Knight-Swift Transportation Holdings Inc. - FORM 10-Q

Knight-Swift Transportation Holdings Inc. - FORM 10-Q - August 2, 2016

Attached files

Attached files

file	filename
EX-32.1 - CEO AND CFO CERTIFICATION PURSUANT TO 18 USC, SEC 1350 - Knight-Swift Transportation Holdings Inc.	swft-ex321x6302016.htm
EX-31.2 - CFO CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13A-14(A) OR 15D-14 - Knight-Swift Transportation Holdings Inc.	swft-ex312x6302016.htm
EX-31.1 - CEO CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13A-14(A) OR 15D-14(A) - Knight-Swift Transportation Holdings Inc.	swft-ex311x6302016.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, 2016

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

For the transition period from to

Commission File Number: 001-35007

_____________________________________________________________________

Swift Transportation Company

(Exact name of registrant as specified in its charter)

_____________________________________________________________________



Delaware		20-5589597
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2200 South 75th Avenue

Phoenix, AZ 85043

(Address of principal executive offices and zip code)

(602) 269-9700

(Registrant’s telephone number, including area code)

N/A

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

______________________________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

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

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

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 26, 2016 was 83,721,782 and the number of outstanding shares of the registrant’s Class B common stock as of July 26, 2016 was 49,741,938.

Glossary of Terms

SWIFT TRANSPORTATION COMPANY



QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION	PAGE
Item 1. Financial Statements

Consolidated Balance Sheets as of June 30, 2016 (Unaudited) and December 31, 2015	5

Consolidated Income Statements (Unaudited) for the Three and Six Months Ended June 30, 2016 and 2015	6

Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2016 and 2015	7

Consolidated Statement of Stockholders' Equity (Unaudited) for the Six Months Ended June 30, 2016	8

Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2016 and 2015	9

Notes to Consolidated Financial Statements (Unaudited)	11

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3. Quantitative and Qualitative Disclosures About Market Risk	56

Item 4. Controls and Procedures	56


PART II OTHER INFORMATION
Item 1. Legal Proceedings	57

Item 1A. Risk Factors	57

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 3. Defaults Upon Senior Securities	59

Item 4. Mine Safety Disclosures	59

Item 5. Other Information	59

Item 6. Exhibits	60

Signatures	61

Table of Contents

SWIFT TRANSPORTATION COMPANY



QUARTERLY REPORT ON FORM 10-Q

GLOSSARY OF TERMS
The following glossary provides definitions for certain acronyms and terms used in this Quarterly Report on Form 10-Q. These acronyms and terms are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document.

Term		Definition
Swift/the Company/Management/We/Us/Our		Unless otherwise indicated or the context otherwise requires, these terms represent Swift Transportation Company and its subsidiaries. Swift Transportation Company is the holding company for Swift Transportation Co., LLC (a Delaware limited liability company) and Interstate Equipment Leasing, LLC.
2007 Transactions		In April 2007, Jerry Moyes and his wife contributed their ownership of all of the issued and outstanding shares of IEL to Swift Corporation in exchange for additional Swift Corporation shares. In May 2007, the Moyes Affiliates, contributed their shares of Swift Transportation Co., Inc. common stock to Swift Corporation in exchange for additional Swift Corporation shares. Swift Corporation then completed its acquisition of Swift Transportation Co., Inc. through a merger on May 10, 2007, thereby acquiring the remaining outstanding shares of Swift Transportation Co., Inc. common stock. Upon completion of the 2007 Transactions, Swift Transportation Co., Inc. became a wholly-owned subsidiary of Swift Corporation. At the close of the market on May 10, 2007, the common stock of Swift Transportation Co., Inc. ceased trading on NASDAQ.
2013 RSA		Second Amended and Restated Receivables Sale Agreement, entered into in 2013 by SRCII (defined below), with unrelated financial entities, "The Purchasers." The 2013 RSA was later replaced by the 2015 RSA.
2015 RSA		Third Amendment to Amended and Restated Receivables Sale Agreement, entered into in 2015 by SRCII (defined below), with unrelated financial entities, "The Purchasers"
2014 Agreement		The Company's Third Amended and Restated Credit Agreement, replaced by the 2015 Agreement
2015 Agreement		The Company's Fourth Amended and Restated Credit Agreement
AOCI		Accumulated Other Comprehensive Income (Loss)
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Board		Swift's Board of Directors
Central		Central Refrigerated Transportation, LLC (formerly Central Refrigerated Transportation, Inc.)
COFC		Container on Flat Car
CSA		Compliance Safety Accountability
Deadhead		Tractor movement without hauling freight (unpaid miles driven)
DLC		Deferred Loan Costs
DOE		United States Department of Energy
EBITDA		Earnings Before Interest, Taxes, Depreciation and Amortization
EPS		Earnings Per Share
FASB		Financial Accounting Standards Board
FLSA		Fair Labor Standards Act
GAAP		United States Generally Accepted Accounting Principles
IEL		Interstate Equipment Leasing, LLC (formerly Interstate Equipment Leasing, Inc.)
IPO		Initial Public Offering

Table of Contents

SWIFT TRANSPORTATION COMPANY



GLOSSARY OF TERMS — CONTINUED
The following glossary provides definitions for certain acronyms and terms used in this Quarterly Report on Form 10-Q. These acronyms and terms are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document.

Term		Definition
LIBOR		London InterBank Offered Rate
Moyes Affiliates		Jerry Moyes, The Jerry and Vickie Moyes Family Trust dated December 11, 1987, and various Moyes children’s trusts
NASDAQ		National Association of Securities Dealers Automated Quotations
New Revolver		Revolving line of credit under the 2015 Agreement
New Term Loan A		The Company's first lien term loan A under the 2015 Agreement
NLRB		National Labor Relations Board
OID		Original Issue Discount
Old Revolver		Revolving line of credit under the 2014 Agreement
Old Term Loan A		The Company's first lien term loan A under the 2014 Agreement
QTD		Quarter-to-date, or three-months ended
Revenue xFSR		Revenue, Excluding Fuel Surcharge Revenue
SEC		United States Securities and Exchange Commission
SRCII		Swift Receivables Company II, LLC
The Purchasers		Unrelated financial entities in the 2013 RSA and 2015 RSA, which were accounts receivable securitization agreements entered into by SRCII
Term Loan B		The Company's first lien term loan B under the 2014 Agreement
TOFC		Trailer on Flat Car
YTD		Year-to-date, or six months ended

Table of Contents Glossary of Terms

SWIFT TRANSPORTATION COMPANY



PART I FINANCIAL INFORMATION



ITEM 1.	FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



	June 30, 2016			December 31, 2015
	(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	118,132		$	107,590
Cash and cash equivalents – restricted	55,109			55,241
Restricted investments, held to maturity, amortized cost	22,766			23,215
Accounts receivable, net	417,422			422,421
Equipment sales receivable	1,197			—
Income tax refund receivable	167			11,664
Inventories and supplies	15,838			18,426
Assets held for sale	7,561			9,084
Prepaid taxes, licenses, insurance, and other	46,996			48,149
Current portion of notes receivable	8,316			9,817
Total current assets	693,504			705,607
Property and equipment, at cost:
Revenue and service equipment	2,190,088			2,278,618
Land	131,693			131,693
Facilities and improvements	276,664			269,769
Furniture and office equipment	106,675			99,519
Total property and equipment	2,705,120			2,779,599
Less: accumulated depreciation and amortization	(1,176,562		)	(1,128,499		)
Net property and equipment	1,528,558			1,651,100
Other assets	22,836			26,585
Intangible assets, net	274,712			283,119
Goodwill	253,256			253,256
Total assets	$	2,772,866		$	2,919,667
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	121,116		$	121,827
Accrued liabilities	116,708			97,313
Current portion of claims accruals	85,565			84,429
Current portion of long-term debt	4,529			35,514
Current portion of capital lease obligations	72,438			59,794
Total current liabilities	400,356			398,877
Revolving line of credit	85,000			200,000
Long-term debt, less current portion	593,516			643,663
Capital lease obligations, less current portion	178,127			222,001
Claims accruals, less current portion	160,968			149,281
Deferred income taxes	445,742			463,832
Accounts receivable securitization	299,106			223,927
Other liabilities	1,464			959
Total liabilities	2,164,279			2,302,540
Commitments and Contingencies (Notes 9 and 10)
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; 83,731,865 and 87,808,801 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively	837			878
Class B common stock, par value $0.01 per share; Authorized 250,000,000 shares; 49,741,938 and 50,991,938 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively	497			510
Additional paid-in capital	699,576			754,589
Accumulated deficit	(92,425		)	(139,033		)
Accumulated other comprehensive income	—			81
Noncontrolling interest	102			102
Total stockholders’ equity	608,587			617,127
Total liabilities and stockholders’ equity	$	2,772,866		$	2,919,667

See accompanying notes to consolidated financial statements.

