Knight-Swift Transportation Holdings Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets (Unaudited) June 30, 2021 December 31, 2020 (In thousands, except per share data) ASSETS Current assets: Cash and cash equivalents $ 179,032 $ 156,699 Cash and cash equivalents – restricted 51,637 39,328 Restricted investments, held-to-maturity, amortized cost 8,589 9,001 Trade receivables, net of allowance for doubtful accounts of $ 22,157 and $ 22,093 , respectively 648,435 578,479 Contract balance – revenue in transit 20,913 14,560 Prepaid expenses 58,722 71,649 Assets held for sale 17,599 29,756 Income tax receivable 29,369 2,903 Other current assets 60,581 20,988 Total current assets 1,074,877 923,363 Gross property and equipment 4,401,293 4,223,348 Less: accumulated depreciation and amortization ( 1,389,477 ) ( 1,230,696 ) Property and equipment, net 3,011,816 2,992,652 Operating lease right-of-use-assets 91,258 113,296 Goodwill 2,971,023 2,922,964 Intangible assets, net 1,403,483 1,389,245 Other long-term assets 130,002 126,482 Total assets $ 8,682,459 $ 8,468,002 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 151,704 $ 101,001 Accrued payroll and purchased transportation 191,906 160,888 Accrued liabilities 87,637 88,894 Claims accruals – current portion 169,093 174,928 Finance lease liabilities and long-term debt – current portion 72,423 52,583 Operating lease liabilities – current portion 32,785 47,496 Accounts receivable securitization – current portion — 213,918 Total current liabilities 705,548 839,708 Revolving line of credit 55,000 210,000 Long-term debt – less current portion 299,219 298,907 Finance lease liabilities – less current portion 165,644 138,243 Operating lease liabilities – less current portion 60,958 69,852 Accounts receivable securitization – less current portion 278,372 — Claims accruals – less current portion 168,152 174,814 Deferred tax liabilities 806,398 815,941 Other long-term liabilities 45,115 48,497 Total liabilities 2,584,406 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; 165,711 and 166,553 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively. 1,657 1,665 Additional paid-in capital 4,325,915 4,301,424 Retained earnings 1,757,689 1,566,759 Total Knight-Swift stockholders' equity 6,085,261 5,869,848 Noncontrolling interest 12,792 2,192 Total stockholders’ equity 6,098,053 5,872,040 Total liabilities and stockholders’ equity $ 8,682,459 $ 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-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 (In thousands, except per share data) Revenue: Revenue, excluding trucking fuel surcharge $ 1,212,872 $ 997,597 $ 2,345,977 $ 2,024,692 Trucking fuel surcharge 102,829 63,101 192,738 160,804 Total revenue 1,315,701 1,060,698 2,538,715 2,185,496 Operating expenses: Salaries, wages, and benefits 377,613 365,311 747,983 720,144 Fuel 126,055 86,381 244,291 208,236 Operations and maintenance 71,313 66,067 139,383 134,471 Insurance and claims 58,776 45,302 114,419 99,582 Operating taxes and licenses 21,717 20,883 43,765 43,052 Communications 4,635 4,902 9,672 9,776 Depreciation and amortization of property and equipment 123,606 114,601 243,521 224,822 Amortization of intangibles 11,984 11,474 23,733 22,948 Rental expense 13,399 22,372 30,263 47,747 Purchased transportation 304,157 200,107 562,387 425,383 Impairments — 353 — 1,255 Miscellaneous operating expenses 11,331 20,778 25,924 43,794 Total operating expenses 1,124,586 958,531 2,185,341 1,981,210 Operating income 191,115 102,167 353,374 204,286 Other income (expenses): Interest income 270 437 564 1,269 Interest expense ( 3,307 ) ( 4,021 ) ( 6,793 ) ( 10,128 ) Other income, net 16,840 8,499 32,945 1,992 Total other income (expenses), net 13,803 4,915 26,716 ( 6,867 ) Income before income taxes 204,918 107,082 380,090 197,419 Income tax expense 51,783 26,815 97,112 51,369 Net income 153,135 80,267 282,978 146,050 Net income attributable to noncontrolling interest ( 331 ) ( 78 ) ( 384 ) ( 435 ) Net income attributable to Knight-Swift $ 152,804 $ 80,189 $ 282,594 $ 145,615 Earnings per share: Basic $ 0.92 $ 0.47 $ 1.70 $ 0.86 Diluted $ 0.92 $ 0.47 $ 1.69 $ 0.85 Dividends declared per share: $ 0.10 $ 0.08 $ 0.18 $ 0.16 Weighted average shares outstanding: Basic 165,577 169,948 165,751 170,283 Diluted 166,585 170,624 166,750 170,958 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) Year-to-Date June 30, 2021 2020 (In thousands) Cash flows from operating activities: Net income $ 282,978 $ 146,050 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, equipment, and