions 12,356 — —

Property and equipment obtained in exchange for new finance lease liabilities 137,097 — —

Property and equipment obtained in exchange for new capital lease obligations (under ASC Topic 840)

Property and equipment obtained in exchange for finance lease liabilities reclassified from operating lease liabilities 67,430 56,352 —

Reconciliation of Cash, Restricted Cash, and Equivalents:

2020 2019 2018

(In thousands)

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Cash and cash equivalents – restricted 1

39,328 41,331 46,888

Other long-term assets 1

1,250 1,175 1,602

Consolidated Statements of Cash Flows

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Additionally, the Intermodal segment operated an average of 577 tractors and 10,604 intermodal cont ainers.

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:

During the first quarter of 2019, the Company reorganized its operating segments to reflect management’s revised reporting structure which is based around the transportation service offerings provided to our customers, as well as the equipment utilized.

The Company aggregated these various operating segments into three reportable segments based on similarities with both their qualitative and economic characteristics.

Under this revised 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.

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The shares of Class A common stock commenced trading on the NYSE on a post-reverse split basis under the ticker symbol "KNX" on September 11, 2017.

The Company accounted for the 2017 Merger using the acquisition method of accounting in accordance with GAAP.

GAAP requires that either Knight or Swift is designated as the acquirer for accounting and financial reporting purposes ("Accounting Acquirer").

Based on the evidence available, Knight was designated as the Accounting Acquirer while Swift was the acquirer for legal purposes.

Therefore, Knight’s historical results of operations replaced Swift’s historical results of operations for all periods prior to the 2017 Merger.

More specifically, the accompanying consolidated financial statements for periods prior to the 2017 Merger are those of Knight and its subsidiaries, and for periods subsequent to the 2017 Merger, also include Swift.

In identifying Knight as the Accounting Acquirer, management took into account the structure of the 2017 Merger, the composition of the combined company's board of directors and the designation of certain senior management positions of the combined company, among other factors.

See Note 5 for further details of the 2017 Merger, including discussion of the purchase price allocation applied, as well as Note 21 for further discussion related to the treatment of the Swift equity awards assumed pursuant to the 2017 Merger.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

Abilene Acquisition

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Please refer to Note 5 for more information about the Abilene Acquisition.

Other Acquisition

On January 1, 2020 the Company acquired a small company to complement its suite of services.

Please refer to Note 5 in Part II, Item 8 of this Annual Report for more information about this acquisition.

Other Acquisitions

On January 1, 2020 the Company acquired a warehousing company to complement its suite of services.

Please refer to Note 5 of this Annual Report for more information about this acquisition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

Basis of Presentation

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Similarly, references to "quarters", including "first", "second", "third", and "fourth" pertain to calendar quarters.

Note regarding comparability — Based on the structure of the 2017 Merger, the reported results do not include the results of operations of Swift and its subsidiaries on and prior to the 2017 Merger, in accordance with the accounting treatment applicable to the transaction.

Additionally, 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.

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.

Additionally, the reported results do not include the results of operations of the warehousing company prior to its acquisition by the Company on January 1, 2020 in accordance with the accounting treatment applicable to the transaction.

Accordingly, comparisons between the Company's 2020 results and prior periods may not be meaningful.

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Knight acquired a 52.0 % ownership interest in this entity.

Equity method and other equity investments — Refer to Note 7 for basis of presentation disclosures regarding Knight's equity method and other equity investments in Transportation Resource Partners.

Equity method and other equity investments — Refer to Note 7 for basis of presentation disclosures regarding the Company's equity method and other equity investments.

Changes in Presentation

Changes in presentation associated with adopting accounting pronouncements are included in Note 3.

Balance Sheet — Beginning in the second quarter of 2019, the Company presents "Contract balance – revenue in transit" as a separate line item on the consolidated balance sheets to improve visibility.

The balance was previously disclosed within the footnotes to the consolidated financial statements.

Prior period amounts have been reclassified out of "Trade receivables, net" to align with the current period presentation.

Statement of Cash Flows — The amounts presented in the Company's 2017 Annual Report were reclassified to align with the presentation in this Annual Report as follows:

"Transportation Resource Partners impairment," "Income from investment in Transportation Resource Partners," "Non-cash compensation expense for issuance of common stock to certain members of the Board of Directors," "Provision 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."

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"Proceeds from notes receivable," "Payments received on equipment sale receivables," "Cash payments to Transportation Resource Partners," and "Cash proceeds from Transportation Resource Partners" were reclassified to "Other cash flows from investing activities."

"Payment of deferred loan costs," "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 "Borrowings on Revolver, net" were reclassified to "Borrowings on revolving lines of credit, net."

Statement of Comprehensive Income — Beginning in the second quarter of 2019, the Company presents fuel surcharge revenue generated within only its Trucking segment within "Trucking fuel surcharge" in the consolidated statements of comprehensive income.

Fuel surcharge revenue generated within the remaining segments is included in "Revenue, excluding trucking fuel surcharge." Prior period amounts have been reclassified to align with the current period presentation.

During 2017, to simplify the presentation of the consolidated statements of comprehensive income, the Company changed its presentation of rental expenses related to revenue equipment, which is now separately presented within "Total operating expenses" in the consolidated statements of comprehensive income.

The prior period presentation has been retrospectively adjusted to reclassify the amount out of "Miscellaneous operating expenses" and into the new line item "Rental expense." The change in presentation has no net impact on "Total operating expenses."

In the transportation industry, results of operations generally follow a seasonal pattern.

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However, cyclical changes in the trucking industry, including imbalances in supply and demand, can override the seasonality faced in the industry.

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Impact of COVID-19

COVID-19 became a global pandemic in 2020, which triggered a significant downturn in the global economy.

The Company continues to operate its business through the COVID-19 pandemic and has taken additional precautions to ensure the safety of its employees, customers, vendors, and the communities in which it operates.

During 2020, the Company incurred $ 12.3 million of expenses (all within the first half of the year) directly attributable to the pandemic, which were incremental to those incurred prior to the outbreak.

These primarily pertained to payroll premiums paid to driving associates and shop technicians, additional disinfectants and cleaning supplies, and various other pandemic-specific items.

The costs are clearly separable from normal business operations and are not expected to recur once the pandemic subsides.

Note 2 — Summary of Significant Accounting Policies

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Significant items subject to such estimates and assumptions include:

carrying amount of property and equipment, intangibles, and goodwill;

valuation allowances for receivables, inventories, and deferred income tax assets;

valuation of financial instruments;

calculation of stock-based compensation;

• carrying amount of property and equipment;

• carrying amount of goodwill and intangible assets;

• estimates of claims accruals;

• contingent obligations;

• calculation of stock-based compensation;

• valuation allowance for deferred income tax assets;

• valuation allowances for receivables;

• valuation allowances for inventories;

• valuation of financial instruments.

Segments — The Company uses the "management approach" to determine its reportable segments, as well as to determine the basis of reporting the operating segment information.

Certain of the Company's operating segments

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have been aggregated into reportable segments.

Certain of the Company's operating segments have been aggregated into reportable segments.

The management approach focuses on financial information that management uses to make operating decisions.

The Company's chief operating decision makers use total revenue, operating expense categories, operating ratios, operating income, and key operating statistics to evaluate performance and allocate resources to the Company's operations and is based around the transportation service offerings provided to our customers, as well as the equipment utilized.

Operating income is the measure that management uses to evaluate segment performance and allocate resources.

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Cash and Cash Equivalents — Cash and cash equivalents are comprised of cash, money market funds, and highly liquid instruments with insignificant interest rate risk and original maturities of three months or less.

Cash balances with institutions may be in excess of Federal Deposit Insurance Corporation ("FDIC") limits or may be invested in sweep accounts that are not insured by the institution, the FDIC, or any other government agency.

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balances with institutions may be in excess of Federal Deposit Insurance Corporation ("FDIC") limits or may be invested in sweep accounts that are not insured by the institution, the FDIC, or any other government agency.

Restricted Cash and Equivalents — The Company's wholly-owned captive insurance companies, Red Rock and Mohave, maintain certain operating bank accounts, working trust accounts, and investment accounts.

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The assessment of whether impairments have occurred is based on management's case-by-case evaluation of the underlying reasons for the decline in estimated fair value.

Management accounts for other-than-temporary impairments of debt securities in accordance with ASC Topic 320, Investments – Debt Securities .

Management accounts for other-than-temporary impairments of debt securities in accordance with ASC Topic 320.

This guidance requires the Company to evaluate whether it intends to sell an impaired debt security or whether it is more likely than not that it will be required to sell an impaired debt security before recovery of the amortized cost basis.

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See Note 6 for additional disclosures regarding the Company's restricted investments.

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Inventories and Supplies — Inventories and supplies, which are included in "Other current assets" in the consolidated balance sheets, primarily consist of spare parts, tires, fuel, and supplies and are stated at lower of cost or net realizable value.

Depending on the class of inventory, cost is determined using the first-in, first-out method or average cost.

Replacement tires held in the shops are classified as inventory and expensed when placed in service.

Replacement tire costs incurred over the road are immediately expensed.

Property and Equipment — Property and equipment is stated at cost less accumulated depreciation.

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Maintenance and repairs are expensed as incurred.

Net gains on the disposal of property and equipment are presented in the consolidated statements of comprehensive income within "Miscellaneous operating expenses."

Tires on purchased revenue equipment are capitalized along with the related equipment cost when the vehicle is placed in service, and are depreciated over the life of the vehicle.

Depreciation of property and equipment is calculated on a straight-line basis down to the salvage value, as applicable, over the following estimated useful lives:

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Range (in years)

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Furniture and fixtures 3 — 10

Leasehold improvements

Life of the lease

Net gains on the disposal of property and equipment are presented in the consolidated statements of comprehensive income within "Miscellaneous operating expenses."

Tires on purchased revenue equipment are capitalized along with the related equipment cost when the vehicle is placed in service, and are depreciated over the life of the vehicle.

Replacement tires are classified as inventory and expensed when placed in service.

Leasehold improvements Life of the lease

*For finance leases involving revenue equipment, the depreciation period is equal to the term of the lease agreement.

Management believes that these methods properly spread the costs over the useful lives of the assets.

Management judgment is involved when determining estimated useful lives of the Company's long-lived assets.

Useful lives of the Company's long-lived assets are determined based on historical experience, as well as future expectations regarding the period the Company expects to benefit from the asset.

Factors affecting estimated useful lives of property and equipment may include estimating loss, damage, obsolescence, and Company policies around maintenance and asset replacement.

Management evaluates its property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC Topic 360, Property, Plant and Equipment .

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Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.

Estimating fair value includes several significant assumptions, including future cash flow estimates, determination of appropriate discount rates, and other assumptions that management believed reasonable under the circumstances.

Changes in these estimates and assumptions could materially affect the determination of fair value and/or impairment.

Goodwill — Management evaluates goodwill on an annual basis as of June 30 th , or more frequently if indicators of impairment exist.

The Company assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount.

If the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company conducts a two -step quantitative goodwill impairment test.

The first step of the quantitative impairment test involves comparing the fair values of the applicable reporting units with their carrying values.

The Company performs a quantitative analysis on an annual basis, in accordance with ASC Topic 350, Goodwill and Other Intangible Assets .

Management estimates the fair values of its reporting units using a combination of the income and market approaches.

If the carrying amount of a reporting unit exceeds the reporting unit's fair value, then management performs the second step of the quantitative impairment test.

The second step of the quantitative impairment test involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill.

Any amount by which the carrying value of the goodwill exceeds its implied fair value is recognized as an impairment loss.

If the carrying amount of a reporting unit exceeds the fair value, then management recognizes an impairment loss of the same amount.

This loss is only limited to the total amount of goodwill allocated to that reporting unit.

Refer to Note 11 for discussion of the results of the Company's annual evaluation as of June 30, 2020.

On a periodic basis, the Company assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount.

If the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company conducts a quantitative goodwill impairment test.

See Notes 5 and 11 for additional disclosures regarding the Company's goodwill.

Intangible Assets other than Goodwill — The Company's intangible assets other than goodwill primarily consist of acquired customer relationships and a trade name from the 2017 Merger, as well as intangibles from Knight's 2018 acquisition of Abilene and Knight's 2014 acquisition of Barr-Nunn Transportation, Inc.

and certain of its affiliates.

Amortization of acquired customer relationships is calculated on a straight-line basis over the estimated useful life, which ranges from 5 years to 20 years .

Amortization of acquired customer relationships and other intangibles is calculated on a straight-line basis over the estimated useful life, which ranges from 3 years to 20 years.

The trade names have indefinite useful lives and are not amortized, but are tested for impairment at least annually, unless events occur or circumstances change between annual tests that would more likely than not reduce the fair value.

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Management reviews its intangible assets for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable, in accordance with ASC Topic 350, Intangibles – Goodwill and Other.

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An impairment is recorded for any excess of the carrying amount over the estimated fair value, which is generally determined using discounted future cash flows.

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Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as necessary.

Estimating fair value includes several significant assumptions, including future cash flow estimates, determination of appropriate discount rates, royalty rates, and other assumptions that management believed reasonable under the circumstances.

Changes in these estimates and assumptions could materially affect the determination of fair value and/or impairment.

See Notes 5 and 11 for additional disclosures regarding the Company's intangible assets.

Claims Accruals — The Company is self-insured for a portion of its risk related to auto liability, workers' compensation, property damage, and cargo damage.

This self-insurance results from buying insurance coverage that applies in excess of a retained portion of risk for each respective line of coverage.

Self-insurance results from buying insurance coverage that applies in excess of a retained portion of risk for each respective line of coverage.

The Company accrues for the cost of the uninsured portion of pending claims by evaluating the nature and severity of individual claims and by estimating future claims development based upon historical claims development trends.

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See Notes 13 and 19 for additional disclosures regarding the Company's claims accruals.

Operating Leases (2019) — Management evaluates the Company’s leases based on the underlying asset groups.

Leases — 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.

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Accordingly, these insurance costs are excluded from the Company’s calculation of right-of-use assets and corresponding lease liabilities.