Table of Contents Glossary of Terms

SWIFT TRANSPORTATION COMPANY

CONSOLIDATED INCOME STATEMENTS

(UNAUDITED)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(In thousands, except per share data)
Operating revenue:
Revenue, excluding fuel surcharge revenue	$	935,409		$	935,899		$	1,842,322		$	1,830,763
Fuel surcharge revenue	76,445			123,505			137,355			243,785
Operating revenue	1,011,854			1,059,404			1,979,677			2,074,548
Operating expenses:
Salaries, wages, and employee benefits	287,100			276,326			575,733			537,980
Operating supplies and expenses	87,220			91,147			177,435			185,351
Fuel	87,371			116,668			162,358			223,575
Purchased transportation	283,602			294,677			550,911			583,488
Rental expense	57,070			59,846			113,322			121,821
Insurance and claims	45,806			42,206			93,516			86,513
Depreciation and amortization of property and equipment	64,688			60,415			131,639			117,342
Amortization of intangibles	4,203			4,203			8,407			8,407
Gain on disposal of property and equipment	(4,963		)	(10,230		)	(11,289		)	(14,162		)
Communication and utilities	6,947			7,399			13,847			14,898
Operating taxes and licenses	18,605			18,271			37,110			35,859
Total operating expenses	937,649			960,928			1,852,989			1,901,072
Operating income	74,205			98,476			126,688			173,476
Other expenses (income):
Interest expense	7,567			10,109			16,161			20,497
Derivative interest expense	—			1,111			—			3,904
Interest income	(636		)	(591		)	(1,387		)	(1,178		)
Non-cash impairments of non-operating assets	—			—			—			1,480
Legal settlements and reserves	3,000			6,000			3,000			6,000
Other income, net	(1,094		)	(984		)	(1,870		)	(1,589		)
Total other expenses (income), net	8,837			15,645			15,904			29,114
Income before income taxes	65,368			82,831			110,784			144,362
Income tax expense	22,472			31,877			35,983			55,568
Net income	$	42,896		$	50,954		$	74,801		$	88,794
Basic earnings per share	$	0.32		$	0.36		$	0.55		$	0.62
Diluted earnings per share	$	0.32		$	0.35		$	0.55		$	0.62
Shares used in per share calculations:
Basic	134,439			142,540			135,476			142,371
Diluted	135,651			144,212			136,745			144,182

See accompanying notes to consolidated financial statements.

Table of Contents Glossary of Terms

SWIFT TRANSPORTATION COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(In thousands)
Net income	$	42,896		$	50,954		$	74,801		$	88,794
Accumulated losses on derivatives reclassified to derivative interest expense	—			1,969			—			3,817
Other	(81		)	—			(81		)	—
Other comprehensive (loss) income before income taxes	(81		)	1,969			(81		)	3,817
Income tax effect of items within other comprehensive (loss) income	—			(758		)	—			(1,469		)
Other comprehensive (loss) income, net of income taxes	(81		)	1,211			(81		)	2,348
Total comprehensive income	$	42,815		$	52,165		$	74,720		$	91,142

See accompanying notes to consolidated financial statements.

Table of Contents Glossary of Terms

SWIFT TRANSPORTATION COMPANY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(UNAUDITED)



	Class A Common Stock					Class B Common Stock					Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Noncontrolling Interest		Total Stockholders’ Equity
	Shares		Par Value			Shares		Par Value			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Noncontrolling Interest		Total Stockholders’ Equity
	(In thousands, except share data)
Balances, December 31, 2015	87,808,801		$	878		50,991,938		$	510		$	754,589		$	(139,033	)	$	81		$	102	$	617,127
Common stock issued under stock plans	581,603		6								3,022											3,028
Stock-based compensation expense											3,541											3,541
Excess tax deficiency from stock-based compensation											(482		)									(482		)
Shares issued under employee stock purchase plan	43,283		—								653											653
Repurchase and cancellation of Class A common stock	(5,951,822	)	(60		)						(61,747		)	(28,193		)						(90,000		)
Conversion of Class B common stock to Class A common stock	1,250,000		13			(1,250,000	)	(13		)												—
Net income														74,801								74,801
Other comprehensive loss, net of income taxes																	(81		)			(81		)
Balances, June 30, 2016	83,731,865		$	837		49,741,938		$	497		$	699,576		$	(92,425	)	$	—		$	102	$	608,587

See accompanying notes to consolidated financial statements.

Table of Contents Glossary of Terms

SWIFT TRANSPORTATION COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Six Months Ended June 30,
	2016			2015
	(In thousands)
Cash flows from operating activities:
Net income	$	74,801		$	88,794
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, equipment, and intangibles	140,046			125,749
Amortization of debt issuance costs, original issue discount, and other	667			5,228
Gain on disposal of property and equipment less write-off of totaled tractors	(9,632		)	(13,507		)
Impairments	—			1,480
Deferred income taxes	(18,239		)	(12,636		)
Provision for losses on accounts receivable	(1,245		)	3,612
Stock-based compensation expense	3,541			2,883
Excess tax deficiency (benefit) from stock-based compensation	482			(2,460		)
Income effect of mark-to-market adjustment of interest rate swaps	—			(325		)
Increase in cash resulting from changes in:
Accounts receivable	6,244			23,588
Inventories and supplies	2,588			359
Prepaid expenses and other current assets	12,650			18,360
Other assets	2,562			4,551
Accounts payable, accrued, and other liabilities	29,551			2,527
Net cash provided by operating activities	244,016			248,203
Cash flows from investing activities:
Decrease (increase) in cash and cash equivalents – restricted	132			(18,688		)
Proceeds from maturities of investments	13,289			20,975
Purchases of investments	(12,997		)	(14,825		)
Proceeds from sale of property and equipment	71,315			46,663
Capital expenditures	(68,962		)	(166,697		)
Payments received on notes receivable	2,961			3,536
Expenditures on assets held for sale	(12,503		)	(11,461		)
Payments received on assets held for sale	12,620			4,299
Payments received on equipment sale receivables	—			12
Net cash provided by (used in) investing activities	5,855			(136,186		)
Cash flows from financing activities:
Repayment of long-term debt and capital leases	(112,528		)	(48,777		)
Proceeds from long-term debt	—			4,504
Net repayments on revolving line of credit	(115,000		)	(57,000		)
Borrowings under accounts receivable securitization	100,000			25,000
Repayment of accounts receivable securitization	(25,000		)	(95,000		)
Proceeds from common stock issued	3,681			5,315
Repurchase of Class A common stock	(90,000		)	—
Excess tax (deficiency) benefit from stock-based compensation	(482		)	2,460
Net cash used in financing activities	(239,329		)	(163,498		)
Net increase (decrease) in cash and cash equivalents	10,542			(51,481		)
Cash and cash equivalents at beginning of period	107,590			105,132
Cash and cash equivalents at end of period	$	118,132		$	53,651

See accompanying notes to consolidated financial statements.

Table of Contents Glossary of Terms

SWIFT TRANSPORTATION COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED

(UNAUDITED)



	Six Months Ended June 30,
	2016		2015
	(In thousands)
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	15,913	$	25,575
Income taxes	30,485		50,807
Non-cash investing activities:
Equipment purchase accrual	$	3,759	$	8,991
Notes receivable from sale of assets	288		3,548
Equipment sales receivables	1,197		—
Non-cash financing activities:
Capital lease additions	$	—	$	85,821

See accompanying notes to consolidated financial statements.

Table of Contents Glossary of Terms

SWIFT TRANSPORTATION COMPANY

Notes to Consolidated Financial Statements (Unaudited)

Note 1 — Introduction and Basis of Presentation

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

Description of Business

Swift is a transportation solutions provider, headquartered in Phoenix, Arizona. As of June 30, 2016, the Company's fleet of revenue equipment included 19,601 tractors (comprised of 14,774 company tractors and 4,827 owner-operator tractors), 62,290 trailers, and 9,150 intermodal containers. The Company’s four reportable segments are Truckload, Dedicated, Swift Refrigerated, and Intermodal.

Seasonality

In the truckload industry, results of operations generally show a seasonal pattern. As customers ramp up for the year-end holiday season, the late third quarter and the fourth quarter have historically been the Company's strongest volume periods. As customers reduce shipments after the winter holiday season, the first quarter has historically been a lower volume quarter than the other three quarters. In recent years, the macro consumer buying patterns combined with shippers’ supply chain management, which historically contributed to the fourth quarter "peak" season, continued to evolve. As a result, the Company's fourth quarter 2015, 2014, and 2013 volumes were more evenly distributed throughout the quarter, rather than peaking early in the quarter. In the eastern and mid-western United States, and to a lesser extent in the western United States, the Company's equipment utilization typically declines and operating expenses generally increase during the winter season. This tends to be attributed to declines in fuel efficiency from engine idling and increases in accident frequency, claims, and equipment repairs from severe weather. The Company's revenue is directly related to shippers' available working days. As such, curtailed operations and vacation shutdowns around the holidays may affect the Company's revenue. From time to time, the Company also suffers short-term impacts from severe weather and similar events, such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes, and explosions that could add volatility to, or harm, the Company's results of operations.

