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EXCEL - IDEA: XBRL DOCUMENT - Knight-Swift Transportation Holdings Inc.Financial_Report.xls
EX-31.1 - EX 31.1 CEO CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13A-14(A) OR 15D-14(A) - Knight-Swift Transportation Holdings Inc.swft-ex3113312015.htm
EX-32.1 - EX 32.1 CEO AND CFO CERTIFICATION PURSUANT TO 18 USC, SEC 1350 - Knight-Swift Transportation Holdings Inc.swft-ex3213312015.htm
EX-31.2 - EX 31.2 CFO CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13A-14(A) OR 15D-14 - Knight-Swift Transportation Holdings Inc.swft-ex3123312015.htm
EX-10.1 - EXHIBIT 10.1 SECOND AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT - Knight-Swift Transportation Holdings Inc.swft-ex1013312015.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 March 31, 2015
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)
 
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 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 May 1, 2015 was 91,382,832 and the number of outstanding shares of the registrant’s Class B common stock as of May 1, 2015 was 50,991,938.
 
 
 
 
 





SWIFT TRANSPORTATION COMPANY


TABLE OF CONTENTS
 
 
 
 
PAGE
 
 
 
 
 
Consolidated Balance Sheets as of March 31, 2015 (Unaudited) and December 31, 2014
 
 
Consolidated Income Statements (Unaudited) for the Three Months Ended March 31, 2015 and 2014
 
 
Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2015 and 2014
 
 
Consolidated Statement of Stockholders' Equity (Unaudited) for the Three Months Ended March 31, 2015
 
 
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2015 and 2014
 
 
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



SWIFT TRANSPORTATION COMPANY

GLOSSARY OF TERMS
The following glossary provides definitions for certain acronyms and terms used in this Quarterly Report on Form 10-Q. These acronyms and terms are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document.
 
Term
 
Definition
Swift/the Company/Management/We/Us/Our
 
Unless otherwise indicated or the context otherwise requires, these terms represent Swift Transportation Company and its subsidiaries. Swift Transportation Company is the holding company for Swift Transportation Co., LLC (a Delaware limited liability company) and Interstate Equipment Leasing, LLC.
2007 Transactions
 
In April 2007, Jerry Moyes and his wife contributed their ownership of all of the issued and outstanding shares of IEL to Swift Corporation in exchange for additional Swift Corporation shares. In May 2007, the Moyes Affiliates, contributed their shares of Swift Transportation Co., Inc. common stock to Swift Corporation in exchange for additional Swift Corporation shares. Swift Corporation then completed its acquisition of Swift Transportation Co., Inc. through a merger on May 10, 2007, thereby acquiring the remaining outstanding shares of Swift Transportation Co., Inc. common stock. Upon completion of the 2007 Transactions, Swift Transportation Co., Inc. became a wholly-owned subsidiary of Swift Corporation. At the close of the market on May 10, 2007, the common stock of Swift Transportation ceased trading on NASDAQ.
2011 RSA
 
The Company's previous Receivables Sale Agreement, entered into in 2011, with unrelated financial entities
2013 Agreement
 
The Company's Second Amended and Restated Credit Agreement, replaced by the 2014 Agreement
2013 RSA
 
Second Amended and Restated Receivables Sale Agreement, entered into in 2013 by SRCII, with unrelated financial entities, "The Purchasers"
2014 Agreement
 
The Company's Third Amended and Restated Credit Agreement
AOCI
 
Accumulated Other Comprehensive Income (Loss)
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
Central
 
Central Refrigerated Transportation, LLC (formerly Central Refrigerated Transportation, Inc.)
COFC
 
Container on Flat Car
CSA
 
Compliance Safety Accountability
Deadhead
 
Tractor movement without hauling freight (unpaid miles driven)
DOE
 
United States Department of Energy
EBITDA
 
Earnings Before Interest, Taxes, Depreciation and Amortization
EPS
 
Earnings Per Share
FASB
 
Financial Accounting Standards Board
IEL
 
Interstate Equipment Leasing, LLC (formerly Interstate Equipment Leasing, Inc.)
IPO
 
Initial Public Offering
LIBOR
 
London InterBank Offered Rate
Moyes Affiliates
 
Jerry Moyes, The Jerry and Vickie Moyes Family Trust dated December 11, 1987, and various Moyes children’s trusts
NASDAQ
 
National Association of Securities Dealers Automated Quotations
NLRB
 
National Labor Relations Board
OID
 
Original Issue Discount
Revenue xFSR
 
Revenue, Excluding Fuel Surcharge Revenue
Revolver
 
Revolving line of credit
SEC
 
United States Securities and Exchange Commission
Senior Notes
 
The Company's previously outstanding senior secured second priority notes
SRCII
 
Swift Receivables Company II, LLC
The Purchasers
 
Unrelated financial entities in the 2013 RSA, which was entered into by SRCII
Term Loan A
 
The Company's first lien term loan A under the 2014 Agreement
Term Loan B
 
The Company's first lien term loan B under the 2014 Agreement
TOFC
 
Trailer on Flat Car
US-GAAP (or GAAP)
 
United States Generally Accepted Accounting Principles


3


SWIFT TRANSPORTATION COMPANY

PART I — FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
March 31, 2015
 
December 31, 2014
 
(In thousands, except share data)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
68,736

 
$
105,132

Restricted cash
61,692

 
45,621

Restricted investments, held to maturity, amortized cost
18,286

 
24,510

Accounts receivable, net
452,757

 
478,999

Equipment sales receivable
689

 
288

Income tax refund receivable
4,233

 
18,455

Inventories and supplies
18,074

 
18,992

Assets held for sale
3,438

 
2,907

Prepaid taxes, licenses, insurance and other
48,874

 
51,441

Deferred income taxes
35,276

 
44,861

Current portion of notes receivable
8,730

 
9,202

Total current assets
720,785

 
800,408

Property and equipment, at cost:
 
 
 
Revenue and service equipment
2,120,927

 
2,061,835

Land
122,835

 
122,835

Facilities and improvements
273,567

 
268,025

Furniture and office equipment
68,927

 
67,740

Total property and equipment
2,586,256

 
2,520,435

Less: accumulated depreciation and amortization
1,017,060

 
978,305

Net property and equipment
1,569,196

 
1,542,130

Other assets
37,957

 
41,855

Intangible assets, net
295,729

 
299,933

Goodwill
253,256

 
253,256

Total assets
$
2,876,923

 
$
2,937,582

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
162,226

 
$
160,186

Accrued liabilities
110,947

 
100,329

Current portion of claims accruals
73,429

 
81,251

Current portion of long-term debt
32,581

 
31,445

Current portion of capital lease obligations
45,891

 
42,902

Fair value of interest rate swaps
4,233

 
6,109

Total current liabilities
429,307

 
422,222

Revolving line of credit

 
57,000

Long-term debt, less current portion
867,042

 
871,615

Capital lease obligations, less current portion
153,786

 
158,104

Claims accruals, less current portion
152,732

 
143,693

Deferred income taxes
465,419

 
480,640

Securitization of accounts receivable
294,000

 
334,000

Other liabilities
32

 
14

Total liabilities
2,362,318

 
2,467,288

Contingencies (Note 9)


 


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; 91,366,626 and 91,103,643 shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively
914

 
911

Class B common stock, par value $0.01 per share; Authorized 250,000,000 shares; 50,991,938 shares issued and outstanding as of March 31, 2015 and December 31, 2014
510

 
510

Additional paid-in capital
786,455

 
781,124

Accumulated deficit
(272,177
)
 
(310,017
)
Accumulated other comprehensive (loss) income
(1,199
)
 
(2,336
)
Noncontrolling interest
102

 
102

Total stockholders’ equity
514,605

 
470,294

Total liabilities and stockholders’ equity
$
2,876,923

 
$
2,937,582

See accompanying notes to consolidated financial statements.

