Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - Knight-Swift Transportation Holdings Inc. | Financial_Report.xls |
| EX-31.2 - EXHIBIT - Knight-Swift Transportation Holdings Inc. | swft-ex3126302014.htm |
| EX-10.1 - EXHIBIT - Knight-Swift Transportation Holdings Inc. | exhibit992.htm |
| EX-31.1 - EXHIBIT - Knight-Swift Transportation Holdings Inc. | swft-ex3116302014.htm |
| EX-32.1 - EXHIBIT - Knight-Swift Transportation Holdings Inc. | swft-ex3216302014.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________
Form 10-Q
______________________________________________________________________
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2014
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-35007
______________________________________________________________________
Swift Transportation Company
(Exact name of registrant as specified in its charter)
______________________________________________________________________
Delaware | 20-5589597 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
2200 South 75th Avenue
Phoenix, AZ 85043
(Address of principal executive offices and zip code)
(602) 269-9700
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
______________________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ý | Accelerated filer | o | |||
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | o | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The number of outstanding shares of the registrant’s Class A common stock as of July 31, 2014 was 90,493,888 and the number of outstanding shares of the registrant’s Class B common stock as of July 31, 2014 was 50,991,938.
Page | |
Consolidated Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013 | |
Consolidated Statements of Income (Unaudited) for the Three and Six Month Periods Ended June 30, 2014 and 2013 | |
Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Month Periods Ended June 30, 2014 and 2013 | |
Consolidated Statement of Stockholders' Equity (Unaudited) for the Six Month Period Ended June 30, 2014 | |
Consolidated Statements of Cash Flows (Unaudited) for the Six Month Periods Ended June 30, 2014 and 2013 | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |
EX 10.1 | |
EX 31.1 | |
EX 31.2 | |
EX 32.1 | |
EX-101 INSTANCE DOCUMENT | |
EX-101 SCHEMA DOCUMENT | |
EX-101 CALCULATION LINKBASE DOCUMENT | |
EX-101 LABELS LINKSBASE DOCUMENT | |
EX-101 PRESENTATION LINKBASE DOCUMENT | |
EX-101 DEFINITION LINKBASE DOCUMENT | |
2
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Swift Transportation Company and Subsidiaries
Consolidated Balance Sheets
June 30, 2014 | December 31, 2013 | |||||||
(Unaudited) | ||||||||
(In thousands, except share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 73,528 | $ | 59,178 | ||||
Restricted cash | 52,815 | 50,833 | ||||||
Restricted investments, held to maturity, amortized cost | 25,666 | 25,814 | ||||||
Accounts receivable, net | 460,358 | 418,436 | ||||||
Equipment sales receivable | 436 | 368 | ||||||
Income tax refund receivable | 4,314 | 23,704 | ||||||
Inventories and supplies | 20,764 | 18,430 | ||||||
Assets held for sale | 8,694 | 19,268 | ||||||
Prepaid taxes, licenses, insurance and other | 55,256 | 63,958 | ||||||
Deferred income taxes | 41,591 | 46,833 | ||||||
Current portion of notes receivable | 9,001 | 7,210 | ||||||
Total current assets | 752,423 | 734,032 | ||||||
Property and equipment, at cost: | ||||||||
Revenue and service equipment | 1,955,516 | 1,942,423 | ||||||
Land | 116,973 | 117,929 | ||||||
Facilities and improvements | 262,157 | 248,724 | ||||||
Furniture and office equipment | 66,186 | 61,396 | ||||||
Total property and equipment | 2,400,832 | 2,370,472 | ||||||
Less: accumulated depreciation and amortization | 950,480 | 922,665 | ||||||
Net property and equipment | 1,450,352 | 1,447,807 | ||||||
Other assets | 50,735 | 57,166 | ||||||
Intangible assets, net | 308,340 | 316,747 | ||||||
Goodwill | 253,256 | 253,256 | ||||||
Total assets | $ | 2,815,106 | $ | 2,809,008 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 141,889 | $ | 118,014 | ||||
Accrued liabilities | 127,177 | 110,745 | ||||||
Current portion of claims accruals | 75,578 | 75,469 | ||||||
Current portion of long-term debt and obligations under capital leases | 85,962 | 75,056 | ||||||
Fair value of guarantees | — | 366 | ||||||
Current portion of interest rate swaps | 5,692 | 4,718 | ||||||
Total current liabilities | 436,298 | 384,368 | ||||||
Revolving line of credit | 99,000 | 17,000 | ||||||
Long-term debt and obligations under capital leases, less current portion | 1,016,625 | 1,246,764 | ||||||
Claims accruals, less current portion | 135,878 | 118,582 | ||||||
Fair value of interest rate swaps, less current portion | 3,640 | 7,050 | ||||||
Deferred income taxes | 454,499 | 484,200 | ||||||
Securitization of accounts receivable | 319,000 | 264,000 | ||||||
Other liabilities | 2,358 | 3,457 | ||||||
Total liabilities | 2,467,298 | 2,525,421 | ||||||
Contingencies (note 13) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, par value $0.01 per share; Authorized 10,000,000 shares; none issued | — | — | ||||||
Class A common stock, par value $0.01 per share; Authorized 500,000,000 shares; 90,481,102 and 88,402,991 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively | 905 | 883 | ||||||
Class B common stock, par value $0.01 per share; Authorized 250,000,000 shares; 50,991,938 and 52,441,938 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively | 510 | 525 | ||||||
Additional paid-in capital | 769,400 | 759,408 | ||||||
Accumulated deficit | (418,666 | ) | (471,169 | ) | ||||
Accumulated other comprehensive loss | (4,443 | ) | (6,162 | ) | ||||
Noncontrolling interest | 102 | 102 | ||||||
Total stockholders’ equity | 347,808 | 283,587 | ||||||
Total liabilities and stockholders’ equity | $ | 2,815,106 | $ | 2,809,008 | ||||
See accompanying notes to consolidated financial statements.
3
Swift Transportation Company and Subsidiaries
Consolidated Statements of Income
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(Unaudited) (Amounts in thousands, except per share data) | ||||||||||||||||
Operating revenue | $ | 1,075,898 | $ | 1,029,071 | $ | 2,084,344 | $ | 2,010,679 | ||||||||
Operating expenses: | ||||||||||||||||
Salaries, wages and employee benefits | 238,093 | 223,852 | 467,459 | 450,337 | ||||||||||||
Operating supplies and expenses | 84,077 | 78,996 | 164,902 | 151,063 | ||||||||||||
Fuel | 153,677 | 160,886 | 309,699 | 329,002 | ||||||||||||
Purchased transportation | 340,249 | 308,117 | 659,418 | 600,273 | ||||||||||||
Rental expense | 56,135 | 42,996 | 107,854 | 83,619 | ||||||||||||
Insurance and claims | 33,321 | 33,597 | 75,769 | 65,135 | ||||||||||||
Depreciation and amortization of property and equipment | 54,791 | 56,880 | 110,966 | 111,750 | ||||||||||||
Amortization of intangibles | 4,203 | 4,203 | 8,407 | 8,407 | ||||||||||||
Gain on disposal of property and equipment | (8,312 | ) | (5,143 | ) | (11,471 | ) | (7,991 | ) | ||||||||
Communication and utilities | 7,716 | 5,901 | 14,886 | 12,466 | ||||||||||||
Operating taxes and licenses | 17,926 | 18,520 | 36,263 | 36,634 | ||||||||||||
Total operating expenses | 981,876 | 928,805 | 1,944,152 | 1,840,695 | ||||||||||||
Operating income | 94,022 | 100,266 | 140,192 | 169,984 | ||||||||||||
Other (income) expenses: | ||||||||||||||||
Interest expense | 21,453 | 24,762 | 44,678 | 51,124 | ||||||||||||
Derivative interest expense | 1,618 | 532 | 3,271 | 1,094 | ||||||||||||
Interest income | (692 | ) | (546 | ) | (1,458 | ) | (1,137 | ) | ||||||||
Loss on debt extinguishment | 6,990 | — | 9,903 | 5,044 | ||||||||||||
Gain on sale of real property | — | — | — | (6,078 | ) | |||||||||||
Other | (710 | ) | (1,324 | ) | (1,574 | ) | (1,884 | ) | ||||||||
Total other expenses, net | 28,659 | 23,424 | 54,820 | 48,163 | ||||||||||||
Income before income taxes | 65,363 | 76,842 | 85,372 | 121,821 | ||||||||||||
Income tax expense | 25,165 | 26,963 | 32,869 | 41,650 | ||||||||||||
Net income | $ | 40,198 | $ | 49,879 | $ | 52,503 | $ | 80,171 | ||||||||
Basic earnings per share | $ | 0.28 | $ | 0.36 | $ | 0.37 | $ | 0.57 | ||||||||
Diluted earnings per share | $ | 0.28 | $ | 0.35 | $ | 0.37 | $ | 0.57 | ||||||||
Shares used in per share calculations | ||||||||||||||||
Basic | 141,308 | 139,989 | 141,143 | 139,839 | ||||||||||||
Diluted | 143,393 | 141,838 | 143,265 | 141,652 | ||||||||||||
See accompanying notes to consolidated financial statements.