Basis of Presentation

The consolidated financial statements and footnotes included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015. The consolidated financial statements include the accounts of Swift Transportation Company and its wholly-owned subsidiaries. In management's opinion, these consolidated financial statements were prepared in accordance with GAAP and include all adjustments necessary for the fair presentation of the periods presented.

Change in Presentation

In April 2015, FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amended ASC Subtopic 835-30, Interest – Imputation of Interest. The amendments in this ASU simplify the presentation of debt issuance costs and align the presentation with debt discounts. Entities are required to present debt issuance costs within liabilities as a direct deduction from the face amount of the related debt, rather than as a deferred charge within assets. In August 2015, FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update), which also amended ASC Subtopic 835-30, Interest – Imputation of Interest. The SEC determined that ASU 2015-03 (discussed above) did not address costs related to line-of-credit arrangements. The amendments in ASU 2015-15 clarify that entities may defer and present debt issuance costs as an asset, and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The amendments in these ASUs require retrospective application, with related disclosures for a change in accounting principle. For public business entities, the amendments in these ASUs are effective for financial statements issued for fiscal years beginning after December 15, 2015, and the interim periods within those fiscal years, with early adoption permitted.

Table of Contents Glossary of Terms

SWIFT TRANSPORTATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

The Company adopted this guidance at the beginning of 2016. Accordingly, debt issuance costs, except for those associated with the Company’s New Revolver, are presented as direct deductions from the face amount of the related debt. The Company retrospectively adjusted the December 31, 2015 consolidated balance sheet to align with the current period presentation, as follows:



	December 31, 2015
Financial Statement Caption	Unadjusted Consolidated Balance Sheet		Reclassification Adjustments			Adjusted Consolidated Balance Sheet
ASSETS:
Other assets	$	29,353	$	(2,768	)	$	26,585
LIABILITIES:
Current portion of long-term debt	$	35,582	$	(68	)	$	35,514
Long-term debt, less current portion	645,290		(1,627		)	643,663
Accounts receivable securitization	225,000		(1,073		)	223,927

Note 2 — Recently Issued Accounting Pronouncements

The following table presents accounting pronouncements recently issued by FASB, but not yet adopted by the Company.



Date Issued	Reference	Description	Expected Adoption Date and Method	Financial Statement Impact
May 2016	2016-12: Revenue from Contracts with Customers (Topic 606) – Narrow-scope Improvements and Practical Expedients	The amendments in this ASU clarify certain aspects regarding the collectibility criterion, sales taxes collected from customers, noncash consideration, contract modifications, and completed contracts at transition. It additionally clarifies that retrospective application only requires disclosure of the accounting change effect on prior periods presented, not on the period of adoption.	January 2018, Modified retrospective	Impact of ASC Topic 606 overall is currently under evaluation; expected to be material, but not yet quantifiable.
April 2016	2016-10: Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing	The amendments in this ASU clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The amendments do not change the core principle of the guidance.	January 2018, Modified retrospective	Impact of ASC Topic 606 overall is currently under evaluation; expected to be material, but not yet quantifiable.
March 2016	2016-08: Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations (Reporting Revenue Gross versus Net)	The amendments in this ASU are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations, but do not change the core principle of the guidance.	January 2018, Modified retrospective	Impact of ASC Topic 606 overall is currently under evaluation; expected to be material, but not yet quantifiable.
March 2016	2016-09: Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-based Payment Accounting	The amendments in this ASU are intended to simplify various aspects of accounting for stock-based compensation, including income tax consequences, classification of awards as equity or liability, as well as classification of activities within the statement of cash flows.	January 2017, Adoption method varies by amendment	Currently under evaluation; not yet quantifiable.

Table of Contents Glossary of Terms

SWIFT TRANSPORTATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED



Date Issued	Reference	Description	Expected Adoption Date and Method	Financial Statement Impact
February 2016	2016-02: Leases (Topic 842)	The new standard requires lessees to recognize assets and liabilities arising from both operating and financing leases on the balance sheet. Lessor accounting for leases is largely unaffected by the new guidance.	January 2019, Modified retrospective	Currently under evaluation; expected to be material, but not yet quantifiable.
January 2016	2016-01: Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities	The amendments in this ASU address various aspects of recognition, measurement, presentation, and disclosure of financial instruments. They additionally establish ASC Topic 321 – Investments – Equity Securities, which applies to investments in equity securities and other ownership interests in an entity, including investments in partnerships, unincorporated joint ventures, and limited liability companies.	January 2018, Modified retrospective	Not expected to be material.

Note 3 — Restricted Investments

The following table presents the cost or amortized cost, gross unrealized gains and temporary losses, and estimated fair value of the Company’s restricted investments (in thousands):



	June 30, 2016
			Gross Unrealized
	Cost or Amortized Cost		Gains		Temporary Losses			Estimated Fair Value
United States corporate securities	$	16,887	$	3	$	(5	)	$	16,885
Municipal bonds	4,454		1		(1		)	4,454
Negotiable certificate of deposits	1,425		—		—			1,425
Restricted investments, held to maturity	$	22,766	$	4	$	(6	)	$	22,764

	December 31, 2015
			Gross Unrealized
	Cost or Amortized Cost		Gains		Temporary Losses			Estimated Fair Value
United States corporate securities	$	16,686	$	2	$	(27	)	$	16,661
Municipal bonds	4,904		1		(1		)	4,904
Negotiable certificate of deposits	1,625		—		—			1,625
Restricted investments, held to maturity	$	23,215	$	3	$	(28	)	$	23,190

Refer to Note 15 for additional information regarding fair value measurements of restricted investments.

As of June 30, 2016, the contractual maturities of the restricted investments were one year or less. There were 18 securities and 36 securities that were in an unrealized loss position for less than twelve months as of June 30, 2016 and December 31, 2015, respectively. The Company did not recognize any impairment losses for the three or six months ended June 30, 2016 or 2015.

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Note 4 — Goodwill and Other Intangible Assets

There were no goodwill impairments recorded during the three or six months ended June 30, 2016 or 2015. Intangible asset balances were as follows (in thousands):



	June 30, 2016			December 31, 2015
Customer Relationships:
Gross carrying value	$	275,324		$	275,324
Accumulated amortization	(181,649		)	(173,242		)
Customer relationships, net	93,675			102,082
Trade Name:
Gross carrying value	181,037			181,037
Intangible assets, net	$	274,712		$	283,119

The following table presents amortization of intangible assets related to the 2007 Transactions and intangible assets existing prior to the 2007 Transactions (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Amortization of intangible assets related to the 2007 Transactions	$	3,912	$	3,912	$	7,824	$	7,824
Amortization related to intangible assets existing prior to the 2007 Transactions	291		291		583		583
Amortization of intangibles	$	4,203	$	4,203	$	8,407	$	8,407

Note 5 — Accounts Receivable Securitization

On December 10, 2015, SRCII, a wholly-owned subsidiary of the Company, entered into the 2015 RSA, which further amended the 2013 RSA. The parties to the 2015 RSA include SRCII as the seller, Swift Transportation Services, LLC as the servicer, the various conduit purchasers, the various related committed purchasers, the various purchaser agents, the various letters of credit participants, and PNC Bank, National Association as the issuing bank of letters of credit and as administrator. Pursuant to the 2015 RSA, the Company's receivable originator subsidiaries sell, on a revolving basis, undivided interests in all of their eligible accounts receivable to SRCII. In turn, SRCII sells a variable percentage ownership interest in the eligible accounts receivable to the various purchasers. The facility qualifies for treatment as a secured borrowing under ASC Topic 860, Transfers and Servicing. As such, outstanding amounts are classified as liabilities on the Company’s consolidated balance sheets. Refer to Note 15 for information regarding the fair value of the 2015 RSA.

As of June 30, 2016 and December 31, 2015, interest accrued on the aggregate principal balance at a rate of 1.0%. Program fees and unused commitment fees are recorded in interest expense in the Company's consolidated income statements. The Company incurred program fees of $1.0 million related to the 2015 RSA and $0.9 million related to the 2013 RSA, during the three months ended June 30, 2016 and 2015, respectively. The Company incurred program fees of $1.9 million related to the 2015 RSA and $1.9 million related to the 2013 RSA, during the six months ended June 30, 2016 and 2015, respectively.

The 2015 RSA is subject to customary fees and contains various customary affirmative and negative covenants, representations and warranties, and default and termination provisions. Collections on the underlying receivables by the Company are held for the benefit of SRCII and the Purchasers in the facility and are unavailable to satisfy claims of the Company and its subsidiaries.

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Note 6 — Debt and Financing

Other than the Company’s accounts receivable securitization, as discussed in Note 5, and its outstanding capital lease obligations as discussed in Note 8, the Company's long-term debt consisted of the following (in thousands):



	June 30, 2016			December 31, 2015
2015 Agreement: New Term Loan A, due July 2020, net of $1,528 and $1,695 DLC as of June 30, 2016 and December 31, 2015, respectively ⁽¹⁾	$	592,722		$	668,055
Other	5,323			11,122
Long-term debt	598,045			679,177
Less: current portion of long-term debt, net of $0 and $68 DLC as of June 30, 2016 and December 31, 2015, respectively	(4,529		)	(35,514		)
Long-term debt, less current portion	$	593,516		$	643,663



	June 30, 2016		December 31, 2015
Long-term debt	$	598,045	$	679,177
Revolving line of credit, due July 2020 ^{(1) (2)}	85,000		200,000
Long-term debt, including revolving line of credit	$	683,045	$	879,177

____________


(1)	Refer to Note 15 for information regarding the fair value of long-term debt.


