As filed with the Securities and Exchange Commission on
July 21, 2010
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Swift Holdings Corp.
(Exact name of Registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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4213
(Primary Standard
Industrial
Classification Code Number)
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27-2646153
(I.R.S. Employer
Identification Number)
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2200 South 75th Avenue
Phoenix, Arizona 85043
(602) 269-9700
(Address, including
zip code, and telephone number, including area code, of
Registrants principal executive offices)
James Fry
Executive Vice President, General Counsel and Corporate
Secretary
Swift Holdings Corp.
2200 South 75th Avenue
Phoenix, Arizona 85043
(602) 269-9700
(Name, address,
including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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Richard B. Aftanas, Esq.
Stephen F. Arcano, Esq.
Skadden, Arps, Slate,
Meagher & Flom LLP
Four Times Square
New York, New York
10036-6522
(212) 735-3000
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Mark A. Scudder, Esq.
Earl H. Scudder, Esq.
Scudder Law Firm, P.C., L.L.O.
411 South 13th Street
Lincoln, Nebraska 68508
(402) 435-3223
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Andrew Keller, Esq.
Lesley Peng, Esq.
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017-3954
(212) 455-2000
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933 (the
Securities Act) check the following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. 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 Securities Exchange Act of 1934 (the Exchange
Act). (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
(Do not check if a smaller reporting company)
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Smaller Reporting company o
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CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Amount of
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Title of Each Class of
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Aggregate
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Registration
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Securities to be Registered
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Offering Price(1)(2)
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Fee
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Class A Common Stock, par value $0.001 per share
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$700,000,000
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$49,910
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(1)
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Includes shares to be sold upon
exercise of the underwriters over-allotment option. See
Underwriting.
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(2)
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Estimated solely for the purpose of
calculating the amount of the registration fee pursuant to
Rule 457(o) under the Securities Act.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell these securities, and we are not soliciting an
offer to buy these securities in any state where the offer or
sale thereof is not permitted.
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SUBJECT TO COMPLETION, DATED
JULY 21, 2010
Preliminary Prospectus
shares
Swift Holdings Corp.
Class A common
stock
This is an initial public offering of shares of Class A
common stock by Swift Holdings Corp. Immediately prior to the
consummation of this offering, Swift Corporation, a Nevada
corporation, will merge with and into Swift Holdings Corp., with
Swift Holdings Corp. surviving as a Delaware corporation.
We are selling shares of Class A common stock. We will have
two classes of authorized common stock. The rights of holders of
Class A common stock and Class B common stock are
identical, except with respect to voting and conversion. Holders
of our Class A common stock are entitled to one vote per
share and holders of our Class B common stock are entitled
to two votes per share. Each share of Class B common stock
is convertible into one share of Class A common stock at
any time and automatically converts into one share of
Class A common stock upon the occurence of certain events.
The estimated initial public offering price is between
$ and
$ per share.
We intend to apply to list our Class A common stock for
trading on
the under
the symbol SWFT.
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Per Share
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Total
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Initial public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds to us, before expenses
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$
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$
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We have granted the underwriters an option for a period of
30 days to purchase from us up
to additional shares
of Class A common stock at the initial public offering
price, less underwriting discounts and commissions.
Investing in our Class A common stock involves a high
degree of risk. See Risk Factors beginning on
page 16.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed on the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the shares of Class A
common stock to purchasers on or
about ,
2010.
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Morgan
Stanley |
BofA Merrill Lynch |
Wells Fargo Securities
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2010
You should rely only on the information contained in this
prospectus or in any free writing prospectus that we authorize
to be delivered to you. Neither we nor the underwriters have
authorized anyone to provide you with additional or different
information. If anyone provides you with additional, different,
or inconsistent information, you should not rely on it. We and
the underwriters are not making an offer to sell these
securities in any jurisdiction where an offer or sale is not
permitted. You should assume that the information in this
prospectus is accurate only as of the date on the front cover,
regardless of the time of delivery of this prospectus or of any
sale thereof of our Class A common stock. Our business,
prospects, financial condition, and results of operations may
have changed since that date.
No action is being taken in any jurisdiction outside the
United States to permit a public offering of the Class A
common stock or possession or distribution of this prospectus in
that jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are
required to inform themselves about and to observe any
restrictions as to this offering and the distribution of this
prospectus applicable to that jurisdiction.
TABLE OF
CONTENTS
About
This Prospectus
Except as otherwise indicated, information in this prospectus:
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assumes the underwriters have not exercised their option to
purchase additional shares of
Class A common stock from us; and
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assumes the consummation of the merger and recapitalization, as
described under Reorganization, and the filing of
our amended and restated certificate of incorporation, all of
which will occur prior to the consummation of this offering.
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In this prospectus, we refer to our Class A common stock
and our Class B common stock together as our common
stock.
In this prospectus, we refer to the following as the 2007
Transactions: (i) Jerry and Vickie Moyes
April 7, 2007 contribution of 1,000 shares of common
stock of Interstate Equipment Leasing, Inc. (now Interstate
Equipment Leasing, LLC), or IEL, constituting all issued and
outstanding shares of IEL, to Swift Corporation, in exchange for
10,649,000 shares of Swift Corporations common stock,
(ii) the May 9, 2007 contribution by Jerry Moyes and
various trusts established for the benefit of his family members
of 28,792,810 shares of Swift Transportation Co., Inc.
common stock, representing 38.3% of the then outstanding common
stock of Swift Transportation Co., Inc., in exchange for
64,495,892 shares of Swift Corporations common stock,
and (iii) Swift Corporations May 10, 2007
acquisition of Swift Transportation Co., Inc. by a merger. We
refer to Swift Transportation Co., Inc. as our
predecessor prior to the 2007 Transactions, and to
Swift Corporation as our successor following the
2007 Transactions.
Our audited results of operations include the full year
presentation of Swift Corporation as of and for the year ended
December 31, 2007. Swift Corporation was formed in 2006 for
the purpose of acquiring Swift Transportation Co., Inc., but
that acquisition was not completed until May 10, 2007 and,
as such, Swift Corporation had nominal activity from
January 1, 2007 through May 10, 2007. The results of
Swift Transportation Co, Inc. from January 1, 2007 to
May 10, 2007 and IEL from January 1, 2007 to
April 7, 2007 are not reflected in the audited results of
Swift Corporation for the year ended December 31, 2007.
However, our unaudited pro forma results of operations for the
year ended December 31, 2007 give effect to the 2007
Transactions as if they were effective on January 1, 2007.
Unless otherwise noted in this prospectus, the discussion of
financial and operating data for the year ended
December 31, 2007 included in the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations is based on our
unaudited pro forma results of operations. See Pro Forma
Condensed Consolidated Statement of Operations (Unaudited) for
the Year Ended December 31, 2007 in Annex A to
this prospectus.
Market
and Industry Data
This prospectus contains market data related to our business and
industry and forecasts that we obtained from industry
publications and surveys and our internal sources. American
Trucking Associations, Inc., or the ATA, and Americas Commercial
Transportation Research, Co., LLC, or ACT Research, were the
primary independent sources of industry and market data. We
believe that the ATA and ACT Research data used in this
prospectus reflect the most recently available information. Some
data and other information also are based on our good faith
estimates, which are derived from our review of internal surveys
and independent sources.
All data provided by the ATA are publicly available, while data
provided by ACT Research can be obtained by subscription. We
have not paid for the compilation of any market or industry data
contained in this prospectus, and such data were not
specifically prepared for such use. The market and industry data
contained in this prospectus have been included herein with the
permission of their respective authors, as necessary.
Although we believe that all industry publications and reports
cited herein are reliable, neither we nor the underwriters have
independently verified the data. Our internal data and estimates
are based upon information obtained from our customers,
suppliers, trade and business organizations, contacts in the
industry in which we operate, and managements
understanding of industry conditions. Although we believe that
such information is reliable, we have not had such information
verified by independent sources.
ii
Glossary
of Trucking Terms
Average loaded length of haul means the
average number of miles we drive for our customers from origin
to destination of a load and excludes the miles and loads from
our intermodal and brokerage operations.
Average tractors available means the weighted
average number of company and owner-operator tractors in our
active service fleet that are available to be dispatched to haul
customer freight during the relevant period. This includes
tractors that are able to be dispatched but have not been
assigned to a driver or are otherwise unstaffed.
Brokerage or freight brokerage
means the customer loads for which we contract with
third-party trucking companies to haul instead of hauling the
load using our own equipment. Our use of freight brokerage
supplements our capacity and allows us to provide service to our
customers on loads that do not fit our preferred lanes.
Class 8 truck means trucks over 33,000
pounds in gross vehicle weight. Our tractor fleet is comprised
of Class 8 trucks.
Core carrier means a shippers preferred
truckload carrier. Generally, shippers utilize a core carrier or
core carrier group to improve service levels, reduce the
complexity involved with managing a large number of carriers,
and experience efficiencies created through the level of trust,
shipment density, and communication frequency associated with a
core carrier.
CSA 2010 means the Federal Motor Carrier
Safety Administrations new Comprehensive Safety Analysis
2010 program that ranks both fleets and individual drivers on
seven categories of safety-related data. CSA 2010 will
eventually replace the current Safety Status measurement system
used by the Federal Motor Carrier Safety Administration.
C-TPAT means the Customs-Trade Partnership
Against Terrorism, a program designed to improve cross-border
security between the United States and Canada and the
United States and Mexico. Carrier members of the C-TPAT are
entitled to shorter border delays and other priorities over
non-member carriers.
Deadhead miles means the miles driven without
revenue-generating freight being transported.
Deadhead miles percentage means the
percentage of total miles represented by deadhead miles.
Dedicated contracts means those contracts in
which we have agreed to dedicate certain tractor and trailer
capacity for use by a specific customer. Dedicated contracts
often have predictable routes and revenue, and frequently
replace all or part of a shippers private fleet. Dedicated
contracts are generally three- to five-year contracts and are
priced using a model that analyzes the cost elements, including
revenue equipment, insurance, fuel, maintenance, drivers needed,
and mileage.
Drayage means the transport of shipping
containers from a dock or port to an intermediate or final
destination or the transport of containers or trailers between
pickup or delivery locations and a railhead. We generally
utilize third parties or directly provide drayage in the
pick-up and
delivery associated with an intermodal movement or for the
pick-up and
delivery to and from an ocean shipping port and an inland
destination.
Drop yards means those locations at which we
periodically park trailers.
Dry van means an enclosed, non-refrigerated
trailer generally used to carry goods.
Flatbed means an open truck bed or trailer
with no sides, used to carry large objects such as heavy
machinery and building materials.
For-hire truckload carriers means a truckload
carrier available to shippers for hire.
Intermodal means the transport of shipping
containers or trailers on railroad flat cars before or after a
movement by truck from the point of origin to the railhead or
from the railhead to the destination. We focus on intermodal
service as an alternative to placing additional tractors and
drivers in lanes that are significantly longer than our average
length of haul or for which rail service otherwise provides
competitive service.
iii
Less-than-truckload
carrier or LTL carrier means
carriers that pick up and deliver multiple shipments, each
typically weighing less than 10,000 pounds, for multiple
customers in a single trailer.
Linehaul means the movement of freight on a
designated route between cities and terminals.
Loaded mile means a mile that is driven for a
customer, for which we are compensated.
Owner-operator means an independent
contractor who is utilized through a contract with us to supply
one or more tractors and drivers for our use. Our
owner-operators are generally compensated on a
per-mile
basis and must pay their own operating expenses, such as fuel,
maintenance, the trucks physical damage insurance, and
driver costs, and must meet our specified standards with respect
to safety.
Private fleet means the tractors and trailers
owned or leased by a shipper to transport its own goods.
Private fleet outsourcing means the decision
by shippers using private trucking fleets to outsource all or a
portion of their transportation and logistics requirements to
for-hire truckload carriers. Some shippers that previously
maintained their own private fleets outsource this function to
truckload carriers, like us, to reduce operating costs and to
focus their resources on their core businesses.
Stop-off pay means the compensation we
receive from customers for interrupting a haul to pick up or
unload a portion of the load.
Temperature controlled means an enclosed,
refrigerated trailer, generally used to carry perishable goods.
Trucking revenue means all revenue generated
from our general truckload, dedicated, cross-border, and other
trucking operations, and excludes fuel surcharges, income from
owner-operator financing, revenue from intermodal, brokerage,
and logistics operations, revenue generated by our shop
operations, and third-party premium revenue from our captive
insurance companies.
Truck tonnage means the total weight in tons
transported by the motor carrier industry for a given period.
Truckload carrier means a carrier that
generally dedicates an entire trailer to one customer from
origin to destination.
Weekly trucking revenue per tractor means the
trucking revenue for a given period divided by the number of
weeks in the period, then divided by the average tractors
available for that period.
iv
Prospectus
Summary
This summary highlights significant aspects of our business
and this offering, but it is not complete and does not contain
all of the information that you should consider before making
your investment decision. You should carefully read this entire
prospectus, including the information presented under the
section entitled Risk Factors and the historical and
pro forma financial data and related notes, before making an
investment decision. This summary contains forward-looking
statements that involve risks and uncertainties. Our actual
results may differ significantly from the results discussed in
the forward-looking statements as a result of certain factors,
including those set forth in Risk Factors and
Special Note Regarding Forward-Looking
Statements.
Unless we state otherwise or the context otherwise requires,
references in this prospectus to Swift,
we, our, us, and the
Company for all periods subsequent to the
reorganization transactions described in the section entitled
Reorganization (which will be completed in
connection with this offering) refer to Swift Holdings Corp., a
newly formed Delaware corporation, and its consolidated
subsidiaries after giving effect to such reorganization
transactions. For all periods from May 11, 2007 until the
completion of such reorganization transactions, these terms
refer to Swift Corporation, a Nevada corporation, which also is
referred to herein as our successor, and its
consolidated subsidiaries. For all periods prior to May 11,
2007, these terms refer to Swift Corporations predecessor,
Swift Transportation Co., Inc., a Nevada corporation that has
been converted to a Delaware limited liability company known as
Swift Transportation Co., LLC, which also is referred to herein
as Swift Transportation, or our predecessor, and its
consolidated subsidiaries.
Summary
Overview
We are a multi-faceted transportation services company and the
largest truckload carrier in North America. At
March 31, 2010, we operated approximately
12,500 company-owned tractors, 3,700 owner-operator
tractors, 49,400 trailers, and 4,300 intermodal containers from
35 major terminals strategically positioned throughout the
United States and Mexico. Our extensive suite of services makes
us an attractive choice for a broad array of customers. Our
asset-based transportation services include dry van, dedicated,
temperature controlled, cross border, and port drayage
operations. Our complementary and more rapidly growing
asset-light services include rail intermodal,
freight brokerage, and third-party logistics operations. We use
sophisticated technologies and systems that contribute to asset
productivity, operating efficiency, customer satisfaction, and
safety. We believe our fleet capacity, terminal network,
customer service, and breadth of services provide significant
advantages over many of our competitors. For the twelve months
ended March 31, 2010, we generated operating revenue of
approximately $2.6 billion.
We principally operate in
short-to-medium-haul
traffic lanes around our terminals, with an average loaded
length of haul of less than 500 miles. 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. Our relatively short average length
of haul also helps reduce competition from railroads and
trucking companies that lack a regional presence.
Our senior management team is led by our founder and Chief
Executive Officer, Jerry Moyes. Between 1991 (our first full
year as a public company) and 2006 (our last full year as a
public company), our annual operating revenue grew to
$3.2 billion and our Adjusted EBITDA grew to
$498.6 million, which represented, respectively, compounded
annual growth rates of 21% and 22%. In conjunction with taking
Swift private in 2007, Mr. Moyes returned as our Chief
Executive Officer and elevated to senior management several
long-time Swift executives as part of his plan to re-focus our
priorities and establish a corporate culture centered on
long-term success. The twelve members of our senior leadership
team have an average of nearly 20 years of industry experience.
Our new management has implemented strategic initiatives that
have concentrated on rebuilding our owner-operator program,
expanding our faster growing and less asset-intensive services,
re-focusing our
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customer service efforts, and implementing accountability and
cost discipline throughout our operations. As a result of these
initiatives, during the recent economic recession, amidst
industry-wide declining tonnage and pricing levels, we
maintained consistent Adjusted EBITDA between 2007 and 2009
despite a $476.3 million, or 17.2%, reduction in operating
revenue (excluding fuel surcharges) and improved our Adjusted
Operating Ratio by 60 basis points from fiscal year 2008 to
fiscal year 2009 and by 330 basis points in the first
quarter of 2010 compared with the first quarter of 2009.
We have incentivized senior management with equity awards and
have tied bonuses to Adjusted EBITDA targets to maintain our
focus on disciplined growth and market leadership. For an
explanation of Adjusted EBITDA and a reconciliation of net
income to Adjusted EBITDA, as well as an explanation and
reconciliation of Adjusted Operating Ratio, see footnotes 7 and
8 to Summary Historical Consolidated Financial and Other
Data. Going forward, we intend to emphasize profitable
revenue growth, improved asset utilization, return on
investment, and cost control through improving operating
efficiency and maintaining fiscal discipline.
Our
Business
Many of our customers are large corporations with extensive
operations, geographically distributed locations, and diverse
shipping needs. We offer the opportunity for
one-stop-shopping for their truckload transportation
needs through a broad spectrum of services and equipment,
including the following:
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Approximate
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Percentage of Total
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Operating Revenue
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2009
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2006
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General truckload service, which consists of
one-way movements over irregular routes throughout the United
States and in Canada through dry van, temperature controlled,
flatbed, or specialized trailers, as well as drayage operations,
using both company tractors and owner-operator tractors
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67.2
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%
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71.3
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%
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Dedicated truckload service, in which we
devote exclusive use of equipment and offer tailored solutions
under long-term contracts, generally with higher operating
margins and lower driver turnover
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18.7
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%
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22.7
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%
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Cross-border Mexico/U.S. truckload service,
through Trans-Mex, Inc. S.A. de C.V., or Trans-Mex, our
wholly-owned subsidiary that is one of the largest trucking
companies in Mexico with service throughout Mexico and through
every major border crossing between the United States and Mexico
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2.4
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%
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1.6
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%
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Rail intermodal service, which involves
arranging for rail service for primary freight movement and
related drayage service and requires lower tractor investment
than general truckload service, making it one of our less
asset-intensive services
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6.2
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%
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2.9
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%
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Non-asset based freight brokerage and logistics
management services, in which we offer our transportation
management expertise and/or arrange for other trucking companies
to haul freight that does not fit our network, earning us a
revenue share with little investment
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1.4
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%
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0.3
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%
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Other revenue generating services. In
addition to the services referenced above, we offer services
that include providing tractor leasing arrangements through IEL
to owner-operators, underwriting insurance through our
wholly-owned captive insurance companies, and repair services
through our maintenance and repair shops to our owner-operators
and third parties
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4.1
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%
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1.2
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%
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Since 2006, our asset-light rail intermodal and freight
brokerage and logistics services have grown rapidly, and we
expanded owner-operators from 16.5% of our total fleet at
year-end 2006 to 23.0% of our total fleet at March 31,
2010. Going forward, we intend to continue to expand our revenue
from these operations to improve our overall returns on capital.
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Industry
Opportunity
Our industry is large, fragmented, and highly competitive. The
U.S. trucking industry was estimated by the ATA to have
generated $544.4 billion in revenue in 2009, of which
approximately $259.6 billion was attributed to private
fleets operated by shippers and $246.2 billion was
attributed to for-hire truckload carriers like us. According to
the ATA, approximately 68% of all freight transported in the
United States in 2009 was transported by truck, which the ATA
expects to increase to 70.7% by 2021. We believe a significant
majority of all truckload freight in the United States travels
in the
short-to-medium
length of haul where we focus our operations. The ten largest
for-hire truckload carriers are estimated to comprise
approximately 5.3% of the total for-hire truckload market in the
United States, according to 2008 data published by the ATA.
During the period of economic expansion from 2002 through 2006,
total tonnage transported by truck increased at a compounded
rate of 1.5% per year, according to the ATA. Trucking companies
invested in their fleets during this period, with new
Class 8 truck manufactures averaging approximately
215,000 units annually, according to ACT Research. A
combination of reduced demand for freight and excess supply of
tractors led to a difficult trucking environment from 2007
through most of 2009. Total tonnage, as measured by the
ATAs seasonally adjusted for-hire index, declined 9.9%
between January 2007 and June 2009. Orders of new tractors also
declined as many trucking companies reduced capital expenditures
to conserve cash and to respond to decreasing demand
fundamentals. According to ACT Research, Class 8 truck
manufactures fell to approximately 94,000 units in 2009,
compared to approximately 296,000 units in 2006. As a
result of the lower tractor builds and capital expenditure
declines, the average age of the Class 8 truck fleet has
increased to 6.5 years, a record high.
Since 2009, industry freight data began to show strong positive
trends. As shown in the chart below, the ATA seasonally adjusted
for-hire truck tonnage index increased 7.2%
year-over-year
in May 2010, its sixth consecutive monthly
year-over-year
increase. Further evidence of a rebound in the domestic freight
environment can be seen in the Cass Freight Shipments index that
showed a 24.9% increase in freight expenditures for the second
quarter of 2010 versus the second quarter of 2009. Further, in
June, freight expenditures increased on a year-over-year basis
by 28.9%.
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Source: ATA
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Source: ACT Research
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In addition to improving freight demand, our industry is
experiencing a drop in the supply of available trucks as a
result of several years of below average truck manufactures. We
expect to benefit from the improving supply-demand environment
as our existing asset base, relatively young fleet, and
extensive terminal network position us to gain new customers,
increase our overall freight volumes, and realize improved
pricing.
Our
Competitive Strengths
We believe the following competitive strengths provide a solid
platform for pursuing our goals and strategies:
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North American market leader with broad terminal network and
a modern fleet. The size and scope of our
operations afford us significant advantages in a fragmented
truckload industry. We operate North Americas
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largest truckload fleet, have 35 major terminals and multiple
other locations strategically positioned throughout the United
States and Mexico, and offer customers
one-stop-shopping for a broad spectrum of their
truckload transportation needs. Our fleet size offers wide
geographic coverage while maintaining the efficiencies
associated with significant traffic density within our operating
regions. Our terminals are strategically located near key
population centers, driver recruiting areas, and cross-border
hubs, often in close proximity to our customers. This broad
network offers benefits such as in-house maintenance, more
frequent equipment inspections, localized driver recruiting,
rapid customer response, and personalized marketing efforts. Our
size allows us to achieve substantial economies of scale in
purchasing items such as tractors, trailers, containers, fuel,
and tires where pricing is volume sensitive. We believe our
scale also offers additional benefits in brand awareness and
access to capital. Additionally, our modern company tractor
fleet, with an average age of 2.55 years for our
approximately 9,000 linehaul sleeper units, lowers maintenance
and repair expense, aids in driver recruitment, and increases
asset utilization as compared with an older fleet.
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High quality customer service and extensive suite of
services. Our intense focus on customer
satisfaction contributed to 20 carrier of the year
or similar awards in 2009 and has helped us establish a strong
platform for cross-selling our other services. Our strong and
diversified customer base, ranging from Fortune 500
companies to local shippers, has a wide variety of shipping
needs, including general and specialized truckload, imports and
exports, regional distribution, high-service dedicated
operations, rail intermodal service, and surge capacity through
fleet flexibility and brokerage and logistics operations. We
believe customers continue to seek fewer transportation
providers that offer a broader range of services to streamline
their transportation management functions. For example, ten of
our top fifteen customers used at least four of our services in
the three months ended March 31, 2010. Our top fifteen
customers by revenue in 2009 included Coors, Costco, Dollar
Tree, Georgia-Pacific, Home Depot, Kimberly-Clark, Lowes, Menlo
Logistics, Procter & Gamble, Quaker Oats, Ryder Logistics,
Sears, Target, and Wal-Mart. We believe the breadth of our
services helps diversify our customer base and provides us with
a competitive advantage, especially for customers with multiple
needs and international shipments.
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Strong and growing owner-operator business. We
supplement our company tractors with tractors provided by
owner-operators, who operate their own tractors and are
responsible for most ownership and operating expenses. We
believe that owner-operators provide significant advantages that
primarily arise from the entrepreneurial motivation of business
ownership. Our owner-operators tend to be more experienced, have
lower turnover, have fewer accidents per million miles, and
produce higher weekly trucking revenue per tractor than our
average company drivers. In 2009, our owner-operator tractors
drove on average 34% more miles per week than our company
tractors.
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Leader in driver and owner-operator
development. Driver recruiting and retention
historically have been significant challenges for truckload
carriers. To address these challenges, we employ nationwide
recruiting efforts through our terminal network, operate five
driver training schools, maintain an active and successful
owner-operator development program, provide drivers modern
tractors, and employ numerous driver satisfaction policies. We
believe our extensive recruiting and training efforts will
become increasingly advantageous to us in periods of economic
growth when employment alternatives are more plentiful and also
when new regulatory requirements begin to affect the size or
effective capacity of the industry-wide driver pool.
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Experienced management aligned with corporate
success. Our management team has a proven track
record of growth and cost control. The improvements we have made
to our operations since going private have positioned us to
benefit from the expected improvement in the freight
environment. Management focuses on disciplined execution and
financial performance by measuring our progress through a
combination of Adjusted EBITDA growth, revenue growth, Adjusted
Operating Ratio, and return on capital. We align
managements priorities with our own through equity option
awards and an annual senior management incentive program linked
to Adjusted EBITDA.
|
4
Our Goals
and Strategies
Based on our expectation of meaningful improvement in truckload
volumes and pricing, our goals are to grow revenue in excess of
10% annually over the next several years, increase our
profitability, and generate returns on capital in excess of our
cost of capital. We believe our competitive strengths and an
improving supply and demand environment in the truckload
industry are aligned to support the achievement of our goals
through the following strategies:
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Profitable revenue growth. To increase freight
volumes and yield, we intend to further penetrate our existing
customer base, cross-sell our services, and pursue new customer
opportunities. Our superior customer service and extensive suite
of truckload services continue to contribute to recent new
business wins from customers such as Costco, Procter
& Gamble, Caterpillar, and Home Depot. In addition, we
are further enhancing our sophisticated freight selection
management tools to allocate our equipment to more profitable
loads and complementary lanes. As freight volumes increase, we
intend to prioritize the following areas for growth:
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Rail intermodal and port operations. Our
growing rail intermodal presence allows us to better serve
customers in longer haul lanes and reduce our investment in
fixed assets. Since its inception in 2005, we have grown our
rail intermodal business by adding approximately 4,300
containers, and we have ordered an additional 1,000 containers
for delivery between August 2010 and June 2011. We have
intermodal agreements with all major U.S. railroads and
recently negotiated more favorable terms with our largest
intermodal provider, which has helped increase our volumes
through more competitive pricing. We also expanded our presence
in the short-haul drayage business at the ports of Los Angeles
and Long Beach in 2008 and are evaluating additional port
opportunities.
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Dedicated services and private fleet
outsourcing. The size and scale of our fleet and
terminal network allow us to provide the equipment availability
and high service levels required for dedicated contracts.
Dedicated contracts often are used for high-service and
high-priority freight, sometimes to replace private fleets
previously operated by customers. Dedicated operations generally
produce higher margins and lower driver turnover than our
general truckload operations. We believe these opportunities
will increase in times of scarce capacity in the truckload
industry.
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Cross-border Mexico-U.S. freight. The
combination of our U.S., cross-border, customs brokerage, and
Mexican operations enables us to provide efficient
door-to-door
service between the United States and Mexico. We believe
our sophisticated load security measures, as well as our
Department of Homeland Security, or DHS, status as a C-TPAT
carrier, allow us to offer more efficient service than most
competitors and afford us substantial advantages with major
international shippers.
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Freight brokerage and third-party
logistics. We believe we have a substantial
opportunity to continue to increase our non-asset based freight
brokerage and third-party logistics services. We believe many
customers increasingly seek transportation companies that offer
both asset-based and non-asset based services to gain additional
certainty that safe, secure, and timely truckload service will
be available on demand and to reward asset-based carriers for
investing in fleet assets. We intend to continue growing our
transportation management and freight brokerage capability to
build market share with customers, earn marginal revenue on more
loads, and preserve our assets for the most attractive lanes and
loads.
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Increase asset productivity and return on
capital. We believe we have a substantial
opportunity to improve the productivity and yield of our
existing assets through the following measures:
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increasing the percentage of our fleet provided by
owner-operators, who generally produce higher weekly trucking
revenue per tractor than our company drivers;
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increasing company tractor utilization through measures such as
equipment pools, relays, and team drivers;
|
5
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capitalizing on a stronger freight market to increase average
trucking revenue per mile by using sophisticated freight
selection and network management tools to upgrade our freight
mix and reduce deadhead miles;
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|
maintaining discipline regarding the timing and extent of
company tractor fleet growth based on availability of
high-quality freight; and
|
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|
rationalizing unproductive assets as necessary, thereby
improving our return on capital.
|
Because of our size and operating leverage, even small
improvements in our asset productivity and yield can have a
significant impact on our operating results. For example, by
maintaining our current fleet size and revenue per mile and
simply regaining the miles per tractor we achieved in 2005
(including a 14.9% improvement in utilization with respect to
active trucks and assuming a reinstatement of approximately
500 idle trucks that were parked in response to reduced
freight volumes), operating revenue would increase by an
estimated $425.0 million.
|
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Continue to focus on efficiency and cost
control. We intend to continue to implement the
Lean Six Sigma, accountability, and discipline measures that
helped us improve our Adjusted Operating Ratio in 2009 and in
the first quarter of 2010. We presently have ongoing efforts in
the following areas that we expect will yield benefits in future
periods:
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|
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managing the flow of our tractor capacity through our network to
balance freight flows and reduce deadhead miles;
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|
improving processes and resource allocation throughout our
customer-facing functions to increase operational efficiencies
while endeavoring to improve customer service;
|
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|
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streamlining driver recruiting and training procedures to reduce
attrition costs; and
|
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|
|
reducing waste in shop methods and procedures and in other
administrative processes.
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Pursue selected acquisitions. In addition to
expanding our company tractor fleet through organic growth, and
to take advantage of opportunities to add complementary
operations, we expect to pursue selected acquisitions. We
operate in a highly fragmented and consolidating industry where
we believe the size and scope of our operations afford us
significant competitive advantages. Acquisitions can provide us
an opportunity to expand our fleet with customer revenue and
drivers already in place. In our history, we have completed
twelve acquisitions, most of which were immediately integrated
into our existing business. Given our size in relation to most
competitors, we expect most future acquisitions to be integrated
quickly. As with our prior acquisitions, our goal is for any
future acquisitions to be accretive to our earnings within two
full calendar quarters.
|
Concurrent
Transactions
Reorganization
On May 20, 2010, in contemplation of our initial public
offering, Swift Corporation formed Swift Holdings Corp., a
Delaware corporation. Swift Holdings Corp. has not engaged in
any business or other activities except in connection with its
formation and this offering and holds no assets and has no
subsidiaries. Immediately prior to the consummation of this
offering, Swift Corporation will merge with and into Swift
Holdings Corp., the registrant, with Swift Holdings Corp.
surviving as a Delaware corporation. In the merger, all of the
outstanding common stock of Swift Corporation will be converted
into shares of Swift Holdings Corp. Class B common stock on
a
one-for-one
basis. See Reorganization.
Refinancing
In connection with this offering, Swift Transportation intends
to enter into a new senior secured credit facility consisting of
a $ million senior secured
revolving credit facility and a
$ million senior secured term
loan. The proceeds of the new term loan will be used to repay
the portion of our existing senior secured credit facility that
is not repaid with the proceeds of this offering. We expect the
new senior secured credit
6
facility to be completed substantially concurrently with the
closing of this offering. Swift Transportations entry into
the new senior secured credit facility is conditioned on the
completion of this offering.
Summary
Risk Factors
Investing in our Class A common stock is subject to
numerous risks, including those that generally are associated
with our industry. You should consider carefully the risks and
uncertainties summarized below, the risks described under
Risk Factors, the other information contained in
this prospectus, and our consolidated financial statements and
the related notes before you decide whether to purchase our
Class A common stock.
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|
Our business is subject to general economic and business factors
affecting the truckload industry such as fluctuations in the
price or availability of fuel, increased prices for new revenue
equipment, volatility in the used equipment market, increases in
driver compensation, or difficulty in attracting or retaining
drivers or owner-operators that are largely beyond our control,
any of which could have a material adverse effect on our
operating results.
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|
We have several major customers, the loss of one or more of
which could have a material adverse effect on our business.
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|
We may not be able to sustain the cost savings realized as part
of our recent cost reduction initiatives.
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We may not be successful in achieving our strategy of growing
revenues. We also have a recent history of net losses. We can
make no assurances that we will achieve profitability, or if we
do, that we will be able to sustain profitability in the future.
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We operate in a highly regulated industry, and changes in
existing regulations or violations of existing or future
regulations could have a material adverse effect on our
operations and profitability.
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|
We self-insure a significant portion of our claims exposure,
which could significantly increase the volatility of, and
decrease the amount of, our earnings.
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We engage in transactions with other businesses controlled by
Mr. Moyes and the interests of Mr. Moyes could conflict with the
interests of other stockholders.
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Mr. Moyes and certain of his affiliates will hold
Class B shares which have greater voting rights than
Class A shares and will have the power to direct and
control our company as a result of their stock holdings.
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We have significant ongoing capital requirements that could harm
our financial condition, results of operations, and cash flows
if we are unable to generate sufficient cash from operations, or
obtain financing on favorable terms.
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Our substantial leverage could adversely affect our ability to
raise additional capital to fund our operations, limit our
ability to react to changes in the economy or our industry, and
prevent us from meeting our obligations under our new senior
secured credit facility and our senior secured notes, and our
debt agreements contain restrictions that limit our flexibility
in operating our business.
|
These risks and the other risks described under Risk
Factors could have a material adverse effect on our
business, financial condition, and results of operations.
Our
Corporate Profile and Executive Offices
Swift was founded by our Chief Executive Officer,
Mr. Moyes, and his family in 1966. Swift Transportation
became a public company in 1990, and its stock traded on the
NASDAQ stock market under the symbol SWFT until
May 10, 2007, when a company controlled by Mr. Moyes
completed the 2007 Transactions, which resulted in its becoming
a private company. Our principal executive offices are located
at 2200 South 75th Avenue, Phoenix, Arizona 85043, and our
telephone number at that address is
(602) 269-9700.
Our website is located at www.swifttrans.com. The information on
our website is not part of this prospectus.
7
The
Offering
|
|
|
Class A common stock offered by us |
|
shares |
|
Over-allotment option |
|
shares |
|
Class B common stock to be outstanding after this offering |
|
75,145,892 shares |
|
Total common stock to be outstanding after this offering |
|
shares
(or shares
if the underwriters
over-allotment
option is exercised in full) |
|
Voting rights |
|
Holders of our Class A common stock and our Class B
common stock will vote together as a single class on all matters
submitted to a vote of our stockholders except as otherwise
required by Delaware law or as provided in our amended and
restated certificate of incorporation. The holders of our
Class A common stock are entitled to one vote per share and
the holders of our Class B common stock are entitled to two
votes per share. Following this offering, assuming no exercise
of the underwriters over-allotment option,
(1) holders of the Class A common stock will control
approximately % of our total voting
power and will own % of our total
outstanding shares of common stock, and (2) holders of
Class B common stock will control
approximately % of our total voting
power and will own % of our total
outstanding shares of common stock. All of our shares of
Class B common stock are beneficially owned by Jerry Moyes
and by Jerry and Vickie Moyes, jointly, the Jerry and Vickie
Moyes Family Trust dated 12/11/87, and various Moyes
childrens trusts or, collectively, the Moyes Affiliates.
Shares of our Class B common stock automatically convert to
Class A common stock on a
one-for-one
basis at the election of the holder or upon transfer of
beneficial ownership to any person other than a Permitted
Holder, as defined in Certain Relationships and Related
Party Transactions. With the exception of voting rights
and conversion rights, holders of Class A and Class B
common stock have identical rights. See Description of
Capital Stock for a description of the material terms of
our common stock. |
|
Dividend policy |
|
We anticipate that we will retain all of our future earnings, if
any, for use in the development and expansion of our business
and for general corporate purposes. Any determination to pay
dividends and other distributions in cash, stock, or property by
Swift in the future will be at the discretion of our board of
directors and will be dependent on then-existing conditions,
including our financial condition and results of operations,
contractual restrictions, including restrictive covenants
contained in a new post-offering senior secured credit facility
and the indentures governing our outstanding senior secured
notes, capital requirements, and other factors. See
Dividend Policy. |
|
Use of proceeds |
|
We estimate that the net proceeds from this offering, after
deducting underwriting discounts and estimated offering
expenses, will be approximately
$ million at an assumed
initial public offering price of
$ per share, which is the
midpoint of the price range set forth on the cover of this
prospectus. We intend to use
$ million of the net proceeds
to repay a portion of our existing |
8
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|
senior secured credit facility. The balance of the existing
senior secured credit facility will be refinanced by borrowings
under our new senior secured credit facility, which we will
enter into in connection with this offering. The remaining net
proceeds will be used for general corporate purposes. See
Use of Proceeds. |
|
Risk factors |
|
You should carefully consider the information set forth under
Risk Factors together with all of the other
information set forth in this prospectus before deciding to
invest in shares of our Class A common stock. |
|
Proposed listing symbol |
|
SWFT |
References in this prospectus to the number of shares of our
common stock to be outstanding after this offering are based on
75,145,892 shares of our common stock outstanding as of
July 21, 2010 and excludes 10,000,000 additional shares
that are authorized for future issuance under our 2007 equity
incentive plan, of which 7,757,500 shares may be issued
pursuant to outstanding stock options at a weighted average
exercise price of $10.99 per share.
9
Summary
Historical Consolidated Financial and Other Data
The table below provides historical consolidated financial and
other data for the periods and as of the dates indicated. The
summary historical consolidated financial and other data for the
years ended December 31, 2009, 2008, and 2007 and the
period from January 1, 2007 through May 10, 2007 are
derived from our audited consolidated financial statements and
those of our predecessor, included elsewhere in this prospectus.
The summary historical consolidated financial and other data for
the years ended December 31, 2006 and 2005 are derived from
the historical financial statements of our predecessor not
included in this prospectus. The summary historical consolidated
financial and other data for the three months ended
March 31, 2010 and 2009 are derived from the unaudited
condensed consolidated interim financial statements included
elsewhere in this prospectus and include, in the opinion of
management, all adjustments that management considers necessary
for the presentation of the information outlined in these
financial statements. In addition, for comparative purposes, we
have included a pro forma (provision) benefit for income taxes
assuming we had been taxed as a subchapter C corporation in
all periods when our subchapter S corporation election was
in effect. The results for any interim period are not
necessarily indicative of the results that may be expected for a
full year. Additionally, our historical results are not
necessarily indicative of the results expected for any future
period.
Swift Corporation acquired our predecessor on May 10, 2007
in conjunction with the 2007 Transactions. Thus, although our
results for the year ended December 31, 2007 present
results for a full year period, they only include the results of
our predecessor after May 10, 2007. You should read the
summary historical financial and other data below together with
the consolidated financial statements and related notes
appearing elsewhere in this prospectus, as well as
Selected Historical Consolidated Financial and Other
Data, and Managements Discussion and Analysis
of Financial Condition and Results of Operations.
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Successor
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Predecessor
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Three
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January 1,
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Months
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2007
|
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Ended
|
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Year Ended
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Year Ended
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through
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March 31,
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December 31,
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December 31,
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May 10,
|
|
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Year Ended December 31,
|
|
(Dollars in thousands, except per share data)
|
|
2010
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2009
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2009
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|
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2008
|
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2007(1)
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2007
|
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2006
|
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2005
|
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(Unaudited)
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Consolidated statement of operations data:
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|
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|
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Operating revenue:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
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Trucking revenue
|
|
$
|
503,507
|
|
|
$
|
509,320
|
|
|
$
|
2,062,296
|
|
|
$
|
2,443,271
|
|
|
|
$
|
1,674,835
|
|
|
|
$
|
876,042
|
|
|
$
|
2,585,590
|
|
|
$
|
2,722,648
|
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Fuel surcharge revenue
|
|
|
88,816
|
|
|
|
52,986
|
|
|
|
275,373
|
|
|
|
719,617
|
|
|
|
|
344,946
|
|
|
|
|
147,507
|
|
|
|
462,529
|
|
|
|
391,942
|
|
Other revenue
|
|
|
62,507
|
|
|
|
52,450
|
|
|
|
233,684
|
|
|
|
236,922
|
|
|
|
|
160,512
|
|
|
|
|
51,174
|
|
|
|
124,671
|
|
|
|
82,865
|
|
|
|
|
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|
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|
|
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|
Total operating revenue
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654,830
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|
|
614,756
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|
|
|
2,571,353
|
|
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3,399,810
|
|
|
|
|
2,180,293
|
|
|
|
|
1,074,723
|
|
|
|
3,172,790
|
|
|
|
3,197,455
|
|
Operating expenses:
|
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|
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|
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|
|
|
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|
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|
|
|
|
|
|
|
|
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|
|
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Salaries, wages, and employee benefits
|
|
|
177,803
|
|
|
|
189,377
|
|
|
|
728,784
|
|
|
|
892,691
|
|
|
|
|
611,811
|
|
|
|
|
364,690
|
|
|
|
899,286
|
|
|
|
1,008,833
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Operating supplies and expenses
|
|
|
47,830
|
|
|
|
56,723
|
|
|
|
209,945
|
|
|
|
271,951
|
|
|
|
|
187,873
|
|
|
|
|
119,833
|
|
|
|
268,658
|
|
|
|
286,261
|
|
Fuel expense
|
|
|
106,082
|
|
|
|
85,868
|
|
|
|
385,513
|
|
|
|
768,693
|
|
|
|
|
474,825
|
|
|
|
|
223,579
|
|
|
|
632,824
|
|
|
|
610,919
|
|
Purchased transportation
|
|
|
175,702
|
|
|
|
135,753
|
|
|
|
620,312
|
|
|
|
741,240
|
|
|
|
|
435,421
|
|
|
|
|
196,258
|
|
|
|
586,252
|
|
|
|
583,380
|
|
Rental expense
|
|
|
18,903
|
|
|
|
20,391
|
|
|
|
79,833
|
|
|
|
76,900
|
|
|
|
|
51,703
|
|
|
|
|
20,089
|
|
|
|
50,937
|
|
|
|
57,669
|
|
Insurance and claims
|
|
|
20,207
|
|
|
|
25,481
|
|
|
|
81,332
|
|
|
|
141,949
|
|
|
|
|
69,699
|
|
|
|
|
58,358
|
|
|
|
153,728
|
|
|
|
156,525
|
|
Depreciation and amortization(2)
|
|
|
65,497
|
|
|
|
66,956
|
|
|
|
253,531
|
|
|
|
275,832
|
|
|
|
|
187,043
|
|
|
|
|
82,949
|
|
|
|
222,376
|
|
|
|
199,777
|
|
Impairments(3)
|
|
|
1,274
|
|
|
|
515
|
|
|
|
515
|
|
|
|
24,529
|
|
|
|
|
256,305
|
|
|
|
|
|
|
|
|
27,595
|
|
|
|
6,377
|
|
(Gain) loss on disposal of property and equipment
|
|
|
(1,448
|
)
|
|
|
(19
|
)
|
|
|
(2,244
|
)
|
|
|
(6,466
|
)
|
|
|
|
(397
|
)
|
|
|
|
130
|
|
|
|
(186
|
)
|
|
|
(942
|
)
|
Communication and utilities
|
|
|
6,422
|
|
|
|
7,091
|
|
|
|
24,595
|
|
|
|
29,644
|
|
|
|
|
18,625
|
|
|
|
|
10,473
|
|
|
|
28,579
|
|
|
|
30,920
|
|
Operating taxes and licenses
|
|
|
13,365
|
|
|
|
14,381
|
|
|
|
57,236
|
|
|
|
67,911
|
|
|
|
|
42,076
|
|
|
|
|
24,021
|
|
|
|
59,010
|
|
|
|
69,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
631,637
|
|
|
|
602,517
|
|
|
|
2,439,352
|
|
|
|
3,284,874
|
|
|
|
|
2,334,984
|
|
|
|
|
1,100,380
|
|
|
|
2,929,059
|
|
|
|
3,009,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
23,193
|
|
|
|
12,239
|
|
|
|
132,001
|
|
|
|
114,936
|
|
|
|
|
(154,691
|
)
|
|
|
|
(25,657
|
)
|
|
|
243,731
|
|
|
|
188,060
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense(4)
|
|
|
62,596
|
|
|
|
47,702
|
|
|
|
200,512
|
|
|
|
222,177
|
|
|
|
|
171,115
|
|
|
|
|
9,454
|
|
|
|
26,870
|
|
|
|
29,946
|
|
Derivative interest expense (income)(5)
|
|
|
23,714
|
|
|
|
7,549
|
|
|
|
55,634
|
|
|
|
18,699
|
|
|
|
|
13,233
|
|
|
|
|
(177
|
)
|
|
|
(1,134
|
)
|
|
|
(3,314
|
)
|
Interest income
|
|
|
(220
|
)
|
|
|
(428
|
)
|
|
|
(1,814
|
)
|
|
|
(3,506
|
)
|
|
|
|
(6,602
|
)
|
|
|
|
(1,364
|
)
|
|
|
(2,007
|
)
|
|
|
(1,713
|
)
|
Other(4)
|
|
|
(371
|
)
|
|
|
675
|
|
|
|
(13,336
|
)
|
|
|
12,753
|
|
|
|
|
(1,933
|
)
|
|
|
|
1,429
|
|
|
|
(1,272
|
)
|
|
|
(1,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (income) expenses
|
|
|
85,719
|
|
|
|
55,498
|
|
|
|
240,996
|
|
|
|
250,123
|
|
|
|
|
175,813
|
|
|
|
|
9,342
|
|
|
|
22,457
|
|
|
|
23,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(62,526
|
)
|
|
|
(43,259
|
)
|
|
|
(108,995
|
)
|
|
|
(135,187
|
)
|
|
|
|
(330,504
|
)
|
|
|
|
(34,999
|
)
|
|
|
221,274
|
|
|
|
164,350
|
|
Income tax (benefit) expense
|
|
|
(9,525
|
)
|
|
|
301
|
|
|
|
326,650
|
|
|
|
11,368
|
|
|
|
|
(234,316
|
)
|
|
|
|
(4,577
|
)
|
|
|
80,219
|
|
|
|
63,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
Year Ended
|
|
|
|
through
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
May 10,
|
|
|
Year Ended December 31,
|
|
(Dollars in thousands, except per share data)
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
2007(1)
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(53,001
|
)
|
|
$
|
(43,560
|
)
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
|
|
$
|
(96,188
|
)
|
|
|
$
|
(30,422
|
)
|
|
$
|
141,055
|
|
|
$
|
101,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share
|
|
$
|
(0.71
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(5.80
|
)
|
|
$
|
(1.95
|
)
|
|
|
$
|
(1.94
|
)
|
|
|
$
|
(0.40
|
)
|
|
$
|
1.89
|
|
|
$
|
1.39
|
|
Diluted income (loss) per common share
|
|
$
|
(0.71
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(5.80
|
)
|
|
$
|
(1.95
|
)
|
|
|
$
|
(1.94
|
)
|
|
|
$
|
(0.40
|
)
|
|
$
|
1.86
|
|
|
$
|
1.37
|
|
Weighted average shares used in computing basic income (loss)
per common share (in thousands)
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
|
49,521
|
|
|
|
|
75,159
|
|
|
|
74,584
|
|
|
|
72,540
|
|
Weighted average shares used in computing diluted income (loss)
per common share (in thousands)
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
|
49,521
|
|
|
|
|
75,159
|
|
|
|
75,841
|
|
|
|
73,823
|
|
Pro forma C corporation data (unaudited):(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical loss before income taxes
|
|
|
N/A
|
|
|
$
|
(43,259
|
)
|
|
$
|
(108,995
|
)
|
|
$
|
(135,187
|
)
|
|
|
$
|
(330,504
|
)
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Pro forma provision (benefit) for income taxes
|
|
|
N/A
|
|
|
|
2,259
|
|
|
|
5,693
|
|
|
|
(26,573
|
)
|
|
|
|
(19,166
|
)
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
|
N/A
|
|
|
$
|
(45,518
|
)
|
|
$
|
(114,688
|
)
|
|
$
|
(108,614
|
)
|
|
|
$
|
(311,338
|
)
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
N/A
|
|
|
$
|
(0.61
|
)
|
|
$
|
(1.53
|
)
|
|
$
|
(1.45
|
)
|
|
|
$
|
(6.29
|
)
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Diluted
|
|
|
N/A
|
|
|
$
|
(0.61
|
)
|
|
$
|
(1.53
|
)
|
|
$
|
(1.45
|
)
|
|
|
$
|
(6.29
|
)
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Consolidated balance sheet data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (excl. restricted cash)
|
|
|
87,327
|
|
|
|
56,806
|
|
|
|
115,862
|
|
|
|
57,916
|
|
|
|
|
78,826
|
|
|
|
|
81,134
|
|
|
|
47,858
|
|
|
|
13,098
|
|
Net property and equipment
|
|
|
1,327,210
|
|
|
|
1,516,994
|
|
|
|
1,364,545
|
|
|
|
1,583,296
|
|
|
|
|
1,588,102
|
|
|
|
|
1,478,808
|
|
|
|
1,513,592
|
|
|
|
1,630,469
|
|
Total assets
|
|
|
2,638,739
|
|
|
|
2,594,965
|
|
|
|
2,513,874
|
|
|
|
2,648,507
|
|
|
|
|
2,928,632
|
|
|
|
|
2,124,293
|
|
|
|
2,110,648
|
|
|
|
2,218,530
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization of accounts receivable(4)
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
160,000
|
|
|
|
180,000
|
|
|
|
245,000
|
|
Long-term debt and obligations under capital leases (incl.
current)(4)
|
|
|
2,382,181
|
|
|
|
2,515,335
|
|
|
|
2,466,934
|
|
|
|
2,494,455
|
|
|
|
|
2,427,253
|
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
365,786
|
|
Stockholders equity (deficit)
|
|
|
(818,354
|
)
|
|
|
(498,831
|
)
|
|
|
(865,781
|
)
|
|
|
(444,193
|
)
|
|
|
|
(297,547
|
)
|
|
|
|
1,007,904
|
|
|
|
1,014,223
|
|
|
|
870,044
|
|
Consolidated statement of cash flows data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
|
15,107
|
|
|
|
7,376
|
|
|
|
115,335
|
|
|
|
119,740
|
|
|
|
|
128,646
|
|
|
|
|
85,149
|
|
|
|
365,430
|
|
|
|
362,548
|
|
Net cash flows used in investing activities
|
|
|
(35,131
|
)
|
|
|
(6,661
|
)
|
|
|
(1,127
|
)
|
|
|
(118,517
|
)
|
|
|
|
(1,612,314
|
)
|
|
|
|
(43,854
|
)
|
|
|
(114,203
|
)
|
|
|
(380,007
|
)
|
Net cash flows from (used in) financing activities, net of the
effect of exchange rate changes
|
|
|
(8,511
|
)
|
|
|
(1,825
|
)
|
|
|
(56,262
|
)
|
|
|
(22,133
|
)
|
|
|
|
1,562,494
|
|
|
|
|
(8,019
|
)
|
|
|
(216,467
|
)
|
|
|
2,312
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (unaudited)(7)
|
|
|
90,335
|
|
|
|
79,035
|
|
|
|
405,860
|
|
|
|
409,598
|
|
|
|
|
291,597
|
|
|
|
|
109,687
|
|
|
|
498,601
|
|
|
|
407,820
|
|
Adjusted Operating Ratio (unaudited)(8)
|
|
|
94.4%
|
|
|
|
97.7%
|
|
|
|
93.9%
|
|
|
|
94.5%
|
|
|
|
|
94.4%
|
|
|
|
|
97.4%
|
|
|
|
90.4%
|
|
|
|
92.6%
|
|
Total cash capital expenditures
|
|
|
17,155
|
|
|
|
12,551
|
|
|
|
71,265
|
|
|
|
327,725
|
|
|
|
|
215,159
|
|
|
|
|
80,517
|
|
|
|
219,666
|
|
|
|
544,650
|
|
Net cash capital expenditures
|
|
|
12,471
|
|
|
|
10,170
|
|
|
|
1,492
|
|
|
|
136,574
|
|
|
|
|
175,351
|
|
|
|
|
52,676
|
|
|
|
139,216
|
|
|
|
386,780
|
|
Operating statistics (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weekly trucking revenue per tractor
|
|
$
|
2,711
|
|
|
$
|
2,541
|
|
|
$
|
2,660
|
|
|
$
|
2,916
|
|
|
|
$
|
2,903
|
|
|
|
$
|
2,790
|
|
|
$
|
3,011
|
|
|
$
|
3,004
|
|
Deadhead miles %
|
|
|
12.2%
|
|
|
|
13.6%
|
|
|
|
13.2%
|
|
|
|
13.6%
|
|
|
|
|
13.0%
|
|
|
|
|
13.2%
|
|
|
|
12.2%
|
|
|
|
12.1%
|
|
Average tractors available
|
|
|
14,443
|
|
|
|
15,589
|
|
|
|
14,869
|
|
|
|
16,024
|
|
|
|
|
17,192
|
|
|
|
|
16,816
|
|
|
|
16,466
|
|
|
|
17,383
|
|
Average loaded length of haul (miles)
|
|
|
438
|
|
|
|
451
|
|
|
|
442
|
|
|
|
469
|
|
|
|
|
483
|
|
|
|
|
492
|
|
|
|
522
|
|
|
|
534
|
|
Total tractors (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated
|
|
|
12,489
|
|
|
|
13,695
|
|
|
|
12,440
|
|
|
|
13,786
|
|
|
|
|
16,017
|
|
|
|
|
14,847
|
|
|
|
14,977
|
|
|
|
14,465
|
|
Owner-operator
|
|
|
3,731
|
|
|
|
3,575
|
|
|
|
3,585
|
|
|
|
3,560
|
|
|
|
|
3,221
|
|
|
|
|
2,961
|
|
|
|
2,950
|
|
|
|
3,466
|
|
Trailers (end of period)
|
|
|
49,436
|
|
|
|
49,284
|
|
|
|
49,215
|
|
|
|
49,695
|
|
|
|
|
49,879
|
|
|
|
|
48,959
|
|
|
|
50,013
|
|
|
|
51,997
|
|
|
|
|
(1)
|
|
Our audited results of operations
include the full year presentation of Swift Corporation as of
and for the year ended December 31, 2007. Swift Corporation
was formed in 2006 for the purpose of acquiring Swift
Transportation, but that acquisition was not completed until
May 10, 2007 as part of the 2007 Transactions, and, as
such, Swift Corporation had nominal activity from
January 1, 2007 through May 10, 2007. The results of
Swift Transportation from January 1, 2007 to May 10,
2007 and IEL from January 1, 2007 to
|
11
|
|
|
|
|
April 7, 2007 are not
reflected in the audited results of Swift Corporation for the
year ended December 31, 2007. These financial results
include the impact of the 2007 Transactions.
|
|
(2)
|
|
During the three months ended
March 31, 2010, we recorded $7.4 million of
incremental depreciation expense related to our revised
estimates regarding salvage value and useful lives for
approximately 7,000 dry van trailers that we decided to scrap
during the quarter. During the three months ended March 31,
2010 and 2009, we incurred non-cash amortization expense of
$5.2 million and $5.7 million, respectively, relating
to a step up in basis of certain intangible assets recognized in
connection with the 2007 Transactions. For the years ended
December 31, 2009, 2008, and 2007, we incurred amortization
expense of $22.0 million, $24.2 million, and
$16.8 million, respectively, relating to a step up in basis
of certain intangible assets recognized in connection with the
2007 Transactions.
|
|
(3)
|
|
During the three months ended
March 31, 2010, revenue equipment with a carrying amount of
$3.6 million was written down to its fair value of
$2.3 million, resulting in an impairment charge of
$1.3 million, which was included in impairments in the
consolidated statement of operations for the three months ended
March 31, 2010. During the three months ended
March 31, 2009, non-operating real estate properties held
and used with a carrying amount of $2.1 million were
written down to their fair value of $1.6 million, resulting
in an impairment charge of $0.5 million. For the year ended
December 31, 2008, we incurred $24.5 million in
pre-tax impairment charges comprised of a
$17.0 million impairment of goodwill relating to our Mexico
freight transportation reporting unit, and impairment
charges totaling $7.5 million on tractors, trailers, and
several non-operating real estate properties and other assets.
For the year ended December 31, 2007, we recorded a
goodwill impairment of $238.0 million pre-tax related to
our U.S. freight transportation reporting unit and trailer
impairment of $18.3 million pre-tax. The results for the
year ended December 31, 2006 included pre-tax charges of
$9.2 million related to the impairment of certain trailers,
Mexico real property and equipment, and $18.4 million for
the write-off of a note receivable and other outstanding amounts
related to our sale of our auto haul business in April 2005. For
the year ended December 31, 2005, we incurred a pre-tax
impairment charge of $6.4 million related to certain
trailers.
|
|
(4)
|
|
Effective January 1, 2010, we
adopted ASU No. 2009-16 Accounting For Transfers of
Financial Assets, or ASU
No. 2009-16,
under which we were required to account for our accounts
receivable securitization agreement, or our 2008 RSA, as a
secured borrowing on our balance sheet as opposed to a sale,
with our 2008 RSA program fees characterized as interest
expense. From March 27, 2008 through December 31,
2009, our 2008 RSA has been accounted for as a true sale in
accordance with generally accepted accounting principles, or
GAAP. Therefore, as of December 31, 2009 and 2008, such
accounts receivable and associated obligation are not reflected
in our consolidated balance sheets. For periods prior to
March 27, 2008, and again beginning January 1, 2010,
accounts receivable and associated obligation are recorded on
our balance sheet. Long-term debt excludes securitization
amounts outstanding for each period. For the three months ended
March 31, 2010, total program fees recorded as interest
expense were $1.1 million.
|
|
|
|
Prior to the change in GAAP,
program fees were recorded under Other income and
expenses under Other. For the three months
ended March 31, 2009, total program fees included in
Other were $1.1 million. For the years ended
December 31, 2009 and 2008, program fees from our 2008 RSA
totaling $5.0 million and $7.3 million, respectively,
were recorded in Other.
|
|
(5)
|
|
Derivative interest expense for the
three months ended March 31, 2010 and 2009 is related to
our interest rate swaps with notional amounts of
$1.14 billion and $1.20 billion, respectively.
Derivative interest expense increased during the three months
ended March 31, 2010 over the same period in 2009 as a
result of the decrease in three month London Interbank Offered
Rate, or LIBOR, the underlying index for the swaps.
Additionally, we de-designated the remaining swaps and
discontinued hedge accounting effective October 1, 2009 as
a result of the second amendment to our existing senior secured
credit facility, after which the entire
mark-to-market
adjustment was recorded in our statement of operations as
opposed to being recorded in equity as a component of other
comprehensive income under the prior cash flow hedge accounting
treatment. Derivative interest expense for the years ended
December 31, 2009, 2008, and 2007 is related to our
interest rate swaps with notional amounts of $1.14 billion,
$1.22 billion, and $1.34 billion, respectively.
|
|
(6)
|
|
From May 11, 2007 until
October 10, 2009, we had elected to be taxed under the
Internal Revenue Code of 1986, as amended from time to time, or
the Internal Revenue Code, as a subchapter S corporation. A
subchapter S corporation passes through essentially all taxable
earnings and losses to its stockholders and does not pay federal
income taxes at the corporate level. Historical income taxes
during this time consist mainly of state income taxes in certain
states that do not recognize subchapter S corporations, and an
income tax provision or benefit was recorded for certain of our
subsidiaries, including our Mexican subsidiaries and our sole
domestic captive insurance company at the time, which were not
eligible to be treated as qualified subchapter S
corporations. In October 2009, we elected to be taxed as a
subchapter C corporation. For comparative purposes, we have
included a pro forma (provision) benefit for income taxes
assuming we had been taxed as a subchapter C corporation in all
periods when our subchapter S corporation election was in
effect. The pro forma effective tax rate for 2009 of 5.2%
differs from the expected federal tax benefit of 35% primarily
as a result of income recognized for tax purposes on the partial
cancellation of the stockholder loan, which reduced the tax
benefit rate by 32.6%. In 2008, the pro forma effective tax rate
was reduced by 8.8% for stockholder distributions and 4.4% for
non-deductible goodwill impairment charges, which resulted in a
19.7% effective tax rate. In 2007, the pro forma effective tax
rate of 5.8% resulted primarily from a non-deductible goodwill
impairment charge, which reduced the rate by 25.1%.
|
|
(7)
|
|
We use the term Adjusted
EBITDA throughout this prospectus. Adjusted EBITDA, as we
define this term, is not presented in accordance with GAAP. We
use Adjusted EBITDA as a supplement to our GAAP results in
evaluating certain aspects of our business, as described below.
|
|
|
|
We define Adjusted EBITDA as net
income (loss) plus (i) depreciation and amortization,
(ii) interest and derivative interest expense, including
other fees and charges associated with indebtedness, net of
interest income, (iii) income taxes, (iv) non-cash
impairments, (v) non-cash equity compensation expense,
(vi) other unusual non-cash items, and
(vii) excludable transaction costs.
|
|
|
|
Our board of directors and
executive management team focus on Adjusted EBITDA as a key
measure of our performance, for business planning, and for
incentive compensation purposes. Adjusted EBITDA assists us in
comparing our performance over various reporting
|
12
|
|
|
|
|
periods on a consistent basis
because it removes from our operating results the impact of
items that, in our opinion, do not reflect our core operating
performance. Our method of computing Adjusted EBITDA is
consistent with that used in our debt covenants and also is
routinely reviewed by management for that purpose. For a
reconciliation of our Adjusted EBITDA to our net income (loss),
the most directly related GAAP measure, please see the table
below.
|
|
|
|
Our Chief Executive Officer, who is
our chief operating decision-maker, and our compensation
committee, traditionally have used Adjusted EBITDA thresholds in
setting performance goals for our employees, including senior
management. Such performance goals serve to incentivize
management to improve profitability and thereby increase
long-term stockholder value. For more information on the use of
Adjusted EBITDA by our board of directors compensation
committee, see Executive Compensation
Compensation Discussion and Analysis.
|
|
|
|
As a result, the annual bonuses for
certain members of our management typically are based at least
in part on Adjusted EBITDA. At the same time, some or all of
these executives have responsibility for monitoring our
financial results generally, including the items included as
adjustments in calculating Adjusted EBITDA (subject ultimately
to review by our board of directors in the context of the
boards review of our quarterly financial statements).
While many of the adjustments (for example, transaction costs
and our existing senior secured credit facility fees) involve
mathematical application of items reflected in our financial
statements, others (such as determining whether a non-cash item
is unusual) involve a degree of judgment and discretion. While
we believe that all of these adjustments are appropriate, and
although the quarterly calculations are subject to review by our
board of directors in the context of the boards review of
our quarterly financial statements and certification by our
Chief Financial Officer in a compliance certificate provided to
the lenders under our existing senior secured credit facility,
this discretion may be viewed as an additional limitation on the
use of Adjusted EBITDA as an analytical tool.
|
|
|
|
We believe our presentation of
Adjusted EBITDA is useful because it provides investors and
securities analysts the same information that we use internally
for purposes of assessing our core operating performance.
|
|
|
|
Adjusted EBITDA is not a substitute
for net income (loss), income (loss) from continuing operations,
cash flows from operating activities, operating margin, or any
other measure prescribed by GAAP. There are limitations to using
non-GAAP measures such as Adjusted EBITDA. Although we believe
that Adjusted EBITDA can make an evaluation of our operating
performance more consistent because it removes items that, in
our opinion, do not reflect our core operations, other companies
in our industry may define Adjusted EBITDA differently than we
do. As a result, it may be difficult to use Adjusted EBITDA or
similarly named non-GAAP measures that other companies may use
to compare the performance of those companies to our performance.
|
|
|
|
Because of these limitations,
Adjusted EBITDA should not be considered a measure of the income
generated by our business or discretionary cash available to us
to invest in the growth of our business. Our management
compensates for these limitations by relying primarily on our
GAAP results and using Adjusted EBITDA supplementally.
|
A reconciliation of GAAP net income (loss) to Adjusted EBITDA
for each of the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
Year
|
|
|
|
2007
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
Ended
|
|
|
|
through
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
|
May 10,
|
|
|
December 31,
|
|
(Dollars in thousands)
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(53,001
|
)
|
|
$
|
(43,560
|
)
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
|
$
|
(96,188
|
)
|
|
|
$
|
(30,422
|
)
|
|
$
|
141,055
|
|
|
$
|
101,127
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
65,497
|
|
|
|
66,956
|
|
|
|
253,531
|
|
|
|
275,832
|
|
|
|
187,043
|
|
|
|
|
82,949
|
|
|
|
222,376
|
|
|
|
199,777
|
|
Interest expense
|
|
|
62,596
|
|
|
|
47,702
|
|
|
|
200,512
|
|
|
|
222,177
|
|
|
|
171,115
|
|
|
|
|
9,454
|
|
|
|
26,870
|
|
|
|
29,946
|
|
Derivative interest expense (income)
|
|
|
23,714
|
|
|
|
7,549
|
|
|
|
55,634
|
|
|
|
18,699
|
|
|
|
13,233
|
|
|
|
|
(177
|
)
|
|
|
(1,134
|
)
|
|
|
(3,314
|
)
|
Interest income
|
|
|
(220
|
)
|
|
|
(428
|
)
|
|
|
(1,814
|
)
|
|
|
(3,506
|
)
|
|
|
(6,602
|
)
|
|
|
|
(1,364
|
)
|
|
|
(2,007
|
)
|
|
|
(1,713
|
)
|
Income tax expense (benefit)
|
|
|
(9,525
|
)
|
|
|
301
|
|
|
|
326,650
|
|
|
|
11,368
|
|
|
|
(234,316
|
)
|
|
|
|
(4,577
|
)
|
|
|
80,219
|
|
|
|
63,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
89,061
|
|
|
$
|
78,520
|
|
|
$
|
398,868
|
|
|
$
|
378,015
|
|
|
$
|
34,285
|
|
|
|
$
|
55,863
|
|
|
$
|
467,379
|
|
|
$
|
389,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash impairments(a)
|
|
|
1,274
|
|
|
|
515
|
|
|
|
515
|
|
|
|
24,529
|
|
|
|
256,305
|
|
|
|
|
|
|
|
|
27,595
|
|
|
|
6,377
|
|
Non-cash equity comp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,501
|
|
|
|
3,627
|
|
|
|
12,397
|
|
Other unusual non-cash items(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,418
|
|
|
|
|
|
|
|
|
|
Excludable transaction costs(c)
|
|
|
|
|
|
|
|
|
|
|
6,477
|
|
|
|
7,054
|
|
|
|
1,007
|
|
|
|
|
38,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
90,335
|
|
|
$
|
79,035
|
|
|
$
|
405,860
|
|
|
$
|
409,598
|
|
|
$
|
291,597
|
|
|
|
$
|
109,687
|
|
|
$
|
498,601
|
|
|
$
|
407,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Non-cash impairments include the items discussed in
note (3) above.
|
|
|
(b)
|
For the period January 1, 2007 through May 10, 2007,
we incurred a $2.4 million pre-tax impairment of a note
receivable recorded in non-operating other (income) expense.
|
(c) Excludable transaction costs include the following:
|
|
|
|
|
for the year ended December 31, 2009, we incurred
$4.2 million of pre-tax transaction costs in the third and
fourth quarters of 2009 related to an amendment to our existing
senior secured credit facility and the concurrent senior secured
notes amendments, and $2.3 million of pre-tax transaction
costs during the third quarter of 2009 related to our cancelled
bond offering;
|
13
|
|
|
|
|
for the year ended December 31, 2008, we incurred
$7.1 million of pre-tax expense associated with the closing
of our 2008 RSA on July 30, 2008, and financial advisory
fees associated with an amendment to our existing senior secured
credit facility;
|
|
|
|
for the year ended December 31, 2007, we incurred
$1.0 million in pre-tax transaction costs related to our
going private transaction; and
|
|
|
|
for the period January 1, 2007 to May 10, 2007, our
predecessor incurred $16.4 million related to
change-in-control
payments made to former executive officers and
$22.5 million for financial investment advisory, legal, and
accounting fees, all of which resulted from the 2007
Transactions.
|
|
|
|
(8)
|
|
We use the term Adjusted
Operating Ratio throughout this prospectus. Adjusted
Operating Ratio, as we define this term, is not presented in
accordance with GAAP. We use Adjusted Operating Ratio as a
supplement to our GAAP results in evaluating certain aspects of
our business, as described below.
|
|
|
|
We define Adjusted Operating Ratio
as (a) total operating expenses, less (i) fuel
surcharges, (ii) non-cash impairment charges,
(iii) other unusual items, and (iv) excludable
transaction costs, as a percentage of (b) total revenue
excluding fuel surcharge revenue.
|
|
|
|
Our board of directors and
executive management team also focus on Adjusted Operating Ratio
as a key indicator of our performance from period to period. We
believe fuel surcharge is sometimes volatile and eliminating the
impact of this source of revenue (by netting fuel surcharge
revenue against fuel expense) affords a more consistent basis
for comparing our results of operations. We also believe
excluding impairments and other unusual items enhances the
comparability of our performance from period to period. For a
reconciliation of our Adjusted Operating Ratio to our operating
ratio, please see the table below.
|
|
|
|
We believe our presentation of
Adjusted Operating Ratio is useful because it provides investors
and securities analysts the same information that we use
internally for purposes of assessing our core operating
performance.
|
|
|
|
Adjusted Operating Ratio is not a
substitute for operating margin or any other measure derived
solely from GAAP measures. There are limitations to using
non-GAAP measures such as Adjusted Operating Ratio. Although we
believe that Adjusted Operating Ratio can make an evaluation of
our operating performance more consistent because it removes
items that, in our opinion, do not reflect our core operations,
other companies in our industry may define Adjusted Operating
Ratio differently than we do. As a result, it may be difficult
to use Adjusted Operating Ratio or similarly named non-GAAP
measures that other companies may use to compare the performance
of those companies to our performance.
|
|
|
|
A reconciliation of our Adjusted
Operating Ratio for each of the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three Months
|
|
|
|
|
|
|
Year
|
|
|
|
January 1, 2007
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
Ended
|
|
|
|
through
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
December 31,
|
|
|
|
May 10,
|
|
|
December 31,
|
|
(Dollars in thousands)
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Total GAAP operating revenue
|
|
$
|
654,830
|
|
|
$
|
614,756
|
|
|
$
|
2,571,353
|
|
|
$
|
3,399,810
|
|
|
|
$
|
2,180,293
|
|
|
|
$
|
1,074,723
|
|
|
$
|
3,172,790
|
|
|
$
|
3,197,455
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel surcharge revenue
|
|
|
(88,816
|
)
|
|
|
(52,986
|
)
|
|
|
(275,373
|
)
|
|
|
(719,617
|
)
|
|
|
|
(344,946
|
)
|
|
|
|
(147,507
|
)
|
|
|
(462,529
|
)
|
|
|
(391,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue, net of fuel surcharge revenue
|
|
|
566,014
|
|
|
|
561,770
|
|
|
|
2,295,980
|
|
|
|
2,680,193
|
|
|
|
|
1,835,347
|
|
|
|
|
927,216
|
|
|
|
2,710,261
|
|
|
|
2,805,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total GAAP operating expense
|
|
|
631,637
|
|
|
|
602,517
|
|
|
|
2,439,352
|
|
|
|
3,284,874
|
|
|
|
|
2,334,984
|
|
|
|
|
1,100,380
|
|
|
|
2,929,059
|
|
|
|
3,009,395
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel surcharge revenue
|
|
|
(88,816
|
)
|
|
|
(52,986
|
)
|
|
|
(275,373
|
)
|
|
|
(719,617
|
)
|
|
|
|
(344,946
|
)
|
|
|
|
(147,507
|
)
|
|
|
(462,529
|
)
|
|
|
(391,942
|
)
|
Excludable transaction costs(a)
|
|
|
|
|
|
|
|
|
|
|
(6,477
|
)
|
|
|
(7,054
|
)
|
|
|
|
(1,007
|
)
|
|
|
|
(38,905
|
)
|
|
|
|
|
|
|
|
|
Non-cash impairments(b)
|
|
|
(1,274
|
)
|
|
|
(515
|
)
|
|
|
(515
|
)
|
|
|
(24,529
|
)
|
|
|
|
(256,305
|
)
|
|
|
|
|
|
|
|
(27,595
|
)
|
|
|
(6,377
|
)
|
Other unusual items(c)
|
|
|
(7,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,952
|
|
|
|
|
|
Acceleration of noncash stock options(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,125
|
)
|
|
|
|
|
|
|
(12,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating expense
|
|
$
|
534,165
|
|
|
$
|
549,016
|
|
|
$
|
2,156,987
|
|
|
$
|
2,533,674
|
|
|
|
$
|
1,732,726
|
|
|
|
$
|
902,843
|
|
|
$
|
2,448,887
|
|
|
$
|
2,598,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Ratio(e)
|
|
|
94.4%
|
|
|
|
97.7%
|
|
|
|
93.9%
|
|
|
|
94.5%
|
|
|
|
|
94.4%
|
|
|
|
|
97.4%
|
|
|
|
90.4%
|
|
|
|
92.6%
|
|
Actual operating ratio
|
|
|
96.5%
|
|
|
|
98.0%
|
|
|
|
94.9%
|
|
|
|
96.6%
|
|
|
|
|
107.1%
|
|
|
|
|
102.4%
|
|
|
|
92.3%
|
|
|
|
94.1%
|
|
|
|
|
|
(a)
|
Excludable transaction costs include the following:
|
|
|
|
|
|
for the year ended December 31, 2009, we incurred
$4.2 million of pre-tax transaction costs in the third and
fourth quarters of 2009 related to an amendment to our existing
senior secured credit facility and the concurrent senior secured
notes amendments, and $2.3 million of pre-tax transaction
costs during the third quarter of 2009 related to our cancelled
bond offering;
|
|
|
|
for the year ended December 31, 2008, we incurred
$7.1 million of pre-tax expense associated with the closing
of our 2008 RSA on July 30, 2008, and financial advisory
fees associated with an amendment to our existing senior secured
credit facility;
|
|
|
|
for the year ended December 31, 2007, we incurred
$1.0 million in pre-tax transaction costs related to our
going private transaction; and
|
|
|
|
for the period January 1, 2007 to May 10, 2007, our
predecessor incurred $16.4 million related to
change-in-control
payments made to former executive officers and
$22.5 million for financial investment advisory, legal, and
accounting fees, all of which resulted from the 2007
Transactions.
|
|
|
|
|
(b)
|
Non-cash impairments include items discussed in note (3)
above.
|
14
|
|
|
|
(c)
|
Other unusual items included the following:
|
|
|
|
|
|
for the year ended December 31, 2006, we recognized a
$4.8 million and $5.2 million pre-tax benefit for the
change in our discretionary match to our 401(k) profit sharing
plan and a gain from the settlement of litigation,
respectively; and
|
|
|
|
in the first quarter of 2010, we incurred $7.4 million of
incremental depreciation expense during the 2010 quarter
reflecting managements revised estimates regarding salvage
value and useful lives for approximately 7,000 dry van trailers,
which management decided to scrap.
|
|
|
|
|
(d)
|
Acceleration of non-cash stock options includes the following:
|
|
|
|
|
|
for the period January 1, 2007 to May 10, 2007, we
incurred $11.1 million related to the acceleration of stock
incentive awards as a result of the 2007 Transactions; and
|
|
|
|
for the year ended December 31, 2005, we incurred a
$12.4 million pre-tax expense to accelerate the vesting
period of 7.3 million stock options.
|
We expect a future adjustment to this line item to reflect an
approximately $16.4 million one-time non-cash equity
compensation charge for certain stock options that vest upon an
initial public offering. Thereafter, quarterly non-cash equity
compensation expense for existing grants is estimated to be
approximately $1.8 million per quarter through 2012.
|
|
|
|
(e)
|
We have not included adjustments to Adjusted Operating Ratio to
reflect the following non-cash amortization expense we
recognized for certain identified intangible assets during the
following periods:
|
|
|
|
|
|
during the three months ended March 31, 2010 and 2009, we
incurred amortization expense of $5.2 million and
$5.7 million, respectively, relating to certain intangible
assets identified in the 2007 Transactions; and
|
|
|
|
for the years ended December 31, 2009, 2008, and 2007, we
incurred amortization expense of $22.0 million,
$24.2 million, and $16.8 million, respectively,
relating to certain intangible assets identified in the 2007
Transactions.
|
15
Risk
Factors
An investment in our Class A common stock involves a
high degree of risk. You should carefully consider the following
risks, as well as the other information contained in this
prospectus, before making an investment decision. If any of the
following risks, as well as other risks and uncertainties that
are not yet identified or that we currently think are
immaterial, actually occur, our business, results of operations,
or financial condition could be materially and adversely
affected. In such an event, the trading price of our
Class A common stock could decline and you could lose part
or all of your investment.
Risks
Related to Our Business and Industry
Our
business is subject to general economic and business factors
affecting the truckload industry that are largely beyond our
control, any of which could have a material adverse effect on
our operating results.
Our business is dependent on a number of factors that may have a
negative impact on our results of operations, many of which are
beyond our control. We believe that some of the most significant
of these factors are economic changes that affect supply and
demand in transportation markets, such as:
|
|
|
|
|
recessionary economic cycles;
|
|
|
|
changes in customers inventory levels and in the
availability of funding for their working capital;
|
|
|
|
excess tractor capacity in comparison with shipping
demand; and
|
|
|
|
downturns in customers business cycles.
|
The risks associated with these factors are heightened when the
U.S. economy is weakened. Some of the principal risks
during such times are as follows:
|
|
|
|
|
we may experience low overall freight levels, which may impair
our asset utilization;
|
|
|
|
certain of our customers may face credit issues and cash flow
problems, as discussed below;
|
|
|
|
freight patterns may change as supply chains are redesigned,
resulting in an imbalance between our capacity and our
customers freight demand;
|
|
|
|
customers may bid out freight or select competitors that offer
lower rates from among existing choices in an attempt to lower
their costs and we might be forced to lower our rates or lose
freight; and
|
|
|
|
we may be forced to incur more deadhead miles to obtain loads.
|
Economic conditions that decrease shipping demand or increase
the supply of tractors and trailers can exert downward pressure
on rates and equipment utilization, thereby decreasing asset
productivity. As a result of depressed freight volumes and
excess truckload capacity in our industry, we have experienced
lower miles per unit, freight rates, and freight volumes in
recent periods, all of which have negatively impacted our
results. Although the ATAs seasonally adjusted for-hire
truck tonnage index has shown improvement since the end of 2009,
we cannot predict when or if the truckload market will return to
a period of sustained growth. A prolonged recession or general
economic instability could result in further declines in our
results of operations, which declines may be material.
We also are subject to cost increases outside our control that
could materially reduce our profitability if we are unable to
increase our rates sufficiently. Such cost increases include,
but are not limited to, increases in fuel prices, driver wages,
interest rates, taxes, tolls, license and registration fees,
insurance, revenue equipment, and healthcare for our employees.
In addition, events outside our control, such as strikes or
other work stoppages at our facilities or at customer, port,
border, or other shipping locations, or actual or threatened
armed conflicts or terrorist attacks, efforts to combat
terrorism, military action against a foreign state or group
located in a foreign state, or heightened security requirements
could lead to reduced economic demand, reduced availability of
credit, or temporary closing of the shipping locations or
U.S. borders. Such events or enhanced security measures in
16
connection with such events could impair our operating
efficiency and productivity and result in higher operating costs.
We
operate in the highly competitive and fragmented truckload
industry, and our business and results of operations may suffer
if we are unable to adequately address downward pricing and
other competitive pressures.
We compete with many truckload carriers and, to a lesser extent,
with
less-than-truckload
carriers, railroads, and third-party logistics, brokerage,
freight forwarding, and other transportation companies.
Additionally, some of our customers may utilize their own
private fleets rather than outsourcing loads to us. Some of our
competitors may have greater access to equipment, a wider range
of services, greater capital resources, less indebtedness, or
other competitive advantages. Numerous competitive factors could
impair our ability to maintain or improve our profitability.
These factors include the following:
|
|
|
|
|
many of our competitors periodically reduce their freight rates
to gain business, especially during times of reduced growth in
the economy, which may limit our ability to maintain or increase
freight rates or to maintain or expand our business or may
require us to reduce our freight rates;
|
|
|
|
some of our customers also operate their own private trucking
fleets and they may decide to transport more of their own
freight;
|
|
|
|
some shippers have reduced or may reduce the number of carriers
they use by selecting core carriers as approved service
providers and in some instances we may not be selected;
|
|
|
|
many customers periodically solicit bids from multiple carriers
for their shipping needs and this process may depress freight
rates or result in a loss of business to competitors;
|
|
|
|
the continuing trend toward consolidation in the trucking
industry may result in more large carriers with greater
financial resources and other competitive advantages, and we may
have difficulty competing with them;
|
|
|
|
advances in technology may require us to increase investments in
order to remain competitive, and our customers may not be
willing to accept higher freight rates to cover the cost of
these investments;
|
|
|
|
higher fuel prices and, in turn, higher fuel surcharges to our
customers may cause some of our customers to consider freight
transportation alternatives, including rail transportation;
|
|
|
|
competition from freight logistics and brokerage companies may
negatively impact our customer relationships and freight
rates; and
|
|
|
|
economies of scale that may be passed on to smaller carriers by
procurement aggregation providers may improve such
carriers ability to compete with us.
|
We
have several major customers, the loss of one or more of which
could have a material adverse effect on our
business.
A significant portion of our revenue is generated from a number
of major customers, the loss of one or more of which could have
a material adverse effect on our business. For the year ended
December 31, 2009, our top 25 customers, based on revenue,
accounted for approximately 54% of our revenue; our top 10
customers, approximately 37% of our revenue; our top 5
customers, approximately 27% of our revenue; and our largest
customer, Wal-Mart and its subsidiaries, accounted for 10.2% of
our revenue. A substantial portion of our freight is from
customers in the retail sales industry. As such, our volumes are
largely dependent on consumer spending and retail sales, and our
results may be more susceptible to trends in unemployment and
retail sales than carriers that do not have this concentration.
Economic conditions and capital markets may adversely affect our
customers and their ability to remain solvent. Our
customers financial difficulties can negatively impact our
results of operations and financial condition and our ability to
comply with the covenants in our debt agreements and accounts
receivable securitization agreements, especially if they were to
delay or default on payments to us. Generally, we do not
17
have contractual relationships that guarantee any minimum
volumes with our customers, and we cannot assure you that our
customer relationships will continue as presently in effect. Our
dedicated business is generally subject to longer term written
contracts than our non-dedicated business; however, certain of
these contracts contain cancellation clauses and there is no
assurance any of our customers, including our dedicated
customers, will continue to utilize our services, renew our
existing contracts, or continue at the same volume levels. A
reduction in or termination of our services by one or more of
our major customers, including our dedicated customers, could
have a material adverse effect on our business and operating
results.
We may
not be able to sustain the cost savings realized as part of our
recent cost reduction initiatives.
Since the first quarter of 2008, we have implemented over
$250 million of annualized cost savings, many of which we
expect to result in ongoing savings. The cost savings entail
several elements, including reducing our tractor fleet by 17.2%,
improving fuel efficiency, improving our tractor to non-driver
ratio, suspending bonuses and 401(k) matching, streamlining
maintenance and administrative functions, improving safety and
claims management, and limiting discretionary expenses. We may
not be able to sustain all, or any part of, these cost savings
on an annual basis in the future, particularly those related to
headcount, compensation, and employee benefits, if an economic
recovery increases competition for employees and expenses
relating to driving more miles.
We may
not be successful in achieving our strategy of growing our
revenue.
Our current goals include increasing revenue in excess of 10%
over the next several years, including by growing our current
service offerings. While we currently believe we can achieve
these stated goals through the implementation of various
business strategies, there can be no assurance that we will be
able to effectively and successfully implement such strategies
and realize our stated goals. Our goals may be negatively
affected by a failure to further penetrate our existing customer
base, cross-sell our service offerings, pursue new customer
opportunities, manage the operations and expenses of new or
growing service offerings, or otherwise achieve growth of our
service offerings. Further, we may not achieve profitability
from our new service offerings. There is no assurance that
successful execution of our business strategies will result in
us achieving our current business goals.
We
have a recent history of net losses.
For the years ended December 31, 2007, 2008, and 2009, we
incurred net losses of $96.2 million (net of a tax benefit
of $230.2 million to eliminate our deferred tax liabilities
upon conversion to a subchapter S corporation),
$146.6 million, and $435.6 million (including
$324.8 million to recognize deferred income taxes upon our
election to be taxed as a subchapter C corporation),
respectively. Achieving profitability depends upon numerous
factors, including our ability to increase our trucking revenue
per tractor, expand our overall volume, and control expenses. We
might not achieve profitability or, if we do, we may not be able
to sustain or increase profitability in the future.
Fluctuations
in the price or availability of fuel, the volume and terms of
diesel fuel purchase commitments, and surcharge collection may
increase our costs of operation, which could materially and
adversely affect our profitability.
Fuel is one of our largest operating expenses. Diesel fuel
prices fluctuate greatly due to factors beyond our control, such
as political events, terrorist activities, armed conflicts,
depreciation of the dollar against other currencies, and
hurricanes and other natural or man-made disasters, such as the
recent oil spill in the Gulf of Mexico, each of which may lead
to an increase in the cost of fuel. Fuel prices also are
affected by the rising demand in developing countries, including
China, and could be adversely impacted by the use of crude oil
and oil reserves for other purposes and diminished drilling
activity. Such events may lead not only to increases in fuel
prices, but also to fuel shortages and disruptions in the fuel
supply chain. Because our operations are dependent upon diesel
fuel, significant diesel fuel cost increases, shortages, or
supply disruptions could materially and adversely affect our
results of operations and financial condition.
18
Fuel also is subject to regional pricing differences and often
costs more on the West Coast and in the Northeast, where we have
significant operations. Increases in fuel costs, to the extent
not offset by rate per mile increases or fuel surcharges, have
an adverse effect on our operations and profitability. We obtain
some protection against fuel cost increases by maintaining a
fuel-efficient fleet and a compensatory fuel surcharge program.
We have fuel surcharge programs in place with a majority of our
customers, which have helped us offset the majority of the
negative impact of rising fuel prices associated with loaded or
billed miles. However, we also incur fuel costs that cannot be
recovered even with respect to customers with which we maintain
fuel surcharge programs, such as those associated with empty
miles, deadhead miles, or the time when our engines are idling.
Because our fuel surcharge recovery lags behind changes in fuel
prices, our fuel surcharge recovery may not capture the
increased costs we pay for fuel, especially when prices are
rising, leading to fluctuations in our levels of reimbursement;
and our levels of reimbursement have fluctuated in the past.
Further, during periods of low freight volumes, shippers can use
their negotiating leverage to impose less compensatory fuel
surcharge policies. There can be no assurance that such fuel
surcharges can be maintained indefinitely or will be
sufficiently effective.
We have not used derivatives to mitigate volatility in our fuel
costs, but periodically evaluate their possible use. We have
contracted with some of our fuel suppliers to buy fuel at a
fixed price or within banded pricing for a specific period,
usually not exceeding twelve months, to mitigate the impact of
rising fuel costs. However, these purchase commitments only
cover a small portion of our fuel consumption and, accordingly,
our results of operations could be negatively impacted by fuel
price fluctuations.
Increased
prices for new revenue equipment, design changes of new engines,
volatility in the used equipment sales market, and the failure
of manufacturers to meet their sale or trade-back obligations to
us could adversely affect our financial condition, results of
operations, and profitability.
We have experienced higher prices for new tractors over the past
few years. The resale value of the tractors and the residual
values under arrangements we have with manufacturers have not
increased to the same extent. In addition, the engines used in
tractors manufactured in 2010 and after are subject to more
stringent emissions control regulations issued by the
Environmental Protection Agency, or EPA. Compliance with such
regulations has increased the cost of the tractors, and resale
prices or residual values may not increase to the same extent.
Accordingly, our equipment costs, including depreciation expense
per tractor, are expected to increase in future periods. As with
any engine redesign, there is a risk that the newly designed
2010 diesel engines will have unforeseen problems. Additionally,
we have not operated many of the new 2010 diesel engines, so we
cannot be certain how they will operate.
