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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________________________________________________________FORM 10-K
___________________________________________________________________________________________________________________
(mark one)
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
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
___________________________________________________________________________________________________________________
Knight-Swift Transportation Holdings Inc.
(Exact name of registrant as specified in its charter)
___________________________________________________________________________________________________________________
Delaware | 20-5589597 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
20002 North 19th Avenue
Phoenix, Arizona 85027
(Address of principal executive offices and Zip Code)
(602) 269-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered |
Class A Common Stock, par value $0.01 per share | New York Stock Exchange |
Securities registered pursuant to section 12(g) of the Act: None
___________________________________________________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý
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 ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ý | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
As of June 30, 2017, the aggregate market value of our Class A common stock held by non-affiliates was $2,126,210,355, based on the closing price of our common stock as quoted on the NYSE as of such date.
There were 178,189,491 shares of the registrant's Class A common stock and 0 shares of the registrant's Class B common stock outstanding as of February 19, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 2018 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission (the "SEC") are incorporated by reference into Part III of this report.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
2017 ANNUAL REPORT ON FORM 10-K |
TABLE OF CONTENTS | |
PAGE | |
1
2017 ANNUAL REPORT ON FORM 10-K | ||
GLOSSARY OF TERMS | ||
The following glossary provides definitions for certain acronyms and terms used in this Annual Report on Form 10-K. 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. | |
Annual Report | Annual Report on Form 10-K | |
2017 Merger | See complete description of the 2017 Merger included in Note 1 of the footnotes to the consolidated financial statements, included in Part II, Item 8 of this Annual Report on Form 10-K. | |
2012 ESPP | Employee Stock Purchase Plan, effective beginning in 2012, amended and restated in 2017 | |
2013 Debt Agreement | Knight's unsecured credit facility | |
2015 RSA | Amended and Restated Receivables Sales Agreement, entered into in 2015 by Swift Receivables Company II, LLC with unrelated financial entities. | |
2014 Stock Plan | The Company's amended and restated 2014 Omnibus Incentive Plan | |
2015 Debt Agreement | Swift's Fourth Amended and Restated Credit Agreement, entered into on July 25, 2015 | |
2017 Debt Agreement | The Company's Credit Agreement, entered into on September 29, 2017 | |
ASC | Accounting Standards Codification Topic | |
ASU | Accounting Standards Update | |
Board | Knight-Swift's Board of Directors | |
C-TPAT | Customs-Trade Partnership Against Terrorism | |
CSA | Compliance Safety Accountability | |
DOT | United States Department of Transportation | |
ELD | Electronic Logging Device | |
EPA | United States Environmental Protection Agency | |
EPS | Earnings Per Share | |
ERP | Enterprise Resource Planning system | |
FASB | Financial Accounting Standards Board | |
FLSA | Fair Labor Standards Act | |
FMCSA | Federal Motor Carrier Safety Administration | |
GAAP | United States Generally Accepted Accounting Principles | |
LIBOR | London InterBank Offered Rate | |
Knight | Unless otherwise indicated or the context otherwise requires, this term represents Knight Transportation, Inc. and its subsidiaries | |
Knight Revolver | Revolving line of credit under the 2013 Debt Agreement | |
Mohave | Mohave Transportation Insurance Company, a Swift wholly-owned captive insurance subsidiary | |
NASDAQ | National Association of Securities Dealers Automated Quotations | |
NLRB | National Labor Relations Board | |
NYSE | New York Stock Exchange | |
Red Rock | Red Rock Risk Retention Group, Inc., a Swift wholly-owned captive insurance subsidiary | |
Revolver | Revolving line of credit under the 2017 Debt Agreement | |
SEC | Securities and Exchange Commission | |
Swift | Unless otherwise indicated or the context otherwise requires, this term represents Swift Transportation Company and its subsidiaries | |
Swift Revolver | Swift's revolving line of credit under the 2015 Debt Agreement | |
Term Loan A | Swift's first lien term loan A under the 2015 Debt Agreement | |
Term Loan | The Company's term loan under the 2017 Debt Agreement | |
US | The United States of America | |
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PART I | ||||
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS |
This Annual Report contains certain statements that may be considered "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Section 27A of the Securities Act of 1933, as amended. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation:
• | any projections of earnings, revenues, cash flows, dividends, capital expenditures, or other financial items, |
• | any statement of plans, strategies, and objectives of management for future operations, |
• | any statements concerning proposed acquisition plans, new services or developments, |
• | any statements regarding future economic conditions or performance, and |
• | any statements of belief and any statements of assumptions underlying any of the foregoing. |
In this Annual Report, forward-looking statements include statements we make concerning:
• | the ability of our infrastructure to support future growth, whether we grow organically or through potential acquisitions, |
• | the future impact of the 2017 Merger, including achievement of anticipated synergies, |
• | the flexibility of our model to adapt to market conditions, |
• | our ability to recruit and retain qualified driving associates, |
• | our ability to gain market share, |
• | our ability and desire to expand our brokerage and intermodal operations, |
• | future equipment prices, our equipment purchasing plans, and our equipment turnover (including expected tractor trade-ins), |
• | our ability to sublease equipment to independent contractors, |
• | the impact of pending legal proceedings, |
• | the expected freight environment, including freight demand and volumes, |
• | economic conditions, including future inflation and consumer spending, |
• | our ability to obtain favorable pricing terms from vendors and suppliers, |
• | expected liquidity and methods for achieving sufficient liquidity, |
• | future fuel prices, |
• | future expenses and our ability to control costs, |
• | future third-party service provider relationships and availability, |
• | future contracted pay rates with independent contractors and compensation arrangements with driving associates, |
• | our expected need or desire to incur indebtedness, |
• | expected sources of liquidity for capital expenditures and allocation of capital, |
• | expected capital expenditures, |
• | future mix of owned versus leased revenue equipment, |
• | future asset utilization, |
• | future capital requirements, |
• | future return on capital, |
• | future tax rates, |
• | our intention to pay dividends in the future, |
• | future trucking industry capacity, |
• | future rates, |
• | future depreciation and amortization, |
• | expected tractor and trailer fleet age, |
• | political conditions and regulations, including future changes thereto, |
• | future purchased transportation expense, and |
• | others. |
Such statements may be identified by their use of terms or phrases such as "believe," "may," "could," "expects," "estimates," "projects," "anticipates," "plans," "intends," "hopes," "strategy," "objective," and similar terms and phrases. Forward-looking statements are based on currently available operating, financial, and competitive information. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to materially differ from those set forth in, contemplated by, or underlying the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A. "Risk Factors" of this Annual Report, and various disclosures in our press releases, stockholder reports, and other filings with the SEC.
All such forward-looking statements speak only as of the date of this Annual Report. You are cautioned not to place undue reliance on such forward-looking statements. We expressly disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein, to reflect any change in our expectations with regard thereto, or any change in the events, conditions, or circumstances on which any such statement is based.
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ITEM 1. | BUSINESS |
Certain acronyms and terms used throughout this Annual Report are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document. Definitions for these acronyms and terms are provided in the "Glossary of Terms," available in the front of this document.
Company Overview |
Knight-Swift Transportation Holdings Inc. is North America's largest truckload carrier and a provider of transportation solutions, from its Phoenix, Arizona headquarters. The Company provides multiple truckload transportation and logistics services using a nationwide network of business units and terminals in the United States and Mexico to serve customers throughout North America. In addition to its truckload services, Knight-Swift also contracts with third-party capacity providers to provide a broad range of truckload services to its customers while creating quality driving jobs for our driving associates and successful business opportunities for independent contractors.
During 2017, we covered 0.9 billion loaded miles for shippers throughout North America, contributing to consolidated total revenue of $2.4 billion and consolidated operating income of $200.6 million. As of December 31, 2017, our fleet was comprised of 18,381 company tractors, 4,688 independent contractor tractors, 74,949 trailers, and 9,122 intermodal containers. The Company's six reportable segments are Knight Trucking, Knight Logistics, Swift Truckload, Swift Dedicated, Swift Refrigerated, and Swift Intermodal.
We have historically grown through a combination of organic growth, as well as through mergers and acquisitions (discussed below). Mergers and acquisitions have enhanced Knight's and Swift's businesses and service offerings with additional terminals, driving associates, revenue equipment, and capacity. Our multiple service offerings, capabilities, and transportation modes enable us to transport, or arrange transportation for, general commodities for our diversified customer base throughout the contiguous United States and Mexico using our equipment, information technology, and qualified driving associates and non-driver employees. We are committed to providing our customers with a wide range of truckload and logistics services and continuing to invest considerable resources toward developing a range of solutions for our customers across multiple service offerings and transportation modes. Our overall objective is to provide truckload and logistics services that, when combined, lead the industry for margin and growth, while providing efficient and cost-effective solutions for our customers.
Business Combinations and Investments |
2017 Merger
On September 8, 2017, we became Knight-Swift Transportation Holdings Inc. upon the effectiveness of the 2017 Merger. We accounted for the 2017 Merger using the acquisition method of accounting in accordance with GAAP. GAAP requires that either Knight or Swift is designated as the acquirer for accounting and financial reporting purposes ("Accounting Acquirer"). Based on the evidence available, Knight was designated as the Accounting Acquirer while Swift was the acquirer for legal purposes. Therefore, Knight’s historical results of operations replaced Swift’s historical results of operations for all periods prior to the 2017 Merger.
In conjunction with the 2017 Merger announcement, we provided an estimate of $150.0 million in synergies that we expect will be realized from the remainder of 2017 through 2019 with the combined efforts of Knight and Swift. See Note 4 in Part II, Item 8 of this Annual Report for more details regarding the 2017 Merger.
Historical Acquisitions
Knight — Since 1999, Knight has acquired all of the outstanding stock of five short-to-medium haul truckload carriers, or has acquired substantially all of the trucking assets of such carriers, including Granger, Iowa-based Barr-Nunn, acquired in 2014.
Swift — Since 1966, Swift has completed thirteen acquisitions, including the 2013 acquisition of Central Refrigerated Transportation, LLC (formerly Central Refrigerated Transportation, Inc.)
Joint Ventures
See Note 1 in Part II, Item 8 in this Annual Report, regarding Knight's joint ventures.
Partnerships
See Note 7 in Part II, Item 8 in this Annual Report, regarding Knight's partnership agreements with Transportation Resource Partners.
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Industry and Competition |
Truckload carriers represent the largest part of the transportation supply chain for most retail and manufactured goods in North America and typically transport a full trailer (or container) of freight for a single customer from origin to destination without intermediate sorting and handling. Generally, the truckload industry is compensated based on miles, whereas the less-than-truckload industry is compensated based on package size and/or weight. Overall, the United States trucking industry is large, fragmented, and highly competitive. We compete with thousands of truckload carriers, most of whom operate significantly smaller fleets than we do. Our trucking segments compete with other motor carriers for the services of driving associates, independent contractors, and management employees. To a lesser extent, our intermodal services, as well as our freight brokerage and logistics businesses, compete with railroads, less-than-truckload carriers, logistics providers, and other transportation companies. Our logistics businesses compete with other logistics companies for the services of third-party capacity providers and management employees.
Our industry has encountered the following major economic cycles since 2000:
Period | Economic Cycle |
2000 — 2001 | industry over-capacity and depressed freight volumes |
2002 — 2006 | economic expansion |
2007 — 2009 | freight slowdown, fuel price spike, economic recession, and credit crisis |
2010 — 2013 | moderate recovery. The industry freight data began to show positive trends for both volume and pricing. The slow, steady growth is a result of moderate increases in gross domestic product, coupled with a tighter supply of available tractors. Trends in supply of available tractors were lower due to several years of below average truck builds, an increase in truckload fleet bankruptcies in 2009 and 2010, increasing equipment prices due to stringent EPA requirements, less available credit, and less driver availability. |
2014 — 2016 | return to pre-recession levels and relative stabilization. In 2014, total spending on transportation, which fell during the 2007 – 2009 recession, returned to pre-recession levels. Truck tonnage grew throughout 2014, followed by decelerating growth in 2015, and relative stabilization in 2016. Capacity became looser in 2015 and 2016, as inventory levels were high and large volumes of tractor purchases created a supply/demand imbalance, putting pressure on pricing. Fuel prices declined. |
2017 | Demand increased for transportation services, including non-contract market demand, partially due to a strong retail season. Capacity became tighter in the second half of 2017, due to increasing government regulation, the driver shortage, severe storms interrupting business, among other factors. In addition, US fuel prices increased. |
The principal means of competition in our industry are customer service, capacity, and price. In times of strong freight demand, customer service, and capacity become increasingly important, and in times of weak freight demand, pricing becomes increasingly important. Most truckload contracts (other than dedicated contracts) do not guarantee truck availability or load levels. Pricing is influenced by supply and demand.
The trucking industry faces the following primary challenges, which we believe we are well-positioned to address, as discussed under "Our Competitive Strengths" and "Company Strategy," below:
• | tightening industry capacity; |
• | cumulative impacts of regulatory initiatives, such as ELDs, hours-of service limitations for drivers, and others; |
• | uncertainty in the economic environment, including changing supply chain and consumer spending patterns; |
• | driver shortages; |
• | significant and rapid fluctuations in fuel prices; and |
• | increased prices for new revenue equipment, design changes of new engines, and volatility in the used equipment sales market. |
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Our Competitive Strengths |
We believe that our principal competitive strengths are our regional presence, customer service (including our ability to provide multiple transportation solutions, and configuration of equipment that satisfies customers' needs), operating efficiency, cost control, and technological enhancements in our revenue equipment and supporting back-office functions.
Regional Presence |
We believe that regional operations, which have recently expanded with the merger between Knight and Swift, offer several advantages, including: • obtaining greater freight volumes, • achieving higher revenue per mile by focusing on high-density freight lanes to minimize non-revenue miles, • enhancing our ability to recruit and train qualified driving associates, • enhancing safety and driver development and retention, • enhancing our ability to provide a high level of service and consistent capacity to our customers, • enhancing accountability for performance and growth, • furthering our trucking capabilities to provide various shipping solutions to our customers, and • furthering our logistics capabilities to contract with more third-party capacity providers. |
Operating Efficiency and Cost Control |
We expect to generate cost and revenue synergies as a result of the 2017 Merger through, among other things, increased operational efficiencies through the adoption of best practices and capabilities from each of Knight and Swift. We operate modern tractors and trailers in order to obtain operating efficiencies and attract and retain driving associates. We believe a generally compatible fleet of tractors and trailers simplifies our maintenance procedures and reduces parts, supplies, and maintenance costs. We regulate vehicle speed, which we believe will maximize fuel efficiency, reduce wear and tear, and enhance safety. We continue to update our fleet with more fuel-efficient post-2014 United States EPA emission compliant engines, install aerodynamic devices on our tractors, and equip our trailers with trailer blades, which have led to meaningful improvements in fuel efficiency. Our logistics and intermodal businesses focus on effectively optimizing and meeting the transportation and logistics requirements of our customers and providing customers with various sources and modes of transportation capacity across our nationwide service network. We invest in technology that enhances our ability to optimize our freight opportunities while maintaining a low cost per transaction. |
Customer Service |
We strive to provide superior, on-time service at a meaningful value to our customers and seek to establish ourselves as a preferred truckload and logistics provider for our customers. We provide truckload capacity for customers in high-density lanes, where we can provide them with a high level of service, as well as flexible and customized logistics services on a nationwide basis. Our trucking services include dry van, refrigerated, and drayage, which also include dedicated and cross-border truckload services, customized according to customer needs. Our logistics and intermodal services include brokerage, intermodal, and certain logistics, freight management, and non-trucking services, which provide various shipping alternatives and transportation modes for customers by utilizing our expansive network of third-party capacity providers and rail partners. We price our trucking, logistics, and intermodal services commensurately with the level of service our customers require and market conditions. By providing customers a high level of service, we believe we avoid competing solely based on price. |
Using Technology that Enhances Our Business |
We purchase and deploy technology that we believe will allow us to operate more safely, securely, and efficiently. Substantially all of our company-owned tractors are equipped with in-cab communication devices that enable us to communicate with our driving associates, obtain load position updates, manage our fleets, and provide our customers with freight visibility, as well as with ELDs that automatically record our driving associates' hours-of-service. The majority of our trailers are equipped with trailer-tracking technology that allows us to better manage our trailers. We have purchased and developed software for our logistics businesses that provides greater visibility of the capacity of our third-party providers and enhances our ability to provide our customers with solutions that offer a superior level of service. We have automated many of our back-office functions, and we continue to invest in technology that we expect will allow us to better serve our customers and improve overall efficiency. |
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Our Mission and Company Strategy |
Segment Operating Strategies | |
Trucking Segments | Our operating strategy for our trucking segments, which includes Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated, is to achieve a high level of asset utilization within a highly disciplined operating system, while maintaining strict controls over our cost structure. We hope to achieve these goals by primarily operating in high-density, predictable freight lanes and attempting to develop and expand our customer base around each of our terminals by providing multiple truckload services for each customer. We believe this operating strategy allows us to take advantage of the large amount of freight transported in the markets we serve. Our terminals enable us to better serve our customers and work more closely with our driving associates. We operate a premium modern fleet that we believe appeals to driving associates and customers, reduces maintenance expenses and driving associate and equipment downtime, and enhances our fuel and other operating efficiencies. We employ technology in a cost-effective manner to assist us in controlling operating costs and enhancing revenue. |
Logistics businesses | Our logistics operating strategy is to match the shipping needs of our customers with the capacity provided by our network of third-party carriers and our rail providers. Our goal is to increase our market presence, both in existing operating regions and in other areas where we believe the freight environment meets our operating strategy, while seeking to achieve industry-leading operating margins and returns on investment. |
Swift Intermodal | Our Swift Intermodal operating strategy is to complement our regional operating model, allowing us to better serve customers in longer haul lanes, and reduce our investment in fixed assets. We have intermodal agreements with most major North American rail carriers, which have helped increase our volumes through more competitive pricing. |
Growth Strategies | |
We believe we have the terminal network, systems capability, and management capacity to support substantial growth. We have established a geographically diverse network that we believe can support a substantial increase in freight volumes, organic or acquired. Our network and business lines afford us the ability to provide multiple transportation solutions for our customers, and we maintain the flexibility within our network to adapt to freight market conditions. We believe our unique mix of regional management, together with our consistent efforts to centralize certain business functions to achieve collective economies of scale, allow us to develop future company leaders with relevant operating and industry experience, minimize the potential diseconomies of scale that can come with growth in size, take advantage of regional knowledge concerning capacity and customer shipping needs, and manage our overall business with a high level of performance accountability. | |
Strengthening our customer relationships | We market our services to both existing and new customers who value our broad geographic coverage, suite of transportation and logistics services, and industry-leading truckload capacity and freight lanes that complement our existing operations. We seek customers who will diversify our freight base. We market our dry van, refrigerated, drayage, brokerage, and intermodal services, including dedicated and cross-border services within those offerings, to logistics customers seeking a single-source provider of multiple services but do not currently take advantage of our array of truckload solutions. |
Improving asset productivity | We focus on improving the revenue generated from our tractors and trailers without compromising safety. We anticipate that we can accomplish this objective through increased miles driven and rate per mile. |
Acquiring and growing opportunistically | We regularly evaluate potential opportunities for mergers, acquisitions, and other development and growth opportunities. In addition to the merger between Knight and Swift in 2017, since 1999, Knight has acquired five short-to-medium haul truckload carriers, including the acquisition of Barr-Nunn during 2014, and Swift has acquired thirteen companies since 1966. |
Expanding existing terminals | Historically, a substantial portion of our revenue growth has been generated by our expansion into new geographic regions through the opening of additional terminals. Although we continue to seek opportunities to further increase our business in this manner, our primary focus is on developing and expanding our existing terminals by strengthening our customer relationships, recruiting quality driving associates and non-driver employees, adding new customers, and expanding the range of transportation and logistics solutions offered from these terminals. |
Diversifying our service offerings | We are committed to providing our customers a broad and growing range of truckload and logistics services and continue to invest considerable resources toward developing a range of solutions for our customers. We believe that these offerings contribute meaningfully to our results and reflect our strategy to bring complementary services to our customers to assist them with their supply chain needs. We plan to continue to leverage our nationwide footprint and expertise to add value to our customers through our diversified service offerings. |
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Information by Segment and Geography |
Segments
Our six reportable segments are Knight Trucking, Knight Logistics, Swift Truckload, Swift Dedicated, Swift Refrigerated, and Swift Intermodal. Segment information is provided in Notes 2 and 25 to the consolidated financial statements, including accounting and reporting policy, segment definitions, and financial information. Supplementary segment information is available in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Geography
The required disclosures relating to revenue and long-lived assets by geography are included in Note 25 to the consolidated financial statements. Income tax information by geography is included in Note 14 to the consolidated financial statements.
