UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark One)                         FORM 10-K


[ X ] ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934
For the fiscal year ended December 31, 2003
                                       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: 0-24946

                           KNIGHT TRANSPORTATION, INC.
             (Exact name of registrant as specified in its charter)

            Arizona                                              86-0649974
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

5601 West Buckeye Road, Phoenix, Arizona                           85043
(Address of principal executive offices)                         (Zip Code)

                                 (602) 269-2000
              (Registrant's telephone number, including area code)

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value                    Nasdaq - National Market System

     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 [X] NO [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K 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. [ ]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).
YES [X] NO [ ]

     The aggregate  market value of voting stock held by  non-affiliates  of the
registrant as of June 30, 2003,  was  $927,600,044  (based upon $24.82 per share
being  the  closing  sale  price  on  that  date  as  reported  by the  National
Association of Securities  Dealers Automated  Quotation System - National Market
System.  In  making  this  calculation,  the  registrant  has  assumed,  without
admitting  for any purpose,  that all  executive  officers and  directors of the
company, and no other persons, are affiliates.

     The number of shares  outstanding  of the  registrant's  common stock as of
February 23, 2004 was 37,512,966.

     Materials from the registrant's  Notice and Proxy Statement relating to the
2004  Annual  Meeting  of  Shareholders  to be held on May 21,  2004  have  been
incorporated by reference into Part III of this Form 10-K.

                                       2



                                     PART I

Item 1. Business

     Except for certain  historical  information  contained herein,  this Annual
Report contains  forward-looking  statements that involve risks, assumptions and
uncertainties  which are  difficult  to  predict.  All  statements,  other  than
statements   of  historical   fact,   are   statements   that  could  be  deemed
forward-looking  statements,  including without  limitation:  any projections of
earnings,   revenues,   or  other  financial  items,  any  statement  of  plans,
strategies,  and objectives of management for future operations;  any statements
concerning  proposed  new services or  developments;  any  statements  regarding
future economic conditions or performance;  and any statements of belief and any
statement  of  assumptions  underlying  any  of the  foregoing.  Words  such  as
"believe," "may," "could," "expects," "hopes,"  "anticipates," and "likely," and
variations of these words, or similar expressions, are intended to identify such
forward-looking  statements.  Actual events or results  could differ  materially
from those discussed in forward-looking statements.  Factors that could cause or
contribute to such differences  include, but are not limited to, those discussed
in the section  entitled  "Factors  That May Affect  Future  Results," set forth
below. We do not assume, and specifically disclaim, any obligation to update any
forward-looking statement contained in this Annual Report.

     Our  headquarters are located at 5601 West Buckeye Road,  Phoenix,  Arizona
85043 and our website address is www.knighttrans.com. This Annual Report on Form
10-K, our quarterly  reports on Form 10-Q,  our current  reports on Form 8-K and
all other  reports  filed with the SEC pursuant to Section 13(a) or 15(d) of the
Securities  Exchange Act of 1934 can be obtained  free of charge by visiting our
website.

References  in this  Annual  Report to "we,"  "us,"  "our" or the  "Company"  or
similar  terms  refer  to  Knight  Transportation,  Inc.  and  its  consolidated
subsidiaries.

General

     We are a dry van truckload carrier based in Phoenix,  Arizona. We transport
general  commodities  for  shippers  throughout  the  United  States,  generally
focusing our operations on short-to-medium  lengths of haul. We provide regional
truckload carrier services throughout the U.S. from our 12 facilities located in
Phoenix,  Arizona;  Salt Lake City, Utah; Portland,  Oregon;  Denver,  Colorado;
Kansas City,  Kansas;  Katy,  Texas;  Indianapolis,  Indiana;  Charlotte,  North
Carolina; Gulfport,  Mississippi;  Memphis, Tennessee; Atlanta, Georgia; and Las
Vegas,  Nevada. We opened our Atlanta and Denver facilities during 2003, and our
Las Vegas facility in February  2004.  Our stock has been publicly  traded since
October 1994. Over the past five years we have achieved  substantial growth from
$125.0  million in revenue,  before  fuel  surcharge,  and $13.3  million in net
income in 1998 to $326.9 million in revenue,  before fuel  surcharge,  and $35.5
million in net income in 2003.  The main factors that affect our results are the
number of tractors we operate, our revenue per tractor (which includes primarily
our revenue per total mile and our number of miles per tractor), and our ability
to control our costs.

Operations

     Our  operating  strategy  is to achieve a high  level of asset  utilization
within a highly  disciplined  operating system while maintaining strict controls
over our cost  structure.  To  achieve  these  goals,  we operate  primarily  in
high-density,  predictable  traffic  lanes in  select  geographic  regions,  and
attempt to develop and expand our  customer  base  around  each of our  terminal
facilities.  This  operating  strategy  allows us to take advantage of the large
amount of freight traffic transported in regional markets, realize the operating
efficiencies  associated with regional hauls, and offer more flexible service to
our  customers  than rail,  intermodal,  and smaller  regional  competitors.  In
addition, shorter hauls provide an attractive

                                       3

alternative  to drivers in the  truckload  sector by reducing the amount of time
spent away from home.  We believe  this  improves  driver  retention,  decreases
recruitment and training costs, and reduces insurance claims and other costs. We
operate a modern fleet to  accelerate  revenue  growth and enhance our operating
efficiencies.  We employ technology in a cost-effective  manner where it assists
us in controlling operating costs and enhancing revenue. Our goal is to increase
our market presence  significantly,  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.

     Our operating strategy includes the following important elements:

     Regional  Operations.  We presently operate 15 operating divisions from our
12  facilities  which are located in  Phoenix,  Arizona;  Salt Lake City,  Utah;
Portland,   Oregon;  Denver,   Colorado;   Kansas  City,  Kansas;  Katy,  Texas;
Indianapolis,   Indiana;  Charlotte,  North  Carolina;  Gulfport,   Mississippi;
Memphis, Tennessee;  Atlanta, Georgia; and Las Vegas, Nevada. We concentrate our
freight  operations  in an  approximately  750-mile  radius  around  each of our
terminals, with an average length of haul in 2003 of approximately 532 miles. We
believe that regional operations offer several advantages, including:

     o    obtaining  greater freight volumes,  because  approximately 80% of all
          truckload freight moves in short-to-medium lengths of haul;

     o    achieving higher revenue per mile by focusing on high-density  traffic
          lanes to  minimize  non-revenue  miles and offer our  customers a high
          level of service and consistent capacity; and

     o    enhancing safety and driver  recruitment and retention by allowing our
          drivers to travel familiar routes and return home more frequently.

     Operating  Efficiencies.  Our  company  was  founded  on  a  philosophy  of
maintaining  operating   efficiencies  and  controlling  costs.  We  maintain  a
simplified   operation   that  focuses  on  operating   dry-vans  in  particular
geographical  and shipping  markets.  This approach allows us to concentrate our
marketing  efforts to achieve higher  penetration of our targeted  service areas
and to achieve higher equipment  utilization in dense traffic lanes. We maintain
a modern  tractor and trailer fleet in order to obtain fuel and other  operating
efficiencies  and attract and retain drivers.  A generally  compatible  fleet of
tractors and trailers  simplifies  our  maintenance  procedures,  reduces  parts
supplies,  and facilitates our ability to serve a broad range of customer needs,
thereby maximizing equipment utilization and available freight capacity. We also
regulate  vehicle  speed in order to maximize fuel  efficiency,  reduce wear and
tear, and minimize claims expenses.

     Customer  Service.  We offer a high level of service to  customers in lanes
and regions  that  complement  our other  operations,  and we seek to  establish
ourselves  as a  preferred  or  "core  carrier"  for many of our  customers.  By
concentrating  revenue  equipment close to customers in  high-density  lanes and
regions,  we can provide  shippers with a consistent  supply of capacity and are
better able to match our  equipment  to customer  needs.  Our  services  include
multiple  pick-ups and deliveries,  dedicated  equipment and personnel,  on-time
pickups and deliveries within narrow time frames,  specialized  driver training,
and other services  tailored to meet our customers' needs. We price our services
commensurately  with the level of service our  customers  require.  By providing
customers a high level of service,  we believe we avoid competing  solely on the
basis of price.

     Using  Technology  that  Enhances  Our  Business.  We  purchase  and deploy
technology when we believe that it will allow us to operate more efficiently and
the  investment  is  cost-justified.  We  use  a  satellite-based  tracking  and
communication  system to communicate  with our drivers,  to obtain load position
updates,  and to provide our customers with freight visibility.  The majority of
our trailers are

                                       4

equipped  with Terion  trailer-tacking  technology  that allows us to manage our
trailers  more  effectively,  reduce the number of  trailers  per tractor in our
fleet,  enhance revenue through detention fees, and minimize cargo loss. We have
installed Qualcomm's satellite based tracking technology in substantially all of
our tractors,  which allows us to rapidly  respond to customer  needs and allows
our  drivers  efficient  communications  with our  regional  terminals.  We have
automated  many of our  back-office  functions,  and we  continue  to  invest in
technology  where it allows us to better  serve our  customers  and  reduce  our
costs.

Growth Strategy

     We believe that industry trends, our strong operating results and financial
position,  and the proven operating model  replicated in our regional  terminals
create significant  opportunities for us to grow. We intend to take advantage of
these growth opportunities by focusing on three key areas:

     Opening new regions and expanding existing regional divisions. We currently
have 15 operating divisions , having established  presences in Atlanta,  Georgia
and Denver,  Colorado during 2003 and in Las Vegas,  Nevada in February 2004. We
believe there are significant  opportunities to further increase our business in
the  short-to-medium  haul  market by  opening  new  regional  divisions,  while
expanding  our  existing  regional   divisions.   To  take  advantage  of  these
opportunities,  we are developing  relationships with existing and new customers
in regions that we believe will permit us to develop  transportation  lanes that
allow  us  to  achieve  high  equipment   utilization  and  resulting  operating
efficiency.

     Strengthening  our customer and core carrier  relationships.  We market our
services to both existing and new customers in traffic lanes that complement our
existing  operations  and  will  support  high  equipment  utilization.  We seek
customers who will diversify our freight base; and our marketing targets include
financially-stable  high volume shippers for whom we are not currently providing
services.  We also offer a high level of  service to  customers  who use us as a
core carrier.

     Opportunities to make selected acquisitions. We are continuously evaluating
acquisition opportunities. Since 1998, we have acquired two short-to-medium haul
truckload carriers:  Gulfport,  Mississippi-based John Fayard Fast Freight, Inc.
and Corsicana,  Texas-based  Action Delivery  Service,  Inc. We believe economic
trends will lead to further consolidation in our industry,  and we will consider
additional acquisitions that meet our financial and operating criteria.

Marketing and Customers

     Our  sales  and  marketing  functions  are  led by  members  of our  senior
management  team, who are assisted by other sales  professionals.  Our marketing
team  emphasizes  our high level of service and ability to accommodate a variety
of customer needs.  Our marketing  efforts are designed to take advantage of the
trend  among  shippers  to  outsource  transportation  requirements,   use  core
carriers, and seek arrangements for dedicated equipment and drivers.

     We have a diversified  customer base. For the year ended December 31, 2003,
our  top  25  customers  represented  49%  of  revenue;  our  top  10  customers
represented 29% of revenue; and our top 5 customers  represented 18% of revenue.
We believe that a  substantial  majority of our top 25 customers  regard us as a
preferred  or  core  carrier.  Most  of our  truckload  carriage  contracts  are
cancelable on 30 days notice.

     We seek to provide consistent,  timely, flexible and cost efficient service
to shippers. Our objective is to develop and service specified traffic lanes for
customers  who  ship on a  consistent  basis,  thereby  providing  a  sustained,
predictable   traffic  flow  and  ensuring  high  equipment   utilization.   The
short-to-medium  haul segment of the truckload  carrier  market  demands  timely
pickup and delivery  and, in some cases,  response on short  notice.  We seek to
obtain a competitive advantage by providing high quality and consistent capacity
to customers at competitive  prices. To be responsive to customers' and

                                       5

drivers' needs, we often assign  particular  drivers and equipment to prescribed
routes, providing better service to customers,  while obtaining higher equipment
utilization.

     Our  dedicated  fleet  services  may also provide a  significant  part of a
customer's  transportation  requirements.  Under a  dedicated  carriage  service
agreement,  we  provide  drivers,  equipment  and  maintenance,   and,  in  some
instances,  transportation  management  services that  supplement the customer's
in-house   transportation   department.   We  furnish  these  services   through
Company-provided revenue equipment and employees, and independent contractors.

     Each of our regional divisions is linked to our Phoenix  headquarters by an
IBM  AS/400  computer  system.  The  capabilities  of this  system  enhance  our
operating  efficiency by providing cost effective access to detailed information
concerning equipment and shipment status and specific customer requirements, and
also permit us to respond  promptly and  accurately  to customer  requests.  The
system  also  assists us in matching  available  equipment  with loads.  We also
provide  electronic  data  interchange  ("EDI") and internet  ("E")  services to
shippers requiring such service.

Drivers, Other Employees, and Independent Contractors

     As of December 31, 2003, we employed 3,005  persons.  None of our employees
is subject to a union contract.

     The recruitment,  training and retention of qualified drivers are essential
to support  our  continued  growth and to meet the service  requirements  of our
customers.   Drivers  are  selected  in  accordance  with  specific,   objective
guidelines relating primarily to safety history,  driving experience,  road test
evaluations, and other personal evaluations, including physical examinations and
mandatory drug and alcohol testing.

     We seek to maintain a qualified  driver force by providing  attractive  and
comfortable equipment, direct communication with senior management,  competitive
wages and benefits,  and other incentives designed to encourage driver retention
and   long-term   employment.   Many   drivers  are  assigned  to  dedicated  or
semi-dedicated  fleet  operations,  enhancing  job  predictability.  Drivers are
recognized for providing superior service and developing good safety records.

     Our  drivers  are  compensated  on the basis of miles  driven and length of
haul. Drivers also are compensated for additional  flexible services provided to
our  customers.  During  the  fourth  quarter  of 2003 we  increased  our driver
compensation  rates one cent per mile, and increased  rates by an additional one
cent per mile in January 2004 in connection  with the  effectiveness  of revised
hours-of-service  regulations.  Drivers are invited to participate in our 401(k)
program and in Company-sponsored  health, life and dental plans. Our drivers and
other  employees who meet  eligibility  criteria also  participate  in our stock
option plan.  As of December  31, 2003, a total of 653 of our current  employees
had  participated  in and  received  option  grants under our current and former
stock option plans.

     We also maintain an independent  contractor  program.  Because  independent
contractors  provide  their own tractors,  the  independent  contractor  program
provides us an alternate method of obtaining  additional revenue  equipment.  We
intend to continue our use of independent contractors.  As of December 31, 2003,
we had  agreements  covering  253  tractors  owned and  operated by  independent
contractors. Each independent contractor enters into a contract with us pursuant
to which the  independent  contractor  is  required  to furnish a tractor  and a
driver exclusively to transport,  load and unload goods we haul. Competition for
independent  contractors among transportation  companies is strong.  Independent
contractors  are  paid a fixed  level  of  compensation  based  on the  total of
trip-loaded and empty miles and are obligated to maintain their own tractors and
pay for their own fuel. We provide trailers for each independent contractor.  We
also provide  maintenance  services for our  independent  contractors who desire
such services for a charge. We provide financing at market interest rates to our
independent contractors to assist them in acquiring revenue equipment. Our loans
to independent contractors are

                                       6

secured  by a lien on the  independent  contractor's  revenue  equipment.  As of
December  31,  2003,  we had  outstanding  loans of  approximately  $877,000  to
independent contractors.

Revenue Equipment

     As of December 31, 2003, we operated 2,165 Company tractors with an average
age of 2.1 years.  We also had under contract 253 tractors owned and operated by
independent  contractors.  Our trailer fleet  consisted of 6,212,  53-foot long,
high cube trailers,  including 50 refrigerated trailers,  with an average age of
4.1 years.

     The efficiency and flexibility provided by our fleet configurations  permit
us to handle both high volume and high weight shipments. Our fleet configuration
also allows us to move  freight on a  "drop-and-hook"  basis,  increasing  asset
utilization  and  providing  better  service to  customers.  We  maintain a high
trailer  to  tractor  ratio,  targeting  a  ratio  of  approximately  2.5  to 1.
Management believes  maintaining this ratio promotes efficiency and allows us to
serve a large variety of  customers'  needs  without  significantly  changing or
modifying equipment.

     Growth  of  our  tractor  and  trailer   fleets  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  environment,  technology,  warranty terms,  manufacturer
support, driver comfort, and resale value.

     We  have  predominantly  acquired  standardized  tractors  manufactured  by
Freightliner or Volvo and trailers  manufactured  by Wabash.  We have adopted an
equipment  configuration  that  meets  a wide  variety  of  customer  needs  and
facilitates customer shipping flexibility. We use light weight tractors and high
cube   trailers  to  handle   both  high  weight  and  high  volume   shipments.
Standardization  of our fleet  allows us to operate  with a minimum  spare parts
inventory and simplifies driver training and equipment maintenance. We adhere to
a comprehensive  maintenance  program that minimizes  downtime and optimizes the
resale value of our equipment.  We perform routine  servicing and maintenance of
our equipment at most of our regional terminal facilities,  thus avoiding costly
on-road repairs and out-of-route trips. We have been upgrading our trailer fleet
through the purchase of Wabash Duraplate(TM) trailers, which have a considerably
longer  estimated  useful life than the older model  trailers that they replace.
Our current  policy is to replace  most of our  tractors  within 38 to 44 months
after  purchase  and to replace our trailers  over a six to ten year period.  We
believe  this  replacement  policy  enhances  our  ability to  attract  drivers,
stabilizes maintenance expense, and maximizes equipment utilization.  Changes in
the current market for used tractors,  and difficult market  conditions faced by
tractor  manufacturers,  may result in price  increases  that would  cause us to
retain  our  equipment  for a longer  period,  which  may  result  in  increased
operating  expenses.  See  "Management's  Discussion  and  Analysis of Financial
Condition and Results of  Operations - Factors That May Affect Future  Results -
Increased prices for, or increased costs of operating, new revenue equipment and
decreases in the value of used revenue  equipment may  materially  and adversely
affect our earnings and cash flow," below.

     The  Environmental  Protection  Agency (the "EPA")  implemented new tractor
engine  design  requirements  effective  October  1, 2002 in an effort to reduce
emissions.  In response to these new requirements,  some manufacturers  recently
have adopted significant price increases for new tractors. In addition, the cost
of operating tractors containing the new,  EPA-compliant  engines is expected to
be  somewhat  higher  than the cost of  operating  tractors  containing  engines
manufactured  prior to October 1, 2002, due primarily to lower  anticipated fuel
efficiency  and  higher  anticipated  maintenance  expenses.  If our cost of new
equipment,  or fuel or maintenance expenses, were to increase as a result of our
use  of the  new,  EPA-compliant  engines,  and we are  unable  to  offset  such
increases with fuel surcharges or higher rates,  our results of operations would
be adversely affected.

                                       7

     We have installed Terion's  trailer-tracking  system in the majority of our
trailers.  We believe that this technology has generated operating  efficiencies
and  allowed  us to reduce the ratio of  trailers  to  tractors  in our fleet by
improving  our  awareness  of each  trailer's  location.  This  technology  also
enhances  our ability to  substantiate  trailer  detention  charges,  leading to
improved collection rates on such charges.

     We   have   Qualcomm's    satellite-based    mobile    communication    and
position-tracking  system in  substantially  all of our  tractors.  The Qualcomm
in-cab  communication  system is a proven  system that links drivers to regional
terminals and corporate headquarters, allowing us to rapidly alter our routes in
response to customer  requirements and to eliminate the need for driver stops to
report problems or delays.  This system allows drivers to inform dispatchers and
driver managers of the status of routing, loading and unloading, or the need for
emergency  repairs,  and  provides  shippers  with supply chain  visibility.  We
believe the Qualcomm  communications  system  allows us to improve fleet control
and the quality of customer service, as well as enhancing our ability to collect
revenue for detention of our tractors.

     We  historically  have  financed our  equipment  acquisitions  through cash
generated  from  operations,  lines of credit,  and  leasing  arrangements.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Liquidity and Capital Resources," below.

Technology

     We previously  utilized  two-way digital wireless  communications  services
provided by Terion,  Inc.  ("Terion") to  communicate  with our tractors via the
Internet.  As a result of Terion's  decision in 2001 to  discontinue  its in-cab
communications  business, we have replaced the Terion in-cab units with Qualcomm
in-cab satellite-based  communications  systems. Terion continues to manufacture
and sell a trailer-tracking technology, and we have installed this technology in
a majority  of our  trailers.  Terion has  reorganized  under  Chapter 11 of the
Federal  Bankruptcy  Code. See "Revenue  Equipment,"  above,  and  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Factors That May Affect Future Results - Terion trailer tracking  technology may
not be available to us, which could require us to incur the cost of  replacement
technology,  and  adversely  affect our trailer  utilization  and our ability to
assess detention charges," below.

Safety and Risk Management

     We are  committed  to ensuring the safety of our  operations.  We regularly
communicate  with drivers to promote safety and instill safe work habits through
Company  media and safety review  sessions.  We conduct  weekly safety  training
meetings for our drivers and independent  contractors.  In addition,  we have an
innovative  recognition  program for driver  safety  performance,  and emphasize
safety through our equipment  specifications and maintenance programs.  Our Vice
President of Safety is involved in the review of all accidents.

     We require prospective drivers to meet higher qualification  standards than
those required by the United States  Department of Transportation  ("DOT").  The
DOT  requires  our  drivers  to obtain  national  commercial  drivers'  licenses
pursuant to  regulations  promulgated  by the DOT. The DOT also requires that we
implement a drug and alcohol testing program in accordance with DOT regulations.
Our program includes pre-employment, random, and post-accident drug testing.

     Within our  Company,  our  President,  Chief  Financial  Officer,  and Vice
President of Safety are responsible for securing appropriate insurance coverages
at competitive  rates.  The primary  claims  arising in our business  consist of
cargo loss and physical damage and auto liability  (personal injury and property
damage).  We are self-insured for personal injury and property damage liability,
cargo  liability,  collision  and  comprehensive  up to a maximum  limit of $2.0
million per occurrence.  We are self-insured  for workers'  compensation up to a
maximum limit of $500,000 per occurrence.

                                       8

     Our  insurance  policies for 2003 provided for excess  personal  injury and
property  damage  liability up to a total of $35.0  million per  occurrence  and
cargo liability, collision,  comprehensive and workers' compensation coverage up
to a total of $10.0 million per occurrence. Subsequent to December 31, 2003, the
$35.0 million in excess coverage per occurrence for personal injury and property
damage has been  increased to $40.0  million.  Our personal  injury and property
damage primary policies also include coverage for punitive  damages,  subject to
the policy limits outlined  above. We also maintain  primary and excess coverage
for  employee  medical  expenses  and  hospitalization,  and damage to  physical
properties.  We  carefully  monitor  claims and  participate  actively in claims
estimates and adjustments. The estimated costs of our self-insured claims, which
include estimates for incurred but unreported claims, are accrued as liabilities
on our balance sheet.

Competition

     The entire  trucking  industry is highly  competitive  and  fragmented.  We
compete primarily with other regional  short-to-medium  haul truckload carriers,
logistics  providers  and  national  carriers.  Railroads  and air freight  also
provide  competition,  but to a  lesser  degree.  Competition  for  the  freight
transported  by us is based on  freight  rates,  service,  efficiency,  size and
technology.  We also  compete  with other  motor  carriers  for the  services of
drivers,  independent  contractors  and  management  employees.  A number of our
competitors have greater financial  resources,  own more equipment,  and carry a
larger volume of freight than we do. We believe that the  principal  competitive
factors in our business are service,  pricing (rates),  and the availability and
configuration  of  equipment  that  meets a  variety  of  customers'  needs.  In
addressing our markets,  we believe that our principal  competitive  strength is
our ability to provide timely, flexible and cost-efficient service to shippers.

