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EXCEL - IDEA: XBRL DOCUMENT - Knight-Swift Transportation Holdings Inc.Financial_Report.xls
EX-32.1 - CERTIFICATION BY CEO AND CFO PURSUANT TO 18 U.S.C.SECTION 1350 - Knight-Swift Transportation Holdings Inc.swft-ex3219302014.htm
EX-31.1 - CERTIFICATION BY CEO PURSUANT TO RULE 13A-14(A) OR 15D-14(A) - Knight-Swift Transportation Holdings Inc.swft-ex3119302014.htm
EX-31.2 - CERTIFICATION BY CFO PURSUANT TO RULE 13A-14(A) OR 15D-14(A) - Knight-Swift Transportation Holdings Inc.swft-ex3129302014.htm

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ______________________________________________________________________
Form 10-Q
  ______________________________________________________________________
 ý    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2014
OR
o    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
 ______________________________________________________________________
 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 No.)
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)

  ______________________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
 
 
 
 
 
Large accelerated filer
 
ý
  
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o    No  ý
The number of outstanding shares of the registrant’s Class A common stock as of October 31, 2014 was 90,725,484 and the number of outstanding shares of the registrant’s Class B common stock as of October 31, 2014 was 50,991,938.
 
 
 
 
 



 
 
 
Page
 
 
 
 
 
 
Consolidated Balance Sheets as of September 30, 2014 (Unaudited) and December 31, 2013
 
 
Consolidated Statements of Income (Unaudited) for the Three and Nine Month Periods Ended September 30, 2014 and 2013
 
 
Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Month Periods Ended September 30, 2014 and 2013
 
 
Consolidated Statement of Stockholders' Equity (Unaudited) for the Nine Month Period Ended September 30, 2014
 
 
Consolidated Statements of Cash Flows (Unaudited) for the Nine Month Periods Ended September 30, 2014 and 2013

 
 
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EX 31.1
 
 
 
EX 31.2
 
 
 
EX 32.1
 
 
 
EX-101.INS
 
 
 
EX-101.SCH
 
 
 
EX-101.CAL
 
 
 
EX-101.LAB
 
 
 
EX-101.PRE
 
 
 
EX-101.DEF
 

2


PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Swift Transportation Company and Subsidiaries
Consolidated Balance Sheets
 
 
September 30, 2014
 
December 31, 2013
 
 
(Unaudited)
 
 
 
 
(In thousands, except share data)
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
70,296

 
$
59,178

Restricted cash
 
51,511

 
50,833

Restricted investments, held to maturity, amortized cost
 
25,091

 
25,814

Accounts receivable, net
 
454,188

 
418,436

Equipment sales receivable
 
878

 
368

Income tax refund receivable
 
5,340

 
23,704

Inventories and supplies
 
20,736

 
18,430

Assets held for sale
 
5,752

 
19,268

Prepaid taxes, licenses, insurance and other
 
58,647

 
63,958

Deferred income taxes
 
42,281

 
46,833

Current portion of notes receivable
 
9,144

 
7,210

Total current assets
 
743,864

 
734,032

Property and equipment, at cost:
 
 
 
 
Revenue and service equipment
 
1,983,177

 
1,942,423

Land
 
117,183

 
117,929

Facilities and improvements
 
267,484

 
248,724

Furniture and office equipment
 
62,739

 
61,396

Total property and equipment
 
2,430,583

 
2,370,472

Less: accumulated depreciation and amortization
 
946,640

 
922,665

Net property and equipment
 
1,483,943

 
1,447,807

Other assets
 
47,038

 
57,166

Intangible assets, net
 
304,136

 
316,747

Goodwill
 
253,256

 
253,256

Total assets
 
$
2,832,237

 
$
2,809,008

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
 
Accounts payable
 
$
165,734

 
$
118,014

Accrued liabilities
 
120,018

 
110,745

Current portion of claims accruals
 
82,809

 
75,469

Current portion of long-term debt and obligations under capital leases
 
76,138

 
75,056

Fair value of guarantees
 

 
366

Current portion of interest rate swaps
 
7,815

 
4,718

Total current liabilities
 
452,514

 
384,368

Revolving line of credit
 
82,000

 
17,000

Long-term debt and obligations under capital leases, less current portion
 
988,724

 
1,246,764

Claims accruals, less current portion
 
143,254

 
118,582

Fair value of interest rate swaps, less current portion
 

 
7,050

Deferred income taxes
 
448,240

 
484,200

Securitization of accounts receivable
 
315,000

 
264,000

Other liabilities
 
21

 
3,457

Total liabilities
 
2,429,753

 
2,525,421

Contingencies (note 13)
 


 


Stockholders’ equity:
 
 
 
 
Preferred stock, par value $0.01 per share; Authorized 10,000,000 shares; none issued
 

 

Class A common stock, par value $0.01 per share; Authorized 500,000,000 shares; 90,639,015 and 88,402,991 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively
 
906

 
883

Class B common stock, par value $0.01 per share; Authorized 250,000,000 shares; 50,991,938 and 52,441,938 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively
 
510

 
525

Additional paid-in capital
 
772,908

 
759,408

Accumulated deficit
 
(368,508
)
 
(471,169
)
Accumulated other comprehensive loss
 
(3,434
)
 
(6,162
)
Noncontrolling interest
 
102

 
102

Total stockholders’ equity
 
402,484

 
283,587

Total liabilities and stockholders’ equity
 
$
2,832,237

 
$
2,809,008

See accompanying notes to consolidated financial statements.




3


Swift Transportation Company and Subsidiaries
Consolidated Statements of Income
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
(Unaudited)
(Amounts in thousands, except per share data)
Operating revenue
 
$
1,074,880

 
$
1,032,127

 
$
3,159,224

 
$
3,042,806

Operating expenses:
 
 
 
 
 
 
 
 
Salaries, wages and employee benefits
 
240,005

 
220,156

 
707,464

 
670,493

Operating supplies and expenses
 
88,459

 
85,204

 
253,361

 
236,267

Fuel
 
149,099

 
160,561

 
458,798

 
489,563

Purchased transportation
 
328,112

 
318,321

 
987,530

 
918,594

Rental expense
 
59,655

 
46,262

 
167,509

 
129,881

Insurance and claims
 
37,673

 
35,110

 
113,442

 
100,245

Depreciation and amortization of property and equipment
 
54,369

 
58,254

 
165,335

 
170,004

Amortization of intangibles
 
4,204

 
4,204

 
12,611

 
12,611

Impairments
 
2,308

 

 
2,308

 

Gain on disposal of property and equipment
 
(11,628
)
 
(5,619
)
 
(23,099
)
 
(13,610
)
Communication and utilities
 
7,321

 
6,679

 
22,207

 
19,145

Operating taxes and licenses
 
17,892

 
18,575

 
54,155

 
55,209

Total operating expenses
 
977,469

 
947,707

 
2,921,621

 
2,788,402

Operating income
 
97,411

 
84,420

 
237,603

 
254,404

Other expenses (income):
 
 
 
 
 
 
 
 
Interest expense
 
20,372

 
24,595

 
65,050

 
75,719

Derivative interest expense
 
1,756

 
1,465

 
5,027

 
2,559

Interest income
 
(777
)
 
(604
)
 
(2,235
)
 
(1,741
)
Merger and acquisition expense
 

 
4,331

 

 
4,331

Loss on debt extinguishment
 
2,854

 
496

 
12,757

 
5,540

Gain on sale of real property
 

 
(798
)
 

 
(6,876
)
Other
 
(842
)
 
(1,174
)
 
(2,416
)
 
(3,058
)
Total other expenses, net
 
23,363

 
28,311

 
78,183

 
76,474

Income before income taxes
 
74,048

 
56,109

 
159,420

 
177,930

Income tax expense
 
23,890

 
26,156

 
56,759

 
67,806

Net income
 
$
50,158

 
$
29,953

 
$
102,661

 
$
110,124

Basic earnings per share
 
$
0.35

 
$
0.21

 
$
0.73

 
$
0.79

Diluted earnings per share
 
$
0.35

 
$
0.21

 
$
0.72

 
$
0.78

Shares used in per share calculations:
 
 
 
 
 
 
 
 
Basic
 
141,557

 
140,327

 
141,282

 
140,004

Diluted
 
143,322

 
142,315

 
143,338

 
141,942

See accompanying notes to consolidated financial statements.