4




SWIFT TRANSPORTATION COMPANY




CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands, except per share data)
Operating revenue:
 
 
 
Revenue, excluding fuel surcharge revenue
$
894,864

 
$
816,999

Fuel surcharge revenue
120,280

 
191,447

Operating revenue
1,015,144

 
1,008,446

Operating expenses:
 
 
 
Salaries, wages and employee benefits
261,654

 
229,366

Operating supplies and expenses
94,204

 
80,825

Fuel
106,907

 
156,022

Purchased transportation
288,811

 
319,169

Rental expense
61,975

 
51,719

Insurance and claims
44,307

 
42,448

Depreciation and amortization of property and equipment
56,927

 
56,175

Amortization of intangibles
4,204

 
4,204

Gain on disposal of property and equipment
(3,932
)
 
(3,159
)
Communication and utilities
7,499

 
7,170

Operating taxes and licenses
17,588

 
18,337

Total operating expenses
940,144

 
962,276

Operating income
75,000

 
46,170

Other expenses (income):
 
 
 
Interest expense
10,388

 
23,225

Derivative interest expense
2,793

 
1,653

Interest income
(587
)
 
(766
)
Loss on debt extinguishment

 
2,913

Non-cash impairments of non-operating assets
1,480

 

Other
(605
)
 
(864
)
Total other expenses (income), net
13,469

 
26,161

Income before income taxes
61,531

 
20,009

Income tax expense
23,691

 
7,704

Net income
$
37,840

 
$
12,305

Basic earnings per share
$
0.27

 
$
0.09

Diluted earnings per share
$
0.26

 
$
0.09

Shares used in per share calculations:
 
 
 
Basic
142,199

 
140,981

Diluted
143,955

 
143,018

See accompanying notes to consolidated financial statements.


5




SWIFT TRANSPORTATION COMPANY




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Net income
$
37,840

 
$
12,305

Accumulated losses on derivatives reclassified to derivative interest expense
1,848

 
1,314

Other comprehensive income before income taxes
1,848

 
1,314

Income tax effect of items within other comprehensive income
(711
)
 
(506
)
Other comprehensive income, net of income taxes
1,137

 
808

Total comprehensive income
$
38,977

 
$
13,113

See accompanying notes to consolidated financial statements.


6




SWIFT TRANSPORTATION COMPANY




CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
 
 
Class A
Common Stock
 
Class B
Common Stock
 
Additional
Paid-in Capital
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive (Loss) Income
 
Noncontrolling Interest
 
Total
Stockholders’ Equity
 
 
Shares
 
Par Value
 
Shares
 
Par Value
 
 
 
 
 
 
 
(In thousands, except per share data)
Balances, December 31, 2014
 
91,103,643

 
$
911

 
50,991,938

 
$
510

 
$
781,124

 
$
(310,017
)
 
$
(2,336
)
 
$
102

 
$
470,294

Common stock issued under stock plans
 
252,453

 
3

 

 

 
2,389

 

 

 

 
2,392

Stock-based compensation expense
 

 

 

 

 
1,483

 

 

 

 
1,483

Excess tax benefits from exercise of stock options
 

 

 

 

 
1,172

 

 

 

 
1,172

Shares issued under employee stock purchase plan
 
10,530

 

 

 

 
287

 

 

 

 
287

Net income
 

 

 

 

 

 
37,840

 

 

 
37,840

Other comprehensive income, net of income taxes
 

 

 

 

 

 

 
1,137

 

 
1,137

Balances, March 31, 2015
 
91,366,626

 
$
914

 
50,991,938

 
$
510

 
$
786,455

 
$
(272,177
)
 
$
(1,199
)
 
$
102

 
$
514,605

See accompanying notes to consolidated financial statements.


7




SWIFT TRANSPORTATION COMPANY




CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income
$
37,840

 
$
12,305

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of property, equipment and intangibles
61,131

 
60,379

Amortization of debt issuance costs, original issue discount, and losses on terminated swaps
2,606

 
2,515

Gain on disposal of property and equipment less write-off of totaled tractors
(3,698
)
 
(2,958
)
Impairments
1,480

 

Deferred income taxes
(6,346
)
 
(7,942
)
Provision for losses on accounts receivable
1,913

 
792

Non-cash loss on debt extinguishment and write-offs of deferred financing costs and original issue discount

 
2,913

Non-cash equity compensation
1,483

 
1,061

Excess tax benefits from stock-based compensation
(1,172
)
 
(1,078
)
Income effect of mark-to-market adjustment of interest rate swaps
(119
)
 
(32
)
Increase (decrease) in cash resulting from changes in:
 
 
 
Accounts receivable
24,329

 
(37,064
)
Inventories and supplies
918

 
653

Prepaid expenses and other current assets
16,789

 
18,446

Other assets
1,450

 
2,871

Accounts payable, accrued and other liabilities
(10,447
)
 
23,296

Net cash provided by operating activities
128,157

 
76,157

Cash flows from investing activities:
 
 
 
(Increase) decrease in restricted cash
(16,071
)
 
3,821

Proceeds from maturities of investments
14,190

 
9,500

Purchases of investments
(8,016
)
 
(9,664
)
Proceeds from sale of property and equipment
13,370

 
28,428

Capital expenditures
(62,006
)
 
(60,058
)
Payments received on notes receivable
2,065

 
1,553

Expenditures on assets held for sale
(2,313
)
 
(1,521
)
Payments received on assets held for sale
1,815

 
2,269

Payments received on equipment sale receivables
352

 
469

Net cash used in investing activities
(56,614
)
 
(25,203
)
Cash flows from financing activities:
 
 
 
Repayment of long-term debt and capital leases
(19,294
)
 
(46,526
)
Proceeds from long-term debt
4,504

 

Net repayments on revolving line of credit
(57,000
)
 
(17,000
)
Borrowings under accounts receivable securitization
10,000

 

Repayment of accounts receivable securitization
(50,000
)
 
(5,000
)
Proceeds from common stock issued
2,679

 
3,414

Excess tax benefits from stock-based compensation
1,172

 
1,078

Net cash used in financing activities
(107,939
)
 
(64,034
)
Net decrease in cash and cash equivalents
(36,396
)
 
(13,080
)
Cash and cash equivalents at beginning of period
105,132

 
59,178

Cash and cash equivalents at end of period
$
68,736

 
$
46,098


 See accompanying notes to consolidated financial statements.



8




SWIFT TRANSPORTATION COMPANY




CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED
(UNAUDITED)
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
13,912

 
$
11,854

Income taxes
1,507

 
3,463

Non-cash investing activities:
 
 
 
Equipment purchase accrual
$
59,814

 
$
59,867

Notes receivable from sale of assets
1,298

 
2,762

Equipment sales receivables
753

 
7,376

Non-cash financing activities:
 
 
 
Capital lease additions
$
9,988

 
$

See accompanying notes to consolidated financial statements.


9




SWIFT TRANSPORTATION COMPANY




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 — Introduction and Basis of Presentation
 
Certain acronyms and terms used throughout this Quarterly Report on Form 10-Q are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document. Definitions for these acronyms and terms are provided in the "Glossary of Terms," available in the front of this document.
Description of Business
Swift is a transportation solutions provider, headquartered in Phoenix, Arizona. As of March 31, 2015, the Company's fleet of revenue equipment included 19,535 tractors (comprised of 14,680 company tractors and 4,855 owner-operator tractors), 61,780 trailers and 9,150 intermodal containers. The Company’s four reportable segments are Truckload, Dedicated, Central Refrigerated and Intermodal.
Seasonality
In the truckload industry, results of operations generally show a seasonal pattern. As customers ramp up for the holiday season at year-end, the late third and fourth quarters have historically been the Company's strongest volume quarters. As customers reduce shipments after the winter holiday season, the first quarter has historically been a lower volume quarter than the other three quarters. In recent years, the macro consumer buying patterns combined with shippers’ supply chain management, which historically contributed to the fourth quarter “peak” season, continued to evolve. As a result, the Company's fourth quarter 2014, 2013 and 2012 volumes were more evenly disbursed throughout the quarter rather than peaking early in the quarter. In the eastern and mid-western United States, and to a lesser extent in the western United States, during the winter season the Company's equipment utilization typically declines and operating expenses generally increase, with fuel efficiency declining because of engine idling and severe weather sometimes creating higher accident frequency, increased claims, and more equipment repairs. Revenue may also be affected by holidays as a result of curtailed operations or vacation shutdowns, because the Company's revenue is directly related to available working days of shippers. From time to time, the Company also suffers short-term impacts from severe weather and similar events, such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes, and explosions that could add volatility to or harm the Company's results of operations.
Basis of Presentation
The consolidated financial statements and footnotes included in this Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014. The consolidated financial statements include the accounts of Swift Transportation Company and its wholly-owned subsidiaries. In management's opinion, these financial statements were prepared in accordance with principles generally accepted in the United States and include all adjustments necessary for the fair presentation of the periods presented.
Changes in Presentation
Beginning in 2015, the Company separately presents excess tax benefits from stock-based compensation within "Net cash provided by operating activities" in the consolidated statements of cash flows. The prior period presentation has been retrospectively adjusted to reclassify the amount out of "Accounts payable, accrued and other liabilities" and into the new line item "Excess tax benefits from stock-based compensation."  The change in presentation has no net impact on “Net cash provided by operating activities."