4
Swift Transportation Company and Subsidiaries
Consolidated Statements of Comprehensive Income
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(Unaudited) (In thousands) | ||||||||||||||||
Net income | $ | 40,198 | $ | 49,879 | $ | 52,503 | $ | 80,171 | ||||||||
Other comprehensive income before income taxes: | ||||||||||||||||
Accumulated losses on derivatives reclassified to derivative interest expense | 1,482 | 468 | 2,796 | 959 | ||||||||||||
Change in fair value of interest rate swaps | — | 174 | — | (145 | ) | |||||||||||
Other comprehensive income before income taxes | 1,482 | 642 | 2,796 | 814 | ||||||||||||
Income tax effect of items within other comprehensive income | (571 | ) | (244 | ) | (1,077 | ) | (218 | ) | ||||||||
Other comprehensive income, net of taxes | 911 | 398 | 1,719 | 596 | ||||||||||||
Total comprehensive income | $ | 41,109 | $ | 50,277 | $ | 54,222 | $ | 80,767 | ||||||||
See accompanying notes to consolidated financial statements.
5
Swift Transportation Company and Subsidiaries
Consolidated Statement of Stockholders’ Equity
Class A Common Stock | Class B Common Stock | Additional Paid in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Noncontrolling Interest | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
Shares | Par Value | Shares | Par Value | |||||||||||||||||||||||||||||||
(Unaudited) (In thousands, except per share data) | ||||||||||||||||||||||||||||||||||
Balances, December 31, 2013 | 88,402,991 | $ | 883 | 52,441,938 | $ | 525 | $ | 759,408 | $ | (471,169 | ) | $ | (6,162 | ) | $ | 102 | $ | 283,587 | ||||||||||||||||
Exercise of stock options | 510,022 | 5 | 5,246 | 5,251 | ||||||||||||||||||||||||||||||
Conversion of Class B common stock to Class A common stock | 1,450,000 | 15 | (1,450,000 | ) | (15 | ) | — | |||||||||||||||||||||||||||
Income tax benefit from exercise of stock options | 1,835 | 1,835 | ||||||||||||||||||||||||||||||||
Grant of restricted Class A common stock | 93,069 | 1 | 97 | 98 | ||||||||||||||||||||||||||||||
Shares issued under employee stock purchase plan | 25,020 | 1 | 559 | 560 | ||||||||||||||||||||||||||||||
Other comprehensive income | 1,719 | 1,719 | ||||||||||||||||||||||||||||||||
Non-cash equity compensation | 2,255 | 2,255 | ||||||||||||||||||||||||||||||||
Net income | 52,503 | 52,503 | ||||||||||||||||||||||||||||||||
Balances, June 30, 2014 | 90,481,102 | $ | 905 | 50,991,938 | $ | 510 | $ | 769,400 | $ | (418,666 | ) | $ | (4,443 | ) | $ | 102 | $ | 347,808 | ||||||||||||||||
See accompanying notes to consolidated financial statements.
6
Swift Transportation Company and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
(Unaudited) (In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 52,503 | $ | 80,171 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization of property, equipment and intangibles | 119,373 | 120,157 | ||||||
Amortization of debt issuance costs, original issue discount, and losses on terminated swaps | 5,077 | 1,868 | ||||||
Gain on disposal of property and equipment less write-off of totaled tractors | (10,522 | ) | (7,585 | ) | ||||
Gain on sale of real property | — | (6,078 | ) | |||||
Equity losses of investee | — | 585 | ||||||
Deferred income taxes | (25,538 | ) | 36,731 | |||||
Provision for allowance for losses on accounts receivable | 1,604 | 1,671 | ||||||
Loss on debt extinguishment | 9,903 | 5,044 | ||||||
Non-cash equity compensation | 2,353 | 1,498 | ||||||
Income effect of mark-to-market adjustment of interest rate swaps | (43 | ) | 82 | |||||
Interest on Central stockholders' loan receivable, pre-acquisition | — | (44 | ) | |||||
Increase (decrease) in cash resulting from changes in: | ||||||||
Accounts receivable | (43,526 | ) | (31,206 | ) | ||||
Inventories and supplies | (2,334 | ) | 194 | |||||
Prepaid expenses and other current assets | 28,128 | 3,664 | ||||||
Other assets | 6,556 | 5,194 | ||||||
Accounts payable, accrued and other liabilities | 39,949 | 33,700 | ||||||
Net cash provided by operating activities | 183,483 | 245,646 | ||||||
Cash flows from investing activities: | ||||||||
(Increase) decrease in restricted cash | (1,982 | ) | 8,984 | |||||
Change in restricted investments | (113 | ) | (4,680 | ) | ||||
Proceeds from sale of property and equipment | 77,088 | 47,261 | ||||||
Capital expenditures | (135,068 | ) | (164,320 | ) | ||||
Payments received on notes receivable | 2,226 | 2,074 | ||||||
Expenditures on assets held for sale | (1,991 | ) | (1,614 | ) | ||||
Payments received on assets held for sale | 13,603 | 22,773 | ||||||
Payments received on equipment sale receivables | 385 | 644 | ||||||
Net cash used in investing activities | (45,852 | ) | (88,878 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayment of long-term debt and capital leases | (707,386 | ) | (130,202 | ) | ||||
Proceeds from long-term debt | 450,000 | 23,528 | ||||||
Net borrowings on revolving line of credit | 82,000 | 7,313 | ||||||
Borrowings under accounts receivable securitization | 95,000 | 80,000 | ||||||
Repayment of accounts receivable securitization | (40,000 | ) | (119,000 | ) | ||||
Payment of deferred loan costs | (10,541 | ) | (2,183 | ) | ||||
Distribution to Central stockholders, pre-acquisition | — | (1,988 | ) | |||||
Issuance of Central stockholders' loan receivable, pre-acquisition | — | (30,000 | ) | |||||
Proceeds from exercise of stock options and the issuance of employee stock purchase plan shares | 5,811 | 6,182 | ||||||
Income tax benefit from exercise of stock options | 1,835 | (504 | ) | |||||
Net cash used in financing activities | (123,281 | ) | (166,854 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 14,350 | (10,086 | ) | |||||
Cash and cash equivalents at beginning of period | 59,178 | 53,596 | ||||||
Cash and cash equivalents at end of period | $ | 73,528 | $ | 43,510 | ||||
See accompanying notes to consolidated financial statements.
7
Swift Transportation Company and Subsidiaries
Consolidated Statements of Cash Flows — (continued)
Six Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
(Unaudited) (In thousands) | ||||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 49,331 | $ | 48,823 | ||||
Income taxes | $ | 22,041 | $ | 5,003 | ||||
Supplemental schedule of: | ||||||||
Non-cash investing activities: | ||||||||
Equipment sales receivables | $ | 453 | $ | 896 | ||||
Equipment purchase accrual | $ | 19,916 | $ | 28,230 | ||||
Notes receivable from sale of assets | $ | 4,015 | $ | 1,577 | ||||
Non-cash financing activities: | ||||||||
Accrued deferred loan costs | $ | 1,433 | $ | — | ||||
Capital lease additions | $ | 38,043 | $ | 60,111 | ||||
Insurance premium note payable | $ | 37 | $ | — | ||||
See accompanying notes to consolidated financial statements.
8
Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 1. Basis of Presentation
Swift Transportation Company is the holding company for Swift Transportation Co., LLC (a Delaware limited liability company) and its subsidiaries (collectively, “Swift Transportation Co.”), a truckload carrier headquartered in Phoenix, Arizona, and Interstate Equipment Leasing, LLC (“IEL”) (all the foregoing being, collectively, “Swift” or the “Company”).
As of June 30, 2014, the Company operated a national terminal network and a tractor fleet of approximately 18,600 units comprised of 13,600 tractors driven by company drivers and 5,000 owner-operator tractors, a fleet of 57,500 trailers, and 8,700 intermodal containers. The Company’s four reportable operating segments are Truckload, Dedicated, Central Refrigerated and Intermodal. In the first quarter of 2014, the Company reorganized its reportable segments to reflect management’s revised reporting structure of its lines of businesses following the integration of Central Refrigerated. In association with the operational reorganization, the operations of Central Refrigerated's Trailer on Flat Car (TOFC) business are reported within the Company's Intermodal segment and the operations of Central Refrigerated's logistics business, third-party leasing, and other services provided to owner-operators are reported in the Company's other non-reportable segment. All prior period historical results related to the above noted segment reorganization have been retrospectively recast.
In the opinion of management, the accompanying financial statements prepared in accordance with GAAP include all adjustments necessary for the fair presentation of the interim periods presented. These interim financial statements should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2013. Management has evaluated the effect on the Company’s reported financial condition and results of operations of events subsequent to June 30, 2014 through the issuance of the financial statements.
Note 2. New Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued, as a new topic, Accounting Standards Update 2014-09, Revenue from Contracts with Customers, Accounting Standards Codification (ASC) Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The premise of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU will be effective for the Company beginning January 1, 2017. Early adoption is not permitted. The Company is currently evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
Note 3. Income Taxes
The effective tax rate for the six months ended June 30, 2014 was 38.5%. The Company's effective tax rate for the six months ended June 30, 2013 was 34.2%, which was 4.3% lower than expected primarily due to Central Refrigerated’s pre-affiliated earnings that were taxed as an S-corporation prior to Swift’s acquisition.
