XNYS:SWFT Swift Transportation Co Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission File Number 001-35007

 

 

 

LOGO

Swift Transportation Company

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-5589597

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

2200 South 75th Avenue

Phoenix, AZ 85043

(Address of principal executive offices and zip code)

(602) 269-9700

(Registrant’s telephone number, including area code)

N/A

(Former name, former address, and former fiscal year, if changed since last report)

 

 

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 filing requirements for the past 90 days.     Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x

The number of outstanding shares of the registrant’s Class A common stock as of August 1, 2012 was 87,039,443, and the number of outstanding shares of the registrant’s Class B common stock as of August 1, 2012 was 52,495,236.

 

 

 


Table of Contents

Page

PART I FINANCIAL INFORMATION   

Item 1. Financial Statements

  

Consolidated Balance Sheets as of June 30, 2012 (Unaudited) and December 31, 2011

     3   

Consolidated Statements of Operations (Unaudited) for the Three and Six Month Periods Ended June  30, 2012 and 2011

     4   

Consolidated Statements of Comprehensive Income (Unaudited)  for the Three and Six Month Periods Ended June 30, 2012 and 2011

     5   

Consolidated Statement of Stockholders’ Equity (Unaudited)  for the Six Month Period Ended June 30, 2012

     6   

Consolidated Statements of Cash Flows (Unaudited) for the Six Month Periods Ended June  30, 2012 and 2011

     7   

Notes to Consolidated Financial Statements (Unaudited)

     9   

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

     28   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     40   

Item 4. Controls and Procedures

     40   
PART II OTHER INFORMATION   

Item 1. Legal Proceedings

     41   

Item 1A. Risk Factors

     41   

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

     41   

Item 3. Defaults Upon Senior Securities

     41   

Item 4. Mine Safety Disclosures

     41   

Item 5. Other Information

     41   

Item 6. Exhibits

     41   

Signatures

     43   

Exhibit 31.1

  

Exhibit 31.2

  

Exhibit 32.1

  

EX-101 INSTANCE DOCUMENT

  

EX-101 SCHEMA DOCUMENT

  

EX-101 CALCULATION LINKBASE DOCUMENT

  

EX-101 DEFINITION LINKBASE DOCUMENT

  

EX-101 LABELS LINKBASE DOCUMENT

  

EX-101 PRESENTATION LINKBASE DOCUMENT

  

 

2


Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements

Swift Transportation Company and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)

 

     June 30,
2012
(Unaudited)
    December 31,
2011
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 35,515      $ 82,084   

Restricted cash

     57,168        71,724   

Fixed maturity securities, held to maturity, amortized cost-restricted

     14,612        —     

Accounts receivable, net

     348,889        324,035   

Equipment sales receivable

     1,755        5,500   

Income tax refund receivable

     2,317        1,881   

Inventories and supplies

     17,812        17,441   

Assets held for sale

     13,307        13,571   

Prepaid taxes, licenses, insurance and other

     44,350        46,559   

Deferred income taxes

     64,447        96,885   

Current portion of notes receivable

     5,051        6,455   
  

 

 

   

 

 

 

Total current assets

     605,223        666,135   
  

 

 

   

 

 

 

Property and equipment, at cost:

    

Revenue and service equipment

     1,703,760        1,674,452   

Land

     125,788        133,711   

Facilities and improvements

     231,044        229,420   

Furniture and office equipment

     43,415        41,183   
  

 

 

   

 

 

 

Total property and equipment

     2,104,007        2,078,766   

Less: accumulated depreciation and amortization

     802,347        778,769   
  

 

 

   

 

 

 

Net property and equipment

     1,301,660        1,299,997   

Other assets

     70,765        68,791   

Intangible assets, net

     341,968        350,486   

Goodwill

     253,256        253,256   
  

 

 

   

 

 

 

Total assets

   $ 2,572,872      $ 2,638,665   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 98,796      $ 81,688   

Accrued liabilities

     100,083        101,327   

Current portion of claims accruals

     71,828        73,266   

Current portion of long-term debt and obligations under capital leases

     46,854        59,339   

Fair value of guarantees

     1,195        1,195   

Current portion of interest rate swaps

     373        —     
  

 

 

   

 

 

 

Total current liabilities

     319,129        316,815   
  

 

 

   

 

 

 

Long-term debt and obligations under capital leases, less current portion

     1,408,123        1,530,104   

Claims accruals, less current portion

     104,596        96,277   

Fair value of interest rate swaps, less current portion

     11,797        10,061   

Deferred income taxes

     393,934        415,088   

Securitization of accounts receivable

     203,000        180,000   

Other liabilities

     —          4,131   
  

 

 

   

 

 

 

Total liabilities

     2,440,579        2,552,476   
  

 

 

   

 

 

 

Contingencies (note 15)

    

Stockholders’ equity:

    

Preferred stock, par value $0.01 per share; Authorized 1,000,000 shares; none issued

     —          —     

Class A common stock, par value $0.01 per share; Authorized 500,000,000 shares; 87,039,443 and 85,935,116 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively

     870        859   

Class B common stock, par value $0.01 per share; Authorized 250,000,000 shares; 52,495,236 and 53,563,460 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively

     525        536   

Additional paid-in capital

     894,754        891,899   

Accumulated deficit

     (756,234     (796,121

Accumulated other comprehensive loss

     (7,824     (11,186

Noncontrolling interests

     202        202   
  

 

 

   

 

 

 

Total stockholders’ equity

     132,293        86,189   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,572,872      $ 2,638,665   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

Swift Transportation Company and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2012     2011     2012     2011  

Operating revenue

   $ 872,584      $ 850,470      $ 1,699,469      $ 1,609,359   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Salaries, wages and employee benefits

     198,618        202,556        398,753        398,032   

Operating supplies and expenses

     63,379        58,766        118,421        115,870   

Fuel

     145,826        168,537        298,829        318,818   

Purchased transportation

     252,685        223,680        485,887        417,717   

Rental expense

     26,576        19,224        50,075        37,213   

Insurance and claims

     26,278        27,876        56,858        50,601   

Depreciation and amortization of property and equipment

     50,389        51,553        100,783        101,911   

Amortization of intangibles

     4,215        4,617        8,518        9,344   

Impairments

     —          —          1,065        —     

Gain on disposal of property and equipment

     (3,478     (700     (7,868     (2,955

Communication and utilities

     5,975        6,335        12,221        12,795   

Operating taxes and licenses

     15,444        15,459        31,348        30,717   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     785,907        777,903        1,554,890        1,490,063   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     86,677        72,567        144,579        119,296   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other (income) expenses:

        

Interest expense

     29,553        36,631        62,329        74,132   

Derivative interest expense

     2,108        4,003        4,653        8,683   

Interest income

     (439     (471     (836     (938

Loss on debt extinguishment

     1,279        —          22,219        —     

Other

     (1,299     (664     (1,901     (1,175
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other (income) expenses, net

     31,202        39,499        86,464        80,702   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     55,475        33,068        58,115        38,594   

Income tax expense

     21,776        13,485        18,228        15,806   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 33,699      $ 19,583      $ 39,887      $ 22,788   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

   $ 0.24      $ 0.14      $ 0.29      $ 0.16   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

   $ 0.24      $ 0.14      $ 0.29      $ 0.16   
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculations

        

Basic

     139,522        139,479        139,505        138,807   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     139,640        140,716        139,652        139,812   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

Swift Transportation Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2012     2011     2012     2011  

Net income

   $ 33,699      $ 19,583      $ 39,887      $ 22,788   

Other comprehensive income:

        

Change in fair value of interest rate swaps, net of tax

     (716     (2,087 )     (1,291     (2,087 )

Accumulated losses on interest rate swaps reclassified to income

     2,108        4,003        4,653        8,683   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

     1,392        1,916        3,362        6,596   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 35,091      $ 21,499      $ 43,249      $ 29,384   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

Swift Transportation Company and Subsidiaries

Consolidated Statement of Stockholders’ Equity

(In thousands, except per share data)

(Unaudited)

 

     Class A      Class B     Additional
Paid-in
Capital
     Accumulated
Deficit
    Accumulated
Other
Comprehensive
Loss
    Noncontrolling
Interests
     Total
Stockholders’
Equity
 
     Common Stock      Common Stock              
     Shares      Par
Value
     Shares     Par
Value
             

Balances, December 31, 2011

     85,935,116       $ 859         53,563,460      $ 536      $ 891,899       $ (796,121   $ (11,186   $ 202       $ 86,189   

Conversion of Class B shares to Class A shares

     1,068,224         11         (1,068,224     (11     —                  —     

Issuance of restricted Class A common stock

     11,676                4                4   

Exercise of stock options

     24,427                126                126   

Other comprehensive income

                    3,362           3,362   

Non-cash equity compensation

               2,725                2,725   

Net income

                  39,887             39,887   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Balances, June 30, 2012

     87,039,443       $ 870         52,495,236      $ 525      $ 894,754       $ (756,234   $ (7,824   $ 202       $ 132,293   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

Swift Transportation Company and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

     Six Months Ended June 30,  
     2012     2011  

Cash flows from operating activities:

    

Net income

   $ 39,887      $ 22,788   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization of property, equipment and intangibles

     109,301        111,255   

Amortization of debt issuance costs, original issue discount, and losses on terminated swaps

     7,645        12,310   

Gain on disposal of property and equipment less write-off of totaled tractors

     (7,166     (2,197

Impairment of property and equipment

     1,065        —     

Equity losses of investee

     358        —     

Deferred income taxes

     12,100        15,785   

Provision for allowance for losses on accounts receivable

     1,013        21   

Non-cash equity compensation

     2,725        4,743   

Loss on debt extinguishment

     21,267        —     

Increase (decrease) in cash resulting from changes in:

    

Accounts receivable

     (25,869     (55,454

Inventories and supplies

     (371     (8,034 )

Prepaid expenses and other current assets

     1,772        (6,049

Other assets

     (2,384     (6,315 )

Accounts payable, accrued and other liabilities

     4,507        33,360   
  

 

 

   

 

 

 

Net cash provided by operating activities

     165,850        122,213   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Decrease (increase) in restricted cash

     14,556        (11,726

Change in fixed maturity securities-restricted

     (14,612 )     —     

Funding of note receivable

     (7,500 )     —     

Proceeds from sale of property and equipment

     57,240        16,357   

Capital expenditures

     (131,102     (111,158

Payments received on notes receivable

     3,202        3,784   

Expenditures on assets held for sale

     (2,223     (4,987

Payments received on assets held for sale

     10,340        6,232   

Payments received on equipment sale receivables

     5,496        —     

Other investing activities

     (500 )     —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (65,103     (101,498
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of Class A common stock, net of issuance costs