4


Swift Transportation Company and Subsidiaries
Consolidated Statements of Comprehensive Income
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
(Unaudited)
(In thousands)
Net income
 
$
50,158

 
$
29,953

 
$
102,661

 
$
110,124

Other comprehensive income before income taxes:
 
 
 
 
 
 
 
 
Accumulated losses on derivatives reclassified to derivative interest expense
 
1,642

 
1,106

 
4,438

 
2,065

Change in fair value of interest rate swaps
 

 

 

 
(145
)
Other comprehensive income before income taxes
 
1,642

 
1,106

 
4,438

 
1,920

Income tax effect of items within other comprehensive income
 
(633
)
 
(326
)
 
(1,710
)
 
(544
)
Other comprehensive income, net of income taxes
 
1,009

 
780

 
2,728

 
1,376

Total comprehensive income
 
$
51,167

 
$
30,733

 
$
105,389

 
$
111,500

See accompanying notes to consolidated financial statements.


5


Swift Transportation Company and Subsidiaries
Consolidated Statement of Stockholders’ Equity
 
 
Class A
Common Stock
 
Class B
Common Stock
 
Additional
Paid-in Capital
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive Loss
 
Noncontrolling Interest
 
Total
Stockholders’ Equity
 
 
Shares
 
Par Value
 
Shares
 
Par Value
 
 
 
 
 
 
 
(Unaudited)
(In thousands, except per share data)
Balances, December 31, 2013
 
88,402,991

 
$
883

 
52,441,938

 
$
525

 
$
759,408

 
$
(471,169
)
 
$
(6,162
)
 
$
102

 
$
283,587

Exercise of stock options
 
651,536

 
6

 

 

 
6,767

 

 

 

 
6,773

Conversion of Class B common stock to Class A common stock
 
1,450,000

 
15

 
(1,450,000
)
 
(15
)
 


 
 
 
 
 
 
 

Income tax benefit from exercise of stock options
 

 

 

 

 
2,029

 

 

 

 
2,029

Grant of restricted Class A common stock
 
98,866

 
1

 

 

 
201

 

 

 

 
202

Shares issued under employee stock purchase plan
 
35,622

 
1

 

 

 
813

 

 

 

 
814

Other comprehensive income, net of income taxes
 

 

 

 

 

 

 
2,728

 

 
2,728

Non-cash equity compensation
 

 

 

 

 
3,690

 

 

 

 
3,690

Net income
 

 

 

 

 

 
102,661

 

 

 
102,661

Balances, September 30, 2014
 
90,639,015

 
$
906

 
50,991,938

 
$
510

 
$
772,908

 
$
(368,508
)
 
$
(3,434
)
 
$
102

 
$
402,484

See accompanying notes to consolidated financial statements.


6


Swift Transportation Company and Subsidiaries
Consolidated Statements of Cash Flows
 
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
 
(Unaudited)
(In thousands)
Cash flows from operating activities:
 
 
 
 
Net income
 
$
102,661

 
$
110,124

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization of property, equipment and intangibles
 
177,946

 
182,615

Amortization of debt issuance costs, original issue discount, and losses on terminated swaps
 
7,794

 
5,107

Gain on disposal of property and equipment less write-off of totaled tractors
 
(21,784
)
 
(12,902
)
Gain on sale of real property
 

 
(6,876
)
Impairments
 
2,308

 

Equity losses of investee
 

 
228

Deferred income taxes
 
(33,120
)
 
64,695

Provision for allowance for losses on accounts receivable
 
2,041

 
872

Loss on debt extinguishment
 
12,757

 
5,540

Non-cash equity compensation
 
3,892

 
3,465

Income effect of mark-to-market adjustment of interest rate swaps
 
(74
)
 
654

Interest on Central stockholders' loan receivable, pre-acquisition
 

 
(53
)
Increase (decrease) in cash resulting from changes in:
 
 
 
 
Accounts receivable
 
(37,793
)
 
(18,939
)
Inventories and supplies
 
(2,307
)
 
(629
)
Prepaid expenses and other current assets
 
23,711

 
(23,946
)
Other assets
 
6,014

 
6,976

Accounts payable, accrued and other liabilities
 
48,767

 
38,932

Net cash provided by operating activities
 
292,813

 
355,863

Cash flows from investing activities:
 
 
 
 
(Increase) decrease in restricted cash
 
(678
)
 
1,302

Change in restricted investments
 
364

 
(1,900
)
Proceeds from sale of property and equipment
 
116,672

 
75,812

Capital expenditures
 
(211,113
)
 
(236,990
)
Payments received on notes receivable
 
3,759

 
2,775

Expenditures on assets held for sale
 
(2,900
)
 
(17,442
)
Payments received on assets held for sale
 
20,089

 
47,365

Payments received on equipment sale receivables
 
368

 
1,266

Acquisition of Central, net of debt repayment
 

 
(147,822
)
Net cash used in investing activities
 
(73,439
)
 
(275,634
)
Cash flows from financing activities:
 
 
 
 
Repayment of long-term debt and capital leases
 
(772,088
)
 
(199,490
)
Proceeds from long-term debt
 
450,000

 
26,268

Net borrowings on revolving line of credit
 
65,000

 
59,469

Borrowings under accounts receivable securitization
 
100,000

 
180,000

Repayment of accounts receivable securitization
 
(49,000
)
 
(124,000
)
Payment of deferred loan costs
 
(11,784
)
 
(2,183
)
Distribution to Central stockholders, pre-acquisition
 

 
(2,499
)
Issuance of Central stockholders' loan receivable, pre-acquisition
 

 
(30,000
)
Proceeds from exercise of stock options and the issuance of employee stock purchase plan shares
 
7,587

 
10,422

Income tax benefit from exercise of stock options
 
2,029

 
(383
)
Net cash used in financing activities
 
(208,256
)
 
(82,396
)
Net increase (decrease) in cash and cash equivalents
 
11,118

 
(2,167
)
Cash and cash equivalents at beginning of period
 
59,178

 
53,596

Cash and cash equivalents at end of period
 
$
70,296

 
$
51,429

 See accompanying notes to consolidated financial statements.



7



Swift Transportation Company and Subsidiaries
Consolidated Statements of Cash Flows — (continued)
 
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
 
(Unaudited)
(In thousands)
Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
59,809

 
$
67,833

Income taxes
 
$
59,501

 
$
20,602

Supplemental schedule of:
 
 
 
 
Non-cash investing activities:
 
 
 
 
Equipment sales receivables
 
$
878

 
$
696

Equipment purchase accrual
 
$
40,379

 
$
39,369

Notes receivable from sale of assets
 
$
4,524

 
$
5,855

Non-cash financing activities:
 
 
 
 
Accrued deferred loan costs
 
$
280

 
$

Capital lease additions
 
$
64,351

 
$
85,094

Insurance premium note payable
 
$
37

 
$
3,324

Non-cash distribution to Central stockholders in satisfaction of stockholders' loans receivable, pre-acquisition
 
$

 
$
22,315

Non-cash exercise of Central stock options in exchange for stockholders' loans receivable, pre-acquisition
 
$

 
$
3,415

Cancellation of Central stockholders' loans receivable at closing of acquisition
 
$

 
$
33,295

See accompanying notes to consolidated financial statements.


