Knight-Swift Transportation Holdings Inc

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) — Continued

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 June 30, 2024, the Company operated an average of 23,071 tractors (comprised of 20,913 company tractors and 2,158 independent contractor tractors) and 93,495 trailers within the Truckload segment and leasing activities within the non-reportable segments. The LTL segment operated an average of 3,393 tractors and 8,796 trailers. Additionally, the Intermodal segment operated an average of 611 tractors and 12,581 intermodal containers. As of June 30, 2024, the Company'sfour 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 2023 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 current and prior period results 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.

Note 2 —Recently Issued Accounting Pronouncements

Note 3 —Acquisitions

Second quarter 2024 developments related to the Company's recent acquisitions are discussed below.

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.

During the quarter ended June 30, 2024, the Company's consolidated operating results included U.S. Xpress' total revenue of $405.6 million and a net loss of $13.3 million. U.S. Xpress' net loss during the quarter ended June 30, 2024 included $2.3 million related to the amortization of intangible assets acquired in the U.S. Xpress Acquisition.

For the year-to-date period ended June 30, 2024, the Company's consolidated operating results included U.S. Xpress' total revenue of $819.0 million and a net loss of $19.3 million. U.S. Xpress' net loss for the year-to-date period ended June 30, 2024 included $4.6 million related to the amortization of intangible assets acquired in the U.S. Xpress Acquisition.

Purchase Price Allocation

The purchase price was allocated based on estimated fair values of the assets and liabilities acquired as of the acquisition date. The purchase price allocation was open for adjustments through the end of the measurement period, which closed one year from the July 1, 2023 acquisition date.

1 Includes $184.5 million in customer relationships and $163.5 million in trade names.

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, 2023, the beginning of the comparative period presented.

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 $20.7 million and $25.3 million during the quarter and year-to-date periods ended June 30, 2023. 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 material acquisitions during the quarter ended June 30, 2024.

Subsequent to June 30, 2024, the Company acquired the remaining 18.5% non-controlling interest of Eleos.

Effective July 30, 2024, the Company, through a wholly owned subsidiary, acquired the operating assets and assumed certain liabilities of the regional less-than-truckload division of Dependable Highway Express, Inc. based in Los Angeles, California for total cash consideration of approximately $185 million funded by the 2021 Revolver. 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.

Note 4 —Income Taxes

Effective Tax Rate —The quarter ended June 30, 2024 and June 30, 2023 effective tax rates were 37.2% and 25.9%, respectively. The year-to-date June 30, 2024 and June 30, 2023 effective tax rates were 32.4% and 24.7% respectively. The current quarter effective tax rate was primarily impacted by a reduction in pre-tax income.

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. As of June 30, 2024 and December 31, 2023, the Company has $10.4 million in valuation allowance associated with the capital loss and state operating loss carryforwards which may not be utilized in the future.

Unrecognized Tax Benefits — 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 didnot have accrued interest and penalties related to unrecognized tax benefits as of June 30, 2024 and December 31, 2023.

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 2022. At the completion of these examinations, management does not expect any adjustments which would have a material impact on the Company's effective tax rate. Years subsequent to 2018 remain subject to examination.

Note 5 —Accounts Receivable Securitization

On October 23, 2023, the Company entered into the 2023 RSA, which further amended the 2022 RSA. The 2023 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 June 30, 2024, the Company's eligible receivables generally have high credit quality, as determined by the obligor's corporate credit rating.

The 2023 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, 2024. Collections on the underlying receivables by the Company are held for the benefit of SRCII and the various purchasers and are unavailable to satisfy claims of the Company and its subsidiaries.

The following table summarizes the key terms of the 2023 RSA (dollars in thousands):

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

2 The commitment fee rates are based on the percentage of the maximum borrowing capacity utilized.

3 As identified within the 2023 RSA, the lender can trigger an amendment by identifying and deciding upon a replacement index for SOFR.

Availability under the 2023 RSA is calculated as follows:

1 Outstanding borrowings are included in "Accounts receivable securitization" in the condensed consolidated balance sheets and are offset by deferred loan costs of $0.4 million and $0.5 million as of June 30, 2024 and December 31, 2023, respectively. Interest accrued on the aggregate principal balance at a rate of 6.3% as of June 30, 2024 and December 31, 2023.

Refer to Note 12 for information regarding the fair value of the 2023 RSA.

