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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________________________________________________________________________________________________
FORM 10-Q
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☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35007
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Knight-Swift Transportation Holdings Inc.
(Exact name of registrant as specified in its charter)
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Delaware | | 20-5589597 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
2002 West Wahalla Lane
Phoenix, Arizona 85027
(Address of principal executive offices and zip code)
(602) 269-2000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
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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 |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large Accelerated Filer | | ☒ | | Accelerated Filer | | ☐ | |
| Non-accelerated Filer | | ☐ | | Smaller Reporting Company | | ☐ | |
| | | | | Emerging Growth Company | | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were approximately 161,369,000 shares of the registrant's common stock outstanding as of October 25, 2023.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
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QUARTERLY REPORT ON FORM 10-Q |
TABLE OF CONTENTS |
PART I FINANCIAL INFORMATION | PAGE |
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PART II OTHER INFORMATION | |
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
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GLOSSARY OF TERMS |
The following glossary defines 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. |
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2017 Merger | The September 8, 2017 merger of Knight Transportation, Inc. and its subsidiaries and Swift Transportation Company and its subsidiaries, pursuant to which we became Knight-Swift Transportation Holdings Inc. |
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2021 Debt Agreement | The Company's unsecured credit agreement, entered into on September 3, 2021, consisting of the 2021 Revolver and 2021 Term Loans, which are defined below |
2021 Prudential Notes | Third amended and restated note purchase and private shelf agreement, entered into on September 3, 2021 by ACT with unrelated financial entities |
2021 Revolver | Revolving line of credit under the 2021 Debt Agreement, maturing on September 3, 2026 |
2021 Term Loans | The Company's term loans under the 2021 Debt Agreement, collectively consisting of the 2021 Term Loan A-1, 2021 Term Loan A-2 and 2021 Term Loan A-3 |
2021 Term Loan A-1 | The Company's term loan under the 2021 Debt Agreement, which matured on December 3, 2022 |
2021 Term Loan A-2 | The Company's term loan under the 2021 Debt Agreement, maturing on September 3, 2024 |
2021 Term Loan A-3 | The Company's term loan under the 2021 Debt Agreement, maturing on September 3, 2026 |
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2023 Term Loan | The Company's term loan entered into on June 22, 2023, maturing on September 3, 2026 |
2021 RSA | Fifth Amendment to the Amended and Restated Receivables Sales Agreement, entered into on April 23, 2021 by Swift Receivables Company II, LLC with unrelated financial entities. |
2022 RSA | Sixth Amendment to the Amended and Restated Receivables Sales Agreement, entered into on October 3, 2022 by Swift Receivables Company II, LLC with unrelated financial entities. |
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ACT | AAA Cooper Transportation, and its affiliated entity |
ACT Acquisition | The Company's acquisition of 100% of the securities of ACT on July 5, 2021 |
Annual Report | Annual Report on Form 10-K |
ASC | Accounting Standards Codification |
ASU | Accounting Standards Update |
Board | Knight-Swift's Board of Directors |
BSBY | Bloomberg Short-Term Bank Yield Index |
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DOE | United States Department of Energy |
EPS | Earnings Per Share |
Embark | Embark Technology Inc. and its related entities |
ESPP | Knight-Swift Transportation Holdings Inc. Amended and Restated 2012 Employee Stock Purchase Plan |
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GAAP | United States Generally Accepted Accounting Principles |
IRS | Internal Revenue Service |
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NYSE | New York Stock Exchange |
LTL | Less-than-truckload |
MME | MME, Inc. and its subsidiary, Midwest Motor Express, Inc. |
Quarterly Report | Quarterly Report on Form 10-Q |
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RSU | Restricted Stock Unit |
SEC | United States Securities and Exchange Commission |
SOFR | Secured overnight financing rate as administered by the Federal Reserve Bank of New York |
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US | The United States of America |
U.S. Xpress | U.S. Xpress Enterprises, Inc. and its subsidiaries |
U.S. Xpress Acquisition | The Company's acquisition of 100% of the securities of U.S. Xpress on July 1, 2023 |
UTXL | UTXL Enterprises, Inc. |
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
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PART I FINANCIAL INFORMATION |
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ITEM 1. | FINANCIAL STATEMENTS |
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Condensed Consolidated Balance Sheets (Unaudited) |
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| September 30, 2023 | | December 31, 2022 |
| (In thousands, except per share data) |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 193,372 | | | $ | 196,770 | |
Cash and cash equivalents – restricted | 259,979 | | | 185,792 | |
Restricted investments, held-to-maturity, amortized cost | 1,028 | | | 7,175 | |
Trade receivables, net of allowance for doubtful accounts of $29,144 and $22,980, respectively | 971,175 | | | 842,294 | |
Contract balance – revenue in transit | 12,122 | | | 15,859 | |
Prepaid expenses | 132,594 | | | 108,081 | |
Assets held for sale | 77,008 | | | 40,602 | |
Income tax receivable | 60,211 | | | 58,974 | |
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Other current assets | 53,684 | | | 38,025 | |
Total current assets | 1,761,173 | | | 1,493,572 | |
Gross property and equipment | 6,542,804 | | | 5,740,383 | |
Less: accumulated depreciation and amortization | (2,038,345) | | | (1,905,340) | |
Property and equipment, net | 4,504,459 | | | 3,835,043 | |
Operating lease right-of-use-assets | 505,795 | | | 192,358 | |
Goodwill | 3,844,252 | | | 3,519,339 | |
Intangible assets, net | 2,077,426 | | | 1,776,569 | |
Other long-term assets | 147,176 | | | 134,785 | |
Total assets | $ | 12,840,281 | | | $ | 10,951,666 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 299,039 | | | $ | 220,849 | |
Accrued payroll and purchased transportation | 183,450 | | | 171,381 | |
Accrued liabilities | 228,465 | | | 81,528 | |
Claims accruals – current portion | 442,014 | | | 311,822 | |
Finance lease liabilities and long-term debt – current portion | 434,863 | | | 71,466 | |
Operating lease liabilities – current portion | 142,543 | | | 36,961 | |
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Total current liabilities | 1,730,374 | | | 894,007 | |
Revolving line of credit | 300,000 | | | 43,000 | |
Long-term debt – less current portion | 1,261,711 | | | 1,024,668 | |
Finance lease liabilities – less current portion | 320,270 | | | 344,377 | |
Operating lease liabilities – less current portion | 394,921 | | | 149,992 | |
Accounts receivable securitization | 361,681 | | | 418,561 | |
Claims accruals – less current portion | 310,075 | | | 201,838 | |
Deferred tax liabilities | 959,306 | | | 907,893 | |
Other long-term liabilities | 72,142 | | | 12,049 | |
Total liabilities | 5,710,480 | | | 3,996,385 | |
Commitments and contingencies (Notes 7, 8, and 9) | | | |
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; 161,347 and 160,706 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively. | 1,613 | | | 1,607 | |
Additional paid-in capital | 4,418,981 | | | 4,392,266 | |
Accumulated other comprehensive loss | (664) | | | (2,436) | |
Retained earnings | 2,693,568 | | | 2,553,567 | |
Total Knight-Swift stockholders' equity | 7,113,498 | | | 6,945,004 | |
Noncontrolling interest | 16,303 | | | 10,277 | |
Total stockholders’ equity | 7,129,801 | | | 6,955,281 | |
Total liabilities and stockholders’ equity | $ | 12,840,281 | | | $ | 10,951,666 | |
See accompanying notes to condensed consolidated financial statements (unaudited).