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• Short-Term Lease Exemption — Management has elected to apply the short-term lease exemption to all asset groups.

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To a lesser extent, certain short-term leases for revenue equipment, technology, and other assets are affected.

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• Discount Rate — The Company uses the rate implicit in the lease, when readily determinable.

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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.

Operating Leases (2018 and 2017) — In accordance with ASC Topic 840, Leases , property and equipment held under operating leases, and liabilities related thereto, are off-balance sheet.

All expenses related to operating leases were reflected in the consolidated statement of comprehensive income in "Rental expense." At lease inception, management determined whether the lease should be classified as operating or capital lease, based on the guidance set forth in ASC Topic 840.

Additionally at lease inception, management determined the useful life and estimated residual values of the related equipment.

Future minimum lease payments used in determining lease classification represented the minimum rental payments called for over the lease term, inclusive of residual value guarantees (if applicable) and amounts that would be required to be paid, if any, by the Company upon default for leases containing subjective acceleration or cross default clauses.

In connection with various operating leases, the Company issued residual value guarantees, which provided that if the Company did not purchase the leased equipment from the lessor at the end of the lease term, it was 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 the Company believed any manufacturer would refuse or be unable to meet its obligation, the Company recognized additional rental expense to the extent the Company believed the fair market value at the lease termination would be less than the Company's obligation to the lessor.

The Company believed that proceeds from the sale of equipment under operating leases would exceed the payment obligation on substantially all operating leases.

See Note 17 for additional disclosures regarding the Company's operating leases.

Fair Value Measurements — See Note 23 for accounting policies and financial information relating to fair value measurements.

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Contingencies — See Note 19 for accounting policies and financial information related to contingencies.

Revenue Recognition (2019 and 2018) — The Company adopted ASC Topic 606, Revenue from Contracts with Customers , on January 1, 2018.

Revenue Recognition — Management applies the five-step analysis to the Company's three reportable segments (Trucking, Intermodal, and Logistics).

The Company's other streams of revenue within the non-reportable segments (specifically its leasing and captive insurance subsidiaries) were determined to be out of the scope of ASC Topic 606, Revenue from Contracts with Customers .

Contract Identification — Management has identified that a legally enforceable contract with its customers is executed by both parties at the point of pickup at the shipper's location, as evidenced by the bill of lading.

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There is no significant financing component in the transaction price, as the Company's customers generally pay within the contractual payment terms of 30 to 60 days.

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Allocating Transaction Price to Performance Obligations — The transaction price is entirely allocated to the only performance obligation:

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Accordingly, revenue is recognized over time.

Management estimates the amount of revenue in transit at period end based on the number of days completed of the dispatch (which is generally one to three days for the Trucking segment, but can be longer for the Intermodal segment).

Management estimates the amount of revenue in transit at period end based on the number of days completed of the dispatch (which is generally one to three days for the trucking segments, but can be longer for intermodal operations).

Management believes this to be a faithful depiction of the transfer of services because if a load is dispatched, but terminates mid-route and the load is picked up by another carrier, then that carrier would not need to re-perform the services for the days already traveled.

Recognizing revenue over time is a change from the Company's past practice, under which revenue was recognized at the point in time that the freight was delivered (see "Revenue Recognition (2017)" below).

Based on the guidance in ASC Topic 606, management has determined that the Company acts as the principal (rather than the agent) with respect to revenue recognition within its Logistics segment.

Accordingly, the Company recognizes revenue on a gross basis, consistent with past practices.

The Company outsources the transportation of loads to third-party carriers through its logistics operations.

Management has determined that the Company is a principal in these arrangements, and therefore records revenue associated with these contracts on a gross basis.

The Company has the primary responsibility to meet the customers' requirements.

The Company invoices and collects from its customers and maintains discretion over pricing.

Additionally, the Company is responsible for the selection of third-party transportation providers to the extent used to satisfy customer freight requirements.

Significant judgments involved in the Company's revenue recognition and corresponding accounts receivable balances include:

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Uncollectible accounts are written off when deemed uncollectible, and accounts receivable are presented net of an allowance for doubtful accounts.

• Contract Balances — In-transit revenue balances are included in "Contract balance – revenue in transit" in the consolidated balance sheets.

The Company's contract liability balances are typically immaterial.

• Revenue Disaggregation — In considering the level at which the Company should disaggregate revenues pertaining to contracts with customers, management determined that there are no significant differences between segments in how the nature, amount, timing, and uncertainty of revenue or cash flows are affected by economic factors.

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Based on these considerations, management determined that revenues should be disaggregated by reportable segment.

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The Company recognizes operating lease revenue from leasing tractors and related equipment to independent contractors.

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Losses from lease defaults are recognized as offsets to revenue.

Revenue Recognition (2017) — In accordance with ASC 605-20-25-13, Services for Freight-in-Transit at the End of a Reporting Period, the Company recognized operating revenue and the related direct costs of such revenue when persuasive evidence of an arrangement existed, the fee was fixed and determinable, and collectability was probable, all of which occurred as of the date the freight was delivered.

Credit terms for customer accounts were generally on a net 30 day basis.

The Company established an allowance for doubtful accounts based on historical experience and any known trends or uncertainties related to customer billing and account collectability.

The Company reviewed the adequacy of its allowance for doubtful accounts on a quarterly basis.

Uncollectible accounts were written off when deemed uncollectible, and accounts receivable were presented net of an allowance for doubtful accounts.

Stock-based Compensation — The Company accounts for stock-based compensation expense in accordance with ASC Topic 718, Compensation – Stock Compensation.

ASC Topic 718 requires that all share-based payments to employees and non-employee directors, including grants of employee stock options, are recognized in the financial statements based upon a grant-date fair value of an award.

The fair value of performance units is estimated using the Monte Carlo Simulation valuation model.

ASC Topic 718 requires that all share-based payments to employees and non-employee directors, including grants of employee stock options, be recognized in the financial statements based upon a grant-date fair value of an award.

Equity awards settled in cash are remeasured at each reporting period and are recognized as a liability in the consolidated balance sheets during the vesting period until settlement.

• Fair Value — The fair value of performance units is estimated using the Monte Carlo Simulation valuation model.

The fair value of stock options is estimated using the Black-Scholes option-valuation model.

The requisite service period is the specified vesting date in the grant agreement or the date that the employee becomes retirement-eligible, whichever occurs first.

The Company calculates the number of awards expected to vest as awards granted, less expected forfeitures over the life of the award (estimated at grant date).

The fair value of restricted stock units is based on the closing price of Company's stock as of the grant date.

Compensation expense is recorded on a straight-line basis, by amortizing the grant-date fair value over the requisite service period of the entire award.

The fair value of restricted stock units is the closing stock price on the grant date.

• Vesting — The requisite service period is the specified vesting date in the grant agreement or the date that the employee becomes retirement-eligible, based on the terms of the grant agreement.

The Company calculates

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the number of awards expected to vest as awards granted, less expected forfeitures over the life of the award (estimated at grant date).

All awards require future service and thus forfeitures are estimated based on historical forfeitures and the remaining term until the related award vests.

Performance-based awards vest contingent upon meeting certain performance criteria established by the Company's compensation committee.

• Expense — Awards that are only subject to time-vesting provisions are amortized using the straight-line method, by amortizing the grant-date fair value over the requisite service period of the entire award.

Awards subject to time-based vesting and performance conditions are amortized using the individual vesting tranches.

Unless a material deviation from the assumed forfeiture rate is observed during the term in which the awards are expensed, any adjustment necessary to reflect differences in actual experience is recognized in the period the award becomes payable or exercisable.

Determining the appropriate amount to expense in each period is based on likelihood and timing of achievement of the stated targets for performance-based awards, and requires judgment, including forecasting future financial results and market performance.

The estimates are revised periodically, based on the probability and timing of achieving the required performance targets, and adjustments are made as appropriate.

See Note 21 for additional information relating to the Company's stock compensation plan.

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The effect on deferred tax assets and liabilities of changes in tax rates is recognized in income in the period that includes the enactment date.

Net deferred incomes taxes are primarily classified as noncurrent in the consolidated balance sheets.

Net deferred incomes taxes are classified as noncurrent in the consolidated balance sheets.

A valuation allowance is provided against deferred tax assets if the Company determines it is more likely than not that such assets will not ultimately be realized.

In making such determinations, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial operations.

To the extent management believes the likelihood of recovery is not sufficient, a valuation allowance is established for the amount determined not to be realizable.

Management judgment is necessary in determining the frequency at which the need for a valuation allowance is assessed, the accounting period in which to establish the valuation allowance, as well as the amount of the valuation allowance.

Unrecognized tax benefits are defined as the difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to ASC Topic 740, Income Taxes .

The Company does not recognize a tax benefit for uncertain tax positions unless it concludes that it is more likely than not that the benefit will be sustained on audit (including resolutions of any related appeals or litigation processes) by the taxing authority, based solely on the technical merits of the associated tax position.

If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that, in the management's judgment, is greater than 50 % likely to be realized.

The Company records expected incurred interest and penalties related to unrecognized tax positions in "Income tax expense (benefit)" in the consolidated statements of comprehensive income.

To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued are reduced and reflected as a reduction of the overall income tax provision.

If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that, in management's judgment, is greater than 50 % likely to be realized.

The Company records expected incurred interest and penalties related to unrecognized tax positions in "Income tax expense" in the consolidated income statements.

To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

Significant management judgment is required in determining the provision for income taxes and in determining whether deferred tax assets will be realized in full or in part.

Management periodically assesses the likelihood that all or some portion of deferred tax assets will be recovered from future taxable income.

Management judgment is also required regarding a variety of other factors including the appropriateness of tax strategies.

The Company utilizes certain income tax planning strategies to reduce its overall income taxes.

It is possible that certain strategies might be disallowed, resulting in an increased liability for income taxes.

Significant management judgments are involved in assessing the likelihood of sustaining the strategies and determining the likely range of defense and settlement costs, in the event that tax strategies are challenged by taxing authorities.

An ultimate result worse than the Company's expectations could adversely affect its results of operations.

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See Note 14 for additional disclosures regarding the Company's income taxes.

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Note 3 — Recently Adopted Accounting Pronouncements

Leases (ASC Topic 842):

ASU 2016-02 — Leases

Required annual disclosures regarding ASC Topic 842 are included in Note 17 .

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 consolidated balance sheet are presented below.

Opening Balance Adjustments

(in thousands)

Prepaid expenses 2

Operating lease right-of-use assets 1

Other long-term assets 2

Accounts payable 2

Accrued liabilities 2

Operating lease liabilities – current portion 1

Operating lease liabilities – less current portion 1

Deferred tax liabilities 3

Other long-term liabilities 2

These new line items on the consolidated balance sheets represent the capitalization of the Company's operating leases as lessee.

The effect of adopting ASC Topic 842 reflects certain reclassifications to adjust the right-of-use assets.

Amounts are reflective of deferred tax impacts from capitalizing the Company's operating leases.

Financial Instruments – Credit Losses (Topic 326) — Measurements of Credit Losses on Financial Instruments

Summary of the Standard — In June 2016, the FASB issued ASU 2016-13, which, in addition to several clarifying ASUs, established the new ASC Topic 326, Financial Instruments — Credit Losses ("CECL").

The new CECL standard amends the FASB's guidance on the impairment of financial instruments.

Specifically, it adds the CECL impairment model to GAAP which is based on expected losses rather than incurred losses.

This is intended to result in more timely recognition of such losses.

Under the new CECL standard, an entity recognizes as an allowance its estimate of lifetime expected credit losses.

The new CECL standard is also intended to reduce the complexity of GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments.

Further, the new CECL standard makes targeted changes to the impairment model for available-for-sale debt securities and moves the guidance from ASC Topic 320, Investments — Debt Securities, to ASC Subtopic 326-30.

For public business entities, the new standard was effective for annual and interim reporting periods beginning after December 15, 2019.

For most debt instruments, entities are required to adopt the new CECL standard using a modified retrospective approach, meaning that entities should record a cumulative-effect adjustment to equity as of the beginning of the first reporting period in which the guidance is effective.

Practical Expedient — As permitted under ASU 2016-13 (and related ASUs), management elected to apply the collateral-dependent financial asset practical expedient which allows entities to measure the expected credit losses for the financial asset by comparing the amortized cost basis with the fair value of the collateral at the reporting date, rather than using the fair value of the financial asset.

Current Period Impact of Adoption — The Company adopted ASC Topic 326 on January 1, 2020 using the modified retrospective approach.

Upon adoption of the standard management assessed the potential impact of the CECL model on each type of the Company's financial assets and determined that there was no material impact on the Company's financial statements or accounting policies.

Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract

Summary of the Standard — In August 2018, the FASB issued ASU 2018-15, which amended ASC Subtopic 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract ("Service CCA").

The amendments in ASU 2018-15 align the accounting for costs incurred to implement a Service CCA with previously codified guidance on capitalizing costs associated with developing or obtaining internal-use software.

Specifically, the ASU amends ASC Subtopic 350-40 to include in its scope implementation costs incurred with a Service CCA.

This addition clarifies that a customer should apply the guidance from ASC Paragraph 350-40-25 to determine which stage the project is in before assessing whether implementation costs should be capitalized in a Service CCA that is considered a service contract.

These capitalized items should be recorded within the same balance sheet line item as a prepayment for any fees.

Any capitalized costs from the Service CCA should be expensed over the term of the hosting arrangement, which includes the noncancelable period and any options to extend that are reasonably certain to be exercised and recorded in the same line item as fees associated with the hosting element of the arrangement.

The amendments in this ASU were effective for public business entities for fiscal years beginning after December 15, 2019 and could be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

Current Period Impact of Adoption — The Company adopted the amendments in ASU 2018-15 on January 1, 2020 and elected to apply the amendments on a prospective basis to implementation costs incurred after the date of adoption.

Upon review of the Service CCA's entered into subsequent to the implementation date, management has determined that adoption of the amendments has not had a material impact on the Company's financial statements and related accounting policies.