8


Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation
Swift Transportation Company is the holding company for Swift Transportation Co., LLC (a Delaware limited liability company) 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”).
As of September 30, 2014, the Company operated a national terminal network and a tractor fleet of approximately 18,700 units comprised of 13,700 tractors driven by company drivers and 5,000 owner-operator tractors, a fleet of 60,300 trailers, and 8,900 intermodal containers. The Company’s four reportable operating segments are Truckload, Dedicated, Central Refrigerated and Intermodal. In the first quarter of 2014, the Company reorganized its reportable segments to reflect management’s revised reporting structure of its lines of business following the integration of Central Refrigerated. In association with the operational reorganization, the operations of Central Refrigerated's Trailer on Flat Car ("TOFC") business are reported within the Company's Intermodal segment and the operations of Central Refrigerated's logistics business, third-party leasing, and other services provided to owner-operators are reported in the Company's other non-reportable segment. All prior period historical results related to the above noted segment reorganization have been retrospectively recast.
In management's opinion, the accompanying financial statements prepared in accordance with United States generally accepted accounting principles ("GAAP") include all adjustments necessary for the fair presentation of the periods presented. These interim financial statements should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2013.
Note 2. New Accounting Standard
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which established Accounting Standards Codification ("ASC") Topic 606. The new revenue recognition standard eliminates all industry-specific guidance and provides a five-step analysis of transactions to determine when and how revenue is recognized. The premise of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The amendments in this ASU will be effective for the Company beginning January 1, 2017, and may be applied retrospectively to each period presented, or as a cumulative effect adjustment as of the date of adoption. Early adoption is not permitted. The Company is currently evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
Note 3. Income Taxes
The effective tax rate for the three months ended September 30, 2014 was 32.3%, which was 6.2 percentage points lower than expected primarily due to certain federal income tax credits realized as a discrete item in the third quarter of 2014. The effective tax rate for the nine months ended September 30, 2014 was 35.6%, which was 2.9 percentage points lower than expected primarily due to the federal income tax credits mentioned above. Excluding the impact of the discrete item in the third quarter of 2014, the effective tax rate for the nine months ended September 30, 2014 would have been 38.5%.
The effective tax rate for the three months ended September 30, 2013 was 46.6%, which was 8.1 percentage points higher than expected primarily due to Central Refrigerated acquisition related costs and deferred taxes for Central Refrigerated's conversion to a C-Corporation, as well as fixed asset basis differences and state taxes, which were all discrete items in the third quarter of 2013. The effective tax rate for the nine months ended September 30, 2013 was 38.1%, which was 0.4 percentage points lower than expected primarily due to Central Refrigerated’s pre-affiliated earnings that were taxed as an S-corporation prior to Swift’s acquisition and offset by the acquisition related costs and deferred tax items mentioned above.
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 September 30, 2014 were approximately $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 does not anticipate a decrease of unrecognized tax benefits during the next twelve months.
Certain of the Company’s subsidiaries are currently under examination by the Internal Revenue Service and various state jurisdictions for tax years ranging from 2008 through 2012. 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. Tax years 2009 through 2013 remain subject to examination.

9

Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)


Note 4. Investments
The following table presents the cost or amortized cost, gross unrealized gains and temporary losses, and estimated fair value of the Company’s restricted investments as of September 30, 2014 and December 31, 2013 (in thousands): 
 
 
September 30, 2014
 
 
Cost or
 
Gross Unrealized
 
Estimated
 
 
Amortized
Cost
 
Gains
 
Temporary
Losses
 
Fair
Value
U.S. corporate securities
 
$
21,960

 
$
3

 
$
3

 
$
21,960

Foreign corporate securities
 
1,506

 

 
2

 
1,504

Negotiable certificates of deposit
 
1,625

 

 
1

 
1,624

Total restricted investments
 
$
25,091

 
$
3

 
$
6

 
$
25,088

 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
Cost or
 
Gross Unrealized
 
Estimated
 
 
Amortized
 
 
 
Temporary
 
Fair
 
 
Cost
 
Gains
 
Losses
 
Value
U.S. corporate securities
 
$
20,197

 
$
2

 
$
7

 
$
20,192

Foreign corporate securities
 
3,502

 

 

 
3,502

Negotiable certificates of deposit
 
2,115

 

 
1

 
2,114

Total restricted investments
 
$
25,814

 
$
2

 
$
8

 
$
25,808

As of September 30, 2014, the contractual maturities of the restricted investments were one year or less. There were 13 securities and 15 securities that were in an unrealized loss position for less than twelve months as of September 30, 2014 and December 31, 2013, respectively.
The Company periodically evaluates restricted investments 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 ASC Topic 320, Investments – Debt and Equity Securities, 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 is 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 an other-than-temporary 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 other comprehensive income ("AOCI"). The Company did not recognize any impairment losses for the three and nine months ended September 30, 2014 and 2013, respectively.
Note 5. Intangible Assets
Intangible assets as of September 30, 2014 and December 31, 2013 were as follows (in thousands):
 
 
September 30, 2014
 
December 31, 2013
Customer Relationships:
 
 
 
 
Gross carrying value
 
$
275,324

 
$
275,324

Accumulated amortization
 
(152,225
)
 
(139,614
)
Trade Name:
 
 
 
 
Gross carrying value
 
181,037

 
181,037

Intangible assets, net
 
$
304,136

 
$
316,747

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 a 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.

10

Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)


The following table presents amortization of intangibles for the three and nine months ended September 30, 2014 and 2013, related to intangible assets recognized in conjunction with the 2007 going private transaction and the previous intangible assets existing prior to the 2007 going private transaction (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Amortization of intangible assets related to 2007 going private transaction
 
$
3,912

 
$
3,912

 
$
11,736

 
$
11,736

Amortization of intangible assets related to intangible assets existing prior to the 2007 going private transaction
 
292

 
292

 
875

 
875

Amortization of intangibles
 
$
4,204

 
$
4,204

 
$
12,611

 
$
12,611

Note 6. Assets Held for Sale
Assets held for sale as of September 30, 2014 and December 31, 2013 were as follows (in thousands):
 
 
September 30, 2014
 
December 31, 2013
Land and facilities
 
$
1,904

 
$
14,627

Revenue equipment
 
3,848

 
4,641

Assets held for sale
 
$
5,752

 
$
19,268

As of September 30, 2014 and December 31, 2013, assets held for sale are carried at the lower of depreciated cost or estimated fair value less expected selling costs. The Company expects to sell these assets within the next twelve months.
During the nine months ended September 30, 2014, the Company sold four operating properties classified as held for sale with a carrying value of $12.9 million. As a result, the Company recognized a pre-tax gain of $2.0 million in gain on disposal of real property and equipment in the Company’s consolidated statements of operations.
Note 7. Debt and Financing Transactions
Other than the Company’s accounts receivable securitization, as discussed in Note 8, and its outstanding capital lease obligations as discussed in Note 9, the Company had long-term debt outstanding as of September 30, 2014 and December 31, 2013 as follows (in thousands):
 
 
September 30, 2014
 
December 31, 2013
Senior secured first lien term loan A tranche due June 2019
 
$
50,000

 
$

Senior secured first lien term loan B tranche due June 2021, net of $956 OID as of September 30, 2014
 
397,044

 

Senior secured first lien term loan B-1 tranche due December 2016
 

 
229,000

Senior secured first lien term loan B-2 tranche due December 2017
 

 
410,000

Senior secured second priority notes due November 15, 2018, net of $4,480 and $6,175 OID as of September 30, 2014 and December 31, 2013, respectively
 