Regulation

     The DOT and various state and local agencies exercise broad powers over our
business,  generally  governing such  activities as  authorization  to engage in
motor carrier operations,  safety, and insurance requirements.  In 2003, the DOT
adopted revised  hours-of-service  regulations for drivers that became effective
on January 4, 2004.  These revised  regulations  represent the most  significant
changes to the hours-of-service regulations in over 60 years.

     There are  several  hours of service  changes  that may have a positive  or
negative  effect on driver  hours (and  miles).  The new rules allow  drivers to
drive up to 11 hours instead of the 10 hours permitted under prior  regulations,
subject to the new  14-hour  on-duty  maximum  described  below.  The rules will
require a driver's  off-duty  period to be 10 hours,  compared  to 8 hours under
prior  regulations.  In  general,  drivers  may not  drive  beyond 14 hours in a
24-hour period,  compared to not being permitted to drive after 15 hours on-duty
under the prior rules.  During the new 14-hour  consecutive  on-duty period, the
only way to extend the on-duty period is by the use of a sleeper berth period of
at least two hours that is later  coupled with a second  sleeper  berth break to
equal 10 hours.  Under the prior  rules,  during  the  15-hour  on-duty  period,
drivers were allowed to take multiple breaks of varying  lengths of time,  which
could be either  off-duty time or sleeper berth time, that did not count against
the 15-hour period.  There was no change to the rule that precludes drivers from
driving  after being  on-duty for a maximum of 70 hours in 8  consecutive  days.
However,  under the new rules, drivers can "restart" their 8-day clock by taking
at least 34 consecutive hours off duty.

     While we believe  the  11-hour  and the  34-hour  restart  rules may have a
slight  positive  effect on driving  hours,  we  anticipate  that the 15-hour to
14-hour  rule change  likely  will have a more  significant  negative  impact on
driving hours for the truckload  industry.  The prior 15-hour rule worked like a
stopwatch  and  allowed  drivers to stop and start  their  on-duty  time as they
chose.  The new  14-hour  rule is like a running  clock.  Once the  driver  goes
on-duty and the clock starts, the driver is limited to one timeout, or the clock
keeps running. As a result of this change,  issues that cause driver delays such
as

                                       9

multiple stop shipments,  unloading/loading  delays,  and equipment  maintenance
could result in a reduction in driver miles.

     We expect that the new rules could initially reduce our and other truckload
carrier's  average  miles per truck.  As time goes on, and the  Company  and its
drivers gain more  experience  with the new rules, we anticipate that we will be
able to gradually reduce any decline in average miles per truck. We believe that
we are well equipped to minimize the economic impact of the new hours-of-service
rules on our business. We believe that historically we have been one of the more
successful  carriers  in  identifying,  assessing,  and  collecting  charges for
additional services that our drivers perform for our customers.  In addition, we
conducted  intensive  training programs for our driver and non-driver  personnel
regarding  the  new  hours-of-service  requirements  in  anticipation  of  their
effectiveness.  Prior to the  effectiveness  of the new rules, we also initiated
discussions  with many of our  customers  regarding  steps that they can take to
assist us in managing  our  drivers'  non-driving  activities,  such as loading,
unloading,  or waiting, and we plan to continue to actively communicate with our
customers  regarding these matters in the future.  In situations  where shippers
are unable or unwilling to take these steps,  we expect to assess  detention and
other  charges  to  offset  losses  in  productivity   resulting  from  the  new
hours-of-service  regulations.  Although it is still too early to ascertain  the
ultimate effect of these rules, based on our initial experience, our preliminary
expectation is that the rules will not  significantly  disrupt our operations or
materially affect our results of operations.

     Our motor carrier  operations  are also subject to  environmental  laws and
regulations,  including  laws and  regulations  dealing  with  underground  fuel
storage tanks, the transportation of hazardous materials and other environmental
matters,  and our operations  involve certain inherent  environmental  risks. We
maintain  bulk fuel storage and fuel islands at several of our  facilities.  Our
operations involve the risks of fuel spillage or seepage,  environmental damage,
and hazardous  waste  disposal,  among others.  We have  instituted  programs to
monitor and control  environmental  risks and assure  compliance with applicable
environmental  laws.  As part of our  safety  and risk  management  program,  we
periodically  perform  internal  environmental  reviews  so that we can  achieve
environmental  compliance and avoid  environmental  risk. Our Phoenix,  Arizona,
Indianapolis,   Indiana,  and  Katy,  Texas,  facilities  were  designed,  after
consultation  with  environmental  advisors,  to contain and properly dispose of
hazardous  substances  and  petroleum  products  used  in  connection  with  our
business. We transport a minimum amount of environmentally  hazardous substances
and, to date,  have  experienced no significant  claims for hazardous  materials
shipments. If we should fail to comply with applicable regulations,  we could be
subject to substantial fines or penalties and to civil and criminal liability.

     Our Phoenix  facility is located on land  identified as potentially  having
groundwater  contamination resulting from the release of hazardous substances by
persons who have operated in the general vicinity.  The area has been classified
as a state  superfund  site. We have been located at our Phoenix  facility since
1990  and,  during  such  time,  have  not  been  identified  as  a  potentially
responsible  party with regard to the groundwater  contamination,  and we do not
believe that our operations have been a source of groundwater contamination.

     Our Indianapolis  property is located  approximately  0.1 of a mile east of
Reilly Tar and Chemical Corporation ("Reilly"),  a federal superfund site listed
on the National Priorities List for clean-up. The Reilly site has known soil and
groundwater contamination. There are also other sites in the general vicinity of
our Indianapolis  property that have known contamination.  Environmental reports
obtained by us have  disclosed no evidence that  activities on our  Indianapolis
property have caused or contributed to the area's contamination.

     Company operations conducted in industrial areas, where truck terminals and
other industrial activities are conducted,  and where groundwater or other forms
of environmental  contamination  have occurred,  potentially expose us to claims
that we contributed to the environmental contamination.

                                       10

     We believe we are currently in material compliance with applicable laws and
regulations and that the cost of compliance has not materially  affected results
of  operations.  See "Legal  Proceedings,"  below,  for  additional  information
regarding certain regulatory matters.

     In addition to environmental  regulations  directly affecting our business,
we are also  subject to the effects of new tractor  engine  design  requirements
implemented by the EPA effective October 1, 2002. See "Revenue Equipment,"above.

Other Information

     We periodically  examine  investment  opportunities in areas related to the
transportation  business. Our investment strategy is to add to shareholder value
by investing in industry related businesses that will assist us in strengthening
our overall position in the  transportation  industry,  minimize our exposure to
start-up risk and provide us with an opportunity to realize a substantial return
on our  investment.  We own a 17%  interest  in  Concentrek,  Inc.,  a logistics
business and a 19% interest in Knight Flight  Services,  LLC (which operates and
leases a Cessna Citation 560 XL jet aircraft which we use in connection with our
business).  See the notes to our consolidated  financial statements beginning on
page F-9 of this report for additional information regarding these investments.



Item 2. Properties

     Our  headquarters  and principal  place of business is located at 5601 West
Buckeye Road,  Phoenix,  Arizona on approximately 65 acres. We own approximately
57 acres and  approximately 8 acres are leased from Mr. Randy Knight, a director
of the Company  and one of our  principal  shareholders.  See the section of our
Proxy  Statement  to  be  issued  in  connection  with  the  Annual  Meeting  of
Shareholders  to be held on May 21, 2004  entitled  "Certain  Relationships  and
Related  Transactions  -  Lease  of  Property  from  Affiliate"  for  additional
information.  The following table provides  information  regarding the Company's
facilities and/or offices:

                                                                                             
Company Location                       Office         Shop         Fuel           Owned or Leased           Acres
- ----------------                       ------         ----         ----           ---------------           -----
Phoenix, Arizona                         Yes          Yes           Yes                Owned*                65*
Salt Lake City, Utah                     Yes          Yes           No                 Owned                  14
Portland, Oregon                         Yes          Yes           Yes                Leased                 5
Denver, Colorado                         Yes           No           No                 Leased                 6
Kansas City, Kansas                      Yes          Yes           Yes                Owned                  15
Katy, Texas                              Yes          Yes           Yes                Owned                  12
Indianapolis, Indiana                    Yes          Yes           Yes                Owned                  9
Charlotte, North Carolina                Yes          Yes           No                 Owned                  21
Gulfport, Mississippi                    Yes          Yes           No                 Leased                 8
Memphis, Tennessee                       Yes          Yes           Yes                Owned                  18
Atlanta, Georgia                         Yes           No           No                 Leased                 7
Las Vegas, Nevada                        Yes           No           No                 Leased                 2
Fontana, California                      Yes           No           No                 Owned                  14
Mobile, Alabama                          Yes           No           No                 Leased                 4
- ------------------
*8 acres are leased from Mr. Randy Knight, a director and principal shareholder of the Company.

     In addition,  we lease space in various  locations  for  temporary  trailer
storage.   Management  believes  that  replacement  space  comparable  to  these
facilities is readily obtainable,  if necessary.  The Company also leases excess
trailer drop space at its facilities to other carriers.

                                       11

     We believe that our facilities are suitable and adequate for our
present needs. We periodically seek to improve our facilities or identify new
favorable locations. We have not encountered any significant impediments to the
location or addition of new facilities.



Item 3. Legal Proceedings

     We  are  a  party  to  ordinary,   routine  litigation  and  administrative
proceedings  incidental to our business.  These  proceedings  primarily  involve
claims for personal injury or property damage incurred in the  transportation of
freight and for personnel  matters.  We maintain  insurance to cover liabilities
arising   from  the   transportation   of   freight  in  amounts  in  excess  of
self-insurance  retentions.  See "Business - Safety and Risk  Management." It is
our policy to comply with applicable  equal  employment  opportunity laws and we
periodically review our policies and practices for equal employment  opportunity
compliance.



Item 4. Submission of Matters to a Vote of Security Holders

     We did not submit any matter to a vote of our security  holders  during the
fourth quarter of 2003.

                                       12





                                     PART II

Item 5. Market for Company's Common Equity and Related Shareholder Matters

     Our common  stock is traded  under the symbol KNGT on the The NASDAQ  Stock
Market - National Market System ("NASDAQ-NMS").  The following table sets forth,
for the periods  indicated,  the high and low bid  information  per share of our
common  stock  as  quoted  through  the  NASDAQ-NMS.   Such  quotations  reflect
inter-dealer  prices,  without retail  markups,  markdowns or  commissions  and,
therefore, may not necessarily represent actual transactions.


                                                                               
                                                            High                       Low
                  2002
                  First Quarter                            $24.27                    $18.00
                  Second Quarter                           $23.45                    $17.00
                  Third Quarter                            $22.82                    $15.35
                  Fourth Quarter                           $21.53                    $14.67

                  2003
                  First Quarter                            $22.25                    $18.35
                  Second Quarter                           $25.75                    $19.30
                  Third Quarter                            $28.36                    $24.66
                  Fourth Quarter                           $27.55                    $23.00

     As of February 23, 2004,  we had 69  shareholders  of record.  However,  we
believe that many  additional  holders of our stock are  unidentified  because a
substantial  number of shares are held of record by brokers or dealers for their
customers in street names.

     We have  never  paid cash  dividends  on our  common  stock,  and it is the
current  intention of management to retain earnings to finance the growth of our
business. Future payment of cash dividends will depend upon financial condition,
results of operations,  cash requirements,  tax treatment, and certain corporate
law  requirements,  as well as other  factors  deemed  relevant  by our Board of
Directors.

     See "Securities  Authorized for Issuance Under Equity  Compensation  Plans"
under  Item 12 in  Part  III of  this  Annual  Report  for  certain  information
concerning  shares of our common stock  authorized for issuance under our equity
compensation plans.

                                       13



Item 6. Selected Financial Data

     The selected consolidated  financial data presented below as of the end of,
and for, each of the years in the five-year  period ended December 31, 2003, are
derived from our Consolidated  Financial  Statements.  The information set forth
below should be read in conjunction with  "Management's  Discussion and Analysis
of Financial  Condition and Results of Operations,"  below, and the Consolidated
Financial  Statements  and Notes  thereto  included in Item 8 of this Form 10-K.
Certain risks and other  factors that may affect our results of  operations  and
future performance results are set forth below. See "Management's Discussion and
Analysis of  Financial  Condition  and Results of  Operations - Factors That May
Affect Future Results."

                                                                          Years Ended December 31,
                                                                          ------------------------
                                                                                                    
                                                         2003           2002            2001           2000           1999
                                                         ----           ----            ----           ----           ----
                                                 (Dollar amounts in thousands, except per share amounts and operating data)
                                                  ------------------------------------------------------------------------
Statements of Income Data:
         Revenue, before fuel surcharge               $ 326,856       $ 279,360      $ 241,679      $ 207,406      $ 151,490
         Fuel surcharge                                  13,213           6,430          9,139          9,453            969
         Total revenue                                  340,069         285,790        250,818        216,859        152,459
         Operating expenses                             280,620         238,296        211,266        184,836        126,548
         Income from operations                          59,449          47,494         39,552         32,023         25,910
         Net interest expense and other                   (651)           (149)         (7,485)(2)     (3,418)          (296)
         Income before income taxes                      58,798          47,345         32,067 (2)     28,605         25,614
         Net income                                      35,458          27,935         19,017 (2)     17,745         15,464
         Diluted earnings per share(1)                      .93             .73            .54 (2)        .53            .45

Balance Sheet Data (at End of Period):
         Working capital                               $ 69,916        $ 64,255       $ 51,749       $ 27,513       $ 15,887
         Total assets                                   321,226         284,844        241,114        206,984        164,545
         Long-term obligations, net of current              -0-          12,200          2,715         14,885         11,736
         Shareholders' equity                           239,923         199,657        167,696        105,121         82,814

Operating Data (Unaudited):
         Operating ratio(3)                                82.5%           83.4%          84.2%          85.2%          83.0%
         Operating ratio, excluding fuel
         surcharge(4)                                      81.8%           83.0%          83.6%          84.6%          82.9%
         Average revenue per mile(5)                   $   1.28        $   1.24        $  1.23       $   1.23       $   1.23
         Average length of haul (miles)                     532             543            527            530            491
         Empty mile factor                                 10.8%           10.7%          10.9%          10.5%          10.5%
         Tractors operated at end of period(6)            2,418           2,125          1,897          1,694          1,212
         Trailers operated at end of period               6,212           5,441          4,898          4,627          3,350

_________________________________

(1)  Net income  per share for 2000 and 1999 has been  restated  to reflect  the
     stock splits on December 28, 2001 and June 1, 2001.
(2)  Includes a pre-tax, non-cash write-off of $5.7 million in 2001 relating to
     an investment in Terion, Inc.
(3)  Operating expenses as a percentage of total revenue.
(4)  Operating  expenses,  net of fuel  surcharge,  as a percentage  of revenue,
     before fuel surcharge. Management believes that that eliminating the impact
     of this  sometimes  volatile  source of revenue  affords a more  consistent
     basis for comparing our results of operations from period to period.
(5)  Average transportation revenue per mile based upon total revenue, exclusive
     of fuel surcharge.

                                       14

(6)  Includes:  (a) 253 independent  contract  operated vehicles at December 31,
     2003; (b) 209 independent  contract operated vehicles at December 31, 2002;
     (c) 200 independent  contractor operated vehicles at December 31, 2001; (d)
     239 independent  contractor operated vehicles at December 31, 2000; (e) 281
     independent contractor operated vehicles at December 31, 1999.

                                       15

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operation

Cautionary Note Regarding Forward-Looking Statements

     Except for certain historical  information  contained herein, the following
discussion contains  forward-looking  statements that involve risks, assumptions
and  uncertainties  which are difficult to predict.  All statements,  other than
statements   of  historical   fact,   are   statements   that  could  be  deemed
forward-looking  statements,  including without  limitation:  any projections of
earnings,   revenues,   or  other  financial  items;  any  statement  of  plans,
strategies,  and objectives of management for future operations;  any statements
concerning  proposed  new services or  developments;  any  statements  regarding
future economic conditions or performance;  and any statements of belief and any
statement  of  assumptions  underlying  any  of the  foregoing.  Words  such  as
"believe," "may," "could," "expects," "hopes,"  "anticipates," and "likely," and
variations of these words, or similar expressions, are intended to identify such
forward-looking  statements.  Actual events or results  could differ  materially
from those discussed in forward-looking statements.  Factors that could cause or
contribute to such differences  include, but are not limited to, those discussed
in the section  entitled  "Factors  That May Affect  Future  Results," set forth
below. We do not assume, and specifically disclaim, any obligation to update any
forward-looking statement contained in this Annual Report.

Introduction

Business Overview

     We are a dry van truckload carrier based in Phoenix,  Arizona. We transport
general  commodities  for  shippers  throughout  the  United  States,  generally
focusing our operations on short-to-medium  lengths of haul. We provide regional
truckload carrier services from our 15 operating  divisions  located  throughout
the United States. Over the past five years we have achieved substantial revenue
and income growth. During this period, our revenue, before fuel surcharge,  grew
at a 21% compounded annual rate from $125.0 million in 1998 to $326.9 million in
2003, and our net income grew at a 22% compounded annual rate from $13.3 million
in 1998 to $35.5 million in 2003.

Operating and Growth Strategy

     Our operating strategy is focused on the following core elements:

     o    Focusing  on  Regional  Operations.  We seek to operate  primarily  in
          high-density,   predictable   traffic  lanes  in  selected  geographic
          regions. We believe our regional operations allow us to obtain greater
          freight  volumes and higher  revenue per mile, and also enhance safety
          and driver recruitment and retention.

     o    Maintaining  Operating  Efficiencies  and Controlling  Costs. We focus
          almost  exclusively on operating  dry-vans in distinct  geographic and
          shipping markets in order to achieve increased penetration of targeted
          service areas and higher equipment utilization in dense traffic lanes.
          We actively seek to control costs by, among other things,  operating a
          modern  equipment  fleet,  maintaining  a high  driver  to  non-driver
          employee ratio, and regulating vehicle speed.

     o    Providing a High Level of Customer Service.  We seek to compete on the
          basis of service in addition to price, and offer our customers a broad
          range of services to meet their  specific  needs,  including  multiple
          pick ups and deliveries, on-time pick ups and deliveries within narrow
          time frames,  dedicated fleet and personnel,  and  specialized  driver
          training.

     o    Using  Technology to Enhance Our  Business.  Our tractors are equipped
          with a satellite-based tracking and communications system to permit us
          to stay in contact with our drivers, obtain

                                       16

          load  position  updates,   and  provide  our  customers  with  freight
          visibility.  The majority of our trailers are equipped  with  tracking
          technology  to allow  us to  manage  our  trailers  more  effectively,
          maintain a low trailer to tractor ratio,  efficiently assess detention
          fees, and minimize cargo loss.

     The primary  source of our revenue  growth has been our ability to open new
regional  facilities in certain geographic areas and operate these facilities at
a profit. During 2003, we established presences in Atlanta,  Georgia and Denver,
Colorado,  and opened a regional facility in Las Vegas, Nevada in February 2004.
Based on our current expectations  concerning the economy, we anticipate opening
two  additional  regional  facilities in 2004 and adding 350 to 400 new tractors
system-wide  during  the  year.  As  part  of  our  growth  strategy,   we  also
periodically evaluate acquisition opportunities and we will continue to consider
acquisitions that meet our financial and operating criteria.

Revenue and Expenses

     We primarily  generate  revenue by transporting  freight for our customers.
Generally,  we are paid by the mile for our services.  We enhance our revenue by
charging for tractor and trailer  detention,  loading and unloading  activities,
and other  specialized,  as well as through the collection of fuel surcharges to
mitigate  the impact of  increases  in the cost of fuel.  The main  factors that
affect our revenue are the revenue per mile we receive from our  customers,  the
percentage  of miles for which we are  compensated,  and the  number of miles we
generate with our equipment.  These factors relate,  among other things,  to the
general  level of economic  activity  in the United  States,  inventory  levels,
specific customer demand,  the level of capacity in the trucking  industry,  and
driver   availability.   Going   forward,   the   recently   effective   revised
hours-of-service regulations could have a negative impact on our miles per truck
if they reduce the amount of time that our drivers spend driving.  To the extent
we are not able to offset any such impact  through the  collection  of fees from
shippers  who retain our  equipment or drivers,  our revenue  would be adversely
affected.

     For much of the past three years,  economic  activity in the United  States
has been  somewhat  sluggish,  which has  limited to some  extent our ability to
obtain  rate  increases.  During the second  half of 2003,  however,  the United
States economy experienced strong growth, which many forecasters anticipate will
continue  throughout 2004. Business inventory levels also improved in late 2003.
We believe  that if the  economy  continues  to  improve  and  inventory  levels
continue to increase,  we should  experience  stronger  and more stable  freight
demand among current and  prospective  customers in 2004 than we  experienced in
2001, 2002, and the first half of 2003. Historically, the excess capacity in the
transportation  industry has limited our ability to improve rates. Over the past
two years, the transportation  industry has seen some reduction in capacity.  We
believe that the factors described above contributed to the 3.4%  year-over-year
improvement in our average revenue per mile in 2003. We hope that in 2004, lower
capacity  coupled with stronger  freight demand will continue to provide us with
better pricing power.

     The main factors that impact our  profitability on the expense side are the
variable costs of  transporting  freight for our customers.  These costs include
fuel expense,  driver-related  expenses, such as wages, benefits,  training, and
recruitment,  and  owner-operator  costs,  which are  recorded  under  purchased
transportation.  Expenses that have both fixed and variable  components  include
maintenance  and tire expense and our total cost of insurance and claims.  These
expenses  generally vary with the miles we travel,  but also have a controllable
component based on safety,  fleet age,  efficiency,  and other factors. Our main
fixed costs are the  acquisition  and  financing  of long-term  assets,  such as
revenue  equipment and operating  terminals and the  compensation  of non-driver
personnel.  Effectively  controlling  our  expenses is an  important  element of
assuring  our  profitability.  The  primary  measure  we  use  to  evaluate  our
profitability is operating ratio, excluding the impact of fuel surcharge revenue
(operating expenses, net of fuel surcharge,  as a percentage of revenue,  before
fuel  surcharge).  We view any operating  ratio,  whether for the Company or any
operations center, in excess of 85% as unacceptable performance.

                                       17

Recent Results of Operations and Year-End Financial Condition

     For the year ended December 31, 2003, our results of operations improved as
follows versus the 2002 fiscal year:

     o    Revenue,  before fuel  surcharge,  increased  17.0%, to $326.9 million
          from $279.4 million;

     o    Net income increased 27.2%, to $35.5 million from $27.9 million; and

     o    Net income per diluted share increased to $0.93 from $0.73.

     During the fourth quarter of 2003, we added  approximately  64 new tractors
and experienced a temporary challenge  attracting a sufficient number of drivers
to optimize  utilization  of our  expanded  tractor  fleet.  In response to this
challenge,  we placed additional emphasis on our driver recruiting and retention
efforts.  This emphasis on recruiting and  retention,  coupled with one cent per
mile increases in driver compensation  implemented in September 2003 and January
2004, which will affect our costs going forward,  have resulted in nearly all of
our trucks being fully seated at this time.

     We  invested  significant  time  and  resources  training  our  driver  and
non-driver personnel and communicating with our customers in preparation for the
effectiveness  of the new  hours-of-service  rules on January  4,  2004.  We are
currently operating under the new rules, and have experienced minimal disruption
in our  operations  to date.  Although it is too early to ascertain the ultimate
impact  of the new  rules,  based on our  initial  experience,  our  preliminary
expectation is that they will not  materially  affect our results of operations.
See "Business - Regulation," above.