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Current Period Impact of Adoption — The required quantitative disclosures regarding the current period impact of adopting ASC Topic 842 on the consolidated balance sheet are presented below.

December 31, 2019

As Reported under ASC Topic 842

If Reported Under ASC Topic 840

Effect of Change to ASC Topic 842

(in thousands)

Prepaid expenses 2

Gross property and equipment 4

Accumulated depreciation and amortization 4

Operating lease right-of-use assets 1

Other long-term assets 2

Accounts payable 2

Accrued liabilities 2

Finance lease liabilities and long-term debt – current portion 4

Operating lease liabilities – current portion 1

Operating lease liabilities – less current portion 1

Deferred tax liabilities 3

Other long-term liabilities 2

Refer to tabular footnote 1 under "Adoption Date Impact" above.

Refer to tabular footnote 2 under "Adoption Date Impact" above.

Refer to tabular footnote 3 under "Adoption Date Impact" above.

Amounts represent reclassification of operating lease liabilities to finance lease liabilities, as the Company became reasonably certain to purchase certain revenue equipment off of operating leases during 2019 .

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 ASC 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 began excluding immaterial disclosures regarding fair value measurements from its Quarterly Reports and Annual Reports during the first quarter of 2019.

Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment

Summary of the Standard — In January 2017, the FASB issued ASU 2017-04, which amends ASC Topic 350 by simplifying the goodwill impairment test.

The amendments in this ASU are intended to simplify subsequent measurement of goodwill.

The key amendment in the ASU eliminates Step 2 from the goodwill impairment test, in which entities measured a goodwill impairment loss by comparing the implied fair value to the carrying amount of a reporting unit's goodwill.

Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value with the carrying amount of a reporting unit and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value.

The amendments also require companies to disclose the amounts of goodwill allocated to each reporting unit with a zero or negative carrying amount of assets.

The amendments were effective for public business entities for fiscal years beginning after December 15, 2019 and should be applied on a prospective basis.

Current Period Impact of Adoption — The Company adopted the amendments in ASU 2017-14 on January 1, 2020 on a prospective basis.

Management has updated the Company's accounting policy to incorporate the amendments in the ASU and has included the revised disclosure requirements in Note 2.

Refer to Note 11 for disclosures about the Company's goodwill balances.

There were various other ASUs that became effective during 2020, which did not have a material impact on the Company's results of operations, financial position, cash flows, or disclosures.

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Note 4 — Recently Issued Accounting Pronouncements

Expected Adoption Date and Method

Financial Statement Impact

Date Issued Reference Description Expected Adoption Date and Method Financial Statement Impact

August 2020 ASU No.

Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) – Accounting for Convertible Instruments and contracts in an Entity's Own Equity

The amendments in this ASU add disclosure requirements to convertible debt instruments and convertible preferred stock, require convertible instruments to be disclosed at fair value, and update the calculation requirements for diluted EPS.

The amendments in this ASU can be applied on a modified or fully retrospective basis and are effective for public entities for years beginning after December 15, 2021.

January 2022, Modified retrospective or fully retrospective No material impact

March 2020 2020-04:

Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting 1

The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The amendments in this ASU are effective for any interim period after March 12, 2020 and should be applied on a prospective basis.

March 2020, Prospective No material impact 2

March 2020 2020-03:

Codification Improvements to Financial Instruments 1

The amendments within this ASU updated several sections of the Codification and how various topics and subtopics interacted due to new guidance on financial instruments.

This includes addressing issues related to fair value option disclosures, line-of-credit or revolving-debt arrangements and leases among others.

The amendments should be applied prospectively and have varying effective dates, which were all in effect for public business entities prior to issuance of the ASU.

March 2020, Prospective No material impact

February 2020 2020-02:

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The amendments also codify SEC Staff announcement that it would not object to the FASB's update to effective dates for major updates which were amended within ASU 2019-10.

January 2021, Adoption method varies by amendment

Refer to ASU 2016-13, below.

Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815

January 2021, Adoption method varies by amendment No material impact

January 2020 2020-01:

The amendments clarify that an entity should consider observable transactions when determining to apply or discontinue the equity method for the purposes of applying the measurement alternative.

The amendments also clarify that an entity would not consider whether a purchased option would be accounted for under the equity method when applying ASC 815-10-15-141(a).

January 2021, Prospective

Currently under evaluation, but not expected to be material

January 2021, Prospective Currently under evaluation, but not expected to be material

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Date Issued Reference Description Expected Adoption Date and Method Financial Statement Impact

December 2019 2019-12:

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Additionally, the amendments intend to simplify income tax accounting by updating areas, including but not limited to, franchise taxes, evaluation of goodwill, allocation of current and deferred tax expenses, and various other areas.

January 2021, Adoption method varies by amendment

Currently under evaluation, but not expected to be material

November 2019

Codification Improvements to Topic 326 Financial Instruments — Credit Losses 1

The amendments address certain issues related to the implementation of ASU 2016-13 - Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments.

These include, among other things, including expected recoveries in the allowance for credit losses, extending disclosure relief for accrued interest balances to additional relevant disclosures, and clarifying that an entity should assess whether it expects the borrower will be able to continually replenish collateral securing the financial assets.

January 2020, Adoption method varies by amendment

Refer to ASU 2016-13, below.

November 2019

Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)

The amendments in this ASU update the private entity effective dates for the major updates 2016-13, 2017-12, and 2016-02.

The effective dates for these updates would remain the same for public business entities, but would be extended for smaller reporting companies, private companies, not-for-profit organizations and employee benefit plans.

January 2020, Prospective

Currently under evaluation, but not expected to be material

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Expected Adoption Date and Method

Financial Statement Impact

Codification Updates to SEC Sections – Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.

33-10532, Disclosure Update and Simplification, and Nos.

33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates 1

The amendments in this ASU update several topics of the ASC to incorporate changes required by guidance made effective by SEC Final Rule Nos.

33-10532, 33-10231, and 33-10442.

These final rules included, among other things, extending the disclosure requirement of presenting changes in stockholders' equity for both current and comparative interim periods, changing the title of the income statement to statement of comprehensive income, and disclosing the dividend per share amount for each class of stock.

July 2019, Prospective

Presentation and disclosure impact only

Financial Instruments – Credit Losses, Topic 326;

Targeted Transition

The amendments provide entities that hold instruments within the scope of Subtopic 326-20 with the option to irrevocably elect the fair value option in Subtopic 825-10.

This fair value option election does not apply to instruments classified as held-to-maturity debt securities.

January 2020, Adoption method varies by amendment

Refer to ASU 2016-13, below.

Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments 1

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 by removing the prohibition of using projections of future interest rate environments when using a discounted cash flow method to measure expected credit losses, outlining other targeted improvements that clarify language and intent, better defining scope, and improving 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

Refer to ASU 2016-13, below.

November 2018

Codification Improvements to Topic 326 – Financial Instruments – Credit Losses 1

The amendments in this ASU make targeted improvements to the implementation guidance in ASU 2016-13.

The amendments clarify that receivables arising from operating leases are not within the scope of ASC 326-20, but instead should be accounted for in accordance with ASC Topic 842.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2019.

Early adoption is permitted.

January 2020, Modified retrospective

Refer to ASU 2016-13, below.

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Expected Adoption Date and Method

Financial Statement Impact

Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract 2

The amendments align the requirements for capitalizing implementation costs in a hosting arrangement with the guidance for internal-use software, resulting in expensing preliminary or post-implementation project costs and capitalizing certain application development costs.

Previously, there was no specific guidance for these transactions which resulted in various accounting treatments.

The capitalized costs should be included in the balance sheet line that includes prepayment for the fees of the associated hosting arrangement, and amortized over the noncancellable period of the arrangement.

Amortization expense should be included in the income statement line that includes the fees associated with the hosting element of the arrangement.

Payments for capitalized implementation costs should be classified in the statement of cash flows in the same manner as payments made for hosting element fees.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2019.

Early adoption is permitted.

January 2020, Prospective

Refer to ASU 2018-05, below

Intangibles – Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment 3

The amendments in this ASU are intended to simplify subsequent measurement of goodwill.

January 2020, Prospective

Refer to ASU 2017-04, below.

Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments 1

The purpose of this ASU is to amend the current incurred loss impairment methodology with a new methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to inform credit loss estimates.

This is the final credit accounting standard, out of a series, with detailed guidance on the new loss reserve model, Current Expected Credit Losses ("CECL").

Among other provisions, the amendments in the ASU require a financial asset (or group of assets) measured at amortized cost basis to be presented at the net amount expected to be collected.

Entities are no longer required to wait until a loss is probable to record it.

January 2020, Modified retrospective

Refer to ASU 2016-13, below.

Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments — Management has established an implementation team to evaluate and implement the ASUs related to ASC Topic 326, commonly referred to as the CECL amendments.

The diagnostic phase of assessing the financial and business impacts of implementing the standard is nearly complete and includes identifying potential short-term and long-term financing receivables, determining credit quality indicators, analyzing the impact on systems (if any), and developing a preliminary assessment.

Based upon the procedures performed in the diagnostic phase, management anticipates that the following key considerations will impact the Company's accounting and reporting under the new standard:

identification and assessment of receivable pools,

identification of characteristics that drive credit risk to identify financing receivable pools, and

determining new/changed estimates and management judgments (if any).

The Company is not anticipating significant changes in accounting, reporting, business processes, or policies and controls as a result of implementing the standard.

Based on the information currently available from the diagnostic phase, management anticipates some minor changes in disclosures, but overall the impact on the financial statements is not expected to be material.

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Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract — Management has established an implementation team and is currently assessing the potential financial and business impacts of implementing the standard.

Based on a preliminary assessment, the Company expects to capitalize costs within the development stage of a cloud computing arrangement and continue to expense any costs in the preliminary or post implementation stages.

The Company is not expecting a material impact from adopting the amendments in this ASU and has established an implementation team to assess the impact, if any.

Intangibles – Goodwill and Other – (Topic 350):

Simplifying the Test for Goodwill Impairment — In accordance with the amendments in this ASU, the Company expects to update its goodwill impairment test procedures by comparing the fair value of each reporting unit with its carrying amount.

This differs from the current process of calculating the implied fair value of the reporting unit as if all of the assets and liabilities had been acquired in a business combination.

The Company is not expecting a material impact from adopting the amendments in this ASU.

January 2021, Adoption method varies by amendment Currently under evaluation, but not expected to be material

1 Adopted during the first quarter 2020.

2 As identified within the 2018 RSA, the lender can trigger an amendment by identifying and deciding upon a replacement for LIBOR.

Since management is continuing to evaluate the impacts of the above standards, disclosures around these preliminary assessments are subject to change.

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Note 5 — Merger and Acquisitions

On September 8, 2017, pursuant to the Agreement and Plan of Merger, dated as of April 9, 2017, by Swift Transportation Company, Bishop Merger Sub, Inc., a direct wholly owned subsidiary of Swift ("Merger Sub"), and Knight Transportation, Inc., Merger Sub merged with and into Knight, with Knight surviving as a direct wholly owned subsidiary of Swift (the "2017 Merger").

Immediately prior to the effective time of the 2017 Merger (the "Effective Time"), the certificate of incorporation of the Company was amended and restated (the "Amended Company Charter") to reflect, among other things, that:

the Company's corporate name changed from "Swift Transportation Company" to "Knight-Swift Transportation Holdings Inc.";

each issued and outstanding share of Class B common stock, par value $0.01 per share, of Swift was converted (the "Class B Conversion") into one share of Class A common stock, par value $0.01 per share, of Swift and immediately thereafter, each issued and outstanding share of Swift Class A common stock (including each share of Swift Class A common stock into which the shares Swift Class B common stock was converted pursuant to the Class B Conversion) was, by means of a reverse stock split (the "Reverse Split"), consolidated into 0.72 of a share of Class A common stock of the Company.

No fractional shares of Class A common stock were issued in the Reverse Split, and, in connection with the Reverse Split, holders of Class A common stock became entitled to receive cash in lieu of any fractional shares in accordance with the Amended Company Charter.

At the Effective Time, each share of Knight common stock, par value $0.01 per share, of Knight ("Knight Common Stock") issued and outstanding immediately prior to the Effective Time (other than shares held in the treasury of Knight or owned or held, directly or indirectly, by Swift or any wholly owned subsidiary of Swift or Knight, in each case not held in a fiduciary capacity on behalf of a third-party) was converted into the right to receive one share of the Company's Class A common stock.

Upon the closing of the 2017 Merger, the shares of Knight common stock that previously traded under the ticker symbol "KNX" on the NYSE ceased trading on, and were delisted from, the NYSE.

Shares of the Company's Class A common stock commenced trading on the NYSE, on a post-Reverse Split basis, under the ticker symbol "KNX" on September 11, 2017.

In 2017, the Company recorded $ 16.5 million of direct and incremental costs associated with 2017 Merger-related activities, primarily incurred for legal and professional fees, which were recorded in the "Merger-related costs" line in the consolidated statements of comprehensive income.

In association with the 2017 Merger, the Company incurred merger-related bonuses and accelerated stock compensation expense totaling $ 5.6 million , which is recorded in the "Salaries, wages, and benefits" line in the consolidated statements of comprehensive income.

Additionally, the Company incurred $ 0.9 million in merger-related statutory filing fees and miscellaneous expense, and $ 0.1 million in independent contractor retention expenses recorded within the "Miscellaneous operating expenses, net" and "Purchased transportation" lines in the consolidated statements of comprehensive income.

Purchase Price Allocation

Following the consummation of the 2017 Merger, Knight and Swift stockholders owned approximately 46 % and 54 % , respectively, of the Company.

Based on Knight's $ 40.85 per share closing price on September 8, 2017 and the fair value of Swift equity awards, consisting of outstanding stock options and certain unvested restricted stock units, and noncontrolling interest assumed by the Company totaling $ 13.2 million , the 0.72 of a combined company share that the Swift stockholders received in respect of each Class A share of Swift had an aggregate fair value of approximately $ 4.0 billion .

The purchase price allocation for the 2017 Merger has been 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 merger date.