Customers and Marketing |
Marketing
Our marketing mission is to be a strategic, efficient transportation capacity partner for our customers by providing truckload and logistics solutions customizable to the unique needs of our customers. We deliver these capacity solutions through our network of owned assets, independent contractors, third-party capacity providers, and our rail providers. The diverse and premium services we offer provide a comprehensive approach to providing ample supply chain solutions to our customers. At December 31, 2017, we had a sales staff of approximately 85 individuals across the United States, Mexico, and Canada, who work closely with management to establish and expand accounts. Our sales and marketing leaders are members of our senior management team, who are assisted by other sales professionals in each segment. Our sales team emphasizes our industry-leading service, environmental leadership, and our ability to accommodate a variety of customer needs, provide consistent capacity, and financial strength and stability.
Customers
Our customers are typically large corporations in the retail (including discount and online retail), food and beverage, consumer products, paper products, transportation and logistics, housing and building, automotive, and manufacturing industries. Many of our customers have extensive operations, geographically distributed locations, and diverse shipping needs.
Consistent with industry practice, our typical customer contracts (other than dedicated contracts) do not guarantee shipment volumes by our customers or truck availability by us. This affords us and our customers some flexibility to negotiate rates in response to changes in freight demand and industry-wide truck capacity. Our dedicated services within the Swift Dedicated and Knight Trucking segments assign particular driving associates and revenue equipment to prescribed routes, pursuant to multi-year agreements. This provides individual customers with a guaranteed source of capacity, and allows our driving associates to have more predictable schedules and routes. Under our dedicated transportation services, we provide driving associates, equipment, maintenance, and, in some instances, transportation management services that supplement the customer's in-house transportation department.
Our terminals are linked to our corporate information technology system in our Phoenix headquarters. The capabilities of this system and its software enhance our operating efficiency by providing cost-effective access to detailed information concerning equipment location and availability, shipment tracking and on-time delivery status, and other specific customer requirements. The system also enables us to respond promptly and accurately to customer requests and assists us in geographically matching available equipment with customer loads. Additionally, our customers can track shipments and obtain copies of shipping documents via our website. We also provide electronic data interchange services to customers desiring these services.
We believe our fleet capacity, terminal network, customer service and breadth of services offer a competitive advantage to major shippers, particularly in times of rising freight volumes when shippers must quickly access capacity across multiple facilities and regions.
We strive to maintain a diversified customer base. Services provided to the Company's largest customer, Wal-Mart, generated 15.8%, 13.7%, and 12.4% of total revenue in 2017, 2016, and 2015, respectively. Revenue generated by Wal-Mart is reported in the Knight Trucking, Swift Truckload, Swift Dedicated, Swift Refrigerated, and Swift Intermodal operating segments. No other customer accounted for 10% or more of total revenue in 2017, 2016, or 2015.
Our top 25 customers drive a substantial portion of our total revenue, as follows (amounts reflect only Swift's result prior to the 2017 Merger date, and Knight-Swift's results after the 2017 Merger date):
• | In 2017, our top 25, top 10, and top 5 customers accounted for 56.6%, 39.7%, and 31.7% of our total revenue, respectively. |
• | In 2016, our top 25, top 10, and top 5 customers accounted for 53.7%, 37.3%, and 27.7% of our total revenue, respectively. |
• | In 2015, our top 25, top 10, and top 5 customers accounted for 53.1%, 36.2%, and 26.2% of our total revenue, respectively. |
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Revenue Equipment |
We operate a modern company tractor fleet to help attract and retain driving associates, promote safe operations, and reduce maintenance and repair costs. The following table shows our owned and leased tractor and trailer ages as of December 31, 2017:
Model Year | Tractors (1) | Trailers | ||||
2019 | — | 9 | ||||
2018 | 2,798 | 3,968 | ||||
2017 | 2,232 | 8,835 | ||||
2016 | 5,185 | 6,913 | ||||
2015 | 4,968 | 8,846 | ||||
2014 | 2,223 | 5,624 | ||||
2013 | 374 | 5,666 | ||||
2012 | 123 | 4,470 | ||||
2011 and prior | 478 | 30,618 | ||||
Total | 18,381 | 74,949 | ||||
_______________
(1) Excludes 4,688 independent contractor tractors.
We typically purchase or lease tractors and trailers manufactured to our specifications in order to meet a wide variety of customer needs. Growth of our tractor and trailer fleet is determined by market conditions and our experience and expectations regarding equipment utilization. In acquiring revenue equipment, we consider a number of factors, including economy, price, rate, economic environment, technology, warranty terms, manufacturer support, driving associate comfort, and resale value. We maintain strong relationships with our equipment vendors and have the financial flexibility to react as market conditions dictate.
Our current policy is to replace our tractors between 42 months and 60 months after purchase and to replace our trailers over a five- to ten-year period. Changes in the current market for used tractors and trailers, regulatory changes, and difficult market conditions faced by tractor and trailer manufacturers, may result in price increases that may affect the period of time for which we operate our equipment.
Our newer equipment has enhanced features, which we believe tends to lower the overall life cycle costs by reducing safety-related expenses, lowering repair and maintenance expenses, improving fuel economy, and improving driving associate satisfaction. In 2018 and beyond, we will continue to monitor the appropriateness of this relatively short tractor trade-in cycle against the lower capital expenditure and financing costs of a longer tractor trade-in cycle, based on current and future business needs.
Employees |
The strength of our company is our people, working together with common goals. There were approximately 25,200 full-time employees in our total headcount of approximately 25,400 employees as of December 31, 2017, which was comprised of:
Company driving associates (including driver trainees) | 19,200 | ||
Technicians and other equipment maintenance personnel | 1,400 | ||
Support personnel (such as corporate managers, sales, and administrative personnel) | 4,800 | ||
Total | 25,400 | ||
As of December 31, 2017, we had approximately 780 Trans-Mex driving associates in Mexico that were represented by a union.
Company Driving Associates
We recognize that the recruitment, training, and retention of a professional driving associate workforce, which is one of our most valuable assets, are essential to our continued growth and meeting the service requirements of our customers. In order to attract and retain safe driving associates who are committed to the highest levels of customer service and safety, we focus our operations for driving associates around a collaborative and supportive team environment. We provide late model and comfortable equipment, direct communication with senior management, competitive wages and benefits, and other incentives designed to encourage driving associate safety, retention, and long-term employment. We have established various driving academies across the United States. Our academies are strategically located in areas where external driver-training organizations were lacking. In other areas of the US, we have contracted with driver training schools, which are managed by third parties. There are certain minimum qualifications for candidates to be accepted into the academy, including passing the DOT physical examination and drug/alcohol screening.
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Terminal Staff
Most of our large terminals are staffed with terminal leaders, fleet leaders, driver leaders, planners, safety coordinators, shop leaders, technicians, and customer service representatives. Our terminal leaders work with driver leaders, customer service representatives, and other operations personnel to coordinate the needs of both our customers and our driving associates. Terminal leaders are also responsible for serving existing customers in their areas. Fleet leaders supervise driver leaders, who are responsible for the general operation of our trucks and their driving associates, focusing on driving associate retention, productivity per truck, fuel consumption, fuel efficiency (with respect to driver-controllable idle time), safety, and scheduled maintenance. Customer service representatives are assigned specific customers to ensure specialized, high-quality service, and frequent customer contact.
Independent Contractors |
In addition to Knight-Swift-employed driving associates, we enter into contractor agreements with third parties who own and operate tractors (or hire their own driving associates to operate the tractors) that service our customers. We pay these independent contractors for their services, based on a contracted rate per mile. By operating safely and productively, independent contractors can improve their own profitability and ours. Independent contractors are responsible for most costs incurred for owning and operating their tractors. For convenience, we offer independent contractors maintenance services at our in-house shops and fuel at our terminals at competitive and attractive prices. As of December 31, 2017, independent contractors comprised 20.3% of our total fleet, as measured by tractor count.
Safety and Insurance |
Safety
We are committed to safe and secure operations. We conduct a mandatory intensive driver qualification process, including defensive driving training for all drivers, which includes our company driving associates. We require prospective drivers to meet higher qualification standards than those required by the DOT. We regularly communicate with drivers to promote safety and instill safe work habits through effective use of various media and safety review sessions. We dedicate personnel and resources designed to ensure safe operation and regulatory compliance. We employ technology to assist us in managing risks associated with our business. In addition, we have an innovative recognition program for driver safety performance and emphasize safety through our equipment specifications and maintenance programs. Our Corporate Directors of Safety review all accidents and report weekly to the Senior Director of Safety and Risk Management.
Insurance
The primary claims arising in our business consist of auto liability, including personal injury, property damage, physical damage, and cargo loss. We self-insure for a significant portion of our claims exposure and related expenses. We also maintain insurance that covers our directors and officers for losses and expenses arising out of claims, based on acts or omissions in their capacities as directors or officers. While under dispatch and the Company's operating authority, the independent contractors the Company contracts with are covered by the Company's liability coverage and self-insurance retention limits. However, each is responsible for physical damage to his or her own equipment, occupational accident coverage, and liability exposure while the truck is used for non-company purposes. Additionally, fleet operators are responsible for any applicable workers' compensation requirements for their employees.
Swift — The following table includes Swift's self-insured retention amounts, maximum benefits per claim, and other limitations:
Insurance | Limits |
Automobile Liability, General Liability, and Excess Liability | $250.0 million of coverage per occurrence, subject to a $10.0 million self-insured retention per-occurrence. |
Cargo Damage and Loss | $2.0 million limit per truck or trailer with a $10.0 million limit per occurrence; provided that there is a $1.0 million limit for tobacco loads and a $250 thousand deductible |
Property and Catastrophic Physical Damage | $150.0 million limit for property and $100.0 million limit for vehicle damage, excluding over the road exposures, subject to a $1.0 million deductible |
Workers' Compensation/Employers' Liability | Statutory coverage limits; employers' liability of $1.0 million bodily injury by accident and disease, subject to a $5.0 million self-insured retention for each accident or disease |
Employment Practices Liability | Primary policy with a $10.0 million limit subject to a $2.5 million self-insured retention |
Health Care | As of January 1, 2015, Swift is fully insured for medical, subject to contributed premiums. |
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Knight — The following table includes information regarding Knight's main insurance programs:
Insurance | Limits |
Automobile Liability | $130.0 million of coverage per occurrence, subject to a $1.0 million self-insured retention per-occurrence, and a $2.5 million aggregate deductible for any loss within the excess coverage layer. |
Workers' Compensation | $1.0 million self-insured retention per occurrence. |
Employee Medical and Hospitalization | Primary and excess coverage for employee medical expenses and hospitalization, with $0.2 million self-insured retention per claimant. |
Fuel |
We actively manage our fuel purchasing network in an effort to maintain adequate fuel supplies and reduce our fuel costs. Additionally, we utilize a fuel surcharge program to pass a majority of increases in fuel costs to our customers. In 2017, we purchased 14.8% of our fuel in bulk at our Swift, Knight, and dedicated customer locations across the United States and Mexico. We purchased substantially all of the remainder through a network of retail truck stops with which we have negotiated volume purchasing discounts. The volumes we purchase at terminals and through the fuel network vary based on procurement costs and other factors. We seek to reduce our fuel costs by routing our driving associates to truck stops when fuel prices at such stops are cheaper than the bulk rate paid for fuel at our terminals. We primarily store fuel in above-ground storage tanks at most of our other bulk fueling terminals. We believe that we are sufficiently in compliance with applicable environmental laws and regulations relating to the storage and dispensing of fuel.
Seasonality |
In the transportation industry, results of operations generally follow a seasonal pattern. Freight volumes in the first quarter are typically lower due to less consumer demand, customers reducing shipments following the holiday season, and inclement weather impeding operations. At the same time, operating expenses generally increase, and tractor productivity of our 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. During this period, the profitability of our operations is generally lower than during other parts of the year. Additionally, we have seen surges between Thanksgiving and Christmas resulting from holiday shopping trends toward delivery of gifts purchased over the Internet, as well as the impact of shorter holiday seasons (Thanksgiving holiday recently falling closer to Christmas).
Environmental Regulation |
General
We have bulk fuel storage and fuel islands at many of our terminals, as well as vehicle maintenance, repair, and washing operations at some of our facilities, which exposes us to certain environmental risks. Soil and groundwater contamination have occurred at some of our facilities in prior years, for which we have been responsible for remediating the environmental contamination. Also, a small percentage of our total shipments contain hazardous materials, which are generally rated as low- to medium-risk, and subject us to a wide array of regulation. In the past, we have been responsible for the costs of clean-up of cargo and diesel fuel spills caused by traffic accidents or other events.
We have instituted programs to monitor and mitigate environmental risks and maintain compliance with applicable environmental laws dealing with the hauling, handling, and disposal of hazardous materials, fuel spillage or seepage, emissions from our vehicles and facilities, engine-idling, discharge and retention of storm water, and other environmental matters. As part of our safety and risk management program, we periodically perform internal environmental reviews. We are a Charter Partner in the EPA's SmartWay Transport Partnership, a voluntary program promoting energy efficiency and air quality. We believe that our operations are sufficiently in compliance with current laws and regulations and do not know of any existing environmental condition that would reasonably be expected to have a material adverse effect on our business or operating results.
If we are held responsible for the cleanup of any environmental incidents caused by our operations or business, or if we are found to be in violation of applicable laws or regulations, we could be subject to clean-up costs and other liabilities, including substantial fines or penalties or civil and criminal liability, any of which could have a material, adverse effect on our business and results of operations. We have paid penalties for spills and violations in the past; however, they have not been material to our financial results or position.
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Greenhouse Gas ("GHG") Emissions and Fuel Efficiency Standards
California ARB — In 2008 the State of California's Air Resources Board ("ARB") approved the Heavy-Duty Vehicle GHG Emission Reduction Regulation in efforts to reduce GHG emissions from certain long-haul tractor-trailers that operate in California by requiring them to utilize technologies that improve fuel efficiency (regardless of where the vehicle is registered). The regulation required owners of long-haul tractors and 53-foot trailers to be EPA SmartWay certified or replace or retrofit their vehicles with aerodynamic technologies and low-rolling resistance tires. The regulation also contained certain emissions and registration standards for refrigerated trailers.
In December 2013, California's ARB approved regulations to align its GHG emission standards and test procedures, as well as its tractor-trailer GHG regulation, with the feder Phase 1 GHG regulation (see below).
Additionally, in February 2017 California's ARB proposed California Phase 2 standards that would generally align with the federal Phase 2 Standards (see below), with some minor additional requirements, and as proposed would stay in place even if the federal Phase 2 Standards are affected by action from President Trump's administration. California's ARB has announced it plans to bring a formal proposed program to its board of directors in early 2018.