     At December 31, 2003 our balance sheet  reflected $40.6 million in cash and
investments,  no long-term  debt,  after paying off the remaining  $12.2 million
balance  on  our  line  of  credit  during  the  fourth  quarter  of  2003,  and
shareholders' equity of $239.9 million. For the year, we generated $84.4 million
in  cash  flow  from   operations   and  used  $70.3  million  for  net  capital
expenditures,  producing  $14.1  million in free cash flow.  Based on our recent
historical  results,  we expect our  operations  to  continue to fund growth and
generate free cash flow, absent any significant acquisitions.

     We define free cash flow as net cash provided by operating  activities less
purchases of property and  equipment,  net.  Both  measures used to compute free
cash flow are set forth in our  consolidated  statements of cash flows  included
elsewhere  in this  report.  Management  believes  that free cash flow  provides
useful information to investors regarding the Company's ability to generate cash
for purposes such as reinvesting in our business and making  acquisitions.  Free
cash flow does not,  however,  take into account debt service  requirements,  if
any, and other non-discretionary  expenditures and therefore may not necessarily
be indicative of amounts of cash  available for  discretionary  uses.  Free cash
flow should be  considered in addition to, and not in lieu of, net cash provided
by, or used in, operating,  investing, or financing activities,  net income, and
other measures of financial  performance  prepared in accordance with accounting
principles generally accepted in the United States of America.

Risks Associated with Our Business

     We  operate  in an  economic  and  legal  environment  that  involves  many
different risks. These risks range from such unpredictable matters as the impact
of new DOT  revised  hours-of-service  regulations  to  continued  unrest in the
Middle  East to general  economic  conditions  and the pace of overall  economic
growth.  We have described below, a number of these risks. See "Factors that May
Affect Future  Results," below. We expect that we will continue to be subject to
these risks and to other risks that we have not anticipated. We will continue to
rely upon our employees and upon our operating strategy to

                                       18

address  these  risks  as  best  we can and we  will  continue  to work  towards
delivering value to our shareholders.

Results of Operations

     The following table sets forth the percentage  relationships of our expense
items to total revenue and revenue, before fuel surcharge, for each of the three
fiscal years indicated  below.  Fuel expense as a percentage of revenue,  before
fuel surcharge,  is calculated using fuel expense, net of surcharge.  Management
believes  that  eliminating  the  impact of this  sometimes  volatile  source of
revenue affords a more consistent  basis for comparing our results of operations
from period to period.

                                                                                                      
                                     2003       2002       2001                                        2003      2002      2001

Total revenue                       100.0%     100.0%     100.0%   Revenue, before fuel surcharge     100.0%    100.0%    100.0%
- -------------                                                      ------------------------------
Operating expenses:                                                Operating expenses:
  Salaries, wages and benefits       30.8       32.8       32.6      Salaries, wages and benefits      32.0      33.5      33.8
  Fuel                               16.6       15.6       15.5      Fuel(1)                           13.3      13.6      12.3
  Operations and maintenance          6.0        6.0        5.5      Operations and maintenance         6.2       6.1       5.7
  Insurance and claims                4.9        4.3        4.1      Insurance and claims               5.1       4.4       4.2
  Operating taxes and licenses        2.7        2.6        2.8      Operating taxes and licenses       2.8       2.6       2.9
  Communications                      0.9        0.8        0.8      Communications                     0.9       0.9       1.0
  Depreciation and amortization       8.8        8.0        7.3      Depreciation and amortization      9.2       8.2       7.6
  Lease expense - revenue                                            Lease expense - revenue
    equipment                         2.2        3.3        3.4        equipment                        2.4       3.4       3.5
  Purchased transportation            7.4        7.6        9.4      Purchased transportation           7.7       7.8       9.7
  Miscellaneous operating                                            Miscellaneous operating
    expenses                          2.2        2.4        2.8        expenses                         2.2       2.5       2.9
                                    -----      -----      -----                                       -----     -----     -----
Total operating expenses             82.5       83.4       84.2    Total operating expenses            81.8      83.0      83.6
                                    -----      -----      -----                                       -----     -----     -----
Income from operations               17.5       16.6       15.8    Income from operations              18.2      17.0      16.4
Net interest and other expense(2)     0.2        0.0        3.0    Net interest and other expense       0.2       0.1       3.1
                                    -----      -----      -----                                       -----     -----     -----
Income before income taxes(2)        17.3       16.6       12.8    Income before income taxes          18.0      16.9      13.3
Income taxes(2)                       6.9        6.8        5.2    Income taxes                         7.1       6.9       5.4
                                    -----      -----      -----                                       -----     -----     -----
Net Income(2)                        10.4%       9.8%       7.6%   Net Income                          10.9%     10.0%      7.9%
                                    =====      =====      =====                                       =====     =====     =====


(1)  Net of fuel surcharge.
(2)  Includes a pre-tax, non-cash write-off of $5,679,000 in 2001 relating to an
     investment in Terion, Inc.

     A discussion of our results of operations  for the periods 2003 to 2002 and
2002 to 2001 is set forth below.

Fiscal 2003 Compared to Fiscal 2002

     Our total revenue for 2003  increased to $340.1 million from $285.8 million
for 2002. Total revenue included $13.2 million of fuel surcharge  revenue in the
2003 period and $6.4 million of fuel  surcharge  revenue in the 2002 period.  In
discussing our results of operations we use revenue, before fuel surcharge, (and
fuel expense,  net of surcharge),  because management  believes that eliminating
the  impact  of  this  sometimes  volatile  source  of  revenue  affords  a more
consistent  basis for comparing our results of operations from period to period.
We also discuss the changes in our expenses as a percentage  of revenue,  before
fuel  surcharge,  rather than  absolute  dollar  changes.  We do this because we
believe the high  variable  cost nature of our business  makes a  comparison  of
changes in expenses as a percentage  of revenue more  meaningful  than  absolute
dollar changes.

     Revenue,  before fuel  surcharge,  increased by 17.0% to $326.9  million in
2003 from $279.4  million in 2002.  This  increase  primarily  resulted from the
expansion of our customer  base and increased  volume from  existing  customers,
that was  facilitated  by a continued  growth of our tractor and trailer  fleet,
which  increased by 13.8% to 2,418 tractors  (including 253 owned by independent
contractors) as of

                                       19

December 31,  2003,  from 2,125  tractors  (including  209 owned by  independent
contractors) as of December 31, 2002. In addition,  our average revenue per mile
(exclusive of fuel surcharge) increased to $1.281 per mile for 2003, from $1.239
per mile for the same period in 2002.

     Salaries,  wages and benefits expense decreased as a percentage of revenue,
before fuel surcharge, to 32.0% in 2003 from 33.5% in 2002, primarily due to the
improved   efficiencies  in  the  Company's   personnel   operations,   improved
utilization  of revenue  equipment,  and a larger  revenue base over which these
largely fixed expenses were spread.  As of December 31, 2003, 89.5% of our fleet
was operated by Company drivers,  compared to 90.2% as of December 31, 2002. For
our  drivers,  we  record  accruals  for  workers'  compensation  benefits  as a
component  of our  claims  accrual,  and the  related  expense is  reflected  in
salaries, wages and benefits in our consolidated statements of income.

     Fuel expense, net of fuel surcharge,  decreased, as a percentage of revenue
before  fuel  surcharge,  to 13.3% for 2003 from  13.6% in 2002,  due  mainly to
improved  collection  of fuel  surcharge  revenue  during 2003,  which more than
offset higher fuel prices.  The Company  maintains a fuel  surcharge  program to
assist us in  recovering a portion of increased  fuel costs.  For the year ended
December 31, 2003,  fuel surcharge was $13.2  million,  compared to $6.4 million
for the same period in 2002. As a percentage of total  revenue,  including  fuel
surcharge,  fuel  expense  increased  to 16.6% for 2003 from  15.6% in 2002 as a
result of higher fuel prices. We believe that higher fuel prices may continue to
adversely  affect our operating  expenses  throughout  2004,  and that continued
unrest in the  Middle  East  could  have a  significant  adverse  effect on fuel
prices.  See "Factors that May Affect Future  Results - If fuel prices  increase
significantly, our results of operations could be adversely affected," below. We
have entered into fuel hedging agreements as a means of managing the cost of our
fuel. See "Quantitative and Qualitative Disclosure About Market Risk - Commodity
Price Risk," below.

     Operations and  maintenance  expense  increased as a percentage of revenue,
before fuel  surcharge,  to 6.2% for 2003 from 6.1% in 2002.  This  increase was
primarily due to the slight aging our fleet. Independent contractors pay for the
maintenance on their own vehicles.

     Insurance and claims expense  increased as a percentage of revenue,  before
fuel  surcharge,  to 5.1% for 2003,  compared to 4.4% for 2002,  primarily  as a
result of an increase in insurance premiums and higher self-insurance  retention
levels assumed by the Company. See "Business - Safety Risk Management," above.

     Operating taxes and license expense as a percentage of revenue, before fuel
surcharge,  increased to 2.8% for 2003 from 2.6% for 2002. The increase resulted
primarily  from an increase in miles run in higher tax rate  states,  along with
increased  licensing  rates in certain  states,  for the 12 month  period  ended
December 31, 2003.

     Communications  expenses as a percentage of revenue, before fuel surcharge,
remained relatively constant at 0.9% for both 2003 and 2002.

     Depreciation  and amortization  expense,  as a percentage of revenue before
fuel surcharge,  increased to 9.2% for 2003 from 8.2% in 2002. This increase was
primarily  related  to an  increase  in  the  percentage  of our  Company  fleet
comprised of purchased vehicles.  At December 31, 2003, 82% of our Company fleet
was comprised of purchased  vehicles,  compared to 74% at December 31, 2002. Our
Company fleet includes  purchased vehicles and vehicles acquired under operating
leases,  while our total fleet includes vehicles in our Company fleet as well as
vehicles provided by independent contractors.

     Lease expense for revenue equipment as a percentage of revenue, before fuel
surcharge, decreased to 2.4% for 2003, compared to 3.4% for 2002, primarily as a
result of a  decrease  in the  percentage  of the  Company  fleet  comprised  of
vehicles held under operating leases.  Several of our operating lease agreements
have variable payment terms that are amortized on a straight-line basis.

                                       20

     Purchased  transportation  expense as a percentage of revenue,  before fuel
surcharge,  remained  relatively  constant  at 7.7% and  7.8%for  2003 and 2002,
respectively.  As of  December  31,  2003,  10.5% of our fleet was  operated  by
independent  contractors,  compared to 9.8% at December 31, 2002. As of December
31,  2003,  our  total  fleet  included  253  tractors  owned  and  operated  by
independent  contractors,  compared  to  209  tractors  owned  and  operated  by
independent   contractors  at  December  31,  2002.   Purchased   transportation
represents the amount an  independent  contractor is paid to haul freight for us
on a mutually  agreed upon per-mile basis. To assist us in continuing to attract
independent  contractors,  we may provide  financing  to  qualified  independent
contractors to assist them in acquiring  revenue  equipment.  As of December 31,
2003,  we had  $877,000  in loans  outstanding  to  independent  contractors  to
purchase  revenue  equipment.  These  loans are  secured by liens on the revenue
equipment we finance.

     Miscellaneous  operating  expenses as a percentage of revenue,  before fuel
surcharge,  decreased  to 2.2% for 2003  from  2.5% in  2002,  primarily  due to
increases  in revenue per mile as well as  increases  in overall  revenue  which
spread these generally fixed costs over greater revenue.

     As a result of the above factors,  our operating ratio (operating expenses,
net of fuel  surcharge,  expressed  as a  percentage  of  revenue,  before  fuel
surcharge) was 81.8% for 2003, compared to 83.0% for 2002.

     Net interest  expense as a percentage  of revenue,  before fuel  surcharge,
remained at less than 1.0% for both 2003 and 2002.  We reduced  our  outstanding
debt to $0.0 at December  31,  2003,  compared to $14.9  million at December 31,
2002.

     Other expense for 2003 was comprised of an adjustment to the carrying value
of an  investment  the Company  has in an entity  whose  primary  asset is a jet
aircraft.  Other expense as a percentage of revenue, before fuel surcharge,  was
0.1% for 2003.

     Income taxes have been provided at the  statutory  federal and state rates,
adjusted for certain permanent  differences  between financial  statement income
and income for tax reporting. Our effective tax rate declined from 41.0% in 2002
to 39.7% for 2003 as a result of state tax planning strategies.

     Income tax  expense as a  percentage  of revenue,  before  fuel  surcharge,
increased  to 7.1% for 2003,  from 6.9% for 2002,  primarily  due to the overall
decrease in our operating ratio.

     As a result of the preceding  changes,  our net income,  as a percentage of
revenue before fuel surcharge, was 10.9% for 2003, compared to 10.0% in 2002.

Fiscal 2002 Compared to Fiscal 2001

     Revenue,  before fuel  surcharge,  increased by 15.6% to $279.4  million in
2002 from $241.7  million in 2001.  This  increase  primarily  resulted from the
expansion of our customer  base and increased  volume from  existing  customers,
that was  facilitated  by a continued  growth of our tractor and trailer  fleet,
which  increased by 12.0% to 2,125 tractors  (including 209 owned by independent
contractors) as of December 31, 2002,  from 1,897 tractors  (including 200 owned
by independent contractors) as of December 31, 2001.  Additionally,  our average
revenue per mile (exclusive of fuel surcharge)  increased to $1.239 per mile for
2002, from $1.227 per mile in 2001.

     Salaries,  wages and benefits expense decreased as a percentage of revenue,
before fuel surcharge, to 33.5% in 2002 from 33.8% in 2001, primarily due to the
improved   efficiencies  in  the  Company's   personnel   operations,   improved
utilization  of revenue  equipment,  and a larger  revenue base over which these
largely fixed expenses were spread.  As of December 31, 2002, 90.2% of our fleet
was operated by Company drivers,  compared to 89.5% as of December 31, 2001. For
our  drivers,  we  record  accruals  for

                                       21

workers'  compensation  benefits as a component of our claims  accrual,  and the
related expense is reflected in salaries, wages and benefits in our consolidated
statements of income.

     Fuel expense, net of fuel surcharge,  increased as a percentage of revenue,
before fuel surcharge, to 13.6% for 2002 from 12.3% in 2001, due mainly to lower
collection of fuel surcharge  revenue  during 2002 compared to 2001,  along with
the increase in the  percentage of our fleet  comprised of Company  vehicles (as
opposed to vehicles provided by independent contractors),  from 89.5% in 2001 to
90.2% in 2002.  These factors were partially offset by lower average fuel prices
in 2002  compared to 2001.  The Company  maintains a fuel  surcharge  program to
assist us in  recovering a portion of increased  fuel costs.  For the year ended
December 31, 2002, fuel surcharge was $6.4 million, compared to $9.1 million for
the same period in 2001 as a result of lower fuel  prices.  As a  percentage  of
total  revenue,  including  fuel  surcharge,  fuel expense  remained  relatively
constant at 15.6% for 2002 and 15.5% for 2001, as lower fuel prices in 2002 were
offset by lower collection of fuel surcharge revenue during that year.

     Operations and  maintenance  expense  increased as a percentage of revenue,
before fuel  surcharge,  to 6.1% for 2002 from 5.7% in 2001.  This  increase was
primarily due to a slight aging of the Company's fleet,  along with the increase
in the ratio of Company  operated  vehicles to independent  contractor  operated
vehicles. Independent contractors pay for the maintenance on their own vehicles.

     Insurance and claims expense  increased as a percentage of revenue,  before
fuel  surcharge,  to 4.4% for 2002,  compared to 4.2% for 2001,  primarily  as a
result of the increase in insurance premiums and an increase in the frequency of
claims experienced by the Company.

     Operating taxes and license expense as a percentage of revenue, before fuel
surcharge,  decreased to 2.6% for 2002 from 2.9% for 2001. The decrease resulted
primarily from a relative  increase in miles run in lower tax rate states and an
increase in equipment utilization for 2002.

     Communications  expenses as a percentage of revenue, before fuel surcharge,
remained relatively consistent at 0.9% and 1.0% for 2002 and 2001, respectively.

     Depreciation  and amortization  expense,  as a percentage of revenue before
fuel surcharge,  increased to 8.2% for 2002 from 7.6% in 2001. This increase was
primarily  related  to the  increase  in the  percentage  of our  Company  fleet
comprised of purchased vehicles.  At December 31, 2002, 74% of our Company fleet
was comprised of purchased  vehicles,  compared to 67% at December 31, 2001. Our
Company fleet includes  purchased vehicles and vehicles acquired under operating
leases,  while our total fleet includes vehicles in our Company fleet as well as
vehicles provided by independent contractors.

     Lease expense for revenue equipment as a percentage of revenue, before fuel
surcharge,  was  3.4%  for  2002,  compared  to 3.5% for  2001.  Several  of our
operating lease  agreements have variable  payment terms that are amortized on a
straight-line basis.

     Purchased  transportation  expense as a percentage of revenue,  before fuel
surcharge, decreased to 7.8% in 2002 from 9.7% in 2001, primarily as a result of
a  decrease  in the  percentage  of our total  fleet  comprised  of  independent
contractors  (as opposed to Company  drivers).  As of December 31, 2002, 9.8% of
our fleet was operated by independent contractors, compared to 10.5% at December
31,  2001.  As of December  31,  2002,  the Company had 209  tractors  owned and
operated by independent contractors, compared to 200 tractors owned and operated
by  independent  contractors  at December  31,  2001.  Purchased  transportation
represents the amount an  independent  contractor is paid to haul freight for us
on a mutually  agreed  per-mile  basis.  To assist us in  continuing  to attract
independent   contractors,   we  provide  financing  to  qualified   independent
contractors to assist them in acquiring  revenue  equipment.  As of December 31,
2002, we had $2.4 million in loans  outstanding  to  independent  contractors to
purchase  revenue  equipment.  These  loans are  secured by liens on the revenue
equipment we finance.

                                       22

     Miscellaneous  operating  expenses as a percentage of revenue,  before fuel
surcharge,  decreased  to 2.5% for 2002  from  2.9% in  2001,  primarily  due to
decreased travel expenses and increases in equipment utilization.

     As a result of the above factors,  our operating ratio (operating expenses,
net of fuel  surcharge,  expressed  as a  percentage  of  revenue,  before  fuel
surcharge) was 83.0% for 2002, compared to 83.6% for 2001.

     Net interest  and other  expense as a  percentage  of revenue,  before fuel
surcharge,  decreased  to 0.1%  for  2002  from  0.7% for  2001,  excluding  the
write-off in 2001 of our $5.7 million  investment in Terion,  Inc. This decrease
was primarily the result of the Company's ability to reduce its outstanding debt
to approximately  $14.9 million at December 31, 2002,  compared to $18.1 million
at December 31, 2001.  Debt  reduction  was  facilitated,  in part,  by proceeds
obtained  from the public  offering of our Common Stock that closed  November 7,
2001.  Also,  our interest  income was higher in 2002  compared to 2001 due to a
higher average cash balance in 2002.

     Income taxes have been provided at the  statutory  federal and state rates,
adjusted for certain permanent  differences  between financial  statement income
and income for tax  reporting.  Our effective  tax rate was remained  relatively
constant at 41.0% for 2002 and 40.7% for 2001.

     Income tax  expense as a  percentage  of revenue,  before  fuel  surcharge,
increased to 6.9% for 2002,  from 5.4% for 2001,  primarily due to the recording
of the  non-recurring  charge of our  investment in Terion in 2001, as discussed
below, along with a change in the mix of state tax liabilities.

     As a result of the preceding  changes,  our net income,  as a percentage of
revenue  before fuel  surcharge,  was 10.0% for 2002,  compared to 7.9% in 2001.
This percentage was 9.3% for 2001,  excluding the write-off of our investment in
Terion, as discussed below.

     During the third  quarter of 2001,  we recorded a  non-recurring  charge of
$5.7 million to record the write-off of our entire  investment  in Terion,  Inc.
("Terion"),  a communications  technology company,  that we made during 1998 and
1999.  We owned less than four  percent of Terion and did not derive any revenue
from our  investment.  We elected to  write-off  our  investment  for  financial
accounting  purposes after Terion  announced  that it would cease  operating its
on-cab communications system. In January 2002, Terion filed for protection under
Chapter 11 of the federal  bankruptcy  laws.  The impact on earnings per diluted
share was $0.10 for the year ended December 31, 2001. This write-off resulted in
a reduction of net income, as a percentage of revenue before fuel surcharge,  of
1.5% for the fiscal year ended December 31, 2001.

Liquidity and Capital Resources

     The growth of our business has required,  and will  continue to require,  a
significant  investment  in  new  revenue  equipment.  Our  primary  sources  of
liquidity have been funds  provided by operations,  and to a lesser extent lease
financing arrangements, issuances of equity securities, and borrowings under our
line of credit.

     Net cash provided by operating  activities was approximately $84.4 million,
$55.5 million, and $46.2 million for the years ended December 31, 2003, 2002 and
2001,  respectively.  The  increase  for 2003 was  primarily  the  result  of an
increase in revenue  coupled with an  improvement  in our  operating  ratio,  an
increase in claims reserve balances resulting from higher self insurance levels,
and improvements made in our collection of accounts receivable.

     Capital  expenditures  for  the  purchase  of  revenue  equipment,  net  of
trade-ins,  office  equipment,  land and leasehold  improvements,  totaled $70.3
million,  $41.8 million and $30.4 million for the years

                                       23

ended December 31, 2003, 2002 and 2001,  respectively.  We currently  anticipate
capital expenditures, net of trade-ins, of approximately $80.0 million for 2004.
We expect these capital  expenditures  will be applied  primarily to acquire new
revenue equipment.

     Net cash used for financing  activities was approximately $12.7 million and
$1.1 million for the years ended December 31, 2003 and 2002,  respectively.  Net
cash used for  financing  during these periods was primarily for the payments on
our line of credit and  long-term  debt,  which was  retired in full  during the
fourth  quarter  of  2003.  Net  cash  provided  by  financing   activities  was
approximately $5.9 million for the year ended December 31, 2001,  primarily as a
result of the net proceeds of an underwritten  stock offering,  partially offset
by principal and interest payments on debt.

     At  December  31,  2003,  we did not have  any  borrowing  outstanding.  We
currently  maintain a line of credit,  which permits  revolving  borrowings  and
letters of credit  totaling  $10.0  million.  At December 31, 2003,  the line of
credit  consisted  solely of issued but unused  letters of credit  totaling $7.7
million.  Historically this line of credit had been maintained at $50.0 million.
However, due to our continued strong positive cash position, and in an effort to
minimize bank fees, we do not believe a revolving  credit facility or term loans
are  necessary  to meet our current and  anticipated  near-term  cash needs.  We
believe any necessary  increase in our line of credit to provide for a revolving
line or credit or term loans  could be  accomplished  quickly as needed.  We are
obligated to comply with certain  financial  covenants  under our line of credit
and were in compliance with these covenants at December 31, 2003, 2002 and 2001.

     As  of  December  31,  2003,  we  held  $40.6  million  in  cash  and  cash
equivalents.  Management believes we will be able to finance our near term needs
for working  capital over the next twelve  months,  as well as  acquisitions  of
revenue  equipment  during  such  period,  with cash  balances,  cash flows from
operations,  and  borrowings  and  operating  lease  financing  believed  to  be
available from financing sources.  We will continue to have significant  capital
requirements  over the  long-term,  which may  require  us to incur debt or seek
additional  equity capital.  The availability of additional  capital will depend
upon  prevailing  market  conditions,  the market  price of our common stock and
several  other  factors  over  which  we have  limited  control,  as well as our
financial condition and results of operations. Nevertheless, based on our recent
operating  results,  current cash position,  anticipated  future cash flows, and
sources of  financing  that we expect will be  available to us, we do not expect
that we will experience any significant liquidity constraints in the foreseeable
future.