The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Accrued interest and penalties as of June 30, 2014 were approximately $1.2 million. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. The Company does not anticipate a decrease of unrecognized tax benefits during the next twelve months.
Certain of the Company’s subsidiaries are currently under examination by the Internal Revenue Service and various state jurisdictions for tax years ranging from 2008 through 2012. At the completion of these examinations, management does not expect any adjustments that would have a material impact on the Company’s effective tax rate. Tax years 2009 through 2013 remain subject to examination.
Note 4. Investments
The following table presents the cost or amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s restricted investments as of June 30, 2014 and December 31, 2013 (in thousands):
June 30, 2014 | ||||||||||||||||
Cost or | Gross Unrealized | Estimated | ||||||||||||||
Amortized Cost | Gains | Temporary Losses | Fair Value | |||||||||||||
U.S. corporate securities | $ | 22,042 | $ | 8 | $ | 4 | $ | 22,046 | ||||||||
Foreign corporate securities | 1,509 | — | — | 1,509 | ||||||||||||
Negotiable certificate of deposits | 2,115 | — | 1 | 2,114 | ||||||||||||
Total restricted investments | $ | 25,666 | $ | 8 | $ | 5 | $ | 25,669 | ||||||||
December 31, 2013 | ||||||||||||||||
Cost or | Gross Unrealized | Estimated | ||||||||||||||
Amortized | Temporary | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
U.S. corporate securities | $ | 20,197 | $ | 2 | $ | 7 | $ | 20,192 | ||||||||
Foreign corporate securities | 3,502 | — | — | 3,502 | ||||||||||||
Negotiable certificate of deposits | 2,115 | — | 1 | 2,114 | ||||||||||||
Total restricted investments | $ | 25,814 | $ | 2 | $ | 8 | $ | 25,808 | ||||||||
9
Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)
As of June 30, 2014, the contractual maturities of the restricted investments were one year or less. There were 9 securities and 15 securities that were in an unrealized loss position for less than twelve months as of June 30, 2014 and December 31, 2013, respectively.
The Company periodically evaluates restricted investments for impairment. The assessment of whether impairments have occurred is based on management’s case-by-case evaluation of the underlying reasons for the decline in estimated fair value.
The Company accounts for other-than-temporary impairments of debt securities using the provisions of Topic 320, Investments – Debt and Equity Securities, related to the recognition of other-than-temporary impairments of debt securities. This guidance requires the Company to evaluate whether it intends to sell an impaired debt security or whether it is more likely than not that it will be required to sell an impaired debt security before recovery of the amortized cost basis. If either of these criteria is met, an impairment equal to the difference between the debt security’s amortized cost and its estimated fair value is recognized in earnings.
For impaired debt securities that do not meet this criteria, the Company determines if a credit loss exists with respect to the impaired security. If a credit loss exists, the credit loss component of the impairment (i.e., the difference between the security’s amortized cost and the present value of projected future cash flows expected to be collected) is recognized in earnings and the remaining portion of the impairment is recognized as a component of accumulated other comprehensive income (OCI). The Company did not recognize any impairment losses for the three and six months ended June 30, 2014 and 2013, respectively.
Note 5. Intangible Assets
Intangible assets as of June 30, 2014 and December 31, 2013 were as follows (in thousands):
June 30, 2014 | December 31, 2013 | |||||||
Customer Relationship: | ||||||||
Gross carrying value | $ | 275,324 | $ | 275,324 | ||||
Accumulated amortization | (148,021 | ) | (139,614 | ) | ||||
Trade Name: | ||||||||
Gross carrying value | 181,037 | 181,037 | ||||||
Intangible assets, net | $ | 308,340 | $ | 316,747 | ||||
For all periods ending on or after December 31, 2007, amortization of intangibles consists primarily of amortization of $261.2 million gross carrying value of definite-lived intangible assets recognized under purchase accounting in connection with Swift Transportation Co.’s 2007 going private transaction. Intangible assets acquired as a result of the 2007 going private transaction include trade name, customer relationships, and owner-operator relationships. Amortization of the customer relationship acquired in the going private transaction is calculated on the 150% declining balance method over the estimated useful life of 15 years. The customer relationship contributed to the Company at May 9, 2007 is amortized using the straight-line method over 15 years. The trade name has an indefinite useful life and is not amortized, but rather is tested for impairment at least annually, unless events occur or circumstances change between annual tests that would more likely than not reduce the fair value.
The following table presents amortization of intangibles for the three and six months ended June 30, 2014 and 2013, related to intangible assets recognized in conjunction with the 2007 going private transaction and the previous intangible assets existing prior to the 2007 going private transaction (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Amortization of intangible assets related to 2007 going private transaction | $ | 3,912 | $ | 3,912 | $ | 7,824 | $ | 7,824 | ||||||||
Amortization of intangible assets related to intangible assets existing prior to the 2007 going private transaction | 291 | 291 | 583 | 583 | ||||||||||||
Amortization of intangibles | $ | 4,203 | $ | 4,203 | $ | 8,407 | $ | 8,407 | ||||||||
Note 6. Assets Held for Sale
Assets held for sale as of June 30, 2014 and December 31, 2013 were as follows (in thousands):
June 30, 2014 | December 31, 2013 | |||||||
Land and facilities | $ | 5,141 | $ | 14,627 | ||||
Revenue equipment | 3,553 | 4,641 | ||||||
Assets held for sale | $ | 8,694 | $ | 19,268 | ||||
As of June 30, 2014 and December 31, 2013, assets held for sale are carried at the lower of depreciated cost or estimated fair value less expected selling costs. The Company expects to sell these assets within the next twelve months.
During the three months ended June 30, 2014, the Company sold two operating properties classified as held for sale with a carrying value of $9.7 million. Total net proceeds from sale of these properties approximated their carrying value.
10
Note 7. Debt and Financing Transactions
Other than the Company’s accounts receivable securitization as discussed in Note 8 and its outstanding capital lease obligations as discussed in Note 9, the Company had long-term debt outstanding as of June 30, 2014 and December 31, 2013 as follows (in thousands):
June 30, 2014 | December 31, 2013 | |||||||
Senior secured first lien delayed draw term loan A tranche due June 2019 | $ | 50,000 | $ | — | ||||
Senior secured first lien term loan B tranche due June 2021, net of $992 OID as of June 30, 2014 | 398,008 | — | ||||||
Senior secured first lien term loan B-1 tranche due December 2016 | — | 229,000 | ||||||
Senior secured first lien term loan B-2 tranche due December 2017 | — | 410,000 | ||||||
Senior second priority secured notes due November 15, 2018, net of $5,112 and $6,175 OID as of June 30, 2014 and December 31, 2013, respectively | 455,711 | 493,825 | ||||||
Other | 11,765 | 17,480 | ||||||
Total | 915,484 | 1,150,305 | ||||||
Less: current portion | 23,763 | 11,387 | ||||||
Long-term debt | $ | 891,721 | $ | 1,138,918 | ||||
The credit facility and senior notes are secured by substantially all of the assets of the Company and are guaranteed by Swift Transportation Company, IEL, Central Refrigerated Transportation, Inc. and its subsidiaries, and Swift Transportation Companies domestic subsidiaries other than its captive insurance subsidiaries, driver training academy subsidiary, and its bankruptcy-remote special purpose subsidiary. As of June 30, 2014 and December 31, 2013, the balances of deferred loan costs were $13.2 million and $8.9 million, respectively, and is reported in Other assets in the Company’s consolidated balance sheets.
Senior Secured Credit Facility
On June 9, 2014, the Company entered into a Third Amended and Restated Credit Agreement (the “2014 Agreement”) replacing its previous Second Amended and Restated Credit Agreement dated March 7, 2013 (the “2013 Agreement”). The 2014 Agreement includes: (i) a $450.0 million revolving credit facility with a maturity date of June 2019, (ii) a $500.0 million delayed draw term loan A with a maturity date of June 2019, and (iii) a $400.0 million term loan B with a maturity date of June 2021.
The term loan A requires quarterly minimum principal payments of $5.6 million commencing March 31, 2015 through December 31, 2016 and increasing to $11.3 million beginning March 31, 2017 through March 31, 2019, with the remaining outstanding principal balance on June 9, 2019. The term loan B requires quarterly principal payments of $1.0 million commencing June 30, 2014 with the remaining outstanding principal balance on June 9, 2021.
Pursuant to the 2014 Agreement, the interest rate applicable to the term loan A equals LIBOR rate plus 2.00% with no LIBOR floor. Commencing the quarter ended September 30, 2014, the applicable LIBOR margin for the term loan A will range from 1.50% to 2.25% as determined by the Company’s consolidated leverage ratio as defined in the 2014 Agreement. The term loan B under the 2014 Agreement accrues interest at the LIBOR rate plus 3.00% with a 0.75% LIBOR floor. After December 31, 2014, the applicable LIBOR margin for the term loan B will range from 2.75% to 3.00% as determined by the Company’s consolidated leverage ratio. As of June 30, 2014, interest accrues at 2.15% and 3.75% on the Company’s first lien term loan A and B tranches, respectively.