Complying with current and proposed GHG regulations has increased the cost of our new tractors, may increase the cost of any new trailers that will operate in California, may require us to retrofit certain of our pre-2011 model year trailers that operate in California, and could impair equipment productivity and increase our operating expenses. These adverse effects, combined with the uncertainty as to the reliability of the newly designed diesel engines and the residual values of these vehicles, could materially increase our costs or otherwise adversely affect our business or operations. We will continue monitoring our compliance with California's ARB regulations.
EPA and NHTSA — The EPA and the National Highway Traffic Safety Administration ("NHTSA") began taking coordinated steps in support of a new generation of clean vehicles and engines through reduced GHG emissions and improved fuel efficiency at a national level.
• | Phase 1 — In September 2011, the EPA finalized federal regulations for controlling GHG emissions, beginning with model-year 2014 medium- and heavy-duty engines and vehicles and increasing in stringency through model-year 2018. The federal regulations relate to efficient engines, use of auxiliary power units, mass reduction, low-rolling resistance tires, improved aerodynamics, improved transmissions, and reduced accessory loads. |
In December 2013, California's ARB approved regulations to align its GHG emission standards and test procedures, as well as its tractor-trailer GHG regulation, with the federal Phase 1 GHG regulation.
• | Phase 2 — In June 2015, the EPA and NHTSA, working in concert with California's ARB, formally announced a proposed national program establishing Phase 2 of the GHG emissions and fuel efficiency standards for medium- and heavy-duty vehicles for model-year 2018 and beyond. In August 2016, the EPA and NHTSA announced the final rule regarding Phase 2, which builds upon Phase 1, and would apply to certain trailer types beginning with model-year 2018 for EPA standards (voluntary for NHTSA standards through model-year 2020). Tractors and certain trailer types would be subject to the Phase 2 standards beginning with model-year 2021, increasing in stringency through model-year 2024, and phasing in completely by model-year 2027. This rule marks the first time federal mandates will be applied to trailers, with respect to aerodynamics and low-rolling resistance tires. The final rule was effective December 27, 2016. |
In October 2017, the EPA announced a proposal to repeal the Phase 2 Standards as they relate to gliders (which mix refurbished older components, including transmissions and pre-emission-rule engines, with a new frame, cab, steer axle, wheels, and other standard equipment). Additionally, implementation of the Phase 2 Standards as they relate to trailers has been delayed due to a provisional stay granted in October 2017 by the US Court of Appeals for the District of Columbia, which is overseeing a case against the EPA by the Truck Trailer Manufacturers Association, Inc. regarding the Phase 2 Standards. If the glider provisions are removed from the Phase 2 standards, there would be no direct effect on our results of operations. If the trailer provisions of the Phase 2 Standards are permanently removed, we would expect a lessened impact on our operations.
We believe the EPA and NHTSA GHG requirements will result in additional increases in new tractor and trailer prices and additional parts and maintenance costs incurred to retrofit our tractors and trailers with technology to achieve compliance with such standards, which could adversely affect our operating results and profitability, particularly if such costs are not offset by potential fuel savings. We cannot predict, however, the extent to which our operations and productivity will be impacted.
Climate-change Proposals
Federal and state lawmakers are considering a variety of other climate-change proposals related to carbon emissions and GHG emissions. The proposals could potentially limit carbon emissions for certain states and municipalities, which continue to restrict the location and amount of time that diesel-powered tractors (like ours) may idle.
These restrictions could force us to purchase on-board power units that do not require the engine to idle or to alter our drivers' behavior, which could result in a decrease in productivity, or increase in driving associate turnover.
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Industry Regulation |
Our operations are regulated and licensed by various federal, state, and local government agencies in North America, including the DOT, the FMCSA, and the United States Department of Homeland Security, among others. Our company, as well as our driving associates and independent contractors, must comply with enacted governmental regulations regarding safety, equipment, and operating methods. Examples include regulation of equipment weight, equipment dimensions, driver hours-of-service, driver eligibility requirements, on-board reporting of operations, and ergonomics. The following discussion presents recently enacted federal, state, and local regulations that have an impact on our operations.
Hours-of-service
From time to time, the FMCSA proposes and implements changes to regulations impacting hours-of-service. Such changes can negatively impact our productivity and affect our operations and profitability by reducing the number of hours per day or week our drivers may operate and/or disrupting our network. No such changes are currently proposed. However, any future changes to hours-of-service regulations could materially and adversely affect our operations and profitability.
Safety and Fitness Ratings
There are currently two methods of evaluating the safety and fitness of carriers: CSA BASICS, which evaluates and ranks fleets on certain safety-related standards by analyzing data from recent safety events and investigation results, and DOT SafeStat, which is based on an on-site investigation and affects a carrier's ability to operate in interstate commerce. Additionally, the FMCSA has proposed rules in the past that would change the methodologies used to determine carrier safety and fitness.
DOT SafeStat — SafeStat is currently the only safety measurement system in effect. Both Knight and Swift currently have a satisfactory SafeStat DOT rating, which is the best available rating under the current safety rating scale. If we were to receive a conditional or unsatisfactory DOT safety rating, it could adversely affect our business, as some of our existing customer contracts require a satisfactory DOT safety rating.
CSA BASICs — In December 2010, the FMCSA introduced an enforcement and compliance model that ranks on seven categories of safety-related data. The seven categories of safety-related data, known as BASICs, currently include Unsafe Driving, Fatigued Driving (hours-of-service), Driver Fitness, Controlled Substances/Alcohol, Vehicle Maintenance, Hazardous Materials Compliance, and Crash Indicator. Carriers are grouped by category with other carriers that have a similar number of safety events (i.e. crashes, inspections, or violations) and carriers are ranked and assigned a rating percentile or score to prioritize them for interventions if they are above a certain threshold.
Certain CSA BASICs information was initially published and made available to carriers, as well as the general public. However, in December 2015, as part of the Fixing America's Surface Transportation ("FAST") Act, Congress mandated that the FMCSA remove all CSA scores from public view until a more comprehensive study regarding the effectiveness of CSA BASICs improving truck safety could be completed. During this period of review by the FMCSA, we will continue to have access to our own scores and will still be subject to intervention by the FMCSA when such scores are above the intervention thresholds. The study was conducted and delivered to the FMCSA in June 2017 with several recommendations to make the CSA program more fair, accurate, and reliable. The FMCSA is expected to provide its report to Congress in early 2018 outlining the changes it will make to the CSA program in response to the study.
It is unclear if, when, and to what extent any such changes will occur. However, any changes that increase the likelihood of us receiving unfavorable scores could adversely affect our results of operations and profitability.
CSA BASICS scores do not currently have a direct impact on a carrier's safety rating. However, the occurrence of unfavorable scores in one or more categories may affect driving associate recruiting and retention by causing qualified driving associates to seek employment with other carriers, cause our customers to direct their business away from us and to carriers with higher fleet rankings, subjecting us to an increase in compliance reviews and roadside inspections, or causing us to incur greater than expected expenses in our attempts to improve unfavorable scores, any of which could adversely affect our results of operations and profitability.
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Safety Fitness Determination — In January 2016, the FMCSA published a Notice of Proposed Rulemaking ("NPRM") in the Federal Register, regarding carrier safety fitness determination. The NPRM proposed new methodologies that would have determined when a motor carrier was not fit to operate a commercial motor vehicle. Key proposed changes that were included in the NPRM are as follows:
• | There would be only one safety rating of "unfit," as compared to the current rules, which have three safety ratings (satisfactory, conditional, and unsatisfactory). |
• | Carriers could be determined "unfit" by failing two or more BASICs, investigation results, or a combination of the two. |
• | Stricter standards would be used for BASICs with a higher correlation to crash risk (Unsafe Driving and Hours-of-Service Compliance). |
• | All investigation results would be used, not just results from comprehensive on-site reviews. |
• | Violations of a revised list of "critical" and "acute" safety regulations would result in failing a BASIC. |
• | Carriers would be assessed monthly. |
Public comments on the proposed rule were due in June 2016 and several industry groups and lawmakers expressed their disagreement with the proposed rule, arguing that it violates the requirements of the FAST Act and that the FMCSA must first finalize its review of the CSA scoring system. Based on this feedback and other concerns raised by industry stakeholders, in March 2017, the FMCSA withdrew the Notice of Proposed Rulemaking related to the new safety rating system. In its notice of withdrawal, the FMCSA noted that a new rulemaking related to a similar process may be initiated in the future. Therefore, it is uncertain if, when, or under what form any such rule could be implemented.
Moving Ahead for Progress in the 21st Century Bill
In July 2012, Congress passed the Moving Ahead for Progress in the 21st Century bill into law. Included in the highway bill was a provision that mandates electronic logging devices in commercial motor vehicles to record hours-of-service. Additionally, in response to the bill, a final rule related to entry-level driver training was passed in 2016, as well as amendments to the Drug and Alcohol Clearinghouse rules.
ELD — During 2012, the FMCSA published a Supplemental NPRM, announcing its plan to proceed with the ELDs and hours-of-service supporting documents rulemaking. The ELD rule became final in December 2015, as published in the Federal Register, with an effective date of February 16, 2016. The ELD rule phases in over a four-year period:
• | Phase 1 (February 16, 2016 through December 18, 2017): Carriers and drivers subject to the rule may voluntarily use ELDs or use other forms of logging devices. |
• | Phase 2 (December 18, 2017 through December 16, 2019): Carriers and drivers subject to the rule can use Automatic On-board Recording Devices ("AOBRD") that were installed prior to December 18, 2017 or ELDs certified and registered after December 16, 2015. |
• | Phase 3 (after December 16, 2019): All drivers and carriers subject to the rule must use certified and registered ELDs that comply with the requirements of the ELD regulations. |
Although the final ELD rule may have a large impact on the industry as a whole, we have not experienced an adverse impact on Knight-Swift, as we previously installed ELDs in our operational trucks in conjunction with our efforts to improve efficiency and communications with driving associates and independent contractors. However, we believe that more effective hours-of-service enforcement under the ELD Rule may improve our competitive position by causing all carriers to adhere more closely to hours-of-service requirements.
Entry-Level Driver Training — In December 2016, the FMCSA established new minimum training standards for certain individuals applying for (or upgrading) a Class A or Class B commercial driver's license, or obtaining a hazardous materials, passenger, or school bus endorsement on their commercial driver's license for the first time. These individuals are subject to the Entry-level driver training requirements and must complete a prescribed program of theory and behind-the wheel instruction. The final rule requires that behind-the-wheel proficiency of an entry-level truck driver be determined solely by the instructor's evaluation of how well the driver-trainee performs the fundamental vehicle controls skills and driving procedures set forth in the curricula, but does not have a minimum training hours requirement, as proposed by the FMCSA earlier in 2016. The final rule went into effect on February 6, 2017, with a compliance date of February 7, 2020. Upon the compliance date, training schools will be required to register with the FMCSA's Training Provider Registry and certify that their program meets the classroom and driving standards. The effect of this rule could result in a decrease in fleet production and driver availability, either of which could adversely affect our business or operations.
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Commercial Driver's License Drug and Alcohol Clearinghouse — In December 2016, the FMCSA amended the Federal Motor Carrier Safety Regulations to establish requirements of the Commercial Driver's License Drug and Alcohol Clearinghouse, a database under its administration that will contain information about violations of the FMCSA's drug and alcohol testing program for holders of commercial driver's licenses. In addition to requiring employers to check the database for driver applicant drug and alcohol test failures, the final rule requires employers to check the database to determine whether current employees have incurred a drug or alcohol violation that would prohibit them from performing safety-sensitive functions. The final rule became effective on January 4, 2017, with a compliance date of January 6, 2020. Upon implementation, the rule may reduce the number of available drivers in an already constrained driver market.
Prohibiting Coercion of Commercial Motor Vehicle Drivers
In November 2015, the Prohibiting Coercion of Commercial Motor Vehicle Drivers rule became final, as published in the Federal Register and adopted by the FMCSA. The rule explicitly prohibits motor carriers from coercing drivers to violate certain FMCSA regulations, including driver hours-of-service limits, Commercial Drivers' License regulations, drug and alcohol testing rules, and hazardous materials regulations, among others. Under the rule, drivers can report incidents of coercion to the FMCSA, who is authorized to issue penalties against the motor carrier. We have not experienced any significant impacts from this rule.
Speed Limiting Devices
In September 2016, the NHTSA and FMCSA proposed regulations that would require speed limiting devices on vehicles with a gross vehicle weight rating of more than 26,000 pounds for the service life of the vehicle. The speed was expected to be limited to 62, 65, or 68, but ultimately would have been be set by the final rule. Based on the agencies' review of the available data, limiting the speed of these heavy vehicles would reduce the severity of crashes involving these vehicles and reduce the resulting injuries and fatalities. Public comments on the proposed rule were due in November 2016, and in July 2017, the DOT announced that it would no longer pursue a speed limiter rule, but left open the possibility that it could resume such a pursuit in the future. The effect of this rule, to the extent it became effective, could result in a decrease in fleet production and driver availability, either of which could adversely affect our business or operations.
For safety, we electronically govern the speed of substantially all of our company tractors. Additionally, our independent contractor agreements include statements that independent contractors must comply with the Company's speed policy.
Food Safety Modernization Act of 2011 ("FSMA")
In April 2016, the Food and Drug Administration published a final rule establishing requirements for shippers, loaders, carriers by motor vehicle and rail vehicle, and receivers engaged in the transportation of food, to use sanitary transportation practices to ensure the safety of the food they transport as part of the FSMA. This rule sets forth requirements related to:
• | the design and maintenance of equipment used to transport food, |
• | the measures taken during food transportation to ensure food safety, |
• | the training of carrier personnel in sanitary food transportation practices, and |
• | maintenance and retention of records of written procedures, agreements, and training related to the foregoing items. |
These requirements took effect for larger carriers such as us in April 2017 and are also applicable when we perform as a carrier or as a broker. We believe we have been in compliance with these requirement since that time. However, if we are found to be in violation of applicable laws or regulations related to the FSMA, we could be subject to substantial fines, penalties and/or criminal liability, any of which could have a material adverse effect on our business, financial condition, and results of operations.
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Legislation Regarding Independent Contractors
Tax and other regulatory authorities have sought in the past to assert that independent contractors in the trucking industry are employees rather than independent contractors. Federal legislators continue to introduce legislation concerning the classification of independent contractors as employees, including legislation that proposes to increase the tax and labor penalties against employers who intentionally or unintentionally misclassify employees as independent contractors and are found to have violated employees' overtime or wage requirements. Additionally, federal legislators have sought to:
• | abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent contractors if they are following a long-standing, recognized practice, |
• | extend the FLSA to independent contractors, and |
• | impose notice requirements based upon employment or independent contractor status and fines for failure to comply. |
Some states have adopted initiatives to increase their revenues from items such as unemployment, workers' compensation, and income taxes, and we believe a reclassification of independent contractors as employees would help states with this initiative. Federal and state taxing and other regulatory authorities and courts apply a variety of standards in their determination of independent contractor status.
Further, class actions and other lawsuits have been filed against us and other members of our industry seeking to reclassify independent contractors as employees for a variety of purposes, including workers' compensation and health care coverage. Our defense of such class actions and other lawsuits has not always been successful, and we have been subject to adverse judgments with respect to such matters. If our independent contractors were determined to be our employees, we would incur additional exposure under federal and state tax, workers' compensation, unemployment benefits, labor, employment, and tort laws, which could potentially include prior periods, as well as potential liability for employee benefits and tax withholdings. We currently observe and monitor our compliance with current related and applicable laws and regulations, but we cannot predict whether laws and regulations adopted in the future regarding the classification of our independent contractors will adversely affect our business or operations.
Other Regulation |
Executive Order
The regulatory environment has changed under the administration of President Trump. In January 2017, the President signed an executive order requiring federal agencies to repeal two regulations for each new one they propose and imposing a regulatory budget, which would limit the amount of new regulatory costs federal agencies can impose on individuals and businesses each year. We do not believe the order has had a significant impact on our industry. However, the order, and other anti-regulatory action by the President and/or Congress, may inhibit future new regulations and/or lead to the repeal or delayed effectiveness of existing regulations. Therefore, it is uncertain how we may be impacted in the future by existing, proposed, or repealed regulations.
The Tax Cuts and Jobs Act
On December 22, 2017, the United States enacted significant changes to its tax law following the passage and signing of H.R.1, "An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018" (previously known as "The Tax Cuts and Jobs Act"). The new tax law is complex and includes various changes which may impact the Company. See Note 14 in Part II, Item 8 of this Annual Report for further details, including the financial impact on the Company.
Available Information |
General information about the Company is provided, free of charge, regarding Knight at www.knighttrans.com and regarding Swift at www.swifttrans.com. These websites also include links to the combined company's investor site http://investor.knight-swift.com, which includes our annual reports on Form 10-K with accompanying XBRL documents, quarterly reports on Form 10-Q with accompanying XBRL documents, current reports on Form 8-K, and amendments to those reports that are filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable once the material is electronically filed or furnished to the SEC.
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ITEM 1A. | RISK FACTORS |
When evaluating our company, the following risks should be considered in conjunction with the other information contained in this Annual Report. If we are unable to mitigate and/or are exposed to any of the following risks in the future, then there could be a material, adverse effect on our business, results of operations, or financial condition.
Our risks are grouped into the following risk categories: | ||||||
Strategic | Operational | Compliance | Financial | |||
*Industry and Competition | *Company Growth | *Trucking Industry Regulation | *Capital Requirements | |||
*Market Changes | *Employees | *Environmental Regulation | *Debt | |||
*Macroeconomic Changes | *Independent Contractors | *Insurance Regulation | *Investments | |||
*Mergers and Acquisitions | *Vendors and Suppliers | *Goodwill and Intangibles | ||||
*International Operations | *Customers | *Common Stock | ||||
*Information Systems | *Dividends | |||||
Strategic Risk |
Our business is subject to general economic, credit, business, and regulatory factors affecting the truckload industry that are largely beyond our control, any of which could have a materially adverse effect on our results of operations.