Off-Balance Sheet Transactions

     Our liquidity is not materially affected by off-balance sheet transactions.
Like many other trucking companies, historically we have utilized non-cancelable
operating leases to finance a portion of our revenue equipment acquisitions.  At
December 31, 2003, we leased 393 tractors  under  operating  leases with varying
termination  dates ranging from January 2004 to April 2006.  Vehicles held under
operating  leases are not carried on our balance  sheet,  and lease  payments in
respect of such vehicles are reflected in our income statements in the line item
"Lease expense - revenue  equipment."  Our rental  expense  related to operating
leases was $7.6  million in 2003,  compared to $9.4  million in 2002.  The total
amount  outstanding  under  operating  leases as of December 31, 2003,  was $7.2
million,  with $3.8  million  due in the next 12 months.  The  effective  annual
interest rates under these operating leases range from 5.2% to 6.6%.

                                       24




Tabular Disclosure of Contractual Obligations

     The following  table sets forth,  as of December 31, 2003, our  contractual
obligations and payments due by corresponding period for our short and long term
operating expenses, including operating leases and other commitments.


                                                                                         
            Contractual Obligations                             Payments (in thousands) due by period
- ------------------------------------------------ ---------------------------------------------------------------------
                                                              Less than 1                                More than 5
                                                   Total         year        1-3 years     3-5 years        years
                                                 ----------- -------------- ------------- ------------- --------------
Operating Lease Obligations(1)                       $7,162         $3,781        $3,381            --             --
Purchase Obligations (Revenue Equipment)(2)         $46,500        $46,500            --            --             --
                                                 ----------- -------------- ------------- ------------- --------------
Total                                               $53,662        $50,281        $3,381            --             --
                                                 =========== ============== ============= ============= ==============


(1)  Operating Lease  Obligations  consists of amounts due under  non-cancelable
     operating leases for the leasing of certain revenue equipment.

(2)  Purchase  Obligations  (Revenue  Equipment)  represents  the total purchase
     price under  commitments  to purchase  tractors and trailers  scheduled for
     delivery  throughout 2004. Net of estimated  trade-in values, the estimated
     amount due under these commitments is approximately $39.0 million.

Critical Accounting Policies and Estimates

     The  preparation  of financial  statements  in accordance  with  accounting
principles  generally  accepted in the United  States of America  requires  that
management  make a number of assumptions  and estimates that affect the reported
amounts  of  assets,  liabilities,  revenue  and  expenses  in our  consolidated
financial  statements and accompanying notes.  Management bases its estimates on
historical  experience and various other assumptions  believed to be reasonable.
Although  these  estimates are based on  management's  best knowledge of current
events and actions that may impact the Company in the future, actual results may
differ from these estimates and assumptions.  Our critical  accounting  policies
are  those  that  affect  our  financial  statements  materially  and  involve a
significant level of judgment by management.

     Revenue  Recognition.  We generally  recognize  revenue upon  delivery of a
shipment.

     Depreciation.  Property and equipment are stated at cost.  Depreciation  on
property and equipment is calculated by the straight-line method over the useful
life of the property or equipment,  which ranges from five to thirty years, with
salvage  values  ranging  from 10% to 40%. We  periodically  evaluate the useful
lives and salvage values of our property and equipment  based upon,  among other
things,  our  experience  with similar  assets,  including  gains or losses upon
dispositions of such assets.

     Claims Reserves and Estimates. Reserves and estimates for claims is another
of our critical accounting  policies.  The primary claims arising for us consist
of  cargo   liability,   personal  injury,   property   damage,   collision  and
comprehensive, workers' compensation, and employee medical expenses. We maintain
self-insurance  levels  for  these  various  areas of risk and have  established
reserves to cover these self-insured liabilities.  We also maintain insurance to
cover liabilities in excess of the self-insurance  amounts.  The claims reserves
represent  accruals  for the  estimated  uninsured  portion of  pending  claims,
including  adverse  development  of known  claims,  as well as incurred  but not
reported claims. These estimates are based on historical information,  primarily
our own claims  experience and the experience of our third party  administrator,
along with certain  assumptions  about future events.  Changes in assumptions as
well as changes in actual  experience  could cause these  estimates to change in
the near

                                       25

term.  The  significant  recent  increases  in our  self-insured  retention  for
personal  injury and  property  damage  claims,  from  $100,000  in 2000 to $2.0
million  currently,  amplify  the  importance  and  potential  impact  of  these
estimates.

     Estimates also are involved in other aspects of our business. For instance,
we make similar types of estimates concerning the collectibility of our accounts
receivable and the  concentration of our credit exposure based on our historical
experience and certain assumptions about future events.

     Accounting for Income Taxes. Significant management judgment is required in
determining our provision for income taxes and in determining  whether  deferred
tax  assets  will be  realized  in full or in  part.  Deferred  tax  assets  and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  When it is more likely than not that all or some portion
of specific deferred tax assets, such as certain tax credit carryovers, will not
be realized,  a valuation  allowance must be  established  for the amount of the
deferred  tax assets  that are  determined  not to be  realizable.  A  valuation
allowance  for  deferred  tax assets has not been  deemed  necessary  due to the
Company's profitable operations.  Accordingly, if the facts or financial results
were to change,  thereby  impacting the likelihood of realizing the deferred tax
assets,  judgment  would have to be applied to determine the amount of valuation
allowance required in any given period. We continually  evaluate strategies that
would allow for the future  utilization of our deferred tax assets and currently
believe we have the ability to enact  strategies  to fully  realize our deferred
tax  assets  should  our  earnings  in  future  periods  not  support  the  full
realization of the deferred tax assets.

Seasonality

     In the  transportation  industry,  results of operations  frequently show a
seasonal pattern. Seasonal variations may result from weather or from customer's
reduced shipments after the busy winter holiday season. To date, our revenue has
not shown any significant seasonal pattern.  Because we operate significantly in
Arizona,  California and the western United States, winter weather generally has
not adversely  affected our business.  Continued  expansion of our operations in
the Midwest,  Rocky Mountain area, East Coast, and the Southeast could expose us
to  greater  operating  variances  due to  seasonal  weather  in these  regions.
Shortages  of energy and related  issues in  California,  and  elsewhere  in the
western United  States,  could result in an adverse effect on our operations and
demand for our services if these shortages  continue or increase.  This risk may
also exist in other regions in which we operate,  depending upon availability of
energy.

                                       26



Selected Quarterly Financial Data

     The following  table sets forth  certain  unaudited  information  about our
revenue and  results of  operations  on a quarterly  basis for 2003 and 2002 (in
thousands, except per share data):

                                                                                       
                                                                             2003
                                         -----------------------------------------------------------------------------
                                              Mar 31             June 30             Sept 30             Dec 31
                                         ------------------ ------------------- ------------------ --------------------
Revenue, before fuel surcharge                $ 73,551            $ 81,790           $ 84,445           $ 87,070
Income from operations                          11,853              14,958             15,818             16,820
Net Income                                       7,077               8,950              9,463              9,968
Earnings per Common share:
     Basic                                     $  0.19             $  0.24            $  0.25            $  0.27
                                         ------------------ ------------------- ------------------ -------------------
     Diluted                                   $  0.19             $  0.23            $  0.25            $  0.26
                                         ------------------ ------------------- ------------------ -------------------

                                                                             2002
                                         -----------------------------------------------------------------------------
                                              Mar 31             June 30             Sept 30             Dec 31
                                         ------------------ ------------------- ------------------ -------------------

Revenue, before fuel surcharge                $ 61,890            $ 68,307           $ 72,777           $ 76,386
Income from operations                           9,410              11,315             12,498             14,271
Net Income                                       5,553               6,704              7,437              8,241
Earnings per Common share:
     Basic                                     $  0.15             $  0.18            $  0.20            $  0.22
                                         ------------------ ------------------- ------------------ -------------------
     Diluted                                   $  0.15             $  0.18            $  0.20            $  0.22
                                         ------------------ ------------------- ------------------ -------------------


Recently Adopted and to be Adopted Accounting Pronouncements

     In June  2002,  the FASB  issued  SFAS  No.  146,  "Accounting  for Exit or
Disposal  Activities."  SFAS No. 146 addresses the recognition,  measurement and
reporting  of costs  associated  with exit and  disposal  activities,  including
restructuring  activities.  SFAS No. 146 also  addresses  recognition of certain
costs related to terminating a contract that is not a capital lease, recognition
of costs to  consolidate  facilities or relocate  employees and  recognition  of
costs for termination of benefits  provided to employees that are  involuntarily
terminated  under the terms of a  one-time  benefit  arrangement  that is not an
ongoing benefit  arrangement or an individual  deferred  compensation  contract.
SFAS No. 146 applies to exit or disposal activities initiated after December 31,
2002.  The  adoption  of SFAS No.  146 did not  have a  material  impact  on our
consolidated financial statements.

     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness to Others,  an  interpretation of FASB Statements No.
5,  57  and  107  and  a  rescission  of  FASB   Interpretation  No.  34."  This
interpretation  elaborates on the  disclosures  to be made by a guarantor in its
interim and annual financial  statements about its obligations  under guarantees
issued.  This  interpretation  also  clarifies  that a guarantor  is required to
recognize at the inception of a guarantee, a liability for the fair value of the
obligation  undertaken.  The initial  recognition and measurement  provisions of
this  interpretation  apply to guarantees  issued or modified after December 31,
2002. The disclosure  requirements apply to financial statements for interim and
annual  periods  ending  after  December  31,  2002.  The  application  of  this
interpretation  did not have a  material  effect on our  consolidated  financial
statements.

     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
Variable  Interest  Entities,  an interpretation of ARB No. 51.", which was then
revised in December 2003. This  interpretation  addresses the  consolidation  by
business   enterprises  of  variable   interest  entities  as  defined  in  this
interpretation.  This  interpretation  applies to variable interests in variable
interest entities created after

                                       27

January 31,  2003,  and to variable  interests  in  variable  interest  entities
obtained after January 31, 2003. For public enterprises with a variable interest
in  a  variable   interest   entity  created  before   February  l,  2003,  this
interpretation  applies to that  enterprise  no later than the  beginning of the
first interim or annual  reporting period beginning after December 15, 2003. The
application of this  interpretation is not expected to have a material effect on
our consolidated financial statements.

     In April 2003,  the Financial  Accounting  Standards  Board issued SFAS No.
149,  "Amendment  of  Statement  133  on  Derivative   Instruments  and  Hedging
Activities."  SFAS  No.  149  amends  and  clarifies  financial  accounting  and
reporting for derivative instruments embedded in other contracts and for hedging
activities  under SFAS No.  133,  "Accounting  for  Derivative  Instruments  and
Hedging Activities." It applies to contracts entered into or modified after June
30,  2003,  except  as  stated  within  the  statement,  and  is to  be  applied
prospectively.  The  adoption of SFAS No. 149 did not have a material  impact on
our consolidated financial statements.

     On May 15, 2003, the Financial  Accounting  Standards Board issued SFAS No.
150, "Accounting for Certain Financial  Instruments with Characteristics of Both
Liabilities  and  Equity."  SFAS  No.  150  requires   issuers  to  classify  as
liabilities  (or assets in some  circumstances)  three  classes of  freestanding
financial  instruments that embody obligations for the issuer.  Generally,  SFAS
No. 150 applies to financial  instruments entered into or modified after May 31,
2003 and otherwise became effective at the beginning of the first interim period
beginning after June 15, 2003. We adopted the provisions of SFAS No. 150 on July
1, 2003.  The  adoption  of SFAS No.  150 did not have a material  impact on our
consolidated financial statements.

     In December 2003, the  Securities  and Exchange  Commission  ("SEC") issued
Staff Accounting Bulletin No. 104 ("SAB No. 104"), "Revenue Recognition",  which
codifies,  revises  and  rescinds  certain  sections  of SAB No.  101,  "Revenue
Recognition",  in order  to make  this  interpretive  guidance  consistent  with
current  authoritative  accounting  and  auditing  guidance  and SEC  rules  and
regulations.  The changes noted in SAB No. 104 did not have a material effect on
our consolidated financial statements.

Factors That May Affect Future Results

     Our future  results may be  affected  by a number of factors  over which we
have little or no control.  Fuel prices,  insurance and claims costs,  liability
claims,  regulatory requirements that may increase costs or decrease efficiency,
including revised hours-of-service requirements for drivers, the availability of
qualified drivers,  interest rates,  fluctuations in the resale value of revenue
equipment,  economic  and  customer  business  cycles and  shipping  demands are
factors over which we have little or no control.  Significant increases or rapid
fluctuations  in fuel prices,  interest  rates or  insurance  costs or liability
claims,  and increases in costs of  compliance  with, or decreases in efficiency
resulting  from,  regulatory  requirements,  to the  extent  not  offset by fuel
surcharges  and increases in freight rates,  as well as downward  changes in the
resale value of revenue equipment,  could reduce our profitability.  Weakness in
the general  economy,  including  a weakness  in  consumer  demand for goods and
services,  could adversely affect our customers and our growth and revenues,  if
customers reduce their demand for transportation services.  Weakness in customer
demand for our services or in the general rate environment may also restrain our
ability to increase rates or obtain fuel surcharges.  It is also not possible to
predict the effects of terrorist attacks and subsequent events on the economy or
on customer  confidence  in the United  States,  or the  impact,  if any, on our
future results of operations.

     The following issues and uncertainties,  among others, should be considered
in evaluating our business and growth outlook.

     Our growth may not continue at historic rates

     We have  experienced  significant  and rapid  growth in revenue and profits
since the inception of our business in 1990.  There can be no assurance that our
business will continue to grow in a similar fashion in the future or that we can
effectively  adapt our management,  administrative,  and operational  systems to
respond  to any  future  growth.  Further,  there can be 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.

                                       28

     Ongoing  insurance  and  claims  expenses  could  significantly  reduce our
earnings

     Our future  insurance and claims expenses might exceed  historical  levels,
which could reduce our earnings.  During 2003, we were self-insured for personal
injury  and  property  damage   liability,   cargo   liability,   collision  and
comprehensive up to a maximum limit of $2.0 million per occurrence up from $1.75
million  per  occurrence  in  2002.  Our  maximum  self-retention  for  workers'
compensation  where a traffic accident is not involved remained constant in 2003
at  $500,000  per   occurrence.   For  2004,   we  have   retained  our  maximum
self-retention  for  personal  injury  and  property  damage  liability,   cargo
liability,  collision,  and  comprehensive  at $2.0 million per  occurrence.  We
maintain insurance with licensed insurance companies above the amounts for which
we  self-insure.  Our insurance  policies for 2003 provided for excess  personal
injury  and  property  damage  liability  up to a total  of  $35.0  million  per
occurrence  and  cargo   liability,   collision,   comprehensive   and  workers'
compensation coverage up to a total of $10.0 million per occurrence.  Subsequent
to December 31, 2003,  the $35.0 million in excess  coverage per  occurrence for
personal  injury and property  damage has been increased to $40.0  million.  Our
personal injury and property damage policies also include  coverage for punitive
damages where such coverage is allowed.

     If the  number  of  claims  for which we are  self-insured  increases,  our
operating results could be adversely affected. After several years of aggressive
pricing in the 1990s,  insurance  carriers  raised  premiums  and sought  higher
self-insurance  retention  levels,  which  increased  our  insurance  and claims
expense.  The  terrorist  attacks of  September  11, 2001,  exacerbated  already
difficult  conditions  in  the  United  States  insurance  market  resulting  in
additional  increases  in our  insurance  expenses.  If these costs  continue to
increase, or if the severity or number of claims increase,  and if we are unable
to offset the resulting  increases in expenses with higher  freight  rates,  our
earnings could be materially and adversely affected.

     Increased  prices  for,  or  increased  costs  of  operating,  new  revenue
equipment  and decreases in the value of used revenue  equipment may  materially
and adversely affect our earnings and cash flow.

     Our growth has been made  possible  through  the  addition  of new  revenue
equipment.  Difficulty  in  financing or obtaining  new revenue  equipment  (for
example, delivery delays from manufacturers or the unavailability of independent
contractors) could restrict future growth.

     We currently have fixed amount repurchase, trade-in, or residual agreements
with equipment  manufacturers  covering the substantial  majority of our tractor
fleet and a  considerable  portion of our trailer fleet.  In some cases,  we are
required to purchase a specified  quantity  of  replacement  equipment  from the
manufacturer  in order to  obtain  the  benefit  of  these  agreements.  Current
developments in the secondary tractor and trailer resale market have resulted in
a large supply of used  tractors and trailers on the market.  This has depressed
the market value of used equipment to levels, in some cases  significantly below
the prices at which the  manufacturers  have agreed to repurchase the equipment.
Accordingly,  some  manufacturers  may refuse or be  financially  unable to keep
their  commitments  to  repurchase  equipment  according  to  the  terms  of our
agreements  with  them.  If  manufacturers   refuse  or  unable  to  meet  their
obligations  under our  agreements  with them,  or if we decline to purchase the
specified number of replacement  units from the  manufacturers,  we may suffer a
financial loss upon the  disposition  of our  equipment,  and could be forced to
write down the value of our used equipment.

     The EPA recently adopted new emissions control  regulations,  which require
progressive  reductions in exhaust  emissions from diesel engines  through 2007,
for engines  manufactured in October 2002 and thereafter.  In part to offset the
costs  of  compliance  with  the  new  EPA  engine  design  requirements,   some
manufacturers have  significantly  increased new equipment prices and eliminated
or sharply  reduced  the price of  repurchase  or trade-in  commitments.  If new
equipment prices were to

                                       29

increase, or if the price of repurchase  commitments by equipment  manufacturers
were to  decrease,  more than  anticipated,  we may be required to increase  our
depreciation  and financing  costs and/or  retain some of our equipment  longer,
with a resulting increase in maintenance  expenses.  To the extent we are unable
to offset any such  increases in expenses  with rate  increases or cost savings,
our results of operations would be adversely affected. Additionally, the cost of
operating the new  EPA-compliant  engines is expected to be somewhat higher than
the cost of  operating  engines  manufactured  prior to  October  1,  2002,  due
primarily  to  lower   anticipated   fuel  efficiency  and  potentially   higher
maintenance  expenses. If our fuel or maintenance expenses were to increase as a
result of our use of the new, EPA-compliant engines, and we are unable to offset
such  increases with fuel  surcharges or higher  freight  rates,  our results of
operations  would be adversely  affected.  Further,  our business and operations
could be adversely  impacted if we experience  problems with the  reliability of
the new  engines.  We began  operating  tractors  with  engines  meeting the EPA
guidelines  during  2003.  Although  we have  not  experienced  any  significant
reliability issues with these engines to date, the expenses  associated with the
tractors  containing these engines have been slightly  elevated,  primarily as a
result lower fuel efficiency and slightly higher depreciation.

     If fuel prices increase  significantly,  our results of operations could be
adversely affected.

     We are  subject  to risk with  respect  to  purchases  of fuel.  Prices and
availability of petroleum products are subject to political, economic and market
factors that are generally  outside our control.  Political events in the Middle
East,  Venezuela  and  elsewhere  may also cause the price of fuel to  increase.
Because our operations are dependent upon diesel fuel,  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.  Historically,  we have
sought  to  recover  a portion  of  short-term  increases  in fuel  prices  from
customers through fuel surcharges.  Fuel surcharges that can be collected do not
always fully offset the increase in the cost of diesel fuel.

     If the growth in our regional operations throughout the United States slows
or stagnates, or if we are unable to commit sufficient resources to our regional
operations, our results of operations could be adversely affected.

     Currently,  a significant  portion of our business is  concentrated  in the
Arizona and California markets. A general economic decline or a natural disaster
in either of these markets could have a materially  adverse effect on our growth
and  profitability.  If we are not able to continue  our  successful  growth and
expansion into the Midwest,  South Central,  Southeastern and Southern  regions,
and on the East Coast,  our growth and  profitability  could be  materially  and
adversely  affected by general economic  declines or natural  disasters in those
markets.

     In  addition  to  our  regional  facility  in  Phoenix,  Arizona,  we  have
established  regional  operations  in Salt Lake City,  Utah;  Portland,  Oregon;
Denver,  Colorado;  Kansas City,  Kansas;  Katy, Texas;  Indianapolis,  Indiana;
Charlotte, North Carolina; Gulfport,  Mississippi;  Memphis, Tennessee; Atlanta,
Georgia;  and Las Vegas,  Nevada,  in order to serve  markets in these  regions.
These regional operations require the commitment of additional revenue equipment
and personnel, as well as management resources,  for future development.  Should
the growth in our  regional  operations  throughout  the United  States  slow or
stagnate,  the results of our  operations  could be adversely  affected.  We may
encounter  operating  conditions in these new markets that differ  substantially
from those  previously  experienced in our western United States markets.  There
can be no assurance  that our regional  operating  strategy,  as employed in the
western United States, can be duplicated  successfully in the other areas of the
United  States or that it will not take longer  than  expected or require a more
substantial financial commitment than anticipated.

                                       30

     Our operations are subject to various governmental  regulations which limit
our business and the  violation  of which could result in  substantial  fines or
penalties.

     The DOT and various state and local agencies exercise broad powers over our
business,  generally  governing such  activities as  authorization  to engage in
motor carrier operations,  safety, and insurance  requirements.  The DOT adopted
revised  hours-of-service  regulations for drivers on April 28, 2003 that became
effective on January 4, 2004. The revised regulations could reduce the potential
or practical amount of time that drivers can spend driving,  if we are unable to
limit their other on-duty  activities.  These changes could adversely affect our
profitability  if shippers  are  unwilling to assist us in managing the drivers'
non-driving  activities,  such as  loading,  unloading,  and  waiting.  If these
changes  reduce our miles per truck or increase our costs and these  effects are
not offset by higher rates or the collection of detention or other charges,  our
operating  results  could be  materially  and  adversely  affected.  Our company
drivers and independent contractors also must comply with the safety and fitness
regulations promulgated by the DOT, including those relating to drug and alcohol
testing.  We also may  become  subject  to new or more  restrictive  regulations
relating to ergonomics or other matters. In addition to direct regulation by the
DOT and other  agencies,  our  business  also is subject  to the  effects of new
tractor  engine design  requirements  implemented  by the EPA such as those that
became  effective  October 1, 2002, and are expected to become effective in 2007
which are  discussed  above  under  "Factors  That May Affect  Future  Results -
Increased prices for, or increased costs of operating, new revenue equipment and
decreases in the value of used revenue  equipment may  materially  and adversely
affect  our  earnings  and  cash  flow."  Additional  changes  in the  laws  and
regulations  governing or impacting  our industry  could affect the economics of
the industry by requiring  changes in operating  practices or by influencing the
demand for, and the costs of providing, services to shippers.

     We are subject to various  environmental laws and regulations  dealing with
the  handling  of  hazardous  materials,  underground  fuel  storage  tanks  and
discharge and retention of  stormwater.  We operate in industrial  areas,  where
truck  terminals  and  other  industrial   facilities  are  located,  and  where
groundwater or other forms of  environmental  contamination  have occurred.  Our
operations involve the risks of fuel spillage or seepage,  environmental damage,
and hazardous waste disposal,  among others. Two of our terminal  facilities are
located adjacent to environmental  "superfund" sites.  Although we have not been
named as a  potentially  responsible  party in either case,  we are  potentially
exposed to claims that we may have contributed to environmental contamination in
the areas in which we  operate.  We also  maintain  bulk fuel  storage  and fuel
islands at several of our facilities.

