Knight-Swift Transportation Holdings Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets (Unaudited) March 31, 2021 December 31, 2020 (In thousands, except per share data) ASSETS Current assets: Cash and cash equivalents $ 194,650 $ 156,699 Cash and cash equivalents – restricted 47,867 39,328 Restricted investments, held-to-maturity, amortized cost 8,954 9,001 Trade receivables, net of allowance for doubtful accounts of $ 21,797 and $ 22,093 , respectively 584,011 578,479 Contract balance – revenue in transit 20,104 14,560 Prepaid expenses 66,278 71,649 Assets held for sale 20,835 29,756 Income tax receivable 31 2,903 Other current assets 21,015 20,988 Total current assets 963,745 923,363 Gross property and equipment 4,286,833 4,223,348 Less: accumulated depreciation and amortization ( 1,311,189 ) ( 1,230,696 ) Property and equipment, net 2,975,644 2,992,652 Operating lease right-of-use-assets 95,658 113,296 Goodwill 2,958,709 2,922,964 Intangible assets, net 1,393,346 1,389,245 Other long-term assets 132,373 126,482 Total assets $ 8,519,475 $ 8,468,002 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 126,918 $ 101,001 Accrued payroll and purchased transportation 182,106 160,888 Accrued liabilities 143,168 88,894 Claims accruals – current portion 174,678 174,928 Finance lease liabilities and long-term debt – current portion 85,035 52,583 Operating lease liabilities – current portion 37,577 47,496 Accounts receivable securitization – current portion 198,957 213,918 Total current liabilities 948,439 839,708 Revolving line of credit 115,000 210,000 Long-term debt – less current portion 299,063 298,907 Finance lease liabilities – less current portion 127,341 138,243 Operating lease liabilities – less current portion 62,549 69,852 Claims accruals – less current portion 174,766 174,814 Deferred tax liabilities 797,019 815,941 Other long-term liabilities 45,960 48,497 Total liabilities 2,570,137 2,595,962 Commitments and contingencies (Notes 3, 9, and 10) Stockholders’ equity: Preferred stock, par value 0.01 per share; 10,000 shares authorized; no ne issued — — Common stock, par value $ 0.01 per share; 500,000 shares authorized; 165,488 and 166,553 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively. 1,655 1,665 Additional paid-in capital 4,309,792 4,301,424 Retained earnings 1,625,397 1,566,759 Total Knight-Swift stockholders' equity 5,936,844 5,869,848 Noncontrolling interest 12,494 2,192 Total stockholders’ equity 5,949,338 5,872,040 Total liabilities and stockholders’ equity $ 8,519,475 $ 8,468,002 See accompanying notes to condensed consolidated financial statements (unaudited). 4 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. Condensed Consolidated Statements of Comprehensive Income (Unaudited) Quarter Ended March 31, 2021 2020 (In thousands, except per share data) Revenue: Revenue, excluding trucking fuel surcharge $ 1,133,105 $ 1,027,095 Trucking fuel surcharge 89,909 97,703 Total revenue 1,223,014 1,124,798 Operating expenses: Salaries, wages, and benefits 370,370 354,833 Fuel 118,236 121,855 Operations and maintenance 68,070 68,404 Insurance and claims 55,643 54,280 Operating taxes and licenses 22,048 22,169 Communications 5,037 4,874 Depreciation and amortization of property and equipment 119,915 110,221 Amortization of intangibles 11,749 11,474 Rental expense 16,864 25,375 Purchased transportation 258,230 225,276 Impairments — 902 Miscellaneous operating expenses 14,593 23,016 Total operating expenses 1,060,755 1,022,679 Operating income 162,259 102,119 Other (expenses) income: Interest income 294 832 Interest expense ( 3,486 ) ( 6,107 ) Other income (expenses), net 16,105 ( 6,507 ) Total other (expenses) income, net 12,913 ( 11,782 ) Income before income taxes 175,172 90,337 Income tax expense 45,329 24,554 Net income 129,843 65,783 Net income attributable to noncontrolling interest ( 53 ) ( 357 ) Net income attributable to Knight-Swift $ 129,790 $ 65,426 Earnings per share: Basic $ 0.77 $ 0.38 Diluted $ 0.77 $ 0.38 Dividends declared per share: $ 0.08 $ 0.08 Weighted average shares outstanding: Basic 167,478 170,617 Diluted 168,374 171,282 See accompanying notes to the condensed consolidated financial statements (unaudited). 5 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. Condensed Consolidated Statements of Cash Flows (Unaudited) Quarter Ended March 31, 2021 2020 (In thousands) Cash flows from operating activities: Net income $ 129,843 $ 65,783 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, equipment, and intangibles 131,664 121,695 Gain on sale of property and equipment ( 10,537 ) ( 3,005 ) Impairments — 902 Deferred income taxes ( 18,920 ) 15,330 Non-cash lease expense 15,589 24,202 Other adjustments to reconcile net income to net cash provided by operating activities ( 6,522 ) 14,065 Increase (decrease) in cash resulting from changes in: Trade receivables ( 11,586 ) ( 5,268 ) Income tax receivable 2,872 4,380 Accounts payable 12,534 31,084 Accrued liabilities and claims accrual 70,975 ( 93,193 ) Operating lease liabilities ( 15,174 ) ( 25,414 ) Other assets and liabilities 5,375 4,782 Net cash provided by operating activities 306,113 155,343 Cash flows from investing activities: Proceeds from maturities of held-to-maturity investments 500 4,350 Purchases of held-to-maturity investments ( 512 ) ( 4,301 ) Proceeds from sale of property and equipment, including assets held for sale 67,175 33,756 Purchases of property and equipment ( 111,020 ) ( 109,431 ) Expenditures on assets held for sale ( 401 ) ( 352 ) Net cash, restricted cash, and equivalents invested in acquisitions ( 39,281 ) ( 46,811 ) Other cash flows from investing activities 9,398 ( 2,793 ) Net cash used in investing activities ( 74,141 ) ( 125,582 ) Cash flows from financing activities: Repayment of finance leases and long-term debt ( 6,600 ) ( 14,498 ) (Repayments) borrowings on revolving lines of credit, net ( 95,000 ) 15,000 Repayment of accounts receivable securitization ( 15,000 ) ( 25,000 ) Proceeds from common stock issued 2,709 3,257 Repurchases of the Company's common stock ( 53,661 ) ( 34,630 ) Dividends paid ( 13,624 ) ( 13,964 ) Other cash flows from financing activities ( 4,190 ) ( 2,050 ) Net cash used in financing activities ( 185,366 ) ( 71,885 ) Net increase (decrease) in cash, restricted cash, and equivalents 46,606 ( 42,124 ) Cash, restricted cash, and equivalents at beginning of period 197,277 202,228 Cash, restricted cash, and equivalents at end of period $ 243,883 $ 160,104 See accompanying notes to condensed consolidated financial statements (unaudited). 