Many engine manufacturers are using selective catalytic
reduction, or SCR, equipment to comply with the EPAs 2010
diesel engine emissions standards. SCR equipment requires a
separate urea-based liquid known as diesel exhaust fluid, which
is stored in a separate tank on the truck. If the new tractors
we purchase are equipped with SCR technology and require us to
use diesel exhaust fluid, we will be exposed to additional costs
associated with the price and availability of diesel exhaust
fluid, the weight of the diesel exhaust fluid tank and SCR
system, and additional maintenance costs associated with the SCR
system. Additionally, we may need to train our drivers to use
the new SCR equipment. Problems relating to the new 2010 engines
or increased costs associated with the new 2010 engines
resulting from regulatory requirements or otherwise could
adversely impact our business.
A depressed market for used equipment could require us to trade
our revenue equipment at depressed values or to record losses on
disposal or impairments of the carrying values of our revenue
equipment that is not protected by residual value arrangements.
Used equipment prices are subject to substantial fluctuations
based on freight demand, supply of used trucks, availability of
financing, the presence of buyers for export to countries such
as Russia and Brazil, and commodity prices for scrap metal. We
took impairment charges related to the value of certain tractors
and trailers in 2007, 2008, and the first quarter of 2010. If
there is another deterioration of resale prices, it could have a
material adverse effect on our business and operating results.
Trades at depressed values and decreases in proceeds under
equipment disposals and impairments of the carrying values of
our revenue equipment could adversely affect our results of
operations and financial condition.
19
We lease or finance certain revenue equipment under leases that
are structured with balloon payments at the end of the lease or
finance term equal to the value we have contracted to receive
from the respective equipment manufacturers upon sale or trade
back to the manufacturers. To the extent we do not purchase new
equipment that triggers the trade back obligation, or the
manufacturers of the equipment do not pay the contracted value
at the end of the lease term, we could be exposed to losses for
the amount by which the balloon payments owed to the respective
lease or finance companies exceed the proceeds we are able to
generate in open market sales of the equipment. In addition, if
we purchase equipment subject to a buy-back agreement and the
manufacturer refuses to honor the agreement or we are unable to
replace equipment at a reasonable price, we may be forced to
sell such equipment at a loss.
We
operate in a highly regulated industry, and changes in existing
regulations or violations of existing or future regulations
could have a material adverse effect on our operations and
profitability.
We operate in the United States throughout the 48 contiguous
states pursuant to operating authority granted by the
U.S. Department of Transportation, or DOT, in Mexico
pursuant to operating authority granted by Secretarìa de
Communiciones y Transportes, and in various Canadian provinces
pursuant to operating authority granted by the Ministries of
Transportation and Communications in such provinces. Our company
drivers and owner-operators also must comply with the safety and
fitness regulations of the DOT, including those relating to drug
and alcohol testing and
hours-of-service.
Such matters as weight and equipment dimensions also are subject
to government regulations. We also may become subject to new or
more restrictive regulations relating to fuel emissions,
drivers
hours-of-service,
ergonomics, on-board reporting of operations, collective
bargaining, security at ports, and other matters affecting
safety or operating methods. The DOT is currently engaged in a
rulemaking proceeding regarding drivers
hours-of-service,
and the result could negatively impact utilization of our
equipment. Other agencies, such as the EPA and the DHS, also
regulate our equipment, operations, and drivers. Future laws and
regulations may be more stringent, require changes in our
operating practices, influence the demand for transportation
services, or require us to incur significant additional costs.
Higher costs incurred by us or by our suppliers who pass the
costs onto us through higher prices could adversely affect our
results of operations.
In the aftermath of the September 11, 2001 terrorist
attacks, federal, state, and municipal authorities implemented
and continue to implement various security measures, including
checkpoints and travel restrictions on large trucks. The
Transportation Security Administration, or TSA, has adopted
regulations that require determination by the TSA that each
driver who applies for or renews his license for carrying
hazardous materials is not a security threat. This could reduce
the pool of qualified drivers, which could require us to
increase driver compensation, limit fleet growth, or let trucks
sit idle. These regulations also could complicate the matching
of available equipment with hazardous material shipments,
thereby increasing our response time and our deadhead miles on
customer orders. As a result, it is possible that we may fail to
meet the needs of our customers or may incur increased expenses
to do so. These security measures could negatively impact our
operating results.
The new CSA 2010 initiative of the Federal Motor Carrier Safety
Administration, or FMCSA, introduces a new enforcement and
compliance model, which implements driver standards in addition
to our current standards. Under the new regulations, the
methodology for determining a carriers DOT safety rating
will be expanded to include the on-road safety performance of
the carriers drivers. The new regulations are scheduled to
be implemented in the second half of 2010, and enforcement is
scheduled to begin in 2011. These implementation and enforcement
dates have already been delayed and may be subject to further
change. As a result of these new regulations, including the
expanded methodology for determining a carriers DOT safety
rating, there may be an adverse effect on our DOT safety rating.
We currently have a satisfactory DOT rating, which is the
highest available rating. A conditional or unsatisfactory DOT
safety rating could adversely affect our business because some
of our customer contracts may require a satisfactory DOT safety
rating, and a conditional or unsatisfactory rating could
negatively impact or restrict our operations. In addition, there
is a possibility that a drop to conditional status could affect
our ability to self-insure for personal injury and property
damage relating to the transportation of freight, which could
cause our insurance costs to increase. Finally, proposed FMCSA
rules and practices followed by regulators may require us to
install electronic on-
20
board recorders in our tractors if we receive an adverse change
in our safety results or safety rating. Such installation could
cause an increase in driver turnover, adverse information in
litigation, cost increases, and decreased asset utilization.
In addition, our operations are subject to various environmental
laws and regulations dealing with the transportation, storage,
presence, use, disposal, and handling of hazardous materials,
discharge of wastewater and storm water, and with waste oil and
fuel storage tanks. Our truck terminals often are located in
industrial areas where groundwater or other forms of
environmental contamination could occur. Our operations involve
the risks of fuel spillage or seepage, environmental damage, and
hazardous waste disposal, among others. Certain of our
facilities have waste oil or fuel storage tanks and fueling
islands. A small percentage of our freight consists of low-grade
hazardous substances, which subjects us to a wide array of
regulations. Although we have instituted programs to monitor and
control environmental risks and promote compliance with
applicable environmental laws and regulations, if we are
involved in a spill or other accident involving hazardous
substances, if there are releases of hazardous substances we
transport, if soil or groundwater contamination is found at our
facilities or results from our operations, or if we are found to
be in violation of applicable laws or regulations, we could be
subject to cleanup costs and liabilities, including substantial
fines or penalties or civil and criminal liability, any of which
could have a material adverse effect on our business and
operating results. Additionally, if we fail to comply with
applicable environmental regulations, we could be subject to
substantial fines or penalties and to civil and criminal
liability.
EPA regulations limiting exhaust emissions became more
restrictive in 2010. On May 21, 2010, President Obama
signed an executive memorandum directing the National Highway
Traffic Safety Administration, or NHTSA, and the EPA to develop
new, stricter fuel efficiency standards for heavy trucks,
beginning in 2014. In December 2008, California adopted new
performance requirements for diesel trucks, with targets to be
met between 2011 and 2023, and California also has adopted
aerodynamics requirements for certain trailers. These
regulations, as well as proposed regulations or legislation
related to climate change that potentially impose restrictions,
caps, taxes, or other controls on emissions of greenhouse gas,
could adversely affect our operations and financial results. In
addition, increasing efforts to control emissions of greenhouse
gases are likely to have an impact on us. The EPA has announced
a finding relating to greenhouse gas emissions that may result
in promulgation of greenhouse gas emission limits. Federal and
state lawmakers also are considering a variety of climate-change
proposals. Compliance with such regulations could increase the
cost of new tractors and trailers, impair equipment
productivity, and increase operating expenses. These effects,
combined with the uncertainty as to the operating results that
will be produced by the newly designed diesel engines and the
residual values of these vehicles, could increase our costs or
otherwise adversely affect our business or operations.
In order to reduce exhaust emissions, some states and
municipalities have begun to restrict the locations and amount
of time where diesel-powered tractors, such as ours, may idle.
These restrictions could force us to alter our drivers
behavior, purchase on-board power units that do not require the
engine to idle, or face a decrease in productivity.
From time to time, various federal, state, or local taxes are
increased, including taxes on fuels. We cannot predict whether,
or in what form, any such increase applicable to us will be
enacted, but such an increase could adversely affect our
profitability.
CSA
2010, increases in driver compensation, or other difficulties in
attracting and retaining qualified drivers could adversely
affect our profitability and ability to maintain or grow our
fleet.
Under CSA 2010, drivers and fleets will be evaluated and ranked
based on certain safety-related standards. As a result, certain
current and potential drivers may no longer be eligible to drive
for us, our fleet could be ranked poorly as compared to our peer
firms, and our safety rating could be adversely impacted. We
recruit and retain a substantial number of first-time drivers,
and these drivers may have a higher likelihood of creating
adverse safety events under CSA 2010. A reduction in eligible
drivers or a poor fleet ranking may result in difficulty
attracting and retaining qualified drivers, and could cause our
customers to direct their
21
business away from us and to carriers with higher fleet
rankings, which would adversely affect our results of operations.
Additionally, like many truckload carriers, from time to time we
have experienced difficulty in attracting and retaining
sufficient numbers of qualified drivers, including
owner-operators, and such shortages may recur in the future.
Because of the intense competition for drivers, we may face
difficulty maintaining or increasing our number of drivers. Due
in part to the economic recession, we reduced our driver pay in
2009. The compensation we offer our drivers and owner-operators
is subject to market conditions and we may find it necessary to
increase driver and owner-operator compensation in future
periods, which will be more likely to the extent that economic
conditions improve. In addition, like most in our industry, we
suffer from a high turnover rate of drivers, especially in the
first 90 days of employment. Our high turnover rate
requires us to continually recruit a substantial number of
drivers in order to operate existing revenue equipment. If we
are unable to continue to attract and retain a sufficient number
of drivers, we could be required to adjust our compensation
packages, or operate with fewer trucks and face difficulty
meeting shipper demands, all of which could adversely affect our
profitability and ability to maintain our size or grow.
We
self-insure a significant portion of our claims exposure, which
could significantly increase the volatility of, and decrease the
amount of, our earnings.
We self-insure a significant portion of our claims exposure and
related expenses related to cargo loss, employee medical
expense, bodily injury, workers compensation, and property
damage and maintain insurance with licensed insurance companies
above our limits of self-insurance. Our substantial self-insured
retention of $10.0 million for bodily injury and property
damage per occurrence and up to $5.0 million per occurrence
for workers compensation claims can make our insurance and
claims expense higher or more volatile. Additionally, with
respect to our third-party insurance, we face the risks of
increasing premiums and collateral requirements and the risk of
carriers or underwriters leaving the trucking sector, which may
materially affect our insurance costs or make insurance in
excess of our self-insured retention more difficult to find, as
well as increase our collateral requirements.
We accrue the costs of the uninsured portion of pending claims
based on estimates derived from our evaluation of the nature and
severity of individual claims and an estimate of future claims
development based upon historical claims development trends.
Actual settlement of the self-insured claim liabilities could
differ from our estimates due to a number of uncertainties,
including evaluation of severity, legal costs, and claims that
have been incurred but not reported. Due to our high
self-insured amounts, we have significant exposure to
fluctuations in the number and severity of claims and the risk
of being required to accrue or pay additional amounts if our
estimates are revised or the claims ultimately prove to be more
severe than originally assessed. Although we endeavor to limit
our exposure arising with respect to such claims, we also may
have exposure if carrier subcontractors under our brokerage
operations are inadequately insured for any accident.
Our liability coverage has a maximum aggregate limit of
$150.0 million per year. If any claim were to exceed our
aggregate coverage limit, we would bear the excess, in addition
to our other self-insured amounts. Although we believe our
aggregate insurance limits are sufficient to cover reasonably
expected claims, it is possible that one or more claims could
exceed those limits. Our insurance and claims expense could
increase, or we could find it necessary to raise our
self-insured retention or decrease our aggregate coverage limits
when our policies are renewed or replaced. Our operating results
and financial condition may be adversely affected if these
expenses increase, we experience a claim in excess of our
coverage limits, we experience a claim for which we do not have
coverage, or we have to increase our reserves.
Insuring
risk through our wholly-owned captive insurance companies could
adversely impact our operations.
We insure a significant portion of our risk through our
wholly-owned captive insurance companies, Mohave Transportation
Insurance Company, or Mohave, and Red Rock Risk Retention Group,
Inc., or Red Rock. In addition to insuring portions of our own
risk, Mohave insures certain owner-operators in exchange for an
insurance premium paid by the owner-operator to Mohave. The
insurance and reinsurance markets are
22
subject to market pressures. Our captive insurance
companies abilities or needs to access the reinsurance
markets may involve the retention of additional risk, which
could expose us to volatility in claims expenses. Additionally,
an increase in the number or severity of claims for which we
insure could adversely impact our results of operations.
To comply with certain state insurance regulatory requirements,
cash and cash equivalents must be paid to Red Rock and Mohave as
capital investments and insurance premiums to be restricted as
collateral for anticipated losses. Such restricted cash is used
for payment of insured claims. In the future, we may continue to
insure our automobile liability risk through our captive
insurance subsidiaries, which will cause the required amount of
our restricted cash, as recorded on our balance sheet, or other
collateral, such as letters of credit, to rise. Significant
future increases in the amount of collateral required by
third-party insurance carriers and regulators would reduce our
liquidity and could adversely affect our results of operations
and capital resources.
Our
wholly-owned captive insurance companies are subject to
substantial government regulation.
State authorities regulate our insurance subsidiaries in the
states in which they do business. These regulations generally
provide protection to policy holders rather than stockholders.
The nature and extent of these regulations typically involve
items such as: approval of premium rates for insurance,
standards of solvency and minimum amounts of statutory capital
surplus that must be maintained, limitations on types and
amounts of investments, regulation of dividend payments and
other transactions between affiliates, regulation of
reinsurance, regulation of underwriting and marketing practices,
approval of policy forms, methods of accounting, and filing of
annual and other reports with respect to financial condition and
other matters. These regulations may increase our costs of
regulatory compliance, limit our ability to change premiums,
restrict our ability to access cash held in our captive
insurance companies, and otherwise impede our ability to take
actions we deem advisable.
We are
subject to certain risks arising from doing business in
Mexico.
We have a growing operation in Mexico, including through our
wholly-owned subsidiary, Trans-Mex. As a result, we are subject
to risks of doing business internationally, including
fluctuations in foreign currencies, changes in the economic
strength of Mexico, difficulties in enforcing contractual
obligations and intellectual property rights, burdens of
complying with a wide variety of international and
U.S. export and import laws, and social, political, and
economic instability. In addition, if we are unable to maintain
our C-TPAT status, we may have significant border delays, which
could cause our Mexican operations to be less efficient than
those of competitor truckload carriers also operating in Mexico
that obtain or continue to maintain C-TPAT status. We also face
additional risks associated with our foreign operations,
including restrictive trade policies and imposition of duties,
taxes, or government royalties imposed by the Mexican
government, to the extent not preempted by the terms of North
American Free Trade Agreement. Factors that substantially affect
the operations of our business in Mexico may have a material
adverse effect on our overall operating results.
Our
use of owner-operators to provide a portion of our tractor fleet
exposes us to different risks than our competitors who employ a
larger percentage of company drivers.
We provide financing to certain of our owner-operators
purchasing tractors from us. If we are unable to provide such
financing in the future, due to liquidity constraints or other
restrictions, we may experience a decrease in the number of
owner-operators available to us. Further, if owner-operators
operating the tractors we finance default under or otherwise
terminate the financing arrangement and we are unable to find a
replacement owner-operator, we may incur losses on amounts owed
to us with respect to the tractor in addition to any losses we
may incur as a result of idling the tractor.
During times of increased economic activity, we face heightened
competition for owner-operators from other carriers. To the
extent our turnover increases, if we cannot attract sufficient
owner-operators, or it becomes economically difficult for
owner-operators to survive, we may not achieve our goal of
increasing the percentage of our fleet provided by
owner-operators.
23
Pursuant to our owner-operator fuel reimbursement program, we
absorb all increases in fuel costs above a certain level to
protect our owner-operators from additional increases in fuel
prices with respect to certain of our owner-operators. A
significant increase or rapid fluctuation in fuel prices could
significantly increase our purchased transportation costs due to
reimbursement rates under our fuel reimbursement program
becoming higher than the benefits to us under our fuel surcharge
programs with our customers.
Our lease contracts with our owner-operators are governed by the
federal leasing regulations, which impose specific requirements
on us and our owner-operators. In the past, we have been the
subject of lawsuits, alleging the violation of leasing
obligations or failure to follow the contractual terms. It is
possible that we could be subjected to similar lawsuits in the
future, which could result in liability.
If our
owner-operators are deemed by regulators or judicial process to
be employees, our business and results of operations could be
adversely affected.
Tax and other regulatory authorities have in the past sought to
assert that owner-operators in the trucking industry are
employees rather than independent contractors. Proposed federal
legislation would make it easier to reclassify owner-operators
as employees. Some states have put initiatives in place to
increase their revenues from items such as unemployment,
workers compensation, and income taxes, and a
reclassification of owner-operators as employees would help
states with this initiative. Further, class actions and other
lawsuits have been filed against us and others in our industry
seeking to reclassify owner-operators as employees for a variety
of purposes, including workers compensation and health
care coverage. Taxing and other regulatory authorities and
courts apply a variety of standards in their determination of
independent contractor status. If our owner-operators are
determined to be our employees, we would incur additional
exposure under federal and state tax, workers
compensation, unemployment benefits, labor, employment, and tort
laws, including for prior periods, as well as potential
liability for employee benefits and tax withholdings.
We are
dependent on certain personnel that are of key importance to the
management of our business and operations.
Our success depends on the continuing services of our founder,
current owner, and Chief Executive Officer, Mr. Moyes. We
currently do not have an employment agreement with
Mr. Moyes. We believe that Mr. Moyes possesses
valuable knowledge about the trucking industry and that his
knowledge and relationships with our key customers and vendors
would be very difficult to replicate.
In addition, many of our other executive officers are of key
importance to the management of our business and operations,
including our President, Richard Stocking, and our Chief
Financial Officer, Virginia Henkels. We currently do not have
employment agreements with any of our management. Our future
success depends on our ability to retain our executive officers
and other capable managers. Any unplanned turnover or our
failure to develop an adequate succession plan for our
leadership positions could deplete our institutional knowledge
base and erode our competitive advantage. Although we believe we
could replace key personnel given adequate prior notice, the
unexpected departure of key executive officers could cause
substantial disruption to our business and operations. In
addition, even if we are able to continue to retain and recruit
talented personnel, we may not be able to do so without
incurring substantial costs.
We
engage in transactions with other businesses controlled by
Mr. Moyes, our Chief Executive Officer and current owner,
and the interests of Mr. Moyes could conflict with the
interests of our other stockholders. In addition, Mr. Moyes
may pledge or borrow against a portion of his Class B
common stock, which may also cause his interests to conflict
with the interests of our other stockholders.
We engage in multiple transactions with related parties, some of
which will continue after this offering. These transactions
include providing and receiving freight services and facility
leases with entities owned by Mr. Moyes and certain members
of his family, the provision of air transportation services from
an entity owned by Mr. Moyes and certain members of his
family, and the acquisition of approximately 100 trailers from
an entity owned by Mr. Moyes and certain members of his
family in 2009. Because certain entities controlled by
Mr. Moyes and certain members of his family operate in the
transportation industry, Mr. Moyes
24
ownership may create conflicts of interest or require judgments
that are disadvantageous to you in the event we compete for the
same freight or other business opportunities. As a result,
Mr. Moyes may have interests that conflict with yours. We
have adopted a policy relating to prior approval of related
party transactions and our amended and restated certificate of
incorporation contains provisions that specifically relate to
prior approval for transactions with Mr. Moyes, the Moyes
Affiliates, and any Moyes affiliated entities. However, we
cannot assure you that the policy or these provisions will be
successful in eliminating conflicts of interests. See
Certain Relationships and Related Party Transactions
and Description of Capital Stock Affiliate
Transactions.
Our amended and restated certificate of incorporation also
provides that in the event that any of our officers or directors
is also an officer or director or employee of an entity owned by
or affiliated with Mr. Moyes or any of the Moyes Affiliates
and acquires knowledge of a potential transaction or other
corporate opportunity not involving the truck transportation
industry or involving refrigerated transportation or
less-than-truckload
transportation, then, subject to certain exceptions, we shall
not be entitled to such transaction or corporate opportunity and
you should have no expectancy that such transaction or corporate
opportunity will be available to us. See Certain
Relationships and Related Party Transactions and
Description of Capital Stock Corporate
Opportunity.
In the past, in order to fund the operations of or otherwise
provide financing for some of Mr. Moyes other businesses,
Mr. Moyes pledged substantially all of his ownership interest in
our predecessor company and it is possible that the needs of
these businesses in the future may cause him to sell or pledge
shares of our Class B common stock. Such sales or pledges,
or the perception that they may occur, may have an adverse
effect on the price of our Class A common stock and may create
conflicts of interests for Mr. Moyes. Although our board of
directors has limited the right of employees or directors to
pledge more than 20% of their family holdings to secure margin
loans pursuant to our securities trading policy, we cannot
assure you that the current board policy will not be changed
under circumstances deemed by the board to be appropriate.
Mr.
Moyes, our Chief Executive Officer, has substantial ownership
interests in several other businesses, which may expose Mr.
Moyes and us to significant lawsuits or
liabilities.
Mr. Moyes is the principal owner of, and serves as chairman of
the board of directors of Central Refrigerated Services, Inc., a
temperature controlled truckload carrier, Central Freight Lines,
Inc., an LTL carrier, SME Industries, Inc., a steel erection and
fabrication company, Southwest Premier Properties, a real estate
management company, and other business endeavors and investments
in a variety of industries. Although Mr. Moyes devotes the
substantial majority of his time to his role as Chief Executive
Officer of Swift Corporation, the breadth of Mr. Moyes
other interests may place competing demands on his time and
attention. In addition, in one instance of litigation arising
from another business owned by Mr. Moyes, Swift was named as a
defendant even though Swift was not a party to the transactions
that were the subject of the litigation. It is possible that
litigation relating to other businesses owned by Mr. Moyes in
the future may result in Swift being named as a defendant and,
even if such claims are without merit, that we will be required
to incur the expense of defending such matters.
We
depend on third parties, particularly in our intermodal and
brokerage businesses, and service instability from these
providers could increase our operating costs and reduce our
ability to offer intermodal and brokerage services, which could
adversely affect our revenue, results of operations, and
customer relationships.
Our intermodal business utilizes railroads and some third-party
drayage carriers to transport freight for our customers. In most
markets, rail service is limited to a few railroads or even a
single railroad. Any reduction in service by the railroads with
which we have or in the future may have relationships is likely
to increase the cost of the rail-based services we provide and
reduce the reliability, timeliness, and overall attractiveness
of our rail-based services. Furthermore, railroads increase
shipping rates as market conditions permit. Price increases
could result in higher costs to our customers and reduce or
eliminate our ability to offer intermodal services. In addition,
we may not be able to negotiate additional contracts with
railroads to
25
expand our capacity, add additional routes, or obtain multiple
providers, which could limit our ability to provide this service.
Our brokerage business is dependent upon the services of
third-party capacity providers, including other truckload
carriers. These third-party providers seek other freight
opportunities and may require increased compensation in times of
improved freight demand or tight trucking capacity. Our
inability to secure the services of these third parties, or
increases in the prices we must pay to secure such services,
could have an adverse effect on our operations and profitability.
We are
dependent on computer and communications systems, and a systems
failure could cause a significant disruption to our
business.
Our business depends on the efficient and uninterrupted
operation of our computer and communications hardware systems
and infrastructure. We currently maintain our computer system at
our Phoenix, Arizona headquarters, along with computer equipment
at each of our terminals. Our operations and those of our
technology and communications service providers are vulnerable
to interruption by fire, earthquake, power loss,
telecommunications failure, terrorist attacks, Internet
failures, computer viruses, and other events beyond our control.
Although we attempt to reduce the risk of disruption to our
business operations should a disaster occur through redundant
computer systems and networks and backup systems from an
alternative location in Phoenix, this alternative location is
subject to some of the same interruptions as may affect our
Phoenix headquarters. In the event of a significant system
failure, our business could experience significant disruption,
which could impact our results of operations.
Efforts
by labor unions could divert management attention and have a
material adverse effect on our operating results.
Although our only collective bargaining agreement exists at our
Mexican subsidiary, Trans-Mex, we always face the risk that our
employees could attempt to organize a union. To the extent our
owner-operators were re-classified as employees, the magnitude
of this risk would increase. Congress or one or more states
could approve legislation significantly affecting our businesses
and our relationship with our employees, such as the proposed
federal legislation referred to as the Employee Free Choice Act,
which would substantially liberalize the procedures for union
organization. Any attempt to organize by our employees could
result in increased legal and other associated costs. In
addition, if we entered into a collective bargaining agreement,
the terms could negatively affect our costs, efficiency, and
ability to generate acceptable returns on the affected
operations.
We may
not be able to execute or integrate future acquisitions
successfully, which could cause our business and future
prospects to suffer.
Historically, a key component of our growth strategy has been to
pursue acquisitions of complementary businesses. Although we
currently do not have any acquisition plans, we expect to
consider acquisitions from time to time in the future. If we
succeed in consummating future acquisitions, our business,
financial condition, and results of operations, or your
investment in our Class A common stock, may be negatively
affected because:
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some of the acquired businesses may not achieve anticipated
revenue, earnings, or cash flows;
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we may assume liabilities that were not disclosed to us or
otherwise exceed our estimates;
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we may be unable to integrate acquired businesses successfully
and realize anticipated economic, operational, and other
benefits in a timely manner, which could result in substantial
costs and delays or other operational, technical, or financial
problems;
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acquisitions could disrupt our ongoing business, distract our
management, and divert our resources;
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we may experience difficulties operating in markets in which we
have had no or only limited direct experience;
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there is a potential for loss of customers, employees, and
drivers of any acquired company;
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we may incur additional indebtedness; and
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if we issue additional shares of stock in connection with any
acquisitions, your ownership would be diluted.
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Seasonality
and the impact of weather and other catastrophic events affect
our operations and profitability.
Our tractor productivity decreases during the winter season
because inclement weather impedes operations and some shippers
reduce their shipments after the winter holiday season. At the
same time, operating expenses increase and fuel efficiency
declines because of engine idling and harsh weather creating
higher accident frequency, increased claims, and higher
equipment repair expenditures. We also may suffer from
weather-related or other events such as tornadoes, hurricanes,
blizzards, ice storms, floods, fires, earthquakes, and
explosions. These events may disrupt fuel supplies, increase
fuel costs, disrupt freight shipments or routes, affect regional
economies, destroy our assets, or adversely affect the business
or financial condition of our customers, any of which could harm
our results or make our results more volatile.
Our
total assets include goodwill and other indefinite-lived
intangibles. If we determine that these items have become
impaired in the future, net income could be materially and
adversely affected.
As of March 31, 2010, we have recorded goodwill of
$253.3 million and certain indefinite-lived intangible
assets of $181.0 million primarily as a result of the 2007
Transactions. Goodwill represents the excess of cost over the
fair market value of net assets acquired in business
combinations. In accordance with Financial Accounting Standards
Board Accounting Standards Codification, Topic 350,
Intangibles Goodwill and Other,
or Topic 350, we test goodwill and indefinite-lived
intangible assets for potential impairment annually and between
annual tests if an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting
unit below its carrying amount. Any excess in carrying value
over the estimated fair value is charged to our results of
operations. Our evaluation in 2009 produced no indication of
impairment of our goodwill or indefinite-lived intangible
assets. Based on the results of our evaluation in 2008, we
recorded a non-cash impairment charge of $17.0 million
related to the decline in fair value of our Mexico freight
transportation reporting unit resulting from the deterioration
in truckload industry conditions as compared with the estimates
and assumptions used in our original valuation projections used
at the time of the partial acquisition of Swift Transportation
in 2007. Based on the results of our evaluation in the fourth
quarter of 2007, we recorded a non-cash impairment charge of
$238.0 million related to the decline in fair value of our
U.S. freight transportation reporting unit resulting from
the deterioration in truckload industry conditions as compared
with the estimates and assumptions used in our original
valuation projections used at the time of the partial
acquisition of Swift Transportation. We may never realize the
full value of our intangible assets. Any future determination
requiring the write-off of a significant portion of intangible
assets would have an adverse effect on our financial condition
and results of operations.
As a
public company, we will be required to meet periodic reporting
requirements under the Securities and Exchange Commission, or
the SEC, rules and regulations. Complying with federal
securities laws as a public company is expensive, and we will
incur significant time and expense enhancing, documenting,
testing, and certifying our internal control over financial
reporting. Any deficiencies in our financial reporting or
internal controls could adversely affect our business and the
trading price of our Class A common stock.
As a publicly traded company following completion of this
offering, we will be required to file periodic reports
containing our financial statements with the SEC within a
specified time following the completion of quarterly and annual
periods. Since our going-private transaction in 2007, we have
not been required to comply with SEC requirements for large
accelerated filers to have our financial statements completed
and reviewed or audited within a shortened specified time,
although we have been preparing such documents as part of our
disclosure obligations to purchasers of our senior secured
notes. We may experience difficulty in meeting the SECs
reporting requirements. Any failure by us to file our periodic
reports with the SEC in a timely manner could harm our
reputation and reduce the trading price of our Class A
common stock.
27
As a public company, we will incur significant legal,
accounting, insurance, and other expenses. Compliance with other
rules of the SEC and the rules of the stock exchange on which
the Class A common stock is listed will increase our legal
and financial compliance costs and make some activities more
time-consuming and costly. Furthermore, once we become a public
company, SEC rules require that our Chief Executive Officer and
Chief Financial Officer periodically certify the existence and
effectiveness of our internal controls over financial reporting.
Our independent registered public accounting firm will be
required, beginning with our Annual Report on
Form 10-K
for our fiscal year ending on December 31, 2011, to attest
to our assessment of our internal controls over financial
reporting. This process will require significant documentation
of policies, procedures, and systems, review of that
documentation by our internal accounting staff and our outside
auditors, and testing of our internal controls over financial
reporting by our internal accounting staff and our outside
independent registered public accounting firm. This process will
involve considerable time and expense, may strain our internal
resources, and have an adverse impact on our operating costs. We
may experience higher than anticipated operating expenses and
outside auditor fees during the implementation of these changes
and thereafter.
During the course of our testing, we may identify deficiencies
that would have to be remediated to satisfy the SEC rules for
certification of our internal controls over financial reporting.
As a consequence, we may have to disclose in periodic reports we
file with the SEC material weaknesses in our system of internal
controls. The existence of a material weakness would preclude
management from concluding that our internal controls over
financial reporting are effective and would preclude our
independent auditors from issuing an unqualified opinion that
our internal controls over financial reporting are effective. In
addition, disclosures of this type in our SEC reports could
cause investors to lose confidence in our financial reporting
and may negatively affect the trading price of our Class A
common stock. Moreover, effective internal controls are
necessary to produce reliable financial reports and to prevent
fraud. If we have deficiencies in our disclosure controls and
procedures or internal controls over financial reporting, it may
negatively impact our business, results of operations, and
reputation.
We are
subject to certain non-competition and non-solicitation
restrictions in our non-asset based logistics business that
could impair our growth opportunities in that
operation.
In December 2009, we disposed of our note receivable and
ownership interest in Transplace, Inc., or Transplace, a
third-party logistics provider, for approximately
$4 million. As part of the sale, we agreed not to solicit
approximately thirty then-existing Transplace customers for
certain single-source third-party logistics services or solicit
business from any parties where a majority of the revenue
expected from the business is from transportation management
personnel and systems transaction fees, subject to certain
exceptions. The term of the
non-competition
clause runs until December 2011 or, with respect to
Transplaces then-existing customers, until the earlier of
December 2011 or until Transplaces contract with the
customer expires. Further, we agreed not to purchase or license
transportation management software for the purpose of competing
with Transplace until December 2011, subject to certain
exceptions. There also were mutual non-solicitation protections
given with respect to Transplace and our employees as part of
the transaction. The terms of these non-competition and
non-solicitation restrictions vary, with the longest extending
until December 2011. These restrictions could limit the
growth opportunities of our non-asset based logistics operations.
Risks
Related to this Offering
Our
Class A common stock has no prior public market and could
trade at prices below the initial public offering
price.
There has not been a public trading market for shares of our
Class A common stock prior to this offering. An active
trading market may not develop or be sustained after this
offering. The initial public offering price for our Class A
common stock sold in this offering will be determined by
negotiations among us and representatives of the underwriters.
This price may not be indicative of the price at which our
Class A common stock will trade after this offering, and
our Class A common stock could trade below the initial
public offering price.
28
Our
stock price may be volatile, and you may be unable to sell your
shares at or above the initial public offering
price.
The market price of our Class A common stock could be
subject to wide fluctuations in response to, among other things,
the factors described in this Risk Factors section
or otherwise, and other factors beyond our control, such as
fluctuations in the valuations of companies perceived by
investors to be comparable to us.
Furthermore, the stock markets have experienced price and volume
fluctuations that have affected and continue to affect the
market prices of equity securities of many companies. These
fluctuations often have been unrelated or disproportionate to
the operating performance of those companies. These broad market
fluctuations, as well as general economic, systemic, political,
and market conditions, such as recessions, interest rate
changes, or international currency fluctuations, may negatively
affect the market price of our Class A common stock.
In the past, many companies that have experienced volatility in
the market price of their stock have become subject to
securities class action litigation. We may be the target of this
type of litigation in the future. Securities litigation against
us could result in substantial costs and divert our
managements attention from other business concerns, which
could harm our business.
In addition, we expect that the trading price for our
Class A common stock will be affected by research or
reports that industry or financial analysts publish about us or
our business.
Our
stock price could decline due to the large number of outstanding
shares of our common stock eligible for future
sale.
Sales of substantial amounts of our common stock in the public
market following this offering, or the perception that these
sales could occur, could cause the market price of our
Class A common stock to decline. These sales also could
make it more difficult for us to sell equity or equity related
securities in the future at a time and price that we deem
appropriate.
Upon completion of this offering, we will
have
outstanding shares of Class A common stock, assuming no
exercise of the underwriters over-allotment option and no
exercise of options outstanding as of the date of this
prospectus and 75,145,892 outstanding shares of
Class B common stock, which are convertible into an equal
number of Class A common stock. Of the outstanding shares,
all of the shares sold in this offering, plus any additional
shares sold upon exercise of the underwriters
over-allotment option, will be freely tradable, except that any
shares purchased by affiliates (as that term is
defined in Rule 144 under the Securities Act), only may be
sold in compliance with the limitations described in the section
entitled Shares Eligible For Future Sale
Rule 144. Taking into consideration the effect of the
lock-up
agreements described below and the provisions of Rule 144
and Rule 701 under the Securities Act, the remaining shares
of our common stock will be available for sale in the public
market as follows:
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shares will be eligible for sale on the date of this prospectus;
and
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shares
will be eligible for sale upon the expiration of the
lock-up
agreements described below.
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We, our directors, executive officers, and the Moyes Affiliates
have entered into lock-up agreements in connection with this
offering. The
lock-up
agreements expire 180 days after the date of this
prospectus, subject to extension upon the occurrence of
specified events. Morgan Stanley & Co. Incorporated,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Wells Fargo Securities, LLC may in their sole discretion and at
any time without notice, release all or any portion of the
securities subject to
lock-up
agreements.
All of our outstanding common stock is currently held by Mr.
Moyes and the Moyes Affiliates on an aggregate basis. If such
holders cause a large number of securities to be sold in the
public market, the sales could reduce the trading price of our
Class A common stock. These sales also could impede our
ability to raise future capital. Upon completion of this
offering, Mr. Moyes and the Moyes Affiliates will be
entitled to rights with respect to the registration of such
shares under the Securities Act. See the information under the
29
heading Shares Eligible For Future Sale for a
more detailed description of the shares that will be available
for future sales upon completion of this offering.
In addition, upon the closing of this offering, we will have an
aggregate of up to 10,000,000 shares of Class A common
stock reserved for future issuances under our equity incentive
plan. Immediately following this offering, we intend to file a
registration statement registering under the Securities Act with
respect to the shares of Class A common stock reserved for
issuance in respect of incentive awards to our officers and
certain of our employees. Issuances of Class A common stock
to our directors, executive officers, and employees pursuant to
the exercise of stock options under our employee benefits
arrangements will dilute your interest in us.
Because
our estimated initial public offering price is substantially
higher than the adjusted net tangible book value per share of
our outstanding common stock following this offering, new
investors will incur immediate and substantial
dilution.
The assumed initial public offering price of
$ , which is the midpoint of the
price range set forth on the cover page of this prospectus, is
substantially higher than the adjusted net tangible book value
per share of our common stock based on the total value of our
tangible assets less our total liabilities divided by our shares
of common stock outstanding immediately following this offering.
Therefore, if you purchase Class A common stock in this
offering, you will experience immediate and substantial dilution
of approximately $ per share, the
difference between the price you pay for our Class A common
stock and its adjusted net tangible book value after completion
of the offering. To the extent outstanding options and warrants
to purchase our capital stock are exercised, there will be
further dilution.
We
currently do not intend to pay dividends on our Class A
common stock or Class B common stock.
We currently do not anticipate paying cash dividends on our
Class A common stock or Class B common stock. We
anticipate that we will retain all of our future earnings, if
any, for use in the development and expansion of our business
and for general corporate purposes. Any determination to pay
dividends and other distributions in cash, stock, or property by
Swift in the future will be at the discretion of our board of
directors and will be dependent on then-existing conditions,
including our financial condition and results of operations,
contractual restrictions, including restrictive covenants
contained in a new post-offering senior secured credit facility
and the indentures governing our outstanding senior secured
notes, capital requirements, and other factors.
Risks
Related to Our Capital Structure
We
have significant ongoing capital requirements that could harm
our financial condition, results of operations, and cash flows
if we are unable to generate sufficient cash from operations, or
obtain financing on favorable terms.
The truckload industry is capital intensive. Historically, we
have depended on cash from operations, borrowings from banks and
finance companies, issuance of notes, and leases to expand the
size of our terminal network and revenue equipment fleet and to
upgrade our revenue equipment. We expect that capital
expenditures to replace and upgrade our revenue equipment will
increase from their low levels in 2009 to maintain or lower our
current average company tractor age, to upgrade our trailer
fleet that has increased in age over our historical average age,
and as justified by increased freight volumes, to expand our
company tractor fleet, tractors we lease to owner-operators, and
our intermodal containers. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
There continues to be concern over the stability of the credit
markets. If the credit markets weaken, our business, financial
results, and results of operations could be materially and
adversely affected, especially if consumer confidence declines
and domestic spending decreases. If the credit markets erode, we
may not be able to access our current sources of credit and our
lenders may not have the capital to fund those sources. We may
need to incur additional indebtedness or issue debt or equity
securities in the future to refinance existing
30
debt, fund working capital requirements, make investments, or
for general corporate purposes. As a result of contractions in
the credit market, as well as other economic trends in the
credit market, we may not be able to secure financing for future
activities on satisfactory terms, or at all.
If we are unable to generate sufficient cash from operations,
obtain sufficient financing on favorable terms in the future, or
maintain compliance with financial and other covenants in our
financing agreements in the future, we may face liquidity
constraints or be forced to enter into less favorable financing
arrangements or operate our revenue equipment for longer periods
of time, any of which could reduce our profitability.
Additionally, such events could impact our ability to provide
services to our customers and may materially and adversely
affect our business, financial results, current operations,
results of operations, and potential investments.
Our
substantial leverage could adversely affect our ability to raise
additional capital to fund our operations, limit our ability to
react to changes in the economy or our industry, and prevent us
from meeting our obligations under our new senior secured credit
facility and our senior secured notes.
As of March 31, 2010, on a pro forma basis after giving
effect to the offering and use of proceeds, our total
indebtedness outstanding would have been approximately
$
and our total stockholders equity would have been
$ .
Our high degree of leverage could have important consequences,
including:
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increasing our vulnerability to adverse economic, industry, or
competitive developments;
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requiring a substantial portion of cash flow from operations to
be dedicated to the payment of principal and interest on our
indebtedness, therefore reducing our ability to use our cash
flow to fund our operations, capital expenditures, and future
business opportunities;
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exposing us to the risk of increased interest rates because
certain of our borrowings, including borrowings under our new
senior secured credit facility, are at variable rates of
interest;
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making it more difficult for us to satisfy our obligations with
respect to our indebtedness, and any failure to comply with the
obligations of any of our debt instruments, including
restrictive covenants and borrowing conditions, could result in
an event of default under the agreements governing such
indebtedness, including our new senior secured credit facility
and the indentures governing our senior secured notes;
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restricting us from making strategic acquisitions or causing us
to make non-strategic divestitures;
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limiting our ability to obtain additional financing for working
capital, capital expenditures, product development, debt service
requirements, acquisitions, and general corporate or other
purposes; and
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limiting our flexibility in planning for, or reacting to,
changes in our business, market conditions, or in the economy,
and placing us at a competitive disadvantage compared with our
competitors who are less highly leveraged and who, therefore,
may be able to take advantage of opportunities that our leverage
prevents us from exploiting.
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Our
Chief Executive Officer and the Moyes Affiliates control a large
portion of our stock and have substantial control over us, which
could limit other stockholders ability to influence the
outcome of key transactions, including changes of
control.
Following this offering, our Chief Executive Officer,
Mr. Moyes, and the Moyes Affiliates will beneficially own
approximately % of our
outstanding common stock including 100% of our Class B
common stock. On all matters with respect to which our
stockholders have a right to vote, including the election of
directors, the holders of our Class A common stock are
entitled to one vote per share, and the holders of our
Class B common stock are entitled to two votes per share.
All outstanding shares of Class B common stock are owned by
Mr. Moyes and the Moyes Affiliates and are convertible to
Class A common stock on a
one-for-one
basis at the election of the holders thereof or automatically
upon transfer to someone other than a Permitted Holder, as
defined in the section entitled Certain Relationships
and Related Party Transactions. Giving effect to the
completion of this offering, this voting structure will give Mr.
Moyes and
31
the Moyes Affiliates approximately
% of the voting power of
all of our outstanding stock. Furthermore, due to our dual class
structure, Mr. Moyes and the Moyes Affiliates will continue
to be able to control all matters submitted to our stockholders
for approval even if they come to own less than 50% of the total
outstanding shares of our common stock. This significant
concentration of share ownership may adversely affect the
trading price for our Class A common stock because
investors may perceive disadvantages in owning stock in
companies with controlling stockholders. Also, these
stockholders will be able to exert significant influence over
our management and affairs and matters requiring stockholder
approval, including the election of directors and the approval
of significant corporate transactions, such as mergers,
consolidations, or the sale of substantially all of our assets.
Consequently, this concentration of ownership may have the
effect of delaying or preventing a change of control, including
a merger, consolidation, or other business combination involving
us, or discouraging a potential acquirer from making a tender
offer or otherwise attempting to obtain control, even if that
change of control would benefit our other stockholders.
Because Mr. Moyes and the Moyes Affiliates will control a
majority of the voting power of our common stock, we qualify as
a controlled company as defined by the exchange on
which we intend to list the shares of Class A common stock, and,
as such, we may elect not to comply with certain corporate
governance requirements of such stock exchange. Following the
completion of this offering, we do not intend to utilize these
exemptions, but may choose to do so in the future.
The
concentration of ownership of our capital stock with insiders
upon the completion of this offering will limit your ability to
influence corporate matters.
In addition to the significant ownership by Mr. Moyes and
the Moyes Affiliates, we anticipate that our executive officers
and directors together will beneficially own approximately
% of our Class A
common stock outstanding after this offering. This significant
concentration of share ownership may adversely affect the
trading price for our Class A common stock because
investors may perceive disadvantages in owning stock in
companies with controlling stockholders. Also, these
stockholders, acting together, will be able to exert significant
influence over our management and affairs and matters requiring
stockholder approval, including the election of directors and
the approval of significant corporate transactions, such as
mergers, consolidations, or the sale of substantially all of our
assets. Consequently, this concentration of ownership may have
the effect of delaying or preventing a change of control,
including a merger, consolidation, or other business combination
involving us, or discouraging a potential acquirer from making a
tender offer or otherwise attempting to obtain control, even if
that change of control would benefit our other stockholders.
Our
debt agreements contain restrictions that limit our flexibility
in operating our business.
Our new senior secured credit facility and the indentures
governing our outstanding senior secured notes contain various
covenants that limit our ability to engage in specified types of
transactions, which limit our and our subsidiaries ability
to, among other things:
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incur additional indebtedness or issue certain preferred shares;
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pay dividends on, repurchase, or make distributions in respect
of our capital stock or make other restricted payments;
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make certain investments;
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sell certain assets;
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create liens;
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enter into sale and leaseback transactions;
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make capital expenditures;
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prepay or defease specified debt;
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consolidate, merge, sell, or otherwise dispose of all or
substantially all of our assets; and
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enter into certain transactions with our affiliates.
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A breach of any of these covenants could result in a default
under one or more of these agreements, including as a result of
cross default provisions, and, in the case of our
$300.0 million revolving line of credit under our existing
senior secured credit facility and our 2008 RSA, permit the
lenders to cease making loans to us. Upon the occurrence of an
event of default under our new senior secured credit facility,
the lenders could elect to declare all amounts outstanding
thereunder to be immediately due and payable and terminate all
commitments to extend further credit. Such actions by those
lenders could cause cross defaults under our other indebtedness.
If we were unable to repay those amounts, the lenders under our
new senior secured credit facility could proceed against the
collateral granted to them to secure that indebtedness. If the
lenders under our new senior secured credit facility were to
accelerate the repayment of borrowings, we might not have
sufficient assets to repay all amounts borrowed thereunder as
well as our senior secured notes. In addition, our 2008 RSA
includes certain restrictive covenants and cross default
provisions with respect to our new senior secured credit
facility and indentures governing our senior secured notes.
Failure to comply with these covenants and provisions may
jeopardize our ability to continue to sell receivables under the
facility and could negatively impact our liquidity.
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Special
Note Regarding Forward-Looking Statements
This prospectus contains forward-looking statements
within the meaning of the federal securities laws that involve
risks and uncertainties. Forward-looking statements include
statements we make concerning our plans, objectives, goals,
strategies, future events, future revenues or performance,
capital expenditures, financing needs, and other information
that is not historical information and, in particular, appear
under the headings entitled Prospectus Summary,
Risk Factors, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Business, and Executive
Compensation Compensation Discussion and
Analysis. When used in this prospectus, the words
estimates, expects,
anticipates, projects,
forecasts, plans, intends,
believes, foresees, seeks,
likely, may, will,
should, goal, target, and
variations of these words or similar expressions (or the
negative versions of any such words) are intended to identify
forward-looking statements. In addition, we, through our senior
management, from time to time make forward-looking public
statements concerning our expected future operations and
performance and other developments. These forward-looking
statements are subject to risks and uncertainties that may
change at any time, and, therefore, our actual results may
differ materially from those that we expected. Accordingly,
investors should not place undue reliance on our forward-looking
statements. We derive many of our forward-looking statements
from our operating budgets and forecasts, which are based upon
many detailed assumptions. While we believe that our assumptions
are reasonable, we caution that it is very difficult to predict
the impact of known factors, and, of course, it is impossible
for us to anticipate all factors that could affect our actual
results. All forward-looking statements are based upon
information available to us on the date of this prospectus. We
undertake no obligation to publicly update or revise
forward-looking statements to reflect events or circumstances
after the date made or to reflect the occurrence of
unanticipated events, except as required by law.
Important factors that could cause actual results to differ
materially from our expectations (cautionary
statements) are disclosed under Risk Factors
and elsewhere in this prospectus. All forward-looking statements
in this prospectus and subsequent written and oral
forward-looking statements attributable to us, or persons acting
on our behalf, are expressly qualified in their entirety by the
cautionary statements. The factors that we believe could affect
our results include, but are not limited to:
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any 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;
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increasing competition from trucking, rail, intermodal, and
brokerage competitors;
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a significant reduction in, or termination of, our trucking
services by a key customer;
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our ability to sustain cost savings realized as part of our
recent cost reduction initiatives;
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our ability to achieve our strategy of growing our revenue;
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volatility in the price or availability of fuel;
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increases in new equipment prices or replacement costs;
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the regulatory environment in which we operate, including
existing regulations and changes in existing regulations, or
violations by us of existing or future regulations;
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the costs of environmental compliance
and/or the
imposition of liabilities under environmental laws and
regulations;
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difficulties in driver recruitment and retention;
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increases in driver compensation to the extent not offset by
increases in freight rates;
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potential volatility or decrease in the amount of earnings as a
result of our claims exposure through our wholly-owned captive
insurance companies;
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uncertainties associated with our operations in Mexico;
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our ability to attract and maintain relationships with
owner-operators;
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our ability to retain or replace key personnel;
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conflicts of interest or potential litigation that may arise
from other businesses owned by Mr. Moyes;
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potential failure in computer or communications systems;
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our labor relations;
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our ability to execute or integrate any future acquisitions
successfully;
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seasonal factors such as harsh weather conditions that increase
operating costs; and
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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.
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35
Reorganization
On May 20, 2010, in contemplation of our initial public
offering, Swift Corporation formed Swift Holdings Corp., a
Delaware corporation. Swift Holdings Corp. has not engaged in
any business or other activities except in connection with its
formation and this offering and holds no assets and has no
subsidiaries.
Prior to the consummation of this offering, the stockholder loan
agreement entered into on May 10, 2007, as subsequently
amended, between us and Mr. Moyes and the Moyes Affiliates,
all of which are stockholders of Swift Corporation, will be
cancelled or retired. As of March 31, 2010, the balance of
such stockholder loan was $240.0 million. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Overview Stockholder Loan for further details
of the stockholder loan. Subsequent to the cancellation or
retirement of the stockholder loan and immediately prior to the
consummation of this offering, Swift Corporation will merge with
and into Swift Holdings Corp., the registrant, with Swift
Holdings Corp. surviving as a Delaware corporation. In the
merger, all of the outstanding common stock of Swift Corporation
will be converted into shares of Swift Holdings Corp.
Class B common stock on a
one-for-one
basis and all outstanding options to purchase common stock of
Swift Corporation will be converted into options to purchase
Class A common stock of Swift Holdings Corp. See
Description of Capital Stock.
36
Use of
Proceeds
We estimate that the net proceeds from our sale of shares of
Class A common stock in this offering at an assumed initial
public offering price of $ per
share, which is the midpoint of the price range set forth on the
cover page of this prospectus, after deducting estimated
underwriting discounts and commissions and estimated offering
expenses payable by us, will be approximately
$ million, or
$ million if the
underwriters option to purchase additional shares is
exercised in full. A $1.00 increase or decrease in the assumed
initial public offering price of $
per share would increase or decrease, as applicable, the net
proceeds to us from this offering by approximately
$ million, assuming the
number of shares offered by us remains the same as set forth on
the cover page of this prospectus and after deducting the
estimated underwriting discounts and commissions and estimated
offering expenses that we must pay.
We intend to use approximately
$ million of the net proceeds
from this offering to repay a portion of our existing senior
secured credit facility. The balance of the existing senior
secured credit facility will be refinanced by borrowings under
our new senior secured credit facility, which we will enter into
in connection with this offering. See Prospectus
Summary Concurrent Transactions. The remaining
net proceeds will be used for general corporate purposes.
Our existing senior secured credit facility consists of a first
lien term loan with an original aggregate principal amount of
$1.72 billion due May 2014, a $300.0 million revolving
line of credit due May 2012, and a $150.0 million synthetic
letter of credit facility due May 2014. As of March 31,
2010, there was $1.51 billion outstanding under the first
lien term loan. In April 2010, we made an $18.7 million
payment on the first lien term loan out of excess cash flows for
the prior fiscal year, as defined in our existing senior secured
credit facility. For periods commencing on March 31, 2010,
interest on our existing senior secured credit facility accrues
at a rate equal to 8.25% per annum.
37
Dividend
Policy
We anticipate that we will retain all of our future earnings, if
any, for use in the development and expansion of our business
and for general corporate purposes. Any determination to pay
dividends and other distributions in cash, stock, or property by
Swift in the future will be at the discretion of our board of
directors and will be dependent on then-existing conditions,
including our financial condition and results of operations,
contractual restrictions, including restrictive covenants
contained in a new post-offering senior secured credit facility
and the indentures governing our outstanding senior secured
notes, capital requirements, and other factors.
During the period we were taxed as a subchapter S corporation,
we paid dividends to our stockholders in amounts equal to the
actual amount of interest due and payable under the stockholder
loan. Distributions to our stockholders totaled
$16.4 million, $33.8 million, and $29.7 million
in 2009, 2008, and 2007, respectively. See Certain
Relationships and Related Party Transactions.
38
Capitalization
The following table sets forth our consolidated cash and cash
equivalents and total capitalization as of March 31, 2010
on:
|
|
|
|
|
an actual basis, without giving effect to the consummation of
the merger and recapitalization as described under
Reorganization; and
|
|
|
|
an as adjusted basis to reflect:
|
|
|
|
|
|
the consummation of the merger and recapitalization;
|
|
|
|
the sale by us
of shares
of Class A common stock in this offering at an assumed
initial public offering price of $
per share, which is the midpoint of the price range set forth on
the cover page of this prospectus, after deducting estimated
underwriting discounts and commissions and estimated offering
expenses payable by us;
|
|
|
|
the application of net proceeds from this offering as described
under Use of Proceeds, as if the offering and the
application of net proceeds of this offering had occurred on
March 31, 2010;
|
|
|
|
the cancellation of the stockholder loan; and
|
|
|
|
the refinancing of our existing senior secured credit facility.
|
The information below is illustrative only and our
capitalization following the completion of this offering will be
adjusted based on the actual initial public offering price and
other terms of this offering determined at pricing. You should
read this table together with the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and the related notes appearing elsewhere
in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010
|
|
|
|
Actual
|
|
|
As Adjusted(1)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Cash and cash equivalents(2)
|
|
$
|
87,327
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt and obligations under capital leases:
|
|
|
|
|
|
|
|
|
Existing senior secured credit facility(3)
|
|
$
|
1,507,100
|
|
|
$
|
|
|
New senior secured credit facility
|
|
|
|
|
|
|
|
|
Obligation relating to securitization of accounts receivable
|
|
|
150,000
|
|
|
|
|
|
Senior secured floating rate notes
|
|
|
203,600
|
|
|
|
|
|
Senior secured fixed rate notes
|
|
|
505,648
|
|
|
|
|
|
Other existing long-term debt and obligations under capital
leases
|
|
|
165,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
2,532,181
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 1,000,000 shares
authorized, none issued or outstanding, actual;
and shares
authorized, no shares issued or outstanding, as adjusted
|
|
|
|
|
|
|
|
|
Pre-reorganization common stock, $0.001 par value;
200,000,000 shares authorized, 75,145,892 shares
issued and outstanding, actual; and none issued and outstanding,
as adjusted
|
|
|
75
|
|
|
|
|
|
Class A common stock, $0.001 par
value; shares
authorized, shares
issued and outstanding, as adjusted
|
|
|
|
|
|
|
|
|
Class B common stock, $0.001 par
value; shares
authorized, 75,145,892 shares issued and outstanding, as
adjusted
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010
|
|
|
|
Actual
|
|
|
As Adjusted(1)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Additional paid-in capital
|
|
|
279,136
|
|
|
|
|
|
Accumulated deficit
|
|
|
(812,937
|
)
|
|
|
|
|
Stockholder loans receivable
|
|
|
(241,678
|
)
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(43,052
|
)
|
|
|
|
|
Noncontrolling interest
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(818,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
1,713,827
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Each $1.00 increase or decrease in the assumed initial public
offering price of $ per share
would increase or decrease, as applicable, the amount of cash
and cash equivalents, additional paid-in capital, total
stockholders deficit, and total capitalization by
approximately $ million,
assuming the number of shares offered by us remains the same as
set forth on the cover page of this prospectus and after
deducting the estimated underwriting discounts and commissions
and estimated offering expenses that we must pay. |
|
(2) |
|
Excludes restricted cash of $48.9 million. |
|
(3) |
|
Our existing senior secured credit facility also includes a
$300.0 million revolving line of credit due May 2012 and a
$150.0 million synthetic letter of credit facility due May
2014. As of March 31, 2010, we had outstanding letters of
credit under the revolving line of credit primarily for
workers compensation and self-insurance liability purposes
totaling $64.4 million, and $235.6 million available
for borrowings under the revolving line of credit. As of
March 31, 2010, the synthetic letter of credit facility was
fully utilized. |
40
Dilution
As of March 31, 2010, we had negative net tangible book
value of approximately $1.46 billion, or $19.37 per share
of our common stock. Our net tangible book value per share
represents our tangible assets less our liabilities, divided by
our shares of common stock outstanding as of March 31, 2010.
After giving effect to our sale
of shares
of Class A common stock in this offering at the assumed
initial public offering price of $
per share, which is the midpoint of the price range set forth on
the cover page of this prospectus, and after deducting estimated
underwriting discounts and commissions and estimated offering
expenses payable by us, our as adjusted net tangible book value
as of March 31, 2010 would have been
$ , or
$ per share. This represents an
immediate increase in net tangible book value of
$ per share to existing
stockholders and an immediate dilution of
$ per share to new investors.
The following table illustrates this dilution:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
|
|
Net tangible book value per share as of March 31, 2010
|
|
$
|
(19.37
|
)
|
|
|
|
|
Increase per share attributable to this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted net tangible book value per share after this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tangible book value dilution per share to new investors in
this offering
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
If all our outstanding options had been exercised, the negative
net tangible book value as of March 31, 2010 would have
been approximately $1.37 billion or $16.47 per share, and
the as adjusted net tangible book value after this offering
would have been $ million, or
$ per share, causing dilution to
new investors of $ per share.
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share,
which is the midpoint of the price range set forth on the cover
page of this prospectus, would increase or decrease, as
applicable, our as adjusted net tangible book value per share by
approximately $ , assuming the
number of shares offered by us remains the same as set forth on
the cover page of this prospectus and after deducting the
estimated underwriting discounts and commissions and estimated
offering expenses that we must pay.
If the underwriters over-allotment option to purchase
additional shares from us is exercised in full, our as adjusted
net tangible book value per share after this offering would be
$ per share, the increase in pro
forma as adjusted net tangible book value per share to existing
stockholders would be $ per share,
and the dilution to new investors purchasing shares in this
offering would be $ per share.
The following table summarizes, on an as adjusted basis as of
March 31, 2010, the total number of shares of common stock
purchased from us, the total consideration paid to us, and the
average price per share of Class B common stock paid to us
by existing stockholders and by new investors purchasing shares
of Class A common stock in this offering at the assumed
initial public offering price of
$ , the midpoint of the price range
set forth on the cover page of this prospectus, before deducting
estimated underwriting discounts and commissions and estimated
offering expenses payable by us:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Price Per
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Share
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
$
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share,
which is the midpoint of the price range set forth on the cover
page of this prospectus, would increase or decrease, as
applicable, total consideration paid to us by new investors and
total consideration paid to us by all stockholders
41
by approximately $ million,
assuming the number of shares offered by us remains the same as
set forth on the cover page of this prospectus and without
deducting the estimated underwriting discounts and commissions
and estimated offering expenses that we must pay.
If the underwriters over-allotment option to purchase
additional shares from us is exercised in full, our existing
stockholders would own % and our
new investors would own % of the
total number of shares of our common stock outstanding after
this offering.
42
Selected
Historical Consolidated Financial and Other Data
The table below sets forth our selected consolidated financial
and other data for the periods and as of the dates indicated.
The selected historical consolidated financial and other data
for the years ended December 31, 2009, 2008, and 2007 and
the period from January 1, 2007 through May 10, 2007
are derived from our audited consolidated financial statements
and those of our predecessor, which financial statements have
been audited by KPMG LLP, an independent registered public
accounting firm, included elsewhere in this prospectus and
include, in the opinion of management, all adjustments that
management considers necessary for the presentation of the
information outlined in these financial statements. In addition,
for comparative purposes, we have included a pro forma
(provision) benefit for income taxes assuming we had been taxed
as a subchapter C corporation in all periods when our
subchapter S corporation election was in effect. The
selected historical consolidated financial and other data for
the years ended December 31, 2006 and 2005 are derived from
the historical financial statements of our predecessor not
included in this prospectus.
The selected consolidated financial and other data for the three
months ended March 31, 2010 and 2009 are derived from our
unaudited condensed consolidated interim financial statements
included elsewhere in this prospectus. The results for any
interim period are not necessarily indicative of the results
that may be expected for a full year. Additionally, our
historical results are not necessarily indicative of the results
expected for any future period.
Swift Corporation acquired our predecessor on May 10, 2007
in conjunction with the 2007 Transactions. Thus, although our
results for the year ended December 31, 2007 present
results for a full year period, they only include the results of
our predecessor after May 10, 2007. You should read the
selected historical consolidated financial and other data
together with the consolidated financial statements and related
notes appearing elsewhere in this prospectus, as well as
Prospectus Summary Summary Historical
Consolidated Financial and Other Data,
Capitalization, and Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Through
|
|
|
Year Ended
|
|
(Dollars in thousands,
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
May 10,
|
|
|
December 31,
|
|
except per share data)
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007(1)
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trucking revenue
|
|
$
|
503,507
|
|
|
$
|
509,320
|
|
|
$
|
2,062,296
|
|
|
$
|
2,443,271
|
|
|
$
|
1,674,835
|
|
|
$
|
876,042
|
|
|
$
|
2,585,590
|
|
|
$
|
2,722,648
|
|
Fuel surcharge revenue
|
|
|
88,816
|
|
|
|
52,986
|
|
|
|
275,373
|
|
|
|
719,617
|
|
|
|
344,946
|
|
|
|
147,507
|
|
|
|
462,529
|
|
|
|
391,942
|
|
Other revenue
|
|
|
62,507
|
|
|
|
52,450
|
|
|
|
233,684
|
|
|
|
236,922
|
|
|
|
160,512
|
|
|
|
51,174
|
|
|
|
124,671
|
|
|
|
82,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
|
654,830
|
|
|
|
614,756
|
|
|
|
2,571,353
|
|
|
|
3,399,810
|
|
|
|
2,180,293
|
|
|
|
1,074,723
|
|
|
|
3,172,790
|
|
|
|
3,197,455
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Through
|
|
|
Year Ended
|
|
(Dollars in thousands,
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
May 10,
|
|
|
December 31,
|
|
except per share data)
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007(1)
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and employee benefits
|
|
|
177,803
|
|
|
|
189,377
|
|
|
|
728,784
|
|
|
|
892,691
|
|
|
|
611,811
|
|
|
|
364,690
|
|
|
|
899,286
|
|
|
|
1,008,833
|
|
Operating supplies and expenses
|
|
|
47,830
|
|
|
|
56,723
|
|
|
|
209,945
|
|
|
|
271,951
|
|
|
|
187,873
|
|
|
|
119,833
|
|
|
|
268,658
|
|
|
|
286,261
|
|
Fuel expense
|
|
|
106,082
|
|
|
|
85,868
|
|
|
|
385,513
|
|
|
|
768,693
|
|
|
|
474,825
|
|
|
|
223,579
|
|
|
|
632,824
|
|
|
|
610,919
|
|
Purchased transportation
|
|
|
175,702
|
|
|
|
135,753
|
|
|
|
620,312
|
|
|
|
741,240
|
|
|
|
435,421
|
|
|
|
196,258
|
|
|
|
586,252
|
|
|
|
583,380
|
|
Rental expense
|
|
|
18,903
|
|
|
|
20,391
|
|
|
|
79,833
|
|
|
|
76,900
|
|
|
|
51,703
|
|
|
|
20,089
|
|
|
|
50,937
|
|
|
|
57,669
|
|
Insurance and claims
|
|
|
20,207
|
|
|
|
25,481
|
|
|
|
81,332
|
|
|
|
141,949
|
|
|
|
69,699
|
|
|
|
58,358
|
|
|
|
153,728
|
|
|
|
156,525
|
|
Depreciation and amortization(2)
|
|
|
65,497
|
|
|
|
66,956
|
|
|
|
253,531
|
|
|
|
275,832
|
|
|
|
187,043
|
|
|
|
82,949
|
|
|
|
222,376
|
|
|
|
199,777
|
|
Impairments(3)
|
|
|
1,274
|
|
|
|
515
|
|
|
|
515
|
|
|
|
24,529
|
|
|
|
256,305
|
|
|
|
|
|
|
|
27,595
|
|
|
|
6,377
|
|
(Gain) loss on disposal of property and equipment
|
|
|
(1,448
|
)
|
|
|
(19
|
)
|
|
|
(2,244
|
)
|
|
|
(6,466
|
)
|
|
|
(397
|
)
|
|
|
130
|
|
|
|
(186
|
)
|
|
|
(942
|
)
|
Communication and utilities
|
|
|
6,422
|
|
|
|
7,091
|
|
|
|
24,595
|
|
|
|
29,644
|
|
|
|
18,625
|
|
|
|
10,473
|
|
|
|
28,579
|
|
|
|
30,920
|
|
Operating taxes and licenses
|
|
|
13,365
|
|
|
|
14,381
|
|
|
|
57,236
|
|
|
|
67,911
|
|
|
|
42,076
|
|
|
|
24,021
|
|
|
|
59,010
|
|
|
|
69,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
631,637
|
|
|
|
602,517
|
|
|
|
2,439,352
|
|
|
|
3,284,874
|
|
|
|
2,334,984
|
|
|
|
1,100,380
|
|
|
|
2,929,059
|
|
|
|
3,009,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
23,193
|
|
|
|
12,239
|
|
|
|
132,001
|
|
|
|
114,936
|
|
|
|
(154,691
|
)
|
|
|
(25,657
|
)
|
|
|
243,731
|
|
|
|
188,060
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense(4)
|
|
|
62,596
|
|
|
|
47,702
|
|
|
|
200,512
|
|
|
|
222,177
|
|
|
|
171,115
|
|
|
|
9,454
|
|
|
|
26,870
|
|
|
|
29,946
|
|
Derivative interest expense (income)(5)
|
|
|
23,714
|
|
|
|
7,549
|
|
|
|
55,634
|
|
|
|
18,699
|
|
|
|
13,233
|
|
|
|
(177
|
)
|
|
|
(1,134
|
)
|
|
|
(3,314
|
)
|
Interest income
|
|
|
(220
|
)
|
|
|
(428
|
)
|
|
|
(1,814
|
)
|
|
|
(3,506
|
)
|
|
|
(6,602
|
)
|
|
|
(1,364
|
)
|
|
|
(2,007
|
)
|
|
|
(1,713
|
)
|
Other(4)
|
|
|
(371
|
)
|
|
|
675
|
|
|
|
(13,336
|
)
|
|
|
12,753
|
|
|
|
(1,933
|
)
|
|
|
1,429
|
|
|
|
(1,272
|
)
|
|
|
(1,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (income) expenses
|
|
|
85,719
|
|
|
|
55,498
|
|
|
|
240,996
|
|
|
|
250,123
|
|
|
|
175,813
|
|
|
|
9,342
|
|
|
|
22,457
|
|
|
|
23,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(62,526
|
)
|
|
|
(43,259
|
)
|
|
|
(108,995
|
)
|
|
|
(135,187
|
)
|
|
|
(330,504
|
)
|
|
|
(34,999
|
)
|
|
|
221,274
|
|
|
|
164,350
|
|
Income tax (benefit) expense
|
|
|
(9,525
|
)
|
|
|
301
|
|
|
|
326,650
|
|
|
|
11,368
|
|
|
|
(234,316
|
)
|
|
|
(4,577
|
)
|
|
|
80,219
|
|
|
|
63,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(53,001
|
)
|
|
$
|
(43,560
|
)
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
|
$
|
(96,188
|
)
|
|
$
|
(30,422
|
)
|
|
$
|
141,055
|
|
|
$
|
101,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share
|
|
$
|
(0.71
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(5.80
|
)
|
|
$
|
(1.95
|
)
|
|
$
|
(1.94
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
1.89
|
|
|
$
|
1.39
|
|
Diluted income (loss) per common share
|
|
$
|
(0.71
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(5.80
|
)
|
|
$
|
(1.95
|
)
|
|
$
|
(1.94
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
1.86
|
|
|
$
|
1.37
|
|
Weighted average shares used in computing basic income (loss)
per common share (in thousands)
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
49,521
|
|
|
|
75,159
|
|
|
|
74,584
|
|
|
|
72,540
|
|
Weighted average shares used in computing diluted income (loss)
per common share (in thousands)
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
49,521
|
|
|
|
75,159
|
|
|
|
75,841
|
|
|
|
73,823
|
|
Pro forma C corporation data (unaudited):(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical loss before income taxes
|
|
|
N/A
|
|
|
$
|
(43,259
|
)
|
|
$
|
(108,995
|
)
|
|
$
|
(135,187
|
)
|
|
$
|
(330,504
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Pro forma provision (benefit) for income taxes
|
|
|
N/A
|
|
|
|
2,259
|
|
|
|
5,693
|
|
|
|
(26,573
|
)
|
|
|
(19,166
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Through
|
|
|
Year Ended
|
|
(Dollars in thousands,
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
May 10,
|
|
|
December 31,
|
|
except per share data)
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007(1)
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
|
N/A
|
|
|
$
|
(45,518
|
)
|
|
$
|
(114,688
|
)
|
|
$
|
(108,614
|
)
|
|
$
|
(311,338
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
N/A
|
|
|
$
|
(0.61
|
)
|
|
$
|
(1.53
|
)
|
|
$
|
(1.45
|
)
|
|
$
|
(6.29
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Diluted
|
|
|
N/A
|
|
|
$
|
(0.61
|
)
|
|
$
|
(1.53
|
)
|
|
$
|
(1.45
|
)
|
|
$
|
(6.29
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Consolidated balance sheet data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (excl. restricted cash)
|
|
|
87,327
|
|
|
|
56,806
|
|
|
|
115,862
|
|
|
|
57,916
|
|
|
|
78,826
|
|
|
|
81,134
|
|
|
|
47,858
|
|
|
|
13,098
|
|
Net property and equipment
|
|
|
1,327,210
|
|
|
|
1,516,994
|
|
|
|
1,364,545
|
|
|
|
1,583,296
|
|
|
|
1,588,102
|
|
|
|
1,478,808
|
|
|
|
1,513,592
|
|
|
|
1,630,469
|
|
Total assets
|
|
|
2,638,739
|
|
|
|
2,594,965
|
|
|
|
2,513,874
|
|
|
|
2,648,507
|
|
|
|
2,928,632
|
|
|
|
2,124,293
|
|
|
|
2,110,648
|
|
|
|
2,218,530
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization of accounts receivable(4)
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
160,000
|
|
|
|
180,000
|
|
|
|
245,000
|
|
Long-term debt and obligations under capital leases (incl.
current)(4)
|
|
|
2,382,181
|
|
|
|
2,515,335
|
|
|
|
2,466,934
|
|
|
|
2,494,455
|
|
|
|
2,427,253
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
365,786
|
|
Stockholders equity (deficit)
|
|
|
(818,354
|
)
|
|
|
(498,831
|
)
|
|
|
(865,781
|
)
|
|
|
(444,193
|
)
|
|
|
(297,547
|
)
|
|
|
1,007,904
|
|
|
|
1,014,223
|
|
|
|
870,044
|
|
Consolidated statement of cash flows data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
|
15,107
|
|
|
|
7,376
|
|
|
|
115,335
|
|
|
|
119,740
|
|
|
|
128,646
|
|
|
|
85,149
|
|
|
|
365,430
|
|
|
|
362,548
|
|
Net cash flows used in investing activities
|
|
|
(35,131
|
)
|
|
|
(6,661
|
)
|
|
|
(1,127
|
)
|
|
|
(118,517
|
)
|
|
|
(1,612,314
|
)
|
|
|
(43,854
|
)
|
|
|
(114,203
|
)
|
|
|
(380,007
|
)
|
Net cash flows from (used in) financing activities, net of the
effect of exchange rate changes
|
|
|
(8,511
|
)
|
|
|
(1,825
|
)
|
|
|
(56,262
|
)
|
|
|
(22,133
|
)
|
|
|
1,562,494
|
|
|
|
(8,019
|
)
|
|
|
(216,467
|
)
|
|
|
2,312
|
|
|
|
|
(1)
|
|
Our audited results of operations
include the full year presentation of Swift Corporation as of
and for the year ended December 31, 2007. Swift Corporation
was formed in 2006 for the purpose of acquiring Swift
Transportation, but that acquisition was not completed until
May 10, 2007 as part of the 2007 Transactions, and, as
such, Swift Corporation had nominal activity from
January 1, 2007 through May 10, 2007. The results of
Swift Transportation from January 1, 2007 to May 10,
2007 and IEL from January 1, 2007 to April 7, 2007 are
not reflected in the audited results of Swift Corporation for
the year ended December 31, 2007. These financial results
include the impact of the 2007 Transactions.
|
|
(2)
|
|
During the three months ended
March 31, 2010, we recorded $7.4 million of
incremental depreciation expense related to our revised
estimates regarding salvage value and useful lives for
approximately 7,000 dry van trailers that we decided to scrap
during the quarter. During the three months ended March 31,
2010 and 2009, we incurred non-cash amortization expense of
$5.2 million and $5.7 million, respectively, relating
to a step up in basis of certain intangible assets recognized in
connection with the 2007 Transactions. For the years ended
December 31, 2009, 2008, and 2007, we incurred amortization
expense of $22.0 million, $24.2 million, and
$16.8 million, respectively, relating to a step up in basis
of certain intangible assets recognized in connection with the
2007 Transactions.
|
|
(3)
|
|
During the three months ended
March 31, 2010, revenue equipment with a carrying amount of
$3.6 million was written down to its fair value of
$2.3 million, resulting in an impairment charge of
$1.3 million, which was included in impairments in the
consolidated statement of operations for the three months ended
March 31, 2010. During the three months ended
March 31, 2009, non-operating real estate properties held
and used with a carrying amount of $2.1 million were
written down to their fair value of $1.6 million, resulting
in an impairment charge of $0.5 million. For the year ended
December 31, 2008, we incurred $24.5 million in
pre-tax impairment charges comprised of a $17.0 million
impairment of goodwill relating to our Mexico freight
transportation reporting unit, and impairment charges totaling
$7.5 million on tractors, trailers, and several
non-operating real estate properties and other assets. For the
year ended December 31, 2007, we recorded a goodwill
impairment of $238.0 million pre-tax related to our U.S.
freight transportation reporting unit and trailer impairment of
$18.3 million pre-tax. The results for the year ended
December 31, 2006 included pre-tax charges of
$9.2 million related to the impairment of certain trailers,
Mexico real property and equipment, and $18.4 million for
the write-off of a note receivable and other outstanding amounts
related to our sale of our auto haul business in April 2005. For
the year ended December 31, 2005, we incurred a pre-tax
impairment charge of $6.4 million related to certain
trailers.
|
45
|
|
|
(4)
|
|
Effective January 1, 2010, we
adopted ASU
No. 2009-16
under which we were required to account for our 2008 RSA as a
secured borrowing on our balance sheet as opposed to a sale,
with our 2008 RSA program fees characterized as interest
expense. From March 27, 2008 through December 31,
2009, our 2008 RSA has been accounted for as a true sale in
accordance with GAAP. Therefore, as of December 31, 2009
and 2008, such accounts receivable and associated obligation are
not reflected in our consolidated balance sheets. For periods
prior to March 27, 2008, and again beginning
January 1, 2010, accounts receivable and associated
obligation are recorded on our balance sheet. Long-term debt
excludes securitization amounts outstanding for each period. For
the three months ended March 31, 2010, total program fees
recorded as interest expense were $1.1 million.
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|
|
|
Prior to the change in GAAP,
program fees were recorded under Other income and
expenses under Other. For the three months
ended March 31, 2009, total program fees included in
Other were $1.1 million. For the years ended
December 31, 2009 and 2008, program fees from our 2008 RSA
totaling $5.0 million and $7.3 million, respectively,
were recorded in Other.
|
|
(5)
|
|
Derivative interest expense for the
three months ended March 31, 2010 and 2009 is related to
our interest rate swaps with notional amounts of
$1.14 billion and $1.20 billion, respectively.
Derivative interest expense increased during the three months
ended March 31, 2010 over the same period in 2009 as a
result of the decrease in three month LIBOR, the underlying
index for the swaps. Additionally, we de-designated the
remaining swaps and discontinued hedge accounting effective
October 1, 2009 as a result of the second amendment to our
existing senior secured credit facility, after which the entire
mark-to-market
adjustment was recorded in our statement of operations as
opposed to being recorded in equity as a component of other
comprehensive income under the prior cash flow hedge accounting
treatment. Derivative interest expense for the years ended
December 31, 2009, 2008, and 2007 is related to our
interest rate swaps with notional amounts of $1.14 billion,
$1.22 billion, and $1.34 billion, respectively.
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(6)
|
|
From May 11, 2007 until
October 10, 2009, we had elected to be taxed under the
Internal Revenue Code as a subchapter S corporation. A
subchapter S corporation passes through essentially all taxable
earnings and losses to its stockholders and does not pay federal
income taxes at the corporate level. Historical income taxes
during this time consist mainly of state income taxes in certain
states that do not recognize subchapter S corporations, and
an income tax provision or benefit was recorded for certain of
our subsidiaries, including our Mexican subsidiaries and our
sole domestic captive insurance company at the time, which were
not eligible to be treated as qualified subchapter S
corporations. In October 2009, we elected to be taxed as a
subchapter C corporation. For comparative purposes, we have
included a pro forma (provision) benefit for income taxes
assuming we had been taxed as a subchapter C corporation in all
periods when our subchapter S corporation election was in
effect. The pro forma effective tax rate for 2009 of 5.2%
differs from the expected federal tax benefit of 35% primarily
as a result of income recognized for tax purposes on the partial
cancellation of the stockholder loan, which reduced the tax
benefit rate by 32.6%. In 2008, the pro forma effective tax rate
was reduced by 8.8% for stockholder distributions and 4.4% for
non-deductible goodwill impairment charges, which resulted in a
19.7% effective tax rate. In 2007, the pro forma effective tax
rate of 5.8% resulted primarily from a non-deductible goodwill
impairment charge, which reduced the rate by 25.1%.
|
46
Managements
Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis of our financial
condition and results of operations should be read together with
Selected Historical Consolidated Financial and Other
Data, and the consolidated financial statements and the
related notes included elsewhere in the prospectus. This
discussion contains forward-looking statements as a result of
many factors, including those set forth under Risk
Factors, Special Note Regarding Forward-Looking
Statements, and elsewhere in this prospectus. These
statements are based on current expectations and assumptions
that are subject to risks and uncertainties. Actual results
could differ materially from those discussed in the
forward-looking statements. Factors that could cause or
contribute to these differences include those discussed below
and elsewhere in this prospectus, particularly in Risk
Factors.
Unless we state otherwise or the context otherwise requires,
references in this prospectus to Swift,
we, our, us, and the
Company for all periods subsequent to the
reorganization transactions described in the section entitled
Reorganization (which will be completed in
connection with this offering) refer to Swift Holdings Corp., a
newly formed Delaware corporation, and its consolidated
subsidiaries after giving effect to such reorganization
transactions. For all periods from May 11, 2007 until the
completion of such reorganization transactions, these terms
refer to Swift Corporation, a Nevada corporation, which also is
referred to herein as our successor, and its
consolidated subsidiaries. For all periods prior to May 11,
2007, these terms refer to Swift Corporations predecessor,
Swift Transportation Co., Inc., a Nevada corporation that has
been converted to a Delaware limited liability company known as
Swift Transportation Co., LLC, which also is referred to herein
as Swift Transportation or our predecessor, and its
consolidated subsidiaries. Our discussion of pro forma financial
and operating results for 2007 refers to the combination of our
predecessors results for the period January 1, 2007
through May 10, 2007, and our results for the year ended
December 31, 2007.
Overview
Our
Business
We are a multi-faceted transportation services company and the
largest truckload carrier in North America. At
March 31, 2010, we operated approximately
12,500 company-owned tractors, 3,700 owner-operator
tractors, 49,400 trailers, and 4,300 intermodal containers from
35 major terminals strategically positioned throughout the
United States and Mexico. Our extensive suite of services makes
us an attractive choice for a broad array of customers. Our
asset-based transportation services include dry van, dedicated,
temperature controlled, cross border, and port drayage
operations. Our complementary and more rapidly growing
asset-light services include rail intermodal,
freight brokerage, and third-party logistics operations. We use
sophisticated technologies and systems that contribute to asset
productivity, operating efficiency, customer satisfaction, and
safety. We believe our fleet capacity, terminal network,
customer service, and breadth of services provide significant
advantages over many of our competitors. For the twelve months
ended March 31, 2010, we generated operating revenue of
approximately $2.6 billion.
We were founded by our Chief Executive Officer, Jerry Moyes, and
his family in 1966. We became a public company in 1990, and our
stock traded on NASDAQ under the symbol SWFT until
May 10, 2007, when a company controlled by Mr. Moyes
completed a merger that resulted in our becoming a private
company. Between 1991 (our first full year as a public company)
and 2006 (our last full year as a public company), we grew
internally and through 10 acquisitions and our operating revenue
grew to $3.2 billion and our Adjusted EBITDA grew to
$498.6 million, which represented compounded annual growth
rates of 21% and 22%, respectively.
During a challenging environment in 2009, when both loaded miles
and rates were depressed across our industry, we instituted a
number of cost savings measures that improved our Adjusted
Operating Ratio and preserved our ability to generate Adjusted
EBITDA at essentially the same level as 2008 and 2007, despite a
$476.3 million, or 17.2%, decrease in revenue excluding
fuel surcharges from 2007 to 2009. These actions
47
improved Adjusted Operating Ratio by 60 basis points from
fiscal year 2008 to fiscal year 2009 and by 330 basis
points in the first three months ended March 31, 2010
compared with the same period of 2009. The main areas of savings
included the following: reducing our tractor fleet by 17.2%,
improving fuel efficiency, improving our tractor to non-driver
ratio, suspending bonuses and
401(k)
matching, streamlining maintenance and administrative functions,
improving safety and claims management, and limiting
discretionary expenses. Some of these cost reductions, such as
insurance and claims and maintenance expense, have a variable
component that will increase or decrease with the miles we run.
However, these expenses and others also have controllable
components such as fleet size and age, staffing levels, safety,
use of technology, and discipline in execution. Between 2008 and
2009, our cost control efforts overcame a 12.9% reduction in
loaded miles as well as a 3.1% decrease in average trucking
revenue per loaded mile excluding fuel surcharge. While our
total costs will generally vary over time with our revenue, we
believe a significant portion of the 2009 cost savings, and
additional savings based on the same principles, will continue
in future periods.
Adjusted EBITDA and Adjusted Operating Ratio are not recognized
measures under GAAP and should not be considered alternatives to
or superior to expense and profitability measures derived in
accordance with GAAP. See Prospectus Summary
Summary Historical Consolidated Financial and Other Data
for more information on our use of Adjusted EBITDA and Adjusted
Operating Ratio, as well as a description of the computation and
reconciliation of our net loss to Adjusted EBITDA and our
operating ratio to our Adjusted Operating Ratio.
The following table reflects total operating revenue, net loss,
revenue excluding fuel surcharges, Adjusted EBITDA, and Adjusted
Operating Ratio for the indicated periods:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Audited)
|
|
(Audited)
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Total operating revenue
|
|
$
|
654,830
|
|
|
$
|
614,756
|
|
|
$
|
2,571,353
|
|
|
$
|
3,399,810
|
|
|
$
|
3,264,748
|
|
Net loss
|
|
$
|
(53,001)
|
|
|
$
|
(43,560)
|
|
|
$
|
(435,645)
|
|
|
$
|
(146,555)
|
|
|
$
|
(219,815)
|
|
Revenue (excl. fuel surcharge)
|
|
$
|
566,014
|
|
|
$
|
561,770
|
|
|
$
|
2,295,980
|
|
|
$
|
2,680,193
|
|
|
$
|
2,772,295
|
|
Adjusted EBITDA
|
|
$
|
90,335
|
|
|
$
|
79,035
|
|
|
$
|
405,860
|
|
|
$
|
409,598
|
|
|
$
|
404,084
|
|
Adjusted Operating Ratio
|
|
|
94.4%
|
|
|
|
97.7%
|
|
|
|
93.9%
|
|
|
|
94.5%
|
|
|
|
95.7%
|
|
Revenue
and Expenses
We primarily generate revenue by transporting freight for our
customers. Generally, we are paid a predetermined rate per mile
for our services. We enhance our 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 are the rate per mile we
receive from our customers and the number of loaded miles we
generate with our equipment, which in turn produce our weekly
trucking revenue per tractor one of our key
performance indicators and our total trucking
revenue.
The most significant expenses in our business 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 the railroads,
drayage providers, and other trucking companies (which are
recorded on the Purchased transportation line of our
consolidated statements of operations). Expenses that have both
fixed and variable components include maintenance and tire
expense and our total cost of insurance and claims. These
expenses generally vary with the miles we travel, but also have
a controllable component based on safety, fleet age, efficiency,
and other factors. Our main fixed costs are depreciation of
long-term assets, such as tractors, trailers, containers, and
terminals, interest expense, and the compensation of non-driver
personnel.
Because a significant portion of our expenses are either fully
or partially variable based on the number of miles traveled,
changes in weekly trucking revenue per tractor caused by
increases or decreases in deadhead
48
miles percentage, rate per mile, and loaded miles have varying
effects on our profitability. In general, changes in deadhead
miles percentage have the largest proportionate effect on
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 increase or
decrease with changes in miles. However, items such as driver
and owner-operator satisfaction and network efficiency are
affected by changes in mileage and have significant indirect
effects on expenses.
Due to our size and operating leverage, even small improvements
in our asset productivity and yield can have a significant
impact. The following table shows the effect on revenue and
operating income of an increase of 25 miles per tractor per
week, a one cent increase in rate per mile, and a one percentage
point reduction in deadhead miles percentage (assuming
elimination of empty miles but no increase in loaded miles)
based on our 2009 variable and fixed cost structure, average
trucking revenue per tractor per week, miles, rates, and
deadhead miles percentage. In each column we assume all other
variables remain constant.
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|
25 Mile Increase in
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|
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|
1% Reduction in
|
|
|
Miles Per Tractor
|
|
One Cent Increase
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|
Deadhead Miles
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|
|
Per Week
|
|
in Rate Per Mile
|
|
Percentage
|
|
|
(Dollars in thousands)
|
|
Operating Revenue
|
|
$
|
35,613
|
|
|
$
|
12,883
|
|
|
$
|
|
|
Operating Income
|
|
$
|
9,269
|
|
|
$
|
12,883
|
|
|
$
|
20,332
|
|
Income
Taxes
From May 11, 2007 until October 10, 2009, we had
elected to be taxed under the Internal Revenue Code as a
subchapter S corporation. Such election followed the
completion of the 2007 Transactions at the close of the market
on May 10, 2007, which resulted in our becoming a private
company. The election provided an income tax benefit of
approximately $230 million associated with the partial
reversal of previously recognized net deferred tax liabilities.
Under subchapter S provisions, we did not pay corporate income
taxes on our taxable income. Instead, our stockholders were
liable for federal and state income taxes on their proportionate
share of our taxable income. An income tax provision or benefit
was recorded for certain of our subsidiaries, including our
Mexican subsidiary and Mohave, our sole domestic captive
insurance company at that time, which were not eligible to be
treated as qualified subchapter S corporations.
Additionally, we recorded a provision for state income taxes
applicable to taxable income attributed to states that do not
recognize the subchapter S corporation election.
In conjunction with the second amendment to our existing senior
secured credit facility, we revoked our election to be taxed as
a subchapter S corporation and, beginning October 10,
2009, we became taxed as a subchapter C corporation. Under
subchapter C, we are liable for federal and state corporate
income taxes on our taxable income. As a result of our
subchapter S revocation, we recorded approximately
$325 million of income tax expense on October 10,
2009, primarily in recognition of our deferred tax assets and
liabilities as a subchapter C corporation.
See Prospectus Summary Summary Historical
Consolidated Financial and Other Data for a pro forma
presentation of our net income as if we had been taxed as a
subchapter C corporation in the periods presented therein.