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The following table summarizes the total fair value consideration transferred:

(In thousands, except ratio and stock price)

Number of Swift shares outstanding at September 8, 2017

Swift share consolidation ratio

Swift shares outstanding post-Reverse Split and immediately prior to the 2017 Merger

Closing price of Knight on September 8, 2017

Fair value of equity portion of the 2017 Merger consideration

Fair value of Swift equity awards and noncontrolling interest assumed

Total fair value of consideration transferred

The following is a summary of the allocation of purchase consideration to the estimated fair value of Swift's assets acquired and liabilities assumed in the 2017 Merger:

September 9, 2017 Opening Balance Sheet

Adjustments ¹

September 9, 2017 Opening Balance Sheet

(In thousands)

Fair value of the consideration transferred

Cash and cash equivalents

Restricted cash and fixed maturity securities

Trade and other receivables

Prepaid expenses

Other current assets

Property and equipment

Identifiable intangible assets ¹

Other noncurrent assets

Accounts payable

Accrued liabilities ²

Claims accruals

Long-term debt and capital lease obligations

Deferred tax liabilities ¹ ²

Other long-term liabilities

Total liabilities

Adjustments made to identifiable intangible assets, goodwill, and deferred tax liabilities pertain to management's re-evaluation of the royalty rate used associated with certain trade names.

Adjustments made to accrued liabilities, goodwill, and deferred tax liabilities were due to new information obtained related to certain legal matters that were outstanding as of the 2017 Merger closing date.

The goodwill is primarily attributable to Swift's existing workforce and the synergies expected to arise after the 2017 Merger.

These acquired capabilities, when combined with Knight's business, will result in opportunities that allow us to provide services under contracts that could not have been pursued individually by either Knight or Swift.

The Company allocated goodwill to its reportable segments (as presented in Note 11 ).

The goodwill will not be deductible for tax purposes.

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The estimated fair value of the acquired identifiable intangible assets is based on a valuation completed for Swift, along with related tangible assets, using a combination of the income method and comparable market transactions.

Following are the details of the preliminary purchase price allocated to the identifiable intangible assets acquired:

Estimated Life

Estimated Fair Value as of September 9, 2017

Adjustments ¹

Adjusted Estimated Fair Value as of September 9, 2017

Customer relationships

10 - 20 years

Total identifiable intangible assets

See 1, above for nature of the adjustments made to intangible assets.

The Company's 2017 consolidated financial statements include Swift's results of operations after September 8, 2017 (closing of the 2017 Merger) through December 31, 2018 .

During 2017, Swift's total revenue and net income included within the Company's consolidated operating results was $ 1.3 billion and $ 95.7 million , respectively.

Swift's net income for this period includes a $ 16.8 million impairment charge primarily related to termination of implementation of Swift's ERP system, as well as $ 12.9 million related to the amortization of intangibles acquired in the 2017 Merger.

Note 5 — Acquisitions

Abilene Acquisition

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The equity purchase agreement contains customary representations, warranties, covenants, and indemnification provisions.

The results of the acquired business have been included in the consolidated financial statements since the date of acquisition and represe nt 2.0 % in 2019 and 1.6 % in 2018 of consolidated total revenue, and 2.3 % in 2019 and 2.1 % in 2018 of consolidated net income attributable to Knight-Swift .

The acquired business also represented 1.6 % and 1.7 % of consol idated total assets as of December 31, 2019 and 2018, respectively.

The results of the acquired business have been included in the consolidated financial statements since the date of acquisition and represent 2.2 % in 2020, 2.0 % in 2019, and 1.6 % in 2018 of consolidated total revenue, and 2.8 % in 2020, 2.3 % in 2019, and 2.1 % in 2018 of consolidated net income attributable to Knight-Swift .

The acquired business also represented 1.8 % and 1.6 % of consolidated total assets as of December 31, 2020 and 2019, respectively.

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.

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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

March 16, 2018 Opening Balance Sheet Adjustments Adjusted

March 16, 2018 Opening Balance Sheet

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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

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Total liabilities 4,608 6,698 11,306

Goodwill $ 22,244 $ 5,156 $ 27,400

1 Includes $ 17.9 million in customer relationships and a $ 4.7 million trade name.

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No material statement of comprehensive income effects were identified with these adjustments.

Consolidated Pro Forma Information

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.

(in thousands, except per share data)

Total revenue

Net income attributable to Knight-Swift

Earnings per diluted share

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 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.

Other Acquisition

On January 1, 2020 , pursuant to a stock purchase agreement (the "SPA") the Company acquired 100.0 % of the equity interests of a warehousing-related company (the "Warehousing Co.") with locations throughout the Central US.

The total purchase price consideration of $ 66.9 million included $ 48.2 million in cash to the sellers at closing, which was funded through cash-on-hand and borrowing on the Revolver on the transaction date.

At closing, $ 6.8 million of the cash consideration was placed in escrow to secure certain of the sellers' indemnification obligations.

During the third quarter of 2020, the escrow proceeds were released to the sellers pursuant to the SPA.

The purchase price also included contingent consideration consisting of three additional annual payments of up to $ 8.1 million each (or $ 24.3 million in total), representing the maximum possible annual deferred payments to the sellers based on Warehousing Co.'s earnings before interest and taxes ("EBIT") for each of the calendar years ending December 31, 2020, December 31, 2021, and the annualized six-month period ending June 30, 2022.

In order to estimate Warehousing Co.'s future performance, the Company utilized the Monte Carlo simulation method using certain inputs, including Warehousing Co.'s forecasted EBIT, discount rate, dividend yields, expected volatility, and expected stock returns during the above measurement periods.

Based on the above inputs, the present value of the total contingent consideration, along with the estimated net working capital adjustment equaled $ 18.7 million as of January 1, 2020.

During the measurement period, the net working capital adjustment was reduced by $ 0.4 million based on the actual versus estimated net working capital adjustment as of the transaction date.

This adjustment resulted in the total estimated contingent consideration and net working capital adjustment decreasing to $ 18.3 million.

The total purchase price consideration, as if adjusted at the January 1, 2020 transaction date, is identified in the table below.

During the fourth quarter of 2020, the Company paid the first annual payment of $ 8.1 million as a result of the achievement of Warehousing Co.’s EBIT performance target for the calendar year December 31, 2020.

Additionally, during the fourth quarter of 2020, the Company increased the estimated fair value of the remaining contingent consideration representing the final two annual payments, resulting in a $ 6.7 million fair value adjustment

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Other Acquisition

On January 1, 2020 , the Company purchased 100.0 % of the equity interests of a small company, complementary to its suite of services, for total consideration of approximately $ 72.5 million .

This consisted of $ 48.2 million in cash consideration and approximately $ 24.3 million in potential payments to the former shareholders, contingent upon the achievement of certain performance thresholds.

of the deferred earnout, which was recorded in “Miscellaneous operating expenses” in the consolidated statement of comprehensive income.

As such, as of December 31, 2020, the remaining estimated contingent consideration was $ 16.2 million representing the fair value of the remaining annual deferred payments for the calendar year December 31, 2021 and the annualized six-month period ending June 30, 2022.

The SPA 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 SPA contains customary representations, warranties, covenants, and indemnification provisions.

The goodwill recognized represents expected synergies from combining the operations of Warehousing Co.

with the Company, including enhanced service offerings, 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 January 1, 2020 acquisition date.

The following table summarizes the fair value of the consideration transferred as of the acquisition date:

January 1, 2020 Opening Balance Sheet as Reported at March 31, 2020 Adjustments January 1, 2020 Opening Balance Sheet as Reported at December 31, 2020

(in thousands)

Fair value of the consideration transferred $ 66,854 $ ( 410 ) $ 66,444

Cash and cash equivalents 1,388 — 1,388

Trade and other receivables 3,301 — 3,301

Prepaid expenses 608 — 608

Other current assets 78 — 78

Property and equipment 1,938 — 1,938

Operating lease right-of-use assets 12,356 — 12,356

Identifiable intangible assets 1

55,681 — 55,681

Deferred tax assets 54 — 54

Other noncurrent assets 404 — 404

Total assets 75,808 — 75,808

Accounts payable ( 347 ) — ( 347 )

Accrued liabilities ( 644 ) — ( 644 )

Operating lease liabilities – current portion ( 4,451 ) — ( 4,451 )

Operating lease liabilities – less current portion ( 7,905 ) — ( 7,905 )

Total liabilities ( 13,347 ) — ( 13,347 )

Goodwill $ 4,393 $ ( 410 ) $ 3,983

1 Includes $ 53.8 million in customer relationships, $ 0.7 million in noncompete agreements, $ 0.6 million in internally developed software, and a $ 0.6 million trade name.

On February 1, 2021 , the Company used $ 41.3 million in cash to acquire 79.4 % of the equity interest in Eleos, a Greenville, South Carolina based software provider, specializing in mobile driving workflow platforms to help complement its suite of services.

The acquisition is not considered significant and does not require separate reporting.

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Note 6 — Restricted Investments, Held-to-Maturity

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Gross Unrealized

Cost or Amortized Cost

Estimated Fair Value

Cost or Amortized Cost Gains Temporary

Losses Estimated Fair Value

(In thousands)

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Gross Unrealized

Cost or Amortized Cost

Estimated Fair Value

Cost or Amortized Cost Gains Temporary

Losses Estimated Fair Value

(In thousands)

US corporate securities $ 8,912 $ 4 $ ( 1 ) $ 8,915

Municipal bonds

Negotiable certificates of deposit

Restricted investments, held-to-maturity $ 8,912 $ 4 $ ( 1 ) $ 8,915

As of December 31, 2020, the contractual maturities of the restricted investments were one year or less.

There were 7 and 20 securities that were in an unrealized loss position, all for less than twelve months as of December 31, 2019 and 2018 , respectively.

The Company did not recognize any impairment losses related to restricted investments during 2019 , 2018 , or 2017 .

There were sixteen and seven securities that were in an unrealized loss position, all for less than twelve months as of December 31, 2020 and 2019, respectively.

The Company did no t recognize any impairment losses related to restricted investments during 2020, 2019, or 2018.

Refer to Note 2 for accounting policy and Note 23 for additional information regarding fair value measurements of restricted investments.

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Note 7 — Transportation Resource Partners

Since 2003, Knight has entered into partnership agreements with entities that make privately-negotiated equity investments, including Transportation Resource Partners ("TRP"), Transportation Resource Partners III, LP ("TRP III"), TRP Capital Partners, LP ("TRP IV"), TRP CoInvest Partners, (NTI) I, LP ("TRP Coinvestment NTI"), TRP CoInvest Partners, (QLS) I, LP ("TRP Coinvestment QLS"), and TRP Coinvest Partners, FFR I, LP ("TRP Coinvestment FFR").

Note 7 — Equity Investments

Transportation Resource Partners

Since 2003, Knight has entered into partnership agreements with entities that make privately-negotiated equity investments, including Transportation Resource Partners III, LP ("TRP III"), TRP Capital Partners, LP ("TRP IV"), TRP Capital Partners V, LP ("TRP V"), TRP CoInvest Partners, (NTI) I, LP ("TRP IV Coinvestment NTI"), TRP CoInvest Partners, (QLS) I, LP ("TRP IV Coinvestment QLS"), TRP Coinvest Partners, FFR I, LP ("TRP IV Coinvestment FFR"), and TRP Coinvest Partners V (PW) I, LP ("TRP V Coinvest").

In these agreements, Knight committed to invest in return for an ownership percentage.

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Knight's Ownership

Total Commitment (All Partners)

Knight's Contracted Commitment

Knight's Remaining Commitment

Total Commitment (All Partners) Knight's Contracted Commitment Knight's Remaining Commitment

(Dollars in thousands)

TRP – equity investment 2

TRP III – equity method investment 3 5

4.8 % $ 245,000 $ 15,000 $ 1,709

TRP IV – equity investment 2 4

TRP Coinvestment NTI – equity method investment 5

TRP Coinvestment QLS – equity method investment 5

TRP Coinvestment FFR – equity method investment 5 6

3.6 % $ 116,065 $ 4,900 $ 692

TRP IV Coinvestment NTI – equity method investment 5

8.3 % $ 120,000 $ 10,000 $ —

TRP IV Coinvestment QLS – equity method investment 25.0 % $ 39,000 $ 9,735 $ —

TRP IV Coinvestment FFR – equity method investment 5

7.4 % $ 66,555 $ 4,950 $ —

TRP V - equity method investment 6 7

20.0 % $ 124,800 $ 20,000 $ 16,545

TRP V Coinvest - equity method investment 5 6

18.2 % $ 22,000 $ 4,000 $ —

1 The Company's share of the results is included within "Other income, net" in the consolidated statements of comprehensive income.

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2 In accordance with ASC Topic 321, Investments – Equity Securities , these investments are recorded at cost minus impairment.

Management anticipates that the following amounts will be due:

$ 1.7 million in 2020.

3 Management anticipates that $ 1.7 million will be due in 2021.

4 Management anticipates that the following amounts will be due:

$ 0.1 million in 2020, $ 0.2 million from 2021 through 2022, $ 0.2 million from 2023 through 2024, and $ 0.3 million thereafter .

The TRP Coinvestments are unconsolidated majority interests.

Management considered the criteria set forth in ASC 323, Investments – Equity Method and Joint Ventures , to establish the appropriate accounting treatment for these investments.

$ 0.1 million in 2021, $ 0.2 million from 2022 through 2023, $ 0.4 million from 2024 through 2025, and none thereafter .

5 The TRP III, TRP IV Coinvestments, and TRP V Coinvest are unconsolidated majority interests.

Management considered the criteria set forth in ASC Topic 323, Investments – Equity Method and Joint Ventures , to establish the appropriate accounting treatment for these investments.

This guidance requires the use of the equity method for recording investments in limited partnerships where the "so minor" interest is not met.

As such, the investments are being accounted for under the equity method.

Knight's ownership interest reflects its ultimate ownership of the portfolio companies underlying the TRP Coinvestment NTI, TRP Coinvestment QLS, and TRP Coinvestment FFR legal entities.

The Company entered into the agreement in the first quarter of 2019.

