Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SWFT > SEC Filings for SWFT > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for SWIFT TRANSPORTATION CO

Form 10-Q for SWIFT TRANSPORTATION CO


8-Nov-2013

Quarterly Report


ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2012. Acquisition
On August 6, 2013, we entered into a Stock Purchase Agreement ("SPA") with the stockholders of Central Refrigerated Transportation, Inc. ("Central"), pursuant to which we acquired all the outstanding capital stock of Central (the "Acquisition") in a cash transaction valued at $225 million. Jerry Moyes, our Chief Executive Officer and controlling stockholder, was the majority stockholder of Central prior to the Acquisition. Given Mr. Moyes' controlling interest in both Swift and Central, the Acquisition was accounted for using the guidance for transactions between entities under common control as described in Accounting Standard Codification ("ASC") Topic 805 - "Business Combinations", in which we recognized the assets and liabilities of Central at their carrying amounts at the date of acquisition. Additionally, as a result of the common control accounting, the historical results of Central have been combined with our historical results and our financial statements have been retrospectively recast to reflect the accounts of Central as if it had been consolidated for all previous periods presented. The tables which follow for the three months and nine months ended September 30, 2013 and 2012 reflect the combination of the entities as if the Acquisition was effective January 1, 2012. Non-GAAP Measures
In addition to disclosing financial results that are determined in accordance with United States generally accepted accounting principles, or GAAP, we also disclose certain non-GAAP financial information, such as, adjusted operating ratio, adjusted EBITDA and adjusted EPS, which are not recognized measures under GAAP and should not be considered alternatives to or superior to profitability and cash flow measures derived in accordance with GAAP. We use adjusted operating ratio, adjusted EBITDA and adjusted EPS as a supplement to our GAAP results in evaluating certain aspects of our business, as described below. We believe our presentation of adjusted operating ratio, adjusted EBITDA and adjusted EPS is useful because it provides investors and securities analysts the same information that we use internally for purposes of assessing our core operating performance. See below for more information on our use of adjusted operating ratio, adjusted EBITDA and adjusted EPS, as well as a description of the computation and reconciliation of our operating ratio to our adjusted operating ratio, our net income to adjusted EBITDA and our diluted earnings per share to adjusted EPS.
We define adjusted operating ratio as (a) total operating expenses, less
(i) fuel surcharges, (ii) amortization of intangibles from our 2007 going-private transaction, (iii) non-cash impairment charges, (iv) other special non-cash items, and (v) excludable transaction costs, as a percentage of
(b) total revenue excluding fuel surcharge revenue (revenue xFSR). We believe fuel surcharge is sometimes volatile and eliminating the impact of this source of revenue (by netting fuel surcharge revenue against fuel expense) affords a more consistent basis for comparing our results of operations. We also believe excluding impairments, non-comparable nature of the intangibles from our going-private transaction and other special items enhances the comparability of our performance from period to period. A reconciliation of our adjusted operating ratio for each of the periods indicated is as follows:
                                            Three Months Ended September 30,          Nine Months Ended September 30,
                                                2013                  2012                2013                 2012
                                                                    (Recast)                                 (Recast)
                                                                          (Unaudited)
                                                                     (Dollars in thousands)
Total GAAP operating revenue            $       1,032,127       $      992,624     $      3,042,806       $  2,928,525
Less: Fuel surcharge revenue                      198,746              194,459              594,727            585,265
Revenue xFSR                                      833,381              798,165            2,448,079          2,343,260
Total GAAP operating expense                      947,707              915,434            2,788,402          2,692,713
Adjusted for:
Fuel surcharge revenue                           (198,746 )           (194,459 )           (594,727 )         (585,265 )
Amortization of certain intangibles
(a)                                                (3,912 )             (3,912 )            (11,736 )          (11,846 )
Non-cash impairments (b)                                -                    -                    -             (1,065 )
Acceleration of non-cash equity
compensation (c)                                     (887 )                  -                 (887 )                -
Adjusted operating expense                        744,162              717,063            2,181,052          2,094,537
Adjusted operating income               $          89,219       $       81,102     $        267,027       $    248,723
Adjusted operating ratio                             89.3 %               89.8 %               89.1 %             89.4 %
Operating ratio                                      91.8 %               92.2 %               91.6 %             91.9 %

(a) Amortization of certain intangibles reflects the non-cash amortization expense relating to certain intangible assets identified in our 2007 going private transaction.