In addition to the pricing attributes described above, the 2014 Agreement increased the availability pursuant to the accordion feature from $350.0 million under the 2013 Agreement to $500.0 million, subject to the satisfaction of certain conditions and the participation of lenders.
As of June 30, 2014, the Company had $99.0 million of outstanding borrowings under the $450.0 million revolving line of credit pursuant to the 2014 Agreement. Additionally, the Company had outstanding letters of credit under this facility primarily for workers’ compensation and self-insurance liability purposes totaling $106.8 million, leaving $244.2 million available under the revolving line of credit. Under the 2014 Agreement, the interest rate spread on the revolving credit facility ranges from 1.50% to 2.25% for LIBOR based borrowings and letters of credit and 0.50% to 1.25% for Base Rate borrowings, depending on the Company’s consolidated leverage ratio. Additionally, the commitment fee for the unused portion of the revolving credit facility ranges 0.25% to 0.35%, depending on the Company’s consolidated leverage ratio. As of June 30, 2014, interest accrues at 2.15%, 2.00% and 0.30% on the outstanding borrowings, letters of credit and unused portion, respectively, on the revolving line of credit.
The 2014 Agreement, specifically the revolving credit facility and the term loan A tranche, contain certain financial covenants with respect to a maximum leverage ratio and a minimum consolidated interest coverage ratio. The 2014 Agreement removed any financial covenants related to the term loan B tranche. Further, the 2014 Agreement removed the maximum capital expenditures covenant and also provides for improved flexibility regarding the use of proceeds from asset sales, payment of dividends, stock buybacks, and equipment financing. In addition to the financial covenants, the 2014 Agreement includes customary events of default, including a change in control default and certain affirmative and negative covenants, including, but not limited to, restrictions, subject to certain exceptions, on incremental indebtedness, asset sales, certain restricted payments (including dividends), certain incremental investments or advances, transactions with affiliates, engaging in additional business activities, and prepayments of certain other indebtedness.
The 2014 Agreement replaced the Company’s previous first lien term loan B-1 tranche maturing December 2016 and B-2 tranche maturing December 2017 under the 2013 Agreement with outstanding principal balances at closing of $229.0 million and $371.0 million, respectively. The previous first lien term loan B-1 and B-2 tranches accrued interest at LIBOR plus 2.75% and LIBOR plus 3.00% with a 1.00% LIBOR floor, respectively. Additionally, the 2014 Agreement replaced the Company’s previous revolving credit facility maturing September 2016. The interest rate spread on the previous revolving credit facility ranged from 3.00% to 3.25% for LIBOR based borrowings and letters of credit and 2.00%
11
Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)
to 2.25% for Base Rate borrowings, depending on the Company’s consolidated leverage ratio. Additionally, the commitment fee for the unused portion of the previous revolving credit facility ranged from 0.25% to 0.50%, depending upon the Company’s consolidated leverage ratio. The replacement of the 2013 Agreement resulted in a loss on debt extinguishment of $5.2 million for the three months ended June 30, 2014, representing the write-off of deferred financing fees associated with the 2013 Agreement.
Senior Second Priority Secured Notes
In December 2010, Swift Services Holdings, Inc., a wholly owned subsidiary, completed a private placement of senior second priority secured notes totaling $500.0 million face value which mature in November 2018 and bear interest at 10.00% (the “senior notes”). The Company received proceeds of $490.0 million, net of a $10.0 million original issue discount. In the first six months of 2014, the Company repurchased in open market transactions at an average price of 110.50%, $39.2 million face value of these notes with cash on hand. The Company paid total proceeds of $44.7 million, which included the principal amount, the premium and the accrued interest. The premium and the related write-off of the unamortized original issue discount resulted in a loss on debt extinguishment of $1.8 million and $4.7 million in for the three and six months ended June 30, 2014, respectively. The Company anticipates utilizing the remainder of the delayed-draw first lien Term A loan under the 2014 Agreement to fund the majority of the redemption of the remaining senior second priority secured notes on or before December 31, 2014.
Central Debt
As of June 30, 2014, Central has approximately $1.8 million in various notes payable to financing companies secured by revenue equipment with due dates through May 2015.
Note 8. Accounts Receivable Securitization
In June 2013, Swift Receivables Company II, LLC, a Delaware limited liability company (“SRCII”), a wholly-owned bankruptcy-remote special purpose subsidiary, entered into an Amended and Restated Receivables Sale Agreement (the “2013 RSA”) with unrelated financial entities (the “Purchasers”) to sell, on a revolving basis, undivided interests in the Company’s accounts receivable. Pursuant to the 2013 RSA, the Company’s receivable originator subsidiaries will sell all of their eligible accounts receivable to SRCII, which in turn sells a variable percentage ownership interest in its accounts receivable to the Purchasers. The 2013 RSA provides for up to $325.0 million in borrowing capacity. The 2013 RSA terminates on July 13, 2016 and is subject to customary fees and contains various customary affirmative and negative covenants, representations and warranties, and default and termination provisions. Outstanding balances under the 2013 RSA accrue program fees generally at commercial paper rates plus 95 basis points and unused capacity is subject to an unused commitment fee of 35 basis points. Pursuant to the 2013 RSA, collections on the underlying receivables by the Company are held for the benefit of SRCII and the Purchasers in the facility and are unavailable to satisfy claims of the Company and its subsidiaries. The facility qualifies for treatment as a secured borrowing under Topic 860, Transfers and Servicing, and as such, outstanding amounts are carried on the Company’s consolidated balance sheets as a liability.
For the three and six months ended June 30, 2014, the Company incurred program fees of $0.8 million and $1.6 million, respectively, associated with the 2013 RSA which were recorded in interest expense in the Company's consolidated statements of income. For the three and six months ended June 30, 2013, the Company incurred program fees of $0.7 million and $1.5 million, respectively, primarily associated with the prior accounts receivable facility. As of June 30, 2014, the outstanding borrowing under the 2013 RSA was $319.0 million against a total available borrowing base of $325.0 million, leaving $6.0 million available. As of December 31, 2013, the outstanding borrowing under the 2013 RSA was $264.0 million against a total available borrowing base of $300.8 million.
Note 9. Capital Leases
The Company leases certain revenue equipment under capital leases. The Company’s capital leases are typically structured with balloon payments at the end of the lease term equal to the residual value the Company is contracted to receive from certain equipment manufacturers upon sale or trade back to the manufacturers. The Company is obligated to pay the balloon payments at the end of the leased term whether or not it receives the proceeds of the contracted residual values from the respective manufacturers. Certain leases contain renewal or fixed price purchase options. As of June 30, 2014 and December 31, 2013, the present value of obligations under capital leases totaled $187.1 million and $171.5 million, of which the current portion was $62.2 million and $63.7 million, respectively. The leases are collateralized by revenue equipment with a cost of $304.0 million and accumulated amortization of $67.9 million as of June 30, 2014. The amortization of the equipment under capital leases is included in depreciation and amortization expense in the Company’s consolidated statements of income.
Note 10. Derivative Financial Instruments
In April 2011, as contemplated by the then existing credit facility, the Company entered into two forward-starting interest rate swap agreements with a notional amount of $350.0 million. These interest rate swaps were effective in January 2013 and have a maturity date of July 2015. On April 27, 2011 (“designation date”), the Company designated and qualified these interest rate swaps as cash flow hedges. Subsequent to the designation date, the effective portion of the changes in estimated fair value of the designated swaps was recorded in accumulated other comprehensive income ("OCI") and was thereafter recognized as derivative interest expense as the interest on the hedged debt affects earnings, which hedged interest accruals began in January 2013. As of December 31, 2013, changes in estimated fair value of the designated interest rate swap agreements totaling $0.1 million, net-of-tax was reflected in accumulated OCI. Refer to Note 11 below for further discussion of the Company’s estimated fair value methodology.
On March 7, 2013, the Company entered into the 2013 Agreement. Due to the incorporation of a new interest rate floor provision in the 2013 Agreement, the Company concluded, as of February 28, 2013, that the outstanding interest rate swaps were no longer highly effective in achieving offsetting changes in cash flows related to the hedged interest payments. As a result, the Company de-designated the hedges as of February 28, 2013 (“de-designation date”). Beginning on March 1, 2013, the effective portion of the change in fair value of interest rate swaps prior to the change (i.e., amounts previously recorded in accumulated OCI) have been and will continue to be amortized as derivative interest expense over the period of the originally designated hedged interest payments through July 2015. Following the de-designation date, changes in fair value of the interest rate swaps are immediately recognized in the consolidated statements of income as derivative interest expense.
12
Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)
The following table presents the changes in fair value, pre-tax of derivatives designated as cash flow hedges had on accumulated OCI and earnings (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Amount of (loss) income recognized in OCI on derivatives (effective portion) | $ | — | $ | (174 | ) | $ | — | $ | 145 | |||||||
Amount of loss reclassified from accumulated OCI into income as “Derivative interest expense” (effective portion) | $ | (1,482 | ) | $ | (468 | ) | $ | (2,796 | ) | $ | (959 | ) | ||||
The following tables presents information about pre-tax gains and losses recognized in earnings on the Company’s interest rate derivative contracts that were de-designated on February 28, 2013 as hedging instruments under ASC Topic 815, is as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Amount of loss recognized in income as “Derivative interest expense” | $ | (136 | ) | $ | (64 | ) | $ | (475 | ) | $ | (135 | ) | ||||
As of June 30, 2014, $7.2 million of pre-tax deferred losses on derivatives in accumulated OCI is expected to be reclassified to earnings within the next twelve months.