423,596

 
493,825

Other
 
8,319

 
17,480

Total
 
878,959

 
1,150,305

Less: current portion
 
26,833

 
11,387

Long-term debt
 
$
852,126

 
$
1,138,918

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, Central Refrigerated Transportation, Inc. and its subsidiaries, and Swift Transportation Company's domestic subsidiaries other than its captive insurance subsidiaries, driver training academy subsidiary, and its bankruptcy-remote special purpose subsidiary. Deferred loan costs, reported in Other assets in the Company's consolidated balance sheets, were $12.5 million and $8.9 million, as of September 30, 2014 and December 31, 2013, respectively.
Senior Secured Credit Facility
On June 9, 2014, the Company entered into a Third Amended and Restated Credit Agreement (the “2014 Agreement”) replacing its previous Second Amended and Restated Credit Agreement dated March 7, 2013 (the “2013 Agreement”). The 2014 Agreement includes: (i) a $450.0 million revolving credit facility with a maturity date of June 2019, (ii) a $500.0 million delayed draw term loan A with a maturity date of June 2019, and (iii) a $400.0 million term loan B with a maturity date of June 2021.
The term loan A requires quarterly minimum principal payments of $5.6 million commencing March 31, 2015 through December 31, 2016 and increasing to $11.3 million beginning March 31, 2017 through March 31, 2019, with the remaining outstanding principal balance on June 9, 2019. The term loan B requires quarterly principal payments of $1.0 million that commenced June 30, 2014 with the remaining outstanding principal balance due on June 9, 2021.

11

Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)


Pursuant to the 2014 Agreement, the interest rate applicable to the term loan A equals the London InterBank Offered Rate ("LIBOR") plus a 2.00% margin with no LIBOR floor. Commencing the quarter ended September 30, 2014, the applicable LIBOR margin for the term loan A will range from 1.50% to 2.25% as determined by the Company’s consolidated leverage ratio as defined in the 2014 Agreement. The term loan B under the 2014 Agreement accrues interest at LIBOR plus a 3.00% margin with a 0.75% LIBOR floor. After December 31, 2014, the applicable LIBOR margin for the term loan B will range from 2.75% to 3.00% as determined by the Company’s consolidated leverage ratio. As of September 30, 2014, interest accrues at 2.15% and 3.75% on the Company’s first lien term loan A and B tranches, respectively.
In addition to the pricing attributes described above, the 2014 Agreement increased the availability pursuant to the accordion feature from $350.0 million under the 2013 Agreement to $500.0 million, subject to the satisfaction of certain conditions and the participation of lenders.
As of September 30, 2014, the Company had $82.0 million of outstanding borrowings under the $450.0 million revolving line of credit pursuant to the 2014 Agreement. Additionally, the Company had outstanding letters of credit under this facility primarily for workers’ compensation and self-insurance liability purposes totaling $106.8 million, leaving $261.2 million available under the revolving line of credit. Under the 2014 Agreement, the interest rate spread on the revolving credit facility ranges from 1.50% to 2.25% for LIBOR-based borrowings and letters of credit and 0.50% to 1.25% for Base Rate borrowings, depending on the Company’s consolidated leverage ratio. Additionally, the commitment fee for the unused portion of the revolving credit facility ranges from 0.25% to 0.35%, depending on the Company’s consolidated leverage ratio. As of September 30, 2014, interest accrues at 2.15%, 2.00% and 0.30% on the outstanding borrowings, letters of credit and unused portion, respectively, on the revolving line of credit.
The 2014 Agreement, specifically the revolving credit facility and the term loan A tranche, contain certain financial covenants with respect to a maximum leverage ratio and a minimum consolidated interest coverage ratio. The 2014 Agreement removed any financial covenants related to the term loan B tranche. Further, the 2014 Agreement removed the maximum capital expenditures covenant and also provides for improved flexibility regarding the use of proceeds from asset sales, payment of dividends, stock buybacks, and equipment financing. In addition to the financial covenants, the 2014 Agreement includes customary events of default, including a change in control default and certain affirmative and negative covenants, including, but not limited to, restrictions, subject to certain exceptions, on incremental indebtedness, asset sales, certain restricted payments (including dividends), certain incremental investments or advances, transactions with affiliates, engaging in additional business activities, and prepayments of certain other indebtedness.
The 2014 Agreement replaced the Company’s previous first lien term loan B-1 tranche maturing December 2016 and B-2 tranche maturing December 2017 under the 2013 Agreement with then-outstanding principal balances at closing of $229.0 million and $371.0 million, respectively. The previous first lien term loan accrued interest at LIBOR plus a 2.75% margin for the B-1 tranche, and LIBOR plus a 3.00% margin with a 1.00% LIBOR floor, for the B-2 tranche. Additionally, the 2014 Agreement replaced the Company’s previous revolving credit facility maturing September 2016. The interest rate spread on the previous revolving credit facility ranged from 3.00% to 3.25% for LIBOR-based borrowings and letters of credit and 2.00% to 2.25% for Base Rate borrowings, depending on the Company’s consolidated leverage ratio. Additionally, the commitment fee for the unused portion of the previous revolving credit facility ranged from 0.25% to 0.50%, depending upon the Company’s consolidated leverage ratio. The replacement of the 2013 Agreement resulted in a loss on debt extinguishment of $5.2 million for the nine months ended September 30, 2014, representing the write-off of deferred financing fees associated with the 2013 Agreement.
Senior Secured Second Priority Notes
In December 2010, Swift Services Holdings, Inc., a wholly owned subsidiary, completed a private placement of senior secured second priority notes totaling $500.0 million face value which mature in November 2018 and bear interest at 10.00% (the “senior notes”). The Company received proceeds of $490.0 million, net of a $10.0 million original issue discount. In the first nine months of 2014, the Company used cash on hand to repurchase $71.9 million in principal of these notes, as transacted on the open market, and averaging 109.05% of the face value. The Company paid total proceeds of $80.5 million, which included the principal amount, the premium and the accrued interest. The premium and the related write-off of the unamortized original issue discount resulted in a loss on debt extinguishment of $2.9 million and $7.6 million for the three and nine months ended September 30, 2014, respectively. Subsequent to September 30, 2014, the Company issued a notice of redemption to the holders of the remaining senior secured second priority notes notifying them of its intention to redeem the remaining senior secured second priority notes in full on November 15, 2014, at a price of 105.00% of face value, plus accrued and unpaid interest, pursuant to the terms of the indenture governing the notes. The Company anticipates utilizing the remainder of the delayed draw first lien Term loan A under the 2014 Agreement to fund the majority of the redemption costs.
Note 8. Accounts Receivable Securitization
In June 2013, Swift Receivables Company II, LLC, a Delaware limited liability company (“SRCII”), a wholly-owned bankruptcy-remote special purpose subsidiary, entered into an Amended and Restated Receivables Sale Agreement (the “2013 RSA”) with unrelated financial entities (the “Purchasers”) to sell, on a revolving basis, undivided interests in the Company’s accounts receivable. Pursuant to the 2013 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 2013 RSA provides for up to $375.0 million in borrowing capacity, increasing from $325.0 million after the Company exercised the accordion feature on September 26, 2014. The 2013 RSA terminates on July 13, 2016 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 2013 RSA accrue program fees, generally at commercial paper rates plus 95 basis points. Unused capacity of the 2013 RSA is subject to an unused commitment fee of 35 basis points. Pursuant to the 2013 RSA, the Company's collections on the underlying receivables are not available to satisfy claims of the Company and its subsidiaries, and are held for the benefit of SRCII and the Purchasers. The facility qualifies for treatment as a secured borrowing under ASC Topic 860, Transfers and Servicing, and as such, outstanding amounts are carried on the Company’s consolidated balance sheets as a liability.
For the three and nine months ended September 30, 2014, the Company incurred program fees of $0.9 million and $2.5 million, respectively, associated with the 2013 RSA which were recorded in interest expense in the Company's consolidated statements of income. For the three and nine months ended September 30, 2013, the Company incurred program fees of $0.8 million and $2.3 million, respectively, primarily associated