     If we are  involved  in a  spill  or  other  accident  involving  hazardous
substances,  or if we  are  found  to be in  violation  of  applicable  laws  or
regulations,  it could have a  materially  adverse  effect on our  business  and
operating  results.  If we should fail to comply with  applicable  environmental
regulations,  we could be subject to substantial fines or penalties and to civil
and criminal liability.

     Difficulty  in  driver  and  independent  contractor  retention  may have a
materially adverse affect on our business.

     Difficulty  in  attracting  or  retaining   qualified  drivers,   including
independent contractors could have a materially adverse effect on our growth and
profitability.  Our independent contractors 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  compensation  from us or seek other
opportunities within or outside the trucking industry. In addition,  competition
for drivers, which is always intense,  increased during the second half of 2003.
If a shortage  of drivers  should  occur,  or if we were  unable to  continue to
attract and  contract  with  independent  contractors,  we could  experience  an
increase in the number of our tractors  without  drivers,  which would lower our
profitability,  or be required to adjust our driver compensation package,  which
could  adversely  affect  our  profitability  if not  offset by a  corresponding
increase in rates.

                                       31

     We are highly dependent on a few major  customers,  the loss of one or more
of which could have a materially adverse effect on our business.

     A significant  portion of our revenue is generated from a limited number of
major  customers.  For the year ended  December 31, 2003,  our top 25 customers,
based on revenue,  accounted for  approximately  49% of our revenue;  our top 10
customers,   approximately  29%  of  our  revenue;  and  our  top  5  customers,
approximately  18%  of  our  revenue.  Generally,  we  do  not  have  long  term
contractual  relationships  with our major  customers,  and we cannot assure you
that our  customer  relationships  will  continue  as  presently  in  effect.  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 operating
results.

     Terion trailer-tracking  technology may not be available to us, which could
require us to incur the cost of replacement technology, and adversely affect our
trailer utilization and our ability to assess detention charges.

     We utilize Terion's  trailer-tracking  technology to assist with monitoring
the majority of our  trailers.  Terion has emerged from a Chapter 11  bankruptcy
and a plan of  reorganization  has been  approved by the  Bankruptcy  Court.  If
Terion ceases operations or abandons that trailer-tracking  technology, we would
be required to incur the cost of replacing that technology or could be forced to
operate  without  this  technology,  which  could  adversely  affect our trailer
utilization and our ability to assess detention charges.

     Our  investment in Concentrek may not be successful and we may be forced to
write off part or all of our investment.

     In April 1999, we invested approximately $200,000 to acquire a 17% minority
interest in Concentrek, Inc. ("Concentrek"), a transportation logistics company,
the remainder of which is owned by members of the Knight family and Concentrek's
management. We also have loaned funds to Concentrek on a secured basis to fund a
portion of its start-up costs.  At December 31, 2003, the outstanding  amount of
these loans was approximately $2.0 million.  If Concentrek's  financial position
does not continue to improve,  and if it is unable to raise additional  capital,
we could be forced to write down all or part of our investment.

     We may not be successful in our acquisition strategy, which could limit our
growth prospects.

     We may grow by  acquiring  other  trucking  companies  or trucking  assets.
Acquisitions could involve the dilutive issuance of equity securities and/or our
incurring  additional  debt. In addition,  acquisitions  involve numerous risks,
including:  difficulties in assimilating the acquired company's operations;  the
diversion of our management's  attention from other business concerns; the risks
of  entering  into  markets  in  which  we have  had no or only  limited  direct
experience;  and the potential  loss of customers,  key employees and drivers of
the acquired company, all of which could have a materially adverse effect on our
business and operating  results.  If we were to make acquisitions in the future,
we cannot assure you that we will be able to successfully integrate the acquired
companies or assets into our business.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

     We are  exposed to market risk  changes in  interest  rate on debt and from
changes in commodity prices.

     Under Financial  Accounting  Reporting Release Number 48 and Securities and
Exchange  Commission  rules  and  regulations,   we  are  required  to  disclose
information concerning market risk with

                                       32

respect to foreign exchange rates, interest rates, and commodity prices. We have
elected to make such disclosures, to the extent applicable,  using a sensitivity
analysis approach, based on hypothetical changes in interest rates and commodity
prices.

     Except as  described  below,  we have not had  occasion  to use  derivative
financial  instruments  for  risk  management  purposes  and do not use them for
either  speculation  or  tracking.  Because our  operations  are confined to the
United States, we are not subject to foreign currency risk.

     Interest Rate Risk

     We are  subject to  interest  rate risk to the extent the  Company  borrows
against  its  line of  credit  or  incurs  debt in the  acquisition  of  revenue
equipment. We attempt to manage our interest rate risk by managing the amount of
debt we carry. In the opinion of management,  an increase in short-term interest
rates could have a materially  adverse effect on our financial  condition if our
debt  levels  increase  and if the  interest  rate  increases  are not offset by
freight rate increases or other items.  Management does not foresee or expect in
the near  future  any  significant  changes in our  exposure  to  interest  rate
fluctuations  or in how that  exposure  is  managed  by us.  We have not  issued
corporate debt instruments.

     Commodity Price Risk

     We are also  subject to  commodity  price risk with respect to purchases of
fuel.  Prices and  availability of petroleum  products are subject to political,
economic and market factors that are generally outside our control.  Because our
operations are dependent upon diesel fuel,  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.  Historically,  we have sought to
recover a portion of our short-term fuel price increases from customers  through
fuel  surcharges.  Fuel  surcharges  that can be  collected  do not always fully
offset an  increase  in the cost of  diesel  fuel.  For the  fiscal  year  ended
December 31, 2003, fuel expense, net of fuel surcharge, represented 16.2% of our
total operating expenses, net of fuel surcharge,  compared to 16.4% for the same
period ending in 2002.

     We are  party to three  fuel  hedging  contracts  relating  to the price of
heating oil on the New York  Mercantile  Exchange  ("NYMX") that we entered into
between  October 2000 and February  2002 in  connection  with volume diesel fuel
purchases.  If the price of heating oil on the NYMX falls below $0.58 per gallon
we may be required to pay the  difference  between $0.58 and the index price (1)
for 1.0 million  gallons per month for any selected  twelve months through March
31, 2005,  and (2) for 750,000  gallons per month for the twelve months of 2005.
At  February  6, 2004,  the price of heating oil on the NYMX was $0.86 for March
2004  contracts.  For each $0.05 per gallon the price of heating  oil would fall
below $0.58 per gallon during the relevant  periods,  our potential  loss on the
hedging contracts would be approximately $1.0 million.  However, our net savings
on fuel costs  resulting  from lower fuel  prices  under our volume  diesel fuel
purchase contracts would be approximately $1.0 million, after taking the loss on
the hedging  contracts  into  consideration.  We have valued these items at fair
value in the accompanying December 31, 2003, consolidated financial statements.

Item 8. Financial Statements and Supplementary Data

     The  consolidated  balance  sheets  of  Knight  Transportation,   Inc.  and
Subsidiaries,  as of December  31, 2003 and 2002,  and the related  consolidated
statements of income, comprehensive income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 2003, together
with the related notes, the report of KPMG LLP,  independent  public accountants
for the years ended December 31, 2003 and 2002, respectively,  and the report of
Arthur Andersen LLP,  independent public accountants for the year ended December
31, 2001, are set forth at pages F-1 through F-21, below.

                                       33

Item 9. Changes in and Disagreements on Accounting and Financial Disclosure

     Not Applicable.

Item 9A. Controls and Procedures

     As required by Rule 13a-15 under the Exchange  Act, the Company has carried
out an  evaluation  of the  effectiveness  of the  design and  operation  of the
Company's disclosure controls and procedures as of the end of the period covered
by this report.  This  evaluation was carried out under the supervision and with
the  participation  of the Company's  management,  including our Chief Executive
Officer and our Chief Financial Officer.  Based upon that evaluation,  our Chief
Executive  Officer and Chief  Financial  Officer  concluded  that our disclosure
controls and  procedures  were  effective as of the end of the period covered by
this report.  During the Company's fourth fiscal quarter,  there were no changes
in the Company's internal control over financial  reporting that have materially
affected,  or that are  reasonably  likely to materially  affect,  the Company's
internal control over financial reporting.

     Disclosure  controls and procedures are controls and other  procedures that
are  designed  to  ensure  that  information  required  to be  disclosed  in the
Company's  reports  filed or  submitted  under  the  Exchange  Act is  recorded,
processed,  summarized  and reported  within the time  periods  specified in the
Securities and Exchange  Commission's rules and forms.  Disclosure  controls and
procedures  include controls and procedures  designed to ensure that information
required to be  disclosed  in Company  reports  filed under the  Exchange Act is
accumulated  and  communicated  to  management,  including the  Company's  Chief
Executive   Officer  as  appropriate,   to  allow  timely  decisions   regarding
disclosures.

     The  Company  has  confidence  in its  internal  controls  and  procedures.
Nevertheless,  the Company's  management,  including the Chief Executive Officer
and Chief Financial  Officer,  does not expect that our disclosure  controls and
procedures  or our  internal  controls  will  prevent all errors or  intentional
fraud. An internal  control  system,  no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of such
internal  controls are met.  Further,  the design of an internal  control system
must reflect the fact that there are resource  constraints,  and the benefits of
controls  must be  considered  relative to their costs.  Because of the inherent
limitations  in all internal  control  systems,  no  evaluation  of controls can
provide  absolute  assurance that all control issues and instances of fraud,  if
any, within the Company have been detected.

                                       34



                                    PART III

Item 10. Directors and Executive Officers of the Company

     We incorporate by reference the  information  contained  under the headings
"Proposal  No. 1 - Election  of Class III  Directors,"  "Continuing  Directors,"
"Corporate   Governance  -  Executive  Officers  of  the  Company,"   "Corporate
Governance - The Board of Directors and Its Committees - Committees of the Board
of Directors - Audit Committee,"  "Corporate Governance -Compliance with Section
16(a) of the Exchange  Act," and  "Corporate  Governance - Code of Ethics," from
our  definitive  Proxy  Statement to be delivered to our in connection  with the
2004 Annual Meeting of Shareholders to be held May 21, 2004.

Item 11. Executive Compensation

     We incorporate by reference the  information  contained  under the headings
"Executive Compensation" and "Corporate Governance - Director Compensation" from
our definitive Proxy Statement to be delivered to our shareholders in connection
with the 2004 Annual Meeting of Shareholders to be held May 21, 2004;  provided,
however, that the Compensation  Committee Report on Executive  Compensation that
appears under the heading  "Executive  Compensation"  in such Proxy Statement is
not incorporated by reference.

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
Related Stockholder Matters

Securities Authorized For Issuance Under Equity Compensation Plans

     The following table provides certain information,  as of December 31, 2003,
with respect our compensation plans and other arrangements under which shares of
our Common Stock are authorized for issuance.

                                                                                     
                                        Equity Compensation Plan Information

                                                                                                Number of securities
                                                                                                 remaining eligible
                                               Number of securities                             for future issuance
                                                to be issued upon        Weighted average           under equity
                                                   exercise of           exercise price of       compensation plans
                                               outstanding options,     outstanding options    (excluding securities
                                               warrants and rights      warrants and rights          reflected
                                                                                                   in column (a))
               Plan category                           (a)                      (b)                     (c)
- --------------------------------------------- ----------------------  -----------------------  ------------------------
Equity compensation plans
approved by security holders                        1,626,785                 $13.02                  683,600

Equity compensation plans not
approved by security holders                                0                      0                        0
                                              ----------------------  -----------------------  ------------------------
Total                                               1,626,785                 $13.02                  683,600
                                              ======================  =======================  ========================


     We incorporate  by reference the  information  contained  under the heading
"Security  Ownership  of  Certain  Beneficial  Owners and  Management"  from our
definitive  Proxy  Statement to be delivered to our  shareholders  in connection
with the 2004 Annual Meeting of Shareholders to be held May 21, 2004.

                                       35


Item 13. Certain Relationships and Related Transactions

     We incorporate by reference the  information  contained  under the headings
"Executive   Compensation  -  Compensation   Committee  Interlocks  and  Insider
Participation"  and "Certain  Relationships and Related  Transactions"  from our
definitive  Proxy  Statement to be delivered to our  shareholders  in connection
with the 2004 Annual Meeting of Shareholders to be held May 21, 2004.

Item 14. Principal Accounting Fees and Services

     We incorporate  by reference the  information  contained  under the heading
"Principal  Accounting Fees and Services" from our definitive Proxy Statement to
be delivered to our  shareholders  in connection with the 2004 Annual Meeting of
Shareholders to be held May 21, 2004.

                                       36



                                     PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)  The  following  documents  are filed as part of this report on Form 10-K at
     pages F-1 through F-21, below.

     1. Consolidated Financial Statements:

          Knight Transportation, Inc. and Subsidiaries
          Report of KPMG LLP, Independent Public Accountants
          Report of Arthur Andersen, Independent Public Accountants
          Consolidated Balance Sheets as of December 31, 2003 and 2002
          Consolidated  Statements  of Income for the years ended  December  31,
          2003, 2002 and 2001
          Consolidated  Statements of  Comprehensive  Income for the years ended
          December 31, 2003, 2002 and 2001
          Consolidated  Statements of  Shareholders'  Equity for the years ended
          December 31, 2003, 2002 and 2001
          Consolidated Statements of Cash Flows for the years ended December 31,
          2003, 2002 and 2001
          Notes to Consolidated Financial Statements

     2.   Consolidated  Financial  Statement  Schedules  required to be filed by
          Item 8 and Paragraph (d) of Item 14:

          Valuation and Qualifying Accounts and Reserves

     Schedules not listed have been omitted because of the absence of conditions
under which they are required or because the required  material  information  is
included in the Consolidated  Financial  Statements or Notes to the Consolidated
Financial Statements included herein.

     3.   Exhibits:

     The Exhibits required by Item 601 of Regulation S-K are listed at paragraph
(c), below, and at the Exhibit Index appearing at the end of this report.

(b) Reports on Form 8-K:

     During the fourth  quarter ended December 31, 2003, the Company filed with,
or furnished to, the  Securities and Exchange  Commission the following  Current
Report on Form 8-K:

     Current  Report  on Form 8-K  dated  October  15,  2003  (furnished  to the
     Commission  on October 16, 2003)  regarding the issuance of a press release
     to report the Company's  financial  results for the quarter and nine months
     ended September 30, 2003.

                                       37



(c) Exhibits:

     The following exhibits are filed with this Form 10-K or incorporated herein
by reference to the document set forth next to the exhibit listed below:


      
Exhibit
Number                           Descriptions
- -------                          ------------

3.1     Restated  Articles  of  Incorporation  of  the  Company.  (Incorporated  by
        reference to Exhibit 3.1 to the  Company's  Registration  Statement on Form
        S-1 No. 33-83534.)

3.1.1   First  Amendment  to Restated  Articles of  Incorporation  of the  Company.
        (Incorporated by reference to Exhibit 3.1.1 to the Company's Report on Form
        10-K for the period ending December 31, 2000.)

3.1.2   Second  Amendment  to Restated  Articles of  Incorporation  of the Company.
        (Incorporated  by reference to Exhibit 3.1.2 to the Company's  Registration
        Statement on Form S-3 No. 333-72130.)

3.1.3   Third  Amendment  to Restated  Articles of  Incorporation  of the  Company.
        (Incorporated by reference to Exhibit 3.1.3 to the Company's Report on Form
        10-K for the period ending December 31, 2002.)

3.2     Restated Bylaws of the Company.  (Incorporated  by reference to Exhibit 3.2
        to the Company's Registration Statement on Form S-3 No. 333-72130.)

3.2.1   First  Amendment  to  Restated  Bylaws  of the  Company.  (Incorporated  by
        reference  to Exhibit  3.2.1 to the  Company's  Report on Form 10-K for the
        period ending December 31, 2002.)

4.1     Articles  4, 10 and 11 of the  Restated  Articles of  Incorporation  of the
        Company.  (Incorporated  by reference to Exhibit 3.1 to this Report on Form
        10-K.)

4.2     Sections 2 and 5 of the Restated  Bylaws of the Company.  (Incorporated  by
        reference to Exhibit 3.2 to this Report on Form 10-K.)

10.1    Purchase and Sale Agreement and Escrow  Instructions (All Cash) dated as of
        March 1, 1994,  between  Randy  Knight,  the Company,  and Lawyers Title of
        Arizona.  (Incorporated  by  reference  to  Exhibit  10.1 to the  Company's
        Registration Statement on Form S-1 No. 33-83534.)

10.1.1  Assignment and First  Amendment to Purchase and Sale Agreement and Escrow
        Instructions. (Incorporated by reference to Exhibit 10.1.1 to Amendment No.
        3 to the Company's Registration Statement on Form S-1 No. 33-83534.)

10.1.2  Second Amendment to Purchase and Sale Agreement and Escrow  Instructions.
        (Incorporated  by  reference to Exhibit  10.1.2 to  Amendment  No. 3 to the
        Company's Registration Statement on Form S-1 No. 33-83534.)

10.2    Net Lease and Joint Use  Agreement  between  Randy  Knight and the  Company
        dated as of March 1, 1994.  (Incorporated  by  reference to Exhibit 10.2 to
        the Company's Registration Statement on Form S-1 No. 33-83534.)


                                       38


     
10.2.1  Assignment and First Amendment to Net Lease and Joint Use Payment between
        L. Randy Knight, Trustee of the R. K. Trust dated April 1, 1993, and Knight
        Transportation,  Inc.  and  certain  other  parties  dated  March 11,  1994
        (assigning  the  lessor's  interest to the R. K. Trust).  (Incorporated  by
        reference to Exhibit  10.2.1 to the  Company's  Report on Form 10-K for the
        period ending December 31, 1997.)

10.2.2  Second  Amendment to Net Lease and Joint Use  Agreement  between L. Randy
        Knight,  as  Trustee  of the R. K.  Trust  dated  April 1, 1993 and  Knight
        Transportation,  Inc.,  dated as of  September  1, 1997.  (Incorporated  by
        reference to Exhibit  10.2.2 to the  Company's  Report on Form 10-K for the
        period ending December 31, 1997.)

10.3    Form of Purchase  and Sale  Agreement  and Escrow  Instructions  (All Cash)
        dated as of October  1994,  between the  Company  and Knight  Deer  Valley,
        L.L.C., an Arizona limited liability company. (Incorporated by reference to
        Exhibit 10.4.1 to Amendment No. 3 to the Company's  Registration  Statement
        on Form S-1 No. 33-83534.)

10.4    Amended and Restated Knight  Transportation,  Inc. Stock Option Plan, dated
        as of February  10,  1998.  (Incorporated  by reference to Exhibit 1 to the
        Company's Notice and Information Statement on Schedule 14(c) for the period
        ending December 31, 1997.)

10.5    Amended Indemnification Agreements between the Company, Don Bliss, Clark A.
        Jenkins, Gary J. Knight, Keith Knight, Kevin P. Knight, Randy Knight, G. D.
        Madden,  Minor Perkins and Keith Turley,  and dated as of February 5, 1997.
        (Incorporated  by reference to Exhibit 10.6 to the Company's Report on Form
        10-K for the period ending December 31, 1996).

10.5.1  Indemnification  Agreements  between the  Company and  Timothy M. Kohl  and
        Matt Salmon,  dated as of October 16, 2000, and May 9, 2001,  respectively.
        (Incorporated  by reference to Exhibit  10.6.1 to the  Company's  Report on
        Form 10-K for the period ending December 31, 2001.)

10.5.2* Indemnification  Agreements  between the  Company and Mark  Scudder and
        Michael Garnreiter,  dated as of November 10, 1999, and September 19, 2003,
        respectively.

10.6    Master  Equipment Lease Agreement dated as of January 1, 1996,  between the
        Company and Quad-K Leasing, Inc. (Incorporated by reference to Exhibit 10.7
        to the  Company's  Report on Form 10-K for the period  ended  December  31,
        1995.)

10.7    Purchase  Agreement  and  Escrow  Instructions  dated as of July 13,  1995,
        between the Company, Swift Transportation Co., Inc. and United Title Agency
        of Arizona.  (Incorporated  by reference  to Exhibit 10.8 to the  Company's
        Report on Form 10-K for the period ended December 31, 1995.)

10.7.1  First   Amendment  to  Purchase   Agreement  and  Escrow   Instructions.
        (Incorporated  by reference to Exhibit  10.8.1 to the  Company's  Report on
        Form 10-K for the period ended December 31, 1995.)

10.8    Purchase and Sale  Agreement  dated as of February  13,  1996,  between the
        Company and RR-1 Limited Partnership. (Incorporated by reference to Exhibit
        10.9 to the Company's Report on Form 10-K for the period ended December 31,
        1995.)

10.9    Asset  Purchase  Agreement  dated  March  13,  1999,  by and  among  Knight
        Transportation,  Inc.,  Knight  Acquisition  Corporation,  Action  Delivery
        Service,  Inc.,  Action  Warehouse  Services,  Inc.  and  Bobby  R.  Ellis.
        (Incorporated  by reference to Exhibit 2.1 to the


                                      39


     
        Company's  Report  on Form 8-K  filed  with  the  Securities  and  Exchange
        Commission on March 25, 1999.)

10.10   Master  Equipment  Lease  Agreement  dated as of October 28, 1998,  between
        Knight   Transportation   Midwest,   Inc.,   formerly   known  as   "Knight
        Transportation  Indianapolis,  Inc." and Quad-K Leasing, Inc. (Incorporated
        by reference to Exhibit 10.11 to the Company's  Report on Form 10-K for the
        period ending December 31, 1999.)

10.11   Consulting   Agreement   dated  as  of  March  1,   2000   between   Knight
        Transportation,  Inc. and LRK Management, L.L.C. (Incorporated by reference
        to Exhibit 10.12 to the Company's Report on Form 10-K for the period ending
        December 31, 1999.)

10.12   Stock  Purchase  Agreement  dated  April  19,  2000  by  and  among  Knight
        Transportation,  Inc., as Buyer, John R. Fayard,  Jr., and John Fayard Fast
        Freight,  Inc.  (Incorporated  by reference to the Company's Report on Form
        8-K filed with the Securities and Exchange Commission on May 4, 2000.)

10.13   Credit  Agreement by and among  Knight  Transportation,  Inc.,  Wells Fargo
        Bank and  Northern  Trust  Bank,  dated  April 6,  2001.  (Incorporated  by
        reference  to Exhibit  10(a) to the  Company's  Report on Form 10-Q for the
        period ending June 30, 2001.)

10.13.1  Modification   Agreement  to  Credit  Agreement  by  and  among  Knight
        Transportation,  Inc.  and Wells  Fargo  Bank,  dated  February  13,  2003.
        (Incorporated  by reference to Exhibit  10.14.1 to the Company's  Report on
        Form 10-K for the period ending December 31, 2002.)

10.13.2*  Modification  Agreement  to  Credit  Agreement  by  and  among  Knight
        Transportation, Inc. and Wells Fargo Bank, dated September 15, 2003.

10.13.3*  Modification  Agreement  to  Credit  Agreement  by  and  among  Knight
        Transportation, Inc. and Wells Fargo Bank, dated December 15, 2003.

10.14   Knight  Transportation,  Inc.  2003 Stock  Option  Plan.  (Incorporated  by
        reference  to Exhibit 1 to the  Company's  Definitive  Proxy  Statement  on
        Schedule 14A relating to its Annual Meeting of Shareholders held on May 21,
        2003.)

21.1*   Subsidiaries of the Company.

23.1*   Consent of KPMG LLP.

31.1*   Certification  pursuant to Item  601(b)(31) of  Regulation  S-K, as adopted
        pursuant  to Section  302 of the  Sarbanes-Oxley  Act of 2002,  by Kevin P.
        Knight, the Company's Chief Executive Officer.