Note 11. Fair Value Measurement
Topic 820, Fair Value Measurements and Disclosures, requires that the Company disclose estimated fair values for its financial instruments. The estimated fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for the asset or liability. Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Changes in assumptions could significantly affect these estimates. As the fair value is estimated at June 30, 2014 and December 31, 2013, the amounts that will actually be realized or paid at settlement or maturity of the instruments in the future could be significantly different.
The tables below exclude certain financial instruments. The excluded financial instruments are as follows: cash and cash equivalents, restricted cash, accounts receivable, net, income tax refund receivable and accounts payable. The estimated fair value of these financial instruments approximate carrying value as they are short-term in nature. Additionally, for notes payable under revolving lines of credit, fair value approximates the carrying value due to the variable interest rate. For capital leases, the carrying value approximates the fair value. The table below also excludes financial instruments reported at estimated fair value on a recurring basis. See “— Recurring Fair Value Measurements.” All remaining balance sheet amounts excluded from the table below are not considered financial instruments subject to this disclosure.
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of June 30, 2014 and December 31, 2013 (in thousands):
June 30, 2014 | December 31, 2013 | |||||||||||||||
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||||||||||||
Financial Assets: | ||||||||||||||||
Restricted investments | $ | 25,666 | $ | 25,669 | $ | 25,814 | $ | 25,808 | ||||||||
Financial Liabilities: | ||||||||||||||||
Senior secured first lien delayed draw term loan A tranche | 50,000 | 50,000 | — | — | ||||||||||||
Senior secured first lien term loan B tranche | 398,008 | 398,259 | — | — | ||||||||||||
Senior secured first lien term loan B-1 tranche (2013 Agreement) | — | — | 229,000 | 230,031 | ||||||||||||
Senior secured first lien term loan B-2 tranche (2013 Agreement) | — | — | 410,000 | 412,358 | ||||||||||||
Senior second priority secured notes | 455,711 | 491,029 | 493,825 | 549,059 | ||||||||||||
Securitization of accounts receivable | 319,000 | 319,000 | 264,000 | 264,000 | ||||||||||||
Central Financial Liabilities: | ||||||||||||||||
Various notes payables to financing companies, due dates through May 2015 | 2,190 | 2,190 | ||||||||||||||
The carrying amounts shown in the table (other than the restricted investments, and the securitization of accounts receivable) are included in the consolidated balance sheets in long-term debt and obligations under capital leases. The estimated fair values of the financial instruments shown
13
Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)
in the above table as of June 30, 2014 and December 31, 2013, represent management’s best estimates of the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. The estimated fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the estimated fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. These judgments are developed by the Company based on the best information available under the circumstances.
The following summary presents a description of the methods and assumptions used to estimate the fair value of each class of financial instrument.
Restricted Investments
The estimated fair value of the Company’s restricted investments is based on quoted prices in active markets that are readily and regularly obtainable.
First Lien Term Loans and Senior Second Priority Secured Notes
The estimated fair values of the first lien term loans and senior second priority secured notes were determined by bid prices in trades between qualified institutional buyers.
Central Notes Payables
Fair value is assumed to approximate carrying values for these financial instruments since they are short term in nature, or had stated interest rates that approximate the interest rates available to the Company as of the reporting date.
Securitization of Accounts Receivable
The Company’s securitization of accounts receivable consists of borrowings outstanding pursuant to the Company’s 2013 RSA as of June 30, 2014 and December 31, 2013, respectively, as discussed in Note 8. Its fair value is estimated by discounting future cash flows using a discount rate commensurate with the uncertainty involved.
Fair Value Hierarchy
ASC Topic 820 establishes a framework for measuring fair value in accordance with GAAP and expands financial statement disclosure requirements for fair value measurements. ASC Topic 820 further specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:
• | Level 1 — Valuation techniques in which all significant inputs are quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured. |
• | Level 2 — Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices from markets that are not active for assets or liabilities that are identical or similar to the assets or liabilities being measured. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques. |
• | Level 3 — Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
When available, the Company uses quoted market prices to determine the estimated fair value of an asset or liability. If quoted market prices are not available, the Company will measure fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and currency rates. The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the estimated fair value measurement in its entirety. Following is a brief summary of the Company’s classification within the fair value hierarchy of each major category of assets and liabilities that it measures and reports on its consolidated balance sheets at estimated fair value on a recurring basis as of June 30, 2014:
• | Interest rate swaps. The Company’s interest rate swaps are not actively traded but are valued using valuation models and credit valuation adjustments, both of which use significant inputs that are observable in active markets over the terms of the instruments the Company holds, and accordingly, the Company classified these valuation techniques as Level 2 in the hierarchy. Interest rate yield curves and credit spreads derived from trading levels of the Company’s first lien term loan are the significant inputs into these valuation models. These inputs are observable in active markets over the terms of the instruments the Company holds. The Company considers the effect of its own credit standing and that of its counterparties in the valuations of its derivative financial instruments. |
Recurring Fair Value Measurements
As of June 30, 2014 and December 31, 2013, no assets of the Company were measured at estimated fair value on a recurring basis. As of June 30, 2014 and December 31, 2013, information about inputs into the estimated fair value measurements of each major category of the Company’s liabilities that were measured at estimated fair value on a recurring basis in periods subsequent to their initial recognition was as follows (in thousands):
14
Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Description | Total Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
As of June 30, 2014 | ||||||||||||||||
Interest rate swaps | $ | 9,332 | $ | — | $ | 9,332 | $ | — | ||||||||
As of December 31, 2013 | ||||||||||||||||
Interest rate swaps | $ | 11,768 | $ | — | $ | 11,768 | $ | — | ||||||||
Nonrecurring Fair Value Measurements
As of June 30, 2014 and December 31, 2013, no assets or liabilities of the Company were measured at estimated fair value on a nonrecurring basis.
Note 12. Earnings per Share
The computation of basic and diluted earnings per share is as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Net income | $ | 40,198 | $ | 49,879 | $ | 52,503 | $ | 80,171 | ||||||||
Basic: | ||||||||||||||||
Weighted average common shares outstanding | 141,308 | 139,989 | 141,143 | 139,839 | ||||||||||||
Diluted: | ||||||||||||||||
Dilutive effect of stock options | 2,085 | 1,849 | 2,122 | 1,813 | ||||||||||||
Total weighted average diluted shares outstanding | 143,393 | 141,838 | 143,265 | 141,652 | ||||||||||||
Anti-dilutive shares excluded from the diluted earnings per share calculation (1) | — | 171 | — | 171 | ||||||||||||
Earnings per share: | ||||||||||||||||
Basic earnings per share | $ | 0.28 | $ | 0.36 | $ | 0.37 | $ | 0.57 | ||||||||
Diluted earnings per share | $ | 0.28 | $ | 0.35 | $ | 0.37 | $ | 0.57 | ||||||||
(1) | Impact of outstanding options to purchase shares of the Company’s Class A common stock were anti-dilutive because the options exercise price was greater than the average market price of the common shares and were excluded from the calculation of diluted earnings per share. |
As of June 30, 2014 and 2013, there were 4,913,872 and 5,847,980 options outstanding, respectively.
Note 13. Contingencies
The Company is involved in certain claims and pending litigation primarily arising in the normal course of business. The majority of these claims relate to workers' compensation, auto collision and liability, and physical damage and cargo damage. The Company expenses legal fees as incurred and accrues for the contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on the knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on the Company. Moreover, the results of complex legal proceedings are difficult to predict and the Company’s view of these matters may change in the future as the litigation and events related thereto unfold.
For certain cases described below, management is unable to provide a meaningful estimate of the possible loss or range of loss because, among other reasons, (i) the proceedings are in various stages; (ii) damages have not been sought; (iii) damages are unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals; and/or (v) there are significant factual issues to be resolved. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material adverse effect on our financial condition, though the outcomes could be material to our operating results for any particular period, depending, in part, upon the operating results for such period.