(b) Real property with a carrying amount of $1.7 million was written down to its fair value of $0.6 million, resulting in a pre-tax impairment charge of $1.1 million in the first quarter of 2012.

(c) In the third quarter of 2013, Central incurred a $0.9 million one-time non-cash equity compensation charge for certain stock options that accelerated upon the closing of the Acquisition.


Table of Contents

We define adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) as net income (loss) plus (i) depreciation and amortization, (ii) interest and derivative interest expense, including other fees and charges associated with indebtedness, net of interest income,
(iii) income taxes, (iv) non-cash equity compensation expense, (v) non-cash impairments, (vi) other special non-cash items, and (vii) excludable transaction costs. We believe that adjusted EBITDA is a relevant measure for estimating the cash generated by our operations that would be available to cover capital expenditures, taxes, interest and other investments and that it enhances an investor's understanding of our financial performance. We use adjusted EBITDA for business planning purposes and in measuring our performance relative to that of our competitors. Our method of computing adjusted EBITDA is consistent with that used in our senior secured credit agreement for covenant compliance purposes and may differ from similarly titled measures of other companies. A reconciliation of GAAP net income to adjusted EBITDA for each of the periods indicated is as follows:

                                           Three Months Ended September 30,           Nine Months Ended September 30,
                                               2013                 2012                 2013                 2012
                                                                  (Recast)                                  (Recast)
                                                                           (Unaudited)
                                                                     (Dollars in thousands)
Net income                              $        29,953       $        33,656     $       110,124       $        85,403
Adjusted for:
Depreciation and amortization of
property and equipment                           58,254                53,994             170,004               164,354
Amortization of intangibles                       4,204                 4,203              12,611                12,721
Interest expense                                 24,595                29,102              75,719                93,530
Derivative interest expense                       1,465                   448               2,559                 5,101
Interest income                                    (604 )                (679 )            (1,741 )              (1,548 )
Income tax expense                               26,156                15,086              67,806                33,573
EBITDA                                          144,023               135,810             437,082               393,134
Non-cash equity compensation (a)                  1,967                 1,459               3,465                 4,315
Loss on debt extinguishment (b)                     496                     -               5,540                22,219
Non-cash impairments (c)                              -                     -                   -                 1,065
Excludable transaction costs (d)        $         4,331       $             -     $         4,331       $             -
Adjusted EBITDA                         $       150,817       $       137,269     $       450,418       $       420,733

(a) Represents recurring non-cash equity compensation expense on a pre-tax basis. In addition to the recurring non-cash equity compensation expense, in the third quarter of 2013, Central incurred a $0.9 million one-time non-cash equity compensation charge for certain options that accelerated upon the closing of the Acquisition. In accordance with the terms of our senior credit agreement, this expense is added back in the calculation of adjusted EBITDA for covenant compliance purposes.

(b) In association with the acquisition of Central noted above, on August 6, 2013, certain outstanding Central debt was paid-in full and extinguished, resulting in a loss on debt extinguishment of $0.5 million, representing the write-off of the remaining unamortized deferred financing fees. Additionally, on March 7, 2013, the Company entered into a Second Amended and Restated Credit Agreement ("2013 Agreement"). The 2013 Agreement replaced the then-existing first lien term loan B-1 and B-2 tranches under the Amended and Restated Credit Agreement ("2012 Agreement") entered into on March 6, 2012, with outstanding principal balances of $152.0 million and $508.0 million, respectively, with new first lien term loan B-1 and B-2 tranches with face values of $250.0 million and $410.0 million, respectively. The replacement of the 2012 Agreement resulted in a loss on debt extinguishment of $5.0 million in the first quarter of 2013, representing the write-off of the unamortized original issue discount and deferred financing fees associated with the 2012 Agreement. On May 21, 2012, the Company completed the call of its remaining $15.2 million face value 12.50% fixed rate notes due May 15, 2017, at a price of 106.25% of face value pursuant to the terms of the indenture governing the notes, resulting in a loss on debt extinguishment of $1.3 million, representing the call premium and write-off of the remaining unamortized deferred financing fees. The Company entered into the 2012 Agreement on March 6, 2012, which replaced the then-existing, remaining $874 million face value first lien term loan, maturing in December 2016, resulting in a loss on debt extinguishment of $20.9 million in the first quarter of 2012 representing the write-off of the unamortized original issue discount and deferred financing fees associated with the original term loan.