12

Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)


with the prior accounts receivable facility. As of September 30, 2014, the outstanding borrowing under the 2013 RSA was $315.0 million against a total available borrowing base of $336.8 million, leaving $21.8 million available. As of December 31, 2013, the outstanding borrowing under the 2013 RSA was $264.0 million against a total available borrowing base of $300.8 million.
Note 9. 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. As of September 30, 2014 and December 31, 2013, the present value of obligations under capital leases totaled $185.9 million and $171.5 million, of which the current portion was $49.3 million and $63.7 million, respectively. The leases are collateralized by revenue equipment with a cost of $298.3 million and accumulated amortization of $71.8 million as of September 30, 2014. The amortization of the equipment under capital leases is included in depreciation and amortization expense in the Company’s consolidated statements of income.
Note 10. Derivative Financial Instruments
In April 2011, as contemplated by the then existing credit facility, the Company entered into two forward-starting interest rate swap agreements with a notional amount of $350.0 million. These interest rate swaps were effective in January 2013 and have a maturity date of July 2015. On April 27, 2011 (“designation date”), the Company designated and qualified these interest rate swaps as cash flow hedges. Subsequent to the designation date, the effective portion of the changes in estimated fair value of the swaps was recorded in accumulated other comprehensive income ("AOCI"), and thereafter reclassified to derivative interest expense in the periods that the interest on the hedged debt affected earnings. The Company began accruing for hedged interest in January 2013. Refer to Note 11 below for further discussion of the Company’s estimated fair value methodology.
On March 7, 2013, the Company entered into the 2013 Agreement, as discussed in Note 7. Due to the incorporation of a new interest rate floor provision in the 2013 Agreement, the Company concluded, as of February 28, 2013, that the outstanding interest rate swaps were no longer highly effective in achieving offsetting changes in cash flows related to the hedged interest payments. As a result, the Company de-designated the hedges as of February 28, 2013 (“de-designation date”), at which time the effective portion of the change in fair value of interest rate swaps (previously recorded in AOCI) was, and will continue to be, amortized as derivative interest expense over the period of the originally designated hedged interest payments through July 2015. Following the de-designation date, changes in fair value of the interest rate swaps are immediately recognized in the consolidated statements of income as derivative interest expense.
The following table presents the pre-tax changes in fair value of derivatives designated as cash flow hedges, included in AOCI and earnings (in thousands): 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Amount of derivatives income recognized in AOCI (effective portion)
 
$

 
$

 
$

 
$
145

Amount of loss reclassified from AOCI into income as “Derivative interest expense” (effective portion)
 
$
(1,642
)
 
$
(1,106
)
 
$
(4,438
)
 
$
(2,065
)
The following table presents information about pre-tax losses recognized in earnings on the Company’s interest rate derivative contracts that were de-designated as hedging instruments under ASC Topic 815 on February 28, 2013 (in thousands): 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Amount of loss recognized in income as “Derivative interest expense”
 
$
(114
)
 
$
(359
)
 
$
(589
)
 
$
(494
)
As of September 30, 2014, $5.8 million of pre-tax deferred losses on derivatives in AOCI is expected to be reclassified to earnings within the next twelve months.
Note 11. Fair Value Measurement
ASC Topic 820, Fair Value Measurements and Disclosures, requires that the Company disclose estimated fair values for its financial instruments. The estimated 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. As the fair value is estimated at September 30, 2014 and December 31, 2013, the amounts that will actually be realized or paid at settlement or maturity of the instruments in the future could be significantly different.
The tables below exclude certain financial instruments, as follows: cash and cash equivalents, restricted cash, accounts receivable, net, income tax refund receivable and accounts payable. The estimated fair values of these financial instruments approximate carrying value as they are short-term in nature. Additionally, for notes payable under revolving lines of credit, fair value approximates the carrying value due to the variable

13

Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)


interest rate. For capital leases, the carrying value approximates the fair value. The table below also excludes financial instruments reported at estimated fair value on a recurring basis. See below, “Recurring Fair Value Measurements”. All remaining balance sheet amounts excluded from the table below are not considered financial instruments subject to this disclosure.
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of September 30, 2014 and December 31, 2013 (in thousands): 
 
 
September 30, 2014
 
December 31, 2013
 
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial Assets:
 
 
 
 
 
 
 
 
Restricted investments
 
$
25,091

 
$
25,088

 
$
25,814

 
$
25,808

Financial Liabilities:
 
 
 
 
 
 
 
 
Senior secured first lien term loan A tranche
 
50,000

 
50,000

 

 

Senior secured first lien term loan B tranche
 
397,044

 
395,309

 

 

Senior secured first lien term loan B-1 tranche (2013 Agreement)
 

 

 
229,000

 
230,031

Senior secured first lien term loan B-2 tranche (2013 Agreement)
 

 

 
410,000

 
412,358

Senior secured second priority notes
 
423,596

 
445,305

 
493,825

 
549,059

Securitization of accounts receivable
 
315,000

 
315,000

 
264,000

 
264,000

The carrying amounts shown in the table (other than restricted investments and securitization of accounts receivable) 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 September 30, 2014 and December 31, 2013, 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 estimated fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. These judgments are developed by the Company based on the best information available under 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.
Restricted Investments
The estimated fair value of the Company’s restricted investments is based on quoted prices in active markets that are readily and regularly obtainable.
First Lien Term Loans and Senior Secured Second Priority Notes
The estimated fair values of the first lien term loans and senior secured second priority notes were determined by bid prices in trades between qualified institutional buyers.
Securitization of Accounts Receivable
The Company’s securitization of accounts receivable consists of borrowings outstanding pursuant to the Company’s 2013 RSA as of September 30, 2014 and December 31, 2013, respectively, as discussed in Note 8. Its fair value is estimated by discounting future cash flows using a discount rate commensurate with the uncertainty involved.
Fair Value Hierarchy
ASC Topic 820 establishes a framework for measuring fair value in accordance with GAAP and expands financial statement disclosure requirements for fair value measurements. ASC Topic 820 further specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation techniques 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. Level 2 also includes model-derived valuation techniques in which all significant inputs and significant value drivers are observable in active markets.
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 measures fair value using valuation techniques that use, when possible, current market-based or independently-

14

Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)


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.
As of September 30, 2014, interest rate swaps represent the only major category of assets or liabilities included in the Company's consolidated balance sheets that are measured by estimating fair value on a recurring basis. The Company’s interest rate swaps are not actively traded but are valued using 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. 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.
Recurring Fair Value Measurements
As of September 30, 2014 and December 31, 2013, no assets of the Company were measured at estimated fair value on a recurring basis. As of September 30, 2014 and December 31, 2013, information about inputs into the estimated 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
Estimated
Fair Value
 
Quoted Prices in
Active  Markets for
Identical Assets or
Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
As of September 30, 2014
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
7,815

 
$

 
$
7,815

 
$

As of December 31, 2013
 

 

 

 

Interest rate swaps
 
$
11,768

 
$

 
$
11,768

 
$

Nonrecurring Fair Value Measurements
As of September 30, 2014 and December 31, 2013, no assets or liabilities of the Company were measured at estimated fair value on a nonrecurring basis.
Note 12. Earnings per Share
The computation of basic and diluted earnings per share is as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
(In thousands, except
per share amounts)
Net income
 
$
50,158

 
$
29,953

 
$
102,661

 
$
110,124

Basic:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
141,557

 
140,327

 
141,282

 
140,004

Diluted:
 
 
 
 
 
 
 
 
Dilutive effect of stock options
 
1,765

 
1,988

 
2,056

 
1,938

Total weighted average diluted shares outstanding
 
143,322

 
142,315

 
143,338

 
141,942

Anti-dilutive shares excluded from the diluted earnings per share calculation (1)
 
168

 

 
171

 
181

Earnings per share:
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.35

 
$
0.21

 
$
0.73

 
$
0.79

Diluted earnings per share
 
$
0.35

 
$
0.21

 
$
0.72

 
$
0.78

(1)
Impact of outstanding options to purchase shares of the Company’s Class A common stock were anti-dilutive because the options' exercise prices were greater than the average market price of the common shares and were excluded from the calculation of diluted earnings per share.
As of September 30, 2014 and 2013, there were 4,747,586 and 5,451,280 options outstanding, respectively.