Knight's ownership interest reflects its ultimate ownership of the portfolio companies underlying the TRP III, TRP IV Coinvestment NTI, TRP IV Coinvestment FFR, TRP V, and TRP V Coninvest legal entities.

6 The Company entered into the agreement in 2020.

7 Management anticipates that the following amounts will be due:

$ 5.4 million in 2021, $ 7.8 million from 2022 through 2023, $ 1.7 million from 2024 through 2025, and $ 1.6 million thereafter.

Other Equity Method Investments

On October 1, 2020, the Company used approximately $ 39.6 million in cash to purchase 21.0 % of the equity interests of a transportation-related company ("Holdings Co."), complementary to its suite of services.

Based on Holdings Co.'s board of directors and the Company's minority rights, the Company has concluded that its investment allows it to exercise significant influence over the operational and financial decisions of Holdings Co.

and therefore has recorded the transaction as an equity method investment.

The carrying amount of the Company's initial investment in Holdings Co.

was approximately $ 36.6 million in excess of the Company's initial underlying equity interest in the net assets in Holdings Co.

This basis difference represents the Company's proportionate share of the fair value of Holdings Co.'s net tangible assets and its identified intangible assets, with the remaining excess recognized as equity method goodwill.

The Company's proportionate share of certain identified definite-lived intangibles are amortized over their estimated useful lives and accreted against the earnings recognized from the Company's interest in Holdings Co.

Net Investment Balances

Net investment balances included in "Other long-term assets" in the consolidated balance sheets were as follows:

(in thousands)

TRP – equity investment ¹

TRP III – equity method investment $ 217 $ 252

TRP IV – equity investment 1

TRP Coinvestment NTI – equity method investment

TRP Coinvestment QLS – equity method investment

TRP Coinvestment FFR – equity method investment

TRP IV Coinvestment NTI – equity method investment 5,609 6,225

TRP IV Coinvestment QLS – equity method investment 16,240 16,383

TRP IV Coinvestment FFR – equity method investment 4,905 4,950

TRP V – equity method investment 3,304 —

TRP V Coinvest – equity method investment 4,000 —

– equity method investment 2

Total carrying value $ 77,562 $ 30,878

1 In accordance with ASC Topic 321, Investments – Equity Securities , these investments are recorded at cost minus impairment.

2 In accordance with ASC Topic 323, Investments – Equity Method and Joint Ventures, the net investment balance includes accretion of amortization of certain definite-lived intangibles.

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Equipment manufacturers 5,680 5,146

Other 24,281 20,092

Trade receivables 600,572 536,725

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Trade receivables, net $ 578,479 $ 518,547

Refer to Note 1 for change in presentation regarding "Contract balance – revenue in transit"

The following is a rollforward of the allowance for doubtful accounts for trade receivables:

2020 2019 2018

(In thousands)

4 unchanged sentences

Ending balance $ 22,093 $ 18,178 $ 16,355

Increase in allowance for doubtful accounts relates to trade receivables assumed in 2017 from Swift as part of the 2017 Merger and in 2018 from the Abilene Acquisition.

See Note 5 for further details regarding these transactions.

1 Represents allowance for doubtful trade accounts receivables assumed in 2018 from the Abilene Acquisition.

See Note 5 for further details regarding this transaction.

See Note 15 for a discussion of the Company's accounts receivable securitization program and the related accounting treatment.

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The following is a rollforward of the allowance for doubtful notes receivable:

2020 2019 2018

(In thousands)

Beginning balance $ 503 $ 1,051 $ 1,040

(Reduction) provision

Provision (reduction) 464 ( 137 ) ( 100 )

Write-offs ( 365 ) ( 411 ) ( 103 )

Ending balance $ 602 $ 503 $ 1,051

Represents an increase in allowance for doubtful notes associated with notes receivable assumed in 2017 from Swift as part of the 2017 Merger and in 2018 from the Abilene Acquisition.

See Note 5 for further details regarding these transactions.

1 Represents allowance for doubtful notes receivable assumed in 2018 from the Abilene Acquisition.

See Note 5 for further details regarding this transaction.

Note 10 — Assets Held for Sale

1 unchanged sentence

Revenue equipment held for sale totaled $ 29.8 million and $ 41.8 million as of December 31, 2020 and 2019, respectively.

Net gains on disposals, including disposals of property and equipment classified as assets held for sale, reported in "Miscellaneous operating expenses" in the consolidated statements of comprehensive income were $ 32.9 million during 2019 and $ 37.0 million during 2018 .

Net gains on disposals, including disposals of property and equipment classified as assets held for sale, reported in "Miscellaneous operating expenses" in the consolidated statements of comprehensive income were $ 9.7 million during 2020, $ 32.9 million during 2019, and $ 37.0 million during 2018.

The Company's net carrying value of land and facilities classified as held for sale in the consolidated balance sheets as of December 31, 2020 and December 31, 2019 was zero .

In 2019 , the Company incurred $ 0.4 million of impairment losses related to certain Swift legacy trailer models as a result of a softer used equipment market.

The Company did not recognize any impairment losses related to assets held for sale during 2018 and 2017 .

During 2020, t he Company incurred impairment losses of $ 0.5 million primarily related to certain tractors and trailers as a result of a softer used equipment market.

During 2019, the Company incurred impairment losses of $ 0.4 million primarily related to certain Swift legacy trailer models as a result of a softer used equipment market.

The Company did no t recognize any impairment losses related to assets held for sale during 2018.

Note 11 — Goodwill and Other Intangible Assets

The changes in the carrying amounts of goodwill were as follows:

2020 2019 2018

(In thousands)

1 unchanged sentence

Amortization relating to deferred tax assets ( 11 ) ( 232 ) ( 17 )

Abilene Acquisition ¹

Acquisitions 1

3,983 48 27,352

Goodwill related to 2017 Merger 2

Goodwill at end of period $ 2,922,964 $ 2,918,992 $ 2,919,176

The goodwill associated with the Abilene Acquisition was allocated to the Trucking segment.

See Note 5 regarding the amount attributed to adjustments to the March 17, 2018 opening balance sheet.

1 The goodwill associated with the Warehousing Co.

acquisition and Abilene Acquisition was allocated to the non-reportable and Trucking segments, respectively.

See Note 5 regarding the amount attributed to adjustments to the opening balance sheets.

2 The goodwill adjustment associated with the 2017 Merger was allocated to the Trucking segment.

See Note 5 regarding the nature of the adjustment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

The following presents the components of goodwill by segment as of December 31, 2019 and 2018 :

The following presents the components of goodwill by reportable segment as of December 31, 2020 and 2019:

Net Carrying Amount 1

1 unchanged sentence

(In thousands)

Trucking $ 2,658,095 $ 2,658,106

Intermodal 175,594 175,594

Logistics 42,512 42,512

Non-reportable 46,763 42,780

Goodwill $ 2,922,964 $ 2,918,992

1 Except for the net accumulated amortization related to deferred tax assets in the Trucking segment, the net carrying amount and gross carrying amount are equal since there are no accumulated impairment losses.

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(In thousands)

Customer relationships and non-compete:

Definite-lived intangible assets:

Gross carrying amount

$ 894,597 $ 839,516

Accumulated amortization ( 145,852 ) ( 99,957 )

Customer relationships and non-compete, net

Definite-lived intangible assets, net 748,745 739,559

Gross carrying amount 640,500 639,900

Intangible assets, net $ 1,389,245 $ 1,379,459

The $ 1.4 million increase in the gross carrying amount of intangible assets from December 31, 2018 to December 31, 2019 is primarily due to a small acquisition that occurred during 2019.

1 The major categories of the Company's definite-lived intangible assets include customer relationships, non-compete agreements, internally-developed software, and others.

The following table presents amortization of intangible assets related to the 2017 Merger and intangible assets related to various acquisitions:

2020 2019 2018

(In thousands)

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The Company's customer relationship intangible assets related to the 2017 Merger are being amortized over a weighted average amortization period of 19.9 years.

As of December 31, 2019 , management anticipates that the composition and amount of amortization associated with intangible assets will be $ 42.8 million for each of the years 2020 and 2021, $ 42.7 million in 2022, and $ 42.4 million in each of the years 2023 and 2024.

As of December 31, 2020, management anticipates that the composition and amount of amortization associated with intangible assets will be $ 45.9 million in 2021, $ 45.8 million in 2022, $ 45.2 million for each of the years 2023 and 2024, and $ 45.1 million in 2025.

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.

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Accrued payroll 1

$ 114,835 $ 70,534

Accrued purchased transportation 46,053 39,531

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This expense was included in "Salaries, wages, and benefits" in the consolidated statements of comprehensive income.

As of December 31, 2019 and 2018 , the balance above included $ 9.1 million and $ 6.4 million , respectively, in matching contributions for the 401(k) plans.

As of December 31, 2020 and 2019, the balance above in accrued payroll included $ 12.8 million and $ 9.1 million, respectively, in matching contributions for the 401(k) plans.

The following table presents the composition of accrued liabilities:

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Accrued legal 1

$ 20,206 $ 121,312

Other 68,688 53,910

Accrued liabilities $ 88,894 $ 175,222

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The current portion reflects the amount of claims expected to be paid in the following year.

The Company's insurance program for workers' compensation, auto and collision liability, physical damage, independent contractor claims, and cargo damage involves self-insurance with varying risk retention levels.

The Company's insurance program for workers' compensation, auto and collision liability, physical damage, independent contractor claims, cargo damage, and medical involves self-insurance with varying risk retention levels.

Claims accruals were comprised of the following:

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Self Insurance

Automobile Liability, General Liability, and Excess Liability — Effective November 1, 2019, the Company has $ 130.0 million excess auto liability ("AL") coverage.

From November 1, 2018 to October 31, 2019, the Company had $ 250.0 million excess AL coverage.

Prior to November 1, 2018, Swift’s excess AL coverage was $ 250.0 million and Knight’s excess AL coverage was $ 130.0 million .

During the above policy periods, Swift AL claims are subject to a $ 10.0 million self-insured retention ("SIR") per occurrence and Knight AL claims are subject to a $ 1.0 million to $ 3.0 million SIR per occurrence.

Additionally, Knight carries a $ 2.5 million aggregate deductible for any loss or losses within the $ 5.0 million excess of $ 5.0 million layer of coverage.

Automobile Liability, General Liability, and Excess Liability — Effective November 1, 2020, the Company has $ 100.0 million in excess auto liability ("AL") coverage.

Effective November 1, 2019, the Company had $ 130.0 million in excess AL coverage.

For prior years, Swift and Knight separately maintained varying excess AL and general liability limits.

During prior policy periods, Swift AL claims were subject to a $ 10.0 million self-insured retention ("SIR") per occurrence and Knight AL claims were subject to a $ 1.0 million to $ 3.0 million SIR per occurrence.

Additionally, Knight carried a $ 2.5 million aggregate deductible for any loss or losses within the $ 5.0 million excess of $ 5.0 million layer of coverage.

Effective March 1, 2020, Knight and Swift retain the same $ 10.0 million SIR per occurrence.

Cargo Damage and Loss — The Company is insured against cargo damage and loss with liability limits of $ 1.0 million per truck or trailer with a $ 10.0 million limit per occurrence.

This coverage also includes a $ 1.0 million limit for tobacco loads and a $ 250 thousand deductible.

Workers' Compensation and Employers' Liability — The Company is self-insured for workers' compensation coverage.

1 unchanged sentence

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.

Employee Health Care — Through December 31, 2019, Knight maintained primary and excess coverage for employee medical expenses and hospitalization, with a $ 0.3 million self-insured retention per claimant, while Swift was fully insured on its medical benefits (subject to contributed premiums).

Effective January 1, 2020, Knight-Swift provides primary and excess coverage for employee medical expenses and hospitalization, with self-insured retention of $ 0.3 million per claimant to all employees.

Prior to March 1, 2019, the Knight SIR was $ 1.0 million per each accident or disease.

Medical — Knight maintains primary and excess coverage for employee medical expenses, with a $ 0.3 million SIR per claimant.

Through December 31, 2019, Swift was fully insured on its medical benefits (subject to contributed premiums).

Effective January 1, 2020, Swift provides primary and excess coverage for employee medical expenses, with an SIR of $ 0.5 million per claimant to all employees.

See Note 2 for accounting policy regarding the Company's claims accruals.

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The following table presents the Company's income tax expense:

2020 2019 2018

(In thousands)

Current expense:

Federal $ 80,060 $ 50,703 $ 44,357

State 19,153 16,616 22,300

Foreign 4,248 5,526 3,124

103,461 72,845 69,781

Deferred expense (benefit):

Income tax expense (benefit)

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Rate Reconciliation — Expected tax expense is computed by applying the US federal corporate income tax rate of 21.0 % to earnings before income taxes for 2019 and 2018, and 35.0 % for 2017.

Federal 29,640 28,618 59,508

State 7,292 3,712 1,639

Foreign 9,283 ( 1,377 ) 461

46,215 30,953 61,608

Income tax expense $ 149,676 $ 103,798 $ 131,389

Rate Reconciliation — Expected tax expense is computed by applying the US federal corporate income tax rate of 21.0 % to earnings before income taxes for 2020, 2019 and 2018.

Actual tax expense differs from expected tax expense as follows:

2020 2019 2018

(In thousands)

3 unchanged sentences

Statutory rate change effect on deferred taxes — — 452

Income tax expense (benefit)

Other 9,588 ( 940 ) ( 5,797 )

Income tax expense $ 149,676 $ 103,798 $ 131,389

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Deferred Income Taxes — The components of the net deferred tax asset (liability) included in "Deferred tax liabilities" in the consolidated balance sheets were:

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Accrued liabilities 17,941 32,284

Vacation accrual

Operating lease liabilities 1

29,278 44,231

Total deferred tax assets 1

152,771 176,543

Valuation allowance — —

Total deferred tax assets, net 1

152,771 176,543

Deferred tax liabilities:

2 unchanged sentences

Intangible assets ( 334,618 ) ( 345,555 )

Operating lease right-of-use assets 1

( 28,259 ) ( 41,018 )

Other ( 6,857 ) —

Total deferred tax liabilities 1

Deferred tax liabilities

Valuation Allowance — As of December 31, 2019 , the Company had a federal net operating loss carryforward with estimated tax effects of $ 0.2 million .