intangibles 267,254 247,770 Gain on sale of property and equipment ( 25,592 ) ( 4,724 ) Impairments — 1,255 Deferred income taxes ( 9,541 ) 23,112 Non-cash lease expense 26,743 46,493 Non-cash adjustment to fair value of convertible note ( 12,631 ) — Other adjustments to reconcile net income to net cash provided by operating activities 9,347 19,229 Increase (decrease) in cash resulting from changes in: Trade receivables ( 70,067 ) ( 11,440 ) Income tax receivable ( 26,466 ) 11,124 Accounts payable 28,935 8,417 Accrued liabilities and claims accrual 6,512 ( 75,069 ) Operating lease liabilities ( 28,311 ) ( 48,243 ) Other assets and liabilities 10,343 19,386 Net cash provided by operating activities 459,504 383,360 Cash flows from investing activities: Proceeds from maturities of held-to-maturity investments 2,850 6,950 Purchases of held-to-maturity investments ( 2,555 ) ( 7,852 ) Proceeds from sale of property and equipment, including assets held for sale 127,068 64,463 Purchases of property and equipment ( 247,549 ) ( 259,641 ) Expenditures on assets held for sale ( 765 ) ( 418 ) Net cash, restricted cash, and equivalents invested in acquisitions ( 63,305 ) ( 46,811 ) Investment in convertible note ( 25,000 ) — Other cash flows from investing activities 12,340 ( 9,757 ) Net cash used in investing activities ( 196,916 ) ( 253,066 ) Cash flows from financing activities: Repayment of finance leases and long-term debt ( 50,428 ) ( 31,893 ) Repayments on revolving lines of credit, net ( 155,000 ) ( 44,000 ) Borrowings under accounts receivable securitization 80,000 — Repayment of accounts receivable securitization ( 15,000 ) ( 40,000 ) Proceeds from common stock issued 5,302 9,892 Repurchases of the Company's common stock ( 53,661 ) ( 34,630 ) Dividends paid ( 30,332 ) ( 27,673 ) Other cash flows from financing activities ( 8,679 ) ( 5,467 ) Net cash used in financing activities ( 227,798 ) ( 173,771 ) Net increase (decrease) in cash, restricted cash, and equivalents 34,790 ( 43,477 ) Cash, restricted cash, and equivalents at beginning of period 197,277 202,228 Cash, restricted cash, and equivalents at end of period $ 232,067 $ 158,751 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 Year-to-Date June 30, 2021 2020 (In thousands) Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 5,719 $ 10,455 Income taxes 133,284 3,632 Non-cash investing and financing activities: Equipment acquired included in accounts payable $ 8,063 $ 27,463 Financing provided to independent contractors for equipment sold 776 2,553 Transfer from property and equipment to assets held for sale 51,310 37,779 Noncontrolling interest associated with acquisition 10,281 — Contingent consideration associated with acquisition 5,000 18,245 Right-of-use assets obtained in exchange for operating lease liabilities 4,146 1,633 Right-of-use assets obtained in exchange for new operating lease liabilities through acquisitions 560 12,356 Property and equipment obtained in exchange for new finance lease liabilities 55,370 — Property and equipment obtained in exchange for finance lease liabilities reclassified from operating lease liabilities 42,298 48,659 Reconciliation of Cash, Restricted Cash, and Equivalents: June 30, 2021 December 31, 2020 June 30, 2020 December 31, 2019 (In thousands) Condensed Consolidated Balance Sheets Cash and cash equivalents $ 179,032 $ 156,699 $ 117,760 $ 159,722 Cash and cash equivalents – restricted 1 51,637 39,328 39,583 41,331 Other long-term assets 1 1,398 1,250 1,408 1,175 Condensed Consolidated Statements of Cash Flows Cash, restricted cash, and equivalents $ 232,067 $ 197,277 $ 158,751 $ 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 418 5 3,391 3,396 3,396 Common stock issued to the Board 12 — 575 575 575 Common stock issued under ESPP 31 — 1,331 1,331 1,331 Company shares repurchased ( 1,303 ) ( 13 ) ( 53,648 ) ( 53,661 ) ( 53,661 ) Shares withheld – RSU settlement ( 7,947 ) ( 7,947 ) ( 7,947 ) Employee stock-based compensation expense 19,194 19,194 19,194 Cash dividends paid and dividends accrued ($ 0.18 per share) ( 30,069 ) ( 30,069 ) ( 30,069 ) Net income attributable to Knight-Swift 282,594 282,594 282,594 Investment in noncontrolling interest 10,281 10,281 Distribution to noncontrolling interest ( 65 ) ( 65 ) Net income attributable to noncontrolling interest 384 384 Balances – June 30, 2021 165,711 $ 1,657 $ 4,325,915 $ 1,757,689 $ 6,085,261 $ 12,792 $ 6,098,053 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 567 5 8,309 8,314 8,314 