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
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Condensed Consolidated Statements of Comprehensive Income (Unaudited) |
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| Quarter Ended September 30, | | Year-to-Date September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (In thousands, except per share data) |
Revenue: | | | | | | | |
Revenue, excluding truckload and LTL fuel surcharge | $ | 1,775,249 | | | $ | 1,649,982 | | | $ | 4,615,990 | | | $ | 4,992,391 | |
Truckload and LTL fuel surcharge | 244,687 | | | 246,857 | | | 593,857 | | | 692,568 | |
Total revenue | 2,019,936 | | | 1,896,839 | | | 5,209,847 | | | 5,684,959 | |
Operating expenses: | | | | | | | |
Salaries, wages, and benefits | 710,543 | | | 559,849 | | | 1,780,522 | | | 1,645,861 | |
Fuel | 272,376 | | | 231,128 | | | 628,435 | | | 678,763 | |
Operations and maintenance | 142,913 | | | 115,918 | | | 343,604 | | | 318,525 | |
Insurance and claims | 148,865 | | | 116,493 | | | 424,210 | | | 316,769 | |
Operating taxes and licenses | 30,506 | | | 26,628 | | | 84,728 | | | 85,869 | |
Communications | 8,411 | | | 5,095 | | | 20,344 | | | 16,709 | |
Depreciation and amortization of property and equipment | 176,613 | | | 150,363 | | | 488,960 | | | 442,889 | |
Amortization of intangibles | 18,907 | | | 16,254 | | | 51,595 | | | 48,635 | |
Rental expense | 50,401 | | | 15,216 | | | 81,542 | | | 42,109 | |
Purchased transportation | 330,683 | | | 364,394 | | | 869,671 | | | 1,135,750 | |
Impairments | — | | | — | | | — | | | 810 | |
Miscellaneous operating expenses | 48,662 | | | 30,060 | | | 116,363 | | | 62,965 | |
Total operating expenses | 1,938,880 | | | 1,631,398 | | | 4,889,974 | | | 4,795,654 | |
Operating income | 81,056 | | | 265,441 | | | 319,873 | | | 889,305 | |
Other (expenses) income: | | | | | | | |
Interest income | 5,542 | | | 1,221 | | | 16,099 | | | 2,357 | |
Interest expense | (39,354) | | | (14,679) | | | (86,799) | | | (30,704) | |
Other income (expenses), net | 11,433 | | | 8,488 | | | 30,815 | | | (31,493) | |
Total other (expenses) income, net | (22,379) | | | (4,970) | | | (39,885) | | | (59,840) | |
Income before income taxes | 58,677 | | | 260,471 | | | 279,988 | | | 829,465 | |
Income tax (benefit) expense | (1,220) | | | 65,679 | | | 53,474 | | | 206,943 | |
Net income | 59,897 | | | 194,792 | | | 226,514 | | | 622,522 | |
Net loss attributable to noncontrolling interest | 297 | | | 3 | | | 1,290 | | | 102 | |
Net income attributable to Knight-Swift | 60,194 | | | 194,795 | | | 227,804 | | | 622,624 | |
Other comprehensive income (loss) | 152 | | | 243 | | | 1,772 | | | (1,991) | |
Comprehensive income | $ | 60,346 | | | $ | 195,038 | | | $ | 229,576 | | | $ | 620,633 | |
| | | | | | | |
Earnings per share: | | | | | | | |
Basic | $ | 0.37 | | | $ | 1.21 | | | $ | 1.41 | | | $ | 3.82 | |
Diluted | $ | 0.37 | | | $ | 1.21 | | | $ | 1.41 | | | $ | 3.80 | |
| | | | | | | |
Dividends declared per share: | $ | 0.14 | | | $ | 0.12 | | | $ | 0.42 | | | $ | 0.36 | |
| | | | | | | |
Weighted average shares outstanding: | | | | | | | |
Basic | 161,332 | | | 160,665 | | | 161,124 | | | 162,785 | |
Diluted | 161,888 | | | 161,572 | | | 161,782 | | | 163,720 | |
See accompanying notes to the condensed consolidated financial statements (unaudited).
