Knight-Swift Transportation Holdings Inc 10-Q for FY2020 Q1

Knight-Swift Transportation Holdings Inc. (KNX)

10-Q 2020-05-06 For: 2020-03-31

Added on April 08, 2026

About this 10-Q

Knight-Swift Transportation Holdings Inc filed this 10-Q on May 6, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.12B; down 6.6% from $1.2B a year earlier
Net income: $65.43M; down 25.6% from net income of $87.94M a year earlier
Diluted EPS: $0.38; down 25.5% from $0.51 a year earlier

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Delaware		20-5589597
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock $0.01 Par Value	KNX	New York Stock Exchange



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION	PAGE
Item 1. Financial Statements	4

Condensed Consolidated Balance Sheets (Unaudited) — March 31, 2020 and December 31, 2019	4

Condensed Consolidated Statements of Comprehensive Income (Unaudited) — Quarters Ended March 31, 2020 and 2019	5

Condensed Consolidated Statements of Cash Flows (Unaudited) — Quarters Ended March 31, 2020 and 2019	6

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) — Quarters Ended March 31, 2020 and 2019	8

Note 1 — Introduction and Basis of Presentation	9

Note 2 — Recently Adopted Accounting Pronouncements	10

Note 3 — Recently Issued Accounting Pronouncements	11

Note 4 — Acquisitions	12

Note 5 — Restricted Investments, Held-to-Maturity	14

Note 6 — Assets Held for Sale	14

Note 7 — Goodwill and Other Intangible Assets	15

Note 8 — Income Taxes	16

Note 9 — Accounts Receivable Securitization	16

Note 10 — Commitments	18

Note 11 — Contingencies and Legal Proceedings	18

Note 12 — Share Repurchase Plan	21

Note 13 — Weighted Average Shares Outstanding	21

Note 14 — Related Party Transactions	22

Note 15 — Information by Segment and Geography	23

Note 16 — Fair Value Measurement	24

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3. Quantitative and Qualitative Disclosures About Market Risk	53

Item 4. Controls and Procedures	53
PART II OTHER INFORMATION
Item 1. Legal Proceedings	54

Item 1A. Risk Factors	54

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 3. Defaults Upon Senior Securities	55

Item 4. Mine Safety Disclosures	55

Item 5. Other Information	55

Item 6. Exhibits	56

Signatures	57



QUARTERLY REPORT ON FORM 10-Q

GLOSSARY OF TERMS
The following glossary provides definitions for certain acronyms and terms used in this Quarterly Report on Form 10-Q. These acronyms and terms are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document.

Term		Definition
Knight-Swift/the Company/Management/We/Us/Our		Unless otherwise indicated or the context otherwise requires, these terms represent Knight-Swift Transportation Holdings Inc. and its subsidiaries.
2017 Merger		The September 8, 2017 merger of Knight and Swift, pursuant to which we became Knight-Swift Transportation Holdings Inc.
2017 Debt Agreement		The Company's Credit Agreement, entered into on September 29, 2017, consisting of the Revolver and Term Loan, which are defined below.
2018 RSA		Fourth Amendment to the Amended and Restated Receivables Sales Agreement, entered into on July 11, 2018 by Swift Receivables Company II, LLC with unrelated financial entities.
Abilene		Abilene Motor Express, Inc. and its related entities
Abilene Acquisition		See description of the Abilene Acquisition included in Notes 1 and 4 of the footnotes to the condensed consolidated financial statements, within Part I, Item 1 of this Quarterly Report.
Annual Report		Annual Report on Form 10-K
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Board		Knight-Swift's Board of Directors
COVID-19		Viral strain of a coronavirus which led the World Health Organization to declare a global pandemic in March 2020.
DOE		United States Department of Energy
EPS		Earnings Per Share
ESPP		Knight-Swift Transportation Holdings Inc. Amended and Restated 2012 Employee Stock Purchase Plan
FASB		Financial Accounting Standards Board
FLSA		Fair Labor Standards Act
GAAP		United States Generally Accepted Accounting Principles
Knight		Unless otherwise indicated or the context otherwise requires, this term represents Knight Transportation, Inc. and its subsidiaries prior to the 2017 Merger
LIBOR		London InterBank Offered Rate
Quarterly Report		Quarterly Report on Form 10-Q
QTD		Quarter-to-date
Revolver		Revolving line of credit under the 2017 Debt Agreement
RSU		Restricted Stock Unit
SEC		United States Securities and Exchange Commission
Swift		Unless otherwise indicated or the context otherwise requires, this term represents Swift Transportation Company and its subsidiaries prior to the 2017 Merger.
Term Loan		The Company's term loan under the 2017 Debt Agreement
TRP		Transportation Resource Partners
US		The United States of America