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. CV7-472, or the Garza Complaint. The putative class originally involved certain owner-operators who contracted with the Company under a 2001 Contractor Agreement that was in place for one year. The putative class
15
Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)
is alleging that the Company should have reimbursed owner-operators for actual miles driven rather than the contracted and industry standard remuneration based upon dispatched miles. The trial court denied plaintiff’s petition for class certification, the plaintiff appealed and on August 6, 2008, the Arizona Court of Appeals issued an unpublished Memorandum Decision reversing the trial court’s denial of class certification and remanding the case back to the trial court. On November 14, 2008, the Company filed a petition for review to the Arizona Supreme Court regarding the issue of class certification as a consequence of the denial of the Motion for Reconsideration by the Court of Appeals. On March 17, 2009, the Arizona Supreme Court granted the Company’s petition for review, and on July 31, 2009, the Arizona Supreme Court vacated the decision of the Court of Appeals opining that the Court of Appeals lacked automatic appellate jurisdiction to reverse the trial court’s original denial of class certification and remanded the matter back to the trial court for further evaluation and determination. Thereafter, the plaintiff renewed the motion for class certification and expanded it to include all persons who were employed by Swift as employee drivers or who contracted with Swift as owner-operators on or after January 30, 1998, in each case who were compensated by reference to miles driven. On November 4, 2010, the Maricopa County trial court entered an order certifying a class of owner-operators and expanding the class to include employees. Upon certification, the Company filed a motion to compel arbitration as well as filing numerous motions in the trial court urging dismissal on several other grounds including, but not limited to the lack of an employee as a class representative, and because the named owner-operator class representative only contracted with the Company for a three month period under a one year contract that no longer exists. In addition to these trial court motions, the Company also filed a petition for special action with the Arizona Court of Appeals arguing that the trial court erred in certifying the class because the trial court relied upon the Court of Appeals ruling that was previously overturned by the Arizona Supreme Court. On April 7, 2011, the Arizona Court of Appeals declined jurisdiction to hear this petition for special action and the Company filed a petition for review to the Arizona Supreme Court. On August 31, 2011, the Arizona Supreme Court declined to review the decision of the Arizona Court of Appeals. In April 2012, the court issued the following rulings with respect to certain motions filed by Swift: (1) denied Swift’s motion to compel arbitration; (2) denied Swift’s request to decertify the class; (3) granted Swift’s motion that there is no breach of contract; and (4) granted Swift’s motion to limit class size based on statute of limitations. The Company intends to continue to pursue all available appellate relief supported by the record, which the Company believes demonstrates that the class is improperly certified and, further, that the claims raised have no merit. The Company retains all of its defenses against liability and damages. The final disposition of this case and the impact of such final disposition cannot be determined at this time.
Owner-operator misclassification class action litigation
On December 22, 2009, a class action lawsuit was filed against Swift Transportation and IEL: Virginia VanDusen, John Doe 1 and Joseph Sheer individually and on behalf of all other similarly situated persons v. Swift Transportation Co., Inc., and Interstate Equipment Leasing, Inc., Jerry Moyes, and Chad Killebrew, Case No. 9-CIV-10376 filed in the United States District Court for the Southern District of New York, or the Sheer Complaint. The putative class involves owner-operators alleging that Swift Transportation misclassified owner-operators as independent contractors in violation of the federal Fair Labor Standards Act, or FLSA, and various New York and California state laws and that such owner-operators should be considered employees. The lawsuit also raises certain related issues with respect to the lease agreements that certain owner-operators have entered into with IEL. At present, in addition to the named plaintiffs, approximately 200 other current or former owner-operators have joined this lawsuit. Upon Swift’s motion, the matter has been transferred from the United States District Court for the Southern District of New York to the United States District Court in Arizona. On May 10, 2010, the plaintiffs filed a motion to conditionally certify an FLSA collective action and authorize notice to the potential class members. On September 23, 2010, plaintiffs filed a motion for a preliminary injunction seeking to enjoin Swift and IEL from collecting payments from plaintiffs who are in default under their lease agreements and related relief. On September 30, 2010, the District Court granted Swift’s motion to compel arbitration and ordered that the class action be stayed pending the outcome of arbitration. The District Court further denied plaintiff’s motion for preliminary injunction and motion for conditional class certification. The District Court also denied plaintiff’s request to arbitrate the matter as a class.
The plaintiff filed a petition for a writ of mandamus to the Ninth Circuit Court of Appeals asking that the District Court’s September 30, 2010 order be vacated. On July 27, 2011, the Ninth Circuit Court of Appeals denied the plaintiff’s petition for writ of mandamus and thereafter the District Court denied plaintiff’s motion for reconsideration and certified its September 30, 2010 order. The plaintiffs filed an interlocutory appeal to the Ninth Circuit Court of Appeals to overturn the District Court’s September 30, 2010 order to compel arbitration alleging that the agreement to arbitrate is exempt from arbitration under Section 1 of the Federal Arbitration Act (“FAA”) because the class of plaintiffs are alleged to be employees exempt from arbitration agreements. On November 6, 2013, the Ninth Circuit Court of Appeals reversed and remanded, stating its prior published decision “expressly held that a district court must determine whether an agreement for arbitration is exempt from arbitration under Section 1 of the FAA as a threshold matter". As a consequence of this determination by the Ninth Circuit Court of Appeals being different from a decision of the Eighth Circuit Court of Appeals on a similar issue, on February 4, 2014, the Company filed a petition for writ of certiorari to the U.S. Supreme Court to address whether the district court or the arbitrator should determine whether the contract is an employment contract exempt from Section 1 of the Federal Arbitration Act. On June 16, 2014, the U.S. Supreme Court denied the Company’s petition for writ of certiorari. The Company intends to vigorously defend against any proceedings. The final disposition of this case and the impact of such final disposition cannot be determined at this time.
California wage, meal and rest employee class action
On March 22, 2010, a class action lawsuit was filed by John Burnell, individually and on behalf of all other similarly situated persons against Swift Transportation: John Burnell and all others similarly situated v. Swift Transportation Co., Inc., Case No. CIVDS 1004377 filed in the Superior Court of the State of California, for the County of San Bernardino, or the Burnell Complaint. On September 3, 2010, upon motion by Swift, the matter was removed to the United States District Court for the Central District of California, Case No. EDCV10-809-VAP. The putative class includes drivers who worked for Swift during the four years preceding the date of filing alleging that Swift failed to pay the California minimum wage, failed to provide proper meal and rest periods and failed to timely pay wages upon separation from employment. The Burnell Complaint was subject to a stay of proceedings pending determination of similar issues in a case unrelated to Swift, Brinker v Hohnbaum, which was then pending before the California Supreme Court. A ruling was entered in the Brinker matter and in August 2012 the stay in the Burnell Complaint was lifted. On April 9, 2013 the Company filed a motion for judgment on the pleadings requesting dismissal of plaintiff's claims
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Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)
related to alleged meal and rest break violations under the California Labor Code alleging that such claims are preempted by the Federal Aviation Administration Authorization Act. On May 29, 2013, the U.S. District Court for the Central District of California granted the Company's motion for judgment on the pleadings and dismissed plaintiff's claims that are based on alleged violations of meal and rest periods set forth in the California Labor Code.
On April 5, 2012, the Company was served with an additional class action complaint alleging facts similar to those as set forth in the Burnell Complaint. This new class action is James R. Rudsell, on behalf of himself and all others similarly situated v. Swift Transportation Co. of Arizona, LLC and Swift Transportation Company, Case No. CIVDS 1200255, in the Superior Court of California for the County of San Bernardino, or the Rudsell Complaint. The Rudsell matter has been stayed pending a resolution in Burnell v Swift. Any claims related to orientation pay in the Rudsell matter have been subsumed within the Montalvo v. Swift class action matter (discussed below).
The issue of class certification must first be resolved before the court will address the merits of the case, and we retain all of our defenses against liability and damages pending a determination of class certification. The Company intends to vigorously defend certification of the class in both matters as well as the merits of these matters should the classes be certified. The final disposition of both cases and the impact of such final dispositions of these cases cannot be determined at this time.
California minimum wage class action
On July 12, 2011, a class action lawsuit was filed by Simona Montalvo on behalf of herself and all similarly situated persons against Swift Transportation: Montalvo et al. v. Swift Transportation Corporation d/b/a ST Swift Transportation Corporation in the Superior Court of California, County of San Diego, or the Montalvo Complaint. The Montalvo Complaint was removed to federal court on August 15, 2011, case number 3-11-CV-1827-L. Upon petition by plaintiffs, the matter was remanded to state court and the Company filed an appeal to this remand, which appeal has been denied. The putative class includes employees alleging that candidates for employment within the four year statutory period in California were not paid the state mandated minimum wage during their orientation phase. On July 29, 2013, the court certified the class. The Company appealed the class certification and the remand to state court but on April 10, 2014, the Company’s appeal of class certification was denied.
The Company intends to vigorously defend against the merits of this matter. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.
Washington overtime class action
On September 9, 2011, a class action lawsuit was filed by Troy Slack on behalf of himself and all similarly situated persons against Swift Transportation: Troy Slack, et al v. Swift Transportation Co. of Arizona, LLC and Swift Transportation Corporation in the State Court of Washington, Pierce County, or the Slack Complaint. The Slack Complaint was removed to federal court on October 12, 2011, case number 11-2-114380. The putative class includes all current and former Washington State based employee drivers during the three year statutory period alleging that they were not paid overtime in accordance with Washington State law and that they were not properly paid for meals and rest periods. On November 23, 2013 the court entered an order on plaintiffs' motion to certify the class. The court only certified the class as it pertains to dedicated route drivers and did not certify any other class or claims including any class related to over the road drivers (“OTR Drivers”). The court also further limited the class of dedicated drivers to only those dedicated drivers that either begin or end their shift in the state of Washington and therefore is a Washington-based employee. Swift is appealing the limited certification of the Washington dedicated drivers.
The issue of class certification must first be resolved before the court will address the merits of the case, and we retain all of our defenses against liability and damages pending a determination of class certification. The Company intends to vigorously defend certification of the class as well as the merits of these matters should the class be certified. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.