(c) Includes the item discussed in note (b) to the adjusted operating ratio table above.

(d) As a result of the acquisition of Central, both Swift and Central incurred transaction related expenses, including financial advisory and other professional fees, related to the Acquisition.

We define adjusted EPS as (1) income (loss) before income taxes plus
(i) amortization of the intangibles from our 2007 going private transaction,
(ii) non-cash impairments, (iii) other special non-cash items, (iv) excludable transaction costs, (v) the mark-to-market adjustment on our interest rate swaps that is recognized in the consolidated statement of operations in a given period, and (vi) the amortization of previous losses recorded in accumulated other comprehensive income ("OCI") related to interest rate swaps we terminated upon our IPO and refinancing transactions in December 2010; (2) reduced by income taxes; (3) divided by weighted average diluted shares outstanding. For all periods through 2012, we used a normalized tax rate of 39% in our adjusted EPS calculation due to the amortization of deferred tax assets related to our pre-IPO interest rate swap amortization and other items that we knew would cause fluctuations in our GAAP effective tax rate. Beginning in 2013, we began using our GAAP expected effective tax rate of 38.5% for our adjusted EPS calculation. We believe the presentation of financial results excluding the impact of the items noted above provides a consistent basis for comparing our results from period to period and to those of our peers due to the non-comparable nature of the intangibles from our going-private transaction, the historical volatility of the interest rate derivative agreements and the non-operating nature of the impairment charges, transaction costs and other adjustment items. A reconciliation of GAAP diluted earnings


Table of Contents

per share to adjusted EPS for each of the periods indicated is as follows (the numbers reflected in the below table are calculated on a per share basis and may not foot due to rounding):

                                          Three Months Ended September 30,     Nine Months Ended September 30,
                                                2013              2012               2013              2012
                                                                (Recast)                             (Recast)
                                                                      (Unaudited)
Diluted earnings per share               $           0.21     $      0.24     $           0.78     $     0.61
Adjusted for:
Income tax expense                                   0.18            0.11                 0.48           0.24
Income before income taxes                           0.39            0.35                 1.25           0.85
Non-cash impairments (a)                                -               -                    -           0.01
Loss on debt extinguishment (b)                         -               -                 0.04           0.16
Amortization of certain intangibles
(c)                                                  0.03            0.03                 0.08           0.08
Amortization of unrealized losses on
interest rate swaps (d)                                 -               -                    -           0.04
Acceleration of non-cash equity
compensation (e)                                     0.01               -                 0.01              -
Excludable transaction costs (f)                     0.03               -                 0.03              -
Adjusted income before income taxes                  0.47            0.38                 1.42           1.14
Provision for income tax expense at
effective rate                                       0.18            0.15                 0.55           0.44
Adjusted EPS                             $           0.29     $      0.23     $           0.87     $     0.70

(a) Includes the item discussed in note (b) to the adjusted operating ratio table above.

(b) Includes the items discussed in note (b) to the adjusted EBITDA table above.

(c) Includes the items discussed in note (a) to the adjusted operating ratio table above.

(d) Amortization of unrealized losses on interest rate swaps reflects the non-cash amortization expense of $0.4 million and $5.1 million for the three and nine months ended September 30, 2012, respectively, included in derivative interest expense in the consolidated statements of operations and is comprised of previous losses recorded in accumulated OCI related to the interest rate swaps we terminated upon our IPO and concurrent refinancing transactions in December 2010. Such losses were incurred in prior periods when hedge accounting applied to the swaps and are being expensed in relation to the hedged interest payments through the original maturity of the swaps in August 2012.