	March 31, 2020			December 31, 2019
	(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	119,132		$	159,722
Cash and cash equivalents – restricted	39,812			41,331
Restricted investments, held-to-maturity, amortized cost	8,836			8,912
Trade receivables, net of allowance for doubtful accounts of $19,304 and $18,178, respectively	521,976			518,547
Contract balance – revenue in transit	13,239			12,696
Prepaid expenses	59,134			62,160
Assets held for sale	37,986			41,786
Income tax receivable	12,646			17,026
Other current assets	25,681			27,848
Total current assets	838,442			890,028
Gross property and equipment	3,838,947			3,742,739
Less: accumulated depreciation and amortization	(965,777		)	(892,019		)
Property and equipment, net	2,873,170			2,850,720
Operating lease right-of-use assets	159,283			169,425
Goodwill	2,923,382			2,918,992
Intangible assets, net	1,423,666			1,379,459
Other long-term assets	70,380			73,108
Total assets	$	8,288,323		$	8,281,732
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	168,018		$	99,194
Accrued payroll and purchased transportation	112,396			110,065
Accrued liabilities	87,480			175,222
Claims accruals – current portion	158,962			150,805
Finance lease liabilities and long-term debt – current portion	377,201			377,651
Operating lease liabilities – current portion	75,224			80,101
Total current liabilities	979,281			993,038
Revolving line of credit	294,000			279,000
Finance lease liabilities – less current portion	55,679			57,383
Operating lease liabilities – less current portion	89,683			96,160
Accounts receivable securitization	179,801			204,762
Claims accruals – less current portion	188,912			196,912
Deferred tax liabilities	785,588			771,719
Other long-term liabilities	25,055			14,455
Total liabilities	2,597,999			2,613,429
Commitments and contingencies (Notes 4, 10, and 11)
Stockholders’ equity:
Preferred stock, par value $0.01 per share; 10,000 shares authorized; none issued	—			—
Common stock, par value $0.01 per share; 500,000 shares authorized; 169,776 and 170,688 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively.	1,698			1,707
Additional paid-in capital	4,275,834			4,269,043
Retained earnings	1,410,527			1,395,465
Total Knight-Swift stockholders' equity	5,688,059			5,666,215
Noncontrolling interest	2,265			2,088
Total stockholders’ equity	5,690,324			5,668,303
Total liabilities and stockholders’ equity	$	8,288,323		$	8,281,732



	Quarter Ended March 31,
	2020			2019
	(In thousands, except per share data)
Revenue:
Revenue, excluding trucking fuel surcharge	$	1,027,095		$	1,096,956
Trucking fuel surcharge	97,703			107,579
Total revenue	1,124,798			1,204,535
Operating expenses:
Salaries, wages, and benefits	354,833			363,855
Fuel	121,855			138,439
Operations and maintenance	68,404			79,760
Insurance and claims	54,280			50,136
Operating taxes and licenses	22,169			21,803
Communications	4,874			5,083
Depreciation and amortization of property and equipment	110,221			100,937
Amortization of intangibles	11,474			10,693
Rental expense	25,375			35,545
Purchased transportation	225,276			269,349
Impairments	902			—
Miscellaneous operating expenses	23,016			12,636
Total operating expenses	1,022,679			1,088,236
Operating income	102,119			116,299
Other (expenses) income:
Interest income	832			1,016
Interest expense	(6,107		)	(7,348		)
Other (expense) income, net	(6,507		)	6,139
Total other (expenses) income, net	(11,782		)	(193		)
Income before income taxes	90,337			116,106
Income tax expense	24,554			27,923
Net income	65,783			88,183
Net income attributable to noncontrolling interest	(357		)	(245		)
Net income attributable to Knight-Swift	$	65,426		$	87,938

Earnings per share:
Basic	$	0.38		$	0.51
Diluted	$	0.38		$	0.51

Dividends declared per share:	$	0.08		$	0.06

Weighted average shares outstanding:
Basic	170,617			172,971
Diluted	171,282			173,608



Reconciliation of Cash, Restricted Cash, and Equivalents:	March 31, 2020		December 31, 2019		March 31, 2019		December 31, 2018
	(In thousands)
Condensed Consolidated Balance Sheets
Cash and cash equivalents	$	119,132	$	159,722	$	60,215	$	82,486
Cash and cash equivalents – restricted ¹	39,812		41,331		50,689		46,888
Other long-term assets ¹	1,160		1,175		1,019		1,602
Condensed Consolidated Statements of Cash Flows
Cash, restricted cash, and equivalents	$	160,104	$	202,228	$	111,923	$	130,976