The truckload industry is highly cyclical, and our business is dependent on a number of factors that may have a materially adverse effect on our results of operations, many of which are beyond our control. We believe that some of the most significant of these factors include (1) excess tractor and trailer capacity in the trucking industry in comparison with shipping demand; (2) declines in the resale value of used equipment; (3) recruiting and retaining qualified driving associates; (4) strikes, work stoppages, or work slowdowns at our facilities or at customer, port, border crossing, or other shipping-related facilities; (5) increases in interest rates, fuel, taxes, tolls, and license and registration fees; and (6) rising costs of healthcare.
We are also affected by (1) recessionary economic cycles, such as the period from 2007 through 2009 and the 2016 freight environment, which was characterized by weak demand and downward pressure on rates; (2) changes in customers' inventory levels and practices, including shrinking product/package sizes, and in the availability of funding for their working capital; (3) changes in the way our customers choose to source or utilize our services; and (4) downturns in our customers' business cycles. Economic conditions may adversely affect our customers and their demand for and ability to pay for our services. Customers encountering adverse economic conditions represent a greater potential for loss and we may be required to increase our allowance for doubtful accounts.
Economic conditions that decrease shipping demand or increase the supply of available tractors and trailers can exert downward pressure on rates and equipment utilization, thereby decreasing asset productivity. The risks associated with these factors are heightened when the US economy is weakened, such as the period from 2007 through 2009. Some of the principal risks during such times, which risks Knight and Swift have experienced during prior recessionary periods, are as follows:
• | we may experience a reduction in overall freight levels, which may impair our asset utilization; |
• | freight patterns may change as supply chains are redesigned, resulting in an imbalance between our capacity and our customers' freight demand; |
• | customers may experience credit issues and cash flow problems, resulting in an inability to compensate us for rendered services; |
• | customers may solicit bids for freight from multiple trucking companies or select competitors that offer lower rates from among existing choices in an attempt to lower their costs, and we might be forced to lower our rates or lose freight; |
• | we may be forced to accept more freight from freight brokers, where freight rates are typically lower, or may be forced to incur more non-revenue miles to obtain loads; |
• | we may need to incur significantly more non-paid empty miles to obtain loads; and |
• | lack of access to current sources of credit or lack of lender access to capital, leading to an inability to secure credit financing on satisfactory terms, or at all. |
We are also subject to potential increases in various costs and other events that are outside of our control that could materially reduce our profitability if we are unable to increase our rates sufficiently. Such cost increases include, but are not limited to, fuel and energy prices, driving associate and non-driver employee wages, purchased transportation costs, taxes and interest rates, tolls, license and registration fees, insurance premiums and claims, revenue equipment and related maintenance costs, tires and other components, and healthcare and other benefits for our employees. We could be affected by strikes or other work stoppages at our terminals, or at customer, port, border, or other shipping locations. Further, we may not be able to appropriately adjust our costs and staffing levels to changing market demands. In periods of rapid change, it is more difficult to match our staffing level to our business needs.
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Changing impacts of regulatory measures could impair our operating efficiency and productivity, decrease our operating revenues and profitability, and result in higher operating costs. From time-to-time, various US federal, state, or local taxes are also increased, including taxes on fuels. We cannot predict whether, or in what form, any such increase applicable to us will be enacted, but such an increase could adversely affect our results of operations and profitability.
In addition, we cannot predict future economic conditions, fuel price fluctuations, revenue equipment resale values, or how consumer confidence could be affected by actual or threatened armed conflicts or terrorist attacks, government efforts to combat terrorism, military action against a foreign state or group located in a foreign state, or heightened security requirements. Enhanced security measures in connection with such events could impair our operating efficiency and productivity and result in higher operating costs.
We operate in a highly competitive and fragmented industry, and numerous competitive factors could limit growth opportunities and could have a materially adverse effect on our results of operations.
We operate in a highly competitive industry, which includes thousands of trucking and logistics companies. In our truckload operations, we primarily compete with other capacity providers that provide dry van, temperature-controlled, and drayage services similar to those we provide. Less-than-truckload carriers, private carriers, intermodal companies, railroads, logistics, brokerage, and freight forwarding companies compete to a lesser extent with our truckload operations but are direct competitors of our brokerage, intermodal, and logistics operations. We transport or arrange for the transportation of various types of freight, and competition for such freight is based mainly on customer service, efficiency, available capacity and shipment modes, and rates that can be obtained from customers. Such competition in the transportation industry could adversely affect our freight volumes, the freight rates we charge our customers, or profitability and thereby limit our business opportunities. Additional factors may have a materially adverse effect on our results of operations. These factors include the following:
• | many of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase freight rates or maintain or grow profitability of our business; |
• | many customers periodically accept bids from multiple carriers for their shipping needs, and this process may depress freight rates or result in the loss of some of our business to competitors; |
• | many customers reduce the number of carriers they use by selecting so-called "core carriers" as approved service providers or by engaging dedicated providers, and in some instances we may not be selected; |
• | some of our customers operate their own private trucking fleets and they may decide to transport more of their own freight; |
• | the market for qualified drivers is increasingly competitive, and our inability to attract and retain driving associates could reduce our equipment utilization or cause us to increase driving associate compensation, both of which would adversely affect our profitability; |
• | competition from non-asset-based and other logistics and freight brokerage companies may adversely affect our customer relationships and freight rates; |
• | the continuing trend toward consolidation in the trucking industry may result in more large carriers with greater financial resources and other competitive advantages, with which we may have difficulty competing; |
• | economies of scale that procurement aggregation providers may pass on to smaller carriers may improve their ability to compete with us; |
• | advances in technology may require us to increase investments in order to remain competitive, and our customers may not be willing to accept higher freight rates to cover the cost of these investments; |
• | the Knight and Swift brand names are valuable assets that are subject to the risk of adverse publicity (whether or not justified),which could result in the loss of value attributable to our brand and reduced demand for our services; and |
• | higher fuel prices and, in turn, higher fuel surcharges to our customers may cause some of our customers to consider freight transportation alternatives, including rail transportation. |
Increased prices for new revenue equipment, design changes of new engines, decreased availability of new revenue equipment, future use of autonomous trucks, and the failure of manufacturers to meet their sale or trade-back obligations to us could have a materially adverse effect on our business, financial condition, results of operations, and profitability.
We are subject to risk with respect to higher prices for new equipment for our truckload operations. We have experienced an increase in prices for new tractors over the past few years, and the resale value of the tractors has not increased to the same extent. Prices have increased and may continue to increase, due to, among other reasons, (1) increases in commodity prices; (2) government regulations applicable to newly manufactured tractors, trailers, and diesel engines; and (3) the pricing discretion of equipment manufacturers. In addition, the engines installed in our newer tractors are subject to emissions control regulations issued by the EPA and certain states. Increased regulation has increased the cost of our new tractors and could impair equipment productivity, in some cases, resulting in lower fuel mileage, and increasing our operating expenses. Further regulations with stricter emissions and efficiency requirements have been proposed that would further increase our costs and impair equipment productivity. These adverse effects, combined with the uncertainty as to the reliability of the vehicles equipped with the newly designed diesel engines and the residual values realized from the disposition of these vehicles, could increase our costs or otherwise adversely affect our business or operations as the regulations become effective. Over the past several years, some manufacturers have significantly increased new equipment prices, in part to meet new engine design and operations requirements. Our business could
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be harmed if we are unable to continue to obtain an adequate supply of new tractors and trailers for these or other reasons. As a result, we expect to continue to pay increased prices for equipment and incur additional expenses for the foreseeable future. Furthermore, reduced equipment efficiency may result from new engines designed to reduce emissions, thereby increasing our operating expenses.
Tractor and trailer vendors may reduce their manufacturing output in response to lower demand for their products in economic downturns or shortages of component parts. A decrease in vendor output may have a materially adverse effect on our ability to purchase a quantity of new revenue equipment that is sufficient to sustain our desired growth rate and to maintain a late-model fleet. Moreover, an inability to obtain an adequate supply of new tractors or trailers could have a materially adverse effect on our business, financial condition, and results of operations.
We have certain revenue equipment leases and financing arrangements with balloon payments at the end of the lease term equal to the residual value we are contracted to receive from certain equipment manufacturers upon sale or trade back to the manufacturers. If we do not purchase new equipment that triggers the trade-back obligation, or the equipment manufacturers do not pay the contracted value at the end of the lease term, we could be exposed to losses equal to the excess of the balloon payment owed to the lease or finance company over the proceeds from selling the equipment on the open market.
We have trade-in and repurchase commitments that specify, among other things, what our primary equipment vendors will pay us for disposal of a substantial portion of our revenue equipment. The prices we expect to receive under these arrangements may be higher than the prices we would receive in the open market. We may suffer a financial loss upon disposition of our equipment if these vendors refuse or are unable to meet their financial obligations under these agreements, we do not enter into definitive agreements that reflect favorable equipment replacement or trade-in terms, we fail to or are unable to enter into similar arrangements in the future, or we do not purchase the number of new replacement units from the vendors required for such trade-ins.
Used equipment prices are subject to substantial fluctuations based on freight demand, supply of used trucks, availability of financing, presence of buyers for export, and commodity prices for scrap metal. These and any impacts of a depressed market for used equipment could require us to dispose of our revenue equipment below the carrying value. This leads to losses on disposal or impairments of revenue equipment, when not otherwise protected by residual value arrangements. Deteriorations of resale prices or trades at depressed values could cause more losses on disposal or impairment charges in future periods.
Declines in demand for our used revenue equipment could result in decreased equipment sales, resale values, and gains on sales of assets.
We are sensitive to the used equipment market and fluctuations in prices and demand for tractors and trailers. Through certain subsidiaries, we sell our used company-owned tractors and trailers that we do not trade-in to manufacturers. The market for used equipment is affected by several factors, including the demand for freight, the supply of used equipment, the availability of financing, the presence of buyers for export to foreign countries, and commodity prices for scrap metal. Declines in demand for the used equipment we sell could result in diminished sale volumes or lower used equipment sales prices, either of which could negatively affect our gains on sales of assets.
If fuel prices increase significantly, our results of operations could be adversely affected.
Our truckload operations are dependent upon diesel fuel, and accordingly, significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition if we are unable to pass increased costs on to customers through rate increases or fuel surcharges. Prices and availability of petroleum products are subject to political, economic, geographic, weather-related, and market factors that are generally outside our control and each of which may lead to fluctuations in the cost of fuel. Fuel prices are also affected by the rising demand for fuel in developing countries, and could be materially adversely affected by the use of crude oil and oil reserves for purposes other than fuel production and by diminished drilling activity. Such events may lead not only to increases in fuel prices, but also to fuel shortages and disruptions in the fuel supply chain.
We use a number of strategies to mitigate fuel expense, which is one of our largest operating expenses. We purchase bulk fuel at many of our terminals and utilize a fuel optimizer to identify the most cost effective fuel centers to purchase fuel over-the-road. We manage our fuel miles per gallon with a focus on reducing idle time, managing out-of-route miles, and improving the driving habits of our driving associates. We also continue to update our fleet with more fuel efficient, EPA emission-compliant post-2014 model engines, and to install aerodynamic devices on our tractors and trailers, which lead to fuel efficiency improvements. Fuel is also subject to regional pricing differences and often costs more on the West Coast and in the Northeast, where we have significant operations. We use a fuel surcharge program to recapture a portion, but not all, of the increases in fuel prices over a base rate negotiated with our customers. Our fuel surcharge program does not protect us against the full effect of increases in fuel prices. The terms of each customer's fuel surcharge agreements vary and customers may seek to modify the terms of their fuel surcharge agreements to minimize recoverability for fuel price increases. In addition, because our fuel surcharge recovery lags behind changes in fuel prices, our fuel surcharge recovery may not capture the increased costs we pay for fuel, especially when prices are rising. This could lead to fluctuations in our levels of reimbursement, which have occurred in the past. During periods of low freight volumes, shippers can use their negotiating leverage to impose less robust fuel surcharge policies. There is no assurance that such fuel surcharges can be maintained indefinitely or will be sufficiently effective. Our results of operations would be negatively affected to the extent we cannot recover higher fuel costs or fail to improve our fuel price protection through our fuel surcharge program. Increases in fuel prices, or a shortage or rationing of diesel fuel, could also materially and adversely affect our results of operations.
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We have not historically used derivatives to mitigate volatility in our fuel costs, but we periodically evaluate the benefits of employing this strategy. As of December 31, 2017, we did not have any derivative financial instruments to reduce our exposure to fuel price fluctuations. To mitigate the impact of rising fuel costs, we contract with some of our fuel suppliers to buy fuel at a fixed price or within banded pricing for a specified period, usually not exceeding twelve months. However, this only covers a small portion of our fuel consumption. Accordingly, fuel price fluctuations may still negatively impact us.
We are subject to certain risks arising from doing business in Mexico.
We have growing operations in Mexico, through our wholly owned subsidiary, Trans-Mex, which subjects us to general international business risks, including:
• | foreign currency fluctuation; |
• | changes in Mexico's economic strength; |
• | difficulties in enforcing contractual obligations and intellectual property rights; |
• | burdens of complying with a wide variety of international and United States export, import, business procurement, transparency, and corruption laws, including the US Foreign Corrupt Practices Act; |
• | changes in trade agreements and United States-Mexico relations; |
• | theft or vandalism of our revenue equipment; and |
• | social, political, and economic instability. |
In addition, if we are unable to maintain our Free and Secure Trade ("FAST"), Business Alliance for Secure Commerce ("BASC"), and C-TPAT status, we may have significant border delays. This could cause our Mexican operations to be less efficient than those of competing capacity providers that have FAST, BASC, and C-TPAT status and operate in Mexico. We also face additional risks associated with our foreign operations, including restrictive trade policies and duties, taxes, or government royalties imposed by the Mexican government, to the extent not preempted by the terms of the North American Free Trade Agreement.
We may not make acquisitions in the future, or if we do, we may not be successful in our acquisition strategy.
Historically, acquisitions were a part of Knight's and Swift's growth strategies. There is no assurance that we will be successful in identifying, negotiating, or consummating any future acquisitions. If we do not make any future acquisitions, our growth rate could be materially and adversely affected. Any future acquisitions we undertake could involve issuing dilutive equity securities or incurring indebtedness. In addition, acquisitions involve numerous risks, any of which could have a materially adverse effect on our business and results of operations, including:
• | the acquired company may not achieve anticipated revenue, earnings, or cash flow; |
• | we may assume liabilities beyond our estimates or what was disclosed to us; |
• | we may be unable to assimilate or integrate the acquired company's operations or assets into our business successfully and realize the anticipated economic, operational, and other benefits in a timely manner, which could result in substantial costs and delays or other operational, technical, or financial problems; |
• | diverting our management's attention from other business concerns; |
• | risks of entering into markets in which we have had no or only limited direct experience; and |
• | the potential loss of customers, key employees, or driving associates of the acquired company. |
We may face business uncertainties related to the 2017 Merger that could adversely affect our businesses and operations.
Uncertainty about the effect of the 2017 Merger and integration of Knight's and Swift's businesses on employees, customers, and driving associates may have an adverse effect on us. These uncertainties may impair our ability to attract, retain, and motivate personnel for a period of time following the 2017 Merger, and could cause customers and others who formerly dealt with Knight and Swift separately to seek to change existing business relationships with us. Employee and driving associate retention may be challenging during the transition period, as employees and driving associates may experience uncertainty about their future roles. If employees or driving associates depart because of issues related to the uncertainty and difficulty of integration or a desire not to remain with us, our business and results of operations could be adversely affected.
Efforts to integrate Knight and Swift businesses may disrupt attention of our management from ongoing business operations.
We expect to continue to expend significant management resources to integrate Knight's and Swift's businesses. Management's attention may be diverted away from our day-to-day operations, as we continue to implement initiatives to improve performance in 2018, and execute existing business plans in an effort to complete the combination. This diversion of management resources could disrupt our operations and may have an adverse effect on our business, financial condition, and results of operations.
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We may fail to realize all of the anticipated benefits of the 2017 Merger or those benefits may take longer to realize than expected. We may also encounter significant difficulties in integrating Knight's and Swift's businesses.
Our ability to realize the anticipated benefits of the 2017 Merger will depend, to a large extent, on our ability to operate the Knight and Swift businesses together in a manner that realizes anticipated synergies. In order to achieve these expected benefits, we must successfully operate the businesses of Knight and Swift without adversely affecting current revenues and investments in future growth. If we are unable to successfully achieve these objectives, the anticipated benefits of the 2017 Merger may not be realized fully or at all or may take longer to realize than expected.
In connection with the 2017 Merger, Knight and Swift prepared and considered internal financial forecasts for Knight and Swift. These financial projections included assumptions regarding future operating cash flows, expenditures, and income of Knight and Swift. These financial projections were not prepared with a view to public disclosure, are subject to significant economic, competitive, industry, and other uncertainties, and may not be achieved in full, at all, or within projected timeframes. The failure of Knight or Swift to achieve projected results could have a material adverse effect on the market price of our Class A common stock, our financial position, and our ability to pay dividends in the future.