(2)	The Company additionally had outstanding letters of credit, primarily related to workers' compensation and self-insurance liabilities of $97.0 million and $95.0 million under the New Revolver at June 30, 2016 and December 31, 2015, respectively.

Credit Agreement

On July 27, 2015, the Company entered into the 2015 Agreement, which replaced the 2014 Agreement, including the $450.0 million Old Revolver (zero outstanding at closing), $500.0 million Old Term Loan A ($485.0 million outstanding at closing), and $400.0 million Term Loan B ($395.0 million outstanding at closing). The 2015 Agreement includes a New Revolver and a New Term Loan A. Upon closing, the $680.0 million in proceeds from the New Term Loan A, a $200.0 million draw on the New Revolver, and $4.9 million cash on hand were used to pay off the then-outstanding balances of the Old Term Loan A and Term Loan B, including accrued interest and fees under the 2014 Agreement, as well as certain transactional fees associated with the 2015 Agreement.

The following table presents the key terms of the 2015 Agreement (dollars in thousands):



Description	New Term Loan A	New Revolver ⁽²⁾
Maximum borrowing capacity	$680,000	$600,000
Final maturity date	July 27, 2020	July 27, 2020
Interest rate base	LIBOR	LIBOR
LIBOR floor	—%	—%
Interest rate minimum margin ⁽¹⁾	1.50%	1.50%
Interest rate maximum margin ⁽¹⁾	2.25%	2.25%
Minimum principal payment – amount ⁽³⁾	$6,625	$—
Minimum principal payment – frequency	Quarterly	Once
Minimum principal payment – commencement date ⁽³⁾	December 31, 2015	July 27, 2020

____________


(1)	The interest rate margin for the New Term Loan A and New Revolver is based on the Company's consolidated leverage ratio. As of June 30, 2016, interest accrued at 1.96% on the New Term Loan A and 1.94% on the New Revolver. As of December 31, 2015, interest accrued at 2.12% on the New Term Loan A and 2.08% on the New Revolver.

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(2)

The commitment fee for the unused portion of the New Revolver is based on the Company's consolidated leverage ratio and ranges from 0.25% to 0.35%. As of June 30, 2016, commitment fees on the unused portion of the New Revolver accrued at 0.25% and outstanding letter of credit fees accrued at 1.50%. As of December 31, 2015, commitment fees on the unused portion of the New Revolver accrued at 0.25% and outstanding letter of credit fees accrued at 1.75%.


(3)	Commencing in March 2017, the minimum quarterly payment amount on the New Term Loan A is $12.3 million, at which it remains until final maturity.

The New Revolver and New Term Loan A of the 2015 Agreement contain certain financial covenants with respect to a maximum leverage ratio and a minimum consolidated interest coverage ratio. The 2015 Agreement provides flexibility regarding the use of proceeds from asset sales, payment of dividends, stock repurchases, and equipment financing. In addition to the financial covenants, the 2015 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 and stock repurchases), certain incremental investments or advances, transactions with affiliates, engagement in additional business activities, and prepayment of certain other indebtedness.

Borrowings under the 2015 Agreement are secured by substantially all of the assets of the Company and are guaranteed by Swift Transportation Company, IEL, Central and its subsidiaries, Swift Transportation Co., LLC and its domestic subsidiaries (other than its captive insurance subsidiaries, driver academy subsidiary, and its bankruptcy-remote special purpose subsidiary).

Note 7 — Deferred Loan Costs

As discussed in Note 1, DLCs related to the Company's New Term Loan A and accounts receivable securitization are now netted against the face amount of the debt, pursuant to the amendments in ASU 2015-03. DLCs related to the New Revolver are reported in "Other assets." The following table presents DLCs included in the Company's consolidated balance sheets (in thousands):



	June 30, 2016		December 31, 2015
ASSETS:
Other assets	$	1,332	$	1,496
LIABILITIES:
Current portion of long-term debt	—		68
Long-term debt, less current portion	1,528		1,627
Accounts receivable securitization	894		1,073
Total DLCs	$	3,754	$	4,264

Note 8 — Leases

The Company finances a portion of its revenue equipment under capital and operating leases and certain terminals under operating leases.

Capital Leases (as Lessee) — The Company’s capital leases are typically structured with balloon payments at the end of the lease term equal to the residual value the Company is contracted to receive from certain equipment manufacturers upon sale or trade back to the manufacturers. If the Company does not receive proceeds of the contracted residual value from the manufacturer, the Company is still obligated to make the balloon payment at the end of the lease term. Certain leases contain renewal or fixed price purchase options. The present value of obligations under capital leases is included under "Current portion of capital lease obligations" and "Capital lease obligations, less current portion" in the consolidated balance sheets. As of June 30, 2016, the leases were collateralized by revenue equipment with a cost of $328.2 million and accumulated amortization of $91.1 million. As of December 31, 2015, the leases were collateralized by revenue equipment with a cost of $357.8 million and accumulated amortization of $90.1 million. Amortization of the equipment under capital leases is included in "Depreciation and amortization of property and equipment" in the Company’s consolidated income statements.

Operating Leases (as Lessee) — Rent expense related to operating leases was $57.1 million and $59.8 million for the three months ended June 30, 2016 and 2015, respectively. Rent expense related to operating leases was $113.3 million and $121.8 million for the six months ended June 30, 2016 and 2015, respectively.

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Note 9 — Purchase Commitments

As of June 30, 2016, the Company had commitments outstanding to acquire revenue equipment for the remainder of 2016 of approximately $323.2 million ($190.7 million of which were tractor commitments), in 2017 for approximately $190.9 million ($190.9 million of which were tractor commitments), and no purchase commitments for revenue equipment thereafter. The Company has the option to cancel tractor purchase orders with 60 to 90 days' notice prior to the scheduled production, although the notice period has lapsed for 39.7% of the tractor commitments outstanding as of June 30, 2016. These purchases are expected to be financed by the combination of operating leases, capital leases, debt, proceeds from sales of existing equipment, and cash flows from operations.

As of June 30, 2016, the Company had outstanding purchase commitments of approximately $1.9 million for non-revenue equipment and $0.4 million in purchase commitments for facilities. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures.

Note 10 — Contingencies and Legal Proceedings

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

For certain cases described below, management is unable to provide a meaningful estimate of the possible loss or range of loss because, among other reasons, (1) the proceedings are in various stages that do not allow for assessment; (2) damages have not been sought; (3) damages are unsupported and/or exaggerated; (4) there is uncertainty as to the outcome of pending appeals; and/or (5) there are significant factual issues to be resolved. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material adverse effect on our financial condition, though the outcomes could be material to our operating results for any particular period, depending, in part, upon the operating results for such period.

Arizona Owner-operator Class Action Litigation

On January 30, 2004, a class action lawsuit was filed by Leonel Garza on behalf of himself and all similarly-situated persons against Swift Transportation: Garza v. Swift Transportation Co., Inc., Case No. CV7-472 (the "Garza Complaint"). The putative class originally involved certain owner-operators who contracted with the Company under a 2001 Contractor Agreement that was in place for one year. The putative class is alleging that the Company should have reimbursed owner-operators for actual miles driven rather than the contracted and industry standard remuneration based upon dispatched miles. The trial court denied the 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 the named owner-operator class representative only contracted with the Company for a three-month period under a one-year contract that no longer exists. In addition to these trial court motions, the Company also filed a petition for special action with the Arizona Court of Appeals, arguing that the trial court erred in certifying the class because the trial court relied upon the Court of Appeals ruling that was previously overturned by the Arizona Supreme Court. On April 7, 2011, the Arizona Court of Appeals declined jurisdiction to hear this petition for special action and the Company filed a petition for review to the Arizona Supreme Court. On August 31, 2011, the Arizona Supreme Court declined to review the decision of the Arizona Court of Appeals. In April 2012, the trial court issued the following rulings with respect to certain motions filed by Swift: (1) denied Swift’s motion to compel arbitration; (2) denied Swift’s request to decertify the class; (3) granted Swift’s motion that there is no breach of contract; and (4) granted Swift’s motion to limit class size based on statute of limitations. On November 13, 2014, the court denied the plaintiff's motion to add new

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class representatives for the employee class and therefore the employee class remains without a plaintiff class representative. On March 18, 2015, the court denied Swift's two motions for summary judgment (1) to dismiss any claims related to the employee class since there is no class representative; and (2) to dismiss the plaintiff's claim of breach of a duty of good faith and fair dealing. On July 14, 2015, the court granted Swift's motion to decertify the entire class. On December 23, 2015, the plaintiff filed a Petition for Special Action with the Arizona Court of Appeals. On July 12, 2016, the Court of Appeals reversed the lower court’s order decertifying the class. Swift intends to pursue all available appellate remedies. The final disposition of this case and the impact of such disposition cannot be determined at this time.