Common stock issued to the Board 13 — 515 515 515 Common stock issued under ESPP 33 — 1,063 1,063 1,063 Company shares repurchased ( 1,139 ) ( 11 ) ( 34,619 ) ( 34,630 ) ( 34,630 ) Shares withheld – RSU settlement ( 4,500 ) ( 4,500 ) ( 4,500 ) Employee stock-based compensation expense 8,363 8,363 8,363 Cash dividends paid and dividends accrued ($ 0.16 per share) ( 27,495 ) ( 27,495 ) ( 27,495 ) Net income attributable to Knight-Swift 145,615 145,615 145,615 Distribution to noncontrolling interest ( 394 ) ( 394 ) Net income attributable to noncontrolling interest 435 435 Balances – June 30, 2020 170,162 $ 1,701 $ 4,287,293 $ 1,474,466 $ 5,763,460 $ 2,129 $ 5,765,589 8 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. See accompanying notes to condensed consolidated financial statements (unaudited). Condensed Consolidated Statements of Stockholders' Equity (Unaudited) — Continued 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 – March 31, 2021 165,488 1,655 4,309,792 1,625,397 5,936,844 12,494 5,949,338 Common stock issued to employees 198 2 1,385 1,387 1,387 Common stock issued to the Board 12 — 575 575 575 Common stock issued under ESPP 13 — 631 631 631 Shares withheld – RSU settlement ( 3,788 ) ( 3,788 ) ( 3,788 ) Employee stock-based compensation expense 13,532 13,532 13,532 Cash dividends paid and dividends accrued ($ 0.10 per share) ( 16,724 ) ( 16,724 ) ( 16,724 ) Net income attributable to Knight-Swift 152,804 152,804 152,804 Distribution to noncontrolling interest ( 33 ) ( 33 ) Net income attributable to noncontrolling interest 331 331 Balances – June 30, 2021 165,711 $ 1,657 $ 4,325,915 $ 1,757,689 $ 6,085,261 $ 12,792 $ 6,098,053 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 – March 31, 2020 169,776 1,698 4,275,834 1,410,527 5,688,059 2,265 5,690,324 Common stock issued to employees 356 3 5,600 5,603 5,603 Common stock issued to the Board 13 — 515 515 515 Common stock issued under ESPP 17 — 517 517 517 Shares withheld – RSU settlement ( 2,529 ) ( 2,529 ) ( 2,529 ) Employee stock-based compensation expense 4,827 4,827 4,827 Cash dividends paid and dividends accrued ($ 0.08 per share) ( 13,721 ) ( 13,721 ) ( 13,721 ) Net income attributable to Knight-Swift 80,189 80,189 80,189 Distribution to noncontrolling interest ( 214 ) ( 214 ) Net income attributable to noncontrolling interest 78 78 Balances – June 30, 2020 170,162 $ 1,701 $ 4,287,293 $ 1,474,466 $ 5,763,460 $ 2,129 $ 5,765,589 See accompanying notes to condensed consolidated financial statements (unaudited). 9 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 first half of 2021, the Company operated an average of 18,129 tractors (comprised of 16,225 company tractors and 1,904 independent contractor tractors) and 60,382 trailers within the Trucking segment. Additionally, the Company operated an average of 605 tractors and 10,844 containers in the Intermodal segment. As of June 30, 2021 , 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 The Company continues to operate its business through the COVID-19 pandemic, including recent variants, 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. 10 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 There have been no ASUs issued since the filing date of the 2020 annual report that may have a material impact on the Company. Note 3 — Acquisitions AAA Cooper Transportation Acquisition On July 5, 2021 , the Company acquired 100 % of Dothan, Alabama-based AAA Cooper Transportation and an affiliated entity ("ACT"). ACT is a leading less-than-truckload ("LTL") carrier that also offers dedicated contract carriage and ancillary services. The total purchase price consideration of $ 1.31 billion included $ 1.30 billion in cash and $ 10.0 million in Knight-Swift shares issued to the sellers at closing. Additionally, the Company assumed $ 36.7 million in debt, net of cash. Cash was funded from the 2021 Term Loan, as well as existing Knight-Swift liquidity. ACT was an S corporation for tax purposes, and the transaction included an election under Internal Revenue Code Section 338(h)(10). The Stock Purchase Agreement contains customary representations, warranties, and covenants. The results of ACT will be included in our consolidated results beginning in the third quarter of 2021. The Company has not completed the initial accounting for this transaction as it is still in the preliminary stages of assessing the fair value of the underlying tangible and intangible assets. On July 6, 2021, Knight-Swift entered into the $ 1.2 billion 2021 Term Loan