6 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. Condensed Consolidated Statements of Cash Flows (Unaudited) — Continued Quarter Ended March 31, 2021 2020 (In thousands) Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 2,505 $ 6,293 Income taxes 2,199 3,280 Non-cash investing and financing activities: Equipment acquired included in accounts payable $ 13,860 $ 44,084 Financing provided to independent contractors for equipment sold 462 1,670 Transfer from property and equipment to assets held for sale 29,955 15,288 Noncontrolling interest associated with acquisition 10,281 — Contingent consideration associated with acquisition — 18,654 Right-of-use assets (forfeited) obtained in exchange for operating lease liabilities ( 2,608 ) 1,704 Right-of-use assets obtained in exchange for new operating lease liabilities through acquisitions 560 12,356 Property and equipment obtained in exchange for finance lease liabilities reclassified from operating lease liabilities 28,149 12,286 Reconciliation of Cash, Restricted Cash, and Equivalents: March 31, 2021 December 31, 2020 March 31, 2020 December 31, 2019 (In thousands) Condensed Consolidated Balance Sheets Cash and cash equivalents $ 194,650 $ 156,699 $ 119,132 $ 159,722 Cash and cash equivalents – restricted 1 47,867 39,328 39,812 41,331 Other long-term assets 1 1,366 1,250 1,160 1,175 Condensed Consolidated Statements of Cash Flows Cash, restricted cash, and equivalents $ 243,883 $ 197,277 $ 160,104 $ 202,228 ________ 1 Reflects cash and cash equivalents that are primarily restricted for claims payments. See accompanying notes to condensed consolidated financial statements (unaudited). 7 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. Condensed Consolidated Statements of Stockholders' Equity (Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Total Knight-Swift Stockholders' Equity Noncontrolling Interest Total Stockholders’ Equity Shares Par Value (In thousands, except per share data) Balances – December 31, 2020 166,553 $ 1,665 $ 4,301,424 $ 1,566,759 $ 5,869,848 $ 2,192 $ 5,872,040 Common stock issued to employees 220 3 2,006 2,009 2,009 Common stock issued under ESPP 18 — 700 700 700 Company shares repurchased ( 1,303 ) ( 13 ) ( 53,648 ) ( 53,661 ) ( 53,661 ) Shares withheld – RSU settlement ( 4,159 ) ( 4,159 ) ( 4,159 ) Employee stock-based compensation expense 5,662 5,662 5,662 Cash dividends paid and dividends accrued ($ 0.08 per share) ( 13,345 ) ( 13,345 ) ( 13,345 ) Net income attributable to Knight-Swift 129,790 129,790 129,790 Investment in noncontrolling interest 10,281 10,281 Distribution to noncontrolling interest ( 32 ) ( 32 ) Net income attributable to noncontrolling interest 53 53 Balances – March 31, 2021 165,488 $ 1,655 $ 4,309,792 $ 1,625,397 $ 5,936,844 $ 12,494 $ 5,949,338 Common Stock Additional Paid-in Capital Retained Earnings Total Knight-Swift Stockholders' Equity Noncontrolling Interest Total Stockholders’ Equity Shares Par Value (In thousands, except per share data) Balances – December 31, 2019 170,688 $ 1,707 $ 4,269,043 $ 1,395,465 $ 5,666,215 $ 2,088 $ 5,668,303 Common stock issued to employees 211 2 2,709 2,711 2,711 Common stock issued under ESPP 16 — 546 546 546 Company shares repurchased ( 1,139 ) ( 11 ) ( 34,619 ) ( 34,630 ) ( 34,630 ) Shares withheld – RSU settlement ( 1,971 ) ( 1,971 ) ( 1,971 ) Employee stock-based compensation expense 3,536 3,536 3,536 Cash dividends paid and dividends accrued ($ 0.08 per share) ( 13,774 ) ( 13,774 ) ( 13,774 ) Net income attributable to Knight-Swift 65,426 65,426 65,426 Distribution to noncontrolling interest ( 180 ) ( 180 ) Net income attributable to noncontrolling interest 357 357 Balances – March 31, 2020 169,776 $ 1,698 $ 4,275,834 $ 1,410,527 $ 5,688,059 $ 2,265 $ 5,690,324 See accompanying notes to condensed consolidated financial statements (unaudited). 8 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 — Introduction and Basis of Presentation Certain acronyms and terms used throughout this Quarterly Report are specific to the Company, commonly used in the trucking industry, or are otherwise frequently used throughout this document. Definitions for these acronyms and terms are provided in the "Glossary of Terms," available in the front of this document. Description of Business Knight-Swift is a transportation solutions provider, headquartered in Phoenix, Arizona. During the quarter ended March 31, 2021, the Company operated an average of 18,224 tractors (comprised of 16,305 company tractors and 1,919 independent contractor tractors) and 59,797 trailers within the Trucking segment. Additionally, the Company operated an average of 597 tractors and 10,846 containers in the Intermodal segment. The Company's three reportable segments are Trucking, Logistics, and Intermodal. Basis of Presentation The condensed consolidated financial statements and footnotes included in this Quarterly Report include the accounts of Knight-Swift Transportation Holdings Inc. and its subsidiaries and should be read in conjunction with the consolidated financial statements and footnotes included in Knight-Swift's 2020 Annual Report. In management's opinion, these condensed consolidated financial statements were prepared in accordance with GAAP and include all adjustments necessary (consisting of normal recurring adjustments) for the fair statement of the periods presented. With respect to transactional/durational data, references to years pertain to calendar years. Similarly, references to quarters pertain to calendar quarters. Seasonality In the transportation industry, results of operations generally follow a seasonal pattern. Freight volumes in the