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | |
Condensed Consolidated Statements of Cash Flows (Unaudited) |
| | | | | | | | | | | |
| Year-to-Date September 30, |
| 2023 | | 2022 |
| (In thousands) |
Cash flows from operating activities: | | | |
Net income | $ | 226,514 | | | $ | 622,522 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization of property, equipment, and intangibles | 540,555 | | | 491,524 | |
Gain on sale of property and equipment | (46,628) | | | (73,373) | |
Impairments | — | | | 810 | |
Deferred income taxes | 9,587 | | | 1,126 | |
Non-cash lease expense | 68,778 | | | 30,973 | |
(Gain) loss on equity securities | (2,100) | | | 51,033 | |
| | | |
Other adjustments to reconcile net income to net cash provided by operating activities | 46,224 | | | 32,545 | |
Increase (decrease) in cash resulting from changes in: | | | |
Trade receivables | 84,149 | | | (44,043) | |
Income tax receivable | (1,237) | | | (14,191) | |
Accounts payable | (10,495) | | | 14,259 | |
Accrued liabilities and claims accrual | 26,599 | | | 19,207 | |
Operating lease liabilities | (68,140) | | | (30,755) | |
Other assets and liabilities | (304) | | | (2,442) | |
Net cash provided by operating activities | 873,502 | | | 1,099,195 | |
Cash flows from investing activities: | | | |
Proceeds from maturities of held-to-maturity investments | 3,620 | | | 7,506 | |
Purchases of held-to-maturity investments | (30) | | | (9,594) | |
Proceeds from sale of property and equipment, including assets held for sale | 214,234 | | | 139,545 | |
Purchases of property and equipment | (852,677) | | | (496,237) | |
Expenditures on assets held for sale | (785) | | | (499) | |
Net cash, restricted cash, and equivalents invested in acquisitions | (458,288) | | | (1,291) | |
| | | |
| | | |
Other cash flows from investing activities | 5,896 | | | 1,944 | |
Net cash used in investing activities | (1,088,030) | | | (358,626) | |
Cash flows from financing activities: | | | |
Repayments of finance leases and long-term debt | (81,354) | | | (250,884) | |
Proceeds from long-term debt | 250,000 | | | — | |
Borrowings (repayments) on revolving lines of credit, net | 257,000 | | | (114,000) | |
Borrowings under accounts receivable securitization | 25,000 | | | — | |
Repayments of accounts receivable securitization | (82,000) | | | — | |
| | | |
Proceeds from common stock issued | 4,200 | | | 6,111 | |
Repurchases of the Company's common stock | — | | | (299,941) | |
Dividends paid | (68,550) | | | (59,011) | |
Other cash flows from financing activities | (18,206) | | | (31,104) | |
Net cash provided by (used in) financing activities | 286,090 | | | (748,829) | |
Net increase (decrease) in cash, restricted cash, and equivalents | 71,562 | | | (8,260) | |
Cash, restricted cash, and equivalents at beginning of period | 385,345 | | | 350,023 | |
Cash, restricted cash, and equivalents at end of period | $ | 456,907 | | | $ | 341,763 | |
| | | |
See accompanying notes to condensed consolidated financial statements (unaudited).
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | |
Condensed Consolidated Statements of Cash Flows (Unaudited) — Continued |
| | | | | | | | | | | |
| Year-to-Date September 30, |
| 2023 | | 2022 |
| (In thousands) |
Supplemental disclosures of cash flow information: | | | |
Cash paid during the period for: | | | |
Interest | $ | 84,361 | | | $ | 29,342 | |
Income taxes | 38,455 | | | 234,260 | |
Non-cash investing and financing activities: | | | |
Equipment acquired included in accounts payable | $ | 19,639 | | | $ | 4,264 | |
Financing provided to independent contractors for equipment sold | 4,285 | | | — | |
Transfers from property and equipment to assets held for sale | 136,453 | | | 45,618 | |
Noncontrolling interest associated with acquisitions | 5,178 | | | — | |
Purchase price adjustment on acquisition | — | | | 2,164 | |
Contingent consideration associated with acquisitions and investments | 174,107 | | | 1,717 | |
U.S. Xpress assumed equity awards | 1,462 | | | — | |
Conversion of note receivable to equity investment | 12,107 | | | — | |
Right-of-use assets obtained in exchange for operating lease liabilities | 41,888 | | | 44,465 | |
| | | |
Property and equipment obtained in exchange for finance lease liabilities | 70,051 | | | 141,374 | |
Property and equipment obtained in exchange for finance lease liabilities reclassified from operating lease liabilities | — | | | 6,462 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of Cash, Restricted Cash, and Equivalents: | September 30, 2023 | | December 31, 2022 | | September 30, 2022 | | December 31, 2021 |
| (In thousands) |
Consolidated Balance Sheets | | | | | | | |
Cash and cash equivalents | $ | 193,372 | | | $ | 196,770 | | | $ | 194,082 | | | $ | 261,001 | |
Cash and cash equivalents – restricted 1 | 259,979 | | | 185,792 | | | 144,960 | | | 87,241 | |
| | | | | | | |
Other long-term assets 1 | 3,556 | | | 2,783 | | | 2,721 | | | 1,781 | |
Consolidated Statements of Cash Flows | | | | | | | |
Cash, restricted cash, and equivalents | $ | 456,907 | | | $ | 385,345 | | | $ | 341,763 | | | $ | 350,023 | |
| | | | | | | |
________
1 Reflects cash and cash equivalents that are primarily restricted for claims payments.
See accompanying notes to condensed consolidated financial statements (unaudited).