The federal net operating loss will expire at various times between 2030 and 2032 .

As of December 31, 2019 , the Company had state income tax credit carryforwards for which a deferred tax asset was recorded in the amount of $ 0.1 million and expires in the year 2022.

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 asserts that it is more like ly than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.

( 968,712 ) ( 948,262 )

Deferred income taxes $ ( 815,941 ) $ ( 771,719 )

1 Prior year amounts within the table above have been reclassified to conform to current year presentation.

Valuation Allowance — The Company has not established a valuation allowance as it has been determined that, based upon available evidence, a valuation allowance is no t required.

Management believes that it is more like ly 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.

2 unchanged sentences

As such, the Company is not required to provide withholding taxes on these earnings until they are repatriated in the form of dividends or otherwise.

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During the fourth quarter of 2020 our Mexico subsidiary distributed/repatriated $ 23.0 million to the US company.

The taxes that resulted were insignificant.

Unrecognized Tax Benefits — The Company's unrecognized tax benefits as of December 31, 2020 would favorably impact the Company's effective tax rate if subsequently recognized.

See Note 2 for accounting policy related to the Company's income taxes.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for 2019 , 2018 , and 2017 is as follows:

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for 2020, 2019, and 2018 is below:

2020 2019 2018

(In thousands)

1 unchanged sentence

Increases for tax positions taken prior to beginning of year — 38 1,056

Increases for tax positions taken in the current year

Decreases for tax positions taken prior to beginning of year ( 1,133 ) ( 3,378 ) ( 729 )

Unrecognized tax benefits at end of year $ 2,950 $ 4,083 $ 7,423

Increases for tax positions related to the benefit received for federal deductions taken on the Company's subsidiary amended return for the 2015 tax year.

Decreases in tax positions related primarily to the release of the FIN 48 reserve for federal deductions, federal credits, and various state apportionment issues for years ranging from 2000 through 2013.

The Company anticipates a decrease of $ 1.0 million of unrecognized tax benefits during the next twelve months.

Interest and Penalties — Accrued interest and penalties as of December 31, 2019 and 2018 were approximately $ 0.4 million and $ 1.4 million , respectively.

Tax Examinations — The Company is currently under examination by the IRS for the 2012 tax year and management does not expect any adjustments that would have a material impact on the Company's effective tax rate.

Certain of the Company's subsidiaries are also currently under examination by various state jurisdictions for tax years ranging from 2013 to 2017 .

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Increases for tax positions are related to the benefit received for federal deductions taken on the Company's subsidiary amended returns.

Decreases for tax positions are related to federal deductions, which were reserved according to ASC 740-10.

Management does not expect a decrease in unrecognized tax benefits during the next twelve months.

Interest and Penalties — Accrued interest and penalties was approximately $ 0.3 million and $ 0.4 million for the years ended December 31, 2020 and December 31, 2019, respectively.

Tax Examinations — Certain of the Company's subsidiaries are currently under examination by various state jurisdictions for tax years ranging from 2013 to 2019 .

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.

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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.

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The following table summarizes the key terms of the 2018 RSA (dollars in thousands):

July 11, 2018

Effective July 11, 2018

Final maturity date 1

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one month LIBOR + 80 to 100 basis points

1 The Company intends to refinance prior to the maturity date.

2 The accordion option increases the maximum borrowing capacity, subject to participation by the purchasers.

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outstanding borrowings 1

( 214,000 ) ( 205,000 )

outstanding letters of credit ( 67,281 ) ( 70,841 )

Availability under accounts receivable securitization facilities $ 21,419 $ 23,259

Outstanding borrowings are included in "Accounts receivable securitization" in the consolidated balance sheets.

1 Outstanding borrowings are included in "Accounts receivable securitization – current portion" at December 31, 2020 and in "Accounts receivable securitization – less current portion" at December 31, 2019.

Interest accrued on the aggregate principal balance at a rate of 1.0 % and 2.6 %, as of December 31, 2020 and 2019, respectively.

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Program fees and unused commitment fees are recorded in "Interest expense" in the consolidated statements of comprehensive income.

5 unchanged sentences

Term Loan, due October 2022, net 1 2

Other long-term debt, including current portion

$ 298,907 $ 364,825

Total long-term debt, including current portion 298,907 364,825

4 unchanged sentences

Revolver, due October 2022 1 3

210,000 279,000

Long-term debt, including revolving line of credit $ 508,907 $ 643,825

1 Refer to Note 23 for information regarding the fair value of debt.

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2 Net of $ 1.1 million and $ 0.2 million deferred loan costs at December 31, 2020 and 2019, respectively.

The Term Loan is due October 2, 2020.

The Company intends to refinance prior to maturity.

3 The Company also had outstanding letters of credit under the Revolver, primarily related to workers' compensation and self-insurance liabilities of $ 29.3 million and $ 28.3 million at December 31, 2020 and 2019, respectively.

Credit Agreements

2017 Debt Agreement — On September 29, 2017 , Knight-Swift entered into the $ 1.2 billion 2017 Debt Agreement (which is an unsecured credit facility), with a group of banks, replacing Swift's previous secured 2015 Debt Agreement, and Knight's unsecured 2013 Debt Agreement.

The 2017 Debt Agreement includes an $ 800.0 million Revolver maturing October 2022 , $ 85.0 million of which was drawn at closing, and a $ 400.0 million Term Loan maturing October 2020 .

2017 Debt Agreement — On September 29, 2017, Knight-Swift entered into the $ 1.2 billion 2017 Debt Agreement (which is an unsecured credit facility), with a group of banks, replacing Swift's previous secured Fourth Amended and Restated Credit Agreement, and Knight's unsecured credit facility.

The 2017 Debt Agreement included an $ 800.0 million Revolver maturing October 2022, $ 85.0 million of which was drawn at closing, and a $ 400.0 million Term Loan which matured on October 2, 2020.

On October 2, 2020 , Knight-Swift amended t he 2017 Debt Agreement to extend the maturity date of the Term Loan, incorporate language regarding the transition away from LIBOR, and update other regulatory and technical provisions customary for facilities of this type.

Just prior to this extension, the Company paid $ 65.0 million on the outstanding balance of the Term Loan, leaving $ 300.0 million face value outstanding.

There are no scheduled principal payments on the Term Loan until its maturity.

The following table presents the key terms of the 2017 Debt Agreement:

2017 Debt Agreement Terms:

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The following table presents the key terms of the 2017 Debt Agreement (as amended):

Term Loan Revolver 3

2017 Debt Agreement Terms (as amended):

(Dollars in thousands)

Maximum borrowing capacity $ 300,000 $ 800,000

Final maturity date

October 2, 2020

October 3, 2022

Final maturity date October 3, 2022 October 3, 2022

Interest rate minimum margin 1

Interest rate minimum margin 2

1.13 % 0.88 %

Interest rate maximum margin 2

1.75 % 1.50 %

Minimum principal payment — amount $ — $ —

Minimum principal payment — frequency

Minimum principal payment — commencement date

October 2, 2020

Minimum principal payment — frequency Once Once

Minimum principal payment — commencement date October 3,

2022 October 3,

As is currently customary in financing transactions, discussions of a replacement index for LIBOR will be included as the Company negotiates any refinancing of the Term Loan and associated 2017 Debt Agreement.

1 The 2020 Amendment allows the lender to trigger an amendment after identifying and deciding upon a replacement index for LIBOR.

2 The interest rate margin for the Term Loan and Revolver is based on the Company's consolidated leverage ratio.

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Note 17 — Leases

Lessee Disclosures for Lease Accounting under ASC Topic 842

Lessee Disclosures

Lease Cost — The components of the Company's lease cost were as follows:

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Lease Liability Calculation Assumptions — The assumptions underlying the calculation of the Company's right-of-use assets and lease liabilities are disclosed below.

December 31, 2019

Operating Finance Operating Finance

Revenue equipment leases

Weighted average remaining lease term

Weighted average remaining lease term 2.0 years 3.6 years 2.4 years 2.3 years

Weighted average discount rate 2.4 % 2.4 % 2.6 % 3.3 %

Real estate and other leases

Weighted average remaining lease term

Weighted average remaining lease term 10.6 years — 13.3 years —

Weighted average discount rate 3.7 % — % 4.3 % — %

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Maturity Analysis of Lease Liabilities (as Lessee) — Future minimum lease payments for all noncancelable leases were:

December 31, 2020

Operating Finance

(In thousands)

2021 $ 49,986 $ 56,699

2022 31,632 32,894

2023 18,589 21,542

2024 7,024 64,121

2025 3,491 3,487

Thereafter 22,810 23,708

Future minimum lease payments 133,532 202,451

3 unchanged sentences

Lease liabilities – less current portion $ 69,852 $ 138,243

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Supplemental Cash Flow Lease Disclosures — The following table sets forth cash paid for amounts included in the measurement of lease liabilities:

4 unchanged sentences

Refer to Note 24 for information regarding the leasing transactions between the Company and its related parties.

Lessor Disclosures for Lease Accounting under ASC Topic 842

Lessor Disclosures

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.

4 unchanged sentences

The owned assets underlying the Company's leases as lessor primarily consist of revenue equipment.

As of December 31, 2019 , the gross carrying value of such revenue equipment underlying these leases was $ 91.6 million and accumulated depreciation was $ 18.6 million .

As of December 31, 2020 and 2019, the gross carrying value of such revenue equipment underlying these leases was $ 103.1 million and $ 91.6 million, respectively, and accumulated depreciation was $ 29.7 million and $ 18.6 million, respectively.

Depreciation is calculated on a straight-line basis down to the residual value, as applicable, over the estimated useful life of the equipment.

Depreciation expense for these assets was $ 16.4 million for 2019 .

Depreciation expense for these assets was $ 20.6 million and $ 16.4 million for 2020 and 2019, respectively.

Additionally, the Company periodically leases out real estate for use by third parties, some of which are subleases.

1 unchanged sentence

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.

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Lease Revenue and Rental Income — The components of the Company's lease revenue are included in "Revenue, excluding trucking fuel surcharge" and the Company's rental income is included in "Other income, net" in the consolidated statements of comprehensive income.

4 unchanged sentences

Total lease revenue 1

$ 47,389 $ 49,027

Rental income 2

$ 10,365 $ 9,982

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.

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Maturity Analysis of Future Lease Revenues (as Lessor) — Future minimum lease revenues for all noncancelable leases were:

1 unchanged sentence

(In thousands)

2021 $ 41,602

Thereafter 373

Future minimum lease revenues $ 89,679

Refer to Note 24 for information regarding the leasing transactions between the Company and related parties.

December 31, 2018 (ASC Topic 840 Disclosures)

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 3 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 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 consolidated statements of comprehensive income.

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.

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Operating and Capital Leases (as Lessee) — As of December 31, 2018, annual future minimum lease payments for all noncancelable leases were:

(In thousands)

Future minimum lease payments

amounts representing interest

Present value of minimum lease payments

current portion

Capital lease obligations – less current portion

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:

(In thousands)

Future minimum lease payments receivable

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 18 — Purchase Commitments

1 unchanged sentence

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 December 31, 2019 , the Company had outstanding purchase commitments to acquire facilities and non-revenue equipment of $ 6.2 million in 2020 , $ 1.0 million in the two-year period 2021 through 2022 , and $ 0.2 million in 2023 and 2024, and none thereafter.

As of December 31, 2020, the Company had outstanding purchase commitments to acquire facilities and non-revenue equipment of $ 25.9 million in 2021, $ 2.0 million in the two-year period 2022 through 2023 , and $ 0.5 million in the two-year period 2024 though 2025, and none thereafter.

Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures.

As of December 31, 2020, the Company had outstanding commitments for fuel purchases of $ 35.4 million in 2021 and no ne thereafter.

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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 wage;

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.

Date instituted

Court or agency currently pending in

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 July 2019, the court granted final approval of the settlement in the Hedglin matter.

Both settlements have been paid as of December 31, 2019.

CRST Expedited

Plaintiff alleges tortious interference with contract and unjust enrichment related to non-competition agreements entered into with certain of its drivers.

Date instituted

Court or agency currently pending in

Plaintiff(s) Defendant(s) Date instituted Court or agency currently pending in

CRST Expedited, Inc.

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In July 2019, a jury issued an adverse verdict in this lawsuit.

In December 2019, the Court reduced the jury verdict.

The Company is reviewing all options including if necessary, an appeal.

The court issued a decision granting in part and denying in part certain motions related to the jury’s verdict.

Both parties have appealed the court’s decision.

The likelihood that a loss has been incurred is probable and estimable, and the loss has accordingly been accrued as of December 31, 2020.

8 unchanged sentences

and 7) failed to provide accurate wage statements.

Date instituted

Court or agency currently pending in

Plaintiff(s) Defendant(s) Date instituted Court or agency currently pending in

John Burnell 1

Swift Transportation Co., Inc

March 22, 2010

Swift Transportation Co., Inc March 22, 2010

United States District Court for the Central District of California

Swift Transportation Co.

of Arizona, LLC and Swift Transportation Company

April 5, 2012

of Arizona, LLC and Swift Transportation Company April 5, 2012

United States District Court for the Central District of California

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In January 2020, the Court granted final approval of the settlement.

The Court order granting final approval of the settlement has been appealed to the 9 th Circuit.

The likelihood that a loss has been incurred is probable and estimable, and the loss has accordingly been accrued as of December 31, 2020.

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and 4) failure to pay minimum wage for the first eight hours of sleeper berth time.

Date instituted

Court or agency currently pending in

Plaintiff(s) Defendant(s) Date instituted Court or agency currently pending in

Pamela Julian 1

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and Swift Transportation Co.

of Arizona LLC

December 29, 2015

United States District Court for the District of Arizona

of Arizona LLC December 29, 2015 United States District Court for the District of Arizona

Recent Developments and Current Status

In December 2019, the court awarded damages for failure to pay minimum wage for 16 hours per day.