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:

1 Refer to Note 12 for information regarding the fair value of debt.

2 As of June 30, 2024, the carrying amounts of the 2021 Term Loan A-2 and 2021 Term Loan A-3 were net of $25,000 and $0.8 million in deferred loan costs, respectively. As of December 31, 2023, the carrying amounts of the 2021 Term Loan A-2 and 2021 Term Loan A-3 were net of$0.1 million and $0.9 million in deferred loan costs, respectively.

3 As of June 30, 2024, the carrying amount of the 2023 Term Loan was net of $0.7 million in deferred loan costs. As of December 31, 2023, the carrying amounts of the 2023 Term Loan was net of $0.9 million in deferred loan costs.

4 The revenue equipment installment loans were assumed at the close of the U.S. Xpress Acquisition and have a weighted average interest rate of 4.82% and 4.70% as of June 30, 2024 and December 31, 2023, respectively.

5 The Company also had outstanding letters of credit of $18.1 million and $18.0 million under the 2021 Revolver, primarily related to workers' compensation and self-insurance liabilities for both June 30, 2024 and December 31, 2023, respectively. The Company also had outstanding letters of credit of $265.0 million and $264.3 million under a separate bilateral agreement which do not impact the availability of the 2021 Revolver as of June 30, 2024 and December 31, 2023, respectively.

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 2021 Debt Agreement included the 2021 Term Loan A-1 which was paid off on December 3, 2022. The following table presents the key terms of the 2021 Debt Agreement:

1 The interest rate margin for the 2021 Term Loans and 2021 Revolver is based on the Company's consolidated leverage ratio. As of June 30, 2024, interest accrued at 6.72% on the 2021 Term Loan A-2,6.84% on the 2021 Term Loan A-3, and 6.84% on the 2021 Revolver.

2 The 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 June 30, 2024, commitment fees on the unused portion of the 2021 Revolver accrued at 0.2% and outstanding letter of credit fees accrued at 1.5%.

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 June 30, 2024, 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).

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 areno 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 June 30, 2024 is equal to SOFR plus the 0.1% SOFR adjustment plus 1.50%. As of June 30, 2024, interest accrued at 7.17% 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 $217.0 million as of June 30, 2024. Payment terms generally range from 36 months to 84 months. The interest rates as of June 30, 2024 range from 2.0% to 5.3%.

2021 Prudential Notes — The 2021 Prudential Notes previously allowed ACT to borrow up to $125 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 January 2025 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 June 30, 2024, the Company was in compliance with the covenants under the 2021 Prudential Notes.

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 quarter ended June 30, 2024 and 2023 were immaterial.

Assumptions

A weighted-average discount rate of 5.25% was used to determine benefit obligations as of June 30, 2024.

The following weighted-average assumptions were used to determine net periodic pension cost:

Refer to Note 12 for additional information regarding fair value measurements of the Company's investments.

Note 8 —Purchase Commitments

As of June 30, 2024, the Company had outstanding commitments to purchase revenue equipment of $418.7 million in the remainder of 2024 ($368.4 million of which were tractor commitments), andnone 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 June 30, 2024, the Company had outstanding commitments to purchase facilities and non-revenue equipment of $56.8 million in the remainder of 2024, $63.6 million from 2025 through 2026, $1.9 million from 2027 through 2028, andnone thereafter. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures.

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.

Based on our present knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of open claims and pending litigation, taking into account existing reserves, is not likely to have a materially adverse impact on our condensed consolidated financial statements. However, any future claims or adverse developments in existing claims could impact this analysis. 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, as well as legal fees which are included in "Accrued liabilities" in the condensed consolidated balance sheets. The Company has recorded an aggregate accrual of approximately $6.6 million, relating to the Company's outstanding legal proceedings as of June 30, 2024.

Commutation of Third-Party Carrier Insurance Risk

On February 14, 2024, the Company finalized the terms of a transaction with the insurer under the third-party reinsurance agreement covering auto liability associated with the Company's third-party carrier insurance business. The agreement effectively transferred $161.1 million in third-party auto liability insurance claim liabilities to the insurer for policy periods from October 1, 2020 through March 31, 2023 funded by transferring the corresponding restricted cash held in trust for payment of the third-party insurance claims.

Note 10 —Share Repurchase Plans

In April 2022, the Company announced that the Board approved the repurchase of up to $350.0 million of the Company's outstanding common stock (the "2022 Knight-Swift Share Repurchase Plan"). With the adoption of the 2022 Knight-Swift Share Repurchase Plan, the Company terminated the 2020 Knight-Swift Share Repurchase Plan, which had approximately $42.8 million of authorized purchases remaining upon termination.