     —          62,994   

Repayment of long-term debt and capital leases

     (171,433     (87,872

Borrowings under accounts receivable securitization

     174,000        86,000   

Repayment of accounts receivable securitization

     (151,000     (81,500

Proceeds from long-term debt

     10,000        —     

Payment of deferred loan costs

     (9,009     (3,425 )

Other financing activities

     126        250   
  

 

 

   

 

 

 

Net cash used in financing activities

     (147,316     (23,553
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (46,569     (2,838
  

 

 

   

 

 

 

Cash and cash equivalents at beginning of period

     82,084        47,494   

Cash and cash equivalents at end of period

   $ 35,515      $ 44,656   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

7


Table of Contents

Swift Transportation Company and Subsidiaries

Consolidated Statements of Cash Flows — (continued)

(In thousands)

(Unaudited)

 

     Six Months Ended June 30,  
     2012      2011  

Supplemental disclosure of cash flow information:

     

Cash paid during the period for:

     

Interest

   $ 64,608       $ 50,956   
  

 

 

    

 

 

 

Income taxes

   $ 6,917       $ 4,280   
  

 

 

    

 

 

 

Supplemental schedule of:

     

Non-cash investing activities:

     

Equipment sales receivables

   $ 1,751       $ 3,150   
  

 

 

    

 

 

 

Equipment purchase accrual

   $ 16,500       $ 5,946   
  

 

 

    

 

 

 

Notes receivable from sale of assets

   $ 1,319       $ 4,301   
  

 

 

    

 

 

 

Non-cash financing activities:

     

Accrued deferred loan costs

   $ 242       $ —     
  

 

 

    

 

 

 

Capital lease additions

   $ 19,531       $ 705   
  

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

Swift Transportation Company (formerly Swift Corporation) is the holding company for Swift Transportation Co., LLC, a Delaware limited liability company (formerly Swift Transportation Co., Inc., a Nevada corporation) and its subsidiaries (collectively, “Swift Transportation Co.”), a truckload carrier headquartered in Phoenix, Arizona, and Interstate Equipment Leasing, LLC (“IEL”) (all the foregoing being, collectively, “Swift” or the “Company”). The Company operates predominantly in one industry, road transportation, throughout the continental United States and Mexico and has only one reportable segment. At June 30, 2012, the Company operated a national terminal network and a tractor fleet of approximately 15,800 units comprised of 11,800 company tractors and 4,000 owner-operator tractors, a fleet of 51,600 trailers, and 6,800 intermodal containers.

The accompanying unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the information set forth therein have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes included in the Annual Report on Form 10-K of Swift Transportation Company for the year ended December 31, 2011. Results for the six month period ended June 30, 2012 are not necessarily an indication of the results that may be expected for the full year ending December 31, 2012. Management has evaluated the effect on the Company’s reported financial condition and results of operations of events subsequent to June 30, 2012 through the issuance of the consolidated financial statements.

Note 2. New Accounting Standards

Effective January 1, 2012, the Company adopted ASU No. 2011-04, Fair Value Measurements and Disclosures (“Topic 820”) — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU was issued concurrently with International Financial Reporting Standards (“IFRS”) 13, Fair Value Measurements (“IFRS 13”), and amends Topic 820 to provide largely identical guidance about fair value measurement and disclosure requirements. The new standards do not extend the use of fair value but, rather, provide guidance about how fair value should be applied where it already is required or permitted under IFRS or GAAP. For GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS 13. The adoption did not have a material impact on the amounts and disclosures in the Company’s consolidated financial statements.

Note 3. Income Taxes

The Company’s effective tax rate for the three months ended June 30, 2012 was 39%. The Company’s effective tax rate for the six months ended June 30, 2012 was 31%, which was 8% lower than the expected effective tax rate primarily due to the deferred state tax benefit related to an internal corporate restructuring of our subsidiaries in January of 2012. Excluding the impact of discrete items in the first quarter the effective tax rate for the six months ended June 30, 2012 would have been 39%. The effective tax rate for the three and six months ended June 30, 2011 was 41%, which was 2% higher than the expected effective tax rate primarily due to the amortization of previous losses from accumulated other comprehensive income (“OCI”) to income (for book purposes) related to the Company’s previous interest rate swaps that were terminated in December 2010 and a change in unrecognized tax benefits during the quarter resulting from a state tax audit.

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Accrued interest and penalties as of June 30, 2012 was $1.2 million. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. The Company anticipates that the total amount of unrecognized tax benefits may decrease by $0.7 million during the next twelve months, which should not have a material impact on the Company’s financial statements.

Certain of the Company’s subsidiaries are currently under examination by the state of California for the 2005, 2006 and May 10, 2007 tax years. In addition, other state jurisdictions are conducting examinations for years ranging from 2007 to 2009. The Company, during 2012, anticipates concluding its California examination for 2005, 2006 and the partial year ended May 10, 2007. At the completion of these examinations, management does not expect any adjustments that would have a material impact on the Company’s effective tax rate. Years subsequent to 2007 remain subject to examination.

 

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Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

 

Note 4. Investments

The Company accounts for its investments in accordance with Topic 320, Investments – Debt and Equity Securities. Management determines the appropriate classification of its investments in debt securities at the time of purchase and re-evaluates such determination on a quarterly basis. As of June 30, 2012, all of the Company’s investments were classified as held to maturity, as the Company has the positive intent and ability to hold these securities to maturity. Held to maturity securities are carried at amortized cost. The amortized cost of debt securities is adjusted using the effective interest rate method for amortization of premiums and accretion of discounts. Such amortization and accretion is reported in other (income) expenses in the Company’s consolidated statements of operations. These investments will be used to reimburse the insurance claim losses paid by the Company’s captive insurance companies, Red Rock Risk Retention Group, Inc., (“Red Rock”) and Mohave Transportation Insurance Company (“Mohave”), and are restricted by insurance regulations. The following table presents the cost or amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s fixed maturity securities as of June 30, 2012 (in thousands):

 

     June 30, 2012  
     Cost or
Amortized
Cost
     Gross Unrealized      Estimated
Fair
Value
 
        Gains      Temporary
Losses
    
             

Fixed Maturity Securities-restricted:

           

Foreign corporate securities

   $ 2,015       $ 1       $ —         $ 2,016   

U.S. corporate securities

     12,597         1         6         12,592   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity securities-restricted

   $ 14,612       $ 2       $ 6       $ 14,608   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2012, the contractual maturities of the fixed maturity securities were one year or less. As of June 30, 2012, the Company held four securities with unrealized losses for less than 12 months.

The Company periodically evaluates fixed maturity securities for impairment. The assessment of whether impairments have occurred is based on management’s case-by-case evaluation of the underlying reasons for the decline in estimated fair value.

The Company accounts for other-than-temporary impairments of debt securities using the provisions of Topic 320 related to the recognition of other-than-temporary impairments of debt securities. This guidance requires the Company to evaluate whether it intends to sell an impaired debt security or whether it is more likely than not that it will be required to sell an impaired debt security before recovery of the amortized cost basis. If either of these criteria are met, an impairment equal to the difference between the debt security’s amortized cost and its estimated fair value is recognized in earnings.

For impaired debt securities that do not meet this criteria, the Company determines if a credit loss exists with respect to the impaired security. If a credit loss exists, the credit loss component of the impairment (i.e., the difference between the security’s amortized cost and the present value of projected future cash flows expected to be collected) is recognized in earnings and the remaining portion of the impairment is recognized as a component of accumulated OCI. The Company did not recognize any impairment losses for the three and six months ended June 30, 2012.

Note 5. Intangible Assets

Intangible assets as of June 30, 2012 and December 31, 2011 were as follows (in thousands):

 

     June 30,     December 31,  
     2012     2011  

Customer Relationship:

    

Gross carrying value

   $ 275,324      $ 275,324   

Accumulated amortization

     (114,393     (105,875

Owner-Operator Relationship:

    

Gross carrying value

     3,396        3,396   

Accumulated amortization

     (3,396     (3,396 )

Trade Name:

    

Gross carrying value

     181,037        181,037   
  

 

 

   

 

 

 

Intangible assets, net

   $ 341,968      $ 350,486   
  

 

 

   

 

 

 

For all periods ending on or after December 31, 2007, amortization of intangibles consists primarily of amortization of $261.2 million gross carrying value of definite-lived intangible assets recognized under purchase accounting in connection with Swift Transportation Co.’s 2007 going private transaction. Intangible assets acquired as a result of the 2007 going private transaction include trade name, customer relationships, and owner-operator relationships. Amortization of the customer relationship acquired in the going private transaction is calculated on the 150% declining balance method over the estimated useful life of 15 years. The customer relationship contributed to the Company at May 9, 2007 is amortized using the straight-line method over 15 years. The trade name has an indefinite useful life and is not amortized, but rather is tested for impairment at least annually, unless events occur or circumstances change between annual tests that would more likely than not reduce the fair value.

The following table presents amortization expense for the three and six months ended June 30, 2012 and 2011, related to intangible assets recognized in conjunction with the 2007 going private transaction and the previous intangibles assets existing prior to the 2007 going private transaction (in thousands):

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2012      2011      2012      2011  

Amortization of intangible assets related to 2007 going private transaction

   $ 3,923       $ 4,326       $ 7,934       $ 8,761   

Amortization of intangible assets related to intangible assets existing prior to the 2007 going private transaction

     292         291         584         583   
  

 

 

    

 

 

    

 

 

    

 

 

 

Amortization expense

   $ 4,215       $ 4,617       $ 8,518       $ 9,344   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10


Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

 

Note 6. Assets Held for Sale

Assets held for sale as of June 30, 2012 and December 31, 2011 was as follows (in thousands):

 

     June 30,      December 31,  
     2012      2011  

Land and facilities

   $ 10,383       $ 9,958   

Revenue equipment

     2,924         3,613   
  

 

 

    

 

 

 

Assets held for sale

   $ 13,307       $ 13,571   
  

 

 

    

 

 

 

As of June 30, 2012 and December 31, 2011, assets held for sale are carried at the lower of depreciated cost or estimated fair value less expected selling expenses. The Company expects to sell these assets within the next twelve months.

Note 7. Equity Investment and Note Receivable – Swift Power Services, LLC

On February 14, 2012, the Company contributed approximately $500 thousand to Swift Power Services, LLC (“SPS”) (formerly GTI Holdings, LLC) in return for 49.95% ownership interest. SPS was formed in January 2012 for the purpose of acquiring the assets and business of three trucking companies engaged in bulk transporting of water, oil, liquids and pipe to various oil companies drilling in the Bakken shale in northwestern North Dakota. The Company accounts for its interest in SPS using the equity method. For the three and six months ended June 30, 2012, the Company recorded equity losses of $280 thousand and $358 thousand, respectively, in other expense in the Company’s consolidated statements of operations relating to its investment in SPS.