Also beginning in 2015, the Company presents gross amounts of its investment in securities activities as "Proceeds from maturities of investments" and "Purchases of investments" in the consolidated statements of cash flows. The prior period presentation has been retrospectively adjusted to accommodate this gross presentation. The change in presentation has no net impact on "Net cash used in investing activities."

Beginning in 2015, the Company has disaggregated "Operating revenue" in the consolidated income statements into the line items "Revenue, excluding fuel surcharge revenue" and "Fuel surcharge revenue." The change in presentation has no net impact on "Operating revenue."
Note 2 — Recently Issued Accounting Pronouncements
 
In April 2015, FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amends ASC Subtopic 835-30, Interest — Imputation of Interest. The amendments in this ASU simplify the presentation of debt issuance costs and align the presentation with debt discounts. Entities will be required to present debt issuance costs as a direct deduction from the face amount of the related note, rather than as a deferred charge. Upon adoption, the amended guidance will affect Swift's classification of debt issuance costs, which are currently classified in "Other assets" in the consolidated balance sheets. The reclassification of debt

10



SWIFT TRANSPORTATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED


issuance costs will effectively decrease "Other assets" and correspondingly decrease the respective long-term debt balances. The amendments in this ASU require retrospective application, with related disclosures for a change in accounting principle. Upon adoption, the Company will comply with these disclosure requirements by providing the nature and reason for the change, the transition method, a description of the adjusted prior period information and the effect of the change on the financial statement line items. For public business entities, the amendments in this ASU will be effective for financial statements issued for fiscal years beginning after December 15, 2015, and the interim periods within those fiscal years. Early adoption is permitted; however, the Company expects to adopt this guidance at the beginning of 2016.

In February 2015, FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which amends ASC Topic 810, Consolidation, by changing the analysis that reporting entities are required to perform to determine whether certain types of legal entities should be consolidated. The amendments in this ASU focus on limited partnerships and similar legal entities (such as limited liability companies); however, all legal entities are subject to reevaluation under the revised consolidation model. The revised consolidation model modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, and eliminates the presumption that a general partner should consolidate a limited partnership. It also affects the consolidation analysis of reporting entities that are involved with variable interest entities, especially those that have fee arrangements and related-party relationships. The amendments in the ASU also affect certain investment funds. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2015, and the interim periods within those fiscal years. Early adoption is permitted. Entities may use a retrospective approach, or a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the year of adoption. 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 — Restricted 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 March 31, 2015 and December 31, 2014 (in thousands): 
 
March 31, 2015
 
 
 
Gross Unrealized
 
 
 
Cost or Amortized
Cost
 
Gains
 
Temporary
Losses
 
Estimated Fair Value
United States corporate securities
$
16,861

 
$
6

 
$
(3
)
 
$
16,864

Negotiable certificates of deposit
1,425

 
1

 

 
1,426

Total restricted investments
$
18,286

 
$
7

 
$
(3
)
 
$
18,290

 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
Gross Unrealized
 
 
 
Cost or Amortized Cost
 
Gains
 
Temporary Losses
 
Estimated Fair Value
United States corporate securities
$
20,892

 
$
2

 
$
(10
)
 
$
20,884

Foreign corporate securities
1,503

 

 

 
1,503

Negotiable certificates of deposit
2,115

 

 

 
2,115

Total restricted investments
$
24,510

 
$
2

 
$
(10
)
 
$
24,502

As of March 31, 2015, the contractual maturities of the restricted investments were one year or less. There were 11 securities and 24 securities that were in an unrealized loss position for less than twelve months as of March 31, 2015 and December 31, 2014, respectively. The Company did not recognize any impairment losses for the three months ended March 31, 2015 or 2014.

11



SWIFT TRANSPORTATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED


Note 4 — Goodwill and Other Intangible Assets
 
There were no goodwill impairments recorded during the three months ended March 31, 2015 or 2014. Intangible assets as of March 31, 2015 and December 31, 2014 were as follows (in thousands):
 
March 31, 2015
 
December 31, 2014
Customer Relationships:
 
 
 
Gross carrying value
$
275,324

 
$
275,324

Accumulated amortization
(160,632
)
 
(156,428
)
Trade Name:
 
 
 
Gross carrying value
181,037

 
181,037

Intangible assets, net
$
295,729

 
$
299,933

The following table presents amortization of intangibles for the three months ended March 31, 2015 and 2014, 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 March 31,
 
2015
 
2014
Amortization of intangible assets related to 2007 going private transaction
$
3,912

 
$
3,912

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

 
292

Amortization of intangibles
$
4,204

 
$
4,204

Note 5 — Accounts Receivable Securitization
 
In June 2013, SRCII entered into the 2013 RSA with the Purchasers to replace the Company's prior 2011 RSA, and 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 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. On September 26, 2014, the Company exercised an accordion option, increasing the maximum borrowing capacity on the 2013 RSA from $325.0 million to $375.0 million. The Company entered into an amendment to the 2013 RSA, effective March 31, 2015, to clarify when the Company’s consent is required in conjunction with a Purchaser’s sale or assignment of any portion of its purchased interest in the receivables and to amend certain of the performance ratios to provide increased flexibility to the Company in managing its receivables.
The facility qualifies for treatment as a secured borrowing under ASC Topic 860, Transfers and Servicing. As such, outstanding amounts are classified as liabilities on the Company’s consolidated balance sheets in "Securitization of accounts receivable."
As of March 31, 2015 and December 31, 2014, interest accrues on the aggregate principal balance at a rate of 0.8% and 0.8%, respectively. Program fees and unused commitment fees are recorded in interest expense in the Company's consolidated income statements. The Company incurred program fees of $1.0 million and $0.8 million, during the three months ended March 31, 2015 and 2014, respectively.

The 2013 RSA is subject to customary fees and contains various customary affirmative and negative covenants, representations and warranties, and default and termination provisions. 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.

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SWIFT TRANSPORTATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED


Note 6 — Debt and Financing
 
Other than the Company’s accounts receivable securitization, as discussed in Note 5, and its outstanding capital lease obligations as discussed in Note 7, the Company's long-term debt consisted of the following (in thousands):
 
March 31, 2015
 
December 31, 2014
2014 Agreement: Term loan A, due June 2019
$
494,375

 
$
500,000

2014 Agreement: Term Loan B, net of $885 and $920 OID as of March 31, 2015 and December 31, 2014, respectively
395,115

 
396,080

Other
10,133

 
6,980

Long-term debt
899,623

 
903,060

Less: current portion of long-term debt
(32,581
)
 
(31,445
)
Long-term debt, less current portion
$
867,042

 
$
871,615

Revolving line of credit (1)
$

 
$
57,000

Long-term debt, including revolving line of credit
$
899,623

 
$
960,060

____________
(1)
The Company had outstanding letters of credit, primarily related to workers' compensation and self-insurance liabilities, of $100.3 million at March 31, 2015 and $100.3 million at December 31, 2014, under the revolving line of credit.
Credit Agreement
The Company entered into the 2014 Agreement on June 9, 2014, which included a delayed-draw first lien Term Loan A tranche, a first lien Term Loan B tranche, and a revolving credit line. The following table presents the key terms of the 2014 Agreement (dollars in thousands):
Description
 
Term Loan A
 
Term Loan B
 
Revolver (2)
Maximum borrowing capacity
 
$500,000
 
$400,000
 
$450,000
Final maturity date
 
June 9, 2019
 
June 9, 2021
 
June 9, 2019
Interest rate base
 
LIBOR
 
LIBOR
 
LIBOR
LIBOR floor
 
—%
 
0.75%
 
—%
Interest rate minimum margin (1)
 
1.50%
 
2.75%
 
1.50%
Interest rate maximum margin (1)
 
2.25%
 
3.00%
 
2.25%
Minimum principal payment - amount (3)
 
$5,625
 
$1,000
 
$—
Minimum principal payment - frequency
 
Quarterly
 
Quarterly
 
Once
Minimum principal payment - commencement date (3)
 
March 31, 2015
 
June 30, 2014
 
June 30, 2019
(1)
Interest rate margins for the Term Loan A, Term Loan B and Revolver are based on the Company's consolidated leverage ratio. As of March 31, 2015, interest accrues at 1.93% and 3.75% on the Term Loan A and Term Loan B, respectively. As of December 31, 2014, interest accrued at 2.16% and 3.75% on the Term Loan A and Term Loan B, respectively. Prior to January 1, 2015, the minimum and maximum interest rate margins on the Term Loan B were both 3.00%.
(2)
The commitment fee for the unused portion of the Revolver is also based on the Company's consolidated leverage ratio, and ranges from 0.25% to 0.35%. As of March 31, 2015, commitment fees on the unused portion of the Revolver accrue at 0.25% and outstanding letter of credit fees accrue at 1.75%. As of December 31, 2014, commitment fees on the unused portion of the Revolver accrued at 0.30% and outstanding letter of credit fees accrued at 2.00%.    
(3)
Commencing in March 2017, the minimum quarterly principal payment amount on the Term Loan A is $11.3 million.
The Revolver and Term Loan A of the 2014 Agreement contain certain financial covenants with respect to a maximum leverage ratio and a minimum consolidated interest coverage ratio. The 2014 Agreement provides 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.