with Bank of America, N.A. The 2021 Term Loan is incremental to, and is separate from, the 2017 Debt Agreement. The 2021 Term Loan was fully funded on July 6, 2021 and there are no scheduled principal payments prior to maturity in October 2022. The interest rate applicable to the 2021 Term Loan is subject to a leverage-based grid and equals the BSBY rate (Bloomberg Short-term Bank Yield index) plus 1.000 % at closing. The 2021 Term Loan contains similar terms to the 2017 Debt Agreement, including the financial covenants, usual and customary events of default for a facility of this nature, and certain usual and customary restrictions and covenants. UTXL Enterprises, Inc. On June 1, 2021 , pursuant to a stock purchase agreement (the "SPA") the Company, through a wholly owned subsidiary, acquired 100.0 % of the equity interests of UTXL Enterprises, Inc. (“UTXL”), a premier third-party logistics company which specializes in over-the-road full truckload and multi-stop loads. The total purchase price consideration of $ 37.2 million, including cash on hand and net working capital adjustments, consisted of $ 32.2 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 $ 2.25 million of the cash consideration was placed in escrow to secure certain of the sellers' indemnification obligations and remains subject to further adjustments. The purchase price also included contingent consideration consisting of two additional annual payments of up to $ 2.5 million each (or $ 5.0 million in total), representing the maximum possible annual deferred payments to the sellers based on UTXL’s operating ratio and revenue growth targets for each of the twelve-month periods ending May 31, 2022 and May 31, 2023. For income tax purposes, the sale of UTXL's equity interests to the Company is intended to be treated as a sale and purchase of assets. 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 UTXL 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. 11 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED 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. June 1, 2021 Opening Balance Sheet as Reported at June 30, 2021 Fair value of the consideration transferred $ 37,230 Cash and cash equivalents 8,206 Trade receivables and other current assets 9,451 Property and equipment 54 Identifiable intangible assets 1 22,121 Total assets 39,832 Accounts payable ( 14,183 ) Accrued payroll and payroll-related expenses ( 247 ) Accrued liabilities ( 69 ) Claims accruals – current portion ( 418 ) Total liabilities ( 14,917 ) Goodwill $ 12,315 1 Includes $ 19.2 million in customer relationships, $ 0.3 million in noncompete agreements, and a $ 2.6 million trade name. 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. 12 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED 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. 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 June 30, 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. Information about the accounting treatment for the acquisition of Warehousing Co., including the details of the transaction, determination of the total fair value consideration, allocation of the purchase price at the end of the measurement period are included in the Company’s Quarterly Report for the quarter ended March 31, 2021. As of June 30, 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. 13 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: June 30, 2021 Gross Unrealized Cost or Amortized Cost Gains Temporary Losses Estimated Fair Value (In thousands) US corporate securities $ 8,589 $ — $ ( 3 ) $ 8,586 Restricted investments, held-to-maturity $ 8,589 $ — $ ( 3 ) $ 8,586 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 June 30, 2021, the contractual maturities of the restricted investments, held-to-maturity, were one year or less. There were fourteen securities and sixteen securities that were in an unrealized loss position for less than twelve months as of June 30, 2021 and December 31, 2020, respectively. The Company did no t recognize any impairment losses related to its held-to-maturity investments during the quarter or year-to-date periods ended June 30, 2021 or 2020. Embark Convertible Note During the second quarter of 2021, the Company invested $ 25.0 million in Embark in exchange for a convertible note. The convertible 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 Embark's common stock. The amount outstanding on the convertible note is automatically converted into a number of shares of Embark'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 