Additionally, on February 14, 2012, the Company loaned $7.5 million to SPS pursuant to a secured promissory note which is secured by substantially all of the assets of SPS. The note accrues interest at a fixed rate equal to 9.0% per annum with interest due quarterly beginning July 31, 2012. Beginning December 31, 2012, principal payments on the note are due in equal quarterly installments of 5.0% of the initial aggregate principal amount. All outstanding interest and principal balance are due on April 30, 2015.

Note 8. Debt and Financing Transactions

Other than the Company’s accounts receivable securitization as discussed in Note 9 and its outstanding capital lease obligations as discussed in Note 10, the Company had long-term debt outstanding as of June 30, 2012 and December 31, 2011, respectively, as follows (in thousands):

 

     June 30,      December 31,  
     2012      2011  

Senior secured first lien term loan due December 2016, net of $476 OID at June 30, 2012

   $ 183,274       $ —     

Senior secured first lien term loan due December 2017, net of $1,587 OID at June 30, 2012

     641,798         —     

Senior secured first lien term loan due December 2016, net of $8,855 OID at December 31, 2011

     —           925,534   

Senior second priority secured notes due November 15, 2018, net of $8,070 and $8,702 OID at June 30, 2012 and December 31, 2011, respectively

     491,930         491,298   

12.50% fixed rate notes due May 15, 2017

     —           15,638   

Other

     3,782         8,276   
  

 

 

    

 

 

 

Total long-term debt

     1,320,784         1,440,746   

Less: current portion

     2,992         6,678   
  

 

 

    

 

 

 

Long-term debt, less current portion

   $ 1,317,792       $ 1,434,068   
  

 

 

    

 

 

 

The credit facility and senior notes are secured by substantially all of the assets of the Company and are guaranteed by Swift Transportation Company, IEL, Swift Transportation Co. and its domestic subsidiaries other than its captive insurance subsidiaries, driver training academy subsidiary, and its bankruptcy-remote special purpose subsidiary. As of June 30, 2012 and December 31, 2011, the balance of deferred loan costs was $14.8 million and $22.3 million, respectively, and is recorded in other assets in the Company’s consolidated balance sheets.

Senior Secured Credit Facility

The senior secured credit facility was originally entered into on December 21, 2010 and consisted of a first lien term loan with an original aggregate principal amount of $1.07 billion due December 2016 and a $400.0 million revolving line of credit due December 2015 (the “Old Agreement”). On March 6, 2012, the Company entered into an Amended and Restated Credit Agreement (the “New Agreement”) replacing the Old Agreement with a $874.0 million face value first lien term loan, which was originally scheduled to mature in December 2016 and accrued interest at the LIBOR rate plus 4.50%, including a minimum LIBOR rate of 1.50%. The replacement of the Old Agreement with the New Agreement resulted in a loss on debt extinguishment of $20.9 million, before tax, representing the write-off of the remaining unamortized portion of original issue discount and deferred financing fees associated with the Old Agreement.

The New Agreement is comprised of a $200.0 million face value first lien term loan B-1 tranche, net of unamortized original issue discount of $0.5 million, and a $674.0 million face value first lien term loan B-2 tranche, net of unamortized original issue discount of $1.6 million as of June 30, 2012. The $200.0 million face value first lien term loan B-1 accrues interest at the LIBOR rate plus 3.75% with no minimum LIBOR rate and includes scheduled quarterly principal payments beginning June 30, 2012 of $5.0 million per quarter through December 2013 and generally $10.0 million per quarter thereafter until maturity in December 2016. The $674.0 million face value first lien term loan B-2 tranche accrues interest at the LIBOR rate plus 3.75% with a minimum LIBOR rate of 1.25% and includes scheduled quarterly principal payments of 0.25% of the original loan amount, or $1.685 million, until maturity in December 2017. On April 17, 2012, the Company entered into the Incremental Facility Amendment to the Amended and Restated Credit Agreement (“Incremental Facility Amendment”). Pursuant to the Incremental Facility Amendment, the Company received $10.0 million in proceeds from a Specified Incremental Tranche B-1 Term Loan (“Incremental Term Loan”). The terms applicable to the Incremental Term Loan are the same as those applicable to the first lien term loan B-1 tranche under the Company’s New Agreement. As of June 30, 2012, the Company made voluntary prepayments of $26.3 million on the first lien term loan B-1 tranche and $30.6 million on the first lien term loan B-2 tranche. The prepayments were funded though proceeds from the Incremental Term Loan and advances from its accounts receivable securitization. These prepayments have satisfied the scheduled principal payments on the first lien term loan B-1 tranche through June 2013 and the first lien term loan B-2 tranche through September 2016.

 

11


Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

 

In addition to the pricing, payment and maturity changes described above, certain provisions of the Old Agreement were amended and clarified in the New Agreement, including, but not limited to, adding an accordion feature that provides for an increase in the revolving commitment of up to $250.0 million, subject to the satisfaction of certain conditions and the participation of the lenders; modifying the definition of adjusted EBITDA to add back expenses relating to permitted acquisitions and dispositions; removing the requirement to prepay the facility from the proceeds of equity offerings where the Company is not in violation of a leverage condition; and relaxing the restrictions on the repurchase or redemption of the Company’s senior notes where the Company is in compliance with a defined leverage ratio.

In April 2012, the Company entered into the First Amendment to the Amended and Restated Credit Agreement (“Amendment”). The Amendment reduced the applicable rate on the revolving credit facility from 4.50% to a range of 3.00% to 3.25% for LIBOR based borrowings and letters of credit and from 3.50% to a range of 2.00% to 2.25% for Base Rate borrowings, depending on the Company’s consolidated leverage ratio as defined in the New Agreement. Additionally, the commitment fee for the unused portion of the revolving credit facility was reduced from a range of 0.50% to 0.75% to a range of 0.25% to 0.50% depending on the Company’s consolidated leverage ratio. In addition, the maturity date of the $400.0 million revolving credit facility was extended from December 21, 2015 to September 21, 2016.

As of June 30, 2012, there were no borrowings under the $400.0 million revolving line of credit, while the Company had outstanding letters of credit under this facility primarily for workers’ compensation and self-insurance liability purposes totaling $160.5 million, leaving $239.5 million available under the revolving line of credit. Outstanding letters of credit incur fees ranging from 3.00% to 3.25% per annum, depending on the Company’s consolidated leverage ratio as defined in the New Agreement. The Company was in compliance with the covenants in the senior secured credit agreement as of June 30, 2012.

Through June 30, 2012, the Company incurred $7.0 million of transaction costs related to both the New Agreement and the Amendment, excluding original issue discounts. Such costs were capitalized as deferred loan costs and will be amortized over the terms of the debt instruments.

Senior Second Priority Secured Notes

On December 21, 2010, Swift Services Holdings, Inc., a wholly owned subsidiary, completed a private placement of senior second priority secured notes totaling $500.0 million face value which mature in November 2018 and bear interest at 10.0% (the “senior notes”). The Company received proceeds of $490.0 million, net of a $10.0 million original issue discount. Interest on the senior notes is payable on May 15 and November 15 each year. The Company was in compliance with the covenants in the indenture governing the senior notes as of June 30, 2012.

Fixed Rate Notes

On May 21, 2012, the Company completed the call of its remaining $15.2 million face value 12.50% fixed rate notes due May 15, 2017, at a price of 106.25% of face value pursuant to the terms of the indenture governing the notes. The Company paid total proceeds of $16.2 million, which included the aggregate outstanding principal balance, the premium and the unpaid interest through closing and resulted in a loss on debt extinguishment of $1.3 million.

Note 9. Accounts Receivable Securitization

On June 8, 2011, Swift Receivables Company II, LLC, a Delaware limited liability company (“SRCII”), a wholly-owned bankruptcy-remote special purpose subsidiary, entered into a receivables sale agreement (the “2011 RSA”) with unrelated financial entities (the “Purchasers”) to replace the Company’s prior accounts receivable sale facility and to sell, on a revolving basis, undivided interests in the Company’s accounts receivable. Pursuant to the 2011 RSA, the Company’s receivable originator subsidiaries will sell all of their eligible accounts receivable to SRCII, which in turn, sells a variable percentage ownership interest in its accounts receivable to the Purchasers. The 2011 RSA provides for up to $275.0 million initially in borrowing capacity, subject to eligible receivables and reserve requirements, secured by the receivables. The 2011 RSA terminates on June 8, 2014 and is subject to customary fees and contains various customary affirmative and negative covenants, representations and warranties, and default and termination provisions. Outstanding balances under the 2011 RSA accrue program fees generally at commercial paper rates plus 125 basis points and unused capacity is subject to an unused commitment fee of 40 basis points. Pursuant to the 2011 RSA, collections on the underlying receivables by the Company are held for the benefit of SRCII and the Purchasers in the facility and are unavailable to satisfy claims of the Company and its subsidiaries. The facility qualifies for treatment as a secured borrowing under Topic 860, Transfers and Servicing, and as such, outstanding amounts are carried on the Company’s consolidated balance sheets as a liability with program fees recorded in interest expense in the Company’s consolidated statements of operations.

For the three and six months ended June 30, 2012, the Company incurred program fee expenses of $0.8 million and $1.6 million, respectively, associated with the 2011 RSA. For the three and six months ended June 30, 2011, the Company incurred program fee expenses of $1.1 million and $2.4 million associated with the 2011 RSA and 2008 RSA, respectively. As of June 30, 2012, the outstanding borrowing under the 2011 RSA was $203.0 million against a total available borrowing base of $265.1 million, leaving $62.1 million available.

Note 10. Capital Leases

The Company leases certain revenue equipment under capital leases. The Company’s capital leases are typically structured with balloon payments at the end of the lease term equal to the residual value the Company is contracted to receive from certain equipment manufacturers upon sale or trade back to the manufacturers. The Company is obligated to pay the balloon payments at the end of the leased term whether or not it receives the proceeds of the contracted residual values from the respective manufacturers. Certain leases contain renewal or fixed price purchase options. Obligations under capital leases total $134.2 million as of June 30, 2012, the current portion of which is $43.9 million. The leases are collateralized by revenue equipment with a cost of $305.8 million and accumulated amortization of $123.9 million as of June 30, 2012. The amortization of the equipment under capital leases is included in depreciation and amortization of property and equipment in the Company’s consolidated statements of operations.

 

12


Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

 

Note 11. Derivative Financial Instruments

Cash Flow Hedges — The Company, as contemplated by the credit facility, has derivative liabilities relating to outstanding forward-starting interest rate swap agreements, designated as cash flow hedges as defined under ASC 815. These interest rate swaps with an aggregate notional amount of $350.0 million take effect in January 2013 and have a maturity date in July 2015. These contracts are entered into to manage interest rate risk against the Company’s variable rate debt. The effective portion of the changes in estimated fair value of the designated swaps is recorded in accumulated OCI and is thereafter recognized as derivative interest expense as the interest on the hedged debt affects earnings. Hedged interest accruals do not begin until January 2013. Any ineffective portions of the changes in the fair value of designated interest rate swaps will be recognized directly to earnings as derivative interest expense in the Company’s consolidated statements of operations.