31.2*   Certification  pursuant to Item  601(b)(31) of  Regulation  S-K, as adopted
        pursuant  to Section  302 of the  Sarbanes-Oxley  Act of 2002,  by David A.
        Jackson, the Company's Chief Financial Officer.

32.1*   Certification  pursuant to 18 U.S.C.  Section 1350, as adopted  pursuant to
        Section 906 of the  Sarbanes-Oxley  Act of 2002,  by Kevin P.  Knight,  the
        Company's Chief Executive Officer.


                                       40


     
32.2*   Certification  pursuant to 18 U.S.C.  Section 1350, as adopted  pursuant to
        Section 906 of the  Sarbanes-Oxley  Act of 2002, by David A.  Jackson,  the
        Company's Chief Financial Officer.

- ------------------
*  Filed herewith.

                                       41


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                KNIGHT TRANSPORTATION, INC.

                                By: /s/ Kevin P. Knight
                                -----------------------------------------------
                                Kevin P. Knight
Date:  February 24, 2004        Chief Executive Officer, in his capacity as such
                                and on behalf of the registrant

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

                                                                    
         Signature and Title                                                  Date
         -------------------                                                  ----

/s/ Kevin P. Knight                                                    February 24, 2004
- -------------------------------------------------
Kevin P. Knight, Chairman of the Board,
Chief Executive Officer, Director

/s/ Gary J. Knight                                                     February 24, 2004
- -------------------------------------------------
Gary J. Knight, Vice Chairman, Director

/s/ Timothy M. Kohl                                                    February 24, 2004
- -------------------------------------------------
Timothy M. Kohl, President, Secretary, Director

/s/ Keith T. Knight                                                    February 24, 2004
- -------------------------------------------------
Keith T. Knight, Executive Vice President, Director

/s/ David A. Jackson                                                   February 24, 2004
- -------------------------------------------------
David A. Jackson, Chief Financial Officer

/s/ Robert L. Johnson                                                  February 24, 2004
- -------------------------------------------------
Robert L. Johnson, Corporate Controller

/s/ Randy Knight                                                       February 24, 2004
- -------------------------------------------------
Randy Knight, Director

/s/ Mark Scudder                                                       February 24, 2004
- -------------------------------------------------
Mark Scudder, Director

/s/ Donald A. Bliss                                                    February 24, 2004
- -------------------------------------------------
Donald A. Bliss, Director

/s/ G. D. Madden                                                       February 24, 2004
- -------------------------------------------------
G.D. Madden, Director

/s/ Matt Salmon                                                        February 24, 2004
- -------------------------------------------------
Matt Salmon, Director

/s/ Michael Garnreiter                                                 February 24, 2004
- -------------------------------------------------
Michael Garnreiter, Director




                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Knight Transportation, Inc.:

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Knight
Transportation,  Inc. and subsidiaries (the Company) as of December 31, 2003 and
2002, and the related consolidated  statements of income,  comprehensive income,
shareholders'  equity,  and cash flows for the years then ended.  In  connection
with our audits of the consolidated  financial statements,  we have also audited
the financial  statement  Schedule II for the years ended  December 31, 2003 and
2002. These consolidated  financial  statements and financial statement schedule
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these  consolidated  financial  statements  and  financial
statement  schedule based on our audits. The consolidated  financial  statements
and financial statement schedule of Knight Transportation, Inc. and subsidiaries
as of  December  31,  2001 and for the year then  ended  were  audited  by other
auditors who have ceased  operations.  Those  auditors  expressed an unqualified
opinion on those  consolidated  financial  statements  and  financial  statement
schedule in their report dated January 16, 2002.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,   in  all  material   respects,   the   financial   position  of  Knight
Transportation,  Inc. and subsidiaries as of December 31, 2003 and 2002, and the
results of their  operations  and their cash flows for the years then ended,  in
conformity with accounting principles generally accepted in the United States of
America.  Also, in our opinion,  the related financial statement Schedule II for
the years ended December 31, 2003 and 2002,  when  considered in relation to the
basic consolidated  financial  statements taken as a whole,  presents fairly, in
all material respects, the information set forth therein.

As  discussed   above,   the   consolidated   financial   statements  of  Knight
Transportation,  Inc. and  subsidiaries as of December 31, 2001 and for the year
then ended  were  audited  by other  auditors  who have  ceased  operations.  As
described in Note 1, these consolidated  financial  statements have been revised
to include the  transitional  disclosures  required by  Statement  of  Financial
Accounting  Standards No. 142, Goodwill and Other Intangible  Assets,  which was
adopted by the Company as of January 1, 2002.  In our opinion,  the  disclosures
for 2001 in Note 1 are  appropriate.  However,  we were not  engaged  to  audit,
review, or apply any procedures to the 2001 consolidated financial statements of
Knight  Transportation,  Inc. and  subsidiaries  other than with respect to such
disclosures and, accordingly,  we do not express an opinion or any other form of
assurance on the 2001 consolidated financial statements taken as a whole.

/s/ KPMG LLP

Phoenix, Arizona
January 21, 2004

                                      F-1

THE REPORT  PRESENTED  BELOW IS A COPY OF THE  INDEPENDENT  AUDITORS'  REPORT OF
ARTHUR ANDERSEN LLP, THE FORMER AUDITOR FOR KNIGHT  TRANSPORTATION,  INC. ISSUED
ON JANUARY 16,  2002.  ARTHUR  ANDERSEN  LLP HAS BEEN UNABLE TO ISSUE AN UPDATED
REPORT. ADDITIONALLY, THE OPINION PRESENTED BELOW COVERS THE BALANCE SHEET AS OF
DECEMBER  31,  2000  AND  THE  STATEMENTS  OF  INCOME,   COMPREHENSIVE   INCOME,
SHAREHOLDERS'  EQUITY AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999, WHICH
STATEMENTS ARE NOT INCLUDED IN THIS REPORT ON FORM 10-K.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Knight Transportation, Inc. and Subsidiaries:

We  have  audited  the  accompanying   consolidated  balance  sheets  of  KNIGHT
TRANSPORTATION,  INC. (an Arizona corporation) AND SUBSIDIARIES (the Company) as
of  December  31,  2001 and 2000,  and the related  consolidated  statements  of
income,  comprehensive  income,  shareholders' equity and cash flows for each of
the three  years in the period  ended  December  31,  2001.  These  consolidated
financial  statements and the schedule referred to below are the  responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of the Company as of December 31,
2001 and 2000,  and the results of its operations and its cash flows for each of
the three years in the period  ended  December  31,  2001,  in  conformity  with
accounting principles generally accepted in the United States.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the index of
financial  statements is presented for purposes of complying with the Securities
and  Exchange  Commission's  rules  and  is not  part  of  the  basic  financial
statements.  This schedule has been subjected to the auditing procedures applied
in the audit of the basic  financial  statements  and,  in our  opinion,  fairly
states in all material  respects  the  financial  data  required to be set forth
therein in relation to the basic financial statements taken as a whole.

/s/ Arthur Andersen LLP

Phoenix, Arizona
January 16, 2002

                                      F-2




KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
December 31, 2003 and 2002
(In thousands)


                                                                                           
                                                                                   2003                2002
                                                                             ----------------    ---------------
Assets

Current Assets:
   Cash and cash equivalents                                                 $         40,550    $        36,198
   Trade receivables, net of allowance for doubtful accounts of
     $1,942 and $1,325, respectively                                                   38,751             40,356
   Notes receivable, net of allowance for doubtful notes receivable
     of $137 and $142, respectively                                                       515                956
   Inventories and supplies                                                             1,336              1,345
   Prepaid expenses                                                                     7,490              9,653
   Income tax receivable                                                                1,761              1,004
   Deferred tax assets                                                                  5,667              3,428
                                                                             ----------------    ---------------
                                                                                       96,070             92,940
                                                                             ----------------    ---------------
Property and Equipment:
   Land and land improvements                                                          13,911             14,158
   Buildings and improvements                                                          17,166             12,898
   Furniture and fixtures                                                               4,916              6,134
   Shop and service equipment                                                           2,409              1,975
   Revenue equipment                                                                  256,803            211,184
   Leasehold improvements                                                                 968              1,049
                                                                             ----------------    ---------------
                                                                                      296,173            247,398
   Less:  accumulated depreciation and amortization                                   (83,238)           (70,505)
                                                                             ----------------    ---------------

          Property and Equipment, net                                                 212,935            176,893
                                                                             ----------------    ---------------
Notes Receivable, net of current portion                                                  362              1,487
                                                                             ----------------    ---------------

Other Assets                                                                           11,859             13,524
                                                                             ----------------    ---------------
                                                                             $        321,226    $       284,844
                                                                             ================    ===============



The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                      F-3




KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
December 31, 2003 and 2002
(In thousands, except par value)


                                                                                           
                                                                                   2003                2002
                                                                             ----------------    ---------------

Liabilities and Shareholders' Equity

Current Liabilities:
   Accounts payable                                                          $          3,408    $         7,749
   Accrued payroll                                                                      3,448              3,571
   Accrued liabilities                                                                  4,493              4,231
   Current portion of long-term debt                                                       -               2,715
   Claims accrual                                                                      14,805             10,419
                                                                             ----------------    ---------------
                                                                                       26,154             28,685

Line of Credit                                                                          -                 12,200
Deferred Tax Liabilities                                                               55,149             44,302
                                                                             ----------------    ---------------
                                                                                       81,303             85,187
                                                                             ----------------    ---------------
Commitments and Contingencies (Note 4)

Shareholders' Equity:
   Preferred stock, $0.01 par value; 50,000 shares authorized;
     none issued                                                                           -                  -
   Common stock, $0.01 par value; 100,000 shares authorized;
     37,489 and 37,145 shares issued and outstanding at
     December 31, 2003 and 2002, respectively                                             375                371
   Additional paid-in capital                                                          77,942             73,521
   Accumulated other comprehensive loss                                                    -                (383)
   Retained earnings                                                                  161,606            126,148
                                                                             ----------------    ---------------
                                                                                      239,923            199,657
                                                                             ----------------    ---------------
                                                                             $        321,226    $       284,844
                                                                             ================    ===============



The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                      F-4


KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES

Consolidated Statements of Income
For the Years Ended December 31, 2003, 2002 and 2001
(In thousands, except per share data)


                                                                                         
                                                                     2003             2002              2001
                                                               --------------    --------------   --------------

Revenue:
   Revenue, before fuel surcharge                              $      326,856    $      279,360   $      241,679
   Fuel surcharge                                                      13,213             6,430            9,139
                                                               --------------    --------------   --------------
                  Total revenue                                       340,069           285,790          250,818
                                                               --------------    --------------   --------------

Operating Expenses:
   Salaries, wages and benefits                                       104,756            93,596           81,779
   Fuel                                                                56,573            44,389           38,934
   Operations and maintenance                                          20,345            17,150           13,892
   Insurance and claims                                                16,558            12,377           10,230
   Operating taxes and licenses                                         9,148             7,383            7,038
   Communications                                                       3,002             2,407            2,057
   Depreciation and amortization                                       30,066            22,887           18,417
   Lease expense - revenue equipment                                    7,635             9,370            8,511
   Purchased transportation                                            25,194            21,797           23,495
   Miscellaneous operating expenses                                     7,343             6,940            6,913
                                                               --------------    --------------   --------------
                                                                      280,620           238,296          211,266
                                                               --------------    --------------   --------------
                  Income from operations                               59,449            47,494           39,552
                                                               --------------    --------------   --------------

Other Income (Expense):
   Interest income                                                        560               935              708
   Interest expense                                                      (881)           (1,084)          (2,514)
   Other expense                                                         (330)                -           (5,679)
                                                               --------------    --------------   ---------------
                                                                         (651)             (149)          (7,485)
                                                               ---------------   --------------   --------------
                  Income before income taxes                           58,798            47,345           32,067
Income Taxes                                                          (23,340)          (19,410)         (13,050)
                                                               --------------    --------------   --------------
                  Net income                                   $       35,458    $       27,935   $       19,017
                                                               ==============    ==============   ==============

Basic Earnings Per Share                                       $         0.95    $         0.75   $         0.55
                                                               ==============    ==============   ==============

Diluted Earnings Per Share                                     $         0.93     $        0.73   $         0.54
                                                               ==============    ==============   ==============

Weighted Average Shares
   Outstanding - Basic                                                37,343             37,012           34,275
                                                               ==============    ==============   ==============

Weighted Average Shares
   Outstanding - Diluted                                              38,238             38,029           35,145
                                                               ==============    ==============   ==============


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                      F-5


KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 2003, 2002 and 2001
(In thousands)


                                                                                               
                                                                         2003              2002             2001
                                                                     -------------    -------------     -------------

Net Income                                                           $      35,458    $      27,935     $      19,017

Other Comprehensive Income (Loss):
   Interest rate swap agreement, fair market value adjustment                  383              349              (732)
                                                                     -------------    -------------     -------------
Comprehensive Income                                                 $      35,841    $      28,284     $      18,285
                                                                     =============    =============     =============



The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                      F-6



KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity
For the Years Ended December 31, 2003, 2002, and 2001
(In thousands)


                                                                                                       

                                                                                        Accumulated
                                         Common Stock                 Additional           Other
                             ---------------------------------         Paid-in          Comprehensive       Retained
                               Shares Issued         Amount            Capital             Income           Earnings         Total
                             ----------------    -------------     ---------------    ----------------    ------------    ----------

Balance, December 31, 2000            33,732    $         337     $        25,587    $              -     $     79,196     $ 105,120
   Exercise of stock options             422                4               1,994                   -                -         1,998
   Issuance of shares in
     stock offering, net of
     offering costs of $2,517          2,679               27              41,203                   -                -        41,230
   Issuance of common stock                1                -                  15                   -                -            15
   Tax benefit on stock
     option exercises                      -                -               1,048                   -                -         1,048
   Fair value adjustment of
     interest rate swap                    -                -                   -                (732)               -         (732)
   Net income                              -                -                   -                   -           19,017        19,017
                             ----------------    -------------     ---------------    ----------------    ------------    ----------
Balance, December 31, 2001            36,834              368              69,847                (732)          98,213       167,696
   Exercise of stock options             310                3               2,021                   -                -         2,024
   Issuance of common stock                1                -                  15                   -                -            15
   Tax benefit on stock
     option exercises                      -                -               1,638                   -                -         1,638
   Fair value adjustment of
     interest rate swap                    -                -                   -                 349                -           349
   Net income                              -                -                   -                   -           27,935        27,935
                             ----------------    -------------     ---------------    ----------------    ------------    ----------
Balance, December 31, 2002             37,145              371              73,521                (383)        126,148       199,657
   Exercise of stock options              343                4               2,219                   -               -         2,223
   Issuance of common stock                 1                -                  23                   -               -            23
   Tax benefit on stock
     option exercises                       -                -               2,179                   -               -         2,179
   Fair value adjustment of
     interest rate swap                     -                -                   -                 383               -           383
   Net income                               -                -                   -                   -          35,458        35,458
                             ----------------    -------------     ---------------    ----------------    ------------    ----------

Balance, December 31, 2003             37,489    $         375     $        77,942    $              -    $    161,606    $  239,923
                             ================    =============     ===============    ================    ============    ==========


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                      F-7


KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
For the Years Ended December 31, 2003, 2002, and 2001
(In thousands)

                                                                                          
                                                                     2003             2002              2001
                                                                -------------     -------------    -------------
Cash Flows From Operating Activities:
   Net income                                                   $      35,458     $      27,935    $      19,017
   Adjustments to reconcile net income to net cash provided
     by operating activities-
       Depreciation and amortization                                   30,066            22,887           18,417
       Write-off of investment                                            330               -              5,679
       Non-cash compensation expense for issuance of
         common stock to certain members of board of directors             23                15               15
       Provision for allowance for doubtful accounts and
         notes receivable                                                 811               613              470
       Deferred income taxes                                            8,608             9,280            3,225
       Interest rate swap agreement - fair value change                   383               349              -
       Tax benefit on stock option exercises                            2,179             1,638            1,048
       Changes in assets and liabilities:
         Decrease (increase) in trade receivables                         804            (9,200)           1,775
         Decrease (increase) in inventories and supplies                    9               561           (1,113)
         Decrease (increase) in prepaid expenses                        2,163            (1,689)          (2,946)
         (Increase) decrease in income tax receivable                    (757)             (361)             562
         (Increase) decrease in other assets                              (54)               75             (272)
         (Decrease) in accounts payable                                  (141)             (363)          (2,287)
         Increase in accrued liabilities and claims accrual             4,525             3,747            2,576
                                                                -------------     -------------    -------------
                  Net cash provided by operating activities            84,407            55,487           46,166
                                                                -------------     -------------    --------------

Cash Flows From Investing Activities:
   Purchases of property and equipment, net                           (70,308)          (41,811)         (30,378)
   Investment in/advances from (to) other companies                     1,389            (1,845)          (1,334)
   Decrease (increase) in notes receivable                              1,556             1,366           (2,357)
                                                                -------------     -------------    -------------
                 Net cash used in investing activities                (67,363)          (42,290)         (34,069)
                                                                -------------     -------------    -------------

Cash Flows From Financing Activities:
   Payments on line of credit, net                                    (12,200)              -            (21,800)
   Payments of long-term debt                                          (2,715)           (3,159)         (14,489)
   Payments of accounts payable - equipment                               -                 -             (1,051)
   Proceeds from issuance of common stock                                 -                 -             43,747
   Payment of stock offering costs                                        -                 -             (2,517)
   Proceeds from exercise of stock options                              2,223             2,024            1,998
                                                                -------------     -------------    -------------
                  Net cash (used in) provided by
                    financing activities                              (12,692)           (1,135)           5,888
                                                                --------------    --------------   -------------
Net Increase in Cash and Cash Equivalents                               4,352            12,062           17,985
Cash and Cash Equivalents, beginning of year                           36,198            24,136            6,151
                                                                -------------     -------------    -------------
Cash and Cash Equivalents, end of year                          $      40,550     $      36,198    $      24,136
                                                                =============     =============    =============

Supplemental Disclosures:
   Noncash investing and financing transactions:
     Equipment acquired included in accounts payable            $          74     $       4,274    $         -

   Cash flow information:
     Income taxes paid                                          $      13,334     $       8,581    $       7,482
     Interest paid                                                        474               996            2,489



The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                      F-8


KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001




1. Organization and Summary of Significant Accounting Policies

     a.   Nature of Business

     Knight Transportation,  Inc. (an Arizona corporation) and subsidiaries (the
     Company)  is  a  short  to  medium-haul,   truckload   carrier  of  general
     commodities.  The  operations  are  based in  Phoenix,  Arizona,  where the
     Company has its corporate offices, fuel island, truck terminal, dispatching
     and maintenance  services.  The Company also has operations in Katy, Texas;
     Indianapolis,  Indiana;  Charlotte,  North Carolina;  Salt Lake City, Utah;
     Gulfport,  Mississippi;  Kansas City, Kansas;  Portland,  Oregon;  Memphis,
     Tennessee;  Atlanta, Georgia; and Denver, Colorado. The Company operates in
     one industry,  road  transportation,  which is subject to regulation by the
     Department of Transportation and various state regulatory authorities.  The
     Company has an  owner-operator  program.  Owner-operators  are  independent
     contractors   who  provide   their  own   tractors.   The   Company   views
     owner-operators  as an alternative  method to obtaining  additional revenue
     equipment.

     b.   Significant Accounting Policies

     Principles  of  Consolidation  - The  accompanying  consolidated  financial
     statements include the parent company Knight Transportation,  Inc., and its
     wholly owned  subsidiaries (the Company).  All material  intercompany items
     and transactions have been eliminated in consolidation.

     Use of Estimates - The  preparation  of financial  statements in conformity
     with accounting principles generally accepted in the United States requires
     management  to make  estimates  and  assumptions  that affect the  reported
     amounts of assets and liabilities  and disclosure of contingent  assets and
     liabilities  at the  date of the  financial  statements,  and the  reported
     amounts of  revenues  and  expenses  during the  reporting  period.  Actual
     results could differ from those estimates.

     Cash  Equivalents - The Company  considers  all highly  liquid  instruments
     purchased  with  original  maturities  of three  months  or less to be cash
     equivalents.

     Notes  Receivable  - Included  in notes  receivable  are  amounts  due from
     independent  contractors  under a  program  whereby  the  Company  finances
     tractor purchases for its independent  contractors.  These notes receivable
     are   collateralized   by  revenue   equipment   and  are  due  in  monthly
     installments,  including  principal  and  interest  at  10%,  over  periods
     generally ranging from three to five years.

     Inventories  and Supplies - Inventories and supplies  consist  primarily of
     tires and spare  parts  which  are  stated at the lower of cost,  using the
     first-in, first-out (FIFO) method, or net realizable value.

                                      F-9





     Property  and  Equipment  -  Property  and  equipment  are  stated at cost.
     Depreciation  and  amortization  on property and equipment is calculated by
     the straight-line method over the following estimated useful lives:

                                                              Years
                                                              -----

                  Land improvements                               5
                  Buildings and improvements                  20-30
                  Furniture and fixtures                          5
                  Shop and service equipment                   5-10
                  Revenue equipment                            5-10
                  Leasehold improvements                         10

     The Company  expenses  repairs and  maintenance as incurred.  For the years
     ended December 31, 2003,  2002, and 2001,  repairs and maintenance  expense
     totaled  approximately  $12.3  million,  $9.8  million  and  $8.9  million,
     respectively,  and is included in operations and maintenance expense in the
     accompanying consolidated statements of income.

     Revenue  equipment is  depreciated  to salvage values of 15% to 30% for all
     tractors.  Trailers are  depreciated  to salvage  values of 10% to 40%. The
     Company  periodically  reviews and adjusts its estimates  related to useful
     lives and salvage values for revenue equipment.

     Tires on  revenue  equipment  purchased  are  capitalized  as a part of the
     equipment cost and  depreciated  over the life of the vehicle.  Replacement
     tires and recapping costs are expensed when placed in service.

     Other Assets - Other assets include:


                                                                                             
                                                                                       2003              2002
                                                                                  -------------    -------------
                                                                                  (In thousands)   (In thousands)

                  Investment in and related advances to Concentrek, Inc.          $       2,245    $       3,620
                  Investment in Knight Flight, LLC                                        1,388            1,718
                  Goodwill                                                                8,434            8,434
                  Other                                                                     722              682
                  Accumulated amortization                                                 (930)            (930)
                                                                                  -------------    -------------
                                                                                  $      11,859    $      13,524
                                                                                  =============    =============


     In April 1999,  the Company  acquired a 17%  interest in  Concentrek,  Inc.
     ("Concentrek")  through  the  purchase  of shares of  Concentrek's  Class A
     Preferred  Stock for $200,000.  The remaining 83% interest in Concentrek is
     owned by Randy,  Kevin,  Gary and Keith Knight and members of  Concentrek's
     management.  The  Company  has made loans to  Concentrek  to fund  start-up
     costs.  At December 31, 2003, the total  outstanding  amount of these loans
     was  approximately  $2.0 million.  Of the total loan  amounts,  $824,500 is
     evidenced by a promissory note that is convertible into Concentrek's  Class
     A Preferred Stock, and $1.2 million is evidenced by a promissory note which
     is personally guaranteed by Randy, Kevin, Gary and Keith Knight. Both loans
     are  secured by a lien on  Concentrek's  assets.  These loans are on parity
     with respect to their security. This investment is recorded at cost and the
     Company's  ownership  percentage  in this  investment  was less than 20% at
     December  31,  2003  and  2002 and the  Company  does not have  significant
     influence over the operating decisions of that entity. See Note 6.