first quarter are typically lower due to less consumer demand, customers reducing shipments following the holiday season, and inclement weather. At the same time, operating expenses generally increase, and tractor productivity of the Company's fleet, independent contractors, and third-party carriers decreases during the winter months due to decreased fuel efficiency, increased cold weather-related equipment maintenance and repairs, and increased insurance claims and costs attributed to higher accident frequency from harsh weather. These factors typically lead to lower operating profitability, as compared to other parts of the year. Additionally, beginning in the latter half of the third quarter and continuing into the fourth quarter, the Company typically experiences surges pertaining to holiday shopping trends toward delivery of gifts purchased over the Internet, as well as the length of the holiday season (consumer shopping days between Thanksgiving and Christmas). However, cyclical changes in the trucking industry, including imbalances in supply and demand, can override the seasonality faced in the industry. 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. There are various uncertainties that have arisen from the COVID-19 pandemic. While management is continuing to monitor the impact of the pandemic on Knight-Swift, including its employees, customers, independent contractors, stockholders, and other business partners and stakeholders, it is difficult to predict the impact that the pandemic will have on future results of its operations, financial position, and liquidity. This has caused some uncertainties around various accounting estimates. Due to these uncertainties, the Company's accounting estimates may change, as management's assessment of the impacts of the COVID-19 pandemic continues to evolve. 9 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 2 — Recently Issued Accounting Pronouncements No material ASUs issued since the 2020 annual report. Note 3 — Acquisitions Eleos Acquisition On February 1, 2021 , pursuant to a membership interest purchase agreement ("MIPA"), the Company, through a wholly owned subsidiary, acquired 79.44 % of the issued and outstanding membership interests of Eleos Technologies, LLC ("Eleos"), a Greenville, South Carolina based software provider, specializing in mobile driving platforms, which complement the Company's suite of services. The total purchase price consideration, including cash on hand and net working capital adjustments, consisted of $ 41.5 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, $ 4.1 million of the cash consideration was placed in escrow to secure certain of the sellers' indemnification obligations and other items. The MIPA included that both the buyer and sellers would file an election under the Internal Revenue Code Section 754 to adjust the tax basis of the Company's assets and liabilities, with respect to the buyer's purchase of the equity. The MIPA contains customary representations, warranties, covenants, and indemnification provisions for transactions of this nature. The goodwill recognized represents expected synergies from combining the operations of Eleos 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 allocation for the acquisition is preliminary and has been allocated based on estimated fair values of the assets acquired and liabilities assumed at the acquisition date, pending the completion of the valuation of acquired tangible assets, an independent valuation of certain acquired intangible assets, assessment of lease agreements, assessment of certain liabilities, the calculation of deferred taxes based upon the underlying tax basis of assets acquired and liabilities assumed, and assessment of other tax related items. As the Company obtains more information, the preliminary purchase price allocation disclosed below is subject to change. Any future adjustments to the preliminary purchase price allocation, including changes within identifiable intangible assets or estimation uncertainty impacted by market conditions, may impact future net earnings. The purchase price allocation adjustments can be made through the end of the measurement period, which is not to exceed one year from the acquisition date. 10 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED The following table summarizes the fair value of the consideration transferred as of the acquisition date: February 1, 2021 Opening Balance Sheet as Reported at March 31, 2021 Fair value of the consideration transferred $ 41,518 Cash and cash equivalents 2,237 Trade and other receivables 545 Prepaid expenses and other assets 47 Operating lease right-of-use assets 560 Identifiable intangible assets 1 15,850 Total assets 19,239 Accounts payable ( 156 ) Accrued payroll and payroll-related expenses ( 605 ) Accrued liabilities ( 1,391 ) Operating lease liabilities – current and noncurrent portions ( 560 ) Other long-term liabilities ( 475 ) Total liabilities ( 3,187 ) Noncontrolling interest ( 10,281 ) Total stockholders' equity ( 10,281 ) Goodwill $ 35,747 1 Includes $ 8.8 million in customer relationships, $ 0.2 million in noncompete agreements, $ 3.5 million in internally-developed software, and a $ 3.4 million trade name. Warehousing Co. Acquisition On January 1, 2020 , pursuant to a stock purchase agreement (the "SPA") the Company, through a wholly owned subsidiary, 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. 11 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED 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 of the deferred earnout, which was recorded in “Miscellaneous operating expenses” in the consolidated statement of comprehensive income. As such, as of March 31, 2021 and 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 ending 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 March 31, 2021 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. 