The estimated fair value of the interest rate swap liability as of June 30, 2012 and December 31, 2011 was $12.2 million and $10.1 million, respectively. As of June 30, 2012 and December 31, 2011, changes in estimated fair value of the designated interest rate swap agreements totaling $7.5 million and $6.2 million, net of tax, respectively, were reflected in accumulated OCI. Refer to Note 12 below for further discussion of the Company’s estimated fair value methodology.

The following table presents the changes in the fair values, net of tax, of derivatives designated as cash flow hedges had on accumulated OCI and earnings (in thousands):

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2012     2011     2012     2011  

Amount of loss recognized in accumulated OCI on derivative (effective portion)

   $ 716      $ 2,087      $ 1,291      $ 2,087   

Amount of loss reclassified from accumulated OCI into income as “Derivative interest expense” (effective portion)

   $ (2,108   $ (4,003   $ (4,653   $ (8,683

As of June 30, 2012, $1.2 million of deferred losses on derivatives in accumulated OCI is expected to be reclassified to earnings within the next 12 months.

Note 12. Fair Value Measurement

Topic 820, Fair Value Measurements and Disclosures, requires that the Company disclose estimated fair values for its financial instruments. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for the asset or liability. Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Changes in assumptions could significantly affect these estimates. Because the fair value is estimated as of June 30, 2012 and December 31, 2011, the amounts that will actually be realized or paid at settlement or maturity of the instruments in the future could be significantly different.

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of June 30, 2012 and December 31, 2011 (in thousands):

 

     June 30, 2012      December 31, 2011  
     Carrying      Fair      Carrying      Fair  
     Value      Value      Value      Value  

Financial Assets:

           

Fixed maturity securities-restricted

   $ 14,612       $ 14,608       $ —         $ —     

Financial Liabilities:

           

Senior secured first lien term loan due December 2016

     183,274         182,798         —           —     

Senior secured first lien term loan due December 2017

     641,798         642,066         —           —     

Senior secured first lien term loan

     —           —           925,534         923,220   

Senior second priority secured notes

     491,930         536,203         491,298         517,091   

Fixed rate notes

     —           —           15,638         16,420   

Interest rate swaps

     12,170         12,170         10,061         10,061   

Securitization of accounts receivable

   $ 203,000       $ 203,000       $ 180,000       $ 180,000   

The carrying amounts shown in the table (other than the securitization of accounts receivable, fixed maturity securities -restricted and interest rate swaps) are included in the consolidated balance sheets in long-term debt and obligations under capital leases. The estimated fair values of the financial instruments shown in the above table as of June 30, 2012 and December 31, 2011 represent management’s best estimates of the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. The estimated fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances.

The following summary presents a description of the methods and assumptions used to estimate the fair value of each class of financial instrument.

 

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Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

 

Fixed maturity securities-restricted

The estimated fair value of the Company’s fixed maturity securities investments are based on quoted prices in active markets that are readily and regularly obtainable.

First lien term loans, senior second priority secured notes, and fixed and floating rate notes

The fair values of the first lien term loan, senior second priority secured notes, and fixed rate notes were determined by bid prices in trading between qualified institutional buyers.

Securitization of Accounts Receivable

The Company’s securitization of accounts receivable consists of borrowings outstanding pursuant to the Company’s 2011 RSA, as discussed in Note 9. Its fair value is estimated by discounting future cash flows using a discount rate commensurate with the uncertainty involved.

Interest rate swaps

The Company’s interest rate swap agreements were carried on the balance sheet at estimated fair value as of June 30, 2012 and consisted of two interest rate swaps. The Company’s interest rate swaps are valued using valuation models, since they are not actively traded.

Interest rate yield curves and credit spreads derived from trading levels of the Company’s first lien term loan are the significant inputs into these valuation models. These inputs are observable in active markets over the terms of the instruments the Company holds. The Company considers the effect of its own credit standing and that of its counterparties in the valuations of its derivative financial instruments. As of June 30, 2012, the Company had recorded a credit valuation adjustment of $1.0 million, based on the credit spread derived from trading levels of the Company’s first lien term loan, to reduce the interest rate swap liability to its estimated fair value.

Fair value hierarchy

Topic 820 establishes a framework for measuring fair value in accordance with GAAP and expands financial statement disclosure requirements for fair value measurements. Topic 820 further specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:

 

   

Level 1—Valuation techniques in which all significant inputs are quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

 

   

Level 2—Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices from markets that are not active for assets or liabilities that are identical or similar to the assets or liabilities being measured. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.

 

   

Level 3—Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

When available, the Company uses quoted market prices to determine the estimated fair value of an asset or liability. If quoted market prices are not available, the Company will measure fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and currency rates. The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the estimated fair value measurement in its entirety. Following is a brief summary of the Company’s classification within the fair value hierarchy of each major category of assets and liabilities that it measures and reports on its consolidated balance sheets at estimated fair value on a recurring basis as of June 30, 2012:

 

   

Interest rate swaps. The Company’s interest rate swaps are valued using standard valuation models and credit valuation adjustments, both of which use significant inputs that are observable in active markets over the terms of the instruments the Company holds, and accordingly, the Company classified these valuation techniques as Level 2 in the hierarchy.

As of June 30, 2012 and December 31, 2011, information about inputs into the fair value measurements of each major category of the Company’s liabilities that were measured at estimated fair value on a recurring basis in periods subsequent to their initial recognition was as follows (in thousands):

 

            Fair Value Measurements at Reporting Date Using  

Description

   Total Fair
Value and
Carrying Value
on Balance Sheet
     Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

June 30, 2012:

           

Interest rate swaps

   $  12,170       $ —         $ 12,170       $ —     

December 31, 2011:

           

Interest rate swaps

   $ 10,061       $ —         $ 10,061       $ —     

 

14


Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

 

As of June 30, 2012, information about inputs into the estimated fair value measurements of the Company’s assets that were measured at estimated fair value on a nonrecurring basis in the period is as follows (in thousands):

 

            Fair Value Measurements at Reporting Date Using         

Description

   Total
Estimated
Fair Value
     Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs (Level 3)
     Total  Gains
(Losses)
 

June 30, 2012:

              

Real property

   $ 665       $  —         $  —         $  665       $ (1,065

In accordance with the provisions of Topic 360, Property, Plant and Equipment, real property with a carrying amount of $1.7 million was written down to its estimated fair value of $0.6 million during the first quarter of 2012, resulting in an impairment charge of $1.1 million, which was included in Impairments in the Company’s consolidated statements of operations for the six months ended June 30, 2012. The impairment of this asset was identified due to the Company’s decision to no longer use this property for its initial intended purpose. The Company estimated its fair value using significant unobservable inputs because there have been no recent sales of similar properties in the market place.

Note 13. Earnings per Share

The Company calculates its basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. The Company’s diluted earnings per share is calculated in a similar manner, but include the effect of dilutive securities, if any, from stock options and using the treasury stock method. To the extent these securities are anti-dilutive; they are excluded from the calculation of diluted earnings per share. The following table sets forth the calculations of basic and diluted earnings per share attributable to the stockholders of the Company (in thousands, except per share data):

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2012      2011      2012      2011  

Net income

   $ 33,699       $ 19,583       $ 39,887       $ 22,788   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic:

           

Weighted average common shares outstanding

     139,522         139,479         139,505         138,807   

Diluted:

           

Dilutive effect of stock options

     118         1,237         147         1,005   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total weighted average diluted shares outstanding

     139,640         140,716         139,652         139,812   
  

 

 

    

 

 

    

 

 

    

 

 

 

Anti-dilutive shares excluded from the diluted earnings per share
calculation
(1)

     4,257         —           4,277         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

           

Basic earnings per share

   $ 0.24       $ 0.14       $ 0.29       $ 0.16   

Diluted earnings per share

   $ 0.24       $ 0.14       $ 0.29       $ 0.16   

 

(1) 

Impact of outstanding options to purchase shares of the Company’s Class A common stock were anti-dilutive since the options exercise price was greater than the average market price of the common shares and were excluded from the calculation of diluted earnings per share.

As of June 30, 2012 and 2011, there were 6,005,914 and 5,906,758 options outstanding, respectively.

Note 14. Settlement—City of Los Angeles

Effective March 2, 2012, the Company and the City of Los Angeles (the “City”) entered into the Settlement Agreement and Mutual Release of Claims (“Settlement”). The Settlement was associated with the Incentive Addendum to Drayage Services Concession Agreement entered into by the Company and the City in December 2008 and as amended, in June 2009 (collectively the “Amended Addendum”). Pursuant to the Amended Addendum, in 2008 the Company received a one-time, early commitment incentive based on a minimum number of required drays to be completed by the Company over a five year term. The Company initially recorded the incentive as deferred revenue, and at the time of the Settlement, the Company had approximately $9.2 million remaining as deferred revenue. Concurrent with the City’s and the Company’s execution of the Settlement and the corresponding termination of the Amended Addendum, the Company refunded the City $4.0 million in full satisfaction of its obligations under the Amended Addendum and in full and final settlement of all claims for payment and damages that may be alleged by the City under the Amended Addendum. The remaining $5.2 million recorded as deferred revenue was recognized into income and classified as a reduction of operating supplies and expenses in the Company’s consolidated statements of operations.

Note 15. Contingencies

The Company is involved in certain claims and pending litigation primarily arising in the normal course of business. The majority of these claims relate to workers compensation, auto collision and liability, and physical damage and cargo damage. The Company expenses legal fees as incurred and accrues for the uninsured portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on the knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on the Company. Moreover, the results of complex legal proceedings are difficult to predict and the Company’s view of these matters may change in the future as the litigation and events related thereto unfold.

 

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Notes to Consolidated Financial Statements (Unaudited) — (continued)

 

For certain cases described below, management is unable to provide a meaningful estimate of the possible loss or range of loss because, among other reasons, (i) the proceedings are in various stages; (ii) damages have not been sought; (iii) damages are unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals and/or (v) there are significant factual issues to be resolved. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material adverse effect on our financial condition, though the outcomes could be material to our operating results for any particular period, depending, in part, upon the operating results for such period.