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | |
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Knight-Swift Stockholders' Equity | | Noncontrolling Interest | | Total Stockholders’ Equity |
| Shares | | Par Value | | | | | | |
| (In thousands, except per share data) |
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Balances – December 31, 2022 | 160,706 | | | $ | 1,607 | | | $ | 4,392,266 | | | $ | 2,553,567 | | | $ | (2,436) | | | $ | 6,945,004 | | | $ | 10,277 | | | $ | 6,955,281 | |
| | | | | | | | | | | | | | | |
Common stock issued to employees | 565 | | | 5 | | | 158 | | | | | | | 163 | | | | | 163 | |
Common stock issued to the Board | 18 | | | — | | | 977 | | | | | | | 977 | | | | | 977 | |
U.S. Xpress assumed equity awards | | | | | 1,462 | | | | | | | 1,462 | | | | | 1,462 | |
Common stock issued under ESPP | 58 | | | 1 | | | 3,059 | | | | | | | 3,060 | | | | | 3,060 | |
| | | | | | | | | | | | | | | |
Shares withheld – RSU settlement | | | | | | | (19,548) | | | | | (19,548) | | | | | (19,548) | |
Employee stock-based compensation expense | | | | | 21,059 | | | | | | | 21,059 | | | | | 21,059 | |
Cash dividends paid and dividends accrued ($0.42 per share) | | | | | | | (68,255) | | | | | (68,255) | | | | | (68,255) | |
Net income | | | | | | | 227,804 | | | | | 227,804 | | | (1,290) | | | 226,514 | |
Other comprehensive loss | | | | | | | | | 1,772 | | | 1,772 | | | | | 1,772 | |
Investment in noncontrolling interest | | | | | | | | | | | | | 7,555 | | | 7,555 | |
Distribution to noncontrolling interest | | | | | | | | | | | | | (239) | | | (239) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Balances – September 30, 2023 | 161,347 | | | $ | 1,613 | | | $ | 4,418,981 | | | $ | 2,693,568 | | | $ | (664) | | | $ | 7,113,498 | | | $ | 16,303 | | | $ | 7,129,801 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Knight-Swift Stockholders' Equity | | Noncontrolling Interest | | Total Stockholders’ Equity |
| Shares | | Par Value | | | | | | |
| (In thousands, except per share data) |
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Balances – December 31, 2021 | 165,980 | | | $ | 1,660 | | | $ | 4,350,913 | | | $ | 2,181,142 | | | $ | (563) | | | $ | 6,533,152 | | | $ | 10,298 | | | $ | 6,543,450 | |
| | | | | | | | | | | | | | | |
Common stock issued to employees | 614 | | | 6 | | | 2,369 | | | | | | | 2,375 | | | | | 2,375 | |
Common stock issued to the Board | 18 | | | — | | | 873 | | | | | | | 873 | | | | | 873 | |
| | | | | | | | | | | | | | | |
Common stock issued under ESPP | 59 | | | 1 | | | 2,862 | | | | | | | 2,863 | | | | | 2,863 | |
Company shares repurchased | (6,001) | | | (60) | | | | | (299,881) | | | | | (299,941) | | | | | (299,941) | |
Shares withheld – RSU settlement | | | | | | | (20,504) | | | | | (20,504) | | | | | (20,504) | |
Employee stock-based compensation expense | | | | | 25,878 | | | | | | | 25,878 | | | | | 25,878 | |
Cash dividends paid and dividends accrued ($0.36 per share) | | | | | | | (58,912) | | | | | (58,912) | | | | | (58,912) | |
Net income | | | | | | | 622,624 | | | | | 622,624 | | | (102) | | | 622,522 | |
Other comprehensive income | | | | | | | | | (1,991) | | | (1,991) | | | | | (1,991) | |
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Balances – September 30, 2022 | 160,670 | | | $ | 1,607 | | | $ | 4,382,895 | | | $ | 2,424,469 | | | $ | (2,554) | | | $ | 6,806,417 | | | $ | 10,196 | | | $ | 6,816,613 | |
See accompanying notes to condensed consolidated financial statements (unaudited).
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | |
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) — Continued |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Knight-Swift Stockholders' Equity | | Noncontrolling Interest | | Total Stockholders’ Equity |
| Shares | | Par Value | | | | | | |
| (In thousands, except per share data) |
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Balances – June 30, 2023 | 161,276 | | | $ | 1,613 | | | $ | 4,412,069 | | | $ | 2,657,415 | | | $ | (815) | | | $ | 7,070,282 | | | $ | 10,761 | | | $ | 7,081,043 | |
| | | | | | | | | | | | | | | |
Common stock issued to employees | 53 | | | — | | | — | | | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | |
U.S. Xpress assumed equity awards | | | | | 1,462 | | | | | | | 1,462 | | | | | 1,462 | |
Common stock issued under ESPP | 18 | | | — | | | 978 | | | | | | | 978 | | | | | 978 | |
| | | | | | | | | | | | | | | |
Shares withheld – RSU settlement | | | | | | | (1,277) | | | | | (1,277) | | | | | (1,277) | |
Employee stock-based compensation expense | | | | | 4,472 | | | | | | | 4,472 | | | | | 4,472 | |
Cash dividends paid and dividends accrued ($0.14 per share) | | | | | | | (22,764) | | | | | (22,764) | | | | | (22,764) | |
Net income | | | | | | | 60,194 | | | | | 60,194 | | | (297) | | | 59,897 | |
Other comprehensive loss | | | | | | | | | 151 | | | 151 | | | | | 151 | |
Investment in noncontrolling interest | | | | | | | | | | | | | 5,839 | | | 5,839 | |
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Balances – September 30, 2023 | 161,347 | | | $ | 1,613 | | | $ | 4,418,981 | | | $ | 2,693,568 | | | $ | (664) | | | $ | 7,113,498 | | | $ | 16,303 | | | $ | 7,129,801 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Knight-Swift Stockholders' Equity | | Noncontrolling Interest | | Total Stockholders’ Equity |
| Shares | | Par Value | | | | | | |
| (In thousands, except per share data) |
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Balances – June 30, 2022 | 160,639 | | | $ | 1,606 | | | $ | 4,372,916 | | | $ | 2,249,333 | | | $ | (2,797) | | | $ | 6,621,058 | | | $ | 10,199 | | | $ | 6,631,257 | |
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Common stock issued to employees | 7 | | | — | | | — | | | | | | | — | | | | | — | |
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Common stock issued under ESPP | 24 | | | 1 | | | 1,053 | | | | | | | 1,054 | | | | | 1,054 | |
| | | | | | | | | | | | | | | |
Shares withheld – RSU settlement | | | | | | | (188) | | | | | (188) | | | | | (188) | |
Employee stock-based compensation expense | | | | | 8,926 | | | | | | | 8,926 | | | | | 8,926 | |
Cash dividends paid and dividends accrued ($0.12 per share) | | | | | | | (19,471) | | | | | (19,471) | | | | | (19,471) | |
Net income | | | | | | | 194,795 | | | | | 194,795 | | | (3) | | | 194,792 | |
Other comprehensive loss | | | | | | | | | 243 | | | 243 | | | | | 243 | |
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Balances – September 30, 2022 | 160,670 | | | $ | 1,607 | | | $ | 4,382,895 | | | $ | 2,424,469 | | | $ | (2,554) | | | $ | 6,806,417 | | | $ | 10,196 | | | $ | 6,816,613 | |
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See accompanying notes to condensed consolidated financial statements (unaudited).