1	Reflects cash and cash equivalents that are primarily restricted for claims payments.



	Common Stock					Additional Paid-in Capital		Retained Earnings			Total Knight-Swift Stockholders' Equity			Noncontrolling Interest			Total Stockholders’ Equity
	Shares		Par Value			Additional Paid-in Capital		Retained Earnings			Total Knight-Swift Stockholders' Equity			Noncontrolling Interest			Total Stockholders’ Equity
	(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



Date Issued	Reference	Description	Adoption Date and Method	Financial Statement Impact
March 2020	2020-04: Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting ¹	The amendments in this Update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this ASU are effective for any interim period after March 12, 2020 and should be applied on a prospective basis.	March 2020	No material impact ²
March 2020	2020-03: Codification Improvements Financial Instruments ¹	The amendments within this ASU updated several sections of the codification and how various topics and subtopics interacted due to new guidance on financial instruments. This includes addressing issues related to fair value option disclosures, line-of-credit or revolving-debt arrangements and leases among others. The amendments should be applied prospectively and have varying effective dates which were all in effect for public business entities prior to issuance of the ASU.	March 2020, Adoption Prospective	No material impact
February 2020	2020-02: Financial Instruments – Credit Losses (Topic 326), Leases – (Topic 842) – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) ¹	The amendments in this ASU incorporate discussion from SEC Staff Accounting Bulletin No. 119 about expected implementation practices related to ASC Topic 326. The amendments also codify SEC Staff announcement that it would not object to the FASB's update to effective dates for major updates which were amended within ASU 2019-10.	January 2021, Adoption method varies by amendment	Adopted January 1, 2020, no material impact
January 2020	2020-01: Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815	The amendments clarify that an entity should consider observable transactions when determining to apply or discontinue the equity method for the purposes of applying the measurement alternative. The amendments also clarify that an entity would not consider whether a purchased option would be accounted for under the equity method when applying ASC 815-10-15-141(a).	January 2021, Prospective	Currently under evaluation, but not expected to be material


2	As identified within the 2018 RSA, the lender can trigger an amendment by identifying and deciding upon a replacement for LIBOR. The Company's Term Loan also references LIBOR and management is currently underway with refinancing, as the Term Loan matures in October of 2020.



	January 1, 2020 Opening Balance Sheet as Reported at March 31, 2020
	(in thousands)
Fair value of the consideration transferred	$	66,854

Cash and cash equivalents	1,388
Trade and other receivables	3,301
Prepaid expenses	608
Other current assets	78
Property and equipment	1,938
Operating lease right-of-use assets	12,356
Identifiable intangible assets ¹	55,681
Deferred tax assets	54
Other noncurrent assets	404
Total assets	75,808

Accounts payable	(347		)
Accrued liabilities	(644		)
Operating lease liabilities – current portion	(4,451		)
Operating lease liabilities – less current portion	(7,905		)
Total liabilities	(13,347		)

Goodwill	$	4,393


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.



	March 31, 2020
			Gross Unrealized
	Cost or Amortized Cost		Gains		Temporary Losses			Estimated Fair Value
	(In thousands)
US corporate securities	$	8,836	$	1	$	(31	)	$	8,806
Restricted investments, held-to-maturity	$	8,836	$	1	$	(31	)	$	8,806



ITEM 1.	FINANCIAL STATEMENTS


1	The goodwill associated with the acquisition referenced in Note 4 was allocated to the non-reportable segment.



	(In thousands)
Goodwill, balance at December 31, 2019	$	2,918,992
Adjustments relating to deferred tax assets	(3		)
Acquisition ¹	4,393
Goodwill, balance at March 31, 2020	$	2,923,382


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



	2018 RSA
Effective date	July 11, 2018
Final maturity date	July 9, 2021
Borrowing capacity		$325,000
Accordion option ¹		$175,000
Unused commitment fee rate ²	20 to 40 basis points
Program fees on outstanding balances ³	one-month LIBOR + 80 to 100 basis points


1	The accordion option increases the maximum borrowing capacity, subject to participation of the purchasers.


2	The 2018 RSA commitment fee rate is based on the percentage of the maximum borrowing capacity utilized.


3	The 2018 RSA program fee is based on the Company's consolidated total net leverage ratio. As identified within the 2018 RSA, the lender can trigger an amendment by identifying and deciding upon a replacement for LIBOR.