2004 owner-operator class action litigation

On January 30, 2004, a class action lawsuit was filed by Leonel Garza on behalf of himself and all similarly situated persons against Swift Transportation: Garza vs. Swift Transportation Co., Inc., Case No. CV07-0472. The putative class originally involved certain owner-operators who contracted with us under a 2001 Contractor Agreement that was in place for one year. The putative class is alleging that we should have reimbursed owner-operators for actual miles driven rather than the contracted and industry standard remuneration based upon dispatched miles. The trial court denied plaintiff’s petition for class certification, the plaintiff appealed and on August 6, 2008, the Arizona Court of Appeals issued an unpublished Memorandum Decision reversing the trial court’s denial of class certification and remanding the case back to the trial court. On November 14, 2008, we filed a petition for review to the Arizona Supreme Court regarding the issue of class certification as a consequence of the denial of the Motion for Reconsideration by the Court of Appeals. On March 17, 2009, the Arizona Supreme Court granted our petition for review, and on July 31, 2009, the Arizona Supreme Court vacated the decision of the Court of Appeals opining that the Court of Appeals lacked automatic appellate jurisdiction to reverse the trial court’s original denial of class certification and remanded the matter back to the trial court for further evaluation and determination. Thereafter, the plaintiff renewed the motion for class certification and expanded it to include all persons who were employed by Swift as employee drivers or who contracted with Swift as owner-operators on or after January 30, 1998, in each case who were compensated by reference to miles driven. On November 4, 2010, the Maricopa County trial court entered an order certifying a class of owner-operators and expanding the class to include employees. Upon certification, we filed a motion to compel arbitration as well as filing numerous motions in the trial court urging dismissal on several other grounds including, but not limited to the lack of an employee as a class representative, and because the named owner-operator class representative only contracted with us for a three month period under a one year contract that no longer exists. In addition to these trial court motions, we also filed a petition for special action with the Arizona Court of Appeals arguing that the trial court erred in certifying the class because the trial court relied upon the Court of Appeals ruling that was previously overturned by the Arizona Supreme Court. On April 7, 2011, the Arizona Court of Appeals declined jurisdiction to hear this petition for special action and we filed a petition for review to the Arizona Supreme Court. On August 31, 2011, the Arizona Supreme Court declined to review the decision of the Arizona Court of Appeals. During the month of April 2012, the court issued the following rulings with respect to certain motions filed by Swift: (1) denied Swift’s motion to compel arbitration; (2) denied Swift’s request to decertify the class; (3) granted Swift’s motion that there is no breach of contract; and (4) granted Swift’s motion to limit class size based on statute of limitations. We intend to continue to pursue all available appellate relief supported by the record, which we believe demonstrates that the class is improperly certified and, further, that the claims raised have no merit. We retain all of our defenses against liability and damages. The final disposition of this case and the impact of such final disposition cannot be determined at this time.

Driving academy class action litigation

On March 11, 2009, a class action lawsuit was filed by Michael Ham, Jemonia Ham, Dennis Wolf, and Francis Wolf on behalf of themselves and all similarly situated persons against Swift Transportation: Michael Ham, Jemonia Ham, Dennis Wolf and Francis Wolf v. Swift Transportation Co., Inc., Case No. 2:09-cv-02145-STA-dkv, or the Ham Complaint. The case was filed in the United States District Court for the Western Section of Tennessee Western Division. The putative class involves former students of our Tennessee driving academy who are seeking relief against us for the suspension of their Commercial Driver Licenses, or CDLs, and any CDL retesting that may be required of the former students by the relevant state department of motor vehicles. The allegations arise from the Tennessee Department of Safety, or TDOS, having released a general statement questioning the validity of CDLs issued by the State of Tennessee in connection with the Swift Driving Academy located in the State of Tennessee. We have filed an answer to the Ham Complaint. We have also filed a cross claim against the Commissioner of the TDOS, or the Commissioner, for a judicial declaration and judgment that we did not engage in any wrongdoing as alleged in the complaint and a grant of injunctive relief to compel the Commissioner to redact any statements or publications that allege wrongdoing by us and to issue corrective statements to any recipients of any such publications. The Commissioner’s motion to dismiss our cross claim has been dismissed by the court.

On or about April 23, 2009, two class action lawsuits were filed against us in New Jersey and Pennsylvania, respectively: Michael Pascarella, et al. v. Swift Transportation Co., Inc., Sharon A. Harrington, Chief Administrator of the New Jersey Motor Vehicle Commission, and David Mitchell, Commissioner of the Tennessee Department of Safety, Case No. 09-1921(JBS), in the United States District Court for the District of New Jersey, or the Pascarella Complaint; and Shawn McAlarnen et al. v. Swift Transportation Co., Inc., Janet Dolan, Director of the Bureau of Driver Licensing of The Pennsylvania Department of Transportation, and David Mitchell, Commissioner of the Tennessee Department of Safety, Case No. 09-1737 (E.D. Pa.), in the United States District Court for the Eastern District of Pennsylvania, or the McAlarnen Complaint. Both putative class action complaints involve former students of our Tennessee driving academy who are seeking relief against us, the TDOS, and the state motor vehicle agencies for the threatened suspension of their CDLs and any CDL retesting that may be required of the former students by the relevant state department of motor vehicles. The potential suspension and CDL re-testing was initiated by certain states in response to the general statement by the TDOS questioning the validity of CDL licenses the State of Tennessee issued in connection with the Swift Driving Academy located in Tennessee. The Pascarella Complaint and the McAlarnen Complaint are both based upon substantially the same facts and circumstances as alleged in the Ham Complaint. The only notable difference among the three complaints is that both the Pascarella and McAlarnen Complaints name the local motor vehicles agency and the TDOS as defendants, whereas the Ham Complaint does not. We deny the allegations of any alleged wrongdoing and intend to vigorously defend our position. The McAlarnen Complaint has been dismissed without prejudice because the McAlarnen plaintiff has elected to pursue the Director of the Bureau of Driver Licensing of the Pennsylvania Department of Transportation for damages. We have filed an answer to the Pascarella Complaint. We have also filed a cross-claim against the Commissioner for a judicial declaration and judgment that we did not engage in any wrongdoing as alleged in the complaint and a request for injunctive relief to compel the Commissioner to redact any statements or publications that allege wrongdoing by us and to issue corrective statements to any recipients of any such publications. The Commissioner’s motion to dismiss our cross claim has been dismissed by the court.

On May 29, 2009, we were served with two additional class action complaints involving the same alleged facts as set forth in the Ham Complaint and the Pascarella Complaint. The two matters are Gerald L. Lott and Francisco Armenta on behalf of themselves and all others similarly situated v. Swift Transportation Co., Inc. and David Mitchell the Commissioner of the Tennessee Department of Safety, Case No. 2:09-cv-02287, filed on May 7, 2009 in the United States District Court for the Western District of Tennessee, or the Lott Complaint; and Marylene Broadnax on behalf of herself and all others similarly situated v. Swift Transportation Corporation, Case No. 09-cv-6486-7, filed on May 22, 2009 in the Superior Court of DeKalb County, State of Georgia, or the Broadnax Complaint. While the Ham Complaint, the Pascarella Complaint, and the Lott Complaint all were filed in federal district courts, the Broadnax Complaint was filed in state court. As with all of these related complaints, we have filed an answer to the Lott Complaint and the Broadnax Complaint. We have also filed a cross-claim against the Commissioner for a judicial declaration and judgment that we did not engage in any wrongdoing as alleged in the complaint and a request for injunctive relief to compel the Commissioner to redact any statements or publications that allege wrongdoing by us and to issue corrective statements to any recipients of any such publications. The Commissioner’s motion to dismiss our cross claim has been dismissed by the court. The portion of the Lott complaint against the Commissioner has been dismissed as a result of a settlement agreement reached between the approximately 138 Lott class members and the Commissioner granting the class members 90 days to retake the test for their CDL.

 

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) — (continued)

 

The Pascarella Complaint, the Lott Complaint, and the Broadnax Complaint are consolidated with the Ham Complaint in the United States District Court for the Western District of Tennessee and discovery is ongoing.

On July 1, 2011, the United States District Court for the Western District of Tennessee Western division entered an order of court granting class certification of the consolidated matters. We believe that the court committed reversible error in granting class certification and on July 15, 2011 we filed a motion for reconsideration of the class certification determination.

In November 2011 and February 2012, we engaged in voluntary mediation in an attempt to resolve the matter and mitigate costs and risks of ongoing litigation. On June 14, 2012, the parties submitted to the court a petition for approval of a settlement agreement in resolution of the entire matter. Subject to preliminary and final approval of the settlement by the United States District Court for the Western District of Tennessee, Swift has agreed to make certain payments to qualifying class members on a claims made basis which will be within a dollar range of $2 million to $2.5 million and Swift will also agree to relinquish any legal claims to amounts owed by class members for unpaid academy tuition. The cost of settlement to Swift, including cash payments, related costs and charge offs, is not expected to result in any additional material charges or financial impact to the Company. Although Swift will relinquish its legal rights to amounts owed to it by class members for unpaid academy tuition, such amounts were fully reserved for in prior periods in accordance with generally accepted accounting principles and thus no additional charges will be recorded for the relinquishment of such unpaid tuition receivables in connection with the settlement.

Owner-operator misclassification class action litigation

On December 22, 2009, a class action lawsuit was filed against Swift Transportation and IEL: John Doe 1 and Joseph Sheer v. Swift Transportation Co., Inc., and Interstate Equipment Leasing, Inc., Jerry Moyes, and Chad Killebrew, Case No. 09-CIV-10376 filed in the United States District Court for the Southern District of New York, or the Sheer Complaint. The putative class involves owner-operators alleging that we misclassified owner-operators as independent contractors in violation of the federal Fair Labor Standards Act, or FLSA, and various New York and California state laws and that such owner-operators should be considered employees. The lawsuit also raises certain related issues with respect to the lease agreements that certain owner-operators have entered into with IEL. At present, in addition to the named plaintiffs, approximately 200 other current or former owner-operators have joined this lawsuit. Upon our motion, the matter has been transferred from the United States District Court for the Southern District of New York to the United States District Court in Arizona. On May 10, 2010, plaintiffs filed a motion to conditionally certify an FLSA collective action and authorize notice to the potential class members. On June 23, 2010, plaintiffs filed a motion for a preliminary injunction seeking to enjoin Swift and IEL from collecting payments from plaintiffs who are in default under their lease agreements and related relief. On September 30, 2010, the District Court granted Swift’s motion to compel arbitration and ordered that the class action be stayed pending the outcome of arbitration. The court further denied plaintiff’s motion for preliminary injunction and motion for conditional class certification. The Court also denied plaintiff’s request to arbitrate the matter as a class. The plaintiff filed a petition for a writ of mandamus asking that the District Court’s order be vacated. On July 27, 2011, the court denied the plaintiff’s petition for writ of mandamus and plaintiff’s filed another request for interlocutory appeal. On December 9, 2011, the court permitted the plaintiffs to proceed with their interlocutory appeal. We intend to vigorously defend against any arbitration proceedings. The final disposition of this case and the impact of such final disposition cannot be determined at this time.