12 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 4 — Investments Restricted Investments, Held-to-Maturity The following tables present the cost or amortized cost, gross unrealized gains and temporary losses, and estimated fair value of the Company's restricted investments, held-to-maturity: March 31, 2021 Gross Unrealized Cost or Amortized Cost Gains Temporary Losses Estimated Fair Value (In thousands) US corporate securities $ 8,954 $ — $ ( 4 ) $ 8,950 Restricted investments, held-to-maturity $ 8,954 $ — $ ( 4 ) $ 8,950 December 31, 2020 Gross Unrealized Cost or Amortized Cost Gains Temporary Losses Estimated Fair Value (In thousands) US corporate securities $ 9,001 $ 2 $ ( 8 ) $ 8,995 Restricted investments, held-to-maturity $ 9,001 $ 2 $ ( 8 ) $ 8,995 As of March 31, 2021, the contractual maturities of the restricted investments, held-to-maturity, were one year or less. There were sixteen securities that were in an unrealized loss position for less than twelve months as of March 31, 2021 and December 31, 2020. The Company did no t recognize any impairment losses related to its held-to-maturity investments during the quarters ended March 31, 2021 or 2020. Other Investments On April 16, 2021, the Company agreed to pay $ 25.0 million in cash in exchange for a convertible promissory note. The cash was paid on May 4, 2021. The convertible promissory note accrues simple interest on the unpaid principal balance at a rate of 10.0 % and is payable on demand any time after April 16, 2022, unless earlier converted into shares of the borrower's common stock. The amount outstanding on the promissory note is automatically converted into a number of shares of the borrower's common stock upon either the closing of a qualified financing or upon a public event, subject to discounted conversion pricing per share based on a valuation of the borrower. Refer to Note 15 for additional information regarding fair value measurements of the Company's investments. Note 5 — Assets Held for Sale The Company expects to sell its assets held for sale, which primarily consist of revenue equipment, within the next twelve months . Revenue equipment held for sale totaled $ 20.8 million and $ 29.8 million as of March 31, 2021 and December 31, 2020, respectively. Net gains on disposals, including disposals of property and equipment classified as assets held for sale, reported in "Miscellaneous operating expenses" in the condensed consolidated statements of comprehensive income, were $ 10.5 million and $ 3.0 million for the quarters ended March 31, 2021 and 2020, respectively. The increase in net gains on disposals was primarily due to a stronger market for used revenue equipment during the quarter ended March 31, 2021, as compared to the same period in 2020. The Company did no t recognize impairment losses related to assets held for sale during the quarter ended March 31, 2021, as compared to the same period last year when the Company recognized impairment losses related to assets held for sale of $ 0.1 million. 13 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 6 — Goodwill and Other Intangible Assets Goodwill The changes in the carrying amount of goodwill were as follows: (In thousands) Goodwill at beginning of period $ 2,922,964 Adjustments relating to deferred tax assets ( 2 ) Acquisition 1 35,747 Goodwill at end of period $ 2,958,709 1 The goodwill associated with the Eleos acquisition referenced in Note 3 was allocated to the non-reportable segment, and is net of purchase price accounting adjustments. The Company did no t record any goodwill impairments during the quarters ended March 31, 2021 or 2020. Other Intangible Assets Other intangible asset balances were as follows: March 31, 2021 December 31, 2020 (In thousands) Definite-lived intangible assets 1 Gross carrying amount $ 910,447 $ 894,597 Accumulated amortization ( 157,601 ) ( 145,852 ) Definite-lived intangible assets, net 752,846 748,745 Indefinite-lived trade names: Gross carrying amount 640,500 640,500 Intangible assets, net $ 1,393,346 $ 1,389,245 1 The major categories of the Company's definite-lived intangible assets include customer relationships, non-compete agreements, internally-developed software, trade names, and others. Identifiable intangible assets subject to amortization have been recorded at fair value. Intangible assets related to acquisitions other than the 2017 Merger are amortized over a weighted-average amortization period of 18.1 years. 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 March 31, 2021, management anticipates that the composition and amount of amortization associated with intangible assets will be $ 35.7 million for the remainder of 2021, $ 47.4 million in 2022, $ 46.9 million for each of the years 2023 and 2024, and $ 46.8 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. 14 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 7 — Income Taxes Effective Tax Rate — The quarter-to-date March 31, 2021 and March 31, 2020 effective tax rates were 25.9 % and 27.2 %, respectively. Valuation Allowance — The Company has no t established a valuation allowance as it has been determined that, based upon available evidence, a valuation allowance is not required. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. Unrecognized Tax Benefits — Management believes it is reasonably possible that a decrease of up to $ 0.7 million in unrecognized tax benefits relating to federal deductions may be necessary within the next twelve months. Interest and Penalties — Accrued interest and penalties related to unrecognized tax benefits were approximately $ 0.4 million and $ 0.3 million as of March 31, 2021 and December 31, 2020, 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. Years subsequent to 2015 remain subject to examination. Note 8 — Accounts Receivable Securitization The 2018 RSA is a secured borrowing that is collateralized by the Company's eligible receivables, for which the Company is the servicing agent. The Company's receivable originator subsidiaries sell, on a revolving basis, undivided interests in all of their eligible accounts receivable to Swift Receivables Company II, LLC ("SRCII") who in turn sells a variable percentage ownership in those receivables to the various purchasers. The Company's eligible receivables are included in "Trade