Stockholder
Loan
We have an outstanding stockholder loan agreement with
Mr. Moyes and the Moyes Affiliates that had a
$240.0 million balance due from them as of March 31,
2010. The stockholder loan bears interest at the rate of 2.66%
per annum and matures in May 2018. Cash interest is due and
payable only to the extent that we pay dividends or other cash
distributions to Mr. Moyes and the Moyes Affiliates to fund
such interest payments. During the years ended December 31,
2009, 2008, and 2007 and the three months ended March 31,
2010, we
49
paid distributions on a quarterly basis totaling
$16.4 million, $33.8 million, $29.7 million, and
$0.0 million, respectively, to Mr. Moyes and the Moyes
Affiliates, who then repaid the same amounts to us as interest.
Interest is added to the principal for payment at maturity if
not funded through a distribution.
We originally entered into the stockholder loan agreement in May
2007 at which time Mr. Moyes and the Moyes Affiliates
borrowed from us an aggregate principal amount of
$560 million. The terms of the stockholder loan agreement
were negotiated with the lenders who provided the financing for
the 2007 Transactions.
In connection with the second amendment to our existing senior
secured credit facility, Mr. Moyes, at the request of our
lenders, agreed to cancel $125.8 million of personally-held
senior secured notes in return for a $325.0 million
reduction of the stockholder loan. The senior secured floating
rate notes held by Mr. Moyes, totaling $36.4 million
in principal amount, were cancelled on October 13, 2009
and, correspondingly, the stockholder loan was reduced by
$94.0 million. The senior secured fixed rate notes held by
Mr. Moyes, totaling $89.4 million in principal amount,
were cancelled in January 2010 and the stockholder loan was
reduced by an additional $231.0 million. The amount of the
stockholder loan cancelled in exchange for the contribution of
senior secured notes was negotiated by Mr. Moyes with the
steering committee of lenders, comprised of a number of the
largest lenders (by holding size) and the administrative agent
of our existing senior secured credit facility. Due to the
classification of the stockholder loan as contra-equity, the
reduction in the stockholder loan did not reduce our
stockholders equity (deficit). The cancellation of senior
secured notes by Mr. Moyes improved our stockholders
deficit by $125.8 million. Furthermore, the cancellation of
the remaining amount of the stockholder loan, which is
contemplated to occur in connection with the closing of this
offering, will not affect our stockholders deficit.
Mr. Moyes and the Moyes Affiliates will recognize income
with respect to the termination of the stockholder loan, and
they will be solely responsible for the payment of taxes with
respect to such income.
Key
Performance Indicators
We use a number of primary indicators to monitor our revenue and
expense performance and efficiency. Our main measure of
productivity is weekly trucking revenue per tractor. Weekly
trucking revenue per tractor is affected by our loaded miles,
which only include the miles driven when hauling freight, the
size of our fleet (because available loads may be spread over
fewer or more tractors), and the rates received for our
services. We strive to increase our revenue per tractor by
improving freight rates with our customers and hauling more
loads with our existing equipment, effectively moving freight
within our network, keeping tractors maintained, and recruiting
and retaining drivers and owner-operators.
We also strive to reduce our number of deadhead miles. We
measure our performance in this area by monitoring our deadhead
miles percentage, which is calculated by dividing the number of
unpaid miles by the total number of miles driven. By 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 costs associated with deadhead
miles, such as wages and fuel.
Average tractors available measures the number of tractors we
have available for dispatch. This measure changes based on our
ability to increase or decrease our fleet size to respond to
changes in demand.
We consider our Adjusted Operating Ratio to be our most
important measure of our operating profitability. We exclude
fuel surcharge revenue and certain unusual or non-cash items in
the calculation of our Adjusted Operating Ratio.
We monitor weekly trucking revenue per tractor, deadhead miles
percentage, and average tractors available on a daily basis, and
we measure Adjusted Operating Ratio on a monthly basis. For the
three months
50
ended March 31, 2010 and 2009, and the years ended
December 31, 2009, 2008, and 2007, our actual and pro forma
performance with respect to these indicators was as follows
(unaudited):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
Weekly trucking revenue per tractor
|
|
$
|
2,711
|
|
|
$
|
2,541
|
|
|
$
|
2,660
|
|
|
$
|
2,916
|
|
|
$
|
2,867
|
|
Deadhead miles percentage
|
|
|
12.2%
|
|
|
|
13.6%
|
|
|
|
13.2%
|
|
|
|
13.6%
|
|
|
|
13.0%
|
|
Average tractors available
|
|
|
14,443
|
|
|
|
15,589
|
|
|
|
14,869
|
|
|
|
16,024
|
|
|
|
17,066
|
|
Adjusted Operating Ratio
|
|
|
94.4%
|
|
|
|
97.7%
|
|
|
|
93.9%
|
|
|
|
94.5%
|
|
|
|
95.7%
|
|
Results
of Operations
2007
Results of Operations
Our actual financial results presented in accordance with GAAP
for the year ended December 31, 2007 include the impact of
the following 2007 Transactions: (i) Jerry and Vickie
Moyes April 7, 2007 contribution of 1,000 shares
of common stock of IEL, constituting all issued and outstanding
shares of IEL, to Swift Corporation, in exchange for
10,649,000 shares of Swift Corporations common stock,
(ii) the May 9, 2007 contribution by Mr. Moyes and the
Moyes Affiliates of 28,792,810 shares of Swift
Transportation common stock, representing 38.3% of the then
outstanding common stock of Swift Transportation, in exchange
for 64,495,892 shares of Swift Corporations common
stock, and (iii) Swift Corporations May 10, 2007
acquisition of Swift Transportation by a merger. Swift
Corporation was formed in 2006 for the purpose of acquiring
Swift Transportation, which did not occur until May 10,
2007. The results of Swift Transportation for the period from
January 1, 2007 to May 10, 2007 and IEL from
January 1, 2007 to April 7, 2007 are not included in
our audited financial statements for the year ended
December 31, 2007, included elsewhere in this prospectus.
This lack of operational activity prior to May 11, 2007
impacts comparability between periods.
To facilitate comparability between periods, we utilize
unaudited pro forma results of operations for 2007. The pro
forma results of operations give effect to the 2007
Transactions, including our acquisition of Swift Transportation
and the related financing, as if the 2007 Transactions had
occurred on January 1, 2007. Accordingly, our pro forma
results of operations reflect a full year of operational
activity for IEL and Swift as well as a full year of interest
expense associated with the acquisition financing.
The following is a summary of our actual and pro forma condensed
consolidated results of operations for the year ended
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Operating revenue
|
|
$
|
2,180,293
|
|
|
$
|
3,264,748
|
|
Operating loss
|
|
$
|
(154,691
|
)
|
|
$
|
(188,707
|
)
|
Interest expense
|
|
$
|
171,115
|
|
|
$
|
265,745
|
|
Loss before income taxes
|
|
$
|
(330,504
|
)
|
|
$
|
(458,708
|
)
|
The primary adjustments to our actual (audited) results of
operations for 2007 in order to reflect our pro forma results of
operations for 2007 were as follows:
|
|
|
|
|
$1.1 billion increase in operating revenue and recording
the associated expenses to reflect the results of Swift
Transportation and IEL for periods prior to their
contribution;
|
|
|
|
$94.6 million increase in interest expense to reflect
interest that would have been due on our acquisition financing
during the period between January 1, 2007 and May 10,
2007; and
|
51
|
|
|
|
|
$10.5 million increase in depreciation and amortization
expense as if the 2007 Transactions occurred on January 1,
2007.
|
Pro forma results should be considered in addition to, not as a
substitute for, or superior to, measures of financial
performance in accordance with GAAP. For a pro forma
presentation of our pro forma condensed consolidated statement
of operations (unaudited) for the year ended December 31, 2007,
assuming the 2007 Transactions were effective January 1, 2007,
see Annex A of this prospectus.
Factors
Affecting Comparability Between Periods
Changes
as a result of this offering
We expect the following items to affect comparability of our
post-offering results to periods prior to the offering:
|
|
|
|
|
$16.4 million in estimated non-cash equity compensation
expense relating to the approximately 20% of our approximately
7.8 million outstanding stock options that will vest and be
exercisable upon completion of this offering. Thereafter,
quarterly non-cash equity compensation expense for existing
grants is estimated to be approximately $1.8 million per
quarter through 2012; and
|
|
|
|
$ million estimated reduction
in annual interest expense assuming the debt and capital lease
balances at March 31, 2010, and the application of the
estimated net proceeds of this offering as set forth in
Use of Proceeds.
|
Three
months ended March 31, 2010 results of
operations
Net loss for the three months ended March 31, 2010 was
$53.0 million. Items impacting comparability between the
three months ended March 31, 2010 and other periods include
the following:
|
|
|
|
|
$1.3 million of pre-tax impairment charge for trailers
reclassified to assets held for sale;
|
|
|
|
$7.4 million of incremental pre-tax depreciation expense
reflecting managements decision in the first quarter to
scrap approximately 7,000 dry van trailers over the course of
the next several years and the corresponding revision to
estimates regarding salvage and useful lives of such
trailers; and
|
|
|
|
$9.5 million of income tax benefit as a result of
recognition of subchapter C corporation tax benefits after
our becoming a subchapter C corporation in the fourth
quarter of 2009.
|
2009
results of operations
Our net loss for the year ended December 31, 2009 was
$435.6 million. Items impacting comparability between 2009
and other periods include the following:
|
|
|
|
|
$0.5 million pre-tax impairment of three non-operating real
estate properties in the first quarter of 2009;
|
|
|
|
$4.2 million of pre-tax transaction costs incurred in the
third and fourth quarters of 2009 related to an amendment to our
existing senior secured credit facility and the concurrent
senior secured notes amendments;
|
|
|
|
$2.3 million of pre-tax transaction costs incurred during
the third quarter related to our cancelled bond offering;
|
|
|
|
$12.5 million pre-tax benefit in other income for net
proceeds received during the third quarter pursuant to a
litigation settlement entered into by us on September 25,
2009;
|
|
|
|
$4.0 million pre-tax benefit in other income from the sale
of our investment in Transplace in the fourth quarter of 2009,
representing the recovery of a note receivable that had been
previously written off;
|
52
|
|
|
|
|
$324.8 million of non-cash income tax expense primarily in
recognition of net deferred tax liabilities in the fourth
quarter of 2009 reflecting our subchapter S revocation; and
|
|
|
|
$29.2 million in additional interest expense and derivative
interest expense related to higher interest rates and loss of
hedge accounting for our interest rate swaps as a result of an
amendment to our existing senior secured credit facility in the
fourth quarter of 2009.
|
2008
results of operations
Our net loss for the year ended December 31, 2008 was
$146.6 million. Items impacting comparability between 2008
and other periods include the following:
|
|
|
|
|
$17.0 million of pre-tax charges associated with impairment
of goodwill relating to our Mexico freight transportation
reporting unit;
|
|
|
|
$7.5 million of pre-tax impairment charges for certain real
property, tractors, trailers, and a note receivable; and
|
|
|
|
$6.7 million in pre-tax expense associated with the closing
of our 2008 RSA on July 30, 2008 and $0.3 million in
financial advisory fees associated with an amendment to our
existing senior secured credit facility.
|
2007
pro forma (unaudited) results of operations
Our pro forma net loss for the year ended December 31, 2007
was $219.8 million. Items impacting comparability between
our pro forma results for 2007 and our actual GAAP results for
other periods include the following:
|
|
|
|
|
$23.5 million in pretax transaction costs related to our
going private transaction;
|
|
|
|
$28.9 million in pretax change in control and stock
incentive compensation, primarily relating to the going private
transaction;
|
|
|
|
$238.0 million in pretax goodwill impairment relating to
our U.S. reporting unit;
|
|
|
|
$2.4 million in pretax impairment of a note receivable,
recorded, in non-operating other (income) expense;
|
|
|
|
$18.3 million in pretax impairment of revenue
equipment; and
|
|
|
|
$230.2 million in income tax benefit associated with our
election to become a subchapter S corporation.
|
53
Revenue
We record three types of revenue: trucking revenue, fuel
surcharge revenue, and other revenue. A summary of revenue
generated by type for 2009 and 2008 actual, 2007 pro forma, and
for the three months ended March 31, 2010 and 2009 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Actual
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Trucking revenue
|
|
$
|
503,507
|
|
|
$
|
509,320
|
|
|
$
|
2,062,296
|
|
|
$
|
2,443,271
|
|
|
$
|
2,550,877
|
|
Fuel surcharge revenue
|
|
|
88,816
|
|
|
|
52,986
|
|
|
|
275,373
|
|
|
|
719,617
|
|
|
|
492,453
|
|
Other revenue
|
|
|
62,507
|
|
|
|
52,450
|
|
|
|
233,684
|
|
|
|
236,922
|
|
|
|
221,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
654,830
|
|
|
$
|
614,756
|
|
|
$
|
2,571,353
|
|
|
$
|
3,399,810
|
|
|
$
|
3,264,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trucking
revenue
Trucking revenue is generated by hauling freight for our
customers using our trucks or our owner-operators
equipment. Trucking revenue includes all revenue we earn from
our general truckload, dedicated, cross border, and drayage
services. Generally, our customers pay for our services based on
the number of miles in the most direct route between
pick-up and
delivery locations and other ancillary services we provide.
Trucking revenue is the product of the number of
revenue-generating miles driven and the rate per mile we receive
from customers plus accessorial charges, such as loading and
unloading freight for our customers or fees for detaining our
equipment. The main factors that affect trucking revenue are our
average tractors available and our weekly trucking revenue per
tractor. Trucking revenue is affected by fluctuations in North
American economic activity, as well as changes in inventory
levels, changes in shipper packaging methods that reduce
volumes, specific customer demand, the level of capacity in the
truckload industry, driver availability, and modal shifts
between truck and rail intermodal shipping (which we record in
other revenue).
For the three months ended March 31, 2010, our trucking revenue
decreased by $5.8 million, or 1.1%, compared with the same
period in 2009. This decrease primarily resulted from a 1.7%
decrease in average trucking revenue per loaded mile, which was
partially offset by a 0.6% increase in loaded trucking miles.
While trucking revenue decreased in total, our 7.4% decrease in
average tractors available allowed us to achieve an 8.6%
increase in average loaded miles per available tractor and a
6.7% increase in weekly trucking revenue per tractor. Trucking
demand stabilized in late 2009 and began to increase in the
first quarter of 2010. This allowed us to increase weekly
trucking revenue per tractor as our reduced fleet size better
matched the level of freight demand. Although shipping activity
has strengthened, rate levels usually follow changes in
utilization by several months as capacity tightens and
contractual rate levels are adjusted.
For 2009, our trucking revenue decreased by $381.0 million, or
15.6%, compared with 2008. This decrease primarily resulted from
a 12.9% reduction in loaded trucking miles and a 3.1% decrease
in average trucking revenue per loaded mile. These reductions
resulted in an 8.8% decrease in weekly trucking revenue per
tractor and a 6.1% decrease in average loaded miles per
available tractor despite our 7.2% reduction in average tractors
available. This decline in trucking demand accelerated in the
first half of 2009, and our fleet reductions were not as rapid
as the decrease in freight volumes for two reasons. First, a
depressed used equipment market made disposal of company
tractors and owner-operator leased units unattractive. Second,
we chose not to downsize our owner-operator fleet consistent
with our longer term strategy of increasing our number of
owner-operators. During 2009, excess capacity of tractors in our
industry continued to place pressure on rates.
For 2008, our trucking revenue decreased by $107.6 million, or
4.2%, compared with pro forma trucking revenue for 2007. This
decrease primarily resulted from a 5.3% decrease in loaded
trucking miles, partially offset by a 1.2% increase in average
trucking revenue per loaded mile. While trucking revenue
decreased in
54
total, our 6.1% reduction in average tractors available allowed
us to achieve a 1.7% increase in weekly trucking revenue per
tractor. During 2008, we downsized our tractor fleet as freight
demand declined and were able to allocate our remaining fleet to
the best available freight.
Fuel
surcharge revenue
Fuel surcharges are designed to compensate us for fuel costs
above a certain cost per gallon base. Generally, we receive fuel
surcharges on the miles for which we are compensated by
customers. However, we continue to have exposure to increasing
fuel costs related to deadhead miles, fuel efficiency due to
engine idle time, and other factors and to the extent the
surcharge paid by the customer is insufficient. The main factors
that affect fuel surcharge revenue are the price of diesel fuel
and the number of loaded miles. Although our surcharge programs
vary by customer, we endeavor to negotiate an additional penny
per mile charge for every five cent increase in the Department
of Energys national average diesel fuel index over an
agreed baseline price. In some instances, customers choose to
incorporate the additional charge by splitting the impact
between the basic rate per mile and the surcharge fee. In
addition, we have moved much of our West Coast customer activity
to a surcharge program that is indexed to the Department of
Energys West Coast average diesel fuel index as diesel
fuel prices in the western United States generally are higher
than the national average index. Our fuel surcharges are billed
on a lagging basis, meaning we typically bill customers in the
current week based on a previous weeks 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.
For the three months ended March 31, 2010, fuel surcharge
revenue increased $35.8 million, or 67.6%, compared with
the 2009 period. The Department of Energys national diesel
price index increased 30.1% to an average of $2.85 per gallon in
the 2010 period compared with $2.19 per gallon in the 2009
period. The 0.6% increase in total loaded miles in the 2010
period also increased fuel surcharge revenue slightly.
For 2009, fuel surcharge revenue decreased $444.2 million,
or 61.7%, compared with 2008. The Department of Energys
national diesel price index decreased 35.0%, to an average of
$2.47 per gallon in 2009 compared with $3.80 per gallon in 2008.
In addition, we operated 12.9% fewer loaded miles in 2009.
For 2008, fuel surcharge revenue increased $227.2 million,
or 46.1%, compared with the pro forma fuel surcharge revenue for
2007. The Department of Energys national diesel index
increased 31.5%, to an average of $3.80 per gallon in 2008
compared with $2.89 per gallon in 2007. This was offset by 5.3%
fewer loaded miles in 2008.
Other
revenue
Our other revenue is generated primarily by our rail intermodal
business, non-asset based freight brokerage and logistics
management service, tractor leasing revenue of IEL, premium
revenue generated by our wholly-owned captive insurance
companies, and other revenue generated by our shops. The main
factors that affect other revenue are demand for our intermodal
and brokerage and logistics services and the number of
owner-operators leasing equipment from us.
For the three months ended March 31, 2010, other revenue
increased by $10.1 million, or 19.2%, compared with the
2009 period. This resulted primarily from a 44.7% increase in
intermodal miles as intermodal freight demand strengthened,
partially offset by a $1.2 million decrease in tractor
leasing revenue of IEL.
For 2009, other revenue decreased by $3.2 million, or 1.4%,
compared with 2008. This resulted primarily from a 61% decrease
in logistics revenue, partially offset by a $7.2 million
increase in tractor leasing revenue of IEL, resulting from
growth of our owner-operator fleet.
For 2008, other revenue increased by $15.5 million, or
7.0%, compared with pro forma results for 2007. This resulted
primarily from growth of our owner-operator fleet and the
related leasing revenue of IEL.
55
Operating
Expenses
Salaries,
wages, and employee benefits
Salaries, wages, and employee benefits consist primarily of
compensation for all employees. Salaries, wages, and employee
benefits are primarily affected by the total number of miles
driven by company drivers, the rate per mile we pay our company
drivers, employee benefits including but not limited to health
care and workers compensation, and to a lesser extent by
the number of, and compensation and benefits paid to, non-driver
employees.
The following is a summary of actual and pro forma salaries,
wages, and employee benefits for the three months ended
March 31, 2010 and 2009, and years ended December 31,
2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Salaries, wages, and employee benefits
|
|
$
|
177,803
|
|
|
$
|
189,377
|
|
|
$
|
728,784
|
|
|
$
|
892,691
|
|
|
$
|
977,829
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
31.4%
|
|
|
|
33.7%
|
|
|
|
31.7%
|
|
|
|
33.3%
|
|
|
|
35.3%
|
|
% of operating revenue
|
|
|
27.2%
|
|
|
|
30.8%
|
|
|
|
28.3%
|
|
|
|
26.3%
|
|
|
|
30.0%
|
|
For the three months ended March 31, 2010, salaries, wages,
and employee benefits decreased $11.6 million, or 6.1%,
compared with the same period in 2009. As a percentage of
revenue excluding fuel surcharge revenue, salaries, wages, and
employee benefits decreased to 31.4%, compared with 33.7% for
the 2009 period. This reduction was primarily the result of a
7.0% decrease in miles driven by company drivers and the
corresponding reduction in wages and benefits. We also
implemented non-driver headcount reductions in January and
October of 2009. These decreases were partially offset by the
accrual of bonuses and resuming our 401(k) match program, both
of which were temporarily discontinued in 2009, and increased
healthcare expenses. If we are successful in maintaining our
improvement in tractors per non-driver and other efficiency
measures and in continuing to increase the percentage of miles
driven by owner-operators, we would expect corresponding
decreases in our salaries, wages, and employee benefits as a
percentage of revenue, which may be offset by increases in
purchased transportation.
For 2009, salaries, wages, and employee benefits decreased
$163.9 million, or 18.4%, compared with 2008. As a
percentage of revenue excluding fuel surcharge revenue,
salaries, wages, and employee benefits decreased to 31.7%,
compared with 33.3% for 2008. This decline is primarily due to
an overall decline in shipping volumes and associated miles as
well as a mix shift between company drivers and owner-operators,
which combined to result in an 18.3% reduction in the number of
miles driven by company drivers. We also reduced our average,
non-driving workforce in 2009 by 11.6% compared with the average
for 2008 as a result of efficiency measures developed by our
Lean Six Sigma initiatives, as well as reductions in force
related to a smaller tractor fleet and revenue base. In
addition, we reduced the rate of pay to drivers in 2009,
eliminated bonuses and our 401(k) match, and imposed a one-week
furlough for non-driving personnel in the second quarter.
For 2008, salaries, wages, and employee benefits decreased
$85.1 million, or 8.7%, compared with pro forma results for
2007. As a percentage of revenue, excluding fuel surcharge
revenue, salaries, wages and employee benefits decreased to
33.3%, compared with pro forma results of 35.3% for 2007. This
decrease primarily related to a 9.2% decrease in miles driven by
company drivers and the corresponding reduction in wages and
benefits. In addition, pro forma salaries, wages, and employee
benefits for the year ended December 31, 2007 included
$16.4 million related to
change-in-control
payments made to former executive officers, $11.1 million
related to the acceleration of stock incentive awards under
Topic 718, Compensation-
56
Stock Compensation, or Topic 718, both of
which resulted from the 2007 Transactions, and the
$1.4 million in stock incentive expense recognized in
accordance with Topic 718 from January 1, 2007 to
May 10, 2007.
We currently have stock options outstanding, which lack
exercisability pursuant to our 2007 equity incentive plan.
Approximately 20% of these options vest and become exercisable
simultaneously with the closing of an initial public
offering. We expect that our salaries, wages, and employee
benefits expense will increase for the quarter in which this
offering becomes effective as a result of non-cash equity
compensation expense for equity grants that vest and are then
exercisable upon an initial public offering. Assuming the
consummation of this offering, we anticipate that stock
compensation expense immediately recognized will be
approximately $16.4 million. Thereafter, quarterly non-cash
equity compensation expense for existing grants is estimated to
be approximately $1.8 million per quarter through 2012.
In future periods, the compensation paid to our drivers and
other employees may need to increase if the economy strengthens
and other employment alternatives become more available.
Operating
supplies and expenses
Operating supplies and expenses consist primarily of ordinary
vehicle repairs and maintenance, the physical damage repairs to
our equipment resulting from accidents, costs associated with
preparing tractors and trailers for sale or trade-in, driver
expenses, driver recruiting costs, legal and professional
services fees, general and administrative expenses, and other
costs. Operating supplies and expenses are primarily affected by
the age of our company-owned fleet of tractors and trailers, the
number of miles driven in a period, driver turnover, and to a
lesser extent by efficiency measures in our shop.
The following is a summary of actual and pro forma operating
supplies and expenses for the three months ended March 31,
2010 and 2009, and years ended December 31, 2009, 2008, and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Operating supplies and expenses
|
|
$
|
47,830
|
|
|
$
|
56,723
|
|
|
$
|
209,945
|
|
|
$
|
271,951
|
|
|
$
|
307,901
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
8.5%
|
|
|
|
10.1%
|
|
|
|
9.1%
|
|
|
|
10.1%
|
|
|
|
11.1%
|
|
% of operating revenue
|
|
|
7.3%
|
|
|
|
9.2%
|
|
|
|
8.2%
|
|
|
|
8.0%
|
|
|
|
9.4%
|
|
For the three months ended March 31, 2010, operating
supplies and expenses decreased $8.9 million, or 15.7%,
compared with the same period in 2009. As a percentage of
revenue excluding fuel surcharge revenue, operating supplies and
expenses decreased to 8.5%, compared with 10.1% for the same
period in 2009. This decrease was primarily due to the reduction
in our company tractor fleet, improved driver turnover, and cost
control and maintenance efficiency initiatives we implemented
during 2009, resulting in lower equipment maintenance and other
discretionary costs. If we are successful in increasing the
percentage of miles driven by owner-operators, we would expect
to see some decrease in operating supplies and expenses as
owner-operators are responsible for the maintenance of their own
equipment. However, to the extent that owner-operators use our
shops for maintenance and repairs, operating supplies and
expense could increase and we would record additional amounts in
other revenue for the amounts that we charge for our services.
For 2009, operating supplies and expenses decreased
$62.0 million, or 22.8%, compared with 2008. As a
percentage of revenue, excluding fuel surcharge revenue,
operating supplies and expenses decreased to 9.1%, compared with
10.1% for 2008. This
year-over-year
decrease was primarily due to the reduction in our tractor
fleet, improved driver turnover, and several cost control and
maintenance efficiency initiatives we implemented during 2009,
resulting in lower driver recruiting and training, equipment
maintenance, and other discretionary costs. These decreases were
partially offset by $6.5 million of expenses for
transaction costs related to the
57
amendments of our financing agreements and a cancelled bond
offering during the third and fourth quarters of 2009, which we
recorded in operating supplies and expenses.
For 2008, operating supplies and expenses decreased
$36.0 million, or 11.7%, compared with pro forma results
for 2007. As a percentage of revenue, excluding fuel surcharge
revenue, operating supplies and expenses decreased to 10.1%,
compared with 11.1% for pro forma results for 2007. This
decrease primarily related to reductions in hiring and routine
maintenance expense due to operating a smaller and newer company
tractor fleet. These reductions were offset, in part, by higher
maintenance expense during the first half of 2008 resulting from
preparing an unusually large number of tractors for disposition
associated with downsizing our fleet. Furthermore, pro forma
operating supplies and expenses as shown above for the year
ended December 31, 2007 include $22.0 million for
financial, investment advisory, legal, and accounting fees
associated with the 2007 Transactions.
Fuel
expense
Fuel expense consists primarily of diesel fuel expense for our
company-owned tractors and fuel taxes. The primary factors
affecting our fuel expense are the cost of diesel fuel, the
miles per gallon we realize with our equipment, and the number
of miles driven by company drivers.
We believe the most effective protection against fuel cost
increases is to maintain a fuel-efficient fleet by incorporating
fuel efficiency measures, such as slower tractor speeds, engine
idle limitations, and a reduction of deadhead miles into our
business, and to implement an effective fuel surcharge program.
To mitigate unrecovered fuel exposure, we have worked to
negotiate more robust surcharge programs with customers
identified as having inadequate programs. We generally have not
used derivatives as a hedge against higher fuel costs in the
past, but continue to evaluate this possibility. We have
contracted with some of our fuel suppliers to buy a portion of
our fuel at a fixed price or within banded pricing for a
specific period, usually not exceeding twelve months, to
mitigate the impact of rising fuel costs.
The following is a summary of actual and pro forma fuel expense
for the three months ended March 31, 2010 and 2009, and
years ended December 31, 2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Fuel expense
|
|
$
|
106,082
|
|
|
$
|
85,868
|
|
|
$
|
385,513
|
|
|
$
|
768,693
|
|
|
$
|
699,302
|
|
% of operating revenue
|
|
|
16.2%
|
|
|
|
14.0%
|
|
|
|
15.0%
|
|
|
|
22.6%
|
|
|
|
21.4%
|
|
To measure the effectiveness of our fuel surcharge program, we
subtract fuel surcharge revenue (other than the fuel surcharge
revenue we reimburse to owner-operators, the railroads, and
other third parties which is included in purchased
transportation) from our fuel expense. The result is referred to
as net fuel expense. Our net fuel expense as a percentage of
revenue excluding fuel surcharge revenue is affected by the cost
of diesel fuel net of surcharge collection, the percentage of
miles driven by company trucks, and our percentage of
58
deadhead miles, for which we do not receive fuel surcharge
revenues. Our net fuel expense as a percentage of revenue less
fuel surcharge revenue is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Actual
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Total fuel surcharge revenue
|
|
$
|
88,816
|
|
|
$
|
52,986
|
|
|
$
|
275,373
|
|
|
$
|
719,617
|
|
|
$
|
492,453
|
|
Less: fuel surcharge revenue reimbursed to owner-operators and
other third parties
|
|
|
32,866
|
|
|
|
16,279
|
|
|
|
92,341
|
|
|
|
216,185
|
|
|
|
126,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company fuel surcharge revenue
|
|
$
|
55,950
|
|
|
$
|
36,707
|
|
|
$
|
183,032
|
|
|
$
|
503,432
|
|
|
$
|
366,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fuel expense
|
|
$
|
106,082
|
|
|
$
|
85,868
|
|
|
$
|
385,513
|
|
|
$
|
768,693
|
|
|
$
|
699,302
|
|
Less: company fuel surcharge revenue
|
|
|
55,950
|
|
|
|
36,707
|
|
|
|
183,032
|
|
|
|
503,432
|
|
|
|
366,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fuel expense
|
|
$
|
50,132
|
|
|
$
|
49,161
|
|
|
$
|
202,481
|
|
|
$
|
265,261
|
|
|
$
|
333,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
8.9%
|
|
|
|
8.8%
|
|
|
|
8.8%
|
|
|
|
9.9%
|
|
|
|
12.0%
|
|
For the three months ended March 31, 2010, net fuel expense
increased $1.0 million, or 2.0%, compared with the same
period in 2009. As a percentage of revenue excluding fuel
surcharge revenue, net fuel expense was relatively consistent
compared with the same period of 2009. However, given the shift
in the mix of company drivers to owner-operators noted above,
where the percentage of total miles driven by company tractors
decreased, net fuel expense represents a 9.7% increase in net
fuel expense per company mile. This was caused by higher diesel
fuel prices and an increase in the unrecovered fuel expense per
mile resulting from the lag effect of fuel surcharges as fuel
prices rose in the first quarter of 2010, compared with
declining prices in the 2009 period. If we are successful in
increasing the percentage of miles driven by owner-operators and
in expanding our asset-light services in brokerage and
intermodal, we would expect corresponding decreases in our net
fuel expense as a percentage of revenue, excluding fuel
surcharge revenue.
For 2009, net fuel expense decreased by $62.8 million, or
23.7%, compared with 2008. As a percentage of revenue, excluding
fuel surcharge revenue, net fuel expense decreased to 8.8%,
compared with 9.9% for 2008. This decline was caused by an 18.3%
decrease in miles driven by company tractors, lower diesel fuel
prices, a slight improvement in fuel economy, and improvements
in fuel procurement strategies.
For 2008, net fuel expense decreased $68.0 million, or
20.4%, compared with pro forma results for 2007. As a percentage
of revenue, excluding fuel surcharge revenue, net fuel expense
decreased to 9.9%, compared with 12.0% for the pro forma results
for 2007. The decrease was caused by improved fuel efficiency
resulting from the reduction of our self-imposed tractor highway
speed limit from 65 to 62 miles per hour during the first
quarter of 2008, the management of engine idle time, and the
promotion of fuel efficient driving habits among our drivers. In
addition, net fuel expense also decreased because of the
decrease in the number of miles driven by company tractors.
59
Purchased
transportation
Purchased transportation consists of the payments we make to
owner-operators, railroads, and third-party carriers that haul
loads we broker to them, including fuel surcharge reimbursements
paid to such parties.
The following is a summary of actual and pro forma purchased
transportation expense for the three months ended March 31,
2010 and 2009, and years ended December 31, 2009, 2008, and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Purchased transportation expense
|
|
$
|
175,702
|
|
|
$
|
135,753
|
|
|
$
|
620,312
|
|
|
$
|
741,240
|
|
|
$
|
629,586
|
|
% of operating revenue
|
|
|
26.8%
|
|
|
|
22.1%
|
|
|
|
24.1%
|
|
|
|
21.8%
|
|
|
|
19.3%
|
|
Because we reimburse owner-operators and other third parties for
fuel surcharges we receive, we subtract fuel surcharge revenue
reimbursed to third parties from our purchased transportation
expense. The result, referred to as purchased transportation,
net of fuel surcharge reimbursements, is evaluated as a
percentage of revenue less fuel surcharge revenue, as shown
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Purchased transportation
|
|
$
|
175,702
|
|
|
$
|
135,753
|
|
|
$
|
620,312
|
|
|
$
|
741,240
|
|
|
$
|
629,586
|
|
Less: Fuel surcharge revenue reimbursed to owner-operators and
other third parties
|
|
|
32,866
|
|
|
|
16,279
|
|
|
|
92,341
|
|
|
|
216,185
|
|
|
|
126,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased transportation, net of fuel surcharge reimbursement
|
|
$
|
142,836
|
|
|
$
|
119,474
|
|
|
$
|
527,971
|
|
|
$
|
525,055
|
|
|
$
|
503,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
25.2%
|
|
|
|
21.3%
|
|
|
|
23.0%
|
|
|
|
19.6%
|
|
|
|
18.2%
|
|
For the three months ended March 31, 2010, purchased
transportation, net of fuel surcharge reimbursements, increased
$23.4 million, or 19.6%, compared with the same period in
2009. As a percentage of revenue, excluding fuel surcharge
revenue, purchased transportation, net of fuel surcharge
reimbursement, increased to 25.2%, compared with 21.3% for the
same period in 2009. The increase in cost and percentage of
revenue, excluding fuel surcharge revenue, results primarily
from a 44.7% increase in intermodal miles and a 14.2% increase
in owner-operator miles. The percentage of total miles driven by
owner-operators increased by 300 basis points in the three
months ended March 31, 2010 compared to the prior year
quarter. If we are successful in growing the size of our fleet
by adding additional owner-operators and are successful in
expanding our asset-light brokerage and intermodal services, we
would expect corresponding increases in purchased transportation
as a percentage of revenue, excluding fuel surcharge revenue.
For 2009, purchased transportation, net of fuel surcharge
reimbursements, was relatively flat in dollar amount, but as a
percentage of revenue, excluding fuel surcharge, increased to
23.0%, compared with 19.6% for 2008. The percentage increase is
primarily the result of the mix shift from company drivers to
owner-operators, as noted above, which produced a 1.5% increase
in loaded miles driven by owner-operators despite a 12.9%
reduction in total loaded miles.
For 2008, purchased transportation, net of fuel surcharge
reimbursements, increased $21.9 million, or 4.3%, compared
with pro forma results for 2007. As a percentage of revenue,
excluding fuel surcharge revenue, purchased transportation, net
of fuel surcharge reimbursement, increased to 19.6%, compared
with
60
18.2% for pro forma results for 2007, primarily because of a
16.4% increase in the number of miles driven by owner-operators
year-over-year.
Insurance
and claims
Insurance and claims expense consists of insurance premiums and
the accruals we make for estimated payments and expenses for
claims for bodily injury, property damage, cargo damage, and
other casualty events. The primary factors affecting our
insurance and claims are seasonality (we typically experience
higher accident frequency in winter months), the frequency and
severity of accidents, trends in the development factors used in
our actuarial accruals, and developments in large, prior-year
claims. Furthermore, our substantial, self-insured retention of
$10.0 million per occurrence for accident claims can make
this expense item volatile.
The following is a summary of our actual and pro forma insurance
and claims expense for the three months ended March 31,
2010 and 2009, and years ended December 31, 2009, 2008, and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Insurance and claims
|
|
$
|
20,207
|
|
|
$
|
25,481
|
|
|
$
|
81,332
|
|
|
$
|
141,949
|
|
|
$
|
128,138
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
3.6%
|
|
|
|
4.5%
|
|
|
|
3.5%
|
|
|
|
5.3%
|
|
|
|
4.6%
|
|
% of operating revenue
|
|
|
3.1%
|
|
|
|
4.1%
|
|
|
|
3.2%
|
|
|
|
4.2%
|
|
|
|
3.9%
|
|
For the three months ended March 31, 2010, insurance and
claims expense decreased by $5.3 million, or 20.7%,
compared with the same period in 2009. As a percentage of
revenue, excluding fuel surcharge revenue, insurance and claims
expense decreased to 3.6%, compared with 4.5% for the same
period in 2009. The decrease resulted from reductions in
accident frequency and severity trends over the past two years
and the refinement to our actuarial loss rates among quarters in
our current year based on historical loss trends.
For 2009, insurance and claims expense decreased by
$60.6 million, or 42.7%, compared with 2008. As a
percentage of revenue, excluding fuel surcharge revenue,
insurance and claims expense decreased to 3.5%, compared with
5.3% for 2008. The decrease partially reflected an increase in
claims expense during the fourth quarter of 2008, as additional
information regarding several large loss claims for accidents
that had occurred in 2006 and 2007 resulted in an increase in
reserves and additional expense during 2008. Insurance and
claims expense also decreased in 2009 because of the decrease in
total miles in 2009 versus 2008. Furthermore, our recent
reductions in accident frequency and severity resulted in less
expense as a percentage of revenue, excluding fuel surcharge.
For 2008, insurance and claims expense increased by
$13.8 million, or 10.8%, compared with pro forma results
for 2007. As a percentage of revenue, excluding fuel surcharge
revenue, insurance and claims expense increased to 5.3%,
compared with 4.6% for pro forma results for 2007. The increase
is attributable to a few unfavorable settlements during 2008 on
large claims incurred in prior years, partially offset by the
decrease in miles driven and improvements in the frequency and
severity of 2008 claims.
Rental
expense, depreciation, and amortization
Rental expense consists primarily of payments for tractors and
trailers financed with operating leases. Depreciation and
amortization expense consists primarily of depreciation for
owned tractors and trailers, but also includes the amortization
of intangibles derived from previous acquisitions, discussed
below. The primary factors affecting these expense items include
the size and age of our tractor, trailer, and container fleet,
the cost of new equipment, and the relative percentage of owned
versus leased equipment. Because the mix of our
61
leased versus owned tractors varies, we believe it is
appropriate to combine our rental expense with our depreciation
and amortization expense when comparing
year-over-year
results for analysis purposes.
The following is a summary of actual and pro forma rental
expense, depreciation, and amortization for the three months
ended March 31, 2010 and 2009, and years ended
December 31, 2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Rental expense
|
|
$
|
18,903
|
|
|
$
|
20,391
|
|
|
$
|
79,833
|
|
|
$
|
76,900
|
|
|
$
|
78,256
|
|
Depreciation and amortization expense
|
|
|
65,497
|
|
|
|
66,956
|
|
|
|
253,531
|
|
|
|
275,832
|
|
|
|
281,181
|
|
Rental expense, depreciation, and amortization expense
|
|
|
84,400
|
|
|
|
87,347
|
|
|
|
333,364
|
|
|
|
352,732
|
|
|
|
359,437
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
14.9%
|
|
|
|
15.5%
|
|
|
|
14.5%
|
|
|
|
13.2%
|
|
|
|
13.0%
|
|
% of operating revenue
|
|
|
12.9%
|
|
|
|
14.2%
|
|
|
|
13.0%
|
|
|
|
10.4%
|
|
|
|
11.0%
|
|
Rental expense and depreciation were primarily driven by our
fleet of tractors and trailers shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Actual
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
Tractors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
|
|
|
7,657
|
|
|
|
9,280
|
|
|
|
7,881
|
|
|
|
9,811
|
|
|
|
13,017
|
|
Leased capital leases
|
|
|
2,680
|
|
|
|
2,352
|
|
|
|
2,485
|
|
|
|
1,977
|
|
|
|
764
|
|
Leased operating leases
|
|
|
2,152
|
|
|
|
2,063
|
|
|
|
2,074
|
|
|
|
1,998
|
|
|
|
2,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total company tractors
|
|
|
12,489
|
|
|
|
13,695
|
|
|
|
12,440
|
|
|
|
13,786
|
|
|
|
16,017
|
|
Owner-operator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financed through the Company
|
|
|
2,761
|
|
|
|
2,451
|
|
|
|
2,687
|
|
|
|
2,417
|
|
|
|
2,218
|
|
Other
|
|
|
970
|
|
|
|
1,124
|
|
|
|
898
|
|
|
|
1,143
|
|
|
|
1,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owner-operator tractors
|
|
|
3,731
|
|
|
|
3,575
|
|
|
|
3,585
|
|
|
|
3,560
|
|
|
|
3,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tractors
|
|
|
16,220
|
|
|
|
17,270
|
|
|
|
16,025
|
|
|
|
17,346
|
|
|
|
19,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trailers
|
|
|
49,436
|
|
|
|
49,284
|
|
|
|
49,215
|
|
|
|
49,695
|
|
|
|
49,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Containers
|
|
|
4,262
|
|
|
|
5,755
|
|
|
|
4,262
|
|
|
|
5,726
|
|
|
|
5,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2010, rental expense,
depreciation, and amortization decreased by $2.9 million,
or 3.4%, compared with the same period in 2009. As a percentage
of revenue, excluding fuel surcharge revenue, rental expense,
depreciation, and amortization decreased to 14.9%, compared with
15.5% for the same period in 2009. This decrease was primarily
associated with lower depreciation expense because of a smaller
number of depreciable tractors in the first quarter of 2010 as
compared with the first quarter of 2009, partially offset by
$7.4 million of incremental depreciation expense during the
2010 quarter reflecting managements revised estimates of
salvage value and useful lives for approximately 7,000 dry van
trailers, which management decided during the quarter to scrap.
In addition, rental expense decreased because of the assignment
of the leases to a third party for approximately 1,500 North
American Container System (NACS) intermodal containers during
the second and third quarter of 2009 and the termination of
other miscellaneous
62
trailer leases. Also, an increase in weekly trucking revenue per
tractor more effectively covered these largely fixed costs.
For 2009, rental expense, depreciation, and amortization
decreased $19.4 million, or 5.5%, compared with 2008. As a
percentage of revenue, excluding fuel surcharge revenue, rental
expense, depreciation, and amortization increased to 14.5%,
compared with 13.2% for 2008. The dollar decrease was the result
of lower depreciation expense because of a smaller number of
depreciable tractors in 2009 as compared with 2008, as well as
reductions in container and trailer leases. This decrease was
partially offset by an increase in rental expense because of an
increase in the number of company trucks financed with operating
leases, including trucks we lease to owner-operators. The
increase as a percentage of revenue, net of fuel surcharge
revenue, was a result of lower revenue per tractor.
For 2008, rental expense, depreciation, and amortization
decreased by $6.7 million, or 1.9%, compared with pro forma
results for 2007. As a percentage of revenue, excluding fuel
surcharge revenue, rental expense, depreciation, and
amortization increased to 13.2%, compared with 13.0% for pro
forma results for 2007. As we trade in older units, to the
extent they are replaced with newer, more expensive units,
depreciation and rental expense per unit will be higher.
Additionally, in January 2008, we changed our estimate of
residual values for certain trailers as a result of decreases in
their salvage value. This change increased depreciation expense
by $3.3 million for 2008.
Included in depreciation and amortization is amortization of
certain identified intangible assets acquired pursuant to the
2007 Transactions. We estimate that our non-cash amortization
expense associated with all of the intangibles will be
approximately $20.5 million in 2010, $18.5 million in
2011, $18.4 million in 2012, $18.4 million in 2013,
and $18.4 million in 2014.
Our rental expense, depreciation, and amortization may increase
in future periods because of increased costs associated with
newer tractors. Any engine manufactured on or after
January 1, 2010 must comply with the new emissions
regulations, and we anticipate higher costs associated with
these engines will be reflected in increased depreciation and
rental expense. We expect, as emissions requirements become
stricter, that the price of equipment will continue to rise.
Impairments
The following is a summary of actual and pro forma impairment
expense for the three months ended March 31, 2010 and 2009,
and years ended December 31, 2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Impairment expense
|
|
$
|
1,274
|
|
|
$
|
515
|
|
|
$
|
515
|
|
|
$
|
24,529
|
|
|
$
|
256,305
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
0.2%
|
|
|
|
0.1%
|
|
|
|
0.0%
|
|
|
|
0.9%
|
|
|
|
9.2%
|
|
% of operating revenue
|
|
|
0.2%
|
|
|
|
0.1%
|
|
|
|
0.0%
|
|
|
|
0.7%
|
|
|
|
7.9%
|
|
Results for the three months ended March 31, 2010 included
a $1.3 million pre-tax impairment charge for trailers,
while the first quarter of 2009 included a $0.5 million
pre-tax charge for impairment of three non-operating real estate
properties.
In 2008, we incurred $24.5 million in impairment charges
comprised of (i) a $17.0 million impairment of
goodwill relating to our Mexico freight transportation reporting
unit, (ii) a pre-tax impairment charge of $0.3 million
for the write-off of a note receivable related to the sale of
our Volvo truck delivery business assets in 2006, and
(iii) pre-tax impairment charges totaling $7.2 million
on tractors, trailers, and several non-operating real estate
properties. In the third and fourth quarters of 2008, we
recorded impairment charges
63
totaling $7.5 million before taxes related to real
property, tractors, trailers, and a note receivable from the
sale of our Volvo truck delivery business assets in 2006.
The pro forma results in 2007 include a goodwill impairment of
$238.0 million related to our U.S. freight
transportation reporting unit and impairment of certain trailers
of $18.3 million.
Operating
taxes and licenses
Operating taxes and licenses expense primarily represents the
costs of taxes and licenses associated with our fleet of
equipment and will vary according to the size of our equipment
fleet in future periods. The following is a summary of actual
and pro forma operating taxes and licenses expense for the three
months ended March 31, 2010 and 2009, and years ended
December 31, 2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Operating taxes and licenses expense
|
|
$
|
13,365
|
|
|
$
|
14,381
|
|
|
$
|
57,236
|
|
|
$
|
67,911
|
|
|
$
|
66,108
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
2.4%
|
|
|
|
2.6%
|
|
|
|
2.5%
|
|
|
|
2.5%
|
|
|
|
2.4%
|
|
% of operating revenue
|
|
|
2.0%
|
|
|
|
2.3%
|
|
|
|
2.2%
|
|
|
|
2.0%
|
|
|
|
2.0%
|
|
For the three months ended March 31, 2010, operating taxes
and licenses expense decreased $1.0 million, or 7.1%,
compared with the same period in 2009. As a percentage of
revenue, excluding fuel surcharge revenue, operating taxes and
licenses expense decreased to 2.4%, compared with 2.6% for the
same period in 2009, because of a reduction in the size of our
tractor fleet and a corresponding decrease in vehicle
registration costs.
For 2009, operating taxes and licenses expense decreased
$10.7 million, or 15.7%, compared with 2008. The decrease
resulted from the smaller size of our company tractor fleet. As
a percentage of freight revenue, excluding fuel surcharge,
operating taxes and licenses expense was relatively consistent
year-over-year.
For 2008, operating taxes and licenses expense increased
$1.8 million, or 2.7%, compared with pro forma results for
2007. As a percentage of revenue, excluding fuel surcharge
revenue, operating taxes and licenses expense was relatively
consistent at 2.5% in 2008 and 2.4% in the 2007 pro forma period.
Interest
Interest expense consists of cash interest, and amortization of
related issuance costs and fees, but excludes expenses related
to our interest rate swaps.
The following is a summary of actual and pro forma interest
expense for the three months ended March 31, 2010 and 2009,
and years ended December 31, 2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Interest expense
|
|
$
|
62,596
|
|
|
$
|
47,702
|
|
|
$
|
200,512
|
|
|
$
|
222,177
|
|
|
$
|
265,745
|
|
Interest expense for the three months ended March 31, 2010
is primarily based on the debt balance of $1.51 billion for
the first lien term loan and $709 million for our senior
secured notes, whereas interest in the prior year quarter is
primarily based on the debt balance of $1.52 billion for
the first lien term loan and $835 million for the senior
secured notes. In addition, as of March 31, 2010, we had
$162.7 million of capital leases compared with
$157.5 million of capital leases at March 31, 2009. As
a result of the second amendment
64
to our existing senior secured credit facility, interest expense
increased for the first quarter of 2010 as a result of the
addition of a 2.25% LIBOR floor for our existing senior secured
credit facility, a 275 basis point increase in applicable
margin for our existing senior secured credit facility, and a
50 basis point increase in the unused commitment fee for
our revolving line of credit.
Also included in interest expense during the first quarter of
2010 were the fees associated with our 2008 RSA totaling
$1.1 million. In the first quarter of 2009, these fees of
$1.1 million were included in Other expense
consistent with the true sale accounting treatment previously
applicable to our 2008 RSA. As discussed in Note 14 to the
Consolidated Financial Statements, the accounting treatment for
our 2008 RSA changed effective January 1, 2010, upon our
adoption of Financial Accounting Standards Board Accounting
Standards Codification Accounting Standards Update, or ASU
No. 2009-16,
Accounting for Transfers of Financial Assets (Topic
860), after which we were required to account for our
2008 RSA as a secured borrowing as opposed to a sale, with our
2008 RSA program fees characterized as interest expense.
Interest expense for the year ended December 31, 2009 is
primarily based on debt balances of $1.51 billion for the
first lien term loan and $799 million for the senior
secured notes. In addition, as of December 31, 2009, we had
$152.9 million of capital leases. As noted above, as a
result of the second amendment to our existing senior
secured credit facility, interest expense increased during the
fourth quarter of 2009 because of the addition of a 2.25% LIBOR
floor for our existing senior secured credit facility, a
275 basis point increase in applicable margin for our
existing senior secured credit facility, and a 50 basis
point increase in the unused commitment fee for our revolving
line of credit. The decrease in interest rates, specifically
LIBOR, during 2009 partially offset this increase in interest
expense for the year ended December 31, 2009, compared with
2008.
Interest expense for the year ended December 31, 2008 is
primarily based on the debt balance of $1.52 billion for
our first lien term loan, $835 million for our senior
secured notes, and $136.4 million of our capital leases.
Also included in interest expense through March 27, 2008
were the fees associated with our prior accounts receivable sale
facility, or our 2007 RSA. Subsequent to this facility being
amended on March 27, 2008, these fees were included in
Other expense consistent with the true sale
accounting treatment applicable to our amended 2007 RSA. The
decrease in interest rates, specifically LIBOR, during 2008
resulted in interest expense decreasing by $43.6 million
for the year ended December 31, 2008, when compared with
pro forma amounts for 2007.
The pro forma results for the year ended December 31, 2007
represent $180.9 million of actual interest expense,
excluding derivative interest expense for Swift Corporation,
Swift Transportation, and IEL, plus $94.6 million of pro
forma interest expense to reflect the debt related to the 2007
Transactions as if it had been outstanding since January 1,
2007. Also included in interest expense for 2007 were the fees
associated with our 2007 RSA.
After this offering, we expect our interest expense to decrease
substantially because of lower debt balances and lower
applicable margins above LIBOR in our new senior secured credit
facility.
Derivative
interest
Derivative interest expense consists of expenses related to our
interest rate swaps, including the income effect of
mark-to-market
adjustments of interest rate swaps and current settlements. We
de-designated the remaining swaps and discontinued hedge
accounting effective October 1, 2009, as a result of the
second amendment to our existing senior secured credit facility,
after which the entire
mark-to-market
adjustment is charged to earnings rather than being recorded in
equity as a component of other comprehensive income under
previous cash flow hedge accounting treatment. Furthermore, the
non-cash amortization of other comprehensive income previously
recorded when hedge accounting was in effect is recorded in
derivative interest
65
expense. The following is a summary of actual and pro forma
derivative interest expense for the three months ended
March 31, 2010 and 2009, and years ended December 31,
2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Derivative interest expense
|
|
$
|
23,714
|
|
|
$
|
7,549
|
|
|
$
|
55,634
|
|
|
$
|
18,699
|
|
|
$
|
13,056
|
|
Derivative interest expense for the three months ended
March 31, 2010 and 2009 is related to our interest rate
swaps with notional amounts of $1.14 billion and
$1.20 billion, respectively. Derivative interest expense
increased in the three months ended March 31, 2010, over
the same period in 2009 as a result of the decrease in three
month LIBOR, the underlying index for the swaps, and our
cessation of hedge accounting in October 2009, as noted above.
Derivative interest expense for the years ended
December 31, 2009, 2008, and 2007 is related to our
interest rate swaps with notional amounts of $1.14 billion,
$1.22 billion, and $1.34 billion, respectively.
Derivative interest expense increased in 2009 over 2008 as a
result of the significant decrease in three month LIBOR.
Derivative interest expense increased in 2008 compared with pro
forma derivative interest expense for 2007, as a result of the
decrease in three month LIBOR. Pro forma derivative interest
expense for 2007 includes the $13.1 million pre-tax charge
associated with the change in
mark-to-market
of derivatives.
Other
(income) expense
The following is a summary of actual and pro forma other
(income) expense for the three months ended March 31, 2010
and 2009 and the years ended December 31, 2009, 2008, and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Other (income) expense
|
|
$
|
(371
|
)
|
|
$
|
675
|
|
|
$
|
(13,336
|
)
|
|
$
|
12,753
|
|
|
$
|
(473
|
)
|
Other (income) expenses were generally immaterial to our results
in the three months ended March 31, 2010 and 2009 and are
not quantifiable with respect to any major items.
Other (income) expenses improved in the year ended
December 31, 2009, as a result of the $4.0 million
gain from the sale of our investment in Transplace and
$12.5 million in net settlement proceeds received in the
third quarter of 2009.
Other (income) expenses for the year ended December 31,
2008 included $6.7 million of closing costs associated with
our 2008 RSA, our current accounts receivable securitization
facility that was put in place during the third quarter of 2008.
Consistent with the true sale accounting treatment applied to
our securitization under Topic 860, costs associated with the
sale transaction were charged directly to earnings rather than
being deferred as in a secured financing arrangement.
The pro forma results for 2007 include a $2.4 million
pre-tax impairment of a note receivable recorded to other
(income) expense.
66
Income
tax expense
From May 11, 2007 through October 10, 2009, we elected
to be treated as a subchapter S corporation under the
Internal Revenue Code. A subchapter S corporation passes
essentially all taxable income and losses to its stockholders
and does not pay federal income taxes at the corporate level. In
October 2009, we revoked our subchapter S corporation
election and elected to be taxed as a subchapter C corporation.
Under subchapter C, we are liable for federal and state
corporate income taxes on our taxable income.
The following is a summary of actual and pro forma income tax
expense for the three months ended March 31, 2010 and 2009,
and years ended December 31, 2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
Actual
|
|
Actual
|
|
Pro Forma
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Income tax expense (benefit)
|
|
$
|
(9,525
|
)
|
|
$
|
301
|
|
|
$
|
326,650
|
|
|
$
|
11,368
|
|
|
$
|
(238,893
|
)
|
For the three months ended March 31, 2010, income tax
expense decreased $9.8 million compared with the results
for the three months ended March 31, 2009, primarily
related to the full period tax treatment as a subchapter C
corporation and the realization of a tax benefit for net
operating loss carry-forwards to offset taxable income in future
periods.
For the year ended December 31, 2009, income tax expense
increased $315.3 million compared with 2008. As a result of
our subchapter S revocation, we recorded approximately
$325 million of income tax expense on October 10,
2009, primarily in recognition of our deferred tax assets and
liabilities as a subchapter C corporation.
For the year ended December 31, 2008, income tax expense
increased $250.3 million compared with the pro forma
results for the year ended December 31, 2007. The pro forma
results for the year ended December 31, 2007 include the
impact associated with a $230.2 million benefit to
eliminate deferred taxes upon our conversion to a
subchapter S corporation on May 10, 2007.
Liquidity
and Capital Resources
Overview
At March 31, 2010, we had the following sources of
liquidity available to us:
|
|
|
|
|
|
|
As of March 31, 2010
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents, excluding restricted cash
|
|
$
|
87,327
|
|
Availability under revolving line of credit due 2012
|
|
|
235,600
|
|
|
|
|
|
|
Total
|
|
$
|
322,927
|
|
|
|
|
|
|
Our business requires substantial amounts of cash to cover
operating expenses as well as to fund items such as cash capital
expenditures on our fleet and other assets, working capital
changes, principal and interest payments on our obligations,
letters of credit to support insurance requirements, and tax
payments to fund our taxes in periods when we generate taxable
income.
We also make substantial, net capital expenditures to maintain a
modern company tractor fleet, refresh our trailer fleet, and
potentially fund growth in our revenue equipment fleet if
justified by customer demand and our ability to finance the
equipment and generate acceptable returns. After March 31,
2010, we expect our net capital expenditures to be approximately
$171 million for the remainder of 2010, assuming all
revenue equipment additions are recorded as capital
expenditures. However, we expect to continue to obtain a portion
67
of our equipment under operating leases, which are not reflected
as net capital expenditures. Beyond 2010, we expect our net
capital expenditures to remain substantial.
We believe we can finance our expected cash needs, including
debt repayment, in the short-term with cash flows from
operations, borrowings available under our revolving line of
credit, borrowings under our 2008 RSA, and lease financing
believed to be available for at least the next twelve months.
Over the long-term, we will continue to have significant capital
requirements, which may require us to seek additional
borrowings, lease financing, or equity capital. The availability
of financing or equity capital will depend upon our financial
condition and results of operations as well as prevailing market
conditions. With the infusion of capital from this offering, and
the consequent reduction of indebtedness, we will have greater
flexibility to use our revolving line of credit to purchase
equipment if it becomes economically advantageous to do so.
Cash
Flows
Our summary statements of cash flows information for the three
months ended March 31, 2010 and 2009 and the years ended
December 31, 2009 and 2008 is set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Net cash provided by operating activities
|
|
$
|
15,107
|
|
|
$
|
7,376
|
|
|
$
|
115,335
|
|
|
$
|
119,740
|
|
Net cash used in investing activities
|
|
$
|
(35,131
|
)
|
|
$
|
(6,661
|
)
|
|
$
|
(1,127
|
)
|
|
$
|
(118,517
|
)
|
Net cash used in financing activities and effect of exchange
rate changes
|
|
$
|
(8,511
|
)
|
|
$
|
(1,825
|
)
|
|
$
|
(56,262
|
)
|
|
$
|
(22,133
|
)
|
We do not discuss our statements of cash flows information for
2007 because the partial year of operations in 2007 and the
approximately $1.4 billion and $2.2 billion,
respectively, in cash flows used in investing and cash flows
from financing activities relating to our going private
transaction in May 2007 limit the usefulness of the comparison.
Operating
activities
The $7.7 million increase in net cash provided by operating
activities during the first three months ended March 31,
2010, compared with the same period in 2009, was primarily the
result of the $11.0 million increase in operating income
between the periods, a $20.3 million reduction in claims
payments made over the same periods, and an increase in certain
payables to third parties for purchased transportation
reflecting timing differences in payments between the periods.
These increases were partially offset by a $32.2 million
increase in cash paid for interest and taxes between the
periods, primarily as a result of the increase in coupon under
our existing senior secured credit facility following the second
amendment to our existing senior secured credit facility and our
change in tax filing status during the fourth quarter of 2009.
The $4.4 million decrease in net cash provided by operating
activities during the year ended December 31, 2009,
compared with the year ended December 31, 2008, primarily
was the result of a $17.6 million increase in net cash paid
for income taxes and a $13.9 million greater reduction in
accounts payable, accrued, and other liabilities during 2009 as
compared to 2008. This includes a $5.8 million increase in
claims payments made in 2009, reflecting recent settlements of
several large automobile liability claims from prior years.
These items were mostly offset by a reduction in cash interest
payments as a result of the decline in LIBOR.
Investing
activities
The $28.5 million increase in net cash used in investing
activities during the three months ended March 31, 2010,
compared with the three months ended March 31, 2009
results, was driven mainly by a $20.8 million increase in
the restricted cash changes. The increase in restricted cash
during the 2010 quarter
68
reflects increased collateral requirements pertaining to our
wholly-owned captive insurance subsidiaries, Mohave and Red
Rock, both of which insure the first million dollars (per
occurrence) of our automobile liability risk beginning on
February 1, 2010. To comply with certain state insurance
regulatory requirements, we will pay approximately
$55 million in cash and cash equivalents to Red Rock and
Mohave over the course of 2010, to be restricted as collateral
for anticipated losses incurred in 2010. The restricted cash
will be used to make payments to cover these losses as they are
settled in 2010 and future periods.
The $117.4 million reduction in net cash used in investing
activities during the year ended December 31, 2009,
compared with the year ended December 31, 2008 results, was
driven mainly by a $256.5 million decrease in capital
expenditures as a result of our fleet reduction efforts in the
face of softening demand, which was partially offset by a
$121.4 million decrease in sales proceeds from equipment
disposals, as shown in the table below. In addition, restricted
cash increased by $6.4 million during the year ended
December 31, 2009, after decreasing by $3.6 million in
the year ended December 31, 2008. Further, payments
received on assets held for sale and equipment sales receivable
decreased $8.5 million for the year ended December 31,
2009 compared with the year ended December 31, 2008.
Total net capital expenditures for the three months ended
March 31, 2010 and 2009 and for the years ended
December 31, 2009 and 2008 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Years Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Revenue equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tractors
|
|
$
|
14,018
|
|
|
$
|
10,105
|
|
|
$
|
56,200
|
|
|
$
|
221,731
|
|
Trailers
|
|
|
446
|
|
|
|
1,360
|
|
|
|
8,393
|
|
|
|
93,006
|
|
Facilities
|
|
|
2,394
|
|
|
|
1,012
|
|
|
|
6,152
|
|
|
|
12,121
|
|
Other
|
|
|
297
|
|
|
|
74
|
|
|
|
520
|
|
|
|
867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash capital expenditures
|
|
|
17,155
|
|
|
|
12,551
|
|
|
|
71,265
|
|
|
|
327,725
|
|
Less: Proceeds from sales of equipment
|
|
|
4,684
|
|
|
|
2,381
|
|
|
|
69,773
|
|
|
|
191,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash capital expenditures
|
|
$
|
12,471
|
|
|
$
|
10,170
|
|
|
$
|
1,492
|
|
|
$
|
136,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
Net cash used in financing activities increased by
$6.7 million in the three months ended March 31, 2010,
as compared with the three months ended March 31, 2009.
This increase reflects a $3.8 million increase in payments
on our short-term notes payable, long-term debt, and capital
lease obligations, partially offset by a $2.0 million net
increase in our borrowing under our accounts receivable
securitization during the three months ended March 31,
2010, which is now reflected as a financing activity given the
accounting treatment as a secured borrowing. Further, the three
months ended March 31, 2009 included $4.9 million of
proceeds received from capital leases that were funded to us on
the last day of the quarter, but not yet remitted to the
manufacturer for equipment purchases.
In the year ended December 31, 2009, cash used in financing
activities increased by $34.0 million compared with the
year ended December 31, 2008. This increased usage reflects
an increase of $14.2 million in payments made on our
long-term debt, notes payable, and capital leases, an increase
of $11.0 million in payment of deferred loan costs
resulting from the second amendment to our existing senior
secured credit facility and indenture amendments, and
$6.2 million of payments made in 2009 on short-term notes
payable, which had financed a portion of our insurance premiums
in 2009. In the year ended December 31, 2008, we had net
repayments of $16.6 million on capital leases and long-term
debt.
Capital
and Operating Leases
In addition to the net cash capital expenditures discussed
above, we also acquired revenue equipment with capital and
operating leases. During the three months ended March 31,
2010, we acquired tractors through capital
69
and operating leases with gross values of $15.2 million and
$5.1 million, respectively, which were offset by operating
lease terminations with originating values of $9.1 million
for tractors in the first quarter of 2010. During the quarter
ended March 31, 2009, we acquired tractors through capital
and operating leases with gross values of $21.0 million and
$7.4 million, respectively, which were offset by operating
lease terminations with originating values of $7.4 million
for tractors in the three months ended March 31, 2009. In
addition, $22.5 million of trailer leases expired in the
three months ended March 31, 2010, while no trailer leases
expired in the three months ended March 31, 2009.
During the year ended December 31, 2009, we acquired
tractors through capital and operating leases with gross values,
net of down payments, of $36.8 million and
$45.6 million, respectively, which were offset by operating
lease terminations with original values of $50.9 million
for tractors in 2009. During the year ended December 31,
2008, we acquired tractors through capital and operating leases
with gross values of $81.3 million and $104.1 million,
respectively, which were offset by operating lease terminations
with originating values of $83.2 million for tractors in
2008.
Working
Capital
As of March 31, 2010, we had a working capital surplus of
$101.1 million, which was an increase of
$117.6 million from December 31, 2009. The increase
primarily resulted from the change in accounting treatment for
our 2008 RSA. The accounting treatment for our 2008 RSA changed
effective January 1, 2010, upon our adoption of ASU
No. 2009-16,
at which time we were required to account for our 2008 RSA as a
secured borrowing rather than a sale. As a result, the
previously de-recognized accounts receivable were brought back
onto our balance sheet as current assets and the related
securitization proceeds were recognized as non-current debt
because of the terms of our accounts receivable securitization
facility.
As of December 31, 2009 and 2008, we had a working capital
deficit of $16.5 million and $170.6 million,
respectively. The deficit primarily resulted from our accounts
receivable securitization program. In 2007, the initial
securitization proceeds totaling $200 million were used to
repay principal on the first lien term loan, the majority of
which was applied to the non-current portion of the first lien
term loan. The result was to reduce our current assets and a
long-term liability, resulting in a reduction of working
capital. In addition, the $154.1 million reduction in the
working capital deficit during the year ended December 31,
2009 reflects a $64.4 million increase in cash and
restricted cash primarily relating to cash provided by
operations as discussed above, a $49.0 million increase in
deferred tax assets reflecting our conversion to a subchapter C
corporation in the fourth quarter of 2009, and a
$95.0 million decrease in accounts payable, accrued claims,
and other accrued liabilities. These improvements were offset,
in part, by a $20.2 million increase in the current portion
of the interest rate swap liability resulting from the decrease
in LIBOR during 2009, as well as an $18.6 million increase
in the current portion of long-term debt and capital lease
obligations.
Material
Debt Agreements
Overview
As of March 31, 2010, we had the following material debt
agreements:
|
|
|
|
|
existing senior secured credit facility consisting of a term
loan due May 2014, a revolving line of credit due May 2012 (none
drawn), and a synthetic letter of credit facility due May 2014;
|
|
|
|
senior secured floating rate notes due May 2015;
|
|
|
|
senior secured fixed rate notes due May 2017;
|
|
|
|
2008 RSA due July 2013; and
|
|
|
|
other secured indebtedness and capital lease agreements.
|
70
The amounts outstanding under such agreements and other debt
instruments were as follows as of March 31, 2010 and
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
|
(In thousands)
|
|
First lien term loan due May 2014
|
|
$
|
1,507,100
|
|
|
$
|
1,511,400
|
|
Senior secured floating rate notes due May 15, 2015
|
|
|
203,600
|
|
|
|
203,600
|
|
Senior secured fixed rate notes due May 15, 2017
|
|
|
505,648
|
|
|
|
595,000
|
|
2008 RSA
|
|
|
150,000
|
|
|
|
|
|
Other secured debt and capital leases
|
|
|
165,833
|
|
|
|
156,934
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt and capital leases
|
|
$
|
2,532,181
|
|
|
$
|
2,466,934
|
|
Less: current portion
|
|
|
56,369
|
|
|
|
46,754
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital leases, less current portion
|
|
$
|
2,475,812
|
|
|
$
|
2,420,180
|
|
|
|
|
|
|
|
|
|
|
Our existing senior secured credit facility and senior secured
notes are secured by substantially all of our assets other than
the stock of our captive insurance companies, bankruptcy-remote
subsidiary used to conduct our accounts receivable
securitization, our accounts receivable, and the stock of our
foreign subsidiaries. All of these agreements contain financial
and other covenants and cross-default provisions, such that a
default under one agreement would create a default under the
other agreements. We were in compliance with the covenants under
all of such agreements at March 31, 2010 and
December 31, 2009.
Existing
senior secured credit facility
Our existing senior secured credit facility consists of a first
lien term loan with an original aggregate principal amount of
$1.72 billion due May 2014, a $300.0 million revolving
line of credit due May 2012, and a $150.0 million synthetic
letter of credit facility due May 2014. Principal payments on
the first lien term loan are due quarterly in amounts equal to
(i) 0.25% of the original aggregate principal outstanding
beginning September 30, 2007 to September 30, 2013,
and (ii) 23.5% of the original aggregate principal
outstanding from December 31, 2013 through its maturity,
with the balance due on the maturity date. In July 2007, we used
$200.0 million of proceeds from our 2007 RSA to prepay the
first eight principal payments, with the balance being applied
to the last payment. This reduced the aggregate principal to
$1.52 billion as of July 2007. As of March 31, 2010,
there was $1.51 billion outstanding under the first lien
term loan. In April 2010, we made an $18.7 million payment
on the first lien term loan out of excess cash flows for the
prior fiscal year. This payment was applied in full satisfaction
of the next four scheduled principal payments and partial
satisfaction of the fifth successive principal payment due
June 30, 2011.
As of March 31, 2010, there were no borrowings under our
$300.0 million revolving line of credit. The unused portion
of our revolving line of credit is subject to a commitment fee
of 1.00%. As of March 31, 2010, we had outstanding letters
of credit under the revolving line of credit primarily for
workers compensation and self-insurance liability purposes
totaling $64.4 million, leaving $235.6 million
available under the revolving line of credit. The revolving line
of credit also includes capacity for letters of credit up to
$175.0 million.
Similar to the letters of credit under our $300.0 million
revolving line of credit, the outstanding letters of credit
pursuant to the $150.0 million synthetic letter of credit
facility are primarily for workers compensation and
self-insurance liability purposes. As of March 31, 2010,
the $150.0 million synthetic letter of credit facility was
fully utilized.
Interest on the first lien term loan and the outstanding
borrowings under our revolving line of credit are based upon one
of two rate options plus an applicable margin. The base rate is
equal to LIBOR, or the higher of the prime rate published in the
Wall Street Journal and the Federal Funds Rate in effect plus
0.50% to 1.00%. Following the second amendment to our existing
senior secured credit facility, LIBOR option loans are subject
to the LIBOR floor at 2.25% and alternate base rate option loans
are subject to a 3.25% minimum alternate base rate option. We
may select the interest rate option at the time of borrowing.
The applicable
71
margins for the interest rate options range from 4.50% to 6.00%,
depending on the credit rating assigned by S&P and
Moodys. Interest on the first lien term loan and
outstanding borrowings under the revolving line of credit is
payable on the stated maturity of each loan, on the date of
principal prepayment, if any, with respect to base rate loans,
on the last day of each calendar quarter, and with respect to
LIBOR rate loans, on the last day of each interest period. As of
March 31, 2010, interest accrues at the greater of LIBOR or
the LIBOR floor plus 6.00% (8.25% at March 31, 2010).
Our existing senior secured credit facility contains various
financial and other covenants, including but not limited to
required minimum liquidity, limitations on indebtedness, liens,
asset sales, transactions with affiliates, and required leverage
and interest coverage ratios. In addition, our existing senior
secured credit facility contains a cross default provision,
which provides that a default under the indentures governing our
senior secured notes and our 2008 RSA would trigger an event of
default under our existing senior secured credit facility. As of
March 31, 2010, we were in compliance with these covenants.
New
senior secured credit facility
In connection with this offering, Swift Transportation intends
to enter into a new senior secured credit facility consisting of
a $ million senior secured
revolving credit facility and a
$ million senior secured term
loan. The proceeds of the new term loan will be used to repay
the portion of our existing senior secured credit facility that
is not repaid with the proceeds of this offering. We expect the
new senior secured credit facility to be completed substantially
concurrently with the closing of this offering. Our entry into
the new senior secured credit facility is conditioned on the
completion of this offering.
Senior
secured notes
On May 10, 2007, we completed a private placement of
second-priority senior secured notes associated with the
acquisition of Swift Transportation totaling
$835.0 million, which consisted of: $240 million
aggregate principal amount second-priority senior secured
floating rate notes due May 15, 2015, and $595 million
aggregate principal amount of 12.50% second-priority senior
secured fixed rate notes due May 15, 2017.
Interest on the senior secured floating rate notes is payable on
February 15, May 15, August 15, and
November 15, accruing at three-month LIBOR plus 7.75%
(8.00% at March 31, 2010). Once our existing senior secured
credit facility is paid in full, we may redeem any of the senior
secured floating rate notes on any interest payment date at a
redemption price of 101% through 2010.
Interest on the 12.50% senior secured fixed rate notes is
payable on May 15 and November 15. Once our existing senior
secured credit facility is paid in full, on or after
May 15, 2012, we may redeem the senior secured fixed rate
notes at an initial redemption price of 106.25% of their
principal amount and accrued interest.
During the year ended December 31, 2009, Mr. Moyes,
our Chief Executive Officer and majority stockholder, purchased
$36.4 million face value senior secured floating rate notes
and $89.4 million face value senior secured fixed rate
notes in open market transactions. In connection with the second
amendment to our existing senior secured credit facility,
Mr. Moyes agreed to cancel his personally held senior
secured notes in return for a $325.0 million reduction of
the stockholder loan due 2018 owed to us by Mr. Moyes and
the Moyes Affiliates, each of whom is a stockholder of Swift.
The senior secured floating rate notes held by Mr. Moyes,
totaling $36.4 million in principal amount, were cancelled
at closing of the second amendment to our existing senior
secured credit facility on October 13, 2009, and,
correspondingly, the stockholder loan was reduced by
$94.0 million. The senior secured fixed rate notes held by
Mr. Moyes, totaling $89.4 million in principal amount,
were cancelled in January 2010 and the stockholder loan was
reduced further by an additional $231.0 million. The amount
of the stockholder loan cancelled in exchange for the
contribution of senior secured notes was negotiated by
Mr. Moyes with the steering committee of lenders, comprised
of a number of the largest lenders (by holding size) and the
administrative agent of our existing senior secured
72
credit facility. The cancellation of the senior secured notes
reduced stockholders deficit by $36.4 million in
October 2009 and $89.4 million in January 2010.
The indentures governing the senior secured notes contain
various financial and other covenants, including but not limited
to limitations on asset sales, incurrence of indebtedness, and
entering into sales and leaseback transactions. As of
March 31, 2010, we were in compliance with these covenants.
In addition, the indentures governing the senior secured notes
contain a cross default provision which provides that a default
under such indentures would trigger termination rights under our
existing senior secured credit facility and the indenture
governing our 2008 RSA. The indentures for the senior secured
notes include a limit on future indebtedness if a minimum fixed
charge coverage ratio, as defined therein, is not met. We
currently do not meet that minimum requirement and cannot incur
additional debt in excess of that specified in the indentures,
including the limit for outstanding capital lease obligations of
$212.5 million for 2010 and $250.0 million thereafter.
An intercreditor agreement among the first lien agent for our
existing senior secured credit facility, the trustee of the
senior secured notes, Swift Corporation, and certain of our
subsidiaries establishes the second-priority status of the
senior secured notes and contains restrictions and agreements
with respect to the control of remedies, release of collateral,
amendments to security documents, and the rights of holders of
first priority lien obligations and holders of the senior
secured notes.
Derivative
Financial Instruments
We are exposed to certain risks relating to our ongoing business
operations. The primary risk managed by using derivative
instruments is interest rate risk. In 2007, we entered into
several interest rate swap agreements for the purpose of hedging
variability of interest expense and interest payments on
long-term variable rate debt and our senior secured notes. Our
strategy was to use pay-fixed/receive-variable interest rate
swaps to reduce our aggregate exposure to interest rate risk.
These derivative instruments were not entered into for
speculative purposes, but were required by our senior secured
credit facility lenders in connection with the 2007 Transactions.
In connection with our existing senior secured credit facility,
we had four interest rate swap agreements in effect at
March 31, 2010, with a total notional amount of
$1.14 billion. Of this amount, $305.0 million mature
in August 2010, with the remainder to mature in August 2012. At
October 1, 2007, we designated and qualified these interest
rate swaps as cash flow hedges. Subsequent to October 1,
2007, the effective portion of the changes in fair value of the
designated swaps was recorded in accumulated other comprehensive
income (loss) and is thereafter recognized to derivative
interest expense as the interest on the hedged variable rate
debt affects earnings. The ineffective portions of the changes
in the fair value of designated interest rate swaps were
recognized directly to earnings as derivative interest expense
in our statements of operations. At March 31, 2010 and
December 31, 2009, unrealized losses on changes in fair
value of the designated interest rate swap agreements totaling
$43.1 million and $54.1 million, after taxes,
respectively, were reflected in accumulated other comprehensive
income. As of March 31, 2010, we estimate that
$27.7 million of unrealized losses included in accumulated
other comprehensive income will be realized and reported in
earnings within the next twelve months.
Prior to the second amendment to our existing senior secured
credit facility, these interest rate swap agreements had been
highly effective as a hedge of our variable rate debt. However,
following the implementation of the 2.25% LIBOR floor for our
existing senior secured credit facility pursuant to the second
amendment to our existing senior secured credit facility, the
interest rate swaps no longer qualify as highly effective in
offsetting changes in the interest payments on long-term
variable rate debt. Consequently, we removed the hedging
designation and ceased cash flow hedge accounting treatment for
the swaps effective October 1, 2009. As a result, all of
the ongoing changes in fair value of the interest rate swaps are
now recorded as derivative interest expense in earnings, whereas
the majority of changes in fair value had previously been
recorded in other comprehensive income under cash flow hedge
accounting. The cumulative change in fair value of the swaps,
which occurred prior to the cessation in hedge accounting,
remains in accumulated other comprehensive income and is
amortized to earnings as derivative interest expense in current
and future periods as the interest payments on the first lien
term loan affect earnings. In conjunction with the
73
contemplated refinancing of our existing senior secured credit
facility, we are evaluating various alternatives to terminate
some or all of the remaining interest rate swap contracts as
they are no longer expected to provide an economic hedge in the
near term.
The fair value of the interest rate swap liability at
March 31, 2010 and December 31, 2009, was
$79.4 million and $80.3 million, respectively. The
fair values of the interest rate swaps are based on valuations
provided by third parties, derivative pricing models, and credit
spreads derived from the trading levels of our first lien term
loan.
2008
RSA
On July 30, 2008, through our wholly-owned
bankruptcy-remote special purpose subsidiary, we entered into
our 2008 RSA to replace our prior accounts receivable sale
facility and to sell, on a revolving basis, undivided interests
in our accounts receivable. The program limit under our 2008 RSA
is $210.0 million and is subject to eligible receivables
and reserve requirements. Outstanding balances under our 2008
RSA accrue interest at a yield of LIBOR plus 300 basis
points or Prime plus 200 basis points, at our discretion.
Our 2008 RSA terminates on July 30, 2013, and is subject to
an unused commitment fee ranging from 25 to 50 basis
points, depending on the aggregate unused commitment of our 2008
RSA.
As of January 1, 2010, our 2008 RSA no longer qualified for
true sale accounting treatment and is now instead treated as a
secured borrowing. As a result, the previously de-recognized
accounts receivable were brought back onto our balance sheet and
the related securitization proceeds were recognized as debt,
while the program fees for the facility were reported as
interest expense beginning January 1, 2010. The
re-characterization of program fees from other expense to
interest expense did not affect our interest coverage ratio
calculation, and the change in accounting treatment for the
securitization proceeds from sales proceeds to debt did not
affect the leverage ratio calculation, as defined in our
existing senior secured credit facility, as amended.
Our 2008 RSA contains certain restrictions and provisions
(including cross-default provisions to our debt agreements)
which, if not met, could restrict our ability to borrow against
future eligible receivables. The inability to borrow against
additional receivables would reduce liquidity as the daily
proceeds from collections on the receivables levered prior to
termination are remitted to the lenders, with no further
reinvestment of these funds by our lenders into Swift. As of
March 31, 2010, the amount outstanding under our 2008 RSA
was $150.0 million.
Off-Balance
Sheet Arrangements
Operating
leases
We lease approximately 4,400 tractors under operating leases.
Operating leases have been an important source of financing for
our revenue equipment. Tractors held under operating leases are
not carried on our consolidated balance sheets, and lease
payments in respect of such tractors are reflected in our
consolidated statements of operations in the line item
Rental expense. Our revenue equipment rental expense
was $18.9 million in the first quarter of 2010, compared
with $20.4 million in the first quarter of 2009. The total
amount of remaining payments under operating leases as of
March 31, 2010, was approximately $130.1 million. In
connection with various operating leases, we issued residual
value guarantees, which provide that if we do not purchase the
leased equipment from the lessor at the end of the lease term,
we are liable to the lessor for an amount equal to the shortage
(if any) between the proceeds from the sale of the equipment and
an agreed value. As of December 31, 2009, the maximum
amount of the residual value guarantees was approximately
$18.7 million. To the extent the expected value at the
lease termination date is lower than the residual value
guarantee, we would accrue for the difference over the remaining
lease term. We believe that proceeds from the sale of equipment
under operating leases would exceed the payment obligation on
substantially all operating leases.
74
Accounts
receivable sale facility
We securitize our accounts receivable through a special purpose
subsidiary not carried on our balance sheet at December 31,
2009. We were required to cease the off-balance sheet accounting
treatment for our 2008 RSA effective January 1, 2010, upon
adoption of ASU
No. 2009-16,
and have brought the previously de-recognized accounts
receivable back onto our balance sheet, recognizing the related
securitization proceeds as debt.
Contractual
Obligations
The table below summarizes our contractual obligations as of
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period(5)
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
Long-term debt obligations
|
|
$
|
19,054
|
|
|
$
|
36,079
|
|
|
$
|
1,460,316
|
|
|
$
|
798,600
|
|
|
$
|
2,314,049
|
|
Capital lease obligations(1)
|
|
|
27,700
|
|
|
|
91,136
|
|
|
|
34,049
|
|
|
|
|
|
|
|
152,885
|
|
Operating lease obligations(2)
|
|
|
64,724
|
|
|
|
61,263
|
|
|
|
6,426
|
|
|
|
1,154
|
|
|
|
133,567
|
|
Purchase obligations(3)
|
|
|
149,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,140
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps(4)
|
|
|
48,819
|
|
|
|
38,793
|
|
|
|
|
|
|
|
|
|
|
|
87,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
309,437
|
|
|
$
|
227,271
|
|
|
$
|
1,500,791
|
|
|
$
|
799,754
|
|
|
$
|
2,837,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents principal payments owed at December 31, 2009.
The borrowing consists of capital leases with finance companies,
with fixed borrowing amounts and fixed interest rates, as set
forth on each applicable lease schedule. Accordingly, interest
on each lease varies between schedules. |
|
(2) |
|
Represents future monthly rental payment obligations under
operating leases for tractors, trailers, chassis, and
facilities. Substantially all lease agreements for revenue
equipment have fixed payment terms based on the passage of time.
The tractor lease agreements generally stipulate maximum miles
and provide for mileage penalties for excess miles. These leases
generally run for a period of three to five years for tractors
and five to seven years for trailers. We also have guarantee
obligations of residual values under certain operating leases,
which obligations are not included in the amounts presented.
Upon termination of these leases, we would be responsible for
the excess of the guarantee amount above the fair market value
of the equipment, if any. As of December 31, 2009, the
maximum potential amount of future payments we could be required
to make under these guarantees is $18.7 million. |
|
(3) |
|
Represents purchase obligations for revenue equipment, fuel, and
facilities. The portion associated with revenue equipment
purchase obligations consists of $146.1 million. We
generally have the option to cancel tractor purchase orders with
90 days notice. As of December 31, 2009,
approximately one-third of this amount had become non-cancelable. |
|
(4) |
|
Represents interest rate swap payments that are undiscounted and
projected based on LIBOR forward rates as of December 31,
2009. |
|
(5) |
|
Deferred taxes and long-term portion of claims accruals are
excluded from other long-term liabilities in the table above. |
Inflation
Inflation can have an impact on our operating costs. A prolonged
period of inflation could cause interest rates, fuel, wages, and
other costs to increase, which would adversely affect our
results of operations unless freight rates correspondingly
increased. However, with the exception of fuel, the effect of
inflation has been minor over the past three years. Our average
fuel cost per gallon has increased 33.5% between the three
months ended March 31, 2009 and 2010. Our average fuel cost
per gallon decreased 37.9% between 2008 and
75
2009 after increasing 26.8% between 2007 and 2008. Historically,
the majority of the increase in fuel costs has been passed on to
our customers through a corresponding increase in fuel surcharge
revenue, making the impact of the increased fuel costs on our
operating results less severe. If fuel costs escalate and we are
unable to recover these costs timely with effective fuel
surcharges, it would have an adverse effect on our operation and
profitability.
Seasonality
In the transportation industry, results of operations generally
show a seasonal pattern. As our customers ramp up for the
holiday season at year-end, the late third and fourth quarters
historically have been our strongest volume quarters. As our
customers reduce shipments after the winter holiday season, the
first quarter historically has been a lower volume quarter. In
2007 and 2008, the traditional surge in volume in the third and
fourth quarters did not occur due to the economic recession,
while the 2009 holiday season showed some improvement due
largely to inventory replenishment by retailers. Additionally,
our operating expenses tend to be higher in the winter months
primarily due to colder weather, which causes higher fuel
consumption from increased idle time.
Quantitative
and Qualitative Disclosures About Market Risk
We have interest rate exposure arising from our existing senior
secured credit facility, senior secured floating rate notes,
2008 RSA, and other financing agreements, which have variable
interest rates. These variable interest rates are impacted by
changes in short-term interest rates, although the volatility
related to the first lien term loan and revolving line of credit
is mitigated due to the implementation of a 2.25% LIBOR floor on
our existing senior secured credit facility as a result of the
second amendment to our existing senior secured credit facility.
We manage interest rate exposure through a mix of variable rate
debt, fixed rate lease financing, and a $1.14 billion
notional amount of interest rate swaps (weighted average rate of
5.02% before the applicable margin). There are no leverage
options or prepayment features for the interest rate swaps.
Assuming the current level of borrowings, a hypothetical
one-percentage point increase in interest rates would decrease
our annual interest expense by $7.8 million, including
interest rate swap settlements, as a result of the combined
effect of the LIBOR floor and the interest rate swaps. At
March 31, 2010, we had outstanding approximately
$723.7 million of variable rate borrowings that were not
subject to interest rate swaps, $370.1 million of which
represents the term loan and is subject to the LIBOR floor. On a
pro forma basis, assuming the repayment of
$ in term loan debt with the
proceeds of this offering, our outstanding variable rate
borrowing would have been approximately
$ as of March 31, 2010. Based
on such pro forma amounts outstanding, a hypothetical
one-percentage point increase in interest rates would increase
our annual interest expense by $
million.
We have commodity exposure with respect to fuel used in
company-owned tractors. Further increases in fuel prices will
continue to raise our operating costs, even after applying fuel
surcharge revenue. Historically, we have been able to recover a
majority of fuel price increases from our customers in the form
of fuel surcharges. The average diesel price per gallon in the
United States, as reported by the Department of Energy, rose
from an average of $2.19 per gallon for the three months ended
March 31, 2009 to an average of $2.85 per gallon for the
three months ended March 31, 2010. We cannot predict the
extent or speed of potential changes in fuel price levels in the
future, the degree to which the lag effect of our fuel surcharge
programs will impact us as a result of the timing and magnitude
of such changes, or the extent to which effective fuel
surcharges can be maintained and collected to offset such
increases. We generally have not used derivative financial
instruments to hedge our fuel price exposure in the past, but
continue to evaluate this possibility.
Critical
Accounting Policies
The preparation of our consolidated financial statements in
conformity with GAAP requires us to make estimates and
assumptions that impact the amounts reported in our consolidated
financial statements and accompanying notes. Therefore, the
reported amounts of assets, liabilities, revenue, expenses, and
associated disclosures of contingent assets and liabilities are
affected by these estimates and assumptions. We evaluate
76
these estimates and assumptions on an ongoing basis, utilizing
historical experience, consultation with experts, and other
methods considered reasonable in the particular circumstances.