Embark. On June 22, 2021, Embark and Northern Genesis Acquisition Corp II ("NGA"), a publicly-traded special purpose acquisition company ("SPAC"), entered into a definitive business combination agreement that will result in Embark becoming a publicly listed company. Completion of the transaction is expected to occur in the fourth quarter of 2021 and is subject to approval of NGA stockholders and the satisfaction or waiver of certain other customary closing conditions. Based on the valuation of this public event, the Company estimated that the fair value of this investment was $ 37.6 million and recognized a $ 12.6 million gain on the convertible note during the quarter ended June 30, 2021. 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 $ 17.6 million and $ 29.8 million as of June 30, 2021 and December 31, 2020, respectively. Net gains on disposals, including disposals of property and equipment classified 14 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED as assets held for sale, reported in "Miscellaneous operating expenses" in the condensed consolidated statements of comprehensive income, were: • $ 15.1 million and $ 1.7 million for the quarter-to-date periods ended June 30, 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-to-date period ended June 30, 2021, as compared to the same period in 2020. • $ 25.6 million and $ 4.7 million for the year-to-date periods ended June 30, 2021 and 2020, respectively. The increase in net gains on disposals was primarily due to a stronger market for used revenue equipment during the year-to-date period ended June 30, 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 quarters and year-to-date periods ended June 30, 2021. The Company recognized impairment losses related to assets held for sale of $ 0.4 million during the quarter and year-to-date periods ended June 30, 2020. Note 6 — Goodwill and Other Intangible Assets Goodwill The changes in the carrying amount of goodwill were as follows: (In thousands) Goodwill, balance at December 31, 2020 $ 2,922,964 Adjustments relating to deferred tax assets ( 3 ) Acquisitions 1 48,062 Goodwill, balance at June 30, 2021 $ 2,971,023 1 The goodwill associated with the Eleos and UTXL acquisitions referenced in Note 3 was allocated to the non-reportable and logistics segments, respectively, and is net of purchase price accounting adjustments. The Company did no t record any goodwill impairments during the quarter or year-to-date periods ended June 30, 2021 or 2020. Other Intangible Assets Other intangible asset balances were as follows: June 30, 2021 December 31, 2020 (In thousands) Definite-lived intangible assets 1 Gross carrying amount $ 929,910 $ 894,597 Accumulated amortization ( 169,585 ) ( 145,852 ) Definite-lived intangible assets, net 760,325 748,745 Indefinite-lived trade names: Gross carrying amount 643,158 640,500 Intangible assets, net $ 1,403,483 $ 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 17.5 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. 15 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED As of June 30, 2021, management anticipates that the composition and amount of amortization associated with intangible assets will be $ 24.4 million for the remainder of 2021, $ 48.8 million in 2022, $ 48.2 million for each of the years 2023 and 2024, and $ 48.1 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. Note 7 — Income Taxes Effective Tax Rate — The quarter-to-date June 30, 2021 and June 30, 2020 effective tax rates were 25.3 % and 25.0 %, respectively. The year-to-date June 30, 2021 and June 30, 2020 effective tax rates were 25.5 % and 26.0 %, 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 June 30, 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 On April 23, 2021, the Company entered into the Fifth Amendment to the Amended and Restated Receivables Sales Agreement ("2021 RSA") which further amended the 2018 RSA. The 2021 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 June 30, 2021, the Company's eligible receivables generally have high credit quality, as determined by the obligor's corporate credit rating. The 2021 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 June 30, 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. 