Ninth Circuit Owner-operator Misclassification Class Action Litigation

On December 22, 2009, a class action lawsuit was filed against Swift Transportation and IEL: Virginia VanDusen, John Doe 1, and Joseph Sheer, individually and on behalf of all other similarly-situated persons v. Swift Transportation Co., Inc., Interstate Equipment Leasing, Inc., Jerry Moyes, and Chad Killebrew, Case No. 9-CIV-10376 filed in the United States District Court for the Southern District of New York (the "Sheer Complaint"). The putative class involves owner-operators alleging that Swift Transportation misclassified owner-operators as independent contractors in violation of the federal 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 450 other current or former owner-operators have joined this lawsuit. Upon Swift’s motion, the matter was 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, the 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 the plaintiff’s motion for preliminary injunction and motion for conditional class certification. The district court also denied the 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 the 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 allegedly consists of employees exempt from arbitration agreements. On November 6, 2013, the Ninth Circuit Court of Appeals reversed and remanded, stating its prior published decision, "expressly held that a district court must determine whether an agreement for arbitration is exempt from arbitration under Section 1 of the FAA as a threshold matter." As a consequence of this determination by the Ninth Circuit Court of Appeals being different from a decision of the Eighth Circuit Court of Appeals on a similar issue, on February 4, 2014, the Company filed a petition for writ of certiorari to the United States Supreme Court to address whether the district court or arbitrator should determine whether the contract is an employment contract exempt from Section 1 of the Federal Arbitration Act. On June 16, 2014, the United States Supreme Court denied the Company’s petition for writ of certiorari.

The matter remains pending in the district court and dispositive motion briefing will be completed in August 2016. The Company also filed a writ of mandamus and appeal from the district court's order that effectively denied the Company's motion to compel arbitration. The Ninth Circuit held oral argument on November 16, 2015, and the Court requested further briefing, which both parties filed June 16, 2016. The parties await a decision from the Court. 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 Driver Class Actions

On March 22, 2010, a class action lawsuit was filed by John Burnell, individually and on behalf of all other similarly-situated persons against Swift Transportation: John Burnell and all others similarly-situated v. Swift Transportation Co., Inc., filed in the Superior Court of California, County of San Bernardino (the "Burnell Complaint"). On September 3, 2010, upon motion by Swift, the matter was removed to the United States District Court for the Central District of California (the "California Court"), Case No. EDCV10-809-VAP. The putative class includes drivers who worked for Swift during the four years preceding the date of filing and alleges 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. On April 9, 2013, the Company filed a motion for judgment on the pleadings, requesting dismissal of the plaintiff's claims related to alleged meal and rest break violations under the California Labor Code alleging that such claims are preempted by the Federal Aviation Administration Authorization Act.

On 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: James R. Rudsell, on behalf of himself and all others similarly-situated v. Swift Transportation Co. of Arizona, LLC and Swift Transportation Company, in the Superior Court of California, County of San Bernardino (the "Rudsell Complaint").

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On May 3, 2012, upon motion by Swift, the matter was removed to the California Court, Case No. EDCV12-00692-VAP. The Rudsell Complaint was stayed on April 29, 2013, pending a resolution of the Burnell Complaint.

On September 25, 2014, a class action lawsuit was filed by Lawrence Peck on behalf of himself and all other similarly-situated persons against Swift Transportation: Peck v. Swift Transportation Co. of Arizona, LLC in the Superior Court of California, County of Riverside (the "Peck Complaint"). The putative class, which includes current and former non-exempt employee truck drivers who performed services in California within the four-year statutory period, alleges that Swift failed to pay for all hours worked (specifically that pay-per-mile fails to compensate drivers for non-driving related services), failed to pay overtime, failed to properly reimburse work-related expenses, failed to timely pay wages, and failed to provide accurate wage statements. On October 24, 2014, upon motion by Swift, the matter was removed to the California Court, Case No. 14-CV-02206-VAP. The Peck Complaint was stayed on April 6, 2015, pending a resolution of the earlier filed cases.

On February 27, 2015, Sadashiv Mares filed a complaint alleging five Causes of Action arising under California state law on behalf of himself and a putative class against Swift Transportation Co. of Arizona, LLC in the Superior Court of California, County of Alameda (the "Mares Complaint"). On July 13, 2015, upon motion by Swift, the matter was removed to the United States District Court for the Northern District of California, Case No. 2:15-CV-03253-JSW. Upon the parties' stipulation, on October 17, 2015, the case was transferred to the California Court, Case No. 2:15-CV-07920-VAP. The Mares Complaint was stayed on February 24, 2016, pending a resolution of the earlier filed cases.

On or about April 15, 2015, a complaint was filed in the Superior Court of California, County of San Bernardino: Rafael McKinsty et al. v. Swift Transportation Co. of Arizona, LLC, et al., (the "McKinsty Complaint"). The McKinsty Complaint, a purported class action, alleges violation of California rest break laws and is similar to the Burnell, Rudsell, Peck, and Mares Complaints. On July 2, 2015, upon motion by Swift, the matter was removed to the California Court, Case No. 15-CV-1317-VAP. The McKinsty Complaint was stayed on August 19, 2015, pending a resolution of the earlier filed cases.

On October 15, 2015, a class action lawsuit was filed in the Superior Court of California, County of Riverside: Thor Nilsen v. Swift Transportation Co. of Arizona, LLC (the "Nilsen Complaint"). The Nilsen Complaint alleges violations of California law similar to the Burnell, Rudsell, Peck, Mares, and McKinsty Complaints. On December 9, 2015, upon motion by Swift, the matter was removed to the California Court, Case No. 15-CV-02504-VAP. The Nilsen Complaint was stayed January 29, 2016, pending resolution of the earlier filed cases.

The issue of class certification must first be resolved before the California Court will address the merits of these cases, and the Company retains all of its defenses against liability and damages, pending a determination of class certification. Class certification briefing is now complete and a class certification hearing was scheduled for April 25, 2016. The class certification hearing was held and argued as scheduled. In May 2016, the Superior Court of California, County of San Bernardino, issued an order decertifying the class. The plaintiffs and petitioners sought leave to appeal the class decertification order. On July 18, 2016, the Superior Court of California, County of San Bernardino, denied the plaintiffs' and petitioners' petition to appeal the decertification order. Therefore, at the present time and based upon the current procedural nature of the case, the final disposition and impact to the Company cannot be determined at this time.

California Wage, Meal, and Rest: Maintenance and Service Employees Class Action

On January 28, 2016, a class action lawsuit was filed by Grant Fritsch, individually and on behalf of all other similarly-situated persons against Swift Transportation Services, LLC and Swift Transportation Company in the Superior Court of California, County of San Bernardino (the "Fritsch Complaint"). Mr. Fritsch worked for Swift as a yard hostler and he purports to represent a class of "all non-exempt maintenance and service employees" of Swift Transportation Services, LLC and/or Swift Transportation Company. The Fritsch Complaint alleges that Swift failed to pay overtime and doubletime wages required by California law, failed to provide proper meal and rest periods, failed to provide accurate itemized wage statements, and failed to timely pay wages upon separation from employment. The Fritsch Complaint also includes a claim under the Private Attorneys General Act. The Company filed a motion to dismiss based upon the wrong party being named in the lawsuit, and the plaintiff agreed to amend his complaint, which was served June 17, 2016. The Company retains all of its defenses against liability and damages. The Company intends to vigorously defend against the merits of these claims and to challenge certification. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.

Arizona Fair Labor Standards Act Class Action Litigation

On December 29, 2015, a class action lawsuit was filed by Pamela Julian, individually and on behalf of all other similarly-situated persons against Swift Transportation, Inc., et al. in the United States District Court for the District of Delaware, Case No. 1:15-CV-01212-UNA (the "Julian Compliant"). The Julian Complaint alleges that Swift violated the FLSA by failing to pay its trainee drivers minimum wage for all work performed and by failing to pay overtime. On February 29, 2016, upon Stipulation of the Parties, the court transferred the case to the United States District Court for the District of Arizona, Case No. 2:16-CV-00576-ROS. On March 9, 2016, Swift filed a motion to dismiss the plaintiffs' overtime claims, which was granted by the District Court on May 31, 2016. The Company retains all of its defenses against liability and damages for the remaining claims. The Company intends to

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vigorously defend against the merits of these claims and to challenge certification. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.