The likelihood that a loss has been incurred is probable and estimable, and the loss has accordingly been accrued as of December 31, 2019.

Individually and on behalf of all others similarly situated.

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In August 2020, the parties reached a settlement in this matter.

In November 2020, the Company paid the settlement amount approved by the court.

INDEPENDENT CONTRACTOR MATTERS

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The putative class seeks unpaid wages, liquidated damages, interest, other costs, and attorneys' fees.

Date instituted

Court or agency currently pending in

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

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

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In January 2020, the court granted final 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 December 31, 2019.

In March 2020, the Company paid the settlement amount approved by the court.

As of December 31, 2020 the Company has a reserve accrued for anticipated cost associated with finalizing this matter.

1 Individually and on behalf of all others similarly situated.

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Note 20 — Share Repurchase Plans

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There was approximately $ 0.2 million of authorized purchases remaining under the 2018 Knight-Swift Share Repurchase Plan upon termination.

On November 30, 2020, the Company announced that the Board approved the repurchase of up to $ 250.0 million worth of the Company's outstanding common stock (the "2020 Knight-Swift Share Repurchase Plan").

With the adoption of the 2020 Knight-Swift Share Repurchase Plan, the Company terminated the 2019 Knight-Swift Share Repurchase Plan.

There was approximately $ 54.1 million of authorized purchases remaining under the 2019 Knight-Swift Share Repurchase Plan upon termination.

The following table presents the Company's repurchases of its common stock under the respective share repurchase plans, excluding advisory fees:

Share Repurchase Plan 2020 2019

Board Approval Date

Authorized Amount

Board Approval Date Authorized Amount Shares Amount Shares Amount

(in thousands)

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May 30, 2019 1

$ 250,000 4,841 179,585 559 16,392

November 24, 2020 2

$ 250,000 — — — —

4,841 $ 179,585 2,874 $ 86,892

1 As of December 31, 2019, $ 233.6 million remained available under the 2019 Knight-Swift Share Repurchase Plan.

2 As of December 31, 2020, $ 250.0 million remained available under the 2020 Knight-Swift Share Repurchase Plan.

Subsequent to December 31, 2020, the Company repurchased 1.2 million shares for $ 50.3 million under the 2020 Knight-Swift Share Repurchase Plan, leaving $ 199.7 million available as of February 23, 2021.

Refer to Note 24 for a discussion of share repurchase transactions conducted with related parties.

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Note 21 — Stock-based Compensation

2017 Merger Impact — Refer to Note 5 for a summary of the 2017 Merger transaction.

Accounting Perspective — Pursuant to the Merger Agreement, the following stock transactions occurred on September 8, 2017 (the "Merger Date"):

each outstanding Swift stock option fully vested as a result of the 2017 Merger, was converted into a stock option to acquire the Company's shares using a 0.72-for-one share consolidation ratio and adjusting the exercise price using the same consolidation ratio;

each outstanding unvested Swift restricted stock award (except for the awards granted in May 2017 that excluded acceleration of vesting related to mergers within the award notices) fully vested as a result of the 2017 Merger, and was converted into the Company's Class A common stock, using the 0.72-for-one share consolidation ratio;

each outstanding unvested Swift restricted stock unit (except for the awards granted in May 2017 that excluded acceleration of vesting related to mergers within the award notices) fully vested as a result of the 2017 Merger, and was converted into the Company's Class A common stock, using the 0.72-for-one share consolidation ratio;

each outstanding unvested Swift performance share unit (except for one director) fully vested as a result of the 2017 Merger, and was converted into the Company's Class A common stock, using the 0.72-for-one consolidation ratio.

Except for the conversion of stock options, unvested restricted stock awards, unvested restricted stock units, and unvested performance units discussed herein, the material terms of the awards remained unchanged.

Prior to the closing of the 2017 Merger, Swift had various unvested equity awards outstanding, of which the vesting was accelerated as of the Merger Date (with the exceptions noted above).

In accordance with authoritative guidance on accounting for stock-based compensation, the Company revalued the awards upon the 2017 Merger closing and allocated the revised fair value between purchase consideration and continuing compensation expense, based on the ratio of service performed through the Merger Date over the total service period of the awards.

The total value of Swift awards earned as of the Merger Date included as purchase consideration was $ 13.1 million .

The revised fair value allocated to post-merger services resulted in incremental expense, which is recognized over the remaining service period of the awards.

The total value of Swift awards not earned as of the Merger Date was $ 6.3 million , which is being expensed over the remaining future vesting period.

Refer to Note 5 to the consolidated financial statements for further information regarding the 2017 Merger.

Legal Perspective — Pursuant to the Merger Agreement, the following stock transactions occurred on the Merger Date:

each outstanding vested and unvested Knight stock option was assumed by the Company and automatically converted into a stock option to acquire an equal number of Company shares;

each outstanding vested and unvested Knight restricted stock unit was assumed by the Company and automatically converted into a restricted stock unit award of the Company;

each outstanding vested and unvested Knight performance unit was assumed by the Company and automatically converted into a performance unit award of the Company.

Except for the conversion of stock options, restricted stock awards, restricted stock unit awards, and performance unit awards discussed herein, the material terms of the awards remained unchanged.

Certain of the Knight performance unit awards vested upon the consummation of the 2017 Merger, as described below.

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Compensatory Stock Plans

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The previous 2014 stock plan was amended and restated to rename the plan and for other administrative changes relating to the 2017 Merger.

The terms of the 2014 Stock Plan, as amended and restated, remain substantially the same as the previous 2014 stock plan.

The 2014 Stock Plan was again amended and restated in 2020 to increase the number of shares of common stock available for issuance and extended the term of the 2014 Stock Plan, as well as to amend certain provisions to comply with best practices.

Other terms of the 2014 Stock Plan, as amended and restated, remain substantially the same as the previous 2014 stock plan and first amended and restated stock plan.

The 2014 Stock Plan, as amended and restated, permits the payment of cash incentive compensation and authorizes the granting of stock options, stock appreciation rights, restricted stock and restricted stock units, performance shares and performance units, cash-based awards, and stock-based awards to the Company's employees and non-employee directors.

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Stock-based compensation expense, net of forfeitures, which is included in "Salaries, wages, and benefits" in the consolidated statements of comprehensive income is comprised of the following:

2020 2019 2018

(In thousands)

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Stock-based compensation expense – liability awards 1

6,955 2,663 899

Total stock-based compensation expense, net of forfeitures $ 26,594 $ 16,038 $ 12,387

Income tax benefit 2

$ 4,949 $ 3,344 $ 3,097

1 Includes awards granted to executive management in November of 2019 and 2018 that ultimately settle in cash upon fulfilling a requisite service period (for restricted stock units) and fulfilling a requisite service period and achieving performance targets (for performance units) .

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December 31, 2020

Weighted Average Period

(In thousands)

Expense Weighted Average Period

(In thousands) (In years)

Equity awards – Stock options $ 230 0.4

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Stock Award Grants

Stock options

2020 2019 2018

Restricted stock units and restricted stock awards 722,499 588,819 420,014

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Liability awards granted 1 2

— 80,927 91,268

Total stock awards granted 868,535 772,522 618,067

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The exercise price of options granted equals the fair value of the Company's common stock determined by the closing price of the Company's common stock quoted on the NYSE on the grant date.

Most stock options granted by the Company cannot be exercised until at least one year after the grant date and have a five to ten -y ear contractual term.

Most stock options granted by the Company cannot be exercised until at least one year after the grant date and have a five to ten-year contractual term.

Stock options are forfeited upon termination of employment for reasons other than death, disability, or retirement.

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Stock options outstanding:

Shares Under Option

Weighted Average Exercise Price

Weighted Average Remaining Contractual Term

Aggregate Intrinsic Value ¹

(In thousands)

Shares Under Option Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value 1

(In years) (In thousands)

Stock options outstanding at December 31, 2019 700,673 $ 27.90 1.7 $ 5,563

( 382,254 ) 26.67

Expired ( 5,150 ) 18.89

Forfeited ( 10,293 ) 32.37

Stock options outstanding at December 31, 2020 302,976 $ 29.45 1.2 $ 3,748

Aggregate number of stock options expected to vest at a future date as of December 31, 2020 3

86,409 $ 33.35 1.4 $ 732

Exercisable at December 31, 2020 216,197 $ 27.89 1.1 $ 3,012

1 The aggregate intrinsic value was computed using the closing share price on December 31, 2020 of $ 41.82 and on December 31, 2019 of $ 35.84 , as applicable.

2 Includes 4,223 swapped shares which were excluded from the "Common stock issued to employees" activity on the Consolidated Statements of Stockholders' Equity.

3 Net of the applied, estimated forfeiture rate.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

Includes 1,721 swapped shares which were excluded from the "Common stock issued to employees" activity on the Consolidated Statements of Stockholders' Equity.

Net of the applied, estimated forfeiture rate.

The fair value of each stock option grant is estimated on the grant date using the Black-Scholes option-valuation model.

The following table presents the weighted average assumptions used in the fair value computation:

Stock option fair value assumptions:

Dividend yield ¹

Risk-free rate of return ²

Expected volatility ³

Expected term (in years) 4

Weighted average fair value of stock options granted

The dividend yield assumption is based on Knight's historical experience and anticipated future dividend payouts.

The risk-free interest rate assumption is based on the US Treasury securities at a constant maturity with a maturity period that most closely resembles the expected term of the stock option award.

Expected volatility of the Company's common stock is determined based on Knight's historical data.

The expected term of employee stock options represents the weighted-average period the stock options are expected to remain outstanding and was determined based on an analysis of historical exercise behavior.

The following table summarizes stock option exercise information for the years presented:

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Unvested stock options:

Weighted Average Fair Value

Shares Weighted Average Fair Value

Unvested stock options at December 31, 2019 275,583 $ 5.97

Vested ( 178,511 ) 5.55

Forfeited and canceled ( 10,293 ) 6.51

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The total fair value of the shares vested during 2020, 2019, and 2018 was $ 1.0 million, $ 1.5 million, and $ 2.0 million, respectively.

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Restricted Stock Units

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Unvested restricted stock units:

Number of Awards

Weighted Average Fair Value ¹

Number of Awards Weighted Average Fair Value 1

Unvested restricted stock units at December 31, 2019 1,448,195 $ 29.78

Granted 722,499 40.27

( 386,698 ) 30.91

Forfeited ( 60,158 ) 31.34

Unvested restricted stock units at December 31, 2020 1,723,838 $ 34.07

1 The fair value of each restricted stock unit is based on the closing market price on the grant date.

Includes 75,559 shares withheld for taxes and 10,556 units settled in cash which were excluded from the "Common stock issued to employees" activity on the Consolidated Statements of Stockholders' Equity.

2 Includes 123,069 shares withheld for taxes and 13,039 net units settled in cash which were excluded from the "Common stock issued to employees" activity on the Consolidated Statements of Stockholders' Equity.

Performance Units

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Performance units do not earn dividend equivalents.

Performance units granted prior to the 2017 Merger were accelerated on September 8, 2017, the 2017 Merger date, pursuant to the terms of the award agreements.

On the 2017 Merger date, awards granted in 2014, 2015, and 2016 were accelerated, but only the performance measurement period for the 2014 award was complete allowing for the final award to be expensed and paid out.

The performance period for the 2015 and 2016 awards ended December 31, 2017.

The performance criteria were not met based on the performance period results ended December 31, 2017, therefore, no expense was recorded, and no payout was made related to the 2015 or 2016 awards.

The following table is a rollforward of unvested performance units, including performance units classified as equity and those classified as liabilities:

Unvested performance units:

Weighted Average Fair Value

Shares Weighted Average Fair Value

Unvested performance units at December 31, 2019 403,694 $ 35.53

Granted 146,036 $ 42.41

Unvested performance units at December 31, 2020 1

The performance measurement period for performance units granted in 2017 is January 1, 2018 to December 31, 2020 (three full calendar years).

549,730 $ 39.50

1 The performance measurement period for performance units granted in 2018 is January 1, 2019 to December 31, 2021 (three full calendar years).

The performance measurement period for performance units granted in 2019 is January 1, 2020 to December 31, 2022 (three full calendar years).

All performance units will vest one month following the expiration of the performance measurement period .

The performance measurement period for performance units granted in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

2020 is January 1, 2021 to December 31, 2023 (three full calendar years).

All performance units will vest one month following the expiration of the performance measurement period.

The following table presents the weighted average assumptions used in the fair value computation for performance units, including performance units classified as equity and those classified as liabilities:

Performance unit fair value assumptions:

2020 2019 2018

Dividend yield 1

0.78 % 0.66 % 0.81 %

Expected volatility 2

37.99 % 34.88 % 32.30 %

Average peer volatility 2

35.62 % 27.96 % 28.61 %

Average peer correlation coefficient 3

0.59 0.60 0.58

Risk-free interest rate 4

0.20 % 1.60 % 2.80 %

Expected term (in years) 5

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The following table reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding:

2020 2019 2018

(In thousands)

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

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Note 23 — Fair Value Measurement

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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 the Company's own judgments about the assumptions that market participants would use in pricing the asset or liability.

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.

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See Note 6 for additional investments 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.

Equity Method Investments — The estimated fair value of the Company's equity method investments are privately negotiated investments.

The carrying amount of these investments approximates the fair value.

Equity Securities — The estimated fair value of the Company's investments in equity securities is based on quoted prices in active markets that are readily and regularly obtainable.

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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.

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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.

Contingent Consideration — The estimated fair value of the Company's contingent consideration owed to Warehousing Co.'s seller is calculated using a Monte Carlo simulation model based on the acquiree's earnings before interest and taxes.

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.

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• Level 2 — Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices from markets that are not active for assets or liabilities that are identical or similar to the assets or liabilities being measured.

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derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.

Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.