In addition, the continued operation of two independent businesses within one company is a complex, costly, and time-consuming process. As a result, we will be required to devote significant management attention and resources to coordinating their business practices and operations. This process may disrupt the businesses. The failure to meet the challenges involved in operating the two businesses within one company and to realize the anticipated benefits of the 2017 Merger could cause an interruption of, or a loss of momentum in, our activities and could adversely affect our results of operations. The integration of Knight's and Swift's businesses may also result in material unanticipated problems, expenses, liabilities, competitive responses, and loss of customer and other business relationships or other adverse reactions. The difficulties of combining the operations of the companies include, among others:
• | difficulties in integrating functions, personnel, and systems; |
• | challenges in conforming standards, controls, procedures, and accounting and other policies, business cultures, and compensation structures between the two companies; |
• | difficulties in integrating the internal controls over financial reporting of Swift into our internal controls; |
• | difficulties in assimilating driving associates and employees and in attracting and retaining key personnel; |
• | challenges in retaining existing customers and obtaining new customers; |
• | difficulties in achieving anticipated cost savings, synergies, business opportunities, and growth prospects from the combination; |
• | difficulties in managing multiple brands under a significantly larger and more complex company; |
• | contingent liabilities that are larger than expected; and |
• | potential unknown liabilities, adverse consequences, and unforeseen increased expenses associated with the 2017 Merger. |
Many of these factors are outside of our control and any one of them could result in increased costs, decreased expected revenues and diversion of management time and energy, which could materially impact our business, financial condition, and results of operations. In addition, even if the businesses of Knight and Swift are operated successfully within one company, the full benefits of the transaction may not be realized, including the synergies that are expected. These benefits may not be achieved within the anticipated time frame, or at all. Further, additional unanticipated costs may be incurred in operating the businesses of Knight and Swift. Additionally, given the timing of the 2017 Merger and the relative size of and complexity of Swift, our management's annual report on our internal control over financial reporting and our independent registered public accounting firm's attestation report on the effectiveness of our internal control over financial reporting for 2017 excludes Swift's internal controls over financial reporting. All of these factors could cause dilution to our earnings per share, decrease or delay the expected accretive effect of the 2017 Merger and negatively impact the market price of our Class A common stock. As a result, it cannot be assured that the combination of Knight and Swift will result in the realization of the full benefits anticipated from the 2017 Merger within the anticipated time frames, or at all.
We may continue to incur direct and indirect costs as a result of the 2017 Merger.
We may continue to incur expenses in connection with and as a result of consummating the 2017 Merger and in connection with coordinating and, in certain cases, combining the businesses, operations, and policies and procedures of Knight and Swift. The expenses that may be incurred, by their nature, are difficult to estimate accurately. These expenses may exceed the costs historically borne by Knight and Swift. These costs could adversely affect our financial condition and results of operations.
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Operational Risk |
We may not grow substantially in the future and we may not be successful in sustaining or improving our profitability.
There is no assurance that in the future, our business will grow substantially or without volatility, nor can we assure you that we will be able to effectively adapt our management, administrative, and operational systems to respond to any future growth. Furthermore, there is no assurance that our operating margins will not be adversely affected by future changes in and expansion of our business or by changes in economic conditions or that we will be able to sustain or improve our profitability in the future.
We have terminals throughout the United States that serve markets in various regions. These operations require the commitment of additional personnel and revenue equipment, as well as management resources, for future development. Should the growth in our operations stagnate or decline, our results of operations could be adversely affected. If we expand, it may become more difficult to identify large cities that can support a terminal, and we may expand into smaller cities where there is insufficient economic activity, fewer opportunities for growth, and fewer driving non-driving associates to support the terminal. We may encounter operating conditions in these new markets, as well as our current markets, that differ substantially from our current operations, and customer relationships and appropriate freight rates in new markets could be challenging to attain. We may not be able to duplicate or sustain our operating strategy successfully throughout, or possibly outside of, the United States, and establishing terminals and operations in new markets could require more time or resources, or a more substantial financial commitment than anticipated.
Furthermore, the continued progression and development of our brokerage and logistics businesses are subject to the risks inherent in entering and cultivating new lines of business, including, but not limited to, (1) initial unfamiliarity with pricing, service, operational, and liability issues; (2) customer relationships may be difficult to obtain or we may have to reduce rates to gain and develop customer relationships; (3) specialized equipment and information and management systems technology may not be adequately utilized; (4) insurance and claims may exceed our past experience or estimations; and (5) we may be unable to recruit and retain qualified personnel and management with requisite experience or knowledge of our brokerage and logistics services.
We derive a significant portion of our revenues from our major customers, the loss of one or more of which could have a materially adverse effect on our business.
We strive to maintain a diverse customer base; however, a significant portion of our operating revenue is generated from a number of major customers, the loss of one or more of which could have a materially adverse effect on our business. Refer to Part I, Item 1, "Business" for information regarding our customer concentrations. Aside from our dedicated operations, we generally do not have long-term contractual relationships or rate agreements or minimum volume guarantees with our customers. Furthermore, certain of the long-term contracts in our dedicated operations are subject to cancellation. Accordingly, we cannot assure you that our customer relationships will continue as presently in effect or that we will receive our current customer rate or volume levels in the future.
Economic conditions and capital markets may adversely affect our customers and their ability to remain solvent. Retail and discount retail customers account for a substantial portion of our freight. Accordingly, our results may be more susceptible to trends in unemployment and retail sales than carriers that do not have this concentration.
While we review and monitor the financial condition of our key customers on an ongoing basis to determine whether to provide services on credit, our customers' financial difficulties could nevertheless negatively impact our results of operations and financial condition, especially if these customers were to delay or default on payments to us. For our multi-year and dedicated contracts, the rates we charge may not remain advantageous. A reduction in or termination of our services by one or more of our major customers could have a materially adverse effect on our business and results of operations.
Difficulty in obtaining goods and services from our vendors and suppliers could adversely affect our business.
We are dependent upon our vendors and suppliers for certain products and materials. We believe that we have positive vendor and supplier relationships and are generally able to obtain favorable pricing and other terms from such parties. If we fail to maintain amenable relationships with our vendors and suppliers, or if our vendors and suppliers are unable to provide the products and materials we need or undergo financial hardship, we could experience difficulty in obtaining needed goods and services because of production interruptions, limited material availability, or other reasons. Subsequently, our business and operations could be adversely affected.
We depend on third-party capacity providers, and service instability from these transportation providers could increase our operating costs, reduce our ability to offer intermodal and brokerage services, and limit growth in our brokerage and logistics operations, which could adversely affect our revenue, results of operations, and customer relationships.
Our intermodal operations use railroads and some third-party drayage carriers to transport freight for our customers, and intermodal dependence on railroads could increase as intermodal services expand. In certain markets, rail service is limited to a few railroads or even a single railroad. Recently, many intermodal providers experienced poor service from providers of rail-based services. Our ability to provide intermodal services in certain traffic lanes would be reduced or eliminated if the railroads' services became unstable. Railroads with which we have, or in the future may have, contractual relationships could reduce their services in the future, which could increase the cost of the rail-based services we provide and could reduce the reliability, timeliness, efficiency, and overall
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attractiveness of our rail-based intermodal services. Furthermore, railroads increase shipping rates as market conditions permit. Price increases could result in higher costs to us, which we may be unable to pass on to our customers and could result in the reduction or elimination of our ability to offer intermodal services. In addition, we may not be able to negotiate additional contracts with railroads to expand our capacity, add additional routes, obtain multiple providers, or obtain railroad services at current cost levels, any of which could limit our ability to provide this service. Our intermodal operations could also be adversely affected by a work stoppage at one or more railroads or by adverse weather conditions or other factors that hinder the railroads' ability to provide reliable service.
Our brokerage and logistics operations are dependent upon the services of third-party capacity providers, including other capacity providers. These third-party providers may seek other freight opportunities and may require increased compensation in times of improved freight demand or tight truckload capacity. Our third-party capacity providers may also be affected by certain factors to which our driving associates and independent contractors are subject, including, but not limited to, changing workforce demographics, alternative employment opportunities, varying freight market conditions, trucking industry regulations, and limited availability of equipment financing. Most of our third-party capacity provider transportation services contracts are cancelable on 30 days' notice or less. If we are unable to secure the services of these third-parties, or if we become subject to increases in the prices we must pay to secure such services, and we are not able to obtain corresponding customer rate increases, our business, financial condition, and results of operations may be materially adversely affected.
If we are unable to recruit, develop, and retain our key employees, our business, financial condition, and results of operations could be adversely affected.
We are highly dependent upon the services of certain key employees, including, but not limited to, our team of executive officers and terminal managers. We believe our team of executive officers possesses valuable knowledge about the trucking industry and their knowledge of and relationships with our key customers and vendors would be difficult to replicate. We currently do not have employment agreements with most of our key employees or executive officers, and the loss of any of their services or inadequate succession planning could negatively impact our operations and future profitability. Additionally, because of our regional operating strategy, we must continue to recruit, develop, and retain skilled and experienced terminal managers. Failure to recruit, develop, and retain a core group of terminal managers could have an adverse effect on our results of operations.
Increases in driving associate compensation or difficulties attracting and retaining qualified driving associates could have a materially adverse effect on our profitability and the ability to maintain or grow our fleet.
With respect to our trucking services, difficulty in attracting and retaining sufficient numbers of qualified driving associates, which includes the engagement of independent contractors, in our truckload operations, and third-party capacity providers in our brokerage and logistics operations, could have a materially adverse effect on our growth and profitability. The truckload transportation industry is subject to a shortage of qualified driving associates. Such shortage is exacerbated during periods of economic expansion, in which alternative employment opportunities are more plentiful and freight demand increases, or during periods of economic downturns, in which unemployment benefits might be extended and financing is limited for independent contractors who seek to purchase equipment or for students who seek financial aid for driving school. Regulatory requirements, including those related to safety ratings, ELDs, hours-of-service changes, and drug and alcohol testing, could further reduce the number of eligible driving associates or force us to increase driving associate compensation to attract and retain driving associates. We have seen evidence that stricter hours-of-service regulations adopted by the DOT in the past have tightened, and to the extent new regulations are enacted, may continue to tighten, the market for eligible driving associates. We believe the required implementation of ELDs has tightened and may further tighten the market. We believe the shortage of qualified driving associates and intense competition for driving associates from other trucking companies will create difficulties in maintaining or increasing the number of driving associates and may restrain our ability to engage a sufficient number of driving associates and independent contractors; our inability to do so may negatively affect our operations. Further, the compensation we offer our driving associates and independent contractor expenses are subject to market conditions. We have increased these rates in recent years and we may find it necessary to increase driving associate and independent contractor contracted rates in future periods.
Our independent contractors and third-party capacity providers are responsible for paying for their own equipment, fuel, and other operating costs, and significant increases in these costs could cause them to seek higher contracted rates from us or seek other opportunities within or outside the trucking industry. In addition, we and many others suffer from a high turnover rate of driving associates and independent contractors. This high turnover rate requires us to continually recruit a substantial number of driving associates and independent contractors in order to operate existing revenue equipment and maintain our independent contractor fleet. If we are unable to continue to attract and contract with driving associates, independent contractors, and third-party capacity providers, we could be forced to, among other things, limit our growth, decrease the number of our tractors in service, adjust our driving associate compensation package or independent contractor contracted rates, or pay higher rates to third-party capacity providers, which could adversely affect our profitability and results of operations if not offset by a corresponding increase in customer rates.
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Our contractual agreements with independent contractors expose us to risks that we do not face with our company driving associates.
Our financing subsidiaries offer financing to some of the independent contractors we contract with to purchase or lease tractors from us. If these independent contractors default or experience a lease termination in conjunction with these agreements and we cannot replace them, we may incur losses on amounts owed to us. Also, if liquidity constraints or other restrictions prevent us from providing financing to the independent contractors we contract with in the future, then we could experience a shortage of independent contractors.
Pursuant to our fuel reimbursement program with independent contractors, when fuel prices increase above a certain level, we share the cost with the independent contractors we contract with in order to mute the impact that increasing fuel prices may have on their business operations. A significant increase or rapid fluctuation in fuel prices could cause our reimbursement costs under this program to be higher than the revenue we receive from our customers under our fuel surcharge programs.
Independent contractors are third-party service providers, as compared to company driving associates, who are employed by us. As independent business owners, the independent contractors we contract with may make business or personal decisions that conflict with our best interests. For example, if a load is unprofitable, route distance is too far from home, personal scheduling conflicts arise, or for other reasons, independent contractors may deny loads of freight from time-to-time. In these circumstances, we must be able to timely deliver the freight in order to maintain relationships with customers.
We are dependent on management information and communications systems, and significant systems disruptions could adversely affect our business.
Our business depends on the efficient, stable, and uninterrupted operation of our management information and communications systems. Some of our key software, hardware systems, and infrastructure were developed internally or by adapting purchased software applications and hardware to suit our needs. Our management information and communication systems are used in various aspects of our business, including but not limited to load planning and receiving, dispatch of driving associates and third-party capacity providers, customer billing, producing productivity, financial and other reports, and other general functions and purposes. If any of our critical information or communications systems fail or become unavailable, we could have to perform certain functions manually, which could temporarily affect the efficiency and effectiveness of our operations. Our operations and those of our technology and communications service providers are vulnerable to interruption by natural disaster, fire, power loss, telecommunications failure, terrorist attacks, internet failures, computer viruses, malware, hacking, and other events beyond our control. More sophisticated and frequent cyber-attacks in recent years have also increased security risks associated with information technology systems. We maintain information security policies to protect our information, computer systems, and data from cyber security threats, breaches, and other such events. We currently maintain our primary computer hardware systems at Knight's and Swift's headquarters, both located in Phoenix, Arizona, along with computer equipment at each of our terminals. In an attempt to reduce the risk of disruption to our business operations should a disaster occur, we have redundant computer systems and networks and the capability to deploy these back-up systems from an off-site alternate location. We believe that any such disruption would be minimal, moderate, or temporary. However, we cannot predict the likelihood or extent to which such alternate location or our information and communication systems would be affected. Our business and operations could be adversely affected in the event of a system failure, disruption, or security breach that causes a delay, interruption, or impairment of our services and operations.
We receive and transmit confidential data with and among our customers, driving associates, vendors, employees, and service providers in the normal course of business. Despite our implementation of secure transmission techniques, internal data security measures, and monitoring tools, our information and communication systems are vulnerable to disruption of communications with our customers, driving associates, vendors, employees, and service providers and access, viewing, misappropriation, altering, or deleting information in our systems, including customer, driving associate, vendor, employee, and service provider information and our proprietary business information. A security breach could damage our business operations and reputation and could cause us to incur costs associated with repairing our systems, increased security, customer notifications, lost operating revenue, litigation, regulatory action, and reputational damage.
Seasonality and the impact of weather and other catastrophic events affect our operations and profitability.
Our tractor productivity decreases during the winter season because inclement weather impedes operations, and some shippers reduce their shipments after the winter holiday season. Revenue can be affected by bad weather and holidays, since revenue is directly related to available working days of shippers. At the same time, operating expenses increase because of harsh weather creating higher accident frequency, increased claims, and more equipment repairs, and fuel efficiency declines because of increased engine idling. In addition, some of our customers demand additional capacity during the fourth quarter, which could limit our ability to take advantage of more attractive spot market rates that generally exist during such periods. Further, despite our efforts to meet such demands, we may fail to do so, which may result in lost future business opportunities with such customers, which could have an adverse effect on our operations. We may also suffer from weather-related or other unforeseen events such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes, and explosions. These events may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, destroy our assets, or adversely affect the business or financial condition of our customers, any of which could have a materially adverse effect on our results of operations or make our results of operations more volatile.
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Insurance and claims expenses could significantly reduce our earnings.
Our future insurance and claims expense might exceed historical levels, which could reduce our earnings. We self-insure or insure through our captive insurance companies a significant portion of our claims exposure resulting from workers' compensation, auto liability, general liability, cargo and property damage claims, as well as Knight's employee health insurance, which could increase the volatility of, and decrease the amount of, our earnings, and could have a materially adverse effect on our results of operations. Prior to the 2017 Merger, Knight's auto liability self-insured retention was $1.0 million per occurrence and Swift's was $10.0 million per occurrence. Such self-insured retention levels continue at our Knight and Swift businesses following the 2017 Merger. Higher self-insured retention levels may increase the impact of auto liability occurrences on our results of operations. We are also responsible for our legal expenses relating to such claims. We reserve for anticipated losses and expenses and periodically evaluate and adjust our claims reserves to reflect our experience. Estimating the number and severity of claims, as well as related judgment or settlement amounts, is inherently difficult. This, along with legal expenses, incurred but not reported claims, and other uncertainties can cause unfavorable differences between actual self-insurance costs and our reserve estimates. Accordingly, ultimate results may differ from our estimates, which could result in losses over our reserved amounts.
We maintain insurance with licensed insurance carriers above the amounts in which we self-insure. Although we believe our aggregate insurance limits should be sufficient to cover reasonably expected claims, it is possible that the amount of one or more claims could exceed our aggregate coverage limits. If any claim were to exceed our coverage, we would bear the excess, in addition to our other self-insured amounts. Insurance carriers have raised premiums for many businesses, including transportation companies. As a result, our insurance and claims expense could increase, or we could raise our self-insured retention when our policies are renewed or replaced. Our results of operations and financial condition could be materially and adversely affected if (1) cost per claim, premiums, or the number of claims significantly exceeds our coverage limits or retention amounts; (2) we experience a claim in excess of our coverage limits; (3) our insurance carriers fail to pay on our insurance claims; or (4) we experience a claim for which coverage is not provided.
Healthcare legislation and inflationary cost increases also could negatively impact financial results by increasing annual employee healthcare costs. We cannot presently determine the extent of the impact such increased healthcare costs will have on our financial performance. In addition, rising healthcare costs could force us to make changes to existing benefit programs, which could negatively impact our ability to attract and retain employees.
Insuring risk through our captive insurance companies could adversely impact our operations.
We insure a portion of our risk through our captive insurance companies, Mohave and Red Rock. In addition to insuring portions of our own risk, Mohave provides reinsurance coverage to third-party insurance companies associated with our affiliated companies' independent contractors. Red Rock insures a share of our automobile liability risk. The insurance and reinsurance markets are subject to market pressures. Our captive insurance companies' abilities or needs to access the reinsurance markets may involve the retention of additional risk, which could expose us to volatility in claims expenses.