Nevertheless, actual results may differ significantly from our
estimates and assumptions, and it is possible that materially
different amounts will be reported using differing estimates or
assumptions. We consider our critical accounting policies to be
those that require us to make more significant judgments and
estimates when we prepare our financial statements. Our critical
accounting policies include the following:
Claims
accruals
We are self-insured for a portion of our liability,
workers compensation, property damage, cargo damage, and
employee medical expense risk. This self-insurance results from
buying insurance coverage that applies in excess of a retained
portion of risk for each respective line of coverage. Each
reporting period, we accrue the cost of the uninsured portion of
pending claims. These accruals are estimated based on our
evaluation of the nature and severity of individual claims and
an estimate of future claims development based upon historical
claims development trends. Insurance and claims expense will
vary as a percentage of operating revenue from period to period
based on the frequency and severity of claims incurred in a
given period as well as changes in claims development trends.
Actual settlement of the self-insured claim liabilities could
differ from our estimates due to a number of uncertainties,
including evaluation of severity, legal cost, and claims that
have been incurred but not reported. If claims development
factors that are based upon historical experience had increased
by 10%, our claims accrual as of March 31, 2010 would have
potentially increased by $13.1 million.
Goodwill
We have recorded goodwill, which primarily arose from the
partial acquisition of Swift Transportation. Goodwill represents
the excess of the purchase price over the fair value of net
assets acquired. In accordance with Topic 350,
Intangibles Goodwill and Other,
we test goodwill for potential impairment annually as of
November 30 and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount.
As of November 30, 2009, we evaluated goodwill for
impairment using the two-step process prescribed in Topic 350.
The first step is to identify potential impairment by comparing
the fair value of a reporting unit with the book value,
including goodwill. If the fair value of a reporting unit
exceeds the book value, goodwill is not considered impaired. If
the book value exceeds the fair value, the second step of the
process is performed to measure the amount of impairment. Our
test of goodwill and indefinite-lived intangible assets requires
judgment, including the identification of reporting units,
assigning assets (including goodwill) and liabilities to
reporting units, and determining the fair value of each
reporting unit. For determining fair value as of
November 30, 2009, we used a combination of comparative
valuation multiples of publicly traded companies and a
discounted cash flow model. The discounted cash flow model
included several significant assumptions, including estimating
future cash flows and determining appropriate discount rates.
Changes in these estimates and assumptions could materially
affect the determination of fair value
and/or
goodwill impairment for each reporting unit. Our evaluation as
of November 30, 2009 produced no indication of impairment
of goodwill or indefinite-lived intangible assets. Based on our
analysis, none of our reporting units was at risk of failing
step one of the test.
Based on the results of our evaluation as of November 30,
2008, we recorded a non-cash impairment charge of
$17.0 million with no tax impact in the fourth quarter of
2008 related to the decline in fair value of our Mexico freight
transportation reporting unit resulting from the deterioration
in truckload industry conditions as compared with the estimates
and assumptions used in our original valuation projections used
at the time of the partial acquisition of Swift Transportation.
This charge is included in impairments in the consolidated
statements of operations for the year ended December 31,
2008. The annual impairment test performed as of
November 30, 2008, indicated no additional impairments for
goodwill or indefinite-lived intangible assets at our other
reporting units.
Based on the results of our evaluation as of November 30,
2007, we recorded a non-cash impairment charge of
$238 million with no tax impact in the fourth quarter of
2007 related to the decline in fair value of
77
our U.S. freight transportation reporting unit resulting
from the deterioration in truckload industry conditions as
compared with the estimates and assumptions used in our original
valuation projections used at the time of the partial
acquisition of Swift Transportation. These charges are included
in impairments in our consolidated statements of operations.
Revenue
recognition
We recognize operating revenue and related direct costs to
recognizing revenue as of the date the freight is delivered,
which is consistent with Topic
605-20-25-13,
Services for
Freight-in-Transit
at the End of a Reporting Period.
We recognize revenue from leasing tractors and related equipment
to owner-operators as operating leases. Therefore, revenue for
rental operations are recognized on the straight-line basis as
earned under the operating lease agreements. Losses from lease
defaults are recognized as an offset to revenue in the amount of
earned, but not collected, revenue.
Depreciation
and amortization
Depreciation on property and equipment is calculated on the
straight-line method over the estimated useful lives of 10 to
40 years for facilities and improvements, 3 to
15 years for revenue and service equipment, and 3 to
5 years for software, furniture, and office equipment.
Amortization of the customer relationships acquired in the
acquisition of Swift Transportation is calculated on the 150%
declining balance method over the estimated useful life of
15 years. The customer relationships contributed to us at
May 9, 2007 are amortized using the straight-line method
over 15 years. The owner-operator relationships are
amortized using the straight-line method over three years. The
trade name has an indefinite useful life and is not amortized,
but rather is tested for impairment annually on
November 30, unless events occur or circumstances change
between annual tests that would more likely than not reduce the
fair value.
Impairments
of long-lived assets
We evaluate our long-lived assets, including property and
equipment, and certain intangible assets subject to amortization
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable in accordance with Topic 360 and Topic 350,
respectively. If circumstances require a long-lived asset be
tested for possible impairment, we compare undiscounted cash
flows expected to be generated by an asset to the carrying value
of the asset. If the carrying value of the long-lived asset is
not recoverable on an undiscounted cash flow basis, impairment
is recognized to the extent that the carrying value exceeds its
fair value. Fair value is determined through various valuation
techniques including discounted cash flow models, quoted market
values, and third-party independent appraisals, as necessary.
During the first quarter of 2010, revenue equipment with a
carrying amount of $3.6 million was written down to its
fair value of $2.3 million, resulting in an impairment
charge of $1.3 million, which was included in impairments
in the consolidated statement of operations for the three months
ended March 31, 2010. The impairment of these assets was
identified due to our decision to remove them from the operating
fleet through sale or salvage.
In the first quarter of 2009, we recorded impairment charges
related to real estate properties totaling $0.5 million
before taxes. In the third and fourth quarter of 2008, we
recorded impairment charges totaling $7.5 million, before
taxes, related to real estate properties, tractors, trailers,
and a note receivable from our sale of our Volvo truck delivery
business assets in 2006. In the third and fourth quarters of
2007, we recorded impairment charges related to certain trailers
totaling $18.3 million before taxes. These charges are
included in impairments in the consolidated statements of
operations.
Goodwill and indefinite-lived intangible assets are reviewed for
impairment at least annually in accordance with the provisions
of Topic 350 as noted under the heading Goodwill
above.
78
Taxes
Our deferred tax assets and liabilities represent items that
will result in taxable income or a tax deduction in future years
for which we have already recorded the related tax expense or
benefit in our consolidated statements of operations. Deferred
tax accounts arise as a result of timing differences between
when items are recognized in our consolidated financial
statements compared to when they are recognized in our tax
returns. Significant management judgment is required in
determining our provision for income taxes and in determining
whether deferred tax assets will be realized in full or in part.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. We periodically assess the likelihood that all or
some portion of deferred tax assets will be recovered from
future taxable income. To the extent we believe recovery is not
probable, a valuation allowance is established for the amount
determined not to be realizable. We have not recorded a
valuation allowance at March 31, 2010, as all deferred tax
assets are more likely than not to be realized as they are
expected to be utilized by the reversal of the existing deferred
tax liabilities in future periods.
We believe that we have adequately provided for our future tax
consequences based upon current facts and circumstances and
current tax law. However, should our tax positions be
challenged, different outcomes could result and have a
significant impact on the amounts reported through our
consolidated statements of operations.
Lease
accounting and off-balance sheet transactions
In accordance with Topic 840, Leases,
property and equipment held under operating leases, and
liabilities related thereto, are not reflected on our balance
sheet. All expenses related to operating leases are reflected on
our consolidated statements of operations in the line item
entitled Rental expense.
We issue residual value guarantees in connection with certain of
our operating leases of certain revenue equipment. If we do not
purchase the leased equipment from the lessor at the end of the
lease term, we are liable to the lessor for an amount equal to
the shortage (if any) between the proceeds from the sale of the
equipment and an agreed value up to a maximum shortfall per
unit. For substantially all of these tractors, we have residual
value agreements from manufacturers at amounts equal to our
residual obligation to the lessors. For all other equipment (or
to the extent we believe any manufacturer will refuse or be
unable to meet its obligation), we are required to recognize
additional rental expense to the extent we believe the fair
market value at the lease termination will be less than our
obligation to the lessor. We believe that proceeds from the sale
of equipment under operating leases would exceed the payment
obligation on substantially all operating leases. The estimated
values at lease termination involve management judgments. As of
March 31, 2010, the maximum potential amount of future
payments we would be required to make under these guarantees is
$17.8 million. In addition, as leases are entered into,
determination as to the classification as an operating or
capital lease involves management judgments on residual values
and useful lives.
Stock-based
employee compensation
We issue several types of share-based compensation, including
awards that vest based on service and performance conditions or
a combination of the conditions. Performance-based awards vest
contingent upon meeting certain performance criteria established
by our compensation committee. All awards require future service
and thus forfeitures are estimated based on historical
forfeitures and the remaining term until the related award
vests. We adopted Topic 718, Compensation
Stock Compensation, using the modified prospective
method. This Topic requires that all share-based payments to
employees, including grants of employee stock options, be
recognized in the financial statements based upon a grant-date
fair value of an award. Determining the appropriate amount to
expense in each period is based on likelihood and timing of
achievement of the stated targets for performance-based awards,
and requires judgment, including forecasting future financial
results and market performance. The estimates are revised
periodically based on the probability and timing of achieving
the required performance targets, respectively, and adjustments
are made as appropriate. Awards that only are subject to
time-vesting provisions are amortized using the straight-line
79
method. In the future, we may make market-based awards that will
vest contingent upon meeting certain market criteria established
by our compensation committee.
We currently have stock options outstanding that lack
exercisability pursuant to our 2007 equity incentive plan. These
options become exercisable simultaneously with the closing of
the earlier of (i) an initial public offering, (ii) a
sale, or (iii) a change in control of Swift. Included in
these outstanding stock options are 1.8 million stock
options we granted to certain employees on February 25,
2010 with an exercise price of $7.04 per share, which equaled
the estimated fair value of our common stock as determined by an
independent business valuation. We expect that our salaries,
wages, and employee benefits expense will increase for the
quarter in which this offering becomes effective as a result of
non-cash equity compensation expense for equity grants that vest
and are then exercisable upon an initial public offering.
Assuming the consummation of this offering, we anticipate that
stock compensation expense immediately recognized will be
approximately $16.4 million.
Segment
information
We have one reportable segment under the provisions of Topic
280, Segment Reporting. Each of our
transportation service offerings and operations that meet the
quantitative threshold requirements of Topic 280 provides
truckload transportation services that have been aggregated as
they have similar economic characteristics and meet the other
aggregation criteria of Topic 280. Accordingly, we have not
presented separate financial information for each of our service
offerings and operations as the consolidated financial
statements present our one reportable segment. We generate other
revenue through operations that provide freight brokerage as
well as intermodal services. These operations do not meet the
quantitative threshold of Topic 280.
Recent
Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board issued
Accounting Standards Update
No. 2010-06,
Fair Value Measurements and Disclosures
(Topic 820) Improving Disclosures about Fair
Value Measurements, or ASU No. 2010-06. This
Accounting Standards Update amends the Financial Accounting
Standards Board Accounting Standards Codification Topic 820 to
require entities to provide new disclosures and clarify existing
disclosures relating to fair-value measurements. New disclosures
include requiring an entity to disclose separately the amounts
of significant transfers in and out of Level 1 and 2
fair-value measurements and to describe the reasons for the
transfers, as well as to disclose separately gross purchases,
sales, issuances, and settlements in the roll-forward activity
of Level 3 measurements. Clarifications of existing
disclosures include requiring a greater level of disaggregation
of fair-value measurements by class of assets and liabilities,
in addition to enhanced disclosures concerning the inputs and
valuation techniques used to determine Level 2 and
Level 3 fair-value measurements. ASU
No. 2010-06
is effective for our interim and annual periods beginning
January 1, 2010, except for the additional disclosure of
purchases, sales, issuances, and settlements in Level 3
fair-value measurements, which is effective for our fiscal year
beginning January 1, 2011. We do not expect the adoption of
this statement to have a material impact on our consolidated
financial statements.
80
Our
Industry and Competition
The U.S. trucking industry is large, fragmented, and highly
competitive. The U.S. trucking industry was estimated by
the ATA to have generated approximately $544.4 billion in
revenue in 2009, of which approximately $259.6 billion was
attributed to private fleets operated by shippers and
approximately $246.2 billion was attributed to
for-hire
truckload carriers like us. According to the ATA, approximately
68% of all freight transported in the United States (in millions
of tons) in 2009 was transported by truck (truckload,
less-than-truckload,
and private carriers); this share is expected to increase to
70.7% by 2021. For-hire truckload carriers handled 33.1% of the
nations freight tonnage and accounted for 37.0% of total
domestic transportation revenue in 2009. The following chart
demonstrates the expectation that trucking will remain the
dominant form of freight transportation for at least the next
decade:
Projected
Growth in Freight Transportation Tonnage and Market
Share
Source: ATA
|
|
|
(1) |
|
Truck tonnage was comprised of 48.8% truckload, 1.4%
less-than-truckload,
and 49.8% private fleet in 2009 and projected to be comprised of
49.8% truckload, 1.5%
less-than-truckload,
and 48.7% private fleet in 2021. |
Truckload carriers typically transport a full trailer (or
container) of freight for a single customer from origin to
destination without intermediate sorting and handling. Truckload
carriers provide the largest part of the transportation supply
chain for most retail and manufactured goods in North America.
We compete with thousands of other truckload carriers, most of
which operate fewer than 100 trucks. To a lesser extent, we
compete with railroads,
less-than-truckload
carriers, third-party logistics providers, and other
transportation companies. The 25 largest for-hire truckload
carriers are estimated to comprise approximately 7.5% of the
total for-hire truckload market, according to 2008 data
published by the ATA. The principal means of competition in our
industry are service, the ability to provide capacity when and
where needed, and price. In times of strong freight demand,
service and capacity become increasingly important, and in times
of weak freight demand pricing becomes increasingly important.
Because most truckload contracts (other than dedicated
contracts) do not guarantee truck availability or load levels,
pricing is influenced by supply and demand.
Since 2000, we believe our industry has encountered three major
economic cycles: (1) the period of industry over-capacity
and depressed freight volumes from 2000 through 2001;
(2) the economic expansion from 2002 through 2006; and
(3) the freight slowdown, fuel price spike, economic
recession, and credit crisis from 2007 through 2009. Although it
is too early to be certain, we believe the industry is entering
a new economic cycle marked by a return to economic growth as
well as a tighter supply of available tractors.
During the period of economic expansion of 2002 through 2006,
total tonnage transported by truck increased at a compounded
rate of 1.5% per year, according to the ATA. Trucking companies
invested in their
81
fleets during this period, with new Class 8 truck
manufactures averaging approximately 215,000 units
annually, according to ACT Research.
A combination of reduced demand for freight and excess supply of
tractors led to a difficult trucking environment from 2007
through 2009. Total tonnage, as measured by the ATAs
seasonally adjusted for-hire index, declined 9.9% between
January 2007 and June 2009. Orders of new tractors also declined
as many trucking companies reduced capital expenditures to
conserve cash and respond to decreasing demand fundamentals.
According to ACT Research, Class 8 truck manufactures fell
to approximately 94,000 units in 2009, compared with
approximately 296,000 units in 2006.
The following charts demonstrate supply and demand factors in
our industry that contributed to the economic cycles described
above:
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Source: ATA
|
|
Source: ACT Research
|
In the fourth quarter of 2009 and into 2010, industry freight
data began to show strong positive trends. The ATA seasonally
adjusted for-hire truck tonnage index increased 7.2%
year-over-year
in May 2010, its sixth consecutive monthly
year-over-year
increase. Further evidence of a rebound in the domestic freight
environment can be seen in the Cass Freight Shipments Index that
showed a 24.9% increase in freight expenditures for the second
quarter of 2010 versus the second quarter of 2009. Further, in
June, freight expenditures increased on a
year-over-year
basis by 28.9%. Key drivers for the positive trends were GDP
growth and restocking of inventory levels.
In addition to improving freight demand, our industry is
experiencing a drop in the supply of available trucks due to
several years of below average truck builds and an increase in
truckload fleet bankruptcies. The ATA estimated on June 25,
2010 that the total U.S. truck fleet has shrunk about 14% since
hitting its peak in 2007.
For the remainder of 2010, the U.S. economy is expected to
generate improvement in shipping volumes, while industry-wide
new tractor orders remain depressed. The ATA expects truckload
tonnage to expand 2.6% per year from 2010 through 2015 and 1.3%
from 2016 through 2021, and industry-wide truckload carrier
revenue is expected to expand over 5% per year from 2010 through
2021, indicating a positive rate and volume environment. Based
on Class 8 truck orders, which remain depressed, we expect
a more favorable relationship between freight demand and
industry-wide trucking capacity than we have experienced over
the past three years.
In addition to the economic cycles, our industry faces other
challenges that we believe we are well-positioned to address.
First, we believe that the new regulatory initiatives such as
hours-of-service
limitations, electric on-board recorders, and CSA 2010 may
reduce the size of the driver pool. Moreover, new or changing
regulatory constraints on drivers may further decrease the
utilization of an already shrinking driver pool. As this occurs,
we believe our driver development programs, including our driver
training schools and nationwide recruiting, will become
increasingly advantageous. In addition, we believe that the
impact of such regulations
82
will be partially mitigated by our average length of haul,
regional terminal network, and less mileage-intensive
operations, such as intermodal, dedicated, brokerage, and
cross-border operations. Second, we believe that significant
increases and rapid fluctuations in fuel prices will continue to
be a challenge to the industry. We believe we can effectively
address these issues through fuel surcharges, effective fuel
procurement strategies and network management systems, and
further developing our dedicated, intermodal, and brokerage
operations. Third, the industry also faces increased prices for
new revenue equipment, design changes of new engines, and
volatility in the used equipment sales market. We believe that
we are well-positioned to effectively address these issues
because of our relatively new fleet, trade-back protections,
buying power, and in-house nationwide maintenance facilities.
83
Business
Our
Business
We are a multi-faceted transportation services company and the
largest truckload carrier in North America. At
March 31, 2010, we operated approximately
12,500 company-owned tractors, 3,700 owner-operator
tractors, 49,400 trailers, and 4,300 intermodal containers from
35 major terminals and multiple other locations strategically
positioned throughout the United States and Mexico. During 2009,
our tractors covered 1.5 billion miles and we transported
or arranged approximately 3 million loads for shippers
throughout North America. For the twelve months ended
March 31, 2010, we generated operating revenue of
approximately $2.6 billion. We believe our commitment to
customer service and the size and scope of our operations
provide a significant advantage over many of our competitors and
make us a primary choice for major shippers. We offer customers
the opportunity for one-stop-shopping for
transporting full truckloads of product through a broad spectrum
of services and equipment, including the following:
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general truckload service;
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dedicated truckload service;
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cross-border Mexico truckload service;
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rail intermodal service; and
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non-asset based freight brokerage and logistics management
service.
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Our
Competitive Strengths
We believe the following competitive strengths provide a solid
platform for pursuing our goals and strategies:
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North American market leader with broad terminal network and
a modern fleet. The size and scope of our
operations afford us significant advantages in a fragmented
truckload industry. We operate North Americas largest
truckload fleet, have 35 major terminals and multiple other
locations strategically positioned throughout the United States
and Mexico, and offer customers one-stop-shopping
for a broad spectrum of their truckload transportation needs.
Our fleet size offers wide geographic coverage while maintaining
the efficiencies associated with significant traffic density
within our operating regions. Our terminals are strategically
located near key population centers, driver recruiting areas,
and cross-border hubs, often in close proximity to our
customers. This broad network offers benefits such as in-house
maintenance, more frequent equipment inspections, localized
driver recruiting, rapid customer response, and personalized
marketing efforts. Our size allows us to achieve substantial
economies of scale in purchasing items such as tractors,
trailers, containers, fuel, and tires where pricing is
volume-sensitive. We believe our scale also offers additional
benefits in brand awareness and access to capital. Additionally,
our modern company tractor fleet, with an average age of
2.55 years for our approximately 9,000 linehaul sleeper
units, lowers maintenance and repair expense, aids in driver
recruitment, and increases asset utilization as compared with an
older fleet.
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High quality customer service and extensive suite of
services. Our intense focus on customer
satisfaction contributed to 20 carrier of the year
or similar awards in 2009 and has helped us establish a strong
platform for cross-selling our other services. Our strong and
diversified customer base, ranging from Fortune 500
companies to local shippers, has a wide variety of shipping
needs, including general and specialized truckload, imports and
exports, regional distribution, high-service dedicated
operations, rail intermodal service, and surge capacity through
fleet flexibility and brokerage and logistics operations. We
believe customers continue to seek fewer transportation
providers that offer a broader range of services to streamline
their transportation management functions. For example,
ten of our top fifteen customers used at least four of our
services in the three months ended March 31, 2010. Our
top fifteen customers by revenue in 2009 included Coors, Costco,
Dollar Tree,
Georgia-Pacific,
Home Depot, Kimberly-Clark, Lowes, Menlo Logistics, Procter
& Gamble, Quaker Oats, Ryder Logistics, Sears, Target, and
Wal-Mart. We believe the breadth of our services helps diversify
our customer base and provides us with a competitive advantage,
especially for customers with multiple needs and international
shipments.
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Strong and growing owner-operator business. We
supplement our company tractors with tractors provided by
owner-operators, who operate their own tractors and are
responsible for most ownership and operating expenses. We
believe that owner-operators provide significant advantages that
primarily arise from the entrepreneurial motivation of business
ownership. Our owner-operators tend to be more experienced, have
lower turnover, have fewer accidents per million miles, and
produce higher weekly trucking revenue per tractor than our
average company drivers. In 2009, our owner-operator tractors
drove on average 34% more miles per week than our company
tractors.
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Leader in driver and owner-operator
development. Driver recruiting and retention
historically have been significant challenges for truckload
carriers. To address these challenges, we employ nationwide
recruiting efforts through our terminal network, operate five
driver training schools, maintain an active and successful
owner-operator development program, provide drivers modern
tractors, and employ numerous driver satisfaction policies. We
believe our extensive recruiting and training efforts will
become increasingly advantageous to us in periods of economic
growth when employment alternatives are more plentiful and also
when new regulatory requirements begin to affect the size or
effective capacity of the industry-wide driver pool.
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Experienced management aligned with corporate
success. Our management team has a proven track
record of growth and cost control. The improvements we have made
to our operations since going private have positioned us to
benefit from the expected improvement in the freight
environment. Management focuses on disciplined execution and
financial performance by measuring our progress through a
combination of Adjusted EBITDA growth, revenue growth, Adjusted
Operating Ratio, and return on capital. We align
managements priorities with our own through equity option
awards and an annual senior management incentive program linked
to Adjusted EBITDA.
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Our
Growth Strategy
Based on our expectation of meaningful improvement in truckload
volumes and pricing, our goals are to grow revenue in excess of
10% annually over the next several years, increase our
profitability, and generate returns on capital in excess of our
cost of capital. We believe our competitive strengths and an
improving supply and demand environment in the truckload
industry are aligned to support the achievement of our goals
through the following strategies:
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Profitable revenue growth. To increase freight
volumes and yield, we intend to further penetrate our existing
customer base, cross-sell our services, and pursue new customer
opportunities. Our superior customer service and extensive suite
of truckload services continue to contribute to recent new
business wins from customers such as Costco, Procter &
Gamble, Caterpillar, and Home Depot. In addition, we are further
enhancing our sophisticated freight selection management tools
to allocate our equipment to more profitable loads and
complementary lanes. As freight volumes increase, we intend to
prioritize the following areas for growth:
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Rail intermodal and port operations. Our
growing rail intermodal presence allows us to better serve
customers in longer haul lanes and reduce our investment in
fixed assets. Since its inception in 2005, we have grown our
rail intermodal business by adding approximately 4,300
containers, and we have ordered an additional 1,000 containers
for delivery between August 2010 and June 2011. We have
intermodal agreements with all major U.S. railroads and
recently negotiated more favorable terms with our largest
intermodal provider, which has helped increase our volumes
through more competitive pricing. We also expanded our presence
in the short-haul drayage business at the ports of Los Angeles
and Long Beach in 2008 and are evaluating additional port
opportunities.
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Dedicated services and private fleet
outsourcing. The size and scale of our fleet and
terminal network allow us to provide the equipment availability
and high service levels required for dedicated contracts.
Dedicated contracts often are used for high-service and
high-priority freight, sometimes to replace private fleets
previously operated by customers. Dedicated operations generally
produce higher margins and lower driver turnover than our
general truckload operations. We believe these opportunities
will increase in times of scarce capacity in the truckload
industry.
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Cross-border Mexico-U.S. freight. The
combination of our U.S., cross-border, customs brokerage, and
Mexican operations enables us to provide efficient
door-to-door
service between the United States and Mexico. We believe
our sophisticated load security measures, as well as our DHS
status as a C-TPAT carrier, allow us to offer more efficient
service than most competitors and afford us substantial
advantages with major international shippers.
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Freight brokerage and third-party
logistics. We believe we have a substantial
opportunity to continue to increase our non-asset based freight
brokerage and third-party logistics services. We believe many
customers increasingly seek transportation companies that offer
both asset-based and non-asset based services to gain additional
certainty that safe, secure, and timely truckload service will
be available on demand and to reward asset-based carriers for
investing in fleet assets. We intend to continue growing our
transportation management and freight brokerage capability to
build market share with customers, earn marginal revenue on more
loads, and preserve our assets for the most attractive lanes and
loads.
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Increase asset productivity and return on
capital. We believe we have a substantial
opportunity to improve the productivity and yield of our
existing assets through the following measures:
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increasing the percentage of our fleet provided by
owner-operators, who generally produce higher weekly trucking
revenue per tractor than our company drivers;
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increasing company tractor utilization through measures such as
equipment pools, relays, and team drivers;
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capitalizing on a stronger freight market to increase average
trucking revenue per mile by using sophisticated freight
selection and network management tools to upgrade our freight
mix and reduce deadhead miles;
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maintaining discipline regarding the timing and extent of
company tractor fleet growth based on availability of
high-quality freight; and
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rationalizing unproductive assets as necessary, thereby
improving our return on capital.
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Because of our size and operating leverage, even small
improvements in our asset productivity and yield can have a
significant impact on our operating results. For example, by
maintaining our current fleet size and revenue per mile and
simply regaining the miles per tractor we achieved in 2005
(including a 14.9% improvement in utilization with respect to
active trucks and assuming a reinstatement of approximately 500
idle trucks that were parked in response to reduced freight
volumes), operating revenue would increase by an estimated
$425.0 million.
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Continue to focus on efficiency and cost
control. We intend to continue to implement the
Lean Six Sigma, accountability, and discipline measures that
helped us improve our Adjusted Operating Ratio in 2009 and in
the first quarter of 2010. We presently have ongoing efforts in
the following areas that we expect will yield benefits in future
periods:
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managing the flow of our tractor capacity through our network to
balance freight flows and reduce deadhead miles;
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improving processes and resource allocation throughout our
customer-facing functions to increase operational efficiencies
while endeavoring to improve customer service;
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streamlining driver recruiting and training procedures to reduce
attrition costs; and
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reducing waste in shop methods and procedures and in other
administrative processes.
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Pursue selected acquisitions. In addition to
expanding our company tractor fleet through organic growth, and
to take advantage of opportunities to add complementary
operations, we expect to pursue selected acquisitions. We
operate in a highly fragmented and consolidating industry where
we believe the size and scope of our operations afford us
significant competitive advantages. Acquisitions can provide us
an opportunity to expand our fleet with customer revenue and
drivers already in place. In our history, we have completed
twelve acquisitions, most of which were immediately integrated
into our existing business. Given our size in relation to most
competitors, we expect most future acquisitions
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to be integrated quickly. As with our prior acquisitions, our
goal is for any future acquisitions to be accretive to our
earnings within two full calendar quarters.
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Mission,
Vision, and Most Important Goals
Since going private in 2007, our management team has instilled a
culture of discipline and accountability throughout our
organization. We accomplished this in several ways. First, we
established our mission, vision, purpose, and values to give the
organization guidance. Second, we identified our most important
goals and trained our entire organization in the discipline of
executing on these goals, including focusing on our priorities,
breaking down each employees responsibilities to identify
those which contribute to achieving our priorities, creating a
scoreboard of daily results, and requiring weekly reporting of
recent results and plans for the next week. Third, we
established cross-functional business transformation teams
utilizing Lean Six Sigma techniques to analyze and enhance value
streams throughout Swift. Fourth, we enhanced our annual
operating plan process to break down our financial plans into
budgets, metrics, goals, and targets that each department can
influence and control. And finally, we developed and implemented
a strategic planning and deployment process to establish
actionable plans to achieve best in class performance in key
areas of our business.
Our mission is to attract and retain customers by providing best
in class transportation solutions and fostering a profitable,
disciplined culture of safety, service, and trust. At the
beginning of 2009, we defined our vision, which consists of
seven primary themes:
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we are an efficient and nimble world class service organization
that is focused on the customer;
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we are aligned and working together at all levels to achieve our
common goals;
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our team enjoys our work and co-workers and this enthusiasm
resonates both internally and externally;
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we are on the leading edge of service, always innovating to add
value to our customers;
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our information and resources can be easily adapted to analyze
and monitor what is most important in a changing environment;
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our financial health is strong, generating excess cash flows and
growing profitability year-after-year with a culture that is
cost-and environmentally-conscious; and
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we train, build, and develop our employees through perpetual
learning opportunities to enhance their skill sets, allowing us
to maximize potential of our talented people.
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For 2010, in light of our mission and vision, we defined our
most important goals as follows:
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Improving financial performance. To improve
our financial performance, we have developed and deployed
several strategies, including profitable, revenue growth,
improved asset utilization and return on capital, and cost
reductions. We measure our performance on these strategies by
Adjusted EBITDA, Adjusted Operating Ratio, revenue growth, and
return on capital. Our annual incentive plans are based on
achieving an Adjusted EBITDA target. In this regard, we have
identified numerous specific activities as outlined in Our
Growth Strategy section above. We also engage all of our
sales personnel in specific planning of
month-by-month
volume and rate goals for each of their major customers and
identify specific, controllable operating metrics for each of
our terminal managers.
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Customer satisfaction. In our pursuit to be
best in class, we surveyed our customers and identified areas
where we can accelerate the capture of new freight
opportunities, improve our customers experience, and
profit from enhancing the value our customers receive. Based on
the survey, focus areas of improvement include meeting customer
commitments for on-time
pick-up and
delivery, improving billing accuracy, defining and documenting
expectations of new customers, and enhancing responsiveness of
our personnel.
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Employee development. We realize we are only
as good as our people. We believe, by unleashing the talent of
our people, we can meet and exceed our organizational goals
while enabling our employees to increase their own potential. To
facilitate personal and professional growth, we have implemented
leadership training and other tools to enhance feedback,
continual learning, and sharing of best practices.
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87
Operations
We provide timely, efficient, safe, and cost effective
transportation solutions for customers. We create value for our
customers by providing a variety of transportation services that
help our customers better manage their transportation needs. Our
broad spectrum of services includes the following:
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General truckload service. Our general
truckload service consists of one-way movements over irregular
routes throughout the United States and in Canada through dry
van, temperature controlled, flatbed, or specialized trailers,
as well as drayage operations, using both company tractors and
owner-operator tractors. Our regional terminal network and
operating systems enable us to enhance driver recruitment and
retention by maintaining open communication lines with our
drivers and by planning loads and routes that will regularly
return drivers to their homes. Our operating systems provide
access to current information regarding driver and equipment
status and location, special load and equipment instructions,
routing, and dispatching. These systems enable our operations to
match available equipment and drivers to available loads and
plan future loads based on the intended destinations. Our
operating systems also facilitate the scheduling of regular
equipment maintenance and fueling at our terminals or other
locations, as appropriate, which also enhance productivity and
asset utilization while reducing empty miles and repair costs.
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Dedicated truckload service. Through our
dedicated truckload service, we devote exclusive use of
equipment and offer tailored solutions under long-term
contracts, generally with higher operating margins and lower
driver turnover. Dedicated truckload service allows us to
provide tailored solutions to meet specific customer needs. Our
dedicated operations use our terminal network, operating
systems, and for-hire freight volumes to source backhaul
opportunities to improve asset utilization and reduce deadhead
miles. In our dedicated operations, we typically provide
transportation professionals
on-site at
each customers facilities and have a centralized team of
transportation engineers to design transportation solutions to
support private fleet conversions and/or augment customers
transportation requirements.
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Cross-border Mexico/U.S. truckload
service. Our growing cross-border, Mexico
truckload business includes service through Trans-Mex, our
wholly-owned subsidiary, which is one of the largest trucking
companies in Mexico. Our Mexican operations primarily haul
through commercial border crossings from Laredo, Texas westward
to California. Through Trans-Mex, we can move freight
efficiently across the
U.S.-Mexico
border, and our integrated systems allow customers to track
their goods from origin to destination. Our revenue from Mexican
operations was approximately $18 million in the three
months ended March 31, 2010 and approximately
$61 million in 2009, in each case prior to intercompany
eliminations. As of March 31, 2010 and December 31,
2009, respectively, the total U.S. dollar book value of our
Mexico operations long-lived assets was $47.0 million and
$46.9 million.
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Rail intermodal service. Our rail intermodal
business involves arranging for rail service for primary freight
movement and related drayage service and requires lower tractor
investment than general truckload service, making it one of our
less asset-intensive businesses. In 2008, we expanded our
presence in the short-haul, intermodal drayage business at the
ports of Los Angeles, California, and Long Beach, California.
With the help of our tracking and operating systems, modern
equipment, employee training systems, and existing drayage
capabilities, we have achieved strong growth in our drayage
business at these ports. We offer
Trailer-on-Flat-Car through our approximately
49,400 trailers and Container-on-Flat-Car
through a 4,300 dedicated 53-foot container fleet. We expect to
expand our container fleet by 600 units in the third
quarter of 2010, with an additional 400 units to be added
thereafter. We offer these products to and from 82 active rail
ramps located across the United States and Canada. We operate
our own drayage fleet and have contracts with over 350 drayage
operators across North America. In 2010, we expect to complete
more than 100,000 intermodal loads, and our intermodal revenue
has grown over 22% per year over the past five years.
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Non-asset based freight brokerage and logistics management
services. Through our freight brokerage and
logistics management services, we offer our transportation
management expertise and/or arrange for other trucking companies
to haul freight that does not fit our network, earning us a
revenue share with
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little investment. Our freight brokerage and logistics
management services enable us to offer capacity to meet seasonal
demands and surges.
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Other revenue generating services. In addition
to the services referenced above, our services include providing
tractor leasing arrangements through IEL to owner-operators,
underwriting insurance through our wholly-owned captive
insurance companies, and providing repair services through our
maintenance and repair shops to owner-operators and other third
parties.
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We offer our services on a local, regional, and transcontinental
basis through an established network of 35 major regional
terminals and facilities located near key population centers,
often in close proximity to major customers. Our fleet size and
terminal network allow us to commit significant capacity to
major shippers in multiple markets, while still achieving
efficiencies, such as rapid customer response and fewer deadhead
miles, associated with traffic density in most of our regions.
The achievement of significant regular freight volumes on
high-density routes and the ability to achieve better shipment
scheduling over these routes are key elements of our operating
strategy. We employ network management tools to manage the
complexity of operating in
short-to-medium-haul
traffic lanes throughout North America. Network management tools
focus on four key elements:
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Velocity how quickly freight moves through
our network;
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Price how the load is rated on a revenue per
mile basis;
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Lane flow how the lane fits in our network
with backhauls or continuous moves; and
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Seasonality how consistent the freight demand
is throughout the year.
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We invest in sophisticated technologies and systems that allow
us to increase the utilization of our assets and our operating
efficiency, improve customer satisfaction, and communicate
critical information to our drivers. In virtually all of our
trucks, we have installed
Qualcommtm
onboard, two-way satellite communication systems. This
communication system links drivers to regional terminals and
corporate headquarters, allowing us to alter routes rapidly in
response to customer requirements and weather conditions and to
eliminate the need for driver detours to report problems or
delays. This system allows drivers to inform dispatchers and
driver managers of the status of routing, loading and unloading,
or the need for emergency repairs. We believe our customers, our
drivers, and we benefit from this investment through
service-oriented items such as on-time deliveries, continuous
tracking of loads, updating of customer commitments, rapid
in-cab communication of routing, fueling, and delivery
instructions, and our integrated service offerings that support
a paperless, electronic environment from tender of loads to
collection of accounts. We reduce costs through programs that
manage equipment maintenance, select fuel purchasing locations
in our nationwide network of terminals and approved truck stops,
and inform us of inefficient or undesirable driving behaviors
that are monitored and reported through electronic engine
sensors. We believe our technologies and systems are superior to
those employed by most of our smaller competitors.
Our trailers and containers are virtually all equipped with
Qualcommtm
trailer-tracking devices, which allow us, via satellite, to
monitor locations of empty and loaded equipment, as well as to
receive notification if a unit is moved outside of the
electronic geofence encasing each piece of equipment. This
enables us to more efficiently utilize equipment, by identifying
unused units, and enhances our ability to charge for units
detained by customers. This technology has enabled us to reduce
theft as well as to locate units hijacked with merchandise on
board.
Owner-Operators
In addition to the company drivers we employ, we enter into
contracts with owner-operators. Owner-operators operate their
own tractors (although some employ drivers they hire) and
provide their services to us under contractual arrangements.
They are responsible for most ownership and operating expenses
and are compensated by us primarily on a rate per mile basis. By
operating safely and productively, owner-operators can improve
their own profitability and ours. We believe that our
owner-operator fleet provides significant advantages that
primarily arise from the motivation of business ownership.
Owner-operators tend to be more experienced, produce more
miles-per-truck per-week, and cause fewer accidents-per-million
miles than average company drivers, thus providing better
profitability and financial returns. As of March 31, 2010,
owner-
89
operators comprised approximately 23% of our total fleet, as
measured by tractor count. If we are unable to continue to
contract with a sufficient number of owner-operators or fleet
operators, it could adversely affect our operations and
profitability.
We provide tractor financing to independent owner-operators
through our subsidiary, IEL. IEL generally leases premium
equipment from the original equipment manufacturers and
subleases the equipment to owner-operators. The owner-operators
are qualified based on their driving and safety records. In our
experience, we have lower turnover among owner-operators who
obtain their financing through IEL than with our other
owner-operators and our company drivers. In the event of
default, IEL regains possession of the tractor and subleases it
to a replacement owner-operator.
Additional services offered to owner-operators include
insurance, maintenance, and fuel pass-throughs. Through our
wholly-owned
insurance captive subsidiary, Mohave, we offer
owner-operators
occupational-accident,
physical damage, and other types of insurance.
Owner-operators
also are enabled to procure maintenance services at our
in-house
shops and fuel at our terminals. We believe we provide these
services at competitive and attractive prices to our
owner-operators that also enable us to earn additional revenue
and margin.
Customers
and Marketing
Customer satisfaction is an important priority for us, which is
demonstrated by the 20 carrier of the year or
similar awards we have received from customers in 2009 and eight
awards we have received to date in 2010. Such achievements have
helped us maintain a large and stable customer base featuring
Fortune 500 and other leading companies from a number of
different industries. Our top fifteen customers by revenue in
2009 included Coors, Costco, Dollar Tree, Georgia-Pacific, Home
Depot, Kimberly-Clark, Lowes, Menlo Logistics, Procter &
Gamble, Quaker Oats, Ryder Logistics, Sears, Target, and
Wal-Mart.
Our top fifteen customers have used our services for an average
of over ten years. The principal types of freight we
transport include discount and other retail merchandise,
perishable and non-perishable food, beverages and beverage
containers, paper and packaging products, consumer non-durable
products, manufactured goods, automotive goods, and building
materials. Consistent with industry practice, our typical
customer contracts (other than dedicated contracts) do not
guarantee shipment volumes by our customers or truck
availability by us. This affords us and our customers some
flexibility to negotiate rates up or down in response to changes
in freight demand and industry-wide truck capacity. We believe
our fleet capacity terminal network, customer service, and
breadth of services offer a competitive advantage to major
shippers, particularly in times of rising freight volumes when
shippers must access capacity quickly across multiple facilities
and regions.
We concentrate our marketing efforts on expanding the amount of
service we provide to existing customers, as well as on
establishing new customers with shipment needs that complement
our terminal network and existing routes. At March 31,
2010, we had a sales staff of approximately 50 individuals
across the United States and Mexico, who work closely with
senior management to establish and expand accounts.
When soliciting new customers, we concentrate on attracting
non-cyclical, financially stable organizations that regularly
ship multiple loads from locations that complement traffic flows
of our existing business. Customer shipping point locations are
regularly monitored, and, as shipping patterns of existing
customers expand or change, we attempt to obtain additional
customers that will complement the new traffic flow. Through
this strategy, we attempt to increase equipment utilization and
reduce deadhead miles.
Our strategy of growing business with existing customers
provides us with a significant base of revenue. For the three
months ended March 31, 2010, and during 2009, respectively,
our top 25 customers generated approximately 53% and 54% of our
total revenue, and our top 200 customers accounted for
approximately 89% and 89% of our total revenue.
Wal-Mart and its subsidiaries, our largest customer, and a
customer we have had for over 19 years, accounted for
approximately 10% of our operating revenue for both the three
months ended March 31, 2010 and 2009, and approximately
10%, 11%, and 14% of our operating revenue for the years ended
December 31, 2009, 2008, and pro forma 2007, respectively.
No other customer accounted for more than 10% of our actual or
pro forma operating revenue during any of the three years ended
December 31, 2009, 2008, or 2007, nor for the three months
ended March 31, 2010 and 2009.
90
Revenue
Equipment
We operate a modern company tractor fleet to help attract and
retain drivers, promote safe operations, and reduce maintenance
and repair costs. We believe our modern fleet offers at least
four key advantages over competitors with older fleets. First,
newer tractors typically have lower operating costs. Second,
newer tractors require fewer repairs and are available for
dispatch more of the time. Third, newer tractors typically are
more attractive to drivers. Fourth, we believe many competitors
that allowed their fleets to age excessively will face a
deferred capital expenditure spike accompanied by difficulty in
replacing their tractors because new tractor prices have
increased, the value received for the old tractors will be low,
and financing sources have diminished. The following table shows
the type and age of our owned and leased tractors and trailers
at March 31, 2010:
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Model Year
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Tractors(1)
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Trailers
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2011
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184
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360
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2010
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623
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110
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2009
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3,818
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4,290
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2008
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3,386
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1,814
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2007
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2,182
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40
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2006
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502
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5,454
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2005
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855
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1,582
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2004
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281
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1,093
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2003
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179
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2,954
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2002 and prior
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479
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31,739
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Total
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12,489
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49,436
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(1) |
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Excludes 3,731 owner-operator tractors. |
We typically purchase tractors and trailers manufactured to our
specifications. We follow a comprehensive maintenance program
designed to reduce downtime and enhance the resale value of our
equipment. In addition to our major maintenance facilities in
Phoenix, Arizona, Memphis, Tennessee, and Greer, South Carolina,
we perform routine servicing and maintenance of our equipment at
most of our regional terminal facilities, in an effort to avoid
costly on-road repairs and deadhead miles. The contracts
governing our equipment purchases typically contain
specifications of equipment, projected delivery dates, warranty
terms, and trade or return conditions, and are typically
cancelable upon 90 days notice without penalty.
Our current tractor trade-in cycle ranges from approximately
36 months to 60 months, depending on equipment type
and usage. Management believes this tractor trade cycle is
appropriate based on current maintenance costs, capital
requirements, prices of new and used tractors, and other
factors, but we will continue to evaluate the appropriateness of
our tractor trade cycle. We balance the lower maintenance costs
of a shorter tractor trade cycle against the lower capital
expenditure and financing costs of a longer tractor trade cycle.
In addition, we seek to improve asset utilization by matching
available tractors with tendered freight and using untethered
trailer tracking to identify the location, loaded status, and
availability for dispatch of our approximately 49,400 trailers
and 4,300 intermodal containers. We believe this
information enables our planners to manage our equipment more
efficiently by enabling drivers to quickly locate the assigned
trailer, reduce unproductive time during available hours of
service, and bill for detention charges when appropriate. It
also allows us to reduce cargo losses through trailer theft
prevention, and to mitigate cargo claims through recovery of
stolen trailers.
Employees
Terminal
staff
Our larger terminals are staffed with terminal managers, fleet
managers, driver managers, and customer service representatives.
Our terminal managers work with driver managers, customer
service representatives,
91
and other operations personnel to coordinate the needs of both
our customers and our drivers. Terminal managers also are
responsible for soliciting new customers and serving existing
customers in their areas. Each fleet manager supervises
approximately five driver managers at our larger terminals. Each
driver manager is responsible for the general operation of
approximately 40 trucks and their drivers, focusing on driver
retention, productivity per truck, routing, fuel consumption and
efficiency, safety, and scheduled maintenance. Customer service
representatives are assigned specific customers to ensure
specialized, high-quality service and frequent customer contact.
Company
drivers
All of our drivers must meet or exceed specific guidelines
relating primarily to safety records, driving experience, and
personal evaluations, including a physical examination and
mandatory drug and alcohol testing. Upon being hired, drivers
are to be trained in our policies and operations, safety
techniques, and fuel-efficient operation of the equipment. All
new drivers must pass a safety test and have a current
Commercial Drivers License, or CDL. In addition, we have ongoing
driver efficiency and safety programs to ensure that our drivers
comply with our safety procedures.
Senior management is actively involved in the development and
retention of drivers. Recognizing the continuing need for
qualified drivers, we have established five driver training
academies across the country. Our academies are strategically
located in areas where external driver-training organizations
are lacking. In other areas of the country, we have contracted
with driver-training schools, which are managed by outside
organizations such as local community colleges. Candidates for
the schools must be at least 23 years old with a minimum of
a high school education or equivalent, pass a basic skills test,
and pass the DOT physical examination, which includes drug and
alcohol screening. Students are required to complete three weeks
of classroom study and spend a minimum of 240 hours driving
with an experienced trainer.
In order to attract and retain qualified drivers and promote
safe operations, we purchase high quality tractors equipped with
optional comfort and safety features, such as air ride
suspension, air conditioning, high quality interiors, power
steering, engine brakes, and raised-roof, double-sleeper cabs.
We base our drivers at terminals and monitor each drivers
location on our computer system. We use this information to
schedule the routing for our drivers so they can return home
regularly. The majority of company drivers are compensated based
on dispatched miles, loading/unloading, and number of stops or
deliveries, plus bonuses. The drivers base pay per mile
increases with the drivers length of experience, as
augmented by the ranking system described below. Drivers
employed by us are eligible to participate in company-sponsored
health, life, and dental insurance plans and are eligible to
participate in our 401(k) plan subject to customary enrollment
terms.
We believe our driver-training programs, driver compensation,
regionalized operations, trailer tracking, and late-model
equipment provide important incentives to attract and retain
qualified drivers. We have made a concerted effort to reduce the
level of driver turnover and increase our driver satisfaction.
We have recently implemented a driver ranking program that ranks
drivers into five categories based on criteria for safety,
legal operation, customer service, and number of miles driven.
The higher rankings provide drivers with additional benefits
and/or privileges, such as special recognition, the ability to
self-select freight, and the opportunity for increased pay when
pay raises are given. We monitor the effectiveness of our driver
programs by measuring driver turnover and actively addressing
issues that may cause driver turnover to increase. Given the
recent recession and softness in the labor market since the
beginning of 2008, voluntary driver turnover has been
significantly lower than historical levels. We have taken
advantage of this opportunity to upgrade our driving workforce,
but no assurance can be given that a shortage of qualified
drivers will not adversely affect us in the future.
Employment
As of March 31, 2010, we employed approximately
15,800 employees, of whom approximately 12,300 were drivers
(including driver trainees), 1,200 were technicians and other
equipment maintenance personnel, and the balance were support
personnel, such as corporate managers and sales and
administrative personnel. As of March 31, 2010, our 700
Trans-Mex drivers were our only employees represented by a union.
92
Safety
and Insurance
We take pride in our safety-oriented culture and maintain an
active safety and loss-prevention program at each of our
terminals. We have terminal and regional safety management
personnel that focus on loss prevention for their designated
facilities. We also equip our tractors with many safety
features, such as roll-over stability devices and critical-event
recorders, to help prevent, or reduce the severity of, accidents.
We self-insure for a significant portion of our claims exposure
and related expenses. We currently carry six main types of
insurance, which generally have the following self-insured
retention amounts, maximum benefits per claim, and other
limitations:
|
|
|
|
|
automobile liability, general liability, and excess
liability $150.0 million of coverage per
occurrence, subject to a $10.0 million per-occurrence,
self-insured retention;
|
|
|
|
cargo damage and loss $2.0 million limit per
truck or trailer with a $10.0 million limit per occurrence;
provided that there is a $250,000 limit for tobacco loads and a
$250,000 self-insured retention for all perils;
|
|
|
|
property and catastrophic physical damage
$150.0 million limit for property and $100.0 million
limit for vehicle damage, excluding over the road exposures,
subject to a $1.0 million self-insured retention;
|
|
|
|
workers compensation/employers liability
statutory coverage limits; employers liability of $1.0 million
bodily injury by accident and disease, subject to a
$5.0 million self-insured retention for each accident or
disease;
|
|
|
|
employment practices liability primary policy with a
$10.0 million limit subject to a $2.5 million
self-insured retention; we also have an excess liability policy
that provides coverage for the next $7.5 million of
liability for a total coverage limit of
$17.5 million; and
|
|
|
|
health care we self-insure for the first $400,000 of
each employee health care claim and maintain commercial
insurance for the balance.
|
In June 2006, we started to insure certain casualty risks
through our wholly-owned captive insurance company, Mohave. In
addition to insuring a proportionate share of our corporate
casualty risk, Mohave provides insurance coverage to certain of
our and our affiliated companies owner-operators in
exchange for insurance premiums paid to Mohave by the
owner-operators. In February 2010, we initiated operations of a
second wholly-owned captive insurance subsidiary, Red Rock.
Beginning in 2010, Red Rock and Mohave will each insure a share
of our automobile liability risk.
While under dispatch and furthering our business, our
owner-operators are covered by our liability coverage and
self-insurance retentions. However, each is responsible for
physical damage to his or her own equipment, occupational
accident coverage, liability exposure while the truck is used
for non-company purposes, and, in the case of fleet operators,
any applicable workers compensation requirements for their
employees.
We regulate the speed of our company tractors to a maximum of
62 miles per hour and have adopted a speed limit of
68 miles per hour for owner-operator tractors through their
contractual terms with us. These adopted speed limits are below
the limits established by statute in many states. We believe our
adopted speed limits reduce the frequency and severity of
accidents, enhance fuel efficiency, and reduce maintenance
expense, when compared to operating without our imposed speed
limits. Substantially all of our company tractors are equipped
with electronically-controlled engines that are set to limit the
speed of the vehicle.
Fuel
We actively manage our fuel purchasing network in an effort to
maintain adequate fuel supplies and reduce our fuel costs. In
2009, we purchased approximately 30% of our fuel in bulk at
37 Swift and dedicated customer locations across the United
States and Mexico and substantially all of the rest of our fuel
through a network of retail truck stops with which we have
negotiated volume purchasing discounts. The volumes we purchase
at terminals and through the fuel network vary based on
procurement costs and other factors. We seek to reduce our fuel
costs by routing our drivers to truck stops when fuel prices at
such stops are cheaper than the bulk rate paid for fuel at our
terminals. We store fuel in underground storage tanks at four of
our bulk
93
fueling terminals and in above-ground storage tanks at our other
bulk fueling terminals. In addition, we store fuel for our use
at the Salt Lake City, Utah and Houston, Texas terminal
locations of Central Refrigerated Services, Inc. and Central
Freight Lines, Inc., respectively, which are transportation
companies controlled by Mr. Moyes. We believe that we are
in substantial compliance with applicable environmental laws and
regulations relating to the storage of fuel.
Shortages of fuel, increases in fuel prices, or rationing of
petroleum products could have a material adverse effect on our
operations and profitability. In response to increases in fuel
costs, we utilize a fuel surcharge program to pass on the
majority of the increases in fuel costs to our customers. We
believe that our most effective protection against fuel cost
increases is to maintain a fuel-efficient fleet and to continue
our fuel surcharge program. However, there can be no assurance
that fuel surcharges will adequately cover potential future
increases in fuel prices. We generally have not used derivative
instruments as a hedge against higher fuel costs in the past,
but continue to evaluate this possibility. We have contracted
with some of our fuel suppliers to buy limited quantities of
fuel at a fixed price or within banded pricing for a specific
period, usually not exceeding twelve months, to mitigate the
impact of rising fuel costs on miles not covered by fuel
surcharges.
Seasonality
In the transportation 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 our strongest volume quarters. As customers
reduce shipments after the winter holiday season, the first
quarter has historically been a lower volume quarter for us than
the other three quarters. In 2007 and 2008, the traditional
surge in volume in the third and fourth quarters did not occur
due to the economic recession. In the eastern and midwestern
United States, and to a lesser extent in the western United
States, during the winter season, our equipment utilization
typically declines and our operating expenses generally
increase, with fuel efficiency declining because of engine
idling and harsh weather sometimes creating higher accident
frequency, increased claims, and more equipment repairs. Our
revenue also may be affected by bad weather and holidays as a
result of curtailed operations or vacation shutdowns, because
our revenue is directly related to available working days of
shippers. From time to time, we also suffer short-term impacts
from weather-related events such as tornadoes, hurricanes,
blizzards, ice storms, floods, fires, earthquakes, and
explosions that could harm our results of operations or make our
results of operations more volatile.
Regulation
Our operations are regulated and licensed by various government
agencies in the United States, Mexico, and Canada. Our company
drivers and owner-operators must comply with the safety and
fitness regulations of the DOT, including those relating to
drug- and alcohol-testing and
hours-of-service.
Weight and equipment dimensions also are subject to government
regulations. We also may become subject to new or more
restrictive regulations relating to fuel emissions,
drivers
hours-of-service,
driver eligibility requirements, on-board reporting of
operations, collective bargaining, ergonomics, and other matters
affecting safety or operating methods. Other agencies, such as
the EPA and DHS, also regulate our equipment, operations, and
drivers.
The DOT, through the FMCSA, imposes safety and fitness
regulations on us and our drivers. Rules that limit driver
hours-of-service
were adopted by the FMCSA in 2004 and subsequently modified in
2005 before portions of the rules were vacated by a federal
court in July 2007. Two of the key portions that were vacated
include the expansion of the driving day from 10 hours to
11 hours, and the
34-hour
restart, which allowed drivers to restart calculations of
the weekly on-time limits after the driver had at least 34
consecutive hours off duty. In November 2008, the FMCSA
published its final rule, which retains the
11-hour
driving day and the
34-hour
restart. However, advocacy groups have continually challenged
the final rule, and the
hours-of-service
rules are still under review by the FMCSA. In April 2010, the
FMCSA issued a final rule applicable to carriers with a history
of serious
hours-of-service
violations, which includes new performance standards for
electronic, on-board recorders (which record information
relating to
hours-of-service,
among other information) installed on or after June 4,
2012. We believe a decision to significantly change the
hours-of-service
final rule would decrease productivity and cause some loss of
efficiency, as drivers and shippers may need to be retrained,
94
computer programming may require modifications, additional
drivers may need to be employed, additional equipment may need
to be acquired, and some shipping lanes may need to be
reconfigured.
CSA 2010 introduces a new enforcement and compliance model that
will rank both fleets and individual drivers on seven categories
of safety-related data and will eventually replace the current
Safety Status measurement system, or SafeStat. The seven
categories of safety-related data, known as Behavioral Analysis
and Safety Improvement Categories, or BASICs, include Unsafe
Driving, Fatigued Driving
(Hours-of-Service),
Driver Fitness, Controlled Substances/Alcohol, Vehicle
Maintenance, Cargo-Related, and Crash Indicator. Under the new
regulations, the methodology for determining a carriers
DOT safety rating will be expanded to include the on-road safety
performance of the carriers drivers. The new regulation
will be implemented in the second half of 2010 and enforcement
will begin in 2011. Delays already have taken place in the
implementation and enforcement dates, and there is no assurance
that these dates will not further change. As a result of these
new regulations, including the expanded methodology for
determining a carriers DOT safety rating, there may be an
adverse effect on our DOT safety rating. We currently have a
satisfactory DOT rating, which is the highest available rating.
There are three safety ratings assigned to motor carriers:
satisfactory, conditional, which means
that there are deficiencies requiring correction, but not so
significant to warrant loss of carrier authority, and
unsatisfactory, which is the result of acute
deficiencies and would lead to revocation of carrier authority.
A conditional or unsatisfactory DOT safety rating could
adversely affect our business because some of our customer
contracts require a satisfactory DOT safety rating, and a
conditional or unsatisfactory rating could negatively impact or
restrict our operations. In addition, there is a possibility
that a drop to conditional status could affect our ability to
self-insure for personal injury and property damage relating to
the transportation of freight, which could cause our insurance
costs to increase. Finally, proposed FMCSA rules and practices
followed by regulators may require us to install electronic,
on-board recorders in our tractors if we receive an adverse
change in our safety rating.
The TSA has adopted regulations that require a determination by
the TSA that each driver who applies for or renews his or her
license for carrying hazardous materials is not a security
threat. This could reduce the pool of qualified drivers, which
could require us to increase driver compensation, limit our
fleet growth, or allow trucks to be idled. These regulations
also could complicate the matching of available equipment with
hazardous material shipments, thereby increasing our response
time on customer orders and our deadhead miles. As a result, it
is possible we may fail to meet the needs of our customers or
may incur increased expenses to do so.
We are subject to various environmental laws and regulations
dealing with the hauling and handling of hazardous materials,
fuel storage tanks, emissions from our vehicles and facilities,
engine-idling, discharge and retention of storm water, and other
environmental matters that involve inherent environmental risks.
We have instituted programs to monitor and control environmental
risks and maintain compliance with applicable environmental
laws. As part of our safety and risk management program, we
periodically perform internal environmental reviews. We are a
Charter Partner in the EPAs SmartWay Transport
Partnership, a voluntary program promoting energy efficiency and
air quality. We believe that our operations are in substantial
compliance with current laws and regulations and do not know of
any existing environmental condition that would reasonably be
expected to have a material adverse effect on our business or
operating results. If we are found to be in violation of
applicable laws or regulations, we could be subject to costs and
liabilities, including substantial fines or penalties or civil
and criminal liability, any of which could have a material
adverse effect on our business and operating results.
We maintain bulk fuel storage and fuel islands at many of our
terminals. We also have vehicle maintenance, repair, and washing
operations at some of our facilities. Our operations involve the
risks of fuel spillage or seepage, discharge of contaminants,
environmental damage, and hazardous waste disposal, among
others. Some of our operations are at facilities where soil and
groundwater contamination have occurred, and we or our
predecessors have been responsible for remediating environmental
contamination at some locations.
We would be responsible for the cleanup of any releases caused
by our operations or business, and in the past we have been
responsible for the costs of clean up of cargo and diesel fuel
spills caused by traffic accidents or other events. We transport
a small amount of environmentally hazardous materials. We
generally transport only hazardous material rated as
low-to-medium-risk, and less than 1% of our total shipments
contain
95
any hazardous materials. If we are found to be in violation of
applicable laws or regulations, we could be subject to
liabilities, including substantial fines or penalties or civil
and criminal liability. We have paid penalties for spills and
violations in the past.
EPA regulations limiting exhaust emissions became effective in
2002 and became more restrictive for engines manufactured in
2007 and again for engines manufactured after January 1,
2010. On May 21, 2010, President Obama signed an executive
memorandum directing the NHTSA and the EPA to develop new,
stricter fuel-efficiency standards for heavy trucks, beginning
in 2014. California adopted new performance requirements for
diesel trucks, with targets to be met between 2011 and 2023. In
December 2008, California also adopted new trailer regulations,
which require all 53-foot or longer box-type trailers (dry vans
and refrigerated vans) that operate at least some of the time in
California (no matter where they are registered) to meet
specific aerodynamic efficiency requirements when operating in
California. California-based refrigerated trailers were required
to register with California Air Regulations Board by
July 31, 2009, and enforcement for those trailers began in
August 2009. Beginning January 1, 2010, 2011 model year and
newer 53-foot or longer box-type trailers subject to the
California regulations were required to be either SmartWay
certified or equipped with low-rolling, resistance tires and
retrofitted with SmartWay-approved, aerodynamic technologies.
Beginning December 31, 2012, pre-2011 model year 53-foot or
longer box-type trailers (with the exception of certain 2003 to
2008 refrigerated van trailers) must meet the same requirements
as 2011 model year and newer trailers or have prepared and
submitted a compliance plan, based on fleet size, that allows
them to phase in their compliance over time. Compliance
requirements for 2003 to 2008 refrigerated van trailers will be
phased in between 2017 and 2019. Federal and state lawmakers
also have proposed potential limits on carbon emissions under a
variety of climate-change proposals. Compliance with such
regulations has increased the cost of our new tractors, may
increase the cost of any new trailers that will operate in
California, may require us to retrofit certain of our pre-2011
model year trailers that operate in California, and could impair
equipment productivity and increase our operating expenses.
These adverse effects, combined with the uncertainty as to the
reliability of the newly-designed, diesel engines and the
residual values of these vehicles, could materially increase our
costs or otherwise adversely affect our business or operations.
Certain states and municipalities continue to restrict the
locations and amount of time where diesel-powered tractors, such
as ours, may idle, in order to reduce exhaust emissions. These
restrictions could force us to alter our operations.
In addition, increasing efforts to control emissions of
greenhouse gases are likely to have an impact on us. The EPA has
announced a finding relating to greenhouse gas emissions that
may result in promulgation of greenhouse gas air quality
standards. Federal and state lawmakers are also considering a
variety of climate-change proposals. New greenhouse gas
regulations could increase the cost of new tractors, impair
productivity, and increase our operating expenses.
Properties
Our headquarters is situated on approximately 118 acres in
the southwestern part of Phoenix, Arizona. Our headquarters
consists of a three story administration building with
126,000 square feet of office space; repair and maintenance
buildings with 106,000 square feet; a
20,000 square-foot drivers center and restaurant; an
8,000 square-foot recruiting and training center; a
6,000 square foot warehouse; a 140,000 square-foot,
three-level parking facility; a two-bay truck wash; and an
eight-lane fueling facility.
We have terminals throughout the continental United States and
Mexico. A terminal may include customer service, marketing,
fuel, and repair facilities. We also operate driver training
schools in Phoenix, Arizona and several other cities. We believe
that substantially all of our property and equipment is in good
condition, subject to normal wear and tear, and that our
facilities have sufficient capacity to meet our current needs.
From time to time, we may invest in additional facilities to
meet the needs of our business as we
96
pursue additional growth. The following table provides
information regarding our 35 major terminals in the United
States and Mexico, as well as our driving academies and certain
other locations:
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Owned
|
|
|
Location
|
|
or Leased
|
|
Description of Activities at Location
|
|
Western region
|
|
|
|
|
Arizona Phoenix
|
|
Owned
|
|
Customer Service, Marketing, Administration, Fuel, Repair,
Driver Training School
|
California Fontana
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
California Lathrop
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
California Mira Loma
|
|
Owned
|
|
Fuel, Repair
|
California Otay Mesa
|
|
Owned
|
|
Customer Service
|
California Wilmington
|
|
Owned
|
|
Customer Service, Fuel, Repair
|
California Willows
|
|
Owned
|
|
Customer Service, Fuel, Repair
|
Colorado Denver
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Idaho Lewiston
|
|
Owned/Leased
|
|
Customer Service, Marketing, Fuel, Repair, Driver Training School
|
Nevada Sparks
|
|
Owned
|
|
Customer Service, Fuel, Repair
|
New Mexico Albuquerque
|
|
Owned
|
|
Customer Service, Fuel, Repair
|
Oklahoma Oklahoma City
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Oregon Troutdale
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Texas El Paso
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Texas Houston
|
|
Leased
|
|
Customer Service, Repair, Fuel
|
Texas Lancaster
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Texas Laredo
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Texas San Antonio
|
|
Leased
|
|
Driver Training School, Fuel
|
Utah Salt Lake City
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Washington Sumner
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Eastern region
|
|
|
|
|
Florida Ocala
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Georgia Decatur
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Illinois Manteno
|
|
Owned
|
|
Customer Service, Fuel, Repair
|
Indiana Gary
|
|
Owned
|
|
Customer Service, Fuel, Repair
|
Kansas Edwardsville
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Michigan New Boston
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Minnesota Inver Grove Heights
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
New Jersey Avenel
|
|
Owned
|
|
Customer Service, Repair
|
New York Syracuse
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Ohio Columbus
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Pennsylvania Jonestown
|
|
Owned
|
|
Customer Service, Fuel, Repair
|
South Carolina Greer
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Tennessee Memphis
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Tennessee Millington
|
|
Leased
|
|
Driver Training School
|
Virginia Richmond
|
|
Owned/Leased
|
|
Customer Service, Marketing, Fuel, Repair, Driver Training School
|
Wisconsin Town of Menasha
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Mexico
|
|
|
|
|
Tamaulipas Nuevo Laredo
|
|
Owned
|
|
Customer Service, Marketing, Fuel, Repair
|
Sonora Nogales
|
|
Leased
|
|
Customer Service, Repair
|
Nuevo Leon Monterrey
|
|
Owned
|
|
Customer Service, Administration
|
97
In addition to the facilities listed above, we own parcels of
vacant land as well as several non-operating facilities in
various locations around the United States, and we maintain
various drop yards throughout the United States and Mexico. As
of March 31, 2010, our aggregate monthly rent for all
leased properties was $192,807 with varying terms expiring
through December 2013.
Legal
Proceedings
We are involved in litigation and claims primarily arising in
the normal course of business, which include claims for personal
injury or property damage incurred in the transportation of
freight. Our insurance program for liability, physical damage,
and cargo damage involves self-insurance with varying risk
retention levels. Claims in excess of these risk retention
levels are covered by insurance in amounts that management
considers to be adequate. Based on its 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 us. See Safety and Insurance.
In addition, we are involved in the following litigation:
2004
owner-operator class action litigation
On January 30, 2004, a class action lawsuit was filed by
Leonel Garza on behalf of himself and all similarly situated
persons against Swift Transportation: Garza vs. Swift
Transportation Co., Inc., Case
No. CV07-0472.
The putative class involves certain owner-operators who
contracted with us under a 2001 Contractor Agreement that was in
place for one year. The putative class is alleging that we
should have reimbursed owner-operators for actual miles driven
rather than the contracted and industry standard remuneration
based upon dispatched miles. The trial court denied
plaintiffs 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 courts denial of class certification and remanding
the case back to the trial court. On November 14, 2008, we
filed a petition for review to the Arizona Supreme Court
regarding the issue of class certification as a consequence of
the denial of the Motion for Reconsideration by the Court of
Appeals. On March 17, 2009, the Arizona Supreme Court
granted our petition for review, and on July 31, 2009, the
Arizona Supreme Court vacated the decision of the Court of
Appeals opining that the Court of Appeals had no authority to
reverse the trial courts original denial of class
certification and remanded the matter back to the trial court
for further evaluation and determination. The Court of
Appeals decision pertains only to the issue of class
certification, and we retain all of our defenses against
liability and damages. Based on its knowledge of the facts and
advice of outside counsel, management does not believe the
outcome of this litigation is likely to have a material adverse
effect on us. However, the final disposition of this case and
the impact of such final disposition cannot be determined at
this time.
Driving
academy class action litigation
On March 11, 2009, a class action lawsuit was filed by
Michael Ham, Jemonia Ham, Dennis Wolf, and Francis Wolf on
behalf of themselves and all similarly situated persons against
Swift Transportation: Michael Ham, Jemonia Ham, Dennis Wolf
and Francis Wolf v. Swift Transportation Co., Inc.,
Case
No. 2:09-cv-02145-STA-dkv,
or the Ham Complaint. The case was filed in the United States
District Court for the Western Section of Tennessee Western
Division. The putative class involves former students of our
Tennessee driving academy who are seeking relief against us for
the suspension of their CDLs and any CDL retesting that may be
required of the former students by the relevant state department
of motor vehicles. The allegations arise from the Tennessee
Department of Safety, or TDOS, having released a general
statement questioning the validity of CDLs issued by the State
of Tennessee in connection with the Swift Driving Academy
located in the State of Tennessee. We have filed an answer to
the Ham Complaint. We also have filed a cross-claim against the
Commissioner of the TDOS, or the Commissioner, for a judicial
declaration and judgment that we did not engage in any
wrongdoing as alleged in the complaint and a grant of injunctive
relief to compel the Commissioner to redact any statements or
publications that allege wrongdoing by us and to issue
corrective statements to any recipients of any such
publications. The issue of class certification must first be
resolved before the court will address the merits of the case,
and we retain all of our defenses against liability and damages
pending a determination of class certification.
On or about April 23, 2009, two class action lawsuits were
filed against us in New Jersey and Pennsylvania, respectively:
Michael Pascarella, et al. v. Swift Transportation Co.,
Inc., Sharon A. Harrington,
98
Chief Administrator of the New Jersey Motor Vehicle
Commission, and David Mitchell, Commissioner of the Tennessee
Department of Safety, Case
No. 09-1921(JBS),
in the United States District Court for the District of New
Jersey, or the Pascarella Complaint; and Shawn McAlarnen et
al. v. Swift Transportation Co., Inc., Janet Dolan,
Director of the Bureau of Driver Licensing of The Pennsylvania
Department of Transportation, and David Mitchell, Commissioner
of the Tennessee Department of Safety, Case
No. 09-1737
(E.D. Pa.), in the United States District Court for the Eastern
District of Pennsylvania, or the McAlarnen Complaint. Both
putative class action complaints involve former students of our
Tennessee driving academy who are seeking relief against us, the
TDOS, and the state motor vehicle agencies for the threatened
suspension of their CDLs and any CDL retesting that may be
required of the former students by the relevant state department
of motor vehicles. The potential suspension and CDL re-testing
was initiated by certain states in response to a general
statement by the TDOS questioning the validity of CDL licenses
the State of Tennessee issued in connection with the Swift
Driving Academy located in Tennessee. The Pascarella Complaint
and the McAlarnen Complaint are both based upon substantially
the same facts and circumstances as alleged in the Ham
Complaint. The only notable difference among the three
complaints is that both the Pascarella and McAlarnen Complaints
name the local motor vehicles agency and the TDOS as defendants,
whereas the Ham Complaint does not. We deny the allegations of
any alleged wrongdoing and intend to vigorously defend our
position. The McAlarnen Complaint has been dismissed without
prejudice because the McAlarnen plaintiff has elected to pursue
the Director of the Bureau of Driver Licensing of the
Pennsylvania Department of Transportation for damages. We have
filed an answer to the Pascarella Complaint. We also have filed
a cross-claim against the Commissioner for a judicial
declaration and judgment that we did not engage in any
wrongdoing as alleged in the complaint and a request for
injunctive relief to compel the Commissioner to redact any
statements or publications that allege wrongdoing by us to issue
corrective statements to any recipients of any such publications.
On May 29, 2009, we were served with two additional class
action complaints involving the same alleged facts as set forth
in the Ham Complaint and the Pascarella Complaint. The two
matters are (i) Gerald L. Lott and Francisco Armenta on
behalf of themselves and all others similarly situated v.
Swift Transportation Co., Inc. and David Mitchell the
Commissioner of the Tennessee Department of Safety, Case
No. 2:09-cv-02287,
filed on May 7, 2009 in the United States District Court
for the Western District of Tennessee, or the Lott Complaint;
and (ii) Marylene Broadnax on behalf of herself and all
others similarly situated v. Swift Transportation
Corporation, Case
No. 09-cv-6486-7,
filed on May 22, 2009 in the Superior Court of Dekalb
County, State of Georgia, or the Broadnax Complaint. While the
Ham Complaint, the Pascarella Complaint, and the Lott Complaint
all were filed in federal district courts, the Broadnax
Complaint was filed in state court. As with all of these related
complaints, we have filed an answer to the Lott Complaint and
the Broadnax Complaint. We also have filed a cross-claim against
the Commissioner for a judicial declaration and judgment that we
did not engage in any wrongdoing as alleged in the complaint and
a request for injunctive relief to compel the Commissioner to
redact any statements or publications that allege wrongdoing by
us and to issue corrective statements to any recipients of any
such publications.
The Pascarella Complaint, the Lott Complaint, and the Broadnax
Complaint are consolidated with the Ham Complaint in the United
States District Court for the Western District of Tennessee and
discovery is ongoing.
In connection with the above referenced class action lawsuits,
on June 21, 2009, we filed a Petition for Access to Public
Records against the Commissioner. Since the inception of these
class action lawsuits, we have made numerous requests to the
TDOS for copies of any records that may have given rise to TDOS
questioning the validity of CDLs issued by the State of
Tennessee in connection with the Swift Driving Academy located
in the State of Tennessee. As a consequence of TDOSs
failure to provide any such information, we filed a petition
against TDOS for violation of Tennessees Public Records
Act. In response to our petition for access to public records,
TDOS delivered certain documents to us.
We intend to vigorously defend against certification of the
class for all of the foregoing class action lawsuits as well as
the allegations made by the plaintiffs should the class be
certified. For the consolidated case described above, the issue
of class certification must first be resolved before the court
will address the merits of the case, and we retain all of our
defenses against liability and damages pending a determination
of class certification. Based on its knowledge of the facts and
advice of outside counsel, management does not
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believe the outcome of this litigation is likely to have a
material adverse effect on us; however, the final disposition of
this case and the impact of such final disposition cannot be
determined at this time.
Owner-operator
misclassification class action litigation
On December 22, 2009, a class action lawsuit was filed
against Swift Transportation and IEL: John Doe 1 and
Joseph Sheer v. Swift Transportation Co., Inc., and
Interstate Equipment Leasing, Inc.: Case
No. 09-CIV-10376
filed in the United States District Court for the Southern
District of New York, or the Sheer Complaint. The putative class
involves owner-operators alleging that Swift Transportation
misclassifies owner-operators as independent contractors in
violation of the federal Fair Labor Standards Act, or FLSA, and
various New York and California state laws and that such
owner-operators should be considered employees. The lawsuit also
raises certain related issues with respect to the lease
agreements that certain owner-operators have entered into with
IEL. At present, in addition to the named plaintiffs, 110 other
current or former owner-operators have joined this lawsuit. Upon
our motion, the matter has been transferred from the United
States District Court for the Southern District of New York to
the United States District Court in Arizona. On May 10,
2010, plaintiffs filed a motion to conditionally certify an FLSA
collective action and authorize notice to the potential class
members. On June 23, 2010, plaintiffs filed a motion for a
preliminary injunction seeking to enjoin Swift and IEL from
collecting payments from plaintiffs who are in default under
their lease agreements and related relief. We intend to
vigorously defend against the motion for preliminary injunctive
relief and certification of the class as well as the allegations
made by the plaintiffs should the class be certified. The final
disposition of this case and the impact of such final
disposition cannot be determined at this time.
Environmental
notice
On April 17, 2009, we received a notice from the Lower
Willamette Group, or LWG, advising that there are a total of 250
potentially responsible parties, or PRP, with respect to alleged
environmental contamination of the Lower Willamette River in
Portland, Oregon designated as the Portland Harbor Superfund
site, or the Site, and that as a previous landowner at the Site
we have been asked to join a group of 60 PRPs and
proportionately contribute to (i) reimbursement of funds
expended by LWG to investigate environmental contamination at
the Site and (ii) remediation costs of the same, rather
than be exposed to potential litigation. Although we do not
believe we contributed any contaminants to the Site, we were at
one time the owner of property at the Site and the Comprehensive
Environmental Response, Compensation and Liability Act imposes a
standard of strict liability on property owners with respect to
environmental claims. Notwithstanding this standard of strict
liability, we believe our potential proportionate exposure to be
minimal and not material. No formal complaint has been filed in
this matter. Our pollution liability insurer has been notified
of this potential claim. We do not believe the outcome of this
matter is likely to have a material adverse effect on us.
However, the final disposition of this matter and the impact of
such final disposition cannot be determined at this time.
California
employee class action
On March 22, 2010, a class action lawsuit was filed by John
Burnell, individually and on behalf of all other similarly
situated persons against Swift Transportation: John Burnell
and all others similarly situated v. Swift Transportation
Co., Inc., Case No. CIVDS 1004377 filed in the Superior
Court of the State of California, for the County of
San Bernardino. The putative class includes drivers who
worked for us during the four years preceding the date of filing
alleging that we failed to pay the California minimum wage,
failed to provide proper meal and rest periods, and failed to
timely pay wages upon separation from employment. We intend to
vigorously defend certification of the class as well as the
merits of these matters should the class be certified. Based on
our knowledge of the facts and advice of outside counsel, we do
not believe the outcome of this litigation is likely to have a
material adverse effect on us. However, the impact of the final
disposition of this case cannot be determined at this time.
Organizational
Structure and Corporate History
We are a corporation formed for the purpose of this offering and
have not engaged in any business or other activities except in
connection with our formation and the reorganization
transactions described elsewhere in this prospectus. Immediately
prior to the closing of this offering, Swift Corporation will
merge
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with and into Swift Holdings Corp. Swift Corporation, a Nevada
corporation formed in 2006, is the holding company for Swift
Transportation Co. and its subsidiaries and IEL.
Swifts predecessor was founded by Jerry Moyes, along with
his father and brother, in 1966 and taken public on the NASDAQ
stock market in 1990. In April 2007, Mr. 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, Mr. Moyes and the
Moyes Affiliates contributed their shares of Swift
Transportation common stock to Swift Corporation in exchange for
additional Swift Corporation shares. Swift Corporation then
completed its acquisition of Swift Transportation through a
merger on May 10, 2007, thereby acquiring the remaining
outstanding shares of Swift Transportation common stock. Upon
completion of the 2007 Transactions, Swift Transportation became
a wholly-owned subsidiary of Swift Corporation and at the close
of the market on May 10, 2007, the common stock of Swift
Transportation ceased trading on NASDAQ. Swift currently is
controlled by Mr. Moyes and the Moyes Affiliates.
In April 2010, substantially all of our domestic subsidiaries
were converted from corporations to limited liability companies.
The subsidiaries not converted include our foreign subsidiaries,
captive insurance companies, and certain dormant subsidiaries
that were dissolved and liquidated.
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Management
Executive
Officers and Directors
The following table sets forth the names, ages, and positions of
our executive officers and directors as of July 21, 2010:
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Name
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Age
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Position
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Jerry Moyes
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66
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Chief Executive Officer and Director
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Richard H. Dozer
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53
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Director
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David Vander Ploeg
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51
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Director
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Richard Stocking
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40
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President
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Virginia Henkels
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41
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Executive Vice President, Chief Financial Officer, and Treasurer
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James Fry
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48
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Executive Vice President, General Counsel, and Corporate
Secretary
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Mark Young
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52
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Executive Vice President Swift Transportation Co. of
Arizona, LLC
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Kenneth C. Runnels
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45
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Executive Vice President, Eastern Region Swift
Transportation Co. of Arizona, LLC
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Rodney Sartor
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55
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Executive Vice President, Western Region Swift
Transportation Co. of Arizona, LLC
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Chad Killebrew
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35
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Executive Vice President, Business Transformation
Swift Transportation Co. of Arizona, LLC
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Jerry Moyes has been a director of Swift Corporation
since its inception and Chief Executive Officer of Swift
Corporation following the completion of the 2007 Transactions.
In 1966, Mr. Moyes formed Common Market Distribution Corp.,
that was later merged with Swift Transportation, which his
family purchased. In 1986, Mr. Moyes became Chairman of the
board, President, and CEO of Swift Transportation, which
positions he held until 2005. In October 2005, Mr. Moyes
stepped down from his executive positions at Swift
Transportation Co., although he continued to serve as a board
member. Mr. Moyes has a history of leadership and
involvement with the transportation and logistics industry, such
as serving as past Chairman and President of the Arizona
Trucking Association, board member and Vice President of the
American Trucking Associations, Inc., and a board member of the
Truckload Carriers Association. He has served as Chairman of the
boards of directors and holds complete or significant ownership
interest in Central Refrigerated Services, Inc., Central Freight
Lines, Inc., SME Industries, Inc., Southwest Premier Properties,
and various commercial and real estate interests with which he
is affiliated.
Mr. Moyes was a member of the board of directors of the
Phoenix Coyotes of the National Hockey League, or the NHL, from
2002 until 2009 and was the majority owner of the Phoenix
Coyotes from September 2006 until November 2, 2009, when
the team was purchased by the NHL out of a bankruptcy filed on
May 5, 2009. On March 5, 2010, the NHL filed a
complaint against Mr. Moyes in New York state court
alleging breach of contract and breach of fiduciary duty claims
for attempting to sell the Coyotes and for directing the Coyotes
to file for bankruptcy, in each case without NHL consent, and
seeking damages of at least approximately $60 million. The
lawsuit has since been removed to federal court in Arizona, and
Mr. Moyes has filed a motion to dismiss the NHLs
claims as preempted by federal bankruptcy law. Mr. Moyes
also served from September 2000 until April 2002 as Chairman of
the board of Simon Transportation Services Inc., a publicly
traded trucking company providing nationwide, predominantly
temperature-controlled, transportation services for major
shippers. Simon Transportation Services Inc. filed for
protection under Chapter 11 of the United States Bankruptcy
Code on February 25, 2002, and was subsequently purchased
from bankruptcy by Central Refrigerated Services, Inc.
In September 2005, the SEC filed a complaint in federal court in
Arizona alleging that Mr. Moyes purchased an aggregate of
187,000 shares of Swift Transportation stock in May 2004
while he was aware of material non-public information.
Mr. Moyes timely filed the required reports of such trades
with the SEC, and
102
voluntarily escrowed funds equal to his putative profits into a
trust established by the company. After conducting an
independent investigation of such purchases and certain other
repurchases made by Swift Transportation that year at
Mr. Moyes direction under its repurchase program,
Swift instituted a stricter insider trading policy and a
pre-clearance process for all trades made by insiders.
Mr. Moyes stepped down as President in November 2004 and as
Chief Executive Officer in October 2005. Mr. Moyes agreed,
without admitting or denying any claims, to settle the SEC
investigation and to the entry of a decree permanently enjoining
him from violating securities laws, and paid approximately
$1.5 million in disgorgement, prejudgment interest, and
penalties.
Mr. Moyes graduated from Weber State University in 1966
with a bachelor of science degree in business administration.
The Weber State College of Education is named after
Mr. Moyes.
Richard H. Dozer has served as a director of Swift
Corporation since April 2008. Mr. Dozer is currently
Chairman of GenSpring Family Office Phoenix. Prior
to this role, Mr. Dozer served as President of the Arizona
Diamondbacks Major League Baseball team from its inception in
1995 until 2006, and Vice President and Chief Operating Officer
of the Phoenix Suns National Basketball Association team from
1987 until 1995. Early in his career, he was an audit manager
with Arthur Andersen and served as its Director of Recruiting
for the Phoenix, Arizona office. Mr. Dozer holds a bachelor
of science degree in business administration
accounting from the University of Arizona and is a former
certified public accountant. Mr. Dozer currently serves on
the boards of directors of Blue Cross Blue Shield of Arizona and
Viad Corporation, a publicly traded company that provides
exhibition, event, and retail marketing services, as well as
travel and recreation services in North America, the United
Kingdom, and the United Arab Emirates. Mr. Dozer is
presently or has previously served on many boards, including
Teach for America Phoenix, Phoenix Valley of the Sun
Convention and Visitors Bureau, Greater Phoenix
Leadership, Greater Phoenix Economic Council, ASU-Board of the
Deans Council of 100, Arizona State University MBA
Advisory Council, Valley of the Sun YMCA, Nortust of Arizona,
and others. Mr. Dozers qualifications to serve on our
board of directors include his extensive experience serving as a
director on the boards of public companies, including serving as
the chair of the audit committee of Blue Cross Blue Shield of
Arizona, as a member of the audit committee of Viad Corporation
and as a director of Stratford American Corporation.
Mr. Dozer also has financial experience from his audit
manager position and other positions with Arthur Andersen from
1979 to 1987, during which time he held a certified public
accountant license. In addition, Mr. Dozer has
long-standing relationships within the business, political, and
charitable communities in the State of Arizona.
David Vander Ploeg has served as a director of Swift
Corporation since September 2009. Mr. Vander Ploeg has
served as the Executive Vice President and Chief Financial
Officer of School Specialty, Inc. since April 2008. Prior to
this role, Mr. Vander Ploeg served as Chief Operating
Officer of Dutchland Plastics Corp., from 2007 until April 2008.
Prior to that role, Mr. Vander Ploeg spent 24 years at
Schneider National, Inc., a provider of transportation and
logistics services, and was Executive Vice President
Chief Financial Officer from 2004 until his departure in 2007.
Prior to joining Schneider National, Inc., Mr. Vander Ploeg
was a senior auditor for Arthur Andersen. Mr. Vander Ploeg
holds a bachelor of science degree in accounting and a
masters degree in business administration from the
University of Wisconsin-Oshkosh. He is a past board member at
Dutchland Plastics and a member of the American Institute of
Certified Public Accountants and the Wisconsin Institute of
Certified Public Accountants. Mr. Vander Ploegs
qualifications to serve on our board of directors include his
24-year
career at Schneider National, Inc., where he advanced through
several positions of increasing responsibility and gained
extensive experience in the transportation and logistics
services industry.
Richard Stocking has served as our President since July
2010 and as President and Chief Operating Officer of our
trucking subsidiary, Swift Transportation Co. of Arizona, LLC,
since January 2009. Mr. Stocking served as Executive Vice
President, Sales of Swift from June 2007 until July 2010.
Mr. Stocking previously served as Regional Vice President
of Operations of the Central Region from October 2002 to March
2005, and as Executive Vice President of the Central Region from
March 2005 to June 2007. Prior to these roles, Mr. Stocking
held various operations and sales management positions with
Swift over the preceding 11 years.
Virginia Henkels has served as our Executive Vice
President, Treasurer, and Chief Financial Officer since May 2008
and as our Corporate Secretary through May 2010.
Ms. Henkels joined Swift in 2004 and, prior to her current
position, was most recently the Assistant Treasurer and Investor
Relations Officer. Prior to joining
103
Swift, Ms. Henkels served in various finance and accounting
leadership roles for Honeywell during a 12-year tenure. During
her last six years at Honeywell, Ms. Henkels served as
Director of Financial Planning and Reporting for its global
industrial controls business segment, Finance Manager of its
building controls segment in the United Kingdom, and Manager of
External Corporate Reporting. Ms. Henkels completed her
bachelor of science degree in finance and real estate at the
University of Arizona, obtained her masters degree in
business administration from Arizona State University, and
passed the May 1995 certified public accountant examination.
James Fry has served as our Executive Vice
President, General Counsel, and Corporate Secretary since May
2010. Mr. Fry joined Swift in January 2008 and prior to his
current position he served as corporate counsel for us through
August 2008 when he became General Counsel and Vice President.
For the five-year period prior to joining us, Mr. Fry
served as General Counsel for the publicly-traded company Global
Aircraft Solutions, Inc. and its wholly-owned subsidiaries,
Hamilton Aerospace and Worldjet Corporation. In addition to the
foregoing General Counsel positions, Mr. Fry also served
for eight years as in-house corporate counsel for both public
and private aviation companies and worked in private practice in
Pennsylvania for seven years prior to his in-house positions.
Mr. Fry also served as a hearing officer for the county
court in Pennsylvania. Mr. Fry received a bachelors
degree with honors from the Pennsylvania State University and
obtained his Juris Doctor from the Temple University School of
Law. Mr. Fry is admitted to practice law in the State of
Pennsylvania and is admitted as in-house counsel in the State of
Arizona.
Mark Young has served as Executive Vice President of
Swift Transportation and President of our subsidiary, Swift
Intermodal, LLC, since November 2005. Mr. Young joined us
in 2004 and, prior to his current position, he served as Vice
President of Swift Intermodal, LLC. Prior to joining us,
Mr. Young worked in transportation logistics with Hub Group
for five years as Vice President of National Sales, President of
Hub Group in Texas, and President of Hub Group in Atlanta.
Mr. Young was also employed by CSX Intermodal as Director
of Sales for the southeast, southwest, and Mexico regions for
eight years prior to his employment with Hub Group. Before
joining CSX Intermodal, Mr. Young worked for ABF Freight
System, Inc. where he held a variety of sales, operating, and
management positions. Mr. Young received a bachelor of
science in business administration from the University of
Arkansas and is a graduate of the executive program, Darden
School of Business, University of Virginia. Mr. Young is a
member of the Intermodal Association of North America, National
Freight Transportation Association, National Defense
Transportation Association, and the Traffic Club of New York.