     In 1998 and 1999,  the  Company  invested  in a  communications  technology
     company.  The  Company  owned  less than four  percent  of that  technology
     company and did not derive any revenue from its investment. In August 2001,
     the investee announced changes to its strategic operations which caused the
     Company to evaluate the investment for impairment. During 2001, the Company
     elected to  write-off  this  investment  in  accordance  with its policy on
     evaluating the impairment of long-lived assets. The investee, subsequent to
     the Company  writing-off the investment,  filed for bankruptcy  protection.
     This $5.7 million  charge is reflected in other expense for the  year-ended
     December 31, 2001, in the accompanying consolidated financial statements.

                                      F-10

     In November  2000,  the Company  acquired a 19%  interest in Knight  Flight
     Services,  LLC  ("Knight  Flight")  which  purchased  and operates a Cessna
     Citation  560 XL jet  aircraft.  The  aircraft  is leased to  Pinnacle  Air
     Charter,  L.L.C.,  an  unaffiliated  entity,  which  leases the aircraft on
     behalf of Knight Flight. The cost of the aircraft to Knight Flight was $8.9
     million.  The Company originally  invested $1.7 million in Knight Flight to
     obtain a 19%  interest in order to assure  access to charter air travel for
     the  Company's  employees.  During  2003 the  Company  recorded  a $330,000
     reduction in the carrying value of this  investment to more closely reflect
     the fair value of the  primary  asset of that  entity.  The  Company has no
     further financial  commitments to Knight Flight. The remaining 81% interest
     in Knight Flight is owned by Randy,  Kevin, Gary and Keith Knight, who have
     personally  guaranteed  the  balance of the debt  incurred  to finance  the
     purchase  of the  aircraft,  and have  agreed  to  contribute  any  capital
     required to meet any cash short falls. The Company has a priority use right
     for the aircraft.  This  investment is accounted for on the equity  method.
     According to terms under an operating agreement with Knight Flight,  losses
     are first allocated to those members with the 81% ownership interest. Since
     Knight Flight has incurred  losses to date, no adjustment  has been made to
     the  investment  under the  equity  method of  accounting,  except  for the
     impairment  charge  noted  above.  All  operating  losses to date have been
     allocated to the 81% members pursuant to the operating agreement.  See Note
     6.

     Impairment  of  Long-Lived  Assets  -  Statement  of  Financial  Accounting
     Standards   ("SFAS")  No.  144  provides  a  single  accounting  model  for
     long-lived assets to be disposed of. SFAS No. 144 also changes the criteria
     for  classifying  an asset as held for  sale;  and  broadens  the  scope of
     businesses  to be disposed of that qualify for  reporting  as  discontinued
     operations and changes the timing of recognizing losses on such operations.
     The Company  adopted SFAS No. 144 on January 1, 2002.  The adoption of SFAS
     No. 144 did not affect the  Company's  financial  statements.  Prior to the
     adoption of SFAS No. 144, the Company  accounted for  long-lived  assets in
     accordance  with SFAS No. 121,  "Accounting  for  Impairment  of Long-Lived
     Assets and for Long-Lived Assets to be Disposed Of."

     In accordance with SFAS No. 144,  long-lived  assets,  such as property and
     equipment, and purchased intangibles subject to amortization,  are reviewed
     for impairment  whenever events or changes in  circumstances  indicate that
     the carrying amount of an asset may not be recoverable.  Recoverability  of
     assets to be held and used is  measured  by a  comparison  of the  carrying
     amount of an asset to estimated  undiscounted future cash flows expected to
     be generated by the asset.  If the carrying  amount of an asset exceeds its
     estimated  future cash flows,  an  impairment  charge is  recognized by the
     amount by which the carrying  amount of the asset exceeds the fair value of
     the asset.  Assets to be disposed of would be  separately  presented in the
     balance  sheet and  reported  at the lower of the  carrying  amount or fair
     value less  costs to sell,  and are no longer  depreciated.  The assets and
     liabilities  of a  disposed  group  classified  as held for  sale  would be
     presented separately in the appropriate asset and liability sections of the
     balance sheet.

     Recoverability  of long-lived assets is dependent upon, among other things,
     the  Company's  ability to continue to achieve  profitability,  in order to
     meet its  obligations  when they become due. In the opinion of  management,
     based upon current  information,  the carrying amount of long-lived  assets
     will be  recovered by future cash flows  generated  through the use of such
     assets over respective estimated useful lives.

     Revenue  Recognition  - The Company  recognizes  revenues  when  persuasive
     evidence of an arrangement exists,  delivery has occurred, the fee is fixed
     or determinable and  collectibility  is probable.  These conditions are met
     upon delivery.

     Income  Taxes  - The  Company  uses  the  asset  and  liability  method  of
     accounting  for income  taxes.  Deferred  tax assets  and  liabilities  are
     recognized  for the future tax  consequences  attributable  to  differences
     between the  financial  statement  carrying  amount of existing  assets and
     liabilities  and their  respective  tax  bases.  Deferred  tax  assets  and
     liabilities  are  measured  using  enacted  tax rates  expected to apply to
     taxable  income  in the  years in which  those  temporary  differences  are
     expected to be recovered or settled.

     Stock-Based  Compensation  - At  December  31,  2003,  the  Company has one
     stock-based  employee  compensation  plan, which is described more fully in
     Note 8. The Company applies the intrinsic-value-based  method of accounting
     prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting
     for Stock Issued to Employees," and related interpretations  including FASB
     Interpretation No. 44, "Accounting for Certain Transactions involving Stock
     Compensation,  an  interpretation  of APB  Opinion No. 25," issued in March
     2000,  to account for its  fixed-plan  stock  options.  Under this  method,
     compensation  expense is  recorded on the date of grant only if the current
     market price of the underlying stock exceeded the exercise

                                      F-11

     price.  No  stock-based  employee  compensation  cost is  reflected  in net
     income,  as all options  granted under the plan had an exercise price equal
     to the  market  value  of the  underlying  common  stock on the date of the
     grant. SFAS No. 123, "Accounting for Stock-Based Compensation," established
     accounting and disclosure  requirements using a fair-value-based  method of
     accounting for stock-based employee  compensation plans. As allowed by SFAS
     No.   123,   the   Company   has   elected   to   continue   to  apply  the
     intrinsic-value-based method of accounting described above, and has adopted
     only the  disclosure  requirements  of SFAS No. 123.  The  following  table
     illustrates  the  effect on net income if the  fair-value-based  method had
     been applied to all outstanding  awards for the years ended December 31 (in
     thousands, except per share data):


                                                         
                                                                        2003           2002         2001
                                                                        ----           ----         ----

             Net income, as reported                           $       35,458        27,935       19,017
             Deduct total stock-based employee compensation
             expense determined under fair-value-based method
             for all rewards, net of tax                               (1,018)         (682)         134
                                                                       ------        ------       ------

             Pro forma net income                              $       34,440        27,253       19,151

             Diluted earnings per share - as reported          $         0.93          0.73         0.54
             Diluted earnings per share - pro forma            $         0.90          0.72         0.54


     Financial  Instruments - The Company's  financial  instruments include cash
     equivalents,  trade  receivables,  notes  receivable,  accounts payable and
     notes payable.  Due to the  short-term  nature of cash  equivalents,  trade
     receivables  and  accounts  payable,  the fair  value of these  instruments
     approximates their recorded value. In the opinion of management, based upon
     current  information,  the fair value of notes receivable and notes payable
     approximates  market value.  The Company does not have  material  financial
     instruments  with  off-balance  sheet risk, with the exception of operating
     leases. See Note 4.

     Concentration  of Credit  Risk -  Financial  instruments  that  potentially
     subject the Company to credit risk consist principally of trade receivables
     and notes receivable. The Company's three largest customers for each of the
     years  2003,  2002 and  2001,  aggregated  approximately  11% of  revenues.
     Revenue   from  the   Company's   single   largest   customer   represented
     approximately 4% of revenues for each of the years 2003, 2002, and 2001.

     Recapitalization  and Stock  Split - On May 9, 2001 the Board of  Directors
     approved a three-for-two stock split,  effected in the form of a 50 percent
     stock  dividend.  The  stock  split  occurred  on  June  1,  2001,  to  all
     shareholders of record as of the close of business on May 18, 2001. Also on
     December  7,  2001  the  Company's  Board  of  Directors  approved  another
     three-for-two  stock  split,  effected  in the form of a 50  percent  stock
     dividend.   The  stock  split   occurred  on  December  28,  2001,  to  all
     stockholders  of record as of the close of  business  on  December 7, 2001.
     These stock splits have been given retroactive  recognition for all periods
     presented in the accompanying consolidated financial statements.  All share
     amounts and earnings per share amounts have been retroactively  adjusted to
     reflect the stock splits.

                                      F-12





     Earnings Per Share - A  reconciliation  of the  numerator  (net income) and
     denominator  (weighted  average number of shares  outstanding) of the basic
     and diluted EPS  computations  for 2003, 2002, and 2001, are as follows (In
     thousands, except per share data):


                                                                                            
                               2003                                   2002                                  2001
              ------------------------------------   ------------------------------------   ------------------------------------
              Net Income      Shares     Per Share   Net Income      Shares     Per Share   Net Income      Shares     Per Share
              (numerator)  (denominator)  Amount     (numerator)  (denominator)  Amount     (numerator)  (denominator)  Amount
              -----------  ------------  ---------   -----------  ------------  ---------   -----------  ------------  ---------

Basic EPS     $   35,458       37,343    $     .95   $   27,935        37,012   $     .75   $   19,017        34,275   $     .55
                                         =========                              =========                              =========

Effect of stock
options              -            895                       -           1,017                      -             870
              -----------  ------------              -----------  ------------              -----------  ------------

Diluted EPS   $   35,458       38,238    $    .93    $   27,935        38,029   $     .73   $   19,017        35,145   $     .54
              ===========  ============  =========   ===========  ============  =========   ===========  ============  =========


     Segment Information - Although the Company has fifteen operating divisions,
     it has  determined  that it has one  reportable  segment.  Fourteen  of the
     divisions  are managed  based on the regions of the United  States in which
     each   operates.   Each  of   these   divisions   have   similar   economic
     characteristics  as they all provide short to medium haul truckload carrier
     service  of  general  commodities  to a  similar  class  of  customers.  In
     addition,  each division exhibits similar financial performance,  including
     average revenue per mile and operating ratio. The remaining division is not
     reported  because it does not meet the  materiality  thresholds in SFAS No.
     131 "Disclosures about Segments of an Enterprise". As a result, the Company
     has determined that it is appropriate to aggregate its operating  divisions
     into one reportable  segment  consistent with the guidance in SFAS No. 131.
     Accordingly,  the Company has not presented separate financial  information
     for each of its operating divisions as the Company's consolidated financial
     statements present its one reportable segment.

     Derivative  and  Hedging  information  - On January 1,  2001,  the  Company
     adopted SFAS No. 133,  "Accounting  for Derivative  Instruments and Hedging
     Activities",  as  amended  by  SFAS  No.  138,  "  Accounting  for  Certain
     Derivative Instruments and Hedging Activities." This statement, as amended,
     requires that all  derivative  instruments be recorded on the balance sheet
     at their respective fair values.

     All derivatives are recognized on the balance sheet at their fair value. On
     the  date the  derivative  contract  is  entered  into,  we  designate  the
     derivative  as either a hedge of the fair  value of a  recognized  asset or
     liability  or of  firm  commitment  ("fair  value"  hedge),  a  hedge  of a
     forecasted  transaction or the  variability of cash flows to be received or
     paid related to a  recognized  asset or liability  ("cash flow"  hedge),  a
     foreign-currency  fair-value or cash-flow hedge ("foreign currency" hedge),
     or a hedge of a net investment in a foreign operation. The Company formally
     assesses,  both at the hedge's  inception and on an ongoing basis,  whether
     the  derivatives  that are used in hedging  transactions  are  effective in
     offsetting changes in fair values or cash flows of hedged items. When it is
     determined  that a  derivative  is not  effective as a hedge or that it has
     ceased to be an effective hedge, the Company  discontinues hedge accounting
     prospectively.

     The  Company is party to three  contracts  relating to the price of heating
     oil on the New York Merchantile Exchange ("NYMX") that were entered into in
     connection  with volume  diesel fuel  purchases  between  October  2000 and
     February  2002.  If the price of heating  oil on the NYMX falls below $0.58
     per gallon the Company may be required to pay the difference  between $0.58
     and the index price (1) for 1.0 million  gallons per month for any selected
     twelve months through March 31, 2005, and (2) for 750,000 gallons per month
     for the twelve months of 2005.

     Recently  Adopted and to be Adopted  Accounting  Pronouncements  -- In June
     2002,  the FASB  issued  SFAS No.  146,  "Accounting  for Exit or  Disposal
     Activities."  SFAS No.  146  addresses  the  recognition,  measurement  and
     reporting of costs associated with exit and disposal activities,  including
     restructuring  activities.  SFAS No.  146  also  addresses  recognition  of
     certain  costs  related to  terminating  a  contract  that is not a capital
     lease, recognition of costs to consolidate facilities or relocate employees
     and recognition of costs for termination of benefits  provided to employees
     that are  involuntarily  terminated  under the terms of a one-time  benefit
     arrangement  that is not an ongoing  benefit  arrangement  or an individual
     deferred

                                      F-13


     compensation contract.  SFAS No. 146 applies to exit or disposal activities
     initiated  after  December 31,  2002.  The adoption of SFAS No. 146 did not
     have a material impact on our consolidated financial statements.

     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor's
     Accounting and Disclosure  Requirements for Guarantees,  Including Indirect
     Guarantees of Indebtedness to Others,  an interpretation of FASB Statements
     No. 5, 57 and 107 and a  rescission  of FASB  Interpretation  No. 34." This
     interpretation  elaborates on the  disclosures to be made by a guarantor in
     its interim and annual  financial  statements  about its obligations  under
     guarantees issued.  This  interpretation also clarifies that a guarantor is
     required to recognize at the inception of a guarantee,  a liability for the
     fair  value of the  obligation  undertaken.  The  initial  recognition  and
     measurement provisions of this interpretation apply to guarantees issued or
     modified  after December 31, 2002.  The  disclosure  requirements  apply to
     financial  statements  for interim and annual periods ending after December
     31, 2002. The  application of this  interpretation  did not have a material
     effect on our consolidated financial statements.

     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
     Variable  Interest  Entities,  an interpretation of ARB No. 51.", which was
     revised in December 2003. This  interpretation  addresses the consolidation
     by business  enterprises of variable  interest  entities as defined in this
     interpretation.   This  interpretation   applies  immediately  to  variable
     interests in variable interest entities created after January 31, 2003, and
     to variable  interests in variable interest entities obtained after January
     31, 2003.  For public  enterprises  with a variable  interest in a variable
     interest  entity  created  before  February  l, 2003,  this  interpretation
     applies to that enterprise no later than the beginning of the first interim
     or  annual   reporting  period  beginning  after  December  15,  2003.  The
     application  of this  interpretation  is not  expected  to have a  material
     effect on our consolidated financial statements.

     In April 2003,  the Financial  Accounting  Standards  Board issued SFAS No.
     149,  "Amendment  of Statement 133 on  Derivative  Instruments  and Hedging
     Activities."  SFAS No. 149 amends and clarifies  financial  accounting  and
     reporting for derivative  instruments  embedded in other  contracts and for
     hedging   activities  under  SFAS  No.  133,   "Accounting  for  Derivative
     Instruments and Hedging  Activities." It is effective for contracts entered
     into or  modified  after  June  30,  2003,  except  as  stated  within  the
     statement,  and should be applied  prospectively.  The adoption of SFAS No.
     149  did  not  have  a  material  impact  on  our  consolidated   financial
     statements.

     On May 15, 2003, the Financial  Accounting  Standards Board issued SFAS No.
     150, "Accounting for Certain Financial  Instruments with Characteristics of
     Both  Liabilities and Equity.  SFAS No. 150 requires issuers to classify as
     liabilities (or assets in some circumstances) three classes of freestanding
     financial  instruments that embody  obligations for the issuer.  Generally,
     SFAS  No.  150 is  effective  for  financial  instruments  entered  into or
     modified after May 31, 2003 and is otherwise  effective at the beginning of
     the first  interim  period  beginning  after June 15, 2003.  We adopted the
     provisions  of SFAS No. 150 on July 1, 2003.  The  adoption of SFAS No. 150
     did not have a material impact on our consolidated financial statements.

     In December 2003, the  Securities  and Exchange  Commission  ("SEC") issued
     Staff Accounting Bulletin No. 104 ("SAB No. 104"),  "Revenue  Recognition",
     which  codifies,  revises  and  rescinds  certain  sections of SAB No. 101,
     "Revenue  Recognition",   in  order  to  make  this  interpretive  guidance
     consistent with current authoritative  accounting and auditing guidance and
     SEC rules and regulations.  The changes noted in SAB No. 104 did not have a
     material effect on our consolidated financial statements.

     The Company  identified its reporting  units to be at the same level as the
     operating  segments  as of  January 1,  2002.  As of  January 1, 2002,  the
     Company had eight operating  segments,  however,  these operating  segments
     have been  aggregated and reported as one reportable  segment in accordance
     with the  aggregation  provisions  of SFAS No. 131.  In applying  this same
     aggregation criteria, the Company determined that it had one reporting unit
     as of January 1, 2002 under  SFAS No. 142  "Goodwill  and Other  Intangible
     Assets".  At January 1, 2002,  the  carrying  value of the  reporting  unit
     goodwill was $7.5 million.  The Company  compared the implied fair value of
     the reporting unit goodwill with the carrying amount of the

                                      F-14

     reporting  unit  goodwill,  both of which were  measured  as of the date of
     adoption.  The implied fair value of goodwill was  determined by allocating
     the fair value of the reporting unit to all of the assets  (recognized  and
     unrecognized)  and liabilities of the reporting unit in a manner similar to
     a purchase price allocation,  in accordance with SFAS No. 141. The residual
     fair  value  after  this  allocation  was the  implied  fair  value  of the
     reporting  unit  goodwill.  The implied  fair value of the  reporting  unit
     exceeded its carrying  amount and the Company was not required to recognize
     an impairment loss.

     Application   of  the   provisions   of  SFAS  No.  142  has  affected  the
     comparability  of current period  results of operations  with prior periods
     because  goodwill  is  no  longer  being  amortized.  Thus,  the  following
     transitional  disclosure  presents  2001 net income and earnings per share,
     adjusted as shown below as if SFAS No. 142 had been applied (in  thousands,
     except per share data):

                                                                          2001
                                                                        --------

        Net income                                                      $ 19,017

        Add Back:  amortization of goodwill,  net of
        taxes*                                                               653
                                                                             ---

        Adjusted net income                                             $ 19,670
                                                                        ========

        Basic earnings per share                                        $   0.55

        Add back: amortization of goodwill, net of taxes*                   0.02
                                                                        --------

        Adjusted basic net earnings per share                           $   0.57
                                                                        ========

        Diluted earnings per share                                      $   0.54

        Add back: amortization of goodwill, net of taxes*                   0.02
                                                                        --------
        Adjusted diluted earnings per share                             $   0.56
                                                                        ========


     *  Amortization  of goodwill was  non-deductible  for income tax  purposes,
     therefore, the tax component of the adjustment for amortization of goodwill
     is $0.


2. Line of Credit and Long-Term Debt

The Company had no long-term debt at December 31, 2003. Long-term debt consisted
of the following at December 31, 2002 (in thousands):


                                                                        
                                                                                   2002
                                                                             ----------------
         Note payable to financial institution with monthly principal and
         interest payments of $193 through October 2003; the note
         is unsecured with interest at a fixed rate of 5.75%.                $          1,876

         Notes payable to a third party with a payment totaling $839 due in
         2003;the note is secured by real property of the Company and has an
         imputed interest
         rate of 7.0%                                                                     839
                                                                             ----------------
                                                                                        2,715
         Less - current portion                                                        (2,715)
                                                                             ----------------

                                                                             $            -
                                                                             ================


                                      F-15

The Company  maintains a revolving  line of credit (see Note 5) ), which permits
revolving  borrowings  and  letters  of credit  totaling  $10.0  million  in the
aggregate,  with principal due at maturity and interest  payable  monthly at two
options (prime or LIBOR plus 0.625%).  During 2001, the Company  entered into an
interest  rate  swap  agreement  on the  $12.2  million  outstanding  under  the
revolving line of credit for purposes of better  managing cash flow. On November
7, 2001,  the Company paid  $762,500 to settle this swap  agreement.  The amount
paid was included in other  comprehensive  loss and has been fully  amortized to
interest  expense at December  31, 2003.  At December  31,  2003,  there were no
outstanding  revolving  borrowings  on the line of credit  and issued but unused
letters of credit under the line of credit totaled $7.7 million.

Under the terms of the line of credit and certain notes payable,  the Company is
required to maintain certain  financial ratios such as net worth and funded debt
to earnings before income taxes,  depreciation and amortization.  The Company is
also  required  to  maintain  certain  other  covenants  relating  to  corporate
structure,  ownership and  management.  The Company was in  compliance  with its
financial debt covenants at December 31, 2003.

3. Income Taxes

Income tax expense consists of the following (in thousands):

                                                                                       

                                                                       2003             2002            2001
                                                                -------------     -------------    -----------
         Current income taxes:
            Federal                                             $      12,292     $       7,849    $     7,952
            State                                                       2,440             2,281          1,872
                                                                -------------     -------------    -----------
                                                                       14,732            10,130          9,824
                                                                -------------     -------------    -----------
         Deferred income taxes:
            Federal                                                     9,779             7,656          2,649
            State                                                      (1,171)            1,624            577
                                                                -------------     -------------    -----------
                                                                        8,608             9,280          3,226
                                                                -------------     -------------    -----------
                                                                $      23,340     $      19,410    $    13,050
                                                                =============     =============    ===========


The  effective  income  tax rate is  different  than the amount  which  would be
computed  by  applying  statutory  corporate  income tax rates to income  before
income taxes. The differences are summarized as follows (in thousands):

                                                                                       
                                                                       2003             2002            2001
                                                                -------------     -------------    -----------

         Tax at the statutory rate (35%)                        $      20,579     $      16,571    $    11,223
         State income taxes, net of federal benefit                     1,924             1,749            826
          Other, net                                                      837             1,090          1,001
                                                                -------------     --------------   -----------
                                                                $      23,340     $      19,410    $    13,050
                                                                =============     =============    ===========


                                      F-16


The net effect of temporary  differences that give rise to significant  portions
of the deferred tax assets and deferred tax liabilities at December 31, 2003 and
2002, are as follows (in thousands):


                                                                                              
                                                                                     2003                 2002
                                                                                  ----------           ----------
       Short-term deferred tax assets:
            Claims accrual                                                        $    5,585           $    3,764
            Other                                                                      1,370                1,041
                                                                                  ----------           ----------
                                                                                  $    6,955           $    4,805
                                                                                  ----------           ----------
       Short -term deferred tax liabilities:
         Prepaid expenses deducted for tax purposes                                   (1,288)              (1,377)
                                                                                  ----------           ----------
       Short-term deferred tax assets, net                                        $    5,667           $    3,428
                                                                                  ==========           ==========
       Long-term deferred tax liabilities:
         Property and equipment depreciation                                      $   54,892           $   43,934
         Other                                                                           257                  368
                                                                                  ----------           ----------
                                                                                  $   55,149           $   44,302
                                                                                  ==========           ==========


In  management's  opinion,  it is more likely than not that the Company  will be
able to utilize its deferred tax assets in future periods.