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SWIFT TRANSPORTATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED


Borrowings under the credit facility are secured by substantially all of the assets of the Company and are guaranteed by Swift Transportation Company, IEL, Central Refrigerated Transportation, LLC and its subsidiaries, Swift Transportation Co., LLC and its domestic subsidiaries other than its captive insurance subsidiaries, driver academy subsidiary, and its bankruptcy-remote special purpose subsidiary.
Deferred Loan Costs and Loss on Debt Extinguishment
Deferred loan costs, reported in "Other assets" in the Company's consolidated balance sheets, were $9.7 million and $10.4 million, as of March 31, 2015 and December 31, 2014, respectively.
For the three months ended March 31, 2015, the Company did not incur any loss on debt extinguishment. For the three months ended March 31, 2014, the Company incurred a $2.9 million loss on debt extinguishment related to the Company's repurchase of its Senior Notes.
Note 7 — Leases
 
The Company finances a portion of its revenue equipment under capital and operating leases and certain terminals under operating leases.

Capital - 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. If the Company does not receive proceeds of the contracted residual value from the manufacturer, the Company is still obligated to make the balloon payment at the end of the lease term. Certain leases contain renewal or fixed price purchase options. The present value of obligations under capital leases is included under "Current portion of capital lease obligations" and "Capital lease obligations, less current portion" in the consolidated balance sheets. As of March 31, 2015, the leases were collateralized by revenue equipment with a cost of $266.7 million and accumulated amortization of $71.6 million. As of December 31, 2014, the leases were collateralized by revenue equipment with a cost of $270.6 million and accumulated amortization of $68.0 million. Amortization of the equipment under capital leases is included in "Depreciation and amortization of property and equipment" in the Company’s consolidated income statements.
Operating - Rent expense related to operating leases was $62.0 million and $51.7 million for the three months ended March 31, 2015 and 2014, respectively.
Note 8 — Purchase Commitments
 
As of March 31, 2015, the Company had commitments outstanding to acquire revenue equipment for the remainder of 2015 for approximately $705.5 million ($569.4 million of which were tractor commitments) and in 2016 to 2017 for approximately $380.5 million (all of which were tractor commitments). The Company generally has the option to cancel tractor purchase orders with 60 to 90 days notice prior to the scheduled production, although the notice period has lapsed for approximately 31.3% of the tractor commitments outstanding as of March 31, 2015. These purchases are expected to be financed by the combination of operating leases, capital leases, debt, proceeds from sales of existing equipment and cash flows from operations.
As of March 31, 2015, the Company had outstanding purchase commitments of approximately $8.6 million for facilities and non-revenue equipment. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures.
Note 9 — 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

14



SWIFT TRANSPORTATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED


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 trial 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. On November 13, 2014, the court denied plaintiff's motion to add new class representatives for the employee class and therefore the employee class remains without a plaintiff class representative. On March 18, 2015, the court denied Swift's two motions for summary judgment 1) to dismiss any claims related to the employee class since there is no class representative; and 2) to dismiss plaintiff's claim of breach of a duty of good faith and fair dealing. Swift filed a motion to decertify the entire class which remains pending before the court. The matter is scheduled for trial in October 2015. 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

15



SWIFT TRANSPORTATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED


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 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 United States 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 United States Supreme Court denied the Company’s petition for writ of certiorari. The matter remains pending in the District Court and is currently in discovery. 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. Plaintiff has appealed. Minimum wage claims (specifically that pay per-mile fails to compensate drivers for non-driving-related services), timeliness of such pay and the issue of class certification remain pending.
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 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.
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 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. There have been no significant developments to these cases since December 31, 2014.
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 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.
Peck is currently stayed, pending a resolution in the Burnell and Rudsell cases, based on the similarity of the Peck claims to the claims in those earlier filed cases. 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 and several other drivers on behalf of themselves, 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 prior to the filing of the lawsuit through to present

16



SWIFT TRANSPORTATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED


and alleges that they were not paid minimum wage and overtime in accordance with Washington State law and that they suffered unlawful deductions from wages. 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" drivers and did not certify any other class, including any class related to over the road drivers (“OTR Drivers”). The parties dispute the definition of "dedicated" as used by the court and a class notice has not yet been issued. The matter is now anticipated to move into discovery. The Company retains all of its defenses against liability and damages. The Company intends to vigorously defend the merits of these claims and to challenge certification. 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. The matter is currently in discovery.
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 was 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 was 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, Compensation and Liability Act imposes a standard of strict liability on property owners with respect to environmental claims. Notwithstanding this standard of strict liability, management believes the Company's 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. Management 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. There have been no significant developments pertaining to this matter since December 31, 2014.
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 March 31, 2015, the Company's estimate for its total legal liability for all such clean-up and remediation costs was approximately $0.4 million in the aggregate for all current and prior year claims. 

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SWIFT TRANSPORTATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED


Note 10 — Derivative Financial Instruments
 
The following table presents pre-tax losses from changes in fair value of the Company's interest rate swaps, included in earnings (in thousands):
 
 
Three Months Ended March 31,
 
 
2015
 
2014
Loss reclassified from AOCI into net income from cash flow hedges (effective portion)
 
$
1,848

 
$
1,314

Loss recognized in income from de-designated derivative contracts
 
945

 
339

Derivative interest expense
 
$
2,793

 
$
1,653

As of March 31, 2015, $2.1 million of deferred losses on derivatives in AOCI are expected to be reclassified to earnings within the next 12 months. There were no losses recognized in AOCI from the effective portion of cash flow hedges during the three months ended March 31, 2015 or 2014.
Losses on cash flow hedging, reclassified out of AOCI into the consolidated income statements were as follows (in thousands):
 
 
 
Three Months Ended March 31,
 
Reclassified to:
 
2015
 
2014
Interest rate swaps
Derivative interest expense
 
$
1,848

 
$
1,314

Income tax (benefit) expense
Income tax expense
 
(711
)
 
(506
)
 
Net income
 
$
1,137

 
$
808

Activities related to AOCI net of tax, are presented in the consolidated statement of stockholders' equity, and primarily pertain to derivative financial instruments. The tax effects are presented in the consolidated statements of comprehensive income. Activities related to foreign currency transactions were immaterial for the three months ended March 31, 2015 and 2014.
Note 11 — Fair Value Measurement
 
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of March 31, 2015 and December 31, 2014 (in thousands): 
 
March 31, 2015
 
December 31, 2014
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial Assets:
 
 
 
 
 
 
 
Restricted investments
$
18,286

 
$
18,290

 
$
24,510

 
$
24,502

Financial Liabilities:
 
 
 
 
 
 
 
2014 Agreement: Term Loan A, due June 2019
494,375

 
494,375

 
500,000

 
500,000

2014 Agreement: Term Loan B, net of $885 and $920 OID as of March 31, 2015 and December 31, 2014, respectively
395,115

 
395,858

 
396,080

 
390,436

Securitization of accounts receivable
294,000

 
294,000

 
334,000

 
334,000

The carrying amounts shown in the table (other than restricted investments and securitization of accounts receivable) are included in the consolidated balance sheets in "Current portion of long-term debt" and "Long-term debt, less current portion."