Kenneth C. Runnels has served as Executive Vice
President, Eastern Region Operations since November 2007.
Mr. Runnels previously served as Vice President of Fleet
Operations, Regional Vice President, and various operations
management positions from 1983 to June 2006. From June 2006
until his return to Swift, Mr. Runnels was Vice President
of Operations with U.S. Xpress Enterprises, Inc.
Rodney Sartor has served as Executive Vice President,
Western Region Operations since returning to Swift in May 2007.
Mr. Sartor initially joined us in May 1979. He served as
our Executive Vice President from May 1990 until November 2005,
as Regional Vice President from August 1988 until May 1990, and
as Director of Operations from May 1982 until August 1988. From
November 2005 until May 2007, Mr. Sartor served as Vice
President of Truckload Linehaul Operations for Central Freight
Lines, Inc.
Chad Killebrew has served as our Executive Vice President
of Business Transformation since March 2008. Mr. Killebrew
most recently served as President of IEL from 2005 to 2008, and
as Vice President of our owner-operator division since 2007. He
has held various positions in finance, operations, and
recruiting with Swift and Central Refrigerated Services, Inc.
from 1997 to 2005. Mr. Killebrew received a bachelor of
science degree in finance from the University of Utah and a
masters degree in business administration from Westminster
College. Mr. Killebrew is the nephew of Jerry Moyes.
Composition
of Board
Our board of directors currently consists of three members,
Messrs. Moyes, Dozer, and Vander Ploeg. Following the
completion of this offering, we expect our board of directors to
consist of five directors, four of whom we expect to qualify as
independent directors under the corporate governance standards
of the exchange on which we list our Class A common stock
and the independence requirements of
Rule 10A-3
of the
104
Exchange Act. Our board of directors requires the separation of
the offices of the Chairman of our board of directors and our
Chief Executive Officer. Our board of directors will be free to
choose the Chairman in any way that it deems best for us at any
given point in time, provided that the Chairman not be our Chief
Executive Officer or any other employee of our company, and a
Chairman will be appointed prior to the consummation of this
offering. If the Chairman of the board is not an independent
director, our boards independent directors will designate
one of the independent directors on the board to serve as lead
independent director. In addition, so long as our Chief
Executive Officer is a permitted holder or an affiliated person
under our certificate of incorporation, the Chairman of our
board of directors must be an independent director. Conversely,
so long as our Chairman is a permitted holder or an affiliated
person under our certificate of incorporation, our Chief
Executive Officer may not be a permitted holder or affiliated
person thereunder. The duties of the Chairman, or the lead
independent director if the Chairman is not independent, will
include:
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presiding at all executive sessions of the independent directors;
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presiding at all meetings of our board of directors and the
stockholders (in the case of the lead independent director,
where the Chairman is not present);
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in the case of the lead independent director or the Chairman who
is an independent director, coordinating the activities of the
independent directors;
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preparing board meeting agendas in consultation with the CEO and
lead independent director or Chairman, as the case may be, and
coordinating board meeting schedules;
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authorizing the retention of outside advisors and consultants
who report directly to the board;
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requesting the inclusion of certain materials for board meetings;
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consulting with respect to, and where practicable receiving in
advance, information sent to the Board;
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collaborating with the CEO and lead independent director or
Chairman, as the case may be, in determining the need for
special meetings;
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in the case of the lead independent director, acting as liaison
for stockholders between the independent directors and the
Chairman, as appropriate;
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communicating to the CEO, together with the chairman of the
compensation committee, the results of the boards
evaluation of the CEOs performance;
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responding directly to stockholder and other stakeholder
questions and comments that are directed to the Chairman of the
board, or to the lead independent director or the independent
directors as a group, as the case may be; and
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performing such other duties as our board of directors may
delegate from time to time.
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In the absence or disability of the Chairman, the duties of the
Chairman (including presiding at all meetings of our board of
directors and the stockholders) shall be performed and the
authority of the Chairman may be exercised by an independent
director designated for this purpose by our board of directors.
The Chairman of our board of directors (if he or she is an
independent director) or the lead independent director, if any,
may only be removed from such position with the affirmative vote
of a majority of the independent directors, only for the reasons
set forth in our bylaws, including a determination that the
Chairman, or lead independent director, as the case may be, is
not exercising his or her duties in the best interests of us and
our stockholders.
Risk
Management and Oversight
Our full board of directors oversees our risk management
process. Our board of directors oversees a company-wide approach
to risk management, carried out by our management. Our full
board of directors determines the appropriate risk for us
generally, assesses the specific risks faced by us, and reviews
the steps taken by management to manage those risks.
While the full board of directors maintains the ultimate
oversight responsibility for the risk management process, its
committees oversee risk in certain specified areas. In
particular, our compensation committee is responsible for
overseeing the management of risks relating to our executive
compensation plans and
105
arrangements, and the incentives created by the compensation
awards it administers. Our audit committee oversees management
of enterprise risks as well as financial risks, and effective
upon the consummation of this offering, will also be responsible
for overseeing potential conflicts of interests. Effective upon
the listing of our Class A common stock on an exchange, our
nominating and corporate governance committee will be
responsible for overseeing the management of risks associated
with the independence of our board of directors. Pursuant to the
board of directors instruction, management regularly
reports on applicable risks to the relevant committee or the
full board of directors, as appropriate, with additional review
or reporting on risks conducted as needed or as requested by our
board and its committees.
Board
Committees
As a result of Mr. Moyes and the Moyes Affiliates
controlling a majority of our voting common stock following
consummation of this offering, we will qualify as a
controlled company within the meaning of the
corporate governance standards of the exchange on which we list
our Class A common stock. As such, we will have the option
to elect not to comply with certain of such listing standards.
However, consistent with our plan to implement strong corporate
governance standards, we do not intend to elect to be treated as
a controlled company.
Our board of directors has an audit committee, compensation
committee, and nominating and corporate governance committee,
each of which has the composition and responsibilities described
below. Members serve on these committees until their respective
resignations or until otherwise determined by our board of
directors. Our board of directors may from time to time
establish other committees.
Audit
committee
The audit committee:
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reviews the audit plans and findings of our independent
registered public accounting firm and our internal audit and
risk review staff, as well as the results of regulatory
examinations, and tracks managements corrective action
plans where necessary;
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reviews our financial statements, including any significant
financial items
and/or
changes in accounting policies, with our senior management and
independent registered public accounting firm;
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reviews our financial risk and control procedures, compliance
programs, and significant tax, legal, and regulatory
matters; and
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has the sole discretion to appoint annually our independent
registered public accounting firm, evaluate its independence and
performance, and set clear hiring policies for employees or
former employees of the independent registered public accounting
firm.
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The audit committee currently consists of Messrs. Dozer
(Chair) and Vander Ploeg, each of whom qualifies as an audit
committee financial expert and as independent
directors as defined under the rules of the exchange on which we
list our Class A common stock and
Rule 10A-3
of the Exchange Act. Before the completion of this offering, we
will appoint an additional director to the audit committee who
will satisfy the same independence standards.
Compensation
committee
The compensation committee:
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annually reviews corporate goals and objectives relevant to the
compensation of our named executive officers and evaluates
performance in light of those goals and objectives;
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approves base salary and other compensation of our named
executive officers;
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oversees and periodically reviews the operation of all of
Swifts stock-based employee (including management and
director) compensation plans;
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reviews and adopts all employee (including management and
director) compensation plans, programs and arrangements,
including stock option grants and other perquisites and fringe
benefit arrangements;
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periodically reviews the outside directors compensation
arrangements to ensure their competitiveness and compliance with
applicable laws; and
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approves corporate goals and objectives and determines whether
such goals are met.
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The compensation committee currently consists of
Messrs. Dozer (Chair) and Vander Ploeg, each of whom is a
non-employee director as defined in
Rule 16b-3(b)(3)
under the Exchange Act, and an outside director
within the meaning of Section 162(m)(4)(c)(i) of the
Internal Revenue Code. Before the completion of this offering,
we will appoint an additional director to the compensation
committee who will satisfy the same independence standards.
Nominating
and corporate governance committee
The nominating and corporate governance committee:
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is responsible for identifying, screening, and recommending
candidates to the board for board membership;
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advises the board with respect to the corporate governance
principles applicable to us; and
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oversees the evaluation of the board and management.
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Nominations of persons for election to the board of directors
may be made by a stockholder of record on the date of the giving
of notice as provided in our bylaws, and such nominees will be
reviewed by our nominating and corporate governance committee.
The nominating and corporate governance committee currently
consists of David Vander Ploeg (Chair) and Richard Dozer. Before
the completion of this offering, we will appoint an additional
director to the nominating and corporate governance committee
who will satisfy the same independence standard.
Corporate
Governance Policy
Our board of directors has adopted a corporate governance policy
to assist the board in the exercise of its duties and
responsibilities and to serve the best interests of us and our
stockholders. A copy of this policy has been posted on our
website. These guidelines, which provide a framework for the
conduct of the boards business, provide that:
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directors are responsible for attending board meetings and
meetings of committees on which they serve and to review in
advance of meetings material distributed for such meetings;
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the boards principal responsibility is to oversee and
direct our management in building long-term value for our
stockholders and to assure the vitality of Swift for our
customers, clients, employees, and the communities in which we
operate;
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at least two-thirds of the board shall be independent directors,
and other than our Chief Executive Officer and up to one
additional non-independent director, all of the members of our
board of directors shall be independent directors;
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our nominating and corporate governance committee is responsible
for nominating members for election to our board of directors
and will consider candidates submitted by stockholders;
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our board of directors believes that it is important for each
director to have a financial stake in us to help align the
directors interests with those of our stockholders;
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although we do not impose a limit to the number of other public
company boards on which a director serves, our board of
directors expects that each member be fully committed to
devoting adequate time to his or her duties to us;
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the independent directors meet in executive session on a regular
basis, but not less than quarterly;
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each of our audit committee, compensation committee, and
nominating and corporate governance committee must consist
solely of independent directors;
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new directors participate in an orientation program and all
directors are encouraged to attend, at our expense, continuing
educational programs to further their understanding of our
business and enhance their performance on our board; and
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107
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our board of directors and its committees will sponsor annual
self-evaluations to determine whether members of the board are
functioning effectively.
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In addition, our governance policy includes a resignation policy
requiring sitting directors to tender resignations if they fail
to obtain a majority vote in uncontested elections.
Code of
Ethics
The audit committee and our board of directors have adopted a
code of ethics (within the meaning of Item 406(b) of
Regulation S-K)
that will apply to our board of directors, Chief Executive
Officer, Chief Financial Officer, Controller, and such other
persons designated by our board of directors or an appropriate
committee thereof. The board believes that these individuals
must set an exemplary standard of conduct for us, particularly
in the areas of accounting, internal accounting control,
auditing, and finance. The code of ethics sets forth ethical
standards the designated officers must adhere to. The code of
ethics will be posted to our website.
Securities
Trading Policy
Our securities trading policy prohibits officers, directors,
employees, and key consultants from purchasing or selling any
type of security, including derivative securities, whether
issued by Swift or another company, while aware of material,
non-public information relating to the issuer of the security or
from providing such material, non-public information to any
person who may trade while aware of such information. The policy
may only be amended by an affirmative vote of a majority of our
independent directors, including the affirmative vote of the
Chairman of the board if the Chairman is an independent
director, or the lead independent director if the Chairman is
not an independent director. We restrict trading by our
officers, directors, and certain employees and consultants
designated by our board to quarterly trading windows that begin
at the open of the market on the third full trading day
following the date of public disclosure of our financial results
for the prior fiscal quarter or year, and end on the earlier of
30 days thereafter and the last day of the month preceding
the last month of the next quarter. For all other persons
covered by our securities trading policy, the mandatory trading
window will end two weeks prior to the end of the next quarter.
The prohibition against trading while in possession of any
material non-public information applies at all times, even
during the trading windows described above. Our officers,
directors, and certain employees and consultants may only engage
in transactions designed to hedge the economic risk of stock
ownership in our stock upon clearance from the General Counsel
and Chief Financial Officer in consultation with the Chairman of
our board of directors if the Chairman is an independent
director, or the lead independent director if the Chairman is
not an independent director. In addition, all persons covered by
our securities trading policy are prohibited from speculating in
our securities, through engaging in puts, calls, or short
positions. Finally, all persons covered by our securities
trading policy must obtain pre-clearance from the General
Counsel and our Chief Financial Officer, regardless of whether
in possession of material, non-public information, before
purchasing securities of the company on margin or borrowing
against an account in which the companys securities are
held. Any margin transaction or pledge arrangement proposed by a
senior executive officer or director must also be pre-approved
by the Chairman of our board of directors if the Chairman is an
independent director, or the lead independent director if the
Chairman is not an independent director, and may not represent
(together with any of our securities already pledged by such
person) greater than 20% of the total number of securities held
by the person and affiliates of the person making such proposal.
Compensation
Committee Interlocks and Insider Participation
During 2009, Mr. Moyes was a member of our compensation
committee while also serving as our Chief Executive Officer and
President. Mr. Moyes no longer serves as a member of our
compensation committee and none of the members of our
compensation committee is an officer or employee of Swift. None
of our executive officers other than Mr. Moyes currently
serves, or in the past year has served, as a member of the board
of directors or compensation committee of any entity that has
one or more executive officers serving on our board of directors
or compensation committee.
108
Director
Compensation
We intend to pay an annual retainer fee to each non-employee
director in an amount to be determined by our board of directors
for participation in each in-person meeting and a fee in an
amount to be determined by our board of directors for
participation in each telephonic meeting. In addition, we intend
to pay an annual fee in an amount to be determined by our board
of directors to the chair of the nominating and governance
committee, the chair of the compensation committee, and the
chair of the audit committee.
Non-employee directors will receive, upon appointment to the
board, a one-time grant of stock options for a number of shares
of our common stock to be determined by our board of directors.
These options vest upon the later of (i) the occurrence of
an initial public offering of Swift or (ii) a five-year
vesting period at a rate of
331/3%
each year following the third anniversary date of the grant,
subject to continued service. To the extent vested, these
options will become exercisable simultaneously with the closing
of this offering subject to a 180-day lock-up period beginning
on the date of this prospectus. See Underwriting.
Upon the closing of this offering, these options will convert
into options to purchase shares of Class A common stock of
Swift Holdings Corp.
There were no option grants made to non-employee directors in
2009. Mr. Vander Ploeg joined the board in September 2009
and did not receive any options in 2009. However,
Mr. Vander Ploeg received a grant of options for 5,000
shares of our Class A common stock on February 25,
2010.
Our employees who serve as directors receive no additional
compensation, although we may reimburse them for travel and
other expenses. Mr. Moyes also serves as our Chief
Executive Officer, and thus receives no additional compensation
for serving as a director. Mr. Moyes compensation as
Chief Executive Officer and President for 2009 is reported below
under the heading Executive Compensation
Summary Compensation Table.
Following the offering, we may re-evaluate and, if appropriate,
adjust the fees and stock options awarded to directors as
compensation in order to ensure that our director compensation
is commensurate with that of similarly situated public companies.
The following table provides information for the fiscal year
ended December 31, 2009, regarding all plan and non-plan
compensation awarded to, earned by, or paid to, each person who
served as a director for some portion or all of 2009:
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Fees Earned
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or Paid
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Name
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in Cash
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Total
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Jerry Moyes(1)
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$
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$
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Earl Scudder(2)
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$
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30,500
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$
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30,500
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Jeff A. Shumway(3)
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$
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36,000
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$
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36,000
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Richard H. Dozer
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$
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53,000
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$
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53,000
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John Breslow(4)
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$
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10,000
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$
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10,000
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David Vander Ploeg
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$
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23,000
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$
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23,000
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(1) |
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Jerry Moyes also serves as our Chief Executive Officer and
previously served as our President during 2009. Employees of
Swift who serve as directors receive no additional compensation,
although we may reimburse them for travel and other expenses.
See below for disclosure of Mr. Moyes compensation as
Chief Executive Officer and President for 2009. |
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Earl Scudder resigned from our board of directors and all
committees effective July 21, 2010. |
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Jeff A. Shumway resigned from our board of directors and all
committees effective July 21, 2010. |
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John Breslow resigned from our board of directors and all
committees effective May 5, 2009. |
As of December 31, 2009, each of our non-employee
directors, except for Mr. Vander Ploeg, held options to
acquire 5,000 shares of our common stock.
109
Executive
Compensation
Compensation
Discussion and Analysis
Introduction
The purpose of this compensation discussion and analysis, or
CD&A, is to provide information about the compensation
earned by our named executive officers (as such term is defined
in the Summary Compensation Table section below) and
to explain our compensation process and philosophy and the
policies and factors that underlie our decisions with respect to
the named executive officers compensation. As we describe
in more detail below, the principal objectives of our executive
compensation strategy are to attract and retain talented
executives, reward strong business results and performance, and
align the interest of executives with our stockholders. In
addition to rewarding business and individual performance, the
compensation program is designed to promote both annual
performance objectives and longer-term objectives.
What are
our processes and procedures for considering and determining
executive compensation?
Following the completion of this offering, our designated
compensation committee of the board of directors will be
responsible for reviewing and approving the compensation of the
Chief Executive Officer and the other named executive officers.
Compensation for our named executive officers is established
based upon the scope of their responsibilities, experience, and
individual and company performance, taking into account the
compensation level from their recent prior employment, if
applicable. In 2009, the compensation committee consisted of
Messrs. Dozer (Chair), Vander Ploeg, and Shumway, and
Mr. Moyes, our Chief Executive Officer. From July 21,
2010 and after the completion of the offering, the compensation
committee will consist entirely of non-employee
directors as defined in
Rule 16b-3(b)(3)
under the Exchange Act, outside directors within the
meaning of Section 162(m)(4)(c)(i) of the Internal Revenue
Code, and independent directors as defined under the
rules of the exchange on which we list our Class A common stock.
Following the completion of the offering, the compensation
committees responsibilities will include, but not be
limited to:
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administering all of Swifts stock-based and other
incentive compensation plans;
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annually reviewing corporate goals and objectives relevant to
the compensation of our named executive officers and evaluating
performance in light of those goals and objectives;
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approving base salary and other compensation of our named
executive officers;
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overseeing and periodically reviewing the operation of all of
Swifts stock-based employee (including management and
director) compensation plans;
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reviewing and adopting all employee (including management and
director) compensation plans, programs, and arrangements,
including stock option grants and other perquisites, and fringe
benefit arrangements;
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periodically reviewing the outside directors compensation
arrangements to ensure their competitiveness and compliance with
applicable laws; and
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approving corporate goals and objectives and determining whether
such goals have been met.
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Role of compensation consultants. The
compensation committee has the authority to obtain advice and
assistance from outside legal, accounting, or other advisors and
consultants as deemed appropriate to assist in the continual
development and evaluation of compensation policies and
determination of compensation awards. We did not utilize outside
consultants in evaluating our compensation policies and awards
during 2009, 2008, or 2007.
Role of management in determining executive
compensation. Our Chief Financial Officer and our
President provide information to the compensation committee on
our financial performance for consideration in determining the
named executive officers compensation. Our Chief Financial
Officer and our President also assist the compensation committee
in recommending salary levels and the type and structure of
other awards.
110
What are
the objectives of our compensation programs?
The principal objectives of our executive compensation programs
are to attract, retain, and motivate talented executives, reward
strong business results and performance, and align the
executives interests with stockholder interests. The
objectives are based on the following core principles, which we
explain in greater detail below:
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Business performance
accountability. Compensation should be tied to
our performance in key areas so that executives are held
accountable through their compensation for our performance.
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Individual performance
accountability. Compensation should be tied to an
individuals performance so that individual contributions
to our performance are rewarded.
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Alignment with stockholder
interests. Compensation should be tied to our
performance through stock incentives so that executives
interests are aligned with those of our stockholders.
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Retention. Compensation should be designed to
promote the retention of key employees.
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Competitiveness. Compensation should be
designed to attract, retain, and reward key leaders critical to
our success by providing competitive total compensation.
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What are
the elements of our compensation program?
In general, our compensation program consists of three major
elements: base salary, performance-based annual cash incentives,
and long-term incentives designed to promote long-term
performance and key employee retention. Our named executive
officers are not employed pursuant to employment agreements.
Base salary. The compensation committee, with
the assistance of our Chief Executive Officer with respect to
the other named executive officers, annually reviews the base
salary of each named executive officer. If appropriate,
adjustments are made to base salaries as a result. Annual
salaries are based on our performance for the fiscal year and
subjective evaluation of each executives contribution to
that performance.
The following base annual salaries were effective in 2009 for
the named executive officers: Mr. Moyes
$500,000; Mr. Stocking $400,000;
Ms. Henkels $275,000;
Mr. Runnels $218,000; and
Mr. Sartor $217,984.
Annual cash incentives. Annual incentives in
our compensation program are cash-based. The compensation
committee believes that annual cash incentives promote superior
operational performance, disciplined cost management, and
increased productivity and efficiency that contribute
significantly to positive results for our stockholders. Our
compensation structure provides for annual performance
incentives that are linked to our earnings objectives for the
year and intended to compensate our named executive officers
(other than Mr. Moyes) for our overall financial
performance. Mr. Moyes is not eligible for the annual
performance incentives. The annual incentive process involves
the following basic steps:
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establishing our overall performance goals;
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setting target incentives for each individual; and
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measuring our actual financial performance against the
predetermined goals to determine incentive payouts.
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The steps for the 2009 annual bonus are described below:
(1) Establishing our performance
goals. In March 2009, the compensation committee
set our performance goals for establishing the company-wide
bonus program for the 2009 fiscal year, which were approved by
our board of directors on March 23, 2009. Such goals were
set in order to incentivize management to improve profitability
and thereby increase long-term stockholder value. For fiscal
year 2009, the bonus percentages were determined based on us
meeting specified full year adjusted earnings before interest,
taxes, depreciation and amortization, or EBITDA, levels.
Adjusted EBITDA for this purpose means the adjusted EBITDA for
Swift for the 2009 fiscal year, adjusted to remove the impact of
restructuring charges and severance charges, for gains and
losses on divestitures, discontinued operations, impairments,
cancellation of debt income, other unusual and non-recurring
items, and unbudgeted
111
material acquisitions and divestitures, at the discretion of the
compensation committee. The 2009 bonus payout percentages upon
attainment of certain levels of adjusted EBITDA were as follows:
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Level of Attainment:
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Threshold
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Target
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Stretch
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Maximum
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(Dollars in thousands)
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Adjusted EBITDA
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$
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485,000
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$
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495,000
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$
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550,000
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$
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600,000
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Bonus Payout %
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50%
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100%
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150%
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200%
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(2) Setting a target incentive. Target
incentive amounts for each named executive officer other than
the Chief Executive Officer, expressed as a percentage of the
executives base salary, are based on job grade. The actual
payments these named executive officers receive corresponds to
the percentage of their individual target incentive multiplied
by the percentage of the corresponding bonus payout, which may
be adjusted based on overall team performance, terminal or
department performance, and individual performance. The target
incentive for each of the named executive officers other than
the Chief Executive Officer for 2009 were the following: 70% for
Mr. Stocking and 50% for Ms. Henkels and
Messrs. Sartor and Runnels.
(3) Measuring performance. The
compensation committee reviewed Swifts actual performance
against the established goals and determined that the
performance targets to qualify for a 2009 bonus were not met
and, accordingly, no bonuses were paid in 2009.
For the 2010 annual bonus, the compensation committee set
company-wide performance goals for the 2010 fiscal year, which
were approved by the board of directors on May 20, 2010.
The bonus payout percentages are determined based on our meeting
specified Adjusted EBITDA levels. Adjusted EBITDA for this
purpose means net income or loss plus (i) depreciation and
amortization, (ii) interest and derivative interest
expense, including other fees and charges associated with
indebtedness, net of interest income, (iii) income taxes,
(iv) non-cash impairments, (v) non-cash equity
compensation expense, (vi) other extraordinary or unusual
non-cash items, and (vii) excludable transaction costs. The
2010 bonus payout percentages upon attainment of certain levels
of Adjusted EBITDA are as follows:
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Level of Attainment:
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Threshold
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Target
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Stretch
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Maximum
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(Dollars in thousands)
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Adjusted EBITDA
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$
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440,000
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$
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450,000
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$
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475,000
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$
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500,000
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Bonus Payout %
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50%
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100%
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150%
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200%
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The 2010 target incentive amounts for each named executive
officer (other than the Chief Executive Officer), expressed as a
percentage of the executives base salary, are based on the
executives job grade. The actual payments will be based on
achievement of the incentives criteria and individual
performance. The target incentive for each of the named
executive officers (other than the Chief Executive Officer) for
2010 are the following: 70% for Mr. Stocking and 50% for
Ms. Henkels and Messrs. Sartor and Runnels.
Long-term incentives. Long-term incentives in
our compensation program are principally stock-based. Our
stock-based incentives in 2009 consisted of stock options
granted under our 2007 equity incentive plan and are designed to
promote long-term performance and the retention of key
employees. The board of directors grants stock options to
individual employees and executives in the form of stock option
grants, in amounts determined based on pay grade. The objective
of the program is to align compensation over a multi-year period
with the interests of our stockholders by motivating and
rewarding the creation and preservation of long-term stockholder
value. The level of long-term incentive compensation is
determined based on an evaluation of competitive factors in
conjunction with total compensation provided to the named
executive officers and the goals of the compensation program
described above.
The options granted to individuals having a salary grade of 31
or above (including all of our named executive officers, except
Ms. Henkels who holds Tier II options granted in the
past), or Tier I options, will vest (i) upon the
occurrence of a sale or a change in control of Swift or, if
earlier, (ii) over a five-year vesting period at a rate of
331/3%
beginning with the third anniversary date of the grant, subject
to continued employment. The options granted to individuals
having a salary grade of 30 and below, or Tier II options,
will vest upon (A) the later of (i) the occurrence of
an initial public offering of Swift stock or (ii) a
five-year vesting period at a rate of
331/3%
beginning with the third anniversary date of the grant, or
(B) immediately
112
upon a change in control of Swift, in any case subject to
continued employment. To the extent vested, both Tier I
options and Tier II options will become exercisable
simultaneously with the closing of the earlier of an initial
public offering of Swift stock, a sale, or a change in control
of Swift (subject to any applicable blackout period).
Under our 2007 equity incentive plan, our board of directors
approved in October 2007 option awards to a group of employees
based on salary grade. In August 2008 and December 2009,
additional option awards were approved by our board of directors
and granted to groups of employees based on salary grade that
were hired or promoted subsequent to the 2007 grant, including a
December 2009 grant of options for 50,000 shares of our
common stock to Mr. Stocking in connection with his
promotion to Chief Operating Officer. Effective
February 25, 2010, the board of directors approved and
granted options for 1.8 million shares of our common stock
to certain employees at an exercise price of $7.04 per share,
which equaled the fair value of the common stock on the date of
grant. Fair market value was determined by a third-party
valuation analysis performed within 90 days of the date of
grant and considered a number of factors, including our
discounted, projected cash flows, comparative multiples of
similar companies, the lack of liquidity of our common stock,
and certain risks we faced at the time of the valuation. The
options granted on February 25, 2010 included options for
the following number of shares of our common stock for our named
executive officers: Mr. Moyes 0;
Mr. Stocking 40,000;
Ms. Henkels 30,000; Mr. Sartor
15,000; and Mr. Runnels 30,000. Upon the
closing of this offering, all outstanding options will convert
into options to purchase shares of Class A common stock of
Swift Holdings Corp. Future options may be approved and granted
by the compensation committee and the board of directors.
What will
the equity compensation arrangements be following the completion
of this offering?
Following the completion of this offering, we will continue to
grant awards under our 2007 equity incentive plan, the terms of
which are described under the heading 2007 Equity
Incentive Plan below and which will remain materially the
same. The purposes of our 2007 equity incentive plan are to
provide incentives to certain of our employees, directors, and
consultants in a manner designed to reinforce our performance
goals, and to continue to attract, motivate, and retain key
personnel on a competitive basis. To accomplish these purposes,
our 2007 equity incentive plan provides for the issuance of
stock options, stock appreciation rights, restricted and
unrestricted stock, restricted stock units, performance units,
and other incentive awards.
While we intend to issue stock options in the future to
employees as a recruiting and retention tool, we have not
established specific parameters regarding future grants. Our
compensation committee will determine the specific criteria for
future equity grants under our 2007 equity incentive plan.
Have we
entered into individual agreements with our named executive
officers?
We have not entered and do not anticipate entering into
employment or change in control or severance agreements with any
of our named executive officers in connection with this offering.
Do we
provide any material perquisites to our named executive
officers?
We do not offer any material perquisites.
How does
each element of compensation and our decisions regarding that
element fit into our overall compensation objectives and affect
decisions regarding other elements?
Before establishing or recommending executive compensation
payments or awards, the compensation committee considers all the
components of such compensation, including current pay (salary
and bonus), annual and long-term incentive awards, and prior
grants. The compensation committee considers each element in
relation to the others when setting total compensation, with a
goal of setting overall compensation at levels that the
compensation committee believes are appropriate.
113
What
impact do taxation and accounting considerations have on the
decisions regarding executive compensation?
The compensation committee also takes into account tax and
accounting consequences of the total compensation program and
the individual components of compensation, and weighs these
factors when setting total compensation and determining the
individual elements of an officers compensation package.
We do not believe that the compensation paid to our named
executive officers is or will be subject to limits of
deductibility under the Internal Revenue Code.
Summary
Compensation Table
The following table provides information about compensation
awarded and earned during 2009, 2008, and 2007 by our Chief
Executive Officer, Chief Financial Officer, and the three most
highly compensated executive officers (other than the Chief
Executive Officer and Chief Financial Officer), or collectively,
the named executive officers. The tables exclude compensation
paid to the named executive officers prior to the 2007
Transactions.
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Non-Equity
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Option
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Incentive Plan
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All Other
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Name and Principal Position
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Year
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Salary
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Bonus(1)
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Awards(2)
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Compensation(3)
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Compensation(4)
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Total
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Jerry Moyes,
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2009
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$
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490,385
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$
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|
|
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$
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$
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$
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10,256
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$
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500,641
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Chief Executive
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2008
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$
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500,000
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$
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87,500
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$
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$
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$
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10,256
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$
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597,756
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Officer
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2007
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$
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311,538
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$
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$
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$
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178,250
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$
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6,644
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$
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496,432
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Virginia Henkels
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2009
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$
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269,711
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$
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$
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|
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$
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|
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$
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10,256
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$
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279,967
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Executive Vice President and Chief Financial Officer(5)
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2008
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$
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235,385
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$
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34,375
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$
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776,250
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$
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$
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14,751
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$
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1,060,761
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Richard Stocking,
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2009
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$
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386,707
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$
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$
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169,500
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$
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$
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11,447
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$
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567,654
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President and Chief
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2008
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$
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231,985
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$
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27,248
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$
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$
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$
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13,252
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$
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272,485
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Operating Officer
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2007
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$
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142,435
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$
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$
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492,000
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$
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110,413
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$
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8,709
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$
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753,557
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Rodney Sartor,
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2009
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$
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213,792
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$
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$
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$
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|
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$
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10,256
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$
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224,048
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Executive Vice President
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2008
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$
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217,984
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$
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27,248
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|
|
$
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|
|
|
$
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|
|
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$
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10,676
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|
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$
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255,908
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2007
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$
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134,144
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$
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$
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492,000
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$
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110,413
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$
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5,957
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$
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742,514
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Kenneth Runnels,
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2009
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$
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213,808
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$
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|
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$
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$
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|
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$
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10,909
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$
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224,717
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Executive Vice President(5)
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2008
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$
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218,000
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$
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27,250
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$
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931,500
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$
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|
|
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$
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55,311
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$
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1,232,061
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|
|
|
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(1) |
|
Amounts in this column represent discretionary cash bonuses paid
in fiscal 2008 to the respective named executive officers as
described in Note 3 below. |
|
(2) |
|
This column represents the grant date fair value of stock
options under Topic 718 granted to each of the named executive
officers in 2009, 2008, and 2007. For additional information on
the valuation assumptions with respect to the 2009, 2008, and
2007 grants, refer to Note 19 of Swift Corporations
audited consolidated financial statements. See
Grants of Plan-Based Awards in 2009 in this
prospectus for information on options granted in 2009. |
|
(3) |
|
This column represents the cash incentive compensation amounts
approved by the compensation committee and Chief Executive
Officer paid to the named executive officers. The amounts for a
given year represent the amount of incentive compensation earned
with respect to such year. The bonuses were calculated based on
our actual financial performance for 2009 and 2008 and pro forma
financial performance for 2007, as compared with established
targets. The performance targets to qualify for a 2009 bonus
were not met and, accordingly, no awards were paid in 2009. For
the 2008 cash bonuses, the Chief Executive Officer determined in
December 2008 that, even though we would not achieve the 2008
performance targets in order to qualify for payout under the
2008 bonus plan, Swift would make a discretionary payout in
amounts generally equal to 25% of what each employees
target bonus was under the 2008 bonus plan. These cash bonuses
were paid to the named executive officers at the end of 2008 and
are reflected in the Bonus column rather than the
Non-Equity Incentive Plan Compensation column. For
the 2007 cash bonuses, the Chief Executive Officer determined in
December 2007 that the annual performance targets |
114
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would be met and, consistent with our past practice of paying
bonuses before Christmas, determined to make partial payments of
the annual bonuses to the named executive officers and other of
our employees. The final payment of bonuses was made in February
2008 after the Chief Executive Officer determined the unpaid
amount owing to each employee upon Swifts final
determination of financial performance for 2007. |
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(4) |
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This column represents all other compensation paid to the named
executive officers for employer 401(k) matches, executive
disability insurance, car allowance, and other benefits, none of
which individually exceeded $10,000. |
|
(5) |
|
Ms. Henkels first became an executive officer on
May 1, 2008, and Mr. Runnels was hired as an executive
officer on November 28, 2007. |
Grants of
Plan-Based Awards in 2009
The following table provides information about equity and
non-equity plan-based awards granted to the named executive
officers in 2009. No options were granted to Mr. Moyes,
Ms. Henkels, Mr. Sartor, or Mr. Runnels in 2009.
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All Other
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Option
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Exercise
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Awards:
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or Base
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Number of
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Price of
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Grant Date
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Board
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Estimated Possible Payouts Under
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Securities
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Option
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Fair Value of
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Grant
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Approval
|
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Non-Equity Incentive Plan Awards(1)
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Underlying
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Awards
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Option
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Name
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Date
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Date
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Threshold
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Target
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Maximum
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Options (#)(2)
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($/SH)(3)
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Awards
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Jerry Moyes
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Virginia Henkels
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$
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68,750
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$
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137,500
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$
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275,000
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Richard Stocking
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12/31/2009
|
|
11/24/2009
|
|
|
|
|
|
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|
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|
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50,000
|
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|
$
|
6.89
|
|
|
$
|
169,500
|
|
|
|
|
|
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|
$
|
100,000
|
|
|
$
|
200,000
|
|
|
$
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
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Rodney Sartor
|
|
|
|
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|
$
|
54,496
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|
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$
|
108,992
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|
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$
|
217,984
|
|
|
|
|
|
|
|
|
|
|
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Kenneth Runnels
|
|
|
|
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$
|
54,500
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|
$
|
109,000
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$
|
218,000
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|
|
|
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|
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|
(1) |
|
These columns represent the potential value of 2009 annual cash
incentive payouts for each named executive officer, for which
target amounts were approved by the compensation committee in
March 2009. As discussed in Note 3 to the Summary
Compensation Table, the 2009 performance targets to
qualify for a payout under the 2009 plan were not met and,
accordingly, no awards were paid under this plan. Mr. Moyes
is not eligible for the annual cash incentive. |
|
(2) |
|
This column shows the number of stock options granted in 2009 to
the named executive officers. The options granted to
Mr. Stocking are Tier I options and will vest
(i) upon the occurrence of the earlier of a sale or a
change in control of Swift or, if earlier (ii) a five-year
vesting period at a rate of
331/3%
beginning with the third anniversary date of the grant. To the
extent vested, these options will become exercisable
simultaneously with the closing of the earlier of (i) an
initial public offering of Swift stock, (ii) a sale, or
(iii) change in control of Swift. |
|
(3) |
|
This column shows the exercise price for the stock options
granted, as determined by our board of directors, which equaled
the fair value of the common stock on the date of grant. |
115
Outstanding
Equity Awards at Fiscal Year-End 2009
The following table provides information on the current holdings
of stock options of the named executive officers. This table
includes unexercised and unvested options as of
December 31, 2009. Each equity grant is shown separately
for each named executive officer.
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|
Number of
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|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
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|
|
|
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Underlying
|
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|
Underlying
|
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Unexercised
|
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|
Unexercised
|
|
|
Option
|
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|
Option
|
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|
|
Options (#)
|
|
|
Options (#)
|
|
|
Exercise
|
|
|
Expiration
|
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Name
|
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Exercisable
|
|
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Unexercisable
|
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Price
|
|
|
Date
|
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|
Jerry Moyes
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Virginia Henkels
|
|
|
|
|
|
|
25,000
|
(1)
|
|
$
|
12.50
|
|
|
|
10/16/2017
|
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|
|
|
|
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|
125,000
|
(1)
|
|
$
|
13.43
|
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|
|
8/27/2018
|
|
Richard Stocking
|
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150,000
|
(2)
|
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$
|
12.50
|
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10/16/2017
|
|
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50,000
|
(2)
|
|
$
|
6.89
|
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|
12/31/2019
|
|
Rodney Sartor
|
|
|
|
|
|
|
150,000
|
(2)
|
|
$
|
12.50
|
|
|
|
10/16/2017
|
|
Kenneth Runnels
|
|
|
|
|
|
|
150,000
|
(2)
|
|
$
|
13.43
|
|
|
|
8/27/2018
|
|
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|
|
(1) |
|
The stock options are Tier II options and will vest upon
(A) the later of (i) the occurrence of an initial
public offering of Swift or (ii) a five-year vesting period
at a rate of
331/3%
beginning with the third anniversary date of the grant, or
(B) immediately upon a change in control. The grant dates
for Ms. Henkels awards of 25,000 stock options and
125,000 stock options were October 16, 2007 and
August 27, 2008, respectively. To the extent vested, the
options will become exercisable simultaneously with the closing
of the earlier of (i) an initial public offering,
(ii) a sale, or (iii) a change in control of Swift. |
|
(2) |
|
The stock options are Tier I options and will vest upon the
occurrence of the earliest of (i) a sale or a change in
control of Swift or (ii) a five-year vesting period at a
rate of
331/3%
beginning with the third anniversary date of the grant. The
grant dates for Mr. Stockings awards of 150,000 stock
options and 50,000 stock options were October 16, 2007 and
December 31, 2009, respectively. The grant date for
Mr. Sartors award of 150,000 stock options was
October 16, 2007. The grant date for
Mr. Runnelss award of 150,000 stock options was
August 27, 2008. To the extent vested, the options will
become exercisable simultaneously with the closing of the
earlier of (i) an initial public offering, (ii) a
sale, or (iii) a change in control of Swift. |
Option
Exercises and Stock Vested in 2009, 2008, and 2007
No named executive officer exercised stock options in 2009,
2008, or 2007.
Potential
Payments Upon Termination or Change in Control
We do not currently have employment, change in control, or
severance agreements with any of our named executive officers.
As described above under the heading What are the elements
of our compensation program? Long-term
incentives, pursuant to the named executive officers
individual option award agreements, options held by the named
executive officers all vest upon a change in control of Swift.
However, based on the estimated fair value of a share of our
common stock of $6.89 as of December 31, 2009, none of
these outstanding options had any spread value as of
that date.
Retirement
We do not provide any retirement benefits to our named executive
officers other than our 401(k) plan, which is available to all
employees meeting the plans basic eligibility requirements.
116
2007
Equity Incentive Plan
The following description summarizes the features of our 2007
equity incentive plan:
A total of 10,000,000 shares of common stock have been
reserved and are available for issuance under our 2007 equity
incentive plan. Of these, 7,757,500 are subject to outstanding
option grants and are not available for grant unless forfeited,
expired, or cancelled prior to exercise. Our 2007 equity
incentive plan is administered by the compensation committee or
such other committee as our board of directors may designate,
provided that following the offering the compensation committee
will consist of two or more non-employee directors
within the meaning of the applicable regulations under
Section 162(m) of the Internal Revenue Code (to the extent
this provision is applicable). The compensation committee
interprets our plan and may prescribe, amend, and rescind rules
and make all other determinations necessary or desirable for the
administration of our 2007 equity incentive plan. Our 2007
equity incentive plan permits the compensation committee to
select participants, to determine the terms and conditions of
awards, including but not limited to acceleration of the
vesting, exercise, or payment of an award, and the establishment
of other types of awards besides those specifically enumerated
in our 2007 equity incentive plan. Awards with respect to no
more than 1,000,000 shares may be made to any recipient in
any one calendar year.
The compensation committee may, in its sole discretion, grant
performance awards in the form of stock awards, awards of
performance units valued by reference to criteria established by
the compensation committee,
and/or cash
awards. In the event that the compensation committee grants a
performance award intended to constitute qualified
performance-based compensation within the meaning of
Section 162(m) of the Internal Revenue Code, the following
rules will apply:
(1) The award will be distributed only to the extent that
the applicable performance goals for the applicable performance
period are achieved, and such achievement is certified in
writing by the compensation committee following the completion
of the performance period.
(2) The performance goals will be established in writing by
the compensation committee not later than 90 days after the
commencement of the period of service to which the award relates
(but in no event after 25% of the period of service has elapsed).
(3) The performance goal(s) to which the award related may
be based on one or more of the following business criteria
applied to us:
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|
|
Operating revenue (including without limitation revenue per mile
or revenue per tractor) or net operating revenue
|
|
|
|
Fuel surcharges
|
|
|
|
Accounts receivable collection or days sales outstanding
|
|
|
|
Cost reductions and savings or limits on cost increases
|
|
|
|
Safety and claims (including without limitation accidents per
million miles and number of significant accidents)
|
|
|
|
Operating income
|
|
|
|
Operating ratio or Adjusted Operating Ratio
|
|
|
|
EBITDA or Adjusted EBITDA, as applicable
|
|
|
|
Income before taxes
|
|
|
|
Net income or adjusted net income
|
|
|
|
Earnings per share or adjusted earnings per share
|
|
|
|
Stock price
|
|
|
|
Working capital measures
|
|
|
|
Return on assets or return on revenues
|
|
|
|
Debt-to-equity
or
debt-to-capitalization
(with or without lease adjustment)
|
117
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|
|
|
Productivity and efficiency measures (including without
limitation driver turnover,
trailer-to-tractor
ratio, and
tractor-to-non-driver
ratio)
|
|
|
|
Cash position or cash flow measures (including without
limitation free cash flow)
|
|
|
|
Return on stockholders equity or return on invested capital
|
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|
Market share
|
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|
Economic value added
|
|
|
|
Completion of acquisitions (either with or without specified
size)
|
|
|
|
Personal goals or objectives, as established by the compensation
committee as it deems appropriate, including, without
limitation, implementation of our policies, negotiation of
significant corporate transactions, development of long-term
business goals or strategic plans for us, and exercise of
specific areas of managerial responsibility
|
We may issue stock options under our 2007 equity incentive plan.
These stock options may be incentive stock options
intended to qualify as such under Section 422 of the
Internal Revenue Code, or nonqualified stock options. The option
exercise price of all stock options granted under our plan shall
be no less than 100% of the fair market value of the common
stock on the date of grant. The term of stock options granted
under our 2007 equity incentive plan may not exceed ten years.
Each stock option will be exercisable at such time and pursuant
to such terms and conditions as determined by the compensation
committee. Incentive stock options issued under our 2007 equity
incentive plan must comply with Section 422 of the Internal
Revenue Code, including the $100,000 limitation on the aggregate
fair market value of incentive stock options first exercisable
by a participant during a calendar year.
Stock appreciation rights may be granted under our 2007 equity
incentive plan, either alone or in conjunction with all or part
of any option granted under our 2007 equity incentive plan.
Restricted stock or other share-based awards may be granted
under our 2007 equity incentive plan. Such stock awards may be
subject to performance criteria, and the length of the
applicable performance period, the applicable performance goals,
and the measure of attainment will be determined by the
compensation committee in its discretion.
We may issue restricted stock units, which are awards in the
form of a right to receive shares of our Class A common
stock on a future date. We also may grant performance units,
which are units valued by reference to designated criteria
established by the compensation committee, other than common
stock.
Absent a provision in our 2007 equity incentive plan or the
applicable award agreement to the contrary, payments of awards
issued under our 2007 equity incentive plan may, at the
discretion of the compensation committee, be made in cash,
Class A common stock, a combination of cash and
Class A common stock, or any other form of property as the
compensation committee shall determine.
In the event of a stock dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination,
or transaction or exchange of common stock or other corporate
exchange, or any similar transaction resulting in a change to
our capital structure, the compensation committee shall make
substitutions or adjustments to the maximum number of shares
available for issuance under our 2007 equity incentive plan, the
maximum award payable under our 2007 equity incentive plan, the
number of shares to be issued pursuant to outstanding awards,
the purchase or exercise prices of outstanding awards, and any
other affected terms of an award of our 2007 equity incentive
plan as the compensation committee in its sole discretion deems
appropriate, subject to compliance with Section 162(m) of
the Internal Revenue Code with respect to awards intended to
qualify thereunder as performance-based compensation.
Our 2007 equity incentive plan provides the compensation
committee with authority to amend or terminate our plan, but no
such action may materially and adversely affect the rights of a
participant with respect to previously-granted awards without
the participants consent. Stockholder approval of any such
action will be obtained if required to comply with applicable
law.
We intend to file with the SEC a registration statement on
Form S-8
covering the shares issuable under our 2007 equity incentive
plan.
118
Principal
Stockholders
Prior to this offering, all of the ownership interests in Swift
Corporation were owned by Mr. Moyes and the Moyes
Affiliates.
The following table sets forth information with respect to the
beneficial ownership of shares of our Class A common stock
and Class B common stock, as adjusted to reflect the sale
of shares of our Class A common stock in this offering, for:
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all of our executive officers and directors as a group;
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each of our named executive officers;
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each of our directors; and
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each beneficial owner of more than 5% of any class of our
outstanding shares.
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The percentage of beneficial ownership of our common stock
before this offering is based on 75,145,892 shares of common
stock issued and outstanding as of July 21, 2010. The
percentage of beneficial ownership of our common stock after
this offering is based
on shares
of common stock to be issued and outstanding after giving effect
to the shares of Class A common stock we are selling in
this offering. The table assumes that the underwriters will not
exercise their over-allotment option.
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Shares Beneficially Owned
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Shares Beneficially Owned
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Before the Offering
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After the Offering
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Percent
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Percent
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Percent
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Percent
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of Total
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of Total
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Class of
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of Total
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of Total
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Common
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Voting
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Common
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Common
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Voting
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Name and Address of Beneficial Owner(1)(2)
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Number
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Stock
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Power
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Stock
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Number
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Stock(3)
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Power(4)
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Named Executive Officers and Directors:
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Jerry Moyes(5)
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54,995,230
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73.2
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%
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73.2
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%
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B
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%
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%
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Virginia Henkels(6)
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25,000
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*
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*
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A
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%
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%
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Richard Stocking(7)
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150,000
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*
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*
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A
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%
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%
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Rodney Sartor(8)
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150,000
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*
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*
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A
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%
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%
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Kenneth Runnels
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A
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%
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%
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Richard H. Dozer
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A
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%
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%
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David Vander Ploeg
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A
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%
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%
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All executive officers and directors as a group (10 persons)
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55,320,230
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73.2
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%
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73.2
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%
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%
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%
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Other 5% Stockholders:
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Various Moyes Childrens Trusts(9)
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20,150,662
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26.8
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%
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26.8
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%
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B
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%
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%
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Represents less than 1% of the outstanding shares of our common
stock. |
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(1) |
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Except as otherwise indicated, addresses are
c/o Swift,
2200 South 75th Avenue, Phoenix, Arizona 85043. |
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(2) |
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Beneficial ownership is determined in accordance with the rules
of the SEC. In computing the number of shares beneficially owned
by a person and the percentage ownership of that person, shares
of our common stock subject to options or warrants held by that
person that are currently exercisable or exercisable within
60 days of July 21, 2010 are deemed outstanding, but
are not deemed outstanding for computing the percentage
ownership of any other person. These rules generally attribute
beneficial ownership of securities to persons who possess sole
or shared voting power or investment power with respect to such
securities. |
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(3) |
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Percent of total common stock represents the percentage of total
shares of outstanding Class A common stock and Class B
common stock. |
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Percent of total voting power represents voting power with
respect to all shares of our Class A common stock and
Class B common stock, as a single class. Each holder of
Class A common stock is generally entitled to one vote per
share of Class A common stock and each holder of
Class B common stock is |
119
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generally entitled to two votes per share of Class B common
stock on all matters submitted to our stockholders for a vote.
See Description of Capital Stock Common
Stock. |
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(5) |
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Consists of shares owned by Mr. Moyes, Mr. Moyes and
Vickie Moyes, jointly, and the Jerry and Vickie Moyes Family
Trust dated December 11, 1987, including
44,346,230 shares over which Mr. Moyes has sole voting
and dispositive power and 10,649,000 shares over which
Mr. Moyes has shared voting and dispositive power. Excludes
20,150,662 shares owned by the various Moyes childrens
trusts. |
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(6) |
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Consists of options to purchase 25,000 shares of our
Class A common stock exercisable upon the completion of
this offering. |
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(7) |
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Consists of options to purchase 150,000 shares of our
Class A common stock exercisable upon the completion of
this offering. |
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(8) |
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Consists of options to purchase 150,000 shares of our
Class A common stock exercisable upon the completion of
this offering. |
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(9) |
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Consists of (x) 3,387,843 shares owned by the Todd Moyes
Trust, 3,387,843 shares owned by the Hollie Moyes Trust,
3,387,843 shares owned by the Chris Moyes Trust,
3,287,045 shares owned by the Lyndee Moyes Nester Trust,
and 3,312,245 shares owned by the Marti Lyn Moyes Trust,
for each of which Michael J. Moyes is the trustee and for which
he has sole voting and dispositive power and (y) 3,387,843
shares owned by the Michael J. Moyes Trust. Lyndee Moyes Nester
is the trustee of the Michael J. Moyes Trust and has sole voting
and dispositive power with respect to shares held by the trust. |
120
Certain
Relationships and Related Party Transactions
Statement
of Policy Regarding Transactions with Related Persons
We have in place a written policy regarding the review and
approval of all transactions between Swift and any of our
executive officers, directors, and their affiliates. The policy
may only be amended by an affirmative vote of a majority of our
independent directors, including the affirmative vote of the
Chairman of our board of directors if the Chairman is an
independent director, or the lead independent director if the
Chairman is not an independent director.
Prior to entering into the related person transaction, the
related person must provide written notice to our legal
department and our Chief Financial Officer describing the facts
and circumstances of the proposed transaction.
If our legal department determines that the proposed transaction
is permissible, unless such transaction is required to be
approved by our board of directors under our certificate of
incorporation or any indenture or other agreement, the proposed
transaction will be submitted for consideration to our
nominating and corporate governance committee (exclusive of any
member related to the person effecting the transaction) at its
next meeting or, if not practicable or desirable, to the chair
of such committee.
Such committee or chair will consider the relevant facts and
circumstances, including but not limited to: the benefits to us;
the impact on a directors independence; the availability
of other sources for comparable products or services; the terms
of the transaction; and arms length nature of the
arrangement. The nominating and corporate governance committee
or the chair will approve only those transactions that are in,
or are not inconsistent with, the best interests of us and our
stockholders.
In addition, our amended and restated certificate of
incorporation provides that for so long as
(1) Mr. Moyes, Vickie Moyes, and their respective
estates, executors, and conservators, (2) any trust
(including the trustee thereof) established for the benefit of
Mr. Moyes, Vickie Moyes, or any children (including adopted
children) thereof, (3) any such children upon transfer from
Mr. Moyes or Vickie Moyes, or upon distribution from any
such trust or from the estates of Mr. Moyes or Vickie
Moyes, and (4) any corporation, limited liability company,
or partnership, the sole stockholders, members, or partners of
which are referred to in (1), (2), or (3) above, or
collectively, the Permitted Holders, hold in excess of 20% of
the voting power of Swift, Swift shall not enter into any
contract or transaction with any Permitted Holder or any
Moyes-affiliated entities unless such contract or transaction
shall have been approved by either (i) at least 75% of the
independent directors, including the affirmative vote of the
Chairman of our board of directors if the Chairman is an
independent director, or the lead independent director if the
Chairman is not an independent director or (ii) the holders
of a majority of the outstanding shares of Class A common
stock held by persons other than Permitted Holders or any
Moyes-affiliated entities. Independent director
means a director who is not a Permitted Holder or a director,
officer, or employee of any Moyes-affiliated entity and is
independent, as that term is defined in the listing
rules of the exchange on which we list our Class A common
stock as such rules may be amended from time to time.
Transactions
with Moyes-Affiliated Entities
We provide and receive freight services, facility leases,
equipment leases, and other services, including repair and
employee services to and from several companies controlled by
and/or
affiliated with Mr. Moyes. Competitive market rates based
on local market conditions are used for facility leases.
The rates we charge for freight services to each of these
companies for transportation services are market rates, which
are comparable to what we charge third-party customers. The
transportation services we provide to affiliated entities
provide us with an additional source of operating revenue at our
normal freight rates. Freight services received from affiliated
entities are brokered out at rates lower than the rate charged
to the customer, therefore allowing us to realize a profit.
These brokered loads make it possible for us to provide freight
services to customers even in areas that we do not serve,
providing us with an additional source of income.
Other services that we provided to Moyes-affiliated entities
included employee services provided by our personnel, including
accounting-related services and negotiations for parts
procurement, repair and other truck
121
stop services, and other services. The daily rates we charge for
employee-related services reflect market salaries for employees
performing similar work functions. Other payments we make to and
receive from Moyes-affiliated entities include fuel tank usage,
employee expense reimbursement, executive air transport, and
miscellaneous repair services.
Central
Freight Lines, Inc.
Mr. Moyes and the Moyes Affiliates are the principal
stockholders of Central Freight Lines, Inc., or Central Freight.
For the year ended December 31, 2009, the services we
provided to Central Freight included $3.9 million for
freight services and $0.7 million for facility leases. For
the same period, the services we received from Central Freight
included $0.1 million for freight services and
$0.4 million for facility leases. As of December 31,
2009, amounts owed to us by Central Freight totaled
$1.2 million.
For the year ended December 31, 2008, the services we
provided to Central Freight included $18.8 million for
freight services and $0.8 million for facility leases. For
the same period, the services received from Central Freight
included $0.5 million for facility leases. As of
December 31, 2008, amounts owed to us by Central Freight
totaled $0.8 million.
For the year ended December 31, 2007, the services we
provided to Central Freight included $8.0 million for
freight services, $0.5 million for facility leases, and
$0.2 million for equipment leases. For the same period, the
services we received from Central Freight included
$0.2 million for facility leases.
In 2006, IEL, which later became our wholly-owned subsidiary,
leased 94 tractors financed by Daimler Chrysler to Central
Freight. The total amount of the lease was $5.3 million,
payable in 50 monthly installments. On May 4, 2007,
the lease agreement was terminated and the related note payable
was transferred to Central Freight to assume the remaining
payments owed to Daimler Chrysler. However, according to the
transfer contract, Swift remains liable for the note payable
should Central Freight default on the agreement. In 2007, Swift
received $0.2 million in connection with the lease. There
were no amounts owed to us at December 31, 2009 and 2008
related to the lease.
Central
Refrigerated Holdings, Inc.
Mr. Moyes and the Moyes Affiliates are the principal
stockholders of Central Refrigerated Holdings, Inc., or Central
Refrigerated. For the year ended December 31, 2009, the
services we provided to Central Refrigerated included
$0.2 million for freight services. For the same period, the
services we received from Central Refrigerated included
$1.9 million for freight services.
For the year ended December 31, 2008, the services we
provided to Central Refrigerated included $0.3 million for
freight services. For the same period, the services we received
from Central Refrigerated included $0.6 million for freight
services.
For the year ended December 31, 2007, the services we
provided to Central Refrigerated included $0.7 million for
freight services and $0.4 million for equipment leases
discussed below.
IEL, which later became our wholly-owned subsidiary, entered
into equipment lease agreements with Central Refrigerated in May
2002, and with Central Leasing, Inc., or Central Leasing, a
subsidiary of Central Refrigerated, in February 2004. The leases
were terminated on July 11, 2007. Upon termination, several
tractors under the agreements were purchased by Central
Refrigerated and Central Leasing, while the remaining tractors
were returned to us. In 2007, we received $0.4 million in
connection with these leases. No amounts were due to us as of
December 31, 2009 and 2008 for the equipment lease or
equipment purchase.
In addition, in the second quarter of 2009, we entered into a
one-time agreement with Central Refrigerated to purchase 100
model year
2001-2002
Utility refrigerated trailers. The purchase price paid for the
trailers was comparable to the market price of similar model
year utility trailers according to the most recent auction value
guide at the time of the sale. The total amount that we paid to
Central Refrigerated for the equipment was $1.2 million.
There was no further amount due to Central Refrigerated for the
purchase of the trailers as of December 31, 2009.
122
Transpay
IEL contracts its employees from a third party, Transpay, Inc.,
or Transpay, which is partially owned by Mr. Moyes.
Transpay is responsible for all payroll-related liabilities and
employee benefits administration for IEL. For the years ended
December 31, 2009, 2008, and 2007, we paid Transpay
$1.0 million, $1.0 million, and $2.0 million,
respectively, for the employee services and administration fees.
As of December 31, 2009 and 2008, we had no outstanding
balance owing to Transpay for these services.
Swift
Motor Sports
Swift Motor Sports, a company affiliated with Mr. Moyes, is
obligor on a $1.7 million note with our wholly-owned
subsidiary, IEL, as of March 31, 2010. The note accrues
interest at 7.0% per annum with monthly installments of
principal and accrued interest equal to $38,000 through
October 10, 2013 when the remaining balance is due. This
note is guaranteed by Mr. Moyes. From January 1, 2009
through March 31, 2010, Swift Motor Sports paid Swift
$570,000 in principal and interest related to the note
receivable. Prior to the consummation of this offering, the note
will be cancelled or retired.
Other
affiliated entities
For the year ended December 31, 2009, the services provided
by us to other affiliated entities of Mr. Moyes, including
SME Industries, Inc. and Swift Air LLC, included
$0.3 million for freight services. For the same period, the
services received by Swift from these other affiliated entities
included $0.1 million for other services.
For the year ended December 31, 2008, the services that we
provided to these other affiliated entities included
$0.5 million for freight services.
Stockholder
Loan
On May 10, 2007, we entered into a stockholder loan
agreement with Mr. Moyes and certain of the Moyes
Affiliates under which they borrowed from us an aggregate
principal amount of $560 million. The terms of the
stockholder loan agreement were negotiated with the lenders who
provided the financing for the 2007 Transactions. Prior to the
consummation of this offering, the stockholder loan will be
cancelled or retired. See Reorganization.
The stockholder loan agreement has a $240.0 million
balance, $5.0 million of which is attributable to interest
on the principal amount, due from Mr. Moyes and certain of
the Moyes Affiliates as of March 31, 2010. The stockholder
loan matures in May 2018. Cash interest is due and payable only
to the extent we pay dividends or other cash distributions to
the stockholders to fund such interest. During 2009, 2008, 2007,
and the three months ended March 31, 2010, we paid
distributions on a quarterly basis totaling $16.4 million,
$33.8 million, $29.7 million, and $0.0 million,
respectively, to the stockholders. Interest accrues at the rate
of 2.66% and is added to the principal for payment at maturity
if not paid through a distribution.
In connection with the second amendment to our existing senior
secured credit facility, Mr. Moyes, at the request of our
lenders, agreed to cancel $125.8 million of personally-held
senior secured notes in return for a $325.0 million
reduction of the stockholder loan as follows: (i) the
senior secured floating-rate notes held by Mr. Moyes,
totaling $36.4 million in principal amount, were cancelled
on October 13, 2009 and, correspondingly, the stockholder
loan was reduced by $94.0 million and (ii) the senior
secured fixed rate notes held by Mr. Moyes, totaling
$89.4 million in principal amount, were cancelled in
January 2010 and the stockholder loan was reduced by an
additional $231.0 million. The amount of the stockholder
loan cancelled in exchange for the contribution of senior
secured notes was negotiated by Mr. Moyes with the steering
committee of lenders, comprised of a number of the largest
lenders (by holding size) and the administrative agent of our
existing senior secured credit facility. Due to the
classification of the stockholder loan as contra-equity, the
reduction in the stockholder loan did not increase our
stockholders deficit. The cancellation of senior secured
notes by Mr. Moyes reduced our stockholders deficit
by $125.8 million. Furthermore, the cancellation of the
remaining amount of the stockholder loan, which is contemplated
to occur in connection with the closing of this offering, will
not affect our stockholders deficit. Mr. Moyes and
the Moyes Affiliates will recognize income with respect to the
termination of the stockholder loan and they will be solely
responsible for the payment of taxes with respect to such income.
123
Stockholder
Distributions
On May 7, 2007, the board of directors of Swift Corporation
approved the distribution of personal vehicles valued at
approximately $1.6 million owned by its wholly-owned
subsidiary, IEL, to Swift Corporations stockholders, Jerry
and Vickie Moyes.
Registration
Rights
Upon completion of this offering, Mr. Moyes and the Moyes
Affiliates, representing an aggregate of 75,145,892 shares
of our Class B common stock, will be entitled to rights
with respect to the registration of such shares under the
Securities Act. For a further description of these rights, see
the section entitled Description of Capital
Stock Registration Rights.
Scudder
Law Firm, P.C., L.L.O.
We have obtained legal services from Scudder Law
Firm, P.C., L.L.O., or Scudder Law Firm. Earl Scudder, a
director of Swift until July 21, 2010, is a member of
Scudder Law Firm. The rates charged to us for legal services
reflect market rates charged by unrelated law firms for
comparable services. For the years ended December 31, 2009,
2008, and 2007, we incurred fees for legal services from Scudder
Law Firm, a portion of which was provided by Mr. Scudder,
in the amount of $0.8 million, $0.4 million, and
$1.2 million, respectively. As of December 31, 2009
and 2008, we had no outstanding balance owing to Scudder Law
Firm for these services.
124
Description
of Capital Stock
General
The following is a summary of the material rights of our capital
stock and related provisions of our amended and restated
certificate of incorporation and amended and restated bylaws.
The following description of our capital stock does not purport
to be complete and is subject to, and qualified in its entirety
by, our amended and restated certificate of incorporation and
amended and restated bylaws, which we have included as exhibits
to the registration statement of which this prospectus is a part.
Our amended and restated certificate of incorporation provides
for two classes of common stock: Class A common stock,
which has one vote per share, and Class B common stock,
which has two votes per share.
Our authorized capital stock consists
of shares,
par value $0.001 per share, of which:
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shares
are designated as Class A common stock;
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shares
are designated as Class B common stock; and
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shares
are designated as preferred stock.
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As of the date of this prospectus, we
had shares
of Class A common stock issued and outstanding
and shares
of Class B common stock issued and outstanding. As of the
date of this prospectus, we had no shares of preferred
stock issued and outstanding. As of the date of this prospectus,
we also had outstanding stock options to purchase an aggregate
of shares
of our Class A common stock.
Common
Stock
Voting
The holders of our Class A common stock are entitled to one
vote per share and the holders of our Class B common stock
are entitled to two votes per share on any matter to be voted
upon by the stockholders. Holders of Class A common stock
and Class B common stock vote together as a single class on
all matters (including the election of directors) submitted to a
vote of stockholders, unless otherwise required by law and
except a separate vote of each class will be required for:
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any merger or consolidation in which holders of shares of
Class A common stock receive consideration that is not
identical to consideration received by holders of Class B
common stock (provided that if such consideration includes
shares of stock, then no separate class vote will be required if
the shares to be received by holders of our Class B common
stock have two times the voting power of the shares of our
Class A common stock but are otherwise identical in their
rights and preferences);
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any amendment of our amended and restated certificate of
incorporation or amended and restated bylaws that alters
relative rights of our common stockholders; and
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any increase in the authorized number of shares of our
Class B common stock or the issuance of shares of our
Class B common stock, other than such increase or issuance
required of effect a stock split, stock dividend, or
recapitalization pro rata with any increase or issuance of
shares of our Class A common stock.
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In addition, a separate vote of the holders of Class A
common stock will be required for any merger or consolidation or
sale of substantially all of our assets to a Moyes-affiliated
entity or group.
No holder of shares of any class of common stock, now or
hereafter authorized, shall have the right to cumulate votes in
the election of directors of Swift or for any other purpose.
Dividends
Except as otherwise provided by law or by the amended and
restated certificate of incorporation, and subject to the
express terms of any series of shares of preferred stock, the
holders of shares of common stock
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shall be entitled, to the exclusion of the holders of shares of
preferred stock of any and all series, to receive such dividends
as from time to time may be declared by our board of directors.
Dividends and distributions shall be made at the same time, in
the same amount on shares of Class A and Class B
common stock (except that a dividend paid in the form of shares
of common stock or rights to purchase common stock will be paid
in Class A shares to holders of Class A common stock
and Class B shares to holders of Class B common
stock). See Dividend Policy.
Liquidation
In the event of any liquidation, dissolution, or winding up of
us, whether voluntary or involuntary, subject to the rights, if
any, of the holders of any outstanding series of preferred
stock, the holders of shares of common stock shall be entitled
to share ratably according to the number of shares of common
stock held by them in all remaining assets of us available for
distribution to its stockholders.
Conversion
Our Class A common stock is not convertible into any other
shares of our capital stock. Shares of Class B common stock
may be converted at any time by the holder thereof into shares
of Class A common stock on a
one-for-one
basis. The shares of Class B common stock will
automatically convert into shares of Class A common stock
on a
one-for-one
basis upon any transfer, whether or not for value, except for
transfers to a Permitted Holder. Shares of Class B common
stock that are converted into shares of Class A common
stock will be retired and restored to the status of authorized
but unissued shares of Class B common stock and be
available for reissue by us to Permitted Holders in connection
with any stock split, stock dividend or recapitalization pro
rata, with any issuance of shares of Class A common stock,
or otherwise only, subject to a vote by the holders of our
Class A and Class B common stock, voting separately as
a class. No class of common stock may be subdivided or combined
unless the other class of common stock concurrently is
subdivided or combined in the same proportion and in the same
manner.
The Class B common stock is not and will not be listed for
trading on any stock exchange. Therefore, no trading market is
expected to develop in the Class B common stock.
Preemptive
or similar rights
No holder of shares of our common stock of any class, now or
hereafter authorized, shall have any preferential or preemptive
right to subscribe for or purchase any shares of our common
stock of any class, now or hereafter authorized, or any options
or warrants for such shares, or any rights to subscribe to or
purchase such shares, or any securities convertible into or
exchangeable for such shares, which may at any time or from time
to time be issued, sold, or offered for sale by us.
Fully
paid and non-assessable
All the outstanding shares of Class A common stock and
Class B common stock and the shares of Class A common
stock offered by us in this offering will be fully paid and
non-assessable.
Preferred
Stock
The shares of preferred stock may be issued from time to time in
one or more series of any number of shares; provided, that the
aggregate number of shares of preferred stock authorized, and
with such powers, including voting powers, if any, and the
designations, preferences, and relative participating, optional,
or other special rights, if any, and any qualifications,
limitations, or restrictions thereof, all as shall hereafter be
stated and expressed in the resolution or resolutions providing
for the designation and issuance of such shares of preferred
stock from time to time adopted by the board, pursuant to
authority to do so that is vested expressly in the board. The
powers, including voting powers, if any, preferences and
relative participating, optional, and other special rights of
each series of preferred stock, and the qualifications,
limitations, or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
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Registration
Rights
Prior to the consummation of the offering, we will enter into a
registration rights agreement with Mr. Moyes and the Moyes
Affiliates with respect to shares of our Class B common stock
outstanding held by such parties. The registration rights
agreement will provide Mr. Moyes and the Moyes Affiliates
with an unlimited number of demand registrations and
customary piggyback registration rights. The
registration rights agreement will also provide that we will pay
certain expenses of Mr. Moyes and the Moyes Affiliates
relating to such registrations and indemnify them against
certain liabilities, which may arise under the Securities Act.
Certain
Provisions of Delaware Law and Certain Charter and Bylaws
Provisions
The following sets forth certain provisions of the Delaware
General Corporation Law, or the DGCL, and our amended and
restated certificate of incorporation and our amended and
restated bylaws.
Requirements
for advance notification of stockholder nominations and
proposals
Our amended and restated certificate of incorporation and
amended and restated bylaws establish advance notice procedures
with respect to stockholder proposals and the nomination of
candidates for election as directors, other than nominations
made by or at the direction of the board or a committee of the
board.
Stockholder
meetings
Our amended and restated certificate of incorporation and
amended and restated bylaws provide that special meetings of the
stockholders may be called for any purpose or purposes at any
time by a majority of the board or by the Chairman of our board
of directors, our Chief Executive Officer or our lead
independent director, if any. In addition, our amended and
restated certificate of incorporation will provide that a
holder, or a group of holders, of common stock holding more than
20% of the total voting power of the outstanding shares of
Class A common stock and Class B common stock voting
together as a single class may cause us to call a special
meeting of the stockholders for any purpose or purposes at any
time.
Action
by stockholders without a meeting
The DGCL permits stockholder action by written consent unless
otherwise provided by a corporations certificate of
incorporation. Our amended and restated certificate of
incorporation and amended and restated bylaws provide that,
except as specifically required by our amended and restated
certificate of incorporation and amended and restated bylaws or
the DGCL, any action required or permitted to be taken at a
meeting of the stockholders may be taken without a meeting,
without prior notice, and without a vote, if a consent in
writing, setting forth the action so taken, is signed by
stockholders holding at least a majority of the voting power
(except that if a different proportion of voting power is
required for such an action at a meeting, then that proportion
of written consents is required), and such consent is filed with
the minutes of the proceedings of the stockholders.
No
cumulative voting
The DGCL provides that stockholders are not entitled to the
right to cumulate votes in the election of directors unless a
corporations certificate of incorporation provides
otherwise. Our amended and restated certificate of incorporation
and amended and restated bylaws do not provide for cumulative
voting in the election of directors.
Director
removal
Except as may otherwise be required by the DGCL and except that
the director serving as Chairman of our board of directors can
only be removed as a director by the affirmative vote of a
majority of Class A common stock excluding Permitted
Holders and Moyes-affiliated entities, our amended and restated
certificate of incorporation and amended and restated bylaws do
not contain restrictions on the rights of stockholders to remove
directors from the board.
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Exclusive
jurisdiction
Our amended and restated certificate of incorporation provides
that the Delaware Court of Chancery shall be the exclusive forum
for any derivative action or proceeding brought on behalf of
Swift Holdings Corp., any action asserting a claim of breach of
fiduciary duty, and any action asserting a claim pursuant to the
DGCL, our amended and restated certificate of incorporation, our
amended and restated bylaws, or under the internal affairs
doctrine.
Section
203
In addition, we will be subject to Section 203 of the DGCL,
which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a
period of three years after the date that such stockholder
became an interested stockholder, with the following exceptions:
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before such date, our board of directors approved either the
business combination or the transaction that resulted in the
stockholder becoming an interested holder;
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upon completion of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction began,
excluding for purposes of determining the voting stock
outstanding (but not the outstanding voting stock owned by the
interested stockholder) those shares owned (i) by persons
who are directors and also officers and (ii) employee stock
plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or
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on or after such date, the business combination is approved by
the board of directors and authorized at an annual or special
meeting of the stockholders, and not by written consent, by the
affirmative vote of the holders of at least
662/3%
of the outstanding voting stock that is not owned by the
interested stockholder.
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In general, Section 203 defines business combination to
include the following:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, transfer, pledge, or other disposition of 10% or more
of the assets of the corporation involving the interested
stockholder;
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subject to certain exceptions, any transaction that results in
the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock or any class or
series of the corporation beneficially owned by the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges, or other financial
benefits by or through the corporation.
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In general, Section 203 defines an interested
stockholder as an entity or person who, together with the
persons affiliates and associates, beneficially owns, or
within three years prior to the time of determination of
interested stockholder status did own, 15% or more of the
outstanding voting stock of the corporation.
A Delaware corporation may opt out of
Section 203 with an expressed provision in its original
certificate of incorporation or an expressed provision in its
certificate of incorporation or bylaws resulting from amendments
approved by holders of at least a majority of the
corporations outstanding voting shares. We intend not to
elect to opt out of Section 203.
Affiliate
Transactions
Our amended and restated certificate of incorporation provides
that so long as Permitted Holders and any Moyes-affiliated
entities hold in excess of 20% of the total voting power of our
Class A common stock and Class B common stock, we
shall not enter into any contract or transaction with any
Permitted Holder or any
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Moyes-affiliated entities unless such contract or transaction
shall have been approved by either (i) at least 75% of the
Independent Directors including the Chairman of our board of
directors, or (ii) the holders of a majority of the
outstanding shares of Class A common stock held by persons
other than Permitted Holders or any Moyes-affiliated entities.
See Certain Relationships and Related Party
Transactions.
Corporate
Opportunity
In the event that any officer or director of Swift is also an
officer or director or employee of an entity owned by or
affiliated with any Permitted Holder and acquires knowledge of a
potential transaction or matter that may provide an investment
or business opportunity or prospective economic advantage not
involving the truck transportation industry or involving
refrigerated transportation or
less-than-truckload
transportation, each a corporate opportunity, or otherwise is
then exploiting any corporate opportunity, then unless such
corporate opportunity is expressly indicated in writing to be
offered to such person solely in his capacity as an officer or
director of Swift, we shall have no interest in such corporate
opportunity and no expectancy that such corporate opportunity be
offered to us, any such interest or expectancy being hereby
renounced, so that, as a result of such renunciation, and for
the avoidance of doubt, such officer or director (i) shall
have no duty to communicate or present such corporate
opportunity to us, (ii) shall have the right to hold any
such corporate opportunity for its own account or to recommend,
sell, assign, or transfer such corporate opportunity to an
entity owned by or affiliated with any Permitted Holder other
than us, and (iii) shall not breach any fiduciary duty to
us by reason of the fact that such officer or director pursues
or acquires such corporate opportunity for himself or herself,
directs, sells, assigns, or transfers such corporate opportunity
to an entity owned by or affiliated with any Permitted Holder,
or does not communicate information regarding such corporate
opportunity to us.
Limitation
on Liability and Indemnification of Officers and
Directors
Section 102(b)(7) of the DGCL provides that a corporation
may eliminate or limit the personal liability of a director to
the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a
director (i) for any breach of the directors duty of
loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL (regarding, among other things, the
payment of unlawful dividends), or (iv) for any transaction
from which the director derived an improper personal benefit.
Our amended and restated certificate of incorporation includes a
provision that eliminates the personal liability of directors
for monetary damages for breach of fiduciary duty as a director
to the fullest extent permitted by Delaware law.
In addition, our amended and restated certificate of
incorporation also provides that we must indemnify our directors
and officers to the fullest extent authorized by law. We also
are expressly required to advance certain expenses to our
directors and officers and to carry directors and
officers insurance providing indemnification for our
directors and officers for certain liabilities. We believe that
these indemnification provisions and the directors and
officers insurance are useful to attract and retain
qualified directors and executive officers.
Section 145(a) of the DGCL empowers a corporation to
indemnify any director, officer, employee, or agent, or former
director, officer, employee, or agent, who was or is a party or
is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in
the right of the corporation), by reason of his or her service
as a director, officer, employee, or agent of the corporation,
or his or her service, at the corporations request, as a
director, officer, employee, or agent of another corporation or
enterprise, against expenses (including attorneys fees),
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with such
action, suit, or proceeding, provided that such director or
officer acted in good faith and in a manner reasonably believed
to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or
proceeding, provided that such director or officer had no
reasonable cause to believe his conduct was unlawful.
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Section 145(b) of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action
or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person is
or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of
another enterprise, against expenses (including attorney fees)
actually and reasonably incurred in connection with the defense
or settlement of such action or suit provided that such director
or officer acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may
be made in respect of any claim, issue, or matter as to which
such director or officer shall have been adjudged to be liable
to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or
suit was brought shall determine, upon application, that,
despite the adjudication of liability but in view of all the
circumstances of the case, such director or officer is fairly
and reasonably entitled to indemnity for such expenses that the
court shall deem proper. Notwithstanding the preceding sentence,
except as otherwise provided in the bylaws, we shall be required
to indemnify any such person in connection with a proceeding (or
part thereof) commenced by such person only if the commencement
of such proceeding (or part thereof) by any such person was
authorized by our board of directors.
Listing
We intend to apply to list our Class A common stock for
trading on
the under
the symbol SWFT.
Transfer
Agent and Registrar
The transfer agent and registrar for our Class A common
stock
is .
130
Shares Eligible
for Future Sale
Prior to this offering, there has not been any public market for
our Class A common stock, and we make no prediction as to
the effect, if any, that market sales of shares of Class A
common stock or the availability of shares of Class A
common stock for sale will have on the market price of
Class A common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Class A
common stock in the public market, or the perception that such
sales could occur, could adversely affect the market price of
Class A common stock and could impair our future ability to
raise capital through the sale of equity securities.
Upon the completion of this offering, we will
have
outstanding shares of Class A common stock, assuming no
exercise of the underwriters over-allotment option and no
exercise of options outstanding as of the date of this
prospectus and 75,145,892 outstanding shares of Class B
common stock, which are convertible to shares of Class A
common stock on a one-for-one basis. Of the outstanding shares,
all of the shares sold in this offering, plus any additional
shares sold upon exercise of the underwriters
over-allotment option, will be freely tradable, except that any
shares purchased by affiliates (as that term is
defined in Rule 144 under the Securities Act) may only be
sold in compliance with the limitations described below. Taking
into consideration the effect of the
lock-up
agreements described below and the provisions of Rule 144
and Rule 701 under the Securities Act, the remaining shares
of our common stock will be available for sale in the public
market as follows:
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shares
will be eligible for sale on the date of this
prospectus; and
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shares
will be eligible for sale upon the expiration of the
lock-up
agreements described below.
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Lock-up
Agreements
We, our directors, executive officers, and the Moyes Affiliates
have entered into
lock-up
agreements in connection with this offering. For further
details, see the section entitled Underwriting.
Rule 144
In general, under Rule 144, as currently in effect, once we
have been subject to public company reporting requirements for
at least 90 days, a person who is not deemed to have been
one of our affiliates for purposes of the Securities Act at any
time during 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least
six months, including the holding period of any prior owner
other than our affiliates, is entitled to sell such shares
without complying with the manner of sale, volume limitation, or
notice provisions of Rule 144, subject to compliance with
the public information requirements of Rule 144. If such a
person has beneficially owned the shares proposed to be sold for
at least one year, including the holding period of any prior
owner other than our affiliates, then such person is entitled to
sell such shares without complying with any of the requirements
of Rule 144.
In general, under Rule 144, as currently in effect, our
affiliates or persons selling shares on behalf of our affiliates
are entitled to sell, upon expiration of the
lock-up
agreements described above, within any three-month period
beginning 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:
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1% of the number of shares of Class A common stock then
outstanding, which will equal
approximately shares
immediately after this offering; or
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the average weekly trading volume of the Class A common
stock during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
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Sales under Rule 144 by our affiliates or persons selling
shares on behalf of our affiliates are also subject to certain
manner of sale provisions and notice requirements and to the
availability of current public information about us.
Rule 701
Rule 701 generally allows a stockholder who purchased
shares of our Class A common stock pursuant to a written
compensation plan or contract and who is not deemed to have been
an affiliate of Swift during the
131
immediately preceding 90 days to sell these shares in
reliance upon Rule 144, but without being required to
comply with the public information and holding period provisions
of Rule 144. Rule 701 also permits affiliates of Swift
to sell their Rule 701 shares under Rule 144
without complying with the holding period requirements of
Rule 144. All holders of Rule 701 shares,
however, are required to wait until 90 days after the date
of this prospectus before selling such shares pursuant to
Rule 701.
Stock
Options
We intend to file a registration statement on
Form S-8
under the Securities Act covering all of the shares of our
Class A common stock subject to options outstanding or
reserved for issuance under our stock plans and shares of our
Class A common stock issued upon the exercise of options by
employees. We expect to file this registration statement as soon
as practicable after this offering. However, the shares
registered on
Form S-8
will be subject to volume limitations, manner of sale, notice,
and public information requirements of Rule 144, in the
case of our affiliates, and will not be eligible for resale
until expiration of the
lock-up
agreements to which they are subject.
Registration
Rights
Upon completion of this offering, Mr. Moyes and the Moyes
Affiliates, representing an aggregate of 75,145,892 shares
of our Class B common stock, will be entitled to rights
with respect to the registration of such shares under the
Securities Act. Registration of these shares under the
Securities Act would result in these shares becoming freely
tradeable without restriction immediately upon the effectiveness
of such registration. For a further description of these rights,
see the section entitled Description of Capital
Stock Registration Rights.
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Material
United States Federal Income Tax Consequences
to Non-U.S.
Holders
The following is a general discussion of the material
U.S. federal income tax considerations with respect to the
ownership and disposition of shares of our Class A common
stock applicable to
non-U.S. Holders
who acquire such shares in this offering and hold such shares as
a capital asset (generally, property held for investment). For
purposes of this discussion, a
non-U.S. Holder
generally means a beneficial owner of our Class A common
stock that is not, for U.S. federal income tax purposes, a
partnership and is not: (a) a citizen or individual
resident of the United States, (b) a corporation created or
organized in the United States or under the laws of the United
States, any state thereof, or the District of Columbia,
(c) an estate, the income of which is includible in gross
income for U.S. federal income tax purposes regardless of
its source, or (d) a trust if (i) a court within the
United States is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the
trust or (ii) such trust has made a valid election to be
treated as a U.S. person for U.S. federal income tax
purposes.
This discussion is based on current provisions of the Internal
Revenue Code, Treasury regulations promulgated thereunder,
judicial opinions, published positions of the Internal Revenue
Service, and other applicable authorities, all of which are
subject to change (possibly with retroactive effect). This
discussion does not address all aspects of U.S. federal
income taxation that may be important to a particular
non-U.S. Holder
in light of that
non-U.S. Holders
individual circumstances, nor does it address any aspects of
U.S. federal estate and gift, state, local, or
non-U.S. taxes.
This discussion may not apply, in whole or in part, to
particular
non-U.S. Holders
in light of their individual circumstances or to holders subject
to special treatment under the U.S. federal income tax
laws, such as insurance companies, tax-exempt organizations,
financial institutions, brokers or dealers in securities,
controlled foreign corporations, passive foreign investment
companies,
non-U.S. Holders
that hold our Class A common stock as part of a straddle,
hedge, conversion transaction, or other integrated investment,
and certain U.S. expatriates. Each prospective
non-U.S. Holder
is urged to consult its tax advisor regarding the
U.S. federal, state, local, and foreign income and other
tax consequences of the ownership, sale, or other disposition of
our Class A common stock.
If a partnership (or other entity or arrangement treated as a
partnership for U.S. federal income tax purposes) holds our
Class A common stock, the tax treatment of a partner will
generally depend on the status of the partner and the activities
of the partnership. Partners of a partnership holding our
Class A common stock should consult their tax advisor as to
the particular U.S. federal income tax consequences
applicable to them.
Dividends
In general, any distributions that we make to a
non-U.S. Holder
with respect to its shares of our Class A common stock that
constitutes a dividend for U.S. federal income tax purposes
will be subject to U.S. withholding tax at a rate of 30% of
the gross amount, unless the
non-U.S. Holder
is eligible for a reduced rate of withholding tax under an
applicable tax treaty and the
non-U.S. Holder
provides proper certification of its eligibility for such
reduced rate. A distribution will constitute a dividend for
U.S. federal income tax purposes to the extent of our
current or accumulated earnings and profits as determined for
U.S. federal income tax purposes. Any distribution not
constituting a dividend will be treated first as reducing the
adjusted basis in the
non-U.S. Holders
shares of our Class A common stock dollar for dollar and,
to the extent that such distribution exceeds the adjusted basis
in the
non-U.S. Holders
shares of our Class A common stock, as capital gain from
the sale or exchange of such shares. Any dividends that we pay
to a
non-U.S. Holder
that are effectively connected with its conduct of a trade or
business within the United States (and, if a tax treaty applies,
are attributable to a permanent establishment or fixed base
within the United States) generally will not be subject to
U.S. withholding tax, as described above, if the
non-U.S. Holder
complies with applicable certification and disclosure
requirements. Instead, such dividends generally will be subject
to U.S. federal income tax on a net income basis, in the
same manner as if the
non-U.S. Holder
were a resident of the United States. Dividends received by
a foreign corporation that are effectively connected with its
conduct of a trade or business within the United States may be
subject to an additional branch profits tax at a rate of 30% (or
such lower rate as may be specified by an applicable tax treaty).
133
Gain on
Sale or Other Disposition of Class A Common Stock
In general, a
non-U.S. Holder
will not be subject to U.S. federal income tax on any gain
realized upon the sale or other disposition of the
non-U.S. Holders
shares of our Class A common stock unless:
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the gain is effectively connected with a trade or business
carried on by the
non-U.S. Holder
within the United States (and, if required by an applicable tax
treaty, is attributable to a U.S. permanent establishment
or fixed base of such
non-U.S. Holder);
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the
non-U.S. Holder
is an individual and is present in the United States for
183 days or more in the taxable year of disposition and
certain other conditions are satisfied; or
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we are or have been a U.S. real property holding
corporation, or a USRPHC, for U.S. federal income tax
purposes at any time within the shorter of the five-year period
preceding such disposition or such
non-U.S. Holders
holding period of our Class A common stock.
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We do not believe that we have been or are likely to become a
USRPHC. Even if we were or were to become a USRPHC, however, a
non-U.S. Holder
who at no time directly, indirectly, or constructively, owned
more than 5% of the shares of our Class A common stock
generally would not be subject to U.S. federal income tax
on the disposition of such shares of Class A common stock,
provided that our Class A common stock was regularly traded
on an established securities market within the meaning of the
applicable regulations.
Gain that is effectively connected with the conduct of a trade
or business in the United States (or so treated) generally will
be subject to U.S. federal income tax, net of certain
deductions, at regular U.S. federal income tax rates. If
the
non-U.S. Holder
is a foreign corporation, the branch profits tax described above
also may apply to such effectively connected gain. An individual
non-U.S. Holder
who is subject to U.S. federal income tax because the
non-U.S. Holder
was present in the United States for 183 days or more
during the year of sale or other disposition of our Class A
common stock will be subject to a flat 30% tax on the gain
derived from such sale or other disposition, which gain may be
offset by U.S. source capital losses of such
non-U.S. Holder,
if any.
Backup
Withholding, Information Reporting, and Other Reporting
Requirements
We must report annually to the Internal Revenue Service, and to
each
non-U.S. Holder,
the amount of dividends paid to, and the tax withheld with
respect to, each
non-U.S. Holder.
These reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax
treaty. Copies of this information reporting may also be made
available under the provisions of a specific tax treaty or
agreement with the tax authorities in the country in which the
non-U.S. Holder
resides or is established.
A
non-U.S. Holder
will generally be subject to backup withholding for dividends on
our Class A common stock paid to such holder, unless such
holder certifies under penalties of perjury that, among other
things, it is a
non-U.S. Holder
(and the payor does not have actual knowledge or reason to know
that such holder is a U.S. person), or such holder
otherwise establishes an exemption.
Information reporting and backup withholding generally are not
required with respect to the amount of any proceeds from the
sale or other disposition of our Class A common stock by a
non-U.S. Holder
outside the United States through a foreign office of a foreign
broker that does not have certain specified connections to the
United States. However, if a
non-U.S. Holder
sells or otherwise disposes its shares of our Class A
common stock through a U.S. broker or the U.S. offices
of a foreign broker, the broker will generally be required to
report the amount of proceeds paid to the
non-U.S. Holder
to the Internal Revenue Service and also backup withhold on that
amount, unless such
non-U.S. Holder
provides appropriate certification to the broker of its status
as a
non-U.S. person
or otherwise establishes an exemption (and the payor does not
have actual knowledge or reason to know that such holder is a
U.S. person). Information reporting (but generally not
backup withholding) also will apply if a
non-U.S. Holder
sells its shares of our Class A common stock through a
foreign broker deriving more than a specified percentage of its
income from U.S. sources or having certain other
connections to the United States, unless such broker has
documentary evidence in its records that
134
such
non-U.S. Holder
is a
non-U.S. person
and certain other conditions are satisfied, or such
non-U.S. Holder
otherwise establishes an exemption (and the payor does not have
actual knowledge or reason to know that such holder is a
U.S. person).