Washington Overtime Class Actions

On September 9, 2011, a class action lawsuit was filed by Troy Slack and several other drivers on behalf of themselves, and all similarly-situated persons, against Swift Transportation: Troy Slack, et al. v. Swift Transportation Co. of Arizona, LLC and Swift Transportation Corporation in the State Court of Washington, Pierce County (the "Slack Complaint"). The Slack Complaint was removed to the United States District Court for the Western District of Washington (the "Court") on October 12, 2011, case number 11-2-114380. The putative class includes all current and former Washington state-based employee drivers during the three-year statutory period prior to the filing of the lawsuit, and through the present, and alleges that they were not paid minimum wage and overtime in accordance with Washington state law and that they suffered unlawful deductions from wages. On November 23, 2013, the court entered an order on the plaintiffs' motion to certify the class. The court only certified the class as it pertains to "dedicated" drivers and did not certify any other class, including any class related to over-the-road drivers. On September 2, 2015, new counsel was appointed for the plaintiffs and on November 16, 2015, new legal counsel was substituted for the Company. As a result of the substitution of counsel for both parties, the court extended all existing dates by ten months. On April 1, 2016, the court entered an order approving the plaintiffs' proposed class notice. The matter is now in discovery. The Company retains all of its defenses against liability and damages. The Company intends to vigorously defend against the merits of these claims and to challenge certification. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.

On January 14, 2016, a class action lawsuit was filed by Julie Hedglin, individually and on behalf of all others similarly situated against Swift Transportation Co. of Arizona, LLC in the State Court of Washington, Pierce County (the "Hedglin Complaint"). The Hedglin Complaint was removed to the Court on February 18, 2016, 3:16-CV-05127-RJB. The putative class includes all current and former Washington heavy haul drivers and alleges the class was not paid for meal and rest periods, was not paid for overtime, was not paid all wages due at established pay periods, and was not provided accurate wage statements. The matter is in its initial phases and is expected to move into discovery. The Company retains all of its defenses against liability and damages. The Company intends to vigorously defend against the merits of these claims and to challenge certification. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.

Indiana Fair Credit Reporting Act Class Action Litigation

On March 18, 2015, a class action lawsuit was filed by Melvin Banks, individually and on behalf of all other similarly-situated persons against Central Refrigerated Service, Inc. in the United States District Court for the Northern District of Indiana, Case No. 2:15-CV-00105. The complaint alleges that Central Refrigerated Service, Inc. violated the Fair Credit Reporting Act by failing to provide job applicants with adverse action notices and copies of their consumer reports and statements of rights. At this time, the size of the potential class is unknown. The Company’s motion to have the case transferred from Indiana to the United States District Court for the District of Arizona has been granted and initial discovery regarding the potential class has begun. The Company retains all of its defenses against liability and damages. The Company intends to vigorously defend against the merits of these claims and to challenge certification. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.

Utah Collective and Individual Arbitration

On June 1, 2012, Gabriel Cilluffo, Kevin Shire, and Bryan Ratterree filed a putative class and collective action lawsuit against Central Refrigerated Service, Inc., Central Leasing, Inc., Jon Isaacson, and Jerry Moyes (collectively referred to herein as the "Central Parties"), Case No. ED CV 12-00886 in the United States District Court for the Central District of California. Through this action, the plaintiffs alleged that the Central Parties misclassified owner-operator drivers as independent contractors and were therefore liable to these drivers for minimum wages and other employee benefits under the FLSA. The complaint also alleged a federal forced labor claim under 18 U.S.C. § 1589 and 1595, as well as fraud and other state-law claims.

Pursuant to the plaintiffs' owner-operator agreements, the district court issued an order compelling arbitration and directed that the plaintiffs' causes of action under the FLSA should proceed to collective arbitration, while their forced labor, fraud, and state law claims would proceed as separate individual arbitrations. A collective arbitration was subsequently initiated with the American Arbitration Association ("AAA"). Notice of the collective arbitration was sent to more than 3,000 owner-operators who worked for Central Refrigerated Service, Inc. and leased a vehicle from Central Leasing, Inc. on or after June 1, 2009. The parties have filed several potentially dispositive motions in this collective arbitration proceeding. None of these motions has yet been ruled on by the arbitrator and no trial date has been set by the arbitrator.

In addition to the collective arbitration that is pending before the AAA, the three named plaintiffs, along with approximately 325 other owner-operators, have initiated a series of individual, bilateral proceedings against the Central Parties with the AAA. Discovery is commencing in these individual cases, which are pending before approximately 30 separate arbitrators. Actual trial dates have not yet been set by the arbitrators, but trials in a limited number of bellwether-like cases are likely to occur in the first or second quarter of 2017.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Upon the acquisition of Central Refrigerated Service, Inc. by Swift Transportation Company (the "Company"), the plaintiffs in both the collective and individual actions were allowed to amend their complaints in June 2015 to include the Company as a defendant. The Company and the Central Parties intend to vigorously defend against the merits of the plaintiffs' claims in both the collective and individual arbitration proceedings.

In June 2016, the parties engaged in a mediation that ultimately did not result in a settlement of the matter. Based upon the information exchanged between the parties during the mediation, and in accordance with GAAP, the Company recorded an accrual of $3.0 million in the second quarter of 2016 for the estimated probable loss incurred. Although the final disposition and impact of the case to the Company cannot be determined at this time, exposure above the accrued amount is reasonably possible and, accordingly, the Company has undertaken a process to attempt to estimate a range of possible loss based upon currently available information relating to the case. This process has included attempting to evaluate additional facts and circumstances that may arise as the matter continually evolves, including analyzing previous judicial rulings the court has rendered. Taken in its totality, this information might impact the Company's loss. For these reasons, along with others, the Company is not currently able to estimate a range of reasonably possible loss in excess of the amount accrued.

California Class and Collective Action for Pre-employment Physical Testing

On October 6, 2014 Robin Anderson filed a putative class and collective action against Central Refrigerated Service, Inc. Case No. 5:14-CV 02062 in the United States District Court for the Central District of California (the "Anderson Complaint"). In this action, the plaintiff alleges that pre-employment tests of physical strength administered by a third party on behalf of Central Refrigerated Service, Inc. had an unlawfully discriminatory impact on female applicants and applicants over the age of 40. The suit seeks damages under Title VII of the Civil Rights Act of 1964, the Age Discrimination Act, and parallel California state law provisions, including the California Fair Employment and Housing Act.

Upon the acquisition of Central Refrigerated Service, Inc. by Swift Transportation Company, the plaintiff was allowed to amend her complaint in October 2015 to include Swift Transportation Company and Workwell Systems, Inc. as additional defendants. Workwell Systems, Inc. is the company that provided the physical testing service used by Central Refrigerated Service, Inc. The litigation is still at a very preliminary stage with discovery not yet commenced and no trial date has been set. There is not currently any information available regarding the number of potential members of the putative class or collective actions.

Central Refrigerated Service, Inc. and Swift intend to vigorously defend against the merits of the plaintiff’s claims and to oppose certification of any class of plaintiffs. The final disposition of this case and the impact cannot be determined at this time.

Demand for Inspection of Books and Records

In February 2016, the Company received several shareholder demands, requesting to inspect the Company’s books and records, pursuant to Section 220 of the Delaware General Corporation Law. The demands relate to the shareholders’ alleged investigation pertaining to whether the Board and Jerry Moyes have breached their fiduciary duties with respect to matters that have been publicly disclosed concerning the Company's securities trading policy, limitations on the pledging of Company stock on margin, and share repurchases. The Company has responded to the shareholders’ requests. Any future disposition or resolution of these matters cannot be determined at this time.

Environmental

The Company's tractors and trailers are involved in motor vehicle accidents, and experience damage, mechanical failures, and cargo issues as an incidental part of its normal course of operations. From time to time, these matters result in the discharge of diesel fuel, motor oil, or other hazardous materials into the environment. Depending on local regulations and who is determined to be at fault, the Company is sometimes responsible for the clean-up costs associated with these discharges. As of June 30, 2016, the Company's estimate for its total legal liability for all such clean-up and remediation costs was approximately $0.5 million in the aggregate for all current and prior year claims.

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Note 11 — Derivative Financial Instruments

The final settlement of the Company's interest rate swaps occurred in July 2015. The following table presents pre-tax gains and losses from changes in fair value of the Company's interest rate swaps, included in earnings (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016		2015
Loss reclassified from AOCI into net income from cash flow hedges (effective portion)	$	—	$	1,969		$	—	$	3,817
(Gain) loss recognized in income from de-designated derivative contracts	—		(858		)	—		87
Derivative interest expense	$	—	$	1,111		$	—	$	3,904

Losses (benefits) on cash flow hedging, reclassified out of AOCI into the consolidated income statements were as follows (in thousands):



		Three Months Ended June 30,					Six Months Ended June 30,
	Reclassified to:	2016		2015			2016		2015
Interest rate swaps	Derivative interest expense	$	—	$	1,969		$	—	$	3,817
Income tax benefit	Income tax expense	—		(758		)	—		(1,469		)
	Net income	$	—	$	1,211		$	—	$	2,348

Note 12 — Share Repurchase Programs

The following table presents our repurchases of our Class A common stock under the respective share repurchase programs, net of advisory fees (in thousands):



		Three Months Ended June 30,			Six Months Ended June 30,			As of
Share Repurchase Program		2016			2016			June 30, 2016
Authorized Amount	Board Approval Date	Shares	Amount		Shares	Amount		Amount Remaining
$100,000	September 24, 2015	—	$	—	2,221	$	30,000	$	—
$150,000	February 22, 2016	2,828	$	45,000	3,731	$	60,000	$	90,000
		2,828	$	45,000	5,952	$	90,000	$	90,000

No share repurchases were made during the three or six months ended June 30, 2015.