16 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED The following table summarizes the key terms of the 2021 RSA and 2018 RSA (dollars in thousands): 2021 RSA 2018 RSA Effective date April 23, 2021 July 11, 2018 Final maturity date April 23, 2024 July 9, 2021 Borrowing capacity $ 400,000 $ 325,000 Accordion option 1 $ 100,000 $ 175,000 Unused commitment fee rate 2 20 to 40 basis points 20 to 40 basis points Program fees on outstanding balances 3 4 one-month LIBOR + 82.5 basis points one-month LIBOR + 80 to 100 basis points 1 The accordion option increases the maximum borrowing capacity, subject to participation of the purchasers. 2 The 2021 RSA and 2018 RSA commitment fees rate are based on the percentage of the maximum borrowing capacity utilized. 3 Only the rate for the 2018 RSA program fee is subject to the Company's consolidated total net leverage ratio. 4 As identified within the 2021 RSA, the lender can trigger an amendment by identifying and deciding upon a replacement for LIBOR. Availability under the 2021 RSA and 2018 RSA is calculated as follows: 2021 RSA 2018 RSA June 30, 2021 December 31, 2020 (In thousands) Borrowing base, based on eligible receivables $ 400,000 $ 302,700 Less: outstanding borrowings 1 ( 279,000 ) ( 214,000 ) Less: outstanding letters of credit ( 65,281 ) ( 67,281 ) Availability under accounts receivable securitization facilities $ 55,719 $ 21,419 1 As of June 30, 2021, outstanding borrowings are included in "Accounts receivable securitization – less current portion" in the condensed consolidated balance sheets and are offset by $ 0.6 million of deferred loan costs. As of December 31, 2020, outstanding borrowings are included in "Accounts receivable securitization – current portion" in the condensed consolidated balance sheets and are offset by $ 0.1 million of deferred loan costs . Interest accrued on the aggregate principal balance at a rate of 0.9 % and 1.0 % as of June 30, 2021 and December 31, 2020, respectively. 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 $ 0.8 million and $ 0.7 million during the quarter-to-date June 30, 2021 and 2020 periods, respectively. The Company incurred accounts receivable securitization program fees of $ 1.4 million and $ 2.1 million during the year-to-date June 30, 2021 and 2020 periods, respectively. Refer to Note 15 for information regarding the fair value of the 2021 RSA and 2018 RSA. 17 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 9 — Commitments Purchase Commitments As of June 30, 2021, the Company had outstanding commitments to purchase revenue equipment of $ 509.2 million in the remainder of 2021 ($ 317.3 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 June 30, 2021, the Company had outstanding commitments to purchase facilities and non-revenue equipment of $ 36.9 million in the remainder of 2021, $ 4.6 million in the two-year period 2022 through 2023, $ 0.8 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 June 30, 2021, the Company had outstanding commitments for fuel purchases of $ 14.5 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 increased its commitment to invest in TRP Capital Partners V, LP by $ 10.0 million to $ 30.0 million, with $ 26.3 million outstanding as of June 30, 2021. There were no other material changes related to the previously disclosed TRP commitments during the quarter ended June 30, 2021. Embark Commitment On June 23, 2021, the Company entered into a stock subscription agreement with Embark to purchase $ 25.0 million of Embark's common stock, with $ 25.0 million outstanding as of June 30, 2021. 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 $ 23.9 million, relating to the Company's outstanding legal proceedings as of June 30, 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. 18 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 June 30, 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 June 30, 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 June 30, 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 June 30, 2021, the Company's estimate for its total legal 19 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 $ 0.5 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 June 30, 2021 Year-to-Date June 30, 2021 Board Approval Date Authorized Amount Shares Amount Shares Amount (shares and dollars in thousands) November 24, 2020 1 $ 250,000 — $ — 1,303 $ 53,661 Quarter-to-Date June 30, 2020 Year-to-Date June 30, 2020 May 30, 2019 $ 250,000 — $ — 1,139 $ 34,630 1 $ 196.3 million and $ 250.0 million remained available under the 2020 Knight-Swift Share Repurchase Plan as of June 30, 2021 and December 31, 2020, respectively. 