The Company madeno share repurchases during the quarter and year-to-date periods ended June 30, 2024 and 2023. no

As of June 30, 2024 and December 31, 2023, the Company had $200.0 million remaining under the 2022 Knight-Swift Share Repurchase Plan.

Note 11 —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:

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 12 —Fair Value Measurement

The following table presents the carrying amounts and estimated fair values of the Company's major categories of financial assets and liabilities:

1 As of June 30, 2024, the carrying amounts of the 2021 Term Loan A-2 and 2021 Term Loan A-3 were net of $25,000 and $0.8 million in deferred loan costs, respectively. As of December 31, 2023, the carrying amounts of the 2021 Term Loan A-2 and 2021 Term Loan A-3 were net of $0.1 million and $0.9 million in deferred loan costs, respectively.

2 As of June 30, 2024, the carrying amount of the 2023 Term Loan was net of $0.7 million in deferred loan costs. As of December 31, 2023, the carrying amount of the 2023 Term Loan was net of $0.9 million in deferred loan costs.

3 As of June 30, 2024, the carrying amount of the revenue equipment installment notes included $0.9 million in fair value adjustments. As of December 31, 2023, the carrying amount of the revenue equipment installment notes included $1.3 million in fair value adjustments.

4 As of June 30, 2024, the carrying amount of the 2021 Prudential Notes was net of approximately $16,000 in deferred loan costs and included $0.9 million in fair value adjustments. As of December 31, 2023, the carrying amount of the 2021 Prudential Notes was net of $22,000 in deferred loan costs and included $1.1 million in fair value adjustments.

5 The carrying amount of the 2023 RSA was net of $0.4 million and $0.5 million in deferred loan costs as of June 30, 2024 and December 31, 2023, respectively.

6 The contingent consideration is primarily related to the U.S. Xpress Acquisition.

Recurring Fair Value Measurements (Assets)—As of June 30, 2024 and December 31, 2023, there wereno major categories of assets estimated at fair value that were measured on a recurring basis.

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, 2024 and December 31, 2023:

1 Contingent consideration is associated with the U.S. Xpress Acquisition and certain other investments. The Company didnot recognize any gains (losses) in the quarter and year-to-date periods ended June 30, 2024.The Company recognized a gain of $2.5 million during the quarter and year-to-date periods ended June 30, 2023.

Nonrecurring Fair Value Measurements (Assets)—The following table depicts the level in the fair value hierarchy of the inputs used to estimate fair value of assets measured on a nonrecurring basis as of June 30, 2024 and December 31, 2023:

1 Reflects the non-cash impairment of building improvements (within the Truckload segment and the All Other Segments).

2 Reflects the non-cash impairment related to the market value of a facility lease (within the Truckload Segment).

3 Reflects the non-cash impairment of certain revenue equipment held for sale and other equipment (within the Truckload segment and the All Other Segments).

4 Reflects the non-cash impairment of software (within the All Other Segments).

Nonrecurring Fair Value Measurements (Liabilities)—As of June 30, 2024 and December 31, 2023, the Company hadno major categories of liabilities estimated at fair value that were measured on a nonrecurring basis.

Gain on Sale of Revenue Equipment —Net gains on disposals, including disposals of property and equipment classified as assets held for sale, are reported in "Miscellaneous operating expenses" in the condensed consolidated statements of comprehensive income. The Company recorded net gains on disposals of:

•$6.0 million and $14.3 million for the quarters ended June 30, 2024 and 2023, respectively.

•$12.6 million and $35.2 million for the year-to-date periods ended June 30, 2024 and 2023 respectively.

Fair Value of Pension Plan Assets—The following table sets forth by level the fair value hierarchy of ACT's pension plan financial assets accounted for at fair value on a recurring basis. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. ACT's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and their placement within the fair value hierarchy levels.

Note 13 —Related Party Transactions

1"Certain affiliates" includes entities that are associated with various board members and executives and require approval by the Audit Committee of the Board prior to completing transactions. Transactions with these entities generally include facility and equipment leases, equipment sales, and other services.

Note 14 —Financial Information by Segment and Geography

Segment Information

1 The year-to-date $16.6 million operating loss within our All Other Segments is primarily driven by the $16.3 million operating loss in the third-party insurance business.

Geographical Information

In the aggregate, total revenue from the Company's international operations was less than 5.0% of consolidated total revenue for the quarter and year-to-date periods ended June 30, 2024 and 2023. Additionally, long-lived assets on the Company's international subsidiary balance sheets were less than 5.0% of consolidated total assets as of June 30, 2024 and December 31, 2023.