receivables, net of allowance for doubtful accounts" in the condensed consolidated balance sheets. As of March 31, 2021, the Company's eligible receivables generally have high credit quality, as determined by the obligor's corporate credit rating. The 2018 RSA is subject to fees, various affirmative and negative covenants, representations and warranties, and default and termination provisions customary for facilities of this type. The Company was in compliance with these covenants as of March 31, 2021. Collections on the underlying receivables by the Company are held for the benefit of SRCII and the various purchasers and are unavailable to satisfy claims of the Company and its subsidiaries. The following table summarizes the key terms of the 2018 RSA (dollars in thousands): Effective date July 11, 2018 Final maturity date 1 July 9, 2021 Borrowing capacity $ 325,000 Accordion option 2 $ 175,000 Unused commitment fee rate 3 20 to 40 basis points Program fees on outstanding balances 4 one-month LIBOR + 80 to 100 basis points 1 On April 23, 2021, the Company entered into a new accounts receivable securitization agreement which extends the maturity date to April 23, 2024. See below for more details. 2 The accordion option increases the maximum borrowing capacity, subject to participation of the purchasers. 3 The 2018 RSA commitment fee rate is based on the percentage of the maximum borrowing capacity utilized. 4 The 2018 RSA program fee is based on the Company's consolidated total net leverage ratio. As identified within the 2018 RSA, the lender can trigger an amendment by identifying and deciding upon a replacement for LIBOR. 15 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Availability under the 2018 RSA is calculated as follows: March 31, 2021 December 31, 2020 (In thousands) Borrowing base, based on eligible receivables $ 267,200 $ 302,700 Less: outstanding borrowings 1 ( 199,000 ) ( 214,000 ) Less: outstanding letters of credit ( 65,281 ) ( 67,281 ) Availability under accounts receivable securitization facilities $ 2,919 $ 21,419 1 Outstanding borrowings are included in "Accounts receivable securitization – current portion" in the condensed consolidated balance sheets, offset by $ 43.0 thousand and $ 0.1 million of deferred loan costs as of March 31, 2021 and December 31, 2020 , respectively . Interest accrued on the aggregate principal balance at a rate of 1.0 % as of March 31, 2021 and December 31, 2020. Program fees and unused commitment fees are recorded in "Interest expense" in the condensed consolidated statements of comprehensive income. The Company incurred accounts receivable securitization program fees of $ 0.7 million and $ 1.4 million during the quarters ended March 31, 2021 and 2020, respectively. Refer to Note 15 for information regarding the fair value of the 2018 RSA. Subsequent Event On April 23, 2021 , the Company entered into the Fifth Amendment to the Amended and Restated Receivables Sales Agreement ("2021 RSA"). The 2021 RSA, among other things, extends the maturity date to April 23, 2024 , increases the maximum borrowing capacity to $ 400.0 million, decreases the accordion option to $ 100.0 million, and changes the program fee to one-month LIBOR plus 82.5 basis points . Note 9 — Commitments Purchase Commitments As of March 31, 2021, the Company had outstanding commitments to purchase revenue equipment of $ 654.8 million in the remainder of 2021 ($ 419.2 million of which were tractor commitments) and no ne thereafter. These purchases may be financed through any combination of operating leases, finance leases, debt, proceeds from sales of existing equipment, and cash flows from operations. As of March 31, 2021, the Company had outstanding commitments to purchase facilities and non-revenue equipment of $ 37.5 million in the remainder of 2021, $ 2.1 million in the two-year period 2022 through 2023, $ 0.5 million in the two-year period 2024 through 2025, and no ne thereafter. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures. As of March 31, 2021, the Company had outstanding commitments for fuel purchases of $ 25.0 million in the remainder of 2021, and no ne thereafter. TRP Commitments Since 2003, Knight has entered into partnership agreements with entities that make privately-negotiated equity investments. In these agreements, Knight committed to invest in return for an ownership percentage. During the first quarter of 2021, Knight entered into a $ 10.0 million commitment to invest in TRP Capital Partners V, LP with $ 10.0 million outstanding as of March 31, 2021. There were no other material changes related to the previously disclosed TRP commitments during the quarter ended March 31, 2021. 16 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 10 — Contingencies and Legal Proceedings Legal Proceedings Information is provided below regarding the nature, status, and contingent loss amounts, if any, associated with the Company's pending legal matters. There are inherent uncertainties in these legal matters, some of which are beyond management's control, making the ultimate outcomes difficult to predict. Moreover, management's views and estimates related to these matters may change in the future, as new events and circumstances arise and the matters continue to develop. The Company has made accruals with respect to its legal matters where appropriate, which are included in "Accrued liabilities" in the condensed consolidated balance sheets. The Company has recorded an aggregate accrual of approximately $ 21.8 million, relating to the Company's outstanding legal proceedings as of March 31, 2021. Based on management's present knowledge of the facts and (in certain cases) advice of outside counsel, management does not believe that loss contingencies arising from pending matters are likely to have a material adverse effect on the Company's overall financial position, operating results, or cash flows after taking into account any existing accruals. However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period. 