20 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-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 (In thousands) Basic weighted average common shares outstanding 165,577 169,948 165,751 170,283 Dilutive effect of equity awards 1,008 676 999 675 Diluted weighted average common shares outstanding 166,585 170,624 166,750 170,958 Anti-dilutive shares excluded from diluted earnings per share 1 31 365 47 329 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-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 Provided by Knight-Swift Received by Knight-Swift 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) Freight Services: Central Freight Lines 1 $ — $ — $ 1,020 $ — $ — $ — $ 7,836 $ — SME Industries 1 — — 28 — — — 28 — Total $ — $ — $ 1,048 $ — $ — $ — $ 7,864 $ — Facility and Equipment Leases: Central Freight Lines 1 $ — $ — $ 23 $ 93 $ — $ — $ 23 $ 185 Other Affiliates 1 — 88 4 36 — 145 9 109 Total $ — $ 88 $ 27 $ 129 $ — $ 145 $ 32 $ 294 Other Services: Central Freight Lines 1 $ — $ — $ — $ — $ — $ — $ 15 $ — DPF Mobile 1 — — — 19 — — — 31 Other Affiliates 1 7 9 10 — 13 18 19 — Total $ 7 $ 9 $ 10 $ 19 $ 13 $ 18 $ 34 $ 31 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. 21 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED • 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. • 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: June 30, 2021 December 31, 2020 Receivable Payable Receivable Payable (In thousands) Central Freight Lines $ — $ — $ 133 $ — DPF Mobile — — — 41 Other Affiliates 1,792 20 2 10 Total $ 1,792 $ 20 $ 135 $ 51 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-two 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 six 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. 22 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED 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. The following tables present the Company's financial information by segment: Quarter-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 Revenue: (In thousands) Trucking $ 985,858 $ 879,369 $ 1,948,805 $ 1,798,430 Logistics 166,737 70,104 285,624 149,302 Intermodal 115,378 82,820 222,444 177,551 Subtotal $ 1,267,973 $ 1,032,293 $ 2,456,873 $ 2,125,283 Non-reportable segments 66,795 45,289 117,464 91,531 Intersegment eliminations ( 19,067 ) ( 16,884 ) ( 35,622 ) ( 31,318 ) Total revenue $ 1,315,701 $ 1,060,698 $ 2,538,715 $ 2,185,496 Quarter-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 Operating income (loss): (In thousands) Trucking $ 168,457 $ 107,788 $ 326,940 $ 215,122 Logistics 14,356 3,038 21,933 6,757 Intermodal 5,812 ( 4,475 ) 9,269 ( 7,212 ) Subtotal $ 188,625 $ 106,351 $ 358,142 $ 214,667 Non-reportable segments 2,490 ( 4,184 ) ( 4,768 ) ( 10,381 ) Operating income $ 191,115 $ 102,167 $ 353,374 $ 204,286 23 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Quarter-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 Depreciation and amortization of property and equipment: (In thousands) Trucking $ 105,206 $ 97,555 $ 207,091 $ 191,103 Logistics 289 207 497 414 Intermodal 3,940 3,606 7,758 7,094 Subtotal $ 109,435 $ 101,368 $ 215,346 $ 198,611 Non-reportable segments 14,171 13,233 28,175 26,211 Depreciation and amortization of property and equipment $ 123,606 $ 114,601 $ 243,521 $ 224,822 Geographical Information In the aggregate, total revenue from the Company's foreign operations was less than 5.0 % of consolidated total revenue for the quarter and year-to-date periods ended June 30, 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 June 30, 2021 and December 31, 2020. 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 June 30, 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. Convertible Notes — The estimated fair value of the Company's convertible note is based on probability weighted discounted cash flow analysis of the corresponding pay-off/redemption. 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. 24 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED 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 2017 Term Loan, fair value approximates the carrying value due to the variable interest rate. The carrying values of the 2021 RSA and 2018 RSA approximate 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 sellers is calculated using applicable models and inputs for each acquiree. 