California wage, meal and rest employee class action

On March 22, 2010, a class action lawsuit was filed by John Burnell, individually and on behalf of all other similarly situated persons against Swift Transportation: John Burnell and all others similarly situated v. Swift Transportation Co., Inc., Case No. CIVDS 1004377 filed in the Superior Court of the State of California, for the County of San Bernardino, or the Burnell Complaint. On June 3, 2010, upon motion by Swift, the matter was removed to the United States District Court for the central District of California, Case No. EDCV10-00809-VAP. The putative class includes drivers who worked for us during the four years preceding the date of filing alleging that we failed to pay the California minimum wage, failed to provide proper meal and rest periods, and failed to timely pay wages upon separation from employment. The Burnell Complaint is currently subject to a stay of proceedings pending determination of similar issues in a case unrelated to Swift, Brinker v Hohnbaum, which is currently pending before the California Supreme Court.

On April 5, 2012, we were served with an additional class action complaint alleging facts similar to those as set forth in the Burnell Complaint. This new class action is James R. Rudsell, on behalf of himself and all others similarly situated v. Swift Transportation Co. of Arizona, LLC and Swift Transportation Company, Case No. CIVDS 1200255, in the Superior Court of California for the County of San Bernadino, or the Rudsell Complaint.

We intend to vigorously defend certification of the class in both matters as well as the merits of these matters should the classes be certified. The final disposition of both cases and the impact of such final dispositions of these cases cannot be determined at this time.

California owner-operator and employee driver class action

On July 1, 2010, a class action lawsuit was filed by Michael Sanders against Swift Transportation and IEL: Michael Sanders individually and on behalf of others similarly situated v. Swift Transportation Co., Inc. and Interstate Equipment Leasing, Case No. 10523440 in the Superior Court of California, County of Alameda, or the Sanders Complaint. The putative class involves both owner-operators and driver employees alleging differing claims against Swift and IEL. Many of the claims alleged by both the putative class of owner-operators and the putative class of employee drivers overlap the same claims as alleged in the Sheer Complaint with respect to owner-operators and the Burnell Complaint as it relates to employee drivers. As alleged in the Sheer Complaint, the putative class includes owner-operators of Swift during the four years preceding the date of filing alleging that we misclassified owner-operators as independent contractors in violation of FLSA and various California state laws and that such owner-operators should be considered employees. As also alleged in the Sheer Complaint, the owner-operator portion of the Sanders Complaint also raises certain related issues with respect to the lease agreements that certain owner-operators have entered into with IEL. As alleged in the Burnell Complaint, the putative class in the Sanders Complaint includes drivers who worked for us during the four years preceding the date of filing alleging that we failed to provide proper meal and rest periods, failed to provide accurate wage statements upon separation from employment, and failed to timely pay wages upon separation from employment. The Sanders Complaint also raises two issues with respect to the owner-operators and two issues with respect to drivers that were not also alleged as part of either the Sheer Complaint or the Burnell Complaint. These separate owner-operator claims allege that we failed to provide accurate wage statements and failed to properly compensate for waiting times. The separate employee driver claims allege that we failed to reimburse business expenses and coerced driver employees to patronize the employer. The Sanders Complaint seeks to create two classes, one which is mostly (but not entirely) encompassed by the Sheer Complaint and another which is mostly (but not entirely) encompassed by the Burnell Complaint. Upon our motion, the Sanders Complaint has been transferred from the Superior Court of California for the County of Alameda to the United States District Court for the Northern District of California. On January 17, 2012, the court entered an order dismissing plaintiff’s case and granting Swift’s motion to compel arbitration. The plaintiffs have filed an appeal to the January 17, 2012 order.

Environmental notice

On April 17, 2009, we received a notice from the Lower Willamette Group, or LWG, advising that there are a total of 250 potentially responsible parties, or PRPs, with respect to alleged environmental contamination of the Lower Willamette River in Portland, Oregon designated as the Portland Harbor Superfund site, or the Site, and that as a previous landowner at the Site we have been asked to join a group of 60 PRPs and proportionately contribute to (i) reimbursement of funds expended by LWG to investigate environmental contamination at the Site and (ii) remediation costs of the same, rather than be exposed to potential litigation. Although we do not believe we contributed any contaminants to the Site, we were at one time the owner of property at the Site and the Comprehensive Environmental Response, Compensation and Liability Act imposes a standard of strict liability on property owners with respect to environmental claims. Notwithstanding this standard of strict liability, we believe our potential proportionate exposure to be minimal and not material. No formal complaint has been filed in this matter. Our pollution liability insurer has been notified of this potential claim. We do not believe the outcome of this matter is likely to have a material adverse effect on us. However, the final disposition of this matter and the impact of such final disposition cannot be determined at this time.

 

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) — (continued)

 

California and Oregon minimum wage class action

On July 12, 2011, a class action lawsuit was filed by Simona Montalvo on behalf of herself and all similarly situated persons against Swift Transportation: Montalvo et al. v. Swift Transportation Corporation d/b/a ST Swift Transportation Corporation in the Superior Court of California, County of San Diego, or the Montalvo Complaint. The Montalvo Complaint was removed to federal court on August 15, 2011, case number 3-11-CV-01827-L. Upon petition by plaintiffs, the matter was remanded to state court and we filed an appeal to this remand. On July 11, 2011 a class action lawsuit was filed by Glen Ridderbush on behalf of himself and all similarly situated persons against Swift Transportation: Ridderbush et al. v. Swift Transportation Co. of Arizona LLC and Swift Transportation Services, LLC in the Circuit Court for the State of Oregon, Multnomah County, or the Ridderbush Complaint. The Ridderbush Complaint was removed to federal court on August 24, 2011, case number 3-11-CV-01028. Both putative classes include employees alleging that candidates for employment within the four year statutory period in California and within the three year statutory period in Oregon, were not paid the state mandated minimum wage during their orientation phase.

On July 17, 2012, we engaged in a voluntary mediation session with the parties involved in the Ridderbush Complaint in an attempt to resolve the matter in order to avoid litigation and mitigate legal expense.

The issue of class certification must first be resolved before the court will address the merits of the case, and we retain all of our defenses against liability and damages pending a determination of class certification. We intend to vigorously defend against certification of the class as well as the merits of this matter should the class be certified.

Washington overtime class action

On September 9, 2011, a class action lawsuit was filed by Troy Slack on behalf of himself and all similarly situated persons against Swift Transportation: Troy Slack, et al v. Swift Transportation Co. of Arizona, LLC and Swift Transportation Corporation in the State Court of Washington, Pierce County, or the Slack Compliant. The Slack Compliant was removed to federal court on October 12, 2011, case number 11-2-11438-0. The putative class includes all current and former Washington State-based employee drivers during the three year statutory period alleging that they were not paid overtime in accordance with Washington State law and that they were not properly paid for meal and rest periods. We intend to vigorously defend certification of the class as well as the merits of these matters should the class be certified. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.

Arizona FCRA class action

On August 8, 2011, a proposed class action lawsuit was filed by Kelvin D. Daniel, Tanna Hodges, and Robert R. Bell, Jr. on behalf of themselves and all similarly situated persons against Swift Transportation Corporation: Kelvin D. Daniel, Tanna Hodges, and Robert R. Bell, Jr. et al. v. Swift Transportation Corporation, in the United States District Court for the District of Arizona, case number 2:11-CV-01548-ROS, or the Daniel Complaint. Plaintiffs sought employment with Swift Transportation of Arizona, LLC (“Swift Arizona”) and that entity has answered the complaint. The putative class includes individuals throughout the United States who sought employment with Swift Arizona and about whom Swift Arizona procured a criminal background report for employment purposes during the application process. The complaint alleges Swift Arizona violated the Fair Credit Reporting Act (“FCRA”). Among the allegations are that we did not make adequate disclosures or obtain authorizations for applicants; ii) did not issue pre-adverse action notices for in-person applicants who were not hired in whole or in part because of a background report that contained at least one derogatory item that would disqualify the person under Swift Arizona’s hiring policies; and iii) did not issue adverse action notifications to applicants who were not hired in whole or in part because of a background report that contained at least one derogatory item that would disqualify the person from under Swift Arizona’s hiring policies. In October 2011, in response to a partial motion to dismiss filed by Swift Arizona, the plaintiffs filed an amended complaint, to which Swift Arizona answered in part, and after the court denied a partial motion to dismiss, Swift Arizona filed an answer addressing the remaining allegations. We intend to vigorously defend certification of the class as well as the merits of these matters should the class be certified. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.

Illinois discrimination class action

On October 3, 2011, a class action lawsuit was filed by Steve C. Bluford on behalf of himself and all similarly situated persons against Swift Transportation: Steve C. Bluford v Swift v. Transportation, in the United States District Court for the Northern District of Illinois, Eastern Division, case number 1-11CV-06932, or the Bluford Complaint. The putative class includes all African American employee drivers who worked from the Illinois terminal during the two year statutory period alleging that we failed to treat similarly situated African American employees in the same manner as Caucasian employees. The named plaintiff, Steve Bluford, previously filed an EEOC complaint raising the same allegations which was dismissed by the EEOC as having no merit. On May 16, 2012, the Court granted Swift’s motion to dismiss the class, but any class member retains their rights to pursue individual claims if they so elect.

 

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) — (continued)

 

Note 16. Subsequent Events

On July 27, 2012, the Company made a voluntary prepayment of $25.0 million on its first lien term loan B-2 tranche. Following this prepayment, there are no remaining scheduled principal payments on the first lien term loan B-2 tranche until its maturity in December 2017.

Note 17. Guarantor Condensed Consolidating Financial Statements

The payment of principal and interest on the Company’s senior second priority secured notes are guaranteed by the Company’s 100% owned subsidiaries (the “Guarantor Subsidiaries”) other than its driver academy subsidiary, its captive insurance subsidiaries, its special-purpose receivables securitization subsidiary, and its foreign subsidiaries (the “Non-guarantor Subsidiaries”). The separate financial statements of the Guarantor Subsidiaries are not included herein because the Guarantor Subsidiaries are the Company’s 100% owned consolidated subsidiaries and are jointly, severally, fully and unconditionally liable for the obligations represented by the senior second priority secured notes.

The condensed consolidating financial statements present consolidating financial data for (i) Swift Transportation Company (on a parent only basis), (ii) Swift Services Holdings, Inc. (on an issuer only basis), (iii) the combined Guarantor Subsidiaries, (iv) the combined Non-Guarantor Subsidiaries, (v) an elimination column for adjustments to arrive at the information for the parent company and subsidiaries on a consolidated basis and (vi) the parent company and subsidiaries on a consolidated basis as of June 30, 2012 and December 31, 2011 and for the three and six months ended June 30, 2012 and 2011.