15

Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)


Note 13. 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.
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.
Arizona 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 v. Swift Transportation Co., Inc., Case No. CV7-472 ("the Garza Complaint"). The putative class originally involved certain owner-operators who contracted with the Company under a 2001 Contractor Agreement that was in place for one year. The putative class is alleging that the Company 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, the Company 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 the Company’s 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, the Company 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 the Company for a three-month period under a one-year contract that no longer exists. In addition to these trial court motions, the Company 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 the Company 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. In 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. The Company intends to continue to pursue all available appellate relief supported by the record, which the Company believes demonstrates that the class is improperly certified and, further, that the claims raised have no merit. The Company retains all of its defenses against liability and damages. The final disposition of this case and the impact of such final disposition cannot be determined at this time.
Ninth Circuit Owner-operator Misclassification Class Action Litigation
On December 22, 2009, a class action lawsuit was filed against Swift Transportation and IEL: Virginia VanDusen, John Doe 1 and Joseph Sheer individually and on behalf of all other similarly situated persons v. Swift Transportation Co., Inc., Interstate Equipment Leasing, Inc., Jerry Moyes, and Chad Killebrew, Case No. 9-CIV-10376 filed in the United States District Court for the Southern District of New York ("the Sheer Complaint"). The putative class involves owner-operators alleging that Swift Transportation misclassified owner-operators as independent contractors in violation of the federal Fair Labor Standards Act ("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 Swift’s 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, the plaintiffs filed a motion to conditionally certify an FLSA collective action and authorize notice to the potential class members. On September 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 District Court further denied plaintiff’s motion for preliminary injunction and motion for conditional class certification. The District Court also denied plaintiff’s request to arbitrate the matter as a class.
The plaintiff filed a petition for a writ of mandamus to the Ninth Circuit Court of Appeals asking that the District Court’s September 30, 2010 order be vacated. On July 27, 2011, the Ninth Circuit Court of Appeals denied the plaintiff’s petition for writ of mandamus and thereafter the District Court denied plaintiff’s motion for reconsideration and certified its September 30, 2010 order. The plaintiffs filed an interlocutory appeal to the Ninth Circuit Court of Appeals to overturn the District Court’s September 30, 2010 order to compel arbitration alleging that the agreement

16

Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)


to arbitrate is exempt from arbitration under Section 1 of the Federal Arbitration Act (“FAA”) because the class of plaintiffs allegedly consists of employees exempt from arbitration agreements. On November 6, 2013, the Ninth Circuit Court of Appeals reversed and remanded, stating its prior published decision “expressly held that a district court must determine whether an agreement for arbitration is exempt from arbitration under Section 1 of the FAA as a threshold matter". As a consequence of this determination by the ninth Circuit Court of Appeals being different from a decision of the Eighth Circuit Court of Appeals on a similar issue, on February 4, 2014, the Company filed a petition for writ of certiorari to the U.S. Supreme Court to address whether the district court or arbitrator should determine whether the contract is an employment contract exempt from Section 1 of the Federal Arbitration Act. On June 16, 2014, the U.S. Supreme Court denied the Company’s petition for writ of certiorari. The Company intends to vigorously defend against any 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 Actions
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 ("the Burnell Complaint"). On September 3, 2010, upon motion by Swift, the matter was removed to the United States District Court for the Central District of California, Case No. EDCV10-809-VAP. The putative class includes drivers who worked for Swift during the four years preceding the date of filing alleging that Swift 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 was subject to a stay of proceedings pending determination of similar issues in a case unrelated to Swift, Brinker v. Hohnbaum, which was then pending before the California Supreme Court. A ruling was entered in the Brinker matter and in August 2012 the stay in the Burnell Complaint was lifted. On April 9, 2013 the Company filed a motion for judgment on the pleadings requesting dismissal of plaintiff's claims related to alleged meal and rest break violations under the California Labor Code alleging that such claims are preempted by the Federal Aviation Administration Authorization Act. On May 29, 2013, the U.S. District Court for the Central District of California granted the Company's motion for judgment on the pleadings and dismissed plaintiff's claims that are based on alleged violations of meal and rest periods set forth in the California Labor Code.
On April 5, 2012, the Company was 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 Bernardino ("the Rudsell Complaint"). The Rudsell Complaint has been stayed pending a resolution in the Burnell Complaint. Any claims related to orientation pay in the Rudsell Complaint have been subsumed within the Montalvo v. Swift class action matter (discussed below).
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. The Company intends 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 Minimum Wage Class Actions
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 ("the Montalvo Complaint"). The Montalvo Complaint was removed to federal court on August 15, 2011, case number 3-11-CV-1827-L. Upon petition by plaintiffs, the matter was remanded to state court and the Company filed an appeal to this remand, which has been denied. The putative class includes employees alleging that candidates for employment within the four-year statutory period in California were not paid the state-mandated minimum wage during their orientation phase. On July 29, 2013, the court certified the class. The Company appealed the class certification and the remand to state court, but on April 10, 2014, the Company’s appeal of class certification was denied. The parties participated in mediation in an attempt to economically resolve all claims without having to incur the expense and uncertainty of litigation. As a consequence of ongoing efforts to mediate a resolution, the Company anticipates its exposure to be in the range of $1.0 million to $1.5 million.
The Company intends to vigorously defend against the merits of this matter. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.
On November 7, 2013, a class action lawsuit was filed by Jorge Calix on behalf of himself and all similarly situated persons against Central Refrigerated Service, Inc.: Calix et al. v. Central Refrigerated Service, Inc. (“Central”) in the Superior Court of California, County of San Bernardino ("the Calix Complaint"). The putative class includes employees alleging that candidates for employment within the four -year statutory period in California were not paid the state-mandated minimum wage during their orientation phase. On December 13, 2013, Central filed an answer denying the allegations.
The issue of class certification must first be resolved before the court will address the merits of the case, and the Company retains all of its defenses against liability and damages pending a determination of class certification. Central intends to vigorously defend against certification of the class, as well as the merits of this matter, 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.
California Wage and Hour Class Action
On September 25, 2014, a class action lawsuit was filed by Lawrence Peck on behalf of himself and all other similarly situated persons against Swift Transportation: Peck v. Swift Transportation Co. Arizona, LLC in the Superior Court of California, County of Riverside ("the Peck Complaint"). The putative class includes current and former non-exempt employee truck drivers who performed services in California within the four-year statutory period alleging that Swift failed to pay for all hours worked (specifically that pay-per-mile fails to compensate drivers