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SWIFT TRANSPORTATION COMPANY

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Recurring Fair Value Measurements
As of March 31, 2015 and December 31, 2014, interest rate swaps were the only major category of liabilities included in the Company's consolidated balance sheets at estimated fair value that were measured on a recurring basis. The following table depicts the level in the fair value hierarchy of the inputs used to estimate fair value of these instruments (in thousands):
 
 
 
Fair Value Measurements at Reporting Date Using
 
Estimated Fair Value
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
As of March 31, 2015
 
 
 
 
 
 
 
Interest rate swaps
$
4,233

 
$

 
$
4,233

 
$

As of December 31, 2014

 

 

 

Interest rate swaps
$
6,109

 
$

 
$
6,109

 
$

As of March 31, 2015 and December 31, 2014, there were no assets included in the Company's consolidated balance sheets at estimated fair value that were measured on a recurring basis.
Nonrecurring Fair Value Measurements
The following table depicts the level in the fair value hierarchy of the inputs used to estimate fair value of assets measured on a nonrecurring basis (in thousands):
 
 
 
Fair Value Measurements at Reporting Date Using
 
Estimated Fair Value
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Total Gains (Losses)
As of March 31, 2015
 
 
 
 
 
 
 
 
 
Note receivable
$

 

 

 
$

 
$
(1,480
)
As of December 31, 2014
 
 
 
 
 
 
 
 
 
Other assets
$

 

 

 
$

 
$
(2,308
)
In September 2013, the Company agreed to advance up to $2.3 million, pursuant to an unsecured promissory note, to an independent fleet contractor that transported freight on Swift's behalf. In March 2015, management became aware that the independent contractor violated various covenants outlined in the unsecured promissory note, which created an event of default that made the principal and accrued interest immediately due and payable. As a result of this event of default, as well as an overall decline in the independent contractor's financial condition, management re-evaluated the fair value of the unsecured promissory note. As of March 31, 2015, management determined that the remaining balance due from the independent contractor to the Company was not collectible, which resulted in a $1.5 million pre-tax adjustment that was recorded in "Non-cash impairments of non-operating assets" in the Company's consolidated income statements.
Fair value of assets measured on a nonrecurring basis as of December 31, 2014, represent certain operations software that was replaced, and for which the carrying value was determined to be fully impaired during the three months ended September 30, 2014.
Note 12 — Earnings per Share
 
The following table reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding (in thousands):
 
Three Months Ended March 31,
 
2015
 
2014
Basic weighted average common shares outstanding
142,199

 
140,981

Dilutive effect of stock options
1,756

 
2,037

Diluted weighted average common shares outstanding
143,955

 
143,018

Option exercise prices were greater than the average market price of the common shares during the three months ended March 31, 2015 and 2014. As such, there were no anti-dilutive shares to be excluded from the calculation of diluted earnings per share.

19



SWIFT TRANSPORTATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED


Note 13 — Income Taxes
 
The effective tax rate for the three months ended March 31, 2015 and March 31, 2014 was 38.5%.
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 March 31, 2015 were approximately $1.3 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 2010 through 2013. 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 2010 through 2013 remain subject to examination.
Note 14 — Segments and Geography
 
Segment Information
The Company’s four reportable operating segments are Truckload, Dedicated, Central Refrigerated and Intermodal.
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 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.
Non-reportable Segment 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.
Other Intersegment Transactions Certain operating segments provide transportation and related services for other affiliates outside their reportable segment. Revenues for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenues of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenues and expenses are eliminated in our consolidated results.
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 March 31,
 
2015
 
2014
Truckload
$
538,341

 
$
553,057

Dedicated
217,775

 
193,653

Central Refrigerated
95,568

 
106,763

Intermodal
90,354

 
91,313

Subtotal
942,038

 
944,786

Non-reportable segment
91,622

 
75,666

Intersegment eliminations
(18,516
)
 
(12,006
)
Consolidated operating revenue
$
1,015,144

 
$
1,008,446



20



SWIFT TRANSPORTATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED


 
Operating Income (Loss)
 
Three Months Ended March 31,
 
2015
 
2014
Truckload
$
56,854

 
$
31,907

Dedicated
14,345

 
11,530

Central Refrigerated
4,799

 
2,420

Intermodal
(1,243
)
 
(926
)
Subtotal
74,755

 
44,931

Non-reportable segment
245

 
1,239

Consolidated operating income
$
75,000

 
$
46,170


 
Depreciation and Amortization Expense
 
Three Months Ended March 31,
 
2015
 
2014
Truckload
$
28,610

 
$
30,245

Dedicated
14,273

 
12,405

Central Refrigerated
3,294

 
3,106

Intermodal
3,252

 
2,368

Subtotal
49,429

 
48,124

Non-reportable segment
7,498

 
8,051

Consolidated depreciation and amortization expense
$
56,927

 
$
56,175

Geographical Information
In aggregate, operating revenue from the Company's foreign operations was less than 5.0% of consolidated operating revenue for the three months ended March 31, 2015 and 2014. Additionally, long-lived assets on the balance sheets of the Company's foreign subsidiaries were less than 5.0% of consolidated Total assets as of March 31, 2015 and December 31, 2014.

21




SWIFT TRANSPORTATION COMPANY




ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Cautionary Note Regarding Forward-looking Statements
 
This report contains statements that may constitute forward-looking statements, which are based on information currently available, usually defined by words such as "anticipates," "believes," "estimates," "plans," "projects," "expects," "hopes," "intends," "will," "could," "should," "may," or similar expressions which speak only as of the date the statement was made. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements concerning:
trends, management's beliefs, and expectations relating to our operations, Revenue xFSR, expenses, other revenue, pricing, our effective tax rate, profitability and related metrics;
impact and planned timing of adopting recently issued accounting pronouncements on future periods;
our expectation of increasing driver wages and hiring expenses;
the outcome of pending claims, litigation and actions in respect thereof;
our intentions concerning the potential use of derivative financial instruments to hedge fuel price increases;
the timing and amount of future acquisitions of revenue equipment and other capital expenditures, as well as the use and availability of cash, cash flows from operations, leases and debt to finance such acquisitions;
the potential impact of inflation, seasonality and severe weather conditions on our results of operations;
the impact in 2015 of the discontinuation of a large dedicated account within the Central Refrigerated segment; and
our ability to finance our cash needs from operations for the next twelve months.

Such forward-looking statements are inherently uncertain, and are based upon the current beliefs, assumptions and expectations of Company management and current market conditions, which are subject to significant risks and uncertainties, as set forth in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2014. As to the Company's business and financial performance, the following factors, among others, could cause actual results to materially differ from those in forward-looking statements.
economic conditions, including future recessionary economic cycles and downturns in customers’ business cycles, particularly in market segments and industries in which we have a significant concentration of customers;
increasing competition from trucking, rail, intermodal, and brokerage competitors;
our ability to execute or integrate any future acquisitions successfully;
increases in driver compensation to the extent not offset by increases in freight rates and difficulties in driver recruitment and retention;
our ability to attract and maintain relationships with owner-operators;
our ability to retain or replace key personnel;
our dependence on third parties for intermodal and brokerage business;
potential failure in computer or communications systems;
seasonal factors such as severe weather conditions that increase operating costs;
the regulatory environment in which we operate, including existing regulations and changes in existing regulations, or violations by us of existing or future regulations;
the possible re-classification of our owner-operators as employees;
changes in rules or legislation by the NLRB or Congress and/or union organizing efforts;
our CSA safety rating;
government regulation with respect to our captive insurance companies;
uncertainties and risks associated with our operations in Mexico;
a significant reduction in, or termination of, our trucking services by a key customer;
our significant ongoing capital requirements;
the amount and velocity of changes in fuel prices and our ability to recover fuel prices through our fuel surcharge program;
volatility in the price or availability of fuel;
increases in new equipment prices or replacement costs;
our level of indebtedness and our ability to service our outstanding indebtedness, including compliance with our indebtedness covenants, and the impact such indebtedness may have on the way we operate our business;

22




SWIFT TRANSPORTATION COMPANY




MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED) — CONTINUED

restrictions contained in our debt agreements;
adverse impacts of insuring risk through our captive insurance companies, including our need to provide restricted cash and similar collateral for anticipated losses;
potential volatility or decrease in the amount of earnings as a result of our claims exposure through our captive insurance companies;
the potential impact of the significant number of shares of our common stock that is outstanding;
goodwill impairment;
our intention to not pay dividends;
conflicts of interest or potential litigation that may arise from other businesses owned by Jerry Moyes, including pledges of Swift stock and guarantees related to other businesses by Jerry Moyes;
the significant amount of our stock and related control over the Company by Jerry Moyes;
related-party transactions between the Company and Jerry Moyes; and
that our acquisition of Central may be challenged by our stockholders.
Important factors, in addition to those listed above and in our filings with the SEC, could impact us financially. As a result of these and other factors, actual results may differ from those set forth in the forward-looking statements, and the prices of the Company's securities may dramatically fluctuate. The Company makes no commitment, and disclaims any duty, to update or revise any forward-looking statements to reflect future events, new information or changes in these expectations.

Reference to Glossary of Terms
 

Certain acronyms and terms used throughout this Quarterly Report on Form 10-Q are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document. Definitions for these acronyms and terms are provided in the "Glossary of Terms," available in the front of this document.


Reference to Annual Report on Form 10-K
 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and footnotes included in this Quarterly Report on Form 10-Q, as well as the consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2014.