Investments in subsidiaries are accounted for by the respective parent company using the equity method for purposes of this presentation. Results of operations of subsidiaries are therefore reflected in the parent company’s investment accounts and earnings. The principal elimination entries set forth below eliminate investments in subsidiaries and intercompany balances and transactions.

 

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Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) — (continued)

 

Condensed consolidating balance sheet as of June 30, 2012

 

     Swift
Transportation
Company
(Parent)
    Swift Services
Holdings, Inc.
(Issuer)
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
     Eliminations
for
Consolidation
    Consolidated  
     (In thousands)  

Cash and cash equivalents

   $ 27,246      $ —        $ (1,674 )   $ 9,943       $ —        $ 35,515   

Restricted cash and fixed maturity securities—restricted

     —          —          —          71,780         —          71,780   

Accounts receivable, net

     —          —          13,630        338,361         (3,102     348,889   

Intercompany receivable (payable)

     9,122        448,520        (512,373     54,731         —          —     

Other current assets

     45,082        (2,760 )     95,914        10,803         —          149,039   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     81,450        445,760        (404,503     485,618         (3,102     605,223   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Property and equipment, net

     —          —          1,267,141        34,519         —          1,301,660   

Other assets

     (22,893     770,506        (385,218 )     5,389         (297,019 )     70,765   

Intangible assets, net

     —          —          331,155        10,813         —          341,968   

Goodwill

     —          —          246,977        6,279         —          253,256   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 58,557      $ 1,216,266      $ 1,055,552      $ 542,618       $ (300,121 )   $ 2,572,872   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Current portion of long-term debt and obligations under capital leases

   $ —        $ —        $ 46,321      $ 42,949       $ (42,416   $ 46,854   

Other current liabilities

     1,684        6,389        238,084        29,221         (3,103     272,275   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     1,684        6,389        284,405        72,170         (45,519     319,129   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Long-term debt and obligations under capital leases

     —          491,930        915,424        6,174         (5,405     1,408,123   

Deferred income taxes

     (51,557     (274     442,370        3,395         —          393,934   

Securitization of accounts receivable

     —          —          —          203,000         —          203,000   

Other liabilities

     —          —          67,863        48,530         —          116,393   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     (49,873     498,045        1,710,062        333,269         (50,924     2,440,579   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     108,430        718,221        (654,510     209,349         (249,197 )     132,293   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ (deficit) equity

   $ 58,557      $ 1,216,266      $ 1,055,552      $ 542,618       $ (300,121 )   $ 2,572,872   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) — (continued)

 

Condensed consolidating balance sheet as of December 31, 2011

 

     Swift
Transportation
Company
(Parent)
    Swift Services
Holdings, Inc.
(Issuer)
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations
for
Consolidation
    Consolidated  
     (In thousands)  

Cash and cash equivalents

   $ 11,132      $ —        $ 64,717      $ 6,235       $ —        $ 82,084   

Restricted cash

     —          —          —          71,724         —          71,724   

Accounts receivable, net

     —          —          17,234        310,997         (4,196 )     324,035   

Intercompany receivable (payable)

     —          442,000        (497,693 )     55,693         —          —     

Other current assets

     69,060        19,203        90,245        9,784         —          188,292   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     80,192        461,203        (325,497 )     454,433         (4,196 )     666,135   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Property and equipment, net

     —          —          1,264,765        35,232         —          1,299,997   

Other assets

     (63,761 )     2,692        279,037        6,147         (155,324 )     68,791   

Intangible assets, net

     —          —          339,281        11,205         —          350,486   

Goodwill

     —          —          246,977        6,279         —          253,256   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 16,431      $ 463,895      $ 1,804,563      $ 513,296       $ (159,520 )   $ 2,638,665   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Current portion of long-term debt and obligations under capital leases

   $ —        $ —        $ 58,806      $ 37,426       $ (36,893 )   $ 59,339   

Other current liabilities

     1,460        6,389        225,604        28,219         (4,196 )     257,476   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     1,460        6,389        284,410        65,645         (41,089 )     316,815   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Long-term debt and obligations under capital leases

     —          491,298        1,037,783        6,258         (5,235 )     1,530,104   

Deferred income taxes

     (50,715 )     (198 )     462,110        3,891         —          415,088   

Securitization of accounts receivable

     —          —          —          180,000         —          180,000   

Other liabilities

     —          —          63,286        47,183         —          110,469   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     (49,255 )     497,489        1,847,589        302,977         (46,324 )     2,552,476   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     65,686        (33,594 )     (43,026 )     210,319         (113,196 )     86,189   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ (deficit) equity

   $ 16,431      $ 463,895      $ 1,804,563      $ 513,296       $ (159,520 )   $ 2,638,665   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

21


Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) — (continued)

 

Condensed consolidating statement of operations for the three months ended June 30, 2012

 

     Swift
Transportation
Company
(Parent)
    Swift Services
Holdings, Inc.
(Issuer)
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations
for
Consolidation
    Consolidated  
     (In thousands)  

Operating revenue

   $ —        $ —        $ 856,591      $ 33,429      $ (17,436   $ 872,584   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

            

Salaries, wages and employee benefits

     1,463        —          190,587        6,568        —          198,618   

Operating supplies and expenses

     685        6        60,395        3,800        (1,507     63,379   

Fuel

     —          —          140,635        5,191        —          145,826   

Purchased transportation

     —          —          262,009        2,169        (11,493     252,685   

Rental expense

     —          —          26,443        305        (172     26,576   

Insurance and claims

     —          —          20,980        9,562        (4,264     26,278   

Depreciation and amortization of property and equipment

     —          —          49,463        926        —          50,389   

Amortization of intangibles

     —          —          4,022        193        —          4,215   

Gain on disposal of property and equipment

     —          —          (3,478     —          —          (3,478

Communication and utilities

     —          —          5,743        232        —          5,975   

Operating taxes and licenses

     —          —          13,324        2,120        —          15,444   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     2,148        6        770,123        31,066        (17,436     785,907   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (2,148     (6 )     86,468        2,363        —          86,677   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

     —          12,914        17,099        1,209        —          31,222   

Other (income) expenses

     (34,756     (26,941     (18,707 )     (2,654     83,038        (20
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     32,608        14,021        88,076        3,808        (83,038     55,475   

Income tax (benefit) expense

     (1,091     (4,820     26,382        1,305        —          21,776   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 33,699      $ 18,841      $ 61,694      $ 2,503      $ (83,038   $ 33,699   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) — (continued)

 

Condensed consolidating statement of operations for the three months ended June 30, 2011

 

     Swift
Transportation
Company
(Parent)
    Swift Services
Holdings, Inc.
(Issuer)
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations
for
Consolidation
    Consolidated  
     (In thousands)  

Operating revenue

   $ —        $ —        $ 835,131      $ 42,292      $ (26,953   $ 850,470   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

            

Salaries, wages and employee benefits

     2,319        —          193,457        6,780        —          202,556   

Operating supplies and expenses

     1,295        —          51,125        7,581        (1,235     58,766   

Fuel

     —          —          163,194        5,343        —          168,537   

Purchased transportation

     —          —          232,759        2,698        (11,777     223,680   

Rental expense

     —          —          19,101        309        (186     19,224   

Insurance and claims

     —          —          20,031        21,600        (13,755     27,876   

Depreciation and amortization of property and equipment

     —          —          50,790        763        —          51,553   

Amortization of intangibles

     —          —          4,404        213        —          4,617   

(Gain) loss on disposal of property and equipment

     —          —          (728     28        —          (700

Communication and utilities

     —          —          6,086        249        —          6,335   

Operating taxes and licenses

     —          —          13,164        2,295        —          15,459   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     3,614        —          753,383        47,859        (26,953     777,903   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (3,614     —          81,748        (5,567     —          72,567   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

     —          12,893        25,804        1,466        —          40,163   

Other (income) expenses

     (21,929     (9,559     5,595        (8,618     33,847        (664
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     18,315        (3,334     50,349        1,585        (33,847     33,068   

Income tax (benefit) expense

     (1,268     (4,730     18,862        621        —          13,485   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 19,583      $ 1,396      $ 31,487      $ 964      $ (33,847   $ 19,583   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) — (continued)

 

Condensed consolidating statement of operations for the six months ended June 30, 2012

 

     Swift
Transportation
Company
(Parent)
    Swift Services
Holdings, Inc.
(Issuer)
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations
for
Consolidation
    Consolidated  
     (In thousands)  

Operating revenue

   $ —        $ —        $ 1,666,098      $ 67,911      $ (34,540   $ 1,699,469   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

            

Salaries, wages and employee benefits

     2,730        —          382,542        13,481        —          398,753   

Operating supplies and expenses

     1,232        8        114,110        6,580        (3,509     118,421   

Fuel

     —          —          288,206        10,623        —          298,829   

Purchased transportation

     —          —          503,874        4,375        (22,362     485,887   

Rental expense

     —          —          49,819        609        (353     50,075   

Insurance and claims

     —          —          46,842        18,332        (8,316     56,858   

Depreciation and amortization of property and equipment

     —          —          98,980        1,803        —          100,783   

Amortization of intangibles

     —          —          8,127        391        —          8,518   

Impairments

     —          —          1,065        —          —          1,065   

(Gain) loss on disposal of property and equipment

     —          —          (7,868     —          —          (7,868

Communication and utilities

     —          —          11,745        476        —          12,221   

Operating taxes and licenses

     —          —          26,859        4,489        —          31,348   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     3,962        8        1,524,301        61,159        (34,540     1,554,890   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (3,962     (8 )     141,797        6,752        —          144,579   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

     —          25,827        37,788        2,531        —          66,146   

Other (income) expenses

     (41,285     (55,940     (20,114 )     (5,045     142,702        20,318   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     37,323        30,105        124,123        9,266        (142,702     58,115   

Income tax (benefit) expense

     (2,564     (9,641     26,901        3,532        —          18,228   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 39,887      $ 39,746      $ 97,222      $ 5,734      $ (142,702   $ 39,887   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) — (continued)

 

Condensed consolidating statement of operations for the six months ended June 30, 2011

 

     Swift
Transportation
Company
(Parent)
    Swift Services
Holdings, Inc.
(Issuer)
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations
for
Consolidation
    Consolidated  
     (In thousands)  

Operating revenue

   $ —        $ —        $ 1,579,665      $ 83,551      $ (53,857   $ 1,609,359   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

            