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 year-to-date period ended September 30, 2023, the Company operated an average of 20,054 tractors (comprised of 17,977 company tractors and 2,077 independent contractor tractors) and 85,125 trailers within the Truckload segment and leasing activities within the non-reportable segments. The LTL segment operated an average of 3,177 tractors and 8,445 trailers. Additionally, the Intermodal segment operated an average of 647 tractors and 12,780 intermodal containers. As of September 30, 2023, the Company's four reportable segments were Truckload, LTL, 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 2022 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.
Note regarding comparability — The reported results do not include U.S. Xpress's operating results prior to its acquisition by the Company on July 1, 2023 in accordance with the accounting treatment applicable to the transaction. Accordingly, comparisons between the Company's third quarter 2023 results and prior periods may not be meaningful.
Seasonality
In the full truckload 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 Truckload 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, as the Company continues to diversify its business through expansion into the LTL industry, warehousing, and other activities, seasonal volatility is becoming more tempered. Additionally, macroeconomic trends and cyclical changes in the trucking industry, including imbalances in supply and demand, can override the seasonality faced in the industry.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Note 2 — Recently Issued Accounting Pronouncements
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Date Issued | | Reference | | Description | | Expected Adoption Date and Method | | Financial Statement Impact |
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March 2023 | | ASU No. 2023-01: Leases (ASC 842), Common Control Arrangements | | The amendments in this ASU require that leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements and that leasehold improvements associated with common control leases be accounted for as a transfer between entities under common control through an adjustment to equity if the lessee no longer controls the use of the asset. | | January 2024, Prospective or retrospective | | Currently under evaluation, but not expected to be material |
July 2023 | | ASU No. 2023-03: Presentation of Financial Statements (ASC 205), Income Statement—Reporting Comprehensive Income (ASC 220), Distinguishing Liabilities from Equity (ASC 480), Equity (ASC 505), and Compensation—Stock Compensation (ASC 718) | | The amendments in this ASU reflect alignment to Staff Accounting Bulletin No. 120 ("SAB 120") that was issued by the SEC in November 2021. SAB 120 provides guidance to entities issuing share-based awards shortly before announcing material, nonpublic information. The guidance indicates that entities should consider such material nonpublic information to adjust the observable market if the effect of the release of the material nonpublic information is expected to affect the share price and the share-based awards are non-routine in nature. | | July 2023, prospective adoption | | Currently under evaluation, but not expected to be material |
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August 2023 | | ASU No. 2023-05: Business Combinations — Joint Venture Formations (ASC 805-60), Recognition and Initial Measurement | | Requires a joint venture to initially measure all contributions received upon its formation at fair value. | | January 2025, prospective adoption | | Currently under evaluation, but not expected to be material |
October 2023 | | ASU No. 2023-06: Disclosure Improvements | | The amendments in this ASU updated several topics of the ASC to incorporate changes required by guidance made effective by SEC Final Rule No. 33-10532. The SEC Final Rule incorporates existing or incremental requirements of Regulation S-X into the accounting standards codification. | | October 2023, prospective adoption | | Presentation and disclosure impact only |
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Note 3 — Acquisitions
U.S. Xpress
On July 1, 2023, the Company acquired Chattanooga, Tennessee-based U.S. Xpress Enterprises, Inc. ("U.S. Xpress"), one of the largest asset-based truckload carriers in the United States. The acquisition was completed through a Knight-Swift subsidiary formed to hold the U.S. Xpress business post-closing ("HoldCo") with Max Fuller, former Executive Chairman of U.S. Xpress, Eric Fuller, former CEO of U.S. Xpress, and their related entities and trusts (collectively, the "Rollover Holders"), rolling over a portion of their shares of U.S. Xpress into HoldCo for approximately 10% interest in HoldCo.
The total purchase price consideration of $630.0 million consisted of $454.4 million in cash, including approximately $139.8 million in debt payoffs, and $1.5 million in assumed equity related to the revaluation of equity awards. The purchase price also included contingent consideration valued at $174.1 million, consisting of two classes of membership interests in HoldCo. The Class A membership interests will be subject to put and call rights at a defined fair market value measure in favor of the Rollover Holders and the Company, respectively, and will be purchased by the Company at that defined fair market value measure if outstanding at the fifth anniversary of the acquisition date. In order for the put right to become exercisable, it is subject to a $175 million minimum adjusted operating income threshold for U.S. Xpress. In addition, the Company will have a call right, exercisable only within the first 15 months after closing, at an exercise price of approximately $140 million. The Class B membership interests will be repurchased by the Company for $40 million if U.S. Xpress achieves $250 million in adjusted operating income for a trailing annual period at or prior to the fifth anniversary of closing. If such threshold is not met, the Class B interests will be forfeited for no value.
As of September 30, 2023, the $134.1 million in mandatorily redeemable Class A membership interests is included in "Accrued liabilities" in the Company's condensed consolidated balance sheets and the $40.0 million in mandatory purchase of Class B membership interest is included in "Other long-term liabilities" in the Company's condensed consolidated balance sheets, depending on the terms.
Cash was funded from the 2023 Term Loan, as well as existing Knight-Swift liquidity. The purchase of the equity interests of U.S. Xpress results in the historical tax basis of U.S. Xpress' assets continuing to be recovered and any intangible assets arising through purchase accounting will result in additional stock basis for tax purposes. Deferred taxes were established as of the opening balance sheet for purchase accounting fair value adjustments (other than for goodwill). The merger agreement contained customary representations, warranties, and covenants for a transaction of this nature.