23



SWIFT TRANSPORTATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) — CONTINUED


Executive Summary
 
Company Overview — Swift is a multi-faceted transportation services company, operating the largest fleet of truckload equipment in North America from over 40 terminals near key freight centers and traffic lanes. We principally operate in short- to medium-haul traffic lanes around our terminals and dedicated customer locations. We concentrate on this length of haul because the majority of domestic truckload freight (as measured by revenue) moves in these lanes and our extensive terminal network affords us marketing, equipment control, supply chain, customer service, and driver retention advantages in local markets. Since our average length of haul is relatively short, it helps reduce competition from railroads and trucking companies that lack a regional presence.
As of March 31, 2015, our fleet of revenue equipment included 19,535 tractors (comprised of 14,680 company tractors and 4,855 owner-operator tractors), 61,780 trailers and 9,150 intermodal containers. Our four reportable segments are Truckload, Dedicated, Central Refrigerated and Intermodal. Our extensive suite of service offerings (which includes line-haul services, dedicated customer contracts, temperature-controlled units, intermodal freight solutions, cross-border United States/Mexico and United States/Canada freight, flatbed hauling, freight brokerage and logistics, and others) provides our customers with the opportunity to "one-stop-shop" for their truckload transportation needs.
Revenue — We primarily generate revenue by transporting freight for our customers, generally at a predetermined rate per mile. We supplement this revenue by charging for fuel surcharges, stop-off pay, loading and unloading activities, tractor and trailer detention, and other ancillary services. The main factors that affect our revenue from transporting freight are the rate per mile we receive from our customers and loaded miles. The main factors that affect fuel surcharge revenue are the price of diesel fuel and the number of loaded miles. Fuel surcharges are billed on a lagging basis, meaning that we typically bill customers in the current week based on a previous week's applicable index. Therefore, in times of increasing fuel prices, we do not recover as much as we are currently paying for fuel. In periods of declining prices, the opposite is true.
Revenue in our non-reportable segment is generated by our non-asset-based freight brokerage and logistics management service, tractor leasing revenue from our financing subsidiaries, premium revenue from our captive insurance companies, and revenue from third parties serviced by our repair and maintenance shops. Main factors affecting revenue in our non-reportable segment are demand for brokerage and logistics services and number of equipment leases to our owner-operators by our financing subsidiaries.
Expenses — Our most significant expenses vary with miles traveled and include fuel, driver-related expenses (such as wages and benefits) and services purchased from owner-operators and other transportation providers (such as railroads, drayage providers, and other trucking companies). Maintenance and tire expenses and cost of insurance and claims generally vary with the miles we travel, but also have a controllable component based on safety improvements, fleet age, efficiency, and other factors. Our primary fixed costs are depreciation and lease expense for revenue equipment and terminals, interest expense, and non-driver compensation.
Changes in deadhead miles percentage generally have the largest proportionate effect on our profitability because we still bear all of the expenses for each deadhead mile, but do not earn any revenue to offset those expenses. Changes in rate per mile have the next largest proportionate effect on profitability because incremental improvements in rate per mile are not offset by any additional expenses. Changes in loaded miles generally have a smaller effect on profitability because variable expenses fluctuate with changes in miles. However, changes in mileage are affected by driver satisfaction and network efficiency, which indirectly affect expenses.

Financial Overview
 
Three Months Ended March 31,
 
2015
 
2014
 
(Dollars in thousands, except per share data)
Operating revenue
$
1,015,144

 
$
1,008,446

Revenue xFSR
$
894,864

 
$
816,999

Net income
$
37,840

 
$
12,305

Diluted earnings per common share
$
0.26

 
$
0.09

Operating Ratio
92.6
%
 
95.4
%
Non-GAAP financial data:
 
 
 
Adjusted Operating Ratio (1)
91.2
%
 
93.9
%
Adjusted EBITDA (1)
$
138,219

 
$
108,474

Adjusted EPS (1)
$
0.29

 
$
0.12



24



SWIFT TRANSPORTATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) — CONTINUED


____________
(1)
Adjusted EBITDA, Adjusted Operating Ratio and Adjusted EPS are non-GAAP financial measures. These non-GAAP financial measures should not be considered alternatives, or superior, to GAAP financial measures. However, management believes that presentation of these non-GAAP financial measures provides useful information to investors regarding the Company's results of operations. Adjusted EBITDA, Adjusted Operating Ratio and Adjusted EPS are reconciled to the most directly comparable GAAP financial measures under "Non-GAAP Financial Measures," below.

Factors Affecting Comparability Between Periods
Results of Operations for the Three Months Ended March 31, 2015, Compared to the Three Months Ended March 31, 2014
Net income for the three months ended March 31, 2015 was $37.8 million, as compared to $12.3 million for the corresponding period in 2014. The following factors affected comparability between the three months ended March 31, 2015 and the three months ended March 31, 2014:
$12.8 million decrease in interest expense, driven by the call of the Senior Notes in November 2014, lower debt balances and more favorable interest rates and terms from the replacement of the 2013 Agreement with the 2014 Agreement.
$1.5 million pre-tax impairment of a non-operating note receivable, during the three months ended March 31, 2015. The note was due to the Company from an independent fleet contractor, transporting freight on behalf of Swift.
$2.9 million in loss on debt extinguishment resulting from the repurchase of our Senior Notes during the three months ended March 31, 2014.
Non-GAAP Financial Measures
 
The terms "Adjusted EBITDA," "Adjusted Operating Ratio," and "Adjusted EPS," as we define them, are not presented in accordance with GAAP. These financial measures supplement our GAAP results in evaluating certain aspects of our business. We believe that using these measures improves comparability in analyzing our performance because they remove the impact of items from our operating results that, in our opinion, do not reflect our core operating performance. Management and the board of directors focus on Adjusted EBITDA, Adjusted Operating Ratio and Adjusted EPS as key measures of our performance, all of which are reconciled to the most comparable GAAP financial measures and further discussed below. We believe our presentation of these non-GAAP financial measures is useful because it provides investors and securities analysts the same information that we use internally for purposes of assessing our core operating performance and compliance with debt covenants.

Adjusted EBITDA, Adjusted Operating Ratio and Adjusted EPS are not substitutes for their comparable GAAP financial measures, such as net income, cash flows from operating activities, operating margin, or other measures prescribed by GAAP. There are limitations to using non-GAAP financial measures. Although we believe that they improve comparability in analyzing our period to period performance, they could limit comparability to other companies in our industry if those companies define these measures differently. Because of these limitations, our non-GAAP financial measures should not be considered measures of income generated by our business or discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by primarily relying on GAAP results and using non-GAAP financial measures on a supplemental basis.
Adjusted EBITDA Our definition of the non-GAAP measure, Adjusted EBITDA, starts with (a) net income (loss), the most comparable GAAP measure. We add the following items back to (a) to arrive at Adjusted EBITDA:
(i)
depreciation and amortization,
(ii)
interest and derivative interest expense, including 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 debt covenants, specifically our leverage ratio, and is also routinely reviewed by management for that purpose.

25



SWIFT TRANSPORTATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) — CONTINUED


The following table is a GAAP to non-GAAP reconciliation for consolidated Adjusted EBITDA:
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Net income
$
37,840

 
$
12,305

Adjusted for:
 
 
 
Depreciation and amortization of property and equipment
56,927

 
56,175

Amortization of intangibles
4,204

 
4,204

Interest expense
10,388

 
23,225

Derivative interest expense
2,793

 
1,653

Interest income
(587
)
 
(766
)
Income tax expense
23,691

 
7,704

EBITDA
135,256

 
104,500

Non-cash equity compensation (2)
1,483

 
1,061

Loss on debt extinguishment (3)

 
2,913

Non-cash impairments of non-operating assets (4)
1,480

 

Adjusted EBITDA (1)
$
138,219

 
$
108,474

____________
(1)
Our method of computing Adjusted EBITDA is consistent with that used in our debt covenants, specifically our leverage ratio, and is also routinely reviewed by management for that purpose.
(2)
Non-cash equity compensation expense is presented on a pre-tax basis. In accordance with the terms of the 2014 Agreement, this expense is added back in the calculation of Adjusted EBITDA for covenant compliance purposes.
(3)
Refer to the "Loss on Debt Extinguishment" discussion under "Results of Operations — Consolidated Operating and Other Expenses," below.
(4)
Refer to "Non-cash Impairments of Non-operating Assets" discussion under "Results of Operations - Consolidated Operating and Other Expenses," below.
Adjusted Operating Ratio — Our definition of the non-GAAP measure, Adjusted Operating Ratio, starts with (a) operating expense and (b) operating revenue, which are GAAP financial measures. We subtract the following items from (a) to arrive at (c) adjusted operating expense:
(i)
fuel surcharge revenue,
(ii)
amortization of the intangibles from our 2007 going-private transaction,
(iii)
non-cash operating impairment charges,
(iv)
other special non-cash items, and
(v)
excludable transaction costs.
We then subtract fuel surcharge revenue from (b) to arrive at (d) Revenue xFSR. Adjusted Operating Ratio is equal to (c) adjusted operating expense as a percentage of (d) Revenue xFSR.
We net fuel surcharge revenue against fuel expense in the calculation of our Adjusted Operating Ratio, thereby excluding fuel surcharge revenue from operating revenue in the denominator. Because fuel surcharge revenue is so volatile, we believe excluding it provides for more transparency and comparability. Additionally, we believe that comparability of our performance is improved by excluding impairments, non-comparable intangibles from the 2007 Transactions and other special items.