• Level 3 — Valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

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The following table presents the carrying amounts and estimated fair values of the Company's major categories of financial assets and liabilities:

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Value Estimated

Fair Value Carrying

Value Estimated

(In thousands)

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Restricted investments, held-to-maturity 1

TRP Investments

$ 9,001 $ 8,995 $ 8,912 $ 8,915

Equity method investments 2

77,562 77,562 30,878 30,878

Investments in equity securities 3

18,675 18,675 8,722 8,722

Financial Liabilities:

Term Loan, due October 2022 4

$ 298,907 $ 300,000 $ 364,825 $ 365,000

2018 RSA, due July 2021 5

213,918 214,000 204,762 205,000

Revolver, due October 2022

210,000 210,000 279,000 279,000

Contingent consideration associated with acquisition 6

16,200 16,200 — —

1 Refer to Note 6 for the differences between the carrying amounts and estimated fair values of the Company's restricted investments, held-to-maturity.

2 Refer to Note 7 for more discussion about the Company's equity method investments.

3 The investments are carried at fair value and are included in "Other long-term assets" on the consolidated balance sheets.

The carrying amount of the Term Loan is included in "Finance lease liabilities and long-term debt – current portion" and is net of $ 0.2 million of deferred loan costs as of December 31, 2019 .

The carrying amount of the Term Loan is included in "Long-term debt – less current portion" and is net of $ 0.4 million of deferred loan costs as of December 31, 2018 .

The carrying amount of the 2018 RSA is included in "Accounts receivable securitization," and is net of $ 0.2 million and $ 0.4 million in deferred loan costs as of December 31, 2019 and December 31, 2018 , respectively.

4 The carrying amount of the Term Loan is included in "Finance lease liabilities and long-term debt – less current portion" and is net of $ 1.1 million of deferred loan costs as of December 31, 2020.

The carrying amount of the Term Loan is included in "Long-term debt – current portion" and is net of $ 0.2 million of deferred loan costs as of December 31, 2019.

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5 The carrying amount of the 2018 RSA is included in "Accounts receivable securitization – current portion" and is net of $ 0.1 million in deferred loan costs as of December 31, 2020.

The carrying amount of the 2018 RSA is included in "Accounts receivable securitization – less current portion" and is net of $ 0.2 million in deferred loan costs as of December 31, 2019.

6 The carrying amount of the contingent consideration associated with the acquisition is included in both the "Accrued liabilities" and "Other long-term liabilities" line items on the consolidated balance sheets based on the due date of the payments.

Recurring Fair Value Measurements (Assets) — The following table depicts the level in the fair value hierarchy of the inputs used to estimate fair value of assets measured on a recurring basis as of December 31, 2020 and 2019:

Fair Value Measurements at Reporting Date Using

Estimated Fair Value

Level 1 Inputs

Level 2 Inputs

Level 3 Inputs

Estimated Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Gain (Loss)

(In thousands)

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Investments in equity securities 1

Total unrealized losses for these investments are included within "Other income, net" within the consolidated statements of comprehensive income for 2019.

The Company did not sell any equity investments during 2019 and therefore did not realize any losses on these investments.

As of December 31, 2018 , there were no major categories of assets on the consolidated balance sheets estimated at fair value that were measured on a recurring basis.

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Recurring Fair Value Measurements (Liabilities) — As of December 31, 2019 and 2018 , there were no major categories of liabilities included in the Company's consolidated balance sheets at estimated fair value that were measured on a recurring basis.

$ 18,675 $ 18,675 $ — $ — $ 3,553

As of December 31, 2019

Investments in equity securities 1

8,722 8,722 — — ( 184 )

1 Total unrealized gains (losses) for these investments are included within "Other income, net" within the consolidated statements of comprehensive income.

The Company did not sell any equity investments during 2020 or 2019 and therefore did not realize any gains or losses on these investments.

Recurring Fair Value Measurements (Liabilities) — The following table depicts the level in the fair value hierarchy of the inputs used to estimate the fair value of liabilities measured on a recurring basis as of December 31, 2020.

Fair Value Measurements at Reporting Date Using

Estimated Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Gain (Loss)

(In thousands)

As of December 31, 2020

Contingent consideration associated with acquisition 1

$ 16,200 $ — $ — $ 16,200 $ ( 6,730 )

1 Refer to Note 5 for information regarding the adjustments made to the contingent consideration associated with the acquisition.

As of December 31, 2019, there were no major categories of liabilities on the consolidated balance sheets estimated at fair value that were measured on a recurring basis.

Nonrecurring Fair Value Measurements (Assets) — 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, 2020 and 2019:

Fair Value Measurements at Reporting Date Using

Estimated Fair Value

Level 1 Inputs

Level 2 Inputs

Level 3 Inputs

Estimated Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Loss

(In thousands)

As of December 31, 2020

Leasehold improvements ¹

$ 5,851 $ — $ 5,851 $ — $ ( 5,335 )

As of December 31, 2019

Leasehold improvements 2

$ — $ — $ — $ — $ ( 2,182 )

1,380 — 1,380 — ( 870 )

— — — — ( 434 )

1 Reflects the non-cash impairment of certain alternative fuel technology (within the non-reportable segments) and certain revenue equipment held for sale (within the Trucking segment).

2 During the second quarter of 2019, the Company incurred an impairment of leasehold improvements related to the early termination of a lease on one of its operating properties.

This impairment was recorded in the Trucking segment.

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3 During the fourth quarter of 2019, the Company incurred impairment charges which were associated with certain revenue equipment technology, warehousing equipment no longer in use, and certain Swift legacy trailer models as a result of a softer used equipment market.

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These impairments were allocated between the Trucking and Logistics segments based on each segment’s use of the assets.

During the fourth quarter of 2018, the Company incurred impairment charges related to replaced software systems.

During the fourth quarter of 2018, the Company incurred impairment charges related to the Company airplane.

This impairment was allocated between the Trucking and Logistics segments based on each segment’s use of the asset.

Nonrecurring Fair Value Measurements (Liabilities) — As of December 31, 2020 and 2019 there were no liabilities included in the Company's consolidated balance sheets at estimated fair value that were measured on a nonrecurring basis.

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Note 24 — Related Party Transactions

The following table presents Knight-Swift's transactions with companies controlled by and/or affiliated with its related parties:

Provided by Knight-Swift

Received by Knight-Swift

Provided by Knight-Swift

Received by Knight-Swift

Provided by Knight-Swift

Received by Knight-Swift

2020 2019 2018

Provided by Knight-Swift Received by Knight-Swift Provided by Knight-Swift Received by Knight-Swift Provided by Knight-Swift Received by Knight-Swift

(In thousands)

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Central Freight Lines 1

$ 7,837 $ — $ 19,651 $ — $ 681 $ —

SME Industries 1

56 — 345 — 698 —

Total $ 7,893 $ — $ 19,996 $ — $ 1,379 $ —

Facility and Equipment Leases:

Central Freight Lines 1

$ 48 $ 277 $ 322 $ 369 $ 916 $ 370

Other Affiliates 1

11 229 18 — 19 —

Total $ 59 $ 506 $ 340 $ 369 $ 935 $ 370

Other Services:

Central Freight Lines 1

Updike Distribution and Logistics ²

$ 427 $ — $ 1,834 $ — $ — $ —

— 33 — 220 — 308

Other Affiliates 1

15 35 39 2,432 589 2,282

Total $ 442 $ 68 $ 1,873 $ 2,652 $ 589 $ 2,590

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 leases, equipment sales, and other services.

"Other affiliates" includes entities that are associated with various board members and executives and require approval by the Board prior to completing transactions.

Transactions with these entities generally 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.

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• 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, diesel particulate filter cleaning, 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 paid Mr.

Moyes a monthly consulting fee in cash.

• Other Services Received by Knight-Swift — Consulting fees, diesel particulate filter cleaning, sales of various parts and tractor accessories, and certain third-party payroll and employee benefits administration services from the identified related parties are included in other services received by the Company.

During the quarter ended September 30, 2020, the ownership percentage of Jerry Moyes and related affiliates fell below the threshold requiring related party disclosure.

The amounts included in this Note 24 pertain to transactions that occurred prior to the date that the ownership percentage changed.

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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

Additions to accrual

Accrued consulting fees – Jerry Moyes, balance at December 31, 2019

The balance is included in "Accrued liabilities" (current) in the consolidated balance sheets, based on the timing of the payments .

Knight had an arrangement with Updike Distribution Logistics, LLC, 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 Logistics, LLC to purchase fuel from Knight's vendors at cost, plus an administrative fee.

The arrangement was terminated during the second quarter of 2018.

Activities in 2019 pertain to sales of various spare parts and tractor accessories.

Receivables and payables pertaining to related party transactions were:

Receivable Payable Receivable Payable

(In thousands)

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SME Industries — — 17 —

DPF Mobile — 41 — 2

Other Affiliates 2 10 — —

Total $ 135 $ 51 $ 2,889 $ 2

Land Purchase — In November 2018, the Company purchased land in Perris, California for $ 7.7 million from former Board member Jerry Moyes.

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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:

The Company has three reportable segments:

Trucking, Logistics, and Intermodal, as well as the non-reportable segments, discussed below.

See Note 2 for discussion of the Company's accounting policy related to segments.

The Trucking segment is comprised of irregular route and dedicated, refrigerated, expedited, flatbed, and cross-border operations.

Abilene's trucking operations are also included after the March 16, 2018 acquisition date.

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.

The Company's twenty operating segments are structured around the types of transportation service offerings provided to our customers, as well as the equipment utilized.

In addition, the operating segments may be further distinguished by the Company’s respective brands.

The Company aggregated these various operating segments into the three reportable segments discussed below based on similarities with both their qualitative and economic characteristics.

The Trucking reportable segment is comprised of nine trucking operating segments that provide similar transportation services to our customers utilizing similar transportation equipment over both irregular (one-way movement) and/or dedicated routes.

The Trucking reportable segment consists of irregular route and dedicated, refrigerated, expedited, flatbed, and cross-border operations.

The Logistics reportable segment is comprised of five logistics operating segments that provide similar transportation services to our customers and primarily consist of brokerage and other freight management services utilizing third-party transportation providers and their equipment.

The Intermodal reportable segment is comprised of two intermodal operating segments that provide similar transportation services to our customers.

These transportation services include arranging the movement of customers' freight through third-party intermodal rail services on the Company’s trailing equipment (trailers on flat cars and rail containers), as well as drayage services to transport loads between the railheads and customer locations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

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.

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, certain driving academy activities, as well as certain corporate expenses (such as legal settlements and accruals and amortization of intangibles related to the 2017 Merger and certain acquisitions).

The non-reportable segments include four operating segments that consist of 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, warehousing, and certain driving academy activities, as well as certain corporate expenses (such as legal settlements and accruals, certain impairments, and amortization of intangibles related to the 2017 Merger and various acquisitions).

Intersegment Eliminations

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2020 2019 2018 (recast)

2017 (recast)

Total revenue:

(Dollars in thousands)

Trucking $ 3,786,030 81.0 % $ 3,952,866 81.6 % $ 4,290,254 80.3 %

Logistics $ 375,841 8.0 % $ 352,988 7.3 % $ 436,044 8.2 %

Intermodal $ 391,462 8.4 % $ 455,466 9.4 % $ 498,821 9.3 %

Subtotal $ 4,553,333 97.4 % $ 4,761,320 98.3 % $ 5,225,119 97.8 %

Non-reportable segments $ 188,882 4.0 % $ 130,782 2.7 % $ 184,140 3.4 %

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2020 2019 2018 (recast)

2017 (recast)

Operating income (loss):

(Dollars in thousands)

Trucking $ 578,512 102.5 % $ 468,749 109.7 % $ 550,818 96.8 %

Logistics $ 20,245 3.6 % $ 21,869 5.1 % $ 31,991 5.6 %

Intermodal $ ( 943 ) ( 0.2 %) $ 4,501 1.1 % $ 31,272 5.5 %

Subtotal $ 597,814 105.9 % $ 495,119 115.9 % $ 614,081 107.9 %

Non-reportable segments $ ( 33,376 ) ( 5.9 %) $ ( 67,681 ) ( 15.9 %) $ ( 45,038 ) ( 7.9 %)

Operating income $ 564,438 100.0 % $ 427,438 100.0 % $ 569,043 100.0 %

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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

2020 2019 2018 (recast)

2017 (recast)

Depreciation and amortization of property and equipment:

(Dollars in thousands)

Trucking $ 390,417 84.7 % $ 355,270 84.6 % $ 319,210 82.4 %

Logistics $ 829 0.2 % $ 728 0.2 % $ 607 0.2 %

Intermodal $ 14,377 3.1 % $ 13,506 3.2 % $ 12,044 3.1 %

Subtotal $ 405,623 88.0 % $ 369,504 88.0 % $ 331,861 85.7 %

Non-reportable segments $ 55,152 12.0 % $ 50,578 12.0 % $ 55,644 14.3 %

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Additionally, long-lived assets on the balance sheets of the Company's foreign subsidiaries were less than 5.0 % of consolidated "Total assets" as of December 31, 2020 and 2019.

Customer Concentration

Services provided to the Company's largest customer, Walmart, generated 13.3 % , 14.6 % , and 12.5 % of total revenue in 2019 , 2018 , and 2017 , respectively.

Revenue generated by Walmart is reported in each of our reportable operating segments.

No other customer accounted for 10.0 % or more of total revenue in 2019 , 2018, or 2017.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

Note 26 — Quarterly Results of Operations (Unaudited)

In management's opinion, the following summarized financial information fairly presents the Company's results of operations for the quarters noted.

These results are not necessarily indicative of future quarterly results.

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

(In thousands, except per share data)

Total revenue

Net income attributable to Knight-Swift

Basic earnings per share

Earnings per diluted share

Total revenue

Net income attributable to Knight-Swift

Basic earnings per share

Earnings per diluted share

Customer Concentration

Services provided to the Company's largest customer generated 16.8 %, 13.3 %, and 14.6 % of total revenue in 2020, 2019, and 2018, respectively.

Revenue generated by the Company's largest customer is reported in each of our reportable operating segments.

No other customer accounted for 10.0 % or more of total revenue in 2020, 2019 , or 2018 .

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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data