During the quarter and year-to-date periods ended September 30, 2023, the Company's consolidated operating results included U.S. Xpress' total revenue of $461.6 million and a net loss of $19.9 million. U.S. Xpress' net income during quarter and year-to-date periods ended September 30, 2023 included $2.3 million related to the amortization of intangible assets acquired in the U.S. Xpress Acquisition.
The goodwill recognized represents expected synergies from combining the operations of U.S. Xpress 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 not expected to be deductible for tax purposes.
See Note 6 for more information about the Company's credit facilities and the 2023 Term Loan.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Purchase Price Allocation
The purchase price allocation for U.S. Xpress is preliminary and has been allocated based on estimated fair values of the assets acquired and liabilities assumed at the acquisition date, and among other things may be 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 applicable. 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.
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| July 1, 2023 Opening Balance Sheet as Reported at September 30, 2023 |
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Fair value of the consideration transferred | $ | 632,109 | |
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Cash and cash equivalents | 3,321 | |
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Receivables | 216,659 | |
Prepaid expenses | 21,347 | |
Other current assets | 47,317 | |
Property and equipment | 433,210 | |
Operating lease right-of-use assets | 337,055 | |
Identifiable intangible assets 1 | 348,000 | |
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Other noncurrent assets | 28,457 | |
Total assets | 1,435,366 | |
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Accounts payable | (102,193) | |
Accrued payroll and payroll-related expenses | (27,485) | |
Accrued liabilities | (19,966) | |
Claims accruals – current and noncurrent portions | (180,251) | |
Operating lease liabilities – current and noncurrent portions | (376,763) | |
Long-term debt and finance leases – current and noncurrent portions | (337,949) | |
Deferred tax liabilities | (41,826) | |
Other long-term liabilities | (34,230) | |
Total liabilities | (1,120,663) | |
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Noncontrolling interest | (391) | |
Total stockholders' equity | (391) | |
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Goodwill | $ | 317,797 | |
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1 Includes $184.5 million in customer relationships and $163.5 million in trade names.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Pro Forma Information — The following unaudited pro forma information combines the historical operations of the Company and U.S. Xpress giving effect to the U.S. Xpress Acquisition, and related transactions as if consummated on January 1, 2022, the beginning of the comparative period presented.
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| Quarter Ended September 30, | | Year-to-Date September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (In thousands, except per share data) |
Total revenue | $ | 2,019,936 | | | $ | 2,444,667 | | | $ | 6,165,131 | | | $ | 7,303,678 | |
Net income attributable to Knight-Swift | 33,584 | | | 100,112 | | | 146,522 | | | 599,058 | |
Earnings per share – diluted | 0.21 | | | 0.62 | | | 0.91 | | | 3.66 | |
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The unaudited pro forma condensed combined financial information has been presented for comparative purposes only and includes certain adjustments such as recognition of assets acquired at estimated fair values and related depreciation and amortization, elimination of transaction costs incurred by Knight-Swift and U.S. Xpress during the periods presented that were directly related to the U.S. Xpress Acquisition, and related income tax effects of these items. As a result of the U.S. Xpress Acquisition, both Knight-Swift and U.S. Xpress incurred certain acquisition-related expenses, including professional legal and advisory fees, acceleration of share-based compensation, bonus incentives, severance payments, filing fees and other miscellaneous expenses. These acquisition-related expenses totaled $6.5 million and $31.8 million during the quarter and year-to-date periods ended September 30, 2023, respectively. These expenses were eliminated in the presentation of the unaudited pro forma "Net income attributable to Knight-Swift" presented above.
The unaudited pro forma condensed combined financial information does not purport to represent the actual results of operations that Knight-Swift and U.S. Xpress would have achieved had the companies been combined during the periods presented in the unaudited pro forma condensed combined financial statements and is not intended to project the future results of operations that the combined company may achieve after the identified transactions. The unaudited pro forma condensed combined financial information does not reflect any cost savings that may be realized as a result of the U.S. Xpress Acquisition and also does not reflect any restructuring or integration-related costs to achieve those potential cost savings.
The Company did not complete any other material acquisitions during the year-to-date period ended September 30, 2023.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Note 4 — Income Taxes
Effective Tax Rate — The quarter ended September 30, 2023 and September 30, 2022 effective tax rates were (2.1)% and 25.2%, respectively. The Company recognized discrete items relating to a partial release of the valuation allowance associated with the U.S. Xpress net operating loss and tax credit carryforward benefits, stock compensation deductions, and a reduction in state deferred taxes due to adjustments to state tax rates and apportionment during the quarter ended September 30, 2023.
The year-to-date September 30, 2023 and September 30, 2022 effective tax rates were 19.1% and 24.9%, respectively. The Company recognized discrete items relating to a partial release of the valuation allowance associated with the U.S. Xpress net operating loss and tax credit carryforward benefits, stock compensation deductions, and a reduction in state deferred taxes due to adjustments to state tax rates and apportionment during the year-to-date period ended September 30, 2023.
Valuation Allowance — Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. U.S. Xpress initially had a valuation allowance of $25.0 million not considering Knight-Swift entities. During the quarter, $14.6 million of that valuation allowance was released due to the Company’s ability to utilize certain tax attributes in future periods. The remaining $10.4 million valuation allowance is maintained to offset the tax benefit of capital loss and state operating loss carryforwards that may not be utilized in the future.
Unrecognized Tax Benefits — Due to the acquisition, the Company has unrecognized tax benefits associated with tax credit carryforwards. Management does not expect a decrease in unrecognized tax benefits relating to credits to be necessary within the next twelve months.
Interest and Penalties — The Company had no accrued interest and penalties related to unrecognized tax benefits as of September 30, 2023. Accrued interest and penalties related to unrecognized tax benefits were approximately $0.2 million as of December 31, 2022.
Tax Examinations — Certain of the Company's subsidiaries are currently under examination by various Federal and state jurisdictions for tax years ranging from 2009 to 2021. 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 2017 remain subject to examination.