17 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED EMPLOYEE COMPENSATION AND PAY PRACTICES MATTERS CRST Expedited The plaintiff alleges tortious interference with contract and unjust enrichment related to non-competition agreements entered into with certain of its drivers. Plaintiff(s) Defendant(s) Date instituted Court or agency currently pending in CRST Expedited, Inc. Swift Transportation Co. of Arizona LLC. March 20, 2017 United States District Court for the Northern District of Iowa Recent Developments and Current Status In July 2019, a jury issued an adverse verdict in this lawsuit. 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 March 31, 2021. California Wage, Meal, and Rest Class Actions The plaintiffs generally allege one or more of the following: that the Company 1) failed to pay the California minimum wage; 2) failed to provide proper meal and rest periods; 3) failed to timely pay wages upon separation from employment; 4) failed to pay for all hours worked; 5) failed to pay overtime; 6) failed to properly reimburse work-related expenses; and 7) failed to provide accurate wage statements. Plaintiff(s) Defendant(s) Date instituted Court or agency currently pending in John Burnell 1 Swift Transportation Co., Inc March 22, 2010 United States District Court for the Central District of California James R. Rudsell 1 Swift Transportation Co. of Arizona, LLC and Swift Transportation Company April 5, 2012 United States District Court for the Central District of California Recent Developments and Current Status In April 2019, the parties reached settlement of this matter. In January 2020, the court granted final approval of the settlement. Two objectors appealed the court’s decision granting final approval of the settlement. The likelihood that a loss has been incurred is probable and estimable, and the loss has accordingly been accrued as of March 31, 2021. INDEPENDENT CONTRACTOR MATTERS Ninth Circuit Independent Contractor Misclassification Class Action The putative class alleges that Swift misclassified independent contractors as independent contractors, instead of employees, in violation of the Fair Labor Standards Act and various state laws. The lawsuit also raises certain related issues with respect to the lease agreements that certain independent contractors have entered into with Interstate Equipment Leasing, LLC. The putative class seeks unpaid wages, liquidated damages, interest, other costs, and attorneys' fees. Plaintiff(s) Defendant(s) Date instituted Court or agency currently pending in Joseph Sheer, Virginia Van Dusen, Jose Motolinia, Vickii Schwalm, Peter Wood 1 Swift Transportation Co., Inc., Interstate Equipment Leasing, Inc., Jerry Moyes, and Chad Killebrew December 22, 2009 Unites States District Court of Arizona and Ninth Circuit Court of Appeals Recent Developments and Current Status In January 2020, the court granted final approval of the settlement in this matter. In March 2020, the Company paid the settlement amount approved by the court. As of March 31, 2021, the Company has accrued for anticipated costs associated with finalizing this matter. 1 Individually and on behalf of all others similarly situated. Other Environmental The Company's tractors and trailers are involved in motor vehicle accidents, experience damage, mechanical failures and cargo issues as an incidental part of its normal ordinary course of operations. From time to time, these matters result in the discharge of diesel fuel, motor oil or other hazardous materials into the environment. Depending on local regulations and who is determined to be at fault, the Company is sometimes responsible for the clean-up costs associated with these discharges. As of March 31, 2021, the Company's estimate for its total legal 18 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED liability for all such clean-up and remediation costs was approximately $ 0.7 million in the aggregate for all current and prior year claims. Self Insurance 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 auto liability ("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 $ 2.0 million per truck or trailer with a $ 10.0 million limit per occurrence. Workers' Compensation and Employers' Liability — The Company is self-insured for workers' compensation coverage. Swift maintains statutory coverage limits, subject to a $ 5.0 million SIR for each accident or disease. Effective March 1, 2019, Knight maintains statutory coverage limits, subject to a $ 2.0 million SIR for each accident or disease. Medical — Knight maintains primary and excess coverage for employee medical expenses, with a $ 0.4 million SIR per claimant. 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. Note 11 — Share Repurchase Plan 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 previous share repurchase plan, which had approximately $ 54.1 million of authorized purchases remaining 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 Quarter-to-Date March 31, 2021 Quarter-to-Date March 31, 2020 Board Approval Date Authorized Amount Shares Amount Shares Amount (in thousands) May 30, 2019 $ 250,000 — $ — 1,139 $ 34,630 November 24, 2020 1 $ 250,000 1,303 $ 53,661 — $ — 1,303 $ 53,661 1,139 $ 34,630 1 $ 196.3 million and $ 250.0 million remained available under the 2020 Knight-Swift Share Repurchase Plan as of March 31, 2021 and December 31, 2020, respectively. 