26



SWIFT TRANSPORTATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) — CONTINUED


The following table is a GAAP to non-GAAP reconciliation for consolidated Adjusted Operating Ratio:
 
Three Months Ended March 31,
 
2015
 
2014
 
(Dollars in thousands)
Operating revenue
$
1,015,144

 
$
1,008,446

Less: Fuel surcharge revenue
120,280

 
191,447

Revenue xFSR
894,864

 
816,999

 
 
 
 
Operating expense
940,144

 
962,276

Adjusted for:
 
 
 
Fuel surcharge revenue
(120,280
)
 
(191,447
)
Amortization of certain intangibles (1)
(3,912
)
 
(3,912
)
Adjusted operating expense
815,952

 
766,917

Adjusted operating income
$
78,912

 
$
50,082

Operating Ratio
92.6
%
 
95.4
%
Adjusted Operating Ratio
91.2
%
 
93.9
%
____________
(1)
"Amortization of certain intangibles" specifically reflects the non-cash amortization expense relating to certain intangible assets identified in the 2007 Transactions through which Swift Corporation acquired Swift Transportation Co.
Adjusted EPS — Our definition of the non-GAAP measure, Adjusted EPS, starts with (a) income (loss) before income taxes, the most comparable GAAP measure. We add the following items back to (a) to arrive at (b) adjusted income (loss) before income taxes:
(i)
amortization of the intangibles from the 2007 Transactions,
(ii)
non-cash impairments,
(iii)
other special non-cash items,
(iv)
excludable transaction costs,
(v)
mark-to-market adjustments on our interest rate swaps, recognized in the income statement, and
(vi)
amortization of previous losses recorded in AOCI related to the interest rate swaps we terminated upon our IPO and refinancing transactions in December 2010.
We subtract income taxes, at the GAAP effective tax rate, from (b) to arrive at (c) adjusted earnings. Adjusted EPS is equal to (c) divided by weighted average diluted shares outstanding. Since the numbers reflected in the table below are calculated on a per share basis, they may not foot due to rounding.
We believe that excluding the impact of derivatives provides for more transparency and comparability since these transactions have historically been volatile. Additionally, we believe that comparability of our performance is improved by excluding impairments that are unrelated to our core operations, as well as intangibles from the 2007 Transactions and other special items that are non-comparable in nature.
The following table is a GAAP to non-GAAP reconciliation for consolidated Adjusted EPS:
 
Three Months Ended March 31,
 
2015
 
2014
Diluted earnings per share
$
0.26

 
$
0.09

Adjusted for:
 
 
 
Income tax expense
0.16

 
0.05

Income before income taxes
0.43

 
0.14

Non-cash impairments of non-operating assets (2)
0.01

 

Loss on debt extinguishment (3)

 
0.02

Amortization of certain intangibles (4)
0.03

 
0.03

Adjusted income before income taxes
0.46

 
0.19

Provision for income tax expense at effective rate
0.18

 
0.07

Adjusted EPS (1)
$
0.29

 
$
0.12


27



SWIFT TRANSPORTATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) — CONTINUED


____________
(1)
In calculating diluted shares outstanding for the purposes of Adjusted EPS, the dilutive effect of outstanding stock options is only included for the period following our IPO when a market price was available to assess the dilutive effect of such options.
(2)
Refer to footnote (4) to the Adjusted EBITDA reconciliation for a description of "Non-cash impairments of non-operating assets."
(3)
Refer to the "Loss on Debt Extinguishment" discussion under "Results of Operations — Consolidated Operating and Other Expenses," below.
(4)
Refer to footnote (1) to the Adjusted Operating Ratio reconciliation for a description of items in "Amortization of certain intangibles."
Results of Operations — Segment Review
 
We operate four reportable segments: Truckload, Dedicated, Central Refrigerated and Intermodal. The descriptions of the operations of these reportable segments are described in Note 14 to the consolidated financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Consolidating tables for operating revenue and operating income are as follows:
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Operating revenue:
 
 
 
Truckload
$
538,341

 
$
553,057

Dedicated
217,775

 
193,653

Central Refrigerated
95,568

 
106,763

Intermodal
90,354

 
91,313

Subtotal
942,038

 
944,786

Non-reportable segment
91,622

 
75,666

Intersegment eliminations
(18,516
)
 
(12,006
)
Operating revenue
$
1,015,144

 
$
1,008,446

 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Operating income (loss):
 
 
 
Truckload
$
56,854

 
$
31,907

Dedicated
14,345

 
11,530

Central Refrigerated
4,799

 
2,420

Intermodal
(1,243
)
 
(926
)
Subtotal
74,755

 
44,931

Non-reportable segment
245

 
1,239

Operating income
$
75,000

 
$
46,170

Our chief operating decision makers monitor the GAAP results of our reporting segments, as supplemented by certain non-GAAP information. Refer to "Non-GAAP Financial Measures" above for more details. Additionally, we use a number of primary indicators to monitor our revenue and expense performance and efficiency.
Weekly Revenue xFSR per Tractor (monitored monthly) This is our primary measure of productivity for our Truckload, Dedicated and Central Refrigerated segments. Weekly Revenue xFSR per tractor is affected by the following factors, which are typically monitored daily:
loaded miles (miles driven when hauling freight);

28



SWIFT TRANSPORTATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) — CONTINUED


fleet size (because available loads are spread over available tractors);
rates received for our services; and
network balance (number of loads accepted, compared to available trucks, by market).
We strive to increase our revenue per tractor by improving freight rates with customers, hauling more loads with existing equipment, effectively moving freight and managing balance within our network, maintaining our tractors, and recruiting and retaining drivers and owner-operators.
Deadhead Miles Percentage (monitored daily) — This is calculated by dividing the number of unpaid miles by the total number of miles driven. We monitor deadhead miles percentage in Truckload and Central Refrigerated, as we strive to reduce our number of deadhead miles within these segments. By balancing our freight flows and planning consecutive loads with shorter distances between the drop-off and pick-up locations, we are able to reduce the percentage of deadhead miles driven to allow for more revenue-generating miles during our drivers’ hours-of-service. This also enables us to reduce wage, fuel and other costs associated with deadhead miles.
Average Operational Truck Count (monitored daily) — We use this measure for all of our reportable segments. It includes tractors driven by company drivers as well as owner-operator units. This measure changes based on our ability to adjust our fleet size in response to changes in demand.
Adjusted Operating Ratio (monitored monthly) — We consider this ratio an important measure of our operating profitability for each of our reportable segments. We define and reconcile Adjusted Operating Ratio under "Non-GAAP Financial Measures," above. GAAP Operating Ratio is operating expenses as a percentage of revenue, or the inverse of operating margin, and produces an indication of operating efficiency. It is widely used in our industry as an assessment of management’s effectiveness in controlling all categories of operating expenses.
Load Count and Average Container Count (monitored daily) — Within Intermodal, we monitor load count and average container count. These metrics allow us to measure our utilization of our container fleet.
Truckload Segment
 
Three Months Ended March 31,
 
2015
 
2014
 
(Dollars and miles in thousands,  except per tractor amounts)
Operating revenue
$
538,341

 
$
553,057

Operating income
$
56,854

 
$
31,907

Operating Ratio
89.4
%
 
94.2
%
Adjusted Operating Ratio
87.9
%
 
92.8
%
Weekly Revenue xFSR per tractor
$
3,461

 
$
3,225

Total loaded miles
254,926

 
254,426

Deadhead miles percentage
11.8
%
 
11.7
%
Average operational truck count:
 
 
 
Company
7,334

 
7,151

Owner-Operator
3,201

 
3,484

Total
10,535

 
10,635







29



SWIFT TRANSPORTATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) — CONTINUED


The following table is a GAAP to non-GAAP reconciliation for the Truckload segment's Adjusted Operating Ratio:
 
Three Months Ended March 31,
 
2015
 
2014
 
(Dollars in thousands)
Operating revenue
$
538,341

 
$
553,057

Less: Fuel surcharge revenue
69,561

 
111,648

Revenue xFSR
468,780

 
441,409

 
 
 
 
Operating expense
481,487

 
521,150

Adjusted for: Fuel surcharge revenue
(69,561
)
 
(111,648
)
Adjusted operating expense
411,926

 
409,502

Adjusted operating income
$
56,854

 
$
31,907

Adjusted Operating Ratio
87.9
%
 
92.8
%
Truckload Revenue — Truckload operating revenue decreased by $14.7 million, or 2.7%, for the three months ended March 31, 2015, as compared to the same period in 2014. However, Truckload Revenue xFSR increased by $27.4 million, or 6.2%, for the three months ended March 31, 2015, as compared to the same period in 2014. The following factors were contributors (offsets) to the increase in Truckload Revenue xFSR:
a 6.0% increase in Revenue xFSR per loaded mile, primarily driven by contractual rate increases and freight mix,
a 1.1% increase in loaded miles per tractor per week, and
a (0.9%) decrease in average operational truck count.