Note 5 — Accounts Receivable Securitization
On October 3, 2022, the Company entered into the 2022 RSA, which further amended the 2021 RSA. The 2022 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 consolidated balance sheets. As of September 30, 2023, the Company's eligible receivables generally have high credit quality, as determined by the obligor's corporate credit rating.
The 2022 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 September 30, 2023. 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.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
The following table summarizes the key terms of the 2022 RSA (dollars in thousands):
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| 2022 RSA |
| (Dollars in thousands) |
Effective date | October 3, 2022 |
Final maturity date | October 1, 2025 |
Borrowing capacity | $475,000 | |
Accordion option 1 | $100,000 | |
Unused commitment fee rate 2 | 20 to 40 basis points |
Program fees on outstanding balances 3 | one month SOFR + credit adjustment spread 10 basis points + 82.5 basis points |
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1The accordion option increases the maximum borrowing capacity, subject to participation of the purchasers.
2The 2022 RSA commitment fee rates are based on the percentage of the maximum borrowing capacity utilized.
3As identified within the 2022 RSA, the lender can trigger an amendment by identifying and deciding upon a replacement for SOFR.
Availability under the 2022 RSA is calculated as follows:
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| September 30, 2023 | | December 31, 2022 |
| (In thousands) |
Borrowing base, based on eligible receivables | $ | 363,800 | | | $ | 456,400 | |
Less: outstanding borrowings 1 | (362,000) | | | (419,000) | |
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Availability under accounts receivable securitization facilities | $ | 1,800 | | | $ | 37,400 | |
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1Outstanding borrowings are included in "Accounts receivable securitization" in the condensed consolidated balance sheets and are offset by deferred loan costs of $0.3 million and $0.4 million as of September 30, 2023 and December 31, 2022, respectively. Interest accrued on the aggregate principal balance at a rate of 6.3% and 5.1% as of September 30, 2023 and December 31, 2022, respectively.
Refer to Note 12 for information regarding the fair value of the 2022 RSA.
2023 RSA
On October 23, 2023, the Company entered into the Seventh Amendment to the Amended and Restated Receivables Sales Agreement ("2023 RSA"). The 2023 RSA, among other things, increases the maximum borrowing capacity to $575.0 million.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Note 6 — Debt and Financing
Other than the Company's accounts receivable securitization as discussed in Note 5, the Company's long-term debt consisted of the following:
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| September 30, 2023 | | December 31, 2022 |
| (In thousands) |
2021 Term Loan A-2, due September 3, 2024, net 1 2 | 199,865 | | | 199,755 | |
2021 Term Loan A-3, due September 3, 2026, net 1 2 | 798,970 | | | 798,705 | |
2023 Term Loan, due September 3, 2026, net 1 3 | 249,054 | | | — | |
Revenue equipment installment notes 1 4 | 296,884 | | | — | |
Prudential Notes, net 1 | 28,057 | | | 35,960 | |
Other | 9,322 | | | 3,042 | |
Total long-term debt, including current portion | 1,582,152 | | | 1,037,462 | |
Less: current portion of long-term debt | (320,441) | | | (12,794) | |
Long-term debt, less current portion | $ | 1,261,711 | | | $ | 1,024,668 | |
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| September 30, 2023 | | December 31, 2022 |
| (In thousands) |
Total long-term debt, including current portion | $ | 1,582,152 | | | $ | 1,037,462 | |
2021 Revolver, due September 3, 2026 1 5 | 300,000 | | | 43,000 | |
Long-term debt, including revolving line of credit | $ | 1,882,152 | | | $ | 1,080,462 | |
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1Refer to Note 12 for information regarding the fair value of debt.
2As of September 30, 2023, the carrying amounts of the 2021 Term Loan A-2 and 2021 Term Loan A-3 were net of $0.1 million and $1.0 million in deferred loan costs, respectively. As of December 31, 2022, the carrying amounts of the 2021 Term Loan A-2 and 2021 Term Loan A-3 were net of $0.2 million and $1.3 million in deferred loan costs, respectively.
3As of September 30, 2023, the carrying amount of the 2023 Term Loan was net of $0.9 million in deferred loan costs.
4The revenue equipment installment loans were assumed at the close of the U. S. Xpress Acquisition and have a weighted average interest rate of 4.5% as of September 30, 2023.
5The Company also had outstanding letters of credit of $21.2 million and $15.8 million under the 2021 Revolver, primarily related to workers' compensation and self-insurance liabilities at September 30, 2023 and December 31, 2022, respectively. The Company also had outstanding letters of credit of $264.3 million and $173.1 million under a separate bilateral agreement which do not impact the availability of the 2021 Revolver as of September 30, 2023 and December 31, 2022, respectively.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Credit Agreements
2021 Debt Agreement — On September 3, 2021, the Company entered into the $2.3 billion 2021 Debt Agreement (an unsecured credit facility) with a group of banks, replacing the Company's prior debt agreements. The following table presents the key terms of the 2021 Debt Agreement:
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| | | 2021 Term Loan A-2 | | 2021 Term Loan A-3 | | 2021 Revolver 2 |
2021 Debt Agreement Terms | | | (Dollars in thousands) |
Maximum borrowing capacity | | | $200,000 | | $800,000 | | $1,100,000 |
Final maturity date | | | September 3, 2024 | | September 3, 2026 | | September 3, 2026 |
Interest rate margin reference rate | | | BSBY | | BSBY | | BSBY |
Interest rate minimum margin 1 | | | 0.75% | | 0.88% | | 0.88% |
Interest rate maximum margin 1 | | | 1.38% | | 1.50% | | 1.50% |
Minimum principal payment — amount | | | $— | | $10,000 | | $— |
Minimum principal payment — frequency | | | Once | | Quarterly | | Once |
Minimum principal payment — commencement date | | | September 3, 2024 | | September 30, 2024 | | September 3, 2026 |
1The interest rate margin for the 2021 Term Loans and 2021 Revolver is based on the Company's consolidated leverage ratio. As of September 30, 2023, interest accrued at 6.39% on the 2021 Term Loan A-2, 6.51% on the 2021 Term Loan A-3, and 6.53% on the 2021 Revolver.