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from a payment to a
non-U.S. Holder
can be credited against the
non-U.S. Holders
U.S. federal income tax liability, if any, or refunded,
provided that the required information is furnished to the
Internal Revenue Service in a timely manner.
Non-U.S. Holders
should consult their tax advisors regarding the application of
the information reporting and backup withholding rules to them.
Additional
Withholding Requirements
Recently enacted legislation will require, after
December 31, 2012, withholding at a rate of 30% on
dividends in respect of, and gross proceeds from the sale of,
our Class A common stock held by or through certain foreign
financial institutions (including investment funds), unless such
institution enters into an agreement with the Secretary of the
Treasury to report, on an annual basis, information with respect
to shares in the institution held by certain U.S. persons and by
certain non-U.S. entities that are wholly or partially owned by
U.S. persons. Accordingly, the entity through which our
Class A common stock is held will affect the determination
of whether such withholding is required. Similarly, dividends in
respect of, and gross proceeds from the sale of, our
Class A common stock held by an investor that is a
non-financial non-U.S. entity will be subject to withholding at
a rate of 30 percent, unless such entity either
(i) certifies to us that such entity does not have any
substantial United States owners or
(ii) provides certain information regarding the
entitys substantial United States owners,
which we will in turn provide to the Secretary of the Treasury.
Non-U.S. Holders
stockholders are encouraged to consult with their tax advisors
regarding the possible implications of the legislation on their
investment in our Class A common stock.
135
Certain
ERISA Considerations
The following discussion is a summary of certain considerations
associated with the purchase of our Class A common stock by
(i) employee benefit plans that are subject to Title I
of the Employee Retirement Income Security Act of 1974, as
amended, or ERISA, (ii) plans, individual retirement
accounts, and other arrangements that are subject to
Section 4975 of the Internal Revenue Code or provisions
under any other federal, state, local,
non-U.S., or
other laws or regulations that are similar to such provisions of
the ERISA or the Internal Revenue Code, and (iii) entities
whose underlying assets are considered to include plan
assets of such plans, accounts, and arrangements, or an
ERISA plan.
Section 406 of ERISA and Section 4975 of the Internal
Revenue Code prohibit ERISA plans from engaging in specified
transactions involving plan assets with persons or
entities who are parties in interest, within the
meaning of ERISA, or disqualified persons, within
the meaning of Section 4975 of the Internal Revenue Code,
unless an exemption is available. A party in interest or
disqualified person who engaged in a non-exempt prohibited
transaction may be subject to excise taxes and other penalties
and liabilities under ERISA and the Internal Revenue Code. In
addition, the fiduciary of the ERISA Plan that engaged in such a
non-exempt prohibited transaction may be subject to penalties
and liabilities under ERISA and the Internal Revenue Code.
Any ERISA Plan fiduciary that proposes to cause an ERISA plan to
purchase the shares of Class A common stock should consult
with its counsel regarding the applicability of the fiduciary
responsibility and prohibited transaction provisions of
Title I of ERISA and Section 4975 of the Internal
Revenue Code to such an investment, and to confirm that such
purchase will not constitute a non-exempt prohibited transaction
under ERISA or Section 4975 of the Internal Revenue Code.
Because of the nature of our business as an operating company,
it is not likely that we would be considered a party in interest
or a disqualified person with respect to any ERISA Plan.
However, a prohibited transaction within the meaning of ERISA
and the Internal Revenue Code may result if our Class A
common stock is acquired by an ERISA Plan to which an
underwriter is a party in interest and such acquisition is not
entitled to an applicable exemption, of which there are many.
Governmental plans, certain church plans, and foreign plans,
while not subject to the fiduciary responsibility or prohibited
transaction provisions of Title I of ERISA or
Section 4975 of the Internal Revenue Code, may nevertheless
be subject to other federal, state,
non-U.S., or
other laws that are substantially similar to the foregoing
provisions of Title I of ERISA or Section 4975 of the
Internal Revenue Code, or Similar Laws. Fiduciaries of any such
plans should consult with their counsel before purchasing our
shares of Class A common stock.
The foregoing discussion is general in nature and is not
intended to be all-inclusive. Due to the complexity of these
rules and the penalties that may be imposed upon persons
involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons
considering purchasing our shares of Class A common stock
on behalf of, or with the assets of, any ERISA plan, or any plan
subject to any Similar Law, consult with their counsel regarding
the matters described herein.
136
Underwriting
We are offering the shares of Class A common stock
described in this prospectus through a number of underwriters.
Morgan Stanley & Co. Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, and Wells Fargo
Securities, LLC are acting as joint book-running managers of the
offering and as representatives of the underwriters. We have
entered into an underwriting agreement with the underwriters.
Subject to the terms and conditions of the underwriting
agreement, we have agreed to sell to the underwriters, and each
underwriter has severally agreed to purchase, at the public
offering price less the underwriting discounts and commissions
set forth on the cover page of this prospectus, the number of
shares of Class A common stock listed next to its name in
the following table:
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Number of
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Name
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Shares
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Morgan Stanley & Co. Incorporated
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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Wells Fargo Securities, LLC
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Total
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The underwriters are committed to purchase all the common shares
offered by us if they purchase any shares, other than pursuant
to the over-allotment option described below. The underwriting
agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may also be
increased or the offering may be terminated.
The underwriters propose to offer the common shares directly to
the public at the initial public offering price set forth on the
cover page of this prospectus and to certain dealers at that
price less a concession not in excess of
$ per share. Any such dealers may
resell shares to certain other brokers or dealers at a discount
of up to $ per share from the
initial public offering price. After the initial public offering
of the shares, the offering price and other selling terms may be
changed by the underwriters. Sales of shares made outside of the
United States may be made by affiliates of the underwriters. The
representatives have advised us that the underwriters do not
intend to confirm discretionary sales in excess of 5% of the
common shares offered in this offering.
The underwriters have an option to buy up
to
additional shares of Class A common stock from us to cover
sales of shares by the underwriters that exceed the number of
shares specified in the table above. The underwriters have
30 days from the date of this prospectus to exercise this
over-allotment option. If any shares are purchased with this
over-allotment option, the underwriters will purchase shares in
approximately the same proportion as shown in the table above.
If any additional shares of Class A common stock are
purchased, the underwriters will offer the additional shares on
the same terms as those on which the shares are being offered.
The underwriting fee is equal to the public offering price per
share of Class A common stock less the amount paid by the
underwriters to us per share of Class A common stock. The
underwriting fee is $ per share.
The following table shows the per-share and total underwriting
discounts and commissions to be paid to the underwriters
assuming both no exercise and full exercise of the
underwriters option to purchase additional shares:
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Without
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With Full
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Over-Allotment
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Over-Allotment
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Exercise
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Exercise
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Per Share
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$
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$
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Total
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$
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$
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We estimate that the total expenses of this offering, including
registration, filing and listing fees, printing fees, and legal
and accounting expenses, but excluding the underwriting
discounts and commissions, will be approximately
$ .
A prospectus in electronic format may be made available on the
web sites maintained by one or more underwriters, or selling
group members, if any, participating in the offering. The
underwriters may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage
137
account holders. Internet distributions will be allocated by the
representatives to underwriters and selling group members that
may make Internet distributions on the same basis as other
allocations.
We have agreed that we will not (i) offer, pledge, announce
the intention to sell, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or
otherwise dispose of, directly or indirectly, or file with the
SEC a registration statement under the Securities Act relating
to, any shares of our Class A common stock or securities
convertible into or exchangeable or exercisable for any shares
of our Class A common stock, or publicly disclose the
intention to make any offer, sale, pledge, disposition, or
filing, or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences
associated with the ownership of any shares of Class A
common stock or any such other securities (regardless of whether
any of these transactions are to be settled by the delivery of
shares of Class A common stock or such other securities, in
cash or otherwise), in each case without the prior written
consent of Morgan Stanley & Co. Incorporated, Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Wells
Fargo Securities, LLC for a period of 180 days after the
date of this prospectus, other than the shares of our
Class A common stock to be sold hereunder and any shares of
our Class A common stock issued upon the exercise of
options granted under our 2007 equity incentive plan.
Notwithstanding the foregoing, if (1) during the last
17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to our company occurs; or
(2) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
Our directors and executive officers and the Moyes Affiliates
have entered into
lock-up
agreements with the underwriters prior to the commencement of
this offering pursuant to which each of these persons or
entities, with limited exceptions, for a period of 180 days
after the date of this prospectus, may not, without the prior
written consent of Morgan Stanley & Co. Incorporated,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
and Wells Fargo Securities, LLC (1) offer, pledge, announce
the intention to sell, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any
shares of our Class A common stock or any securities
convertible into or exercisable or exchangeable for our
Class A common stock (including, without limitation,
Class A common stock or such other securities that may be
deemed to be beneficially owned by such directors, executive
officers, managers, and members in accordance with the rules and
regulations of the SEC and securities that may be issued upon
exercise of a stock option or warrant) or (2) enter into
any swap or other agreement that transfers, in whole or in part,
any of the economic consequences of ownership of the
Class A common stock or such other securities, whether any
such transaction described in clause (1) or (2) above
is to be settled by delivery of Class A common stock or
such other securities, in cash or otherwise, or (3) make
any demand for or exercise any right with respect to the
registration of any shares of our Class A common stock or
any security convertible into or exercisable or exchangeable for
our Class A common stock. Notwithstanding the foregoing, if
(1) during the last 17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to our company occurs; or
(2) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act.
We will apply to have our Class A common stock approved for
trading
on
under the symbol SWFT.
In connection with this offering, the underwriters may engage in
stabilizing transactions, which involves making bids for,
purchasing, and selling shares of Class A common stock in
the open market for the purpose of preventing or retarding a
decline in the market price of the Class A common stock
while this offering is in
138
progress. These stabilizing transactions may include making
short sales of the Class A common stock, which involve the
sale by the underwriters of a greater number of shares of
Class A common stock than they are required to purchase in
this offering, and purchasing shares of Class A common
stock on the open market to cover positions created by short
sales. Short sales may be covered shorts, which are
short positions in an amount not greater than the
underwriters over-allotment option referred to above, or
may be naked shorts, which are short positions in
excess of that amount. The underwriters may close out any
covered short position either by exercising their over-allotment
option, in whole or in part, or by purchasing shares in the open
market. In making this determination, the underwriters will
consider, among other things, the price of shares available for
purchase in the open market compared to the price at which the
underwriters may purchase shares through the over-allotment
option. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the Class A common stock in the
open market that could adversely affect investors who purchase
in this offering. To the extent that the underwriters create a
naked short position, they will purchase shares in the open
market to cover the position.
The underwriters have advised us that, pursuant to
Regulation M of the Securities Act, they may also engage in
other activities that stabilize, maintain, or otherwise affect
the price of the Class A common stock, including the
imposition of penalty bids. This means that if the
representatives of the underwriters purchase Class A common
stock in the open market in stabilizing transactions or to cover
short sales, the representatives can require the underwriters
that sold those shares as part of this offering to repay the
underwriting discount received by them.
These activities may have the effect of raising or maintaining
the market price of the Class A common stock or preventing
or retarding a decline in the market price of the Class A
common stock, and, as a result, the price of the Class A
common stock may be higher than the price that otherwise might
exist in the open market. If the underwriters commence these
activities, they may discontinue them at any time. The
underwriters may carry out these transactions on the stock
exchange on which the Class A common stock is listed for
trading, in the
over-the-counter
market or otherwise.
Prior to this offering, there has been no public market for our
Class A common stock. The initial public offering price
will be determined by negotiations between us and the
representatives of the underwriters. In determining the initial
public offering price, we and the representatives of the
underwriters expect to consider a number of factors including:
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the information set forth in this prospectus and otherwise
available to the representatives;
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our prospects and the history and prospects for the industry in
which we compete;
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an assessment of our management;
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our prospects for future earnings;
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the general condition of the securities markets at the time of
this offering;
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the recent market prices of, and demand for, publicly traded
Class A common stock of generally comparable
companies; and
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other factors deemed relevant by the underwriters and us.
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Neither we nor the underwriters can assure investors that an
active trading market will develop for our common shares, or
that the shares will trade in the public market at or above the
initial public offering price.
Other than in the United States, no action has been taken by us
or the underwriters that would permit a public offering of the
securities offered by this prospectus in any jurisdiction where
action for that purpose is required. The securities offered by
this prospectus may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering
material or advertisements in connection with the offer and sale
of any such securities be distributed or published in any
jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that
jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and to observe any
restrictions relating to the offering and the distribution of
this prospectus. This prospectus does not constitute an offer to
sell or a
139
solicitation of an offer to buy any securities offered by this
prospectus in any jurisdiction in which such an offer or a
solicitation is unlawful.
Each of the underwriters may arrange to sell common shares
offered hereby in certain jurisdictions outside the United
States, either directly or through affiliates, where they are
permitted to do so. In that regard, Wells Fargo Securities, LLC
may arrange to sell shares in certain jurisdictions through an
affiliate, Wells Fargo Securities International Limited, or
WFSIL. WFSIL is a wholly-owned indirect subsidiary of Wells
Fargo & Company and an affiliate of Wells Fargo Securities,
LLC. WFSIL is a U.K. incorporated investment firm regulated
by the Financial Services Authority. Wells Fargo Securities is
the trade name for certain corporate and investment banking
services of Wells Fargo & Company and its affiliates,
including Wells Fargo Securities, LLC and WFSIL.
This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom or
(ii) to investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005, or the Order, or
(iii) high net worth entities, and other persons to whom it
lawfully may be communicated, falling with Article 49(2)(a)
to (d) of the Order (all such persons together being
referred to as relevant persons). The securities are
only available to, and any invitation, offer, or agreement to
subscribe, purchase, or otherwise acquire such securities will
be engaged in only with, relevant persons. Any person who is not
a relevant person should not act or rely on this document or any
of its contents.
In relation to each Member State of the European Economic Area
that has implemented the Prospectus Directive (each, a
Relevant Member State), from and including the date
on which the European Union Prospectus Directive, or the EU
Prospectus Directive, is implemented in that Relevant Member
State, or the Relevant Implementation Date, an offer of
securities described in this prospectus may not be made to the
public in that Relevant Member State prior to the publication of
a prospectus in relation to the shares, which has been approved
by the competent authority in that Relevant Member State or,
where appropriate, approved in another Relevant Member State and
notified to the competent authority in that Relevant Member
State, all in accordance with the EU Prospectus Directive,
except that it may, with effect from and including the Relevant
Implementation Date, make an offer of shares to the public in
that Relevant Member State at any time:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000;
and (3) an annual net turnover of more than
50,000,000, as shown in its last annual or consolidated
accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the EU Prospectus Directive) subject to
obtaining the prior consent of the book-running managers for any
such offer; or
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in any other circumstances which do not require the publication
by us of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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For the purposes of this provision, the expression an
offer of securities to the public in relation to any
securities in any Relevant Member State means the communication
in any form and by any means of sufficient information on the
terms of the offer and the securities to be offered so as to
enable an investor to decide to purchase or subscribe for the
securities, as the same may be varied in that Member State by
any measure implementing the EU Prospectus Directive in that
Member State and the expression EU Prospectus Directive means
Directive 2003/71/EC and includes any relevant implementing
measure in each Relevant Member State.
This document does not constitute a prospectus within the
meaning of Art. 652a of the Swiss Code of Obligations. The
shares of common stock may not be sold directly or indirectly in
or into Switzerland except in a manner which will not result in
a public offering within the meaning of the Swiss Code of
Obligations. Neither this document nor any other offering
materials relating to the shares of common stock may be
distributed, published, or otherwise made available in
Switzerland except in a manner which will not constitute a
public offer of the shares of common stock in Switzerland.
140
The offering of the securities has not been registered pursuant
to the Italian securities legislation and, accordingly, we have
not offered or sold, and will not offer or sell, any securities
in the Republic of Italy in a solicitation to the public, and
that sales of the securities in the Republic of Italy shall be
effected in accordance with all Italian securities, tax, and
exchange control and other applicable laws and regulations. In
any case, the securities cannot be offered or sold to any
individuals in the Republic of Italy either in the primary
market or the secondary market.
We will not offer, sell, or deliver any securities or distribute
copies of this prospectus or any other document relating to the
securities in the Republic of Italy except to Professional
Investors, as defined in Article 31.2 of CONSOB
Regulation No. 11522 of 2 July 1998 as amended,
or Regulation No. 11522, pursuant to Article 30.2
and 100 of Legislative Decree No. 58 of 24 February
1998 as amended, or Decree No. 58, or in any other
circumstances where an expressed exemption to comply with the
solicitation restrictions provided by Decree No. 58 or
Regulation No. 11971 of 14 May 1999 as amended
applies, provided, however, that any such offer, sale, or
delivery of the securities or distribution of copies of the
prospectus or any other document relating to the securities in
the Republic of Italy must be:
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made by investment firms, banks, or financial intermediaries
permitted to conduct such activities in the Republic of Italy in
accordance with Legislative Decree No. 385 of
1 September 1993, as amended, or Decree No. 385,
Decree No. 58, CONSOB Regulation No. 11522, and
any other applicable laws and regulations;
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in compliance with Article 129 of Decree No. 385 and
the implementing instructions of the Bank of Italy, pursuant to
which the issue, trading, or placement of securities in Italy is
subject to a prior notification to the Bank of Italy, unless an
exemption, depending, inter alia, on the aggregate amount and
the characteristics of the securities issued or offered in the
Republic of Italy, applies; and
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in compliance with any other applicable notification requirement
or limitation which may be imposed by CONSOB or the Bank of
Italy.
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Certain of the underwriters and their affiliates have provided
in the past to us and our affiliates and may provide from time
to time in the future certain commercial banking, financial
advisory, investment banking, and other services for us and such
affiliates in the ordinary course of their business, for which
they have received and may continue to receive customary fees
and commissions. Morgan Stanley Senior Funding Inc., an
affiliate of Morgan Stanley & Co. Incorporated, is the
administrative agent under our existing senior secured credit
facility and affiliates of each of the joint book-running
managers are lenders thereunder and, consequently, will receive
a portion of the net proceeds of this offering. In the future,
affiliates of each joint book-running manager will be lenders
under our new senior secured credit facility. In addition, from
time to time, certain of the underwriters and their affiliates
may effect transactions for their own account or the account of
customers, and hold on behalf of themselves or their customers,
long or short positions in our debt or equity securities or
loans, and may do so in the future.
Certain of the underwriters and their affiliates have provided
in the past to Mr. Moyes and his affiliates and may provide from
time to time in the future certain commercial banking, financial
advisory, investment banking, and other services for Mr. Moyes
and other entities with which he is affiliated in the ordinary
course of their business, for which they have received and may
continue to receive customary fees and commissions. We are not a
party to any of these transactions.
141
Legal
Matters
The validity of the shares of Class A common stock offered
hereby will be passed upon for us by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York. Certain legal
matters will be passed upon for us by Scudder Law
Firm, Lincoln, Nebraska. The validity of the shares of
Class A common stock offered hereby will be passed upon for
the underwriters by Simpson Thacher & Bartlett LLP,
New York, New York.
Experts
The consolidated financial statements of Swift Corporation and
subsidiaries as of December 31, 2009 and 2008 and for each
of the years in the three-year period ended December 31,
2009, the consolidated financial statements of Swift
Transportation Co., Inc. and subsidiaries as of May 10,
2007 and December 31, 2006 and for the period from
January 1, 2007 to May 10, 2007, and the financial
statements of Swift Holdings Corp. as of July 2, 2010 have
been included herein in reliance upon the reports of KPMG LLP,
independent registered public accounting firm, appearing
elsewhere herein upon the authority of said firm as experts in
accounting and auditing.
The audit report covering the December 31, 2009
consolidated financial statements refers to the adoption of
Statement of Financial Accounting Standards No. 157, Fair
Value Measurements, included in Financial Accounting Standards
Board Accounting Standards Codification Topic 820, Fair
Value Measurements and Disclosures.
Where You
Can Find More Information
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the shares of
Class A common stock we are offering. The registration
statement, including the attached exhibits and schedules,
contains additional relevant information about us and our
Class A common stock. This prospectus does not contain all
of the information set forth in the registration statement and
the exhibits and schedules thereto. The rules and regulations of
the SEC allow us to omit from this prospectus certain
information included in the registration statement.
For further information about us and our Class A common
stock, you may inspect a copy of the registration statement and
the exhibits and schedules to the registration statement without
charge at the offices of the SEC at 100 F Street,
N.E., Washington, D.C. 20549. You may obtain copies of all
or any part of the registration statement from the Public
Reference Section of the SEC, 100 F Street, N.E.,
Washington, D.C. 20549 upon the payment of the prescribed
fees. You may obtain information on the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains a website at www.sec.gov that contains
reports, proxy and information statements, and other information
regarding registrants like us that file electronically with the
SEC. You can also inspect our registration statement on this
website.
Upon completion of this offering, we will become subject to the
reporting and information requirements of the Exchange Act, and
we will file reports, proxy statements, and other information
with the SEC.
142
Index to
Consolidated Financial Statements
|
|
|
|
|
Page
|
|
|
Number
|
|
Unaudited Financial Statements of Swift Corporation
(successor)
|
|
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
|
Audited Financial Statements of Swift Corporation
(successor)
|
|
|
|
|
F-21
|
|
|
F-22
|
|
|
F-23
|
|
|
F-24
|
|
|
F-25
|
|
|
F-26
|
|
|
F-28
|
|
|
|
Audited Financial Statements of Swift Transportation Co.,
Inc. (predecessor)
|
|
|
|
|
F-62
|
|
|
F-63
|
|
|
F-64
|
|
|
F-65
|
|
|
F-66
|
|
|
F-67
|
|
|
F-68
|
|
|
|
Audited Financial Statements of Swift Holdings Corp.
(registrant)
|
|
|
|
|
F-85
|
|
|
F-86
|
|
|
F-87
|
F-1
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
87,327
|
|
|
$
|
115,862
|
|
Restricted cash
|
|
|
48,871
|
|
|
|
24,869
|
|
Accounts receivable, net
|
|
|
269,392
|
|
|
|
21,914
|
|
Retained interest in accounts receivable
|
|
|
|
|
|
|
79,907
|
|
Income tax refund receivable
|
|
|
1,843
|
|
|
|
1,436
|
|
Equipment sales receivable
|
|
|
2,498
|
|
|
|
208
|
|
Inventories and supplies
|
|
|
9,414
|
|
|
|
10,193
|
|
Assets held for sale
|
|
|
7,929
|
|
|
|
3,571
|
|
Prepaid taxes, licenses, insurance and other
|
|
|
46,349
|
|
|
|
42,365
|
|
Deferred income taxes
|
|
|
48,820
|
|
|
|
49,023
|
|
Other current assets
|
|
|
4,606
|
|
|
|
4,523
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
527,049
|
|
|
|
353,871
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
Revenue and service equipment
|
|
|
1,494,107
|
|
|
|
1,488,953
|
|
Land
|
|
|
142,126
|
|
|
|
142,126
|
|
Facilities and improvements
|
|
|
224,541
|
|
|
|
222,751
|
|
Furniture and office equipment
|
|
|
33,092
|
|
|
|
32,726
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
1,893,866
|
|
|
|
1,886,556
|
|
Less: accumulated depreciation and amortization
|
|
|
566,656
|
|
|
|
522,011
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
1,327,210
|
|
|
|
1,364,545
|
|
Insurance claims receivable
|
|
|
40,775
|
|
|
|
45,775
|
|
Other assets
|
|
|
106,712
|
|
|
|
107,211
|
|
Intangible assets, net
|
|
|
383,737
|
|
|
|
389,216
|
|
Goodwill
|
|
|
253,256
|
|
|
|
253,256
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,638,739
|
|
|
$
|
2,513,874
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
85,359
|
|
|
$
|
70,934
|
|
Accrued liabilities
|
|
|
135,216
|
|
|
|
110,662
|
|
Current portion of claims accruals
|
|
|
101,380
|
|
|
|
92,280
|
|
Current portion of long-term debt and obligations under capital
leases
|
|
|
56,369
|
|
|
|
46,754
|
|
Fair value of guarantees
|
|
|
2,886
|
|
|
|
2,519
|
|
Current portion of fair value of interest rate swaps
|
|
|
44,714
|
|
|
|
47,244
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
425,924
|
|
|
|
370,393
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and obligations under capital leases
|
|
|
2,325,812
|
|
|
|
2,420,180
|
|
Claims accruals, less current portion
|
|
|
151,269
|
|
|
|
166,718
|
|
Fair value of interest rate swaps, less current portion
|
|
|
34,689
|
|
|
|
33,035
|
|
Deferred income taxes
|
|
|
360,333
|
|
|
|
383,795
|
|
Securitization of accounts receivable
|
|
|
150,000
|
|
|
|
|
|
Other liabilities
|
|
|
9,066
|
|
|
|
5,534
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,457,093
|
|
|
|
3,379,655
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 12)
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.001 per share Authorized
1,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock, par value $.001 per share Authorized
200,000,000 shares; 75,145,892 shares issued at
March 31, 2010 and December 31, 2009
|
|
|
75
|
|
|
|
75
|
|
Additional paid-in capital
|
|
|
279,136
|
|
|
|
419,105
|
|
Accumulated deficit
|
|
|
(812,937
|
)
|
|
|
(759,936
|
)
|
Stockholder loans receivable
|
|
|
(241,678
|
)
|
|
|
(471,113
|
)
|
Accumulated other comprehensive loss
|
|
|
(43,052
|
)
|
|
|
(54,014
|
)
|
Noncontrolling interest
|
|
|
102
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(818,354
|
)
|
|
|
(865,781
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
2,638,739
|
|
|
$
|
2,513,874
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-2
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
Operating revenue
|
|
$
|
654,830
|
|
|
$
|
614,756
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits
|
|
|
177,803
|
|
|
|
189,377
|
|
Operating supplies and expenses
|
|
|
47,830
|
|
|
|
56,723
|
|
Fuel
|
|
|
106,082
|
|
|
|
85,868
|
|
Purchased transportation
|
|
|
175,702
|
|
|
|
135,753
|
|
Rental expense
|
|
|
18,903
|
|
|
|
20,391
|
|
Insurance and claims
|
|
|
20,207
|
|
|
|
25,481
|
|
Depreciation, amortization and impairments
|
|
|
66,771
|
|
|
|
67,471
|
|
Gain on disposal of property and equipment
|
|
|
(1,448
|
)
|
|
|
(19
|
)
|
Communication and utilities
|
|
|
6,422
|
|
|
|
7,091
|
|
Operating taxes and licenses
|
|
|
13,365
|
|
|
|
14,381
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
631,637
|
|
|
|
602,517
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
23,193
|
|
|
|
12,239
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
62,596
|
|
|
|
47,702
|
|
Derivative interest expense
|
|
|
23,714
|
|
|
|
7,549
|
|
Interest income
|
|
|
(220
|
)
|
|
|
(428
|
)
|
Other
|
|
|
(371
|
)
|
|
|
675
|
|
|
|
|
|
|
|
|
|
|
Total other (income) expenses, net
|
|
|
85,719
|
|
|
|
55,498
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(62,526
|
)
|
|
|
(43,259
|
)
|
Income tax (benefit) expense
|
|
|
(9,525
|
)
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(53,001
|
)
|
|
$
|
(43,560
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.71
|
)
|
|
$
|
(0.58
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma C corporation data:
|
|
|
|
|
|
|
|
|
Historical loss before income taxes
|
|
|
N/A
|
|
|
$
|
(43,259
|
)
|
Pro forma provision for income taxes
|
|
|
N/A
|
|
|
|
2,259
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
|
N/A
|
|
|
$
|
(45,518
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma basic and diluted loss per share
|
|
|
N/A
|
|
|
$
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Net loss
|
|
$
|
(53,001
|
)
|
|
$
|
(43,560
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Change in unrealized losses on cash flow hedges
|
|
|
10,962
|
|
|
|
(11,180
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(42,039
|
)
|
|
$
|
(54,740
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Stockholder
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Par
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Loans
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Receivable
|
|
|
Loss
|
|
|
Interest
|
|
|
Deficit
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except share data)
|
|
|
Balances, December 31, 2009
|
|
|
75,145,892
|
|
|
$
|
75
|
|
|
$
|
419,105
|
|
|
$
|
(759,936
|
)
|
|
$
|
(471,113
|
)
|
|
$
|
(54,014
|
)
|
|
$
|
102
|
|
|
$
|
(865,781
|
)
|
Interest accrued on stockholder loan
|
|
|
|
|
|
|
|
|
|
|
1,650
|
|
|
|
|
|
|
|
(1,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrued and proceeds from repayment of related party
note receivable
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
Change in unrealized losses on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,962
|
|
|
|
|
|
|
|
10,962
|
|
Reduction of stockholder loan (see Note 11)
|
|
|
|
|
|
|
|
|
|
|
(231,000
|
)
|
|
|
|
|
|
|
231,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of fixed rate notes (see Note 6)
|
|
|
|
|
|
|
|
|
|
|
89,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,352
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2010
|
|
|
75,145,892
|
|
|
$
|
75
|
|
|
$
|
279,136
|
|
|
$
|
(812,937
|
)
|
|
$
|
(241,678
|
)
|
|
$
|
(43,052
|
)
|
|
$
|
102
|
|
|
$
|
(818,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(53,001
|
)
|
|
$
|
(43,560
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
68,754
|
|
|
|
68,965
|
|
(Gain) loss on disposal of property and equipment less write-off
of totaled tractors
|
|
|
(1,261
|
)
|
|
|
447
|
|
Impairment of property and equipment
|
|
|
1,274
|
|
|
|
515
|
|
Gain on securitization
|
|
|
|
|
|
|
(562
|
)
|
Deferred income taxes
|
|
|
(23,259
|
)
|
|
|
(168
|
)
|
Provision for losses on accounts receivable
|
|
|
(1,171
|
)
|
|
|
435
|
|
Income effect of
mark-to-market
adjustment of interest rate swaps
|
|
|
11,127
|
|
|
|
(2,062
|
)
|
Increase (decrease) in cash resulting from changes in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(18,400
|
)
|
|
|
3,847
|
|
Inventories and supplies
|
|
|
778
|
|
|
|
920
|
|
Prepaid expenses and other current assets
|
|
|
(4,391
|
)
|
|
|
(7,286
|
)
|
Other assets
|
|
|
2,699
|
|
|
|
(13,050
|
)
|
Accounts payable, accrued and other liabilities
|
|
|
31,958
|
|
|
|
(1,065
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
15,107
|
|
|
|
7,376
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Increase in restricted cash
|
|
|
(24,002
|
)
|
|
|
(3,249
|
)
|
Proceeds from sale of property and equipment
|
|
|
4,684
|
|
|
|
2,381
|
|
Capital expenditures
|
|
|
(17,155
|
)
|
|
|
(12,551
|
)
|
Payments received on notes receivable
|
|
|
1,345
|
|
|
|
1,188
|
|
Expenditures on assets held for sale
|
|
|
(574
|
)
|
|
|
(1,509
|
)
|
Payments received on assets held for sale
|
|
|
363
|
|
|
|
2,149
|
|
Payments received on equipment sale receivables
|
|
|
208
|
|
|
|
4,930
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(35,131
|
)
|
|
|
(6,661
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment of long-term debt and capital leases
|
|
|
(10,625
|
)
|
|
|
(4,846
|
)
|
Repayment of short-term notes payable
|
|
|
|
|
|
|
(1,978
|
)
|
Proceeds from long-term debt and capital leases
|
|
|
|
|
|
|
4,897
|
|
Borrowings under accounts receivable securitization
|
|
|
40,000
|
|
|
|
|
|
Repayment of accounts receivable securitization
|
|
|
(38,000
|
)
|
|
|
|
|
Distributions to stockholders
|
|
|
|
|
|
|
(6,204
|
)
|
Interest payments received on stockholder loan receivable
|
|
|
|
|
|
|
6,204
|
|
Payments received on stockholder loan from affiliate
|
|
|
114
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(8,511
|
)
|
|
|
(1,825
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(28,535
|
)
|
|
|
(1,110
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
115,862
|
|
|
|
57,916
|
|
Cash and cash equivalents at end of period
|
|
$
|
87,327
|
|
|
$
|
56,806
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
58,748
|
|
|
$
|
38,679
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
13,214
|
|
|
$
|
1,059
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of:
|
|
|
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
Equipment sales receivables
|
|
$
|
2,498
|
|
|
$
|
2,649
|
|
|
|
|
|
|
|
|
|
|
Equipment purchase accrual
|
|
$
|
17,120
|
|
|
$
|
1,257
|
|
|
|
|
|
|
|
|
|
|
Notes receivable from sale of assets
|
|
$
|
1,792
|
|
|
$
|
1,129
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
Re-recognition of securitized accounts receivable
|
|
$
|
148,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease additions
|
|
$
|
15,236
|
|
|
$
|
20,980
|
|
|
|
|
|
|
|
|
|
|
Insurance premium notes payable
|
|
$
|
|
|
|
$
|
6,205
|
|
|
|
|
|
|
|
|
|
|
Cancellation of senior notes
|
|
$
|
89,352
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in stockholder loan
|
|
$
|
231,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in-kind
interest on stockholder loan
|
|
$
|
1,650
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
Swift
Corporation and Subsidiaries
Note 1. Basis
of presentation
Swift Corporation is the holding company for Swift
Transportation Co., LLC (a Delaware limited liability company,
formerly Swift Transportation Co., Inc., a Nevada corporation)
and its subsidiaries (collectively, Swift Transportation
Co.), a truckload carrier headquartered in Phoenix,
Arizona which was acquired by Swift Corporation on May 10,
2007, and Interstate Equipment Leasing LLC (a Delaware limited
liability company, formerly Interstate Equipment Leasing, Inc.,
an Arizona corporation, IEL), of which the shares of
capital stock were contributed to Swift Corporation on
April 7, 2007 (all the foregoing being, collectively,
Swift or the Company).
The Company operates predominantly in one industry, road
transportation, throughout the continental United States and
Mexico and thus has only one reportable segment. The Company
operates a national terminal network and a fleet of
approximately 16,200 tractors, 49,400 trailers and 4,300
intermodal containers.
In the opinion of management, the accompanying financial
statements include all adjustments necessary for the fair
presentation of the interim periods presented. These interim
financial statements should be read in conjunction with the
Companys annual financial statements for the year ended
December 31, 2009. Management has evaluated the effect on
the Companys reported financial condition and results of
operations of events subsequent to March 31, 2010 through
the issuance of the financial statements on April 30, 2010,
and has updated their evaluation of subsequent events through
the filing date on July 21, 2010.
Note 2. New
accounting standards
In January 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
(ASU)
No. 2010-06,
Fair Value Measurements and Disclosures (Topic
820) Improving Disclosures about Fair Value
Measurements. This ASU amends the FASB Accounting
Standards Codification Topic (Topic) 820 to require
entities to provide new disclosures and clarify existing
disclosures relating to fair value measurements. New disclosures
include requiring an entity to disclose separately the amounts
of significant transfers in and out of Level 1 and 2 fair
value measurements and to describe the reasons for the
transfers, as well as to disclose separately gross purchases,
sales, issuances and settlements in the roll forward activity of
Level 3 measurements. Clarifications of existing
disclosures include requiring a greater level of disaggregation
of fair value measurements by class of assets and liabilities,
in addition to enhanced disclosures concerning the inputs and
valuation techniques used to determine Level 2 and
Level 3 fair value measurements. ASU
No. 2010-06
is effective for the Companys interim and annual periods
beginning January 1, 2010, except for the additional
disclosure of purchases, sales, issuances, and settlements in
Level 3 fair value measurements, which is effective for the
Companys fiscal year beginning January 1, 2011. The
adaption of the portions of this statement effective for the
Company on January 1, 2010 did not have a material impact
on the Companys consolidated financial statements.
Further, the Company does not expect the adoption in January
2011 of the remaining portion of this statement to have a
material impact on its consolidated financial statements.
Until October 10, 2009, the Company had elected to be taxed
under the Internal Revenue Code as a subchapter
S Corporation. Under subchapter S provisions, the Company
did not pay corporate income taxes on its taxable income.
Instead, the stockholders were liable for federal and state
income taxes on the taxable income of the Company, and the
Company was permitted to distribute 39% of its taxable income to
the stockholders to fund such tax obligations. An income tax
provision or benefit was recorded for certain of the
Companys subsidiaries, including its Mexico subsidiaries
and its domestic captive insurance company, which were not
eligible to be treated as qualified subchapter
S corporations. Additionally, the Company recorded a
provision for state income taxes applicable to taxable income
attributed to states that do not recognize the
S corporation election.
F-7
Swift
Corporation and Subsidiaries
Notes to
consolidated
financial statements (Continued)
In conjunction with Consent and Amendment No. 2 to Credit
Agreement, dated October 7, 2009 (the Second
Amendment), the Company revoked its election to be taxed
as a subchapter S corporation and, beginning
October 10, 2009, is being taxed as a subchapter C
corporation. Under subchapter C, the Company is liable for
federal and state corporate income taxes on its taxable income.
In April 2010, substantially all of the Companys domestic
subsidiaries were converted from corporations to limited
liability companies. The subsidiaries not converted include the
Companys foreign subsidiaries, captive insurance companies
and certain dormant subsidiaries that are being dissolved and
liquidated.
As of March 31, 2010, the Company had unrecognized tax
benefits totaling approximately $3.6 million, all of which
would favorably impact its effective tax rate if subsequently
recognized. 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, 2010 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 anticipates that the total amount of
unrecognized tax benefits may decrease by approximately
$2.0 million during the next twelve months, which should
not have a material impact on the Companys financial
statements.
Certain of the Companys subsidiaries are currently under
examination by Federal and various state jurisdictions for years
ranging from 1997 to 2007. At the completion of these
examinations, management does not expect any adjustments that
would have a material impact on the Companys effective tax
rate. Periods subsequent to 2007 remain subject to examination.
Pro
forma information (unaudited)
As discussed above, the Company was taxed under the Internal
Revenue Code as a subchapter S corporation until its
conversion to a subchapter C corporation effective
October 10, 2009. Under subchapter S, the Company did
not pay corporate income taxes on its taxable income. Instead,
its stockholders were liable for federal and state income taxes
on the taxable income of the Company. The Company has filed a
registration statement in connection with a proposed initial
public offering of its common stock (IPO). Assuming
completion of the IPO, the Company will continue to report
earnings (loss) and earnings (loss) per share as a
subchapter C corporation. For comparative purposes, a pro
forma income tax provision for corporate income taxes has been
calculated as if the Company had been taxed as a
subchapter C corporation in the three months ended
March 31, 2009 when the Companys subchapter S
election was in effect.
|
|
Note 4.
|
Intangible
assets
|
Intangible assets as of March 31, 2010 and
December 31, 2009 were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Customer Relationship:
|
|
|
|
|
|
|
|
|
Gross carrying value
|
|
$
|
275,324
|
|
|
$
|
275,324
|
|
Accumulated amortization
|
|
|
(72,749
|
)
|
|
|
(67,553
|
)
|
Owner-Operator Relationship:
|
|
|
|
|
|
|
|
|
Gross carrying value
|
|
|
3,396
|
|
|
|
3,396
|
|
Accumulated amortization
|
|
|
(3,271
|
)
|
|
|
(2,988
|
)
|
Trade Name:
|
|
|
|
|
|
|
|
|
Gross carrying value
|
|
|
181,037
|
|
|
|
181,037
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
383,737
|
|
|
$
|
389,216
|
|
|
|
|
|
|
|
|
|
|
F-8
Swift
Corporation and Subsidiaries
Notes to
consolidated
financial statements (Continued)
Intangible assets acquired as a result of the Swift
Transportation Co. acquisition include trade name, customer
relationships, and owner-operator relationships. Amortization of
the customer relationship acquired in the acquisition is
calculated on the 150% declining balance method over the
estimated useful life of 15 years. The customer
relationship contributed to the Company at May 9, 2007 is
amortized using the straight-line method over 15 years. The
owner-operator relationship is amortized using the straight-line
method over three years. The trade name has an indefinite useful
life and is not amortized, but rather is tested for impairment
at least annually, unless events occur or circumstances change
between annual tests that would more likely than not reduce the
fair value.
|
|
Note 5.
|
Assets
held for sale
|
Assets held for sale as of March 31, 2010 and
December 31, 2009 were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Land and facilities
|
|
$
|
2,737
|
|
|
$
|
2,737
|
|
Revenue equipment
|
|
|
5,192
|
|
|
|
834
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
7,929
|
|
|
$
|
3,571
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010 and December 31, 2009, assets
held for sale are stated at the lower of depreciated cost or
fair value less estimated selling expenses. The Company expects
to sell these assets within the next twelve months.
During the three months ended March 31, 2010, management
undertook an evaluation of the Companys revenue equipment
and concluded that it would be more cost effective to dispose of
approximately 2,500 trailers through scrap or sale rather than
to maintain them in the operating fleet. These trailers met the
requirements for assets held for sale treatment and were
reclassified as such, with a related $1.3 million pre-tax
impairment charge being recorded during the period as discussed
in Note 10.
|
|
Note 6.
|
Debt and
financing transactions
|
At March 31, 2010, the Company had approximately
$2.22 billion in debt outstanding primarily associated with
the acquisition of Swift Transportation Co. The debt consists of
proceeds from a credit facility comprised of a first lien term
loan and revolving line of credit pursuant to a credit agreement
dated May 10, 2007, as amended (the Credit
Agreement), with a group of lenders and proceeds from the
offering of fixed and floating rate senior notes. The use of the
proceeds included the cash consideration paid for the purchase
price of Swift Transportation Co. of $1.52 billion,
repayment of approximately $376.5 million of indebtedness
of Swift Transportation Co. and IEL, $560 million advanced
pursuant to the stockholder loan receivable (refer to
Note 11) and debt issuance costs of
$56.8 million. The remaining proceeds were used by the
Company for payment of transaction-related expenses. The credit
facility and senior notes are secured by substantially all of
the assets of the Company and are guaranteed by Swift
Corporation, IEL, Swift Transportation Co. and its domestic
subsidiaries other than its captive insurance subsidiaries and
its bankruptcy-remote special purpose subsidiaries.
Credit
facility
The credit facility consists of a first lien term loan with an
original aggregate principal amount of $1.72 billion due
May 2014, a $300 million revolving line of credit due May
2012 and a $150 million synthetic letter of credit facility
due May 2014. Principal payments on the first lien term loan are
due quarterly in amounts equal to (i) 0.25% of the original
aggregate principal outstanding beginning September 30,
2007 to September 30, 2013 and (ii) 23.5% of the
original aggregate principal outstanding from December 31,
2013 through its maturity. As of March 31, 2010, there is
$1.51 billion outstanding under the first lien term loan.
F-9
Swift
Corporation and Subsidiaries
Notes to
consolidated
financial statements (Continued)
In April 2010, the Company made an $18.7 million payment on
the first lien term loan out of excess cash flows for the prior
fiscal year, as defined in the Credit Agreement. This payment
was applied in full satisfaction of the next four scheduled
principal payments and partial satisfaction of the fifth
successive principal payment which is due June 30, 2011.
As of March 31, 2010, there were no borrowings under the
revolving line of credit. The unused portion of the revolving
line of credit is subject to a commitment fee of 1.00%. The
revolving line of credit also includes capacity for letters of
credit up to $175 million. As of March 31, 2010, the
Company had outstanding letters of credit under the revolving
line of credit primarily for workers compensation and
self-insurance liability purposes totaling $64.4 million,
leaving $235.6 million available under the revolving line
of credit.
Similar to the letters of credit under the revolving line of
credit, the outstanding letters of credit pursuant to the
$150 million synthetic letter of credit facility are
primarily for workers compensation and self-insurance
liability purposes. At March 31, 2010, the synthetic letter
of credit facility was fully utilized.
Interest on the first lien term loan and the outstanding
borrowings under the revolving credit facility are based upon
one of two rate options plus an applicable margin. The base rate
is equal to the London Interbank Offered Rate
(LIBOR) or the higher of the prime rate published in
the Wall Street Journal and the Federal Funds Rate in effect
plus 0.50% to 1%. Following the Second Amendment, effective
October 13, 2009 LIBOR option loans are subject to a 2.25%
minimum LIBOR rate option (the LIBOR floor) and
alternate base rate option loans are subject to a 3.25% minimum
alternate base rate option. The Company may select the interest
rate option at the time of borrowing. The applicable margins for
the interest rate options range from 4.50% to 6.00%, depending
on the credit rating assigned by Standards and Poors
Rating Services (S&P) and Moodys Investor
Services (Moodys). Interest on the first lien
term loan and outstanding borrowing under the revolving line of
credit is payable on the stated maturity of each loan, on the
date of principal prepayment, if any, with respect to base rate
loans, on the last day of each calendar quarter, and with
respect to LIBOR rate loans, on the last day of each interest
period. As of March 31, 2010, interest accrues at the
greater of LIBOR or the LIBOR floor plus 6.00% (8.25% at
March 31, 2010).
Senior
notes
On May 10, 2007, the Company completed a private placement
of second-priority senior notes associated with the acquisition
of Swift Transportation Co. totaling $835 million, which
consisted of: $240 million aggregate principal amount
second-priority senior secured floating rate notes due
May 15, 2015 (senior floating rate notes) and
$595 million aggregate principal amount of 12.50%
second-priority senior secured fixed rate notes due May 15,
2017 (senior fixed rate notes and, together with the
senior floating rate notes, the senior notes).
Interest on the senior floating rate notes is payable on
February 15, May 15, August 15, and
November 15, accruing at three-month LIBOR plus 7.75%
(8.00% at March 31, 2010). Once the credit facility is paid
in full, the Company may redeem any of the senior floating rate
notes on any interest payment date at an initial redemption
price of 102%.
Interest on the 12.50% senior fixed rate notes is payable
on May 15 and November 15. Once the credit facility is paid
in full, on or after May 15, 2012, the Company may redeem
the fixed rate notes at an initial redemption price of 106.25%
of their principal amount and accrued interest.
During the year ended December 31, 2009, Jerry Moyes, the
Companys President, Chief Executive Officer and majority
stockholder purchased $36.4 million face value senior
floating rate notes and $89.4 million face value senior
fixed rate notes in open market transactions. In connection with
the Second Amendment, Mr. Moyes agreed to cancel his
personally held senior notes in return for a $325.0 million
reduction of the stockholder loan due 2018 owed to the Company
by the Jerry and Vickie Moyes Family Trust dated
12/11/87 and
various Moyes childrens trusts (collectively, Moyes
affiliates), each of which is a stockholder of the
F-10
Swift
Corporation and Subsidiaries
Notes to
consolidated
financial statements (Continued)
Company. The floating rate notes held by Mr. Moyes,
totaling $36.4 million in principal amount, were cancelled
at closing of the Second Amendment on October 13, 2009 and,
correspondingly, the stockholder loan was reduced by
$94.0 million. The fixed rate notes held by Mr. Moyes,
totaling $89.4 million in principal amount, were cancelled
in January 2010 and the stockholder loan was reduced further by
an additional $231.0 million. The amount of the stockholder
loan cancelled in exchange for the contribution of notes was
negotiated by Mr. Moyes with the steering committee of
lenders, comprised of a number of the largest lenders (by
holding size) and the Administrative Agent of the Credit
Agreement. The cancellation of the notes increased
stockholders equity by $36.4 million in October 2009
and $89.4 million in January 2010.
An intercreditor agreement among the first lien agent for the
senior secured credit facility, the trustee of the senior notes,
Swift Corporation and certain of its subsidiaries establishes
the second priority status of the senior notes and contains
restrictions and agreements with respect to the control of
remedies, release of collateral, amendments to security
documents, and the rights of holders of first priority lien
obligations and holders of the senior notes.
Debt
covenants
The credit facility contains certain covenants, including but
not limited to required minimum liquidity, limitations on
indebtedness, liens, asset sales, transactions with affiliates,
and required leverage and interest coverage ratios. As of
March 31, 2010, the Company was in compliance with these
covenants. The indentures governing the senior notes contain
covenants relating to limitations on asset sales, incurrence of
indebtedness, and entering into sales and leaseback
transactions. As of March 31, 2010, the Company was in
compliance with these covenants. The indentures for the senior
notes include a limit on future indebtedness if a minimum fixed
charge coverage ratio, as defined, is not met. The Company
currently does not meet that minimum requirement and cannot
incur additional debt in excess of that specified in the
agreement, including the limit for outstanding capital lease
obligations of $212.5 million for 2010 and
$250 million thereafter.
As permitted by the terms of the Credit Agreement, as amended,
securitization proceeds under the accounts receivable
securitization facility up to $210 million are not included
as debt in the leverage ratio calculation, without regard to
whether on or off-balance sheet accounting treatment applies to
the accounts receivable securitization program. Although the
Company met the leverage ratio, interest coverage ratio, and
minimum liquidity requirements as of March 31, 2010 and is
projecting to be in compliance in the future, the Company is
subject to risks and uncertainties that the transportation
industry will remain depressed and that the Company may not be
successful in executing its business strategies. In the event
current trucking industry conditions worsen or persist for an
extended period of time, the Company has plans to implement
certain actions that could assist in maintaining compliance with
the debt covenants, including reducing capital expenditures,
improving working capital, and reducing expenses in targeted
areas of operations.
F-11
Swift
Corporation and Subsidiaries
Notes to
consolidated
financial statements (Continued)
As of March 31, 2010 and December 31, 2009, long-term
debt was (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
First lien term loan due May 2014
|
|
$
|
1,507,100
|
|
|
$
|
1,511,400
|
|
Second-priority senior secured floating rate notes due
May 15, 2015
|
|
|
203,600
|
|
|
|
203,600
|
|
12.50% second-priority senior secured fixed rate notes due
May 15, 2017
|
|
|
505,648
|
|
|
|
595,000
|
|
Note payable, with principal and interest payable in five annual
payments of $514 plus interest at a fixed rate of 7.00% through
August 2013 secured by real property
|
|
|
1,542
|
|
|
|
2,056
|
|
Notes payable, with principal and interest payable in
24 monthly payments of $130 including interest at a fixed
rate of 7.5% through May 2011
|
|
|
1,617
|
|
|
|
1,993
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
2,219,507
|
|
|
|
2,314,049
|
|
Less: current portion
|
|
|
19,074
|
|
|
|
19,054
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
2,200,433
|
|
|
$
|
2,294,995
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7.
|
Accounts
receivable securitization
|
On July 30, 2008, the Company, through Swift Receivables
Company II, LLC, a Delaware limited liability company, formerly
Swift Receivables Corporation II, a Delaware corporation
(SRCII), a wholly owned bankruptcy-remote special
purpose subsidiary, entered into a new receivable sale agreement
with unrelated financial entities (the Purchasers)
to replace the Companys prior accounts receivable sale
facility (the 2007 RSA) and to sell, on a revolving
basis, undivided interests in the Companys accounts
receivable (the 2008 RSA). The program limit under
the 2008 RSA is $210 million and is subject to eligible
receivables and reserve requirements. Outstanding balances under
the 2008 RSA accrue interest at a yield of LIBOR plus
300 basis points or Prime plus 200 basis points, at
the Companys discretion. The 2008 RSA terminates on
July 30, 2013 and is subject to an unused commitment fee
ranging from 25 to 50 basis points, depending on the
aggregate unused commitment of the 2008 RSA. The Company paid
$6.7 million in closing fees, which were expensed at the
time of sale consistent with the true sale accounting treatment
applicable to the 2008 RSA at closing.
Following the adoption of ASU
No. 2009-16,
Accounting for Transfers of Financial Assets (Topic
860), which was effective for the Company on
January 1, 2010, the Companys accounts receivable
securitization facility no longer qualified for true sale
accounting treatment and is now instead treated as a secured
borrowing. As a result, the previously de-recognized accounts
receivable were brought back onto the Companys balance
sheet and the related securitization proceeds were recognized as
debt, while the program fees for the facility were reported as
interest expense beginning January 1, 2010. The
re-characterization of program fees from other expense to
interest expense did not affect our interest coverage ratio
calculation, and the change in accounting treatment for the
securitization proceeds from sales proceeds to debt did not
affect the leverage ratio calculation, as defined in the Credit
Agreement, as amended.
For the three months ended March 31, 2010 and 2009, the
Company incurred program fee expense of $1.1 million in
each quarter associated with the 2008 RSA which was recorded in
interest expense and other expense, respectively.
Pursuant to the 2008 RSA, collections under the receivables by
the Company are held for the benefit of SRCII and the lenders in
the facility and are unavailable to satisfy claims of the
Company and its subsidiaries. The 2008 RSA contains certain
restrictions and provisions (including cross-default provisions
to our debt
F-12
Swift
Corporation and Subsidiaries
Notes to
consolidated
financial statements (Continued)
agreements) which, if not met, could restrict the Companys
ability to borrow against future eligible receivables. The
inability to borrow against additional receivables would reduce
liquidity as the daily proceeds from collections on the
receivables levered prior to termination are remitted to the
lenders, with no further reinvestment of these funds by the
lenders into the Company.
As of March 31, 2010, the outstanding borrowing under the
accounts receivable securitization facility was
$150 million.
The Company leases certain revenue equipment under capital
leases. The Companys capital leases are typically
structured with balloon payments at the end of the lease term
equal to the residual value the Company is contracted to receive
from certain equipment manufacturers upon sale or trade back to
the manufacturers. The Company is obligated to pay the balloon
payments at the end of the leased term whether or not it
receives the proceeds of the contracted residual values from the
respective manufacturers. Certain leases contain renewal or
fixed price purchase options. Obligations under capital leases
total $162.7 million at March 31, 2010, the current
portion of which is $37.3 million. The leases are
collateralized by revenue equipment with a cost of
$272.7 million and accumulated amortization of
$63.7 million at March 31, 2010. The amortization of
the equipment under capital leases is included in depreciation
and amortization expense.
|
|
Note 9.
|
Derivative
financial instruments
|
The Company is exposed to certain risks relating to its ongoing
business operations. The primary risk managed by using
derivative instruments is interest rate risk. In 2007, the
Company entered into several interest rate swap agreements for
the purpose of hedging variability of interest expense and
interest payments on long-term variable rate debt and senior
notes. The strategy was to use pay-fixed/receive-variable
interest rate swaps to reduce the Companys aggregate
exposure to interest rate risk. These derivative instruments
were not entered into for speculative purposes.
In connection with the credit facility, the Company has four
interest rate swap agreements in effect at March 31, 2010
with a total notional amount of $1.14 billion,
$305 million of which mature in August 2010, with the
remainder maturing in August 2012. At October 1, 2007
(designation date), the Company designated and
qualified these interest rate swaps as cash flow hedges.
Subsequent to the October 1, 2007 designation date, the
effective portion of the changes in fair value of the designated
swaps was recorded in accumulated other comprehensive income
(loss) (OCI) and is thereafter recognized to
derivative interest expense as the interest on the hedged
variable rate debt affects earnings. The ineffective portions of
the changes in the fair value of designated interest rate swaps
were recognized directly to earnings as derivative interest
expense in the Companys statements of operations. At
March 31, 2010 and December 31, 2009, unrealized
losses on changes in fair value of the designated interest rate
swap agreements totaling $43.1 million and
$54.1 million after taxes, respectively, were reflected in
accumulated OCI. As of March 31, 2010, the Company
estimates that $27.7 million of unrealized losses included
in accumulated OCI will be realized and reported in earnings
within the next twelve months.
Prior to the Second Amendment in October 2009, these interest
rate swap agreements had been highly effective as a hedge of the
Companys variable rate debt. However, the implementation
of the 2.25% LIBOR floor for the credit facility pursuant to the
Second Amendment effective October 13, 2009, as discussed
in Note 6, impacted the ongoing accounting treatment for
the Companys remaining interest rate swaps under Topic
815, Derivatives and Hedging. The interest
rate swaps no longer qualify as highly effective in offsetting
changes in the interest payments on long-term variable rate
debt. Consequently, the Company removed the hedging designation
and ceased cash flow hedge accounting treatment under Topic 815
for the swaps effective October 1, 2009. As a result,
following this date, all of the ongoing changes in fair value of
the interest rate swaps are recorded as derivative interest
expense in earnings whereas the majority of changes
F-13
Swift
Corporation and Subsidiaries
Notes to
consolidated
financial statements (Continued)
in fair value had previously been recorded in OCI under cash
flow hedge accounting. The cumulative change in fair value of
the swaps which occurred prior to the cessation in hedge
accounting remains in accumulated OCI and is amortized to
earnings as derivative interest expense in current and future
periods as the interest payments on the first lien term loan
affect earnings. The Company is evaluating various alternatives
for potentially terminating some or all of the remaining
interest rate swap contracts as they are no longer expected to
provide an economic hedge in the near term.
The fair value of the interest rate swap liability at
March 31, 2010 and December 31, 2009 was
$79.4 million and $80.3 million, respectively. The
fair values of the interest rate swaps are based on valuations
provided by third parties, derivative pricing models, and credit
spreads derived from the trading levels of the Companys
first lien term loan. Refer to Note 10 for further
discussion of the Companys fair value methodology.
As of March 31, 2010 and December 31, 2009,
information about classification of fair value of the
Companys interest rate derivative contracts, including
those that are designated as hedging instruments under Topic
815, and those that are not so designated, is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
Derivative Liabilities Description
|
|
Balance Sheet Location
|
|
2010
|
|
|
2009
|
|
|
Interest rate derivative contracts designated as hedging
instruments under Topic 815:
|
|
Fair value of
interest rate swaps
|
|
$
|
|
|
|
$
|
|
|
Interest rate derivative contracts not designated as hedging
instruments under Topic 815:
|
|
Fair value of
interest rate swaps
|
|
$
|
79,403
|
|
|
$
|
80,279
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
79,403
|
|
|
$
|
80,279
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2010 and 2009,
information about amounts and classification of gains and losses
on the Companys interest rate derivative contracts that
were designated as hedging instruments under Topic 815 is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Amount of loss recognized in OCI on derivative (effective
portion)
|
|
$
|
|
|
|
$
|
(20,536
|
)
|
Amount of loss reclassified from accumulated OCI into Income as
Derivative interest expense (effective portion)
|
|
$
|
(10,962
|
)
|
|
$
|
(9,356
|
)
|
Amount of gain recognized in income on derivative as
Derivative interest expense (ineffective portion)
|
|
$
|
|
|
|
$
|
1,807
|
|
For the three months ended March 31, 2010 and 2009,
information about amounts and classification of gains and losses
on the Companys interest rate derivative contracts that
are not designated as hedging instruments under Topic 815 is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Amount of gain (loss) recognized in income on derivative as
Derivative interest expense
|
|
$
|
(12,752
|
)
|
|
$
|
|
|
F-14
Swift
Corporation and Subsidiaries
Notes to
consolidated
financial statements (Continued)
|
|
Note 10.
|
Fair
value measurement
|
Topic 820, Fair Value Measurements and
Disclosures, requires that the Company disclose
estimated fair values for its financial instruments. The fair
value of a financial instrument is the amount that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date in the principal or most advantageous market
for the asset or liability. Fair value estimates are made at a
specific point in time and are based on relevant market
information and information about the financial instrument.
These estimates do not reflect any premium or discount that
could result from offering for sale at one time the
Companys entire holdings of a particular financial
instrument. Changes in assumptions could significantly affect
these estimates. Because the fair value is estimated as of
March 31, 2010 and December 31, 2009, the amounts that
will actually be realized or paid at settlement or maturity of
the instruments in the future could be significantly different.
Further, as a result of current economic and credit market
conditions, estimated fair values of financial instruments are
subject to a greater degree of uncertainty and it is reasonably
possible that an estimate will change in the near term.
The following table presents the carrying amounts and estimated
fair values of the Companys financial instruments at
March 31, 2010 and December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained interest in receivables
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
79,907
|
|
|
$
|
79,907
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
79,403
|
|
|
$
|
79,403
|
|
|
$
|
80,279
|
|
|
$
|
80,279
|
|
First lien term loan
|
|
|
1,507,100
|
|
|
|
1,441,164
|
|
|
|
1,511,400
|
|
|
|
1,374,618
|
|
Senior fixed rate notes
|
|
|
505,648
|
|
|
|
475,309
|
|
|
|
595,000
|
|
|
|
500,544
|
|
Senior floating rate notes
|
|
|
203,600
|
|
|
|
184,513
|
|
|
|
203,600
|
|
|
|
152,955
|
|
Securitization of accounts receivable
|
|
|
150,000
|
|
|
|
145,336
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The carrying amounts shown in the table are included in the
consolidated balance sheets under the indicated captions except
for the first lien term loan and the senior fixed and floating
rate notes, which are included in long term debt and obligations
under capital leases. The fair values of the financial
instruments shown in the above table as of March 31, 2010
and December 31, 2009 represent managements best
estimates of the amounts that would be received to sell those
assets or that would be paid to transfer those liabilities in an
orderly transaction between market participants at that date.
Those fair value measurements maximize the use of observable
inputs. However, in situations where there is little, if any,
market activity for the asset or liability at the measurement
date, the fair value measurement reflects the Companys own
judgments about the assumptions that market participants would
use in pricing the asset or liability. Those judgments are
developed by the Company based on the best information available
in the circumstances.
The following summary presents a description of the methods and
assumptions used to estimate the fair value of each class of
financial instrument.
Retained
interest in receivables
The Companys retained interest in receivables was carried
on the balance sheet at fair value at December 31, 2009 and
consisted of trade receivables recorded through the normal
course of business. The retained interest was valued using the
Companys own assumptions about the inputs market
participants would use in determining the present value of
expected future cash flows taking into account anticipated
credit losses, the speed of the payments and a discount rate
commensurate with the uncertainty involved. Upon adoption of ASU
No. 2009-16
on January 1, 2010 as discussed in Note 7, the
Companys retained interest in
F-15
Swift
Corporation and Subsidiaries
Notes to
consolidated
financial statements (Continued)
receivables was de-recognized upon recording the previously
transferred receivables and recognizing the securitization
proceeds as a secured borrowing on the Companys balance
sheet.
Interest
rate swaps
The Companys interest rate swap agreements are carried on
the balance sheet at fair value at March 31, 2010 and
December 31, 2009 and consist of four interest rate swaps
as of March 31, 2010 and December 31, 2009. These
swaps were entered into for the purpose of hedging the
variability of interest expense and interest payments on our
long-term variable rate debt. Because the Companys
interest rate swaps are not actively traded, they are valued
using valuation models. Interest rate yield curves and credit
spreads derived from trading levels of the Companys first
lien term loan are the significant inputs into these valuation
models. These inputs are observable in active markets over the
terms of the instruments the Company holds. The Company
considers the effect of its own credit standing and that of its
counterparties in the valuations of its derivative financial
instruments. As of March 31, 2010 and December 31,
2009, the Company has recorded a credit valuation adjustment of
$5.9 million and $6.5 million, respectively, based on
the credit spreads derived from trading levels of the
Companys first lien term loan to reduce the interest rate
swap liability to its fair value.
First
lien term loan and second-priority senior secured fixed and
floating rate notes
The fair values of the first lien term loan, the senior fixed
rate notes, and the senior floating rate notes were determined
by bid prices in trading between qualified institutional buyers.
Securitization
of accounts receivable
The Companys securitization of accounts receivable
consists of borrowings outstanding pursuant to the
Companys 2008 RSA, as discussed in Note 7. Its fair
value is estimated by discounting future cash flows using a
discount rate commensurate with the uncertainty involved.
Fair
value hierarchy
Topic 820 establishes a framework for measuring fair value in
accordance with generally accepted accounting principles in the
United States of America (GAAP) and expands
financial statement disclosure requirements for fair value
measurements. Topic 820 further specifies a hierarchy of
valuation techniques, which is based on whether the inputs into
the valuation technique are observable or unobservable. The
hierarchy is as follows:
|
|
|
|
|
Level 1 Valuation techniques in which
all significant inputs are quoted prices from active markets for
assets or liabilities that are identical to the assets or
liabilities being measured.
|
|
|
|
Level 2 Valuation techniques in which
significant inputs include quoted prices from active markets for
assets or liabilities that are similar to the assets or
liabilities being measured
and/or
quoted prices from markets that are not active for assets or
liabilities that are identical or similar to the assets or
liabilities being measured. Also, model-derived valuations in
which all significant inputs and significant value drivers are
observable in active markets are Level 2 valuation
techniques.
|
|
|
|
Level 3 Valuation techniques in which
one or more significant inputs or significant value drivers are
unobservable. Unobservable inputs are valuation technique inputs
that reflect the Companys own assumptions about the
assumptions that market participants would use in pricing an
asset or liability.
|
When available, the Company uses quoted market prices to
determine the fair value of an asset or liability. If quoted
market prices are not available, the Company will measure fair
value using valuation techniques that use, when possible,
current market-based or independently-sourced market parameters,
such as
F-16
Swift
Corporation and Subsidiaries
Notes to
consolidated
financial statements (Continued)
interest rates and currency rates. The level in the fair value
hierarchy within which a fair measurement in its entirety falls
is based on the lowest level input that is significant to the
fair value measurement in its entirety. Following is a brief
summary of the Companys classification within the fair
value hierarchy of each major category of assets and liabilities
that it measures and reports on its balance sheet at fair value
on a recurring basis as of March 31, 2010:
|
|
|
Interest rate swaps. The Companys
interest rate swaps are not actively traded but are valued using
valuation models and credit valuation adjustments, both of which
use significant inputs that are observable in active markets
over the terms of the instruments the Company holds, and
accordingly, the Company classifies these valuation techniques
as Level 2 in the hierarchy.
|
For the periods ended March 31, 2010 and December 31,
2009, information about classification of fair value
measurements of each class of the Companys assets and
liabilities that are measured at fair value on a recurring basis
in periods subsequent to their initial recognition is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
Total Fair Value
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
and Carrying
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
Value on Balance
|
|
|
for Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
Sheet
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
As of March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
79,403
|
|
|
$
|
|
|
|
$
|
79,403
|
|
|
$
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained interest in receivables
|
|
$
|
79,907
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
79,907
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
80,279
|
|
|
$
|
|
|
|
$
|
80,279
|
|
|
$
|
|
|
The following table sets forth a reconciliation of the changes
in fair value during the three month periods ended
March 31, 2010 and 2009 of the Companys Level 3
retained interest in receivables that was measured at fair value
on a recurring basis prior to the Companys adoption of ASU
2009-16 on
January 1, 2010 as discussed in Note 7 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
Sales, Collections
|
|
|
|
|
|
Transfers in
|
|
|
Fair Value
|
|
|
|
Beginning of
|
|
|
and
|
|
|
Total Realized
|
|
|
and/or out of
|
|
|
at End of
|
|
|
|
Period
|
|
|
Settlements, Net
|
|
|
Gains (Losses)
|
|
|
Level 3
|
|
|
Period
|
|
|
Three Months Ended March 31, 2010
|
|
$
|
79,907
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(79,907
|
)(1)
|
|
$
|
|
|
Three Months Ended March 31, 2009
|
|
$
|
80,401
|
|
|
$
|
11,910
|
|
|
$
|
562
|
|
|
$
|
|
|
|
$
|
92,873
|
|
|
|
|
(1) |
|
Upon adoption of ASU No.
2009-16 on
January 1, 2010 as discussed in Note 7, the
Companys retained interest in receivables was
de-recognized upon recording the previously transferred
receivables and recognizing the securitization proceeds as a
secured borrowing on the Companys balance sheet. Thus the
removal of the retained interest balance is reflected here as a
transfer out of Level 3. |
Realized gains and losses related to the retained interest were
included in earnings in the 2009 period and reported in other
expenses.
F-17
Swift
Corporation and Subsidiaries
Notes to
consolidated
financial statements (Continued)
For the three month periods ended March 31, 2010 and 2009,
information about inputs into the fair value measurements of the
Companys assets that were measured at fair value on a
nonrecurring basis in the period is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Fair Value at
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total Gains
|
|
Description
|
|
End of Period
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
(Losses)
|
|
|
Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held for sale
|
|
$
|
2,277
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,277
|
|
|
$
|
(1,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,277
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,277
|
|
|
$
|
(1,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held and used
|
|
$
|
1,600
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,600
|
|
|
$
|
(475
|
)
|
Long-lived assets held for sale
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,700
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,700
|
|
|
$
|
(515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with the provisions of Topic 360,
Property, Plant and Equipment, trailers with
a carrying amount of $3.6 million were written down to
their fair value of $2.3 million during the first quarter
of 2010, resulting in an impairment charge of $1.3 million,
which was included in impairments in the consolidated statement
of operations for the three months ended March 31, 2010.
The impairment of these assets was identified due to the
Companys decision to remove them from the operating fleet
through sale or salvage. For these assets valued using
significant unobservable inputs, inputs utilized included the
Companys estimates and recent auction prices for similar
equipment and commodity prices for units expected to be salvaged.
In accordance with the provisions of Topic 360, non-operating
real estate properties held and used with a carrying amount of
$2.1 million were written down to their fair value of
$1.6 million during the first quarter of 2009, resulting in
an impairment charge of $475 thousand, which was included in
impairments in the consolidated statement of operations for the
three months ended March 31, 2009. Additionally, real
estate properties held for sale, with a carrying amount of $140
thousand were written down to their fair value of $100 thousand,
resulting in an impairment charge of $40 thousand during the
first quarter of 2009, which was also included in impairments in
the consolidated statement of operations for the three months
ended March 31, 2009. The impairments of these long-lived
assets were identified due to the Companys failure to
receive any reasonable offers, due in part to reduced liquidity
in the credit market and the weak economic environment during
the period. For these long-lived assets valued using significant
unobservable inputs, inputs utilized included the Companys
estimates and listing prices due to the lack of sales for
similar properties.
|
|
Note 11.
|
Stockholder
loans receivable
|
On May 10, 2007, the Company entered into a Stockholder
Loan Agreement with its stockholders. Under the agreement, the
Company loaned the stockholders $560 million to be used to
satisfy their indebtedness owed to Morgan Stanley Senior
Funding, Inc. (Morgan Stanley). The proceeds of the
Morgan Stanley loan had been used to repay all indebtedness of
the stockholders secured by the common stock of Swift
Transportation Co. owned by the Moyes affiliates prior to the
contribution by them of that common stock to Swift Corporation
on May 9, 2007 in contemplation of the acquisition of Swift
Transportation Co. by Swift Corporation on May 10, 2007.
The principal and accrued interest is due on May 10, 2018.
The balance of the loan at March 31, 2010, including
paid-in-kind
interest, is $240.0 million.
F-18
Swift
Corporation and Subsidiaries
Notes to
consolidated
financial statements (Continued)
The stockholders are required to make interest payments on the
stockholder loan in cash only to the extent that the
stockholders receive a corresponding dividend from the Company.
As of March 31, 2010 and December 31, 2009, this
stockholder loan receivable is recorded as contra-equity within
stockholders equity. Interest accrued under the
stockholder loan receivable is recorded as an increase to
additional paid-in capital with a corresponding increase to the
stockholder loan receivable contra-equity balance. Any related
dividends distributed to fund such interest payments are
recorded as a reduction in retained earnings with a
corresponding reduction in the stockholder loan receivable. For
the three months ended March 31, 2010, interest accrued on
the stockholder loan of $1.7 million was added to the loan
balance as
paid-in-kind
interest.
In connection with the Second Amendment and as discussed in
Note 6, Mr. Moyes agreed to cancel $125.8 million
of personally held senior notes in return for a
$325.0 million reduction of the stockholder loan. The
floating rate notes held by Mr. Moyes, totaling
$36.4 million in principal amount, were cancelled at
closing on October 13, 2009 and, correspondingly, the
stockholder loan was reduced by $94.0 million. The fixed
rate notes held by Mr. Moyes, totaling $89.4 million
in principal amount, were cancelled in January 2010 and the
stockholder loan was reduced further by an additional
$231.0 million. The amount of the stockholder loan
cancelled in exchange for the contribution of notes was
negotiated by Mr. Moyes with the steering committee of
lenders, comprised of a number of the largest lenders (by
holding size) and the Administrative Agent of the Credit
Agreement. Due to the classification of the stockholder loan as
contra-equity, the reduction in the stockholder loan did not
reduce the Companys stockholders equity.
Pursuant to an amended and restated note agreement dated
October 10, 2006, between IEL and an entity affiliated with
the Moyes affiliates, IEL has a note receivable of
$1.7 million at March 31, 2010 due from the affiliated
party. The note is guaranteed by Jerry Moyes. The note accrues
interest at 7.0% per annum with monthly installments of
principal and accrued interest equal to $38 thousand through
October 10, 2013 when the remaining balance is due. As of
March 31, 2010 and December 31, 2009, because of the
affiliated status of the payor, this note receivable is recorded
as contra-equity within stockholders equity.
The Company is involved in certain claims and pending litigation
primarily arising in the normal course of business. A
significant number of these claims relate to workers
compensation, auto collision and liability, and physical damage
and cargo damage. We accrue for the portion of the
Companys uninsured estimated liability of these and other
pending claims. Based on the knowledge of the facts and, in
certain cases, opinions 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.
|
|
Note 13.
|
Stock-based
compensation
|
On February 25, 2010, pursuant to the 2007 equity incentive
plan (the Plan), the Company granted
1.8 million stock options to certain employees at an
exercise price of $7.04 per share, which equaled the estimated
fair value of the common stock on the date of grant.
|
|
Note 14.
|
Change in
estimate
|
During the three months ended March 31, 2010, management
undertook an evaluation of the Companys revenue equipment
and concluded that it would be more cost effective to scrap
approximately 7,000 trailers rather than to maintain them in the
operating fleet and is now in the process of scrapping them.
These trailers do not qualify for assets held for sale treatment
and are thus considered long lived assets held and used at
March 31, 2010. As a result, management revised its
previous estimates regarding remaining useful lives and
estimated residual values for these trailers, resulting in
incremental depreciation expense during the three months ended
March 31, 2010 of $7.4 million. These trailers are in
addition to the approximately 2,500 trailers reclassified to
assets held for sale, as discussed in Note 5.
F-19
Swift
Corporation and Subsidiaries
Notes to
consolidated
financial statements (Continued)
The computation of basic and diluted loss per share is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months ending March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except
|
|
|
|
per share amounts)
|
|
|
Net loss
|
|
$
|
(53,001
|
)
|
|
$
|
(43,560
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
Common shares outstanding for basic and diluted
loss per share
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.71
|
)
|
|
$
|
(0.58
|
)
|
|
|
|
|
|
|
|
|
|
Potential common shares issuable upon exercise of outstanding
stock options are excluded from diluted shares outstanding as
their effect is antidilutive. As of March 31, 2010 and
2009, there were 7,935,500 and 6,119,500 options
outstanding, respectively.
F-20
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Swift Corporation:
We have audited the accompanying consolidated balance sheets of
Swift Corporation and subsidiaries (the Company) as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders deficit,
comprehensive loss, and cash flows for each of the years in the
three-year period ended December 31, 2009. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Swift Corporation and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2009 in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, the Company has adopted the provisions of Statement
of Financial Accounting Standards No. 157, Fair Value
Measurements, included in FASB ASC Topic 820, Fair Value
Measurements and Disclosures.
Phoenix, Arizona
March 25, 2010, except for note 28
which is as of July 21, 2010
F-21
FINANCIAL STATEMENTS
Swift
Corporation and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
115,862
|
|
|
$
|
57,916
|
|
Restricted cash
|
|
|
24,869
|
|
|
|
18,439
|
|
Accounts receivable, net
|
|
|
21,914
|
|
|
|
32,991
|
|
Retained interest in accounts receivable
|
|
|
79,907
|
|
|
|
80,401
|
|
Income tax refund receivable
|
|
|
1,436
|
|
|
|
2,036
|
|
Equipment sales receivable
|
|
|
208
|
|
|
|
4,951
|
|
Inventories and supplies
|
|
|
10,193
|
|
|
|
10,167
|
|
Assets held for sale
|
|
|
3,571
|
|
|
|
3,920
|
|
Prepaid taxes, licenses, insurance and other
|
|
|
42,365
|
|
|
|
40,988
|
|
Deferred income taxes
|
|
|
49,023
|
|
|
|
24
|
|
Other current assets
|
|
|
4,523
|
|
|
|
4,224
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
353,871
|
|
|
|
256,057
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
Revenue and service equipment
|
|
|
1,488,953
|
|
|
|
1,536,325
|
|
Land
|
|
|
142,126
|
|
|
|
144,753
|
|
Facilities and improvements
|
|
|
222,751
|
|
|
|
222,023
|
|
Furniture and office equipment
|
|
|
32,726
|
|
|
|
28,678
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
1,886,556
|
|
|
|
1,931,779
|
|
Less: accumulated depreciation and amortization
|
|
|
522,011
|
|
|
|
348,483
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
1,364,545
|
|
|
|
1,583,296
|
|
Insurance claims receivable
|
|
|
45,775
|
|
|
|
42,925
|
|
Other assets
|
|
|
107,211
|
|
|
|
100,565
|
|
Intangible assets, net
|
|
|
389,216
|
|
|
|
412,408
|
|
Goodwill
|
|
|
253,256
|
|
|
|
253,256
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,513,874
|
|
|
$
|
2,648,507
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
70,934
|
|
|
$
|
118,850
|
|
Accrued liabilities
|
|
|
110,662
|
|
|
|
94,250
|
|
Current portion of claims accruals
|
|
|
92,280
|
|
|
|
155,769
|
|
Current portion of long-term debt and obligations under capital
leases
|
|
|
46,754
|
|
|
|
28,105
|
|
Fair value of guarantees
|
|
|
2,519
|
|
|
|
2,572
|
|
Current portion of fair value of interest rate swaps
|
|
|
47,244
|
|
|
|
27,064
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
370,393
|
|
|
|
426,610
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and obligations under capital leases
|
|
|
2,420,180
|
|
|
|
2,466,350
|
|
Claims accruals, less current portion
|
|
|
166,718
|
|
|
|
157,296
|
|
Fair value of interest rate swaps, less current portion
|
|
|
33,035
|
|
|
|
17,323
|
|
Deferred income taxes
|
|
|
383,795
|
|
|
|
24,567
|
|
Other liabilities
|
|
|
5,534
|
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,379,655
|
|
|
|
3,092,700
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (notes 15 and 16)
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.001 per share Authorized
1,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock, par value $.001 per share Authorized
200,000,000 shares; 75,145,892 shares issued at
December 31, 2009 and December 31, 2008
|
|
|
75
|
|
|
|
75
|
|
Additional paid-in capital
|
|
|
419,105
|
|
|
|
456,807
|
|
Accumulated deficit
|
|
|
(759,936
|
)
|
|
|
(307,908
|
)
|
Stockholder loans receivable
|
|
|
(471,113
|
)
|
|
|
(562,054
|
)
|
Accumulated other comprehensive loss
|
|
|
(54,014
|
)
|
|
|
(31,215
|
)
|
Noncontrolling interest
|
|
|
102
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(865,781
|
)
|
|
|
(444,193
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
2,513,874
|
|
|
$
|
2,648,507
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-22
Swift
Corporation and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Operating revenue
|
|
$
|
2,571,353
|
|
|
$
|
3,399,810
|
|
|
$
|
2,180,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits
|
|
|
728,784
|
|
|
|
892,691
|
|
|
|
611,811
|
|
Operating supplies and expenses
|
|
|
209,945
|
|
|
|
271,951
|
|
|
|
187,873
|
|
Fuel
|
|
|
385,513
|
|
|
|
768,693
|
|
|
|
474,825
|
|
Purchased transportation
|
|
|
620,312
|
|
|
|
741,240
|
|
|
|
435,421
|
|
Rental expense
|
|
|
79,833
|
|
|
|
76,900
|
|
|
|
51,703
|
|
Insurance and claims
|
|
|
81,332
|
|
|
|
141,949
|
|
|
|
69,699
|
|
Depreciation and amortization
|
|
|
253,531
|
|
|
|
275,832
|
|
|
|
187,043
|
|
Impairments
|
|
|
515
|
|
|
|
24,529
|
|
|
|
256,305
|
|
Gain on disposal of property and equipment
|
|
|
(2,244
|
)
|
|
|
(6,466
|
)
|
|
|
(397
|
)
|
Communication and utilities
|
|
|
24,595
|
|
|
|
29,644
|
|
|
|
18,625
|
|
Operating taxes and licenses
|
|
|
57,236
|
|
|
|
67,911
|
|
|
|
42,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,439,352
|
|
|
|
3,284,874
|
|
|
|
2,334,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
132,001
|
|
|
|
114,936
|
|
|
|
(154,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
200,512
|
|
|
|
222,177
|
|
|
|
171,115
|
|
Derivative interest expense
|
|
|
55,634
|
|
|
|
18,699
|
|
|
|
13,233
|
|
Interest income
|
|
|
(1,814
|
)
|
|
|
(3,506
|
)
|
|
|
(6,602
|
)
|
Other
|
|
|
(13,336
|
)
|
|
|
12,753
|
|
|
|
(1,933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (income) expenses, net
|
|
|
240,996
|
|
|
|
250,123
|
|
|
|
175,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(108,995
|
)
|
|
|
(135,187
|
)
|
|
|
(330,504
|
)
|
Income tax expense (benefit)
|
|
|
326,650
|
|
|
|
11,368
|
|
|
|
(234,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
|
$
|
(96,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(5.80
|
)
|
|
$
|
(1.95
|
)
|
|
$
|
(1.94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma C corporation data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical loss before income taxes
|
|
$
|
(108,995
|
)
|
|
$
|
(135,187
|
)
|
|
$
|
(330,504
|
)
|
Pro forma provision (benefit) for income taxes (unaudited)
|
|
|
5,693
|
|
|
|
(26,573
|
)
|
|
|
(19,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss (unaudited)
|
|
$
|
(114,688
|
)
|
|
$
|
(108,614
|
)
|
|
$
|
(311,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic and diluted loss per share (unaudited)
|
|
$
|
(1.53
|
)
|
|
$
|
(1.45
|
)
|
|
$
|
(6.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-23
Swift
Corporation and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net loss
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
|
$
|
(96,188
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
149
|
|
|
|
(68
|
)
|
Change in fair value of interest rate swaps
|
|
|
(22,799
|
)
|
|
|
(744
|
)
|
|
|
(30,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(458,444
|
)
|
|
$
|
(147,150
|
)
|
|
$
|
(126,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-24
Swift
Corporation and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Stockholder
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Loans
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Receivable
|
|
|
Loss
|
|
|
Interest
|
|
|
Deficit
|
|
|
|
(in thousands, except share data)
|
|
|
Balances, December 31, 2006
|
|
|
1,000
|
|
|
$
|
|
|
|
$
|
328
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
328
|
|
Acquisition transaction costs paid in cash by stockholders
|
|
|
|
|
|
|
|
|
|
|
1,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,903
|
|
Contribution of 100% of Interstate Equipment Leasing
|
|
|
10,649,000
|
|
|
|
11
|
|
|
|
5,275
|
|
|
|
|
|
|
|
(2,393
|
)
|
|
|
|
|
|
|
|
|
|
|
2,893
|
|
Distribution of non-revenue equipment to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,594
|
)
|
Contribution of 38.259% of Swift Transportation Co.
|
|
|
64,495,892
|
|
|
|
64
|
|
|
|
385,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385,614
|
|
Issuance of stockholder loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(560,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(560,000
|
)
|
Interest accrued on stockholder loan and dividends distributed
|
|
|
|
|
|
|
|
|
|
|
29,740
|
|
|
|
(29,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from repayment of related party note receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
(68
|
)
|
Change in fair value of interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,552
|
)
|
|
|
|
|
|
|
(30,552
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
75,145,892
|
|
|
|
75
|
|
|
|
422,863
|
|
|
|
(127,522
|
)
|
|
|
(562,343
|
)
|
|
|
(30,620
|
)
|
|
|
|
|
|
|
(297,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrued on stockholder loan and dividends distributed
|
|
|
|
|
|
|
|
|
|
|
33,831
|
|
|
|
(33,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrued and proceeds from repayment of related party
note receivable
|
|
|
|
|
|
|
|
|
|
|
153
|
|
|
|
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
442
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
149
|
|
Change in fair value of interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(744
|
)
|
|
|
|
|
|
|
(744
|
)
|
Entry into joint venture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
|
|
102
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
75,145,892
|
|
|
|
75
|
|
|
|
456,807
|
|
|
|
(307,908
|
)
|
|
|
(562,054
|
)
|
|
|
(31,215
|
)
|
|
|
102
|
|
|
|
(444,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrued on stockholder loan and dividends distributed
|
|
|
|
|
|
|
|
|
|
|
19,768
|
|
|
|
(16,383
|
)
|
|
|
(3,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrued and proceeds from repayment of related party
note receivable
|
|
|
|
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
456
|
|
Change in fair value of interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,799
|
)
|
|
|
|
|
|
|
(22,799
|
)
|
Reduction of stockholder loan (see Note 17)
|
|
|
|
|
|
|
|
|
|
|
(94,000
|
)
|
|
|
|
|
|
|
94,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of floating rate notes (see Note 12)
|
|
|
|
|
|
|
|
|
|
|
36,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,400
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(435,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(435,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2009
|
|
$
|
75,145,892
|
|
|
$
|
75
|
|
|
$
|
419,105
|
|
|
$
|
(759,936
|
)
|
|
$
|
(471,113
|
)
|
|
$
|
(54,014
|
)
|
|
$
|
102
|
|
|
$
|
(865,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
|
$
|
(96,188
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
263,611
|
|
|
|
281,591
|
|
|
|
190,975
|
|
Gain on disposal of property and equipment less write-off of
totaled tractors
|
|
|
(728
|
)
|
|
|
(2,956
|
)
|
|
|
(1,754
|
)
|
Impairment of goodwill, property and equipment and note
receivable and write-off of investment
|
|
|
515
|
|
|
|
24,776
|
|
|
|
256,305
|
|
(Gain) loss on securitization
|
|
|
(507
|
)
|
|
|
1,137
|
|
|
|
|
|
Deferred income taxes
|
|
|
310,269
|
|
|
|
2,919
|
|
|
|
(233,559
|
)
|
Provision for losses on accounts receivable
|
|
|
4,477
|
|
|
|
1,065
|
|
|
|
(1,350
|
)
|
Income effect of
mark-to-market
adjustment of interest rate swaps
|
|
|
7,933
|
|
|
|
(5,487
|
)
|
|
|
14,509
|
|
Increase (decrease) in cash resulting from changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
6,599
|
|
|
|
(6,401
|
)
|
|
|
(24,277
|
)
|
Inventories and supplies
|
|
|
(26
|
)
|
|
|
1,370
|
|
|
|
(2,360
|
)
|
Prepaid expenses and other current assets
|
|
|
5,429
|
|
|
|
22,920
|
|
|
|
(2,176
|
)
|
Other assets
|
|
|
1,400
|
|
|
|
(20,540
|
)
|
|
|
(35,883
|
)
|
Accounts payable, accrued and other liabilities
|
|
|
(47,992
|
)
|
|
|
(34,099
|
)
|
|
|
64,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
115,335
|
|
|
|
119,740
|
|
|
|
128,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of 61.741% of Swift Transportation Co., net of cash
acquired (see Note 3)
|
|
|
|
|
|
|
|
|
|
|
(1,470,389
|
)
|
(Increase) decrease in restricted cash
|
|
|
(6,430
|
)
|
|
|
3,588
|
|
|
|
(22,028
|
)
|
Proceeds from sale of property and equipment
|
|
|
69,773
|
|
|
|
191,151
|
|
|
|
39,808
|
|
Capital expenditures
|
|
|
(71,265
|
)
|
|
|
(327,725
|
)
|
|
|
(215,159
|
)
|
Payments received on notes receivable
|
|
|
6,462
|
|
|
|
5,648
|
|
|
|
15,034
|
|
Cash and cash equivalents received from contribution of 38.3% of
Swift Transportation Co. (see Note 2)
|
|
|
|
|
|
|
|
|
|
|
31,312
|
|
Cash and cash equivalents received from contribution of
Interstate Equipment Leasing, Inc. (see Note 2)
|
|
|
|
|
|
|
|
|
|
|
2,539
|
|
Expenditures on assets held for sale
|
|
|
(9,060
|
)
|
|
|
(10,089
|
)
|
|
|
(3,481
|
)
|
Payments received on assets held for sale
|
|
|
4,442
|
|
|
|
16,391
|
|
|
|
7,657
|
|
Payments received on equipment sale receivables
|
|
|
4,951
|
|
|
|
2,519
|
|
|
|
2,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,127
|
)
|
|
|
(118,517
|
)
|
|
|
(1,612,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt and capital leases
|
|
|
(30,820
|
)
|
|
|
(16,625
|
)
|
|
|
(202,366
|
)
|
Repayment of short-term notes payable
|
|
|
(6,204
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
|
|
|
|
|
|
|
|
835,000
|
|
Issuance of stockholder loan receivable, net of repayments
|
|
|
|
|
|
|
|
|
|
|
(559,950
|
)
|
Payments received on stockholder loan from affiliate
|
|
|
456
|
|
|
|
442
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
|
|
|
|
2,570
|
|
|
|
1,720,000
|
|
Payment of deferred loan costs
|
|
|
(19,694
|
)
|
|
|
(8,669
|
)
|
|
|
(57,010
|
)
|
Repayment of existing debt of Swift Transportation Co. and
Interstate Equipment Leasing, Inc.
|
|
|
|
|
|
|
|
|
|
|
(376,200
|
)
|
Borrowings of other long-term debt
|
|
|
|
|
|
|
|
|
|
|
1,185
|
|
Proceeds from accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
Stockholder contributions
|
|
|
|
|
|
|
|
|
|
|
1,903
|
|
Distributions to stockholders
|
|
|
(16,383
|
)
|
|
|
(33,831
|
)
|
|
|
(29,740
|
)
|
F-26
Swift
corporation and subsidiaries
Consolidated
statements of cash flows (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Interest payments received on stockholder loan receivable
|
|
|
16,383
|
|
|
|
33,831
|
|
|
|
29,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(56,262
|
)
|
|
|
(22,282
|
)
|
|
|
1,562,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
149
|
|
|
|
(68
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
57,946
|
|
|
|
(20,910
|
)
|
|
|
78,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
57,916
|
|
|
|
78,826
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
115,862
|
|
|
$
|
57,916
|
|
|
$
|
78,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (refunded) during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
216,248
|
|
|
$
|
248,179
|
|
|
$
|
131,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
6,001
|
|
|
$
|
(11,593
|
)
|
|
$
|
4,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash contribution of 38.3% of Swift Transportation Co. (see
Note 2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
354,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash contribution of Interstate Equipment Leasing, Inc. (see
Note 2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment sales receivables
|
|
$
|
208
|
|
|
$
|
2,515
|
|
|
$
|
4,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchase accrual
|
|
$
|
7,963
|
|
|
$
|
37,844
|
|
|
$
|
1,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable from sale of assets
|
|
$
|
6,230
|
|
|
$
|
8,396
|
|
|
$
|
4,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment on note payable with non-cash assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution of Interstate Equipment Leasing non-revenue
equipment to stockholders
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of accounts receivable securitization facility, net of
retained interest in receivables
|
|
$
|
|
|
|
$
|
200,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease additions
|
|
$
|
36,819
|
|
|
$
|
81,256
|
|
|
$
|
75,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premium notes payable
|
|
$
|
6,205
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred operating lease payment notes payable
|
|
$
|
2,877
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of senior notes
|
|
$
|
36,400
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in stockholder loan
|
|
$
|
94,000
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in-kind
interest on stockholder loan
|
|
$
|
3,385
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-27
Swift
Corporation and Subsidiaries
|
|
(1)
|
Summary
of significant accounting policies
|
Description
of business
Swift Corporation is the holding company for Swift
Transportation Co., LLC (a Delaware limited liability company
formerly Swift Transportation Co., Inc., a Nevada corporation)
and its subsidiaries (collectively, Swift Transportation
Co.), a truckload carrier headquartered in Phoenix,
Arizona, and Interstate Equipment Leasing, Inc.