To comply with certain state insurance regulatory requirements, cash and cash equivalents must be paid to Red Rock and Mohave as capital investments and insurance premiums, to be restricted as collateral for anticipated losses. The restricted cash is used for payment of insured claims. In the future, we may continue to insure our automobile liability risk through our captive insurance subsidiaries, which will cause increases in the required amount of our restricted cash or other collateral, such as letters of credit. Significant increases in the amount of collateral required by third-party insurance carriers and regulators would reduce our liquidity.
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Compliance Risk |
We operate in a highly regulated industry, and changes in existing regulations or violations of existing or future regulations could have a materially adverse effect on our operations and profitability.
We have authority to operate in the United States, as granted by the DOT, Mexico (as granted by the Secretaría de Comunicaciones y Transportes), and various Canadian provinces (as granted by the Ministries of Transportation and Communication in such provinces). In the United States, we are also regulated by the EPA, United States Department of Homeland Security, and other agencies in states in which we operate. Our company driving associates, independent contractors, and third-party capacity providers also must comply with the applicable safety and fitness regulations of the DOT, including those relating to drug and alcohol testing, driver safety performance, and hours-of-service. Matters such as weight, equipment dimensions, exhaust emissions, and fuel efficiency are also subject to government regulations. We also may become subject to new or more restrictive regulations relating to fuel efficiency, exhaust emissions, hours-of-service, drug and alcohol testing, ergonomics, on-board reporting of operations, collective bargaining, security at ports, speed limiters, driver training, and other matters affecting safety or operating methods. Future laws and regulations may be more stringent, require changes in our operating practices, influence the demand for transportation services, or require us to incur significant additional costs. Higher costs incurred by us, or by our suppliers who pass the costs onto us through higher supplies and materials pricing, could adversely affect our results of operations. In addition, the Trump administration has indicated a desire to reduce regulatory burdens that constrain growth and productivity, and also to introduce legislation such as infrastructure spending, that could improve growth and productivity. Changes in regulations, such as those related to trailer size and gross vehicle weight limits, hours-of-service, mandating ELDs, and drug and alcohol testing, could increase capacity in the industry or improve the position of certain competitors, either of which could negatively impact pricing and volumes, or require additional investments by us. The short and long term impacts of changes in legislation or regulations are difficult to predict and could materially adversely affect our operations.
Our lease contracts with independent contractors are governed by federal leasing regulations, which impose specific requirements on us and the independent contractors. In the past, Swift has been the subject of lawsuits, alleging violations of lease agreements or failure to follow the contractual terms, some of which resulted in adverse decisions against Swift. We could be subjected to similar lawsuits and decisions in the future, which if determined adversely to us, could have an adverse effect on our financial condition.
In December 2016, the FMCSA established new minimum training standards for certain individuals applying for (or upgrading) a Class A or Class B commercial driver's license, or obtaining a hazardous materials, passenger, or school bus endorsement on their commercial driver's license for the first time. These individuals must complete a prescribed program of theory and behind-the wheel instruction. The final rule requires that behind-the-wheel proficiency of an entry-level truck driver be determined solely by the instructor's evaluation of how well the driver-trainee performs the fundamental vehicle controls skills and driving procedures set forth in the curricula, but does not have a minimum training hours requirement, as proposed by the FMCSA earlier in 2016. The final rule went into effect in February 2017, with a compliance date of February 7, 2020. Upon the compliance date, training schools, including the driving academies we operate, will be required to register with the FMCSA's Training Provider Registry and certify that their program meets the classroom and driving standards.
"Regulation" in Part I, Item 1 of this Annual Report, discusses in detail several proposed, pending, suspended, and final regulations that could materially impact our business and operations.
The CSA program adopted by the FMCSA could adversely affect our profitability and operations, our ability to maintain or grow our fleet, and our customer relationships.
Under CSA, fleets are evaluated and ranked against their peers based on certain safety-related standards. As a result, our fleet could be ranked poorly as compared to our peer carriers. We recruit and retain first-time driving associates to be part of our fleet, and these driving associates may have a higher likelihood of creating adverse safety events under CSA. The occurrence of future deficiencies could affect driving associate recruitment by causing high-quality driving associates to seek employment with other carriers or limit the pool of available driving associates or could cause our customers to direct their business away from us and to carriers with higher fleet safety rankings, either of which would adversely affect our business, financial condition and results of operations. Additionally, competition for driving associates with favorable safety backgrounds may increase, which could necessitate increases in driving associate-related compensation costs. Further, we may incur greater than expected expenses in our attempts to improve unfavorable scores.
In December 2015, Congress passed a new highway funding bill called Fixing America's Surface Transportation Act (the "FAST Act"), which calls for significant CSA reform. The FAST Act directs the FMCSA to conduct studies of the scoring system used to generate CSA rankings to determine if it is effective in identifying high-risk carriers and predicting future crash risk. This study was conducted and delivered to the FMCSA in June 2017 with several recommendations to make the CSA program more fair, accurate, and reliable. The FMCSA is expected to provide its report to Congress outlining the changes it will make to the CSA program in response to the study. It is unclear if, when, and to what extent any such changes will occur. However, any changes that increase the likelihood of us receiving unfavorable scores could adversely affect our results of operations and profitability.
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Receipt of an unfavorable DOT safety rating could have a materially adverse effect on our operations and profitability.
Each of our subsidiaries with a DOT-issued operating authority currently has a satisfactory DOT rating, which is the highest available rating under the current safety rating scale. If we were to receive a conditional or unsatisfactory DOT safety rating, it could materially adversely affect our business, financial condition, and results of operations, as customer contracts may require a satisfactory DOT safety rating, and a conditional or unsatisfactory rating could materially adversely affect or restrict our operations.
The FMCSA has proposed regulations that would modify the existing rating system and the safety labels assigned to motor carriers evaluated by the DOT. Under regulations that were proposed in 2016, the methodology for determining a carrier's DOT safety rating would be expanded to include the on-road safety performance of the carrier's drivers and equipment, as well as results obtained from investigations. Exceeding certain thresholds based on such performance or results would cause a carrier to receive an unfit safety rating. The proposed regulations were withdrawn in March 2017, but the FMCSA noted that a similar process may be initiated in the future. If similar regulations were enacted and we were to receive an unfit or other negative safety rating, our business would be materially adversely affected in the same manner as if we received a conditional or unsatisfactory safety rating under the current regulations. In addition, poor safety performance could lead to increased risk of liability, increased insurance, maintenance and equipment costs, and potential loss of customers, which could materially adversely affect our business, financial condition, and results of operations.
Compliance with various environmental laws and regulations to which our operations are subject may increase our costs of operations, and non-compliance with such laws and regulations could result in substantial fines or penalties.
In addition to direct regulation by the DOT and related agencies, we are subject to various federal, state, and local environmental laws and regulations dealing with the transportation, storage, discharge, presence, use, disposal, and handling of hazardous materials, wastewater, storm water, waste oil, and fuel storage tanks. We are also subject to various environmental laws and regulations involving air emissions from our equipment and facilities, and discharge and retention of storm water. Our terminals often are located in industrial areas where groundwater or other forms of environmental contamination may have occurred or could occur. Our operations involve the risks of fuel spillage or seepage, environmental damage, and hazardous waste disposal, among others. Certain of our facilities have waste oil or fuel storage tanks and fueling islands. A small percentage of our freight consists of low-grade hazardous substances, which subjects us to a wide array of regulations. We have instituted programs to monitor and control environmental risks and promote compliance with applicable environmental laws and regulations; however, if (1) we are involved in a spill or other accident involving hazardous substances; (2) there are releases of hazardous substances we transport; (3) soil or groundwater contamination is found at our facilities or results from our operations; or (4) we are found to be in violation of or fail to comply with applicable environmental laws or regulations, then we could be subject to clean-up costs and liabilities, including substantial fines or penalties or civil and criminal liability, any of which could have a materially adverse effect on our business and results of operations.
Certain of our terminals are located on or near environmental Superfund sites designated by the EPA and/or state environmental authorities. We have not been identified as a potentially responsible party with regard to any such site. Nevertheless, we could be deemed responsible for clean-up costs.
In addition, tractors and trailers used in our truckload operations have been and are affected by federal, state, and local statutory and regulatory requirements related to air emissions and fuel efficiency, including rules established in 2011 and 2016 by the National Highway Traffic Safety Administration and the EPA and certain states for stricter fuel efficiency standards for heavy trucks, described in detail in "Regulation" in Part I, Item 1 of this Annual Report. In order to reduce exhaust emissions and traffic congestion, some states and municipalities have restricted the locations and amount of time where diesel-powered tractors, such as ours, may idle or travel. These and other similar restrictions could cause us to alter our drivers' behavior and routes, purchase additional auxiliary or other on-board power units to replace or minimize engine power and idling, or experience decreases in productivity. Our tractors and trailers could also be adversely affected by related or similar legislative or regulatory actions in the future.
Developments in labor and employment law and any unionizing efforts by employees could have a materially adverse effect on our results of operations.
Although our only collective bargaining agreement exists at our Mexican subsidiary, Trans-Mex, we always face the risk that our employees will try to unionize. Congress, federal agencies, or one or more states could adopt legislation or regulations significantly affecting our business and our relationship with our employees, such as the previously proposed federal legislation referred to as the "Employee Free Choice Act" that would substantially liberalize the procedures for union organizing. Any attempt to organize by our employees could result in increased legal and other associated costs. Additionally, given the National Labor Relations Board's "speedy election" rule, it would be difficult to timely and effectively address any unionizing efforts. If we entered into a collective bargaining agreement with our domestic employees, the terms could materially adversely affect our costs, efficiency, and ability to generate acceptable returns on the affected operations. If the independent contractors we contract with were ever re-classified as employees, the magnitude of this risk would increase.
In addition, the Department of Labor ("DOL") issued a final rule in 2016 raising the minimum salary basis for executive, administrative, and professional exemptions from overtime payment. The rule increases the minimum salary from the current amount of $23,660 to $47,476 and up to 10% of non-discretionary bonus, commission, and other incentive payments can be counted towards the minimum salary requirement. The rule was scheduled to go into effect on December 1, 2016. However, the rule was temporarily
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enjoined from going into effect in November 2016, and later invalidated in August 2017, after several states and business groups filed separate lawsuits against the DOL challenging the rule. However, any similar future rule that impacts the way we classify certain positions, increases our payment of overtime wages, or increases the salaries we pay to currently exempt employees to maintain their exempt status, may have an adverse effect on our business, financial condition, and results of operations.
In May 2015, the Supreme Court of the United States refused to grant certiorari to appellees in the United States Court of Appeals for the Ninth Circuit case, Dilts et al. v. Penske Logistics, LLC, et al. Consequently, the Appeals Court decision stands, holding that California state wage and hour laws are not preempted by federal law. As a result, the trucking industry has been confronted with a patchwork of state and local laws, related to employee rest and meal breaks. Further, driver piece rate compensation, which is an industry standard, has been attacked as non-compliant with state minimum wage laws. Both of these issues are adversely impacting us and the industry as a whole, with respect to the practical application of the laws, thereby resulting in additional cost. In our individual capacity, as well as participating with industry trade organizations, we support and actively pursue legislative relief through Congress. Federal legislation has been proposed that would clarify the preemptive scope of federal transportation law and regulations, as originally contemplated by Congress. We believe enacting such legislation would eliminate much of the current wage and hour confusion along with lessening the burden on interstate commerce. However, the passage of such proposed federal legislation is uncertain. Existing state and local laws, as well as new laws adopted in the future, which are not preempted by federal law, may result in increased labor costs, driving associate turnover, reduced operational efficiencies, and amplified legal exposure.
If our independent contractors are deemed by regulators or judicial process to be employees, our business, financial condition, and results of operations could be adversely affected.
Tax and other regulatory authorities, as well as independent contractors themselves, have increasingly asserted that independent contractors in the trucking industry are employees rather than independent contractors for a variety of purposes, including income tax withholding, workers' compensation, wage and hour compensation, unemployment, and other issues. Federal legislators have introduced legislation in the past to make it easier for tax and other authorities to reclassify independent contractors as employees, including legislation to increase the recordkeeping requirements for those that engage independent contractors and to increase the penalties of companies who misclassify their employees as independent contractors and are found to have violated employees' overtime and/or wage requirements. Additionally, federal legislators have sought to abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent contractors if they are following a long-standing, recognized practice, extend the FLSA to independent contractors, and impose notice requirements based upon employment or independent contractor status and fines for failure to comply. Some states adopted initiatives to increase their revenues from items such as unemployment, workers' compensation, and income taxes, and a reclassification of independent contractors as employees would help states with these initiatives. Taxing and other regulatory authorities and courts apply a variety of standards in their determination of independent contractor status. In addition, carriers such as us that operate or have operated lease-purchase programs have been more susceptible to lawsuits seeking to reclassify independent contractors that have engaged in such programs. If the independent contractors we engage were determined to be our employees, we would incur additional exposure under federal and state tax, workers' compensation, unemployment benefits, labor, employment, insurance, discrimination, and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings. Furthermore, if independent contractors were deemed employees, then certain of our third-party revenue sources, including shop and insurance margins, would be eliminated.
We are party to class actions from time-to-time alleging violations of the FLSA and other state and federal laws and seeking to reclassify independent contractors as employees. Adverse decisions on these or similar matters could adversely affect our results of operations and profitability, particularly if a decision results in exposure that exceeds our related accrual.
Litigation may adversely affect our business, financial condition, and results of operations.
Our business is subject to the risk of litigation by employees, independent contractors, customers, vendors, government agencies, stockholders, and other parties through private actions, class actions, administrative proceedings, regulatory actions, and other processes. Recently, trucking companies, including us, have been subject to lawsuits, including class action lawsuits, alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal breaks, rest periods, overtime eligibility, and failure to pay for all hours worked. A number of these lawsuits have resulted in the payment of substantial settlements or damages by the defendants.
The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend litigation may also be significant. Not all claims are covered by our insurance, and there can be no assurance that our coverage limits will be adequate to cover all amounts in dispute. To the extent we experience claims that are uninsured, exceed our coverage limits, involve significant aggregate use of our self-insured retention amounts, or cause increases in future premiums, the resulting expenses could have a materially adverse effect on our business, results of operations, financial condition, or cash flows.
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Our captive insurance companies are subject to substantial government regulation.
Our captive insurance companies are regulated by state authorities. State regulations generally provide protection to policy holders, rather than stockholders, and generally involve:
• | approval of premium rates for insurance; |
• | standards of solvency; |
• | minimum amounts of statutory capital surplus that must be maintained; |
• | limitations on types and amounts of investments; |
• | regulation of dividend payments and other transactions between affiliates; |
• | regulation of reinsurance; |
• | regulation of underwriting and marketing practices; |
• | approval of policy forms; |
• | methods of accounting; and |
• | filing of annual and other reports with respect to financial condition and other matters. |
These regulations may increase our costs of regulatory compliance, limit our ability to change premiums, restrict our ability to access cash held in our captive insurance companies, and otherwise impede our ability to take actions we deem advisable.
Uncertainties in the interpretation and application of the Tax Cuts and Jobs Act could materially affect our tax obligations and effective tax rate.
On December 22, 2017, the US enacted significant changes to its tax law following the passage of the Tax Cuts and Jobs Act. The new law requires complex computations not previously required by US tax law. As such, the application of accounting guidance for such items is currently uncertain. Further, compliance with the new law and the accounting for such provisions requires preparation and analysis of information not previously required or regularly produced. In addition, the US Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how we will apply the law and impact our results of operations in future periods. Accordingly, while we have provided a provisional estimate on the effect of the new law in our consolidated financial statements, further regulatory or GAAP accounting guidance for the law, our further analysis on the application of the law, and refinement of our initial estimates and calculations could materially change our current provisional estimates, which could in turn materially affect our tax obligations and effective tax rate. There are also likely to be significant future impacts that these tax reforms will have on our future financial results and our business strategies. In addition, there is a risk that states or foreign jurisdictions may amend their tax laws in response to these tax reforms, which could have a material impact on our future results.
Financial Risk |
We have significant ongoing capital requirements that could affect our profitability if we are unable to generate sufficient cash from operations and obtain financing on favorable terms.
The truckload industry and our truckload operations are capital intensive, and our policy of operating newer equipment requires us to expend significant amounts annually. We expect to pay for projected capital expenditures primarily with cash flows from operations and borrowings under the Revolver. If these sources were insufficient to meet our capital expenditure needs, we would need to seek alternative sources of capital, including additional borrowing or equity capital. In the event that we are unable to generate sufficient cash from operations, maintain compliance with financial and other covenants in our financing agreements, or obtain equity capital or financing on favorable terms in the future, we may have to limit our fleet size, enter into less favorable financing, or operate our revenue equipment for longer periods, any of which could have a materially adverse effect on our operations and profitability.
Credit markets may weaken at some point in the future, which would make it difficult for us to access our current sources of credit and difficult for our lenders to find the capital to fund us. We may need to incur additional debt, or issue debt or equity securities in the future, to refinance existing debt, fund working capital requirements, make investments, or support other business activities. Declines in consumer confidence, decreases in domestic spending, economic contractions, rating agency actions, and other trends in the credit market may impair our future ability to secure financing on satisfactory terms, or at all.
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Our leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, and prevent us from meeting our debt obligations.