17

Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)


for non-driving related services), failed to pay overtime, failed to properly reimburse work-related expenses, failed to timely pay wages and failed to provide accurate wage statements.
The issue of class certification must first be resolved before the court will address the merits of the case, and the Company retains all of its defenses against liability and damages pending a determination of class certification. The Company intends to vigorously defend certification of the class, as well as the merits, should the class be certified. The final disposition of the case and the impact of such final disposition cannot be determined at this time.
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 ("the Slack Complaint"). The Slack Complaint was removed to federal court on October 12, 2011, case number 11-2-114380. 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 meals and rest periods. On November 23, 2013, the court entered an order on plaintiffs' motion to certify the class. The court only certified the class as it pertains to dedicated route drivers and did not certify any other class or claims, including any class related to over the road drivers (“OTR Drivers”). The court also further limited the class of dedicated drivers to only those dedicated drivers that either begin or end their shift in the state of Washington and therefore are Washington-based employees. Swift is appealing the limited certification of the Washington dedicated drivers.
The issue of class certification must first be resolved before the court will address the merits of the case, and the Company retains all of its defenses against liability and damages pending a determination of class certification. The Company intends 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.
Utah Minimum Wage Collective Action
On October 8, 2013, a collective action lawsuit was filed by Jacob Roberts on behalf of himself and all similarly situated persons against Central Refrigerated Service, Inc., Jon Isaacson, Bob Baer and John Does 1-10: Jacob Roberts and Collective Action Plaintiffs John Does 1-10 v. Central Refrigerated Service, Inc., Jon Isaacson, Bob Baer and John Does 1-10 in the United States District Court for the District of Utah, Case No. 2;13-ev-00911-EJF ("the Roberts Complaint"). The putative nationwide class includes employees alleging that candidates for employment within the three-year statutory period in Utah were not paid proper compensation pursuant to the FLSA, specifically that the putative collective action plaintiffs were not paid the state-mandated minimum wage for orientation, travel, and training.
The issue of collective action certification in the Roberts Complaint must first be resolved before the court will address the merits of the case, and the Company retains all of its defenses against liability and damages, pending a determination of collective action certification. Central intends to vigorously defend against collective action certification, as well as the merits of this matter, should the collective action be certified. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.
Utah Collective and Individual Arbitration
On June 1, 2012, a collective and class action complaint was filed by Gabriel Cilluffo, Kevin Shire and Bryan Ratterree individually and on behalf of themselves and all similarly situated persons against Central Refrigerated Services, Inc., Central Leasing, Inc., Jon Isaacson, and Jerry Moyes: Gabriel Cilluffo, Kevin Shire and Bryan Ratterree individually and on behalf themselves and all similarly situated persons v. Central Refrigerated Services, Inc., Central Leasing, Inc., Jon Isaacson, and Jerry Moyes in the United States District Court for the Central District of California, Case No. ED CV 12-00886 ("the Cilluffo Complaint"). The putative class involves owner-operators alleging that Central misclassified owner-operators as independent contractors in violation of the FLSA, and that such owner-operators should be considered employees. The lawsuit also raises a claim of forced labor and state law contractual claims. On September 24, 2012, the California District Court ordered that the FLSA claim proceed to collective arbitration under the Utah Uniform Arbitration Act (“UUAA”) and not the FAA. The September 24, 2012 order directed the arbitrator to determine the validity of proceeding as a collective arbitration under the UUAA, and then if the arbitrator determines that such collective action is permitted, then the arbitrator is to consider the plaintiff’s FLSA claim. On November 8, 2012, the California District Court entered a clarification order clarifying that the plaintiff’s FLSA claim was to proceed to collective arbitration under the UUAA, but the plaintiff’s forced labor claim and state law contractual claims were to proceed as individual arbitrations for those plaintiffs seeking to pursue those specific claims. Central filed a motion for reconsideration and a motion for interlocutory appeal of the California District Court’s orders, both of which were denied and the claims are proceeding to collective and individual arbitration as originally ordered. On December 9, 2013 the arbitrator determined that the issue of misclassification as it relates to the FLSA will proceed as a collective arbitration, however the plaintiffs forced labor claim and state law claims of contractual misrepresentation and breach of contract must proceed on an individual arbitration basis and not as a class.
Central intends to vigorously defend collective arbitration in the Cilluffo Complaint, as well as the merits of the FLSA claim and any individual arbitration matters that are filed, and proceed on the forced labor and state contract law claims. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.
Environmental Notice
On April 17, 2009, the Company received a notice from the Lower Willamette Group ("LWG"), advising that there are a total of 250 potentially responsible parties ("PRPs"), with respect to alleged environmental contamination of the Lower Willamette River in Portland, Oregon designated as the Portland Harbor Superfund site ("the Site"), and that as a previous landowner at the Site, the Company has 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 the Company does not believe it contributed any contaminants to the Site, the Company was at one time the owner of property at the Site and the Comprehensive Environmental Response,

18

Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)


Compensation and Liability Act imposes a standard of strict liability on property owners with respect to environmental claims. Notwithstanding this standard of strict liability, the Company believes our potential proportionate exposure to be minimal and not material. No formal complaint has been filed in this matter. The Company’s pollution liability insurer has been notified of this potential claim. The Company does not believe the outcome of this matter is likely to have a material adverse effect on Swift. However, the final disposition of this matter and the impact of such final disposition cannot be determined at this time.
2013 Environmental Incident
On May 14, 2013, a Swift Transportation tractor and trailer was involved in an accident in Bridgeport, California that resulted in fuel and other liquid components being released into the ground and a nearby stream. Based on soil and water testing of the impacted area, the Company expects the range of cost to remediate this release is $0.3 million to $0.5 million.
Other Environmental
The Company's tractors and trailers are involved in motor vehicle accidents, experience damage, mechanical failures and cargo issues as an incidental part of its normal ordinary course of operations.  From time to time, these matters result in the discharge of diesel fuel, motor oil or other hazardous materials into the environment.  Depending on local regulations and who is determined to be at fault, the Company is sometimes responsible for the clean-up costs associated with these discharges.  As of September 30, 2014, the Company's estimate for its total legal liability for all such clean-up and remediation costs was approximately $0.6 million in the aggregate for all current and prior year claims. 
Note 14. Segment Information
The Company’s four reportable operating segments are Truckload, Dedicated, Central Refrigerated and Intermodal. The Company reorganized its reportable segments to reflect management’s revised reporting structure of its lines of business in the first quarter of 2014. See further details in Note 1.
Truckload The truckload segment consists of one-way movements over irregular routes throughout the United States, Mexico, and Canada. This service utilizes both company and owner-operator tractors with dry van, flatbed, and other specialized trailing equipment.
Dedicated Through the dedicated segment, the Company devotes use of equipment to specific customers and offers tailored solutions under long-term contracts. This dedicated segment utilizes refrigerated, dry van, flatbed and other specialized trailing equipment.
Central Refrigerated This segment represents the core operations of Central Refridgerated and primarily consists of shipments for customers that require temperature-controlled trailers. These shipments include one-way movements over irregular routes, as well as dedicated truck operations.
Intermodal The intermodal segment includes revenue generated by moving freight over the rail in the Company's containers and other trailing equipment, combined with revenue for drayage to transport loads between the railheads and customer locations.
Other businesses The other non-reportable segment includes the Company's logistics and freight brokerage services, as well as support services provided by its subsidiaries to customers and owner-operators, including repair and maintenance shop services, equipment leasing, and insurance. Intangible amortization related to the 2007 going-private transaction is also included in this other non-reportable segment.
The Company uses the “management approach” to determine its reportable operating segments, as well as to determine the basis of reporting the operating segment information. The management approach focuses on financial information that the Company’s management uses to make operating decisions. The chief operating decision makers use operating revenue, operating expenses, operating ratios, operating income and key operating statistics to evaluate performance and allocate resources to the Company’s operations.
Management uses operating income, as reported below, to allocate resources and measure segment performance, which is consistent with GAAP for segment reporting. Operating income should not be viewed as a substitute for GAAP net income (loss). The Company believes the presentation of operating income enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business segments.
Operating income is defined as operating revenues less operating expenses, before tax.
Based on the unique nature of the Company's operating structure, revenue-generating assets are interchangeable between segments. Therefore, the Company does not prepare separate balance sheets by segment, as assets are not separately identifiable by segment. The Company allocates depreciation and amortization expense on its property and equipment to the segments based on the actual utilization of the asset by the segment during the period.
Total revenue of the Company’s foreign operations was less than 5.0% of the Company’s consolidated revenue for the three and nine months ended September 30, 2014 and 2013, respectively.