(IEL) (all the foregoing being, collectively,
Swift or the Company). The Company
operates predominantly in one industry, road transportation,
throughout the continental United States and Mexico and thus has
only one reportable segment. At the end of 2009, the Company
operated a national terminal network and a fleet of
approximately 16,000 tractors, 49,200 trailers, and 4,300
intermodal containers.
In the opinion of management, the accompanying financial
statements prepared in accordance with generally accepted
accounting principles in the United States of America
(GAAP) include all adjustments necessary for the
fair presentation of the periods presented. Management has
evaluated the effect on the Companys reported financial
condition and results of operations of events subsequent to
December 31, 2009 through the issuance of the financial
statements on March 25, 2010, and has updated their
evaluation of subsequent events through the filing date on
July 21, 2010.
Basis
of presentation
The accompanying consolidated financial statements include the
accounts of Swift Corporation and its wholly owned subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation. When the Company does not have a
controlling interest in an entity, but exerts significant
influence over the entity, the Company applies the equity method
of accounting.
The presentation of the GAAP consolidated statements of
operations and cash flows for the years ended December 31,
2009, 2008, and 2007 for Swift Corporation include the results
of Swift Transportation Co., LLC (formerly Swift Transportation
Co., Inc.) following its acquisition on May 10, 2007 and
Interstate Equipment Leasing, Inc. following the contribution of
all of its shares to Swift Corporation on April 7, 2007.
Special purpose entities are accounted for using the criteria of
Financial Accounting Standards Board (FASB)
Accounting Standards Codification Topic (Topic) 860,
Transfers and Servicing. This Statement
provides consistent accounting standards for distinguishing
transfers of financial assets that are sales from transfers that
are secured borrowings.
Cash
and cash equivalents
The Company considers all highly liquid debt instruments
purchased with original maturities of three months or less to be
cash equivalents.
Restricted
cash
The Companys wholly owned captive insurance company,
Mohave Transportation Insurance Company (Mohave),
maintains certain working trust accounts. The cash and cash
equivalents within the trusts will be used to reimburse the
insurance claim losses paid by the captive insurance company and
therefore have been classified as restricted cash. As of
December 31, 2009 and 2008, cash and cash equivalents held
within the trust accounts was $24.9 million and
$18.4 million, respectively.
Inventories
and supplies
Inventories and supplies consist primarily of spare parts,
tires, fuel and supplies and are stated at lower of cost or
market. Cost is determined using the
first-in,
first-out (FIFO) method.
F-28
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Property
and equipment
Property and equipment are stated at cost. Costs to construct
significant assets include capitalized interest incurred during
the construction and development period. Expenditures for
replacements and betterments are capitalized; maintenance and
repair expenditures are charged to expense as incurred.
Depreciation on property and equipment is calculated on the
straight-line method over the estimated useful lives of 5 to
40 years for facilities and improvements, 3 to
15 years for revenue and service equipment and 3 to
5 years for furniture and office equipment. For the year
ended December 31, 2009, net gains on the disposal of
property and equipment were $2.2 million and interest
capitalized related to self-constructed assets was $76 thousand.
Tires on revenue equipment purchased are capitalized as a
component of the related equipment cost when the vehicle is
placed in service and depreciated over the life of the vehicle.
Replacement tires are classified as inventory and charged to
expense when placed in service.
Goodwill
Goodwill represents the excess of the aggregate purchase price
over the fair value of the net assets acquired in a purchase
business combination. Goodwill is reviewed for impairment at
least annually on November 30 in accordance with the provisions
of Topic 350, Intangibles Goodwill and
Other. The goodwill impairment test is a two-step
process. Under the first step, the fair value of the reporting
unit is compared with its carrying value (including goodwill).
If the fair value of the reporting unit is less than its
carrying value, an indication of goodwill impairment exists for
the reporting unit and the enterprise must perform step two of
the impairment test (measurement). Under step two, an impairment
loss is recognized for any excess of the carrying value amount
of the reporting units goodwill over the implied fair
value of that goodwill. The implied fair value of goodwill is
determined by allocating the fair value of the reporting unit in
a manner similar to a purchase price allocation, in accordance
with Topic 805, Business Combinations. The
residual fair value after this allocation is the implied fair
value of the reporting unit goodwill. The test of goodwill and
indefinite-lived intangible assets requires judgment, including
the identification of reporting units, assigning assets
(including goodwill) and liabilities to reporting units and
determining the fair value of each reporting unit. Fair value of
the reporting unit is determined using a combination of
comparative valuation multiples of publicly traded companies,
internal transaction methods, and discounted cash flow models to
estimate the fair value of reporting units, which included
several significant assumptions, including estimating future
cash flows, determining appropriate discount rates, and other
assumptions the Company believed reasonable under the
circumstances. Changes in these estimates and assumptions could
materially affect the determination of fair value
and/or
goodwill impairment for each reporting unit. If the fair value
of the reporting unit exceeds its carrying value, step two does
not need to be performed. Refer to Note 26 for a discussion
of the results of our annual evaluations as of November 30,
2009, 2008 and 2007.
Claims
accruals
The Company is self-insured for a portion of its auto liability,
workers compensation, property damage, cargo damage, and
employee medical expense risk. This self-insurance results from
buying insurance coverage that applies in excess of a retained
portion of risk for each respective line of coverage. The
Company accrues for the cost of the uninsured portion of pending
claims by evaluating the nature and severity of individual
claims and by estimating future claims development based upon
historical claims development trends. Actual settlement of the
self-insured claim liabilities could differ from
managements estimates due to a number of uncertainties,
including evaluation of severity, legal costs, and claims that
have been incurred but not reported.
Fair
value measurements
On January 1, 2008, the Company adopted the provisions of
Topic 820, Fair Value Measurements and
Disclosures, for fair value measurements of financial
assets and financial liabilities and for fair value
F-29
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
measurements of nonfinancial items that are recognized or
disclosed at fair value in the financial statements on a
recurring basis. Topic 820 defines fair value as the price that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. Topic 820 also establishes a framework
for measuring fair value and expands disclosures about fair
value measurements (Note 24). Topic 820 was not effective
until fiscal years beginning after November 15, 2008 for
all nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. In accordance with Topic
820, the Company has not applied the provisions of Topic 820 to
the following assets and liabilities that have been recognized
or disclosed at fair value on a nonrecurring basis for the year
ended December 31, 2008:
|
|
|
|
|
Measurement of long-lived assets held for sale upon recognition
of an impairment charge during 2008. See Note 5.
|
|
|
|
Measurement of the Companys reporting units (Step 1 of
goodwill impairment tests performed under Topic 350) and
nonfinancial assets and nonfinancial liabilities measured at
fair value to determine the amount of goodwill impairment (Step
2 of goodwill impairment tests performed under Topic 350). See
Note 26.
|
On January 1, 2009, the Company applied the provisions of
Topic 820 to fair value measurements of nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at
fair value in the financial statements on a nonrecurring basis.
Revenue
recognition
The Company recognizes operating revenues and related direct
costs to recognizing revenue as of the date the freight is
delivered, in accordance with Topic
605-20-25-13,
Services for
Freight-in-Transit
at the End of a Reporting Period.
The Company recognizes revenue from leasing tractors and related
equipment to owner-operators as operating leases. Therefore,
revenues from rental operations are recognized on the
straight-line basis as earned under the operating lease
agreements. Losses from lease defaults are recognized as an
offset to revenue in the amount of earned, but not collected
revenue.
Stock
compensation plans
The Company adopted Topic 718, Compensation
Stock Compensation, using the modified prospective
method. This Topic requires that all share-based payments to
employees, including grants of employee stock options, be
recognized in the financial statements upon a grant-date fair
value of an award. See Note 19 for additional information
relating to the Companys stock compensation plan.
Income
taxes
Prior to its acquisition of Swift Transportation Co. on
May 10, 2007, Swift Corporation had elected to be taxed
under the Internal Revenue Code as a subchapter
S corporation. Under subchapter S, the Company did not pay
corporate income taxes on its taxable income. Instead, its
stockholders were liable for federal and state income taxes on
the taxable income of the Company. Pursuant to the
Companys policy and subject to the terms of the credit
facility, the Company had been allowed to make distributions to
its stockholders in amounts equal to 39% of the Companys
taxable income. An income tax provision or benefit was recorded
for certain subsidiaries not eligible to be treated as an
S corporation. Additionally, the Company recorded a
provision for state income taxes applicable to taxable income
allocated to states that do not recognize the S corporation
election.
F-30
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Following the completion of the acquisition on May 10,
2007, the Companys wholly owned subsidiary, Swift
Transportation Co., elected to be treated as an
S corporation, which resulted in an income tax benefit of
approximately $230 million associated with the partial
reversal of previously recognized net deferred tax liabilities.
As discussed in Note 20, in conjunction with Consent and
Amendment No. 2 to Credit Agreement, dated October 7,
2009 (the Second Amendment), the Company revoked its
election to be taxed as a subchapter S corporation and,
beginning October 10, 2009, is being taxed as a subchapter
C corporation. Under subchapter C, the Company is liable for
federal and state corporate income taxes on its taxable income.
As a result of this conversion, the Company recorded
approximately $325 million of income tax expense on
October 10, 2009, primarily in recognition of its deferred
tax assets and liabilities as a subchapter C corporation.
Pro
forma information (unaudited)
As discussed above, the Company was taxed under the Internal
Revenue Code as a subchapter S corporation until its conversion
to a subchapter C corporation effective October 10, 2009.
Under subchapter S, the Company did not pay corporate income
taxes on its taxable income. Instead, its stockholders were
liable for federal and state income taxes on the taxable income
of the Company. The Company has filed a registration statement
in connection with a proposed initial public offering of its
common stock (IPO). Assuming completion of the IPO,
the Company will continue to report earnings (loss) and earnings
(loss) per share as a subchapter C corporation. For comparative
purposes, a pro forma income tax provision for corporate income
taxes has been calculated as if the Company had been taxed as a
subchapter C corporation for all periods presented when the
Companys subchapter S election was in effect, which is
reflected on the accompanying consolidated statement of
operations for the years ended December 31, 2009, 2008, and
2007.
Impairments
The Company evaluates its long-lived assets, including property
and equipment, and certain intangible assets subject to
amortization for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable in accordance with Topic 360,
Property, Plant and Equipment and Topic 350,
respectively. If circumstances required a long-lived asset be
tested for possible impairment, the Company compares
undiscounted cash flows expected to be generated by an asset to
the carrying value of the asset. If the carrying value of the
long-lived asset is not recoverable on an undiscounted cash flow
basis, impairment is recognized to the extent that the carrying
value exceeds its fair value. Fair value is determined through
various valuation techniques including discounted cash flow
models, quoted market values and third-party independent
appraisals, as considered necessary.
Goodwill and indefinite-lived intangible assets are reviewed for
impairment at least annually in accordance with the provisions
of Topic 350.
Use of
estimates
The preparation of the consolidated financial statements, in
accordance with accounting principles generally accepted in the
United States of America, requires management to make estimates
and assumptions about future events that affect the amounts
reported in the consolidated financial statements and
accompanying notes. Significant items subject to such estimates
and assumptions include the carrying amount of property and
equipment, intangibles, and goodwill; valuation allowances for
receivables, inventories, and deferred income tax assets;
valuation of financial instruments; valuation of share-based
compensation; estimates of claims accruals; and contingent
obligations. Management evaluates its estimates and assumptions
on an ongoing basis using historical experience and other
factors, including but not limited to the current economic
environment, which management believes to be reasonable under
the circumstances. Management adjusts such estimates and
F-31
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
assumptions when facts and circumstances dictate. Illiquid
credit markets, volatile energy markets, and declines in
consumer spending have combined to increase the uncertainty
inherent in such estimates and assumptions. As future events and
their effects cannot be determined with precision, actual
results could differ significantly from these estimates.
Recent
accounting pronouncements
In December 2009, the FASB issued ASU
No. 2009-16,
Accounting for Transfers of Financial Assets (Topic
860). This ASU amends Topic 860 and will require
entities to provide more information about sales of securitized
financial assets and similar transactions, particularly if the
seller retains some risk to the assets and eliminates the
concept of Qualified Special Purpose Entity and changes the
criteria for the sale accounting treatment. This ASU is
effective for the Companys fiscal year beginning
January 1, 2010. The Company anticipates that the adoption
of ASU
No. 2009-16
will be material because it will result in the previously
de-recognized accounts receivable under our current
securitization program, as described in Note 10, being
brought back onto the balance sheet, with the related
securitization proceeds being recognized as debt.
In December 2009, the FASB issued ASU
No. 2009-17,
Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities (Topic 810).
This ASU amends Topic 810 by altering how a company
determines when an entity that is insufficiently capitalized or
not controlled through voting should be consolidated. This ASU
is effective for the Companys fiscal year beginning
January 1, 2010. The Company does not anticipate that ASU
No. 2009-17
will have a material impact on its financial statements.
In January 2010, the FASB issued ASU
No. 2010-06,
Fair Value Measurements and Disclosures (Topic
820) Improving Disclosures about Fair Value
Measurements. This ASU amends the Topic 820 to require
entities to provide new disclosures and clarify existing
disclosures relating to fair value measurements. New disclosures
include requiring an entity to disclose separately the amounts
of significant transfers in and out of Level 1 and 2 fair
value measurements and to describe the reasons for the
transfers, as well as to disclose separately gross purchases,
sales, issuances and settlements in the roll forward activity of
Level 3 measurements. Clarifications of existing
disclosures include requiring a greater level of disaggregation
of fair value measurements by class of assets and liabilities,
in addition to enhanced disclosures concerning the inputs and
valuation techniques used to determine Level 2 and
Level 3 fair value measurements. ASU
No. 2010-06
is effective for the Companys interim and annual periods
beginning January 1, 2010, except for the additional
disclosure of purchases, sales, issuances, and settlements in
Level 3 fair value measurements, which is effective for the
Companys fiscal year beginning January 1, 2011. The
Company does not expect the adoption of this statement to have a
material impact on its consolidated financial statements.
|
|
(2)
|
Contribution
of Interstate Equipment Leasing, Inc. and Swift Transportation
Co.
|
On April 7, 2007, Jerry and Vickie Moyes (collectively
Moyes) contributed their ownership of
1,000 shares of the common stock of IEL, which constitute
all of the issued and outstanding shares of IEL, to Swift
Corporation. Under the IEL Contribution and Exchange
Agreement, Moyes received 10,649,000 shares of Swift
Corporations common stock in the exchange.
Pursuant to the separate Swift Transportation Co.
Contribution and Exchange Agreement, Jerry Moyes,
The Jerry and Vickie Moyes Family Trust dated
12/11/87 and
various Moyes childrens trusts (collectively Moyes
affiliates) contributed 28,792,810 shares of Swift
Transportation Co. common stock, which represented 38.259% of
the then outstanding common stock of Swift Transportation Co. to
Swift Corporation on May 9, 2007. In exchange for the
contributed Swift Transportation Co. common stock, the Moyes
affiliates received a total of 64,495,892 shares of Swift
Corporations common stock.
The assets and liabilities of IEL and the 38.259% of Swift
Transportation Co. contributed to the Company were recorded at
their historical cost basis.
F-32
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
(3)
|
Acquisition
of Swift Transportation Co.
|
On May 10, 2007, through a wholly owned subsidiary formed
for that purpose, Swift Corporation completed its acquisition of
Swift Transportation Co. by a merger (the Merger)
pursuant to the Agreement and Plan of Merger (the Merger
Agreement), dated January 19, 2007, thereby acquiring
the remaining 61.741% of the outstanding shares of Swift
Transportation Co. common stock. Upon completion of the Merger,
Swift Transportation Co. became a wholly owned subsidiary of
Swift Corporation. In connection with the completion of the
Merger, at the close of the market on May 10, 2007, the
common stock of Swift Transportation Co. ceased trading on
NASDAQ.
The fair value of assets acquired and liabilities assumed and
the results of Swift Transportation Co.s operations are
included in Swift Corporations consolidated financial
statements beginning May 11, 2007. Pursuant to the Merger
Agreement, each share of Swift Transportation Co.s common
stock issued and outstanding immediately prior to the effective
time of the Merger was canceled and converted into the right to
receive $31.55 per share in cash, without interest. As a result,
Swift Corporation paid $1.52 billion in cash to acquire the
remaining interest of Swift Transportation Co.
The acquisition has been accounted for under the partial
purchase method as required by Topic 805. The following is a
summary of the $1.52 billion purchase price, which was
funded through borrowing under a $1.72 billion senior
credit facility, proceeds from the offering of $835 million
of senior notes and available cash. See Note 12 for a
summary of the use of proceeds from the credit facility and
senior notes.
|
|
|
|
|
|
|
(In thousands)
|
|
|
Cash consideration of $31.55 per share for non-Moyes affiliates
Swift Transportation Co. common stock outstanding
|
|
$
|
1,465,941
|
|
Cash consideration to holders of stock incentive awards
|
|
|
39,348
|
|
Transaction and change in control costs
|
|
|
15,192
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
1,520,481
|
|
|
|
|
|
|
The purchase price paid has been allocated to the assets
acquired and liabilities assumed based upon the fair values as
of the closing date of May 10, 2007. In valuing acquired
assets and assumed liabilities, fair values were based on, but
not limited to quoted market prices, where available; the intent
of the Company with respect to whether the assets purchased are
to be held, sold or abandoned; expected future cash flows;
current replacement cost for similar capacity for certain fixed
assets; market rate assumptions for contractual obligations; and
appropriate discount rates and growth rates. The excess of the
purchase price over the estimated fair value of the net assets
acquired has been recorded as goodwill.
A summary of the final purchase price allocation follows (in
thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
50,093
|
|
Accounts receivable
|
|
|
179,776
|
|
Property and equipment
|
|
|
950,927
|
|
Other assets
|
|
|
107,434
|
|
Intangible assets
|
|
|
442,263
|
|
Goodwill
|
|
|
486,758
|
|
Deferred income taxes (current and long-term)
|
|
|
(194,544
|
)
|
Other liabilities
|
|
|
(502,226
|
)
|
|
|
|
|
|
|
|
$
|
1,520,481
|
|
|
|
|
|
|
F-33
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
See Note 26 for a discussion of the Companys annual
impairment assessment of goodwill and the resulting impairment
charges taken in the fourth quarters of 2008 and 2007.
Accounts receivable as of December 31, 2009 and 2008 were
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Trade customers
|
|
$
|
9,338
|
|
|
$
|
17,032
|
|
Equipment manufacturers
|
|
|
6,167
|
|
|
|
6,604
|
|
Other
|
|
|
6,958
|
|
|
|
10,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,463
|
|
|
|
33,647
|
|
Less allowance for doubtful accounts
|
|
|
549
|
|
|
|
656
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
21,914
|
|
|
$
|
32,991
|
|
|
|
|
|
|
|
|
|
|
The schedule of allowance for doubtful accounts for the years
ended December 31, 2009, 2008 and 2007 was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Beginning balance
|
|
$
|
656
|
|
|
$
|
10,180
|
|
|
$
|
|
|
Contributed at May 9, 2007
|
|
|
|
|
|
|
|
|
|
|
5,554
|
|
Acquired at May 10, 2007
|
|
|
|
|
|
|
|
|
|
|
8,964
|
|
Provision (Reversal)
|
|
|
4,477
|
|
|
|
1,065
|
|
|
|
(1,350
|
)
|
Recoveries
|
|
|
11
|
|
|
|
39
|
|
|
|
202
|
|
Write-offs
|
|
|
(4,464
|
)
|
|
|
(223
|
)
|
|
|
(3,190
|
)
|
Retained interest adjustment
|
|
|
(131
|
)
|
|
|
(10,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
549
|
|
|
$
|
656
|
|
|
$
|
10,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 10 for a discussion of the Companys accounts
receivable securitization program and the related accounting
treatment.
Assets held for sale as of December 31, 2009 and 2008 were
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Land and facilities
|
|
$
|
2,737
|
|
|
$
|
448
|
|
Revenue equipment
|
|
|
834
|
|
|
|
3,472
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
3,571
|
|
|
$
|
3,920
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, assets held for sale are
stated at the lower of depreciated cost or fair value less
estimated cost to sell. The Company expects to sell these assets
within the next twelve months. During the year ended
December 31, 2008, the Company identified and recorded an
impairment of $5.4 million associated with real estate
properties, tractors and trailers held for sale. The impairments
were the result of the Companys decisions to sell the
respective assets and the prices offered by potential buyers, if
any, which reflect the decline in the market values of the
respective assets as well as the deteriorating economic and
credit environment.
F-34
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
(6)
|
Equity
investment Transplace
|
In 2000, the Company contributed $10.0 million in cash to
Transplace, Inc. (Transplace), a provider of
transportation management services. The Companys 29%
interest in Transplace was accounted for using the equity
method. In addition, during 2005 the Company loaned Transplace
$6.3 million pursuant to a note receivable bearing interest
at 6% per annum, due August 2011. As a result of accumulated
equity losses and purchase accounting valuation adjustments,
both the investment in Transplace and note receivable were $0 at
December 31, 2008. The Companys equity in the net
assets of Transplace exceeded its investment account by
approximately $20.5 million as of December 31, 2008.
The Company sold its entire investment in Transplace in December
2009 and recorded a gain of $4.0 million before taxes in
other income representing the recovery of the note receivable
from Transplace which the Company had previously written off.
During the years ended December 31, 2009, 2008 and 2007,
the Company earned $34.5 million, $26.9 million and
$7.1 million, respectively, in operating revenue from
business brokered by Transplace. At December 31, 2009 and
2008, $4.3 million and $4.0 million, respectively, was
owed to the Company for these services. The Company incurred no
purchased transportation expense from Transplace for the years
ended December 31, 2009, 2008 and 2007. The Company
recorded equity losses of $0, $152 thousand and $111 thousand,
respectively, in other expense during the years ended
December 31, 2009, 2008 and 2007 for Transplace.
Notes receivable are included in other current assets and other
assets in the accompanying consolidated balance sheets and were
comprised of the following as of December 31, 2009 and 2008
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Notes receivable due from owner-operators, with interest rates
at 15%, secured by revenue equipment. Terms range from several
months to three years.
|
|
$
|
5,568
|
|
|
$
|
5,800
|
|
Note receivable for the credit of development fees from the City
of Lancaster, Texas payable May 2014.
|
|
|
2,523
|
|
|
|
2,523
|
|
Other
|
|
|
102
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,193
|
|
|
|
8,425
|
|
Less current portion
|
|
|
(4,523
|
)
|
|
|
(4,224
|
)
|
|
|
|
|
|
|
|
|
|
Notes receivable, less current portion
|
|
$
|
3,670
|
|
|
$
|
4,201
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities as of December 31, 2009 and 2008 were
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Employee compensation
|
|
$
|
25,262
|
|
|
$
|
34,000
|
|
Accrued interest expense
|
|
|
40,693
|
|
|
|
23,128
|
|
Accrued owner-operator expenses
|
|
|
5,587
|
|
|
|
5,568
|
|
Owner-operator lease purchase reserve
|
|
|
5,817
|
|
|
|
5,851
|
|
Fuel, mileage and property taxes
|
|
|
6,851
|
|
|
|
7,430
|
|
Income taxes accrual
|
|
|
16,742
|
|
|
|
6,119
|
|
Other
|
|
|
9,710
|
|
|
|
12,154
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
110,662
|
|
|
$
|
94,250
|
|
|
|
|
|
|
|
|
|
|
F-35
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Claims accruals represent accruals for the uninsured portion of
pending claims at year end. The current portion reflects the
amounts of claims expected to be paid in the following year.
These accruals are estimated based on managements
evaluation of the nature and severity of individual claims and
an estimate of future claims development based on the
Companys historical claims development experience. The
Companys insurance program for workers compensation,
group medical liability, auto and collision liability, physical
damage and cargo damage involves self-insurance with varying
risk retention levels.
As of December 31, 2009 and 2008, claims accruals were (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Auto and collision liability
|
|
$
|
156,651
|
|
|
$
|
202,934
|
|
Workers compensation liability
|
|
|
76,522
|
|
|
|
85,026
|
|
Owner-operator claims liability
|
|
|
15,185
|
|
|
|
13,480
|
|
Group medical liability
|
|
|
9,896
|
|
|
|
10,743
|
|
Cargo damage liability
|
|
|
744
|
|
|
|
882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258,998
|
|
|
|
313,065
|
|
Less: current portion of claims accrual
|
|
|
92,280
|
|
|
|
155,769
|
|
|
|
|
|
|
|
|
|
|
Claim accruals, less current portion
|
|
$
|
166,718
|
|
|
$
|
157,296
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, the Company recorded
current claims receivable of $25 thousand and $4.4 million,
respectively, which is included in accounts receivable, and the
Company recorded noncurrent claims receivable of
$45.8 million and $42.9 million, respectively, which
is reported as insurance claims receivable in the accompanying
consolidated balance sheet, representing amounts due from
insurance companies for coverage in excess of the Companys
self-insured liabilities. The Company has recorded a
corresponding claim liability as of December 31, 2009 and
2008 of $42.9 million and $47.3 million, respectively,
related to these same claims, which is included in amounts
reported in the table above.
|
|
(10)
|
Accounts
receivable securitization
|
On July 6, 2007, the Company, through Swift Receivables
Corporation (SRC), a wholly owned bankruptcy-remote
special purpose subsidiary, entered into a receivable sale
agreement in order to sell, on a revolving basis, undivided
interests in its accounts receivable to an unrelated financial
entity (the 2007 RSA). Under the 2007 RSA, the
Company could receive up to $200 million of proceeds,
subject to eligible receivables and reserve requirements, and
paid a program fee as interest expense. The Company paid
commercial paper interest rates on the proceeds received. On
July 6, 2007, the Company received $200 million of
proceeds under the 2007 RSA, which was used to pay down
principal of the first lien term loan. The committed term of the
2007 RSA was through July 5, 2008. On March 27, 2008,
the Company amended the 2007 RSA to meet the conditions for true
sale accounting under Topic 860. Thereafter, such accounts
receivable and the associated obligation were no longer
reflected in the consolidated balance sheet and,
correspondingly, were not included as debt in the leverage ratio
calculation, and the program fees were included with other
expenses on the consolidated statement of operations.
On July 30, 2008, the Company, through Swift Receivables
Corporation II (SRCII), a wholly owned
bankruptcy-remote special purpose subsidiary, entered into a new
receivable sale agreement with unrelated financial entities (the
Purchasers) to replace the Companys 2007 RSA
and to sell, on a revolving basis, undivided interests in the
Companys accounts receivable (the 2008 RSA).
The program limit under the 2008 RSA is $210 million and is
subject to eligible receivables and reserve requirements.
Outstanding balances under the 2008 RSA accrue program fees at a
yield of LIBOR plus 300 basis points or Prime plus
F-36
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
200 basis points, at the Companys discretion. The
2008 RSA terminates on July 30, 2013 and is subject to an
unused commitment fee ranging from 25 to 50 basis points,
depending on the aggregate unused commitment of the 2008 RSA.
The Company paid $6.7 million in closing fees, which were
expensed at the time of sale consistent with true sale
accounting treatment and are recorded in other expense.
Pursuant to the 2008 RSA, collections under the receivables by
the Company are held for the benefit of SRCII and the Purchasers
of the undivided percentage interests in the receivables and are
unavailable to satisfy claims of the Company and its
subsidiaries. The 2008 RSA contains certain restrictions and
provisions (including cross-default provisions to our debt
agreements) which, if not met, could restrict the Companys
ability to sell future eligible receivables. The inability to
sell additional receivables would reduce liquidity as the daily
proceeds from collections on the receivables sold prior to
termination are remitted to the Purchasers, with no further
reinvestment of these funds by the Purchasers to purchase
additional receivables from the Company.
The Company continues to hold an interest in the sold
receivables. As of December 31, 2009 and 2008, the
Companys retained interest in receivables is carried at
its fair value of $79.9 million and $80.4 million,
respectively. Any gain or loss on the sale is determined based
on the previous carrying value amounts of the transferred assets
allocated at fair value between the receivables sold and the
interests that continue to be held. Fair value is determined
based on the present value of expected future cash flows taking
into account the key assumptions of anticipated credit losses,
the speed of payments, and the discount rate commensurate with
the uncertainty involved. For the year ended December 31,
2009 and 2008, the Company incurred program fee expense of
$5.0 million and $7.3 million, respectively, and
recognized a gain of $0.5 million and a loss of
$1.1 million, respectively, excluding the closing fees paid
on the 2008 RSA, associated with the sale of trade receivables
through the above-described programs, all of which was recorded
in other expenses.
As of December 31, 2009, the amount of receivables sold
through the accounts receivable securitization facility was
$148.4 million. This amount excludes delinquencies, as
defined in the 2008 RSA, which total $15.2 million at
December 31, 2009, and the related allowance for doubtful
accounts, both of which are included in the Companys
retained interest in receivables. During the year ended
December 31, 2009, credit losses were $4.5 million,
which were charged against the allowance for doubtful accounts
included in the Companys retained interest in receivables.
As discussed in Note 1, ASU
No. 2009-16
is effective for the Company on January 1, 2010. Following
adoption of ASU
No. 2009-16,
the Companys accounts receivable securitization facility
will no longer qualify for true sale accounting treatment but
will instead be treated as a secured borrowing. As a result, the
previously de-recognized accounts receivable will be brought
back onto the Companys balance sheet and the related
securitization proceeds will be recognized as debt, while the
program fees for the facility will be reported as interest
expense beginning January 1, 2010. The re-characterization
of program fees from other expense to interest expense will not
affect our interest coverage ratio calculation, and the change
in accounting treatment for the securitization proceeds from
sales proceeds to debt will not affect the leverage ratio
calculation, as defined in the Credit Agreement, as amended.
|
|
(11)
|
Fair
value of operating lease guarantees
|
The Company guarantees certain residual values under its
operating lease agreements for revenue equipment. At the
termination of these operating leases, the Company would be
responsible for the excess of the guarantee amount above the
fair market value, if any. As of December 31, 2009 and
2008, the Company has recorded a liability for the estimated
fair value of the guarantees, entered into subsequent to
January 1, 2003, in the amount of $2.5 million and
$2.6 million, respectively. The maximum potential amount of
future payments the Company would be required to make under all
of these guarantees as of December 31, 2009 is
$18.7 million.
F-37
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
(12)
|
Debt and
financing transactions
|
At December 31, 2009, the Company had approximately
$2.31 billion in debt outstanding primarily associated with
the Merger. The debt consists of proceeds from a first lien term
loan pursuant to a credit facility with a group of lenders
totaling $1.51 billion at December 31, 2009 and
proceeds from the offering of senior notes, $798.6 million
of which are outstanding at December 31, 2009. The use of
the proceeds included the cash consideration paid for the
purchase price of Swift Transportation Co. of $1.52 billion
(refer to Note 3), repayment of approximately
$376.5 million of indebtedness of Swift Transportation Co.
and IEL, $560 million advanced pursuant to the stockholder
loan receivable (refer to Note 17) and debt issuance
costs of $56.8 million. The remaining proceeds were used by
the Company for payment of transaction-related expenses. The
credit facility and senior notes are secured by substantially
all of the assets of the Company and are guaranteed by Swift
Corporation, IEL, Swift Transportation Co. and its domestic
subsidiaries other than its captive insurance subsidiaries and
its bankruptcy-remote special purpose subsidiaries.
Credit
facility
The credit facility consists of a first lien term loan with an
original aggregate principal amount of $1.72 billion due
May 2014, a $300 million revolving line of credit due May
2012 and a $150 million synthetic letter of credit facility
due May 2014. Principal payments on the first lien term loan are
due quarterly in amounts equal to (i) 0.25% of the original
aggregate principal outstanding beginning September 30,
2007 to June 30, 2013 and (ii) 23.5% of the original
aggregate principal outstanding from September 30, 2013
through its maturity. On July 6, 2007, the Company received
$200 million of proceeds under the 2007 RSA, which was used
to pay down the principal of the first lien term loan. In
accordance with the terms of the Credit Agreement, the principal
repayment was applied to the first eight quarterly payments and
the remaining repayment was applied to the last principal
payment due May 2014. Therefore, the first scheduled payment of
0.25% was due September 30, 2009. As of December 31,
2009, there is $1.51 billion outstanding under the first
lien term loan.
As of December 31, 2009, there were no borrowings under the
revolving line of credit. The unused portion of the revolving
line of credit is subject to a commitment fee of 1.00%. The
revolving line of credit also includes capacity for letters of
credit up to $175 million. As of December 31, 2009,
the Company had outstanding letters of credit under the
revolving line of credit primarily for workers
compensation and self-insurance liability purposes totaling
$79.2 million, leaving $220.8 million available under
the revolving line of credit.
The credit facility includes a $150 million synthetic
letter of credit facility. Similar to the letters of credit
under the revolving line of credit, the outstanding letters of
credit pursuant to the synthetic facility are primarily for
workers compensation and self-insurance liability
purposes. At December 31, 2009, synthetic letters of credit
totaling $147.8 million were issued and outstanding.
Interest on the first lien term loan and the outstanding
borrowings under the revolving credit facility are based upon
one of two rate options plus an applicable margin. The base rate
is equal to the higher of the prime rate published in the Wall
Street Journal and the Federal Funds Rate in effect plus 0.50%
to 1%, or the LIBOR. The Company may select the interest rate
option at the time of borrowing. As of December 31, 2009,
the applicable margins for the interest rate options have been
increased 275 basis points as a result of the Second
Amendment as discussed below and now range from 4.50% to 6.00%,
depending on the credit rating assigned by S&P and
Moodys. Interest on the first lien term loan and
outstanding borrowing under the revolving line of credit is
payable on the stated maturity of each loan, on the date of
principal prepayment, if any, with respect to base rate loans,
on the last day of each calendar quarter, and with respect to
LIBOR rate loans, on the last day of each interest period. As of
December 31, 2009, interest accrues at the greater of LIBOR
or LIBOR floor implemented as part of the Second Amendment
discussed below, plus 6.00% (8.25% at December 31, 2009).
F-38
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
On July 29, 2008, the Company entered into Amendment
No. 1 to its credit facility (the First
Amendment). The First Amendment made certain technical
clarifications to the credit facility including, but not limited
to, the definition of, and the application of, proceeds relating
to Qualified Receivables Transactions (as defined in the credit
agreement). In addition, the First Amendment provides:
i) that any future increases under the Companys
accounts receivable securitization program in excess of
$210 million will be included as a component of Total Debt
(as defined in the credit agreement) for purposes of calculating
the Leverage Ratio under the credit agreement; ii) that
fees, expenses
and/or yield
incurred in connection with Qualified Receivables Transactions
with respect to proceeds in excess of $210 million will be
treated as Interest Expense under the credit agreement; and
iii) for a $5 million increase to the permitted
dispositions basket (from $25 million to $30 million).
The Company paid $8.5 million in consent fees to consenting
lenders in consideration for the First Amendment and
$0.2 million in other fees, all of which was recorded as
deferred loan costs to be amortized to interest expense over the
remaining life of the credit facility.
On October 13, 2009, the Company entered into the Second
Amendment, the material terms of which are summarized below,
each effective October 13, 2009 unless otherwise noted:
a. Covenants and Liquidity: The maximum
leverage ratio and minimum interest coverage ratio were amended,
effective commencing with the quarter ended September 30,
2009, to be less restrictive in light of the current economic
environment which the original covenant levels did not
anticipate. The Second Amendment also included a partial waiver
of the mandatory excess cash flow sweep for 2009 and 2010,
permitting excess cash flow (as defined in the Credit Agreement)
up to $75.0 million in 2009 and $40.0 million in 2010
to be retained by the Company. In addition, a minimum liquidity
covenant was added, commencing with the quarter ended
September 30, 2009, to require that the Company maintain a
minimum cash and revolver availability (as defined) of not less
than $65.0 million as of the last day of each fiscal
quarter. Further, anti-hoarding provisions were added to prevent
the Company from accessing the revolving line of credit if cash
(as defined) exceeds $50.0 million, with certain
exceptions. A revolving line of credit cash sweep provision was
also added such that the Company will be required to repay
outstanding balances on the revolving line of credit if the cash
balance (as defined) at quarter end exceeds $50.0 million,
with certain exceptions. Maximum capital expenditure levels were
also adjusted downward. Additionally, certain definitions were
clarified, added and adjusted in order to, among other things,
adjust the manner of calculating the financial covenants and
permit an increased level of asset dispositions. As a result of
the Second Amendment, for the purposes of calculating the
leverage ratio, any liability associated with revolving line of
credit borrowings will be calculated using the quarter-end
balance, instead of the average balance during the quarter.
b. Interest Costs: The applicable margin
on the credit facility was increased by 275 basis points
(resulting in interest rate options ranging from 4.50% to
6.00%), the unused commitment fee under the revolving line of
credit was increased by 50 basis points (to 1.00%), a LIBOR
floor was added to the credit facility such that the interest
rate on LIBOR option loans will be no less than 2.25%, and a
minimum alternate base rate option was added to the credit
facility such that the interest rate on prime rate option loans
will be no less than 3.25%.
c. Separation from Stockholders and Stockholder Loan
Modifications: In order to reduce risk to the
Company associated with its stockholders, certain definitions
(including those used in certain default provisions) were
modified to exclude the stockholders.
d. Other Amendments: In addition, various
other administrative items and definitions were clarified, added
and adjusted in order to, among other things, conform to the
changes stated above, allow for future implementation of certain
hedging strategies, modify the change in control definition to
provide the stockholders additional flexibility to potentially
raise equity capital in the future, and exclude Red Rock Risk
Retention Group, Inc. (a captive insurance subsidiary of the
Company) from being a subsidiary guarantor.
F-39
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Senior
notes
On May 10, 2007, the Company completed a private placement
of second-priority senior notes associated with the acquisition
of Swift Transportation Co. totaling $835 million, which
consisted of: $240 million aggregate principal amount
second-priority senior secured floating rate notes due
May 15, 2015 (senior floating rate notes) and
$595 million aggregate principal amount of 12.50%
second-priority senior secured fixed rate notes due May 15,
2017 (senior fixed rate notes and, together with the
senior floating rate notes, the senior notes).
Interest on the senior floating rate notes is payable on
February 15, May 15, August 15, and
November 15, beginning August 15, 2007, accruing at
three-month LIBOR plus 7.75% (8.02% at December 31, 2009).
Once the credit facility is paid in full, the Company may redeem
any of the senior floating rate notes on any interest payment
date on or after May 15, 2009 at an initial redemption
price of 102%.
Interest on the 12.50% senior fixed rate notes is payable
on May 15 and November 15, beginning November 15,
2007. Once the credit facility is paid in full, on or after
May 15, 2012, the Company may redeem the fixed rate notes
at an initial redemption price of 106.25% of their principal
amount and accrued interest.
During the year ended December 31, 2009, Jerry Moyes, the
Companys Chief Executive Officer and majority stockholder
purchased $36.4 million face value senior floating rate
notes and $89.4 million face value senior fixed rate notes
in open market transactions and received $7.2 million in
interest payments with respect to these notes. As discussed
below, these notes were forgiven by Mr. Moyes in connection
with the Second Amendment.
An intercreditor agreement among the first lien agent for the
senior secured credit facility, the trustee of the senior notes,
Swift Corporation and certain of its subsidiaries establishes
the second priority status of the senior notes and contains
restrictions and agreements with respect to the control of
remedies, release of collateral, amendments to security
documents, and the rights of holders of first priority lien
obligations and holders of the senior notes.
In connection with the Second Amendment discussed above, certain
changes to the intercreditor agreement and the indentures
governing the senior notes were required to facilitate
and/or
conform to the changes contained in the Second Amendment noted
above, including that any future increases of the coupon
applicable to the credit facility in excess of 0.50% will now
require consent of the holders of the senior notes. Further, the
indentures governing the senior notes were amended to increase
the $175.0 million limit for capital lease obligations to
$212.5 million for 2010 and to $250.0 million
thereafter. To effect these changes, on October 13, 2009,
the Company entered into an intercreditor agreement amendment, a
fixed rate note supplemental indenture, and a floating rate note
supplemental indenture (the indenture amendments).
The Company incurred $23.9 million of transaction costs
related to the Second Amendment and indenture amendments,
$19.7 million of which was capitalized as deferred loan
costs and $4.2 million of which was expensed to operating
supplies and expenses. The determination of the portions
capitalized and expensed was based upon the nature of the
payment, such as lender costs or third party advisor fees, and
the accounting classification for the modification of each
agreement under Topic
470-50,
Debt Modifications and Extinguishments.
As of December 31, 2009 and 2008 the balance of deferred
loan costs was $65.1 million and $54.7 million,
respectively, and is reported in other assets in the
consolidated balance sheets.
In connection with the Second Amendment, Mr. Moyes agreed
to cancel his personally held senior notes in return for a
$325.0 million reduction of the stockholder loan due 2018
owed to the Company by the Moyes affiliates, each of which is a
stockholder of the Company. The floating rate notes held by
Mr. Moyes, totaling $36.4 million in principal amount,
were cancelled at closing on October 13, 2009 and,
correspondingly, the stockholder loan was reduced by
$94.0 million. The fixed rate notes held by Mr. Moyes,
totaling $89.4 million
F-40
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
in principal amount, were cancelled in January 2010 and the
stockholder loan was reduced further by an additional
$231.0 million. The amount of the stockholder loan
cancelled in exchange for the contribution of notes was
negotiated by Mr. Moyes with the steering committee of
lenders, comprised of a number of the largest lenders (by
holding size) and the Administrative Agent of the Credit
Agreement. Various changes to the Credit Agreement were required
to facilitate this transaction. The cancellation of the notes
increased stockholders equity by $36.4 million in
October 2009 and by $89.4 million in January 2010. Further,
the note cancellation improves the Companys leverage
position and partially offsets the increase in interest on the
credit facility discussed above. Due to the classification of
the stockholder loan as contra-equity, the reduction in the
stockholder loan did not reduce the Companys
stockholders equity.
During the third quarter of 2009, the Company began making
preparations for an additional senior note offering in
anticipation of paying down a portion of the outstanding
principal under the first lien term loan. This note offering was
cancelled prior to entering into the Second Amendment and
indenture amendments discussed above. The Company incurred
$2.3 million of legal and advisory costs related to this
cancelled note offering, which was expensed to operating
supplies and expenses during the third quarter of 2009.
Debt
covenants
The credit facility contains certain covenants, including but
not limited to required minimum liquidity, limitations on
indebtedness, liens, asset sales, transactions with affiliates,
and required leverage and interest coverage ratios, which ratios
were amended by the Second Amendment effective commencing with
the quarter ended September 30, 2009. As of
December 31, 2009, the Company was in compliance with these
covenants. The indentures governing the senior notes contain
covenants relating to limitations on asset sales, incurrence of
indebtedness and entering into sales and leaseback transactions.
As of December 31, 2009, the Company was in compliance with
these covenants. The indentures for the senior notes include a
limit on future indebtedness, with specified exceptions, if a
minimum fixed charge coverage ratio, as defined, is not met. The
Company currently does not meet that minimum requirement and
cannot incur additional debt in excess of that specified in the
agreement, including the $175 million limit for outstanding
capital lease obligations. As noted above, this limit for
capital lease obligations increases to $212.5 million for
2010 and $250 million thereafter as a result of the
indenture amendments.
As permitted by the terms of the Credit Agreement, as amended,
securitization proceeds under the 2008 RSA up to
$210 million are not included as debt in the leverage ratio
calculation, without regard to whether on or off-balance sheet
accounting treatment applies to the accounts receivable
securitization program. Although the Company met the leverage
ratio, interest coverage ratio and minimum liquidity
requirements as of December 31, 2009 and is projecting to
be in compliance in the future, the Company is subject to risks
and uncertainties that the transportation industry will remain
depressed and that the Company may not be successful in
executing its business strategies. In the event current trucking
industry conditions worsen or persist for an extended period of
time, the Company has plans to implement certain actions that
could assist in maintaining compliance with the debt covenants,
including reducing capital expenditures, improving working
capital, and reducing expenses in targeted areas of operations.
F-41
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
As of December 31, 2009 and 2008, long-term debt was (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
First lien term loan due May 2014
|
|
$
|
1,511,400
|
|
|
$
|
1,520,000
|
|
Second-priority senior secured floating rate notes due
May 15, 2015
|
|
|
203,600
|
|
|
|
240,000
|
|
12.50% second-priority senior secured fixed rate notes due
May 15, 2017
|
|
|
595,000
|
|
|
|
595,000
|
|
Note payable, with principal and interest payable in five annual
payments of $514 plus interest at a fixed rate of 7.00% through
August 2013 secured by real property
|
|
|
2,056
|
|
|
|
2,570
|
|
Note payable, with principal and interest payable in
24 monthly payments of $52 including interest at a fixed
rate of 4.64% through August 2009 secured by information
technology hardware and software
|
|
|
|
|
|
|
457
|
|
Notes payable, with principal and interest payable in
24 monthly payments of $130 including interest at a fixed
rate of 7.5% through May 2011
|
|
|
1,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
2,314,049
|
|
|
|
2,358,027
|
|
Less: current portion
|
|
|
19,054
|
|
|
|
9,571
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
2,294,995
|
|
|
$
|
2,348,456
|
|
|
|
|
|
|
|
|
|
|
The aggregate annual maturities of long-term debt as of
December 31, 2009 were (in thousands):
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2010
|
|
$
|
19,054
|
|
2011
|
|
|
18,359
|
|
2012
|
|
|
17,720
|
|
2013
|
|
|
417,616
|
|
2014
|
|
|
1,042,700
|
|
Thereafter
|
|
|
798,600
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
2,314,049
|
|
|
|
|
|
|
The Company leases certain revenue equipment under capital
leases. The Companys capital leases are typically
structured with balloon payments at the end of the lease term
equal to the residual value the Company is contracted to receive
from certain equipment manufacturers upon sale or trade back to
the manufacturers. The Company is obligated to pay the balloon
payments at the end of the leased term whether or not it
receives the proceeds of the contracted residual values from the
respective manufacturers. Certain leases contain renewal or
fixed price purchase options. The leases are collateralized by
revenue equipment with a cost of $276.4 million and
accumulated amortization of $53.6 million at
December 31, 2009. The amortization of the revenue
equipment under capital leases is included in depreciation and
amortization expense.
F-42
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
The following is a schedule of the future minimum lease payments
under capital leases together with the present value of the net
minimum lease payments as of December 31, 2009 (in
thousands):
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2010
|
|
$
|
38,019
|
|
2011
|
|
|
53,180
|
|
2012
|
|
|
50,271
|
|
2013
|
|
|
27,781
|
|
2014
|
|
|
7,260
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
176,511
|
|
Less: amount representing interest
|
|
|
23,626
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
152,885
|
|
Less: current portion
|
|
|
27,700
|
|
|
|
|
|
|
Capital lease obligations, long-term
|
|
$
|
125,185
|
|
|
|
|
|
|
|
|
(14)
|
Derivative
financial instruments
|
The Company is exposed to certain risks relating to its ongoing
business operations. The primary risk managed by using
derivative instruments is interest rate risk. In 2007, the
Company entered into several interest rate swap agreements for
the purpose of hedging variability of interest expense and
interest payments on long-term variable rate debt and senior
notes. The strategy is to use pay-fixed/receive-variable
interest rate swaps to reduce the Companys aggregate
exposure to interest rate risk. These derivative instruments are
not entered into for speculative purposes.
In connection with the credit facility, the Company has four
interest rate swap agreements in effect at December 31,
2009 with a total notional amount of $1.14 billion. These
interest rate swaps have varying maturity dates through August
2012. At October 1, 2007 (designation date),
the Company designated and qualified these interest rate swaps
as cash flow hedges. Subsequent to the October 1, 2007
designation date, the effective portion of the changes in fair
value of the designated swaps was recorded in accumulated OCI
and is thereafter recognized to derivative interest expense as
the interest on the variable debt affects earnings. The
ineffective portions of the changes in the fair value of
designated interest rate swaps were recognized directly to
earnings as derivative interest expense in the Companys
statements of operations. At December 31, 2009 and 2008,
unrealized losses on changes in fair value of the designated
interest rate swap agreements totaling $54.1 million and
$31.3 million after taxes, respectively, were reflected in
accumulated OCI. As of December 31, 2009, the Company
estimates that $33.9 million of unrealized losses included
in accumulated OCI will be realized and reported in earnings
within the next twelve months.
Prior to the Second Amendment in October 2009, these interest
rate swap agreements had been highly effective as a hedge of the
Companys variable rate debt. However, the implementation
of the 2.25% LIBOR floor for the credit facility pursuant to the
Second Amendment effective October 13, 2009, as discussed
in Note 12, impacted the ongoing accounting treatment for
the Companys remaining interest rate swaps under Topic
815. The interest rate swaps no longer qualify as highly
effective in offsetting changes in the interest payments on
long-term variable rate debt. Consequently, the Company removed
the hedging designation and ceased cash flow hedge accounting
treatment under Topic 815 for the swaps effective
October 1, 2009. As a result, all of the ongoing changes in
fair value of the interest rate swaps are recorded as derivative
interest expense in earnings following this date whereas the
majority of changes in fair value had been recorded in OCI under
cash flow hedge accounting. The cumulative change in fair value
of the swaps which occurred prior to the cessation in hedge
accounting remains in accumulated OCI and is amortized to
earnings as derivative interest expense in current and future
periods as the interest payments on the first lien term loan
affect earnings. The
F-43
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Company is evaluating various alternatives for potentially
terminating some or all of the remaining interest rate swap
contracts as they are no longer expected to provide an economic
hedge in the near term.
The Company also assumed three interest rate swap agreements in
the acquisition of Swift Transportation Co., the last of which
expired in March 2009. These instruments were not designated and
did not qualify for cash flow hedge accounting. The changes in
the fair value of these interest rate swap agreements were
recognized in net earnings as derivative interest expense in the
periods they occurred.
The fair value of the interest rate swap liability at
December 31, 2009 and 2008 was $80.3 million and
$44.4 million, respectively. The fair values of the
interest rate swaps are based on valuations provided by third
parties, derivative pricing models, and credit spreads derived
from the trading levels of the Companys first lien term
loan and senior fixed rate notes as of December 31, 2009
and 2008, respectively. Refer to Note 24 for further
discussion of the Companys fair value methodology.
As of December 31, 2009, information about classification
of fair value of the Companys interest rate derivative
contracts, including those that are designated as hedging
instruments under Topic 815, Derivatives and
Hedging, and those that are not so designated, is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
Derivative Liabilities Description
|
|
Balance Sheet Classification
|
|
December 31, 2009
|
|
|
Interest rate derivative contracts designated as hedging
instruments under Topic 815:
|
|
Fair value of interest rate swaps (current and non-current)
|
|
$
|
|
|
Interest rate derivative contracts not designated as hedging
instruments under Topic 815:
|
|
Fair value of interest rate swaps (current and non-current)
|
|
$
|
80,279
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
80,279
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, information about
amounts and classification of gains and losses on the
Companys interest rate derivative contracts that were
designated as hedging instruments under Topic 815 is as follows
(in thousands):
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
Amount of loss recognized in OCI on derivatives (effective
portion)
|
|
$
|
(70,500
|
)
|
Amount of loss reclassified from accumulated OCI into income as
Derivative interest expense (effective portion)
|
|
$
|
(47,701
|
)
|
Amount of gain recognized in income on derivatives as
Derivative interest expense (ineffective portion)
|
|
$
|
3,437
|
|
For the year ended December 31, 2009, information about
amounts and classification of gains and losses on the
Companys interest rate derivative contracts that are not
designated as hedging instruments under Topic 815 is as follows
(in thousands):
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
Amount of loss recognized in income on derivatives as
Derivative interest expense
|
|
$
|
(11,370
|
)
|
F-44
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Operating
leases (as lessee)
The Company leases various revenue equipment and terminal
facilities under operating leases. At December 31, 2009,
the future minimum lease payments under noncancelable operating
leases were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
Facilities
|
|
|
Total
|
|
|
Years Ending December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
63,942
|
|
|
$
|
782
|
|
|
$
|
64,724
|
|
2011
|
|
|
40,007
|
|
|
|
405
|
|
|
|
40,412
|
|
2012
|
|
|
20,626
|
|
|
|
225
|
|
|
|
20,851
|
|
2013
|
|
|
5,419
|
|
|
|
83
|
|
|
|
5,502
|
|
2014
|
|
|
924
|
|
|
|
|
|
|
|
924
|
|
Thereafter
|
|
|
1,154
|
|
|
|
|
|
|
|
1,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
132,072
|
|
|
$
|
1,495
|
|
|
$
|
133,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The revenue equipment leases generally include purchase options
exercisable at the completion of the lease. For the years ended
December 31, 2009, 2008 and 2007, total rental expense was
$79.8 million, $76.9 million and $51.7 million,
respectively.
Operating
leases (as lessor)
The Companys wholly owned subsidiary, IEL, leases revenue
equipment to the Companys owner-operators under operating
leases. As of December 31, 2009, the annual future minimum
lease payments receivable under operating leases were as follows
(in thousands):
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2010
|
|
$
|
61,995
|
|
2011
|
|
|
49,325
|
|
2012
|
|
|
32,379
|
|
2013
|
|
|
12,289
|
|
2014
|
|
|
981
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
156,969
|
|
|
|
|
|
|
In the normal course of business, owner-operators default on
their leases with the Company. The Company normally re-leases
the equipment to other owner-operators, shortly thereafter. As a
result, the future lease payments are reflective of payments
from original leases as well as the subsequent re-leases.
Purchase
commitments
The Company had commitments outstanding to acquire revenue
equipment in 2010 for approximately $146.1 million as of
December 31, 2009. The Company generally has the option to
cancel tractor purchase orders with 90 days notice,
although the notice period has lapsed for approximately
one-third of the commitments outstanding at December 31,
2009. 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.
F-45
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
The Company has also entered into purchase agreements for a
portion of its diesel fuel requirements for 2010 and has a
commitment of $2.1 million remaining as of
December 31, 2009.
In addition, the Company had remaining commitments of
$1.0 million as of December 31, 2009 under contracts
relating to acquisition, development and improvement of
facilities.
The Company is involved in certain claims and pending litigation
primarily arising in the normal course of business. Based on the
knowledge of the facts and, in certain cases, advice of outside
counsel, management believes the resolution of claims and
pending litigation will not have a material adverse effect on
the Companys financial position.
|
|
(17)
|
Stockholder
loans receivable
|
On May 10, 2007, the Company entered into a Stockholder
Loan Agreement with its stockholders. Under the agreement, the
Company loaned the stockholders $560 million to be used to
satisfy their indebtedness owed to Morgan Stanley Senior
Funding, Inc. (Morgan Stanley). The proceeds of the
Morgan Stanley loan had been used to repay all indebtedness of
the stockholders secured by the common stock of Swift
Transportation Co. owned by the Moyes affiliates prior to the
contribution by them of that common stock to Swift Corporation
on May 9, 2007 (refer to Note 2). The principal and
accrued interest is due on May 10, 2018. The balance of the
loan at December 31, 2009 is $469.4 million.
The stockholders are required to make interest payments on the
stockholder loan in cash only to the extent that the
stockholders receive a corresponding dividend from the Company.
As of December 31, 2009 and 2008, this stockholder loan
receivable is recorded as contra-equity within
stockholders equity. Interest accrued under the
stockholder loan receivable is recorded as an increase to
additional paid-in capital with a corresponding reduction in
retained earnings for the related dividend. For the years ended
December 31, 2009, 2008 and 2007, the total dividend paid
to the stockholders and the corresponding interest payment
received from the stockholders under the agreement was
$16.4 million, $33.8 million and $29.7 million,
respectively. Additionally, during the fourth quarter of 2009,
interest of $3.4 million was accrued and added to the
stockholder loan balance as
paid-in-kind
interest as the stockholders did not elect to receive dividends
to fund the interest payments following the Companys
change in tax status to a subchapter C corporation effective
October 10, 2009 as discussed in Note 20.
In connection with the Second Amendment as discussed in
Note 12, the Company and the Moyes affiliates entered into
Consent and Amendment No. 1 to the Stockholder Loan
Agreement (the First Stockholder Loan Amendment)
effective October 13, 2009. Following this amendment, the
stockholder loan accrues interest at 2.66%, the mid-term
Applicable Federal Rate as published by the Internal Revenue
Service on the amendment effective date, instead of the rate
applicable to the Companys first lien term loan as
previously provided for under the initial loan terms. Further,
the stockholders can elect to make each payment in cash or
payment-in-kind
by being added to the principal balance of the loan. The
stockholders may elect to continue receiving dividends from the
Company to fund interest payments on the stockholder loan, but
the entire amount distributed as dividends must be repaid to the
Company as interest, with the stockholders responsible for any
tax liability on such dividends as a result of the
Companys new subchapter C Corporation tax status, as noted
above.
Also in connection with the Second Amendment and as discussed in
Note 12, Mr. Moyes agreed to cancel
$125.8 million of personally held senior notes in return
for a $325.0 million reduction of the stockholder loan. The
floating rate notes held by Mr. Moyes, totaling
$36.4 million in principal amount, were cancelled at
closing on October 13, 2009 and, correspondingly, the
stockholder loan was reduced by $94.0 million. The fixed
rate notes held by Mr. Moyes, totaling $89.4 million
in principal amount, were
F-46
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
cancelled in January 2010 and the stockholder loan was reduced
further by an additional $231.0 million. The amount of the
stockholder loan cancelled in exchange for the contribution of
notes was negotiated by Mr. Moyes with the steering
committee of lenders, comprised of a number of the largest
lenders (by holding size) and the Administrative Agent of the
Credit Agreement. Due to the classification of the stockholder
loan as contra-equity, the reduction in the stockholder loan
will not reduce the Companys stockholders equity.
Pursuant to an amended and restated note agreement dated
October 10, 2006 between IEL and an entity affiliated with
the Moyes affiliates, IEL has a note receivable of
$1.7 million at December 31, 2009 due from the
affiliated party. The note is guaranteed by Jerry Moyes. The
note accrues interest at 7.0% per annum with monthly
installments of principal and accrued interest equal to $38
thousand through October 10, 2013 when the remaining
balance is due. As of December 31, 2009 and 2008, because
of the affiliated status of the payor, this note receivable is
recorded as contra-equity within stockholders equity.
|
|
(18)
|
Stockholder
distributions
|
On May 7, 2007, the Board of Directors of the Company
approved the distribution of certain IEL non-revenue equipment,
consisting primarily of personal vehicles, to the stockholders
of the Company. The net book value of the equipment distributed
was approximately $1.6 million.
On October 10, 2007, the Board of Directors and
stockholders of the Company approved and adopted the Plan. On
October 16, 2007, the Company granted 7.4 million
stock options to employees at an exercise price of $12.50 per
share, which exceeded the estimated fair value of the common
stock on the date of grant. Additionally, on August 27,
2008, the Company granted 1.0 million stock options to
employees and nonemployee directors at an exercise price of
$13.43 per share, which equaled the estimated fair value of the
common stock on the date of grant. On December 31, 2009,
the Company granted 0.6 million stock options to employees
at an exercise price of $6.89, which equaled the estimated fair
value on the date of grant. The estimated fair value in each
case was determined by a third party valuation analysis and
considered a number of factors, including the Companys
discounted projected cash flows, comparative multiples of
similar companies, the lack of liquidity of the Companys
common stock and certain risks the Company faced at the time of
the valuation.
The options were granted to two categories of employees. The
options granted to the first category of employees will vest
upon the occurrence of the earliest of (i) a sale or a
change in control of the Company or, (ii) a five-year
vesting period at a rate of
331/3%
following the third anniversary date of the grant. The options
granted to the second category of employees will vest upon the
later of (i) the occurrence of an initial public offering
of the Company or (ii) a five-year vesting period at a rate
of
331/3%
following the third anniversary date of the grant. To the extent
vested, both types of options will become exercisable
simultaneous with the closing of the earlier of (i) an
initial public offering, (ii) a sale, or (iii) a
change in control of the Company. As of December 31, 2009,
the Company is authorized to grant an additional
3.8 million options.
As a result of the lack of exercisability, the stock options
outstanding are considered to be variable awards and the
measurement date will only occur when the exercise of the
options becomes probable. At December 31, 2009, the
exercisability of the Companys stock options had not yet
been deemed probable and as a result no compensation expense has
been recorded. Additionally, there was no unrecognized
compensation expense resulting from the Companys
outstanding stock options as of December 31, 2009.
F-47
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
A summary of the Companys stock option plan activity as of
and for the years ended December 31, 2009, 2008 and 2007 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Outstanding at beginning of year
|
|
|
6,292,500
|
|
|
$
|
12.64
|
|
|
|
6,740,000
|
|
|
$
|
12.50
|
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
564,500
|
|
|
|
6.89
|
|
|
|
981,000
|
|
|
|
13.43
|
|
|
|
7,359,000
|
|
|
|
12.50
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(644,000
|
)
|
|
|
12.55
|
|
|
|
(1,428,500
|
)
|
|
|
12.50
|
|
|
|
(619,000
|
)
|
|
|
12.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
6,213,000
|
|
|
$
|
12.13
|
|
|
|
6,292,500
|
|
|
$
|
12.64
|
|
|
|
6,740,000
|
|
|
$
|
12.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The options outstanding at December 31, 2009 had a weighted
average remaining contractual life of 8.1 years. As of
December 31, 2009 and 2008, no options outstanding were
exercisable.
The fair value of each option award is estimated on the date of
grant using the Black-Scholes-Merton option-pricing model, which
uses a number of assumptions to determine the fair value of the
options on the date of grant. The weighted-average grant date
fair value of options granted at or above market value during
the years ended December 31, 2009, 2008 and 2007 was $3.39
per share, $6.21 per share and $3.28 per share, respectively.
The following weighted-average assumptions were used to
determine the weighted-average grant date fair value of the
stock options granted during the years ended December 31,
2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
Expected volatility
|
|
|
45%
|
|
|
|
41%
|
|
|
|
46%
|
|
Risk free interest rate
|
|
|
3.39%
|
|
|
|
3.34%
|
|
|
|
4.47%
|
|
Expected lives (in years)
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
6.5
|
|
The expected volatility of the options are based on the daily
closing values of the similar market capitalized trucking group
participants within the Dow Jones Total U.S. Market
Index over the expected term of the options. As a result of
the inability to predict the expected future employee exercise
behavior, the Company estimated the expected lives of the
options using the simplified method based on the contractual and
vesting terms of the options. The risk-free interest rate is
based upon the U.S. Treasury yield curve at the date of
grant with maturity dates approximately equal to the expected
life at the grant date.
The following table summarizes information about stock options
outstanding at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Contractual Years
|
|
Number Vested
|
Exercise Price
|
|
Outstanding
|
|
Remaining
|
|
and Exercisable
|
|
$12.50
|
|
|
4,708,500
|
|
|
|
7.8
|
|
|
|
|
|
$13.43
|
|
|
940,000
|
|
|
|
8.7
|
|
|
|
|
|
$6.89
|
|
|
564,500
|
|
|
|
10.0
|
|
|
|
|
|
F-48
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Income tax expense (benefit) was (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
11,509
|
|
|
$
|
5,790
|
|
|
$
|
230
|
|
State
|
|
|
1,170
|
|
|
|
631
|
|
|
|
683
|
|
Foreign
|
|
|
3,311
|
|
|
|
1,230
|
|
|
|
(1,670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,990
|
|
|
|
7,651
|
|
|
|
(757
|
)
|
Deferred expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
292,113
|
|
|
|
1,035
|
|
|
|
(220,211
|
)
|
State
|
|
|
19,137
|
|
|
|
2,904
|
|
|
|
(12,195
|
)
|
Foreign
|
|
|
(590
|
)
|
|
|
(222
|
)
|
|
|
(1,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
310,660
|
|
|
$
|
3,717
|
|
|
$
|
(233,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
326,650
|
|
|
$
|
11,368
|
|
|
$
|
(234,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Until October 10, 2009, the Company had elected to be taxed
under the Internal Revenue Code as a subchapter
S Corporation. Under subchapter S provisions, the Company
did not pay corporate income taxes on its taxable income.
Instead, the stockholders were liable for federal and state
income taxes on the taxable income of the Company. An income tax
provision or benefit was recorded for certain of the
Companys subsidiaries, including its Mexico subsidiaries
and its domestic captive insurance company, which are not
eligible to be treated as a qualified subchapter
S Corporation. Additionally, the Company recorded a
provision for state income taxes applicable to taxable income
attributed to states that do not recognize the
S Corporation election.
The financial impacts of the amendments and related events
completed during the fourth quarter of 2009, as discussed in
Note 12, are expected to be considered a Significant
Modification for tax purposes and hence trigger a
Debt-for-Debt
Deemed Exchange. To protect against possible splitting of the
Cancellation of Debt (COD) income and Original Issue
Discount (OID) deductions in the future between the
S-Corp stockholders and the Company, the Company elected to
revoke its previous election to be taxed under the Internal
Revenue Code as a subchapter S Corporation and is now being
taxed as a subchapter C Corporation beginning October 10,
2009. Under subchapter C, the Company is liable for federal and
state corporate income taxes on its taxable income.
The Companys effective tax rate was 298.9% in 2009, 8.5%
in 2008 and was a benefit of 70.9%, in 2007. From
January 1st through October 9, 2009, as well as
during all of 2008 and 2007, actual tax expense differs from the
expected tax expense (computed by applying the
U.S. Federal corporate income tax rate for subchapter
S Corporations of 0% to earnings before income taxes) as
noted in the following table. Following the Companys
revocation of its subchapter S corporation election as
noted above, from October 10, 2009 through
December 31, 2009 actual tax expense differs from the
expected tax expense (computed by applying
F-49
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
the U.S. Federal corporate income tax rate for subchapter C
corporations of 35% to earnings before income taxes) as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Computed expected tax expense (benefit)
|
|
$
|
(12,846
|
)
|
|
$
|
|
|
|
$
|
|
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal income tax benefit
|
|
|
1,659
|
|
|
|
3,535
|
|
|
|
(465
|
)
|
Conversion to an S Corporation for income tax purposes
|
|
|
|
|
|
|
|
|
|
|
(230,180
|
)
|
Conversion to a C Corporation for income tax purposes
|
|
|
324,829
|
|
|
|
|
|
|
|
|
|
Effect of tax rates different than statutory (Domestic)
|
|
|
2,816
|
|
|
|
4,181
|
|
|
|
2,794
|
|
Effect of tax rates different than statutory (Foreign)
|
|
|
1,418
|
|
|
|
326
|
|
|
|
289
|
|
Effect of providing additional
Built-In-Gains
deferred taxes
|
|
|
684
|
|
|
|
1,411
|
|
|
|
|
|
Effect of providing deferred taxes on
mark-to-market
adjustment of derivatives recorded in accumulated OCI
|
|
|
6,294
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
1,796
|
|
|
|
1,915
|
|
|
|
(6,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
326,650
|
|
|
$
|
11,368
|
|
|
$
|
(234,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the net deferred tax asset (liability) as of
December 31, 2009 and 2008 were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Claims accruals
|
|
$
|
67,249
|
|
|
$
|
2,390
|
|
Allowance for doubtful accounts
|
|
|
4,559
|
|
|
|
49
|
|
Derivative financial instruments
|
|
|
29,885
|
|
|
|
295
|
|
Vacation accrual
|
|
|
3,546
|
|
|
|
38
|
|
Original issue discount
|
|
|
69,312
|
|
|
|
|
|
Equity investments
|
|
|
554
|
|
|
|
5,543
|
|
Net operating loss
|
|
|
5,777
|
|
|
|
2,134
|
|
Other
|
|
|
5,680
|
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
186,562
|
|
|
|
11,432
|
|
Valuation allowance
|
|
|
(2,043
|
)
|
|
|
(1,582
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
|
184,519
|
|
|
|
9,850
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment, principally due to differences in
depreciation
|
|
|
(343,778
|
)
|
|
|
(30,467
|
)
|
Prepaid taxes, licenses and permits deducted for tax purposes
|
|
|
(8,898
|
)
|
|
|
(98
|
)
|
Cancellation of debt
|
|
|
(14,212
|
)
|
|
|
|
|
Intangible assets
|
|
|
(139,749
|
)
|
|
|
(4,244
|
)
|
Debt financing costs
|
|
|
(8,529
|
)
|
|
|
(2
|
)
|
Other
|
|
|
(5,301
|
)
|
|
|
(381
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(520,467
|
)
|
|
|
(35,192
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(335,948
|
)
|
|
$
|
(25,342
|
)
|
|
|
|
|
|
|
|
|
|
F-50
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
These amounts are presented in the accompanying consolidated
balance sheets at December 31, 2009 and 2008 as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Current deferred tax asset
|
|
$
|
49,023
|
|
|
$
|
24
|
|
Current deferred tax liability
|
|
|
(1,176
|
)
|
|
|
(799
|
)
|
Noncurrent deferred tax liability
|
|
|
(383,795
|
)
|
|
|
(24,567
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(335,948
|
)
|
|
$
|
(25,342
|
)
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the Company had a federal net
operating loss carryforward of $2.0 million and a federal
capital loss carryforward of $1.5 million. Additionally,
the Company has state net operating loss carryforwards, with an
estimated tax effect of $4.7 million, available at
December 31, 2009. The state net operating losses will
expire at various times between 2010 and 2028. The Company has
established a valuation allowance of $2.0 million and
$1.6 million as of December 31, 2009 and 2008,
respectively, for the state loss carryforwards that are unlikely
to be used prior to expiration. The net $0.5 million
increase in the valuation allowance in 2009 is due to additional
current year losses that are unlikely to be used prior to
expiration.
U.S. income and foreign withholding taxes have not been
provided on approximately $31 million of cumulative
undistributed earnings of foreign subsidiaries. The earnings are
considered to be permanently reinvested outside the U.S. As
the Company intends to reinvest these earnings indefinitely
outside the U.S., it is not required to provide U.S. income
taxes on them until they are repatriated in the form of
dividends or otherwise.
The reconciliation of our unrecognized tax benefits for the
years ending December 31, 2009 and 2008 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Unrecognized tax benefits at beginning of year
|
|
$
|
3,423
|
|
|
$
|
4,154
|
|
Increases for tax positions taken prior to beginning of year
|
|
|
610
|
|
|
|
|
|
Decreases for tax positions taken prior to beginning of year
|
|
|
(257
|
)
|
|
|
|
|
Increases for tax positions taken during the year
|
|
|
154
|
|
|
|
|
|
Settlements
|
|
|
(243
|
)
|
|
|
(532
|
)
|
Lapse of statute of limitations
|
|
|
(156
|
)
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits at end of year
|
|
$
|
3,531
|
|
|
$
|
3,423
|
|
|
|
|
|
|
|
|
|
|
Prior to the Companys merger with Swift Transportation
Co., the Company did not have any unrecognized tax benefits. As
of December 31, 2009, we had unrecognized tax benefits
totaling approximately $3.5 million, all of which would
favorably impact our effective tax rate if subsequently
recognized.
During the years ended December 31, 2009, 2008 and 2007,
the Company concluded examinations with federal and various
state jurisdictions for certain of its subsidiaries resulting in
additional tax payments of approximately $0.5 million in
each year. The Company concluded its federal examination of the
2003 to 2005 tax years during 2007 resulting in additional tax
payments of $7.5 million. Certain of the Companys
subsidiaries are currently under examination by federal and
various state jurisdictions for years ranging from 1997 to 2007.
At the completion of these examinations, management does not
expect any adjustments that would have a material impact on the
Companys effective tax rate. Years subsequent to 2007
remain subject to examination.
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
December 31, 2009 and 2008 were
F-51
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
approximately $1.2 million and $1.5 million,
respectively. To the extent interest and penalties are not
assessed with respect to uncertain tax positions, amounts
accrued will be reduced and reflected as a reduction of the
overall income tax provision.
The Company anticipates that the total amount of unrecognized
tax benefits may decrease by approximately $1.9 million
during the next twelve months, which will not have a material
impact on the financial statements.
|
|
(21)
|
Employee
benefit plan
|
The Company maintains a 401(k) benefit plan available to all
employees who are 19 years of age or older and have
completed six months of service. Under the plan, the Company has
the option to match employee discretionary contributions up to
3% of an employees compensation. Employees rights to
employer contributions vest after five years from their date of
employment.
For the years ended December 31, 2008 and 2007, the
Companys expense totaled approximately $7.1 million
and $2.6 million, respectively. For the year ended
December 31, 2009, the Company decided not to match
employee contributions and as such no expense was recognized.
Services provided to the Companys largest customer,
Wal-Mart and its subsidiaries, generated 10.2%, 11.5% and 14.0%
of operating revenue in 2009, 2008 and 2007, respectively. No
other customer accounted for 10% or more of operating revenue in
the reporting period.
|
|
(23)
|
Related
party transactions
|
The Company provided and received freight services, facility
leases, equipment leases and other services, including repair
and employee services to several companies controlled by
and/or
affiliated with Jerry Moyes, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009
|
|
|
|
Central
|
|
|
Central
|
|
|
Other
|
|
|
|
|
|
|
Freight Lines,
|
|
|
Refrigerated
|
|
|
Affiliated
|
|
|
|
|
|
|
Inc.
|
|
|
Services, Inc.
|
|
|
Entities
|
|
|
Total
|
|
|
Services Provided by Swift:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Services(1)
|
|
$
|
3,943
|
|
|
$
|
152
|
|
|
$
|
328
|
|
|
$
|
4,423
|
|
Facility Leases
|
|
$
|
661
|
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
681
|
|
Other Services(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
7
|
|
Services Received by Swift:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Services(3)
|
|
$
|
117
|
|
|
$
|
1,920
|
|
|
$
|
|
|
|
$
|
2,037
|
|
Facility Leases
|
|
$
|
423
|
|
|
$
|
41
|
|
|
$
|
41
|
|
|
$
|
505
|
|
Other Services(4)
|
|
$
|
10
|
|
|
$
|
22
|
|
|
$
|
138
|
|
|
$
|
170
|
|
|
|
|
|
|
As of December 31,
2009
|
|
|
|
Receivable
|
|
$
|
1,206
|
|
|
$
|
7
|
|
|
$
|
12
|
|
|
$
|
1,225
|
|
Payable
|
|
$
|
4
|
|
|
$
|
14
|
|
|
$
|
|
|
|
$
|
18
|
|
F-52
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
|
|
Central
|
|
|
Central
|
|
|
Other
|
|
|
|
|
|
|
Freight Lines,
|
|
|
Refrigerated
|
|
|
Affiliated
|
|
|
|
|
|
|
Inc.
|
|
|
Services, Inc.
|
|
|
Entities
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Provided by Swift:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Services(1)
|
|
$
|
18,766
|
|
|
$
|
307
|
|
|
$
|
481
|
|
|
$
|
19,554
|
|
Facility Leases
|
|
$
|
761
|
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
781
|
|
Other Services(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16
|
|
|
$
|
16
|
|
Services Received by Swift:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Services(3)
|
|
$
|
80
|
|
|
$
|
644
|
|
|
$
|
|
|
|
$
|
724
|
|
Facility Leases
|
|
$
|
479
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
479
|
|
Other Services(4)
|
|
$
|
22
|
|
|
$
|
14
|
|
|
$
|
3
|
|
|
$
|
39
|
|
|
|
|
|
|
As of December 31,
2008
|
|
|
|
Receivable
|
|
$
|
834
|
|
|
$
|
14
|
|
|
$
|
68
|
|
|
$
|
916
|
|
Payable
|
|
$
|
13
|
|
|
$
|
27
|
|
|
$
|
1
|
|
|
$
|
41
|
|
|
|
|
|
|
For the Year Ended
December 31, 2007
|
|
|
|
Services Provided by Swift:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Services(1)
|
|
$
|
8,053
|
|
|
$
|
674
|
|
|
$
|
78
|
|
|
$
|
8,805
|
|
Facility Leases
|
|
$
|
533
|
|
|
$
|
|
|
|
$
|
5
|
|
|
$
|
538
|
|
Other Services(2)
|
|
$
|
34
|
|
|
$
|
22
|
|
|
$
|
34
|
|
|
$
|
90
|
|
Equipment Leases(5)
|
|
$
|
218
|
|
|
$
|
404
|
|
|
$
|
13
|
|
|
$
|
635
|
|
Services Received by Swift:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Services(3)
|
|
$
|
4
|
|
|
$
|
18
|
|
|
$
|
|
|
|
$
|
22
|
|
Facility Leases
|
|
$
|
247
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
247
|
|
Other Services(4)
|
|
$
|
11
|
|
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
24
|
|
|
|
|
(1) |
|
The rates the Company charges for freight services to each of
these companies for transportation services are market rates,
which are comparable to what it charges third-party customers.
These transportation services provided to affiliated entities
provide the Company with an additional source of operating
revenue at its normal freight rates. |
|
(2) |
|
Other services provided by the Company to the identified related
parties included accounting related employee services provided
by Company personnel. The daily rates the Company charged for
employee related services reflect market salaries for employees
performing similar work functions. In 2007, services provided to
related parties also included repair and other truck stop
services and employee services provided by Company personnel,
including accounting related services, negotiations for parts
procurement, and other services. |
|
(3) |
|
Transportation services received from affiliated entities
represents brokered freight. The loads are brokered out to the
third party provider at rates lower than the rate charged to the
customer, therefore allowing the Company to realize a profit.
These brokered loads make it possible for the Company to provide
freight services to customers even in areas that the Company
does not serve, providing the Company with an additional source
of income. |
|
(4) |
|
Other services received by the Company from the identified
related parties included: insurance claim liability; fuel tank
usage; employee expense reimbursement, executive air transport;
service truck purchase; freight services refund; and
miscellaneous repair services. |
F-53
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
|
(5) |
|
All of the equipment lease transactions through the
Companys wholly owned subsidiary IEL and the identified
affiliated companies were accounted for as a lease similar to
the Companys normal business operations and revenue was
recognized on a straight-line basis. Specifically, the Company
had the following equipment lease transactions: |
|
|
|
|
a.
|
The Company leased 94 tractors financed by Daimler Chrysler to
Central Freight Lines, Inc. (Central Freight) under
a lease agreement dated April 15, 2006. The total amount of
the lease was $5,329,987, payable in 50 monthly
installments of $108,749. On May 4, 2007, the lease
agreement was terminated and the related note payable was
transferred to Central Freight to assume the remaining payments
owed to Daimler Chrysler. However, according to the transfer
contract, the Company remains liable for the note payable should
Central Freight default on the agreement. There were no amounts
owed to the Company at December 31, 2009 and 2008 related
to this lease.
|
|
|
b.
|
The Company had equipment lease agreements with Central
Refrigerated Services, Inc. (Central Refrigerated)
dated May 2002 and with Central Leasing dated February 2004. The
leases were terminated on July 11, 2007. Upon termination,
several tractors under the agreements were purchased by Central
Refrigerated and Central Leasing, while the remaining tractors
were returned to the Company. No amounts were due to the Company
as of December 31, 2009 and 2008 for the equipment lease or
equipment purchase.
|
In addition to the transactions identified above, the Company
had the following related party activity as of and for the years
ended December 31, 2009, 2008 and 2007:
The Company has obtained legal services from Scudder Law Firm.
Earl Scudder, a former member of the board of directors, is a
member of Scudder Law Firm. The rates charged to the Company for
legal services reflect market rates charged by unrelated law
firms for comparable services. For the years ended
December 31, 2009, 2008 and 2007, Swift incurred fees for
legal services from Scudder Law Firm, a portion of which were
provided by Mr. Scudder, in the amount of $786 thousand,
$361 thousand and $1.2 million, respectively. As of
December 31, 2009 and 2008, the Company had no outstanding
balance owing to Scudder Law Firm for these services.
IEL contracts its personnel from a third party, Transpay, Inc.
(Transpay), which is partially owned by
Mr. Moyes. Transpay is responsible for all payroll related
liabilities and employee benefits administration. For the years
ended December 31, 2009, 2008 and 2007, the Company paid
Transpay $1.0 million, $1.0 million and
$2.0 million, respectively, for the employee services and
administration fees. As of December 31, 2009 and 2008, the
Company had no outstanding balance owing to Transpay for these
services.
In the second quarter of 2009, the Company entered into a
one-time agreement with Central Refrigerated to purchase one
hundred
2001-2002
Utility refrigerated trailers. Mr. Moyes is the principal
stockholder of Central Refrigerated. The purchase price paid for
the trailers was comparable to the market price of similar model
year Utility trailers according the most recent auction value
guide at the time of the sale. The total amount paid to Central
Refrigerated for the equipment was $1.2 million. There was
no further amount due to Central Refrigerated for this
transaction as of December 31, 2009.
IEL had an equipment lease dated May 14, 2003 with
Roosevelt Marina (RM), of which Jerry Moyes is the
majority owner. The lease included monthly payments of $655 per
month for sixty months. At the time the lease was terminated on
October 22, 2007, the total due to IEL from RM was $23,000,
which represented payments outstanding since January 2005. The
remaining receivable balance on the lease was deemed
uncollectible and was written off as of October 30, 2007.
IEL had a note agreement dated April 1, 2007 with Antelope
Point Marina (APM), of which Jerry Moyes is the
majority owner. The agreement was secured by an automobile and
was paid in full on September 21,
F-54
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
2007. Total payments received by the Company from APM from
April 7, 2007 through December 31, 2007 were $15,000.
There was no remaining outstanding receivable balance as of
December 31, 2007.
In September 2007, IEL paid 2005 taxes on behalf of Swift
Aviation, an entity wholly owned by Mr. Moyes. The
resulting $57,000 receivable due from Swift Aviation was paid in
full on October 19, 2007. There was no further amount due
to IEL for this transaction as of December 31, 2007.
|
|
(24)
|
Fair
value measurements
|
Topic 820, Fair Value Measurements and
Disclosures, requires that the Company disclose
estimated fair values for its financial instruments. The fair
value of a financial instrument is the amount that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date in the principal or most advantageous market
for the asset or liability. Fair value estimates are made at a
specific point in time and are based on relevant market
information and information about the financial instrument.
These estimates do not reflect any premium or discount that
could result from offering for sale at one time the
Companys entire holdings of a particular financial
instrument. Changes in assumptions could significantly affect
these estimates. Because the fair value is estimated as of
December 31, 2009 and 2008, the amounts that will actually
be realized or paid at settlement or maturity of the instruments
in the future could be significantly different. Further, as a
result of current economic and credit market conditions,
estimated fair values of financial instruments are subject to a
greater degree of uncertainty and it is reasonably possible that
an estimate will change in the near term.
The following table presents the carrying amounts and estimated
fair values of the Companys financial instruments at
December 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained interest in receivables
|
|
$
|
79,907
|
|
|
$
|
79,907
|
|
|
$
|
80,401
|
|
|
$
|
80,401
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
80,279
|
|
|
$
|
80,279
|
|
|
$
|
44,387
|
|
|
$
|
44,387
|
|
First lien term loan
|
|
|
1,511,400
|
|
|
|
1,374,618
|
|
|
|
1,520,000
|
|
|
|
534,858
|
|
Senior fixed rate notes
|
|
|
595,000
|
|
|
|
500,544
|
|
|
|
595,000
|
|
|
|
52,063
|
|
Senior floating rate notes
|
|
|
203,600
|
|
|
|
152,955
|
|
|
|
240,000
|
|
|
|
18,600
|
|
The carrying amounts shown in the table are included in the
consolidated balance sheets under the indicated captions except
for the first lien term loan and the senior fixed and floating
rate notes, which are included in long term debt and obligations
under capital leases. The fair values of the financial
instruments shown in the above table as of December 31,
2009 and 2008 represent managements best estimates of the
amounts that would be received to sell those assets or that
would be paid to transfer those liabilities in an orderly
transaction between market participants at that date. Those fair
value measurements maximize the use of observable inputs.
However, in situations where there is little, if any, market
activity for the asset or liability at the measurement date, the
fair value measurement reflects the Companys own judgments
about the assumptions that market participants would use in
pricing the asset or liability. Those judgments are developed by
the Company based on the best information available in the
circumstances.
The following summary presents a description of the methods and
assumptions used to estimate the fair value of each class of
financial instrument.
F-55
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Retained
interest in receivables
The Companys retained interest in receivables is carried
on the balance sheet at fair value at December 31, 2009 and
2008 and consists of trade receivables recorded through the
normal course of business. The retained interest is valued using
the Companys own assumptions about the inputs market
participants would use, as discussed in Note 10.
Interest
rate swaps
The Companys interest rate swap agreements are carried on
the balance sheet at fair value at December 31, 2009 and
2008 and consist of four interest rate swaps as of
December 31, 2009 and six swaps as of December 31,
2008. These swaps were entered into for the purpose of hedging
the variability of interest expense and interest payments on the
Companys long-term variable rate debt. Because the
Companys interest rate swaps are not actively traded, they
are valued using valuation models. Interest rate yield curves
and credit spreads derived from trading levels of the
Companys first lien term loan and senior fixed rate notes
as of December 31, 2009 and 2008, respectively, are the
significant inputs into these valuation models. These inputs are
observable in active markets over the terms of the instruments
the Company holds. The Company considers the effect of its own
credit standing and that of its counterparties in the valuations
of its derivative financial instruments. As of December 31,
2009 and 2008, the Company has recorded a credit valuation
adjustment of $6.5 million and $69.6 million,
respectively, based on the credit spreads derived from trading
levels of the Companys first lien term loan and senior
fixed rate notes, respectively, to reduce the interest rate swap
liability to its fair value. The change in the debt instrument
used as a basis for the credit spreads occurred in the fourth
quarter of 2009 as a result of the Second Amendment.