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. The following table presents the carrying amounts and estimated fair values of the Company's major categories of financial assets and liabilities: June 30, 2021 December 31, 2020 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value (In thousands) Financial Assets: Restricted investments, held-to-maturity 1 $ 8,589 $ 8,586 $ 9,001 $ 8,995 Equity method investments 2 81,237 81,237 77,562 77,562 Investments in equity securities 3 19,707 19,707 18,675 18,675 Convertible note 4 37,631 37,631 — — Financial Liabilities: 2017 Term Loan, due October 2022 5 $ 299,219 $ 300,000 $ 298,907 $ 300,000 2018 RSA, due July 2021 6 — — 213,918 214,000 2021 RSA, due April 2024 7 278,372 279,000 — — Revolver, due October 2022 55,000 55,000 210,000 210,000 Contingent consideration associated with acquisitions 8 21,200 21,200 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 loan is carried at fair value and is included in "Other current assets" in the condensed consolidated balance sheets. 5 The carrying amount of the 2017 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 $ 0.8 million and $ 1.1 million in deferred loan costs as of June 30, 2021 and December 31, 2020, respectively. 6 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 $ 0.1 million in deferred loan costs as of December 31, 2020 . 7 The carrying amount of the 2021 RSA is included in " Accounts receivable securitization – less current portion ," on the condensed consolidated balance sheets and is net of $ 0.6 million in deferred loan costs as of June 30, 2021 . 25 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED 8 The carrying amount of the contingent consideration associated with acquisitions 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 June 30, 2021 and December 31, 2020 : Fair Value Measurements at Reporting Date Using: Estimated Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs Unrealized Gain Position (In thousands) As of June 30, 2021 Convertible note 1 $ 37,631 $ — $ — $ 37,631 $ 12,631 Investments in equity securities 2 $ 19,707 $ 19,707 $ — $ — $ 8,126 As of December 31, 2020 Investments in equity securities 3 $ 18,675 $ 18,675 $ — $ — $ 3,553 1 The Company recognized $ 12.6 million of unrealized gains on the convertible note for the quarter and year-to-date periods ended June 30, 2021, which is included within "Other income, net" within the condensed consolidated statement of comprehensive income. The fair value of the note was determined using a discounted cash flow analysis based on the probability of exit event options and exit event dates. 2 Fair value activity from the investments in equity securities is recorded in "Other income, net" within the condensed consolidated statement of comprehensive income. • During the quarter ended June 30, 2021, the Company recognized $ 1.5 million in net losses on these investments in equity securities, consisting of $ 2.3 million in unrealized losses and $ 0.8 million in realized gains. • During the year-to-date period ended June 30, 2021, the Company recognized $ 8.9 million in gains on these investments in equity securities, consisting of $ 4.6 million in unrealized gains and $ 4.3 million in realized gains. 3 Fair value activity from the investments in equity securities is recorded in "Other income, net" within the condensed consolidated statement of comprehensive income. • During the quarter ended June 30, 2020, the Company recognized $ 7.6 million in unrealized gains on these investments in equity securities. • During the year-to-date period ended June 30, 2020, the Company recognized $ 2.5 million in unrealized gains on these investments in equity securities. 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 June 30, 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 June 30, 2021 Contingent consideration associated with acquisitions 1 $ 21,200 $ — $ — $ 21,200 $ — 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 or year-to-date periods ended June 30, 2021 related to the revaluation of these liabilities. Refer to Note 3 for information regarding the components of these liabilities. 26 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED 2 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. The Company did no t recognize any losses during the quarter and year-to-date periods ended June 30, 2020 . Nonrecurring Fair Value Measurements (Assets) — As of June 30, 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). The Company recognized $ 0.4 million and $ 1.3 million of impairments during the quarter and year-to-date periods ended June 30, 2020. Nonrecurring Fair Value Measurements (Liabilities) — As of June 30, 2021 and December 31, 2020, the Company had no major categories of liabilities estimated at fair value that were measured on a nonrecurring basis. 27 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.