(e) Includes the item discussed in note (c) to the adjusted operating ratio table above.

(f) Includes the items discussed in note (d) to the adjusted EBITDA table above.

Overview We are a multi-faceted transportation services company and have the largest fleet of truckload equipment in North America. As of September 30, 2013, we operate a tractor fleet of approximately 18,400 units comprised of 13,350 tractors driven by company drivers and 5,050 owner-operator tractors, a fleet of 57,500 trailers, and 8,700 intermodal containers from 35 major terminals positioned near major freight centers and traffic lanes in the United States and Mexico. We offer customers the opportunity for "one-stop shopping" for their truckload transportation needs through a broad spectrum of services and equipment. Our extensive suite of services includes general, dedicated, and cross-border U.S./Mexico truckload services through dry van, temperature-controlled, flatbed, and specialized trailers, in addition to rail intermodal and non-asset based freight brokerage and logistics management services, making it an attractive choice for a broad array of customers. We principally operate in short-to-medium-haul traffic lanes around our terminals or 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. Our relatively short average length of haul also helps reduce competition from railroads and trucking companies that lack a regional presence.
The table below reflects our key operating and financial metrics for the periods indicated.

                                            Three Months Ended September 30,          Nine Months Ended September 30,
                                                2013                  2012                2013                 2012
                                                                    (Recast)                                 (Recast)
                                                                          (Unaudited)
                                                        (Dollars in thousands, except per share amounts)
Total operating revenue                 $       1,032,127       $      992,624     $      3,042,806       $  2,928,525
Revenue xFSR                            $         833,381       $      798,165     $      2,448,079       $  2,343,260
Net income                              $          29,953       $       33,656     $        110,124       $     85,403
Diluted earnings per share              $            0.21       $         0.24     $           0.78       $       0.61
Operating ratio                                      91.8 %               92.2 %               91.6 %             91.9 %
Adjusted operating ratio                             89.3 %               89.8 %               89.1 %             89.4 %
Adjusted EBITDA                         $         150,817       $      137,269     $        450,418       $    420,733
Adjusted EPS                            $            0.29       $         0.23     $           0.87       $       0.70