Prior to the 2017 Merger, Knight carried an immaterial amount of long-term debt, while Swift carried a significant amount of long-term debt. Following the 2017 Merger, we continue to carry much of Swift's historical debt, including significant outstanding borrowings on the Term Loan, Revolver, and 2015 RSA. While we believe the combined company is in a better position to service such indebtedness, the indebtedness could place us at a competitive disadvantage compared to our competitors that are less leveraged. This could have negative consequences that include:
• | increased vulnerability to adverse economic, industry, or competitive developments; |
• | cash flows from operations that are committed to payment of principal and interest, thereby reducing our ability to use cash for our operations, capital expenditures, and future business opportunities; |
• | increased interest rates that would affect our variable rate debt; |
• | noncompliance with financial covenants, borrowing conditions, and other debt obligations, which could result in an event of default or (where applicable) cross-default; |
• | non-strategic divestitures or inability to make strategic acquisitions; |
• | lack of financing for working capital, capital expenditures, product development, debt service requirements, and general corporate or other purposes; and |
• | limits on our flexibility to plan for, or react to, changes in our business, market conditions, or in the economy. |
Our debt agreements contain restrictions that limit our flexibility in operating our business.
As detailed in Note 16 to the consolidated financial statements, included in Part II, Item 8 of this Annual Report, our 2017 Debt Agreement requires compliance with various affirmative, negative, and financial covenants. A breach of any of these covenants could result in default or (when applicable) cross-default. Upon default under our 2017 Debt Agreement, the lenders could elect to declare all outstanding amounts to be immediately due and payable, as well as terminate all commitments to extend further credit. Such actions by those lenders could cause cross-defaults with our other debt agreements. If we were unable to repay those amounts, the lenders could use the collateral granted to satisfy all or part of the debt owed to them. If the lenders accelerated our debt repayments, we might not have sufficient assets to repay all amounts borrowed.
In addition, our 2015 RSA includes certain affirmative and negative covenants and cross default provisions with respect to our 2017 Debt Agreement. Failure to comply with these covenants and provisions may jeopardize our ability to continue to sell receivables under the facility and could negatively impact our liquidity.
We could determine that our goodwill and other indefinite-lived intangibles are impaired, thus recognizing a related loss.
As of December 31, 2017, we had goodwill of $2.9 billion and indefinite-lived intangible assets of $1.4 billion primarily from the 2017 Merger. We evaluate our goodwill and indefinite-lived intangible assets for impairment. We could recognize impairments in the future, and we may never realize the full value of our intangible assets. If these events occur, our profitability and financial condition will suffer.
If our investments in entities are not successful or decrease in market value, we may have to write off or lose the value of a portion or all of our investments, which could have a materially adverse effect on our results of operations.
We have invested, either directly or indirectly through one of our wholly owned subsidiaries, in certain entities that make privately negotiated equity investments, and Knight has in the past recorded impairment charges to reflect the other-than-temporary decreases in the fair value of its portfolio. If the financial position of any such entity declines, we could be required to write down all or part of our investment in that entity, which could have a materially adverse effect on our results of operations.
The market price of our Class A common stock could decline due to the large number of outstanding shares of our Class A common stock eligible for future sale.
Sales of substantial amounts of our Class A common stock in the public market, or the perception that these sales could occur, could cause the market price of our Class A common stock to decline. All shares of our outstanding Class A common stock are freely tradable, except that any shares owned by "affiliates" (as that term is defined in Rule 144 under the Securities Act) may only be sold in compliance with the limitations described in Rule 144 under the Securities Act. These sales also could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.
In addition, we have an aggregate of 4.0 million shares of Class A common stock reserved for issuance under our compensatory and non-compensatory equity incentive plans. Issuances of Class A common stock to our directors, executive officers, and employees through exercise of stock options under our stock plans, or purchases by our executive officers and employees through our 2012 ESPP, dilute a stockholder's interest in the Company.
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We may not pay dividends in the future.
Starting in December 2004, and in each consecutive quarter prior to the 2017 Merger, Knight paid a quarterly cash dividend. Prior to the 2017 Merger, Swift did not pay dividends. While it is expected we will pay a quarterly dividend, there is no assurance that we will declare or pay any future dividends or as to the amount or timing of those dividends, if any.
Jerry Moyes and certain of his family members and affiliated entities are significant stockholders and we face certain risks related to their significant ownership and related party transactions with Mr. Moyes.
As of December 31, 2017, Jerry Moyes, together with his family and related entities, beneficially own approximately 24.0% of our outstanding Class A common stock. In addition, Mr. Moyes, together with his family and related entities, have pledged a significant portion of their holdings as collateral for loans and other obligations, including variable prepaid forward contracts, which arrangements could create conflicts of interest and adversely affect or increase volatility in the market price of our Class A common stock. As one of our directors, Mr. Moyes is subject to our stock hedging and pledging policy, which restricts directors and executive officers from engaging in any future pledging or hedging transactions. However, Mr. Moyes, together with his family and related entities, is permitted, notwithstanding this policy, to (1) maintain existing hedging and pledging arrangements and (2) when existing hedging and pledging arrangements become subject to renewal or replacement, hedge or pledge currently hedged or pledged shares and additional shares solely to the extent necessary to renew or replace those existing arrangements. The ability of Mr. Moyes, together with his family and related entities, to hedge and pledge additional shares in connection with any such renewal or replacement could result in the pledging or hedging of a material amount of additional shares. Our stock hedging and pledging policy requires approval of a majority of our directors to be modified. If Mr. Moyes, his family, or related entities were to sell or otherwise transfer all or a large percentage of their holdings (including under circumstances in which they settle these obligations with shares of our Class A common stock or if they default under the pledging arrangements), the market price of our Class A common stock could decline or be volatile.
Mr. Moyes has given personal guarantees to lenders to the various businesses and real estate investments in which he has an ownership interest and, in certain cases, the underlying loans are in default and are in the process of being restructured and/or settled. If Mr. Moyes is otherwise unable to settle or raise the necessary amount of proceeds to satisfy his obligations to such lenders, he may be subject to significant lawsuits and expose his shares of our Class A common stock to creditors.
Mr. Moyes serves as a non-executive Senior Advisor to our Executive Chairman and our Vice Chairman. In this role, Mr. Moyes has access to our Executive Chairman and Vice Chairman, and is better positioned than other stockholders to express his views and opinions regarding our operations and strategic alternatives.
Mr. Moyes and certain of his family members and affiliated entities are contractually obligated to vote shares of our Class A common stock that they hold in excess of 12.5% of our outstanding shares in the manner determined by a voting committee comprised of Mr. Moyes, Kevin Knight, and Gary Knight or their respective appointed successors. However, Mr. Moyes and certain of his family members and affiliated entities are entitled to vote all of their shares of our Class A common stock on any stockholder vote taken to approve a sale of the Company. Consequently, their influence with respect to any such stockholder vote may have the effect of delaying or preventing a change of control, including a merger, consolidation, or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change of control would benefit our other stockholders.
We engage in various transactions with entities controlled by and/or affiliated with Mr. Moyes. Additionally, some entities controlled by Mr. Moyes and certain members of his family operate in the transportation industry, which may create conflicts of interest or require judgments that are disadvantageous to our stockholders in the event we compete for the same freight or other business opportunities. As a result, Mr. Moyes may have interests that conflict with our stockholders.
Additionally, our amended and restated certificate of incorporation contains provisions that specifically relate to prior approval of related party transactions with Mr. Moyes and certain Moyes-affiliated entities. However, we cannot assure that the policy or these provisions will be successful in eliminating conflicts of interest.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
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ITEM 2. | PROPERTIES |
Our Knight and Swift headquarters are both located in Phoenix, Arizona. Including Knight's former headquarters location, which was re-purposed as a regional operations facility, our combined headquarters cover approximately 200 acres, consisting of about 300 thousand square feet of office space, 150 thousand square feet of repair and maintenance facilities, a twenty thousand square-foot driving associates' center and restaurant, an eight thousand square-foot recruiting and training center, a six thousand square-foot warehouse, a 300-space parking structure, as well as two truck wash and fueling facilities.
We have over 80 locations in the United States and Mexico, including our headquarters, terminals, driving academies, and certain other locations, which are included in the table below. Our terminals may include customer service, marketing, fuel, and/or repair facilities, which are used by our trucking, Knight Logistics, Swift Intermodal, and Swift's non-reportable segments. We also own or lease parcels of vacant land, drop yards, and space for temporary trailer storage for ourselves and other carriers, as well as several non-operating facilities, which are excluded from the table below. As of December 31, 2017, our aggregate monthly rent for all leased properties was approximately $0.9 million with varying terms expiring through December 2053. We believe that substantially all of our property and equipment is in good condition and our facilities have sufficient capacity to meet our current needs.
Owned/Leased | Brand | |||||||||||||
Location | Owned | Leased | Knight | Swift | Barr Nunn | Kold Trans | Total | |||||||
Arizona | 4 | 2 | 2 | 4 | ||||||||||
California | 7 | 2 | 3 | 6 | 9 | |||||||||
Colorado | 2 | 1 | 1 | 2 | ||||||||||
Florida | 2 | 1 | 1 | 1 | 1 | 3 | ||||||||
Georgia | 2 | 1 | 1 | 2 | 3 | |||||||||
Idaho | 1 | 2 | 2 | 1 | 3 | |||||||||
Illinois | 2 | 1 | 3 | 3 | ||||||||||
Indiana | 2 | 1 | 1 | 2 | ||||||||||
Iowa | 1 | 1 | 1 | |||||||||||
Kansas | 2 | 1 | 1 | 2 | ||||||||||
Massachusetts | 1 | 1 | 1 | |||||||||||
Mexico | 3 | 3 | 3 | |||||||||||
Michigan | 1 | 1 | 1 | 1 | 2 | |||||||||
Minnesota | 1 | 1 | 1 | |||||||||||
Mississippi | 2 | 2 | 2 | |||||||||||
Missouri | 1 | 1 | 1 | |||||||||||
Nevada | 4 | 2 | 2 | 4 | ||||||||||
New Jersey | 1 | 1 | 1 | |||||||||||
New Mexico | 1 | 1 | 1 | |||||||||||
New York | 1 | 1 | 2 | 2 | ||||||||||
North Carolina | 2 | 1 | 1 | 2 | ||||||||||
Ohio | 2 | 1 | 1 | 1 | 1 | 3 | ||||||||
Oklahoma | 2 | 1 | 1 | 2 | ||||||||||
Oregon | 2 | 1 | 1 | 2 | ||||||||||
Pennsylvania | 2 | 2 | 1 | 2 | 1 | 4 | ||||||||
South Carolina | 1 | 1 | 1 | |||||||||||
South Dakota | 1 | 1 | 1 | |||||||||||
Tennessee | 3 | 1 | 2 | 3 | ||||||||||
Texas | 7 | 1 | 3 | 5 | 8 | |||||||||
Utah | 2 | 1 | 1 | 1 | 1 | 3 | ||||||||
Virginia | 1 | 1 | 1 | |||||||||||
Washington | 2 | 1 | 1 | 2 | ||||||||||
West Virginia | 1 | 1 | 1 | |||||||||||
Wisconsin | 1 | 1 | 1 | |||||||||||
Total Properties | 68 | 16 | 30 | 49 | 4 | 1 | 84 | |||||||
ITEM 3. | LEGAL PROCEEDINGS |
We are party to certain lawsuits in the ordinary course of business. Information about our legal proceedings is included in Note 19 in Part II, Item 8 of this Annual Report and is incorporated by reference herein. Based on management's present knowledge of the facts and (in certain cases) advice of outside counsel, management does not believe that loss contingencies arising from pending matters are likely to have a material adverse effect on the Company's overall financial position, operating results, or cash flows after taking into account any existing accruals. However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
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PART II | ||||
ITEM 5. | MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Common Stock |
Share prices and dividends are different than the amounts disclosed in our selected financial data in Item 6 and in our consolidated financial statements in Item 8 due to the distinction between legal and accounting acquirer as a result of the reverse merger acquisition with Knight. The information prior to the merger date of September 8, 2017 in Item 5 represents historical Swift amounts as Swift was the legal acquirer.
Our Class A common stock trades on the NYSE under the symbol "KNX". Prior to the completion of the 2017 Merger, shares of Swift Class A common stock traded on the NYSE under the symbol "SWFT" while shares of Knight common stock traded on the NYSE under the symbol "KNX." The following table sets forth the high and low sales prices per share of our Class A common stock as reported on the NYSE for the periods indicated. Due to the "reverse acquisition" nature of the 2017 Merger, historical information below through September 8, 2017, reflects the high and low prices of Swift.
2017 | High | Low | |||||
First quarter (1) | $ | 35.00 | $ | 26.68 | |||
Second quarter (1) | 37.38 | 27.61 | |||||
Third quarter (1) | 44.45 | 34.39 | |||||
Fourth quarter | 44.60 | 37.10 | |||||
2016 | High | Low | |||||
First quarter (1) | $ | 25.92 | $ | 16.31 | |||
Second quarter (1) | 26.56 | 19.88 | |||||
Third quarter (1) | 30.76 | 21.10 | |||||
Fourth quarter (1) | 37.75 | 27.10 | |||||
____________
(1) | Swift's market prices on and prior to September 8, 2017 have been retrospectively adjusted based on the 0.72 reverse stock split completed with the 2017 Merger. |
Class A Common Stock — As of December 31, 2017, we had 177,997,640 shares of Class A common stock outstanding. On February 19, 2018, there were 42 holders of record of our Class A common stock. Because many of our shares of Class A common stock are held by brokers or other institutions on behalf of stockholders, we are unable to estimate the total number of individual stockholders represented by the record holders.
Class B Common Stock — There is currently no established trading market for our Class B common stock. As of December 31, 2017, we had no shares of Class B common stock issued and outstanding; however $250,000,000 remained authorized.
Dividend Policy |
Prior to the 2017 Merger, Swift did not pay dividends. Following the 2017 Merger, we have paid a quarterly cash dividend, consistent with Knight's historical practice that started in December 2004, and that continued in consecutive quarters since prior to the 2017 Merger. Listed below are the dividends declared and paid by Swift prior to the 2017 Merger and the combined company after the 2017 Merger with respect to the two most recent fiscal years:
Period | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | ||||||||||||||
2017 dividend paid per common share | $ | — | $ | — | $ | 0.06 | $ | 0.06 | $ | 0.12 | |||||||||
2016 dividend paid per common share | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
Our most recent dividend was declared in February of 2018 for $0.06 per share of Class A common stock and is scheduled to be paid in March of 2018.
We currently expect to continue to pay comparable quarterly cash dividends in the future. Future payment of cash dividends, and the amount of any such dividends, will depend upon our financial condition, results of operations, cash requirements, tax treatment, and certain corporate law requirements, as well as other factors deemed relevant by our Board.
33
Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
The following table shows our purchases of our Class A common stock and the remaining amounts we are authorized to repurchase for each monthly period in the fourth quarter of 2017.
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value That May Yet be Purchased Under the Plans or Programs (1) | |||||||||
October 1, 2017 to October 31, 2017 | — | $ | — | — | $ | 62,881,000 | |||||||
November 1, 2017 to November 30, 2017 | — | $ | — | — | $ | 62,881,000 | |||||||
December 1, 2017 to December 31, 2017 | — | $ | — | — | $ | 62,881,000 | |||||||
Total | — | $ | — | — | $ | 62,881,000 | |||||||
________________
(1) | Following the 2017 Merger, the existing Swift Repurchase Plan remained in effect. The Swift Repurchase Plan authorized the Company to repurchase up to $150.0 million of its outstanding Class A common stock. There is no expiration date associated with this share repurchase authorization. See Note 20 in Part II, Item 8 of this Annual Report. |
Stockholders Return Performance Graph |
The following graph compares the cumulative annual total return of stockholders from December 31, 2012 to December 31, 2017 of our stock relative to the cumulative total returns of the NYSE Composite index and an index of other companies within the trucking industry (NASDAQ Trucking & Transportation) over the same period. The graph assumes that the value of the investment in Swift's common stock and in each of the indexes (including reinvestment of dividends) was $100 on December 31, 2012, and tracks it through December 31, 2017. The stock price performance included in this graph is not necessarily indicative of Knight-Swift's future stock price performance.
December 31, | |||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||
Knight-Swift Transportation Holdings Inc. | $ | 100.00 | $ | 243.53 | $ | 313.93 | $ | 151.54 | $ | 267.11 | $ | 345.64 | |||||||||||
NYSE Composite | 100.00 | 126.28 | 134.81 | 129.29 | 144.73 | 171.83 | |||||||||||||||||
NASDAQ Trucking & Transportation | 100.00 | 133.76 | 187.65 | 162.30 | 193.79 | 248.92 | |||||||||||||||||
34
ITEM 6. | SELECTED FINANCIAL DATA |
The information presented below is derived from our audited consolidated financial statements, included elsewhere in this report, except for 2013 and 2014, which were previously reported. Due to the "reverse acquisition" nature of the 2017 Merger, the historical financial statements of legacy Knight have replaced the historical financial statements of legacy Swift. In management's opinion, all necessary adjustments for the fair presentation of the information outlined in these financial statements have been applied. The selected financial data for 2017, 2016, and 2015 should be read alongside the consolidated financial statements and accompanying footnotes in Part II, Item 8 of this Annual Report.
Note: Factors that materially affect the comparability of the data for 2015 through 2017 are discussed in Part II, Item 7 of this Annual Report. Factors that materially affect the comparability of the selected financial data for 2013 and 2014 are set forth below the table.