First
lien term loan and second-priority senior secured fixed and
floating rate notes
The fair values of the first lien term loan, the senior fixed
rate notes, and the senior floating rate notes were determined
by bid prices in trading between qualified institutional buyers.
Fair
value hierarchy
Topic 820 establishes a framework for measuring fair value in
accordance with GAAP and expands financial statement disclosure
requirements for fair value measurements. Topic 820 further
specifies a hierarchy of valuation techniques, which is based on
whether the inputs into the valuation technique are observable
or unobservable. The hierarchy is as follows:
|
|
|
|
|
Level 1 Valuation techniques in which
all significant inputs are quoted prices from active markets for
assets or liabilities that are identical to the assets or
liabilities being measured.
|
|
|
|
Level 2 Valuation techniques in which
significant inputs include quoted prices from active markets for
assets or liabilities that are similar to the assets or
liabilities being measured
and/or
quoted prices from markets that are not active for assets or
liabilities that are identical or similar to the assets or
liabilities being measured. Also, model-derived valuations in
which all significant inputs and significant value drivers are
observable in active markets are Level 2 valuation
techniques.
|
|
|
|
Level 3 Valuation techniques in which
one or more significant inputs or significant value drivers are
unobservable. Unobservable inputs are valuation technique inputs
that reflect the Companys own assumptions about the
assumptions that market participants would use in pricing an
asset or liability.
|
When available, the Company uses quoted market prices to
determine the fair value of an asset or liability. If quoted
market prices are not available, the Company will measure fair
value using valuation techniques that use, when possible,
current market-based or independently-sourced market parameters,
such as interest rates and currency rates. The level in the fair
value hierarchy within which a fair measurement in its
F-56
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
entirety falls is based on the lowest level input that is
significant to the fair value measurement in its entirety.
Following is a brief summary of the Companys
classification within the fair value hierarchy of each major
category of assets and liabilities that it measures and reports
on its balance sheet at fair value on a recurring basis:
|
|
|
|
|
Retained interest in receivables. The
Companys retained interest is valued using the
Companys own assumptions as discussed in Note 10, and
accordingly, the Company classifies the valuation techniques
that use these inputs as Level 3 in the hierarchy.
|
|
|
|
Interest rate swaps. The Companys
interest rate swaps are not actively traded but are valued using
valuation models and credit valuation adjustments, both of which
use significant inputs that are observable in active markets
over the terms of the instruments the Company holds, and
accordingly, the Company classifies these valuation techniques
as Level 2 in the hierarchy.
|
As of December 31, 2009 and 2008, information about inputs
into the fair value measurements of each major category of the
Companys assets and liabilities that are measured at fair
value on a recurring basis in periods subsequent to their
initial recognition is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
Total Fair
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
Value and
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Carrying Value
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
on Balance Sheet
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained interest in receivables
|
|
$
|
79,907
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
79,907
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
80,279
|
|
|
$
|
|
|
|
$
|
80,279
|
|
|
$
|
|
|
As of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained interest in receivables
|
|
$
|
80,401
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
80,401
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
44,387
|
|
|
$
|
|
|
|
$
|
44,387
|
|
|
$
|
|
|
The following table sets forth a reconciliation of the changes
in fair value during the years ended December 31, 2009 and
2008 of our Level 3 retained interest in accounts
receivable that is measured at fair value on a recurring basis
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
Sales, Collections
|
|
|
|
|
|
Transfers in
|
|
|
|
|
|
|
Beginning of
|
|
|
and
|
|
|
Total Realized
|
|
|
and/or Out of
|
|
|
Fair Value at
|
|
|
|
Period
|
|
|
Settlements, Net
|
|
|
Gains (Losses)
|
|
|
Level 3
|
|
|
End of Period
|
|
|
Years Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
80,401
|
|
|
$
|
(1,001
|
)
|
|
$
|
507
|
|
|
$
|
|
|
|
$
|
79,907
|
|
December 31, 2008
|
|
$
|
|
|
|
$
|
81,538
|
|
|
$
|
(1,137
|
)
|
|
$
|
|
|
|
$
|
80,401
|
|
Realized losses related to the retained interest are included in
earnings and are reported in other expenses.
F-57
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
For the year ended December 31, 2009, information about
inputs into the fair value measurements of the Companys
assets that were measured at fair value on a nonrecurring basis
in this period is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Year Ended
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
December 31,
|
|
|
for Identical
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Total Gains
|
|
Description
|
|
2009
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
(Losses)
|
|
|
Long-lived assets held and used
|
|
$
|
1,600
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,600
|
|
|
$
|
(475
|
)
|
Long-lived assets held for sale
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,700
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,700
|
|
|
$
|
(515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with the provisions of Topic 360, real estate
properties held and used with a carrying amount of
$2.1 million were written down to their fair value of
$1.6 million during the first quarter of 2009, resulting in
an impairment charge of $475 thousand, which was included in
impairments in the consolidated statement of operations for the
year ended December 31, 2009. Additionally, real estate
properties held for sale, with a carrying amount of $140
thousand were written down to their fair value of $100 thousand,
resulting in an impairment charge of $40 thousand during the
first quarter of 2009, which was also included in impairments in
the consolidated statement of operations for the year ended
December 31, 2009. The impairments of these long-lived
assets were identified due to the Companys failure to
receive any reasonable offers, due in part to reduced liquidity
in the credit market and the weak economic environment during
the period. For these long-lived assets valued using significant
unobservable inputs, inputs utilized included the Companys
estimates and listing prices due to the lack of sales for
similar properties.
Intangible assets as of December 31, 2009 and 2008 were (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Customer Relationship:
|
|
|
|
|
|
|
|
|
Gross carrying value
|
|
$
|
275,324
|
|
|
$
|
275,324
|
|
Accumulated amortization
|
|
|
(67,553
|
)
|
|
|
(45,493
|
)
|
Owner-Operator Relationship:
|
|
|
|
|
|
|
|
|
Gross carrying value
|
|
|
3,396
|
|
|
|
3,396
|
|
Accumulated amortization
|
|
|
(2,988
|
)
|
|
|
(1,856
|
)
|
Trade Name:
|
|
|
|
|
|
|
|
|
Gross carrying value
|
|
|
181,037
|
|
|
|
181,037
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
389,216
|
|
|
$
|
412,408
|
|
|
|
|
|
|
|
|
|
|
F-58
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
The changes in the gross carrying value of intangible assets in
the year ended December 31, 2007 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
|
|
|
Owner-Operator
|
|
|
Trade
|
|
|
|
Relationship
|
|
|
Relationship
|
|
|
Name
|
|
|
Beginning balance
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Contributed on May 9, 2007
|
|
|
17,494
|
|
|
|
|
|
|
|
|
|
Acquired on May 10, 2007
|
|
|
257,830
|
|
|
|
3,396
|
|
|
|
181,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
275,324
|
|
|
$
|
3,396
|
|
|
$
|
181,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets acquired as a result of the Swift
Transportation Co. acquisition include trade name, customer
relationships, and owner-operator relationships. Amortization of
the customer relationship acquired in the acquisition is
calculated on the 150% declining balance method over the
estimated useful life of 15 years. The customer
relationship contributed to the Company at May 9, 2007 is
amortized using the straight-line method over 15 years. The
owner-operator relationship is amortized using the straight-line
method over three years. The trade name has an indefinite useful
life and is not amortized, but rather is tested for impairment
at least annually, unless events occur or circumstances change
between annual tests that would more likely than not reduce the
fair value. Total amortization expense for the amortizable
intangible assets was $23.2 million, $25.4 million and
$17.6 million for the years ended December 31, 2009,
2008 and 2007, respectively. Estimated amortization expense for
the next five years is: $20.5 million in 2010,
$18.5 million in 2011, $18.4 million in 2012,
$18.4 million in 2013 and $18.4 million in 2014.
The changes in the carrying amount of goodwill for the years
ended December 31, 2009, 2008 and 2007 were (in thousands):
|
|
|
|
|
Balance as of January 1, 2007
|
|
$
|
|
|
Contributed at May 9, 2007
|
|
|
21,498
|
|
Acquired at May 10, 2007
|
|
|
486,758
|
|
Impairment loss
|
|
|
(238,000
|
)
|
|
|
|
|
|
December 31, 2007
|
|
|
270,256
|
|
Impairment loss
|
|
|
(17,000
|
)
|
|
|
|
|
|
December 31, 2008 and 2009
|
|
$
|
253,256
|
|
|
|
|
|
|
Based on the results of our annual evaluation as of
November 30, 2009, there was no indication of impairment of
goodwill and indefinite-lived intangible assets. Based on the
results of our evaluation as of November 30, 2008, we
recorded a non-cash impairment charge of $17.0 million with
no tax impact in the fourth quarter of 2008 related to the
decline in fair value of our Mexico freight transportation
reporting unit resulting from the deterioration in truckload
industry conditions as compared with the estimates and
assumptions used in our original valuation projections at the
time of the partial acquisition of Swift Transportation Co. The
annual impairment test performed as of November 30, 2008
indicated no additional impairments for goodwill and
indefinite-lived intangible assets at our other reporting units.
Additionally, based on the results of our evaluation as of
November 30, 2007, we recorded a non-cash impairment charge
of $238.0 million with no tax impact in the fourth quarter
of 2007 related to the decline in fair value of our
U.S. freight transportation reporting unit resulting from
the deterioration in truckload industry conditions as compared
with the estimates and assumptions used in our original
valuation projections at the time of the partial acquisition of
Swift Transportation Co., Inc. The annual impairment test
performed as of November 30,
F-59
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
2007 indicated no additional impairments for goodwill and
indefinite-lived intangible assets at our other reporting units.
On January 4, 2010, Jerry Moyes cancelled the
$89.4 million face value of the Companys second
priority senior secured fixed rate notes that he held in
exchange for a $231.0 million reduction of the stockholder
loan due 2018 owed to the Company by the Moyes affiliates, each
of which is a stockholder of the Company (refer to Note 12).
Effective February 25, 2010, the Company granted
1.8 million stock options to certain employees at an
exercise price of $7.04 per share, which equaled the estimated
fair value of the common stock on the date of grant.
Effective February 1, 2010, the Company withdrew its
application for qualified self insured status with the Federal
Motor Carrier Safety Administration and obtained insurance
through its wholly owned captive insurance subsidiaries, Red
Rock Risk Retention Group, Inc. (Red Rock) and
Mohave, which will insure a proportionate share of Swifts
motor vehicle liability risk. To comply with certain state
insurance regulatory requirements, approximately
$55 million in cash and cash equivalents will be paid to
Red Rock and Mohave over the course of 2010 to be restricted as
collateral for anticipated losses incurred in 2010. The
restricted cash will be used to offset payments on these
anticipated losses. It is expected that approximately half of
the initial funding will remain as restricted cash as of
December 31, 2010, such amount being in addition to amounts
recorded as restricted cash at December 31, 2009.
The computation of basic and diluted loss per share is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net loss
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
|
$
|
(96,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding for basic and diluted
loss per share
|
|
|
75,146
|
|
|
|
75,146
|
|
|
|
49,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(5.80
|
)
|
|
$
|
(1.95
|
)
|
|
$
|
(1.94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential common shares issuable upon exercise of outstanding
stock options are excluded from diluted shares outstanding as
their effect is antidilutive. As of December 31, 2009,
2008, and 2007, there were 6,213,000, 6,292,500, and 6,740,000
options outstanding, respectively.
F-60
Swift
Corporation and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
(29)
|
Quarterly
results of operations (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
614,756
|
|
|
$
|
628,572
|
|
|
$
|
659,723
|
|
|
$
|
668,302
|
|
Operating income
|
|
$
|
12,239
|
|
|
$
|
27,109
|
|
|
$
|
45,759
|
|
|
$
|
46,894
|
|
Net loss
|
|
$
|
(43,560
|
)
|
|
$
|
(30,926
|
)
|
|
$
|
(4,028
|
)
|
|
$
|
(357,131
|
)
|
Basic and diluted loss per share
|
|
$
|
(0.58
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(4.75
|
)
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
816,341
|
|
|
$
|
913,299
|
|
|
$
|
900,591
|
|
|
$
|
769,579
|
|
Operating (loss) income
|
|
$
|
(15,589
|
)
|
|
$
|
35,523
|
|
|
$
|
58,901
|
|
|
$
|
36,101
|
|
Net loss
|
|
$
|
(81,444
|
)
|
|
$
|
(26,576
|
)
|
|
$
|
(10,865
|
)
|
|
$
|
(27,670
|
)
|
Basic and diluted loss per share
|
|
$
|
(1.08
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.37
|
)
|
F-61
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Swift Corporation:
We have audited the accompanying consolidated balance sheets of
Swift Transportation Co., Inc. and subsidiaries (the Company) as
of May 10, 2007 and December 31, 2006, and the related
consolidated statements of operations, comprehensive loss,
stockholders equity, and cash flows for the period
January 1, 2007 to May 10, 2007. These consolidated
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Swift Transportation Co., Inc. and subsidiaries as
of May 10, 2007 and December 31, 2006, and the results
of their operations and their cash flows for the period
January 1, 2007 to May 10, 2007 in conformity with
U.S. generally accepted accounting principles.
Phoenix, Arizona
March 28, 2008, except as to
note 24 which is as of
July 21, 2010
F-62
Swift
Transportation Co., Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
May 10,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
81,134
|
|
|
$
|
47,858
|
|
Accounts receivable, net
|
|
|
322,995
|
|
|
|
308,018
|
|
Equipment sales receivables
|
|
|
2,393
|
|
|
|
2,422
|
|
Inventories and supplies
|
|
|
9,178
|
|
|
|
11,621
|
|
Prepaid taxes, licenses and insurance
|
|
|
42,273
|
|
|
|
37,865
|
|
Assets held for sale
|
|
|
22,870
|
|
|
|
35,377
|
|
Deferred income taxes
|
|
|
53,615
|
|
|
|
43,695
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
534,458
|
|
|
|
486,856
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
Revenue and service equipment
|
|
|
1,860,880
|
|
|
|
1,846,618
|
|
Land
|
|
|
104,565
|
|
|
|
85,883
|
|
Facilities and improvements
|
|
|
292,363
|
|
|
|
303,282
|
|
Furniture and office equipment
|
|
|
86,640
|
|
|
|
85,544
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
2,344,448
|
|
|
|
2,321,327
|
|
Less accumulated depreciation and amortization
|
|
|
865,640
|
|
|
|
807,735
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
1,478,808
|
|
|
|
1,513,592
|
|
|
|
|
|
|
|
|
|
|
Notes receivable, less current portion
|
|
|
263
|
|
|
|
2,752
|
|
Other assets
|
|
|
20,451
|
|
|
|
16,037
|
|
Customer relationship intangibles, net
|
|
|
34,125
|
|
|
|
35,223
|
|
Goodwill
|
|
|
56,188
|
|
|
|
56,188
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,124,293
|
|
|
$
|
2,110,648
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
87,782
|
|
|
$
|
100,424
|
|
Accrued liabilities
|
|
|
93,640
|
|
|
|
63,360
|
|
Current portion of claims accruals
|
|
|
155,273
|
|
|
|
139,112
|
|
Fair value of guarantees
|
|
|
491
|
|
|
|
674
|
|
Securitization of accounts receivable
|
|
|
160,000
|
|
|
|
180,000
|
|
Fair value of interest rate swaps
|
|
|
608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
497,794
|
|
|
|
483,570
|
|
Senior notes
|
|
|
200,000
|
|
|
|
200,000
|
|
Claims accruals, less current portion
|
|
|
106,461
|
|
|
|
108,606
|
|
Deferred income taxes
|
|
|
312,134
|
|
|
|
303,464
|
|
Fair value of interest rate swaps
|
|
|
|
|
|
|
785
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,116,389
|
|
|
|
1,096,425
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.001 per share. Authorized
1,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock, par value $.001 per share. Authorized
200,000,000 shares; issued 101,179,174 and 100,864,952 on
May 10, 2007 and December 31, 2006, respectively
|
|
|
101
|
|
|
|
101
|
|
Additional paid-in capital
|
|
|
509,931
|
|
|
|
482,050
|
|
Retained earnings
|
|
|
962,463
|
|
|
|
992,885
|
|
Treasury stock, at cost (25,922,320 and 25,776,359 shares
on May 10, 2007 and December 31, 2006, respectively)
|
|
|
(464,508
|
)
|
|
|
(460,271
|
)
|
Accumulated other comprehensive loss
|
|
|
(83
|
)
|
|
|
(542
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,007,904
|
|
|
|
1,014,223
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,124,293
|
|
|
$
|
2,110,648
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-63
Swift
Transportation Co., Inc. and Subsidiaries
Four
months and ten days ended May 10, 2007
|
|
|
|
|
|
|
(In thousands,
|
|
|
|
except per share data)
|
|
|
Operating revenue
|
|
$
|
1,074,723
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
Salaries, wages and employee benefits
|
|
|
364,690
|
|
Operating supplies and expenses
|
|
|
119,833
|
|
Fuel
|
|
|
223,579
|
|
Purchased transportation
|
|
|
196,258
|
|
Rental expense
|
|
|
20,089
|
|
Insurance and claims
|
|
|
58,358
|
|
Depreciation, amortization and impairments
|
|
|
82,949
|
|
Loss on disposal of property and equipment
|
|
|
130
|
|
Communication and utilities
|
|
|
10,473
|
|
Operating taxes and licenses
|
|
|
24,021
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,100,380
|
|
|
|
|
|
|
Operating loss
|
|
|
(25,657
|
)
|
Other (income) expenses:
|
|
|
|
|
Interest expense
|
|
|
9,277
|
|
Interest income
|
|
|
(1,364
|
)
|
Other
|
|
|
1,429
|
|
|
|
|
|
|
Other (income) expenses, net
|
|
|
9,342
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(34,999
|
)
|
Income tax benefit
|
|
|
(4,577
|
)
|
|
|
|
|
|
Net loss
|
|
$
|
(30,422
|
)
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.40
|
)
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-64
Swift
Transportation Co., Inc. and Subsidiaries
Four
months and ten days ended May 10, 2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
Net loss
|
|
$
|
(30,422
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
Foreign currency translation
|
|
|
81
|
|
Reclassification of realized derivative loss on cash flow hedge
into net earnings, net of tax effect of $148
|
|
|
378
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(29,963
|
)
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-65
Swift
Transportation Co., Inc. and Subsidiaries
Four
months and ten days ended May 10, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Par
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Loss
|
|
|
Equity
|
|
|
|
(In thousands, except share data)
|
|
|
Balances, December 31, 2006
|
|
|
100,864,952
|
|
|
$
|
101
|
|
|
$
|
482,050
|
|
|
$
|
992,885
|
|
|
$
|
(460,271
|
)
|
|
$
|
(542
|
)
|
|
$
|
1,014,223
|
|
Issuance of common stock under stock option and employee stock
purchase plans
|
|
|
314,222
|
|
|
|
|
|
|
|
5,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,895
|
|
Income tax benefit arising from the exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
9,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,485
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
12,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,501
|
|
Purchase of shares of 145,961 treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,237
|
)
|
|
|
|
|
|
|
(4,237
|
)
|
Reclassification of realized derivative loss on cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378
|
|
|
|
378
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
|
|
81
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,422
|
)
|
|
|
|
|
|
|
|
|
|
|
(30,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, May 10, 2007
|
|
|
101,179,174
|
|
|
$
|
101
|
|
|
$
|
509,931
|
|
|
$
|
962,463
|
|
|
$
|
(464,508
|
)
|
|
$
|
(83
|
)
|
|
$
|
1,007,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-66
Swift
Transportation Co., Inc. and Subsidiaries
Four
months and ten days ended May 10, 2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net loss
|
|
$
|
(30,422
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
Depreciation, amortization and impairments
|
|
|
85,087
|
|
Deferred income taxes
|
|
|
(1,250
|
)
|
Provision for losses on accounts receivable
|
|
|
(1,277
|
)
|
Equity losses
|
|
|
71
|
|
Amortization of deferred compensation
|
|
|
12,501
|
|
Change in market value of interest rate swaps
|
|
|
(177
|
)
|
Net loss on sale of revenue equipment
|
|
|
91
|
|
Net gain on sale of nonrevenue equipment
|
|
|
(87
|
)
|
Impairment of note receivable
|
|
|
2,418
|
|
Increase (decrease) in cash resulting from changes in:
|
|
|
|
|
Accounts receivable
|
|
|
(14,080
|
)
|
Inventories and supplies
|
|
|
2,444
|
|
Prepaid taxes, licenses and insurance
|
|
|
(4,408
|
)
|
Other assets
|
|
|
(6,365
|
)
|
Accounts payable, accrued and other liabilities
|
|
|
40,603
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
85,149
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Proceeds from sale of property and equipment
|
|
|
27,841
|
|
Capital expenditures
|
|
|
(80,517
|
)
|
Proceeds from sale of assets held for sale
|
|
|
6,400
|
|
Payments received on equipment sales receivables
|
|
|
2,422
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(43,854
|
)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Income tax benefit from exercise of stock options
|
|
|
9,485
|
|
Repayment of borrowings under accounts receivable securitization
|
|
|
(20,000
|
)
|
Proceeds from sale of common stock
|
|
|
6,274
|
|
Reclassification of realized derivative loss on cash flow hedge
|
|
|
378
|
|
Purchase of treasury stock
|
|
|
(4,237
|
)
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(8,100
|
)
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
81
|
|
|
|
|
|
|
Net increase in cash
|
|
|
33,276
|
|
Cash and cash equivalents at beginning of year
|
|
|
47,858
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
81,134
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
Interest
|
|
$
|
6,719
|
|
|
|
|
|
|
Income tax paid (refunded)
|
|
|
(9,978
|
)
|
|
|
|
|
|
Supplemental schedule of noncash investing and financing
activities:
|
|
|
|
|
Equipment sales receivables
|
|
$
|
2,393
|
|
|
|
|
|
|
Equipment purchase accrual
|
|
|
(9,131
|
)
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-67
Swift
Transportation Co., Inc. and Subsidiaries
May 10,
2007 and December 31, 2006
|
|
(1)
|
Summary
of significant accounting policies
|
|
|
(a)
|
Description
of business
|
Swift Transportation Co., Inc., a Nevada holding company,
together with its wholly owned subsidiaries (the Company), is a
national truckload carrier operating predominantly in one
industry, road transportation, throughout the continental United
States and Mexico and thus has only one reportable segment. The
Company operates a national terminal network and a fleet of
approximately 18,000 tractors, at May 10, 2007, from its
headquarters in Phoenix, Arizona.
|
|
(b)
|
Description
of merger
|
On January 19, 2007, the Company entered into a definitive
merger agreement with Saint Acquisition Corporation, a wholly
owned subsidiary of Swift Corporation (formerly known as Saint
Corporation), an entity formed by Jerry Moyes, the
Companys founder, a director and former Chairman of the
Board and CEO. On April 27, 2007, at a special meeting held
in Phoenix, Arizona, the stockholders of the Company approved
the merger agreement providing for the merger of the Company
with Saint Acquisition Corporation.
Pursuant to the separate Swift Transportation Co., Inc.
Contribution and Exchange Agreement, Jerry Moyes,
The Jerry and Vickie Moyes Family Trust dated
12/11/87 and
various Moyes children trusts (collectively Moyes
affiliates) contributed 28,792,810 shares of Swift
Transportation Co., Inc. common stock, which represented 38.259%
of the then outstanding common stock of Swift Transportation
Co., Inc. to Swift Corporation on May 9, 2007. In exchange
for the contributed Swift Transportation Co., Inc. common stock,
the Moyes affiliates received a total of 64,495,892 shares
of Swift Corporations common stock
On May 10, 2007, the Moyes affiliates acquired all the
remaining 61.741% of the outstanding shares of the
Companys common stock for $31.55 per share (the Merger)
pursuant to the merger agreement. Following the Merger, the
Companys shares ceased to be quoted on NASDAQ, the Company
ceased to file reports with the Securities and Exchange
Commission (the SEC) and the Company became owned by Swift
Corporation, which is owned by Jerry Moyes, who prior to the
Merger was the Companys largest stockholder, and certain
of his affiliates.
|
|
(c)
|
Principles
of consolidation
|
The accompanying consolidated financial statements include the
accounts of Swift Transportation Co., Inc. and its wholly owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. When the
Company does not have a controlling interest in an entity, but
exerts significant influence over the entity, the Company
applies the equity method of accounting. Special purpose
entities are accounted for using the criteria of Statement of
Financial Accounting Standard (FAS) No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities (a replacement of FASB No. 125). This
Statement provides consistent accounting standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings.
|
|
(d)
|
Cash
and cash equivalents
|
The Company considers all highly liquid debt instruments
purchased with original maturities of three months or less to be
cash equivalents.
The Companys wholly owned captive insurance company,
Mohave Transportation Insurance Company, an Arizona corporation,
maintains certain working trust accounts. The cash and cash
equivalents within the trusts will be used to reimburse the
insurance claim losses paid by the captive insurance company. As
of
F-68
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
May 10, 2007 and December 31, 2006, cash and cash
equivalents held within the trust accounts were
$12.4 million and $10.2 million, respectively.
|
|
(e)
|
Inventories
and supplies
|
Inventories and supplies consist primarily of spare parts,
tires, fuel and supplies and are stated at lower of cost or
market. Cost is determined using the
first-in,
first-out (FIFO) method.
|
|
(f)
|
Property
and equipment
|
Property and equipment are stated at cost. Costs to construct
significant assets include capitalized interest incurred during
the construction and development period. For the four months and
ten days ended May 10, 2007, the Company capitalized
interest related to self-constructed assets totaling $55,000.
Expenditures for replacements and betterments are capitalized;
maintenance and repair expenditures are charged to expense as
incurred. Depreciation on property and equipment is calculated
on the straight-line method over the estimated useful lives of 5
to 40 years for facilities and improvements, 3 to
12 years for revenue and service equipment and 3 to
5 years for furniture and office equipment.
Tires on revenue equipment purchased are capitalized as a
component of the related equipment cost when the vehicle is
placed in service and depreciated over the life of the vehicle.
Replacement tires are charged to expense when placed in service.
The Company has $56.2 million of goodwill at May 10,
2007 and December 31, 2006. Goodwill represents the excess
of the aggregate purchase price over the fair value of the net
assets acquired in a purchase business combination. Goodwill is
reviewed for impairment at least annually in accordance with the
provisions of FAS No. 142, Goodwill and Other
Intangible Assets.
The Company evaluates its long-lived assets, including equity
investments, property and equipment, and certain intangible
assets subject to amortization for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable in accordance with
FAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. If circumstance requires a
long-lived asset be tested for possible impairment, the Company
compares undiscounted cash flows expected to be generated by an
asset to the carrying value of the asset. If the carrying value
of the long-lived asset is not recoverable on an undiscounted
cash flow basis, impairment is recognized to the extent that the
carrying value exceeds its fair value. Fair value is determined
through various valuation techniques including discounted cash
flow models, quoted market values and third-party independent
appraisals, as considered necessary.
Goodwill and indefinite lived intangible assets are reviewed for
impairment at least annually in accordance with the provisions
of FAS No. 142, Goodwill and Other Intangible
Assets.
The Company recognizes operating revenues and related direct
costs to recognizing revenue as of the date the freight is
delivered, which is consistent with method three under
EITF 91-9,
Revenue and Expense Recognition for Freight Services in
Process.
F-69
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
(j)
|
Stock
compensation plans
|
On January 1, 2006, the Company adopted
FAS No. 123(R), Share-Based Payment
(FAS 123(R)), using the modified prospective method.
This Statement requires that all share-based payments to
employees, including grants of employee stock options, be
recognized in the financial statements upon a grant-date fair
value of an award as opposed to the intrinsic value method of
accounting for stock-based employee compensation under
Accounting Principles Board Opinion No. 25 (APB
No. 25), which the Company used for the preceding years.
In November 2005, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position (FSP)
No. FAS 123(R)-3, Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards
(FSP 123(R)-3). The Company has elected to adopt the
alternative transition (short-cut) method provided in the
FSP 123(R)-3 for calculating the tax effects of stock-based
compensation pursuant to FAS No. 123(R). The
alternative transition method includes simplified methods to
establish the beginning balance of the additional paid-in
capital pool (APIC pool) related to the tax effects of employee
stock-based compensation and to determine the subsequent impact
on the APIC pool of the tax effects of employee stock-based
compensation awards that are outstanding upon adoption of
FAS No. 123(R). See note 15 for additional
information relating to the Companys stock compensation
plans and the adoption of FAS No. 123(R).
Pursuant to the merger agreement, all outstanding stock options
and performance shares, vested or unvested as of May 10,
2007, were canceled and fully settled. Holders of stock options
received an amount in cash equal to the excess of the Merger
consideration over the exercise price per share of the options
multiplied by the number of options outstanding. Holders of
performance shares received cash equal to the merger
consideration. Following the effective time of the merger, the
holders of the options had no further rights in the options or
performance shares.
The Companys net loss for the four months and ten days
ended May 10, 2007 includes $12.5 million of
compensation costs related to the Companys share-based
compensation arrangements, of which $11.1 million was
associated with the acceleration of options and performance
shares related to the Merger.
In addition to charging income for taxes actually paid or
payable, the Company provides for deferred income taxes using
the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
the period that includes the enactment date.
The preparation of the consolidated financial statements, in
accordance with generally accepted principles in the United
States of America, requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Significant items
subject to such estimates and assumptions include the carrying
amount of property and equipment, intangibles and goodwill;
valuation allowances for receivables, inventories and deferred
income tax assets; valuation of financial instruments; valuation
of share-based compensation; and estimates of claims accruals
and contingent obligations. Actual results could differ from
those estimates.
F-70
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
(m)
|
Recent
accounting pronouncements
|
In February 2007, the FASB issued FAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities. FAS No. 159 allows
entities the option to measure eligible financial instruments at
fair value as of specified dates. Such election, which may be
applied on an instrument by instrument basis, is typically
irrevocable once elected. FAS No. 159 is effective for
fiscal years beginning after November 15, 2007, and early
application is allowed under certain circumstances. Management
is currently evaluating the requirements of
FAS No. 159 and has not yet determined the impact, if
any, on the Companys consolidated financial statements.
In September 2006, the Financial Accounting Standards Board
(FASB) issued FAS No. 157, Fair Value
Measurements. FAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about
fair value measurements. This Statement does not require any new
fair value measurements, however, for some entities, the
application of this Statement will change current practice.
FAS No. 157 is effective for fiscal years beginning
after November 15, 2007. In February 2008, the FASB issued
a Staff Position
No. 157-2,
which delays the effective date of FAS No. 157 for non
financial assets and non financial liabilities that are not
currently recognized or disclosed at fair value on a recurring
basis until fiscal years beginning after November 15, 2008.
The Company is currently evaluating the impact, if any, of
FAS No. 157 on its consolidated financial statements.
In June 2006, the FASB issued FASB Interpretation (FIN)
No. 48, Accounting for Uncertainty in Income
Taxes an Interpretation of FASB Statement
No. 109. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises
financial statements in accordance with FAS No. 109,
Accounting for Income Taxes. FIN 48 prescribes a
recognition threshold and measurement attribute for the
financial statement recognition and measurement of a
companys tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition.
In May 2007, the FASB issued FSP
No. FIN 48-1,
Definition of Settlement in FASB Interpretation
No. 48. The FSP provides guidance about how an
enterprise should determine whether a tax position is
effectively settled for the purpose of recognizing previously
unrecognized tax benefits. Under the FSP, a tax position could
be effectively settled on completion of examination by a taxing
authority if the entity does not intend to appeal or litigate
the result and it is remote that the taxing authority would
examine or re-examine the tax position. Application of the FSP
shall be upon the initial adoption date of FIN 48. The FSP
did not have a material impact on the Companys
consolidated financial statements.
The Company adopted the provisions of FIN 48 as of
January 1, 2007 with no cumulative effect adjustment
recorded at adoption. As of the date of adoption, the
Companys unrecognized tax benefits totaled approximately
$8.3 million, $2.1 million of which would favorably
impact our effective tax rate if subsequently recognized. As of
May 10, 2007, we had unrecognized tax benefits totaling
approximately $9.9 million, $1.8 million of which
would favorably impact our effective tax rate if subsequently
recognized.
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
January 1, 2007 and May 10, 2007 were approximately
$0.8 million and $2.0 million, respectively. 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 and its subsidiaries are currently under examination
by federal taxing authorities for years 2003 through 2005 and
various state jurisdictions for years ranging from 1997 to 2005.
At the completion of these examinations, management does not
expect any adjustments that would have a material impact on the
Companys effective tax rate. Years subsequent to 2005
remain subject to examination.
F-71
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
The Company anticipates that the total amount of unrecognized
tax benefits may decrease by approximately $8.6 million
during the next twelve months, which it believes will not have a
material impact on the financial statements.
Accounts receivable were:
|
|
|
|
|
|
|
|
|
|
|
May 10,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Trade customers
|
|
$
|
294,853
|
|
|
$
|
290,985
|
|
Equipment manufacturers
|
|
|
6,773
|
|
|
|
7,092
|
|
Tax receivable
|
|
|
31,817
|
|
|
|
21,788
|
|
Other
|
|
|
4,070
|
|
|
|
5,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
337,513
|
|
|
|
325,323
|
|
Less allowance for doubtful accounts
|
|
|
14,518
|
|
|
|
17,305
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
322,995
|
|
|
$
|
308,018
|
|
|
|
|
|
|
|
|
|
|
The schedule of allowance for doubtful accounts was as follows:
|
|
|
|
|
|
|
|
|
|
|
May 10,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
17,305
|
|
|
$
|
14,352
|
|
Additions (reversals)
|
|
|
(1,277
|
)
|
|
|
6,808
|
|
Recoveries
|
|
|
413
|
|
|
|
412
|
|
Write-offs
|
|
|
(1,923
|
)
|
|
|
(4,267
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
14,518
|
|
|
$
|
17,305
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale were:
|
|
|
|
|
|
|
|
|
|
|
May 10,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Land and facilities
|
|
$
|
800
|
|
|
$
|
7,511
|
|
Revenue equipment
|
|
|
22,070
|
|
|
|
27,866
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
22,870
|
|
|
$
|
35,377
|
|
|
|
|
|
|
|
|
|
|
As of May 10, 2007, assets held for sale were stated at the
lower of depreciated cost or fair value less estimated selling
expenses. The Company expects to sell these assets within the
next twelve months. During the four months and ten days ended
May 10, 2007, the Company transferred its New Jersey
terminal back into operations, reclassifying the facility from
assets held for sale to property and equipment.
|
|
(4)
|
Equity
investment Transplace, Inc.
|
In 2000, the Company contributed $10.0 million in cash to
Transplace, Inc. (Transplace), a provider of transportation
management services. The Companys 29% interest in
Transplace is accounted for using the equity method. As a result
of accumulated equity losses, the investment in Transplace was
$0 at May 10, 2007
F-72
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
and December 31, 2006, respectively. The Companys
equity in the net assets of Transplace exceeds its investment
account by approximately $24 million as of May 10,
2007. As Transplace records amortization or impairment of
goodwill and intangibles, the Company accretes an equal amount
of basis difference to offset such amortization or impairment.
The Company received $4.5 million in operating revenue
during the four months and ten days ended May 10, 2007 for
transportation services provided to Transplace. At May 10,
2007 and December 31, 2006, $2.1 million and
$2.0 million, respectively, were owed to the Company for
these services. The Company recorded equity losses of $71,000 in
other (income) expense during the four months and ten days ended
May 10, 2007 for Transplace, which reduced the note
receivable described in Note 5.
In January 2005, the Company loaned $6.3 million to
Transplace Texas, LP, a subsidiary of Transplace. This note
receivable is being reduced as the Company records its portion
of the losses incurred by Transplace. As of May 10, 2007,
this note has been reduced by approximately $5.7 million in
accumulated losses and a principal payment of approximately
$340,000 received in 2006. At such time as the note is repaid in
full, the amount of losses previously recorded as a reduction of
the note receivable will be recognized as a gain. Effective
January 7, 2007, the note receivable was amended to extend
the maturity date to January 7, 2009.
In the course of the preparation and review of consolidated
financial statements as of and for the four months and ten days
ended May 10, 2007, the Company determined that the
underlying collateral of the note receivable from Transportes
EASO, a third party Mexican trucking company, was impaired and
recorded a pre-tax impairment of $2.4 million related to
the write-off of the note receivable.
Notes receivable were the following:
|
|
|
|
|
|
|
|
|
|
|
May 10,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Note receivable of $6,331 from Transplace, net of accumulated
equity losses and principal payments, bearing interest of 6% per
annum and principal due and payable on January 7, 2009
|
|
$
|
263
|
|
|
$
|
334
|
|
Note receivable from Transportes EASO, payable on demand
|
|
|
|
|
|
|
2,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263
|
|
|
|
2,752
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable, less current portion
|
|
$
|
263
|
|
|
$
|
2,752
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities were:
|
|
|
|
|
|
|
|
|
|
|
May 10,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Employee compensation
|
|
$
|
67,424
|
|
|
$
|
37,980
|
|
Fuel, mileage and property taxes
|
|
|
4,563
|
|
|
|
5,339
|
|
Income taxes payable
|
|
|
3,840
|
|
|
|
2,973
|
|
Other
|
|
|
17,813
|
|
|
|
17,068
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,640
|
|
|
$
|
63,360
|
|
|
|
|
|
|
|
|
|
|
F-73
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Claims accruals represent accruals for the uninsured portion of
pending claims at May 10, 2007 and December 31, 2006.
The current portion reflects the amounts of claims expected to
be paid in the following year. These accruals are estimated
based on managements evaluation of the nature and severity
of individual claims and an estimate of future claims
development based on the Companys past claims experience.
The Companys insurance program for workers
compensation, group medical liability, liability, physical
damage and cargo damage involves self-insurance, with varying
risk retention levels. Claims in excess of these risk retention
levels are insured up to certain limits which management
believes is adequate.
Claims accruals were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
May 10,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Auto and collision liability
|
|
$
|
160,361
|
|
|
$
|
160,660
|
|
Workers compensation liability
|
|
|
77,780
|
|
|
|
69,490
|
|
Owner-operator claims liability
|
|
|
9,129
|
|
|
|
4,014
|
|
Group medical liability
|
|
|
12,255
|
|
|
|
10,962
|
|
Cargo damage liability
|
|
|
2,209
|
|
|
|
2,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,734
|
|
|
|
247,718
|
|
Less current portion of claims accrual
|
|
|
155,273
|
|
|
|
139,112
|
|
|
|
|
|
|
|
|
|
|
Claim accruals, less current portion
|
|
$
|
106,461
|
|
|
$
|
108,606
|
|
|
|
|
|
|
|
|
|
|
|
|
(8)
|
Securitization
of accounts receivable
|
In December 1999, the Company (through a wholly owned
bankruptcy-remote special purpose subsidiary) entered into an
agreement to sell, on a revolving basis, interests in its
accounts receivable to two unrelated financial entities. The
bankruptcy-remote subsidiary has the right to repurchase the
receivables from the unrelated entities. Therefore, the
transaction does not meet the criteria for sale treatment in
accordance with FAS No. 140 and is reflected as a
secured borrowing in the financial statements.
Under the agreement amended in the fourth quarter of 2005, the
Company can receive up to a maximum of $300 million of
proceeds, subject to eligible receivables and will pay a program
fee recorded as interest expense, as defined in the agreement.
On December 20, 2006, the committed term was extended to
December 19, 2007. The Company will pay commercial paper
interest rates on the proceeds received (approximately 5.3% at
May 10, 2007). The proceeds received are reflected as
current liabilities on the consolidated financial statements
because the committed term, subject to annual renewals, is
364 days. As of May 10, 2007 and December 31,
2006 there were $160 million and $180 million,
respectively, of proceeds received.
Following the completion of the Merger, the agreement was
terminated and the proceeds outstanding under the securitization
of accounts receivable were paid in full through the proceeds of
the merger consideration.
|
|
(9)
|
Fair
value of operating lease guarantees
|
The Company guarantees certain residual values under its
operating lease agreements for revenue equipment. At the
termination of these operating leases, the Company would be
responsible for the excess of the guarantee amount above the
fair market value, if any. As of May 10, 2007 and
December 31, 2006, the Company has recorded a liability for
the estimated fair value of the guarantees, entered into
subsequent to
F-74
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
January 1, 2003, in the amount of $491,000 and $674,000,
respectively. The maximum potential amount of future payments
the Company would be required to make under all of these
guarantees is $21.8 million.
|
|
(10)
|
Borrowings
under revolving credit agreement
|
Pursuant to the amended credit facility with a group of lenders,
as of May 10, 2007, the Company had a $550 million
revolving credit agreement, maturing December 2010 (the Credit
Agreement). Interest on outstanding borrowings was based upon
one of two options, which the Company may select at the time of
borrowing: the banks prime rate or the London Interbank
Offered Rate (LIBOR) plus applicable margins ranging from 40 to
100 basis points, as defined in the Credit Agreement
(50 basis points at May 10, 2007). The unused portion
of the line of credit is subject to a commitment fee ranging
from 8 to 17.5 basis points (10 basis points at
May 10, 2007). As of May 10, 2007 and
December 31, 2006, there were no amounts outstanding under
the line of credit. The total commitment fee expensed for the
four months and ten days ended May 10, 2007 was $129,000.
The Credit Agreement included financing for letters of credit.
As of May 10, 2007, the Company had outstanding letters of
credit primarily for workers compensation and liability
self-insurance purposes totaling $187.2 million, leaving
$362.8 million available under the Credit Agreement.
The Credit Agreement requires the Company to meet certain
covenants with respect to leverage and fixed charge coverage
ratios and tangible net worth. As of May 10, 2007 the
Company was in compliance with these debt covenants.
Following the completion of the Merger, the Credit Agreement was
canceled and all accrued commitment fees paid.
In June 2003, the Company completed a private placement of
senior notes. The notes were issued in two series of
$100 million each with an interest rate of 3.73% for those
notes maturing on June 27, 2008 and 4.33% for those notes
maturing on June 27, 2010 with interest payable on each
semiannually in June and December. The notes contain financial
covenants relating to leverage, fixed charge coverage and
tangible net worth. As of May 10, 2007, the Company was in
compliance with these debt covenants.
Following the completion of the Merger, the outstanding
principal and accrued interest on the senior notes were redeemed
and paid in full through the proceeds of the merger
consideration.
|
|
(12)
|
Derivative
financial instruments
|
The Company was a party to swap agreements that were used to
manage exposure to interest rate movement by effectively
changing the variable rate to a fixed rate. Since these
instruments did not qualify for hedge accounting, the changes in
the fair value of the interest rate swap agreements will be
recognized in net earnings until they mature through March 2009.
For the four months and ten days ended May 10, 2007, the
Company recognized a gain for the change in fair market value of
the interest rate swap agreements of $177,000. The changes in
fair market value of the interest rate swap agreements are
recorded as interest expense.
F-75
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Operating
leases
The Company leases various revenue equipment and terminal
facilities under operating leases. At May 10, 2007, the
future minimum lease payments under noncancelable operating
leases were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
Facilities
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Years Ending May 10,
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
29,965
|
|
|
$
|
897
|
|
|
$
|
30,862
|
|
2009
|
|
|
12,526
|
|
|
|
435
|
|
|
|
12,961
|
|
2010
|
|
|
12,034
|
|
|
|
167
|
|
|
|
12,201
|
|
2011
|
|
|
6,078
|
|
|
|
51
|
|
|
|
6,129
|
|
2012
|
|
|
|
|
|
|
43
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
60,603
|
|
|
$
|
1,593
|
|
|
$
|
62,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The revenue equipment leases generally include purchase options
exercisable at the completion of the lease. For the four months
and ten days, total rental expense was $20.1 million.
Purchase
commitments
The Company had commitments outstanding to acquire revenue
equipment for approximately $252.6 million as of
May 10, 2007. These purchases are expected to be financed
by the combination of operating leases, debt, proceeds from
sales of existing equipment and cash flows from operations. The
Company has the option to cancel such commitments with
90 days notice.
In addition, the Company had remaining commitments of $326,000
as of May 10, 2007 under contracts relating to acquisition,
development and improvement of facilities.
The Company is involved in certain claims and pending litigation
primarily arising in the normal course of business. Based on the
knowledge of the facts and, in certain cases, opinions of
outside counsel, management believes the resolution of claims
and pending litigation will not have a material adverse effect
on the Company.
|
|
(15)
|
Stockholders
equity
|
Pursuant to the Companys repurchase program, the Company
may acquire its common stock using the proceeds received from
the exercise of stock options to minimize the dilution from the
exercise of stock options. The purchases are made in accordance
with SEC rules 10b5-1 and
10b-18,
which limit the amount and timing of repurchases and removes any
discretion with respect to purchases on the part of the Company.
The timing and amount of shares repurchased is dependent upon
the timing and amount of employee stock option exercises.
The Company purchased 145,961 shares of its common stock
for a total cost of $4.2 million during the four months and
ten days ended May 10, 2007. All of the shares purchased
are being held as treasury stock and may be used for issuances
under the Companys employee stock option and purchase
plans or for other general corporate purposes.
F-76
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
The Company has granted a number of stock options under various
plans. Beginning in April 2006, the Company granted options to
employees, which vest pro-rata over a five year period and have
exercise prices equal to 100% of the market price on the date of
grant. The options expire seven years following the grant date.
Prior to April 2006, options granted by the Company to employees
generally vested 20% per year beginning on the fifth anniversary
of the grant date or pro-rata over a nine-year period. The
option awards expire ten years following the date of grant. The
exercise prices of the options with nine year vesting periods
were generally granted equal to 85 to 100% of the market price
on the grant date. Options granted to the Companys
nonemployee directors have been granted with an exercise price
equal to 85% or 100% of the market price on the grant date, vest
over four years and expire on the sixth anniversary of the grant
date.
Pursuant to the merger agreement (Merger), as of May 10,
2007, all outstanding vested or unvested fixed stock options
were canceled and fully settled. Holders of stock options
received from Jerry Moyes and certain of his affiliates an
amount in cash equal to the excess of the merger consideration
over the exercise price per share of the options multiplied by
the number of options outstanding.
A summary of the activity of the Companys fixed stock
option plans as of May 10, 2007 and December 31, 2006,
and changes during the periods then ended on those dates were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 10, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Outstanding at beginning of period
|
|
|
3,422,386
|
|
|
$
|
19.78
|
|
|
|
6,467,398
|
|
|
$
|
18.05
|
|
Granted at market value
|
|
|
374,250
|
|
|
|
30.52
|
|
|
|
575,400
|
|
|
|
23.53
|
|
Exercised
|
|
|
(221,860
|
)
|
|
|
17.50
|
|
|
|
(3,425,553
|
)
|
|
|
17.15
|
|
Cancelled and settled
|
|
|
(3,520,400
|
)
|
|
|
21.09
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(54,376
|
)
|
|
|
17.34
|
|
|
|
(194,859
|
)
|
|
|
19.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
|
|
|
$
|
|
|
|
|
3,422,386
|
|
|
$
|
19.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
|
|
|
|
|
|
|
|
|
2,160,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the four
months and ten days ended May 10, 2007, was
$2.1 million. For the stock options canceled and settled at
May 10, 2007 associated with the merger, the total
intrinsic value was $36.8 million, with no cash proceeds
received by the Company.
The fair value of each option award is estimated on the date of
grant using the Black-Scholes-Merton option-pricing model, which
uses a number of assumptions to determine the fair value of the
options on the date of grant. The weighted average grant date
fair value of options granted at market value during the four
months ended May 10, 2007 was $13.26. The following
weighted average assumptions were used to determine the weighted
average grant date fair value of the stock options granted
during the four months and ten days ended May 10, 2007:
|
|
|
|
|
|
|
May 10,
|
|
|
2007
|
|
Dividend yield
|
|
|
%
|
|
Expected volatility
|
|
|
41%
|
|
Risk free interest rate
|
|
|
4.86%
|
|
Expected lives (in years)
|
|
|
5.0
|
|
F-77
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
The expected lives of the options are based on the historical
and expected future employee exercise behavior. Expected
volatility is based upon the historical volatility of the
Companys common stock. The risk-free interest rate is
based upon the U.S. Treasury yield curve at the date of
grant with maturity dates approximately equal to the expected
life at the grant date.
|
|
(c)
|
Employee
stock purchase plan
|
Under the Employee Stock Purchase Plan (ESPP), the Company is
authorized to issue up to 6.5 million shares of common
stock to full-time employees, nearly all of whom are eligible to
participate. Under the terms of the ESPP, employees can choose
each year to have up to 15% of their annual base earnings
withheld to purchase the Companys common stock. The
purchase price of the stock is 85% of the lower of the
beginning-of-period
or
end-of-period
(each period being the first and second six calendar months)
market price. Each employee is restricted to purchasing during
each period a maximum of $12,500 of stock determined by using
the
beginning-of-period
price.
On March 22, 2007, the Compensation Committee of the Board
of Directors of the Company approved and adopted an amendment to
the ESPP. The ESPP was amended to reflect the provision
contained in that certain Agreement and Plan of Merger, dated as
of January 19, 2007, by and among Saint Corporation, Saint
Acquisition Corporation and the Company. The amendment provided
that the then current offering period under the Plan would end
the last trading date prior to the effective time of the merger
and that no additional offering periods will occur thereafter.
During the four months and ten days ended May 10, 2007, the
Company issued approximately 71,000 shares at an average
price per share of $22.87, under the employee stock purchase
plan.
As a result of the adoption of FAS 123(R) in January 2006,
total compensation expense related to the ESPP was approximately
$523,000 for the four months and ten days ended May 10,
2007. Compensation expense is calculated as the fair value of
the employees purchase rights, which was estimated using
the Black-Scholes-Merton model with the following assumptions:
|
|
|
|
|
|
|
May 10,
|
|
|
|
2007
|
|
|
Dividend yield
|
|
|
|
%
|
Expected volatility
|
|
|
48
|
%
|
Risk free interest rate
|
|
|
5.11
|
%
|
The weighted average fair value of those purchase rights granted
during the four months and ten days ended May 10, 2007 was
$7.40 per share.
|
|
(d)
|
Performance
share awards
|
In 2006, the Company communicated to employees a plan that would
include the award of performance shares to eligible employees to
be issued in 2007 pursuant to the 2006 Long-Term Incentive
Compensation Plan. The actual number of awards was based on the
Company meeting or achieving certain performance targets in
2006. In January 2007, approximately 84,000 performance share
awards were issued under the Companys 2003 Stock Incentive
Plan. The performance share awards vest over two years at a rate
of 50% per year beginning on the first anniversary following the
date the awards were issued. The weighted average fair value of
these performance shares in 2006 was $22.65 per share.
Pursuant to the merger agreement, as of May 10, 2007, all
outstanding vested or unvested performance shares were canceled
and fully settled. Holders of performance shares received cash
equal to the merger consideration.
F-78
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
(e)
|
Stockholders
protection rights agreement
|
On July 18, 2006, the Board of Directors of the Company
declared a dividend payable July 31, 2006 of one right (a
Right) for each outstanding share of common stock of the
Company held of record at the close of business on July 31,
2006 and for each share issued thereafter. The Rights were
issued pursuant to a Stockholders Protection Rights Agreement
(the Rights Agreement), which governs the terms of the Rights.
The Rights Agreement is designed to protect the Companys
stockholders against coercive tender offers, inadequate offers,
and abusive or coercive takeover tactics and ensure all the
Companys stockholders receive fair and equal treatment in
the event of any unsolicited attempts to take over the Company.
Following a triggering event (as described in the Rights
Agreement), each Right entitles its registered holder, other
than an acquiring person that causes the triggering event, to
purchase from the Company, one one-hundredth of a share of
Participating Preferred Stock, $0.001 par value, for $150,
subject to adjustment. The Rights will not become exercisable
until, among other things, the business day following the tenth
business day after either any person commences a tender or
exchange offer which, if consummated, would result in such
person acquiring beneficial ownership of 20% or more of the
Companys outstanding common stock or a person or group has
acquired 20% or more of the Companys outstanding common
stock (or, in the case of an existing holder of more than 20%,
such person or group has acquired an additional 0.01% of the
outstanding common stock, subject to certain exceptions). The
Rights will expire on the close of business on July 18,
2009 or on the date on which the Rights are redeemed by the
Board of Directors.
Immediately prior to the execution of the merger agreement, the
Company amended the Rights Agreement. The Rights Agreement
amendment provides that, among other things, neither the
execution of the merger agreement nor the consummation of the
Merger or the other transactions contemplated by the merger
agreement will trigger the separation or exercise of the
stockholder rights or any adverse event under the Rights
Agreement. In particular, none of Swift Corporation, its wholly
owned subsidiary, Saint Acquisition Corporation, or any of their
respective affiliates or associates will be deemed to be an
Acquiring Person (as defined in the Rights Agreement) solely by
virtue of the approval, execution, delivery, adoption or
performance of the merger agreement or the consummation of the
Merger or any other transactions contemplated by the merger
agreement.
Income tax expense (benefit) for the four months and ten days
ended May 10, 2007 was (in thousands):
|
|
|
|
|
Current expense (benefit):
|
|
|
|
|
Federal
|
|
$
|
(6,124
|
)
|
State
|
|
|
708
|
|
Foreign
|
|
|
33
|
|
|
|
|
|
|
|
|
|
(5,383
|
)
|
Deferred expense (benefit):
|
|
|
|
|
Federal
|
|
|
1,742
|
|
State
|
|
|
(1,992
|
)
|
Foreign
|
|
|
1,056
|
|
|
|
|
|
|
|
|
|
806
|
|
|
|
|
|
|
Net income tax benefit
|
|
$
|
(4,577
|
)
|
|
|
|
|
|
F-79
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
The Companys effective tax rate was 14% for the four
months and ten days ended May 10, 2007. The actual tax
benefit differs from the expected tax benefit
(computed by applying the U.S. Federal corporate income tax
rate of 35% to earnings (losses) before income taxes) for the
four months and ten days ended May 10, 2007 (in thousands):
|
|
|
|
|
Computed expected tax benefit
|
|
$
|
(12,250
|
)
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
State income taxes, net of federal income tax benefit
|
|
|
183
|
|
Per diem allowances
|
|
|
627
|
|
Acquisition related expenses
|
|
|
8,144
|
|
State tax rate change and other adjustments in deferred items
|
|
|
(1,551
|
)
|
Other, net of tax credits
|
|
|
270
|
|
|
|
|
|
|
Net income tax benefit
|
|
$
|
(4,577
|
)
|
|
|
|
|
|
The net effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities:
|
|
|
|
|
|
|
|
|
|
|
May 10,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Claims accruals
|
|
$
|
88,877
|
|
|
$
|
85,287
|
|
Allowance for doubtful accounts
|
|
|
6,747
|
|
|
|
6,425
|
|
Accrued liabilities
|
|
|
1,057
|
|
|
|
1,179
|
|
Derivative financial instruments
|
|
|
229
|
|
|
|
297
|
|
Equity investments
|
|
|
5,664
|
|
|
|
5,464
|
|
Amortization of discount on stock options
|
|
|
|
|
|
|
1,980
|
|
Other
|
|
|
8,531
|
|
|
|
7,821
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
111,105
|
|
|
|
108,453
|
|
Valuation allowances
|
|
|
(1,697
|
)
|
|
|
(1,616
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
|
109,408
|
|
|
|
106,837
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment, principally due to differences in
depreciation
|
|
|
(341,909
|
)
|
|
|
(336,671
|
)
|
Prepaid taxes, licenses and permits deducted for tax purposes
|
|
|
(14,017
|
)
|
|
|
(14,495
|
)
|
Contractual commitments deducted for tax purposes
|
|
|
(4,644
|
)
|
|
|
(8,412
|
)
|
Other
|
|
|
(7,357
|
)
|
|
|
(7,028
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(367,927
|
)
|
|
|
(366,606
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(258,519
|
)
|
|
$
|
(259,769
|
)
|
|
|
|
|
|
|
|
|
|
F-80
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
These amounts are presented in the accompanying consolidated
balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
May 10,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current deferred tax asset
|
|
$
|
53,615
|
|
|
$
|
43,695
|
|
Noncurrent deferred tax liability
|
|
|
(312,134
|
)
|
|
|
(303,464
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(258,519
|
)
|
|
$
|
(259,769
|
)
|
|
|
|
|
|
|
|
|
|
U.S. income and foreign withholding taxes have not been
provided on approximately $45 million of cumulative
undistributed earnings of foreign subsidiaries. The earnings are
considered to be permanently reinvested outside the U.S. As
the Company intends to reinvest these earnings indefinitely
outside the U.S., it is not required to provide U.S. income
taxes on them until they are repatriated in the form of
dividends or otherwise.
The Company has state net operating loss carryforwards available
at May 10, 2007 that it expects will generate future tax
savings of approximately $4 million. The state net
operating losses will expire at various times between 2007 and
2026 if not used. The Company has established a valuation
allowance of $1.7 million for the possibility that some of
these state carryforwards may not be used.
|
|
(17)
|
Accumulated
other comprehensive loss
|
In conjunction with the June 2003 private placement of senior
notes, the Company entered into a cash flow hedge to lock the
benchmark interest rate used to set the coupon rate for
$50 million of the notes. The Company terminated the hedge
when the coupon rate was set and paid $1.1 million, which
is recorded as accumulated other comprehensive loss in
stockholders equity. This amount will be amortized as a
yield adjustment of the interest rate on the seven-year series
of notes. The Company amortized $378,000 into interest expense
during four months and ten days ended May 10, 2007.
|
|
(18)
|
Employee
benefit plans
|
The Company maintains a 401(k) profit sharing plan for all
employees who are 19 years of age or older and have
completed six months of service. In 2006, the Company amended
the Plan to allow matching of contributions up to 3% of an
employees compensation. Employees rights to employer
contributions vest after five years from their date of
employment.
For the four months and ten days ended May 10, 2007, the
Companys expense associated with the 401(k) plan was
approximately $919,000.
Services provided to the Companys largest customer,
Wal-Mart, generated 15% of operating revenue during the four
months and ten days ended May 10, 2007. No other customer
accounted for 10% or more of operating revenue.
|
|
(20)
|
Related
party transactions
|
The Company obtains drivers for the owner-operator portion of
its fleet by entering into contractual arrangements either with
individual owner-operators or with fleet operators. Fleet
operators maintain a fleet of tractors and directly negotiate
with a pool of owner-operators and employees whose services the
fleet operator then offers to the Company. One of the largest
fleet operators with whom the Company does business is
Interstate Equipment Leasing, Inc. (IEL), a corporation wholly
owned by Jerry Moyes, a member of the Companys Board of
Directors. The Company pays the same or comparable rate per mile
for purchased
F-81
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
transportation services to IEL that it pays to independent
owner-operators and other fleet operators. For the period
January 1, 2007 through May 10, 2007, the Company paid
$3.1 million to IEL for purchased transportation services.
The Company owed $94,000 and $140,000 for these purchased
transportation services at May 10, 2007 and
December 31, 2006, respectively.
The Company also provides repair and maintenance services to IEL
trucks totaling $1.1 million for the period January 1,
2007 through May 10, 2007. At May 10, 2007 and
December 31, 2006, the Company was owed $17,000 and
$108,000, respectively, for these services. The Company paid IEL
$79,000 during the same period of 2007 for various other
services (including insurance claims payments and reimbursement
to IEL for Prepass usage by their drivers on the Company loads).
There were no amounts payable to IEL for these services at
May 10, 2007 or December 31, 2006.
The Company provides transportation, repair, facilities leases
and other services to several trucking companies affiliated with
Jerry Moyes as follows:
Two trucking companies affiliated with Jerry Moyes hires the
Company for truckload hauls for their customers: Central Freight
Lines, Inc. (Central Freight), a publicly traded
less-than-truckload carrier, and Central Refrigerated Service,
Inc. (Central Refrigerated), a privately held refrigerated
truckload carrier. Jerry Moyes owns Southwest Premier Properties
which bought out Central Freight in 2005 and Mr. Moyes is
the principal stockholder of Central Refrigerated. The Company
also provides repair, facilities leases and other truck stop
services to Central Freight and Central Refrigerated. The
Company recognized $2.0 million in operating revenue for
January 1, 2007 through May 10, 2007 for these
services to Central Freight and Central Refrigerated. At
May 10, 2007 and December 31, 2006, $977,000 and
$31,000, respectively, was owed to the Company for these
services.
The rates that the Company charges each of these companies for
transportation services, in the case of truckload hauls, are
market rates comparable to what it charges its regular
customers, thus providing the Company with an additional source
of operating revenue at its normal freight rates. The rates
charged for repair and other truck stop services is comparable
to what the Company charges its owner-operators, which is at a
mark up over the Companys cost. In addition, The Company
leases facilities from Central Freight and paid $101,000 to the
carrier for facilities rents from January 1, 2007 through
May 10, 2007. There were no amounts owed to Central Freight
at May 10, 2007 or December 31, 2006.
The Company purchased $165,000 of refrigeration units and parts
from January 1, 2007 through May 10, 2007 from Thermo
King West, a Thermo King dealership owned by William F. Riley
III, an executive officer of the Company until July 2005, who is
also the father of Jeff Riley, an executive officer of the
Company until the closing of the merger on May 10, 2007.
The Company owed $41,000 and $3,000 to Thermo King West at
May 10, 2007 and December 31, 2006, respectively.
Thermo King Corporation, a unit of Ingersoll-Rand Company
limited, requires that all purchases of refrigeration units be
made through one of its dealers. Thermo King West is the
exclusive dealer in the southwest. Pricing terms are negotiated
directly with Thermo King Corporation, with additional discounts
negotiated between the Company and Thermo King West once pricing
terms are fixed with Thermo King Corporation. Thermo King
Corporation is one of only two companies that supplies
refrigeration units that are suitable for the Companys
needs. In addition to Thermo King West, Bill Riley owns Trucks
West, an operating franchised service and parts facilities for
Volvo tractors. The Company purchased $1.1 million in parts
and services from Trucks West from January 1, 2007 through
May 10, 2007. The Company owed $255,000 and $637,000 for
these parts and services at May 10, 2007 and
December 31, 2006, respectively.
All of the above related party arrangements were approved by the
independent members of the Companys Board of Directors.
F-82
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
(21)
|
Fair
value of financial instruments
|
Statement of Financial Accounting Standards No. 107,
Disclosures about Fair Value of Financial Instruments,
requires that the Company disclose estimated fair values for its
financial instruments. Fair value estimates are made at a
specific point in time and are based on relevant market
information and information about the financial instrument.
These estimates do not reflect any premium or discount that
could result from offering for sale at one time the
Companys entire holdings of a particular financial
instrument. Changes in assumptions could significantly affect
these estimates. Since the fair value is estimated as of
May 10, 2007, the amounts that will actually be realized or
paid at settlement or maturity of the instruments could be
significantly different.
The following summary presents a description of the
methodologies and assumptions used to determine such amounts.
|
|
(a)
|
Accounts
receivable and payable
|
Fair value is considered to be equal to the carrying value of
the accounts receivable, accounts payable and accrued
liabilities, as they are generally short-term in nature and the
related amounts approximate fair value or are receivable or
payable on demand.
(b) Long-term
debt, borrowings under revolving credit agreement and accounts
receivable securitization
The fair value of all of these instruments was assumed to
approximate their respective carrying values given the duration
of the notes, their interest rates and underlying collateral.
The fair value of the senior notes, measured as the present
value of the future cash flows using the current borrowing rate
for comparable maturity notes, was estimated to be
$190.2 million as of May 10, 2007.
|
|
(22)
|
Customer
relationship intangible asset
|
Information related to the acquired customer relationship
intangible asset was:
|
|
|
|
|
|
|
|
|
|
|
May 10,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Customer relationship intangible asset:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
45,726
|
|
|
$
|
45,726
|
|
Accumulated amortization
|
|
|
(11,601
|
)
|
|
|
(10,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,125
|
|
|
$
|
35,223
|
|
|
|
|
|
|
|
|
|
|
The aggregate amortization expense related to the acquired
customer relationship intangible asset was $1.1 million for
the four months and ten days ended May 10, 2007. The
estimated amortization expense for each of the next five years
is approximately $3 million. Amortization on the customer
relationship intangible asset is calculated on the straight-line
method over the estimated useful life of 15 years.
At the close of the Merger, Swift Corporation incurred
approximately $2.56 billion in debt primarily associated
with the acquisition of Swift Transportation Co., Inc. The debt
consists of proceeds from a first lien term loan pursuant to a
credit facility with a group of lenders totaling
$1.72 billion and proceeds from the offering of
$835 million in senior notes. The use of the proceeds
included the cash consideration paid for the purchase price of
Swift Transportation Co., Inc. of $1.52 billion, repayment
of approximately $376.5 million of indebtedness of the
Company and Interstate Equipment Leasing, Inc., a entity with
common ownership,
F-83
Swift
Transportation Co., Inc. and Subsidiaries
Notes to
consolidated financial
statements (Continued)
$560 million representing the issuance of a stockholder
loan receivable to the Moyes affiliates and debt issuance costs
of $56.8 million. The remaining proceeds were used by Swift
Corporation for payment of transaction-related expenses.
In connection with the Merger, Jock Patton, Robert W.
Cunningham, Karl Eller, Alphonse E. Frei, David Goldman,
Paul M. Mecray III, Jerry Moyes, Karen E. Rasmussen and Samuel
C. Cowley resigned from his or her respective position as a
member of the Board of Directors, and any committee thereof, of
Swift Transportation Co., Inc. and from any other position he or
she held with the Company or any of its subsidiaries.
Mr. Cunningham and Glynis A. Bryan, the Chief Executive
Officer and Chief Financial Officer of the Company,
respectively, have also resigned from such positions in
connection with the Merger. Pursuant to the Change in Control
Agreements with certain executives, the Company recognized
compensation expense of $16.4 million associated with the
change in control during the four months and ten days ended
May 10, 2007.
Following the completion of the Merger, the Company elected to
be treated as an S Corporation, which resulted in an income
tax benefit of $230.2 million associated with the partial
reversal of previously recognized net deferred tax liabilities
for the period after May 10, 2007.
The computation of basic and diluted loss per share is as
follows:
|
|
|
|
|
|
|
Four months and ten days
|
|
|
|
ended May 10, 2007
|
|
|
|
(In thousands, except
|
|
|
|
per share data)
|
|
|
Net loss
|
|
$
|
(30,422
|
)
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
Common shares outstanding for basic and diluted
loss per share
|
|
|
75,159
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.40
|
)
|
|
|
|
|
|
Potential common shares issuable upon exercise of outstanding
stock options are excluded from diluted shares outstanding as
their effect is antidilutive. All options outstanding at
May 10, 2007 were cancelled and settled in conjunction with
the Merger, as discussed in Note 15.
F-84
Report of
Independent Registered Public Accounting Firm
The Board of Directors
Swift Holdings Corp.:
We have audited the accompanying balance sheet of Swift Holdings
Corp. (the Company), a wholly-owned subsidiary of Swift
Corporation as of July 2, 2010. This financial statement is
the responsibility of the Companys management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the financial
position of Swift Holdings Corp. as of July 2, 2010 in
conformity with U.S. generally accepted accounting
principles.
/S/ KPMG LLP
Phoenix, Arizona
July 21, 2010
F-85
Swift
Holdings Corp.
A wholly-owned subsidiary of Swift Corporation
Balance Sheet
|
|
|
|
|
|
|
July 2, 2010
|
|
|
ASSETS
|
Cash
|
|
$
|
100
|
|
|
|
|
|
|
Total assets
|
|
$
|
100
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Stockholders equity:
|
|
|
|
|
Common stock, par value $.01 per share
|
|
|
|
|
Authorized 1,000 shares; 1,000 shares issued at
July 2, 2010
|
|
$
|
10
|
|
Additional paid-in capital
|
|
|
90
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
100
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
100
|
|
|
|
|
|
|
F-86
Nature of
business and basis of presentation
Swift Holdings Corp. (the Company), a wholly-owned
subsidiary of Swift Corporation, was incorporated on
May 20, 2010 (inception) with the authority to issue
1,000 shares of common stock, each having a par value of
$0.01 in contemplation of an initial public offering. Swift
Corporation is the holding company for Swift Transportation Co.,
LLC (a Delaware limited liability company, formerly Swift
Transportation Co., Inc., a Nevada corporation) and its
subsidiaries, a truckload carrier headquartered in Phoenix,
Arizona, and Interstate Equipment Leasing, LLC. The Company has
not engaged in any business or other activities, except in
connection with its formation, and holds no assets and has no
subsidiaries. The accompanying balance sheet has been prepared
in accordance with U.S. generally accepted accounting principles
(GAAP).
To fund the initial capitalization of Swift Holdings Corp., on
July 2, 2010, Swift Holdings Corp. issued 1,000 shares
of its common stock to Swift Corporation in consideration for
$100 of initial capitalization proceeds received from Swift
Corporation.
Management of the Company intends to merge Swift Corporation
with and into the Company, with the Company surviving. In the
merger, all of the outstanding common stock of Swift Corporation
will be converted into shares of Swift Holdings Corp. common
stock on a one-for-one basis.
Management has evaluated the effect on the Companys
reported financial condition of events subsequent to
July 2, 2010 through the issuance of the financial
statement on July 21, 2010.
F-87
PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
Interstate
|
|
|
Pro Forma
|
|
|
|
|
|
|
Swift
|
|
|
Transportation
|
|
|
Equipment
|
|
|
Adjustments
|
|
|
|
|
|
|
Corporation(1)
|
|
|
Co., Inc.(2)
|
|
|
Leasing(3)
|
|
|
(4)
|
|
|
Pro Forma
|
|
|
|
(In thousands)
|
|
|
Operating revenue
|
|
$
|
2,180,293
|
|
|
$
|
1,074,723
|
|
|
$
|
12,394
|
|
|
$
|
(2,662
|
)(a)(b)
|
|
$
|
3,264,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
611,811
|
|
|
|
364,690
|
|
|
|
1,328
|
|
|
|
|
|
|
|
977,829
|
|
Operating supplies and expenses
|
|
|
187,873
|
|
|
|
119,833
|
|
|
|
764
|
|
|
|
(569
|
)(a)
|
|
|
307,901
|
|
Fuel
|
|
|
474,825
|
|
|
|
223,579
|
|
|
|
898
|
|
|
|
|
|
|
|
699,302
|
|
Purchased transportation
|
|
|
435,421
|
|
|
|
196,258
|
|
|
|
|
|
|
|
(2,093
|
)(b)
|
|
|
629,586
|
|
Rental expense
|
|
|
51,703
|
|
|
|
20,089
|
|
|
|
7,016
|
|
|
|
(552
|
)(c)
|
|
|
78,256
|
|
Insurance and claims
|
|
|
69,699
|
|
|
|
58,358
|
|
|
|
81
|
|
|
|
|
|
|
|
128,138
|
|
Depreciation and amortization
|
|
|
187,043
|
|
|
|
82,949
|
|
|
|
700
|
|
|
|
819
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,969
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,701
|
(e)
|
|
|
281,181
|
|
Impairments
|
|
|
256,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
256,305
|
|
(Gain) loss on equipment disposal
|
|
|
(397
|
)
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
(267
|
)
|
Communication and utilities
|
|
|
18,625
|
|
|
|
10,473
|
|
|
|
18
|
|
|
|
|
|
|
|
29,116
|
|
Operating taxes and licenses
|
|
|
42,076
|
|
|
|
24,021
|
|
|
|
11
|
|
|
|
|
|
|
|
66,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,334,984
|
|
|
|
1,100,380
|
|
|
|
10,816
|
|
|
|
7,275
|
|
|
|
3,453,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(154,691
|
)
|
|
|
(25,657
|
)
|
|
|
1,578
|
|
|
|
(7,275
|
)
|
|
|
(188,707
|
)
|
Interest expense
|
|
|
171,115
|
|
|
|
9,454
|
|
|
|
348
|
|
|
|
92,268
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,185
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,625
|
)(f)
|
|
|
265,745
|
|
Derivative interest expense (income)
|
|
|
13,233
|
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
|
13,056
|
|
Interest income
|
|
|
(6,602
|
)
|
|
|
(1,364
|
)
|
|
|
(361
|
)
|
|
|
|
|
|
|
(8,327
|
)
|
Other (income) expenses
|
|
|
(1,933
|
)
|
|
|
1,429
|
|
|
|
31
|
|
|
|
|
|
|
|
(473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
(330,504
|
)
|
|
|
(34,999
|
)
|
|
|
1,560
|
|
|
|
(92,103
|
)
|
|
|
(458,708
|
)
|
Income tax (benefit) expense
|
|
|
(234,316
|
)
|
|
|
(4,577
|
)
|
|
|
|
|
|
|
|
|
|
|
(238,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(96,188
|
)
|
|
$
|
(30,422
|
)
|
|
$
|
1,560
|
|
|
$
|
(92,103
|
)
|
|
$
|
(219,815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
Results of Operations
Our actual financial results presented in accordance with GAAP
for the year ended December 31, 2007 include the impact of
the following transactions, referred to as the 2007
Transactions: (i) Jerry and Vickie Moyes
April 7, 2007 contribution of 1,000 shares of common
stock of Interstate Equipment Leasing, Inc. (now Interstate
Equipment Leasing, LLC), or IEL, constituting all issued and
outstanding shares of IEL to Swift Corporation, in exchange for
10,649,000 shares of Swift Corporations common stock,
(ii) the May 9, 2007 contribution by Jerry Moyes and
by Jerry and Vickie Moyes, jointly, the Jerry and Vickie Moyes
Family Trust dated 12/11/87, and various Moyes childrens
trusts of 28,792,810 shares of Swift Transportation Co.,
Inc. (now Swift Transportation Co., LLC), or Swift
Transportation common stock, representing 38.3% of the then
outstanding common stock of Swift Transportation, in exchange
for 64,495,892 shares of Swift Corporations common
stock, and (iii) Swift Corporations May 10, 2007
acquisition of Swift Transportation by a merger. Swift
Corporation was formed in 2006 for the purpose of acquiring
Swift Transportation. The results of Swift Transportation for
the period from January 1, 2007 to May 10, 2007 are not
included in our audited financial statements for the year ended
December 31, 2007, included elsewhere in this prospectus.
This lack of operational activity prior to May 11, 2007
impacts comparability between periods.
To facilitate comparability between periods, we utilize pro
forma results of operations for 2007. The pro forma results of
operations give effect to our acquisition of Swift
Transportation and the related financing as if the transactions
had occurred on January 1, 2007. Accordingly, our pro forma
results of operations reflect a full year of operational
activity for IEL and Swift Transportation as well as a full year
of interest expense associated with the acquisition financing.
A-1
Notes to Pro Forma Condensed Consolidated Statement of
Operations (Unaudited):
|
|
|
(1) |
|
Reflects the GAAP consolidated statement of operations of Swift
Corporation for the twelve months ended December 31, 2007,
including Swift Transportation from May 11, 2007 to
December 31, 2007 and IEL from April 7, 2007 to
December 31, 2007. |
|
(2) |
|
Reflects the consolidated GAAP statement of operations (loss) of
Swift Transportation from January 1, 2007 to May 10,
2007, prior to its acquisition by Swift Corporation. |
|
(3) |
|
Reflects the GAAP statement of operations for IEL from
January 1, 2007 to April 6, 2007, prior to the
contribution of its shares of capital stock to Swift Corporation. |
|
(4) |
|
The pro forma adjustments to the consolidated statement of
operations reflect the 2007 Transactions as if they occurred on
January 1, 2007, including the following: |
|
|
|
(a) As of April 6, 2007, IEL operated a fleet of
approximately 80 trucks for Swift Transportation Co. The
adjustment reflects the elimination of 100% of IELs
revenue and associated expenses from operating these trucks.
|
|
|
|
(b) Swift Transportation performs repair and maintenance on
IEL-owned equipment and recognizes revenue for the total amount
billed to IEL. The adjustment reflects the elimination of 100%
of Swift Transportation revenue and associated expenses from
these repairs.
|
|
|
|
(c) The $552 thousand reduction in rental expense and the
$819 thousand increase in depreciation expense for certain
operating leases in which the lessor did not consent to the
transfer of the underlying lease to the surviving entity as if
the 2007 Transactions occurred on January 1, 2007.
|
|
|
|
(d) The additional amortization of intangible assets of
$8.0 million based on the allocation of a portion of the
purchase price to intangible assets, including customer and
owner-operator relationships as if the 2007 Transactions
occurred on January 1, 2007. The customer relationship
intangible is being amortized over fifteen years using the 150%
declining balance method and the owner-operator relationship is
being amortized using the straight-line method over three years.
|
|
|
|
(e) The $1.7 million of additional depreciation
expense based on the increase in the estimated fair value of
property and equipment associated with the preliminary
allocation of the purchase price as if the 2007 Transactions
occurred on January 1, 2007.
|
|
|
|
(f) The additional interest expense of $84.8 million
as a result of (i) the $92.3 million increase in
annual interest expense associated with the debt issued in
connection with the 2007 Transactions, (ii) the
$2.2 million increase in the interest expense associated
with the amortization of deferred financing costs incurred with
the issuance of the indebtedness and (iii) the
$9.6 million elimination of annual interest expense
associated with the repayment of Swift Transportation and IEL
debt existing prior to the 2007 Transactions, along with the
write-off of deferred financing costs associated with this debt
as if the 2007 Transactions occurred on January 1, 2007.
|
A-2
shares
Swift Holdings Corp.
Class A common
stock
PROSPECTUS
|
|
|
Morgan
Stanley |
BofA Merrill Lynch |
Wells Fargo Securities |
Until ,
2010, all dealers that buy, sell, or trade in our Class A
common stock, whether or not participating in this offering, may
be required to deliver a prospectus. This is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
, 2010
PART II
Information
Not Required in Prospectus
|
|
Item 13.
|
Other
expenses of issuance and distribution.
|
The following table sets forth the costs and expenses, other
than underwriting discounts and commissions, to be paid by the
Registrant in connection with the sale of the shares of
Class A common stock being registered hereby. All amounts
are estimates except for the SEC registration fee and the FINRA
filing fee.
|
|
|
|
|
|
|
Amount Paid or
|
|
|
|
to be Paid
|
|
|
SEC registration fee
|
|
$
|
49,910
|
|
FINRA filing fee
|
|
|
75,500
|
|
Stock exchange listing fees
|
|
|
*
|
|
Printing and engraving
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Blue sky fees and expenses
|
|
|
*
|
|
Transfer agent and registrar fees and expenses
|
|
|
*
|
|
Miscellaneous
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
|
|
|
|
|
* |
|
To be filed by amendment. |
|
|
Item 14.
|
Indemnification
of directors and officers.
|
Section 102(b)(7) of the Delaware General Corporation Law,
or the DGCL, provides that a corporation may eliminate or limit
the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a director; provided that such provision shall not eliminate
or limit the liability of a director (i) for any breach of
the directors duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL
(regarding, among other things, the payment of unlawful
dividends), or (iv) for any transaction from which the
director derived an improper personal benefit. The
Registrants amended and restated certificate of
incorporation includes a provision that eliminates the personal
liability of directors for monetary damages for breach of
fiduciary duty as a director to the fullest extent permitted by
Delaware law.
In addition, the Registrants amended and restated
certificate of incorporation also provides that the Registrant
must indemnify its directors and officers to the fullest extent
authorized by law. The Registrant is also expressly required to
advance certain expenses to its directors and officers and to
carry directors and officers insurance providing
indemnification for its directors and officers for certain
liabilities. The Registrant believes that these indemnification
provisions and the directors and officers insurance
are useful to attract and retain qualified directors and
executive officers.
Section 145(a) of the DGCL empowers a corporation to
indemnify any director, officer, employee, or agent, or former
director, officer, employee, or agent, who was or is a party or
is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in
the right of the corporation) by reason of his service as a
director, officer, employee, or agent of the corporation, or his
service, at the corporations request, as a director,
officer, employee, or agent of another corporation or
enterprise, against expenses (including attorneys fees),
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with such
action, suit, or proceeding, provided that such director or
officer acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of the
corporation, and, with
II-1
respect to any criminal action or proceeding; provided that such
director or officer had no reasonable cause to believe his
conduct was unlawful.
Section 145(b) of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action
or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person is
or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of
another enterprise, against expenses (including attorneys
fees) actually and reasonably incurred in connection with the
defense or settlement of such action or suit; provided that such
director or officer acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may
be made in respect of any claim, issue, or matter as to which
such director or officer shall have been adjudged to be liable
to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the
circumstances of the case, such director or officer is fairly
and reasonably entitled to indemnity for such expenses which the
court shall deem proper. Notwithstanding the preceding sentence,
except as otherwise provided in the bylaws, the Registrant is
required to indemnify any such person in connection with a
proceeding (or part thereof) commenced by such person only if
the commencement of such proceeding (or part thereof) by any
such person was authorized by the Registrants board of
directors.
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Item 15.
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Recent
sales of unregistered securities.
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The Registrant is a Delaware corporation formed for the purpose
of this offering and has not engaged in any business or other
activities except in connection with its formation and the
reorganization transactions described elsewhere in the
prospectus that forms a part of this registration statement. In
the three years preceding the filing of this registration
statement, Swift Corporation issued the following securities
that were not registered under the Securities Act of 1933, or
the Securities Act.
On October 16, 2007, Swift Corporation granted
7.4 million stock options to employees at an exercise price
of $12.50 per share. On August 27, 2008, Swift Corporation
granted 1.0 million stock options to employees and
nonemployee directors at an exercise price of $13.43 per share.
On December 31, 2009, Swift Corporation granted
0.6 million stock options to employees at an exercise price
of $6.89. Additionally, on February 25, 2010, Swift
Corporation granted 1.8 million stock options to certain
employees at an exercise price of $7.04 per share. The stock
options described above were made under written compensatory
plans or agreements in reliance on the exemption from
registration pursuant to Rule 701 under the Securities Act
or pursuant to Section 4(2) under the Securities Act.
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Item 16.
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Exhibits
and financial statement schedules.
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|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement*
|
|
2
|
.1
|
|
Certificate of Merger by and between Swift Corporation and Swift
Holdings Corp.*
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|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Swift
Holdings Corp.*
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3
|
.2
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Amended and Restated Bylaws of Swift Holdings Corp.*
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|
4
|
.1
|
|
Specimen Class A Common Stock Certificate of Swift Holdings
Corp.*
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5
|
.1
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|
Opinion of Skadden, Arps, Slate, Meagher & Flom LLP*
|
|
10
|
.1
|
|
Form of Swift Holdings Corp. Senior Secured Credit Facility*
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|
10
|
.2
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|
Form of Registration Rights Agreement*
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10
|
.3
|
|
Purchase and Sale Agreement, dated July 30, 2008, among
Swift Receivables Corporation II, Swift Transportation
Corporation, Swift Intermodal Ltd., Swift Leasing Co., Inc. and
Swift Receivables Corporation II
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II-2
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|
|
|
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Exhibit
|
|
|
Number
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|
Exhibit Title
|
|
|
10
|
.4
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Receivables Sales Agreement, dated July 30, 2008 and as
amended on November 6, 2009, among Swift Receivables
Corporation II, Swift Transportation Corporation, Morgan Stanley
Senior Funding, Inc., Wells Fargo Foothill, LLC and General
Electric Capital Corporation
|
|
10
|
.5
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2007 Swift Corporation Omnibus Incentive Plan, effective
October 10, 2007
|
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10
|
.6
|
|
Form of Option Award Notice
|
|
10
|
.7
|
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Swift Corporation Retirement Plan, effective January 1, 1992
|
|
10
|
.8
|
|
Swift Corporation Amended and Restated Deferred Compensation
Plan, effective January 1, 2008
|
|
10
|
.9
|
|
Swift Corporation 2010 Performance Bonus Plan, effective
January 1, 2010
|
|
21
|
.1
|
|
Subsidiaries of Swift Corporation
|
|
23
|
.1
|
|
Consent of KPMG LLP
|
|
23
|
.2
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|
Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)*
|
|
24
|
.1
|
|
Powers of Attorney (included on signature page)
|
|
|
|
* |
|
To be filed by amendment |
(b) Financial
statement schedules.
None.
(1) Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors,
officers, and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
(2) The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(b) For the purpose of determining any liability under the
Securities Act, each post effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes to provide
to the underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Phoenix, State of
Arizona, on the
21st day
of July, 2010.
SWIFT HOLDINGS CORP.
Jerry Moyes
Chief Executive Officer
Power of
Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Jerry Moyes,
Virginia Henkels and James Fry, and each of them, the true
and lawful attorneys-in-fact and agents of the undersigned, with
full power of substitution and resubstitution, for and in the
name, place, and stead of the undersigned, to sign in any and
all capacities (including, without limitation, the capacities
listed below), the registration statement, any and all
amendments (including post-effective amendments) to the
registration statement and any and all successor registration
statements of Swift Holdings Corp., including any filings
pursuant to Rule 462(b) under the Securities Act of 1933
(the Securities Act), and to file the same, with all
exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission (the
SEC), and hereby grants to such attorneys-in-fact
and agents full power and authority to do and perform each and
every act and anything necessary to be done to enable Swift
Holdings Corp. to comply with the provisions of the Securities
Act and all the requirements of the SEC as fully to all intents
and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact
and agents or his or her substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
|
|
|
|
|
Signature and Title
|
|
Date
|
|
|
|
|
/s/ Jerry
Moyes
Jerry
Moyes
Chief Executive Officer and Director
(Principal executive officer)
|
|
July 21, 2010
|
|
|
|
/s/ Virginia
Henkels
Virginia
Henkels
Executive Vice President and Chief Financial Officer
(Principal financial officer)
|
|
July 21, 2010
|
|
|
|
/s/ Cary
M. Flanagan
Cary
M. Flanagan
Vice President and Corporate Controller
(Principal accounting officer)
|
|
July 21, 2010
|
|
|
|
/s/ Richard
H. Dozer
Richard
H. Dozer
Director
|
|
July 21, 2010
|
|
|
|
/s/ David
Vander Ploeg
David
Vander Ploeg
Director
|
|
July 21, 2010
|
II-4
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement*
|
|
2
|
.1
|
|
Certificate of Merger by and between Swift Corporation and Swift
Holdings Corp.*
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Swift
Holdings Corp.*
|
|
3
|
.2
|
|
Amended and Restated Bylaws of Swift Holdings Corp.*
|
|
4
|
.1
|
|
Specimen Class A Common Stock Certificate of Swift Holdings
Corp.*
|
|
5
|
.1
|
|
Opinion of Skadden, Arps, Slate, Meagher & Flom LLP*
|
|
10
|
.1
|
|
Form of Swift Holdings Corp. Senior Secured Credit Facility*
|
|
10
|
.2
|
|
Form of Registration Rights Agreement*
|
|
10
|
.3
|
|
Purchase and Sale Agreement, dated July 30, 2008, among
Swift Receivables Corporation II, Swift Transportation
Corporation, Swift Intermodal Ltd., Swift Leasing Co., Inc. and
Swift Receivables Corporation II
|
|
10
|
.4
|
|
Receivables Sales Agreement, dated July 30, 2008 and as
amended on November 6, 2009, among Swift Receivables
Corporation II, Swift Transportation Corporation, Morgan Stanley
Senior Funding, Inc., Wells Fargo Foothill, LLC and General
Electric Capital Corporation
|
|
10
|
.5
|
|
2007 Swift Corporation Omnibus Incentive Plan, effective
October 10, 2007
|
|
10
|
.6
|
|
Form of Option Award Notice
|
|
10
|
.7
|
|
Swift Corporation Retirement Plan, effective January 1, 1992
|
|
10
|
.8
|
|
Swift Corporation Amended and Restated Deferred Compensation
Plan, effective January 1, 2008
|
|
10
|
.9
|
|
Swift Corporation 2010 Performance Bonus Plan, effective
January 1, 2010
|
|
21
|
.1
|
|
Subsidiaries of Swift Corporation
|
|
23
|
.1
|
|
Consent of KPMG LLP
|
|
23
|
.2
|
|
Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)*
|
|
24
|
.1
|
|
Powers of Attorney (included on signature page)
|
|
|
|
* |
|
To be filed by amendment |