1	Outstanding borrowings are included in "Accounts receivable securitization" in the condensed consolidated balance sheets, offset by $0.2 million of deferred loan costs as of March 31, 2020 and December 31, 2019. Interest accrued on the aggregate principal balance at a rate of 2.4% and 2.6% as of March 31, 2020 and December 31, 2019, respectively.



EMPLOYEE COMPENSATION AND PAY PRACTICES MATTERS
CRST Expedited
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 Company is reviewing all options including post-trial motions seeking to overturn the jury verdict and if necessary, an appeal. The likelihood that a loss has been incurred is probable and estimable, and the loss has accordingly been accrued as of March 31, 2020.
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. The likelihood that a loss has been incurred is probable and estimable, and the loss has accordingly been accrued as of March 31, 2020.
Arizona Minimum Wage Class Action
The plaintiffs generally allege one or more of the following: 1) failure to minimum wage for the first day of orientation; 2) failure to pay minimum wage for time spent studying; 3) failure to pay minimum wage for 16 hours per day; and 4) failure to pay minimum wage for the first eight hours of sleeper berth time.
Plaintiff(s)	Defendant(s)	Date instituted	Court or agency currently pending in
Pamela Julian ¹	Swift Transportation Co., Inc. and Swift Transportation Co. of Arizona LLC	December 29, 2015	United States District Court for the District of Arizona
Recent Developments and Current Status
In December 2019, the court awarded damages for failure to pay minimum wage for 16 hours per day. The likelihood that a loss has been incurred is probable and estimable, and the loss has accordingly been accrued as of March 31, 2020.


1	Individually and on behalf of all others similarly situated.



INDEPENDENT CONTRACTOR MATTERS
Ninth Circuit Independent Contractor Misclassification Class Action
The putative class alleges that Swift misclassified independent contractors as independent contractors, instead of employees, in violation of the FLSA and various state laws. The lawsuit also raises certain related issues with respect to the lease agreements that certain independent contractors have entered into with Interstate Equipment Leasing, LLC. The putative class seeks unpaid wages, liquidated damages, interest, other costs, and attorneys' fees.
Plaintiff(s)	Defendant(s)	Date instituted	Court or agency currently pending in
Joseph Sheer, Virginia Van Dusen, Jose Motolinia, Vickii Schwalm, Peter Wood ¹	Swift Transportation Co., Inc., Interstate Equipment Leasing, Inc., Jerry Moyes, and Chad Killebrew	December 22, 2009	Unites States District Court of Arizona and Ninth Circuit Court of Appeals
Recent Developments and Current Status
In 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, 2020, the Company has a reserve accrued for anticipated costs associated with finalizing this matter.



Share Repurchase Plan		Quarter Ended March 31, 2020
Board Approval Date	Authorized Amount	Shares	Amount
	(in thousands)
May 30, 2019 ¹	$250,000	1,139	$	34,630
		1,139	$	34,630


1	$199.0 million and $233.6 million remained available under the 2019 Knight-Swift Share Repurchase Plan as of March 31, 2020 and December 31, 2019, respectively.


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.


•	Freight Services Provided by Knight-Swift — The Company charges each of these companies for transportation services.


•	Freight Services Received by Knight-Swift — Transportation services received from Central Freight represent less-than-truckload freight services rendered to haul parts and equipment to Company shop locations.


•	Other Services Provided by Knight-Swift — Other services provided by the Company to the identified related parties include equipment sales and miscellaneous services.


•	Other Services Received by Knight-Swift — Consulting fees, 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.



	March 31, 2020				December 31, 2019
	Receivable		Payable		Receivable		Payable
	(In thousands)
Central Freight Lines	$	5,703	$	—	$	2,872	$	—
SME Industries	—		—		17		—
DPF Mobile	—		5		—		2
Other Affiliates	—		2		—		—
Total	$	5,703	$	7	$	2,889	$	2



	March 31, 2020				December 31, 2019
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(In thousands)
Financial Assets:
Restricted investments, held-to-maturity ¹	$	8,836	$	8,806	$	8,912	$	8,915
TRP Investments	30,338		30,338		30,878		30,878
Investments in equity securities ²	9,843		9,843		8,722		8,722

Financial Liabilities:
Term Loan, due October 2020 ³	$	364,883	$	365,000	$	364,825	$	365,000
2018 RSA, due July 2021 ⁴	179,801		180,000		204,762		205,000
Revolver, due October 2022	294,000		294,000		279,000		279,000


1	Refer to Note 5 for the differences between the carrying amounts and estimated fair values of the Company's restricted investments, held-to-maturity.