The following table highlights key measures of the Company's financial condition and results of operations (dollars in thousands, except per share amounts and operating data):
Consolidated income statement GAAP data (1): | 2017 | 2016 | 2015 | 2014 (8) | 2013 | ||||||||||||||
Total revenue | $ | 2,425,453 | $ | 1,118,034 | $ | 1,182,964 | $ | 1,102,332 | $ | 969,237 | |||||||||
Operating expenses | 2,224,823 | 969,555 | 1,004,964 | 939,610 | 855,328 | ||||||||||||||
Operating income | 200,630 | 148,479 | 178,000 | 162,722 | 113,909 | ||||||||||||||
Interest income & other income | 1,765 | 5,248 | 9,502 | 9,838 | 3,257 | ||||||||||||||
Interest expense | (8,686 | ) | (897 | ) | (998 | ) | (730 | ) | (462 | ) | |||||||||
Income before income taxes | 193,709 | 152,830 | 186,504 | 171,830 | 116,704 | ||||||||||||||
Net income | 485,425 | 95,238 | 118,457 | 104,021 | 70,024 | ||||||||||||||
Net income attributable to Knight-Swift | 484,292 | 93,863 | 116,718 | 102,862 | 69,282 | ||||||||||||||
Basic earnings per share | 4.38 | 1.17 | 1.43 | 1.27 | 0.87 | ||||||||||||||
Diluted earnings per share | 4.34 | 1.16 | 1.42 | 1.25 | 0.86 | ||||||||||||||
Cash dividend per share on Class A common stock | 0.24 | 0.24 | 0.24 | 0.24 | 0.24 | ||||||||||||||
Operating ratio (2) | 91.7 | % | 86.7 | % | 85.0 | % | 85.2 | % | 88.2 | % | |||||||||
December 31, | |||||||||||||||||||
Consolidated balance sheet GAAP data (1): | 2017 | 2016 | 2015 | 2014 (8) | 2013 | ||||||||||||||
Working capital | $ | 313,657 | $ | 111,541 | $ | 164,090 | $ | 145,667 | $ | 101,768 | |||||||||
Total assets | 7,683,442 | 1,078,525 | 1,120,232 | 1,082,285 | 807,121 | ||||||||||||||
Total debt (3) | 970,905 | 18,000 | 112,000 | 134,400 | 38,000 | ||||||||||||||
Knight-Swift stockholders' equity | 5,237,732 | 786,473 | 738,398 | 677,760 | 553,588 | ||||||||||||||
Non-GAAP financial data (unaudited) (1): | 2017 | 2016 | 2015 | 2014 (8) | 2013 | ||||||||||||||
Adjusted Net Income Attributable to Knight-Swift (4) | $ | 154,565 | $ | 95,373 | $ | 121,113 | $ | 102,862 | $ | 69,282 | |||||||||
Adjusted EPS (4) | 1.38 | 1.17 | 1.47 | 1.25 | 0.86 | ||||||||||||||
Adjusted Operating Ratio (4) | 88.3 | % | 85.3 | % | 82.6 | % | 82.4 | % | 85.6 | % | |||||||||
Operating data (unaudited):(1) | 2017 | 2016 | 2015 | 2014 (8) | 2013 | ||||||||||||||
Average revenue per tractor (5) | $ | 184,920 | $ | 172,185 | $ | 173,329 | $ | 171,510 | $ | 160,186 | |||||||||
Average length of haul (miles) | 479 | 498 | 503 | 492 | 479 | ||||||||||||||
Non-paid empty miles percentage | 12.6 | % | 12.5 | % | 12.0 | % | 10.1 | % | 10.6 | % | |||||||||
Average tractors (6) (7) | 9,432 | 4,706 | 4,793 | 4,173 | 4,017 | ||||||||||||||
Average trailers (7) | 31,967 | 12,288 | 11,789 | 9,732 | 9,405 | ||||||||||||||
Average containers | 9,122 | — | — | — | — | ||||||||||||||
(1) | Pursuant to the 2017 Merger, data after September 8, 2017 includes the results of Swift. |
(2) | Operating expenses expressed as a percentage of total revenue. |
(3) | Includes current and noncurrent portions of term loan debt, revolving credit facilities, receivables sales agreement, and capital leases. For more discussion refer to "Liquidity and Capital Resources" in Part II, Item 7 of this Annual Report. |
(4) | Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio, are non-GAAP financial measures. These non-GAAP financial measures should not be considered alternatives to, or superior to, GAAP financial measures. However, management believes that presentation of these non-GAAP financial measures provides useful information to investors regarding the Company's results of operations. Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio are reconciled to the most directly comparable GAAP financial measures in "Non-GAAP Financial Measures" in Part II, Item 7 of this Annual Report. |
(5) | Average revenue per tractor includes revenue for our Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated segments only. It does not include fuel surcharge revenue or revenues from our Knight Logistics, Swift Intermodal and Swift Non-Reportable segments. |
(6) | Reflects operational tractors within the Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated segments, including company tractors and tractors owned by independent contractors. |
(7) | See Note (3) to "Executive Summary — Financial Overview" in Part II, Item 7 of this Annual Report, regarding the calculation of average tractors and average trailers. |
(8) | Knight acquired 100% of the outstanding stock of Barr-Nunn on October 1, 2014, and therefore, Knight's operating results include those of Barr-Nunn for periods after October 1, 2014. |
35
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Certain acronyms and terms used throughout this Annual Report are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document. Definitions for these acronyms and terms are provided in the "Glossary of Terms," available in the front of this document.
Management's discussion and analysis of financial condition and results of operations should be read together with "Business" in Part I, Item 1 of this Annual Report, as well as the consolidated financial statements and accompanying footnotes in Part II, Item 8 of this Annual Report. This discussion contains forward-looking statements as a result of many factors, including those set forth under Part I, Item 1A. "Risk Factors" and Part I "Cautionary Note Regarding Forward-looking Statements" of this Annual Report, and elsewhere in this report. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those discussed.
Executive Summary |
Company Overview
2017 Merger — On September 8, 2017, we became Knight-Swift Transportation Holdings Inc. upon the effectiveness of the 2017 Merger. Immediately upon the consummation of the 2017 Merger, former Knight stockholders and former Swift stockholders owned approximately 46.0% and 54.0%, respectively, of the Company. Upon closing of the 2017 Merger, the shares of Knight common stock that previously traded under the ticker symbol "KNX" ceased trading and were delisted from the NYSE. Our shares of Class A common stock commenced trading on the NYSE on a post-reverse split basis under the ticker symbol "KNX" on September 11, 2017.
We accounted for the 2017 Merger using the acquisition method of accounting in accordance with GAAP. GAAP requires that either Knight or Swift is designated as the acquirer for accounting and financial reporting purposes ("Accounting Acquirer"). Based on the evidence available, Knight was designated as the Accounting Acquirer while Swift was the acquirer for legal purposes. Therefore, Knight’s historical results of operations replaced Swift’s historical results of operations for all periods prior to the 2017 Merger. More specifically, for periods prior to the 2017 Merger, the consolidated financial statements in Part II, Item 8 of this Annual Report are those of Knight and its subsidiaries and do not include Swift, and for periods subsequent to the 2017 Merger, also include Swift. Accordingly, comparisons between our 2017 results and prior periods may not be meaningful.
Segments — Our six reportable segments are Knight Trucking, Knight Logistics, Swift Truckload, Swift Dedicated, Swift Refrigerated, and Swift Intermodal. Additionally, Swift has various non-reportable segments. Refer to Note 25 in Part II, Item 8 of this Annual Report for descriptions of our segments.
Revenue — We offer a broad range of full truckload, intermodal, brokerage, and logistics services within North America's largest for-hire truckload tractor fleet, operated through a nationwide network of terminals, and contractual access to thousands of third-party capacity providers. Our objective is to operate our trucking and logistics businesses with industry-leading margins and growth while providing safe, high-quality, cost-effective solutions for our customers.
• | Our trucking services include dry van, refrigerated, dedicated, drayage, flatbed, and cross-border transportation of various products, goods, and materials for our diverse customer base. We primarily generate revenue before fuel surcharge by transporting freight for our customers through our trucking services in our Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated segments. |
• | Our brokerage and intermodal operations provide a multitude of shipping solutions, including additional sources of truckload capacity and alternative transportation modes, by utilizing our vast network of third-party capacity providers and rail providers, as well as certain logistics, freight management, and other non-trucking services. Revenue before fuel surcharge in our brokerage and intermodal operations is generated through our Knight Logistics and Swift Intermodal segments. |
• | Our Swift non-reportable segments generate revenue before fuel surcharge by providing freight management, sourcing, and other non-trucking services (such as used equipment sales and leasing to independent contractors, as well as third parties). |
• | In addition to the revenues earned from our customers for the trucking and non-trucking services discussed above, we also earn fuel surcharge revenue from our customers through our fuel surcharge program, which serves to recover a majority of our fuel costs. This applies only to loaded miles and typically does not offset non-paid empty miles, idle time, and out-of-route miles driven. Fuel surcharge programs involve a computation based on the change in national or regional fuel prices. These programs may update as often as weekly, but typically require a specified minimum change in fuel cost to prompt a change in fuel surcharge revenue. Therefore, many of these programs have a time lag between when fuel costs change and when the change is reflected in fuel surcharge revenue for our trucking segments. |
36
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Expenses — Our most significant expenses vary with miles traveled and include fuel, driving associate-related expenses (such as wages and benefits), and services purchased from independent contractors and other transportation providers (such as railroads, drayage providers, and other trucking companies). Maintenance and tire expenses, as well as the cost of insurance and claims generally vary with the miles we travel, but also have a controllable component based on safety improvements, fleet age, efficiency, and other factors. Our primary fixed costs are depreciation and lease expense for revenue equipment and terminals, interest expense, and non-driver employee compensation.
Operating Statistics — We measure our consolidated and segment results through certain operating statistics, which are discussed under "Results of Operations — Segments — Operating Statistics," below. Our results are affected by various economic, industry, operational, regulatory, and other factors, which are discussed in detail in "Part I, Item 1A. Risk Factors," as well as in various disclosures in our press releases, stockholder reports, and other filings with the SEC.
Financial Overview
2017 | 2016 | 2015 | |||||||||
GAAP Financial data: | (Dollars in thousands, except per share data) | ||||||||||
Total revenue | $ | 2,425,453 | $ | 1,118,034 | $ | 1,182,964 | |||||
Revenue before fuel surcharge | $ | 2,179,873 | $ | 1,028,148 | $ | 1,061,739 | |||||
Net income attributable to Knight-Swift | $ | 484,292 | $ | 93,863 | $ | 116,718 | |||||
Diluted EPS | $ | 4.34 | $ | 1.16 | $ | 1.42 | |||||
Operating ratio | 91.7 | % | 86.7 | % | 85.0 | % | |||||
Non-GAAP financial data: | |||||||||||
Adjusted Net Income Attributable to Knight-Swift (1) | $ | 154,565 | $ | 95,373 | $ | 121,113 | |||||
Adjusted EPS (1) | $ | 1.38 | $ | 1.17 | $ | 1.47 | |||||
Adjusted Operating Ratio (1) | 88.3 | % | 85.3 | % | 82.6 | % | |||||
Revenue equipment: | |||||||||||
Average tractors (2 (3) | 9,432 | 4,706 | 4,793 | ||||||||
Average trailers (3) | 31,967 | 12,288 | 11,789 | ||||||||
Average containers | 9,122 | — | — | ||||||||
____________
(1) | Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio are non-GAAP financial measures and should not be considered alternatives, or superior, to the most directly comparable GAAP financial measures. However, management believes that presentation of these non-GAAP financial measures provides useful information to investors regarding the Company's results of operations. Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio are reconciled to the most directly comparable GAAP financial measures under "Non-GAAP Financial Measures," below. |
(2) | Reflects operational tractors within the Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated segments, including company tractors and tractors owned by independent contractors. |
(3) | Consolidated "Average tractors" reflect Knight's actual average tractors for full-year 2017 and Swift's average tractors pro-rated for the portion of the year for which its results of operations are reported following the close of the 2017 Merger. |
Consolidated "Average trailers" reflect Knight's actual average trailers for full-year 2017 and Swift's average trailers pro-rated for the portion of the year for which its results of operations are reported following the close of the 2017 Merger.
37
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Summarized Results of Consolidated Operations and Financial Condition
Trends and Outlook — The broader economy continues to show signs of growth in consumer spending, durable goods, and the prospects of increased manufacturing and construction, especially considering the recent tax relief from the Tax Cuts and Jobs Act.
A shortage in drivers continues to be a headwind for the industry and will likely impact the ability to increase capacity. We also believe that the ELD mandate began to have an impact on capacity late in the fourth quarter of 2017, which has continued into 2018. Given the strength in the freight market, as well as inflationary pressures related to driver wages, purchased transportation and other costs, we expect to see rate increases in our contract business throughout 2018. In this environment, we will continue to monitor the markets in order to maximize service to our customers and yield.
Note: Our 2017 consolidated results of operations included the results of operations for Swift after September 8, 2017. Results for the periods on and prior to September 8, 2017 reflect only those of Knight and do not include the results of operations of Swift. Accordingly, comparison between the consolidated results for 2017 and 2016 may not be meaningful.
2017 Compared 2016 — The $390.4 million increase in net income attributable to Knight-Swift to $484.3 million in 2017 from $93.9 million in 2016, includes the following:
• | $95.7 million in operating income from Swift's results from the September 9, 2017 through December 31, 2017 period; |
• | $364.2 million income tax benefit, representing management's estimate of the net impact of the Tax Cuts and Jobs Act enacted during the fourth quarter of 2017; |
• | improvements in average revenue per tractor; |
• | a $16.7 million impairment related to the termination of Swift's implementation of its ERP system; and |
• | merger-related expenses associated with the 2017 Merger, including $16.5 million related to incurred legal and professional fees, $5.6 million for merger-related bonuses and accelerated stock-based compensation expense, $0.9 million merger-related statutory filings and $0.1 million in driving associate-incentive expenses. |
See additional discussion of our operating results within "Results of Operations — Consolidated" below.
In 2017, we generated $318.6 million in cash flows from operations and used $304.5 million for capital expenditures, net of equipment sales. During 2017, we returned $25.5 million to our stockholders in the form of quarterly dividends. We ended the year with $76.6 million in unrestricted cash and cash equivalents, $489.8 million in long-term debt (excluding the 2015 RSA and capital leases), and $5.2 billion of stockholders' equity. See discussion under "Liquidity and Capital Resources" and "Off-Balance Sheet Transactions" for additional information.
2016 Compared to 2015 — The $22.8 million decrease in our net income attributable to Knight-Swift to $93.9 million in 2016 from $116.7 million in 2015, includes the following:
• | a $7.2 million decrease in gain on sale of equipment; |
• | a $4.1 million decrease in gain on sale of available-for-sale securities; |
• | a $3.6 million decrease in the positive effects of the effective tax rate on net income; and |
• | a $4.7 million decrease in settlement expense for certain class action lawsuits. |
See additional discussion of our operating results within "Results of Operations — Consolidated" below.
In 2016, Knight generated $243.4 million in cash flow from operations and used $89.0 million for capital expenditures, net of equipment sales. During 2016, Knight returned $59.5 million to its stockholders in the form of quarterly dividends and stock repurchases. Knight ended the year with $8.0 million in unrestricted cash, $18.0 million in long-term debt, and $786.5 million in stockholders' equity.
38
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Results of Operations — Segment Review |
Our six reportable segments include our trucking segments (Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated), Knight Logistics, and Swift Intermodal. Swift also has certain non-reportable segments. Refer to Note 25 in Part II, Item 8 of this Annual Report for descriptions of our segments. Refer to Part I, Item 1, "Business – Our Strategy" of this Annual Report for discussion related to our segment operating strategies.
Consolidating Tables for Total Revenue and Operating Income
2017 | 2016 | 2015 | ||||||||||||||||||
Total revenue: | (Dollars in thousands) | |||||||||||||||||||
Knight – Trucking | $ | 906,484 | 37.4 | % | $ | 900,368 | 80.5 | % | $ | 952,098 | 80.5 | % | ||||||||
Knight – Logistics | $ | 234,155 | 9.7 | % | $ | 226,912 | 20.3 | % | $ | 249,365 | 21.1 | % | ||||||||
Swift – Truckload | $ | 609,112 | 25.1 | % | $ | — | — | % | $ | — | — | % | ||||||||
Swift – Dedicated | $ | 200,628 | 8.3 | % | $ | — | — | % | $ | — | — | % | ||||||||
Swift – Refrigerated | $ | 254,102 | 10.5 | % | $ | — | — | % | $ | — | — | % | ||||||||
Swift – Intermodal | $ | 130,441 | 5.4 | % | $ | — | — | % | $ | — | — | % | ||||||||
Subtotal | $ | 2,334,922 | 96.4 | % | $ | 1,127,280 | 100.8 | % | $ | 1,201,463 | 101.6 | % | ||||||||
Non-reportable segments | $ | 115,530 | 4.8 | % | $ | — | — | % | $ | — | — | % | ||||||||
Intersegment eliminations | $ | (24,999 | ) | (1.2 | )% | $ | (9,246 | ) | (0.8 | )% | $ | (18,499 | ) | (1.6 | )% | |||||
Total revenue | $ | 2,425,453 | 100.0 | % | $ | 1,118,034 | 100.0 | % | $ | 1,182,964 | 100.0 | % | ||||||||
2017 | 2016 | 2015 | ||||||||||||||||||
Operating income (loss): | (Dollars in thousands) | |||||||||||||||||||
Knight – Trucking (1) | $ | 92,298 | 46.0 | % | $ | 136,229 | 91.7 | % | $ | 162,143 | 91.1 | % | ||||||||
Knight – Logistics | $ | 12,600 | 6.3 | % | $ | 12,250 | 8.3 | % | $ | 15,857 | 8.9 | % | ||||||||
Swift – Truckload | $ | 74,924 | 37.3 | % | $ | — | — | % | $ | — | — | % | ||||||||
Swift – Dedicated | $ | 22,410 | 11.2 | % | $ | — | — | % | $ | — | — | % | ||||||||
Swift – Refrigerated | $ | 13,626 | 6.8 | % | $ | — | — | % | $ | — | — | % | ||||||||
Swift – Intermodal | $ | 5,977 | 3.0 | % | $ | — | — | % | $ | — | — | % | ||||||||
Subtotal | $ | 221,835 | 110.6 | % | $ | 148,479 | ||||||||||||||