Utah minimum wage collective action
On October 8, 2013, a collective action lawsuit was filed by Jacob Roberts on behalf of himself and all similarly situated persons against Central Refrigerated Service, Inc., Jon Isaacson, Bob Baer and John Does 1-10 (“CRS”): Jacob Roberts and Collective Action Plaintiffs John Does 1-10 v. Central Refrigerated Service, Inc., Jon Isaacson, Bob Baer and John Does 1-10 in the United States District Court for the District of Utah, Case No. 2;13-ev-00911-EJF, or the Roberts Complaint. The putative nationwide class includes employees alleging that candidates for employment within the three year statutory period in Utah were not paid proper compensation pursuant to the FLSA, specifically that the putative collective action plaintiffs were not paid the state mandated minimum wage for orientation, travel, and training.
The issue of collective action certification in the Roberts Complaint must first be resolved before the court will address the merits of the case, and we retain all of our defenses against liability and damages pending a determination of collective action certification. Central intends to vigorously defend against collective action certification as well as the merits of this matter should the collective action be certified. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.
Utah collective and individual arbitration
On June 1, 2012, a collective and class action complaint was filed by Gabriel Cilluffo, Kevin Shire and Bryan Ratterree individually and on behalf of themselves and all similarly situated persons against Central Refrigerated Services, Inc., Central Leasing, Inc., Jon Isaacson, and Jerry Moyes (“Central”): Gabriel Cilluffo, Kevin Shire and Bryan Ratterree individually and on behalf themselves and all similarly situated persons v. Central Refrigerated Services, Inc., Central Leasing, Inc., Jon Isaacson, and Jerry Moyes in the United States District Court for the Central District of California, Case No. ED CV 12-00886, or the Cilluffo Complaint. The putative class involves owner-operators alleging that Central misclassified owner-operators as independent contractors in violation of the FLSA, and that such owner-operators should be considered employees. The lawsuit also raises a claim of forced labor and state law contractual claims. On September 24, 2012, the California District Court ordered that FLSA claim proceed to collective arbitration under the Utah Uniform Arbitration Act (“UUAA”) and not the Federal Arbitration Act (“FAA”). The September 24, 2012 order directed the arbitrator to determine the validity of proceeding as a collective arbitration under the UAA, and then if the arbitrator determines that such collective action is permitted, then the arbitrator is to consider the plaintiff’s FLSA claim. On November
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Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)
8, 2012, the California District Court entered a clarification order clarifying that the plaintiff’s FLSA claim was to proceed to collective arbitration under the UUAA, but the plaintiff’s forced labor claim and state law contractual claims were to proceed as individual arbitrations for those plaintiffs seeking to pursue those specific claims. Central filed a motion for reconsideration and a motion for interlocutory appeal of the California District Court’s orders, both of which were denied and the claims are proceeding to collective and individual arbitration as originally ordered. On December 9, 2013 the arbitrator determined that the issue of misclassification as it relates to the FLSA will proceed as a collective arbitration, however the plaintiffs forced labor claim and state law claims of contractual misrepresentation and breach of contract must proceed on an individual arbitration basis and not as a class.
Central intends to vigorously defend collective arbitration in the Cilluffo Complaint as well as the merits of the FLSA claim and any individual arbitration matters that are filed and proceed on the forced labor and state contract law claims. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.
California minimum wage class action
On November 7, 2013, a class action lawsuit was filed by Jorge Calix on behalf of himself and all similarly situated persons against Central Refrigerated Service, Inc.: Calix et al. v. Central Refrigerated Service, Inc. (“Central”) in the Superior Court of California, County of San Bernardino, or the Calix Complaint. The putative class includes employees alleging that candidates for employment within the four year statutory period in California were not paid the state mandated minimum wage during their orientation phase. On December 13, 2013, Central filed an answer denying the allegations.
The issue of class certification must first be resolved before the court will address the merits of the case, and we retain all of our defenses against liability and damages pending a determination of class certification. Central intends to vigorously defend against certification of the class as well as the merits of this matter should the class be certified. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.
Environmental notice
On April 17, 2009, the Company received a notice from the Lower Willamette Group, or LWG, advising that there are a total of 250 potentially responsible parties, or PRPs, with respect to alleged environmental contamination of the Lower Willamette River in Portland, Oregon designated as the Portland Harbor Superfund site, or the Site, and that as a previous landowner at the Site the Company has been asked to join a group of 60 PRPs and proportionately contribute to (i) reimbursement of funds expended by LWG to investigate environmental contamination at the Site and (ii) remediation costs of the same, rather than be exposed to potential litigation. Although the Company does not believe it contributed any contaminants to the Site, the Company was at one time the owner of property at the Site and the Comprehensive Environmental Response, Compensation and Liability Act imposes a standard of strict liability on property owners with respect to environmental claims. Notwithstanding this standard of strict liability, the Company believes our potential proportionate exposure to be minimal and not material. No formal complaint has been filed in this matter. The Company’s pollution liability insurer has been notified of this potential claim. The Company does not believe the outcome of this matter is likely to have a material adverse effect on Swift. However, the final disposition of this matter and the impact of such final disposition cannot be determined at this time.
2013 Environmental Incident
On May 14, 2013, a Swift Transportation tractor and trailer was involved in an accident in Bridgeport, California that resulted in fuel and other liquid components being released into the ground and a nearby stream. Based on soil and water testing of the impacted area, the Company expects the range of cost to remediate this release is $0.3 million to $0.5 million.
Other environmental
Our tractors and trailers are involved in motor vehicle accidents, experience damage, mechanical failures and cargo issues as an incidental part of our normal ordinary course of operations. From time to time these matters result in the discharge of diesel fuel, motor oil or other hazardous materials into the environment. Depending on local regulations and who is determined to be at fault, we are sometimes responsible for the clean-up costs associated with these discharges. As of June 30, 2014, we estimate our total legal liability for all such clean-up and remediation costs to be approximately $0.5 million in the aggregate for all current and prior year claims.
Note 14. Segment information
The Company’s four reportable operating segments are Truckload, Dedicated, Central Refrigerated and Intermodal. In the first quarter of 2014, the Company reorganized its reportable segments to reflect management’s revised reporting structure of its lines of businesses following the integration of Central Refrigerated. In association with the operational reorganization, the operations of Central Refrigerated's TOFC business are reported within the Company's Intermodal segment and the operations of Central Refrigerated's logistics business, third-party leasing, and other services provided to owner-operators are reported in the Company's other non-reportable segment. All prior period historical results related to the above noted segment reorganization have been retrospectively recast.
• | Truckload. The truckload segment consists of one-way movements over irregular routes throughout the United States, Mexico, and Canada. This service utilizes both company and owner-operator tractors with dry van, flatbed, and other specialized trailing equipment. |
• | Dedicated. Through the dedicated segment, the Company devotes use of equipment and offers tailored solutions under long-term contracts. This dedicated segment utilizes refrigerated, dry van, flatbed and other specialized trailing equipment. |
• | Central Refrigerated. The Central Refrigerated segment is primarily shipments for customers that require temperature-controlled trailers and represents the core operations of Central Refrigerated. These shipments include one-way movements over irregular routes and dedicated truck operations. |
• | Intermodal. The intermodal segment includes revenue generated by moving freight over the rail in our containers and other trailing equipment, combined with revenue for drayage to transport loads between the railheads and customer locations. |
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Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)
• | Other businesses. Nonreportable segments are comprised of the Company’s freight brokerage and logistics management services, as well as revenue generated by the Company’s subsidiaries offering support services to its customers and owner-operators, including shop maintenance, equipment leasing, and insurance. |
The Company uses the “management approach” to determine its reportable operating segments, as well as to determine the basis of reporting the operating segment information. The management approach focuses on financial information that the Company’s management uses to make operating decisions. The chief operating decision makers use operating revenues, operating expense categories, operating ratios, operating income and key operating statistics to evaluate performance and allocate resources to the Company’s operations.
Operating income is the measure of segment profit or loss the Company uses to evaluate segment performance and allocate resources and, consistent with GAAP accounting guidance for segment reporting, it is the Company’s measure of segment performance and is reported below. Operating income should not be viewed as a substitute for GAAP net income (loss). The Company believes the presentation of operating income enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business segments.
Operating income is defined as operating revenues less operating expenses, before tax.
Based on the unique nature of the operating structure of the Company, revenue generating assets are interchangeable between segments. Therefore, the Company does not prepare separate balance sheets by segment as assets are not separately identifiable by segment. The Company allocates depreciation and amortization expense on its property and equipment to the segments based on the actual utilization of the asset by the segment during the period.
The Company’s foreign operations total revenue was less than 5.0% of the Company’s total revenue for the three and six months ended June 30, 2014 and 2013, respectively.