19 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 12 — Weighted Average Shares Outstanding Earnings per share, basic and diluted, as presented in the condensed consolidated statements of comprehensive income, are calculated by dividing net income attributable to Knight-Swift by the respective weighted average common shares outstanding during the period. The following table reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding: Quarter Ended March 31, 2021 2020 (In thousands) Basic weighted average common shares outstanding 167,478 170,617 Dilutive effect of equity awards 896 665 Diluted weighted average common shares outstanding 168,374 171,282 Anti-dilutive shares excluded from diluted earnings per share 1 6 256 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 for the periods presented. Note 13 — Related Party Transactions The following table presents Knight-Swift's transactions with companies controlled by and/or affiliated with its related parties: Quarter Ended March 31, 2021 2020 Provided by Knight-Swift Received by Knight-Swift Provided by Knight-Swift Received by Knight-Swift (In thousands) Freight Services: Central Freight Lines 1 $ — $ — $ 6,816 $ — Total $ — $ — $ 6,816 $ — Facility and Equipment Leases: Central Freight Lines 1 $ — $ — $ — $ 92 Other Affiliates 1 — 57 5 73 Total $ — $ 57 $ 5 $ 165 Other Services: Central Freight Lines 1 $ — $ — $ 15 $ — DPF Mobile 1 — — — 12 Other Affiliates 1 6 9 9 — Total $ 6 $ 9 $ 24 $ 12 1 Entities affiliated with former Board member Jerry Moyes include Central Freight Lines, SME Industries, Compensi Services, and DPF Mobile. "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. • Freight Services Received by Knight-Swift — Transportation services received from Central Freight Lines represent less-than-truckload freight services rendered to haul parts and equipment to Company shop locations. 20 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED • 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, 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 13 pertain to transactions that occurred prior to the date that the ownership percentage changed. Receivables and payables pertaining to related party transactions were: March 31, 2021 December 31, 2020 Receivable Payable Receivable Payable (In thousands) Central Freight Lines $ — $ — $ 133 $ — DPF Mobile — — — 41 Other Affiliates 7 6 2 10 Total $ 7 $ 6 $ 135 $ 51 21 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 14 — Information by Segment and Geography Segment Information The Company has three reportable segments: Trucking, Logistics, and Intermodal, as well as the non-reportable segments, discussed below. Based on how economic factors affect the nature, amount, timing, and uncertainty of revenue or cash flows, the Company disaggregates revenues by reportable segment for the purposes of applying the ASC Topic 606 guidance. The Company's twenty-one 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. Trucking 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. Logistics 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. Intermodal 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. Non-reportable The non-reportable segments include five 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 Certain operating segments provide transportation and related services for other affiliates outside of their segments. For certain operating segments, such services are billed at cost, and no profit is earned. For the other operating segments, revenues for such services are based on negotiated rates, and are reflected as revenues of the billing segment. These rates are adjusted from time to time, based on market conditions. Such intersegment revenues and expenses are eliminated in Knight-Swift's consolidated results. 22 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED The following tables present the Company's financial information by segment: Quarter Ended March 31, 2021 2020 Revenue: (In thousands) Trucking $ 962,947 $ 919,061 Logistics 118,887 79,198 Intermodal 107,066 94,731 Subtotal $ 1,188,900 $ 1,092,990 Non-reportable segments 50,669 46,242 Intersegment eliminations ( 16,555 ) ( 14,434 ) Total revenue $ 1,223,014 $ 1,124,798 Quarter Ended March 31, 2021 2020 Operating income (loss): (In thousands) Trucking $ 158,483 $ 107,334 Logistics 7,577 3,719 Intermodal 3,457 ( 2,737 ) Subtotal $ 169,517 $ 108,316 Non-reportable segments ( 7,258 ) ( 6,197 ) Operating income $ 162,259 $ 102,119 Quarter Ended March 31, 2021 2020 Depreciation and amortization of property and equipment: (In thousands) Trucking $ 101,885 $ 93,548 Logistics 208 207 Intermodal 3,818 3,488 Subtotal $ 105,911 $ 97,243 Non-reportable segments 14,004 12,978 Depreciation and amortization of property and equipment $ 119,915 $ 110,221 Geographical Information In the aggregate, total revenue from the Company's foreign operations was less than 5.0 % of consolidated total revenue for the quarters ended March 31, 2021 and 2020. Additionally, long-lived assets on the Company's foreign subsidiary balance sheets were less than 5.0 % of consolidated total assets as of March 31, 2021 and December 31, 2020. 23 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 15 — Fair Value Measurement ASC Topic 820, Fair Value Measurements and Disclosures, requires that the Company disclose estimated fair values for its financial instruments. The estimated fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for the asset or liability. Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Changes in assumptions could significantly affect these estimates. Because the fair value is estimated as of March 31, 2021 and December 31, 2020, the amounts that will actually be realized or paid at settlement or maturity of the instruments in the future could be significantly different. The estimated fair values of the Company's financial instruments represent management's best estimates of the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. The estimated fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the estimated fair value measurement reflects management's own judgments about the assumptions that market participants would use in pricing the asset or liability. These judgments are developed by the Company based on the best information available under the circumstances. The following summary presents a description of the methods and assumptions used to estimate the fair value of each class of financial instrument. Restricted Investments, Held-to-Maturity — The estimated fair value of the Company's restricted investments, held-to-maturity, is based on quoted prices in active markets that are readily and regularly obtainable. See Note 4 for additional disclosures regarding restricted investments, held-to-maturity. 