19

Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)


Set forth in the tables below is certain financial information with respect to the Company’s reportable segments (in thousands):
 
 
Operating Revenue
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Truckload
 
$
570,931

 
$
579,494

 
$
1,699,469

 
$
1,727,813

Dedicated
 
238,025

 
184,550

 
654,776

 
546,427

Central Refrigerated
 
100,448

 
115,339

 
314,122

 
332,979

Intermodal
 
99,962

 
96,478

 
292,186

 
270,736

Subtotal
 
1,009,366

 
975,861

 
2,960,553

 
2,877,955

Non-reportable segment
 
80,122

 
63,982

 
239,279

 
207,954

Intersegment eliminations
 
(14,608
)
 
(7,716
)
 
(40,608
)
 
(43,103
)
Consolidated operating revenue
 
$
1,074,880

 
$
1,032,127

 
$
3,159,224

 
$
3,042,806

 
 
Operating Income (Loss)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Truckload
 
$
71,186

 
$
58,053

 
$
172,689

 
$
165,070

Dedicated
 
23,692

 
20,508

 
56,334

 
63,725

Central Refrigerated
 
3,238

 
3,422

 
9,320

 
13,803

Intermodal
 
1,934

 
1,531

 
513

 
715

Subtotal
 
100,050

 
83,514

 
238,856

 
243,313

Non-reportable segment
 
(2,639
)
 
906

 
(1,253
)
 
11,091

Consolidated operating income
 
$
97,411

 
$
84,420

 
$
237,603

 
$
254,404

 
 
Depreciation and Amortization Expense
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Truckload
 
$
27,473

 
$
32,696

 
$
86,034

 
$
96,076

Dedicated
 
13,890

 
11,711

 
39,965

 
33,439

Central Refrigerated
 
3,175

 
2,877

 
9,195

 
10,676

Intermodal
 
2,892

 
2,292

 
7,843

 
7,037

Subtotal
 
47,430

 
49,576

 
143,037

 
147,228

Non-reportable segment
 
6,939

 
8,678

 
22,298

 
22,776

Consolidated depreciation and amortization expense
 
$
54,369

 
$
58,254

 
$
165,335

 
$
170,004

Other Intersegment Transactions
Certain operating segments provide transportation and related services for other affiliates outside their reportable segment. Revenues for such services are reflected as revenues of the billing segment, and are based on negotiated rates, which management believes approximate fair value. These rates are adjusted from time to time based on market conditions. Such intersegment revenues and expenses are eliminated in our consolidated results.

20

Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)



Note 15. Accumulated Other Comprehensive Loss
The following table reflects the components of accumulated other comprehensive loss (in thousands):
 
 
Derivative Financial Instruments
 
Foreign Currency Transactions
 
Accumulated Other Comprehensive Loss
Balance as of December 31, 2013
 
$
(6,245
)
 
$
83

 
$
(6,162
)
Amounts reclassified from accumulated other comprehensive loss, net of income tax
 
2,728

 

 
2,728

Other comprehensive income, net of income taxes
 
2,728

 

 
2,728

Balance as of September 30, 2014
 
$
(3,517
)
 
$
83

 
$
(3,434
)
 
 
 
 
 
 
 
(Amounts in parenthesis indicate debits, or loss).
The following table presents details about reclassifications out of accumulated other comprehensive loss for the three and nine months ended September 30, 2014 and 2013 (in thousands):
 
 
Amounts Reclassified from Accumulated Other Comprehensive Loss
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
2014
 
2013
 
2014
 
2013
 
Statements of Income Classification
Cash flow hedging activities:
 
 
 
 
 
 
 
 
 
 
Losses on interest rate swaps
 
$
1,642

 
$
1,106

 
$
4,438

 
$
2,065

 
Derivative interest expense
Income tax benefit
 
(633
)
 
(431
)
 
(1,710
)
 
(805
)
 
Income tax expense
 
 
$
1,009

 
$
675

 
$
2,728

 
$
1,260

 
Net income
Note 16. Guarantor Condensed Consolidating Financial Statements
The payment of principal and interest on the Company’s senior secured second priority notes are guaranteed by the Company and the Company’s 100%-owned domestic 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 secured second priority notes.
Pursuant to the terms of the Indenture governing the senior secured second priority notes, the guarantees are full and unconditional, but are subject to release under the following circumstances, in each case, in accordance with the terms of the Indenture:
Ÿ in connection with any sale, disposition or transfer of all or substantially all of the assets to a person that is not the parent, the Company or a subsidiary guarantor;
Ÿ in connection with any sale, disposition or transfer of all of the capital stock of that subsidiary guarantor to a person that is not the parent, the Company or a subsidiary guarantor;
Ÿ if the Company designates any restricted subsidiary that is a subsidiary guarantor to be an Unrestricted Subsidiary,
Ÿ upon legal Defeasance or the discharge of the Company's obligation under the Indenture; or
Ÿ at such time as such subsidiary guarantor does not have any indebtedness that would have required a guarantee.
Although the guarantees are subject to release under the above described circumstances, we have concluded they are still deemed full and unconditional for purposes of Rule 3-10 of Regulation S-X because these circumstances are customary, and accordingly, the Company concluded that it may rely on Rule 3-10 of Regulation S-X, as the other requirements of Rule 3-10 have been met.
The condensed financial statements present condensed 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 September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013.
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.

21

Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)



Condensed consolidating balance sheet as of September 30, 2014 (in thousands) 
 
 
Swift
Transportation
Company
(Parent)
 
Swift
Services
Holdings, Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
for
Consolidation
 
Consolidated
Cash and cash equivalents
 
$

 
$

 
$
61,972

 
$
8,324

 
$

 
$
70,296

Restricted cash
 

 

 

 
51,511

 

 
51,511

Restricted investments, held to maturity, amortized cost
 

 

 

 
25,091

 

 
25,091

Accounts receivable, net
 

 

 
29,566

 
428,333

 
(3,711
)
 
454,188

Intercompany receivable
 
119,902

 
315,358

 

 
56,589

 
(491,849
)
 

Other current assets
 
10,473

 

 
121,424

 
16,366

 
(5,485
)
 
142,778

Total current assets
 
130,375

 
315,358

 
212,962

 
586,214

 
(501,045
)
 
743,864

Property and equipment, net
 

 

 
1,447,056

 
36,887

 

 
1,483,943

Investment in subsidiaries
 
349,664

 
946,319

 
1,040,096

 

 
(2,336,079
)
 

Other assets
 
11,360

 
1,809

 
62,185

 
3,637

 
(31,953
)
 
47,038

Intangible assets, net
 

 

 
295,060

 
9,076

 

 
304,136

Goodwill
 

 

 
246,977

 
6,279

 

 
253,256

Total assets
 
$
491,399

 
$
1,263,486

 
$
3,304,336

 
$
642,093

 
$
(2,869,077
)
 
$
2,832,237

Intercompany payable
 
$

 
$
5,485

 
$
491,849

 
$

 
$
(497,334
)
 
$

Current portion of long-term debt and obligations under capital leases
 
609

 

 
71,877

 
23,112

 
(19,460
)
 
76,138

Other current liabilities
 
9,205

 
14,106

 
335,313

 
21,463

 
(3,711
)
 
376,376

Total current liabilities
 
9,814

 
19,591

 
899,039

 
44,575

 
(520,505
)
 
452,514

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

 
423,596

 
562,776

 
3,061

 
(709
)
 
988,724

Deferred income taxes
 

 

 
452,525

 
7,499

 
(11,784
)
 
448,240

Revolving line of credit
 

 

 
82,000

 

 

 
82,000

Securitization of accounts receivable
 

 

 

 
315,000

 

 
315,000

Other liabilities
 

 

 
91,267

 
52,008