Truckload Operating Income — Truckload operating income increased by $24.9 million, or 78.2%, for the three months ended March 31, 2015, as compared to the same period in 2014. This resulted in an improvement in Adjusted Operating Ratio of 490 basis points, which was driven by contractual rate increases, improved utilization and lower fuel expense. Declining fuel prices, better fuel efficiency and reduced idle engine time contributed to the decrease in fuel expense for the three months ended March 31, 2015, as compared to the same period in 2014. Increases in driver wages and owner-operator contracted pay rates partially offset the improvement in Adjusted Operating Ratio.
Dedicated Segment
 
Three Months Ended March 31,
 
2015
 
2014
 
(Dollars in thousands, except per tractor amounts)
Operating revenue
$
217,775

 
$
193,653

Operating income
$
14,345

 
$
11,530

Operating Ratio
93.4
%
 
94.0
%
Adjusted Operating Ratio
92.7
%
 
92.7
%
Weekly Revenue xFSR per tractor
$
3,204

 
$
3,173

Average operational truck count:
 
 
 
Company
3,882

 
3,161

Owner-Operator
879

 
691

Total
4,761

 
3,852






30



SWIFT TRANSPORTATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) — CONTINUED


The following table is a GAAP to non-GAAP reconciliation for the Dedicated segment's Adjusted Operating Ratio:
 
Three Months Ended March 31,
 
2015
 
2014
 
(Dollars in thousands)
Operating revenue
$
217,775

 
$
193,653

Less: Fuel surcharge revenue
21,642

 
36,534

Revenue xFSR
196,133

 
157,119

 
 
 
 
Operating expense
203,430

 
182,123

Adjusted for: Fuel surcharge revenue
(21,642
)
 
(36,534
)
Adjusted operating expense
181,788

 
145,589

Adjusted operating income
$
14,345

 
$
11,530

Adjusted Operating Ratio
92.7
%
 
92.7
%
Dedicated Revenue — Dedicated operating revenue increased by $24.1 million, or 12.5%, for the three months ended March 31, 2015, as compared to the same period in 2014. Dedicated Revenue xFSR increased by $39.0 million, or 24.8%, as compared to the same period in 2014. The increase in revenue was driven by various new customer contracts entered into over the last twelve months, which contributed to the 23.6% increase in average operational truck count. Additionally, weekly Revenue xFSR per tractor increased 1.0% to $3,204 due to improvements in pricing, utilization and deadhead.
Dedicated Operating Income — Dedicated operating income increased by $2.8 million, or 24.4%, for the three months ended March 31, 2015, as compared to the same period in 2014. Dedicated Adjusted Operating Ratio remained flat for the three months ended March 31, 2015, as compared to the same period in 2014. In addition to the favorable revenue impact of increases in average operational truck count and weekly Revenue xFSR per tractor, Adjusted Operating Ratio was favorably impacted by recently implemented safety initiatives that resulted in a slight reduction in our insurance and claims expense as a percentage of Revenue xFSR. These improvements were offset by increases in driver wages and owner-operator contracted pay rates. The fuel benefit from declining fuel prices had a limited impact on the Dedicated segment because many of our Dedicated contracts have unique fuel recovery characteristics that drive consistency in net fuel expense between periods, as compared to our over-the-road Truckload contracts.
Central Refrigerated Segment
 
Three Months Ended March 31,
 
2015
 
2014
 
(Dollars and miles in thousands,  except per tractor amounts)
Operating revenue
$
95,568

 
$
106,763

Operating income
$
4,799

 
$
2,420

Operating Ratio
95.0
%
 
97.7
%
Adjusted Operating Ratio
94.1
%
 
97.1
%
Weekly Revenue xFSR per tractor
$
3,405

 
$
3,235

Total loaded miles
41,880

 
42,757

Deadhead miles percentage
14.0
%
 
14.0
%
Average operational truck count:
 
 
 
Company
1,263

 
1,057

Owner-Operator
589

 
955

Total
1,852

 
2,012





31



SWIFT TRANSPORTATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) — CONTINUED


The following table is a GAAP to non-GAAP reconciliation for the Central Refrigerated segment's Adjusted Operating Ratio:
 
Three Months Ended March 31,
 
2015
 
2014
 
(Dollars in thousands)
Operating revenue
$
95,568

 
$
106,763

Less: Fuel surcharge revenue
14,468

 
23,177

Revenue xFSR
81,100

 
83,586

 
 
 
 
Operating expense
90,769

 
104,343

Adjusted for: Fuel surcharge revenue
(14,468
)
 
(23,177
)
Adjusted operating expense
76,301

 
81,166

Adjusted operating income
$
4,799

 
$
2,420

Adjusted Operating Ratio
94.1
%
 
97.1
%
Central Refrigerated Revenue — Central Refrigerated operating revenue decreased by $11.2 million, or 10.5%, for the three months ended March 31, 2015, as compared to the same period in 2014. Revenue xFSR decreased by $2.5 million, or 3.0%, for the three months ended March 31, 2015, as compared to the same period in 2014, which was driven by an 8.0% reduction in average operational truck count, partially offset by a 5.3% increase in weekly Revenue xFSR per tractor. The increase in weekly Revenue xFSR per tractor was comprised of a 6.4% increase in loaded miles per tractor per week, partially offset by a 0.9% decrease in Revenue xFSR per loaded mile. Due to the unique requirements of a large Central Refrigerated dedicated customer account, as well as a lack of attaining profitability targets, we discontinued servicing the account, effective January 31, 2015. This account had a much lower average length of haul, higher deadhead and much higher Revenue xFSR per loaded mile, compared to other customer accounts. Excluding the impact of this dedicated account, Revenue xFSR per loaded mile increased by 4.7% for the three months ended March 31, 2015, as compared to the same period in 2014. Further impacts to these metrics are expected in the three months ended June 30, 2015.
Central Refrigerated Operating Income — Central Refrigerated operating income increased by $2.4 million, or 98.3%, for the three months ended March 31, 2015, as compared to the same period in 2014. Adjusted Operating Ratio improved by 300 basis points, which was driven by increased loaded miles per tractor per week and lower fuel prices, partially offset by increased insurance and claims expense.
Intermodal Segment
 
Three Months Ended March 31,
 
2015
 
2014
 
(Dollars in thousands)
Operating revenue
$
90,354

 
$
91,313

Operating loss
$
(1,243
)
 
$
(926
)
Operating Ratio
101.4
%
 
101.0
%
Adjusted Operating Ratio
101.6
%
 
101.3
%
Average operational truck count:
 
 
 
Company
481

 
378

Owner-Operator
87

 
73

Total
568

 
451

Load count
41,940

 
38,603

Average container count
9,150

 
8,717





32



SWIFT TRANSPORTATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) — CONTINUED


The following table is a GAAP to non-GAAP reconciliation for the Intermodal segment's Adjusted Operating Ratio:
 
Three Months Ended March 31,
 
2015
 
2014
 
(Dollars in thousands)
Operating revenue
$
90,354

 
$
91,313

Less: Fuel surcharge revenue
13,090

 
18,364

Revenue xFSR
77,264

 
72,949

 
 
 
 
Operating expense
91,597

 
92,239

Adjusted for: Fuel surcharge revenue
(13,090
)
 
(18,364
)
Adjusted operating expense
78,507

 
73,875

Adjusted operating loss
$
(1,243
)
 
$
(926
)
Adjusted Operating Ratio
101.6
%
 
101.3
%
Intermod