Salaries, wages and employee benefits

     4,743        —          379,996        13,293        —          398,032   

Operating supplies and expenses

     2,173        —          99,839        16,478        (2,620     115,870   

Fuel

     —          —          308,614        10,204        —          318,818   

Purchased transportation

     —          —          436,196        4,875        (23,354     417,717   

Rental expense

     —          —          36,950        636        (373     37,213   

Insurance and claims

     —          —          38,438        39,673        (27,510     50,601   

Depreciation and amortization of property and equipment

     —          —          100,498        1,413        —          101,911   

Amortization of intangibles

     —          —          8,912        432        —          9,344   

Impairments

     —          —          —          —          —          —     

(Gain) loss on disposal of property and equipment

     —          —          (3,014     59        —          (2,955

Communication and utilities

     —          —          12,307        488        —          12,795   

Operating taxes and licenses

     —          —          26,166        4,551        —          30,717   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     6,916        —          1,444,902        92,102        (53,857     1,490,063   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (6,916     —          134,763        (8,551     —          119,296   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

     —          25,775        52,832        3,270        —          81,877   

Other (income) expenses

     (25,378     (22,277     7,463        (18,833     57,850        (1,175
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     18,462        (3,498     74,468        7,012        (57,850     38,594   

Income tax (benefit) expense

     (4,326     (9,457     26,814        2,775        —          15,806   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 22,788      $ 5,959      $ 47,654      $ 4,237      $ (57,850   $ 22,788   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) — (continued)

 

Condensed consolidating statement of cash flows for the six months ended June 30, 2012

 

     Swift
Transportation
Company
(Parent)
    Swift Services
Holdings, Inc.
(Issuer)
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations
for
Consolidation
    Consolidated  
     (In thousands)  

Net cash provided by (used in) operating activities

   $ 25,110      $ 6,520      $ 151,107      $ (16,887   $ —        $ 165,850   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

            

Decrease in restricted cash

     —          —          —          14,556        —          14,556   

Change in fixed maturity securities-restricted

     —          —          —          (14,612     —          (14,612

Funding of GTI note receivable

     —          —          (7,500     —          —          (7,500

Proceeds from sale of property and equipment

     —          —          57,238        2        —          57,240   

Capital expenditures

     —          —          (130,012     (1,090     —          (131,102

Payments received on notes receivable

     —          —          3,202        —          —          3,202   

Expenditures on assets held for sale

     —          —          (2,223     —          —          (2,223

Payments received on assets held for sale

     —          —          10,340        —          —          10,340   

Payments received on equipment sale receivables

     —          —          5,496        —          —          5,496   

Dividend from subsidiary

     —          —          6,700        —          (6,700     —     

Funding of intercompany notes

     —          —          (787     —          787        —     

Payments received on intercompany notes

     —          —          604        —          (604     —     

Other investing activities

     —          —          (500     —          —          (500
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     —          —          (57,442     (1,144     (6,517     (65,103
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

            

Payment of deferred loan costs

     —          —          (9,009     —          —          (9,009

Borrowings under accounts receivable securitization

     —          —          —          174,000        —          174,000   

Repayment of accounts receivable securitization

     —          —          —          (151,000     —          (151,000

Repayment of long-term debt and capital leases

     —          —          (171,167     (266     —          (171,433

Dividend to parent

     —          —          —          (6,700     6,700        —     

Proceeds from long-term debt

     —          —          10,000        —          —          10,000   

Proceeds from intercompany notes

     —          —          —          787        (787     —     

Repayment of intercompany notes

     —          —          —          (604     604        —     

Other financing activities

     126        —          —          —          —          126   

Net funding (to) from affiliates

     (9,122     (6,520     10,120        5,522        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (8,996     (6,520     (160,056     21,739        6,517        (147,316
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     16,114        —          (66,391     3,708        —          (46,569
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at beginning of period

     11,132        —          64,717        6,235        —          82,084   

Cash and cash equivalents at end of period

   $ 27,246      $ —        $ (1,674   $ 9,943      $ —        $ 35,515   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) — (continued)

 

Condensed consolidating statement of cash flows for the six months ended June 30, 2011

 

     Swift
Transportation
Company
(Parent)
    Swift Services
Holdings, Inc.
(Issuer)
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations
for
Consolidation
    Consolidated  
     (In thousands)  

Net cash provided by (used in) operating activities

   $ —        $ —        $ 163,890      $ (41,677   $ —        $ 122,213   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

            

Increase in restricted cash

     —          —          —          (11,726     —          (11,726

Proceeds from sale of property and equipment

     —          —          16,253        104        —          16,357   

Capital expenditures

     —          —          (108,228     (2,930     —          (111,158

Payments received on notes receivable

     —          —          3,784        —          —          3,784   

Expenditures on assets held for sale

     —          —          (4,987     —          —          (4,987

Payments received on assets held for sale

     —          —          6,232        —          —          6,232   

Funding of intercompany notes

     —          —          (3,899     —          3,899        —     

Payments received on intercompany notes

     —          —          2,047        —          (2,047     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     —          —          (88,798     (14,552     1,852        (101,498
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

            

Proceeds from issuance of class A common stock, net of issuance costs

     62,994        —          —          —          —          62,994   

Payment of deferred loan costs

     —          (910     (1,631     (884     —          (3,425

Borrowings under accounts receivable securitization

     —          —          —          86,000        —          86,000   

Repayment of accounts receivable securitization

     —          —          —          (81,500     —          (81,500

Repayment of long-term debt and capital leases

     —          —          (87,672     (200     —          (87,872

Proceeds from intercompany notes

     —          —          —          3,899        (3,899     —     

Repayment of intercompany notes

     —          —          —          (2,047     2,047        —     

Other financing activities

     250        —          —          —          —          250   

Net funding (to) from affiliates

     (59,455     910        9,485        49,060        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     3,789        —          (79,818     54,328        (1,852     (23,553
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     3,789        —          (4,726     (1,901     —          (2,838
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at beginning of period

     1,561        —          35,844        10,089        —          47,494   

Cash and cash equivalents at end of period

   $ 5,350      $ —        $ 31,118      $ 8,188      $ —        $ 44,656   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with the consolidated financial statements and the related notes included elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2011.

Non-GAAP Measures

In addition to disclosing financial results that are determined in accordance with United States generally accepted accounting principles, or GAAP, we also disclose certain non-GAAP financial information, such as, Adjusted Operating Ratio, Adjusted EBITDA, and Adjusted EPS, which are not recognized measures under GAAP and should not be considered alternatives to or superior to profitability and cash flow measures derived in accordance with GAAP. We use Adjusted Operating Ratio, Adjusted EBITDA, and Adjusted EPS as a supplement to our GAAP results in evaluating certain aspects of our business, as described below. We believe our presentation of Adjusted Operating Ratio, Adjusted EBITDA, and Adjusted EPS is useful because it provides investors and securities analysts the same information that we use internally for purposes of assessing our core operating performance. See below for more information on our use of Adjusted Operating Ratio, Adjusted EBITDA, and Adjusted EPS, as well as a description of the computation and reconciliation of our Operating Ratio to our Adjusted Operating Ratio, our net income to Adjusted EBITDA, and our diluted earnings per share to Adjusted EPS.

We define Adjusted Operating Ratio as (a) total operating expenses, less (i) fuel surcharges, (ii) amortization of intangibles from our 2007 going-private transaction, (iii) non-cash impairment charges, (iv) other special non-cash items, and (v) excludable transaction costs, as a percentage of (b) total revenue excluding fuel surcharge revenue. For the year ended December 31, 2011, we revised the calculation of Adjusted Operating Ratio to eliminate the impact of the non-cash amortization of the intangibles from our 2007 going private transaction to be consistent with the calculation of our Adjusted EPS. The three and six months ended June 30, 2011 presented below has been revised to reflect the revised definition. We believe fuel surcharge is sometimes volatile and eliminating the impact of this source of revenue (by netting fuel surcharge revenue against fuel expense) affords a more consistent basis for comparing our results of operations. We also believe excluding impairments, non-comparable nature of the intangibles from our going-private transaction and other special items enhances the comparability of our performance from period to period. A reconciliation of our Adjusted Operating Ratio for each of the periods indicated is as follows:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2012     2011     2012     2011  
    

(Unaudited)

(Amounts in thousands)

 

Total GAAP operating revenue

   $ 872,584      $ 850,470      $ 1,699,469      $ 1,609,359   

Less: Fuel surcharge revenue

     176,017        178,316        338,731        316,133   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating revenue, net of fuel surcharge revenue

     696,567        672,154        1,360,738        1,293,226   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total GAAP operating expenses

     785,907        777,903        1,554,890        1,490,063   

Adjusted for:

        

Fuel surcharge revenue

     (176,017     (178,316     (338,731     (316,133

Amortization of certain intangibles(a)

     (3,923 )     (4,326 )     (7,934 )     (8,761

Non-cash impairments(b)

     —          —          (1,065 )     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating expense

     605,967        595,261        1,207,160        1,165,169   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating income

   $ 90,600      $ 76,893      $ 153,578      $ 128,057   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Operating Ratio

     87.0     88.6     88.7     90.1

Operating Ratio

     90.1     91.5     91.5     92.6

 

(a) Amortization of certain intangibles reflects the non-cash amortization expense of $3.9 million and $4.3 million for the three months ended June 30, 2012 and 2011, respectively, and $7.9 million and $8.8 million for the six months ended June 30, 2012 and 2011, respectively, relating to certain intangible assets identified in our 2007 going private transaction through which Swift Corporation acquired Swift Transportation Co.
(b) Real property with a carrying amount of $1.7 million was written down to its fair value of $0.6 million, resulting in a pre-tax impairment charge of $1.1 million in the first quarter of 2012.

 

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We define Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income (loss) plus (i) depreciation and amortization, (ii) interest and derivative interest expense, including other fees and charges associated with indebtedness, net of interest income, (iii) income taxes, (iv) non-cash equity compensation expense, (v) non-cash impairments, (vi) other special non-cash items, and (vii) excludable transaction costs. We believe that Adjusted EBITDA is a relevant measure for estimating the cash generated by our operations that would be available to cover capital expenditures, taxes, interest and other investments and that it enhances an investor’s understanding of our financial performance. We use Adjusted EBITDA for business planning purposes and in measuring our performance relative to that of our competitors. Our method of computing Adjusted EBITDA is consistent with that used in our senior secured credit agreement for covenant compliance purposes and may differ from similarly titled measures of other companies. A reconciliation of GAAP net income (loss) to Adjusted EBITDA for each of the periods indicated is as follows:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2012     2011     2012     2011  
     (Unaudited)  
     (Amounts in thousands)  

Net income

   $ 33,699      $ 19,583      $ 39,887      $ 22,788   

Adjusted for:

        

Depreciation and amortization of property and equipment

     50,389        51,553        100,783        101,911   

Amortization of intangibles

     4,215        4,617        8,518        9,344   

Interest expense

     29,553        36,631        62,329        74,132   

Derivative interest expense

     2,108        4,003        4,653        8,683   

Interest income

     (439     (471     (836     (938

Income tax ex