Table of Contents

Revenue
We primarily generate revenue by transporting freight for our customers. Generally, we are paid a predetermined rate per mile for our services. We enhance our revenue by charging for fuel surcharges, stop-off pay, loading and unloading activities, tractor and trailer detention, and other ancillary services. The main factors that affect our revenue are the rate per mile we receive from our customers and the number of loaded miles we run. Fuel surcharges are designed to compensate us for fuel costs above a certain cost per gallon base. Generally, we receive fuel surcharges on the miles for which we are compensated by customers. However, we continue to have exposure to increasing fuel costs related to deadhead miles, fuel inefficiency due to engine idle time, and other factors as well as the extent to which the surcharge paid by the customer is insufficient. The main factors that affect fuel surcharge revenue are the price of diesel fuel and the number of loaded miles. Although our surcharge programs vary by customer, we endeavor to negotiate an additional penny per mile charge for every five cent increase in the United States Department of Energy, or DOE, national average diesel fuel index over an agreed baseline price. In some instances, customers choose to incorporate the additional charge by splitting the impact between the basic rate per mile and the surcharge fee. In addition, we have moved much of our West Coast customer activity to a surcharge program that is indexed to the DOE's West Coast average diesel fuel index as diesel fuel prices in the western United States generally are higher than the national average index. Our fuel surcharges are billed on a lagging basis, meaning we typically bill customers in the current week based on a previous week's applicable index. Therefore, in times of increasing fuel prices, we do not recover as much as we are paying current day prices for fuel, but billing based on a lagging index. In periods of declining prices, the opposite is true.
Revenue in our non-reportable segment is generated by our non-asset based freight brokerage and logistics management service, tractor leasing revenue of Interstate Equipment Leasing ("IEL"), premium revenue generated by our captive insurance companies, and other revenue generated by our repair and maintenance shops. The main factors that affect the revenue in our non-reportable segment are demand for brokerage and logistics services and the number of owner-operators leasing equipment from us. Expenses
The most significant expenses in our business vary with miles traveled and include fuel, driver-related expenses (such as wages and benefits) and services purchased from owner-operators and other transportation providers, such as the railroads, drayage providers, and other trucking companies (which are recorded on the "Purchased transportation" line of our consolidated statements of operations). Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety improvements, fleet age, efficiency, and other factors. Our main fixed costs are depreciation and lease expense of long-term assets, such as tractors, trailers, containers, and terminals, interest expense, and the compensation of non-driver personnel.
A significant portion of our expenses are either fully or partially variable based on the number of miles traveled, changes in weekly revenue per tractor, excluding fuel surcharge revenue ("weekly revenue xFSR per tractor") caused by increases or decreases in deadhead miles percentage, rate per mile and loaded miles have varying effects on our profitability. In general, changes in deadhead miles percentage have the largest proportionate effect on profitability because we still bear all of the expenses for each deadhead mile but do not earn any revenue to offset those expenses. Changes in rate per mile have the next largest proportionate effect on profitability because incremental improvements in rate per mile are not offset by any additional expenses. Changes in loaded miles generally have a smaller effect on profitability because variable expenses increase or decrease with changes in miles. However, items such as driver and owner-operator satisfaction and network efficiency are affected by changes in mileage and have significant indirect effects on expenses.
In general, our miles per tractor per week, rate per mile, and deadhead miles percentage are affected by industry-wide freight volumes, industry-wide trucking capacity and the competitive environment, which factors are beyond our control, as well as by our service levels, planning, and discipline of our operations, over which we have significant control.
Results of Operations for the Three and Nine Months Ended September 30, 2013 and 2012 Factors Affecting Comparability between Periods Three months ended September 30, 2013 results of operations Net income for the three months ended September 30, 2013 was $30.0 million. Items during the 2013 period impacting comparability between the third quarter of 2013 and the corresponding 2012 period include the following:
$4.5 million reduction in interest expense for the three months ended September 30, 2013 compared to the corresponding period in 2012 resulting from the replacement of our previous Amended and Restated Credit Agreement in the first quarter of 2013;

$4.3 million in merger and acquisition expense for financial advisory and other professional fees related to the Acquisition;

$0.5 million in loss on debt extinguishment resulting from certain outstanding Central debt paid in full and extinguished at the closing of the Acquisition; and

$0.9 million in one-time non-cash equity compensation charge incurred by Central for certain stock options that accelerated upon closing of the Acquisition.

Nine months ended September 30, 2013 results of operations Net income for the nine months ended September 30, 2013 was $110.1 million. Items during the 2013 period impacting comparability between the nine months ended September 30, 2013 and the corresponding 2012 period include the following:
$17.8 million reduction in interest expense for the nine months ended September 30, 2013 compared to the corresponding period in 2012 resulting from the replacement of our previous Amended and Restated Credit Agreement in the first quarter of 2013 and our voluntary debt repayments;

$6.9 million gain on the sale of three properties classified as held for sale;

$4.3 million in merger and acquisition expense for financial advisory and other professional fees related to the Acquisition;


Table of Contents

$0.9 million in one-time non-cash equity compensation charge incurred by Central for certain stock options that accelerated upon closing of the Acquisition; and

$5.5 million loss on debt extinguishment resulting from the repayment of certain outstanding Central debt in full at closing of the Acquistion, resulting in a loss on debt extinguishment of $0.5 million, and $5.0 million from the replacement of our previous Amended and Restated Credit Agreement in the first quarter of 2013.

Nine months ended September 30, 2012 results of operations Net income for the nine months ended September 30, 2012 was $85.4 million. Items during the 2012 period impacting comparability between the first nine months of 2012 and the corresponding 2013 period include the following:
$22.2 million loss on debt extinguishment resulting from the call of its . . .

  Add SWFT to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SWFT - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.