Set forth in the tables below is certain financial information with respect to the Company’s reportable segments (in thousands):
Operating Revenue | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Truckload | $ | 575,481 | $ | 588,724 | $ | 1,128,538 | $ | 1,148,319 | ||||||||
Dedicated | 223,098 | 182,651 | 416,751 | 361,877 | ||||||||||||
Central Refrigerated | 106,911 | 111,238 | 213,674 | 217,640 | ||||||||||||
Intermodal | 100,911 | 90,994 | 192,224 | 174,258 | ||||||||||||
Subtotal | 1,006,401 | 973,607 | 1,951,187 | 1,902,094 | ||||||||||||
Nonreportable segments | 83,491 | 71,915 | 159,157 | 143,972 | ||||||||||||
Intersegment eliminations | (13,994 | ) | (16,451 | ) | (26,000 | ) | (35,387 | ) | ||||||||
Consolidated operating revenue | $ | 1,075,898 | $ | 1,029,071 | $ | 2,084,344 | $ | 2,010,679 | ||||||||
Operating Income (Loss) | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Truckload | $ | 69,596 | $ | 64,614 | $ | 101,503 | $ | 107,017 | ||||||||
Dedicated | 21,112 | 24,263 | 32,642 | 43,217 | ||||||||||||
Central Refrigerated | 3,662 | 5,660 | 6,082 | 10,381 | ||||||||||||
Intermodal | (495 | ) | 788 | (1,421 | ) | (816 | ) | |||||||||
Subtotal | 93,875 | 95,325 | 138,806 | 159,799 | ||||||||||||
Nonreportable segments | 147 | 4,941 | 1,386 | 10,185 | ||||||||||||
Consolidated operating income | $ | 94,022 | $ | 100,266 | $ | 140,192 | $ | 169,984 | ||||||||
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Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)
Depreciation and Amortization Expense | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Truckload | $ | 28,316 | $ | 32,387 | $ | 58,561 | $ | 63,380 | ||||||||
Dedicated | 13,670 | 11,223 | 26,075 | 21,728 | ||||||||||||
Central Refrigerated | 2,914 | 3,821 | 6,020 | 7,799 | ||||||||||||
Intermodal | 2,583 | 2,318 | 4,951 | 4,745 | ||||||||||||
Subtotal | 47,483 | 49,749 | 95,607 | 97,652 | ||||||||||||
Nonreportable segments | 7,308 | 7,131 | 15,359 | 14,098 | ||||||||||||
Consolidated depreciation and amortization expense | $ | 54,791 | $ | 56,880 | $ | 110,966 | $ | 111,750 | ||||||||
Other Intersegment Transactions
Certain operating segments provide transportation and related services for other affiliates outside their reportable segment. Revenues for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenues of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenues and expenses are eliminated in our consolidated results.
Note 15. Accumulated Other Comprehensive Loss
The following table is a reconciliation of accumulated other comprehensive loss by component (in thousands):
Derivative Financial Instruments | Foreign Currency Transactions | Accumulated Other Comprehensive Loss | ||||||||||
Balance as of December 31, 2013 | $ | (6,245 | ) | $ | 83 | $ | (6,162 | ) | ||||
Other comprehensive loss before reclassifications | — | — | — | |||||||||
Amounts reclassified from accumulated other comprehensive loss | 1,719 | — | 1,719 | |||||||||
Net current-period other comprehensive income | 1,719 | — | 1,719 | |||||||||
Balance as of June 30, 2014 | $ | (4,526 | ) | $ | 83 | $ | (4,443 | ) | ||||
All amounts are net-of-tax. Amounts in parenthesis indicate debits, or loss. | ||||||||||||
The following table presents details about reclassifications out of accumulated other comprehensive loss for the three and six months ended June 30, 2014 and 2013 (in thousands):
Amounts Reclassified from Accumulated Other Comprehensive Loss | ||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2014 | 2013 | 2014 | 2013 | Statement of Income Classifications | ||||||||||||||
Gains and losses on cash flow hedging: | ||||||||||||||||||
Interest rate swaps | $ | 1,482 | $ | 468 | $ | 2,796 | $ | 959 | Derivative interest expense | |||||||||
Income tax benefit | (571 | ) | (180 | ) | (1,077 | ) | (369 | ) | Income tax expense | |||||||||
$ | 911 | $ | 288 | $ | 1,719 | $ | 590 | Net income | ||||||||||
Note 16. Guarantor Condensed Consolidating Financial Statements
The payment of principal and interest on the Company’s senior second priority secured notes are guaranteed by the Company and the Company’s 100% owned domestic subsidiaries (the “Guarantor Subsidiaries”) other than its driver academy subsidiary, its captive insurance subsidiaries, its special-purpose receivables securitization subsidiary, and its foreign subsidiaries (the “Non-guarantor Subsidiaries”). The separate financial statements of the Guarantor Subsidiaries are not included herein because the Guarantor Subsidiaries are the Company’s 100% owned consolidated subsidiaries and are jointly, severally, fully and unconditionally liable for the obligations represented by the senior second priority secured notes.
Pursuant to the terms of the Indenture governing the senior second priority secured notes, the guarantees are full and unconditional, but are subject to release under the following circumstances:
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Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)
Ÿ in connection with any sale, disposition or transfer of all or substantially all of the assets to a person that is not the parent, the Company or a subsidiary guarantor;
Ÿ in connection with any sale, disposition or transfer of all of the capital stock of that subsidiary guarantor to a person that is not the parent, the Company or a subsidiary guarantor;
Ÿ if the Company designates any restricted subsidiary that is a subsidiary guarantor to be an Unrestricted Subsidiary,
Ÿ upon legal Defeasance or the discharge of the Company's obligation under the Indenture; or
Ÿ at such time as such subsidiary guarantor does not have any indebtedness that would have required a guarantee.
Although the guarantees are subject to release under the above described circumstances, we have concluded they are still deemed full and unconditional for purposes of Rule 3-10 of Regulation S-X because these circumstances are customary, and accordingly, the Company concluded that it may rely on Rule 3-10 of Regulation S-X, as the other requirements of Rule 3-10 have been met.
The condensed financial statements present condensed financial data for (i) Swift Transportation Company (on a parent only basis), (ii) Swift Services Holdings, Inc. (on an issuer only basis), (iii) the combined Guarantor Subsidiaries, (iv) the combined Non-Guarantor Subsidiaries, (v) an elimination column for adjustments to arrive at the information for the parent company and subsidiaries on a consolidated basis and (vi) the parent company and subsidiaries on a consolidated basis as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013.
Investments in subsidiaries are accounted for by the respective parent company using the equity method for purposes of this presentation. Results of operations of subsidiaries are therefore reflected in the parent company’s investment accounts and earnings. The principal elimination entries set forth below eliminate investments in subsidiaries and intercompany balances and transactions.
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Swift Transportation Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) – (continued)
Condensed consolidating balance sheet as of June 30, 2014 (in thousands)
Swift Transportation Company (Parent) | Swift Services Holdings, Inc. (Issuer) | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations for Consolidation | Consolidated | |||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 66,487 | $ | 7,041 | $ | — | $ | 73,528 | ||||||||||||
Restricted cash | — | — | — | 52,815 | — | 52,815 | ||||||||||||||||||
Restricted investments, held to maturity, amortized cost | — | — | — | 25,666 | — | 25,666 | ||||||||||||||||||
Accounts receivable, net | — | — | 31,620 | 431,974 | (3,236 | ) | 460,358 | |||||||||||||||||
Intercompany receivable | 131,608 | 344,418 | — | 57,073 | (533,099 | ) | — | |||||||||||||||||
Other current assets | 9,542 | — | 118,297 | 16,248 | (4,031 | ) | 140,056 | |||||||||||||||||
Total current assets | 141,150 | 344,418 | 216,404 | 590,817 | (540,366 | ) | 752,423 | |||||||||||||||||
Property and equipment, net | — | — | 1,412,170 | 38,182 | — | 1,450,352 | ||||||||||||||||||
Investment in subsidiaries | 296,176 | 909,847 | 1,010,290 | — | (2,216,313 | ) | — | |||||||||||||||||
Other assets | 10,453 | 2,028 | 65,534 | 3,846 | (31,126 | ) | 50,735 | |||||||||||||||||
Intangible assets, net | — | — | 299,071 | 9,269 | — | 308,340 | ||||||||||||||||||
Goodwill | — | — | 246,977 | 6,279 | — | 253,256 | ||||||||||||||||||
Total assets | $ | 447,779 | $ | 1,256,293 | $ | 3,250,446 | $ | 648,393 | $ | (2,787,805 | ) | $ | 2,815,106 | |||||||||||
Intercompany payable | $ | — | $ | 4,031 | $ | 533,099 | $ | — | $ | (537,130 | ) | $ | — | |||||||||||
Current portion of long-term debt and obligations under capital leases | 2,430 | — | 79,745 | 23,242 | (19,455 | ) | 85,962 | |||||||||||||||||
Other current liabilities | 17,430 | 3,814 | 308,348 | 23,980 | (3,236 | ) | 350,336 | |||||||||||||||||
Total current liabilities | 19,860 | 7,845 | 921,192 | 47,222 | (559,821 | ) | 436,298 | |||||||||||||||||
Long-term debt and obligations under capital leases, less current portion | — | 455,711 | 557,673 | 4,013 | (772 | ) | 1,016,625 | |||||||||||||||||
Deferred income taxes | — | — | 457,286 | 8,112 | (10,899 | ) | 454,499 | |||||||||||||||||
Revolving line of credit | — | — | 99,000 | — | — | 99,000 | ||||||||||||||||||
Securitization of accounts receivable | — | — | — | 319,000 | — | 319,000 | ||||||||||||||||||
Other liabilities | — | — | 89,532 | 52,344 | — | |||||||||||||||||||