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Note 13 — Weighted Average Shares Outstanding

The following table reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding (in thousands):



	Three Months Ended June 30,		Six Months Ended June 30,
	2016	2015	2016	2015
Basic weighted average common shares outstanding	134,439	142,540	135,476	142,371
Dilutive effect of stock options	1,212	1,672	1,269	1,811
Diluted weighted average common shares outstanding	135,651	144,212	136,745	144,182
Anti-dilutive shares excluded from the dilutive-effect calculation ⁽¹⁾	637	195	643	—

____________


(1)	Shares were excluded from the dilutive-effect calculation because the outstanding options' exercise prices were greater than the average market price of the Company's common shares during the period.

Note 14 — Income Taxes

Effective Tax Rate — The effective tax rate for the three months ended June 30, 2016 was 34.4%, which was lower than management's expectation of 37.5%, primarily due to additional Federal income tax credits realized as discrete items in the quarter. The effective tax rate for the three months ended June 30, 2015 was 38.5%, as expected.

The effective tax rate for the six months ended June 30, 2016 was 32.5%, which was lower than management's expectation of 37.5%, primarily due to certain income tax credits in our foreign and domestic subsidiaries and a reduction in our uncertain tax position reserve realized as discrete items in the quarter. The effective tax rate for the six months ended June 30, 2015 was 38.5%, as expected.

Interest and Penalties — Accrued interest and penalties included in income tax expense as of June 30, 2016 and December 31, 2015 were approximately $0.4 million and $1.4 million, respectively. The Company does not anticipate a decrease of unrecognized tax benefits during the next twelve months.

Tax Examinations — Certain of the Company’s subsidiaries are currently under examination by the Internal Revenue Service and various state jurisdictions for tax years ranging from 2010 through 2014. At the completion of these examinations, management does not expect any adjustments that would have a material impact on the Company’s effective tax rate. Years subsequent to 2011 remain subject to examination.

Note 15 — Fair Value Measurement

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments (in thousands):



	June 30, 2016				December 31, 2015
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Restricted investments ⁽¹⁾	$	22,766	$	22,764	$	23,215	$	23,190
Financial Liabilities:
2015 Agreement: New Term Loan A, due July 2020⁽²⁾	592,722		594,250		668,055		669,750
Accounts receivable securitization, due January 2019 ⁽³⁾	299,106		300,000		223,927		225,000
Revolving line of credit, due July 2020 ⁽⁴⁾	85,000		85,000		200,000		200,000

____________

The carrying amounts of the financial instruments shown in the table are included in the consolidated balance sheets, as follows:


(1)	Restricted investments are included in "Restricted investments, held to maturity, amortized cost."

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(2)	The New Term Loan A is included in "Current portion of long-term debt" and "Long-term debt, less current portion." Carrying value is net of $1.5 million and $1.7 million DLC as of June 30, 2016 and December 31, 2015, respectively.


(3)	Carrying value is net of $0.9 million and $1.1 million DLC as of June 30, 2016 and December 31, 2015, respectively.


(4)	The New Revolver is included in "Revolving line of credit."

Recurring Fair Value Measurements

As of June 30, 2016 and December 31, 2015, no major categories of assets or liabilities included in the Company's consolidated balance sheets at estimated fair value were measured on a recurring basis.

Nonrecurring Fair Value Measurements

As of June 30, 2016, there were no assets or liabilities on the Company's consolidated balance sheet estimated at fair value that were measured on a nonrecurring basis.

The following table depicts the level in the fair value hierarchy of the inputs used to estimate fair value of assets measured on a nonrecurring basis as of December 31, 2015 (in thousands):



			Fair Value Measurements at Reporting Date Using:
	Estimated Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Gains (Losses)
As of December 31, 2015
Note receivable	$	—	$	—	$	—	$	—	$	(1,480	)

In September 2013, the Company agreed to advance up to $2.3 million, pursuant to an unsecured promissory note, to an independent fleet contractor that transported freight on Swift's behalf. In March 2015, management became aware that the independent contractor violated various covenants outlined in the unsecured promissory note, which created an event of default that made the principal and accrued interest immediately due and payable. As a result of this event of default, as well as an overall decline in the independent contractor's financial condition, management re-evaluated the fair value of the unsecured promissory note. At March 31, 2015, management determined that the remaining balance due from the independent contractor to the Company was not collectible, which resulted in a $1.5 million pre-tax adjustment that was recorded in "Non-cash impairments of non-operating assets" in the Company's consolidated income statement.

As of December 31, 2015, there were no liabilities on the Company's consolidated balance sheet estimated at fair value that were measured on a nonrecurring basis.

Note 16 — Segments and Geography

Segment Information

The Company’s four reportable operating segments are Truckload, Dedicated, Swift Refrigerated, and Intermodal.

Truckload — The Truckload segment consists of one-way movements over irregular routes throughout the United States, Mexico, and Canada. This service utilizes both company and owner-operator tractors with dry van, flatbed, and other specialized trailing equipment.

Dedicated — Through the Dedicated segment, the Company devotes use of equipment to specific customers and offers tailored solutions under long-term contracts. This segment utilizes refrigerated, dry van, flatbed, and other specialized trailing equipment.

Swift Refrigerated — This segment primarily consists of shipments for customers that require temperature-controlled trailers. These shipments include one-way movements over irregular routes, as well as dedicated truck operations.

Intermodal — The Intermodal segment includes revenue generated by moving freight over the rail in the Company's containers and other trailing equipment, combined with revenue for drayage to transport loads between the railheads and customer locations.

Non-reportable Segments — The non-reportable segments include the Company's logistics and freight brokerage services, as well as support services that its subsidiaries provide to customers and owner-operators, including repair and maintenance shop services, equipment leasing, and insurance. Intangible amortization related to the 2007 Transactions, as well as certain legal settlements and reserves are also included in the non-reportable segments.

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

Set forth in the tables below is certain financial information with respect to the Company’s reportable segments (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
Operating revenue:	2016			2015			2016			2015
Truckload	$	517,593		$	555,715		$	1,010,115		$	1,094,056
Dedicated	237,211			234,213			465,125			451,988
Swift Refrigerated	87,070			97,688			171,755			193,256
Intermodal	90,066			98,507			172,614			188,861
Subtotal	931,940			986,123			1,819,609			1,928,161
Non-reportable segments	99,315			93,869			198,563			185,491
Intersegment eliminations	(19,401		)	(20,588		)	(38,495		)	(39,104		)
Consolidated operating revenue	$	1,011,854		$	1,059,404		$	1,979,677		$	2,074,548



	Three Months Ended June 30,						Six Months Ended June 30,
Operating income (loss):	2016			2015			2016			2015
Truckload	$	50,475		$	67,944		$	86,762		$	124,798
Dedicated	28,449			22,967			52,307			37,312
Swift Refrigerated	4,804			6,117			4,472			10,916
Intermodal	903			1,601			(2,005		)	358
Subtotal	84,631			98,629			141,536			173,384
Non-reportable segments	(10,426		)	(153		)	(14,848		)	92
Consolidated operating income	$	74,205		$	98,476		$	126,688		$	173,476



	Three Months Ended June 30,				Six Months Ended June 30,
Depreciation and amortization of property and equipment:	2016		2015		2016		2015
Truckload	$	30,570	$	29,925	$	61,853	$	58,534
Dedicated	16,051		15,620		32,409		29,893
Swift Refrigerated	4,143		3,370		8,777		6,664
Intermodal	2,820		3,444		5,999		6,696
Subtotal	53,584		52,359		109,038		101,787
Non-reportable segments	11,104		8,056		22,601		15,555
Consolidated depreciation and amortization of property and equipment	$	64,688	$	60,415	$	131,639	$	117,342

Geographical Information

In aggregate, operating revenue from the Company's foreign operations was less than 5.0% of consolidated operating revenue for the three and six months ended June 30, 2016 and 2015. Additionally, long-lived assets on the Company's foreign subsidiaries' balance sheets were less than 5.0% of consolidated total assets as of June 30, 2016 and December 31, 2015.