2The commitment fee for the unused portion of the 2021 Revolver is based on the Company's consolidated leverage ratio, and ranges from 0.1% to 0.2%. As of September 30, 2023, commitment fees on the unused portion of the 2021 Revolver accrued at 0.1% and outstanding letter of credit fees accrued at 1.1%.
Pursuant to the 2021 Debt Agreement, the 2021 Revolver and the 2021 Term Loans contain certain financial covenants with respect to a maximum net leverage ratio and a minimum consolidated interest coverage ratio. The 2021 Debt Agreement provides flexibility regarding the use of proceeds from asset sales, payment of dividends, stock repurchases, and equipment financing. In addition to the financial covenants, the 2021 Debt Agreement includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the 2021 Debt Agreement may be accelerated, and the lenders' commitments may be terminated. The 2021 Debt Agreement contains certain usual and customary restrictions and covenants relating to, among other things, dividends (which are restricted only if a default or event of default occurs and is continuing or would result therefrom), liens, affiliate transactions, and other indebtedness. As of September 30, 2023, the Company was in compliance with the covenants under the 2021 Debt Agreement.
Borrowings under the 2021 Debt Agreement are made by Knight-Swift Transportation Holdings Inc. and are guaranteed by certain of the Company's material domestic subsidiaries (other than its captive insurance subsidiaries, driving academy subsidiary, and bankruptcy-remote special purpose subsidiary).
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
2023 Term Loan — On June 22, 2023, the Company entered into the $250.0 million 2023 Term Loan (an unsecured credit facility) with a group of banks. The 2023 Term Loan matures on September 3, 2026. There are no scheduled principal payments due until maturity. The 2023 Term Loan contains terms similar to the 2021 Debt Agreement. The proceeds received from the 2023 Term Loan were used to pay fees, commissions and expenses in connection with the Company's acquisition of U.S. Xpress. The interest rate applicable to the 2023 Term Loan is subject to a leverage-based grid and as of September 30, 2023 is equal to SOFR plus the 0.1% SOFR adjustment plus 1.375%. As of September 30, 2023, interest accrued at 6.79% on the 2023 Term Loan.
U.S. Xpress's Revenue Equipment Installment Notes — In connection with the U.S. Xpress Acquisition, the Company assumed revenue equipment installment notes with various lenders to finance tractors and trailers. Payments are due in monthly installments with final maturities at various dates through March 15, 2028, and the notes are secured by related revenue equipment with a net book value of $256.7 million as of September 30, 2023. Payment terms generally range from 36 months to 84 months. The interest rates as of September 30, 2023 range from 2% to 7%.
ACT's Prudential Notes — The 2021 Prudential Notes allow ACT to borrow up to $125.0 million, less amounts currently outstanding with Prudential Capital Group, provided that certain financial ratios are maintained. The 2021 Prudential Notes have interest rates ranging from 4.05% to 4.40% and various maturity dates ranging from October 2023 through January 2028. The 2021 Prudential Notes are unsecured and contain usual and customary restrictions on, among other things, the ability to make certain payments to stockholders, similar to the provisions of the Company's 2021 Debt Agreement. As of September 30, 2023, ACT had $98.2 million available for issuance under the agreement.
Fair Value Measurement — See Note 12 for fair value disclosures regarding the Company's debt instruments.
Note 7 — Defined Benefit Pension Plan
Net periodic pension income and benefits paid during the quarters ended September 30, 2023 and 2022 were immaterial.
Assumptions
A weighted-average discount rate of 5.58% was used to determine benefit obligations as of September 30, 2023.
The following weighted-average assumptions were used to determine net periodic pension cost:
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| Quarter Ended September 30, | | Year-to-Date September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Discount rate | 4.86 | % | | 4.33 | % | | 4.79 | % | | 3.13 | % |
Expected long-term rate of return on pension plan assets | 6.00 | % | | 6.00 | % | | 6.00 | % | | 6.00 | % |
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Refer to Note 12 for additional information regarding fair value measurements of the Company's investments.
Note 8 — Purchase Commitments
As of September 30, 2023, the Company had outstanding commitments to purchase revenue equipment of $284.2 million in the remainder of 2023 ($179.7 million of which were tractor commitments), and none thereafter. These purchases may be financed through any combination of finance leases, operating leases, debt, proceeds from sales of existing equipment, and cash flows from operations.
As of September 30, 2023, the Company had outstanding commitments to purchase facilities and non-revenue equipment of $49.8 million in the remainder of 2023, $19.1 million from 2024 through 2025, $2.0 million from 2026 through 2027, and none thereafter. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Note 9 — Contingencies and Legal Proceedings
Legal Proceedings
The Company is party to certain legal proceedings incidental to its business. The majority of these claims relate to bodily injury, property damage, cargo and workers' compensation incurred in the transportation of freight, as well as certain class action litigation related to personnel and employment matters. We record a liability when we believe that it is probable that a loss has been incurred and the amount can be reasonably estimated.
Information is provided below regarding the nature, status, and contingent loss amounts, if any, associated with pending legal matters that may be material to the Company. 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. Cash flows or results of operations could be materially affected in any particular period by the resolution of one or more of these contingencies.
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 $9.2 million, relating to the Company's outstanding legal proceedings as of September 30, 2023.
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EMPLOYEE COMPENSATION AND PAY PRACTICES MATTERS |
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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 |
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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 |
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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 Company paid this settlement on July 10, 2023. |
California Wage and Hour Class Action Litigation - U.S. Xpress |
The plaintiffs generally allege one or more of the following: that class members were 1) not paid for off-the-clock work; 2) not provided duty free meal or rest breaks; 3) not paid premium pay in their absence; 4) not paid the California minimum wage for all hours worked in that state; 5) not provided accurate and complete itemized wage statements; and 6) not paid all accrued wages at the end of their employment. |
Plaintiff(s) | | Defendant(s) | | Date instituted | | Court or agency currently pending in |
Various | | U.S. Xpress | | December 23, 2015 | | United States District Court for the Central District of California |
Recent Developments and Current Status |
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