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. Debt Instruments and Leases — For notes payable under the Revolver and the Term Loan, fair value approximates the carrying value due to the variable interest rate. The carrying value of the 2018 RSA approximates fair value, as the underlying receivables are short-term in nature and only eligible receivables (such as those with high credit ratings) are qualified to secure the borrowed amounts. For finance and operating lease liabilities, the carrying value approximates the fair value, as the Company's finance and operating lease liabilities 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. These instruments are accordingly excluded from the disclosures below. All remaining balance sheet amounts excluded from the below are not considered financial instruments, subject to this disclosure. 24 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED The following table presents the carrying amounts and estimated fair values of the Company's major categories of financial assets and liabilities: March 31, 2021 December 31, 2020 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value (In thousands) Financial Assets: Restricted investments, held-to-maturity 1 $ 8,954 $ 8,950 $ 9,001 $ 8,995 Equity method investments 2 80,891 80,891 77,562 77,562 Investments in equity securities 3 22,555 22,555 18,675 18,675 Financial Liabilities: Term Loan, due October 2022 4 $ 299,063 $ 300,000 $ 298,907 $ 300,000 2018 RSA, due July 2021 5 198,957 199,000 213,918 214,000 Revolver, due October 2022 115,000 115,000 210,000 210,000 Contingent consideration associated with acquisition 6 16,200 16,200 16,200 16,200 1 Refer to Note 4 for the differences between the carrying amounts and estimated fair values of the Company's restricted investments, held-to-maturity. 2 Net equity method investment balances included in "Other long-term assets" in the condensed consolidated balance sheets. 3 The investments are carried at fair value and are included in "Other long-term assets" on the condensed consolidated balance sheets. 4 The carrying amount of the Term Loan is included in "Finance lease liabilities and long-term debt – less current portion," on the condensed consolidated balance sheets and is net of $ 0.9 million and $ 1.1 million in deferred loan costs as of March 31, 2021 and December 31, 2020, respectively. 5 The carrying amount of the 2018 RSA is included in " Accounts receivable securitization – current portion ," on the condensed consolidated balance sheets and is net of $ 43.0 thousand and $ 0.1 million in deferred loan costs as of March 31, 2021 and December 31, 2020 , respectively. 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 condensed consolidated balance sheets. Recurring Fair Value Measurements (Assets) — The following table depicts the level in the fair value hierarchy of the inputs used to estimate the fair value of assets measured on a recurring basis as of March 31, 2021 and December 31, 2020 : Fair Value Measurements at Reporting Date Using: Estimated Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Gain (In thousands) As of March 31, 2021 Investments in equity securities 1 $ 22,555 $ 22,555 $ — $ — $ 10,391 As of December 31, 2020 Investments in equity securities 2 $ 18,675 $ 18,675 $ — $ — $ 3,553 1 The Company recognized $ 10.4 million of unrealized gains on these assets for the quarter-ended March 31, 2021. Additionally, the Company sold $ 6.4 million in equity investments during the quarter ended March 31, 2021 and realized a gain of $ 3.5 million. The activity for these investments is included within "Other (expense) income, net" within the condensed consolidated statement of comprehensive income for the quarter ended March 31, 2021. 2 The Company recognized $ 3.6 million of unrealized gains during the year-ended December 31, 2020. The Company recognized $ 5.3 million in unrealized losses during the quarter-ended March 31, 2020. The Company did not sell any equity investments during the quarter ended March 31, 2020 and therefore did no t realize any gains (losses) on these investments. The activity for these investments is included within "Other (expense) income, net" within the condensed consolidated statement of comprehensive income for the quarter ended March 31, 2020. 25 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED 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 March 31, 2021 and 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 March 31, 2021 Contingent consideration associated with acquisition 1 $ 16,200 $ — $ — $ 16,200 $ — As of December 31, 2020 Contingent consideration associated with acquisition 2 $ 16,200 $ — $ — $ 16,200 $ ( 6,730 ) 1 The Company did no t recognize any gains (losses) during the quarter-ended March 31, 2021 related to the revaluation of these liabilities. 2 Refer to Note 3 for information regarding the adjustments made to the contingent consideration associated with the acquisition. During the year-ended December 31, 2020, the Company recognized $ 6.7 million in losses related to the revaluation of these liabilities. The Company did no t recognize any losses during the quarter-ended March 31, 2020 . Nonrecurring Fair Value Measurements (Assets) — As of March 31, 2021, the Company had no major categories of assets estimated at fair value that were measured on a nonrecurring basis. The following table depicts the level in the fair value hierarchy of the inputs used to estimate fair value of assets measured on a nonrecurring basis as of December 31, 2020: Fair Value Measurements at Reporting Date Using: Estimated Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Loss (In thousands) As of December 31, 2020 Equipment 1 5,851 — 5,851 — ( 5,335 ) 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). During the year-ended December 31, 2020, the Company recognized $ 5.3 million of impairments related to these assets. The Company recognized $ 0.9 million of impairments during the quarter-ended March 31, 2020. Nonrecurring Fair Value Measurements (Liabilities) — As of March 31, 2021 and December 31, 2020, the Company had no major categories of liabilities estimated at fair value that were measured on a nonrecurring basis. 26 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.