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ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains statements that may constitute forward-looking statements, which are based on information currently available, usually defined by words such as "anticipates," "believes," "estimates," "plans," "projects," "expects," "hopes," "intends," "will," "could," "should," "may," or similar expressions which speak only as of the date the statement was made. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements concerning:


•	trends, management's beliefs, and expectations relating to our operations, Revenue xFSR, expenses, other revenue, pricing, our effective tax rate, profitability and related metrics, as well as share repurchases;


•	impact and planned timing of adopting recently issued accounting pronouncements on future periods;


•	our expectation of increasing driver wages, hiring expenses, and owner-operator and other third-party carrier rates;


•	the benefits of eliminating our TOFC service, including the potential to increase operational efficiencies;


•	the outcome and impact of pending claims, litigation, and actions in respect thereof;


•	our intentions concerning the potential use of derivative financial instruments to hedge fuel price increases;


•	the timing and amount of future acquisitions of revenue equipment and other capital expenditures, as well as the use and availability of cash, cash flows from operations, leases, and debt to finance such acquisitions;


•	that we may seek additional borrowings, lease financing or equity capital;


•	the potential impact of inflation, seasonality and severe weather conditions on our results of operations;


•	that we do not anticipate a decrease in unrecognized tax benefits during the next twelve months; and


•	our ability to finance our cash needs from operations for the next twelve months.

Such forward-looking statements are inherently uncertain, and are based upon the current beliefs, assumptions, and expectations of Company management and current market conditions, which are subject to significant risks and uncertainties, as set forth in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2015. As to the Company's business and financial performance, the following factors, among others, could cause actual results to materially differ from those in forward-looking statements:


•	economic conditions, including future recessionary economic cycles and downturns in customers’ business cycles, particularly in market segments and industries in which we have a significant concentration of customers;


•	our ability to address challenges within our industry, including excess capacity, excess customer inventories, and increasing competition from trucking, rail, intermodal, and brokerage competitors;


•	our ability to execute or integrate any future acquisitions successfully;


•	increases in driver compensation to the extent not offset by increases in freight rates and difficulties in driver recruitment and retention;


•	additional risks arising from our contractual agreements with owner-operators that do not exist with Company drivers;


•	our ability to retain or replace key personnel;


•	our dependence on third parties for intermodal and brokerage business;


•	potential failure in computer or communications systems;


•	seasonal factors such as severe weather conditions that increase operating costs;


•	the regulatory environment in which we operate, including existing regulations and changes in existing regulations, or violations by us of existing or future regulations;


•	the possible re-classification of owner-operators as employees;


•	changes in rules or legislation by the NLRB or Congress and/or union organizing efforts;


•	our CSA safety rating;


•	government regulation with respect to our captive insurance companies;


•	uncertainties and risks associated with our operations in Mexico;

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•	a significant reduction in, or termination of, our trucking services by a key customer;


•	our significant ongoing capital requirements;


•	volatility in the price or availability of fuel, as well as our ability to recover fuel prices through our fuel surcharge program;


•	fluctuations in new equipment prices or replacement costs, and the potential failure of manufacturers to meet their sale and trade-back obligations;


•	the impact that our substantial leverage may have on the way we operate our business and our ability to service our debt, including compliance with our debt covenants;


•	restrictions contained in our debt agreements;


•	adverse impacts of insuring risk through our captive insurance companies, including our need to provide restricted cash and similar collateral for anticipated losses;


•	potential volatility or decrease in the amount of earnings as a result of our claims exposure through our captive insurance companies;


•	the potential impact of the significant number of shares of our common stock that is eligible for future sale;


•	goodwill impairment;


•	our intention to not pay dividends;


•	conflicts of interest or potential litigation that may arise from other businesses owned by Jerry Moyes, including pledges of Swift stock and guarantees by Jerry Moyes related to other businesses;


•	the significant amount of our stock and related control over the Company by Jerry Moyes; and


•	related-party transactions between the Company and Jerry Moyes.

Important factors, in addition to those listed above and in our filings with the SEC, could impact us financially. As a result of these and other factors, actual results may differ from those set forth in the forward-looking statements, and the prices of the Company's securities may dramatically fluctuate. The Company makes no commitment, and disclaims any duty, to update or revise any forward-looking statements to reflect future events, new information or changes in these expectations.

Reference to Glossary of Terms

Reference to Annual Report on Form 10-K

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and footnotes included in this Quarterly Report on Form 10-Q, as well as the consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2015.

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Executive Summary

Company Overview — Swift is a multi-faceted transportation services company, operating one of the largest fleets of truckload equipment in North America from over 40 terminals near key freight centers and traffic lanes. We principally operate in short- to medium-haul traffic lanes around our terminals and dedicated customer locations. We concentrate on this length of haul because the majority of domestic truckload freight (as measured by revenue) moves in these lanes and our extensive terminal network affords us marketing, equipment control, supply chain, customer service, and driver retention advantages in local markets. Since our average length of haul is relatively short, it helps reduce competition from railroads and trucking companies that lack a regional presence.

As of June 30, 2016, our fleet of revenue equipment included 19,601 tractors (comprised of 14,774 company tractors and 4,827 owner-operator tractors), 62,290 trailers, and 9,150 intermodal containers. Our four reportable segments are Truckload, Dedicated, Swift Refrigerated, and Intermodal. Our extensive suite of service offerings (which includes line-haul services, dedicated customer contracts, temperature-controlled units, intermodal freight solutions, cross-border United States/Mexico and United States/Canada freight, flatbed hauling, freight brokerage and logistics, and others) provides our customers with the opportunity to "one-stop-shop" for their truckload transportation needs.

Revenue — We primarily generate revenue by transporting freight for our customers, generally at a predetermined rate per mile. We supplement this revenue by charging for fuel surcharges, stop-off pay, loading and unloading activities, tractor and trailer detention, and other ancillary services. The main factors that affect our revenue from transporting freight are the rate per mile we receive from our customers and loaded miles. The main factors that affect fuel surcharge revenue are the price of diesel fuel and the number of loaded miles. Fuel surcharges are billed on a lagging basis, meaning that we typically bill customers in the current week based on a previous week's applicable index. Therefore, in times of increasing fuel prices, we do not recover as much as we are currently paying for fuel. In periods of declining prices, the opposite is true.

Revenue in our non-reportable segments is generated by our non-asset-based freight brokerage and logistics management service, tractor leasing revenue from our financing subsidiaries, premium revenue from our captive insurance companies, and revenue from third parties serviced by our repair and maintenance shops. Main factors affecting revenue in our non-reportable segments are demand for brokerage and logistics services, as well as the number of equipment leases by our financing subsidiaries to the owner-operators we contract with and other third parties.

Expenses — Our most significant expenses vary with miles traveled and include fuel, driver-related expenses (such as wages and benefits), and services purchased from owner-operators and other transportation providers (such as railroads, drayage providers, and other trucking companies). Maintenance and tire expenses, as well as the cost of insurance and claims generally vary with the miles we travel, but also have a controllable component based on safety improvements, fleet age, efficiency, and other factors. Our primary fixed costs are depreciation and lease expense for revenue equipment and terminals, interest expense, and non-driver compensation.

Compared to changes in rate per mile and loaded miles, changes in deadhead miles percentage generally have the largest proportionate effect on our profitability because we still bear all of the expenses for each deadhead mile, but do not earn any revenue to offset those expenses. Changes in rate per mile have the next largest proportionate effect on profitability because incremental improvements in rate per mile are not offset by any additional expenses. Changes in loaded miles generally have a smaller effect on profitability because variable expenses fluctuate with changes in miles. However, changes in mileage are affected by driver satisfaction and network efficiency, which indirectly affect expenses.

Industry Environment — The truckload freight environment in 2016 has been challenging. Excess industry capacity, excess customer inventories, and depressed shipping demand have pressured volumes and pricing. We implemented the following initiatives to help counter the effects of these external factors:


•	We downsized our core truckload fleet in an effort to improve asset utilization.


•	We selectively increased our participation in the spot market to help offset the lack of available freight in certain markets. Our sales team remains heavily focused on increasing freight levels with both new and existing customer contracts, with the goal of eventually reducing our spot market activity.


•	We implemented several cost control initiatives throughout the organization, which include streamlining processes, reducing headcount, postponing non-critical system implementations, and reducing expenses in various other manners.

The impact on the Company is discussed in further detail, under "Results of Operations — Segment Review" and "Results of Operations — Operating and Other Expenses," below.

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Financial Overview



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(Dollars in thousands, except per share data)
GAAP financial data:
Operating revenue	$	1,011,854		$	1,059,404		$	1,979,677		$	2,074,548
Revenue xFSR	$	935,409		$	935,899		$	1,842,322		$	1,830,763
Net income	$	42,896		$	50,954		$	74,801		$	88,794
Diluted earnings per share	$	0.32		$	0.35		$	0.55		$	0.62
Operating Ratio	92.7		%	90.7		%	93.6		%	91.6		%
Non-GAAP financial data:
Adjusted EPS ⁽¹⁾	$	0.34		$	0.37		$	0.59		$	0.65
Adjusted Operating Ratio ⁽¹⁾	91.6		%	89.1		%	92.7		%	90.1		%
Adjusted EBITDA ⁽¹⁾	$	143,314		$	159,478		$	269,145		$	297,697

____________

(1)

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

Total Equipment — The following table summarizes our revenue equipment and supports the discussions and analyses below:



	June 30, 2016	December 31, 2015	June 30, 2015
Tractors
Company:
Owned	6,792	7,442	6,753
Leased – capital leases

Large accelerated filer

Accelerated filer

Non-accelerated filer

o (Do not check if a smaller reporting company)

Smaller reporting company