4. Commitments and Contingencies

     a. Purchase Commitments

     As  of  December  31,  2003,  the  Company  had  purchase  commitments  for
     additional  tractors and trailers with an estimated purchase price of $46.5
     million for delivery throughout 2004. The estimated purchase price does not
     reflect  estimated  trade-in values of approximately  $7.5 million that the
     Company  expects to realize in connection with the purchase of this revenue
     equipment.  Although the Company  expects to take  delivery of this revenue
     equipment,  delays in the  availability  of  equipment  could  occur due to
     factors beyond the Company's control.

     b. Other

     The Company is involved in certain legal proceedings  arising in the normal
     course of business.  In the opinion of management,  the Company's potential
     exposure under pending legal proceedings is adequately  provided for in the
     accompanying consolidated financial statements.

     On July 31, 2002, the Company  reached a resolution of our litigation  with
     Freightliner,  L.L.C.  ("Freightliner")  through successful mediation.  The
     Company  initiated  suit  to  protect  its  contractual  and  other  rights
     concerning new equipment purchase prices and tractor repurchase commitments
     made by Freightliner.  Of the net benefits  recognized under the settlement
     agreement,  the majority has been  recognized as an adjustment to the basis
     of the tractors acquired from Freightliner,  which will be depreciated over
     the estimated lives of the underlying equipment. In addition,  Freightliner
     agreed to and did deliver 250 tractors under the settlement agreement.

     c. Operating Leases

     The Company leases certain revenue equipment under non-cancelable operating
     leases. Substantially all of the leases do have early buy-out options under
     which the Company has an option to  terminate  the leases  before the lease
     term by  purchasing  the  equipment  at  specified  costs  according to the
     buy-out  agreements In accordance with SFAS No. 13,  Accounting for Leases,
     the rental  expense is  reflected  as an  operating  expense  under  "Lease
     expense  -  revenue   equipment."  Rent  expense  related  to  these  lease
     agreements  totaled  approximately  $7.6  million,  $9.4  million  and $8.5
     million,   for  the  years  ended   December  31,  2003,   2002  and  2001,
     respectively.

                                      F-17

     Future lease payments under non-cancelable  operating leases are as follows
     (in thousands):


                                                      
                  Year Ending
                  December 31,                                 Amount
                  ------------                              ------------
                     2004                                   $      3,781
                     2005                                          2,951
                     2006                                            430
                                                            ------------
                                                            $      7,162
                                                            ============


5. Claims Accrual

The primary claims arising for the Company  consist of auto liability  (personal
injury and property  damage),  cargo  liability,  collision,  comprehensive  and
worker's  compensation.  During 2003, the Company was  self-insured for personal
injury  and  property  damage   liability,   cargo   liability,   collision  and
comprehensive  up to a maximum  limit of $2.0  million per  occurrence,  and the
maximum  self-retention for a separate worker's  compensation claim was $500,000
per occurrence.  The Company  establishes  reserves to cover these  self-insured
liabilities  and  maintains  insurance to cover  liabilities  in excess of those
amounts.  The Company's insurance policies for 2003 provided for excess personal
injury  and  property  damage  liability  up to a total  of  $35.0  million  per
occurrence  (which amount was increased to $40.0 million  subsequent to December
31,  2003)  and  cargo   liability,   collision,   comprehensive   and  worker's
compensation coverage up to a total of $10.0 million per occurrence. The Company
also   maintains   excess   coverage   for   employee   medical   expenses   and
hospitalization, and damage to physical properties.

The claims accrual  represents  accruals for the estimated  uninsured portion of
pending claims  including  adverse  development of known claims and incurred but
not reported claims.  These estimates are based on historical  information along
with certain assumptions about future events.  Changes in assumptions as well as
changes in actual  experience  could cause these estimates to change in the near
term.  Liabilities in excess of the self-insured  amounts are  collateralized by
letters of credit  totaling  $7.7  million.  These  letters of credit reduce the
available borrowings under the Company's line of credit. See Note 2.

6. Related Party Transactions

The Company  leases land and facilities  from a shareholder  and director of the
Company,  with monthly  payments of $6,900.  In addition to base rent, the lease
requires  the  Company to pay its share of all  expenses,  utilities,  taxes and
other charges.  Rent expense under this lease was  approximately  $83,000 during
each of 2003 and 2002, and $81,000 during 2001.

During 2003,  2002,and 2001,  the Company made advances of $225,000,  $1,845,000
and $750,000, respectively to Concentrek, an entity in which the Company holds a
17%  interest.  The  remaining  83%  interest in  Concentrek  is held by certain
officers,   directors,  and/or  shareholders  of  the  Company  and  members  of
Concentrek's  management.  During  2003 the  Company  received  $1,600,000  from
Concentrek towards these advances. See Note 1.

The Company paid approximately  $11,000,  $50,000 and $90,000 for certain of its
key  employees'   life  insurance   premiums   during  2003,   2002,  and  2001,
respectively.  A portion of the premiums paid is included in other assets in the
accompanying  consolidated  balance sheets.  The life insurance policies provide
for cash  distributions to the beneficiaries of the policyholders  upon death of
the key employee.  The Company is entitled to receive the total premiums paid on
the policies at distribution prior to any beneficiary distributions.

During  2003,  2002 and 2001,  the  Company  purchased  approximately  $565,000,
$250,000 and $1.1million, respectively, of communications equipment and services
from  the  communications  technology  company  in  which  it  formerly  had  an
investment.  The  Company  originally  owned  less  than  four  percent  of that
technology company,  and during 2001 that investment was completely written off.
See Note 1.

                                      F-18

During 2003, 2002 and 2001, the Company paid approximately $25,000,  $22,000 and
$64,500, respectively, for legal services to a firm that employs a member of the
Company's Board of Directors.

During 2003, 2002 and 2001, the Company paid  approximately  $404,000,  $326,000
and  $620,000,  respectively,  for travel  services for its  employees to Knight
Flight,  an entity in which the Company holds a 19% interest.  The remaining 81%
interest  in  Knight  Flight  is held by  certain  officers,  directors,  and/or
shareholders of the Company. See Note 1.

The Company has a consulting agreement with a shareholder,  director, and former
officer and employee of the Company to provide services related to marketing and
consulting and paid this person approximately  $50,000 in each of 2003, 2002 and
2001.

Total  Warehousing,  Inc.,  a  corporation  that  is  substantially  owned  by a
shareholder and director of the Company,  provided general warehousing  services
to the Company in the amount of approximately $3,000, $15,000 and $5,000 for the
years ended December 31, 2003, 2002 and 2001, respectively.

7. Shareholders' Equity

In November 2001, the Company issued  2,678,907 shares of common stock at $16.33
(the  Offering).  The Offering  consisted  of  4,928,907  shares of common stock
comprised of 2,678,907 of newly issued Company shares and 2,250,000  shares from
existing  shareholders.  The net proceeds  from the offering  were $41.2 million
after deducting offering costs of $2.5 million.

During 2003, 2002 and 2001, certain  non-employee Board of Director members each
received their director fees of $6,000, $5,000 and $5,000, respectively, through
the issuance of common stock in equivalent shares. The Company issued a total of
960, 798 and 1,200 shares of common stock to certain directors during 2003, 2002
and 2001, respectively.

8. Employee Benefit Plans

     a.   2003 Stock Option Plan

     The Company has maintained a stock option plan for the benefit of officers,
     employees and  directors  since 1994.  During 2003 the  Company's  Board of
     Directors  approved adoption of the "2003 Stock Option Plan" ("2003 Plan"),
     along with the  termination  of the previous  plan,  which was scheduled to
     expire in 2004.  The Company's  shareholders  approved the 2003 Plan at its
     annual  meeting in May 2003.  All issued and  outstanding  shares under the
     previous plan remain in effect, but no further shares will be granted under
     that plan. The 2003 Plan has 1,000,000  shares of common stock reserved for
     issuance thereunder.  The 2003 Plan will terminate on February 5, 2013. The
     Compensation  Committee of the Board of Directors administers the 2003 Plan
     and has the discretion to determine the employees, officers and independent
     directors who receive awards,  the type of awards to be granted  (incentive
     stock options,  nonqualified stock options and restricted stock grants) and
     the term, vesting and exercise price.  Incentive stock options are designed
     to comply with the applicable  provisions of the Internal Revenue Code (the
     Code) and are subject to  restrictions  contained in the Code,  including a
     requirement  that  exercise  prices  are equal to at least 100% of the fair
     market  value  of the  common  shares  on the  grant  date  and a  ten-year
     restriction on the option term.

     Independent directors are not permitted to receive incentive stock options.
     Non-qualified  stock  options  may  be  granted  to  directors,   including
     independent directors, officers, and employees and provide for the right to
     purchase common stock at a specified price,  which may not be less than 85%
     of the  fair  market  value  on the  date  of  grant,  and  usually  become
     exercisable  in  installments  after the grant  date.  Non-qualified  stock
     options may be granted for any reasonable term. The Plan provides that each
     independent  director may receive,  on the date of appointment to the Board
     of  Directors,  non-qualified  stock  options to purchase  2,500  shares of
     common  stock,  at an exercise  price equal to the fair market value of the
     common stock on the

                                      F-19

     date  of  the  grant.  In  addition  Independent   Directors  will  receive
     non-qualified  stock  options to purchase 500 shares for each calendar year
     an Independent Director is a Director.

     At December 31, 2003, 1,626,785  unexercised options granted under the 2003
     Plan and the previous plan were outstanding.  The fair value of each option
     grant is  estimated  on the date of grant  using the  Black-Scholes  option
     pricing  model with the following  weighted  average  assumptions  used for
     grants in 2003;  risk free  interest  rate of 5.00%,  expected  life of six
     years,  expected  volatility of 50%,  expected  dividend rate of zero,  and
     expected  forfeitures of 3.82%. The following weighted average  assumptions
     were used for grants in 2002;  risk free interest  rate of 3.36%,  expected
     life of six years,  expected  volatility of 52%,  expected dividend rate of
     zero, and expected  forfeitures of 3.92%.  The following  weighted  average
     assumptions were used for grants in 2001; risk free interest rate of 5.25%,
     expected life of six years,  expected  volatility of 52%, expected dividend
     rate of zero, and expected forfeitures of 3.83%.


                                                                                       
                                                     2003                     2002                    2001
                                            ---------------------  ----------------------   ----------------------
                                                         Weighted                Weighted                Weighted
                                                          Average                 Average                 Average
                                                         Exercise                Exercise                Exercise
                                              Options      Price     Options       Price      Options      Price
                                           -----------  --------- -----------   ---------   -----------   --------

         Outstanding at beginning of year    1,793,008    $  9.58   1,940,570    $  7.52    1,922,022     $  6.16
           Granted                             308,700      25.58     313,750      19.01      643,573        9.89
           Exercised                          (341,899)      6.50    (303,725)      6.35     (421,576)       5.02
           Forfeited                          (133,024)     12.16    (157,587)      9.52     (203,449)       7.25
                                              --------    ------- -----------    -------    ---------     -------
         Outstanding at end of year          1,626,785    $ 13.02   1,793,008    $  9.58    1,940,570     $  7.52
                                             =========    ======= ===========    =======    =========     =======
         Exercisable at end of year            349,100    $  6.15     599,932    $  6.39      385,704        8.55
                                             =========    ======= ===========    =======    =========     =======

         Weighted average fair value of
           options granted during the period              $ 14.00                $ 11.35                  $  5.49
                                                          =======                =======                   ======


     Options  outstanding  at December 31, 2003,  have exercise  prices  between
     $3.56 and $25.73.  There were 692,300  options  outstanding  with  exercise
     prices ranging from $3.56 to $7.65 with weighted average exercise prices of
     $6.40 and weighted average remaining  contractual lives of 5.8 years. There
     were 373,786 options outstanding with exercise prices ranging from $9.89 to
     $15.29 with weighted average exercise prices of $10.98 and weighted average
     contractual lives of 8.7 years. There were 560,699 options outstanding with
     exercise  prices  ranging  from  $16.07 to  $25.73  with  weighted  average
     exercise  prices of $22.56 and weighted  average  contractual  lives of 9.1
     years.

     b. 401(k) Profit Sharing Plan

     The Company has a 401(k)  profit  sharing plan (the Plan) for all employees
     who are 19 years of age or older  and have  completed  one year of  service
     with the Company.  The Plan provides for a mandatory matching  contribution
     equal to 50% of the amount of the employee's salary deduction not to exceed
     $625  annually per  employee.  The Plan also  provides for a  discretionary
     matching contribution. In 2003, 2002, and 2001, there were no discretionary
     contributions.  Employees' rights to employer contributions vest after five
     years from their date of employment.  The Company's  matching  contribution
     was approximately  $172,000,  $150,000 and $125,000 in 2003, 2002 and 2001,
     respectively.

                                      F-20



SCHEDULE II

KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES

Valuation and Qualifying Accounts and Reserves
For the Years Ended December 31, 2003, 2002 and 2001
(In thousands)


                                                                                          
                                                 Balance at                                             Balance at
                                                 Beginning          Expense                                End
                                                 of Period         Recorded          Deductions         of Period
                                               -------------    --------------      ------------      -------------
Allowance for doubtful accounts:
     Year ended December 31, 2003              $       1,325    $         801     $        (184) (1)  $       1,942
     Year ended December 31, 2002                      1,132              537              (344) (1)          1,325
     Year ended December 31, 2001                      1,121              456              (445) (1)          1,132

Allowance for doubtful notes receivable:
     Year ended December 31, 2003                        142               10               (15) (1)            137
     Year ended December 31, 2002                         66               76                -                  142
     Year ended December 31, 2001                         81               14               (29) (1)             66

Claims accrual:
     Year ended December 31, 2003                     10,419           16,558           (12,172) (2)         14,805
     Year ended December 31, 2002                      7,509           12,377            (9,467) (2)         10,419
     Year ended December 31, 2001                      5,554           10,230            (8,275) (2)          7,509


(1) Write-off of bad debts

(2) Cash paid for claims and premiums

                                      F-21



                                  EXHIBIT INDEX


      
Exhibit
Number                           Descriptions
- -------                          ------------

3.1     Restated  Articles  of  Incorporation  of  the  Company.  (Incorporated  by
        reference to Exhibit 3.1 to the  Company's  Registration  Statement on Form
        S-1 No. 33-83534.)

3.1.1   First  Amendment  to Restated  Articles of  Incorporation  of the  Company.
        (Incorporated by reference to Exhibit 3.1.1 to the Company's Report on Form
        10-K for the period ending December 31, 2000.)

3.1.2   Second  Amendment  to Restated  Articles of  Incorporation  of the Company.
        (Incorporated  by reference to Exhibit 3.1.2 to the Company's  Registration
        Statement on Form S-3 No. 333-72130.)

3.1.3   Third  Amendment  to Restated  Articles of  Incorporation  of the  Company.
        (Incorporated by reference to Exhibit 3.1.3 to the Company's Report on Form
        10-K for the period ending December 31, 2002.)

3.2     Restated Bylaws of the Company.  (Incorporated  by reference to Exhibit 3.2
        to the Company's Registration Statement on Form S-3 No. 333-72130.)

3.2.1   First  Amendment  to  Restated  Bylaws  of the  Company.  (Incorporated  by
        reference  to Exhibit  3.2.1 to the  Company's  Report on Form 10-K for the
        period ending December 31, 2002.)

4.1     Articles  4, 10 and 11 of the  Restated  Articles of  Incorporation  of the
        Company.  (Incorporated  by reference to Exhibit 3.1 to this Report on Form
        10-K.)

4.2     Sections 2 and 5 of the Restated  Bylaws of the Company.  (Incorporated  by
        reference to Exhibit 3.2 to this Report on Form 10-K.)

10.1    Purchase and Sale Agreement and Escrow  Instructions (All Cash) dated as of
        March 1, 1994,  between  Randy  Knight,  the Company,  and Lawyers Title of
        Arizona.  (Incorporated  by  reference  to  Exhibit  10.1 to the  Company's
        Registration Statement on Form S-1 No. 33-83534.)

10.1.1  Assignment and First  Amendment to Purchase and Sale Agreement and Escrow
        Instructions. (Incorporated by reference to Exhibit 10.1.1 to Amendment No.
        3 to the Company's Registration Statement on Form S-1 No. 33-83534.)

10.1.2  Second Amendment to Purchase and Sale Agreement and Escrow  Instructions.
        (Incorporated  by  reference to Exhibit  10.1.2 to  Amendment  No. 3 to the
        Company's Registration Statement on Form S-1 No. 33-83534.)

10.2    Net Lease and Joint Use  Agreement  between  Randy  Knight and the  Company
        dated as of March 1, 1994.  (Incorporated  by  reference to Exhibit 10.2 to
        the Company's Registration Statement on Form S-1 No. 33-83534.)




     
10.2.1  Assignment and First Amendment to Net Lease and Joint Use Payment between
        L. Randy Knight, Trustee of the R. K. Trust dated April 1, 1993, and Knight
        Transportation,  Inc.  and  certain  other  parties  dated  March 11,  1994
        (assigning  the  lessor's  interest to the R. K. Trust).  (Incorporated  by
        reference to Exhibit  10.2.1 to the  Company's  Report on Form 10-K for the
        period ending December 31, 1997.)

10.2.2  Second  Amendment to Net Lease and Joint Use  Agreement  between L. Randy
        Knight,  as  Trustee  of the R. K.  Trust  dated  April 1, 1993 and  Knight
        Transportation,  Inc.,  dated as of  September  1, 1997.  (Incorporated  by
        reference to Exhibit  10.2.2 to the  Company's  Report on Form 10-K for the
        period ending December 31, 1997.)

10.3    Form of Purchase  and Sale  Agreement  and Escrow  Instructions  (All Cash)
        dated as of October  1994,  between the  Company  and Knight  Deer  Valley,
        L.L.C., an Arizona limited liability company. (Incorporated by reference to
        Exhibit 10.4.1 to Amendment No. 3 to the Company's  Registration  Statement
        on Form S-1 No. 33-83534.)

10.4    Amended and Restated Knight  Transportation,  Inc. Stock Option Plan, dated
        as of February  10,  1998.  (Incorporated  by reference to Exhibit 1 to the
        Company's Notice and Information Statement on Schedule 14(c) for the period
        ending December 31, 1997.)

10.5    Amended Indemnification Agreements between the Company, Don Bliss, Clark A.
        Jenkins, Gary J. Knight, Keith Knight, Kevin P. Knight, Randy Knight, G. D.
        Madden,  Minor Perkins and Keith Turley,  and dated as of February 5, 1997.
        (Incorporated  by reference to Exhibit 10.6 to the Company's Report on Form
        10-K for the period ending December 31, 1996).

10.5.1  Indemnification  Agreements  between the  Company and  Timothy M. Kohl  and
        Matt Salmon,  dated as of October 16, 2000, and May 9, 2001,  respectively.
        (Incorporated  by reference to Exhibit  10.6.1 to the  Company's  Report on
        Form 10-K for the period ending December 31, 2001.)

10.5.2* Indemnification  Agreements  between the  Company and Mark  Scudder and
        Michael Garnreiter,  dated as of November 10, 1999, and September 19, 2003,
        respectively.

10.6    Master  Equipment Lease Agreement dated as of January 1, 1996,  between the
        Company and Quad-K Leasing, Inc. (Incorporated by reference to Exhibit 10.7
        to the  Company's  Report on Form 10-K for the period  ended  December  31,
        1995.)

10.7    Purchase  Agreement  and  Escrow  Instructions  dated as of July 13,  1995,
        between the Company, Swift Transportation Co., Inc. and United Title Agency
        of Arizona.  (Incorporated  by reference  to Exhibit 10.8 to the  Company's
        Report on Form 10-K for the period ended December 31, 1995.)

10.7.1  First   Amendment  to  Purchase   Agreement  and  Escrow   Instructions.
        (Incorporated  by reference to Exhibit  10.8.1 to the  Company's  Report on
        Form 10-K for the period ended December 31, 1995.)

10.8    Purchase and Sale  Agreement  dated as of February  13,  1996,  between the
        Company and RR-1 Limited Partnership. (Incorporated by reference to Exhibit
        10.9 to the Company's Report on Form 10-K for the period ended December 31,
        1995.)

10.9    Asset  Purchase  Agreement  dated  March  13,  1999,  by and  among  Knight
        Transportation,  Inc.,  Knight  Acquisition  Corporation,  Action  Delivery
        Service,  Inc.,  Action  Warehouse  Services,  Inc.  and  Bobby  R.  Ellis.
        (Incorporated  by reference to Exhibit 2.1 to the




     
        Company's  Report  on Form 8-K  filed  with  the  Securities  and  Exchange
        Commission on March 25, 1999.)

10.10   Master  Equipment  Lease  Agreement  dated as of October 28, 1998,  between
        Knight   Transportation   Midwest,   Inc.,   formerly   known  as   "Knight
        Transportation  Indianapolis,  Inc." and Quad-K Leasing, Inc. (Incorporated
        by reference to Exhibit 10.11 to the Company's  Report on Form 10-K for the
        period ending December 31, 1999.)

10.11   Consulting   Agreement   dated  as  of  March  1,   2000   between   Knight
        Transportation,  Inc. and LRK Management, L.L.C. (Incorporated by reference
        to Exhibit 10.12 to the Company's Report on Form 10-K for the period ending
        December 31, 1999.)

10.12   Stock  Purchase  Agreement  dated  April  19,  2000  by  and  among  Knight
        Transportation,  Inc., as Buyer, John R. Fayard,  Jr., and John Fayard Fast
        Freight,  Inc.  (Incorporated  by reference to the Company's Report on Form
        8-K filed with the Securities and Exchange Commission on May 4, 2000.)

10.13   Credit  Agreement by and among  Knight  Transportation,  Inc.,  Wells Fargo
        Bank and  Northern  Trust  Bank,  dated  April 6,  2001.  (Incorporated  by
        reference  to Exhibit  10(a) to the  Company's  Report on Form 10-Q for the
        period ending June 30, 2001.)

10.13.1  Modification   Agreement  to  Credit  Agreement  by  and  among  Knight
        Transportation,  Inc.  and Wells  Fargo  Bank,  dated  February  13,  2003.
        (Incorporated  by reference to Exhibit  10.14.1 to the Company's  Report on
        Form 10-K for the period ending December 31, 2002.)

10.13.2*  Modification  Agreement  to  Credit  Agreement  by  and  among  Knight
        Transportation, Inc. and Wells Fargo Bank, dated September 15, 2003.

10.13.3*  Modification  Agreement  to  Credit  Agreement  by  and  among  Knight
        Transportation, Inc. and Wells Fargo Bank, dated December 15, 2003.

10.14   Knight  Transportation,  Inc.  2003 Stock  Option  Plan.  (Incorporated  by
        reference  to Exhibit 1 to the  Company's  Definitive  Proxy  Statement  on
        Schedule 14A relating to its Annual Meeting of Shareholders held on May 21,
        2003.)

21.1*   Subsidiaries of the Company.

23.1*   Consent of KPMG LLP.

31.1*   Certification  pursuant to Item  601(b)(31) of  Regulation  S-K, as adopted
        pursuant  to Section  302 of the  Sarbanes-Oxley  Act of 2002,  by Kevin P.
        Knight, the Company's Chief Executive Officer.

31.2*   Certification  pursuant to Item  601(b)(31) of  Regulation  S-K, as adopted
        pursuant  to Section  302 of the  Sarbanes-Oxley  Act of 2002,  by David A.
        Jackson, the Company's Chief Financial Officer.

32.1*   Certification  pursuant to 18 U.S.C.  Section 1350, as adopted  pursuant to
        Section 906 of the  Sarbanes-Oxley  Act of 2002,  by Kevin P.  Knight,  the
        Company's Chief Executive Officer.




     
32.2*   Certification  pursuant to 18 U.S.C.  Section 1350, as adopted  pursuant to
        Section 906 of the  Sarbanes-Oxley  Act of 2002, by David A.  Jackson,  the
        Company's Chief Financial Officer.

- ------------------
*  Filed herewith.